STOCK FUNDS QUARTERLY REPORT
QUARTER ENDED MARCH 31, 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>
SIT MUTUAL FUNDS
STOCK FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
----
Chairman's Letter...............................................1
Performance Review..............................................2
Fund Reviews
Large Cap Growth Fund.....................................4
Mid Cap Growth Fund ......................................6
Small Cap Growth Fund.....................................8
Balanced Fund............................................10
International Growth.....................................12
Developing Markets Growth................................14
Regional Growth..........................................16
Science and Technology Growth............................18
A Look at Sit Mutual Funds.....................................20
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - QUARTER ENDED MARCH 31, 1999
Dear Fellow Shareholders:
Global equity markets were generally higher during the first calendar quarter
ending March 31, 1999. Although rising interest rates tempered market gains, the
continued strength of the U.S. economy and signs of stabilization in Asia eased
investor concerns over corporate profit growth in 1999.
Economic Overview
The remarkable strength of consumer spending continues to lead the way for
the U.S. economy. Fourth quarter growth in the Gross Domestic Product was 6.0%
in real terms, capping a very strong year in which the U.S. economy grew by
3.9%. The end of the first quarter of 1999 marked the eighth year of expansion,
and there are few signs of slowing based on recently released economic
statistics. Continued low unemployment was reported at 4.2% in March, reaching a
new low in the current cycle. There are signs of a recovery in the manufacturing
sector as evidenced by the National Association of Purchasing Management's
factory index, which has increased for three consecutive months. Given this
momentum, our conclusion regarding the U.S. economy is that first quarter 1999
GDP could be surprisingly strong, rising to 4.5%. For the full year of 1999, GDP
growth may be close to the 3.9% rate achieved in 1998.
The downside of all of this "good news" is the potential for increases in
inflation and, more importantly, the impact on the Federal Reserve's bias on the
direction of interest rates. In addition to the rise in manufacturing prices,
the recent increase in energy prices has elevated inflation fears once again. It
is important to note, however, that energy is only one commodity, albeit an
important one, and many other commodity prices remain at very low levels. In
addition, despite the latest 4.2% unemployment rate, the lowest since 1970, the
year-over-year change in average hourly earnings actually decelerated to 3.6%.
Finally, many international economies remain quite sluggish, resulting in a
downward trend for many foreign CPI indices. These factors lead us to conclude
that U.S. inflationary measures, while rising in 1999, will be contained. There
is potential, however, for markets to become quite volatile in response to mixed
signals on inflation in 1999.
While it is possible that the Fed may adopt a more restrictive monetary
stance at some point in 1999, Fed officials recently signaled that it was
leaving unchanged the symmetrical policy bias it had adopted in February.
Although the risks of inflation appear to have increased in recent months, two
key factors appear to be influencing the central bank toward maintaining a
neutral policy stance. First, there is still the possibility that weaker
economies abroad may cause the U.S. economy to slow down. Second, the Fed's
"beige book" economic survey showed that the economy continues to grow without a
material change in prices for most goods and services. The Fed appears willing
to wait until there is actual evidence of inflation before adopting a tightening
bias on interest rates.
Equity Strategy Summary
Domestic equity indices were generally higher during the first quarter of
1999, with large cap growth stocks continuing to carry market averages higher.
Large cap indices moved progressively higher during the quarter, highlighted by
the Dow Jones Industrial Average reaching the well-publicized 10,000 level. The
narrowness of the market's gain was evidenced by the weighted average return of
the S&P 500 in the first quarter of +5.0%, while the median stock actually
declined by -2.1%. The explosive performance of Internet-related issues
contributed to wide differences in performance among various stock indices. For
example, we estimate that the Russell 2000 growth index would have declined
- -7.2% during the quarter, instead of the actual -1.7%, were it not for the 52
Internet-related issues.
Although large cap stocks continue to outperform smaller capitalization
issues, current valuations have become extremely compelling for small and mid
cap stocks. During the first quarter, growth stocks outperformed value stocks
across all capitalization ranges. And although the outlook for corporate profits
has modestly improved in recent months, we still expect rather modest growth in
S&P 500 earnings for 1999. As we have often discussed, growth stocks tend to
outperform in an environment of sluggish corporate earnings growth.
Internationally, Europe is showing clear signs of weakening, in particular
Germany and the U.K. In contrast, there has been some positive economic news
emerging from Asia, excluding Japan. Latin America remains fairly mixed. Equity
performance during the quarter generally reflected these trends, as European
stocks fell slightly and emerging market indices were generally higher. Based on
historical earnings and cash flow valuations, we believe that the European
markets are currently slightly undervalued. Asian market valuations appear
attractive, with the exception of Singapore and Japan. Most Latin American
markets also appear to be attractively valued, but we expect considerable
volatility given the economic uncertainties in the region.
We appreciate your interest and investment in the Sit Mutual Funds, and look
forward to assisting you in achieving your investment goals.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
1
<PAGE>
SIT MUTUAL FUNDS
QUARTER ENDED MARCH 31, 1999 PERFORMANCE REVIEW - STOCK FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS REVIEW
Domestic stock indices were generally higher during the first quarter of
1999. Continuing the trend that occurred in 1998, large cap stocks significantly
outperformed small cap stocks. Although interest rates rose during the quarter,
the sustained strength in the U.S. economy eased concern over the corporate
profit outlook for 1999. Similar to last quarter, performance was narrowly
concentrated among the largest stocks in the representative indices. The
narrowness of the markets' gain was evidenced by the weighted average return of
the S&P 500 Index being +5.0%, while the median stock actually declined -2.1%.
This is further reflected in the returns of S&P 400 MidCap Index declining
- -6.4%, and the Russell 2000 Index falling -5.4%. The NASDAQ Composite Index
advanced +12.3% during the quarter, reflecting the strong performance of large
technology stocks.
Growth stocks continued to outperform value stocks during the quarter. The
Russell 1000 Growth Index increased by +6.4%, while the Russell 1000 Value Index
returned only +1.4%. This trend was also evident in small capitalization stock
indices, with the Russell 2000 Growth Index declining -1.7% in the quarter,
compared to the -9.7% decline for the Russell 2000 Value Index. Strong
performance in the technology, health care, and retail sectors was largely
responsible for return differences among growth and value indices.
International results were generally higher during the first quarter, with
the exception of Europe. The MSCI EAFE Index gained +1.4%, with strong returns
in the U.S. and most emerging markets offset by somewhat lackluster returns in
Europe. The MSCI Europe Index fell -2.1% as investors became concerned over
economic growth in Europe and growth prospects in Asia improved. Asian markets
were generally higher during the quarter, most notably Japan (the MSCI Japan
Index rose +12.2%). Most Latin American markets performed well, particularly
Brazil, as fears of a severe regional recession diminished somewhat during the
quarter.
1987 1988 1989
---- ---- ----
SIT LARGE CAP GROWTH 5.32% 5.33% 32.02%
SIT MID CAP GROWTH 5.50 9.77 35.15
SIT SMALL CAP GROWTH -- -- --
SIT BALANCED -- -- --
SIT INTERNATIONAL GROWTH -- -- --
SIT DEVELOPING MARKETS GROWTH -- -- --
SIT REGIONAL GROWTH -- -- --
SIT SCIENCE & TECHNOLOGY GROWTH -- -- --
S&P 500 INDEX 5.28 16.55 31.61
S&P MIDCAP 400 INDEX -2.04 20.87 35.55
RUSSELL 2000 INDEX (2) -- -- --
EAFE INDEX (3) -- -- --
MSCI EMERGING MARKETS FREE INDEX (4) -- -- --
PSE TECH 100 INDEX -- -- --
NASDAQ
SYMBOL INCEPTION
------ ---------
SIT LARGE CAP GROWTH SNIGX 09/02/82
SIT MID CAP GROWTH NBNGX 09/02/82
SIT SMALL CAP GROWTH SSMGX 07/01/94
SIT BALANCED SIBAX 12/31/93
SIT INTERNATIONAL GROWTH SNGRX 11/01/91
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
SIT REGIONAL GROWTH n/a 12/31/97
SIT SCIENCE & TECHNOLOGY GROWTH SISTX 12/31/97
S&P 500 INDEX (5)
S&P MIDCAP 400 INDEX (5)
RUSSELL 2000 INDEX (2)
EAFE INDEX (3)
MCSI EMERGING MARKETS FREE INDEX (4)
PSE TECH 100 INDEX
(1) PERIOD FROM FUND INCEPTION THROUGH CALENDAR YEAR-END.
(2) FIGURES ASSUME AN INCEPTION DATE OF 7/1/94.
(3) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91.
2
<PAGE>
TOTAL RETURN - CALENDAR YEAR
<TABLE>
<CAPTION>
YTD
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -2.37% 32.72% 4.94% 3.15% 2.83% 31.66% 23.05% 31.70% 30.56% 7.18
- -2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 1.08
-- -- -- -- 11.57(1) 52.16 14.97 7.63 1.97 -4.41
-- -- -- -- -0.33 25.43 15.80 21.73 21.30 4.77
-- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 -2.17
-- -- -- -- -2.02(1) -4.29 17.27 -5.20 -24.93 -0.51
-- -- -- -- -- -- -- -- 23.05 0.24
-- -- -- -- -- -- -- -- 38.40 -0.29
- -3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 4.98
- -5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 -6.38
-- -- -- -- 4.61 28.45 16.49 22.36 -2.54 -5.42
-- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 1.39
-- -- -- -- 2.80 -6.94 3.92 -13.40 -27.52 11.96
-- -- -- -- -- -- -- -- 54.60 10.71
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED MARCH 31, 1999
QUARTER SIX MONTHS SINCE
ENDED 3/31/99 ENDED 3/31/99 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------- ------------- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
7.18% 31.34% 21.17% 29.53% 26.22% 18.12% 17.22%
1.08 18.92 -4.95 13.23 16.74 15.86 18.04
-4.41 10.47 -9.57 5.21 -- -- 16.28
4.77 19.43 15.82 20.61 18.27 -- 16.60
-2.17 17.37 0.87 9.15 8.82 -- 11.65
-0.51 11.06 -30.73 -8.70 -- -- -5.13
0.24 27.96 10.83 -- -- -- 18.34
-0.29 25.11 23.66 -- -- -- 29.48
4.98 27.34 18.46 28.07 26.25 18.97 19.04
-6.38 20.01 0.45 18.32 18.20 17.43 18.24
-5.42 10.00 -16.26 7.72 -- -- 12.71
1.39 22.34 6.06 8.47 8.75 -- 8.54
11.96 31.34 -23.23 -11.61 -- -- -7.27
10.71 55.52 43.75 -- -- -- 53.90
</TABLE>
(4) FIGURES ASSUME AN INCEPTION DATE OF 6/30/94.
(5) FIGURES ASSUME AN INCEPTION DATE OF 9/2/82.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
3
<PAGE>
SIT LARGE CAP GROWTH FUND REVIEW
QUARTER ENDED MARCH 31, 1999
SENIOR PORTFOLIO MANAGERS
PETER L. MITCHELSON, CFA
ROGER J. SIT
RONALD D. SIT, CFA
The Sit Large Cap Growth Fund's quarterly return of +7.2% compared
favorably with the +5.0% return of the S&P 500 Index and +2.1% return of the
Lipper Growth & Income Fund universe. The Fund continues to hold a 5-star
Overall rating by Morningstar(1) out of 2,947 funds in the domestic stock
category for the period ended March 31, 1999.
In the first quarter of 1999, large cap growth stocks continued to
outperform virtually all other broad fund categories. Although recent data on
the U.S. economy indicates continued strength, investors' concerns about overall
corporate profit growth remain a key element fueling the strong performance of
large, liquid growth issues. During the first quarter, the Fund benefited from
sector overweighting in high growth sectors, particularly technology. A key
attribute of the Fund continues to be strong relative earnings growth. As of
March 31, the 1999 projected earnings gain for the companies held in the Fund
was +22.2%, which is significantly higher than the S&P 500 Index's projected
earnings gain of +8.7%. While we are optimistic about the Fund's outlook due to
strong earnings growth, we do not expect the robust returns of the first quarter
to be repeated in each of the year's remaining quarters.
Changes in sector weighting included increases in technology services,
health technology, finance and transportation. New positions in these sectors
included Amgen, America Online, Marsh & McLennan, Merrill Lynch, Associates
First Capital, UAL Corporation, and Southwest Airlines. Sector weighting
decreases occurred in electronic technology, industrial services, and consumer
non-durables. These sectors were reduced through the elimination or reduction of
positions in Dell Computer, Sun Microsystems, EMC, Schlumberger, Coca-Cola, and
Colgate Palmolive. The heaviest weightings remain in the traditional growth
sectors of health care and technology. Slower growth and cyclical companies in
sectors such as utilities, energy, and process industries, have been
underweighted.
Assets in the Large Cap Growth Fund totaled $136.7 million at the end of
March, up from $100.3 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 3/31/99: $52.13 Per Share
12/31/98: $48.64 Per Share
Total Net Assets: $136.73 Million
Weighted Average Market Cap: $103.0 Billion
PORTFOLIO STRUCTURE
(% of total net assets)
Allocation by Sector
[BAR CHART]
Electronic Technology 23.0
Health Technology 17.2
Finance 9.5
Retail Trade 8.8
Technology Services 8.6
Consumer Non-Durables 6.4
Utilities 5.5
Producer Manufacturing 5.1
Consumer Services 4.6
Process Industries 2.0
Health Services 1.1
Consumer Durables 1.0
Transportation 0.8
Energy Minerals 0.6
Cash Equivalents 5.8
4
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------- ------------------------------------
Large Cap Russell S&P Large Cap Russell S&P
Growth 1000 500 Growth 1000 500
Fund Growth Index Index Fund Growth Index Index
---------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 7.18% 6.36% 4.98% 7.18% 6.36% 4.98%
(not annualized)
1 Year 21.17 28.13 18.46 21.17 28.13 18.46
5 Years 26.22 28.41 26.25 220.37 249.19 220.70
10 Years 18.12 20.50 18.97 428.67 545.41 467.96
Inception 17.22 18.89 19.04 1295.09 1666.05 1700.36
(9/2/82)
</TABLE>
* As of 3/31/99
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.
(1)MORNINGSTAR PROPRIETARY RATINGS REFLECT HISTORICAL RISK-ADJUSTED PERFORMANCE
THROUGH 3/31/99. THESE RATINGS ARE SUBJECT TO CHANGE MONTHLY AND ARE CALCULATED
FROM THE FUNDS' 3-, 5-, AND 10-YEAR AVERAGE ANNUAL RETURNS IN EXCESS OF 90-DAY
TREASURY BILL RETURNS WITH APPROPRIATE FEE ADJUSTMENTS AND A RISK FACTOR THAT
REFLECTS FUND PERFORMANCE BELOW 90-DAY TREASURY BILL RETURNS. TEN PERCENT OF THE
FUNDS IN AN INVESTMENT CATEGORY RECEIVE 5 STARS, 22.5% RECEIVE 4, 35% RECEIVE 3,
AND 22.5% RECEIVE 2. IN THE DOMESTIC STOCK CATEGORY, SIT LARGE CAP GROWTH FUND
RECEIVED A 5-STAR RATING FOR THE 3- AND 5-YEAR PERIODS OUT OF 2,947 AND 1,810
FUNDS, RESPECTIVELY, AND A 4-STAR RATING FOR THE 10-YEAR PERIOD OUT OF 743
FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 3/31/99 would
have grown to $139,509 in the Fund, or $180,039 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.
* AirTouch Communications, Inc.
* Pfizer, Inc.
* Merck & Co., Inc.
* EMC Corp.
* MCI Worldcom, Inc.
* Medtronic, Inc.
* Intel Corp.
Total number of holdings: 67
5
<PAGE>
SIT MID CAP GROWTH FUND REVIEW
QUARTER ENDED MARCH 31, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ERIK S. ANDERSON, CFA
The Sit Mid Cap Growth Fund's quarterly return of +1.1% compared favorably
with the -6.4% return for the S&P Midcap 400 Index, although medium cap growth
stocks continued to lag behind large cap issues in the first quarter of 1999.
Largely based on brightening prospects for the U.S. economy, the Dow Jones
Industrial Average continued to reach new highs during the first quarter of
1999. The S&P 500 Index also reached new highs throughout the quarter, but mid
cap stocks, as measured by the S&P Midcap Index, peaked on January 6, 1999.
Since small and mid cap stocks tend to outperform when the domestic economy is
accelerating, continued evidence that the U.S. economy remains quite healthy
could prove to be a catalyst for improving results. We believe that the Sit Mid
Cap Growth Fund is well positioned to benefit when smaller stocks regain
investor confidence, largely because the Fund continues to hold companies with
excellent earnings growth potential. Despite sluggish earnings growth for the
broad market, earnings growth for the stocks in the Fund remains high at a
projected rate of +25.3% and +26.1% for 1999 and 2000, respectively. The
price-to-earnings ratio at quarter end was 35.6x current-year earnings estimates
compared to the S&P 500 Index P/E multiple of 31.4x.
Performance during the first quarter was positively impacted by stock
selection and sector weightings in electronic technology, health technology, and
utilities. Our overweighted position in technology services, particularly
computer software, had a slight negative impact on our performance.
Sector weightings changed modestly in the first quarter. Weighting
increases included electronic technology and utilities. New positions in these
sectors included Applied Micro Circuits, Teradyne, and Frontier Corporation.
Sector weighting decreases occurred in technology services, health services, and
consumer services. These sectors were reduced through the elimination or
reduction of positions in PeopleSoft, Dendrite International, BMC Software,
Healthsouth, McKesson HBOC, and Stewart Enterprises. Given excellent relative
values in the marketplace for mid cap growth stocks, we are maintaining a fully
invested position with low levels of cash. Attractive relative valuations for
fast growing companies makes us optimistic about the Fund's outlook.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Mid Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of growth companies with a capitalization of $1.5 billion to
$5 billion at the time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 3/31/99: $13.08 Per Share
12/31/98: $12.94 Per Share
Total Net Assets: $344.22 Million
Weighted Average Market Cap: $6.5 Billion
PORTFOLIO STRUCTURE
(% of total net assets)
Allocation by Sector
[BAR CHART]
Electronic Technology 27.1
Technology Services 19.4
Health Technology 13.2
Finance 9.4
Retail Trade 7.7
Health Services 4.9
Consumer Non-Durables 4.4
Utilities 3.5
Consumer Durables 3.4
Consumer Services 3.0
Industrial Services 1.8
Commercial Services 1.7
Process Industries 0.5
Cash Equivalents 0.0
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------ -------------------------------------
Mid Cap Russell S&P Mid Cap Russell S&P
Growth Mid Cap Midcap Growth Mid Cap Midcap
Fund Growth Index 400 Index Fund Growth Index 400 Index
------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 1.08% 3.42% -6.38% 1.08% 3.42% -6.38%
(not annualized)
1 Year -4.95 8.90 0.45 -4.95 8.90 0.45
5 Years 16.74 18.88 18.20 116.82 137.39 130.72
10 Years 15.86 16.97 17.43 335.71 379.65 398.85
Inception 18.04 -- 18.24 1465.02 -- 1510.01
(9/2/82)
</TABLE>
* As of 3/31/99
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 3/31/99 would
have grown to $156,502 in the Fund, or $161,001 in the S&P Midcap 400 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Biogen, Inc.
* Elan Corp., p.l.c., A.D.R.
* Legato Systems, Inc.
* Staples, Inc.
* Chancellor Media Corp.
* Kohl's Corp.
* Uniphase Corp.
* Xilinx, Inc.
* Jabil Circuit, Inc.
* ADC Telecommunications, Inc.
Total number of holdings: 66
7
<PAGE>
SIT SMALL CAP GROWTH FUND REVIEW
QUARTER ENDED MARCH 31, 1999
SENIOR PORTFOLIO MANAGER
EUGENE C. SIT, CFA
Although the Dow Jones Industrial Average reached a well-publicized,
all-time high during the first quarter of 1999, small stocks continue to
struggle in the current market environment. The Sit Small Cap Growth Fund's
quarterly return of -4.4% compared favorably to the -5.4% quarterly return for
the Russell 2000 Index.
Despite superior earnings growth and the valuation discount to large cap
stocks, small cap stocks generally remain out of favor with investors.
Remarkably, the most recent quarter marked the sixth consecutive quarter that
the Russell 2000 Index has lagged the S&P 500 Index. Market-wide concerns about
overall corporate profit growth and stock liquidity have clearly benefited large
cap growth issues at the expense of small cap stocks. However, following a
tumultuous second half of 1998, continuing good news has alleviated concerns
over the health of the U.S. economy.
Small cap stocks are currently trading at unprecedented discounts to large
cap stocks, particularly when one considers differences in growth rates. For
example, the P/E ratio of the Fund is currently 40.1x 1999 estimated earnings,
compared to 31.4x for the S&P 500 Index. Yet stocks in the Fund possess a far
superior estimated earnings growth rate for 1999 of +30.5% compared to +8.7% for
the S&P 500 Index.
Sector weightings changed only modestly during the quarter. Weighting
increases included electronic technology, utilities, and health technology. New
positions in these sectors include Gilat Satellite Networks, Galileo Technology,
Veeco Instruments, Pinnacle Holdings, and IDEC Pharmaceuticals. Sector weighting
decreases occurred in technology services, health services, and finance. These
sectors were reduced through the elimination or reduction in positions of
Dendrite International, Pervasive Software, McKesson HBOC, Delphi Financial, and
Fremont General. Cash in the portfolio dropped from 8.2% to 1.7% during the
quarter reflecting our enthusiasm for valuations. Given the strong fundamentals
and the attractive valuations of companies in the portfolio, we remain
optimistic on the Fund's prospects for the remainder of 1999.
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 $1.5
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 3/31/99: $15.40 Per Share
12/31/98: $16.11 Per Share
Total Net Assets: $42.99 Million
Weighted Average Market Cap: $1.1 Billion
PORTFOLIO STRUCTURE
(% of total net assets)
Allocation by Sector
[BAR CHART]
Technology Services 29.8
Electronic Technology 22.3
Finance 9.2
Health Technology 8.1
Utilities 5.8
Consumer Services 5.6
Health Services 4.4
Commercial Services 3.6
Retail Trade 3.4
Consumer Durables 1.9
Transportation 1.6
Industrial Services 1.4
Energy Minerals 1.2
Cash Equivalents 1.7
8
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------- -------------------------------------
Small Cap Russell Russell Small Cap Russell Russell
Growth 2000 2000 Growth 2000 2000
Fund Index Growth Index Fund Index Growth Index
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months -4.41% -5.42% -1.68% -4.41% -5.42% -1.68%
(not annualized)
1 Year -9.57 -16.26 -11.04 -9.57 -16.26 -11.04
3 Year 5.21 7.72 5.76 16.45 25.00 18.28
Inception 16.28 12.71 12.88 104.78 76.54 77.86
(7/1/94)
</TABLE>
* As of 3/31/99
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 3/31/99 would
have grown to $20,478 in the Fund, or $17,654 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Uniphase Corp.
* Legato Systems, Inc.
* Dendrite International, Inc.
* Emmis Broadcasting Corp.
* BISYS Group, Inc.
* Queens County Bancorp, Inc.
* Flextronics International, Ltd.
* Applied Micro Circuits Corp.
* Sepracor, Inc.
* Sapient Corp.
Total number of holdings: 57
9
<PAGE>
SIT BALANCED FUND REVIEW
QUARTER ENDED MARCH 31, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
PETER L. MITCHELSON, CFA
BRYCE A. DOTY, CFA
The Sit Balanced Fund's quarterly return of +4.8% compared favorably with
the +5.0% return of the S&P 500 Index, the -0.5% return of the Lehman Aggregate
Bond Index and the +1.1% return of the Lipper Balanced Fund universe.
As of March 31, 1999, the asset allocation of the Fund was 56% equities
(down from 61% at the end of December), 38% fixed income securities (37%) and 6%
cash reserve instruments (2%).
The portfolio's equity return was led by large cap growth stocks, which
continued to outperform virtually all other broad fund categories. Although
recent data on the U.S. economy indicates continued strength, investors'
concerns about overall corporate profit growth remain a key element fueling the
strong performance of large, liquid growth issues. During the first quarter, the
Fund benefited from sector overweighting in high growth sectors, particularly
technology. A key attribute of the Fund continues to be strong relative earnings
growth. As of quarter end, the 1999 projected earnings gain for the companies
held in the Fund was +21.8%, which is significantly higher than projected
earnings gain of +8.7% for the S&P 500 Index. While we are optimistic about the
Fund's outlook due to strong earnings growth, we do not expect the robust
returns of the first quarter to be repeated in future quarters.
Regarding the fixed income portion of the portfolio, the U.S. Treasury
yield curve rose sharply last quarter. The rise in U.S. Treasury yields reflects
stronger-than-expected economic conditions which caused a reversal of last
fall's "flight to quality" in the Treasury market. Signs of continuing economic
strength have significantly narrowed yield spreads for corporate bonds, allowing
them to outperform Treasuries. Mortgage rates also rose last quarter, which
slowed refinancing activity from its record pace. Heartened by the slowing
refinancing activity, investors increased their demand for mortgages, causing
relative yield spreads in the mortgage sector to narrow. As a result, the fixed
income portion of the portfolio did relatively well due to the overweighting in
the mortgage and corporate sectors. Looking forward, we continue to emphasize
these sectors and, given our outlook for stable interest rates, are maintaining
a market-neutral duration.
We very much appreciate shareholders' continued interest and participation
in the Fund.
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 3/31/99: $17.36 Per Share
12/31/98: $16.57 Per Share
Total Net Assets: $9.96 Million
Quarterly Dividend: $0.069 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Cash Equivalents 5.5%
Bonds 38.3%
Stocks 56.2%
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
--------------------------------- ---------------------------------
Lehman S&P Lehman S&P
Balanced Aggregate 500 Balanced Aggregate 500
Fund Bond Index Index Fund Bond Index Index
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 4.77% -0.50% 4.98% 4.77% -0.50% 4.98%
(not annualized)
1 Year 15.82 6.49 18.46 15.82 6.49 18.46
3 Year 20.61 7.75 28.07 75.44 25.11 110.06
5 Year 18.27 7.79 26.25 131.36 45.52 220.70
Inception 16.60 6.82 23.94 123.96 41.35 208.54
(12/31/93)
</TABLE>
* As of 3/31/99
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. 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 (12/31/93) and held until 3/31/99 would
have grown to $22,396 in the Fund, $14,135 in the Lehman Aggregate Bond Index,
or $30,854 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.
* Merck & Co., Inc.
* Pfizer, Inc.
BONDS:
* U.S. Treasury Note, 5.75%, 10/31/02
* GNMA, 9.50%, 12/15/17
* U.S. Treasury Note, 6.125%, 8/15/07
* GNMA, 9.00%, 12/15/19
* Security Capital Industrial Trust, 8.65%, 5/15/16
Total number of holdings: 124
11
<PAGE>
SIT INTERNATIONAL GROWTH FUND REVIEW
QUARTER ENDED MARCH 31, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ANDREW B. KIM, CFA
ROGER J. SIT
For the three months ended March 1999, the Sit International Growth Fund
declined -2.2%. This compares with the MSCI EAFE Index benchmark's gain of +1.4%
and the Lipper International Fund Index's +1.3% rise. A major reason for the
Fund's negative return during the quarter was the large investor rotation into
the Japanese market out of the European markets leading to the deterioration of
our European holdings. During the quarter, our European holdings accounted for
65.2% of net assets.
The euro declined -9% against the dollar as major economies in Europe
slowed further. However, we believe the interest rate reductions in early April
by both the Bank of England (by 25bp) and the European Central Bank (by 50bp)
should stimulate the overall European economic growth in the second half of
1999. The improving outlook for consumer spending would be especially beneficial
to earnings in such sectors as pharmaceutical and consumer products and service
companies. We continue to believe the long-term benefits of the single-currency
euro and extensive corporate restructuring should help accelerate corporate
earnings growth.
A positive contribution to the Fund's quarterly performance was the
turnaround in Asian markets. The Fund's holdings in Thailand rose +21.8%,
followed by Korea (+17.5), Singapore (+12.7%) and Australia (+8.5%). The
Japanese portfolio, the largest country weighting of 21.2%, had a +10.3% gain
during the quarter despite the loss of -4.5% in the yen/dollar exchange rate.
The implementation of financial reforms in Japan, if successful, has positive
implications for the Asian markets as Japan's economic improvement should, we
believe, give a boost to her neighbors. In April we established initial
positions in two high-quality banks (Sanwa and Bank of Tokyo Mitsubishi) as the
potential beneficiary of financial restructuring in Japan.
Sector selection, especially banking, pharmaceutical and
telecommunications, should, we believe, continue to contribute to the Fund's
returns in European markets. Capitalizing on the strong order flows from the
U.S., contract manufacturers in Singapore and Taiwan remain attractive holdings.
Our positions in the global telecom sector have expanded to include British
Telecom and Vodafone in the UK and China Telecom in Hong Kong.
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 3/31/99: $18.05 Per Share
12/31/98: $18.45 Per Share
Total Net Assets: $93.23 Million
Weighted Average Market Cap: $35.1 Billion
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT INT'L Morgan Stanley
GROWTH FUND EAFE Index
Europe Other 42.6 29.9
France, Germany, UK 22.6 41.2
Japan 21.2 23.1
Pacific Basin 10.4 5.8
Cash and Other Assets and Liabilities 3.2 0.0
12
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------ -----------------------------------------
International Morgan Stanley Lipper International Morgan Stanley Lipper
Growth Capital Int'l Int'l Growth Capital Int'l Int'l
Fund EAFE Index Index Fund EAFE Index Index
------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months -2.17% 1.39% 1.28% -2.17% 1.39% 1.28%
(not annualized)
1 Year 0.87 6.06 -0.70 0.87 6.06 -0.70
3 Years 9.15 8.47 10.28 30.05 27.63 34.12
5 Years 8.82 8.75 9.10 52.58 52.08 54.59
Inception 11.65 8.54 10.46 126.40 83.71 109.19
(11/1/91)
</TABLE>
* As of 3/31/99
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.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (11/1/91) and held until 3/31/99 would
have grown to $22,640 in the Fund, or $18,371 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Nokia Corp., A.D.R.
* AFLAC, Inc., A.D.R.
* Misys, p.l.c.
* Aegon N.V., A.D.R.
* Zurich Allied AG
* Elan Corp., p.l.c., A.D.R.
* Wolters Kluwer
* Mannesman, A.G.
* Telefonica, S.A.
* Bank of Ireland
Total number of holdings: 73
13
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
QUARTER ENDED MARCH 31, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ANDREW B. KIM, CFA
The Sit Developing Market Growth Fund declined -0.51% in the March quarter
due primarily to the decline in its Taiwan and Portuguese holdings, which
accounted for nearly 25% of total assets, and the Fund's significant
underweighting in Latin America. The Fund's negative return compares with the
MSCI Emerging Markets Free (EMF) Index benchmark's gain of +11.96% and the
Lipper Emerging Markets Index +7.94% gain. From the extremely depressed level at
the end of 1998, the EMF Latin American Index increased +12.24% in the March
quarter.
At the end of March, equity holdings were increased in Asia in
anticipation of the region's improving trend. Investments in Asia increased to
53.5% at the end of March from 46.7% at year-end 1998.
Asian stock markets continued to benefit from positive investor sentiment
resulting from lower interest rates and stable currencies. The favorable
liquidity outlook for Asia, due to the continuing current account surplus and
resumption of foreign direct investment, will, we believe, be key drivers of
positive 1999 returns in Asian equity markets. Major uncertainties are the
yen/dollar exchange rate and the successful results from financial and corporate
reforms in Japan.
The emerging-Europe, Middle East and Africa weighting of 24.6% is
moderately below the Index's average of 28.8%. The Fund continues to overweight
Israel and underweight South Africa and has increased its holdings in Greece. We
expect Latin American markets to be volatile in 1999 as Brazil copes with the
combination of recession and high inflation. Although the Latin American
financial markets recovered in 1999, we believe the high cost of capital and
insufficient foreign investment will tend to constrain the growth rate into
2000. The Fund's holdings in Latin America are concentrated in Mexico where the
positive effects of lower interest rates are being further reinforced by higher
oil prices.
Our focus remains on companies that are competitive on a regional basis
and have sound finances. The Fund maintains an overweight position in Asian
contract manufacturers, taking advantage of opportunities to translate expanding
exports into substantial earnings growth in response to strong overseas demand.
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 3/31/99: $7.73 Per Share
12/31/98: $7.77 Per Share
Total Net Assets: $9.52 Million
Weighted Average Market Cap: $25.4 Billion
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT DEVELOPING MSCI Emerging
MARKETS GROWTH FUND Markets Free Index
Asia 53.5 34.9
Europe 16.4 15.0
Latin America 12.7 35.8
Africa/Middle East 11.5 14.4
North America 1.1 0.0
Cash and Other Assets and Liabilities 4.8 0.0
14
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------------- -------------------------------------------
Developing Lipper Developing Lipper
Markets MSCI Emerging Markets MSCI Emerging
Growth Emerging Markets Markets Growth Emerging Markets Markets
Fund Free Index Index Fund Free Index Index
-------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Months -0.51% 11.96% -7.94% -0.51% -11.96% -7.94%
(not annualized)
1 Year -30.73 -23.23 -24.65 -30.73 -23.23 -24.65
3 Year -8.70 -11.61 -9.90 -23.91 -30.95 -26.87
Inception -5.13 -7.27 -5.67 -22.13 -30.14 -24.25
(7/1/94)
</TABLE>
* As of 3/31/99
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.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 3/31/99 would
have declined to $7,787 in the Fund, or $6,986 in the Morgan Stanley Capital
Int'l Emerging Markets Free Index assuming reinvestment of all dividends and
capital gains.
10 LARGEST HOLDINGS
* Nice Systems Ltd., A.D.R.
* Advanced Info Services
* Datacraft Asia Ltd.
* Hon Hai Precision Industry
* Samsung Electronics
* Portugal Telecom, A.D.R.
* Cifra, S.A.
* Venture Manufacturing, Ltd.
* Telefonos de Mexico, A.D.R.
* Jollibee Foods Co. (Warrants)
Total number of holdings: 48
15
<PAGE>
SIT REGIONAL GROWTH FUND REVIEW
QUARTER ENDED MARCH 31, 1999
SENIOR PORTFOLIO MANAGER
EUGENE C. SIT, CFA
The Sit Regional Growth Fund rose +0.2% in the quarter, lagging the S&P
500 Index return of +5.0%. The Fund's quarterly performance compares more
favorably with the +0.9% return achieved by the average diversified stock fund
as calculated by Lipper Analytical Services.
The Fund's regional focus is posing a temporary challenge in outperforming
the broad market indices given the market's continued attraction to large cap,
liquid issues. The Fund's weighted average market cap of just under $18 billion
is well below the S&P 500 Index weighted average market cap of $100 billion. The
median stock in the S&P 500 Index was down -2.1% in the quarter, well below the
+5.0% weighted average return. A key attribute of the Fund continues to be the
strong relative earnings growth. As of the end of March, the 1999 projected
earnings gain for the companies held in the Fund was +16.8%, which is
significantly higher than the S&P 500 Index projected earnings gain of +8.7%. In
addition, the price-to-earnings ratio on forecasted 1999 earnings for the Fund
is 30.9x, below the S&P 500 Index P/E of 31.4x.
Relative to the Russell 3000 Index, the Fund lagged due to stocks held in
the technology services, health technology, and commercial services sectors --
particularly smaller market cap stocks. The two most positive sectors in the
quarter were electronic technology and retail trade. Strong performers in these
sectors included Tellabs, ADC Telecommunications, Gateway 2000, and Best Buy.
Each of these stocks rose +30% or more in the quarter. During the first quarter,
sectors with increased weightings included electronic technology, consumer
services, and health technology. Weightings were lowered in process industries,
technology services, and consumer non-durables. The Fund's cash position
decreased slightly in the quarter falling from 4.5% to 3.9%.
Relative strong growth rates of the Fund's stock holdings and attractive
valuations provide, we believe, long-term investment opportunities.
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 3/31/99: $12.31 Per Share
12/31/98: $12.28 Per Share
Total Net Assets: $6.56 Million
Weighted Average Market Cap: $17.5 Billion
PORTFOLIO STRUCTURE
(% of total net assets)
Allocation by Sector
[BAR CHART]
Health Technology 16.4
Retail Trade 15.3
Finance 14.9
Electronic Technology 14.5
Technology Services 12.8
Consumer Non-Durables 5.9
Commercial Services 3.9
Consumer Services 3.1
Process Industries 2.4
Consumer Durables 2.2
Health Services 2.1
Producer Manufacturing 1.5
Transportation 1.1
Cash Equivalents 3.9
16
<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 0.24% 3.40% 4.98% 0.24% 3.40% 4.98%
(not annualized)
1 Year 10.83 13.55 18.46 10.83 13.55 18.46
Inception 18.34 22.18 27.21 23.36 28.37 34.98
(12/31/97)
</TABLE>
* As of 3/31/99
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 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 (12/31/97) and held until 3/31/99 would
have grown to $12,336 in the Fund, or $13,498 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Best Buy, Inc.
* Dayton Hudson Corp.
* Fiserv, Inc.
* Wells Fargo Co.
* Tellabs, Inc.
* ADC Telecommunications, Inc.
* Northern Trust Corp.
* Motorola, Inc.
* Eli Lilly & Co.
* Emmis Communications Corp.
Total number of holdings: 39
17
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND REVIEW
QUARTER ENDED MARCH 31, 1999
SENIOR PORTFOLIO MANAGER
EUGENE C. SIT, CFA
The Sit Science and Technology Growth Fund's quarterly return of -0.3%
compared to +10.7% for Pacific Stock Exchange Technology 100 (PSE) Index. The
unprecedented mania surrounding Internet-related companies contained in the PSE
Index was a significant factor in the Fund's relative underperformance.
Our philosophical commitment to health care stocks as a vital component of
true science and technology funds also compromised returns in the short run
vis-a-vis the PSE Index that has a lower health care component. Demographic
trends support our very positive outlook for this sector. Positions in Eli Lilly
& Company, Medimmune, Inc., Genzyme Corp., Guidant Corp. and IDEC
Pharmaceuticals were either increased or initiated during the quarter. Cash
declined materially during the quarter from 10.6% at year-end 1998 to 3.1% at
quarter end. In addition, Nokia Corp. and Motorola, Inc. were purchased in the
electronic technology sector as cellular phone demand is accelerating worldwide.
Through stock appreciation and new purchases, the Fund's allocation to
electronic technology increased from 34.5% at year-end 1998 to 46.7% at quarter
end. The weighting in technology services declined during the quarter. Fear of a
Year 2000-induced business slowdown for some software and services segments was
a contributing factor in stock price declines, although we believe this concern
is exaggerated.
Earnings for stocks in the Fund are expected to grow +31.4% in 1999 and
+25.6% over the next five years versus +8.7% and +8.0%, respectively, for the
S&P 500 Index. Despite growth rates triple those of the market, stocks in the
Fund trade at a modest premium to the market. The P/E ratio for the S&P 500
Index is 31.4x based on 1999 earnings versus 39.6x for stocks 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 3/31/99: $13.80 Per Share
12/31/98: $13.84 Per Share
Total Net Assets: $11.81 Million
Weighted Average Market Cap: $71.2 Billion
PORTFOLIO STRUCTURE
(% of total net assets)
Allocation by Sector
[BAR CHART]
Electronic Technology 46.7
Health Technology 28.5
Technology Services 17.9
Health Services 2.3
Utilities 1.5
Cash Equivalents 3.1
18
<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 -0.29% 10.71% -0.29% 10.71%
(not annualized)
1 Year 23.66 43.75 23.66 43.75
Inception 29.48 53.90 38.00 71.17
(12/31/97)
</TABLE>
* As of 3/31/99
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 3/31/99 would
have grown to $13,800 in the Fund, or $17,117 in the PSE Tech 100 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Microsoft Corp.
* Cisco Systems, Inc.
* EMC Corp.
* Intel Corp.
* Biogen, Inc.
* Solectron Corp.
* Merck & Co., Inc.
* Legato Systems, Inc.
* Schering-Plough Corp.
* International Business Machines Corp.
Total number of holdings: 59
19
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds is managed by Sit Investment Associates, Inc. Sit
Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment currently manages approximately $7.0 billion as of
March 31, 1999, for some of America's largest corporations, foundations and
endowments.
Sit Mutual Funds is comprised of thirteen 100% NO-LOAD funds. 100% NO-LOAD
means that the funds have no sales charges on purchases, no deferred sales
charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar
you invest goes to work for you.
Some of the other features include:
o Free telephone exchange
o Dollar-cost averaging through automatic investment plan
o Electronic transfer of funds for purchases and redemptions
o Free check-writing privileges on bond funds
o 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
<PAGE>
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 Balanaced Fund only.
(2) Sit Science and Technology Growth Fund only.
(3) Sit Regional Growth Fund only.
<PAGE>
QUARTERLY REPORT STOCK FUNDS
QUARTER ENDED MARCH 31, 1999
INVESTMENT ADVISER
SIT INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
SUB-ADVISER
(DEVELOPING MARKETS GROWTH FUND AND
INTERNATIONAL GROWTH FUND)
SIT/KIM INTERNATIONAL INVESTMENT ASSOCIATES, INC.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
DISTRIBUTOR
SIA SECURITIES CORP.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
CUSTODIAN
THE NORTHERN TRUST COMPANY
50 SOUTH LASALLE STREET
CHICAGO, IL 60675
TRANSFER AGENT AND
DISBURSING AGENT
FIRST DATA INVESTOR SERVICES
P.O. BOX 5166
WESTBORO, MA 01581-5166
AUDITORS
KPMG PEAT MARWICK LLP
4200 NORWEST CENTER
MINNEAPOLIS,MN 55402
LEGAL COUNSEL
DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
MINNEAPOLIS, MN 55402
MEMBER OF
================
100% NO LOAD
MUTUAL FUND
COUNCIL
================
