STOCK FUNDS ANNUAL REPORT
YEAR ENDED JUNE 30, 1998
A FAMILY OF 100% NO-LOAD FUNDS
------------------------------
LARGE CAP GROWTH FUND
MID CAP GROWTH FUND
SMALL CAP GROWTH FUND
BALANCED FUND
INTERNATIONAL GROWTH FUND
DEVELOPING MARKETS GROWTH FUND
REGIONAL GROWTH FUND
SCIENCE AND TECHNOLOGY GROWTH FUND
[LOGO]
SIT MUTUAL FUNDS
THE INVESTMENT IS MUTUAL
<PAGE>
SIT MUTUAL FUNDS
STOCK FUNDS ANNUAL REPORT
TABLE OF CONTENTS
Page
----
Chairman's Letter.............................................. 2
Performance Review............................................. 4
Fund Reviews and Portfolios of Investments
Large Cap Growth Fund.................................... 6
Mid Cap Growth Fund...................................... 10
Small Cap Growth Fund.................................... 14
Balanced Fund............................................ 18
International Growth Fund................................ 22
Developing Markets Growth Fund........................... 26
Regional Growth Fund..................................... 30
Science and Technology Growth Fund....................... 34
Notes to Portfolios of Investments............................. 37
Statements of Assets and Liabilities........................... 38
Statements of Operations....................................... 40
Statements of Changes in Net Assets............................ 42
Notes to Financial Statements.................................. 46
Financial Highlights........................................... 51
Independent Auditors' Report................................... 59
Federal Income Tax Information................................. 60
This document must be preceded or accompanied by a Prospectus.
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - YEAR ENDED JUNE 30, 1998
[PHOTO]
Dear Fellow Shareholders:
Domestic equity returns were robust during the first half of 1998, continuing
the trend of the prior three years. International equity returns however were
decidedly mixed. The crisis in Asia has affected stock markets and economies
worldwide in myriad ways creating a most interesting investment environment.
Economic Overview
At his June 10th Joint Economic Committee testimony, Federal Reserve Chairman
Alan Greenspan gave the economy glowing praise saying, "The current economic
performance, with its combination of strong growth and low inflation, is as
impressive as any I have witnessed in my near half-century of daily
observation." While we agree, risks do exist, which are discussed below.
With the consumer leading the way, GDP growth has been very strong over the
past four quarters. Quarter-to-quarter annualized growth over this period
measured +3.1%, +3.7%, +5.5% and +1.4%. Growth was constrained in the most
recent quarter by the just-settled strike at General Motors. Underlying consumer
spending trends remain strong. There are few reasons to believe that the
consumer juggernaut is likely to grind to a halt over the near term. Personal
income and disposable personal income, the sources of spending, are advancing at
rates consistent with or slightly higher than those of the past 18 months. The
primary risk to continued strong economic growth remains Asia where many
economies are experiencing sharp decelerations. While the U.S. trade deficit's
deterioration is not as serious structurally as in the 1980s, GDP figures may
still be impacted. We believe U.S. real GDP growth will measure +2.5% during
1998's second half.
One year ago, Thailand floated the baht, the action that was subsequently
seen as triggering the Pacific region's economic crisis. Recently, with the
Japanese yen having weakened from 115 to 145 to the dollar, the U.S. intervened
in currency markets jointly with Japan to sell dollars and buy yen. We believe
that this and any further interventions will be insufficient to correct Japan's
inherent problems without meaningful internal structural changes. Despite the
dramatic change in the yen-dollar exchange rate, the dollar has strengthened
just 5.7% versus a trade-weighted basket of currencies representing the G-10
nations and Switzerland over the past year.
The dollar's strength dampens inflation as imports become cheaper in dollar
terms. Inflation news has been very good, but several indices have reached
year-over-year rates of change that have been associated with cyclical bottoms
in the past. This is especially true for industrial and commodity price indices
including the NAPM Prices Paid Index, currently at a 12-year-low, and the
Commerce Department's Producer Price Index for Crude Materials. Even the
Consumer Price Index appears to have reached an intermediate bottom as the May
year-over-year figure of +1.7% represented an increase over the average +1.4%
gain for February through April. Our expectations are that the CPI will continue
to show +1.7% to +1.8% readings over the next several months. This is a very low
rate in a historical perspective, but does suggest a reversal in the trend of
declining inflation.
Remarkably, there has been no change in the 5.50% federal funds rate since
our last annual letter to you in June 1997. Despite the rosy scenario
articulated by Chairman Greenspan mentioned above, the Federal Reserve is
"remaining watchful for signs of potential inflationary imbalances." As long as
overall inflation remains dormant and the Asian economies continue to show
weakness, we expect the Fed to maintain its policy of neutrality, but with a
bias toward tightening.
With regard to the U.S. fiscal policy, the Congressional Budget Office raised
its estimates of the fiscal 1998 budget surplus to a range of $43 billion to $63
billion, but many private forecasters are estimating $80 billion to $90 billion.
A surplus of $175 billion is possible in fiscal 1999. As a percentage of GDP,
this would be a net surplus of +2% of GDP, representing a 6.7 percentage point
swing from the record deficit year of 1992 when the deficit was -4.7% of GDP.
While booming financial markets have produced huge capital gains for taxation
purposes, wage and salary withholding have been growing nearly ten percent
reflecting high levels of employment and a strong economy.
A regional recession has enveloped Asia and adverse spillover effects are
being felt outside the region, particularly in countries dependent on the sale
of commodities. In a rapid decline, the Japanese yen reached an eight-year low
versus the U.S. dollar. Financial reforms are proceeding at a slow pace hindered
by strained financial resources in the rest of the region and political
considerations. Conversely,
2
<PAGE>
economic momentum continues to accelerate in Europe driven by declining interest
rates and unemployment and the wealth effects of strongly rising equity markets.
Privatization and corporate restructurings on the continent are other structural
positives.
Equity Strategy Summary
Equity returns for the Sit Mutual Funds varied widely over the past year. The
Sit Large Cap Growth Fund advanced by +35.3% while the Sit Developing Markets
Growth Fund struggled. Of course, each had very different investment climates in
which to participate. We are proud to report both funds topped their respective
benchmarks by at least five percentage points, in fact the Developing Markets
Fund surpassed the return of the MSCI Emerging Markets Free Index by nearly ten
percentage points. This may seem small solace considering the overall negative
return, but we continued to work hard to find the best opportunities in even the
most difficult market conditions.
In our December, 1997 Semi-Annual Report letter to you, we stated our opinion
that it was unlikely that the +31.2% annualized rate achieved by the S&P 500
over the previous three years would continue. The first half of 1998, however,
proved us wrong with the S&P 500 advancing +17.7%, which if matched in the
second half of the year would imply a +38.5% return for the year. But, this
extraordinary performance has left valuations extended. Measurements such as
price-earnings, price-to-book, dividend yield and aggregate stock-values-to-GDP
ratios are all at high levels.
Declining interest rates have been a key support for the equity market's
advance. Our contention that inflation rates have likely bottomed may make
further interest rate declines less probable. In addition, falling earnings
estimates create room for a market disappointment. We are monitoring both these
variables closely.
Given the fact that consensus S&P 500 profit estimates are moderating, we
have been vigilantly assessing earnings growth rates for our domestic equity
funds. The 5-year projected growth rates for our Large Cap Growth, Mid Cap
Growth and Small Cap Growth Funds actually accelerated over the past year. We
believe this key characteristic was a driver of the outperformance each fund
achieved on a year-to-date basis and gives rise to confidence for the rest of
1998. Technology, health care, financial services, retail and business equipment
and services are our favored sectors.
Internationally, emerging market risk continues to be high as Asia's
recession deepens. Latin American markets have clearly been affected by Asia's
problems. European markets could undergo a temporary correction due to the
ripple effects from the economic and market weakness in Asia and Russia and
simply pause after a stellar +26.5% return in the first half of 1998. But,
increased capital flows to Europe from Asia should continue, as return on
capital in Asia is nearly invisible. Additionally, European Monetary Union (EMU)
and increased funds from changing pension systems should be powerful positive
secular events. As is the case domestically, European valuations are stretched
in historic terms, but may not be out of line given low and declining interest
rates and a bright earnings growth picture.
Finally, we would like to note independent third party recognition that many
of the Sit Mutual Funds have recently received. We are proud and pleased by this
recognition as it means knowledgeable sources judge that we are doing a good job
for our shareholders. Morningstar, Inc.* recently granted the Sit Large Cap
Growth Fund a five-star ranking out of 2,564 funds in the domestic stock
category for the 3-year period ended June 30, 1998 and four of our funds were
referenced in FORTUNE Magazine's list of the 221 best mutual funds in the August
17th issue.
Thank you for investing with us.
With best wishes,
/s/ Eugene C. Sit
- --------------------------------------
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
August 10, 1998
*Morningstar proprietary ratings reflect historical risk adjusted performance
through 6/30/98. These ratings are subject to change monthly and are calculated
from the fund's 3-, 5- and 10-year average annual returns in excess of 90-day
Treasury bill returns with appropriate fee adjustments and a risk factor that
reflects fund performance below 90-day Treasury bill returns. Ten percent of the
funds in an investment category receive 5 stars, 22.5% receive 4 stars. Sit
Large Cap Growth has a 5-star rating for the 3- and 5-year periods out of 2,564
and 1,481 funds, respectively, and a 4-star rating for the 10-year period out of
726 funds in the domestic stock category.
3
<PAGE>
SIT MUTUAL FUNDS
YEAR ENDED JUNE 30, 1998 PERFORMANCE REVIEW - STOCK FUNDS
STOCK FUNDS REVIEW
Equity returns varied widely over the past twelve months in terms of
capitalization size, investment style and geography.
In the United States, large cap stocks continued to perform best, largely
driven by investors desiring liquidity in an increasingly volatile market. Also,
international investors are allocating additional assets to the U.S. and appear
to be gravitating toward the largest stocks. In fact, on a year-to-date basis,
the top fifty stocks in the S&P 500 have contributed the majority of that
Index's return. Another factor that supported large cap relative performance was
superior earnings growth, though this may be changing. Several high profile
multinationals, including Boeing, Disney and DuPont, have reported disappointing
results due to adverse currency translation from a strengthening dollar and
slack Asian demand. For the year ended June 30, 1998, the large capitalization
S&P 500 Index advanced +30.2% compared with the S&P MidCap 400 Index's return of
+27.2% and a +16.5% result for the small cap Russell 2000 Index.
Large Cap growth stocks outperformed value stocks with returns of +31.4% and
+28.8%, respectively, as measured by the respective Russell 1000 indices. The
advantage was reversed in the Small Cap Russell 2000 Index as the growth segment
rose +13.2% and the value component +19.9%.
International investing was a case of feast or famine over the year ended
June 30, 1998. The year correlated nearly exactly with the timing of the
devaluation of Thailand's baht, which precipitated the crisis in Asia. The MSCI
Europe Index moved up +37.1%, but the MSCI Pacific Index dropped by -34.6%. We
believe Europe will benefit the from the upcoming monetary union and corporate
restructuring while Asian nations will continue to suffer from structural
challenges.
1986 1987 1988
----- ----- -----
SIT LARGE CAP GROWTH 21.83% 5.32% 5.33%
SIT MID CAP GROWTH 10.33 5.50 9.77
SIT SMALL CAP GROWTH ---- ---- ----
SIT BALANCED ---- ---- ----
SIT INTERNATIONAL GROWTH ---- ---- ----
SIT DEVELOPING MARKETS GROWTH ---- ---- ----
SIT REGIONAL GROWTH FUND ---- ---- ----
SIT SCIENCE & TECHNOLOGY GROWTH ---- ---- ----
S&P 500 INDEX 18.64 5.28 16.55
S&P MIDCAP 400 INDEX 16.21 -2.04 20.87
RUSSELL 2000 INDEX (2) -- -- --
EAFE INDEX(3) -- -- --
MSCI EMERGING MARKETS FREE INDEX(4) -- -- --
PSE TECHNOLOGY 100 INDEX -- -- --
NASDAQ
SYMBOL INCEPTION
SIT LARGE CAP GROWTH SNIGX 09/02/82
SIT MID CAP GROWTH NBNGX 09/02/82
SIT SMALL CAP GROWTH SSMGX 07/01/94
SIT BALANCED SIBAX 12/31/93
SIT INTERNATIONAL GROWTH SNGRX 11/01/91
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
SIT REGIONAL GROWTH FUND N/A 12/31/97
SIT SCIENCE & TECHNOLOGY GROWTH N/A 12/31/97
S&P 500 INDEX(5)
S&P MIDCAP 400 INDEX(5)
RUSSELL 2000 INDEX(2)
EAFE INDEX(3)
MSCI EMERGING MARKETS FREE INDEX(4)
PSE TECHNOLOGY 100 INDEX
(1) Period from Fund inception through calendar year-end.
(2) Figures assume an inception date of 7/1/94.
(3) Figures assume an inception date of 10/31/91.
(4) Figures assume an inception date of 6/30/94.
(5) Figures assume an inception date of 9/2/82.
4
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<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR
- --------------------------------------------------------------------------------------------------- YTD
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32.02% -2.37% 32.72% 4.94% 3.15% 2.83% 31.66% 23.05% 31.70% 23.23%
35.15 -2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 12.25
---- ---- ---- ---- ---- 11.57(1) 52.16 14.97 7.63 6.38
---- ---- ---- ---- ---- -0.33 25.43 15.80 21.73 14.81
---- ---- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 15.79
---- ---- ---- ---- ---- -2.02(1) -4.29 17.27 -5.20 -12.56
---- ---- ---- ---- ---- ---- ---- ---- ---- 12.60
---- ---- ---- ---- ---- ---- ---- ---- ---- 17.70
31.61 -3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 17.71
35.55 -5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 8.63
-- -- -- -- -- 4.61 28.45 16.49 22.36 4.93
-- -- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 15.93
-- -- -- -- -- 2.80 -6.94 3.92 -13.40 -19.87
-- -- -- -- -- -- -- -- -- 19.06
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED JUNE 30, 1998
TOTAL RETURN -----------------------------------------------------------------
QUARTER SIX MONTHS SINCE
ENDED 6/30/98 ENDED 6/30/98 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
--------------------------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
6.70% 23.23% 35.33% 30.64% 22.87% 17.27% 17.16%
-1.20 12.25 22.19 23.97 18.47 16.92 19.26
-1.31 6.38 11.70 18.12 ---- ---- 22.27
4.63 14.81 23.95 21.17 ---- ---- 16.96
0.37 15.79 7.50 11.51 13.38 ---- 12.96
-18.91 -12.56 -30.52 -1.21 ---- ---- -2.29
1.17 12.60 ---- ---- ---- ---- 12.60
5.47 17.70 ---- ---- ---- ---- 17.70
3.30 17.71 30.17 30.24 23.08 18.56 18.99
-2.14 8.63 27.15 24.01 18.45 18.36 18.99
-4.66 4.93 16.51 18.86 -- -- 19.07
1.06 15.93 6.10 10.69 10.03 -- 8.76
-24.20 -19.87 -40.35 -11.16 -- -- -8.86
-0.01 19.06 -- -- -- -- 19.06
</TABLE>
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR A
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
5
<PAGE>
SIT LARGE CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1998
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
RONALD D. SIT, CFA
PORTFOLIO MANAGER
Based on performance through June 30, 1998, the Sit Large Cap Growth Fund
received Morningstar's(1) highest rating of 5 stars among 2,564 funds in the
domestic stock fund category for the 3-year time period.
The Sit Large Cap Growth Fund posted strong performance during the fiscal
year ended June 30, 1998. The Fund's total return of +35.3% compared favorably
with the +22.1% return of the Lipper Growth & Income Fund Index, and ranked in
the 2nd percentile out of 667 such funds. For 5 years, the Fund's +22.9% return
was in the 4th percentile and for 10 years its +17.3% return was in the 18th
percentile.
The U.S. stock market recorded its unprecedented fourth consecutive year of
+30% total returns over the past 12 months driven by a continuing strong
economy, better-than-expected inflation and satisfactory profit gains, which
more than offset impacts of the Asian financial crisis. We expect economic
growth to slow in the period ahead and believe this environment will highlight
the relative attractiveness of companies with strong and predictable earnings
growth rates. The average 1998 earnings gain projected for the companies held in
the Fund is +18.9%, which is significantly higher than the broad market's +8.1%
expected increase.
As of June 30th, the Fund was 96% invested in equities. Significant industry
weighting changes during the year included increases in the retail sector, where
we added Dayton Hudson and Lowe's Companies, and the utility sector, where we
added AirTouch Communications, Cincinnati Bell and WorldCom. Reductions occurred
in the health care sector, where we sold Amgen, Johnson & Johnson and Oxford
Health Plans, and the consumer non-durables sector, where we eliminated Campbell
Soup and Philip Morris. Technology, health care and financial services remain
the three most heavily weighted sectors.
Assets in the Large Cap Growth Fund totaled $117.5 million at the end of
June, up from $72.2 million a year ago. We greatly appreciate shareholders'
continued interest and participation in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The objective of the Sit Large Cap Growth Fund is to achieve long-term
capital appreciation and, secondarily, current income. The Fund pursues this
objective by investing primarily in common stocks of medium to large size growth
companies. As of June 30, 1998, the Fund was invested exclusively in such
securities.
PORTFOLIO SUMMARY
-----------------
Net Asset Value 6/30/98: $49.34 Per Share
6/30/97: $40.39 Per Share
Total Net Assets: $117.50 Million
TOTAL DIVIDEND: $4.24 PER SHARE
Long-Term Capital Gain: $4.16 Per Share
Short-Term Capital Gain: $0.01 Per Share
Income: $0.07 Per Share
PORTFOLIO STRUCTURE
-------------------
(% of total net assets)
[BAR GRAPH]
Technology 20.2
Health Care 15.0
Financial 13.4
Retail 11.2
Consumer Non-Durables 6.8
Consumer Services 5.7
Capital Goods 5.3
Utilities 5.2
Business Equip. & Services 4.5
Energy 4.1
Transportation 1.9
Raw Materials 1.9
Consumer Durables 0.8
Other Assets and Liabilities 4.0
6
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<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------------- ----------------------------------------
Large Cap Russell 1000 S&P Large Cap Russell 1000 S&P
Growth Fund Growth Index 500 Index Growth Fund Growth Index 500 Index
----------- ------------ --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months 6.70% 4.54% 3.30% 6.70% 4.54% 3.30%
(not annualized)
1 Year 35.33 31.39 30.17 35.33 31.39 30.17
5 Years 22.87 23.48 23.08 180.04 187.07 182.41
10 Years 17.27 19.15 18.56 392.06 476.86 448.78
Inception 17.16 18.34 18.99 1128.56 1341.00 1469.99
(9/2/82)
</TABLE>
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 AND RUSSELL 1000
GROWTH INDICES. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER
ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. ON
6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO OF 100%
STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO MORE THAN
80% STOCKS.
(1) MORNINGSTAR PROPRIETARY RATINGS REFLECT HISTORICAL RISK ADJUSTED
PERFORMANCE THROUGH 6/30/98. THESE RATINGS ARE SUBJECT TO CHANGE MONTHLY AND ARE
CALCULATED FROM THE FUND'S 3-, 5- AND 10-YEAR AVERAGE ANNUAL RETURNS IN EXCESS
OF 90-DAY TREASURY BILL RETURNS WITH APPROPRIATE FEE ADJUSTMENTS AND A RISK
FACTOR THAT REFLECTS FUND PERFORMANCE BELOW 90-DAY TREASURY BILL RETURNS. TEN
PERCENT OF THE FUNDS IN AN INVESTMENT CATEGORY RECEIVE 5 STARS, 22.5 % RECEIVE 4
STARS. SIT LARGE CAP GROWTH HAS A 5-STAR RATING FOR THE 3- AND 5-YEAR PERIODS
OUT OF 2,564 AND 1,481 FUNDS, RESPECTIVELY, AND A 4-STAR RATING FOR THE 10-YEAR
PERIOD OUT OF 726 FUNDS IN THE DOMESTIC STOCK CATEGORY.
GROWTH OF $10,000
-----------------
[PLOT POINTS GRAPH]
SIT LARGE CAP GROWTH FUND
S&P 500 INDEX
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/98 would
have grown to $122,856 in the Fund, $156,999 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
-------------------
* Dayton Hudson Corp.
* Cisco Systems, Inc.
* General Electric Co.
* AirTouch Communications, Inc.
* Mercury General Corp.
* Pfizer, Inc.
* Microsoft Corp.
* Schlumberger, Ltd.
* Merck & Co., Inc.
* Home Depot, Inc.
Total number of holdings: 69
7
<PAGE>
SIT LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (96.0%) (2)
BUSINESS EQUIPMENT & SERVICES (4.5%)
34,000 Ceridian Corp. (3) $1,997,500
15,000 Computer Sciences Corp. (3) 960,000
25,125 Paychex, Inc. 1,022,273
13,500 Xerox Corp. 1,371,938
------------
5,351,711
------------
CAPITAL GOODS (5.3%)
42,000 General Electric Co. 3,822,000
10,000 Owens Corning Corp. 408,125
16,500 Sundstrand Corp. 944,625
19,500 Tyco International, Ltd. 1,228,500
------------
6,403,250
------------
CONSUMER DURABLES (0.8%)
24,000 Harley-Davidson, Inc. 930,000
------------
CONSUMER NON-DURABLES (6.8%)
27,000 Coca Cola Co. 2,308,500
10,000 Crown Cork & Seal Company, Inc. (3) 475,000
33,000 Gillette Co. 1,870,688
13,000 Pioneer Hi-Bred International, Inc. 537,875
18,500 Proctor & Gamble Co. 1,684,656
14,000 Unilever, N.V. 1,105,125
------------
7,981,844
------------
CONSUMER SERVICES (5.7%)
51,000 CBS Corp. (3) 1,619,250
50,000 Cendant Co. (3) 1,043,750
50,000 Marriott International, Inc. - Class A (3) 1,618,750
16,000 Time Warner, Inc. 1,367,000
17,000 Viacom, Inc. - Class B (3) 990,250
------------
6,639,000
------------
ENERGY (4.1%)
12,500 Anadarko Petroleum Corp. 839,844
45,000 Schlumberger, Ltd. 3,074,063
19,500 Transocean Offshore, Inc. 867,750
------------
4,781,657
------------
FINANCIAL (13.4%)
BANKING (3.8%)
17,000 Chase Manhattan Corp. 1,283,500
9,000 Citicorp 1,343,250
48,000 Norwest Corp. 1,794,000
------------
4,420,750
------------
FINANCIAL SERVICES (2.6%)
15,000 Associates First Capital Corp. 1,153,125
22,000 Federal Home Loan Mortgage Corp. 1,035,375
16,000 Franklin Resources, Inc. 864,000
------------
3,052,500
------------
INSURANCE (7.0%)
15,000 American International Group, Inc. $2,190,000
14,000 Equitable Companies, Inc. 1,048,250
22,500 EXEL, Ltd. 1,750,781
50,500 Mercury General Corp. 3,247,781
------------
8,236,812
------------
HEALTH CARE (15.0%)
BIOTECHNOLOGY/ PHARMACEUTICALS (10.9%)
16,000 Bristol-Myers Squibb Co. 1,839,000
25,000 Eli Lilly & Co. 1,651,563
21,500 Merck & Co., Inc. 2,875,625
29,500 Pfizer, Inc. 3,206,281
13,000 SmithKline Beecham, A.D.R. 786,500
34,500 Warner Lambert Corp. 2,393,438
------------
12,752,407
------------
MEDICAL EQUIPMENT/ SUPPLIES (1.8%)
25,000 Medtronic, Inc. 1,593,750
15,000 Stryker Corp. 575,625
------------
2,169,375
------------
MEDICAL FACILITIES MANAGEMENT (2.3%)
63,500 HBO & Co. 2,238,375
16,000 HEALTHSOUTH Corp. (3) 427,000
------------
2,665,375
------------
RAW MATERIALS (1.9%)
39,000 Monsanto Co. 2,179,125
------------
RETAIL (11.2%)
107,000 Dayton Hudson Corp. 5,189,500
21,000 Gap, Inc. 1,294,125
29,250 Home Depot, Inc. 2,429,578
25,000 Kohl's Corp. (3) 1,296,875
25,000 Lowe's Companies, Inc. 1,014,063
48,000 Walgreen Co. 1,983,000
------------
13,207,141
------------
TECHNOLOGY (20.2%)
COMPUTER RELATED (2.1%)
7,000 Dell Computer Corp. (3) 649,688
40,000 EMC Corp. (3) 1,792,500
------------
2,442,188
------------
COMPUTER SOFTWARE/ SERVICES (7.6%)
38,550 Computer Associates International, Inc. 2,141,934
28,500 Microsoft Corp. (3) 3,088,688
40,500 Parametric Technology Co. (3) 1,098,562
28,000 Peoplesoft, Inc. (3) 1,316,000
5,500 SAP, A.D.S. (4) 1,237,500
------------
8,882,684
------------
SEMICONDUCTORS & RELATED (1.9%)
21,700 Intel Corp. 1,608,512
11,500 Texas Instruments, Inc. 670,594
------------
2,279,106
------------
8
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS & EQUIPMENT (8.6%)
27,500 ADC Telecommunications, Inc.(3) $1,004,609
22,500 Ascend Communications, Inc.(3) 1,115,156
20,000 Ciena Corp. (3) 1,392,500
44,250 Cisco Systems, Inc. (3) 4,073,766
16,000 Lucent Technologies, Inc. 1,331,000
16,500 Tellabs, Inc. (3) 1,181,812
------------
10,098,843
------------
TRANSPORTATION (1.9%)
27,500 AMR Corp. (3) 2,289,375
------------
UTILITIES (5.2%)
60,000 AirTouch Communications, Inc.(3) 3,506,250
30,000 Cincinnati Bell, Inc. 858,750
35,000 WorldCom, Inc. (3) 1,695,312
------------
6,060,312
------------
Total common stocks
(cost: $70,273,973) 112,823,455
------------
SHORT-TERM SECURITIES (10.3%)(2)
1,600,000 American Express Credit Corp.,
5.57%, 7/1/98 1,600,000
700,000 Federal Natl. Mtg. Assoc.,
5.60%, 7/2/98 699,891
1,435,000 General Electric Capital Corp.,
5.80%, 7/7/98 1,433,613
1,250,000 General Electric Co.,
5.58%, 7/6/98 1,249,031
General Motors Accept Corp.:
1,752,000 5.62%, 7/3/98 1,751,453
1,691,000 5.58%, 7/6/98 1,689,689
1,262,000 Household Finance Corp.,
5.54%, 7/2/98 1,261,806
1,452,000 Sears Roebuck Accept. Corp.,
5.90%, 7/2/98 1,451,762
1,000,000 Sit Money Market Fund,
5.30% (6) 1,000,000
------------
Total short-term securities
(cost: $12,137,245) 12,137,245
------------
Total investments in securities
(cost: $82,411,218)(8) $124,960,700
============
See accompanying notes to portfolios of investments on page 37.
9
<PAGE>
SIT MID CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30,1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ERIK S. ANDERSON, CFA
PORTFOLIO MANAGER
A return of +22.2% was posted by the Sit Mid Cap Growth Fund for the period
ended June 30, 1998. The positive outcome was driven by investment in financial
sector stocks, which advanced +43.8% on average and comprised 16.7% of the
portfolio at June 30, and retail stocks which moved ahead +69.3% on average and
made up 11.9% of the Fund. Kohl's Corp. enjoyed the strongest advance in retail
rising +96.7% making it one of the top five holdings in the Fund. Other
noteworthy gains were posted by Dendrite International and Legato Systems,
rising +128.0% and +321.6%, respectively.
Our allocation to retail stocks increased markedly over the past year, from
2.3% to 11.9%. Consumer confidence is high, spending is robust and these
companies are sheltered from much of Asia's turmoil. Indeed, some retailers like
Pier 1 Imports benefit from lower costs of goods sourced from the Far East.
Technology, business equipment & services, financial and health care are the
four most heavily weighted sectors, just as they were a year ago, although the
allocation to technology has decreased -5.6% and to business equipment &
services has increased by +4.2%. We will continue to employ sector rotation to
capitalize on prevailing opportunities.
Slowing earnings growth for the market has led to mid cap growth stocks
outperforming value stocks thus far in 1998. We expect this trend to continue.
Despite slowing overall growth, earnings growth for stocks in the Fund remains
high at a forecasted rate of +25.8% and +25.4% for 1998 and 1999, respectively.
Despite forecasted earnings growth of three times that of the market, stocks
held in the Fund possess a price-to-earnings ratio (based on 1999 earnings
estimates) of 24.4 times, actually below that of the market. Attractive
valuations and stalwart growth prospects make us optimistic about the Fund's
outlook.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The objective of the Sit Mid Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in the
common stocks of small and medium-size emerging growth companies before they
become well recognized.
The Fund may invest in larger companies which offer improved growth
possibilities because of rejuvenated management, changes in product or some
other development that might stimulate earnings growth.
PORTFOLIO SUMMARY
-----------------
Net Asset Value 6/30/98: $ 16.49 Per Share
6/30/97: $ 15.43 Per Share
Total Net Assets: $404.33 Million
TOTAL DIVIDEND: $ 2.02
Long-Term Capital Gain: $ 2.02
PORTFOLIO STRUCTURE
-------------------
(% of total net assets)
[BAR GRAPH]
Technology 17.5
Business Equipment & Services 16.8
Financial 16.7
Health Care 14.6
Retail 11.9
Consumer Services 7.9
Capital Goods 4.5
Energy 3.7
Consumer Durables 2.4
Utilities 2.1
Other Assets and Liabilities 1.9
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------- -------------------------
Mid Cap Russell Mid Cap S&P MidCap Mid Cap Russell Mid Cap S&P MidCap
Growth Fund Growth Index 400 Index Growth Fund Growth Index 400 Index
----------- ------------ --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months -1.20% -0.06% -2.14% -1.20% -0.06% -2.14%
(not annualized)
1 Year 22.19 24.02 27.15 22.19 24.02 27.15
5 Years 18.47 18.39 18.45 133.39 132.61 133.13
10 Years 16.92 16.31 18.36 377.21 353.01 439.62
Inception 19.26 n/a 18.99 1526.77 n/a 1468.45
(9/2/82)
</TABLE>
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P MIDCAP 400 AND
RUSSELL MID CAP GROWTH INDICES.
GROWTH OF $10,000
-----------------
[PLOT POINTS GRAPH]
SIT MID CAP GROWTH FUND
S&P MIDCAP 400 INDEX
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/98 would
have grown to $162,677 in the Fund or $156,845 in the S&P MidCap 400 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
-------------------
* Mercury General Corp.
* HBO & Co.
* Elan Corp., p.l.c., A.D.R.
* Kohl's Corp.
* Staples, Inc.
* Peoplesoft, Inc.
* T. Rowe Price & Associates
* Proffitt's, Inc.
* Ceridian Corp.
* Ace, Ltd.
Total number of holdings: 56
11
<PAGE>
SIT MID CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (98.1%)(2)
BUSINESS EQUIPMENT & SERVICE (16.8%)
14,800 AAR Corp. $ 437,525
175,000 Accustaff, Inc(3) 5,468,750
191,500 Ceridian Corp(3) 11,250,625
259,600 Dendrite International, Inc.(3) 9,767,450
237,150 Fiserv, Inc.(3) 10,071,464
168,800 Metamor Worldwide, Inc.(3) 5,939,650
152,500 National Data Corp. 6,671,875
211,200 Paychex, Inc. 8,593,200
43,000 Saville Systems, p.l.c., A.D.R.(3) 2,155,375
145,500 Sterling Commerce, Inc.(3) 7,047,656
------------
67,403,570
------------
CAPITAL GOODS (4.5%)
139,500 Crane Co. 6,774,469
151,200 Kennametal, Inc. 6,312,600
182,000 US Filter Corp.(3) 5,107,375
------------
18,194,444
------------
CONSUMER DURABLES (2.4%)
249,500 Harley-Davidson, Inc. 9,668,125
------------
CONSUMER SERVICES (7.9%)
210,800 Chancellor Media Corp.(3) 10,467,538
194,287 Promus Hotel Corp.(3) 7,480,050
342,200 Stewart Enterprises, Inc. 9,111,075
137,400 Sylvan Learning Systems, Inc.(3) 4,499,850
------------
31,558,513
------------
ENERGY (3.7%)
246,000 Newpark Resources, Inc.(3) 2,736,750
19,500 Noble Affiliates, Inc. 741,000
187,650 Ocean Energy, Inc.(3) 3,670,903
176,400 Transocean Offshore Drilling, Inc. 7,849,800
------------
14,998,453
------------
FINANCIAL (16.7%)
BANKING (2.4%)
326,500 TCF Financial Corp. 9,631,750
------------
FINANCIAL SERVICES (4.4%)
131,000 First American Corp. - Tennessee 6,304,375
304,000 T. Rowe Price & Associates 11,419,000
------------
17,723,375
------------
INSURANCE (9.9%)
283,500 Ace, Ltd. 11,056,500
257,000 Mercury General Corp. 16,528,313
159,000 Mutual Risk Mgmt Ltd. 5,793,563
135,200 Reliastar Financial Corp. 6,489,600
------------
39,867,976
------------
HEALTH CARE (14.6%)
BIOTECHNOLOGY/PHARMACEUTICALS (6.2%)
190,000 Biogen, Inc.(3) $ 9,310,000
204,500 Elan Corp., p.l.c., A.D.R.(3) 13,151,906
107,000 Vertex Pharmaceuticals(3) 2,407,500
------------
24,869,406
------------
MEDICAL EQUIPMENT/ SUPPLIES (2.9%)
87,500 Boston Scientific Corp.(3) 6,267,187
140,500 Stryker Corp. 5,391,687
------------
11,658,874
------------
MEDICAL FACILITIES MANAGEMENT (5.5%)
404,100 HBO & Co. 14,244,525
290,500 HEALTHSOUTH Corp.(3) 7,752,719
------------
21,997,244
------------
RETAIL (11.9%)
148,000 Cracker Barrel Old Country Store, Inc. 4,699,000
97,000 Dollar General Corp. 3,837,562
243,000 Kohls Corp. (3) 12,605,625
150,500 Pier 1 Imports, Inc. 3,593,187
280,500 Proffitt's, Inc.(3) 11,325,187
407,150 Staples, Inc.(3) 11,781,903
------------
47,842,464
------------
TECHNOLOGY (17.5%)
COMPUTER SOFTWARE/SERVICES (11.8%)
118,600 ASM Lithography Holdings, Inc.(3) 3,446,812
141,100 Aspen Technology, Inc.(3) 7,125,550
170,500 BMC Software, Inc.(3) 8,855,344
155,500 Cadence Design Systems, Inc.(3) 4,859,375
216,000 Legato Systems, Inc.(3) 8,424,000
112,400 Parametric Technology, Inc.(3) 3,048,850
247,000 Peoplesoft, Inc.(3) 11,609,000
------------
47,368,931
------------
SEMICONDUCTORS & RELATED (2.1%)
187,500 Analog Devices, Inc. (3) 4,605,469
115,700 Xilinx, Inc. (3) 3,933,800
------------
8,539,269
------------
TELECOMMUNICATIONS & EQUIPMENT (3.6%)
257,700 ADC Telecomm., Inc. (3) 9,414,103
75,000 Advanced Fibre Comm., Inc.(3) 3,004,688
83,000 Globalstar Telecom., Ltd.(3) 2,241,000
------------
14,659,791
------------
12
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
UTILITIES (2.1%)
168,400 Cincinnati Bell, Inc. $ 4,820,450
148,000 Nextel Communications, Inc. (3) 3,681,500
------------
8,501,950
------------
Total common stocks
(cost: $253,432,849) 394,484,135
------------
SHORT-TERM SECURITIES (3.3%) (2)
Sears Roebuck Acceptance Corp:
1,500,000 5.90%, 7/1/98 1,500,000
5,017,000 5.90%, 7/2/98 5,016,178
5,676,000 Texaco, Inc., 5.90%, 7/1/98 5,676,000
1,000,000 Sit Money Market Fund, 5.30%(6) 1,000,000
------------
Total short-term securities
(cost: $13,192,178) 13,192,178
------------
Total investments in securities
(cost: $266,625,027) (8) $407,676,313
============
See accompanying notes to portfolios of investments on page 37
13
<PAGE>
SIT SMALL CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Small Cap Growth Fund's one-year return was +11.7%. While true that
larger capitalization categories delivered superior returns over the recent
past, small cap investing has captured very attractive results over full cycles.
The Fund's since-inception annualized return of +22.3% compares favorably with
the +19.1% return of the Russell 2000 Index and the +17.2% return of the Russell
2000 Growth Index over that period.
Valuation metrics for the Fund are attractive. The 24.4 times
price-to-earnings ratio for stocks held by the Fund, is below the 24.6 times P/E
of the S&P 500 Index, based on 1999 forecasted earnings. Consistent with the
Fund's growth investing mandate, earnings for stocks in the Fund are expected to
grow +36.5% in 1998, +35.9% in 1999, and by +29.3% over the next five years. All
three rates are far in excess of what is expected for the broader market.
The business equipment & services sector was an area of considerable success
over the past year, with the average holding rising +69.2% in value. The average
stock in the Russell 2000 Growth Index rose just +18.6%. The Fund's largest
holding, Dendrite International, was the key driver of this result, rising
+128.0%. Exposure to the sector jumped from 3.7% to 18.7% over the course of the
year. Technology was the most heavily weighted sector, as it was a year ago, and
enjoyed similarly successful stock selection. Two of the top five holdings,
Legato Systems and Uniphase Corp., increased 321.6% and 115.6%, respectively.
Stock selection was more challenging in the health care sector, and the sector
as a whole lagged small cap stocks in general. The market has rewarded visible
earnings growth, something that is lacking in many small health care issues,
even though business fundamentals may be advancing as forecast.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The objective of the Sit Small Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of small companies that have a capitalization of under $500
million at the time of purchase.
In addition, the Fund may purchase securities convertible into common
stocks, preferred stocks and warrants. The Fund may invest in securities not
listed on a national securities exchange but generally such securities will have
an established over-the-counter market.
PORTFOLIO SUMMARY
-----------------
Net Asset Value 6/30/98: $20.35 Per Share
6/30/97: $18.89 Per Share
Total Net Assets: $57.47 Million
TOTAL DIVIDEND: $ 0.68
Long-Term Capital Gain: $ 0.68
PORTFOLIO STRUCTURE
-------------------
(% of total net assets)
[BAR GRAPH]
Technology 19.6
Business Equipment & Services 18.7
Health Care 14.5
Financial 13.1
Consumer Services 10.4
Capital Goods 5.9
Retail 5.3
Energy 5.2
Utilities 1.9
Transportation 1.2
Consumer Non-Durables 0.9
Other Assets and Liabilities 3.3
14
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
----------------------------- -------------------------
Small Cap Russell 2000 Russell 2000 Small Cap Russell 2000 Russell 2000
Growth Fund Index Growth Index Growth Fund Index Growth Index
----------- ----- ------------ ----------- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
3 Months -1.31% -4.66% -5.74% -1.31% -4.66% -5.74%
(not annualized)
1 Year 11.70 16.51 13.19 11.70 16.51 13.19
3 Years 18.12 18.86 14.41 64.81 67.90 49.77
Inception 22.27 19.07 17.15 123.47 100.98 88.45
(7/1/94)
</TABLE>
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDICES.
GROWTH OF $10,000
-----------------
[PLOT POINTS GRAPH]
SIT SMALL CAP GROWTH FUND
RUSSELL 2000 INDEX
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/98 would
have grown to $22,347 in the Fund or $20,098 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
-------------------
* Dendrite International, Inc.
* Aspen Technology, Inc.
* Legato Systems, Inc.
* Uniphase Corp.
* HA-LO Industries, Inc.
* BISYS Group, Inc.
* Transaction Network Services, Inc.
* Applied Graphics Technologies, Inc.
* JLK Direct Distribution
* Siebel Systems, Inc.
Total number of holdings: 61
15
<PAGE>
SIT SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON & PREFERRED STOCKS (96.7%)(2)
BUSINESS EQUIPMENT & SERVICES (18.7%)
23,000 AAR Corp. $ 679,937
43,000 BISYS Group, Inc.(3) 1,763,000
91,900 Commodore Applied Tech., Inc.(3)(5) 235,494
128,500 Commodore Applied Tech., Inc.,
(warrants)(3)(5) 80,312
64,500 Dendrite International, Inc.(3) 2,426,812
36,500 On Assignment, Inc.(3) 1,275,219
10,000 Rental Service Corp.(3) 336,250
15,000 Sapient Corp.(3) 791,250
42,230 Siebel Systems, Inc.(3) 1,361,911
71,500 Transaction Network Services, Inc.(3) 1,505,969
8,500 Watsco, Inc. 299,094
------------
10,755,248
------------
CAPITAL GOODS (5.9%)
28,500 DT Industries, Inc. 691,125
62,300 JLK Direct Distribution(3) 1,401,750
31,500 Triumph Group, Inc.(3) 1,323,000
------------
3,415,875
------------
CONSUMER NON-DURABLES (0.9%)
33,500 Northland Cranberries, Inc. 517,156
------------
CONSUMER SERVICES (10.4%)
23,500 Emmis Broadcasting Corp.(3) 1,123,594
31,500 Equity Corp. International(3) 756,000
58,500 HA-LO Industries, Inc.(3) 1,820,812
21,000 Hearst-Argyle Television, Inc.(3) 840,000
25,500 Rent-Way, Inc.(3) 777,750
20,250 Sylvan Learning Systems, Inc.(3) 663,187
------------
5,981,343
------------
ENERGY (5.2%)
54,500 Marine Drilling Company, Inc.(3) 872,000
53,700 Newfield Exploration Co.(3) 1,335,787
71,700 Newpark Resources, Inc.(3) 797,662
------------
3,005,449
------------
FINANCIAL (13.1%)
BANKING (3.8%)
39,000 Community First Bankshares, Inc. 1,021,312
26,150 Queens County Bancorp, Inc. 1,140,794
------------
2,162,106
------------
FINANCIAL SERVICES (1.4%)
34,500 Imperial Credit Industries, Inc.(3) 810,750
------------
INSURANCE (7.9%)
23,052 Delphi Financial Group, Inc.(3) 1,298,116
11,500 Life Re. Corp. 953,063
38,000 Stirling Cooke Brown Holdings 1,068,750
38,000 Terra Nova Bermuda Holdings $ 1,192,250
------------
4,512,179
------------
HEALTH CARE (14.5%)
BIOTECHNOLOGY/ PHARMACEUTICALS (1.5%)
24,000 Guilford Pharmaceuticals, Inc.(3) 423,000
17,000 Protein Design Labs, Inc.(3) 409,594
------------
832,594
------------
MEDICAL EQUIPMENT/ SUPPLIES (4.2%)
38,500 Biosite Diagnostics, Inc.(3) 423,500
91,000 CardioThoracic Systems, Inc.(3) 460,688
29,000 I-Stat Corp.(3) 326,250
220,300 Innerdyne, Inc.(3) 564,519
22,500 Ventana Medical Systems, Inc.(3) 630,000
------------
2,404,957
------------
MEDICAL FACILITIES MANAGEMENT (8.8%)
33,500 Cerner Corp.(3) 948,469
64,200 Imnet Systems, Inc.(3) 858,675
31,500 Medical Manager Corp.(3) 870,187
22,000 PAREXEL International Corp.(3) 800,250
39,000 Stericycle, Inc.(3) 565,500
29,500 Sunrise Assisted Living, Inc.(3) 1,014,062
------------
5,057,143
------------
RETAIL (5.3%)
58,500 Columbia Sportswear Co.(3) 1,111,500
12,000 Goody's Family Clothing, Inc.(3) 658,500
39,000 Men's Warehouse, Inc.(3) 1,287,000
------------
3,057,000
------------
TECHNOLOGY (19.6%)
COMPUTER SOFTWARE/ SERVICES (15.6%)
31,500 Applied Graphics Tech., Inc.(3) 1,441,125
13,500 Aspect Development, Inc.(3) 1,020,938
44,000 Aspen Technology, Inc.(3) 2,222,000
12,000 Great Plains Software, Inc.(3) 406,500
5,000 Inktomi Corp.(3) 198,750
60,000 Intelligroup, Inc.(3) 1,065,000
54,500 Legato Systems, Inc.(3) 2,125,500
48,300 Pervasive Software, Inc.(3) 501,113
------------
8,980,926
------------
SEMICONDUCTORS & RELATED (4.0%)
31,500 Asyst Technologies, Inc.(3) 397,688
30,000 Uniphase Corp.(3) 1,883,438
------------
2,281,126
------------
TRANSPORTATION (1.2%)
27,000 C.H. Robinson Worldwide, Inc. 671,625
------------
16
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
UTILITIES (1.9%)
32,500 Brightpoint, Inc.(3) $ 471,250
17,000 Nextlink Communications(3) 643,875
------------
1,115,125
------------
Total common & preferred stocks
(cost: $45,939,527) 55,560,602
------------
CONVERTIBLE BONDS (0.9%) (2)
680,000 Tecnomatix Technologies Conv.
5.25%, 8/15/04 (4) 538,050
------------
(cost: $668,019)
SHORT-TERM SECURITIES(2.5%)(2)
1,457,000 Sears Roebuck Acceptance Corp.,
5.90%, 7/1/98 1,457,000
------------
(cost: $1,457,000)
Total investments in securities
(cost: $48,064,546)(8) $ 57,555,652
============
See accompanying notes to portflios of investments on page 37
17
<PAGE>
SIT BALANCED FUND REVIEW
YEAR ENDED JUNE 30, 1998
[PHOTO]
PETER L. MITCHELSON, CFA
SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA
PORTFOLIO MANAGER
The Sit Balanced Fund posted strong performance during the fiscal year ended
June 30, 1998. The Fund's total return of +24.0% ranked in the 8th percentile
out of 373 Balanced Funds tracked by Lipper Analytical Services, Inc. For three
years, the Fund's +21.2% return was in the 9th percentile out of 256 funds. In
addition, based on its performance through June 30, 1998, the Sit Balanced Fund
received a four-star rating from Morningstar, Inc.(1) among 2,564 funds for the
three-year time period in the domestic stock fund category
As of June 30, 1998, the asset allocation of the Fund was 58% in equities,
38% in fixed income securities and 4% in cash reserve instruments.
The U.S. stock market recorded an unprecedented fourth consecutive year of
+30% total returns over the past 12 months driven by a continuing strong
economy, better-than-expected inflation and satisfactory profit gains, which
more than offset impacts of the Asian financial crisis. We expect economic
growth to slow and inflation to remain subdued in the period ahead, two
conditions typically favorable for financial asset investing, in general, and
for growth stocks, in particular.
Within the equity portion of the portfolio, we believe this environment will
highlight the relative attractiveness of companies with strong and predictable
earnings growth rates. Our heaviest industry weightings remain in technology,
financial services and health care.
Within the fixed income portion of the portfolio, the most significant sector
shift involved increasing mortgage pass-through securities by approximately 25%
of the bond segment. The remaining sectors were reduced on a proportionate
basis. This change was made to take advantage of the widening yield spreads
resulting from increased prepayment concerns. The pass-throughs purchased are
high coupon seasoned single family mortgages that have relatively stable
prepayments.
The Sit Balanced Fund has performed well over time in its segment of the
mutual fund marketplace, and we thank shareholders for their interest and
participation.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The Sit Balanced Fund's dual objectives are to seek long-term growth of
capital consistent with the preservation of principal and to provide regular
income. It pursues its objectives by investing in a diversified portfolio of
stocks, bonds and short-term instruments. The Fund may emphasize either equity
securities, fixed-income securities, or short-term instruments or hold equal
amounts of each, dependent upon the Adviser's analysis of market, financial and
economic conditions.
The Fund's permissible investment allocation is: 40-60% in equity
securities, 40-60% in fixed-income securities, and up to 20% in short-term
fixed-income instruments. At all times at least 25% of the assets will be
invested in fixed-income senior securities.
PORTFOLIO SUMMARY
-----------------
Net Asset Value 6/30/98: $16.68 Per Share
6/30/97: $14.93 Per Share
Total Net Assets: $ 7.42 Million
TOTAL DIVIDEND: $ 1.58 PER SHARE
Long Term Capital Gain: $ 1.19 Per Share
Short-Term Capital Gain: $ 0.04 Per Share
Income: $ 0.35 Per Share
PORTFOLIO STRUCTURE
-------------------
(% of total net assets)
[PIE CHART]
Stocks 57.9%
Bonds (BONDS & CASH) 42.1%
18
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------------- -------------------------------------------
Balanced Lehman Aggregate S&P Balanced Lehman Aggregate S&P
Fund Bond Index 500 Index Fund Bond Index 500 Index
-------- ---------------- --------- -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months 4.63% 2.34% 3.30% 4.63% 2.34% 3.30%
(not annualized)
1 Year 23.95 10.54 30.17 23.95 10.54 30.17
3 Year 21.17 7.88 30.24 77.92 25.55 120.90
Inception 16.96 7.05 24.61 102.33 35.84 169.06
(12/31/93)
</TABLE>
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND
INDEX NOR THE S&P 500 INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM
LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
(1) MORNINGSTAR PROPRIETARY RATINGS REFLECT HISTORICAL RISK ADJUSTED PERFORMANCE
THROUGH 6/30/98. THESE RATINGS ARE SUBJECT TO CHANGE MONTHLY AND ARE CALCULATED
FROM THE FUND'S 3-, 5-, AND 10-YEAR AVERAGE ANNUAL RETURNS IN EXCESS OF 90-DAY
TREASURY BILL RETURNS WITH APPROPRIATE FEE ADJUSTMENTS AND A RISK FACTOR THAT
REFLECTS FUND PERFORMANCE BELOW 90-DAY TREASURY BILL RETURNS. TEN PERCENT OF THE
FUNDS IN AN INVESTMENT CATEGORY RECEIVE 5 STARS, 22.5% RECEIVE 4 STARS.
GROWTH OF $10,000
-----------------
[PLOT POINTS CHART]
SIT BALANCED FUND
LEHMAN AGGREGATE BOND INDEX
S&P 500 Index
The sum of $10,000 invested at inception (12/31/93) and held until 6/30/98 would
have grown to $20,233 in the Fund, $13,584 in the Lehman Aggregate Bond Index or
$26,906 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
------------
STOCKS
* General Electric Co.
* Mercury General Corp.
* AirTouch Communications, Inc.
* Cisco Systems, Inc.
* Microsoft Corp.
BONDS
* U.S. Treasury Strip, 5.95%, 2/15/09
* GNMA, 9.00%, 9/15/19
* FHLMC, 9.00%, 7/1/16
* GNMA, 9.50%, 12.15/16
* U.S. Treasury Note, 7.875%, 11/15/04
Total number of holdings, 123
19
<PAGE>
SIT BALANCED FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (57.9%) (2)
BUSINESS EQUIPMENT & SERVICES (2.4%)
1,300 Ceridian Corp. (3) $ 76,375
1,125 Paychex, Inc. 45,773
500 Xerox Corp. 50,812
------------
172,960
------------
CAPITAL GOODS (3.4%)
1,700 General Electric Co. 154,788
500 Owens Corning Corp. 20,406
500 Sundstrand Corp. 28,625
800 Tyco International, Ltd. 50,400
------------
254,219
------------
CONSUMER DURABLES (0.6%)
1,200 Harley-Davidson, Inc. 46,500
------------
CONSUMER NON-DURABLES (4.3%)
1,300 Coca Cola Co. 111,150
1,400 Gillette Co. 79,362
1,000 Proctor & Gamble Co. 91,062
500 Unilever, N.V. 39,469
------------
321,043
------------
CONSUMER SERVICES (4.2%)
2,000 CBS Corp. (3) 63,500
2,000 Cendant Corp. (3) 41,750
1,800 Marriott International, Inc. - Class A 58,275
1,000 Time Warner, Inc. 85,437
1,000 Viacom, Inc. - Class B (3) 58,250
------------
307,212
------------
ENERGY (2.5%)
500 Anadarko Petroleum Corp. 33,594
1,700 Schlumberger, Ltd. 116,131
700 Transocean Offshore, Inc. 31,150
------------
180,875
------------
FINANCIAL (9.4%)
BANKING (2.6%)
600 Chase Manhattan Corp. 45,300
500 Citicorp 74,625
1,900 Norwest Corp. 71,012
------------
190,937
------------
FINANCIAL SERVICES (1.7%)
500 Associates First Capital Corp. 38,437
1,000 Federal Home Loan Mortgage Corp. 47,062
800 Franklin Resources, Inc. 43,200
------------
128,699
------------
INSURANCE (5.1%)
750 American International Group, Inc. 109,500
600 Equitable Companies, Inc. 44,925
900 EXEL, Ltd. 70,031
2,400 Mercury General Corp. 154,350
------------
378,806
------------
HEALTH CARE (7.8%)
BIOTECHNOLOGY/ PHARMACEUTICALS (5.6%)
500 Bristol-Myers Squibb Co. 57,469
1,000 Eli Lilly & Co. 66,062
800 Merck & Co., Inc. 107,000
700 Pfizer, Inc. 76,081
400 SmithKline Beecham, p.l.c., A.D.R. $ 24,200
1,200 Warner Lambert Co. 83,250
------------
414,062
------------
MEDICAL EQUIPMENT/ SUPPLIES (0.8%)
600 Medtronic, Inc. 38,250
500 Stryker Corp. 19,187
------------
57,437
------------
MEDICAL FACILITIES MANAGEMENT (1.4%)
2,400 HBO & Co. 84,600
900 HEALTHSOUTH Corp. (3) 24,019
------------
108,619
------------
RAW MATERIALS (0.9%)
1,200 Monsanto Co. 67,050
------------
RETAIL (5.9%)
2,500 Dayton Hudson Corp. 121,250
900 Gap, Inc. 55,462
1,050 Home Depot, Inc. 87,216
1,000 Kohl's Corp. (3) 51,875
1,000 Lowe's Companies, Inc. 40,563
2,000 Walgreen Co. 82,625
------------
438,991
------------
TECHNOLOGY (12.2%)
COMPUTER RELATED (0.9%)
1,500 EMC Corp. (3) 67,219
------------
COMPUTER SOFTWARE/ SERVICES (4.4%)
1,450 Computer Associates International, Inc. 80,566
1,200 Microsoft Corp. (3) 130,050
1,600 Parametric Technology Corp. (3) 43,400
1,600 PeopleSoft, Inc. (3) 75,200
------------
329,216
------------
SEMICONDUCTORS & RELATED (1.4%)
1,100 Intel Corp. 81,538
400 Texas Instruments, Inc. 23,325
------------
104,863
------------
TELECOMMUNICATIONS EQUIPMENT (5.5%)
1,000 ADC Telecommunications, Inc. (3) 36,531
1,000 Ascend Communications, Inc. (3) 49,563
700 Ciena Corp. (3) 48,738
1,500 Cisco Systems, Inc. (3) 138,094
1,000 Lucent Technologies, Inc. 83,188
700 Tellabs, Inc. (3) 50,138
------------
406,252
------------
TRANSPORTATION (1.2%)
1,100 AMR Corp. (3) 91,575
------------
UTILITIES (3.1%)
2,400 AirTouch Communications, Inc. (3) 140,250
1,000 Cincinnati Bell, Inc. 28,625
1,200 WorldCom, Inc. (3) 58,125
------------
227,000
------------
Total common stocks
(cost: $2,485,277) 4,293,535
------------
20
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
BONDS (38.0%) (2)
U.S. TREASURY (4.3%)
100,000 U.S. Treasury Note, 7.875%, 11/15/04 $ 112,262
25,352 U.S. Treasury Inflation Index Note,
3.625%,7/15/02 25,058
U.S. Treasury Strip:
300,000 5.95% Effective Yield on
Purchase Date, 2/15/09 166,161
25,000 6.93% Effective Yield on
Purchase Date, 11/15/04 17,681
------------
321,162
------------
ASSET-BACKED SECURITIES (5.2%)
25,000 1995-3 A5, 7.37%, 2/25/27 25,979
50,000 1996-1 A7, 7.07%, 3/25/27 52,219
50,000 Cityscape Home Equity Loan Trust,
1996-3 A8, 7.65%, 9/25/25 52,005
74,999 ContiMortgage Home Equity Loan Trust,
1996-1 A7 7.00%, 3/15/27 78,041
25,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 25,219
75,000 EquiVantage, 1996-3 A3, 7.70%, 9/25/27 77,962
20,000 Green Tree Corp., 1995-5, 7.25%, 9/15/25 21,072
50,000 Money Store Home Equity Mortgage,
7.265%, 7/15/38 52,001
------------
384,498
------------
CLOSED-END FUNDS (2.5%)
2,000 American Government Income Fund 11,500
9,000 American Select Portfolio 108,563
500 American Strategic Income Portfolio 5,875
2,288 American Strategic Income Portfolio II 27,599
2,969 American Strategic Income Portfolio III 34,700
------------
188,237
------------
CORPORATE BONDS (4.2%)
25,000 Bank One Texas, 6.25%, 2/15/08 24,875
25,000 Omega Health Care Investors,
6.95%, 6/15/02 24,969
50,000 Trinet Corp. Realty Trust, 7.70%, 7/15/17 53,250
75,000 Security Capital Indl. Trust, 8.65%, 5/15/16 86,813
25,000 Summit Properties, Inc., 7.20%, 8/15/07 25,406
25,000 Tenneco, Inc., 6.70%, 12/15/05 25,656
13,000 Toys R Us, Inc., 8.25%, 2/1/17 13,439
50,000 Washington Mutual Capital, 8.375%, 6/1/27 56,063
------------
310,471
------------
MUNICIPAL BONDS (0.3%)
25,000 Bernalillo Multifamily Series 1998A,
7.50%, 9/20/20 (7) 25,000
------------
MORTGAGE PASS-THROUGH SECURITIES (19.4%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (3.6%)
108,546 9.00%, 7/1/16 114,784
51,092 9.00%, 7/1/16 54,000
57,810 9.25%, 6/1/02 60,228
38,333 10.00%, 10/1/18 $41,413
------------
270,425
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.7%)
32,632 9.00%, 11/1/06 34,270
48,502 9.00%, 1/1/17 50,947
34,723 10.00%, 1/1/20 37,354
------------
122,571
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (14.1%)
30,981 9.00%, 6/15/11 32,399
54,891 9.00%, 8/15/16 58,455
40,699 9.00%, 4/15/18 43,319
47,086 9.00%, 8/15/18 50,122
33,937 9.00%, 12/15/18 36,122
146,181 9.00%, 9/15/19 157,418
26,408 9.00%, 10/15/19 28,102
32,003 9.25%, 9/1/01 33,649
31,149 9.50%, 1/15/04 32,860
59,877 9.50%, 11/15/04 63,153
48,630 9.50%, 7/20/05 50,584
55,270 9.50%, 12/15/09 59,300
35,560 9.50%, 5/20/16 (7) 37,911
105,767 9.50%, 12/15/16 113,568
81,464 9.50%, 9/15/17 87,383
58,939 9.50%, 6/15/18 63,209
52,232 9.50%, 2/15/21 56,508
1,704 9.75%, 2/20/01 1,792
4,026 10.00%, 9/15/99 4,159
13,555 11.25%, 10/15/00 14,253
17,500 11.25%, 10/15/11 18,901
2,131 11.75%, 3/15/00 2,240
------------
1,045,407
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.4%)
50,000 FHLMC (REMIC) Ser. 1173,
6.50%, 11/15/21 50,065
50,000 FNMA 1994-38 PAC, 6.65%, 12/25/23 50,799
------------
100,864
------------
TRUST PREFERRED SECURITIES (0.7%)
1,000 Allstate Financing I, 7.95%, 12/1/26 25,563
25,000 Allstate Financing II, 7.83%, 12/1/45 26,828
------------
52,391
------------
Total bonds (cost: $2,763,601) 2,821,026
------------
Total investments in securities
(cost: $5,248,878) (8) $7,114,561
============
See accompanying notes to portfolios of investments on page 37.
21
<PAGE>
SIT INTERNATIONAL GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
The Fund's investment return for the year ended June 30, 1998 was +7.5%,
compared to the EAFE index benchmark return of +6.1%. The Fund's outperformance
was attributed to substantial return contributions through stock selection in
continental Europe, the U.K. and Japan. Because of the Asian contagion effect,
non-EAFE markets that represented 7.5% of the portfolio, down from 11.4% a year
ago, have not made positive contributions.
At year-end, European holdings accounted for 72% of total assets, up
sharply from 48% a year before. The European portfolio's return was +48.7%,
exceeding by a wide margin, the index's +37.2% gain during the last 12 months.
The positive benefits of European Union (EU), corporate restructuring and
increased funds flowing into stocks due to deregulated pension systems continue
to raise equity valuations. Additionally, a cyclical upturn in European
economies is sustaining the upward earnings momentum, partially offsetting the
negative impact of the Asian turmoil. Our investments in Europe are largely
focused on high value-added products and services.
In Japan, we continue to add value not only by having an underweight
position relative to the benchmark (61% of the index average as of June 30,
1998), but also by selecting those stocks which are restructuring and expanding
their dollar-based revenues. The market's overall index may decline further,
even after nearly a one-third drop during the last 12 months. However, the Japan
holdings are the weak-yen beneficiaries and companies with visible earnings in
niche areas even in a slumping economy, such as consumer financing and
healthcare.
The scope and depth of the Asian financial crisis is proving to be much
greater than expected. The intensifying downward pressures on Asian currencies
are engulfing China's renminbi and the Hong Kong dollar. Given the serious
liquidity squeeze in Asia, our strategy is to limit the non-Japan weighting to
about 9%. Latin American holdings will be kept at the 2-2.5% range compared with
6.2% a year ago.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The objective of the Sit International Growth Fund is to achieve long-term
growth of capital by investing in equity securities of issuers domiciled outside
the United States. The Fund's investment objective reflects the belief that
long-term investment planning should include the investment opportunities that
exist outside the U.S.
The Fund selects its investments based on the characteristics of the
particular markets and economies of the countries in which it invests. Emphasis
is placed on identifying securities of companies believed to be undervalued in
the marketplace in relation to factors such as the company's revenues, earnings,
assets and long-term competitive position which over time will enhance the
equity value of the company.
PORTFOLIO SUMMARY
-----------------
Net Asset Value 6/30/98: $19.14 Per Share
6/30/97: $18.57 Per Share
Total Net Assets: $99.72 Million
TOTAL DIVIDEND: $ 0.70
Long-Term Capital Gain: $ 0.51
Ordinary Income: $ 0.19
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR GRAPH]
SIT INT'L MORGAN STANLEY
GROWTH FUND EAFE INDEX
Europe Other 41.9 30.9
France, Germany & UK 30.8 43.3
Japan 12.8 20.6
Pacific Basin 9.5 5.2
Latin America 2.8 0.0
Africa/Middle East 0.0 0.0
Other Assets and Liabilities 2.2 0.0
22
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------------- -----------------------------------------
Morgan Stanley Morgan Stanley
International Capital Int'l Lipper International Capital Int'l Lipper
Growth Fund EAFE Index Int'l Fund Growth Fund EAFE Index Int'l Fund
------------- ------------- ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
3 Months 0.37% 1.06% 0.78% 0.37% 1.06% 0.78%
(not annualized)
1 Year 7.50 6.10 8.96 7.50 6.10 8.96
3 Years 11.51 10.69 15.12 38.67 35.62 52.58
5 Years 13.38 10.03 13.53 87.35 61.30 88.62
Inception 12.96 8.76 11.95 125.27 75.05 112.32
(11/1/91)
</TABLE>
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS MANAGEMENT FEES
AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER,
FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
PORTFOLIO STRUCTURE - BY SECTOR
-------------------------------
(% of total net assets)
[BAR GRAPH]
Financial 30.3
Technology 19.4
Health Care 14.3
Utilities 11.9
Consumer Services 7.5
Consumer Non-Durables 6.4
Capital Goods 3.1
Publishing & Broadcast 2.7
Retail 1.1
Transportation 0.7
Raw Materials 0.4
Other Assets & Liabilities 2.2
GROWTH OF $10,000
-----------------
[PLOT POINTS GRAPH]
SIT INTERNATIONAL GROWTH FUND
MORGAN STANLEY EAFE INDEX
The sum of $10,000 invested at inception (11/1/91) and held until 6/30/98 would
have grown to $22,527 in the Fund or $17,505 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
23
<PAGE>
SIT INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
10 LARGEST HOLDINGS
-------------------
* Aegon, N.V., A.D.R.
* Misys (Ord.)
* SAP Preferred
* Rentokil Group, p.l.c.
* Zurich Insurance
* Bank of Ireland
* Colonial, Ltd.
* Nestle, S.A.
* L.M. Ericsson Telephone Co., A.D.R.
* Tieto
Total number of holdings: 82
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON & PREFERRED STOCKS (97.8%)(2)
ASIA (22.3%)
AUSTRALIA (2.4%)
778,596 Colonial, Ltd. (Financial)(3)(4) $ 2,358,570
------------
HONG KONG (2.0%)
597,960 Hong Kong & China Gas (Utilities) 679,149
55,636 HSBC Holdings (Financial) 1,360,752
------------
2,039,901
------------
JAPAN (12.8%)
38,000 AFLAC, Inc., A.D.R. (Financial) 1,151,875
71,000 Banyu Pharmaceuticals (Health Care) 770,232
18,000 Matsushita Kotobuki (Technology) 450,423
24 NTT Data Communications Systems Co.
(Technology) 869,603
8,800 Nichiei Co., Ltd. (Financial) 600,795
87 Nippon Telephone (Utilities) 723,584
22,400 Orix Corp. (Financial) 1,517,958
5,300 Ryohin Keikaku Co. Ltd. (Retail) 509,800
43,000 Sankyo Co. (Health Care) 982,715
10,000 Seven Eleven Japan (Retail) 597,382
1,600 Shohkoh Fund Co. (Financial) 394,590
11,800 Sony Corp. (Technology) 1,019,816
50,000 Takeda Chemical Industries (Health Care) 1,334,346
18,000 TDK Corp. (Electronic Equipment) 1,334,346
31,000 Terumo Corp. (Health Care) 493,238
------------
12,750,703
------------
KOREA (0.7%)
26,000 Korea Electric Power Corp. (Utilities) $ 277,422
33,500 Pohang Iron & Steel Co., A.D.R.
(Raw Materials) 402,000
------------
679,422
------------
MALAYSIA (0.1%)
132,000 Malaysian Assurance (Financial) 114,499
------------
PHILIPPINES (0.4%)
17,300 Philippine Long Distance, A.D.R. (Utilities) 391,413
------------
SINGAPORE (1.3%)
124,768 Singapore Press Holdings
(Publishing & Broadcasting) 836,723
154,500 United Overseas Bank (Financial) 481,380
------------
1,318,103
------------
TAIWAN (2.4%)
73,307 President Enterprises, G.D.R.
(Consumer Non-Durables)(3)(4) 623,109
16,900 Synnex Technology Corp., G.D.R.
(Technology)(3)(4) 288,990
550,000 Yageo Corp., (Technology) (3) 912,385
67,920 Yageo Corp., G.D.R. (Technology)(3)(4) 543,360
------------
2,367,844
------------
THAILAND (0.2%)
55,000 Advanced Info Services (Utilities) 234,597
------------
EUROPE (72.7%)
BELGIUM (0.9%)
176 UCB, S.A. (Health Care) 913,600
------------
FINLAND (2.5%)
7,900 Nokia Corp., A.D.R. (Technology) 573,244
25,920 Tieto (Technology) 1,972,362
------------
2,545,606
------------
FRANCE (7.1%)
41,400 Alstom (Capital Goods) (3) 1,362,721
10,330 AXA-UAP (Financial) 1,161,884
6,400 BIC, S.A. (Consumer Non-Durables) 455,200
14,160 Cie Financiere de Paribas, S.A.
(Financial) (3) 1,515,378
9,200 France Telecom, S.A. (Utilities) 634,567
4,400 Groupe Danone
(Consumer Non-Durables) 1,213,230
1,290 L'oreal Co. (Ord.)
(Consumer Non-Durables) 717,579
------------
7,060,559
------------
GERMANY (11.0%)
3,397 Allianz, A.G. (Financial) 1,133,212
37,200 Bayer, A.G. (Health Care) 1,926,948
9,000 Deutsche Telekom, A.G. (Utilities) 246,575
5,366 Fresenius, A.G. (Health Care) 1,017,787
17,100 Mannesmann, A.G. (Capital Goods) 1,759,220
24
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
4,945 SAP Preferred (Technology) $ 3,359,561
22,300 Veba, A.G. (Utilities) 1,500,807
------------
10,944,110
------------
IRELAND (3.5%)
129,800 Bank of Ireland (Financial) 2,672,245
12,700 Elan Corp., p.l.c., A.D.R. (Hlth. Care) (3) 816,769
------------
3,489,014
------------
ITALY (4.6%)
206,640 Alitalia (Transportation) (3) 662,923
272,200 Banca Fideuram (Financial) 1,552,693
123,000 Telecom Italia (Utilities) (3) 905,842
242,100 Telecom Italia Mobile Spa (Utilities) 1,481,146
------------
4,602,604
------------
NETHERLANDS (10.4%)
55,739 Aegon, N.V., A.D.R. (Financial) 4,821,437
60,360 CMG (Technology) 1,861,891
14,200 ING Groep, N.V. (Financial) 930,529
15,575 Randstad Holdings, N.V.
(Consumer Services) 938,645
13,666 Wolters Kluwer
(Publishing & Broadcasting) 1,877,130
------------
10,429,632
------------
PORTUGAL (1.1%)
20,500 Portugal Telecom, A.D.R. (Utilities) 1,081,375
------------
SPAIN (6.1%)
71,800 Banco Santander (Financial) 1,837,724
50,720 Corp. Bancaria De Espana (Financial) 1,137,769
51,200 Endesa, A.D.R. (Utilities) 1,107,200
11,700 Sol Melia, S.A. (Consumer Services) 556,961
30,272 Telefonica de Espana (Utilities) 1,399,599
------------
6,039,253
------------
SWEDEN (4.5%)
85,333 Astra "B" Free (Health Care) 1,701,310
72,400 L.M. Ericsson Telephone Co., A.D.R.
(Technology) 2,072,450
15,200 Securitas `B' (Consumer Services) 744,276
------------
4,518,036
------------
SWITZERLAND (8.3%)
1,065 Nestle, S.A. (Consumer Non-Durables) 2,282,896
1,135 Novartis, A.G. (Health Care) (3) 1,891,792
93 Roche Holdings, A.G. (Health Care) 914,769
4,920 Zurich Insurance (Financial) 3,145,057
------------
8,234,514
------------
UNITED KINGDOM (12.7%)
15,100 Dr. Solomon's Group, A.D.R.
(Technology) (3) 526,613
149,390 Electrocomponents, p.l.c.
(Consumer Services) 1,203,531
133,527 Lloyds TSB Group, p.l.c. (Financial) 1,869,434
62,337 Misys (Ord.) (Technology) 3,540,941
460,000 Rentokil Group, p.l.c.
(Consumer Services) 3,310,347
24,300 SmithKline Beecham, p.l.c., A.D.R.
(Health Care) 1,470,150
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
228,000 Thomson Travel Group, p.l.c.
(Consumer Services) (3)(4) $ 704,280
------------
12,625,296
------------
LATIN AMERICA (2.8%)
BRAZIL (1.2%)
11,748 Cemig, A.D.R. (Utilities) 365,598
1,000,000 Light (ON) (Utilities) 306,947
6,934,000 Telecom Brasileiras, S.A. (Utilities) 551,578
------------
1,224,123
------------
MEXICO (1.6%)
1,312,000 Grupo Financiero Bancomer-B
(Financial) 489,144
33,100 Panamerican Beverage, Inc.
(Consumer Non-Durables) 1,040,581
------------
1,529,725
------------
Total common and preferred stocks
(cost: $66,089,526) 97,492,499
------------
SHORT TERM SECURITIES (3.4%) (2)
905,000 Federal Home Loan Bank,
5.40%, 7/1/98 905,000
2,000,000 Sears Roebuck Acceptance Corp.,
5.90%, 7/2/98 1,999,672
500,000 Sit Money Market Fund, 5.30% (6) 500,000
------------
Total short-term securities
(cost: $3,404,672) 3,404,672
------------
Total investments in securities
(cost: $69,494,198) (8) $100,897,171
============
See accompanying notes to portfolios of investments on page 37.
25
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA
SENIOR PORTFOLIO MANAGER
The Sit Developing Markets Growth Fund declined for the year ended June 30,
1998 by -30.5%, which compares favorably to the MSCI Emerging Markets Free
index's negative return of -40.4%. The Fund's outperformance was achieved
largely by changing the regional weighting mix. The Asian portfolio weighting
was reduced to 34.7% from 41.0% a year ago. More significant was the reduction
in Latin America to 29.6% from 38.7%. On the positive side, the European and
other markets' weighting increased to over 24.9% from 11.1%, due mainly to
larger holdings in Portugal and Israel.
As the Asia Pacific region's recession became deeper in the quarter,
investor concerns over stock market risks were being compounded by a weaker yen.
A deflationary spiral in Japan continues to threaten the region and possibly set
off another series of competitive devaluations in the rest of Asia. One of the
few bright spots is the rapidly growing electronics sector in Taiwan where we
have increased our weighting to 8.4% from 5.9%.
Hong Kong and Singapore portfolio weights declined to 15% of total assets
at mid-1998 vs. 18% a year ago, while Indonesia, Malaysia and Thailand combined
weightings became relatively small at 3.1%. The Philippines was an exception
(5.3%), and we added companies with significant earnings growth on a long-term
basis.
Market volatility continued to increase in Latin America as major export
commodity prices plummeted. The Asian contagion effect also contributed to
weaker currencies. The portfolio's Latin holdings, concentrated in Brazil (11.3%
of total assets vs. the MSCI EMF index's 16.4%) and Mexico (9.3% vs. 11.9%)
offer long-term potential as economic growth is expected to be driven by the
U.S. and their own policy mix on investment and inflation. Our focus on risk
control precluded any investment in Russia.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The objective of the Sit Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
equity securities of companies located or otherwise operating in a developing
market.
Developing markets tend to be less economically developed regions of the
world. General characteristics also include a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, rapid economic growth and lower
degrees of political stability. Investors should carefully consider the risks
associated with developing markets such as currency flucuations, high
volatility, illiquidity and the possibility of political instability.
PORTFOLIO SUMMARY
-----------------
Net Asset Value 6/30/98: $9.05 Per Share
6/30/97: $13.04 Per Share
Total Net Assets: $11.50 Million
TOTAL DIVIDEND: $ 0.01
Ordinary Income: $ 0.01
PORTFOLIO STRUCTURE - BY REGION
-------------------------------
(% of total net assets)
[BAR GRAPH]
SIT DEVELOPING MARKETS MSCI EMERGING MARKETS
GROWTH FUND FREE INDEX
Asia 34.7 27.2
Latin America 29.6 41.1
Europe 12.9 14.8
Africa/Middle East 10.4 16.9
North America 1.6 0.0
Other Assets and Liabilities 10.8 0.0
26
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------------- --------------------------------------------
Developing MSCI Lipper Developing MSCI Lipper
Markets Emerging Markets Emerging Markets Emerging Markets Emerging
Growth Fund Free Index Markets Index Growth Fund Free Index Markets Index
----------- ---------------- ------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
3 Months -18.91% -24.20% -20.77% -18.91% -24.20% 20.77%
(not annualized)
1 Year -30.52 -40.35 -36.76 -30.52 -40.35 -36.76
3 Year -1.21 -11.16 -6.77 -3.59 -29.88 -18.97
Inception -2.29 -8.86 -5.53 -8.84 -31.02 -20.35
(7/1/94)
</TABLE>
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EMERGING MARKETS FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE
OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF
MUTUAL FUNDS.
PORTFOLIO STRUCTURE - BY SECTOR
-------------------------------
(% of total net assets)
[BAR GRAPH]
Utilities 35.5
Technology 22.4
Financial 13.2
Retail 7.3
Consumer Non-Durables 7.1
Publishing & Broadcast 0.8
Consumer Services 1.9
Raw Materials 1.0
Other Assets & Liabilities 10.8
GROWTH OF $10,000
-----------------
[PLOT POINTS GRAPH]
SIT DEVELOPING MARKETS GROWTH FUND
MSCI EMERGING MARKETS FREE INDEX
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/98 would
have grown to $9,116 in the Fund or $6,898 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
27
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
10 LARGEST HOLDINGS
-------------------
* Panamerican Beverage, Inc.
* Nice Systems, Ltd., A.D.R.
* Home Centers, A.D.R.
* Telebras, A.D.R.
* Portugal Telecom, A.D.R.
* Datacraft Asia, Ltd.
* Cemig, A.D.R.
* Espirito Santo, A.D.R.
* Enersis, A.D.R.
* Telefonica De Argentina
Total number of holdings: 70
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON & PREFERRED STOCKS (89.2%)(2)
AFRICA/ MIDDLE EAST (10.4%)
ISRAEL (9.2%)
24,300 Home Centers, A.D.R.
(Retail) (3) (5) $ 492,075
15,100 Nice Systems, Ltd., A.D.R.
(Utilities) (3) 566,250
------------
1,058,325
------------
SOUTH AFRICA (1.2%)
26,651 Dimension Data (Technology)(3)(4) 143,818
------------
ASIA (34.7%)
HONG KONG (8.2%)
223,633 Founder (Technology) 95,249
202,400 Hong Kong & China Gas (Utilities) 229,881
10,675 HSBC Holdings (Financial) 261,080
144,000 Ng Fung Hong (Consumer Services) 99,432
68,000 VTech Holdings, Ltd.
(Consumer Durables) 253,201
------------
938,843
------------
INDONESIA (0.3%)
625,600 PT Dynaplast
(Consumer Non-Durables) (5) 20,284
258,000 PT Ramayana Lestari (Retail) (3) $ 20,253
------------
40,537
------------
KOREA (3.7%)
5,900 Korea Electric Power, A.D.R.
(Utilities) (3) 42,038
10,500 Korea Electric Power (Utilities) 112,036
300 Pohang Iron & Steel Co. (Raw Materials) 9,834
8,500 Pohang Iron & Steel Co., A.D.R.
(Raw Materials) 102,000
352 SK Telecom Co. (Utilities) 158,969
------------
424,877
------------
MALAYSIA (0.8%)
104,600 Malaysian Assurance Alliance
(Financial) 90,732
------------
PHILIPPINES (5.2%)
3,906,000 Digital Telecom Philippines
(Utilities) (3) 121,770
299,000 Jollibee Foods Co. (Warrants)
(Cons. Non-Durables)(3)(4)(5) 91,421
12,100 Philippine Long Distance, A.D.R.
(Utilities) 273,763
711,000 SM Prime Holdings, Inc. (Retail) 112,532
------------
599,486
------------
SINGAPORE (6.3%)
10,000 Creative Technology, Ltd., A.D.R.
(Technology) (3) 123,750
143,000 Datacraft Asia, Ltd. (Technology) 343,200
544,000 Informatics Holdings
(Consumer Services) (3) 124,297
14,208 Singapore Press Holdings
(Publishing & Broadcasting) 95,282
14,000 United Overseas Bank (Financial) 43,620
------------
730,149
------------
TAIWAN (8.4%)
33,000 Chroma Ate, Inc. (Technology) (3) 102,283
38,000 Hon Hai Precision Industry
(Technology) (3) 192,430
53,200 Phoenixtec Power Co., Ltd.
(Technology) (3) 125,411
11,624 President Enterprises, G.D.R.
(Consumer Non-Durables) (3) (4) 98,804
20,000 Synnex Technology Corp.
(Technology) (3)(4) 86,436
6,100 Synnex Technology Corp., G.D.R.
(Technology) (3)(4) 104,310
28
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
31,592 Yageo Corp., G.D.R.
(Technology) (3) (4) $ 255,861
------------
965,535
------------
THAILAND (1.8%)
49,400 Advanced Info Services
(Technology) 210,711
------------
EUROPE (12.9%)
PORTUGAL (10.0%)
7,430 Electricidad De Portugal, S.A. (Utilities) 172,830
13,800 Espirito Santo, A.D.R. (Financial) 336,375
7,100 Portugal Telecom, A.D.R. (Utilities) 374,525
1,500 Telecel Comunicasoes Pessoais, S.A.
(Utilities) (3) 266,522
------------
1,150,252
------------
SPAIN (2.9%)
3,700 Banco Santander (Financial) 187,544
1,045 Telefonica De Espana, A.D.R.
(Utilities) 145,320
------------
332,864
------------
LATIN AMERICA (29.6%)
ARGENTINA (4.3%)
6,800 Disco, S.A., A.D.R. (Retail) (3) 217,600
8,500 Telefonica De Argentina, A.D.R.
(Utilities) 275,719
------------
493,319
------------
BRAZIL (11.1%)
11,005 Cemig, A.D.R. (Utilities) 342,476
630,000 Light (ON) (Utilities) 193,377
3,600 Telebras, A.D.R. (Utilities) 393,075
2,250,000 Telecom Brasileiras, S.A. (Utilities) 178,980
2,040,000 Telesp Cellular, S.A. (Utilities) (3) 169,331
------------
1,277,239
------------
CHILE (2.6%)
12,200 Enersis, A.D.R. (Utilities) 298,138
------------
MEXICO (9.2%)
89,000 Grupo Financiero Banamex
(Financial) (3) 173,335
738,000 Grupo Financiero Bancomer-B
(Financial) 275,143
19,400 Panamerican Beverage, Inc.
(Consumer Non-Durables) 609,888
------------
1,058,366
------------
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
PERU (2.4%)
10,384 Credicorp, A.D.R. (Financial) $ 152,515
166,665 Luz Del Sur (Utilities) (3) 123,119
------------
275,634
------------
NORTH AMERICA (1.6%)
CANADA (1.6%)
7,700 Bell Canada International
(Technology) (3) 180,524
------------
Total common and preferred stocks
(cost: $11,128,686) 10,269,349
------------
SHORT-TERM SECURITIES (15.3%) (2)
571,000 Beneficial Corp.,
5.72%, 7/1/98 571,000
797,000 Federal Home Loan Bank,
5.40%, 7/1/98 797,000
391,000 Sears Roebuck Acceptance Corp.,
5.76%, 7/2/98 390,937
------------
Total short-term securities
(cost: $1,758,937) 1,758,937
------------
Total investments in securities
(cost: $12,887,623) (8) $ 12,028,286
============
See accompanying notes to portfolios of investments on page 37.
29
<PAGE>
SIT REGIONAL GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Regional Growth Fund delivered a positive return of +12.6% during
the six months since its inception on 12/31/97. The Fund's positive return
lagged the return of the S&P 500 Index and that of the Russell 3000 Index due in
part to higher cash positions during the start up of the Fund. In addition,
large capitalization stocks outperformed small cap stocks during the quarter.
This favored the S&P 500 Index due to the greater number of large cap names
versus the potential for the Fund.
The Fund is well diversified by sector. Ten sectors have weights of at
least 4%. Favored sectors continue to be financial, health care and retail.
Retail stock exposure increased by +5.2% to 12.8% in the last quarter. Strong
performance and additional purchases of leading retailers Dayton Hudson Corp.,
Walgreen Co., and Best Buy, Inc. accounted for the increased weight. All three
are top 10 holdings in the Fund and remain attractive investments given robust
consumer spending trends, personal income gains and high consumer confidence.
Value-added performance was strongest in this sector as stocks held in the Fund
advanced +41.0%, on average, versus +33.2% for retail stocks, in general, since
inception. Cash was drawn down to 1.9% from 6.6% as of the previous quarter end.
The Fund's valuation at year end was 25.7 and 21.3 times estimated 1998 and
1999 earnings, respectively. By comparison, the S&P 500 carries
price-to-earnings multiples of 26.4 and 24.6 times, respectively. Earnings
growth for stocks in the Fund is expected to accelerate in the midst of a
decelerating environment for the market. Expected growth of +15.6% in 1998
increases to +20.1% forecasted for 1999. Given the positive fundamentals and
attractive valuations of the companies in the portfolio, we are sanguine about
the Fund's potential.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies with their headquarters in Minnesota, Iowa, Missouri, North Dakota,
South Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana, and
Ohio. During normal market conditions, at least 80% of the Fund's total assets
will be invested in such securities. The Fund emphasizes securities of companies
that the Adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
-----------------
Net Asset Value 6/30/98: $11.26 Per Share
Total Net Assets: $4.98 Million
PORTFOLIO STRUCTURE
-------------------
(% of total net assets)
[BAR GRAPH]
Financial 20.2
Health Care 18.7
Retail 12.8
Technology 8.5
Capital Goods 6.4
Business Equip. & Services 5.2
Raw Materials 4.7
Energy 4.2
Consumer Non-Durables 4.1
Consumer Durables 4.1
Utilities 3.8
Transportation 3.2
Consumer Services 2.2
Other Assets and Liabilities 1.9
30
<PAGE>
CUMULATIVE TOTAL RETURNS*
----------------------------------------
Regional Russell S&P
Growth 3000 500
Fund Index Index
-------- ------- -----
3 Months 1.17% 1.82% 3.30%
Inception 12.60 15.11 17.71
(12/31/97)
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE
RUSSELL 3000 INDEX.
GROWTH OF $10,000
-----------------
[PLOT POINTS GRAPH]
S&P 500 INDEX
SIT REGIONAL GROWTH FUND
The sum of $10,000 invested at inception (12/31/97) and held until 6/30/98 would
have grown to $11,260 in the Fund, or $11,771 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
-------------------
* Dayton Hudson Corp.
* Walgreen Co.
* Ceridian Corp.
* Medtronic, Inc.
* United Healthcare Corp.
* Norwest Corp.
* Household International, Inc.
* Best Buy, Inc.
* Progressive Corp.
* Stryker Corp.
Total number of holdings: 43
31
<PAGE>
SIT REGIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON & PREFERRED STOCKS (98.1%) (2)
BUSINESS EQUIPMENT & SERVICE (5.2%)
3,000 Ceridian Corp. (3) $ 176,250
1,950 Fiserv, Inc. (3) 82,814
------------
259,064
------------
CAPITAL GOODS (6.4%)
3,000 Applied Power, Inc. 103,125
1,000 DT Industries, Inc. 24,250
2,000 Deere & Co. 105,750
1,000 Honeywell, Inc. 83,563
------------
316,688
------------
CONSUMER DURABLES (4.1%)
2,500 Harley-Davidson, Inc. 96,875
3,000 Snap On, Inc. 108,750
------------
205,625
------------
CONSUMER NON-DURABLES (4.1%)
2,000 Newell Company 99,625
2,500 Bemis, Inc. 102,187
------------
201,812
------------
CONSUMER SERVICES (2.2%)
3,500 Ha-Lo Industries, Inc. (3) 108,937
------------
ENERGY (4.2%)
1,100 Camco International, Inc. 85,662
2,800 Transocean Offshore Drilling, Inc.124,600
------------
210,262
------------
FINANCIAL (20.2%)
BANKING (12.0%)
3,000 Charter One Financial, Inc. 101,062
1,500 Comerica, Inc. 99,375
1,500 Northern Trust Corp. 114,375
4,000 Norwest Corp. 149,500
4,500 TCF Financial Corp. 132,750
------------
597,062
------------
FINANCIAL SERVICES (3.0%)
3,000 Household International, Inc. 149,250
------------
INSURANCE (5.2%)
1,000 Progressive Corp. Ohio 141,000
2,500 Reliastar Financial Corp. 120,000
------------
261,000
------------
HEALTH CARE (18.7%)
BIOTECHNOLOGY/PHARMACEUTICALS (5.3%)
2,000 Eli Lilly & Co. $ 132,125
1,500 R.P. Scherer Corp. (3) 132,938
------------
265,063
------------
MEDICAL EQUIPMENT/ SUPPLIES (10.2%)
1,500 Hillenbrand Industries, Inc. 90,000
2,500 Medtronic, Inc. 159,375
3,500 Stryker Corp. 134,313
5,000 Sybron Intl. Corp. (3) 126,250
------------
509,938
------------
MEDICAL FACILITIES MANAGEMENT (3.2%)
2,500 United Healthcare Corp. (3) 158,750
------------
RAW MATERIALS (4.7%)
3,000 Ecolab, Inc. 93,000
1,000 H.B. Fuller Co. 55,437
1,500 Monsanto Co. 83,813
------------
232,250
------------
RETAIL (12.8%)
4,000 Best Buy, Inc. (3) 144,500
4,000 Dayton Hudson Corp. 194,000
2,200 Kohls Corp. (3) 114,125
4,500 Walgreen Co. 185,906
------------
638,531
------------
TECHNOLOGY (8.5%)
COMPUTER RELATED (2.1%)
2,000 Gateway 2000, Inc. (3) 101,250
------------
COMPUTER SOFTWARE/SERVICES (1.7%)
2,500 Great Plains Software, Inc. (3) 84,688
------------
TELECOMMUNICATIONS & EQUIPMENT (4.7%)
3,500 ADC Telecommunications, Inc. (3) 127,859
1,500 Tellabs, Inc. (3) 107,438
------------
235,297
------------
TRANSPORTATION (3.2%)
2,800 C.H. Robinson Worldwide, Inc. 69,650
1,200 UAL Corp. (3) 93,600
------------
163,250
------------
32
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
UTILITIES (3.8%)
5,000 Brightpoint, Inc. (3) $ 72,500
4,000 Cincinnati Bell, Inc. 114,500
------------
187,000
------------
Total common stocks
(cost: $4,473,043) 4,885,717
------------
Total investments in securities
(cost: $4,473,043) (8) $ 4,885,717
============
See accompanying notes to portfolios of investments on page 37.
33
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1998
[PHOTO]
EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Science and Technology Growth Fund delivered a positive return of
+17.7% during the six months since its inception on 12/31/97. Strong investment
results continued for the Fund as gains during the second quarter built on
robust first quarter 1998 performance. Second quarter returns were +5.5% for the
Fund, compared with a flat return for the Pacific Stock Exchange Technology 100
Index. We are pleased with the Fund's positioning, but do not expect second half
1998 results to be of equal magnitude.
Within the S&P 500 Index, technology and health care both ranked in the top
four of fifteen sectors. As has been the case for the market at large, returns
have primarily been driven by a small number of very large capitalization
stocks. In the Russell 1000 Growth Index, Microsoft, Lucent, Cisco, and Dell
accounted for approximately two-thirds of the technology sector's year-to-date
return. All four are significant investments in this Fund.
The Fund's price-to-earnings multiple of 29.8 times 1999 earnings appears
high compared with the S&P 500 Index's multiple of 24.6 times but is in fact
attractive given the high growth properties of the companies in this sector. In
earnings terms, that growth measures +27.1% forecasted for 1999 and +26.4% over
the forthcoming five years.
Industry positioning was essentially unchanged during the quarter. The
weighting in the biotechnology/pharmaceuticals industry remains the most heavily
weighted industry. Profits were taken in Amgen, and shares of Warner Chilcott
were sold. Sector weighting changes were also minimal, as business equipment &
services and health care decreased modestly. Technology increased by +2.5% to
47.3%.
INVESTMENT OBJECTIVE AND STRATEGY
---------------------------------
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies which Sit Investment Associates, Inc. expects to benefit from the
development, improvement, advancement and use of science and technology. During
normal market conditions, at least 80% of the Fund's total assets will be
invested in such securities. The Fund emphasizes securities of companies that
the adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 6/30/98: $11.77 Per Share
Total Net Assets: $4.86 Million
PORTFOLIO STRUCTURE
-------------------
(% of total net assets)
[BAR GRAPH]
Biotech./Pharmaceutical 21.7
Computer Software/Services 20.7
Telecom. & Equipment 14.4
Business Equipment & Services 12.9
Computer Related 9.2
Medical Equipment/Supplies 7.4
Medical Facilities Mgmt. 5.6
Semiconductors & Related 3.0
Utilities 1.2
Other Assets and Liabilities 3.9
34
<PAGE>
CUMULATIVE TOTAL RETURNS*
---------------------------------------
Pacific Stock
Science and Exchange
Technology Technology
Growth Fund 100 Index
---------------------------------------
3 Months 5.47% -0.01%
Inception 17.70 19.06
(12/31/98)
* As of 6/30/98
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX.
GROWTH OF $10,000
-----------------
[PLOT POINTS GRAPH]
PSE TECH 100 INDEX
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
The sum of $10,000 invested at inception (12/31/97) and held until 6/30/98 would
have grown to $11,770 in the Fund, or $11,906 in the PSE Tech 100 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
-------------------
* Medtronic, Inc.
* Cisco Systems, Inc.
* Microsoft Corp.
* BMC Software, Inc.
* Ciena Corp.
* Warner Lambert Co.
* Pfizer, Inc.
* Dell Computer Corp.
* Schering Plough Corp.
* Ceridian Corp.
Total number of holdings: 46
35
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
PORTFOLIO OF INVESTMENTS - YEAR ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (96.1%) (2)
BUSINESS EQUIPMENT & SERVICE (12.9%)
2,200 Ceridian Corp. (3) $ 129,250
3,000 Dendrite International, Inc. (3) 112,875
1,950 Fiserv, Inc. (3) 82,814
3,000 Paychex, Inc. 122,063
2,000 Sterling Commerce, Inc. (3) 96,875
800 Xerox Corp. 81,300
------------
625,177
------------
HEALTH CARE (34.7%)
BIOTECHNOLOGY/PHARMACEUTICALS (21.7%)
2,000 Biogen, Inc. (3) 98,000
1,000 Bristol Myers Squibb Co. 114,937
2,000 Elan Corp., p.l.c., A.D.R. (3) 128,625
1,500 Eli Lilly & Co. 99,094
700 Merck & Co., Inc. 93,625
1,300 Pfizer, Inc. 141,294
2,000 Protein Design Labs (3) 48,187
1,500 Schering Plough Corp. 137,438
2,000 Vertex Pharmaceuticals, Inc. (3) 45,000
2,100 Warner Lambert Co. 145,688
------------
1,051,888
------------
MEDICAL EQUIPMENT/ SUPPLIES (7.4%)
1,500 Arterial Vascular Engineering, Inc. (3) 53,625
3,000 Medtronic, Inc. 191,250
3,000 Stryker Corp. 115,125
------------
360,000
------------
MEDICAL FACILITIES MANAGEMENT (5.6%)
3,000 HBO & Co. 105,750
4,500 HEALTHSOUTH Corp. (3) 120,094
3,500 Imnet Systems, Inc. (3) 46,812
------------
272,656
------------
TECHNOLOGY (47.3%)
COMPUTER RELATED (9.2%)
1,500 Dell Computer Corp. (3) 139,219
2,800 EMC Corp. Mass (3) 125,475
1,500 Gateway 2000, Inc. (3) 75,937
2,500 Solectron Corp. (3) 105,156
------------
445,787
------------
COMPUTER SOFTWARE & SERVICES (20.7%)
2,000 Aspen Technologies, Inc. (3) 101,000
3,000 BMC Software, Inc. (3) 155,812
3,000 Cadence Design System, Inc. (3) 93,750
1,700 Check Point Software Technology (3) 55,675
2,000 Computer Associates International, Inc. 111,125
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
3,500 Intelligroup, Inc. (3) $ 62,125
2,600 Legato Systems, Inc. (3) 101,400
1,500 Microsoft Corp. (3) 162,563
2,500 Peoplesoft, Inc. (3) 117,500
2,500 Security Dynamics Technology (3) 46,250
------------
1,007,200
------------
SEMICONDUCTORS & RELATED (3.0%)
3,000 Analog Devices, Inc. (3) 73,687
1,000 Intel Corp. 74,125
------------
147,812
------------
TELECOMMUNICATIONS & EQUIPMENT (14.4%)
3,500 ADC Telecommunications, Inc. (3) 127,859
2,100 Ciena Corp. (3) 146,212
2,000 Cisco Systems, Inc. (3) 184,125
1,500 Globalstar Telecommunications, Inc. (3) 40,500
1,400 Lucent Technologies, Inc. 116,463
1,200 Tellabs, Inc. (3) 85,950
------------
701,109
------------
UTILITIES (1.2%)
4,000 Brightpoint, Inc. (3) 58,000
------------
Total common stocks
(cost: $3,995,918) 4,669,629
------------
CONVERTIBLE BONDS (0.8%) (2)
50,000 Tecnomatix Technologies Conv.
5.25%, 8/15/04 (4) 39,563
------------
(cost: $48,180)
SHORT-TERM SECURITIES (6.1%) (2)
297,000 Federal Natl. Mortgage Assoc.
5.60%, 7/2/98 296,954
------------
(cost: $296,954)
Total investments in securities
(cost: $4,341,052) (8) $ 5,006,146
============
See accompanying notes to portfolios of investments on page 37.
36
<PAGE>
SIT MUTUAL FUNDS
NOTES TO PORTFOLIOS OF INVESTMENTS
(1) Securities are valued by procedures described in note 1 to the financial
statements.
(2) Percentage figures indicate percentage of total net assets.
(3) Presently non-income producing securities.
(4) Securities sold within terms of a private placement memorandum, exempt from
registration under section 144A of the Securities Act of 1933, as amended,
and sold only to dealers in that program or other "accredited investors".
This security has been determined liquid under the guidelines established
by the Board of Directors.
(5) These securities have been identified by the investment adviser as illiquid
securities. The aggregate value of these these securities at June 30, 1998,
is $603,780 and $315,806 in Developing Markets Growth and Small Cap Growth
Funds respectively, which represents 5.2% and 0.5% of the Fund's net
assets, respectively. The following table summarizes the purchase date(s)
and cost basis of these securities:
<TABLE>
<CAPTION>
Purchase
Fund Security Date(s) Shares/Par Cost Basis
------------------------------ ----------------------- ------------------ ------- --------
<S> <C> <C> <C> <C>
Developing Markets Growth Fund Home Centers, A.D.R. 2/28/96 - 3/29/96 24,300 $210,463
Developing Markets Growth Fund PT Dynaplast 1/17/96 - 1/19/97 625,600 184,582
Developing Markets Growth Fund Jollibee Foods 3/30/95 - 10/10/95 299,000 145,971
Small Cap Growth Fund Commodore Applied Tech. 6/28/96 220,400 564,250
</TABLE>
(6) This security represents an investment in an affiliated party and comprises
0.9%, 0.5%, and 0.2% of the Large Cap Growth, International Growth, and Mid
Cap Growth Funds' net assets, respectively. See note 3 to the accompanying
financial statements.
(7) These securities were purchased on a when-issued basis.
(8) At June 30, 1998, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on
that cost were as follows:
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP
GROWTH GROWTH GROWTH BALANCED
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost for federal income tax purposes $ 82,510,375 $ 267,323,394 $ 48,064,546 $ 5,248,878
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 42,806,495 $ 150,603,145 $ 13,734,573 $ 1,894,950
Gross unrealized depreciation (356,170) (10,250,226) (4,243,467) (29,267)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 42,450,325 $ 140,352,919 $ 9,491,106 $ 1,865,683
============= ============= ============= =============
DEVELOPING SCIENCE &
INTERNATIONAL MARKETS REGIONAL TECHNOLOGY
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
Cost for federal income tax purposes $ 70,247,480 $ 12,887,622 $ 4,490,067 $ 4,358,076
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 34,644,486 $ 1,779,511 $ 506,310 $ 799,541
Gross unrealized depreciation (3,994,795) (2,638,847) (110,660) (151,471)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 30,649,691 ($ 859,336) $ 395,650 $ 648,070
============= ============= ============= =============
</TABLE>
37
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - JUNE 30, 1998
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP
GROWTH GROWTH GROWTH BALANCED
FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost ...................... $ 82,411,218 $ 266,625,027 $ 48,064,546 $ 5,248,878
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for
detail ............................... $ 124,960,700 $ 407,676,313 $ 57,555,652 $ 7,114,561
Cash in bank on demand
deposit .............................. 42,956 -- -- 487,628
Receivables:
Dividends and accrued interest ....... 47,949 137,399 15,100 38,960
Fund shares sold ..................... 387,452 1,847,027 22,572 39,922
Investment securities sold ........... 259,124 5,915,917 1,132,709 29,175
Unrealized appreciation on foreign
currency contracts held (Note 1) ... -- -- -- --
Other receivables .................... -- 93 -- 2,260
--------------- --------------- --------------- ---------------
Total assets ....................... 125,698,181 415,576,749 58,726,033 7,712,506
--------------- --------------- --------------- ---------------
LIABILITIES
Disbursements in excess
of cash balances ..................... -- 194,618 53,963 --
Payables:
Investment securities purchased ...... 8,056,021 8,420,843 510,076 279,308
Fund shares redeemed ................. 55,930 2,307,829 617,341 5,848
Accrued investment management
and advisory services fee .......... 89,717 324,220 70,575 5,799
Unrealized depreciation on foreign
currency contracts held (Note 1) ... -- -- -- --
Other payables ....................... 361 1,769 1,707 13
--------------- --------------- --------------- ---------------
Total liabilities .................. 8,202,029 11,249,279 1,253,662 290,968
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock ............ 117,496,152 404,327,470 57,472,371 7,421,538
=============== =============== =============== ===============
Capital stock
Par .................................. $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares .................... 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares ................... 2,381,356 24,526,659 2,824,154 445,012
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock ............ $ 49.34 $ 16.49 $ 20.35 $ 16.68
=============== =============== =============== ===============
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
DEVELOPING SCIENCE AND
INTERNATIONAL MARKETS REGIONAL TECHNOLOGY
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost ...................... $ 69,494,198 $ 12,887,623 $ 4,473,043 $ 4,341,052
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for
detail ............................... $ 100,897,171 $ 12,028,286 $ 4,885,717 $ 5,006,146
Cash in bank on demand
deposit .............................. 1,029,459 4,942 171,289 3,637
Receivables:
Dividends and accrued interest ....... 193,634 2,323 2,701 2,329
Fund shares sold ..................... 24,869 110,707 30,736 7,353
Investment securities sold ........... -- 266,903 24,249 --
Unrealized appreciation on foreign
currency contracts held (Note 1) ... 3,468 607 -- --
Other receivables .................... 2,363 758 70 --
--------------- --------------- --------------- ---------------
Total assets ....................... 102,150,964 12,414,526 5,114,762 5,019,465
--------------- --------------- --------------- ---------------
LIABILITIES
Disbursements in excess
of cash balances ..................... -- -- -- --
Payables:
Investment securities purchased ...... 1,050,770 889,926 127,063 150,475
Fund shares redeemed ................. 1,257,580 -- 1,995 5,891
Accrued investment management
and advisory services fee .......... 121,766 18,993 3,931 4,710
Unrealized depreciation on foreign
currency contracts held (Note 1) ... -- 719 -- --
Other payables ....................... -- -- -- 50
--------------- --------------- --------------- ---------------
Total liabilities .................. 2,430,116 909,638 132,989 161,126
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock ............ 99,720,848 11,504,888 4,981,773 4,858,339
=============== =============== =============== ===============
Capital stock
Par .................................. $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares .................... 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares ................... 5,210,623 1,271,787 442,298 412,928
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock ............ $ 19.14 $ 9.05 $ 11.26 $ 11.77
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements on pages 46-58.
39
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP
GROWTH GROWTH GROWTH BALANCED
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends .......................................... $ 627,706 $ 1,379,379 $ 227,065 $ 35,933
Interest ........................................... 302,882 1,002,872 274,544 155,120
------------ ------------ ------------ ------------
Total income ..................................... 930,588 2,382,251 501,609 191,053
------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee .......................... 880,285 5,020,370 968,377 59,634
Less fees and expenses absorbed
by investment adviser ........................ -- (1,004,074) -- --
------------ ------------ ------------ ------------
Total net expenses ............................... 880,285 4,016,296 968,377 59,634
------------ ------------ ------------ ------------
Net investment income (loss) ..................... 50,303 (1,634,045) (466,768) 131,419
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) (note 2) ................ 12,220,496 82,862,743 10,959,585 548,219
Net change in unrealized appreciation
(depreciation) on investments .................. 14,921,853 (831,087) (3,664,222) 624,195
Realized gain (loss) on foreign
currency transactions .......................... (46) -- -- 5
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) .......................... 83 -- -- --
------------ ------------ ------------ ------------
Net gain (loss) on investments ................. 27,142,386 82,031,656 7,295,363 1,172,419
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... $ 27,192,689 $ 80,397,611 $ 6,828,595 $ 1,303,838
============ ============ ============ ============
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
DEVELOPING SCIENCE AND
INTERNATIONAL MARKETS REGIONAL TECHNOLOGY
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends * ........................................ $ 1,317,011 $ 147,989 $ 14,039 $ 4,861
Interest ........................................... 254,696 58,309 13,885 14,507
------------ ------------ ------------ ------------
Total income ..................................... 1,571,707 206,298 27,924 19,368
------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee ......................... 1,790,014 278,595 23,035 27,931
Less fees and expenses absorbed
by investment adviser ............................ (338,651) -- (3,611) (4,655)
------------ ------------ ------------ ------------
Total net expenses ................................. 1,451,363 278,595 19,424 23,276
------------ ------------ ------------ ------------
Net investment income (loss) ..................... 120,344 (72,297) 8,500 (3,908)
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) (note 2) ................ 6,485,017 (532,256) 26,658 (44,932)
Net change in unrealized appreciation
(depreciation) on investments ................. 874,697 (4,417,826) 412,674 665,094
Realized gain (loss) on foreign
currency transactions ............................ 831,317 (20,693) -- --
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) ......................... (805,596) 550 -- --
------------ ------------ ------------ ------------
Net gain (loss) on investments ................... 7,385,435 (4,970,225) 439,332 620,162
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... $ 7,505,779 ($ 5,042,522) $ 447,832 $ 616,254
============ ============ ============ ============
</TABLE>
* Dividends are net of foreign withholding tax of $1,519 and $130,162 in the
Developing Markets Growth Fund and International Growth Fund, respectively.
See accompanying notes to financial statements on pages 46-58.
41
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
LARGE CAP MID CAP
GROWTH FUND GROWTH FUND
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ............................. $ 50,303 $ 116,342 ($ 1,634,045) ($ 735,402)
Net realized gain (loss) on investments .................. 12,220,496 5,023,320 82,862,743 28,436,883
Net change in unrealized appreciation
(depreciation) on investments .......................... 14,921,853 12,065,384 (831,087) 31,494,086
Net realized gain (loss) on foreign currency transactions. (46) 27 -- --
Net change in unrealized appreciation (depreciation) on
foreign currency transactions .......................... 83 (79) -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations ............................................... 27,192,689 17,204,994 80,397,611 59,195,567
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................... (132,500) (47,000) -- --
Net realized gains on investments ........................ (7,922,500) (3,850,001) (46,136,334) (59,500,008)
------------- ------------- ------------- -------------
Total distributions .................................... (8,055,000) (3,897,001) (46,136,334) (59,500,008)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ................................ 35,549,440 16,419,829 327,420,150 242,840,720
Reinvested distributions ................................. 7,865,696 3,811,428 43,699,380 56,948,223
Payments for shares redeemed ............................. (17,283,050) (14,329,400) (387,596,125) (269,258,711)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions ........................... 26,132,086 5,901,857 (16,476,595) 30,530,232
------------- ------------- ------------- -------------
Total increase in net assets ......................... 45,269,775 19,209,850 17,784,682 30,225,791
NET ASSETS
Beginning of period ...................................... 72,226,377 53,016,527 386,542,788 356,316,997
------------- ------------- ------------- -------------
End of period ............................................ $ 117,496,152 $ 72,226,377 $ 404,327,470 $ 386,542,788
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ..................... $ 66,308,638 $ 40,176,552 $ 204,046,842 $ 222,157,482
Undistributed (distributions in excess of) net
investment income ........................................ 17,320 99,517 -- --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions .................................... 8,620,712 4,322,762 59,229,342 22,502,933
Unrealized appreciation (depreciation) on investments ....... 42,549,482 27,627,629 141,051,286 3,558,489
Unrealized appreciation (depreciation) on foreign
currency transactions .................................... -- (83) -- --
------------- ------------- ------------- -------------
$ 117,496,152 $ 72,226,377 $ 404,327,470 $ 386,542,788
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold ..................................................... 796,463 464,406 20,467,307 16,372,618
Reinvested distributions ................................. 199,890 114,020 3,101,446 3,987,971
Redeemed ................................................. (403,112) (408,921) (24,097,062) (18,171,415)
------------- ------------- ------------- -------------
Net increase (decrease) ..................................... 593,241 169,505 (528,309) 2,189,174
============= ============= ============= =============
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP BALANCED INTERNATIONAL DEVELOPING MARKETS
GROWTH FUND FUND GROWTH FUND GROWTH FUND
- ----------------------------- ------------------------------ ------------------------------ ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
($ 466,768) ($ 434,682) $ 131,419 $ 109,799 $ 120,344 $ 42,419 ($ 72,297) $ 36,639
10,959,585 (912,902) 548,219 200,106 6,485,017 1,640,159 (532,256) 76,993
(3,664,222) 3,290,336 624,195 608,673 874,697 11,953,639 (4,417,826) 2,344,576
-- -- 5 (1) 831,317 (160,526) (20,693) (22,737)
-- -- -- -- (805,596) 806,608 550 (1,147)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
6,828,595 1,942,752 1,303,838 918,577 7,505,779 14,282,299 (5,042,522) 2,434,324
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- -- (127,000) (105,900) (159,683) (72,156) (13,900) --
(2,211,000) (2,420,001) (443,000) (23,900) (3,469,317) (2,161,979) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(2,211,000) (2,420,001) (570,000) (129,800) (3,629,000) (2,234,135) (13,900) --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
86,265,023 73,008,089 2,008,168 735,329 97,772,151 61,912,441 10,606,901 11,729,661
2,167,174 2,389,614 567,624 129,753 3,462,126 2,104,203 13,512 --
(93,935,313) (67,408,659) (991,255) (612,558) (65,498,487) (6,020,654)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(5,503,116) 7,989,044 1,584,537 252,524 (3,435,035) (1,481,843) (227,746) 5,709,007
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(885,521) 7,511,795 2,318,375 1,041,301 441,744 10,566,321 (5,284,168) 8,143,331
58,357,892 50,846,097 5,103,163 4,061,862 99,279,104 88,712,783 16,789,056 8,645,725
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 57,472,371 $ 58,357,892 $ 7,421,538 $ 5,103,163 $ 99,720,848 $ 99,279,104 $ 11,504,888 $ 16,789,056
============= ============= ============= ============= ============= ============= ============= =============
$ 40,267,154 $ 46,237,038 $ 5,230,849 $ 3,646,312 $ 63,131,461 $ 66,566,496 $ 13,300,655 $ 13,621,389
-- -- 35,495 31,076 284,937 193,262 -- 13,902
7,714,111 (1,034,474) 289,511 184,287 4,909,485 1,193,482 (935,567) (403,311)
141,882,373 9,491,106 13,155,328 1,865,683 1,241,488 31,402,973 30,528,276 (859,337)
-- -- -- -- (8,008) 797,588 (863) (1,413)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 57,472,371 $ 58,357,892 $ 7,421,538 $ 5,103,163 $ 99,720,848 $ 99,279,104 $ 11,504,888 $ 16,789,056
============= ============= ============= ============= ============= ============= ============= =============
4,344,293 4,089,297 129,469 54,438 5,340,368 3,718,121 960,282 1,020,359
118,231 130,938 38,770 9,958 213,976 130,858 1,354 --
(4,726,969) (3,769,890) (65,109) (45,668) (5,690,151) (3,947,014) (977,683) (521,868)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(264,445) 450,345 103,130 18,728 (135,807) (98,035) (16,047) 498,491
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements on pages 46-58.
43
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
REGIONAL SCIENCE AND TECHNOLOGY
GROWTH FUND GROWTH FUND
----------- -----------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 (*) 1998(*)
-------- -------
<S> <C> <C>
OPERATIONS
Net investment income (loss) ................................. $ 8,500 $ (3,908)
Net realized gain (loss) on investments ...................... 26,658 (44,932)
Net change in unrealized appreciation
depreciation) on investments ............................... 412,674 665,094
Net realized gain (loss) on foreign currency transactions .... -- --
Net change in unrealized appreciation (depreciation) on
foreign currency transactions .............................. -- --
----------- -----------
Net increase (decrease) in net assets resulting from
operations ................................................. 447,832 616,254
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................ -- --
Net realized gains on investments ............................ -- --
----------- -----------
Total distributions -- --
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .................................... 4,764,788 4,529,940
Reinvested distributions ..................................... -- --
Payments for shares redeemed ................................. (230,847) (287,855)
----------- -----------
Increase (decrease) in net assets from
capital share transactions ............................... 4,533,941 4,242,085
----------- -----------
Total increase in net assets ............................. 4,981,773 4,858,339
NET ASSETS
Beginning of period .......................................... -- --
----------- -----------
End of period ................................................ $ 4,981,773 $ 4,858,339
=========== ===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) ...................... $ 4,533,941 $ 4,238,177
Undistributed (distributions in excess of) net
investment income .......................................... 8,500 --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions .................................... 26,658 (44,932)
Unrealized appreciation (depreciation) on investments 412,674 665,094
Unrealized appreciation (depreciation) on foreign
currency transactions ...................................... -- --
----------- -----------
$ 4,981,773 $ 4,858,339
=========== ===========
CAPITAL TRANSACTIONS IN SHARES:
Sold 463,573 439,554
Reinvested distributions -- --
Redeemed (21,275) (26,626)
----------- -----------
Net increase (decrease) 442,298 412,928
=========== ===========
</TABLE>
*Period since commencement of operations (12/31/97)
See accompanying notes to financial statements on pages 46-58
44
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Sit Mutual Funds (the Funds) are 100% no-load funds, and are registered
under the Investment Company Act of 1940 (as amended) as diversified, open-end
management investment companies, or series thereof. The Sit Developing Markets
Growth, Sit Small Cap Growth, Sit International Growth, Sit Balanced, Sit
Regional Growth and Science and Technology Growth Funds are series funds of Sit
Mutual Funds, Inc..
The Regional Growth and Science and Technology Growth Funds commenced operations
on December 31, 1997. The only transactions for these funds prior to that date
was the sale of 10 shares for $100 in each of the funds to Sit Investment
Associates, Inc. on December 23, 1997.
This report covers the stock funds of the Sit Mutual Funds. The investment
objective for each Fund is as follows:
FUND INVESTMENT OBJECTIVE
Large Cap Growth Maximize long-term capital appreciation
and, secondarily current income.
Mid Cap Growth Maximize long-term capital appreciation.
Small Cap Growth Maximize long-term capital appreciation.
Balanced Long-term capital appreciation consistent
with the preservation of principal and to
provide regular income.
International Growth Maximize long-term capital appreciation.
Developing Markets Growth Maximize long-term capital appreciation.
Regional Growth Fund Maximize long-term capital appreciation.
Science and Technology Growth Maximize long-term capital appreciation.
Significant accounting policies followed by the Funds are summarized below:
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges or on the NASDAQ National Market System are valued at the last quoted
sales price prior to the time when assets are valued; securities traded in the
over-the-counter market and listed securities for which no sale was reported on
that date are valued at the last bid price; foreign securities that are
purchased in the form of American Depository Receipts (ADRs) are valued in
United States dollars at the latest quoted price on the national securities
exchange on which the ADR is traded. When market quotations are not readily
available, securities are valued at fair value based on procedures determined in
good faith by the Board of Directors. Such fair values are determined using
prices quoted by independent brokers or pricing services. Securities maturing
more than 60 days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those securities with
maturities of less than 60 days when acquired, or which subsequently are within
60 days of maturity, are valued at amortized cost, which approximates market
value.
Security transactions are accounted for on the date the securities are purchased
or sold. Securities gains and losses are calculated on the identified-cost
basis. Dividend income is recorded on the ex-dividend date or upon the receipt
of ex-dividend notification in the case of certain foreign securities. Interest,
including level-yield amortization of long-term bond premium and discount, is
recorded on the accrual basis.
Delivery and payment for securities which have been purchased by the Balanced
Fund on a when-issued basis can take place a month or more after the transaction
date. During this period, such securities are subject to market fluctuations and
may increase or decrease in value prior to delivery. The Fund maintains, in a
segregated account with its custodian, assets with a market value equal to the
amount of its purchase commitments. As of June 30, 1998, the Balanced Fund had
entered into when-issued commitments of $63,700.
46
<PAGE>
ILLIQUID SECURITIES
Each Fund currently limits investments in illiquid securities to 15% of net
assets. At June 30, 1998, the Developing Markets Growth Fund and Small Cap
Growth Fund held investments in securities deemed illiquid by the investment
adviser. The aggregate value of such securities at June 30, 1998, was $603,780
and $315,806, representing 5.2% and 0.5% of the Fund's net assets, respectively.
Pursuant to the guidelines adopted by the Board of Directors, certain
unregistered securities are determined to be liquid and are not included within
the limitation specified above.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
The market value of securities and other assets and liabilities denominated in
foreign currencies for Developing Markets Growth Fund and International Growth
Fund are translated daily into U.S. dollars at the closing rate of exchange.
Purchases and sales of securities, income and expenses are translated at the
exchange rate on the transaction date. Dividend and interest income includes
currency exchange gains (losses) realized between the accrual and payment dates
on such income. Exchange gains (losses) may also be realized between the trade
and settlement dates on security and forward contract transactions. For
securities denominated in foreign currencies, the effect of changes in foreign
exchange rates on realized and unrealized gains or losses is reflected as a
component of such gains or losses.
The Developing Markets Growth and International Growth Funds may enter into
forward foreign currency exchange contracts for operational purposes and to
protect against adverse exchange rate fluctuation. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the Funds and
the resulting unrealized appreciation or depreciation are determined using
foreign currency exchange rates from an independent pricing service. The Funds
are subject to the credit risk that the other party will not complete the
obligations of the contract.
At June 30, 1998, the Developing Markets Growth Fund and International Growth
Fund had entered into foreign currency exchange contracts that obligate the Fund
to deliver currencies at specified future dates. The unrealized appreciation
and/or depreciation on these contracts is included in the accompanying financial
statements. The terms of the open contracts are as follows:
DEVELOPING MARKETS GROWTH FUND:
Exchange date Currency to be Currency to be Unrealized
delivered received appreciation
(depreciation)
------------------------------------------------------------------------
July 2, 1998 114,214 884,842 $ (12)
U.S. Dollar Hong Kong Dollar
July 1, 1998 111,938 1,002,968 (318)
U.S. Dollar Mexican Peso
July 2, 1998 172,464 31,949,000 607
U.S. Dollar Portugal Escudo
July 2, 1998 56,288 64,990 (94)
U.S. Dollar Brazil Real
July 2, 1998 139,261 76,940 (295)
Deutsche Mark U.S. Dollar -------
$ (112)
47
<PAGE>
INTERNATIONAL GROWTH FUND:
Exchange date Currency to be Currency to be Unrealized
delivered received appreciation
- --------------------------------------------------------------------------------
July 2, 1998 153,220 21,665,374 $ 3,468
U.S. Dollar Japanese Yen
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
Also, in order to avoid the payment of any federal excise taxes, the Funds will
distribute substantially all of their net investment income and net realized
gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes. The character of distributions made during the year for net
investment income or net realized gains may also differ from its ultimate
characterization for tax purposes. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gain (losses) were recorded by the fund.
Undistributed net investment income and accumulated net realized gains (losses)
from the Statement of Changes in Net Assets have been increased (decreased) by
current permanent book-to-tax differences resulting in reclassification of
additional paid-in capital as follows:
Undistributed Accumulated Additional
net invest. net realized paid-in
income gains (losses) capital
------ -------------- -------
Developing Markets Growth 72,295 20,693 (92,988)
Small Cap Growth 466,768 ---- (466,768)
International Growth 131,014 (131,014) ----
Mid Cap Growth 1,634,045 ---- (1,634,045)
Science and Technology Growth 3,908 ---- (3,908)
For federal income tax purposes the Developing Markets Growth Fund has a capital
loss carryover of $935,567 at June 30, 1998 which, if not offset by subsequent
capital gains, will begin to expire in 2004. It is unlikely that the Board of
Directors will authorize a distribution of net realized gains until the
available capital loss carryover is offset or expires.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of business on the
record date. Such distributions are payable in cash or reinvested in additional
shares of the Funds' capital stock. Distributions from net investment income, if
any, are declared and paid quarterly for the Balanced Fund and declared and paid
annually for Regional Growth, Science and Technology Growth, Developing Markets
Growth, Small Cap Growth, International Growth, Mid Cap Growth, and Large Cap
Growth Funds. Distributions from net realized gains, if any, will be made
annually for each of the Funds.
48
<PAGE>
NOTE 2 - INVESTMENT SECURITY TRANSACTIONS
CONCENTRATION OF INVESTMENTS
The Developing Markets Growth Fund may concentrate investments in countries with
limited or developing capital markets which may involve greater risks than
investments in more developed markets and the prices of such investments may be
volatile. The consequences of political, social or economic changes in these
markets may have disruptive effects on the market prices of the Fund's
investments and the income it generates, as well as the Fund's ability to
repatriate such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results. Actual results could differ from those
estimates.
Purchases of and proceeds from sales and maturities of investment securities,
other than short-term securities, for the period ended June 30, 1998, were as
follow:
Purchases Proceeds
--------- --------
Large Cap Growth Fund $53,236,135 $36,424,371
Mid Cap Growth Fund 197,112,748 261,733,028
Small Cap Growth Fund 47,494,811 52,649,520
Balanced Fund 4,281,355 3,281,666
International Growth Fund 40,615,483 44,100,218
Developing Markets Growth Fund 6,707,958 6,738,493
Regional Growth Fund 5,192,674 746,291
Science and Technology Growth Fund 4,787,188 698,287
NOTE 3 - EXPENSES
INVESTMENT ADVISER
The Funds each have entered into an investment management agreement with Sit
Investment Associates Inc. (SIA), under which SIA manages the Fund's assets and
provides research, statistical and advisory services, and pays related office
rental, executive expenses and executive salaries. The fee for investment
management and advisory services is based on the average daily net assets of the
Funds at the annual rate of:
Contractual Net of Adviser's
Management Voluntary Fee
Fee Waiver
--- ------
Large Cap Growth Fund 1.00% 1.00%
Mid Cap Growth Fund 1.25% 1.00%
Small Cap Growth Fund 1.50% 1.50%
Balanced Fund 1.00% 1.00%
International Growth Fund 1.85% 1.50%
Developing Markets Growth Fund 2.00% 2.00%
Regional Growth Fund 1.00% 1.00%
Science and Technology Growth Fund 1.50% 1.25%
49
<PAGE>
SIA is obligated to pay all of the Funds' expenses (excluding extraordinary
expenses, stock transfer taxes, interest, brokerage commissions and other
transaction charges relating to investing activities).
For the period November 1, 1996 through December 31, 1998 the Adviser has agreed
to limit the management fee (and, thereby, all fund expenses, except those not
payable by the fund as set forth above) of the Mid Cap Growth Fund to 1.00% of
the Fund's average daily net assets. For the period January 1, 1994 through
December 31, 1998, the Adviser has agreed to limit the management fee (and,
thereby, all fund expenses, except those not payable by the fund as set forth
above) of the International Growth Fund to 1.50% of the Fund's average daily net
assets. For the period January 1, 1998 through December 31, 1998, the Adviser
has agreed to limit the management fee (and, thereby, all fund expenses, except
those not payable by the fund as set forth above) of the Regional Growth and
Science and Technology Growth Funds to 1.00% and 1.25%, respectively, of the
Fund's average daily net assets. After December 31, 1998, these voluntary fee
waivers may be discontinued by the Adviser in its sole discretion. During the
period ended June 30, 1998, for the International Growth, Mid Cap Growth,
Regional Growth and Science and Technology Growth Funds, SIA voluntarily
absorbed an additional $338,651, $1,004,074, $3,611 and $4,655 respectively, in
expenses that were otherwise payable by the Funds.
As of June 30, 1998, the Large Cap Growth Fund, International Growth Fund, and
Mid Cap Growth Fund had invested $1,000,000, $500,000, and $1,000,000,
respectively, in the Sit Money Market Fund. The terms of such transactions were
identical to those of non-related entities except that, to avoid duplicate
investment advisory fees, SIA remits to each Fund an amount equal to all fees
otherwise due to them under their investment management agreement for the assets
invested in the Sit Money Market Fund.
INVESTMENT SUB-ADVISER
SIA has entered into a sub-advisory arrangement with an affiliated international
investment adviser, Sit/Kim International Investment Associates, Inc. ("SKI").
SKI provides investment research information and portfolio management service
for the Developing Markets Growth Fund and International Growth Fund. Generally,
as compensation for its services under the sub-advisory agreement, SIA pays SKI
a monthly fee of 1/12 of .75% on the first $100 million of each Fund's average
daily net assets, 1/12 of .50% on the next $100 million of average daily net
assets and 1/12 of .40% of average daily net assets in excess of $200 million.
SKI has agreed to waive any fees under the agreement to the extent that
cumulative out of pocket expenses of each Fund borne by SIA exceed the
cumulative fees received by SIA pursuant to each Fund's investment management
agreement. In accordance with the Agreement, fees of $732,239 were paid or
payable to SKI for the year ended June 30, 1998.
TRANSACTIONS WITH AFFILIATES
The investment adviser, affiliates of the investment adviser, directors and
officers of the Funds as a whole owned the following shares as of June 30, 1998:
% Shares
Shares Outstanding
------ -----------
Large Cap Growth Fund 413,189 17.35%
Mid Cap Growth Fund 3,170,057 12.93
Small Cap Growth Fund 892,849 31.62
Balanced Fund 126,881 28.51
International Growth Fund 957,939 18.38
Developing Markets Growth Fund 336,352 26.45
Regional Growth Fund 118,823 26.86
Science and Technology Growth Fund 127,761 30.94
NOTE 4 - FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock outstanding during the period and
selected supplemental and ratio information for each period(s), are indicated in
the following Financial Highlights for each Fund.
50
<PAGE>
SIT LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 40.39 $ 32.75 $ 28.38 $ 23.89 $ 25.61
- ---------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .02 .07 .04 .11 .23
Net realized and unrealized gains
(losses) on investments 13.17 10.02 6.61 5.88 (.33)
- ---------------------------------------------------------------------------------------------------------------
Total from operations 13.19 10.09 6.65 5.99 (.10)
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.07) (.03) (.04) (.09) (.23)
From realized gains (4.17) (2.42) (2.24) (1.41) (1.39)
- ---------------------------------------------------------------------------------------------------------------
Total distributions (4.24) (2.45) (2.28) (1.50) (1.62)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 49.34 $ 40.39 $ 32.75 $ 28.38 $ 23.89
- ---------------------------------------------------------------------------------------------------------------
Total investment return (1) 35.33% 32.36% 24.48% 26.33% (0.58%)
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $117,496 $72,226 $53,017 $45,211 $34,612
- ---------------------------------------------------------------------------------------------------------------
RATIOS:
Expenses to average daily net assets 1.00% 1.00%(2) 1.00%(2) 1.00%(2) 1.10%(2)
Net investment income to average daily
net assets 0.06% 0.20%(2) 0.14%(2) 0.42%(2) 0.89%(2)
Average brokerage commission rate (3) $ 0.0550$ 0.0560 n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) 43.61% 32.23% 49.99% 67.14% 73.62%
</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) 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%,(.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.
51
<PAGE>
SIT MID CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
Per share amounts prior to December 10, 1993 have been restated to reflect the
4 to 1 stock split.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 15.43 $ 15.58 $ 13.00 $ 11.08 $ 11.91
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.07) (.03) (0.4) -- (.01)
Net realized and unrealized gains
(losses) on investments 3.15 2.50 4.07 2.96 (.51)
- ----------------------------------------------------------------------------------------------------------------
Total from operations 3.08 2.47 4.03 2.96 (.52)
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- -- (.02)
From realized gains (2.02) (2.62) (1.45) (1.04) (.29)
- ----------------------------------------------------------------------------------------------------------------
Total distributions (2.02) (2.62) (1.45) (1.04) (.31)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 16.49 $ 15.43 $ 15.58 $ 13.00 $ 11.08
- ----------------------------------------------------------------------------------------------------------------
Total investment return (1) 22.19% 17.23% 33.00% 28.44% (4.62%)
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of year (000's omitted) $404,327 $386,543 $356,317 $327,879 $285,175
RATIOS:
Expenses to average daily net assets 1.00%(2) 0.92%(2) 0.77% 0.83% 0.82%
Net investment income (loss) to average
daily net assets (0.41%)(2) (0.20%)(2) (0.23%) 0.02% (0.08%)
Average brokerage commission rate (3) $ 0.0540 $ 0.0510 n/a n/a n/a
Portfolio turnover rate (excluding short-term
securities) 52.62% 38.66% 50.38% 75.40% 46.71%
</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. However, 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.
52
<PAGE>
SIT SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $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 period $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 period (000's 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 investment 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.
53
<PAGE>
SIT BALANCED FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30, Period Ended
------------------------------------------------ June 30,
1998 1997 1996 1995 1994 (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 (000's 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%
Net investment income to average daily
net assets 2.20% 2.48% 2.61% 2.97% 2.87%
Average brokerage commission rate (3) $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) 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.
54
<PAGE>
SIT INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $18.57 $16.29 $15.71 $14.87 $11.99
- -----------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) .02 .01 .02 .09 (.04)
Net realized and unrealized gains
on investments 1.25 2.70 1.50 1.06 3.08
- -----------------------------------------------------------------------------------------------------------------
Total from operations 1.27 2.71 1.52 1.15 3.04
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.03) (.01) (.09) (.04) (.10)
From realized gains (.67) (.42) (.85) (.27) (.06)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.70) (.43) (.94) (.31) (.16)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $19.14 $18.57 $16.29 $15.71 $14.87
- -----------------------------------------------------------------------------------------------------------------
Total investment return (1) 7.50% 17.04% 10.21% 7.86% 25.26%
- -----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $99,721 $99,279 $88,712 $68,125 $63,699
- -----------------------------------------------------------------------------------------------------------------
RATIOS:
Expenses to average daily net assets 1.50%(2) 1.50%(2) 1.50%(2) 1.50%(2) 1.65%(2)
Net investment income (loss) to average
daily net assets 0.12%(2) 0.05%(2) 0.13%(2) 0.62%(2) (0.16%)(2)
Average brokerage commission rate (3) $0.0180 $0.0060 n/a n/a n/a
Portfolio turnover rate (excluding short-term
securities) 43.74% 41.59% 38.55% 40.42% 42.48%
</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) 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
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.
(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. The comparability of
this information may be affected by the fact that commission rates per share
vary significantly among foreign countries.
55
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $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 period $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 period (000's 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 (loss) 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. The comparability of
this information may be affected by the fact that commission rates per share
vary significantly among foreign countries.
56
<PAGE>
SIT REGIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended
June 30,
1998
- --------------------------------------------------------------------------------
NET ASSET VALUE:
Beginning of period $10.00
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income .02
Net realized and unrealized gains 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 period $11.26
- --------------------------------------------------------------------------------
Total investment return (1) 12.60%
- --------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $4,982
RATIOS:
Expenses to average net assets 1.00% (2)
Net investment income to average daily net assets 0.44% (2)
Average brokerage commission rate (3) $0.0569
Portfolio turnover rate (excluding short-term securities) 19.71%
- ----------
(1) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
(2) 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%.
(3) 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.
57
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
FINANCIAL HIGHLIGHTS
Six Months
Ended
June 30,
1998
- --------------------------------------------------------------------------------
NET ASSET VALUE:
Beginning of period $10.00
- --------------------------------------------------------------------------------
Operations:
Net investment income (.01)
Net realized and unrealized gains 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 (1) 17.70%
- --------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $4,858
RATIOS:
Expenses to average net assets 1.25% (2)
Net investment income to average daily net assets (0.21%)(2)
Average brokerage commission rate (3) $0.0510
Portfolio turnover rate (excluding short-term securities) 19.37%
- ----------
(1) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
(2) 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%).
(3) 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.
58
<PAGE>
SIT MUTUAL FUNDS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sit Large Cap Growth Fund, Inc.
Sit Mid Cap Growth Fund, Inc.
Sit Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolios of investments in securities of Sit Large
Cap Growth Fund, Inc., Sit Mid Cap Growth Fund, Inc., Sit Small Cap Growth Fund
(a series of Sit Mutual Funds, Inc.), Sit Balanced Fund (a series of Sit Mutual
Funds, Inc.), Sit International Growth Fund (a series of Sit Mutual Funds,
Inc.), Sit Developing Markets Growth Fund (a series of Sit Mutual Funds, Inc.),
Sit Regional Growth Fund (a series of Sit Mutual Funds, Inc.), and Sit Science
and Technology Growth Fund (a series of Sit Mutual Funds, Inc.) as of June 30,
1998; the related statements of operations for the period ended June 30, 1998;
the statements of changes in net assets for each of the periods in the two-year
period ended June 30, 1998; and the financial highlights as presented in note 4
to the financial statements. These financial statements and the financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Sit Large Cap Growth Fund, Sit Mid Cap Growth Fund, Sit Small Cap
Growth Fund, Sit Balanced Fund, Sit International Growth Fund, Sit Developing
Markets Growth Fund, Sit Regional Growth Fund, and Sit Science and Technology
Growth Fund as of June 30, 1998 and the results of their operations, the changes
in their net assets, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 21, 1998
59
<PAGE>
SIT MUTUAL FUNDS
FEDERAL INCOME TAX INFORMATION
We are required by Federal tax regulations to provide shareholders with
certain information regarding dividend distributions on an annual fiscal year
basis. The figures are for informational purposes only and should not be used
for reporting to federal or state revenue agencies. All necessary tax
information will be mailed in January each year.
20 PERCENT 28 PERCENT
ORDINARY CAPITAL CAPITAL
FUND AND PAYABLE DATE INCOME (a) GAIN GAIN
- --------------------- ---------- ---- ----
Large Cap Growth Fund
December 16, 1997 $0.07794(b) $ 1.75 $2.40756
======== ====== ========
Mid Cap Growth Fund
December 16, 1997 $0.00000 $ 2.01 $0.00000
======== ====== ========
Small Cap Growth Fund
December 16, 1997 $0.00000 $ 0.38 $0.29520
======== ====== ========
Balanced Fund
October 8, 1997 $0.09108 $ ---- $ ----
December 16, 1997 0.12744 0.56 0.62471
April 8, 1998 0.07886 ---- ----
July 7, 1998 0.07614 ---- ----
-------- ------ --------
$0.37353(d) $ 0.56 $0.62471
======== ====== ========
International Growth Fund
December 16, 1997 $0.19012(c) $ 0.2 $0.28864
======== ====== ========
Developing Markets Growth Fund
December 16, 1997 $0.01132(c) $ 0.00 $0.00000
======== ====== ========
(a) Includes distributions of short-term gains, if any, which are taxable as
ordinary income.
(b) Taxable as dividend income, 100% qualifying for dividends-received deduction
by corporations.
(c) Taxable as dividend income and does not qualify for dividends-received
deduction by corporations.
(d) Taxable as dividend income, 22.72% qualifying for dividends-received
deduction by corporations.
60
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds is managed by Sit Investment Associates, Inc. Sit
Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment currently manages approximately $5.9 billion as of
March 31, 1998, for some of America's largest corporations, foundatins and
endowments.
Sit Mutual Funds is comprised of thirteen 100% NO-LOAD funds. 100% NO-LOAD
means that the funds have no sales charges on purchases, no deferred sales
charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar
you invest goes to work for you.
Some of the other features include:
* Free telephone exchange
* Dollar-cost averaging through automatic investment plan.
* Electronic transfer of funds for purchases and redemptions
* Free check-writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) Plans
SIT FAMILY OF FUNDS
[GRAPH]
STABILITY: INCOME: GROWTH: HIGH GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and appreciation
income
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
PRINCIPAL STABILITY GROWTH
& CURRENT INCOME POTENTIAL
<PAGE>
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
William E. Franzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips
Director Emeritus:
Melvin C. Dahle
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 - Sales
Michael J. Radner 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
<PAGE>
ANNUAL REPORT STOCK FUNDS
YEAR ENDED JUNE 30, 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
INTERNATINAL GROWTH FUND)
SIT/KIM INTERNATINAL INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-3580
