STOCK FUNDS QUARTERLY REPORT
QUARTER ENDED SEPTEMBER 30, 1999
A FAMILY OF NO-LOAD FUNDS
-------------------------
BALANCED FUND
LARGE CAP GROWTH FUND
REGIONAL GROWTH FUND
MID CAP GROWTH FUND
INTERNATIONAL GROWTH FUND
SMALL CAP GROWTH FUND
SCIENCE AND TECHNOLOGY GROWTH FUND
DEVELOPING MARKETS GROWTH FUND
[LOGO]
SIT MUTUAL FUNDS
----------------------------
THE INVESTMENT IS MUTUAL(SM)
www.sitfunds.com
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SIT MUTUAL FUNDS
STOCK FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
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Chairman's Letter 1
Performance Review 2
Fund Reviews
- ----------------------------------------------------------------------------
Balanced Fund 4
Large Cap Growth Fund 6
Regional Growth Fund 8
Mid Cap Growth Fund 10
International Growth Fund 12
Small Cap Growth Fund 14
Science And Technology Growth Fund 16
Developing Markets Growth Fund 18
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[PHOTO] SIT MUTUAL FUNDS
Quarter Ended September 30, 1999 [LOGO]
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Chairman's Letter
Dear Fellow Shareholders:
The third quarter of 1999 was a challenging period for equity investing.
Despite mixed signals on inflation, interest rates have begun to rise recently
and investors remain concerned about future Federal Reserve action.
Economic Overview
Although the recent strength in the global economy has reinvigorated
corporate profit growth, investors remain preoccupied with rising interest rates
amid potential signals of an imminent re-acceleration of inflation. Second
quarter GDP came in at a rather modest +1.6%; however, we believe that third
quarter economic growth is likely to be much stronger. Indications are that
consumer spending - which accounts for over two-thirds of GDP - was robust
during the third quarter. In addition, a rebound in inventory building
(particularly ahead of Y2K) and government spending (given the surplus) provide
further support for a significant sequential increase in quarterly GDP. Our
third quarter forecast is +4.5%.
As has been the case for most of 1999, mixed signals on inflation have caused
significant volatility in the financial markets. While we are not forecasting
runaway inflation over the coming months, inflation statistics could creep
higher based on ongoing domestic economic strength, tight labor markets, a
recovering global economy, and rising commodity prices (particularly oil). We
believe the CPI will continue to trend modestly higher in the months ahead and
average +2.5% in 2000, up from +2.1% in 1999. Largely based on tight labor
market conditions, the Federal Reserve assumed a tightening bias after the
October 5th meeting, although interest rates were left unchanged. We believe the
Federal Reserve will be hesitant to act toward the end of the year, given the
uncertainty surrounding Y2K.
Arguments continue over the budget surplus, which President Clinton recently
announced is forecast to be $115 billion for the most recent fiscal year. As was
expected, Congress failed to complete the thirteen appropriations bills on time,
and opted for a three-week stop-gap bill to keep federal agencies open and
enable the task to be completed. From a longer-term perspective, fiscal issues
remain unresolved. President Clinton vetoed the $792 billion Republican tax-cut
plan, but remained open to long-term solutions to the issues of taxation,
domestic spending, Medicare, and Social Security. Debates over these issues will
be focal points in next year's elections.
Equity Strategy Summary
Domestic equity indices were mostly lower in the third quarter, as inflation
and interest rate concerns overwhelmed the strong earnings reports throughout
the quarter. The stock market's primary worries have been a generally high level
of current valuation, signs of inflationary stress points in some areas (mainly
commodities), rising interest rates, and uncertainty over the Federal Reserve's
course of action. The strengthening global economies that have prompted
inflation fears have also produced a positive offset for the market: very strong
corporate profits. Operating profits for the S&P 500 Index increased +14% in the
second quarter and may increase by over +20% in the final two quarters of 1999,
largely due to the rebound in the energy and financial sectors and continuing
strong profits in technology.
We have reminded investors that the remarkable, above-trend market returns
experienced over the last several calendar years should not be extrapolated in
the future. Our objective is to seek secular growth opportunities that will
reward investors over the long-term, even under more "normal' equity market
conditions. The Sit Mutual Funds equity portfolios maintain a significant
overweighted position in the technology sector. There are multiple themes that
currently are driving technology spending, including telecommunications
innovation, E-commerce, Internet infrastructure, and the recovery in the
semiconductor industry. Investors have been rewarded for investing in this
sector in 1999, as the technology-dominated NASDAQ composite index has increased
+25.2% this year, well ahead of the +5.4% return for the S&P 500 Index.
Performance was mixed in the international equity markets during the quarter.
European markets advanced slightly, benefiting from a +3.5% increase in the
value of the euro. We believe the outlook remains quite positive for the
European region, as the long-term benefits of privatization, corporate
restructuring, EMU monetary and currency integration, and the orientation of
pension funds toward equities are key factors providing long-term support for
market valuations. Only partially giving back the strong gains achieved during
the first half of 1999, Asian equity markets lost some ground during the
quarter. Most notably, Japanese stocks rose as economic data signaled that a
long overdue recovery in Japan may be underway.
We appreciate your interest and investment in the Sit Mutual Funds, and we
look forward to assisting you in achieving your long-term investment goals.
1
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SIT MUTUAL FUNDS
Quarter Ended September 30, 1999
- --------------------------------------------------------------------------------
Performance Summary - Stock Funds
Global equity markets provided mixed results during the third quarter of
1999. U.S. stocks declined modestly each month during the quarter as rising
interest rates won out over strong corporate earnings reports in the ongoing
"tug of war." Virtually all major domestic indices declined during the quarter,
with only modest differences in returns across market capitalizations. The S&P
500 Index declined -6.3%, the Russell 2000 Index fell -6.3%, and the S&P MidCap
Index dropped -8.4%.
Following the "bounce" during the second quarter in cyclical/value issues,
growth indices outperformed their value counterparts during the third quarter.
The Russell 1000 Growth Index declined -3.7%, while the Russell 1000 Value Index
fell -9.8%. This trend was also relevant in small capitalization stock indices,
with the Russell 2000 Growth Index declining -4.9% in the quarter compared to
the -7.8% decline for the Russell 2000 Value Index. The remarkable performance
of technology stocks continues to lead growth stock outperformance. We estimate
that the return for the electronic technology sector within the S&P 500 Index
was +5.3% for the quarter and +32.0% for the last nine months, significantly
outperforming the comparable total S&P 500 Index returns of -6.2% and +5.4%.
The technology-dominated NASDAQ composite index was the only major index that
posted a positive return for the quarter, rising +2.2%.
Relative to the U.S., European and Asian markets produced somewhat better
returns during the quarter. Continued signals that the Japanese economy is
recovering propelled Japanese stocks higher and lifted the MSCI Pacific Index
+11.4% for the quarter, though many other Asian markets were modestly lower
after a very strong first half of 1999. Despite signs that economic growth is
finally picking up across Europe, European stocks were only slightly higher
during the quarter as the MSCI Europe Index increased +1.2%. Continued political
and economic uncertainties were behind negative returns in most Latin American
markets. Brazil and Mexico had significant declines of -13.6% and -13.4%,
respectively.
1987 1988 1989
-------------------------------
SIT BALANCED -- -- --
SIT LARGE CAP GROWTH 5.32% 5.33% 32.02%
SIT REGIONAL GROWTH -- -- --
SIT MID CAP GROWTH 5.50 9.77 35.15
SIT INTERNATIONAL GROWTH -- -- --
SIT SMALL CAP GROWTH -- -- --
SIT SCIENCE AND TECHNOLOGY GROWTH -- -- --
SIT DEVELOPING MARKETS GROWTH -- -- --
S&P 500 INDEX (2) 5.28 16.55 31.61
S&P MIDCAP 400 INDEX (2) -2.04 20.87 35.55
MSCI EAFE INDEX (3) -- -- --
RUSSELL 2000 INDEX (4) -- -- --
PSE TECH 100 INDEX -- -- --
MSCI EMERGING MARKETS FREE INDEX (5) -- -- --
NASDAQ
SYMBOL INCEPTION
------ ---------
SIT BALANCED SIBAX 12/31/93
SIT LARGE CAP GROWTH SNIGX 09/02/82
SIT REGIONAL GROWTH n/a 12/31/97
SIT MID CAP GROWTH NBNGX 09/02/82
SIT INTERNATIONAL GROWTH SNGRX 11/01/91
SIT SMALL CAP GROWTH SSMGX 07/01/94
SIT SCIENCE AND TECHNOLOGY GROWTH SISTX 12/31/97
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
S&P 500 INDEX (2)
S&P MIDCAP 400 INDEX (2)
MSCI EAFE INDEX (3)
RUSSELL 2000 INDEX (4)
PSE TECH 100 INDEX
MSCI EMERGING MARKETS FREE INDEX (5)
(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.
2
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TOTAL RETURN - CALENDAR YEAR
<TABLE>
<CAPTION>
YTD
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- -0.33% 25.43% 15.80% 21.73% 21.30% 3.95%
-2.37% 32.72% 4.94% 3.15% 2.83 31.66 23.05 31.70 30.56 5.88
-- -- -- -- -- -- -- -- 23.05 0.49
-2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 16.92
-- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 9.16
-- -- -- -- 11.57(1) 52.16 14.97 7.63 1.97 26.75
-- -- -- -- -- -- -- -- 38.40 19.87
-- -- -- -- -2.02(1) -4.29 17.27 -5.20 -24.93 23.17
-3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 5.36
-5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 -2.10
-- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 8.53
-- -- -- -- 4.61 28.45 16.49 22.36 -2.54 2.37
-- -- -- -- -- -- -- -- 54.60 39.71
-- -- -- -- 2.80 -6.94 3.92 -13.40 -27.52 30.80
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED SEPTEMBER 30, 1999
TOTAL RETURN -----------------------------------------------------------
QUARTER SIX MONTHS SINCE
ENDED 9/30/99 ENDED 9/30/99 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------------------------ -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-1.28% -0.78% 18.50% 16.97% 17.52% -- 14.89%
-2.54 -1.21 29.75 23.71 24.35 15.63% 16.59
-6.30 0.24 28.27 -- -- -- 12.92
4.06 15.67 37.56 14.39 19.20 14.94 18.47
7.30 11.58 30.96 12.46 9.57 -- 12.42
11.71 32.60 46.48 10.66 20.18 -- 20.95
8.93 20.22 50.41 -- -- -- 33.59
-4.11 23.80 37.50 -4.53 -2.64 -- -0.70
-6.25 0.36 27.80 25.09 25.03 16.83 18.46
-8.40 4.57 25.50 17.83 18.59 15.64 17.97
4.39 7.04 30.95 10.43 9.12 -- 8.91
-6.32 8.25 19.07 8.70 12.39 -- 13.12
4.62 26.19 96.26 -- -- -- 55.36
-5.50 16.38 53.44 -6.64 -7.49 -- -3.79
</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
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
3
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[PHOTO] SIT BALANCED FUND
Quarter Ended September 30, 1999
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Peter L. Mitchelson, CFA, Senior Portfolio Manager
Bryce A. Doty, CFA, Senior Portfolio Manager
The Sit Balanced Fund posted strong relative performance during the third
quarter of calendar 1999. The Fund's decline of -1.3% for the period compared
favorably with the -4.4% decrease for the Lipper Balanced Fund Index and ranked
in the 4th percentile out of 452 funds in the Lipper Balanced Fund universe. The
Fund ranked in the 13th and 10th percentiles for the 1-year and 5-year periods
ended September 30th, respectively.
Within the equity portion of the portfolio, the strong performance of
technology stocks contributed to the positive relative performance for the Fund.
The portfolio will continue to have a significant overweighting in this sector,
as several secular trends are leading to dynamic earnings growth potential for
technology companies. The portfolio's emphasis on technology and other high
growth sectors has resulted in a significantly higher growth rate for the
portfolio relative to the broader market. At the end of September, the 2000
projected earnings gain for the companies held in the Fund was +22.6%, well
above the projected +8.0% earnings increase for the S&P 500. Notable sector
weighting changes included an increase in electronic technology and technology
services and a decrease in finance. The finance weighting was reduced through
sales of Merrill Lynch and Chase Manhattan and sector performance. Purchases
during the quarter included Nokia, First Data, Microsoft and Sprint.
During the quarter, yields rose modestly across most maturities, while the
yield curve remained relatively stable. U.S. Treasury securities outperformed
corporate bonds due to a flood of corporate supply and Year 2000-related
concerns that contributed to a flight to quality. The fixed income portion of
the Fund currently maintains a neutral duration relative to the benchmark Lehman
Aggregate Bond Index as we expect interest rates to be fairly stable in the
coming months. We have recently reduced the overweighted position in U.S.
Treasuries and shifted the emphasis to corporate and asset-backed securities in
anticipation of reduced liquidity fears as year-end approaches.
As of September 30th, the Fund was 56.5% invested in equity securities (up
from 55% at the end of June), 40.8% in fixed income securities (up from 35%),
and 2.7% in cash equivalents (down from 10%).
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 9/30/99: $17.07 Per Share
6/30/99: $17.38 Per Share
Total Net Assets: $12.3 Million
QUARTERLY DIVIDEND: $ 0.09 PER SHARE
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[PIE CHART]
Cash Equivalents 2.7%
Bonds 40.8%
Stocks 56.5%
4
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AVERAGE ANNUAL TOTAL RETURNS*
SIT LEHMAN
BALANCED S&P AGGREGATE
FUND 500 INDEX BOND INDEX
-------- --------- ----------
3 Months** -1.28% -6.25% 0.68%
1 Year 18.50 27.80 -0.37
3 Years 16.97 25.09 6.82
5 Years 17.52 25.03 7.84
Inception 14.89 21.72 6.16
(12/31/93)
CUMULATIVE TOTAL RETURNS*
SIT LEHMAN
BALANCED S&P AGGREGATE
FUND 500 INDEX BOND INDEX
-------- --------- ----------
1 Year 18.50% 27.80% -0.37%
3 Years 60.06 95.72 21.89
5 Years 124.13 205.57 45.85
Inception 122.21 209.66 41.06
(12/31/93)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND
INDEX AND THE S&P 500 INDEX. LIPPER AVERAGES AND INDICES ARE OBTAINED FROM
LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/93) and held until 9/30/99 would
have grown to $22,221 in the Fund, $14,106 in the Lehman Aggregate Bond Index or
$30,966 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
Stocks: * Cisco Systems, Inc.
* Microsoft Corp.
* General Electric Co.
* Sun Microsystems, Inc.
* Tyco International, Ltd.
Bonds: * U.S. Treasury Note, 6.125%, 8/15/07
* U.S. Treasury Bond, 6.125%, 8/15/29
* U.S. Treasury Strip, 5.95%, 11/15/09
* Union Tank Car Co., 6.57%, 1/2/14
* Conseco Finance Home Equity, 6.97%, 10/15/30
Total Number of Holdings: 136
5
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[PHOTO] SIT LARGE CAP GROWTH FUND REVIEW
Quarter Ended September 30, 1999
-----------------------------------------------------------------------
Senior Portfolio Managers
Peter L. Mitchelson, CFA * Roger J. Sit * Ronald D. Sit, CFA
The Sit Large Cap Growth Fund posted strong relative performance for the quarter
ended September 30th. The Fund's decline of -2.5% compared favorably with the
- -6.3% decrease for the S&P 500 Index and the -3.7% decrease for the Russell 1000
Growth Index.
Domestic stock returns have been modest thus far in 1999 after four
exceptionally strong years, particularly in large capitalization issues. Stocks
have retreated since the S&P 500 made a record high on July 16th, as enthusiasm
for strong corporate profits gave way to growing concerns over rising interest
rates. Growth stocks outperformed value issues by a wide margin during the
quarter, largely due to exceptionally strong performance by the technology
sector. We believe that the technology boom is still in the early innings as the
build-out of the Internet is promoting unprecedented innovation in diverse areas
such as telecommunications, business commerce, and data storage and analysis.
We continue to believe growth stocks are attractive investments in an
economic environment of moderate growth and relatively low inflation. Although
improving broad market earnings gains caused some enthusiasm for cyclical stocks
earlier this year, many companies will face more difficult comparisons after the
fourth quarter of this year. The collapse in Asian economies negatively impacted
financial companies, exporters, and commodity-oriented companies during the
second half 1998, in particular, allowing for relatively easy comparisons this
year.
As of the end of September, the Fund was 97.0% invested in equities.
Significant sector weighting changes during the past quarter included increases
in electronic technology and technology services. These sectors were increased
through the additions of Nokia, Xilinx, Qualcomm, and First Data. The largest
sector weighting decrease occurred in financial services where Merrill Lynch was
sold.
Strong earnings growth continues to be a focus of the Fund. Projected growth
rates for securities held in the Fund exceed +20% in each of the next two years,
more than twice the expected earnings gain for the S&P 500.
Assets in the Large Cap Growth Fund totaled $132.6 million as of September
30th. We very much appreciate shareholders' continued interest and participation
in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Large Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in common
stocks of growth companies with a capitalization of $5 billion or more at the
time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 9/30/99: $ 51.50 Per Share
6/30/99: $ 52.84 Per Share
Total Net Assets: $132.6 Million
Weighted Average Market Cap: $112.2 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 28.6
Health Technology 14.2
Technology Services 13.1
Retail Trade 8.1
Finance 7.7
Producer Manufacturing 7.1
Utilities 6.2
Consumer Services 4.7
Consumer Non-Durables 3.1
Sectors Under 2.0% 4.2
Cash & Other Net Assets 3.0
6
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AVERAGE ANNUAL TOTAL RETURNS*
SIT RUSSELL
LARGE CAP S&P 1000
GROWTH FUND 500 INDEX GROWTH INDEX
----------- --------- ------------
3 Month** -2.54% -6.25% -3.67%
1 Year 29.75 27.80 34.86
5 Years 24.35 25.03 26.79
10 Year*** 15.63 16.83 17.96
Inception*** 16.59 18.46 18.29
(9/2/82)
CUMULATIVE TOTAL RETURNS*
SIT RUSSELL
LARGE CAP S&P 1000
GROWTH FUND 500 INDEX GROWTH INDEX
----------- --------- ------------
1 Year 29.75% 27.80% 34.86%
5 Year 197.30 205.57 227.72
10 Year*** 327.23 373.61 421.68
Inception*** 1278.23 1706.91 1666.77
(9/2/82)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 1000 GROWTH INDEX
AND THE S&P 500 INDEX.
***ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO
OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO
MORE THAN 80% STOCKS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 9/30/99 would
have grown to $137,823 in the Fund, or $180,691 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Cisco Systems, Inc.
* Microsoft Corp.
* General Electric Co.
* Sun Microsystems, Inc.
* Tyco International, Ltd.
* Intel Corp.
* Vodafone Airtouch, A.D.R.
* EMC Corp.
* Amgen, Inc.
* Pfizer, Inc.
Total Number of Holdings: 71
7
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[PHOTO] SIT REGIONAL GROWTH FUND
Quarter Ended September 30, 1999
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
The Sit Regional Growth Fund posted a decline of -6.3% for the quarter,
reflecting the challenging conditions in the U.S. equity markets during the
period. The S&P 500 Index decline was -6.3% for the quarter as well, while the
average diversified stock fund, as calculated by Lipper Analytical Services,
declined -5.4%.
Although third quarter GDP will likely be very strong, we expect the increase
in interest rates to result in a modest slowing in the economy in the months
ahead. Rising interest rates won the "battle" in the third quarter, but we
believe strong corporate profit growth will continue to provide support for the
equity market. The Fund is well positioned to benefit from investors' preference
for companies that can deliver strong earnings growth. Earnings for the stocks
in the Fund are expected to grow +21.1% in 2000 and +19.2% over the next five
years, compared to projected 2000 and long-term growth rates of +8.0% and +9.0%
for the S&P 500. Despite superior projected growth rates, the Fund's
price-to-earnings ratio (on 2000 projected earnings) stands at 24.3 times, only
a modest premium to the comparable S&P 500 ratio of 23.8 times.
As of the end of September, the Fund was nearly fully invested, with 97.1% of
the portfolio invested in equities, up from 95.1% at the end of June.
Significant sector weighting changes during the quarter included increases in
producer manufacturing and utilities and a decrease in retail trade. The Fund
purchased G&K Services, Valassis Communications, and Minnesota Mining and
Manufacturing and added to existing positions in Illinois Tool Works and Sprint.
Portfolio eliminations included HA-LO Industries and Compuware. The Fund's heavy
weightings in electronic technology, technology services and retail trade
reflect the strong fundamental outlook for these sectors and the attractive
regional companies within the sectors. Although the Fund has lagged the large
cap-dominated S&P 500, improved relative performance in 1999 and increasingly
attractive relative valuations provide support for the mid-sized companies that
primarily comprise the portfolio.
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 9/30/99: $12.34 Per Share
6/30/99: $13.17 Per Share
Total Net Assets: $ 6.9 Million
Weighted Average Market Cap: $19.9 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 16.0
Technology Services 14.6
Retail Trade 12.4
Finance 11.4
Health Technology 9.4
Producer Manufacturing 6.4
Utilities 6.2
Commercial Services 6.1
Process Industries 3.5
Consumer Services 3.3
Sectors Below 3.0% 7.8
Cash & Other Net Assets 2.9
8
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AVERAGE ANNUAL TOTAL RETURNS*
SIT
REGIONAL S&P RUSSELL
GROWTH FUND 500 INDEX 3000 INDEX
----------- --------- ----------
3 Month** -6.30% -6.25% -6.59%
1 Year 28.27 27.80 26.32
Inception 12.92 18.97 15.76
(12/31/97)
CUMULATIVE TOTAL RETURNS*
SIT
REGIONAL S&P RUSSELL
GROWTH FUND 500 INDEX 3000 INDEX
----------- --------- ----------
1 Year 28.27% 27.80% 26.32%
Inception 23.66 35.47 29.14
(12/31/97)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 3000 INDEX.
LIPPER ANALYTICAL SERVICES, INC. IS A LARGE INDEPENDENT EVALUATOR OF MUTUAL
FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 9/30/99 would
have grown to $12,366 in the Fund, or $13,547 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Best Buy, Inc.
* Sprint Corp.
* Tellabs, Inc.
* Motorola, Inc.
* Great Plains Software, Inc.
* Wells Fargo Co.
* Emmis Communications Corp.
* Illinois Tool Works, Inc.
* Dayton Hudson Corp.
* ADC Telecommunications, Inc.
Total Number of Holdings: 40
9
<PAGE>
[PHOTO] SIT MID CAP GROWTH FUND
Quarter Ended September 30, 1999
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
Erik S. Anderson, CFA, Senior Portfolio Manager
The Sit Mid Cap Growth Fund provided a positive return for shareholders
during the September quarter amidst negative returns for almost all domestic
stock indices for the period. The Fund's +4.06% quarterly gain compared
favorably with the -8.40% decline for the S&P MidCap 400 Index and the -5.01%
decline for the Russell MidCap Growth Index.
The Fund's positive return was largely driven by strong performance in the
technology sectors, as sector overweightings and stock selection positively
impacted results. Although large cap stocks have posted superior results over
the last several years, the market is broadening, and smaller stocks have
exhibited improving relative performance thus far in 1999. We remain optimistic
with regard to earnings dynamics and valuation support for small and mid cap
stocks relative to large cap issues.
Our enthusiasm for smaller stocks can be illustrated by a valuation analysis
of price-to-earnings ratios relative to estimated long-term growth rates. The
P/E ratio for the Sit MidCap Growth Fund currently stands at 33 times estimated
year 2000 earnings, modestly above the estimated 5-year earnings growth rate of
30%. In contrast, the P/E ratio for the S&P 500 is 24 times estimated 2000
earnings, well above the long-term earnings growth rate of 9.0%.
The most significant sector weighting increases over the past quarter
occurred in electronic technology and technology services, largely through
strong relative price performance. New purchases in these sectors included
Qualcomm, Jabil Circuit, Unisys, and Fiserv. Sector weighting decreases occurred
in financial services and retail trade. These sectors were reduced through the
paring of positions in Firstar, Goldman Sachs, and Staples. As of September
30th, the portfolio was 99.5% invested in equities, compared to 93.9% at the end
of the second quarter. The three most heavily weighted sectors were electronic
technology, technology services, and health technology, which represent rapidly
growing areas of the economy.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Mid Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of growth companies with a capitalization of $2 billion to $15
billion at the time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 9/30/99: $ 15.13 Per Share
6/30/99: $ 14.54 Per Share
Total Net Assets: $377.8 Million
Weighted Average Market Cap: $ 8.0 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 34.1
Technology Services 23.0
Health Technology 11.4
Retail Trade 6.3
Utilities 5.6
Finance 5.4
Consumer Services 4.7
Energy Minerals 3.2
Health Services 2.2
Sectors Below 2.0% 3.6
Cash & Other Net Assets 0.5
10
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT S&P RUSSELL
MID CAP MIDCAP MID CAP
GROWTH FUND 400 INDEX GROWTH INDEX
----------- --------- ------------
3 Month** 4.06% -8.40% -5.01%
1 Year 37.56 25.50 37.20
5 Year 19.20 18.59 19.45
10 Year 14.94 15.64 15.13
Inception 18.47 17.97 --
(9/2/82)
CUMULATIVE TOTAL RETURNS*
SIT S&P RUSSELL
MID CAP MIDCAP MID CAP
GROWTH FUND 400 INDEX GROWTH INDEX
----------- --------- ------------
1 Year 37.56% 25.50% 37.20%
5 Year 140.60 134.55 143.16
10 Year 302.39 327.53 309.15
Inception 1710.30 1583.61 --
(9/2/82)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL MID CAP GROWTH
INDEX AND THE S&P MIDCAP 400 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 9/30/99 would
have grown to $181,030 in the Fund, or $168,361 in the S&P MidCap 400 Index
assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Legato Systems, Inc.
* Biogen, Inc.
* JDS Uniphase Corp.
* Xilinx, Inc.
* Dendrite International, Inc.
* Vitesse Semiconductor Corp.
* Check Point Software Tech., Ltd.
* Kohl's Corp.
* Applied Micro Circuits Corp.
* AMFM, Inc.
Total Number of Holdings: 64
11
<PAGE>
[PHOTO] SIT INTERNATIONAL GROWTH FUND REVIEW
Quarter Ended September 30, 1999
-----------------------------------------------------------------------
Senior Portfolio Managers
Eugene C. Sit, CFA * Andrew B. Kim, CFA * Roger J. Sit
The Sit International Growth Fund gained +7.3% for the three months ended
September 30th compared to the MSCI EAFE Index rise of +4.4% and the Lipper
International Fund Index increase of +3.4%. A primary reason for the Fund's
outperformance during the quarter was the increase in the portfolio's Japanese
weighting.
The yen appreciated +12% against the dollar despite periodic intervention by
the Bank of Japan and reiteration of U.S. policy supporting a strong dollar. The
yen's strength has contributed to the positive performance in the Fund as
holdings are directed toward domestic companies that benefit from a stronger yen
and exporters. The Fund's Japanese holdings provided a return of +38.1% for the
quarter. The Fund partially hedged its Japanese holdings to protect local
currency gains. The negative impact of the hedge has been reduced with the
appreciation of the Japanese holdings and the increase in weighting.
The euro appears to have reversed its downward trend against the dollar,
appreciating +3% in the past quarter. We believe the euro reached its lows
relative to the dollar in the second quarter and will continue to strengthen as
the European Central Bank begins to modestly increase interest rates. Signs of
economic growth recovering, low inflation and a favorable interest rate
environment all aided Europe in outperforming the U.S. in the third quarter and
positively contributed to the Fund's performance. The MSCI Europe Index returned
+1.2% compared to a S&P 500 return of -6.3% during the quarter. The Fund's
holdings in Ireland rose +9.8%, Germany +6.1%, United Kingdom +5.6%, and
Portugal +2.6%.
Sector performance was led by retailers (Seven-Eleven Japan, +79.8%; Ryohin
Keikaku, +60.7%), semiconductors (Samsung Electronics, +47.6%), financial
services (Orix Corporation, +37.8%; Nikko Securities, +31.0%), healthcare
(Terumo Corporation, +39.0%; Elan, +20.9%) and telecommunications (NTT Mobile
Communications, +45.6%). We believe these sectors will remain the global
leaders. Our strategy is to increase the Fund's European weight from 55% to 60%
and maintain the Fund's Japanese weight in the 30% area. We believe the
substantial gains realized in non-Japan Asia during the first part of the year
will not be duplicated as equity valuations have become stretched, and
consequently, the Fund's weighting in this region will be reduced as capital
flows favor Europe.
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 9/30/99: $ 20.14 Per Share
6/30/99: $ 18.77 Per Share
Total Net Assets: $100.4 Million
Weighted Average Market Cap: $ 51.2 Billion
PORTFOLIO STRUCTURE - BY REGION
(% OF TOTAL NET ASSETS)
[BAR CHART]
SIT INT'L Morgan Stanley
GROWTH FUND EAFE Index
Europe Other 32.0 26.5
Japan 29.9 28.4
France, Germany, UK 23.6 39.3
Pacific Basin 10.1 5.8
North America 0.7 0.0
Africa/Middle East 0.6 0.0
Latin America 0.4 0.0
Cash & Other Net Assets 2.7 0.0
12
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT MORGAN STANLEY LIPPER
INTERNATIONAL CAPITAL INT'L INT'L
GROWTH FUND EAFE INDEX INDEX
------------- -------------- ------
3 Month** 7.30% 4.39% 3.37%
1 Year 30.96 30.95 27.64
3 Year 12.46 10.43 11.99
5 Year 9.57 9.12 9.98
Inception 12.42 8.91 10.98
(11/1/91)
CUMULATIVE TOTAL RETURNS*
SIT MORGAN STANLEY LIPPER
INTERNATIONAL CAPITAL INT'L INT'L
GROWTH FUND EAFE INDEX INDEX
------------- -------------- ------
1 Year 30.96% 30.95% 27.64%
3 Year 42.23 34.66 40.46
5 Year 57.95 54.72 60.94
Inception 152.61 96.65 128.24
(11/1/91)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (11/1/91) and held until
9/30/99 would have grown to $25,261 in the Fund, or $19,665 in the Morgan
Stanley EAFE Index assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Nokia Corp., A.D.R.
* NTT Mobile Communications Network, Inc.
* Ryohin Keikaku Co.
* Orix Co.
* Mannesman, A.G.
* NTT Data Corp.
* Takeda Chemical Industries
* Misys, p.l.c.
* Samsung Electronics
* Elan Corp., p.l.c., A.D.R.
Total Number of Holdings: 82
13
<PAGE>
[PHOTO] SIT SMALL CAP GROWTH FUND
Quarter Ended September 30, 1999
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
The Sit Small Cap Growth Fund's quarterly return of +11.7% was strong in both
absolute and relative terms and compares favorably given the negative returns
for most domestic stock market indices during the period. For the quarter, the
Fund ranked in the 4th percentile out of 278 funds tracked by Lipper Analytical
Services, Inc. For the year-to-date, 1-year and 5-year periods, the Fund ranked
in the 22nd, 38th and 15th percentile, respectively.
Of particular note was the strong performance of technology stocks during the
quarter. The Fund's two most overweighted sectors, electronic technology and
technology services, rose approximately +25% during the quarter. The return for
the comparable Russell 2000 Index technology component was approximately +6%.
The Fund will continue to have substantial weightings in this sector based on
the themes that are currently driving technology spending, including
telecommunications innovation, E-commerce, internet infrastructure, and recovery
in the semiconductor industry. We believe that the market will continue to focus
on these themes and companies that can deliver strong earnings growth are well
represented in the Fund. At the end of September, the 5-year projected growth
rate for companies held in the Fund was +35.5%, roughly four times the projected
growth rate for the S&P 500 Index.
Sector weighting increases during the past quarter occurred in electronic
technology, primarily through price appreciation, and health technology, through
the purchases of Affymetrix, Guilford Pharmaceuticals, and QLT
Phototherapeutics. As of September 30th, the Fund was 98.6% invested in equity
securities. Relative to the Russell 2000 Index, sector overweightings include
electronic technology, technology services, and health technology.
Although smaller stocks have had improved performance relative to large
stocks thus far in 1999, the dramatic outperformance over the last three years
by large capitalization issues suggests there is significant potential for
"catch up" by small cap issues. Strong fundamentals, attractive valuations and
the prospect of renewed investor enthusiasm for small company stocks make us
optimistic about the Fund's outlook.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Small Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of small growth companies that have a capitalization of $2.5
billion or less at the time of purchase.
In addition, the Fund may purchase securities convertible into common
stocks, preferred stocks and warrants. The Fund may invest in securities not
listed on a national securities exchange but generally such securities will have
an established over-the-counter market.
PORTFOLIO SUMMARY
Net Asset Value 9/30/99: $20.42 Per Share
6/30/99: $18.28 Per Share
Total Net Assets: $57.4 Million
Weighted Average Market Cap: $ 2.6 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 32.5
Technology Services 24.3
Health Technology 9.3
Utilities 7.4
Finance 7.0
Consumer Services 4.1
Retail Trade 3.7
Transportation 3.4
Energy Minerals 2.9
Health Services 2.2
Commercial Services 1.8
Cash & Other Net Assets 1.4
14
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT RUSSELL
SMALL CAP RUSSELL 2000 2000
GROWTH FUND INDEX GROWTH INDEX
----------- ------------ ------------
3 Month** 11.71% -6.32% -4.91%
1 Year 46.48 19.07 32.64
3 Year 10.66 8.70 7.14
5 Year 20.18 12.39 12.16
Inception 20.95 13.12 13.45
(7/1/94)
CUMULATIVE TOTAL RETURNS*
SIT RUSSELL
SMALL CAP RUSSELL 2000 2000
GROWTH FUND INDEX GROWTH INDEX
----------- ------------ ------------
1 Year 46.48% 19.07% 32.64%
3 Year 35.49 28.43 22.98
5 Year 150.72 79.30 77.51
Inception 171.53 91.09 94.07
(7/1/94)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDEX.
LIPPER ANALYTICAL SERVICES, INC. IS A LARGE INDEPENDENT EVALUATOR OF MUTUAL
FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 9/30/99 would
have grown to $27,153 in the Fund, or $19,109 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* JDS Uniphase Corp.
* Legato Systems, Inc.
* Applied Micro Circuits Corp.
* PMC-Sierra, Inc.
* Dendrite International, Inc.
* Galileo Technology, Ltd.
* Newfield Exploration Co.
* Sapient Corp.
* Emmis Communications Corp.
* Transaction Network Svcs., Inc.
Total Number of Holdings: 61
15
<PAGE>
[PHOTO] SIT SCIENCE AND TECHNOLOGY GROWTH FUND
Quarter Ended September 30, 1999
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
Despite the negative return for most domestic stock indices during the
quarter, we are pleased to report that the Sit Science and Technology Growth
Fund increased +8.9% during the quarter. The Pacific Stock Exchange Technology
(PSE) Index return was +4.6% for the quarter, and the S&P 500 Index return was
- -6.3%.
The Fund's strong performance during the quarter was largely driven by
technology stocks; the return for the electronic technology sector within the
Fund was approximately +12.7%. Numerous secular and cyclical forces are driving
information technology companies' share prices. The build-out of the Internet,
the rapid growth of telecommunications, and the cyclical recovery in the
semiconductor industry are among the prominent themes addressed in the
composition of the Fund. Although the health care component of the Fund has
compromised the since-inception returns vis-a-vis the PSE Index (which has a
much smaller health care component compared to the Fund), we believe there are
similarly strong secular themes in health care that offer investment
opportunities over the long-term. Demographic trends and innovations in
biotechnology are among the secular forces that we believe will drive growth in
the health care sector in the years ahead.
The portfolio was 95.8% invested in equity securities at the end of the
September quarter. There were no significant sector weighting changes during the
quarter. New purchases included Affymetrix, Texas Instruments, JDS Uniphase, QLT
Phototherapeutics, and Lexmark International. Positions were eliminated in
International Business Machines, Xerox, Synopsys, and Qwest Communications.
By focusing on dynamic growth areas within the marketplace, companies in the
Fund continue to have projected earnings growth rates far greater than the
overall market. Earnings for companies in the Fund are expected to increase
+31.2% in 2000 and +33.0% over five years, compared to the comparable +8.0% and
+9.0% projected growth rates for the S&P 500 Index.
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 9/30/99: $16.59 Per Share
6/30/99: $15.23 Per Share
Total Net Assets: $16.2 Million
Weighted Average Market Cap: $58.1 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 51.3
Health Technology 22.4
Technology Services 20.5
Utilities 1.6
Cash & Other Net Assets 4.2
16
<PAGE>
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- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT PACIFIC STOCK
SCIENCE AND EXCHANGE
TECHNOLOGY TECHNOLOGY S&P
GROWTH FUND 100 INDEX 500 INDEX*
----------- --------- ----------
3 Month** 8.93% 4.62% -6.25%
1 Year 50.41 96.26 27.80
Inception 33.59 55.36 18.97
(12/31/97)
CUMULATIVE TOTAL RETURNS*
SIT PACIFIC STOCK
SCIENCE AND EXCHANGE
TECHNOLOGY TECHNOLOGY S&P
GROWTH FUND 100 INDEX 500 INDEX*
----------- --------- ----------
1 Year 50.41% 96.26% 27.80%
Inception 65.90 116.00 34.47
(12/31/97)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX AND THE S&P 500 INDEX.
*THE FUND HAS DETERMINED THAT THE S&P 500 INDEX IS MORE REPRESENTATIVE OF THE
PORTFOLIO AND IS NOW USING THIS INDEX AS ITS PRIMARY INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 9/30/99 would
have grown to $16,590 in the Fund, $13,547 in the S&P 500 Index, or $21,600 in
the PSE Tech 100 Index assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Cisco Systems, Inc.
* Microsoft Corp.
* Legato Systems, Inc.
* Dendrite International, Inc.
* PMC-Sierra, Inc.
* Applied Micro Circuits Corp.
* Unisys Corp.
* Intel Corp.
* Vitesse Semiconductor Corp.
* Biogen, Inc.
Total Number of Holdings: 58
17
<PAGE>
[PHOTO] SIT DEVELOPING MARKETS GROWTH FUND
Quarter Ended September 30, 1999
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
Andrew B. Kim, CFA, Senior Portfolio Manager
The Sit Developing Markets Growth Fund outperformed the MSCI Emerging Markets
Free Index and the Lipper Emerging Markets Index in the September quarter. The
Fund declined -4.1% versus the -5.5% decline in the MSCI Index and -7.0% decline
in the Lipper Index. The Fund benefited from its overweight position and stock
selection in Asia. At the end of September, the Fund had a weighting of 58.9% in
Asia vs. 40.6% for the MSCI Index. During the quarter, we increased the Fund's
weightings in South Korea and Israel to 14.5% and 6.9%, respectively, while
reducing our exposure to Mexico.
We are maintaining our overweight position in Asia, as the economic recovery
in the region continues to improve the earnings outlook for companies in our
portfolio. The Fund's holdings in the contract manufacturing and semiconductor
industries are benefiting from strong European and U.S. electronics demand as
well as the recent appreciation of the Yen. We do not expect the September 21st
earthquake in Taiwan to have a sustained impact on stock valuations.
Taiwan-based manufacturers such as TSMC have suffered only minor disruptions to
their operations following the earthquake and have already returned to full
production.
The Fund is underweighted in Latin America, with an 11.4% position vs. 28.6%
for the Index as of September 30. Within this region, we continue to favor
Mexico (8.6% weighting vs. 10.6% for the Index) where solid GDP growth has been
accompanied by low inflation and improving consumer demand. In Brazil, however,
investor concerns over poor economic fundamentals and sluggish government reform
efforts remain a drag on both the stock market and the real currency, which is
at a 9-month low. The Fund continues to be underweighted in Brazil (1.7%
weighting vs. 9.6% for the Index).
The weighting in Emerging-Europe, Middle East, and Africa has increased to
21.4% as we have added exposure to Israel-based technology firms which will
benefit from global electronics demand and internet expansion. Our 6.9%
weighting in this region remains above the 3.8% weight for the Index. Recent
additions to the Fund include Galileo Technology and Radware, both Israeli
technology firms, and SK Telecom, the largest cellular operator in South Korea.
These new holdings reflect our bullish outlook on the global mobile
telecommunications and technology sectors.
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 9/30/99: $ 9.57 Per Share
6/30/99: $ 9.98 Per Share
Total Net Assets: $10.0 Million
Weighted Average Market Cap: $30.2 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
SIT DEVELOPING MSCI Emerging
MARKETS GROWTH FUND Markets Free Index
Asia 58.9 40.6
Latin America 11.4 28.6
Europe 11.4 15.4
Africa/Middle East 10.0 15.4
North America 1.0 0.0
Cash & Other Net Assets 7.3 0.0
18
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT MSCI LIPPER
DEVELOPING EMERGING EMERGING
MARKETS MARKETS MARKETS
GROWTH FUND FREE INDEX INDEX
----------- ---------- --------
3 Month** -4.11% -5.50% -7.00%
1 Year 37.50 53.44 45.14
3 Year -4.53 -6.64 -5.96
5 Year -2.64 -7.49 -5.71
Inception -0.70 -3.79 -2.36
(7/1/94)
CUMULATIVE TOTAL RETURNS*
SIT MSCI LIPPER
DEVELOPING EMERGING EMERGING
MARKETS MARKETS MARKETS
GROWTH FUND FREE INDEX INDEX
----------- ---------- --------
1 Year 37.50% 53.44% 45.14%
3 Year -12.98 -18.63 -16.83
5 Year -12.52 -32.26 -25.45
Inception -3.60 -18.39 -11.82
(7/1/94)
* AS OF 9/30/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MSCI EMERGING MARKETS
FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL
SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 9/30/99 would
have grown to $9,640 in the Fund, or $8,161 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
10 LARGEST HOLDINGS
* Hon Hai Precision Industry
* Samsung Electronics
* Telefonos de Mexico, A.D.R.
* Datacraft Asia, Ltd.
* Advanced Info Services
* Cifra, S.A.
* Korea Electric Power, A.D.R.
* Alpha Credit Bank
* Venture Manufacturing, Ltd.
* Panafon Telecom
Total Number of Holdings: 49
19
<PAGE>
[LOGO]
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
William E. Frenzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern, CFA President
Roger J. Sit Executive Vice President
Erik S. Anderson, CFA Vice President - Investments
Ronald D. Sit, CFA Vice President - Investments
Bryce A. Doty, CFA (1) Vice President - Investments
Robert W. Sit (2) Vice President - Investments
John T. Groton, Jr., CFA (3) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Debra A. Sit, CFA Assistant Treasurer
Carla J. Rose Assistant Secretary
(1) Sit Balanced Fund only.
(2) Sit Science and Technology Growth Fund only.
(3) Sit Regional Growth Fund only.
20
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds are 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 Associates currently manages approximately $7
billion for some of America's largest corporations, foundations and endowments.
Sit Mutual Funds are comprised of thirteen NO-LOAD funds. NO-LOAD means
that Sit Mutual Funds have no sales charges on purchases, no deferred sales
charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar
you invest goes to work for you.
Sit Mutual Funds offer:
* Free telephone exchange
* Dollar-cost averaging through an automatic investment plan
* Electronic transfer of funds for purchases and redemptions
* Free check writing privileges on bond funds
* Retirement accounts including IRAs and 401(k) plans
SIT FAMILY OF FUNDS
[GRAPH]
STABILITY: INCOME: GROWTH: HIGH GROWTH:
SAFETY OF PRINCIPAL INCREASED INCOME LONG-TERM CAPITAL LONG-TERM CAPITAL
AND CURRENT INCOME APPRECIATION AND APPRECIATION
INCOME
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
[LOGO]
SIT MUTUAL FUNDS
----------------------------
THE INVESTMENT IS MUTUAL(SM)
<PAGE>
QUARTERLY REPORT STOCK FUNDS
Quarter Ended September 30, 1999
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 LLP
4200 Norwest Center
Minneapolis, MN 55402
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INVESTMENT SUB-ADVISER
(Developing Markets Growth Fund and
International Growth Fund)
Sit/Kim International Investment Associates, Inc.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
[LOGO]
SIT MUTUAL FUNDS
----------------------------
THE INVESTMENT IS MUTUAL(SM)
