STOCK FUNDS ANNUAL REPORT
YEAR ENDED JUNE 30, 1999
A FAMILY OF 100% NO-LOAD FUNDS
------------------------------
LARGE CAP GROWTH FUND
MID CAP GROWTH FUND
SMALL CAP GROWTH FUND
BALANCED FUND
INTERNATIONAL GROWTH FUND
DEVELOPING MARKETS GROWTH FUND
REGIONAL GROWTH FUND
SCIENCE AND TECHNOLOGY GROWTH FUND
[LOGO]
SIT MUTUAL FUNDS
----------------
THE INVESTMENT IS MUTUAL(SM)
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds are managed by Sit Investment Associates, Inc. Sit
Investment Associates was founded by Eugene C. Sit in July 1981 and is dedicated
to a single purpose, to be one of the premier investment management firms in the
United States. Sit Investment Associates currently manages approximately $7
billion for some of America's largest corporations, foundations and endowments.
Sit Mutual Funds are comprised of thirteen NO-LOAD funds. NO-LOAD means
that Sit Mutual Funds have no sales charges on purchases, no deferred sales
charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar
you invest goes to work for you.
Sit Mutual Funds offer:
* Free telephone exchange
* Dollar-cost averaging through an automatic investment plan
* Electronic transfer for purchases and redemptions
* Free check writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) Plans
SIT FAMILY OF FUNDS
[GRAPH]
STABILITY: INCOME: GROWTH: HIGH GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and appreciation
income
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
PRINCIPAL STABILITY GROWTH
& CURRENT INCOME POTENTIAL
<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
Balanced Fund................................ 6
Large Cap Growth Fund........................ 10
Regional Growth Fund......................... 14
Mid Cap Growth Fund.......................... 18
International Growth Fund.................... 22
Small Cap Growth Fund........................ 26
Science and Technology Growth Fund........... 30
Developing Markets Growth Fund............... 34
Notes to Portfolios of Investments................... 39
Statements of Assets and Liabilities................. 40
Statements of Operations............................. 42
Statements of Changes in Net Assets.................. 44
Notes to Financial Statements........................ 48
Financial Highlights................................. 53
Independent Auditors' Report......................... 61
Federal Income Tax Information....................... 62
Results of Shareholder Meeting....................... 63
This document must be preceded or accompanied by a Prospectus.
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - YEAR ENDED JUNE 30, 1999
[PHOTO]
Dear Fellow Shareholders:
Despite considerable volatility in the global economic environment marked
by investor concerns first of deflation in late 1998 and then inflation in
mid-1999, most major equity market indices moved solidly higher over the last
twelve months.
Economic Overview
June represented the 100th month of the U.S. economic expansion, a long
cycle characterized by positive and balanced growth, generally declining
interest rates, subdued inflation, and record-setting gains in aggregate
employment. The resilience of consumer spending continues to be the primary
driver behind the above-trend growth for the U.S. economy. Over the last four
quarters, annualized growth in Gross Domestic Product (GDP) has averaged +4.1%,
a remarkable achievement given the turmoil in many economies throughout the
world. Since Personal Consumption Expenditures (PCE) now account for over
two-thirds of GDP, the +5.0% year-over-year gain over the last twelve months was
strong enough to overcome weakness in other components, particularly the severe
decline in net exports. Several factors suggest that real GDP growth will be
somewhat below the pace witnessed over the past year, although above the +2.3%
rate for the second quarter. First, consumer spending appears to be
decelerating, as second quarter PCE increased by +4.0%, down from the increase
of +6.7% in the first quarter. Second, we do not believe that consumer spending
will remain as robust if the savings rate continues in negative territory.
Third, fixed mortgage rates have increased nearly 100 basis points since the
beginning of the year, which has served to impede housing demand; however, given
the generally strong level of consumer confidence and continued high levels of
housing investment and consumer durables spending, together with capital
investment by business, we expect only a modest slowing in GDP growth for the
remainder of the year compared to the robust +4.1% average over the past twelve
months. Our expectation for calendar 1999 GDP growth is +3.8%.
In terms of inflation data, the news remains mixed. May and June Consumer
Price Index (CPI) reports showed no change from the previous month, which was
considerably better than expectations. The National Association of Purchasing
Managers Prices Paid Index, however, has increased for six consecutive months,
and although the June Producer Price Index showed a decrease for finished goods,
there have been monthly increases in intermediate and crude goods.
The government's data releases on July 29th also contained mixed messages.
While GDP growth slowed to +2.3% in the second quarter, the
stronger-than-expected +3.2% year-over-year increase in the Employment Cost
Index was greeted negatively. Inflation news will continue to be watched
intensely, but we expect only a moderate pick-up in the CPI data, which should
range between +2.0% and +2.5% for 1999.
The Federal Reserve continues to be highly sensitive to inflation as
evidenced by its modest 25 basis point increase in the federal funds rate. More
importantly, the Fed changed its policy stance from a "tightening" to a
"neutral" bias, reducing fears of successive near-term rate increases. The
Chairman's recent Humphrey-Hawkins testimony indicated that inflation continues
to be a concern, despite the recent change in bias.
As Mr. Greenspan stated in his address, "If new data suggest it is likely
that the pace of cost and price increases is picking up, the Federal Reserve
will have to react promptly and forcefully so as to preclude imbalances from
arising that would only require a more disruptive adjustment later."
Among his key concerns are the tightness in the labor market, the
sustainability of productivity gains, and the potential ramifications of a stock
market "bubble." In terms of Federal Reserve policy, given our outlook for only
a modest acceleration in consumer inflation and a slight deceleration in GDP in
the second half of 1999, we believe the Fed may rest after one or two more 25
basis point increases.
In terms of fiscal policy, escalating projections of federal budget
surpluses have tax-cut proponents calling for aggressive tax reductions--
especially since the non-Social Security operating surplus may be achieved as
early as fiscal-year 2000. If one can believe the typically overly optimistic
government projections, $2.9 trillion in total surpluses would be generated over
the next decade of which $1 trillion would be outside the Social Security
buildup. Tax bills are being worked on in both the House and Senate and, under
the most optimistic assumptions, a bill might be ready for the President by the
fall. If Democrats and Republicans fail to compromise on the myriad of issues
within a tax bill, the topic of taxation will be a focal issue in the 2000
election campaign. Another key fiscal event occurred in late June when the
President outlined a Medicare reform package. This included a prescription drug
program with a tax-cut-for-Medicare-drug-benefit deal also a possibility. The
new drug benefit is estimated to cost $118 billion over ten years with 60%
financed by what the Clinton administration has termed "savings from competition
and efficiency" and 40% from the expected surplus.
From an international perspective, the outlook for global
2
<PAGE>
economic growth continues to improve. Asian economies appear to be slowly
recovering from the "trough" experienced in fall of 1998. The Japanese economy,
most notably, is showing some signs of life. GDP growth in the most recent
quarter was a surprisingly strong +1.9%. Industrial production increased +3.0%
in June, and recent Bank of Japan business sentiment surveys have shown an
improvement over the March survey. Since the beginning of the year, various
European economies had mixed growth results that have led to an overall
slowdown. Weakness in Germany, Euroland's largest economy, has been a major
concern. We believe, however, that the German economy will be improving, largely
due to recovering Asian markets coupled with euro weakness, which has prompted
an improvement in exports. Thus far in 1999, Latin American financial markets
responded favorably to stabilization in the currencies; however, the region's
economies remain weak because many Latin American countries are large producers
of worldwide commodities whose prices, except for oil, remain depressed. We are
forecasting +2.0% global GDP growth in 1999, due to accelerating growth in
Europe, improving economic growth prospects in non-Japan Asia, bottoming of the
recession in Japan, and gradual slowing in the United States.
Equity Strategy Summary
Domestic stock indices were generally higher over the last twelve months,
with virtually all mid and large capitalization indices posting double-digit
returns. Two major changes in investment sentiment that may have future
investment implications occurred during the second quarter of 1999. First,
although larger cap issues have dramatically outperformed smaller stocks over
the past year (the Russell 1000 outperfomed the Russell 2000 by over 20
percentage points), small stocks came to life in the second quarter of 1999.
Extreme undervaluation of small stocks and renewed confidence in the global
economic environment were key elements behind the strong second quarter rally
for small cap stocks. In fact, this was the first quarter in seven that the
Russell 2000 Index outperformed the Russell 1000 Index. Given the duration and
magnitude of small cap underperformance in recent years, and the resulting
valuation disparity, we believe the potential exists for an extended small cap
rally. The second significant change in equity markets was the rebound in
economically sensitive, cyclical issues that had previously been depressed by
fears of an economic slowdown. While we believe that the economic backdrop has
generally improved the prospects for cyclical companies, it appears that a
significant portion of the anticipated improvement in the earnings cycle has
already been discounted in stock prices.
Although the rise in interest rates has caused volatility in the equity
markets, stocks have been able to advance because corporate earnings news has
been generally positive. It appears as though second quarter operating earnings
for the S&P 500 Index will show solid double-digit growth, and we estimate that
over two-thirds of companies were able to exceed analysts' consensus
expectations. Although a brightening earnings outlook has prompted a tug-of-war
among small cap/large cap and growth/value investment styles in recent months,
our expectation for a moderately slowing U.S. economy implies a continued
positive environment for growth stock investing.
Despite some valuation measures for the stock market being at extended
levels, many companies within the S&P 500 Index below the top 20 in
capitalization are at reasonable valuations in the context of current interest
rates and inflation levels. While the current S&P 500 Index
capitalization-weighted price-to-earnings ratio of 28.3x is the highest in 35
years, the median valuation is a much more reasonable 20.3x. These statistics
suggest that the very largest stocks in the Index (including such names as
Microsoft, GE, and Coca Cola) are disproportionately raising
capitalization-weighted valuation measures and obscuring the more reasonable
valuation for the broader market.
International investment performance has varied widely among markets so far
in 1999. There is continued evidence of an improving global economy fueled by
particularly strong performance in emerging markets. While sluggish economic
growth and investors' reallocation of assets to Asia have caused some weakness
in European equity markets, we believe performance will improve as key European
economies slowly improve, corporate restructuring continues, and mergers and
acquisition activity accelerates. Brightened economic prospects have led us to a
much more positive view on Asia, particularly Japan. Concerns over upcoming
elections and the region's economic reliance on commodity prices have led us to
underweight Latin America versus global benchmarks.
We greatly appreciate your support as shareholders in the Sit Mutual Funds.
With your investment objectives always in mind, we remain committed to seeking
out the best investment opportunities throughout the world.
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
3
<PAGE>
SIT MUTUAL FUNDS
YEAR ENDED JUNE 30, 1999 PERFORMANCE REVIEW - STOCK FUNDS
STOCK FUNDS REVIEW
Despite a great deal of quarterly volatility, global equity returns were
generally positive over the past twelve months.
In the United States, large capitalization stocks continued to outperform
smaller issues, but there were signs of improvement in small cap stocks in the
latest quarter. For the year ended June 30, 1999, the S&P 500 Index total return
was +22.8%, over twenty percentage points higher than the +1.5% return for the
Russell 2000 Index. While small and mid cap stock cumulative returns over the
last twelve months were relatively moderate, investment sentiment may be
changing based on the strong performance in the most recent quarter. For the
quarter ending June 30, 1999, the Russell 2000 Index returned +15.6%,
considerably higher than the +7.1% return for the S&P 500 Index. Largely due to
fears of a global slowdown that persisted over the period, particularly in the
second half of 1998, growth stocks posted very strong results relative to value
issues. The Russell 1000 Growth Index advanced +27.3% over the past twelve
months, while the Russell 1000 Value Index increased by +16.4%. The Russell 2000
Growth Index return of +8.3% was fourteen percentage points higher than the
- -5.7% return for the Russell 2000 Value Index.
Technology stocks, which are typically overweighted in Sit Mutual Funds
equity portfolios, performed exceptionally well over the past twelve months.
Within the Russell 1000 Growth Index, for example, both the Electronic
Technology and Technology Services sectors produced returns of over +60%.
Economically sensitive groups, including producer manufacturing,
consumer-durables, and process industries, lagged the market averages over the
period.
International equity market indices also moved higher over the last twelve
months, although results varied widely by geographic region. The MSCI EAFE Index
gained +7.6%, with strong returns in most Asian markets offsetting somewhat
lackluster returns in Europe. Continued evidence of an economic recovery in
emerging markets has led to strong returns for the MSCI Emerging Markets Free
Index, which advanced +25.2% over the past twelve months, with almost all of the
gains occurring during the second quarter of 1999.
-----------------------------
1987 1988 1989
-----------------------------
SIT BALANCED -- -- --
SIT LARGE CAP GROWTH 5.32% 5.33% 32.02%
SIT REGIONAL GROWTH -- -- --
SIT MID CAP GROWTH 5.50 9.77 35.15
SIT INTERNATIONAL GROWTH -- -- --
SIT SMALL CAP GROWTH -- -- --
SIT SCIENCE AND TECHNOLOGY GROWTH -- -- --
SIT DEVELOPING MARKETS GROWTH -- -- --
S&P 500 INDEX 5.28 16.55 31.61
S&P MIDCAP 400 INDEX -2.04 20.87 35.55
MSCI EAFE INDEX (2) -- -- --
RUSSELL 2000 INDEX (3) -- -- --
PSE TECH 100 INDEX -- -- --
MSCI EMERGING MARKETS FREE INDEX (4) -- -- --
NASDAQ
SYMBOL INCEPTION
------ ---------
SIT BALANCED SIBAX 12/31/93
SIT LARGE CAP GROWTH SNIGX 09/02/82
SIT REGIONAL GROWTH n/a 12/31/97
SIT MID CAP GROWTH NBNGX 09/02/82
SIT INTERNATIONAL GROWTH SNGRX 11/01/91
SIT SMALL CAP GROWTH SSMGX 07/01/94
SIT SCIENCE AND TECHNOLOGY GROWTH SISTX 12/31/97
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
S&P 500 INDEX (5)
S&P MIDCAP 400 INDEX (5)
MSCI EAFE INDEX (2)
RUSSELL 2000 INDEX (3)
PSE TECH 100 INDEX
MCSI EMERGING MARKETS FREE INDEX (4)
(1) PERIOD FROM FUND INCEPTION THROUGH CALENDAR YEAR-END.
(2) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91.
(3) FIGURES ASSUME AN INCEPTION DATE OF 7/1/94.
(4) FIGURES ASSUME AN INCEPTION DATE OF 6/30/94.
(5) FIGURES ASSUME AN INCEPTION DATE OF 9/2/82.
4
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR SIX MONTHS
- ---------------------------------------------------------------------------------------------- ENDED
1990 1991 1992 1993 1994 1995 1996 1997 1998 6/30/99
- ---------------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- -0.33% 25.43% 15.80% 21.73% 21.30% 5.30%
-2.37% 32.72% 4.94% 3.15% 2.83 31.66 23.05 31.70 30.56 8.63
-- -- -- -- -- -- -- -- 23.05 7.25
-2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 12.36
-- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 1.73
-- -- -- -- 11.57(1) 52.16 14.97 7.63 1.97 13.47
-- -- -- -- -- -- -- -- 38.40 10.04
-- -- -- -- -2.02(1) -4.29 17.27 -5.20 -24.93 28.44
-3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 12.38
-5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 6.87
-- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 3.97
-- -- -- -- 4.61 28.45 16.49 22.36 -2.54 9.28
-- -- -- -- -- -- -- -- 54.60 33.54
-- -- -- -- 2.80 -6.94 3.92 -13.40 -27.52 38.41
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED JUNE 30, 1999
TOTAL RETURN ---------------------------------------------------------
QUARTER ENDED SIX MONTHS SINCE
6/30/99 ENDED 6/30/99 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ----------------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0.51% 5.30% 11.25% 19.07% 18.72% -- 15.90%
1.36 8.63 15.10 27.27 26.52 17.25% 17.04
6.99 7.25 17.21 -- -- -- 20.38
11.16 12.36 6.94 15.27 21.21 16.11 18.49
3.99 1.73 4.51 9.56 9.35 -- 11.82
18.70 13.47 8.77 7.54 -- -- 19.44
10.36 10.04 29.40 -- -- -- 32.48
29.11 28.44 10.28 -3.01 -- -- 0.11
7.05 12.38 22.76 29.11 27.87 18.78 19.21
14.16 6.87 17.18 22.50 22.28 17.87 18.88
2.54 3.97 7.62 8.81 8.21 -- 8.61
15.55 9.28 1.50 11.22 -- -- 15.32
20.62 33.54 73.40 -- -- -- 62.36
23.62 38.41 25.20 -6.18 -- -- -2.89
</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.
5
<PAGE>
SIT BALANCED FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
PETER L. MITCHELSON, CFA
BRYCE A. DOTY, CFA
The Sit Balanced Fund posted strong returns for the fiscal year ended June
30, 1999. The Fund's total return was +11.3%. The Lehman Aggregate Bond Index
gained +3.2% over the last twelve months while the S&P 500 Index increased
+22.8%. For the quarter ended June 30th, the Fund gained +0.5% while the Lehman
Aggregate Bond Index declined -0.9% and the S&P 500 gained +7.1%.
As of June 30, 1999, the asset allocation of the Fund was 54% equities
(down from 56% at the end of March), 37% fixed income securities (down from
38%), and 9% cash reserve instruments (up from 6%).
The equity portion of the portfolio produced solid returns over the last
twelve months, and investors are now focusing on improving earnings prospects
for U.S. companies amid an improved global economy. We believe that the market's
focus on strong earnings growth will benefit the equity securities held in the
Fund. As of June 30th, the projected growth rate for companies held in the Fund
was +21.6%, which is more than twice the projected growth rate for the S&P 500.
The Fund's holdings are concentrated in high unit growth companies with unique
products and strong management teams able to thrive in an intensely competitive
global business environment. This leads to significant positions in technology
and health care. We will continue to underweight slow growth, commodity-oriented
companies, and generally avoid such industries as chemicals, papers, autos, and
heavy equipment and machinery.
While the improving global economy fueled the rally in equities over the
last quarter, bond prices suffered from fears over excessive economic growth.
Since bottoming at a 4.7% yield on October 5, 1998, U.S. Treasury bond yields
have risen about 130 basis points, and stood at just under 6% at the end of the
quarter. A recent change in fixed income strategy includes a sector shift to
increase U.S. Treasuries. In the coming months, we expect weakness in some
non-government sectors as investors become cautious due to of the Y2K
phenomenon. We are also increasing emphasis on securities with 5- to 10- year
average lives, which reflects a very flat yield curve that has reduced the
attractiveness of longer-maturity securities. The Fund will continue to focus on
high-quality securities that offer attractive total return opportunities.
INVESTMENT OBJECTIVE AND STRATEGY
The Sit Balanced Fund's dual objectives are to seek long-term growth of
capital consistent with the preservation of principal and to provide regular
income. It pursues its objectives by investing in a diversified portfolio of
stocks, bonds and short-term instruments. The Fund may emphasize either equity
securities, fixed-income securities, or short-term instruments or hold equal
amounts of each, dependent upon the Adviser's analysis of market, financial and
economic conditions.
The Fund's permissible investment allocation is: 40-60% in equity
securities, 40-60% in fixed-income securities, and up to 20% in short-term
fixed-income instruments. At all times at least 25% of the assets will be
invested in fixed-income senior securities.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $17.38 Per Share
6/30/98: $16.68 Per Share
Total Net Assets: $12.1 Million
TOTAL DIVIDEND: $ 1.07 PER SHARE
Long Term Capital Gain: $ 0.76 Per Share
Ordinary Income: $ 0.31 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Cash & Other Net Assets 8.5%
Bonds 36.9%
Stocks 54.6%
6
<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 0.51% -0.88% 7.05% 0.51% -0.88% 7.05%
(not annualized)
1 Year 11.25 3.15 22.76 11.25 3.15 22.76
3 Years 19.07 7.23 29.11 68.80 23.31 115.21
5 Years 18.72 7.83 27.87 135.86 45.75 241.87
Inception 15.90 6.33 24.27 125.09 40.11 230.29
(12/31/93)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND
INDEX NOR THE S&P 500 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/93) and held until 6/30/99 would
have grown to $22,509 in the Fund, $14,011 in the Lehman Aggregate Bond Index or
$33,029 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
STOCKS:
* Cisco Systems, Inc.
* General Electric Co.
* Microsoft Corp.
* Lucent Technologies, Inc.
* Tyco International, Ltd.
BONDS:
* U.S. Treasury Note, 6.125%, 8/15/07
* U.S. Treasury Strip, 5.95%, 11/15/09
* Union Tank Car Co., 6.57%, 1/2/14
* Delphi Auto Sys. Corp., 6.50%, 5/1/09
* U.S. Treasury Strip, 6.00%, 2/15/19
Total number of holdings: 128
7
<PAGE>
SIT BALANCED FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (54.6%) (2)
CONSUMER DURABLES (0.5%)
1,100 Harley-Davidson, Inc. $59,812
---------------
CONSUMER NON-DURABLES (2.3%)
1,100 Coca Cola Co. 68,750
700 Colgate-Palmolive Co. 69,125
1,000 Group Danone, A.D.R. 52,313
1,000 Proctor & Gamble Co. 89,250
---------------
279,438
---------------
CONSUMER SERVICES (2.6%)
1,500 Clear Channel Comm., Inc. (3) 103,406
2,000 Time Warner, Inc. 147,000
1,500 Viacom, Inc. - Class B (3) 66,000
---------------
316,406
---------------
ELECTRONIC TECHNOLOGY (16.0%)
1,200 ADC Telecommunications, Inc. (3) 54,675
5,300 Cisco Systems, Inc. (3) 341,850
1,000 Computer Sciences Corp. (3) 69,188
2,200 Dell Computer Corp. (3) 81,400
2,600 EMC Corp. (3) 143,000
1,000 General Dynamics Corp. 68,500
1,800 Intel Corp. 107,100
1,300 Int'l Business Machines Corp. 168,025
2,850 Lucent Technologies, Inc. 192,197
1,000 Raytheon Co. - Class B 70,375
2,500 Sun Microsystems, Inc. (3) 172,188
2,500 Tellabs, Inc. (3) 168,906
1,100 Texas Instruments, Inc. 159,500
1,058 United Technologies Corp. 75,845
1,200 Xerox Corp. 70,875
---------------
1,943,624
---------------
ENERGY MINERALS (0.5%)
1,500 Unocal Corp. 59,438
---------------
FINANCE (6.2%)
625 American International Group, Inc. 73,164
1,000 Associates First Capital Corp. 44,313
2,000 Chase Manhattan Corp. 173,250
900 Equitable Companies, Inc. 60,300
1,100 Federal Home Loan Mortgage Corp. 63,800
1,000 Marsh & McLennan Cos., Inc. 75,500
2,000 Mercury General Corp. 68,000
1,000 Merrill Lynch & Co., Inc. 79,938
1,500 Wells Fargo Co. 64,125
800 XL Capital, Ltd. 45,200
---------------
747,590
---------------
HEALTH SERVICES (1.2%)
2,073 McKesson HBOC, Inc. 66,595
1,500 Waste Management, Inc. 80,625
---------------
147,220
---------------
HEALTH TECHNOLOGY (8.3%)
1,000 American Home Products Corp. 57,500
1,500 Amgen, Inc. (3) 91,312
1,500 Bristol-Myers Squibb Co. 105,656
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
900 Eli Lilly & Co. 64,462
500 Johnson & Johnson Co. 49,000
1,500 Medtronic, Inc. 116,813
2,500 Merck & Co., Inc. 185,000
1,500 Pfizer, Inc. 164,625
1,500 Schering-Plough Corp. 79,500
1,300 Warner Lambert Corp. 90,188
---------------
1,004,056
---------------
PROCESS INDUSTRIES (0.5%)
1,500 Monsanto Co. 59,156
---------------
PRODUCER MANUFACTURING (4.4%)
3,000 General Electric Co. 339,000
2,000 Tyco International, Ltd. 189,500
---------------
528,500
---------------
RETAIL TRADE (4.0%)
2,500 Dayton Hudson Corp. 162,500
675 Gap, Inc. 34,003
2,000 Home Depot, Inc. 128,875
900 Kohl's Corp. (3) 69,469
3,000 Walgreen Co. 88,125
---------------
482,972
---------------
TECHNOLOGY SERVICES (4.4%)
900 America Online, Inc. (3) 99,450
3,000 Ceridian Corp. (3) 98,062
3,000 Microsoft Corp. (3) 270,562
1,750 Oracle Corp. (3) 64,969
---------------
533,043
---------------
TRANSPORTATION (0.5%)
2,000 Southwest Airlines Co. 62,250
---------------
UTILITIES (3.2%)
1,700 MCI WorldCom, Inc. (3) 146,306
1,200 Sprint Corp. 63,375
900 Vodafone Airtouch, A.D.R. 177,300
---------------
386,981
---------------
Total common stocks
(cost: $4,468,002) 6,610,486
---------------
BONDS (35.4%) (2)
U.S. TREASURY (8.6%)
550,000 U.S. Treasury Note, 6.125%, 8/15/07 555,737
50,000 U.S. Treasury Bond, 6.00%, 2/15/26 48,732
U.S. Treasury Strip:
25,000 6.93% Effective Yield, 11/15/04 18,302
50,000 4.72% Effective Yield, 5/15/06 33,395
450,000 5.95% Effective Yield, 11/15/09 238,630
500,000 6.00% Effective Yield, 2/15/19 146,620
---------------
1,041,416
---------------
ASSET-BACKED SECURITIES (4.0%)
Advanta Mortgage Loan Trust:
25,000 1995-3 A5, 7.37%, 2/25/27 24,790
50,000 1996-1 A7, 7.07%, 3/25/27 49,355
8
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
50,000 Cityscape Home Equity Loan Trust,
1996-3 A8, 7.65%, 9/25/25 47,767
74,999 ContiMortgage Home Equity Loan Tr.,
1996-1 A7, 7.00%, 3/15/27 74,396
25,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 24,347
75,000 Equivantage, 1996-3 A3,
7.70%, 9/25/27 75,376
Green Tree Financial Corp.:
20,000 1995-5, 7.25%, 9/15/25 19,860
25,000 1997-4, 7.03%, 2/15/29 25,267
100,000 1999-1, 6.37%, 3/1/30 94,603
50,000 Money Store Home Equity Mtg.,
7.265%, 7/15/38 50,500
---------------
486,261
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.4%)
100,000 Norwest Asset Securities Corp.,
Series 1998-19 2A12, 6.75%, 7/25/28 95,852
75,000 Residential Funding Mtg. Sec.
Series 1998-S5 A12, 6.75%, 3/25/28 70,510
---------------
166,362
---------------
CORPORATE BONDS (8.8%)
50,000 American Gen. Fin., 5.875%, 12/15/05 47,313
Continental Airlines:
25,000 1999-1B, 6.795%, 8/2/18 23,971
150,000 1999-1A, 6.545%, 2/2/19 142,089
50,000 Countrywide Capital, 8.00%, 12/15/26 47,812
175,000 Delphi Auto Sys. Corp., 6.50%, 5/1/09 165,812
50,000 First Industrial LP, 7.15%, 5/15/27 49,125
50,000 Franchise Fin. Corp., 8.25%, 10/30/03 49,812
25,000 GM Acceptance Corp., 5.85%, 1/14/09 22,844
25,000 Omega Healthcare Inv., 6.95%, 6/15/02 23,562
125,000 Ryder System, Inc., 8.75%, 3/15/17 130,312
100,000 Service Corp. Int'l, 7.375%, 4/15/04 100,250
25,000 Summit Prop., Inc., 7.20%, 8/15/07 23,031
6,000 Toys R Us, Inc., 8.25%, 2/1/17 6,203
50,000 Trinet Corp. Realty Tr., 7.70%, 7/15/17 40,062
200,000 Union Tank Car Co., 6.57%, 1/2/14 194,752
---------------
1,066,950
---------------
MORTGAGE PASS-THROUGH SECURITIES (12.7%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (1.3%)
70,693 9.00%, 7/1/16 74,920
21,077 9.00%, 7/1/16 22,329
20,154 9.25%, 6/1/02 20,954
31,055 10.00%, 10/1/18 33,401
---------------
151,604
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.9%)
24,607 9.00%, 11/1/06 25,918
77,055 9.75%, 1/1/13 83,798
21,694 10.00%, 1/1/20 23,259
82,741 10.25%, 6/1/13 90,653
---------------
223,628
---------------
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (9.5%)
22,536 9.00%, 6/15/11 23,529
104,787 9.00%, 6/15/09 110,629
41,514 9.00%, 8/15/16 43,847
109,713 9.00%, 12/15/19 116,334
23,080 9.25%, 9/15/01 24,169
24,599 9.50%, 1/15/04 25,918
52,012 9.50%, 11/15/04 54,794
33,700 9.50%, 7/20/05 35,008
37,807 9.50%, 12/15/09 40,701
23,576 9.50%, 5/20/16 24,961
118,148 9.50%, 12/15/17 127,768
67,120 9.50%, 3/15/18 71,817
88,137 9.50%, 9/20/18 93,318
63,236 9.50%, 1/20/19 66,942
82,687 9.50%, 2/20/19 87,544
77,548 9.50%, 3/20/19 82,101
43,730 9.50%, 12/15/19 47,074
40,820 10.25%, 1/15/04 43,126
5,748 11.25%, 10/15/00 5,793
16,797 11.25%, 10/15/11 18,120
Municipal (GNMA collateralized):
13,000 Bernalillo Multifamily. Ser. 1998A,
7.50%, 9/20/20 12,977
---------------
1,156,470
---------------
Total bonds
(cost: $4,367,382) 4,292,691
---------------
CLOSED-END MUTUAL FUNDS (1.4%) (2)
9,000 American Select Portfolio 105,750
500 American Strategic Inc. Portfolio 5,875
2,288 American Strategic Inc. Portfolio II 27,027
2,969 American Strategic Inc. Portfolio III 34,329
---------------
Total closed-end mutual funds 172,981
---------------
(cost: $169,146)
SHORT-TERM SECURITIES (12.5%) (2)
1,519,000 Sit Money Market Fund, 4.56% (6) 1,519,000
---------------
(cost: $1,519,000)
Total investments in securities
(cost: $10,523,530) (7) $12,595,158
===============
See accompanying notes to financial statements.
9
<PAGE>
SIT LARGE CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
PETER L. MITCHELSON, CFA
ROGER J. SIT
RONALD D. SIT, CFA
The Sit Large Cap Growth Fund posted strong performance during the fiscal
year ended June 30, 1999. The Fund's total return of +15.1% compared favorably
with the +13.6% return for the Lipper Growth and Income Index. Within the Lipper
Growth and Income Fund universe, the Fund's 1-year, 5-year and 10-year
annualized return was in the 47th, 8th and 17th percentile, respectively.
Most U.S. stock market indices posted impressive gains over the last twelve
months, driven largely by continued strength in the domestic economy. Despite
lingering effects of the Asian crisis in the fall of 1998, and the subsequent
rise in interest rates, stock market returns have broadened considerably thus
far in 1999, and many indices are reaching or approaching new highs. Although a
brightened earnings outlook has prompted a tug of war among small/large cap and
growth/value investment styles in recent months, our expectation for a
moderately slowing U.S. economy implies a continued positive environment for
growth stock investing. Securities in the Fund continue to maintain projected
earnings growth rates far in excess of S&P 500 averages. In each of the next two
years, projected growth rates for securities held in the Fund exceed +20%, which
is more than twice the expected earnings gain for the S&P 500. Furthermore, as
inflation fears have subsided, growth stocks have significantly outperformed
value issues as the perception of risk surrounding their higher
price-to-earnings valuations has diminished.
As of June 30th, the Fund was 93% invested in equities. Significant sector
weighting changes during the past year include increases in electronic
technology and health technology through the additions of Sun Microsystems,
International Business Machines, Raytheon, United Technologies, American Home
Products, and Amgen. Sector weighting decreases occurred in financial services
and consumer non-durables through the reduction or elimination of positions in
Citigroup, Franklin Resources, Mercury General, Unilever, and Gillette.
Net assets in the Fund totaled $140.3 million at the end of June, up from
$117.5 million a year ago. We very much appreciate shareholders' continued
interest and participation in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Large Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in common
stocks of growth companies with a capitalization of $5 billion or more at the
time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $ 52.84 Per Share
6/30/98: $ 49.34 Per Share
Total Net Assets: $140.3 Million
Weighted Average Market Cap: $127.1 Billion
TOTAL DIVIDEND: $ 3.42 PER SHARE
Long Term Capital Gain: $ 3.41 Per Share
Ordinary Income: $ 0.01 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 27.6
Health Technology 13.7
Finance 9.5
Technology Services 8.9
Retail Trade 8.6
Producer Manufacturing 6.3
Utilities 5.7
Consumer Services 4.7
Consumer Non-Durables 3.8
Health Services 1.7
Consumer Durables 0.9
Energy Minerals 0.9
Transportation 0.7
Cash & Other Net Assets 7.0
10
<PAGE>
<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 1.36% 3.85% 7.05% 1.36% 3.85% 7.05%
(not annualized)
1 Year 15.10 27.28 22.76 15.10 27.28 22.76
5 Years 26.52 29.65 27.87 224.21 266.38 241.87
10 Years 17.25 19.80 18.78 391.22 508.91 459.09
Inception 17.04 18.86 19.21 1314.09 1734.05 1827.27
(9/2/82)
</TABLE>
* As of 6/30/99
ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO
OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO
MORE THAN 80% STOCKS.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE
RUSSELL 1000 GROWTH INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM
LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/99 would
have grown to $141,409 in the Fund, or $192,727 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Cisco Systems, Inc.
* Microsoft Corp.
* General Electric Co.
* Lucent Technologies, Inc.
* Merck & Co., Inc.
* Tyco International, Ltd.
* Vodafone Airtouch, A.D.R.
* Int'l Business Machines Corp.
* Pfizer, Inc.
* MCI WorldCom, Inc.
Total number of holdings: 65
11
<PAGE>
SIT LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (93.0%) (2)
CONSUMER DURABLES (0.9%)
22,600 Harley-Davidson, Inc. $1,228,875
---------------
CONSUMER NON-DURABLES (3.8%)
25,500 Coca Cola Co. 1,593,750
15,100 Colgate-Palmolive Co. 1,491,125
14,800 Group Danone, A.D.R. 774,225
15,800 Procter & Gamble Co. 1,410,150
---------------
5,269,250
---------------
CONSUMER SERVICES (4.7%)
44,500 CBS Corp. (3) 1,932,969
21,900 Clear Channel Comm., Inc. (3) 1,509,731
23,800 Time Warner, Inc. 1,749,300
31,400 Viacom, Inc. - Class B (3) 1,381,600
---------------
6,573,600
---------------
ELECTRONIC TECHNOLOGY (27.6%)
29,500 ADC Telecommunications, Inc. (3) 1,344,094
119,150 Cisco Systems, Inc. (3) 7,685,175
24,800 Computer Sciences Corp. (3) 1,715,850
48,600 Dell Computer Corp. (3) 1,798,200
56,800 EMC Corp. (3) 3,124,000
21,000 General Dynamics Corp. 1,438,500
44,400 Intel Corp. 2,641,800
25,000 Int'l Business Machines Corp. 3,231,250
57,210 Lucent Technologies, Inc. 3,858,099
17,400 Raytheon Co. - Class B 1,224,525
46,000 Sun Microsystems, Inc. (3) 3,168,250
42,200 Tellabs, Inc. (3) 2,851,137
12,300 Texas Instruments, Inc. 1,783,500
17,323 United Technologies Corp. 1,241,843
26,000 Xerox Corp. 1,535,625
---------------
38,641,848
---------------
ENERGY MINERALS (0.9%)
32,000 Unocal Corp. 1,268,000
---------------
FINANCE (9.5%)
12,300 American International Group, Inc. 1,439,869
16,000 Associates First Capital Corp. 709,000
31,100 Chase Manhattan Corp. 2,694,038
24,000 Equitable Companies, Inc. 1,608,000
20,700 Federal Home Loan Mortgage Corp. 1,200,600
19,000 Marsh & McLennan Cos., Inc. 1,434,500
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
37,900 Mercury General Corp. 1,288,600
15,000 Merrill Lynch & Co., Inc. 1,199,063
31,300 Wells Fargo Co. 1,338,075
7,100 XL Capital, Ltd. 401,150
---------------
13,312,895
---------------
HEALTH SERVICES (1.7%)
36,996 McKesson HBOC, Inc. 1,188,497
22,500 Waste Management, Inc. 1,209,375
---------------
2,397,872
---------------
HEALTH TECHNOLOGY (13.7%)
20,400 American Home Products Corp. 1,173,000
21,000 Amgen, Inc. (3) 1,278,375
32,100 Bristol-Myers Squibb Co. 2,261,044
18,800 Eli Lilly & Co. 1,346,550
13,500 Johnson & Johnson Co. 1,323,000
27,100 Medtronic, Inc. 2,110,412
49,400 Merck & Co., Inc. 3,655,600
29,100 Pfizer, Inc. 3,193,725
28,400 Schering-Plough Corp. 1,505,200
20,700 Warner Lambert Corp. 1,436,062
---------------
19,282,968
---------------
PRODUCER MANUFACTURING (6.3%)
46,800 General Electric Co. 5,288,400
37,600 Tyco International, Ltd. 3,562,600
---------------
8,851,000
---------------
RETAIL TRADE (8.6%)
45,200 Dayton Hudson Corp. 2,938,000
32,025 Gap, Inc. 1,613,259
44,700 Home Depot, Inc. 2,880,356
18,500 Kohl's Corp. (3) 1,427,969
25,400 Lowe's Companies, Inc. 1,439,862
60,600 Walgreen Co. 1,780,125
---------------
12,079,571
---------------
TECHNOLOGY SERVICES (8.9%)
17,500 America Online, Inc. (3) 1,933,750
58,400 Ceridian Corp. (3) 1,908,950
64,000 Microsoft Corp. (3) 5,772,000
35,250 Oracle Corp. (3) 1,308,656
27,037 Paychex, Inc. 861,804
18,700 SAP, A.D.R. 647,487
---------------
12,432,647
---------------
TRANSPORTATION (0.7%)
33,500 Southwest Airlines Co. 1,042,688
---------------
12
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
UTILITIES (5.7%)
37,100 MCI WorldCom, Inc. (3) 3,192,919
24,000 Sprint Corp. 1,267,500
18,000 Vodafone Airtouch, A.D.R. 3,546,000
---------------
8,006,419
---------------
Total common stocks 130,387,633
---------------
(cost: $85,608,041)
SHORT-TERM SECURITIES (6.3%) (2)
8,807,000 Sit Money Market Fund, 4.56% (6) 8,807,000
---------------
(cost: $8,807,000)
Total investments in securities
(cost: $94,415,041) (7) $139,194,633
===============
See accompanying notes to portfolios of investments.
13
<PAGE>
SIT REGIONAL GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGER
EUGENE C. SIT, CFA
The Sit Regional Growth Fund rose +17.2% during the past year, while the
S&P 500's return was +22.8%. For the last quarter, the Fund's return was +7.0%
compared to the +7.1% return for the S&P 500. The Fund's performance
differential to the Index was essentially due to underweightings in the very
large companies outside of the Fund's regional focus. The Fund's cumulative
+32.0% return since inception, although lagging behind the
capitalization-weighted S&P 500 return, actually exceeds the estimated
equal-weighted capitalization return of +30.8% for the S&P Index. Because the
Fund's capitalization remains well below the popular large cap indices, the
widening breadth of the market during the second quarter bodes well for improved
relative performance going forward.
Strong earnings growth continues to be the primary focus of the portfolio.
We project earnings growth rates of more than +21% for the next two
years--approximately three times the projected growth estimates for the S&P
500--for securities held in the Fund. Our enthusiasm for the Fund is based on
the attractive valuation relative to the market. Despite significantly higher
projected earnings growth rates, the Fund's weighted price-to-earnings valuation
is 26 (based on 1999 estimates), which is equivalent to the current earnings
multiple of the S&P 500.
As of June 30th, the Fund was 95% invested in equity securities.
Significant sector weighting changes during the past year included increases in
electronic technology and technology services through the additions of Motorola,
National Computer Systems, Compuware, and First Data. Sector weighting decreases
occurred in financial services and health technology through the reduction or
elimination of positions in Charter One Financial, Household International,
Progressive, Hillenbrand, Stryker, and RP Scherer. Given the Fund's emphasis on
growth companies with unique product attributes, overweighted positions remain
in electronic technology and technology services.
Given the Fund's strong earnings growth prospects, attractive valuations,
and existing opportunities within our geographic region, we remain enthusiastic
about the Fund's potential.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies with their headquarters in Minnesota, Iowa, Missouri, North Dakota,
South Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana, and
Ohio. During normal market conditions, at least 80% of the Fund's total assets
will be invested in such securities. The Fund emphasizes securities of companies
that the Adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $13.17 Per Share
6/30/98: $11.26 Per Share
Total Net Assets: $ 7.5 Million
Weighted Average Market Cap: $22.0 Billion
TOTAL DIVIDEND: $ 0.02 PER SHARE
Ordinary Income: $ 0.02 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Technology Services 15.6
Retail Trade 15.0
Electronic Technology 14.9
Finance 12.5
Health Technology 10.0
Commercial Services 5.2
Utilities 4.4
Process Industries 3.7
Producer Manufacturing 3.3
Health Services 3.1
Consumer Services 2.6
Consumer Durables 1.8
Consumer Non-Durables 1.6
Transportation 1.4
Cash & Other Net Assets 4.9
14
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
--------------------------------- --------------------------------
Regional Russell S&P Regional Russell S&P
Growth 3000 500 Growth 3000 500
Fund Index Index Fund Index Index
-------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
3 Months 6.99% 7.70% 7.05% 6.99% 7.70% 7.05%
(not annualized)
1 Year 17.21 20.11 22.76 17.21 20.11 22.76
Inception 20.38 24.18 27.90 31.97 38.25 44.50
(12/31/97)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE
RUSSELL 3000 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 6/30/99 would
have grown to $13,197 in the Fund, or $14,450 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Best Buy, Inc.
* Tellabs, Inc.
* Wells Fargo Co.
* Motorola, Inc.
* Dayton Hudson Corp.
* Ceridian Corp.
* Northern Trust Corp.
* Great Plains Software, Inc.
* Cardinal Health, Inc.
* ADC Telecommunications, Inc.
Total number of holdings: 39
15
<PAGE>
SIT REGIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (95.1%) (2)
COMMERCIAL SERVICES (5.2%)
3,000 Deluxe Corp. $116,813
4,500 Ecolab, Inc. 196,313
8,000 Ha-Lo Industries, Inc. (3) 79,000
---------------
392,126
---------------
CONSUMER DURABLES (1.8%)
2,500 Harley-Davidson, Inc. 135,937
---------------
CONSUMER SERVICES (2.6%)
4,000 Emmis Communications Corp. (3) 197,500
---------------
CONSUMER NON-DURABLES (1.6%)
1,500 General Mills, Inc. 120,562
---------------
ELECTRONIC TECHNOLOGY (14.9%)
5,000 ADC Telecommunications, Inc. (3) 227,813
2,000 Gateway 2000, Inc. (3) 118,000
3,000 Motorola, Inc. 284,250
4,500 National Computer Systems, Inc. 151,875
5,000 Tellabs, Inc. (3) 337,812
---------------
1,119,750
---------------
FINANCE (12.5%)
3,000 Aon Corp. 123,750
2,500 Northern Trust Corp. 242,500
2,500 Reliastar Financial Corp. 109,375
6,000 TCF Financial Corp. 167,250
7,000 Wells Fargo Co. 299,250
---------------
942,125
---------------
HEALTH SERVICES (3.1%)
3,637 Cardinal Health, Inc. 233,223
---------------
HEALTH TECHNOLOGY (10.0%)
2,500 Abbott Laboratories 113,750
1,500 Baxter International, Inc. 90,938
3,000 Eli Lilly & Co. 214,875
2,500 Medtronic, Inc. 194,688
5,000 Sybron Int'l Corp. (3) 137,812
---------------
752,063
---------------
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
PROCESS INDUSTRIES (3.7%)
2,000 H.B. Fuller Co. 136,750
3,500 Monsanto Co. 138,031
---------------
274,781
---------------
PRODUCER MANUFACTURING (3.3%)
2,000 Emerson Electric Co. 125,750
1,500 Illinois Tool Works, Inc. 123,000
---------------
248,750
---------------
RETAIL TRADE (15.0%)
7,000 Best Buy, Inc. (3) 472,500
4,000 Dayton Hudson Corp. 260,000
2,500 Kohl's Corp. (3) 192,969
7,000 Walgreen Co. 205,625
---------------
1,131,094
---------------
TECHNOLOGY SERVICES (15.6%)
7,500 Ceridian Corp. (3) 245,156
4,500 Compuware Corp. (3) 143,156
4,500 First Data Corp. 220,219
5,425 Fiserv, Inc. (3) 169,870
5,000 Great Plains Software, Inc. (3) 235,937
5,000 Whittman-Hart, Inc. (3) 158,750
---------------
1,173,088
---------------
TRANSPORTATION (1.4%)
2,800 C.H. Robinson Worldwide, Inc. 102,900
---------------
UTILITIES (4.4%)
2,000 Ameritech Corp. 147,000
3,500 Sprint Corp. 184,844
---------------
331,844
---------------
Total common stocks 7,155,743
---------------
(cost: $5,555,358)
SHORT-TERM SECURITIES (4.9%) (2)
365,000 Sit Money Market Fund, 4.56% (6) 365,000
---------------
(cost: $365,000)
Total investments in securities
(cost: $5,920,358) (7) $7,520,743
===============
See accompanying notes to portfolios of investments.
16
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
17
<PAGE>
SIT MID CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ERIK S. ANDERSON, CFA
During the June quarter of 1999, mid cap growth stocks rebounded strongly
and outperformed large cap growth stocks, as measured by the Frank Russell
Indices, for the first time in seven quarters. The Fund's quarterly return of
+11.2% compared favorably with the +10.4% return for the Russell Mid Cap Growth
Index.
For the year ended June 30, 1999, the Sit Mid Cap Growth Fund return was
+6.9% versus the +20.3% for the Russell Mid Cap Growth Index. Although the
Fund's performance has lagged behind the Index, our capitalization restrictions
and valuation disciplines resulted in limited exposure to areas which drove the
Index higher, namely large stocks with capitalizations greater than $10 billion
and Internet stocks. For example, we estimate that just two stocks, Yahoo! and
Charles Schwab, contributed approximately +4.5% to the +20.3% return for the
Index over the last year. These companies have current market capitalizations of
over $35 billion and are well in excess of our Fund parameters.
The recent outperformance of smaller cap issues can be attributed to
attractive valuations and renewed confidence in the global economy. Given the
dramatic differences in performance between mid and large cap issues over the
last two years, the potential for small and medium cap issues to catch up still
exists. Although the much publicized rally in cyclical stocks lifted value
stocks higher during the second quarter, growth issues in the mid cap sector
have significantly outperformed value issues on a year-to-date and twelve-month
basis. We believe that the Fund is very well positioned to capitalize on the
renewed market enthusiasm for smaller cap issues. The portfolio's average
projected earnings growth rate of +25% vastly exceeds the S&P 500's projected
growth rate of +10%.
Significant sector weighting changes during the past year include increases
in electronic technology and health technology through the additions of
Uniphase, Vitesse Semiconductor, Jabil Circuit, Applied Micro Devices, and
Lexmark International. Sector weighting decreases occurred in financial services
and health services through the reduction or elimination of positions in First
American of Tennessee, Nac Re, Mercury General, McKesson HBOC, and Healthsouth
Corporation. As of June 30th, the Fund was 94% invested in equities.
Given mid cap stocks' renewed momentum and strong growth prospects for the
companies in the portfolio, we remain optimistic about the Fund's outlook.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Mid Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of growth companies with a capitalization of $2 billion to $15
billion at the time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $ 14.54 Per Share
6/30/98: $ 16.49 Per Share
Total Net Assets: $375.3 Million
Weighted Average Market Cap: $ 10.3 Billion
TOTAL DIVIDEND: $ 2.54 PER SHARE
Long Term Capital Gain: $ 2.54 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 30.8
Technology Services 18.5
Health Technology 11.5
Finance 8.9
Retail Trade 8.3
Utilities 3.7
Commercial Services 3.2
Health Services 2.7
Consumer Non-Durables 2.0
Consumer Durables 1.3
Energy Minerals 1.0
Industrial Services 0.9
Commercial Services 0.7
Transportation 0.4
Cash & Other Net Assets 6.1
18
<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 11.16% 10.42% 14.16% 11.16% 10.42% 14.16%
(not annualized)
1 Year 6.94 20.32 17.18 6.94 20.32 17.18
5 Years 21.21 22.35 22.28 161.68 174.16 173.37
10 Years 16.11 17.04 17.87 345.36 382.26 417.69
Inception 18.49 n/a 18.88 1639.71 n/a 1737.95
(9/2/82)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL MID CAP GROWTH
INDEX NOR THE S&P MIDCAP 400 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/99 would
have grown to $173,971 in the Fund or $183,795 in the S&P MidCap 400 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Biogen, Inc.
* Legato Systems, Inc.
* Xilinx, Inc.
* Uniphase Corp.
* Kohl's Corp.
* Dendrite International, Inc.
* Staples, Inc.
* Vitesse Semiconductor Corp.
* ADC Telecommunications, Inc.
* Elan Corp., A.D.R.
Total number of holdings: 63
19
<PAGE>
MID CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (93.9%) (2)
COMMERCIAL SERVICES (0.7%)
100,400 Sylvan Learning Systems, Inc. (3) $2,729,625
----------------
CONSUMER DURABLES (1.3%)
89,000 Harley-Davidson, Inc. 4,839,375
----------------
CONSUMER NON-DURABLES (2.0%)
106,100 Dial Corp. 3,945,594
72,000 Estee Lauder Companies, Inc. 3,609,000
----------------
7,554,594
----------------
CONSUMER SERVICES (3.2%)
55,500 Adelphia Communications Corp. (3) 3,531,188
152,800 Chancellor Media Corp. (3) 8,423,100
----------------
11,954,288
----------------
ELECTRONIC TECHNOLOGY (30.8%)
26,000 AAR Corp. 589,875
212,200 ADC Telecommunications, Inc. (3) 9,668,363
37,500 ASM Lithography Hldg., A.D.R. (3) 2,226,563
90,500 Analog Devices, Inc. (3) 4,541,969
88,500 Applied Micro Circuits Corp. (3) 7,279,125
234,500 Asyst Technologies, Inc. (3) 7,020,344
94,500 Computer Sciences Corp. (3) 6,538,219
52,500 Comverse Technology, Inc. (3) 3,963,750
55,000 General Dynamics Corp. 3,767,500
71,300 Jabil Circuit, Inc. (3) 3,217,412
83,000 Lexmark International Group, Inc. (3) 5,483,187
81,000 Linear Technology Corp. 5,447,250
84,150 Lucent Technologies, Inc. 5,674,866
61,000 Maxim Integrated Products, Inc. (3) 4,056,500
145,050 Symbol Technologies, Inc. 5,348,719
95,000 Teradyne, Inc. (3) 6,816,250
69,500 Uniphase Corp. (3) 11,537,000
149,900 Vitesse Semiconductor Corp. (3) 10,108,881
217,400 Xilinx, Inc. (3) 12,446,150
----------------
115,731,923
----------------
ENERGY MINERALS (1.0%)
177,000 Enron Oil & Gas Co. 3,584,250
----------------
FINANCE (8.9%)
248,300 Ace, Ltd. 7,014,475
111,500 Firstar Corp. 3,122,000
19,500 Goldman Sachs Group, Inc. 1,408,875
100,000 Mercury General Corp. 3,400,000
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
132,000 Mutual Risk Mgmt., Ltd. 4,405,500
68,200 ReliaStar Financial Corp. 2,983,750
108,000 T. Rowe Price & Associates 4,144,500
244,800 TCF Financial Corp. 6,823,800
----------------
33,302,900
----------------
HEALTH SERVICES (2.7%)
69,250 Cardinal Health, Inc. 4,440,656
178,000 IMS Health, Inc. 5,562,500
----------------
10,003,156
----------------
HEALTH TECHNOLOGY (11.5%)
259,000 Biogen, Inc. (3) 16,656,938
134,000 Boston Scientific Corp. (3) 5,887,625
344,000 Elan Corp., A.D.R. (3) 9,546,000
39,000 Immunex Corp. (3) 4,970,062
64,000 MedImmune, Inc. (3) 4,336,000
21,000 VISX, Inc. (3) 1,662,937
----------------
43,059,562
----------------
INDUSTRIAL SERVICES (0.9%)
134,400 Transocean Offshore Drilling, Inc. 3,528,000
----------------
RETAIL TRADE (8.3%)
52,000 Bed Bath & Beyond, Inc. (3) 2,002,000
76,000 Best Buy Co., Inc. (3) 5,130,000
90,000 Dollar General Corp. 2,610,000
144,000 Kohl's Corp. (3) 11,115,000
337,475 Staples, Inc. (3) 10,440,633
----------------
31,297,633
----------------
TECHNOLOGY SERVICES (18.5%)
220,000 Aspen Technology, Inc. (3) 2,585,000
100,500 BMC Software, Inc. (3) 5,427,000
202,800 Ceridian Corp. (3) 6,629,025
146,000 Check Point Software Tech., Ltd. (3) 7,829,250
301,200 Dendrite International, Inc. (3) 10,880,850
18,000 DoubleClick, Inc. (3) 1,651,500
173,675 Fiserv, Inc. (3) 5,438,198
52,000 InfoSpace.com, Inc. (3) 2,444,000
55,000 Inktomi Corp. (3) 7,180,937
241,500 Legato Systems, Inc. (3) 13,946,625
81,300 Paychex, Inc. 2,591,437
73,500 Sterling Commerce, Inc. (3) 2,682,750
----------------
69,286,572
----------------
TRANSPORTATION (0.4%)
42,500 CNF Transportation, Inc. 1,630,937
----------------
20
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
UTILITIES (3.7%)
92,000 Frontier Corp. 5,428,000
168,000 Nextel Communications, Inc. (3) 8,431,500
----------------
13,859,500
----------------
Total common stocks 352,362,315
----------------
(cost: $213,924,626)
SHORT-TERM SECURITIES (5.1%) (2)
3,975,000 American Express Credit Corp.,
5.50%, 7/1/99 3,974,393
15,042,000 Sit Money Market Fund, 4.56% (6) 15,042,000
----------------
(cost: $19,017,000) 19,016,393
----------------
Total investments in securities
(cost: $232,941,626) (7) $371,378,708
================
See accompanying notes to portfolios of investments.
21
<PAGE>
SIT INTERNATIONAL GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ANDREW B. KIM, CFA
ROGER J. SIT
The Sit International Growth Fund's 1-year return of +4.5% compares with
the MSCI EAFE Index gain of +7.6% and the Lipper International Fund Index rise
of +4.0%. A major reason for the Fund's underperformance relative to the EAFE
Index was a sector rotation from growth to cyclical stocks in the first half of
1999. Market participants anticipated a faster pace of global economic growth
accompanied by an upturn in basic commodity prices.
The Russian default in August 1998 was one of the most traumatic
experiences for the international markets last year. The EAFE Index declined
- -14.2% in the three months ended September 30, 1998, in part due to the
potential crisis associated with Long- Term Capital Management in the U.S.
Fortunately, the international equity markets were able to recover
substantially, enabling the Index to record a +20.7% gain in the December
quarter. Moreover, the first half of 1999 witnessed a lessening of market
volatility despite Brazil's currency devaluation. For the first six months of
1999, the Index increased by a modest +4.0%.
Notably, the first half of 1999 was marked by an unexpectedly steep
depreciation of the euro (down -13%). As a result, the Fund's European portfolio
holdings declined in the Netherlands, Belgium, Ireland and the U.K.
Subsequently, the euro began to rebound against the dollar in July in response
to indications of improved economic growth in Germany and the U.K. We expect the
euro's upward trend to continue in the remainder of 1999, and we are targeting a
European portfolio weighting of 62%, up from 58.3% at the end of June.
The Fund's Pacific Basin holdings increased to 12.9% of total assets vs.
the Index weighting of 6.6% due to the accelerating speed of recovery in the
crisis economies of Asia and ample liquidity. Recording substantial gains in
dollar terms were the Fund's holdings in Korea, Thailand and Hong Kong.
From a long-term perspective, the upward momentum in the Japanese market is
even more significant now that a relapse in the economy appears unlikely;
therefore, the Fund's Japanese weighting climbed to 25.0% at mid-1999 (from
12.8% a year ago), compared with 24.0% for the Index. The Fund partially hedged
its Japanese holdings in early July to protect local currency gains in the
future. We expect renewed yen weakness based on a resumption of Japanese capital
outflow and a decreasing current account surplus.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit International Growth Fund is to achieve long-term
growth of capital by investing in equity securities of issuers domiciled outside
the United States. The Fund's investment objective reflects the belief that
long-term investment planning should include the investment opportunities that
exist outside the U.S.
The Fund selects its investments based on the characteristics of the
particular markets and economies of the countries in which it invests. Emphasis
is placed on identifying securities of companies believed to be undervalued in
the marketplace in relation to factors such as the company's revenues, earnings,
assets and long-term competitive position which over time will enhance the
equity value of the company.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $18.77 Per Share
6/30/98: $19.14 Per Share
Total Net Assets: $95.0 Million
Weighted Average Market Cap: $36.7 Billion
TOTAL DIVIDEND: $ 1.14 PER SHARE
Long Term Capital Gain: $ 1.08 Per Share
Ordinary Income: $ 0.06 Per Share
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT INT'L Morgan Stanley
GROWTH FUND EAFE Index
Europe Other 34.9 27.8
Japan 25.0 24.0
France, Germany, UK 23.4 41.6
Pacific Basin 12.9 6.6
Latin America 0.5 0.0
Cash & Other Net Assets 3.3 0.0
22
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------------- -----------------------------------------
Morgan Stanley Lipper Morgan Stanley Lipper
International Capital Int'l Int'l Fund International Capital Int'l Int'l Fund
Growth Fund EAFE Index Index Growth Fund EAFE Index Index
------------- ------------- ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
3 Months 3.99% 2.54% 5.55% 3.99% 2.54% 5.55%
(not annualized)
1 Year 4.51 7.62 4.00 4.51 7.62 4.00
3 Years 9.56 8.81 10.79 31.50 28.83 35.99
5 Years 9.35 8.21 10.10 56.32 48.36 61.75
Inception 11.82 8.61 10.88 135.43 88.38 120.80
(11/1/91)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Finance 22.4
Utilities 19.3
Electronic Technology 15.1
Health Technology 10.5
Technology Services 10.0
Retail Trade 5.2
Commercial Services 4.4
Producer Manufacturing 3.9
Consumer Non-Durables 2.9
Consumer Services 2.4
Industrial Services 0.6
Cash & Other Net Assets 3.3
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (11/1/91) and held until 6/30/99 would
have grown to $23,543 in the Fund or $18,838 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
23
<PAGE>
SIT INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
10 LARGEST HOLDINGS
* Nokia Corp., A.D.R.
* AFLAC, Inc.
* Ryohin Keikaku Co.
* Mannesman, A.G.
* Misys, p.l.c.
* Takeda Chemical Industries
* Samsung Electronics
* Orix Corp.
* Telefonica, S.A.
* Wolters Kluwer
Total number of holdings: 77
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.9%)(2)
ASIA (37.1%)
AUSTRALIA (1.4%)
240,497 Colonial, Ltd. (Finance) (3) $850,546
88,900 Telstra Corp., Ltd. (Utilities) (3) 508,749
--------------
1,359,295
--------------
HONG KONG (3.0%)
63,000 Cheung Kong Hldgs., Ltd. (Industrial
Services) 560,281
304,000 China Telecom, Ltd. (Utilities) 844,379
226,000 Citic Pacific, Ltd. (Utilities) 720,942
19,200 HSBC Holdings, p.l.c. (Finance) 700,333
--------------
2,825,935
--------------
JAPAN (24.2%)
54,400 AFLAC, Inc. (Finance) 2,604,400
71,000 Banyu Pharmaceuticals (Health Tech.) 1,174,039
240 NTT Data Corp. (Tech. Services) 1,908,888
36 NTT Mobile Communications Network,
Inc. (Ord.) (Utilities) 488,136
144 NTT Mobile Communications Network,
Inc. (Utilities) 1,928,731
29,000 Nihon Unisys, Ltd. (Tech. Services) 629,392
85 Nippon Telephone (Utilities) 990,905
22,400 Orix Corp. (Finance) 2,000,165
10,300 Ryohin Keikaku Co., Ltd. (Retail Trade) 2,593,096
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
18,000 Seven Eleven Japan (Retail Trade) 1,765,027
1,600 Shohkoh Fund Co. (Finance) 1,148,243
50,000 Takeda Chemical Industries
(Health Technology) 2,319,140
16,000 TDK Corp. (Electronic Technology) 1,464,407
31,000 Terumo Corp. (Health Technology) 690,740
88,000 The Fuji Bank, Ltd. (Finance) 614,072
101,000 The Nikko Securities Co., Ltd. (Finance) 652,179
--------------
22,971,560
--------------
PHILIPPINES (0.5%)
141,500 Manila Electric Co. (Utilities) 509,474
--------------
TAIWAN (1.5%)
123,000 Hon Hai Precision Industry (Electronic
Technology) (3) 1,111,950
10,000 Taiwan Semiconductor Mfg. Co. Ltd.,
A.D.R. (Electronic Technology) (3) 340,000
--------------
1,451,950
--------------
SINGAPORE (2.2%)
42,000 Development Bank of Singapore, Ltd.
(Finance) 513,279
167,000 Natsteel Electronics, Ltd. (Electronic
Technology) 730,993
109,000 Venture Mfg., Ltd. (Electronic Tech.) 838,954
--------------
2,083,226
--------------
SOUTH KOREA (2.3%)
19,512 Samsung Electronics (Electronic Tech.) 2,140,841
THAILAND (2.0%)
101,000 Advanced Info Services (Utilities) 1,369,492
135,000 Bangkok Bank Public Co., Ltd.
(Finance) (3) 505,220
--------------
1,874,712
--------------
EUROPE (58.3%)
BELGIUM (0.8%)
17,600 UCB, S.A. (Health Technology) 752,568
--------------
FINLAND (7.1%)
52,800 Nokia Corp., A.D.R. (Electronic Tech.) 4,834,500
46,360 Tieto Corp. (Technology Services) 1,929,788
--------------
6,764,288
--------------
FRANCE (7.4%)
14,520 AXA-UAP (Finance) 1,769,849
38,200 Alstom, A.D.R. (Producer Mfg.) 1,200,461
24
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
3,894 Carrefour, S.A. (Retail Trade) 571,736
9,430 France Telecom, S.A. (Utilities) 711,712
6,560 Groupe Danone (Cons. Non-Durables) 1,689,774
1,615 L'oreal Co. (Consumer Non-Durables) 1,090,762
--------------
7,034,294
--------------
GERMANY (5.2%)
3,397 Allianz, A.G. (Finance) 941,527
21,930 Deutsche Telekom, A.G. (Utilities) 919,640
17,100 Mannesmann, A.G. (Producer Mfg.) 2,549,467
1,250 SAP Preferred (Technology Services) 499,076
--------------
4,909,710
--------------
IRELAND (3.6%)
98,800 Bank of Ireland (Finance) 1,660,119
64,400 Elan Corp., p.l.c., A.D.R. (Health
Technology) (3) 1,787,100
--------------
3,447,219
--------------
ITALY (4.5%)
272,200 Banca Fideuram (Finance) 1,584,606
123,000 Telecom Italia (Utilities) 1,277,469
242,100 Telecom Italia Mobile Spa (Utilities) 1,444,302
--------------
4,306,377
--------------
NETHERLANDS (7.3%)
8,200 ASM Lithography Holding N.V.
(Electronic Technology) (3) 486,875
20,740 Aegon N.V., A.D.R. (Finance) 1,534,729
60,360 CMG, p.l.c. (Technology Services) 1,585,894
5,100 Equant, A.D.R. (Technology Services) 480,038
22,640 Libertel N.V. (Electronic Technology) (3) 443,215
8,040 United Pan-Europe Communications
N.V. (Consumer Services) (3) 435,739
49,064 Wolters Kluwer (Commercial Svcs.) 1,951,349
--------------
6,917,839
--------------
PORTUGAL (0.9%)
20,500 Portugal Telecom, A.D.R. (Utilities) 844,344
--------------
SPAIN (5.2%)
68,220 Argentaria (Finance) 1,552,717
67,500 Endesa, A.D.R. (Utilities) 1,434,375
41,286 Telefonica, S.A. (Utilities) 1,986,998
--------------
4,974,090
--------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
SWEDEN (2.2%)
36,300 L.M. Ericsson Telephone Co., A.D.R.
(Electronic Technology) 1,195,631
60,800 Securitas AB (Commercial Svcs.) 909,681
--------------
2,105,312
--------------
SWITZERLAND (3.3%)
675 Novartis, A.G. (Health Technology) 985,053
50 Roche Holdings, A.G. (Health Tech.) 513,661
2,870 Zurich Allied, AG (Finance) 1,631,038
--------------
3,129,752
--------------
UNITED KINGDOM (10.8%)
28,924 AstraZeneca Group, p.l.c. (Health
Technology) 1,127,893
52,800 British Telecom, p.l.c. (Utilities) 884,693
55,550 Carlton Communications, p.l.c. (Consumer
Services) 461,007
46,190 Granada Group, p.l.c. (Consumer Services) 856,938
72,126 Lloyds TSB Group, p.l.c. (Finance) 977,722
292,585 Misys, p.l.c. (Technology Services) 2,504,247
23,305 Pearson, p.l.c. (Consumer Services) 473,508
334,670 Rentokil Group, p.l.c. (Commercial Svcs.) 1,305,621
9,600 SmithKline Beecham, p.l.c., A.D.R.
(Health Technology) 634,201
5,100 Vodafone Airtouch, A.D.R. (Utilities) 1,004,700
--------------
10,230,530
--------------
LATIN AMERICA (0.5%)
MEXICO (0.5%)
5,700 Telefonos de Mexico S.A., A.D.R.
(Utilities) 460,631
--------------
Total common stocks 91,093,947
--------------
(cost: $57,285,461)
STRUCTURED NOTE (0.8%) (2)
371 Sony Corp. (Currency Protected,
Equity-Linked), 7.50%, 5/8/00 (8) 779,205
--------------
(cost: $717,236)
SHORT TERM SECURITIES (3.3%) (2)
3,156,000 Sit Money Market Fund, 4.56% (6) 3,156,000
--------------
(cost: $3,156,000)
Total investments in securities
(cost: $61,158,697) (7) $95,029,152
==============
See accompanying notes to portfolios of investments.
25
<PAGE>
SIT SMALL CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Small Cap Growth Fund's one-year return was +8.8% and compared
favorably to the +1.5% return for the Russell 2000 Index. Small cap stocks
regained significant momentum during the second quarter of 1999. The Fund's
quarterly return was +18.7% versus the +15.6% return for the Russell 2000 Index.
The Fund's average annual total return since inception was +19.4%, which
compared favorably to the +15.3% return for the Russell 2000 Index.
Extreme undervaluation of small stocks and renewed confidence in the global
economic environment were key elements behind the strong second quarter rally
for small cap stocks. In fact, this was the first quarter in seven that the
Russell 2000 Index outperformed the Russell 1000 Index. Given the duration and
magnitude of small cap underperformance in recent years and the resulting
valuation disparity, we believe the potential exists for an extended small cap
stock rally. Our enthusiasm for smaller stocks can be illustrated by a simple
analysis of price-to-earnings ratios relative to estimated long-term growth
rates. The P/E ratio for the Fund currently stands at 32 times estimated year
2000 earnings--which is BELOW the estimated earnings growth rate of 35%. In
contrast, the P/E ratio for the S&P 500 is 26 times estimated 2000 earnings and
well ABOVE the long-term earnings growth rate of 10%.
As of June 30th, the Fund was 96% invested in equities. The most
significant sector increases over the past year occurred in electronic
technology through purchases of Applied Micro Circuits, PMC Sierra, Galileo
Technology, and Flextronics. The financial services sector had the greatest
reduction in weighting, accomplished through sales of Imperial Credit
Industries, Life Re, Nac Re, Delphi Financial, and Community First Bank.
Electronic technology and technology services remain the heaviest weighted
sectors within the portfolio due to the robust earnings outlook for the
technology sectors.
Although the strong returns experienced during the second quarter are
unlikely to be repeated over each of the year's remaining quarters, we believe
the Fund is in position to benefit from the improving outlook for small
capitalization investing.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Small Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of small growth companies that have a capitalization of $2.5
billion or less at the time of purchase.
In addition, the Fund may purchase securities convertible into common
stocks, preferred stocks and warrants. The Fund may invest in securities not
listed on a national securities exchange but generally such securities will have
an established over-the-counter market.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $18.28 Per Share
6/30/98: $20.35 Per Share
Total Net Assets: $50.3 Million
Weighted Average Market Cap: $ 2.0 Billion
TOTAL DIVIDEND: $ 3.09 PER SHARE
Long Term Capital Gain: $ 3.09 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 30.1
Technology Services 23.9
Finance 8.9
Utilities 8.0
Health Technology 6.3
Consumer Services 4.7
Retail Trade 4.2
Transportation 3.8
Health Services 2.3
Energy Minerals 1.9
Industrial Services 1.1
Commercial Services 0.7
Cash & Other Net Assets 4.1
26
<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 18.70% 15.55% 14.75% 18.70% 15.55% 14.75%
(not annualized)
1 Year 8.77 1.50 8.30 8.77 1.50 8.30
3 Years 7.54 11.22 8.64 24.38 37.56 28.24
Inception 19.44 15.32 15.33 143.07 103.99 104.09
(7/1/94)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDEX NOR
THE RUSSELL 2000 GROWTH INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/99 would
have grown to $24,307 in the Fund or $20,399 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Applied Micro Circuits Corp.
* Uniphase Corp.
* Dendrite International, Inc.
* PMC-Sierra, Inc.
* Legato Systems, Inc.
* Galileo Technology, Ltd.
* Transaction Network Services, Inc.
* Allegiance Telecom, Inc.
* Siebel Systems, Inc.
* Inktomi Corp.
Total number of holdings: 58
27
<PAGE>
SIT SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.9%) (2)
COMMERCIAL SERVICES (0.7%)
35,000 HA-LO Industries, Inc. (3) $345,625
----------------
CONSUMER SERVICES (4.7%)
22,000 Emmis Broadcasting Corp. (3) 1,086,250
9,000 Jones Intercable, Inc. (3) 441,000
35,000 Rent-Way, Inc. (3) 861,875
----------------
2,389,125
----------------
ELECTRONIC TECHNOLOGY (30.1%)
28,000 AAR Corp. 635,250
25,000 Applied Micro Circuits Corp. (3) 2,056,250
33,500 Asyst Technologies, Inc. (3) 1,002,906
29,000 Burr-Brown Corp. (3) 1,062,125
3,000 Extreme Networks, Inc. (3) 174,187
22,500 Flextronics International, Ltd. (3) 1,248,750
33,500 Galileo Technology, Ltd. (3) 1,517,969
20,000 Gilat Satellite Networks, Ltd. (3) 1,050,000
1,500 Juniper Networks, Inc. (3) 223,500
30,000 PMC-Sierra, Inc. (3) 1,768,125
12,700 RF Micro Devices, Inc. (3) 947,738
18,000 SDL, Inc. (3) 919,125
25,000 Security Dynamics Tech., Inc. (3) 531,250
12,000 Uniphase Corp. (3) 1,992,000
----------------
15,129,175
----------------
ENERGY MINERALS (1.9%)
33,500 Newfield Exploration Co. (3) 952,656
----------------
FINANCE (8.9%)
18,500 Arthur J. Gallagher & Co. 915,750
38,500 Federated Investors, Inc. 690,594
17,500 Mutual Risk Management, Ltd. 584,063
39,325 Queens County Bancorp, Inc. 1,273,147
90,500 Scottish Annuity & Life Hldgs., Ltd. 972,875
7,300 Stirling Cooke Brown Holdings 30,112
----------------
4,466,541
----------------
HEALTH SERVICES (2.3%)
35,500 Stericycle, Inc. (3) 481,469
20,000 Sunrise Assisted Living, Inc. (3) 697,500
----------------
1,178,969
----------------
HEALTH TECHNOLOGY (6.3%)
44,000 Biosite Diagnostics, Inc. (3) 445,500
50,000 I-Stat Corp. (3) 456,250
9,000 IDEC Pharmaceuticals Corp. (3) 693,562
9,500 Novoste Corp. (3) 199,500
10,000 Sepracor, Inc. (3) 812,500
30,000 Ventana Medical Systems, Inc. (3) 573,750
----------------
3,181,062
----------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
INDUSTRIAL SERVICES (1.1%)
61,000 Newpark Resources, Inc. (3) 541,375
----------------
RETAIL TRADE (4.2%)
10,000 AnnTaylor Stores Corp. (3) 450,000
28,000 Cost Plus, Inc. (3) 1,274,000
15,500 Men's Wearhouse, Inc. (3) 395,250
----------------
2,119,250
----------------
TECHNOLOGY SERVICES (23.9%)
17,500 BISYS Group, Inc. (3) 1,023,750
11,500 Cais Internet, Inc. (3) 211,313
51,500 Dendrite International, Inc. (3) 1,860,438
20,000 Great Plains Software, Inc. (3) 943,750
10,000 Inktomi Corp. (3) 1,305,625
30,000 Legato Systems, Inc. (3) 1,732,500
34,300 Pervasive Software, Inc. (3) 853,212
2,500 Priceline.com, Inc. (3) 288,906
6,500 Razorfish, Inc. (3) 240,906
15,000 Sapient Corp. (3) 849,375
20,229 Siebel Systems, Inc. (3) 1,342,700
3,000 VerticalNet, Inc. (3) 315,000
26,000 Whittman-Hart, Inc. (3) 825,500
8,500 Ziff-Davis, Inc. (3) 221,000
----------------
12,013,975
----------------
TRANSPORTATION (3.8%)
25,000 C.H. Robinson Worldwide, Inc. 918,750
8,000 Eagle USA Airfreight, Inc. (3) 339,500
24,000 Expeditors International, Inc. 654,000
----------------
1,912,250
----------------
UTILITIES (8.0%)
26,000 Allegiance Telecom, Inc. (3) 1,426,750
12,000 Nextlink Communications (3) 892,500
5,000 Rhythms NetConnections, Inc. (3) 291,875
49,000 Transaction Network Svcs., Inc. (3) 1,433,250
----------------
4,044,375
----------------
Total common stocks 48,274,378
----------------
(cost: $31,802,635)
SHORT-TERM SECURITIES (3.0%) (2)
1,491,000 Sit Money Market Fund, 4.56% (6) 1,491,000
----------------
(cost: $1,491,000)
Total investments in securities
(cost: $33,293,635) (7) $49,765,378
================
See accompanying notes to portfolios of investments.
28
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
29
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Science and Technology Fund posted a positive return of +29.4% for
the year ended June 30, 1999. The +32.5% annualized return since inception is in
excess of broad market averages. For example, the comparable S&P 500 return for
the same eighteen-month period was +27.8%
The Fund lagged behind the Pacific Stock Exchange Technology 100 Index
(PSE) due to the Index's disproportionate contribution from Internet securities
and the Fund's commitment to the health care sector. At the end of June, health
care stocks represented 24% of the portfolio compared to an estimated 15% health
care weight for the Index. During the past twelve months, health care holdings
have averaged approximately 33% of the portfolio. While we believe there are
many promising long-term investments within the health care sector, these stocks
have lagged behind the technology sector performance within the Fund over the
last twelve months. This relative underperformance has led to compelling
valuations for health care issues, and the Fund will continue to pursue
opportunities in this sector.
As of June 30th, the Fund was 99% invested in equity securities, up from
96% last year. The most significant sector change was related to a shift from
the technology services sector to the electronic technology sector. Since
lingering fears of a Year 2000-related slowdown may weigh down the performance
of technology service companies, total or partial sales were made in shares of
Computer Associates, Cadence Design, Intelligroup, Peoplesoft, and Security
Dynamics. Improving fundamentals in the telecommunications and semiconductor
industries led to increased weightings within the electronic technology and
utilities sectors through the purchase of Applied Micro Circuits, Jabil Circuit,
Motorola, Nokia, PMC-Sierra, Teradyne, Vitesse Semiconduictor, and MCI Worldcom.
Earnings for the stocks in the Fund are expected to grow +26% in 1999 and
+32% over the next five years. Despite growth rates of more than two and
one-half times the market, valuations do not appear excessive. The
price-to-earnings ratio for the Fund currently stands at 39 times 2000 earnings,
and the comparable ratio for the S&P 500 is 26 times earnings. Based on the
strong earnings growth and attractive relative valuations, we continue to be
optimistic about the outlook for companies in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies which Sit Investment Associates, Inc. expects to benefit from the
development, improvement, advancement and use of science and technology. During
normal market conditions, at least 80% of the Fund's total assets will be
invested in such securities. The Fund emphasizes securities of companies that
the adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $15.23 Per Share
6/30/98: $11.77 Per Share
Total Net Assets: $14.2 Million
Weighted Average Market Cap: $70.9 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 49.7
Health Technology 23.5
Technology Services 22.7
Utilities 3.5
Cash & Other Net Assets 0.6
30
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------- ----------------------------------
Pacific Stock Pacific Stock
Science and Exchange Science and Exchange
Technology Technology Technology Technology
Growth Fund 100 Index Growth Fund 100 Index
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
3 Months 10.36% 20.62% 10.36% 20.62%
(not annualized)
1 Year 29.40 73.40 29.40 73.40
Inception 32.48 62.36 52.30 106.46
(12/31/97)
</TABLE>
*As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 6/30/99 would
have grown to $15,230 in the Fund, or $20,646 in the PSE Tech 100 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Microsoft Corp.
* International Business Machines Corp.
* Cisco Systems, Inc.
* Biogen, Inc.
* Tellabs, Inc.
* Vitesse Semiconductor Corp.
* Inktomi Corp.
* Unisys Corp.
* Intel Corp.
* Applied Micro Circuits Corp.
Total number of holdings: 55
31
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (99.2%) (2)
ELECTRONIC TECHNOLOGY (49.7%)
5,500 ADC Telecommunications, Inc. (3) $250,594
5,500 Analog Devices, Inc. (3) 276,031
4,000 Applied Micro Circuits Corp. (3) 329,000
8,000 Cisco Systems, Inc. (3) 516,000
3,750 Comverse Technology, Inc. (3) 283,125
6,000 Dell Computer Corp. (3) 222,000
5,600 EMC Corp. (3) 308,000
6,000 Intel Corp. 357,000
4,000 International Business Machines Corp. 517,000
5,000 Jabil Circuit, Inc. (3) 225,625
2,000 Lexmark International Group, Inc. (3) 132,125
4,000 Lucent Technologies, Inc. 269,750
3,000 Motorola, Inc. 284,250
3,000 Nokia Corp., A.D.R. 274,688
5,000 PMC-Sierra, Inc. (3) 294,687
4,000 RF Micro Devices, Inc. (3) 298,500
5,000 SDL, Inc. (3) 255,312
3,000 Synopsys, Inc. (3) 165,562
6,500 Tellabs, Inc. (3) 439,156
4,000 Teradyne, Inc. (3) 287,000
10,000 Unisys Corp. (3) 389,375
6,500 Vitesse Semiconductor Corp. (3) 438,344
4,000 Xerox Corp. 236,250
-----------------
7,049,374
-----------------
HEALTH TECHNOLOGY (23.5%)
8,000 Biogen, Inc. (3) 514,500
4,000 Bristol Myers Squibb Co. 281,750
8,000 Elan Corp., A.D.R. (3) 222,000
7,000 Guilford Pharmaceuticals, Inc. (3) 89,250
2,000 IDEC Pharmaceuticals Corp. (3) 154,125
2,000 Immunex Corp. (3) 254,875
2,000 Johnson & Johnson Co. 196,000
2,000 MedImmune, Inc. (3) 135,500
3,000 Medtronic, Inc. 233,625
4,000 Merck & Co., Inc. 296,000
3,000 Novoste Corp. (3) 63,000
5,000 Protein Design Labs (3) 110,937
2,300 Pfizer, Inc. 252,425
3,000 Schering-Plough Corp. 159,000
2,000 Sepracor, Inc. (3) 162,500
3,000 Warner Lambert Co. 208,125
-----------------
3,333,612
-----------------
- --------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
TECHNOLOGY SERVICES (22.5%)
2,200 America Online, Inc. (3) 243,100
2,600 At Home Corp. (3) 140,238
5,000 BMC Software, Inc. (3) 270,000
4,500 Check Point Software Technology (3) 241,312
4,500 Compuware Corp. (3) 143,156
7,500 Dendrite International, Inc. (3) 270,938
4,000 I2 Technologies, Inc. (3) 172,000
3,000 Inktomi Corp. (3) 391,688
5,500 Legato Systems, Inc. (3) 317,625
6,000 Microsoft Corp. (3) 541,125
3,000 New Era of Networks, Inc. (3) 131,813
4,000 Sterling Commerce, Inc. (3) 146,000
6,000 Whittman-Hart, Inc. (3) 190,500
-----------------
3,199,495
-----------------
UTILITIES (3.5%)
3,500 MCI WorldCom, Inc. (3) 301,219
6,000 Qwest Communications Int'l, Inc. (3) 198,375
-----------------
499,594
-----------------
Total common stocks 14,082,075
-----------------
(cost: $10,462,140)
CONVERTIBLE BONDS (0.2%) (2)
50,000 Tecnomatix Technologies Conv.,
5.25%, 8/15/04 (4) (5) 34,875
-----------------
(cost: $48,477)
SHORT-TERM SECURITIES (0.8%) (2)
120,000 Sit Money Market Fund, 4.56% (6) 120,000
-----------------
(cost: $120,000)
Total investments in securities
(cost: $10,630,617) (7) $14,236,950
=================
See accompanying notes to portfolios of investments.
32
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
33
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ANDREW B. KIM, CFA
During the June quarter, the Sit Developing Markets Growth Fund (up +29.1%)
outperformed both the MSCI Emerging Markets Free Index (up +23.6%) and the
Lipper Emerging Markets Index (up +25.2%), reflecting the sizable positive
returns of the holdings in the Asian markets. At the end of June, equity
holdings in Asia increased to 58.1% of the net assets vs. 41.3% for the Index.
Weightings increased sharply from a year ago in Taiwan (13.2% vs. 8.4%), South
Korea (11.9% vs. 3.7%), and Singapore (10.9% vs. 6.3%) because of a continued
focus on the electronics sector's contract manufacturers.
The Fund's 1-year return, however, was less favorable increasing +10.3%
compared with the MSCI Emerging Markets Free Index benchmark gain of +25.2% and
the Lipper Emerging Market Index return of +19.0%. The underperformance relative
to the indices was in large part the result of our underweight in Mexico, South
Korea, and Greece as well as our lack of interest rate sensitive financial and
property sector exposures in Asia early in the year. Our exposure in some
non-index countries and our high cash position also hurt performance.
The overall Latin American weighting as of June 30th stood at 15.5% vs.
30.4% for the Index. In Latin America, the Fund's holdings continue to be
concentrated in Mexico (11.3% vs. 11.9%) based on its promising corporate
earnings outlook. The removal of near-term uncertainties over immediate U.S.
interest rate increases and higher oil prices should benefit emerging markets in
general. Specifically, Mexico should more fully benefit from strong NAFTA
economies. Brazil, however, is substantially underweight (3.0% vs. the Index's
8.7%) due to structural weakness stemming from its domestic fiscal problems.
Emerging-Europe, Middle East and Africa holdings were underweighted at
18.4% vs. 28.3%. The Fund continued to overweight Israel (4.4% vs. 2.9%) and
underweight South Africa (2.5% vs. 11.0%). Greece was the largest weighting
(7.1% vs. 6.1%).
Among new additions in the Fund's holdings were Korea Telecom, Development
Bank of Singapore, Hana Microelectronics in Thailand, Comverse Technology in
Israel, Philippine Long Distance Telephone in addition to Delta Dairy in Greece.
We believe the favorable liquidity conditions in Asia should continue in
the second half, aided by the increased current account surplus, foreign direct
investment, lower interest rates and stable currencies. In addition, we look for
Japan's improving business conditions and strong currency to contribute to
Asia's economic recovery.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
equity securities of companies located or otherwise operating in a developing
market.
Developing markets tend to be less economically developed regions of the
world. General characteristics also include a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, rapid economic growth and lower
degrees of political stability. Investors should carefully consider the risks
associated with developing markets such as currency flucuations, high
volatility, illiquidity and the possibility of political instability.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $ 9.98 Per Share
6/30/98: $ 9.05 Per Share
Total Net Assets: $11.3 Million
Weighted Average Market Cap: $32.1 Billion
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT DEVELOPING MSCI Emerging
MARKETS GROWTH FUND Markets Free Index
Asia 58.1 41.3
Latin America 15.5 30.4
Europe 11.5 13.4
Africa/Middle East 6.9 14.9
North America 0.9 0.0
Cash & Other Net Assets 7.1 0.0
34
<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 29.11% 23.62% 25.17% 29.11% 23.62% 25.17%
(not annualized)
1 Year 10.28 25.20 19.04 10.28 25.20 19.04
3 Year -3.01 -6.18 -4.39 -8.76 -17.41 -12.59
Inception 0.11 -2.89 -1.06 0.53 -13.64 -5.18
(7/1/94)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY
INTERNATIONAL EMERGING MARKETS FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE
OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF
MUTUAL FUNDS.
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Utilities 38.4
Electronic Technology 29.9
Retail Trade 9.4
Finance 7.4
Industrial Services 3.1
Technology Services 2.5
Consumer Non-Durables 1.4
Consumer Services 0.8
Cash & Other Net Assets 7.1
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/99 would
have grown to $10,053 in the Fund or $8,636 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
35
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
10 LARGEST HOLDINGS
* Hon Hai Precision Industry
* Advanced Info Services
* Telefonos de Mexico, A.D.R.
* Samsung Electronics
* Cifra, S.A.
* Datacraft Asia, Ltd.
* Korea Electric Power, A.D.R.
* Dimension Data Holdings, Ltd.
* Philippine Long Distance Telephone Co., A.D.R.
* Venture Manufacturing, Ltd.
Total number of holdings: 46
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (92.9%)(2)
AFRICA/ MIDDLE EAST (6.9%)
ISRAEL (4.4%)
2,500 Gilat Satellite Networks, Ltd., A.D.R.
(Electronic Technology) (3) $131,250
8,600 Nice Systems, Ltd., A.D.R. (Electronic
Technology ) (3) 237,038
1,700 Comverse Technology, Inc. (Electronic
Technology) (3) 128,350
-------------
496,638
-------------
SOUTH AFRICA (2.5%)
64,800 Dimension Data Holdings, Ltd.
(Technology Services) 286,735
-------------
ASIA (58.1%)
HONG KONG (6.5%)
13,000 Cheung Kong Hldgs., Ltd. (Indus. Svcs.) 115,614
640,000 China Hong Kong Photo Products Hldgs.,
Ltd. (Retail Trade) 102,287
74,000 China Telecom (Utilities) 205,540
48,000 Citic Pacific, Ltd. (Utilities) 153,120
4,400 HSBC Holdings, p.l.c. (Finance) 160,493
-------------
737,054
-------------
INDONESIA (1.6%)
258,000 PT Ramayana Lestari (Retail Trade) 182,556
-------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
PHILIPPINES (5.3%)
2,343,000 Digital Telecom Philippines (Utilities) (3) 144,090
173,000 Jollibee Foods Co. (Warrants) (Consumer
Services) (3)(4)(5) 88,660
9,200 Philippine Long Distance Telephone Co.,
A.D.R. (Utilities) 277,150
424,000 SM Prime Holdings, Inc. (Retail Trade) 95,832
-------------
605,732
-------------
SINGAPORE (10.9%)
60,000 Avimo Group, Ltd. (Electronic Tech.) 97,650
95,000 Datacraft Asia, Ltd. (Electronic Tech.) 414,200
19,000 Development Bank of Singapore, Ltd.
(Finance) 232,197
51,000 Natsteel Electronics, Ltd. (Electronic
Technology) 223,237
35,000 Venture Mfg., Ltd. (Electronic Tech.) 269,389
-------------
1,236,673
-------------
SOUTH KOREA (11.9%)
20,000 Korea Electric Power, A.D.R. (Utilities) 410,000
3,000 Korea Telecom Corporation (Utilities) 199,050
6,000 Korea Telecom Corp., A.D.R. (Utilities) (3) 240,000
4,564 Samsung Electronics (Electronic
Technology) 500,758
-------------
1,349,808
-------------
TAIWAN (13.2%)
75,698 Chroma Ate, Inc. (Electronic Technology) (3) 221,469
74,200 Hon Hai Precision Industry (Electronic
Technology) (3) 670,786
69,000 President Chain Store Corp. (Retail Trade) 233,916
64,000 Phoenixtec Power Co. (Elec. Tech.) (3) 127,802
62,730 Taiwan Semiconductor Co. (Electronic
Technology) (3) 239,850
-------------
1,493,823
-------------
THAILAND (8.7%)
48,800 Advanced Info Services (Utilities) 661,695
54,000 Bangkok Bank (Finance) 202,088
42,000 Hana Microelectronics Public Co., Ltd.
(Electronic Technology) 126,427
-------------
990,210
-------------
EUROPE (11.5%)
GREECE (7.1%)
3,937 Alpha Credit Bank (Finance) 253,476
3,000 Delta Dairy S.A. (Consumer Non-Durables) 58,468
11,700 Hellenic Telecommunications
Organization (Utilities) 250,476
10,250 Panafon Telecom (Utilities) (3) 246,904
-------------
809,324
-------------
36
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
PORTUGAL (2.0%)
5,500 Portugal Telecom, A.D.R. (Utilities) 226,531
-------------
SPAIN (2.4%)
1,815 Telefonica, A.D.R. (Utilities) 266,970
-------------
LATIN AMERICA (15.5%)
ARGENTINA (1.2%)
4,200 Telefonica de Argentina, A.D.R. (Utilities) 131,775
-------------
BRAZIL (3.0%)
6,500 Cemig, A.D.R. (Utilities) 137,995
1,800 Tele Centro Sul Participacoes S.A.,
A.D.R. (Utilities) 99,900
4,400 Telesp Participacoes S.A., A.D.R.
(Utilities) (3) 100,650
-------------
338,545
-------------
MEXICO (11.3%)
223,700 Cifra S.A. (Retail Trade) 445,740
5,000 Coca Cola Femsa S.A., A.D.R. (Consumer
Non-Durables) 96,875
55,700 Corporacion GEO - B
(Industrial Services) (3) 236,142
6,200 Telefonos de Mexico, A.D.R. (Utilities) 501,038
-------------
1,279,795
-------------
NORTH AMERICA (0.9%)
CANADA (0.9%)
5,800 Telesystems Int'l. Wireless, Inc.
(Utilities) (3) 104,309
-------------
Total common stocks 10,536,478
-------------
(cost: $7,751,078)
SHORT-TERM SECURITIES (9.6%) (2)
1,088,000 Sit Money Market Fund, 4.56% (6) 1,088,000
-------------
(cost: $1,088,000)
Total investments in securities
(cost: $8,839,078) (7) $11,624,478
=============
See accompanying notes to portfolios of investments.
37
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
38
<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".
(5) These securities have been identified by the investment adviser as illiquid
securities. The aggregate value of these these securities at June 30, 1999,
is $88,660 and $34,875 in Developing Markets Growth and Science and
Technology Growth Funds, respectively, which represents 0.8% and 0.2% of
the Funds' net assets, respectively. The following table summarizes the
purchase date(s) and cost basis of these securities:
<TABLE>
<CAPTION>
Purchase
Fund Security Date(s) Shares/Par Cost Basis
- ---------------------------------- ------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Developing Markets Growth Jollibee Foods 3/98 - 12/98 173,000 77,228
Science and Technology Growth Tecnomatix Tech. 1/98 50,000 48,477
</TABLE>
(6) This security represents an investment in an affiliated party. See note 3
to the accompanying financial statements.
(7) At June 30, 1999, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on
that cost were as follows:
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost for federal income tax purposes $ 10,534,649 $ 94,434,800 $ 5,937,382 $ 234,957,758
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 2,204,615 $ 46,000,133 $ 1,681,551 $ 138,205,691
Gross unrealized depreciation (144,106) (1,240,300) (98,190) (1,784,741)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 2,060,509 $ 44,759,833 $ 1,583,361 $ 136,420,950
============= ============= ============= =============
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
Cost for federal income tax purposes $ 62,212,159 $ 33,293,635 $ 10,658,918 $ 8,839,078
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 33,093,304 $ 17,539,502 $ 3,879,914 $ 2,978,423
Gross unrealized depreciation (276,311) (1,067,759) (301,882) (193,023)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 32,816,993 $ 16,471,743 $ 3,578,032 $ 2,785,400
============= ============= ============= =============
</TABLE>
(8) Medium-term debt security whose return is linked to the performance of the
common stock of Sony Corporation. The security is subject to price
fluctuations of the Sony Corporation common stock, up to a limit of 130% of
its level at issue date (May 8, 1999), without being affected by changes in
the yen/U.S. dollar exchange rate. The quarterly interest payment for each
unit is based on the U.S. dollar equivalent market value of 20 shares of
Sony Corp. common stock on issue date.
39
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - JUNE 30, 1999
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
ASSETS FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investments in securities, at
identified cost $ 10,523,530 $ 94,415,041 $ 5,920,358 $ 232,941,626
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for
detail $ 12,595,158 $ 139,194,633 $ 7,520,743 $ 371,378,708
Cash in bank on demand
deposit 3,982 837 2,769 1,321
Receivables:
Dividends and accrued interest 57,528 75,303 4,506 129,871
Fund shares sold 8,917 43,023 138 2,410,671
Investment securities sold 156,774 3,370,949 -- 6,094,118
Unrealized appreciation on foreign
currency contracts held (Note 1) -- -- -- --
Other receivables -- 30,301 1,374 13,006
--------------- --------------- --------------- ---------------
Total assets 12,822,359 142,715,046 7,529,530 380,027,695
--------------- --------------- --------------- ---------------
LIABILITIES
Payables:
Investment securities purchased 697,956 2,267,673 -- 4,217,033
Fund shares redeemed 2,584 79,537 33 179,627
Accrued investment management
and advisory services fee 9,420 110,140 5,889 288,457
Other payables 36 -- -- --
--------------- --------------- --------------- ---------------
Total liabilities 709,996 2,457,350 5,922 4,685,117
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock 12,112,363 140,257,696 7,523,608 375,342,578
=============== =============== =============== ===============
Capital stock
Par $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares 697,061 2,654,228 571,098 25,812,041
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock $ 17.38 $ 52.84 $ 13.17 $ 14.54
=============== =============== =============== ===============
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investments in securities, at
identified cost $ 61,158,697 $ 33,293,635 $ 10,630,617 $ 8,839,078
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for
detail $ 95,029,152 $ 49,765,378 $ 14,236,950 $ 11,624,478
Cash in bank on demand
deposit 634 366,851 307 4,807
Receivables:
Dividends and accrued interest 158,662 10,784 5,133 9,736
Fund shares sold 21,626 121,789 874 47,287
Investment securities sold -- 185,615 36,138 275,051
Unrealized appreciation on foreign
currency contracts held (Note 1) -- -- -- 301
Other receivables 22,865 -- -- 5,119
--------------- --------------- --------------- ---------------
Total assets 95,232,939 50,450,417 14,279,402 11,966,779
--------------- --------------- --------------- ---------------
LIABILITIES
Payables:
Investment securities purchased 78,435 56,500 68,711 490,538
Fund shares redeemed 57,474 -- -- 121,635
Accrued investment management
and advisory services fee 114,810 56,172 13,852 16,860
Other payables -- 3,148 3,174 --
--------------- --------------- --------------- ---------------
Total liabilities 250,719 115,820 85,737 629,033
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock 94,982,220 50,334,597 14,193,665 11,337,746
=============== =============== =============== ===============
Capital stock
Par $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares 5,060,826 2,753,954 932,227 1,135,889
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock $ 18.77 $ 18.28 $ 15.23 $ 9.98
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 49,858 $ 744,174 $ 39,449 $ 1,013,159
Interest 212,293 389,174 17,599 863,486
------------ ------------ ------------ ------------
Total income 262,151 1,133,348 57,048 1,876,645
------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee 86,957 1,250,402 74,226 4,328,283
Less fees and expenses absorbed
by investment adviser -- -- (14,845) (865,657)
------------ ------------ ------------ ------------
Total net expenses 86,957 1,250,402 59,381 3,462,626
------------ ------------ ------------ ------------
Net investment income (loss) 175,194 (117,054) (2,333) (1,585,981)
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) (note 2) 591,404 17,648,687 (111,164) 25,382,637
Net change in unrealized appreciation
(depreciation) on investments 205,945 2,230,110 1,187,711 (2,614,204)
Realized gain (loss) on foreign
currency transactions -- -- -- --
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) -- -- -- --
------------ ------------ ------------ ------------
Net gain (loss) on investments 797,349 19,878,797 1,076,547 22,768,433
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 972,543 $ 19,761,743 $ 1,074,214 $ 21,182,452
============ ============ ============ ============
</TABLE>
- -----------------
42
<PAGE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends * $ 824,377 $ 92,922 $ 22,201 $ 110,293
Interest 229,612 97,071 24,172 92,885
------------ ------------ ------------ ------------
Total income 1,053,989 189,993 46,373 203,178
------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee 1,718,057 683,493 132,050 208,718
Less fees and expenses absorbed
by investment adviser (325,038) -- (22,008) --
------------ ------------ ------------ ------------
Total net expenses 1,393,019 683,493 110,042 208,718
------------ ------------ ------------ ------------
Net investment income (loss) (339,030) (493,500) (63,669) (5,540)
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) (note 2) 2,669,179 (3,899,846) (316,306) (2,762,417)
Net change in unrealized appreciation
(depreciation) on investments 2,467,482 6,980,637 2,941,239 3,644,737
Realized gain (loss) on foreign
currency transactions 75,709 -- -- (33,292)
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) 1,383 -- -- (726)
------------ ------------ ------------ ------------
Net gain (loss) on investments 5,213,753 3,080,791 2,624,933 848,302
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 4,874,723 $ 2,587,291 $ 2,561,264 $ 842,762
============ ============ ============ ============
</TABLE>
- -----------------
* Dividends are net of foreign withholding tax of $2,261 and $90,652 in
the Developing Markets Growth Fund and International Growth Fund,
respectively.
43
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED LARGE CAP
FUND GROWTH FUND
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 175,194 $ 131,419 $ (117,054) $ 50,303
Net realized gain (loss) on investments 591,404 548,219 17,648,687 12,220,496
Net change in unrealized appreciation
(depreciation) on investments 205,945 624,195 2,230,110 14,921,853
Net realized gain (loss) on foreign currency transactions -- 5 -- (46)
Net change in unrealized appreciation (depreciation) on
foreign currency transactions -- -- -- 83
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations 972,543 1,303,838 19,761,743 27,192,689
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (147,000) (127,000) (17,000) (132,500)
Net realized gains on investments (350,000) (443,000) (9,200,000) (7,922,500)
------------- ------------- ------------- -------------
Total distributions (497,000) (570,000) (9,217,000) (8,055,000)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 6,001,022 2,008,168 55,525,759 35,549,440
Reinvested distributions 491,654 567,624 9,042,427 7,865,696
Payments for shares redeemed (2,277,394) (991,255) (52,351,385) (17,283,050)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions 4,215,282 1,584,537 12,216,801 26,132,086
------------- ------------- ------------- -------------
Total increase in net assets 4,690,825 2,318,375 22,761,544 45,269,775
NET ASSETS
Beginning of period 7,421,538 5,103,163 117,496,152 72,226,377
------------- ------------- ------------- -------------
End of period $ 12,112,363 $ 7,421,538 $ 140,257,696 $ 117,496,152
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 9,446,131 $ 5,230,849 $ 88,440,137 $ 66,308,638
Undistributed (distributions in excess of) net
investment income 63,689 35,495 -- 17,320
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions 530,915 289,511 7,037,967 8,620,712
Unrealized appreciation (depreciation) on investments 2,071,628 1,865,683 44,779,592 42,549,482
Unrealized appreciation (depreciation) on foreign
currency transactions -- -- -- --
------------- ------------- ------------- -------------
$ 12,112,363 $ 7,421,538 $ 140,257,696 $ 117,496,152
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold 359,829 129,469 1,156,108 796,463
Reinvested distributions 30,798 38,770 198,041 199,890
Redeemed (138,578) (65,109) (1,081,277) (403,112)
------------- ------------- ------------- -------------
Net increase (decrease) 252,049 103,130 272,872 593,241
============= ============= ============= =============
</TABLE>
* Period since commencement of operations (12/31/97)
44
<PAGE>
<TABLE>
<CAPTION>
REGIONAL MID CAP INTERNATIONAL SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
- ------------------------------ ------------------------------ ------------------------------ -----------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 * 1999 1998 1999 1998 1999 1998
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (2,333) $ 8,500 $ (1,585,981) $ (1,634,045) $ (339,030) $ 120,344 $ (493,500) $ (466,768)
(111,164) 26,658 25,382,637 82,862,743 2,669,179 6,485,017 (3,899,846) 10,959,585
1,187,711 412,674 (2,614,204) (831,087) 2,467,482 874,697 6,980,637 (3,664,222)
-- -- -- -- 75,709 831,317 -- --
-- -- -- -- 1,383 (805,596) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,074,214 447,832 21,182,452 80,397,611 4,874,723 7,505,779 2,587,291 6,828,595
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(12,000) -- -- -- (284,000) (159,683) -- --
-- -- (59,500,000) (46,136,334) (5,500,000) (3,469,317) (7,700,000) (2,211,000)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(12,000) 0 (59,500,000) (46,136,334) (5,784,000) (3,629,000) (7,700,000) (2,211,000)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
3,331,498 4,764,788 430,451,763 327,420,150 74,962,278 97,772,151 27,461,865 86,265,023
11,188 -- 56,956,588 43,699,380 5,530,038 3,462,126 7,467,439 2,167,174
(1,863,065) (230,847) (478,075,695) (387,596,125) (84,321,667) (104,669,312) (36,954,369) (93,935,313)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,479,621 4,533,941 9,332,656 (16,476,595) (3,829,351) (3,435,035) (2,025,065) (5,503,116)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,541,835 4,981,773 (28,984,892) 17,784,682 (4,738,628) 441,744 (7,137,774) (885,521)
4,981,773 0 404,327,470 386,542,788 99,720,848 99,279,104 57,472,371 58,357,892
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,523,608 $ 4,981,773 $ 375,342,578 $ 404,327,470 $ 94,982,220 $ 99,720,848 $ 50,334,597 $ 57,472,371
============= ============= ============= ============= ============= ============= ============= =============
$ 6,007,729 $ 4,533,941 $ 212,221,226 $ 204,046,842 $ 59,465,815 $ 63,131,461 $ 37,762,700 $ 40,267,154
-- 8,500 -- -- 552,506 284,937 -- --
(84,506) 26,658 24,684,270 59,229,342 1,100,069 4,909,485 (3,899,846) 7,714,111
1,600,385 412,674 138,437,082 141,051,286 33,870,455 31,402,973 16,471,743 9,491,106
-- -- -- -- (6,625) (8,008) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,523,608 $ 4,981,773 $ 375,342,578 $ 404,327,470 $ 94,982,220 $ 99,720,848 $ 50,334,597 $ 57,472,371
============= ============= ============= ============= ============= ============= ============= =============
289,865 463,573 31,884,953 20,467,307 4,137,747 5,340,368 1,551,586 4,344,293
979 -- 4,770,255 3,101,446 317,635 213,976 509,720 118,231
(162,044) (21,275) (35,369,826) (24,097,062) (4,605,179) (5,690,151) (2,131,506) (4,726,969)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
128,800 442,298 1,285,382 (528,309) (149,797) (135,807) (70,200) (264,445)
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SCIENCE AND
TECHNOLOGY DEVELOPING MARKETS
GROWTH FUND GROWTH FUND
----------------------------- -----------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 * 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (63,669) $ (3,908) $ (5,540) $ (72,297)
Net realized gain (loss) on investments (316,306) (44,932) (2,762,417) (532,256)
Net change in unrealized appreciation
(depreciation) on investments 2,941,239 665,094 3,644,737 (4,417,826)
Net realized gain (loss) on foreign currency transactions -- -- (33,292) (20,693)
Net change in unrealized appreciation (depreciation) on
foreign currency transactions -- -- (726) 550
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
operations 2,561,264 616,254 842,762 (5,042,522)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- (13,900)
Net realized gains on investments -- -- -- --
------------ ------------ ------------ ------------
Total distributions 0 0 0 (13,900)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 9,619,464 4,529,940 11,372,665 10,606,901
Reinvested distributions -- -- -- 13,512
Payments for shares redeemed (2,845,402) (287,855) (12,382,569) (10,848,159)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from
capital share transactions 6,774,062 4,242,085 (1,009,904) (227,746)
------------ ------------ ------------ ------------
Total increase in net assets 9,335,326 4,858,339 (167,142) (5,284,168)
NET ASSETS
Beginning of period 4,858,339 0 11,504,888 16,789,056
------------ ------------ ------------ ------------
End of period $ 14,193,665 $ 4,858,339 $ 11,337,746 $ 11,504,888
============ ============ ============ ============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 10,948,570 $ 4,238,177 $ 12,251,919 $ 13,300,655
Undistributed (distributions in excess of) net
investment income -- -- -- --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions (361,238) (44,932) (3,697,984) (935,567)
Unrealized appreciation (depreciation) on investments 3,606,333 665,094 2,785,400 (859,337)
Unrealized appreciation (depreciation) on foreign
currency transactions -- -- (1,589) (863)
------------ ------------ ------------ ------------
$ 14,193,665 $ 4,858,339 $ 11,337,746 $ 11,504,888
============ ============ ============ ============
CAPITAL TRANSACTIONS IN SHARES:
Sold 733,282 439,554 1,343,413 960,282
Reinvested distributions -- -- -- 1,354
Redeemed (213,983) (26,626) (1,479,311) (977,683)
------------ ------------ ------------ ------------
Net increase (decrease) 519,299 412,928 (135,898) (16,047)
============ ============ ============ ============
</TABLE>
* Period since commencement of operations 912/31/97)
See accompanying notes to financial statements.
46
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
47
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sit Mutual Funds are no-load funds, and are registered under the Investment
Company Act of 1940 (as amended) as diversified, open-end management investment
companies, or series thereof. The Sit Developing Markets Growth, Sit Small Cap
Growth, Sit International Growth, Sit Balanced, Sit Regional, and Sit Science
and Technology Growth Funds are series funds of Sit Mutual Funds, Inc.
This report covers the equity funds of the Sit Mutual Funds (the Funds). The
investment objective for each Fund is as follows:
- --------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Large Cap Growth Fund, Inc. Maximize long-term capital appreciation
and, secondarily current income.
- --------------------------------------------------------------------------------
Mid Cap Growth Fund, Inc. Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Small Cap Growth Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Balanced Long-term capital appreciation consistent
with the preservation of principal and to
provide regular income.
- --------------------------------------------------------------------------------
International Growth Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Developing Markets Growth Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Regional Growth Fund Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Science and Technology Growth Fund Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Significant accounting policies followed by the Funds are summarized below:
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges or on the NASDAQ National Market System are valued at the last quoted
sales price prior to the time when assets are valued; securities traded in the
over-the-counter market and listed securities for which no sale was reported on
that date are valued at the last bid price; foreign securities that are
purchased in the form of American Depository Receipts (ADRs) are valued in
United States dollars at the latest quoted price on the national securities
exchange on which the ADR is traded. When market quotations are not readily
available, securities are valued at fair value based on procedures determined in
good faith by the Board of Directors. Such fair values are determined using
prices quoted by independent brokers or pricing services. Securities maturing
more than 60 days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those securities with
maturities of less than 60 days when acquired, or which subsequently are within
60 days of maturity, are valued at amortized cost, which approximates market
value.
Security transactions are accounted for on the date the securities are purchased
or sold. Securities gains and losses are calculated on the identified-cost
basis. Dividend income is recorded on the ex-dividend date or upon the receipt
of ex-dividend notification in the case of certain foreign securities. Interest,
including level-yield amortization of long-term bond premium and discount, is
recorded on the accrual basis.
ILLIQUID SECURITIES
Each Fund currently limits investments in illiquid securities to 15% of net
assets. At June 30, 1999, the Developing Markets Growth Fund and Science and
Technology Growth Fund held investments in securities deemed illiquid by the
investment adviser. The aggregate value of such securities at June 30, 1999, was
$88,660 and $34,875, representing 0.8% and 0.2% of the Fund's net assets,
respectively. Pursuant to the guidelines adopted by the Board of Directors,
certain unregistered securities are determined to be liquid and are not included
within the limitation specified above.
48
<PAGE>
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
The market value of securities and other assets and liabilities denominated in
foreign currencies for Developing Markets Growth Fund and International Growth
Fund are translated daily into U.S. dollars at the closing rate of exchange.
Purchases and sales of securities, income and expenses are translated at the
exchange rate on the transaction date. Dividend and interest income includes
currency exchange gains (losses) realized between the accrual and payment dates
on such income. Exchange gains (losses) may also be realized between the trade
and settlement dates on security and forward contract transactions. For
securities denominated in foreign currencies, the effect of changes in foreign
exchange rates on realized and unrealized gains or losses is reflected as a
component of such gains or losses.
The Developing Markets Growth and International Growth Funds may enter into
forward foreign currency exchange contracts for operational purposes and to
protect against adverse exchange rate fluctuation. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the Funds and
the resulting unrealized appreciation or depreciation are determined using
foreign currency exchange rates from an independent pricing service. The Funds
are subject to the credit risk that the other party will not complete the
obligations of the contract.
At June 30, 1999, the Developing Markets Growth Fund had entered into a foreign
currency exchange contract that obligated the Fund to deliver currencies at
specified future dates. The unrealized appreciation and/or depreciation on these
contracts is included in the accompanying financial statements. The terms of the
open contracts are as follows:
DEVELOPING MARKETS GROWTH FUND:
Unrealized
Exchange date Currency to be Currency to be appreciation
delivered received (depreciation)
-------------------------------------------------------------------
July 2, 1999 151,720 102,687 $301
Canadian Dollar U.S. Dollar
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
Also, in order to avoid the payment of any federal excise taxes, the Funds will
distribute substantially all of their net investment income and net realized
gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes. The character of distributions made during the year for net
investment income or net realized gains may also differ from its ultimate
characterization for tax purposes. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gain (losses) were recorded by the Fund.
49
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Undistributed net investment income and accumulated net realized gains (losses)
from the Statement of Changes in Net Assets have been increased (decreased) by
current permanent book-to-tax differences resulting in reclassification of
additional paid-in capital as follows:
Undistributed Accumulated
net invest. net realized Additional
income gains (losses) paid-in capital
------------- -------------- ---------------
Developing Markets Growth 5,540 33,292 (38,832)
Small Cap Growth 493,500 (14,111) (479,389)
International Growth 890,599 (1,054,304) 163,705
Mid Cap Growth 1,585,981 (427,709) (1,158,272)
Regional Growth 5,833 -- (5,833)
Large Cap Growth 116,734 (10,031,432) 9,914,698
Science and Technology Growth 63,669 -- (63,669)
The International Growth, Mid Cap Growth, and Small Cap Growth Funds elected to
utilize equalization debits by which a portion of the costs of redemptions,
which occurred during the year ended June 30, 1998, reduced accumulated net
realized gains for tax purposes by $163,703, $427,709, and $14,112,
respectively. In addition, included in the Large Cap Growth Fund adjustment is
$10,031,752 related to an in-kind distribution.
For federal income tax purposes the Developing Markets Growth Fund has a capital
loss carryover of $3,697,984 at June 30, 1999 which, if not offset by subsequent
capital gains, will begin to expire in 2004. Also at June 30, 1999, the Small
Cap Growth, Science and Technology Growth, and Regional Growth Funds have
capital loss carryovers of $3,899,846, $332,937, and $67,482, respectively
which, if not offset by subsequent capital gains, will begin to expire in 2007.
It is unlikely that the Board of Directors will authorize a distribution of net
realized gains until the available capital loss carryovers are offset or expire.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of business on the
record date. Such distributions are payable in cash or reinvested in additional
shares of the Funds' capital stock. Distributions from net investment income, if
any, are declared and paid quarterly for the Balanced Fund and declared and paid
annually for Regional Growth, Science and Technology Growth, Developing Markets
Growth, Small Cap Growth, International Growth, Mid Cap Growth, and Large Cap
Growth Funds. Distributions from net realized gains, if any, will be made
annually for each of the Funds.
CONCENTRATION OF INVESTMENTS
The Developing Markets Growth Fund may concentrate investments in countries with
limited or developing capital markets which may involve greater risks than
investments in more developed markets and the prices of such investments may be
volatile. The consequences of political, social or economic changes in these
markets may have disruptive effects on the market prices of the Fund's
investments and the income it generates, as well as the Fund's ability to
repatriate such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results. Actual results could differ from those
estimates.
50
<PAGE>
NOTE 2 - INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment securities,
other than short-term securities, for the period ended June 30, 1999, were as
follows:
Purchases($) Proceeds($)
------------ -----------
Large Cap Growth Fund 82,563,058 84,877,677
Mid Cap Growth Fund 227,651,096 292,541,983
Small Cap Growth Fund 32,060,406 42,966,052
Balanced Fund 10,557,501 7,364,947
International Growth Fund 40,491,233 51,964,476
Developing Markets Growth Fund 8,575,203 9,190,590
Regional Growth Fund 5,044,562 3,851,083
Science and Technology Growth Fund 11,728,666 4,946,138
NOTE 3 - EXPENSES
INVESTMENT ADVISER
The Funds each have entered into an investment management agreement with Sit
Investment Associates, Inc. (SIA), under which SIA manages the Funds' assets and
provides research, statistical and advisory services, and pays related office
rental, executive expenses and executive salaries. The fee for investment
management and advisory services is based on the average daily net assets of the
Funds at the annual rate of:
Contractual Net of Adviser's
Management Voluntary Fee
Fee Waiver
----------- ----------------
Large Cap Growth Fund 1.00% 1.00%
Mid Cap Growth Fund 1.25% 1.00%
Small Cap Growth Fund 1.50% 1.50%
Balanced Fund 1.00% 1.00%
International Growth Fund 1.85% 1.50%
Developing Markets Growth Fund 2.00% 2.00%
Regional Growth Fund 1.25% 1.00%
Science and Technology Growth Fund 1.50% 1.25%
SIA is obligated to pay all of the Funds' expenses (excluding extraordinary
expenses, stock transfer taxes, interest, brokerage commissions and other
transaction charges relating to investing activities).
For the period November 1, 1996 through December 31, 2000 the Adviser has agreed
to limit the management fee (and, thereby, all Fund expenses, except those not
payable by the Fund as set forth above) of the Mid Cap Growth Fund to 1.00% of
the Fund's average daily net assets. For the period January 1, 1994 through
December 31, 2000, the Adviser has agreed to limit the management fee (and,
thereby, all Fund expenses, except those not payable by the Fund as set forth
above) of the International Growth Fund to 1.50% of the Fund's average daily net
assets. For the period January 1, 1998 through December 31, 2000 the Adviser has
agreed to limit the management fee (and, thereby, all fund expenses, except
those not payable by the Fund as set forth above) of the Regional Growth and
Science and Technology Growth Fund to 1.00% and 1.25%,
51
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
respectively, of the Fund's average daily net assets. After December 31, 2000,
these voluntary fee waivers may be discontinued by the Adviser in its sole
discretion. During the period ended December 31, 1999, for the Mid Cap Growth,
International Growth, Regional Growth, and Science and Technology Growth Funds,
SIA voluntarily absorbed $865,657, $325,038, $14,845 and $22,008, respectively,
in expenses that were otherwise payable by the Funds.
As of June 30, 1999, the Large Cap Growth Fund, International Growth Fund, Mid
Cap Growth Fund, Small Cap Growth Fund, Regional Growth Fund, Science and
Technology Growth Fund, Developing Markets Growth Fund, and Balanced Fund had
invested $8,807,000, $3,156,000, $15,042,000, $1,491,000, $365,000, $120,000,
1,088,000, and $1,519,000, respectively, in the Sit Money Market Fund. The terms
of such transactions were identical to those of non-related entities except
that, to avoid duplicate investment advisory fees, SIA remits to each Fund an
amount equal to all fees otherwise due to them under their investment management
agreement for the assets invested in the Sit Money Market Fund.
INVESTMENT SUB-ADVISER
SIA has entered into a sub-advisory arrangement with an affiliated international
investment adviser, Sit/Kim International Investment Associates, Inc. ("SKI").
SKI provides investment research information and portfolio management service
for the Developing Markets Growth Fund and International Growth Fund. Generally,
as compensation for its services under the sub-advisory agreement, SIA pays SKI
a monthly fee of 1/12 of .75% on the first $100 million of each Fund's average
daily net assets, 1/12 of .50% on the next $100 million of average daily net
assets and 1/12 of .40% of average daily net assets in excess of $200 million.
SKI has agreed to waive any fees under the agreement to the extent that
cumulative out of pocket expenses of each Fund borne by SIA exceed the
cumulative fees received by SIA pursuant to each Fund's investment management
agreement. In accordance with the Agreement, fees of $681,189 were paid or
payable to SKI for the year ended June 30, 1999.
TRANSACTIONS WITH AFFILIATES
The investment adviser, affiliates of the investment adviser, directors and
officers of the Funds as a whole owned the following shares as of June 30, 1999:
% Shares
Shares Outstanding
--------- -----------
Large Cap Growth Fund 476,320 17.95
Mid Cap Growth Fund 3,574,953 13.85
Small Cap Growth Fund 1,080,271 39.23
Balanced Fund 136,323 19.56
International Growth Fund 1,099,222 21.72
Developing Markets Growth Fund 229,846 20.23
Regional Growth Fund 118,798 20.80
Science and Technology Growth Fund 229,850 24.66
52
<PAGE>
SIT BALANCED FUND
FINANCIAL HIGHLIGHTS
NOTE 4 - FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock outstanding during the period and
selected supplemental and ratio information for each period(s), are indicated in
the following financial highlights for each Fund.
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 16.68 $ 14.93 $ 12.57 $ 10.99 $ 9.48
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .32 .34 .33 .30 .28
Net realized and unrealized gains
(losses) on investments 1.45 2.99 2.42 1.57 1.50
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations 1.77 3.33 2.75 1.87 1.78
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.31) (.35) (.32) (.29) (.27)
From realized gains (.76) (1.23) (.07) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.07) (1.58) (.39) (.29) (.27)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 17.38 $ 16.68 $ 14.93 $ 12.57 $ 10.99
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 11.25% 23.95% 22.42% 17.26% 19.16%
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $12,112 $ 7,422 $ 5,103 $ 4,062 $ 2,444
RATIOS:
Expenses to average daily net assets 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income to average daily net assets 2.01% 2.20% 2.48% 2.61% 2.97%
Portfolio turnover rate (excluding short-term securities) 89.37% 62.62% 38.16% 101.37% 50.61%
</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.
53
<PAGE>
SIT LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 49.34 $ 40.39 $ 32.75 $ 28.38 $ 23.89
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.04) .02 .07 .04 .11
Net realized and unrealized gains
(losses) on investments 6.96 13.17 10.02 6.61 5.88
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations 6.92 13.19 10.09 6.65 5.99
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.01) (.07) (.03) (.04) (.09)
From realized gains (3.41) (4.17) (2.42) (2.24) (1.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.42) (4.24) (2.45) (2.28) (1.50)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 52.84 $ 49.34 $ 40.39 $ 32.75 $ 28.38
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 15.10% 35.33% 32.36% 24.48% 26.33%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $140,258 $117,496 $ 72,226 $ 53,017 $ 45,211
RATIOS:
Expenses to average daily net assets 1.00% 1.00% 1.00%(2) 1.00%(2) 1.00%(2)
Net investment income (loss) to average daily net assets (0.09)% 0.06% 0.20%(2) 0.14%(2) 0.42%(2)
Portfolio turnover rate (excluding short-term securities) 70.51% 43.61% 32.23% 49.99% 67.14%
</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, and 1995, the investment
adviser voluntarily absorbed $50,548, $110,099, and $132,305, respectively,
in expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.08%, 1.23%, and 1.35% for the years ended June 30, 1997, 1996,
and 1995, respectively, and the ratio of net investment income(loss) to
average daily net assets would have been 0.11%, (.09%), and 0.07%,
respectively.
54
<PAGE>
SIT REGIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $ 11.26 $ 10.00
- -----------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.01) .02
Net realized and unrealized gains
on investments 1.94 1.24
- -----------------------------------------------------------------------------------------------------
Total from operations 1.93 1.26
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.02) --
From realized gains -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (.02) .00
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 13.17 $ 11.26
- -----------------------------------------------------------------------------------------------------
Total investment return (1) 17.21% 12.60%
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 7,524 $ 4,982
RATIOS:
Expenses to average daily net assets 1.00% (2) 1.00%(2)
Net investment income to average net assets (0.04)%(2) 0.44%(2)
Portfolio turnover rate (excluding short-term securities) 68.71% 19.71%
</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) Percentages for period ended June 30, 1998 are adjusted to an annual rate.
Total Fund expenses are contractually limited to 1.25% of average daily net
assets. However, during the periods ended June 30, 1999 and 1998, the
investment adviser voluntarily absorbed $14,845 and $3,611, respectively,
in expenses that were otherwise payable by the Fund. Had the fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.25% for the periods ended June 30, 1999 and 1998, and the ratio
of net investment income (loss) to average daily net assets would have been
(0.29%) and 0.19%, respectively.
55
<PAGE>
SIT MID CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 16.49 $ 15.43 $ 15.58 $ 13.00 $ 11.08
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.06) (.07) (.03) (.04) --
Net realized and unrealized gains
(losses) on investments .65 3.15 2.50 4.07 2.96
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations .59 3.08 2.47 4.03 2.96
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- -- --
From realized gains (2.54) (2.02) (2.62) (1.45) (1.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.54) (2.02) (2.62) (1.45) (1.04)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 14.54 $ 16.49 $ 15.43 $ 15.58 $ 13.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 6.94% 22.19% 17.23% 33.00% 28.44%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $375,343 $404,327 $386,543 $356,317 $327,879
RATIOS:
Expenses to average daily net assets 1.00% (2) 1.00% (2) 0.92% (2) 0.77% 0.83%
Net investment income (loss) to average daily net assets (0.46)%(2) (0.41)%(2) (0.20)%(2) (0.23)% 0.02%
Portfolio turnover rate (excluding short-term securities) 68.62% 52.62% 38.66% 50.38% 75.40%
</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, 1999, 1998 and 1997, the investment adviser voluntarily absorbed
$865,657, $1,004,074, and $609,840, respectively, in expenses that were
otherwise payable by the Fund. Had the Fund incurred these expenses, the
ratio of expenses to average daily net assets would have been 1.25%, 1.25%,
and 1.09% for the years ended June 30, 1999, 1998 and 1997, respectively,
and the ratio of net investment income (loss) to average daily net assets
would have been (0.71%), (0.66%) and (0.37%), respectively.
56
<PAGE>
SIT INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 19.14 $ 18.57 $ 16.29 $ 15.71 $ 14.87
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.07) .02 .01 .02 .09
Net realized and unrealized gains
on investments .84 1.25 2.70 1.50 1.06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from operations .77 1.27 2.71 1.52 1.15
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.06) (.03) (.01) (.09) (.04)
From realized gains (1.08) (.67) (.42) (.85) (.27)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.14) (.70) (.43) (.94) (.31)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 18.77 $ 19.14 $ 18.57 $ 16.29 $ 15.71
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 4.51% 7.50% 17.04% 10.21% 7.86%
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 94,982 $ 99,721 $ 99,279 $ 88,712 $ 68,125
RATIOS:
Expenses to average daily net assets 1.50% (2) 1.50%(2) 1.50%(2) 1.50%(2) 1.50%(2)
Net investment income (loss) to average daily net assets (0.37)%(2) 0.12%(2) 0.05%(2) 0.13%(2) 0.62%(2)
Portfolio turnover rate (excluding short-term securities) 45.91% 43.74% 41.59% 38.55% 40.42%
</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, 1999, 1998, 1997, 1996,
and 1995, the investment adviser voluntarily absorbed $325,038, $338,651,
$306,575, $269,556, and $228,795, respectively, in expenses that were
otherwise payable by the fund. Had the Fund incurred these expenses, the
ratio of expenses to average daily net assets would have been 1.85% for the
years ended June 30, 1999, 1998, 1997, 1996, and 1995, and the ratio of net
investment income (loss) to average daily net assets would have been
(0.72%), (0.23%), (0.30%), (0.22%), and 0.27%, respectively.
57
<PAGE>
SIT SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 20.35 $ 18.89 $ 19.27 $ 13.49 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss (.18) (.17) (.14) (.11) (.02)
Net realized and unrealized gains
on investments 1.20 2.31 .57 6.03 3.56
- -----------------------------------------------------------------------------------------------------------------------
Total from operations 1.02 2.14 .43 5.92 3.54
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains (3.09) (.68) (.81) (.14) (.05)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (3.09) (.68) (.81) (.14) (.05)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 18.28 $ 20.35 $ 18.89 $ 19.27 $ 13.49
- -----------------------------------------------------------------------------------------------------------------------
Total investment return (1) 8.77% 11.70% 2.37% 44.13% 35.59%
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $50,335 $57,472 $58,358 $50,846 $12,015
RATIOS:
Expenses to average daily net assets 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income (loss) to average daily net assets (1.08)% (0.72)% (0.81)% (0.91)% (0.30)%
Portfolio turnover rate (excluding short-term securities) 71.84% 79.54% 58.39% 69.92% 49.39%
</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.
58
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, June 30,
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $ 11.77 $ 10.00
- --------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.07) (.01)
Net realized and unrealized gains
on investments 3.53 1.78
- --------------------------------------------------------------------------------------------------
Total from operations 3.46 1.77
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- --
From realized gains -- --
- --------------------------------------------------------------------------------------------------
Total distributions .00 .00
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 15.23 $ 11.77
- --------------------------------------------------------------------------------------------------
Total investment return (1) 29.40% 17.70%
- --------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $14,194 $ 4,858
RATIOS:
Expenses to average daily net assets 1.25% (2) 1.25% (2)
Net investment income to average net assets (0.72)%(2) (0.21)%(2)
Portfolio turnover rate (excluding short-term securities) 58.29% 19.37%
</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) Percentages for period ended June 30, 1998 are adjusted to an annual rate.
Total Fund expenses are contractually limited to 1.50% of average daily net
assets. However, during the periods ended June 30, 1999 and 1998, the
investment adviser voluntarily absorbed $22,008 and $4,655, respectively,
in expenses that were otherwise payable by the Fund. Had the fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.25% for the periods ended June 30, 1999 and 1998, and the ratio
of net investment income (loss) to average daily net assets would have been
(0.97%) and (0.46%), respectively.
59
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 9.05 $ 13.04 $ 10.95 $ 9.41 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) -- (.06) .03 -- --
Net realized and unrealized gains
(losses) on investments .93 (3.92) 2.06 1.55 (.54)
- -----------------------------------------------------------------------------------------------------------------------
Total from operations .93 (3.98) 2.09 1.55 (.54)
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (.01) -- -- --
From realized gains -- -- -- (.01) (.05)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions -- (.01) -- (.01) (.05)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 9.98 $ 9.05 $ 13.04 $ 10.95 $ 9.41
- -----------------------------------------------------------------------------------------------------------------------
Total investment return (1) 10.28% (30.52)% 19.09% 16.51% (5.44)%
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $11,338 $11,505 $16,789 $ 8,646 $ 4,618
RATIOS:
Expenses to average daily net assets 2.00% 2.00% 2.00% 2.00% 2.00%
Net investment income (loss) to average daily net assets (0.05)% (0.52)% 0.32% 0.06% 0.03%
Portfolio turnover rate (excluding short-term securities) 98.24% 53.36% 65.88% 46.22% 56.35%
</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.
60
<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
Balanced Fund (a series of Sit Mutual Funds, Inc.), Sit Large Cap Growth Fund,
Inc., Sit Regional Growth Fund (a series of Sit Mutual Funds, Inc.), Sit Mid Cap
Growth Fund, Inc., Sit International Growth Fund (a series of Sit Mutual Funds,
Inc.), Sit Small Cap Growth Fund (a series of Sit Mutual Funds, Inc.), Sit
Science and Technology Growth Fund (a series of Sit Mutual Funds, Inc.), and Sit
Developing Markets Growth Fund (a series of Sit Mutual Funds, Inc.), as of June
30, 1999; the related statements of operations for the period ended June 30,
1999; the statements of changes in net assets for each of the periods in the
two-year period ended June 30, 1999; and the financial highlights as presented
in note 4 to the financial statements. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Sit Balanced Fund, Sit Large Cap Growth Fund, Sit Regional Growth
Fund, Sit Mid Cap Growth Fund, Sit International Growth Fund, Sit Small Cap
Growth Fund, Sit Science and Technology Growth Fund, and Sit Developing Markets
Growth Fund as of June 30, 1999 and the results of their operations, the changes
in their net assets, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG LLP
Minneapolis, Minnesota
August 6, 1999
61
<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.
LONG-TERM
ORDINARY CAPITAL
FUND AND PAYABLE DATE INCOME(a) GAIN(b)
- ---------------------------- --------- ---------
Large Cap Growth Fund
December 8, 1998 $0.00630(c) $3.40771
======== ========
Mid Cap Growth Fund
December 8, 1998 $0.00000 $2.54141
======== ========
Small Cap Growth Fund
December 8, 1998 $0.00000 $3.08936
======== ========
Balanced Fund
October 8, 1998 $0.07832 --
December 8, 1998 0.08245 $0.75940
April 9, 1999 0.06932 --
July 9, 1999 0.08984 --
-------- --------
$0.31993(d) $0.75940
======== ========
International Growth Fund
December 8, 1998 $0.05618(c) $1.08797
======== ========
Regional Growth Fund
December 8, 1998 $0.02366(c) $0.00000
======== ========
(a) Includes distributions of short-term gains, if any, which are taxable as
ordinary income.
(b) Taxable as long-term gain.
(c) Taxable as dividend income and does not qualify for dividends-received
deduction by corporations.
(d) Taxable as dividend income, 26.18% qualifying for dividends-received
deduction by corporations.
62
<PAGE>
SIT MUTUAL FUNDS
RESULTS OF SHAREHOLDERS MEETING
The annual meeting of the shareholders of the Funds was held on October 27,
1998. Directors elected by the shareholders at the meeting were as follows:
Eugene C. Sit, Peter L. Mitchelson, William E. Frenzel, John E. Hulse, Sidney L.
Jones, and Donald W. Phillips for all Funds and Michael C. Brilley for the Sit
Bond Funds only.
The matters voted on by the shareholders of record as of August 28, 1998 and the
results of the shareholders' vote at the October 27, 1998 meeting were as
follows:
1. Election of Directors:
For Withheld
--- --------
Eugene C. Sit
U.S. Government Securities 6,873,708 24,090
Money Market 26,128,992 4,702
Tax-Free Income 36,143,999 189,587
MN Tax-Free Income 9,603,984 16,735
Bond 860,136 20,877
William E. Frenzel
U.S. Government Securities 6,720,559 177,239
Money Market 26,128,992 4,702
Tax-Free Income 36,120,991 212,595
MN Tax-Free Income 9,597,075 23,644
Bond 860,136 20,877
John E. Hulse
U.S. Government Securities 6,855,034 42,764
Money Market 26,082,443 51,251
Tax-Free Income 36,066,969 266,617
MN Tax-Free Income 9,600,293 20,426
Bond 860,136 20,877
Sidney L. Jones
U.S. Government Securities 6,721,961 175,837
Money Market 26,128,992 4,702
Tax-Free Income 36,110,885 222,701
MN Tax-Free Income 6,622,814 49,597
Bond 860,136 20,877
Peter L. Mitchelson
U.S. Government Securities 6,864,314 33,484
Money Market 26,128,992 4,702
Tax-Free Income 36,136,087 197,499
MN Tax-Free Income 6,647,332 25,079
Bond 860,136 20,877
63
<PAGE>
SIT MUTUAL FUNDS
RESULTS OF SHAREHOLDERS MEETING
For Withheld
--- --------
Donald W. Phillips
U.S. Government Securities 6,721,720 176,078
Money Market 26,128,992 4,702
Tax-Free Income 36,084,897 248,689
MN Tax-Free Income 9,594,545 26,174
Bond 860,136 20,877
Michael C. Brilley
U.S. Government Securities 6,858,482 39,316
Money Market 26,128,992 4,702
Tax-Free Income 36,088,966 244,620
MN Tax-Free Income 9,603,984 16,735
Bond 860,136 20,877
2. Ratification of KPMG Peat Marwick LLP as independent auditors for the
Funds:
For Against Abstain
--- ------- -------
U.S. Government Securities 6,826,342 29,658 41,796
Money Market 25,996,350 113,330 24,013
Tax-Free Income 35,903,113 128,585 301,886
MN Tax-Free Income 9,556,517 17,679 46,521
Bond 879,527 1,485 000
3. Amendment of the Sit Large Cap Growth Fund, Sit Mid Cap Growth Fund, Sit
U.S. Government Securities Fund, and the Sit International Growth Fund's
fundamental investment restrictions to eliminate the restrictions on
investing in securities of investment companies.
For Against Abstain
--- ------- -------
Large Cap Growth 1,227,595 23,778 17,516
Mid Cap Growth 11,877,175 323,696 200,456
U.S. Government Securities 5,248,572 347,985 201,296
International Growth 2,424,429 45,534 50,026
64
<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.
<PAGE>
ANNUAL REPORT
STOCK FUNDS
YEAR ENDED JUNE 30, 1999
INVESTMENT ADVISER INVESTMENT SUB-ADVISER
SIT INVESTMENT ASSOCIATES, INC. (DEVELOPING MARKETS GROWTH FUND AND
4600 NORWEST CENTER INTERNATIONAL GROWTH FUND)
MINNEAPOLIS, MN 55402 SIT/KIM INTERNATIONAL INVESTMENT
612-334-5888 (METRO AREA) ASSOCIATES, INC.
800-332-5580 4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
DISTRIBUTOR 612-334-5888 (METRO AREA)
800-332-5580
SIA SECURITIES CORP.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
CUSTODIAN
THE NORTHERN TRUST COMPANY
50 SOUTH LASALLE STREET
CHICAGO, IL 60675
TRANSFER AGENT AND
DISBURSING AGENT
FIRST DATA INVESTOR SERVICES
P.O. BOX 5166
WESTBORO, MA 01581-5166
AUDITORS
KPMG PEAT MARWICK LLP
4200 NORWEST CENTER
MINNEAPOLIS, MN 55402
LEGAL COUNSEL
DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
MINNEAPOLIS, MN 55402
MEMBER OF
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