AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-75151)
Post-Effective Amendment No. _23_
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-03342)
Post-Effective Amendment No. _26_
SIT MID CAP GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Kelly K. Orning
Staff Attorney
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
____ immediately upon filing pursuant to paragraph (b) of rule 485
____ on (specify date) pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of rule 485
_XX_ on November 1, 1999 pursuant to paragraph (a)(1) of rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of rule 485
____ on (specify date) pursuant to paragraph (a)(2) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about July 17, 1999.
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 2-75152)
Post-Effective Amendment No. _23_
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-03343)
Post-Effective Amendment No. _26_
SIT LARGE CAP GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Kelly K. Orning
Staff Attorney
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
____ immediately upon filing pursuant to paragraph (b) of rule 485
____ on (specify date) pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of rule 485
_XX_ on November 1, 1999 pursuant to paragraph (a)(1) of rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of rule 485
____ on (specify date) pursuant to paragraph (a)(2) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about July 17, 1999.
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
(File No. 33-42101)
Post-Effective Amendment No. _17_
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 _X_
(File No. 811-06373)
Post-Effective Amendment No. _18_
SIT MUTUAL FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
4600 Norwest Center, Minneapolis, Minnesota 55402
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 332-3223
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Kelly K. Orning
Staff Attorney
Sit Mutual Funds
4600 Norwest Center
Minneapolis, Minnesota 55402
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
____ immediately upon filing pursuant to paragraph (b) of rule 485
____ on (specify date) pursuant to paragraph (b) of rule 485
____ 60 days after filing pursuant to paragraph (a)(1) of rule 485
_XX_ on November 1, 1999 pursuant to paragraph (a)(1) of rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of rule 485
____ on (specify date) pursuant to paragraph (a)(2) of rule 485
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's most recent fiscal year
was filed with the Securities and Exchange Commission on or about July 17, 1999.
<PAGE>
STOCK FUNDS PROSPECTUS
November 1, 1999
Balanced Fund
Large Cap Growth Fund
Regional Growth Fund
Mid Cap Growth Fund
International Growth Fund
Small Cap Growth Fund
Science and Technology Growth Fund
Developing Markets Growth Fund
(logo) Sit Mutual Funds
The Investment is Mutual
NOT PART OF PROSPECTUS
<PAGE>
A Family of 100% No-Load Funds
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
(logo) Sit Mutual Funds
The Investment is Mutual
NOT PART OF PROSPECTUS
<PAGE>
SIT MUTUAL FUNDS
STOCK FUNDS PROSPECTUS
November 1, 1999
Balanced Fund
Large Cap Growth Fund
Regional Growth Fund
Mid Cap Growth Fund
International Growth Fund
Small Cap Growth Fund
Science and Technology Growth Fund
Developing Markets Growth Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION
- --------------------------------------------------------------------------------
FUND SUMMARIES
- --------------------------------------------------------------------------------
Investment Objectives and Principal Investment Strategies
Balanced Fund #
Large Cap Growth Fund #
Regional Growth Fund #
Mid Cap Growth Fund #
International Growth Fund #
Small Cap Growth Fund #
Science and Technology Growth Fund #
Developing Markets Growth Fund #
Principal Investment Risks #
Performance
Balanced Fund #
Large Cap Growth Fund #
Regional Growth Fund #
Mid Cap Growth Fund #
International Growth Fund #
Small Cap Growth Fund #
Science and Technology Growth Fund #
Developing Markets Growth Fund #
Fees and Expenses #
FUND MANAGEMENT
- --------------------------------------------------------------------------------
Investment Adviser #
Investment Sub-Adviser #
Portfolio Management #
Distributor #
Custodian and Transfer Agent #
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
Share Price #
When Orders are Effective #
Purchasing Shares #
Exchanging Shares #
Selling Shares #
Dividends and Distributions #
Retirement and other Tax-Deferred Accounts #
Taxes #
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Other Securities, Investment Practices, and Policies #
Financial Highlights
Balanced Fund #
Large Cap Growth Fund #
Regional Growth Fund #
Mid Cap Growth Fund #
International Growth Fund #
Small Cap Growth Fund #
Science and Technology Growth Fund #
Developing Markets Growth Fund #
For More Information back cover
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
SIT MUTUAL FUNDS ARE A FAMILY OF NO-LOAD MUTUAL FUNDS OFFERING A SELECTION OF
FUNDS TO INVESTORS. EACH FUND HAS A DISTINCTIVE INVESTMENT OBJECTIVE AND
RISK/REWARD PROFILE.
The descriptions on the following pages may help you choose the Fund or Funds
that best fit your investment goals. Keep in mind, however, that no Fund can
guarantee it will meet its investment objective, and no Fund should be relied
upon as a complete investment program.
This Prospectus describes the eight stock funds are a part of the Sit Mutual
Fund family. Each Fund uses various investment strategies in seeking its
investment objective. You can learn more about these strategies and their
related risks by reading the "Investment Objectives and Principal Investment
Strategies" and "Additional Risks" sections of this Prospectus.
THE SIT STOCK FUNDS CONSIST OF:
<TABLE>
<CAPTION>
DOMESTIC GROWTH STOCK FUNDS
<S> <C> <C>
Balanced Fund Large Cap Growth Fund Regional Growth Fund
Mid Cap Growth Fund Small Cap Growth Fund Science and Technology Growth Fund.
<CAPTION>
INTERNATIONAL GROWTH STOCK FUNDS
International Growth Fund Developing Markets Growth Fund
</TABLE>
- --------------------------------------------------------------------------------
FUND SUMMARIES
- --------------------------------------------------------------------------------
BALANCED FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term capital growth consistent with preservation of
principal and to provide shareholders with regular income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing in a diversified portfolio
of stocks, bonds, and short-term instruments. In seeking to achieve the Fund's
long-term capital growth objective, the Fund invests in common stocks of growth
companies. The Fund balances its long-term growth objective by investing in
income-producing debt securities and/or common stocks selected primarily for
their dividend payment potential.
During normal market conditions, between 40% and 60% of the Fund's assets will
be invested in equity securities and between 40% and 60% in fixed-income
securities. The Fund's allocation of assets will vary over time in response to
the Adviser's evaluation of present and anticipated market and economic
conditions.
[*Sidebar:] The Fund combines the investment strategies
of the Large Cap Growth Fund and the Bond Fund.
The equity portion of the Fund's portfolio is invested primarily in the common
stocks of growth companies with a capitalization of $5 billion or more at the
time of purchase. The Adviser utilizes the same investment strategies for the
Fund that it uses for the Large Cap Growth Fund in selecting equity securities.
<PAGE>
The Fund may invest up to 20% of its assets in foreign government securities or
equity securities of foreign issuers that are either listed on a U.S. or Toronto
stock exchange or represented by American Depository Receipts.
The fixed income portion of the Fund's portfolio is invested primarily in a
diversified portfolio of debt securities that may include the following
securities. The Adviser utilizes the same investment strategies for the Fund
that it uses for the Sit Bond Fund in selecting the fixed-income securities.
- - mortgage-backed securities, such as securities issued by Government
National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Federal National Mortgage Association (FNMA), and
including collateralized mortgage obligations,
- - asset-backed securities such as automobile and credit card receivables,
utilities, manufactured (mobile) home loans, home improvement loans and
home equity loans,
- - obligations of the U.S. government, its agencies and instrumentalities,
- - corporate debt securities,
- - taxable municipal securities, and
- - short-term debt obligations, including commercial paper and bank
instruments, such as certificates of deposit, time deposits, and bankers'
acceptances.
The Fund invests primarily in debt securities that, at the time of purchase, are
either rated investment-grade or if unrated, determined to be of comparable
quality by the Adviser. Unrated securities will not exceed 20% of the Fund's
total assets.
In selecting fixed-income securities for the Fund, the Adviser seeks
fixed-income securities providing maximum total return. In making purchase and
sales decisions for the Fund, the Adviser considers its economic outlook and
interest rate forecast, as well as its evaluation of a fixed-income security's
credit quality, yield, maturity, and liquidity. Based upon its economic outlook,
the Adviser attempts to shift the fixed-income sector concentrations of the
portfolio. Based upon its interest rate forecast, the Adviser attempts to shift
the fixed-income portfolio's average effective duration, seeking to maintain an
average effective duration for the fixed-income portion of the Fund's portfolio
of 3 to 7 years.
LARGE CAP GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing at least 65% of its total
assets in the common stocks of growth companies with capitalizations of $5
billion or more at the time of purchase.
[*Sidebar:] The Fund invests in companies having a
market capitalization of $5 billion or more.
The Adviser invests in growth-oriented companies it believes exhibit the
potential to increase earnings at a faster rate than the economy and respective
market index. The Adviser believes that a company's earnings growth is the
primary determinant of its potential long-term return and considers several
factors in its evaluation of a company, including:
- - potential for above average long-term earnings and revenue growth,
- - unique product or service,
- - growing product demand,
- - dominant and growing market share,
- - management experience and capabilities, and
<PAGE>
- - strong financial strategy.
[*Sidebar:] The Fund invests in "blue chip" stocks
issued by companies with records of stable profit growth
and dividend payments.
The Fund may invest up to 20% of its assets in foreign government securities or
equity securities of foreign issues that are either listed on a U.S. or Toronto
stock exchange or represented by American Depository Receipts.
REGIONAL GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing at least 80% of its total
assets, under normal market conditions, in common stocks of companies with their
headquarters in Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska,
Kansas, Wisconsin, Illinois, Michigan, Indiana, and Ohio. The Fund's investments
will include stocks of smaller companies.
The Adviser invests in growth-oriented companies it believes exhibit the
potential to increase earnings at a faster rate than the economy and respective
market index. The Adviser believes that a company's earnings growth is the
primary determinant of its potential long-term return and considers several
factors in its evaluation of a company, including:
- - potential for above average long-term earnings and revenue growth,
- - unique product or service,
- - growing product demand,
- - dominant and growing market share,
- - management experience and capabilities, and
- - strong financial strategy.
MID CAP GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing at least 65% of its total
assets in the common stocks of growth companies with capitalizations of $2
billion to $15 billion at the time of purchase.
[*Sidebar:] The Fund invests in companies having a
market capitalization of $2 billion to $15 billion.
The Adviser invests in a diversified group of growing medium to small companies
it believes exhibit the potential to increase earnings at a faster rate than the
economy and respective market index. The Adviser believes that a company's
earnings growth is the primary determinant of its potential long-term return and
considers several factors in its evaluation of a company, including:
- - potential for above average long-term earnings and revenue growth,
- - unique product or service,
- - growing product demand,
<PAGE>
- - dominant and growing market share,
- - management experience and capabilities, and
- - strong financial strategy.
The Fund may invest up to 20% of its assets in foreign government securities or
equity securities of foreign issues that are either listed on a U.S. or Toronto
stock exchange or represented by American Depository Receipts.
INTERNATIONAL GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term growth.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing at least 90% of its total
assets, under normal market conditions, in common stocks of issuers domiciled in
at least three foreign countries.
In selecting investments for the Fund, the Sub-Adviser begins by selecting
countries or regions in which to invest. In making its selections, the
Sub-Adviser considers several factors affecting the economy and equity market of
foreign countries and regions, including:
- - economic trends,
- - earnings outlook,
- - liquidity within the market,
- - fiscal and monetary policy,
- - currency exchange rate expectations,
- - investment valuation,
- - market sentiment, and
- - social and political trends.
The Sub-Adviser believes that favorable secular trends can provide significant
investment opportunities, and therefore, after the country and regional
allocations are determined, the Sub-Adviser seeks industries and sectors that it
believes have strong earnings growth prospects. Within the selected industries
and sectors, the Sub-Adviser invests in foreign growth-oriented companies it
believes exhibit the potential to increase earnings at a faster rate than the
respective economy and market index. The Sub-Adviser believes that a company's
earnings growth is the primary determinant of its potential long-term return and
considers several factors in its evaluation of a company, including:
- - potential for above average long-term earnings and revenue growth,
- - unique product or service,
- - growing product demand,
- - dominant and growing market share,
- - management experience and capabilities, and
- - strong financial strategy.
Up to 50% of the Fund's total assets may be invested in equity securities of
smaller to medium sized emerging growth companies in developed markets (such as
Germany and Japan) and developing markets (such as Thailand and Brazil).
Emerging growth companies are small- and medium-sized companies that the
Sub-Adviser believes have a potential for earnings growth over time that is
above the growth rate of more established companies or are early in their life
cycles and have the potential to become major enterprises.
The Fund may invest in securities representing underlying international
securities such as American Depository Receipts, European Depository Receipts
and Global Depository Receipts.
<PAGE>
In order to hedge against adverse movements in currency exchange rates, the Fund
may from time to time enter into forward foreign currency exchange contracts.
SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing at least 65% of its total
assets, under normal market conditions, in common stocks of small growth
companies with capitalizations of $2.5 billion or less at the time of purchase.
[*Sidebar:] The Fund invests in companies having a
market capitalization of $2.5 billion or less.
The Adviser invests in a diversified group of growing small companies it
believes exhibit the potential to increase earnings at a faster rate than the
economy and respective market index. The Adviser believes that a company's
earnings growth is the primary determinant of its potential long-term return and
considers several factors in its evaluation of a company, including:
- - potential for above average long-term earnings and revenue growth,
- - unique product or service,
- - growing product demand,
- - dominant and growing market share,
- - management experience and capabilities, and
- - strong financial strategy.
The Fund may invest up to 20% of its assets in foreign government securities or
equity securities of foreign issuers that are either listed on a U.S. or Toronto
stock exchange or represented by American Depository Receipts.
SCIENCE AND TECHNOLOGY GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing at least 80% of its total
assets, under normal market conditions, in common stocks of companies which the
Adviser expects to benefit from the development, improvement, advancement and
use of science and technology. The Fund's investments will include stocks of
smaller companies.
Science and technology companies include those whose processes, products or
services, in the judgment of the Adviser, are significantly benefiting, or may
be expected to significantly benefit, from scientific developments and the
application of technical advances in industry, manufacturing and commerce
resulting from improving technology in these fields. The Adviser seeks stocks of
science and technology companies having superior growth potential in virtually
any industry in which they may be found. Such industries may include:
- - aerospace,
- - chemistry,
- - electronic components and systems,
- - environmental services,
<PAGE>
- - genetic engineering,
- - geology,
- - information sciences (including computers, software and peripheral
products),
- - medicine (including pharmacology, biotechnology and biophysics), and
- - hospital supply and medical devices.
The Adviser invests in growth-oriented companies it believes exhibit the
potential to increase earnings at a faster rate than the respective economy and
market index. The Adviser believes that a company's earnings growth is the
primary determinant of its potential long-term return and considers several
factors in its evaluation of a company, including:
- - potential for above average long-term earnings and revenue growth,
- - unique product or service,
- - growing product demand,
- - dominant and growing market share,
- - management experience and capabilities, and
- - strong financial strategy.
The Fund may invest up to 20% of its assets in foreign government securities or
equity securities of foreign issuers that are either listed on a U.S. or Toronto
stock exchange or represented by American Depository Receipts.
DEVELOPING MARKETS GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing at least 65% of its total
assets, under normal market conditions, in common stocks of companies domiciled
or operating in a developing market.
Developing markets are those countries that:
- - have emerging stock markets as defined by the International Finance
Corporation,
- - have low- to middle-income economies according to the World Bank, or
- - are listed in World Bank publications as "developing."
In selecting investments for the Fund, the Sub-Adviser begin by selecting
countries or regions in which to invest. In making its selections, the
Sub-Adviser considers several factors affecting the economy and equity market of
foreign countries and regions, including:
- - economic trends,
- - earnings outlook,
- - liquidity within the market,
- - fiscal and monetary policy,
- - currency exchange rate expectations,
- - investment valuation,
- - market sentiment, and
- - social and political trends.
The Sub-Adviser believes that favorable secular trends can provide significant
investment opportunities, and therefore, after the country and regional
allocations are determined, the Sub-Adviser seeks industries and sectors that
have strong earnings growth prospects. Within the selected industries and
sectors, the Sub-Adviser invests in foreign growth-oriented companies it
believes exhibit the potential to increase earnings at a faster rate than the
respective
<PAGE>
economy and market index. The Sub-Adviser believes that a company's earnings
growth is the primary determinant of its potential long-term return and
considers several factors in its evaluation of a company, including:
- - earnings growth prospects of a company's industry and sector,
- - potential for above average long-term earnings and revenue growth,
- - unique product or service, - growing product demand,
- - regional or country dominance and growing market share,
- - management experience and capabilities, and
- - strong financial strategy.
The Fund may invest in securities representing underlying international
securities such as American Depository Receipts, European Depository Receipts
and Global Depository Receipts.
In order to hedge against adverse movements in currency exchange rates, the Fund
may from time to time enter into forward foreign currency exchange contracts.
<PAGE>
PRINCIPAL INVESTMENT RISKS
All investments carry some degree of risk which will affect the value of a
Fund's investments, investment performance and price of its shares. IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
The principal risks of investing in the Funds include:
RISKS THAT APPLY TO ALL FUNDS
- - Stock Market Risk: The value of the stocks in which a Fund invests may go
up or down in response to the activities of individual companies, the
stock market and general economic conditions. Stock prices may decline
over short or extended periods. As of the date of this Prospectus, U.S.
stock markets and certain foreign markets are trading at or close to
record high levels. There is no guarantee that such levels will continue.
- - Management Risk: A strategy used by the investment management team may not
produce the intended results.
- - Liquidity Risk: Certain securities may be difficult to sell at the time
and price that the Adviser would like to sell. The Adviser may have to
lower the selling price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on fund
performance. During unusual market conditions, unusually high volume of
redemption requests or other reasons, the Fund may not be able to pay
redemption proceeds within the time periods described in this Prospectus.
- - Foreign Securities Risk: To the extent a Fund invests in foreign
securities, including American Depository Receipts (U.S.
dollar-denominated receipts representing shares of foreign-based
corporations), the Fund will be subject to additional risks than those
associated with domestic investments. Additional risks include currency
fluctuations, political and economic instability, differences in financial
reporting standards and less stringent regulation of securities markets.
- - Year 2000 Risk: The Year 2000 issue arises when computer programs
represent dates as two digits instead of four. Such programs may
incorrectly assume that the year after 1999 is 1900. The Funds could be
adversely affected if the computer systems used by the Funds, the Adviser,
Sub-Adviser, or other service providers and entities with computer systems
that are linked to the Funds' records do not properly process and
calculate date-related information and data on and after January 1, 2000.
A comprehensive review of the third-party service providers' and the
Adviser's and Sub-Adviser's computer systems and business processes has
been conducted to identify the major systems that could be affected by the
Year 2000 issue. Steps are being taken to resolve any potential problems
including modification of existing software and the purchase of new
software. In addition, the Adviser evaluates the anticipated impact of
year 2000 issues on each company and government security in which the
Funds invest. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Funds. The risk may be of
greater significance with respect to a Fund's investment in securities of
foreign issuers.
RISKS THAT APPLY PRIMARILY TO THE BALANCED FUND
- - Interest Rate Risk: Due to the Fund's investments in fixed-income
securities, an increase in interest rates may lower the Fund's value and
the overall return on your investment. The magnitude of this decrease is
often greater for longer-term fixed income securities than shorter-term
securities.
- - Prepayment Risk: Declining interest rates may compel borrowers to prepay
mortgages and debt obligations underlying the mortgage-backed securities
and manufactured home loan pass-through securities owned by the Fund. The
proceeds received by the Fund from prepayments will likely be reinvested
at interest rates lower than
<PAGE>
the original investment, thus resulting in a reduction of income to the
Fund. Likewise, rising interest rates could reduce prepayments and extend
the life of securities with lower interest rates, which may increase the
sensitivity of the Fund's value to rising interest rates.
- - Credit Risk: The issuers or guarantors of fixed-income securities owned by
the Fund may default on the payment of principal or interest, or on other
obligations to the Fund, causing the value of the Fund to decrease.
- - Income Risk: The income you earn from the Fund may decline due to
declining interest rates.
- - Call Risk: Many bonds may be redeemed ("called") at the option of the
issuer before their stated maturity date. In general, an issuer will call
its bonds if they can be refinanced by issuing new bonds which bear a
lower interest rate. The Fund would then be forced to invest the
unanticipated proceeds at lower interest rates, resulting in a decline in
the Fund's income.
RISK THAT APPLIES PRIMARILY TO THE SMALL CAP GROWTH, REGIONAL GROWTH AND SCIENCE
AND TECHNOLOGY GROWTH FUNDS
- - Small Cap Stock Risk: Stocks of smaller companies may be subject to more
abrupt or erratic market movements than stocks of larger, more established
companies. Small companies may have limited product lines or financial
resources, or may be dependent upon a small or inexperienced management
group. In addition, small cap stocks typically are traded in lower volume,
and their issuers typically are subject to greater degrees of changes in
their earnings and prospects.
RISK THAT APPLIES PRIMARILY TO THE SCIENCE AND TECHNOLOGY GROWTH FUND
- - Technology Stock Risk: Stocks of science and technology companies may be
subject to greater price volatility than stocks of companies in other
sectors or the overall stock market. Science and technology companies may
produce or use products or services that prove commercially unsuccessful,
become obsolete or become adversely impacted by government regulation.
Technology stocks may experience significant price movements caused by
disproportionate investor optimism or pessimism. The Fund may be more
affected by events influencing these sectors than a fund that is more
diversified across numerous sectors.
RISK THAT APPLIES PRIMARILY TO THE REGIONAL GROWTH FUND
- - Risk of Geographic Limitation: Regional Growth Fund's policy of investing
primarily in a certain in a geographic region means that the Fund will be
subject to adverse economic, political or other developments in that
region. The region in which the Fund principally invests has a diverse
industrial base (including agriculture, mining, retail, transportation,
utilities, heavy and light manufacturing, financial services, insurance,
computer technology and medical technology), however, this industrial base
is not as diverse as that of the country as a whole. The Fund therefore
may be less diversified by industry and company than other funds with a
similar investment objective and no geographic limitation.
RISKS THAT APPLY PRIMARILY TO THE INTERNATIONAL GROWTH AND DEVELOPING MARKETS
GROWTH FUNDS
- - Risks of International Investing: International investing involves risks
not typically associated with domestic investing. Because of these risks,
and because of the Sub-Adviser's ability to invest substantial portions of
the Funds' assets in a small number of countries, the Funds may be subject
to greater volatility than mutual funds that invest principally in
domestic securities.
- - Currency Risk: The value of the Funds' securities computed in U.S. dollars
will vary with increases and decreases in exchange rates. A decline in the
value of any particular currency against the U.S. dollar will cause a
decline in the U.S. dollar value of a Fund's holdings of securities
denominated in that currency.
<PAGE>
- - Political and Economic Risk: Investing in securities of non-U.S. companies
may entail additional risks due to the potential political, social and
economic instability of certain countries, changes in international trade
patterns, the possibility of the imposition of exchange controls,
expropriation, limits on removal of currency or other assets and
nationalization of assets.
- - Foreign Tax Risk: Each Fund's income from foreign issuers may be subject
to non-U.S. withholding taxes. In some countries, the Funds also may be
subject to taxes on trading profits and, on certain securities
transactions, transfer or stamp duties tax. To the extent foreign income
taxes are paid by a Fund, U.S. shareholders may be entitled to a credit or
deduction for U.S. tax purposes. See the Statement of Additional
Information for details.
- - Risk of Investment Restrictions: Some countries, particularly developing
markets, restrict to varying degrees foreign investment in their
securities markets. In some circumstances, these restrictions may limit or
preclude investment in certain countries or may increase the cost of
investing in securities of particular companies.
- - Foreign Securities Market Risk: Securities of many non-U.S. companies may
be less liquid and their prices more volatile than securities of
comparable U.S. companies. Securities of companies traded in many
countries outside the U.S., particularly developing markets countries, may
be subject to further risks due to the inexperience of local brokers and
financial institutions, the possibility of permanent or temporary
termination of trading, and greater spreads between bid and asked prices
for securities. In addition, non-U.S. stock exchanges and brokers are
subject to less governmental regulation, and commissions may be higher
than in the United States. Also, there may be delays in the settlement of
non-U.S. stock exchange transactions.
- - Information Risk: Non-U.S. companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory requirements that apply to U.S. companies. As a result, less
information may be available to investors concerning non-U.S. issuers.
Accounting and financial reporting standards in developing markets may be
especially lacking.
- - Risks of Developing Markets: Investing in securities of issuers in
developing markets involves exposure to economic infrastructures that are
generally less diverse and mature than, and to political systems that can
be expected to have less stability than, those of developed countries.
Other characteristics of developing market countries that may affect
investment in their markets include certain governmental policies that may
restrict investment by foreigners and the absence of developed legal
structures governing private and foreign investments and private property.
The typical small size of the markets for securities issued by issuers
located in developing markets and the possibility of low or nonexistent
volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. In addition,
issuers in developing markets typically are subject to a greater degree of
change in earnings and business prospects than are companies in developed
markets.
- - Risks of Foreign Currency Hedging Transactions: If the Sub-Advisor's
forecast of exchange rate movements is incorrect, the Funds may realize
losses on its foreign currency transactions. In addition, the Funds'
hedging transactions may prevent the Funds from realizing the benefits of
a favorable change in the value of foreign currencies.
<PAGE>
PERFORMANCE
The following information illustrates how each Fund's performance has varied
over time, which is one indication of the risks of investing in a Fund. A Fund's
past performance does not necessarily indicate how it will perform in the
future. Each bar chart depicts the change in a Fund's performance from year to
year. The table depicts the Fund's average annual total returns for the periods
indicated. Both the charts and the tables assume that all distributions have
been reinvested.
BALANCED FUND
- ---------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- ---------------------------------------------
- -0.33% 25.43% 15.80% 21.73% 21.30%
1994 1995 1996 1997 1998
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 5.30%.
BEST QUARTER: 14.00% (4th Q 1998) WORST QUARTER: -7.32% (3rd Q 1998)
- ----------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- ----------------------------------------------------------------------
Since Inception
1-Year 5-Year (12/1/93)
------ ------ ---------
BALANCED FUND 21.30% 16.40% 16.40%
Lehman Aggregate Bond Index(1) 8.69% 7.27% 7.27%
S&P 500 Index(2) 28.58% 24.05% 24.05%
(1) An unmanaged index which measures the performance of U.S. investment-grade
bonds. It is composed of investment-grade securities from the Lehman
Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the
Asset-Backed Securities Index.
(2) An unmanaged index which measures the performance of 500 widely held
common stocks of large-cap companies.
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Total Return for the Calendar Years Ended 12/31(1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32.02% -2.37% 32.72% 4.94% 3.15% 2.83% 31.66% 23.05% 31.70% 30.56%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 8.63%.
BEST QUARTER: 22.54% (4th Q 1998) WORST QUARTER: -13.54% (3rd Q 1998)
- ---------------------------------------------------------------
Average Annual Total Return as of 12/31/98
- ---------------------------------------------------------------
1-Year 5-Years 10-Years
------ ------- --------
LARGE CAP GROWTH FUND 30.56% 23.43% 18.16%
Russell 1000 Growth Index(1) 38.72% 25.70% 20.57%
S&P 500 Index(2) 28.58% 24.06% 19.21%
(1) An unmanaged index which measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
(2) An unmanaged index which measures the performance of 500 widely held
common stocks of large-cap companies.
<PAGE>
REGIONAL GROWTH FUND
- -----------------------------------------------
Total Returns for Calendar Years Ended 12/31(1)
- -----------------------------------------------
23.05%
1998
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 7.25%.
BEST QUARTER: 27.65% (4th Q 1998) WORST QUARTER: -14.39% (3rd Q 1998)
- ---------------------------------------------------
Average Annual Total Returns as of 12/31/98
- ---------------------------------------------------
Since Inception
1-year (12/31/97)
------ ----------
REGIONAL GROWTH FUND 23.05% 23.05%
Russell 3000 Index(1) 24.15% 24.15%
S&P 500 Index(2) 28.58% 28.58%
(1) An unmanaged index which measures the performance of the 3,000 largest
U.S. companies based on total market capitalization.
(2) An unmanaged index which measures the performance of 500 widely held
common stocks of large-cap companies.
MID CAP GROWTH FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35.15% -2.04% 65.50% -2.14% 8.55% -0.47% 33.64% 21.87% 17.70% 6.84%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 12.36%.
BEST QUARTER: 28.89% (1st Q 1991) WORST QUARTER: -19.10% (3rd Q 1998)
- -----------------------------------------------------------------
Average Annual Total Return as of 12/31/98
- -----------------------------------------------------------------
1-Year 5-Years 10-Years
------ ------- --------
MID CAP GROWTH FUND 6.84% 15.31% 16.85%
Russell MidCap Growth Index(1) 17.87% 17.34% 17.30%
S&P MidCap 400 Index(2) 19.11% 18.84% 19.29%
(1) An unmanaged index which measures the performance of those Russell Midcap
companies with higher price-to-book ratios and higher forecasted growth
values. The stocks are also members of the Russell 1000 Growth index.
(2) An unmanaged index which measures the performance of 400 widely held
common stocks of mid-cap companies.
INTERNATIONAL GROWTH FUND
- ----------------------------------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- ----------------------------------------------------------------------
4.10%(2) 2.69% 48.37% -2.99% 9.36% 10.31% 4.81% 18.95%
1991 1992 1993 1994 1995 1996 1997 1998
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 1.73%.
(2) Period from Fund inception (11/1/91) through calendar year end.
BEST QUARTER: 19.97% (4th Q 1998) WORST QUARTER: -14.37% (3rd Q 1998)
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- --------------------------------------------------------------------------------
Since Inception
1-Year 5-Year (11/1/91)
------ ------ ---------
INTERNATIONAL GROWTH FUND 18.95% 7.85% 12.41%
Morgan Stanley Capital Int'l EAFE Index(1) 20.00% 9.19% 8.64%
Lipper International Fund Index(2) 12.65% 8.59% 10.64%
(1) An unmanaged index which measures the performance of international
companies screened for liquidity, cross ownership, and industry
representation.
(2) An equally weighted index composed of the largest mutual funds, within the
international fund classification, adjusted for the reinvestment for
capital gains distributions and income dividends. International funds are
those funds that invest fund assets in securities with primary trading
markets outside of the United States.
SMALL CAP GROWTH FUND
- ----------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- ----------------------------------------------
11.57%(2) 52.16% 14.97% 7.63% 1.97%
1994 1995 1996 1997 1998
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 13.47%.
(2) Period from Fund inception (7/1/94) through calendar year end.
BEST QUARTER: 20.24% (3rd Q 1995) WORST QUARTER: -17.05% (3rd Q 1998)
- ----------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- ----------------------------------------------------------
Since Inception
1-year (7/1/94)
------ --------
SMALL CAP GROWTH FUND 1.97% 18.43%
Russell 2000 Index(1) -2.54% 14.86%
Russell 2000 Growth Index(2) 1.24% 14.06%
(1) An unmanaged index which measures the performance of the 2,000 smallest
companies in the Russell 3000 Index (an index of the 3,000 largest U.S.
companies based on total market capitalization).
(2) An unmanaged index which measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
SCIENCE AND TECHNOLOGY GROWTH FUND
- -----------------------------------------------
Total Returns for Calendar Years Ended 12/31(1)
- -----------------------------------------------
38.40%
1998
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 10.04%.
BEST QUARTER: 25.48% (4th Q 1998) WORST QUARTER: -6.29% (3rd Q 1998)
<PAGE>
- ---------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- ---------------------------------------------------------------------------
Since Inception
1-year (12/31/97)
------ ----------
SCIENCE AND TECHNOLOGY GROWTH FUND 38.40% 38.40%
S&P 500 Index(1) 28.58% 28.58%
Pacific Stock Exchange Technology 100 Index 54.60% 54.60%
(1) An unmanaged index which measures the performance of 500 widely held
common stocks of large-cap companies. Since the Fund's inception, the
Pacific Stock Exchange Technology 100 Index ("PSE Tech 100 Index") was
used to compare performance, however, the Adviser now believes the S&P 500
Index to be a more appropriate broad-based securities market index with
which to compare performance, for two main reasons: The Fund contains a
significant amount of health care stocks, unlike the PSE Tech 100 Index,
and the S&P 500 Index is the most commonly used Index for Science &
Technology sector funds.
DEVELOPING MARKETS GROWTH FUND
- -------------------------------------------------
Total Return for Calendar Years Ended 12/31(1)
- -------------------------------------------------
- -2.02%(2) -4.29% 17.27% -5.20% -24.93%
1994 1995 1996 1997 1998
(1) The Fund's year-to-date return as of 6/30/99 (not annualized) was 28.44%.
(2) Period from Fund inception (7/1/94) through calendar year end.
BEST QUARTER: 12.32% (2nd Q 1997) WORST QUARTER: -23.09% (3rd Q 1998)
- ------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- ------------------------------------------------------------------
Since Inception
1-year (7/1/94)
------ --------
DEVELOPING MARKETS GROWTH FUND -24.93% -5.29%
MSCI Emerging Markets Free Index(1) -27.52% -9.94%
Lipper Emerging Market Fund Index(2) -26.87% -7.56%
(1) An unmanaged index which measures the performance of over 1,000
international emerging companies representing the stock markets of over 25
countries.
(2) An equally weighted index composed of the largest mutual funds within the
emerging market fund classification, adjusted for the reinvestment for
capital gains distributions and income dividends. Emerging market funds
are those funds that seek long-term capital appreciation by investing at
least 65% of total assets in emerging market equity securities, where
"emerging market" is defined by a country's GNP per capita or other
economic measures.
<PAGE>
FEES AND EXPENSES
This table shows fees and expenses that you may pay if you buy and hold shares
of the Funds. All Sit Mutual Funds are 100% no-load investments, so you will not
pay any shareholder fees such as sales loads, redemption fees or exchange fees
when you buy or sell shares of the Funds. However, when you hold shares of a
Fund you indirectly pay a portion of the Fund's operating expenses. These
expenses are deducted from Fund assets.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment) None
- ------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AS A % OF AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------
Management Distribution Other Total Annual
Fees (12b-1) Fees Expenses Fund Operating
Expenses
<S> <C> <C>
Balanced 1.00% None None 1.00%
Large Cap Growth 1.00% None None 1.00%
Regional Growth 1.25%(1) None None 1.25%(1)
Mid Cap Growth 1.25%(1) None None 1.25%(1)
International Growth 1.85%(1) None None 1.85%(1)
Small Cap Growth 1.50% None None 1.50%
Science and Technology Growth 1.50%(1) None None 1.50%(1)
Developing Markets Growth 2.00% None None 2.00%
</TABLE>
(1) Management fee does not reflect the Adviser's waiver of fees. Actual
expenses are lower than those shown in the table because of voluntary fee
waivers by the Adviser. As a result of the fee waiver, actual management fees
paid by the Regional Growth, Mid Cap Growth, International Growth, and Science
and Technology Growth Funds were 1.00%, 1.00% 1.50%, and 1.25%, respectively, of
the Fund's average daily net assets. After December 31, 2000, the fee waivers
may be terminated at any time by the Adviser.
EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
(before the fee waiver) with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in a Fund for the time periods indicated (with
reinvestment of all dividends and distributions), that your investment has a 5%
return each year, that the Fund's operating expenses remain the same, and that
you redeem all of your shares at the end of those periods. Although your actual
costs and returns may differ, based on these assumptions your costs would be:
1-Year 3-Years 5-Years 10-Years
------ ------- ------- --------
Balanced $103 $320 $555 $1,229
Large Cap Growth $103 $320 $555 $1,229
Regional Growth $128 $399 $690 $1,518
Mid Cap Growth $128 $399 $690 $1,518
International Growth $190 $587 $1,009 $2,184
Small Cap Growth $154 $477 $824 $1,801
Science and Technology Growth $154 $477 $824 $1,801
Developing Markets Growth $205 $633 $1,087 $2,345
<PAGE>
- --------------------------------------------------------------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Sit Investment Associates, Inc. (the "Adviser"), 4600 Norwest Center,
Minneapolis, Minnesota 55402, is the Funds' investment adviser. The Adviser was
founded in 1981 and provides investment management services for both public and
private clients. As of June 30, 1999, the Adviser had approximately $7.7 billion
in assets under management, including approximately $2 billion for the 13 Sit
Mutual Funds.
Under Investment Management Agreements between each Fund and the Adviser (the
"Agreements"), the Adviser manages each Fund's business and investment
activities, subject to the authority of the board of directors. The Agreements
require the Adviser to bear each Fund's expenses except interest, brokerage
commissions and transaction charges and certain extraordinary expenses. Each
Fund pays the Adviser a monthly fee for its services. During their most recent
fiscal year, after taking into account voluntary fee waivers, the Funds paid the
following advisory fees to the Adviser:
Advisory fee as a % of
Fund average daily net assets
- ---- ------------------------
Balanced Fund 1.00%
Large Cap Growth Fund 1.00%
Regional Growth Fund 1.00%(1)
Mid Cap Growth Fund 1.00%(1)
International Growth Fund 1.50%(1)
Small Cap Growth Fund 1.50%
Science and Technology Growth Fund 1.25%(1)
Developing Markets Growth Fund 2.00%
(1) Net of voluntary fee waivers. After December 31, 2000, these voluntary
fee waivers may be discontinued by the Adviser in its sole discretion. The
contractual fees (without waivers) for the Regional Growth, Mid Cap
Growth, International Growth, and Science and Technology Growth Funds are
1.25%, 1.25%, 1.85%, and 1.50%, respectively, per year of the Fund's
average daily net assets.
INVESTMENT SUB-ADVISER
Sit/Kim International Investment Associates, Inc. (the "Sub-Adviser"), 4600
Norwest Center, Minneapolis, Minnesota 55402, is the Sub-Adviser for the
Developing Markets Growth and International Growth Funds. The Sub-Adviser was
founded in 1989 and is a majority owned subsidiary of the Adviser. The
Sub-Adviser is an international investment management firm and as of June 30,
1999, had approximately $891 million in assets under management. The Sub-Adviser
has offices in New York and San Francisco and has consulting relationships in
Beijing, Hong Kong and Seoul.
Under a Sub-Advisory Agreement with the Adviser, the Adviser pays the
Sub-Adviser a portion of its advisory fee for managing the Developing Market
Growth and International Growth Funds' business and investment activities.
PORTFOLIO MANAGEMENT
The Funds' investment decisions are made by a team. Eugene C. Sit is the
Adviser's Chief Investment Officer and oversees the investment decisions for the
Funds. Peter L. Mitchelson is the Adviser's President and Chief Strategist.
Roger J. Sit is the Adviser's Executive Vice President - Research and Investment
Management. Mr. Eugene C. Sit and Mr. Mitchelson have been with the Adviser and
each of the Funds since their inception. Mr. Roger Sit joined the Adviser in
early 1998 with 13 years of investment management experience.
<PAGE>
Sit/Kim International Investment Associates, Inc. is the Sub-Adviser for the
International Growth Fund and the Developing Markets Growth Fund. Eugene C. Sit
is the Sub-Adviser's Chief Investment Officer. Roger J. Sit and Andrew B. Kim
are Deputy Chief Investment Officers of the Sub-Adviser. Mr. Eugene Sit and Mr.
Kim have been with the Sub-Adviser and the international funds since their
inception. Mr. Roger Sit joined the Adviser in early 1998 with 13 years of
investment management experience.
DISTRIBUTOR
SIA Securities Corp. (the "Distributor"), an affiliate of the Adviser, is the
distributor for the Funds. The Distributor markets the Funds' shares only to
certain institutional and individual investors and all other sales of the Funds'
shares are made by each Fund.
The Distributor or the Adviser may enter into agreements under which various
brokerage firms provide administrative services for customers who are beneficial
owners of shares of the Funds. The Distributor or Adviser may compensate these
firms for the services provided, with compensation based on the aggregate assets
of customers that are invested in the Funds.
CUSTODIAN AND TRANSFER AGENT
The Northern Trust Company, located at 50 LaSalle Street, Chicago, IL 60675, is
the Custodian for the Funds.
[*Sidebar:] The Custodian holds the Funds' securities
and cash, receives and pays for securities purchased,
delivers against payment for securities sold, receives
and collects income from investments and performs other
administrative duties.
First Data Investor Services Group, Inc., located at 4400 Computer Drive,
Westboro, MA 01581, is the Transfer Agent for the Funds.
[*Sidebar:] The Transfer Agent processes purchase
orders, redemption orders and handles all related
shareholder accounting services.
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
SHARE PRICE
Your price for purchasing, selling, or exchanging shares is based on the Fund's
net asset value (NAV) per share, which is calculated as of the close of regular
trading on the New York Stock Exchange (generally 3:00 p.m. Central time) every
day the exchange is open. The NAV per share of the other Funds will fluctuate.
[*Sidebar]: A Fund's share price or NAV is determined by
adding the total value of a Fund's investments and other
assets (including accrued income), subtracting its
liabilities, and then dividing that figure by the number
of outstanding shares of the Fund.
NAV is based on the market value of the securities in a fund's portfolio. When
market value prices are not readily available, fair value is determined in good
faith by the Adviser using methods approved by the board of directors.
Short-term debt securities maturing in less than 60 days are valued at amortized
cost. The amortized cost method of valuation initially values a security at its
purchase cost, then consistently adjusts the cost value by
<PAGE>
amortizing/accreting any discount or premium paid until the security's maturity
without regard to fluctuating interest rates.
WHEN ORDERS ARE EFFECTIVE
Purchase, exchange, and sale orders are received and may be accepted by Sit
Mutual Funds only on days the New York Stock Exchange ("NYSE") is open.
PURCHASE, EXCHANGE, AND SALE ORDERS RECEIVED PRIOR TO THE CLOSE OF THE NYSE
(GENERALLY 3:00 P.M. CENTRAL TIME) ARE INVESTED OR SOLD AT THE NET ASSET VALUE
PER SHARE CALCULATED FOR THAT BUSINESS DAY, EXCEPT PURCHASES MADE TO AN EXISTING
ACCOUNT VIA AUTOMATED CLEARING HOUSE, "ACH," ELECTRONIC TRANSFER OF FUNDS. ACH
PURCHASES ARE INVESTED AT THE NET ASSET VALUE PER SHARE ON THE NEXT BUSINESS DAY
AFTER YOUR TELEPHONE CALL TO THE FUNDS IF YOU CALL THE FUNDS PRIOR TO THE CLOSE
OF THE NYSE. Your bank account will be debited within 1 to 2 business days.
IF YOUR PURCHASE, EXCHANGE, OR SALE ORDER IS RECEIVED AFTER THE CLOSE OF THE
NYSE, THE PURCHASE, EXCHANGE OR SALE WILL BE MADE AT THE NET ASSET VALUE
CALCULATED ON THE NEXT DAY THE NYSE IS OPEN.
The Funds may reject or restrict any purchase or exchange order at any time,
when, in the judgment of management, it is in the best interests of the Funds.
For example, it may be in the best interests of the Funds to reject purchase and
exchange orders that are short-term or restrict excessive trading into and out
of the Funds since such orders may harm performance by disrupting portfolio
management strategies and increasing expenses.
PURCHASING SHARES
Shares of the Funds may be purchased on any day the NYSE is open with a minimum
initial investment of $2,000. If you establish an on-going Automatic Investment
Plan, the minimum initial investment is $500. If you open a retirement,
education, or UGMA or UTMA account, there is no minimum initial investment
amount.
Once an account is opened, additional investments must be at least $100, except
for retirement, education, and UGMA / UTMA accounts which have no minimum
additional investment amount.
INITIAL PURCHASE BY MAIL
You may complete and sign an account application and mail it to the Funds as
instructed on the application. Enclose a check made payable to Sit Mutual Funds.
Third party checks are not accepted.
INITIAL PURCHASE BY WIRE
You may have your bank wire Federal Funds to purchase shares of the Funds. Your
bank may charge you a wire fee. Before money is wired for an initial purchase
(new account), you must fax a copy of a completed account application to Sit
Mutual Funds. The Funds will provide you with an account number and wiring
instructions.
After opening an account by wire transfer, you must mail the completed account
application containing original signatures to Sit Mutual Funds. If a completed
application is not received or your social security or tax identification number
is not certified with a Form W-9, your account will be subject to back-up
withholding within 60 days.
Any delays which may occur in wiring money, including delays which may occur in
processing by the banks, are not the responsibility of the Funds or the Funds'
Transfer Agent.
[*Sidebar:] Questions?
Call 1-800-332-5580
or 612-334-5888
<PAGE>
ADDITIONAL PURCHASES BY MAIL
You may make additional purchases by mailing the investment slip attached to
your account confirmation statement or a letter of instruction containing your
account number and the name(s) on the account, together with a check made
payable to Sit Mutual Funds. INVESTMENT SLIPS ARE ELECTRONICALLY CODED AND ARE
NOT INTERCHANGEABLE AMONG FUNDS. To open an account in account in a new Fund,
refer to procedures outlined above in "Initial Purchase by Mail."
ADDITIONAL PURCHASES BY WIRE
You may make additional purchases by wiring funds according to the wire
instructions on the back cover of this prospectus. After you have initiated the
wire purchase through your bank, notify Sit Mutual Funds that a wire purchase is
being made to your account.
ADDITIONAL PURCHASES BY ACH
You may make additional purchases via electronic transfer of funds if you have
selected this option on the account application. To add this option to an
existing account, complete the Change of Account Options form. This option will
begin within 10 days of the Fund's receipt of the change form. To place an ACH
purchase order, call an Investor Services Representative at 1-800-332-5580. Your
purchase will be invested at the net asset value per share on the next business
day after your telephone call to the Funds if you call prior to the close of the
NYSE, generally 3:00 p.m. Central time.
ADDITIONAL PURCHASES BY AUTOMATIC INVESTMENT PLAN
You may make additional purchases automatically on any day of the month if you
have completed the Automatic Investment Plan section of the account application.
To add this option to an existing account, complete the Change of Account
Options form. This option will begin within 10 days of the Fund's receipt of the
change form. You can change the amount or terminate this option by written
notice to the Funds at any time.
EXCHANGING SHARES
You may sell shares of one Fund and use the proceeds to buy shares of another
Sit Mutual Fund, at no cost. Before making an exchange, you should read the
prospectus and consider the investment objective of the Fund to be purchased.
An exchange of shares is a sale for federal income tax purposes and you may have
a taxable capital gain or loss.
You may make an exchange to an existing account or to a new account. If your
exchange creates a new account, the new account ownership must be identical and
you must satisfy the minimum initial investment amount.
EXCHANGE BY TELEPHONE
You may exchange shares between the Funds by telephone. The exchange privilege
is automatically established when you open your account, unless you indicate
that you do not want the exchange privilege.
EXCHANGE BY MAIL
You may exchange shares between the Funds by written request to the Funds. A
written request must be signed by all registered owners of the account.
EXCHANGE BY AUTOMATIC EXCHANGE PLAN
You may exchange fixed periodic amounts from one Fund to another Fund on any
business day of the month if you have completed the Automatic Exchange section
of the account application. An exchange may be done monthly, or you may choose
which months you wish to have the exchange made. To add this option to an
existing account, complete the Change of Accounts Options form.
<PAGE>
EXCHANGE BY AUTOMATIC EXCHANGE PLAN
You may exchange shares between the Funds by using the automated telephone line
at 1-800-332-5580 and following the instructions. You should have your personal
identification number, account number, and fund numbers available.
SELLING SHARES
You may sell all or a portion of your shares on any day when the NYSE is open,
at no cost. You may receive more or less than your cost depending on the market
value of the Fund's securities. A request to sell cannot be canceled or revoked.
SELL BY MAIL
You may sell shares by sending a written request to Sit Mutual Funds that
includes the following information:
- - Name of the Fund;
- - Name(s) on the account;
- - Account number;
- - Dollar amount or number of shares to be redeemed;
- - Other supporting legal documents as required for estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations;
- - Directions specifying whether you want to receive the proceeds by mail,
fed wire or ACH (see "Payment of Sale Proceeds" below for additional
information you must include in your written request);
- - Signatures of all registered account owners, exactly as their names appear
on the account. THE SIGNATURE MUST BE GUARANTEED IF:
(a) You would like the proceeds from the sale to be paid to anyone other
than the registered account owner(s), or
(b) You would like the check mailed to an address other than the
registered address, or
(c) You want the proceeds sent via bank wire to a bank different than
the bank authorized by you on your account application.
[*Sidebar]: A signature guarantee assures that a
signature is genuine a and protects shareholders from
unauthorized account transfers. Most banks, brokerage
firms, and other financial institutions guarantee
signatures.
[*Sidebar]: Call your financial institution to determine
if it has this capability. A notary public stamp or seal
cannot be substituted for a signature guarantee.
You will receive the proceeds from the sale of shares according to the method
you indicate in your written request - either by mail, wire or ACH.
SELL BY TELEPHONE
You may sell shares, up to $50,000 per day, by calling Sit Mutual Funds if you
completed the Banking Authorization section and the Telephone Redemption section
of the account application for each account that you want the option. To add
this option to an existing account, or to change your banking information
provided on the application, you must complete a Change of Account Options form.
A signature guarantee is required with the change form if you are changing the
address or bank account to where we will send your redemption proceeds. The
$50,000 limitation does not apply to omnibus accounts. For purposes of this
limitation, accounts with the same registration in different Funds will be
aggregated.
You will receive the proceeds from the sale of shares according to the method
you chose in the Telephone Redemption section of the account application -
either by mail, wire, or ACH.
<PAGE>
SELL BY AUTOMATIC WITHDRAWAL PLAN
You may sell shares through an Automatic Withdrawal Plan and receive sales
proceeds of at least $100 on a monthly, quarterly, semi-annual or annual basis
if you have completed the Special Services section of the account application.
To add this option to an existing account, you must complete the Change of
Accounts Options form. This option will begin within 10 days of the Fund's
receipt of the change form. Automatic withdrawals may eventually exhaust your
account. Each withdrawal constitutes a sale for federal income tax purposes and
you may have a taxable capital gain or loss.
You will receive the proceeds from the sale of shares according to the method
you chose in the Special Services section of the account application - either by
mail or ACH.
PAYMENT OF SALE PROCEEDS
Your sale proceeds generally will be paid as soon as possible, generally not
later than seven business days after receipt of a request to sell. HOWEVER, IF
YOUR SHARES WERE RECENTLY PURCHASED WITH NONGUARANTEED FUNDS, SUCH AS A PERSONAL
CHECK, AND YOU REQUEST TO SELL SHARES OR YOU WRITE A DRAFT ON YOUR ACCOUNT, YOUR
SALES PROCEEDS CHECK MAY BE DELAYED UNTIL YOUR CHECK CLEARS, WHICH MAY TAKE UP
TO 15 DAYS, OR THE FUND MAY RETURN YOUR DRAFT. YOU MAY AVOID THIS DELAY BY
PURCHASING SHARES WITH A BANK WIRE OF FEDERAL FUNDS.
You may receive proceeds from the sale of your shares in one of three ways:
1. BY MAIL. AVAILABLE FOR SALES INITIATED BY A WRITTEN OR TELEPHONE REQUEST
OR AN AUTOMATIC WITHDRAWAL PLAN. We can mail a check of the proceeds from
the sale of shares to your address of record. If you would like the check
mailed to an address other than the address of record, you must submit a
written sales request which includes the alternative address and a
SIGNATURE GUARANTEE. Your check will generally be mailed to you within 7
business days after receipt of your request to sell.
2. BY WIRE. AVAILABLE FOR SALES INITIATED BY A WRITTEN OR TELEPHONE REQUEST.
We can transmit the proceeds from the sale of shares by wire to your bank
account. If you have not provided wire instructions with the banking
information on your application, or if the wire instructions are different
than previously provided, you must submit a written sales request which
includes wire instructions, the bank's address, and a SIGNATURE GUARANTEE.
Your bank account usually will be credited within 1 to 2 business days
after the Funds receive your written or telephone request to sell shares.
The Funds' bank charges a wire fee (currently $8) which will be deducted
from the balance of your account or from the amount being wired if your
account has been completely redeemed. The recipient bank may also charge a
wire fee.
3. BY ACH. AVAILABLE FOR SALES INITIATED BY A WRITTEN REQUEST, TELEPHONE
REQUEST, OR AUTOMATIC WITHDRAWAL PLAN. We can send ACH proceeds from the
sale of shares for non-IRA accounts to your bank account. Your bank
account usually will be credited within 1 to 2 business days after the
Funds receive your request to sell shares.
INVOLUNTARY REDEMPTIONS
If your account balance in a Fund falls below $2,000 as a result of selling or
exchanging shares, the Fund has the right to redeem your shares and send you the
proceeds. Before redeeming your account, the Fund will mail you a notice of its
intention to redeem, which will give you an opportunity to make an additional
investment. If you do not increase the value of your account to at least $2,000
within 30 days of the date the notice was mailed, the Fund may redeem your
account. The $2,000 minimum balance requirement does not apply to retirement,
education, UGMA or UTMA accounts, or if you have established an on-going
Automatic Investment Plan.
INVESTING THROUGH A THIRD PARTY
There is no charge to invest, exchange, or sell shares when you make
transactions directly through Sit Mutual Funds.
<PAGE>
If you invest in the Funds through a third party, rather than directly with Sit
Mutual Funds, the fees and policies may be different than described in this
Prospectus. Banks, brokers, 401(k) plans, financial advisors, and financial
supermarkets may charge commissions and transaction fees and may set different
minimum investments or limitations on purchasing or selling shares. Consult a
representative of your plan or financial institution if you are unsure of their
fees and policies.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a Fund's net investment income are declared daily and paid
monthly. Net investment income includes dividends on stocks and interest earned
on bonds or other debt securities less operating expenses.
Capital gains, if any, are distributed at least once a year by each Fund. A
capital gain occurs if a Fund sells portfolio securities for more than its cost.
Dividend and capital gain distributions are automatically reinvested in
additional shares of the Fund paying the distribution at the net asset value per
share on the distribution date. However, you may request that distributions be
automatically reinvested in another Sit Mutual Fund, or paid in cash. Such
requests may be made on the application, Change of Accounts Options form, or by
written notice to Sit Mutual Funds. You will receive a quarterly statement
reflecting the dividend payment and, if applicable, the reinvestment of
dividends. If cash payment is requested, an ACH transfer will be initiated, or a
check normally will be mailed within five business days after the payable date.
If the check cannot be delivered because of an incorrect mailing address, the
undelivered distributions and all future distributions will automatically be
reinvested in Fund shares. No interest will accrue on uncashed distribution,
dividend, or sales proceeds checks.
RETIREMENT AND OTHER TAX-DEFERRED ACCOUNTS
Taxes on current income can be deferred by investing in Keogh plans, Individual
Retirement Accounts (IRAs), Simplified Employee Pensions (SEPs), 401(k),
pension, profit-sharing, employee benefit, deferred compensation and other
qualified retirement plans.
The Funds are available for your tax-deferred retirement plan with no minimum
investment requirements for initial or subsequent contributions. Such retirement
plans must have a qualified plan sponsor or trustee. The Adviser sponsors
prototype 401(k), profit sharing, and money purchase plans as well as IRA,
SEP-IRA and Keogh plans. You should contact the Adviser for specific plan
documentation.
The Funds are also available for Education IRAs, which are vehicles for saving
for post-secondary education on a tax-deferred basis. Contributions to an
Education IRA cannot be made after the minor turns age 18, and are not
deductible for tax purposes.
The federal tax laws governing these tax-deferred plans must be complied with to
avoid adverse tax consequences. You should consult your tax adviser before
investing.
TAXES
Some of the tax consequences of investing in the Funds are discussed below. More
information about taxes is in the Statement of Additional Information. However,
because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
TAXES ON DISTRIBUTIONS
Each Fund pays its shareholders distributions from its net investment income and
any net capital gains that it has realized. For most investors, these
distributions will be taxable, whether paid in cash or reinvested.
<PAGE>
Distributions paid from a Fund's net investment income and short-term capital
gains, if any, are taxable as ordinary income. Distributions paid from a Fund's
long-term capital gains, if any, are taxable as long-term capital gains,
regardless of how long you have held your shares (unless your investment is in
an IRA or other tax-advantaged account).
TAXES ON TRANSACTIONS
The sale or exchange of your shares in a Fund is a taxable transaction, and you
may incur a capital gain or loss on the transaction. If you held the shares for
more than one year, such gain or loss would be a long-term gain or loss. A gain
or loss on shares held for one year or less is considered short-term and is
taxed at the same rates as ordinary income.
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
OTHER SECURITIES, INVESTMENT PRACTICES, AND POLICIES
The principal investment strategies and risk factors of each Fund are outlined
in the section entitled "Fund Summaries." Below are brief discussions of certain
other investment practices of the Funds, and certain additional risks of
investing in the Funds. Each Fund may invest in securities and use investment
strategies that are not described in this Prospectus but are described in the
Statement of Additional Information.
DURATION
Duration measures how much the value of a security is expected to change with a
given change in interest rates. Effective duration is one means used to measure
interest rate risk. The longer a security's effective duration, the more
sensitive its price to changes in interest rates. For example, if interest rates
rise by one percent, the market value of a security with an effective duration
of two years would decrease by 2%, with all other factors being constant. The
Adviser uses several methods to compute duration estimates appropriate for
particular securities held in the Funds' portfolios. Duration estimates are
based on assumptions by the Adviser and subject to a number of limitations.
Duration is most useful when interest rate changes are small, rapid, and occur
equally in short-term and long-term securities. In addition, it is difficult to
calculate precisely for bonds with prepayment options, such as mortgage-related
securities, because the calculation requires assumptions about prepayment rates.
PORTFOLIO TURNOVER
The Funds may trade securities frequently, resulting, from time to time, in an
annual portfolio turnover rate of over 100%. Trading of securities may produce
capital gains, which are taxable to shareholders when distributed. Active
trading may also increase the amount of commissions or mark-ups to broker
dealers that the Fund pays when it buys and sells securities, which may decrease
the Fund's yield. The "Financial Highlights" section of this Prospectus shows
each Fund's historical portfolio turnover rate.
SECURITIES RATINGS
When debt securities are rated by one or more independent rating agencies, the
Adviser uses these ratings to determine bond quality. Investment-grade debt
securities are those that are rated within the four highest rating categories,
which are AAA, AA, A, and BBB by Standard & Poor's Corporation, Fitch IBCA, and
Duff & Phelps Credit Rating Company, and Aaa, Aa, A and Baa by Moody's Investor
Services. If a debt security's credit quality rating is downgraded after a
Fund's purchase, the Adviser will consider whether any action, such as selling
the security, is warranted.
INVESTMENT IN THE SIT MONEY MARKET FUND
Each Fund may invest up to 25% of its total net assets in shares of the money
market funds advised by the Adviser, which includes the Sit Money Market Fund,
subject to the conditions contained in an exemptive order issued to the Funds by
the Securities and Exchange Commission. These investments may be made in lieu of
direct investments in short-term money market instruments if the Adviser
believes that they are in the best interest of the Funds.
TEMPORARY DEFENSIVE INVESTING
For temporary defensive purposes in periods of unusual market conditions, each
Fund may invest all of its total assets in cash or short-term debt securities
including certificates of deposit, bankers' acceptances and other bank
obligations, corporate and direct U.S. obligation bonds, notes, bills,
commercial paper and repurchase agreements.
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about the shares of each
Fund. This information is intended to help you understand each Fund's financial
performance for the past five years (or, if shorter, the period of the Fund's
operations). Some of this information reflects financial results for a single
Fund share. The total returns in the tables represent the rate that you would
have earned or lost on an investment in a Fund, assuming you reinvested all of
your dividends and distributions. This information has been audited by KPMG LLP,
independent auditors, whose report, along with the Funds' financial statements,
is included in the Funds' annual report, which is available upon request.
SIT BALANCED FUND
<TABLE>
<CAPTION>
FISCAL 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 (000s 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.
<PAGE>
SIT LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-----------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $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 year $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 year (000s 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 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, $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%, (0.09%), and 0.07% ,
respectively.
<PAGE>
SIT REGIONAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of year $11.26 $10.00
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.01) .02
Net realized and unrealized gains (losses) on investments 1.94 1.24
- -----------------------------------------------------------------------------------------------
Total from operations 1.93 1.26
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income (.02) --
From realized gains -- --
- -----------------------------------------------------------------------------------------------
Total distributions (.02) .00
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of year $13.17 $11.26
- -----------------------------------------------------------------------------------------------
Total investment return (1) 17.21% 12.60%
- -----------------------------------------------------------------------------------------------
Net assets at end of year (000s omitted) $7,524 $4,982
RATIOS:
Expenses to average daily net assets 1.00%(2) 1.00%(2)
Net investment income to average daily 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 period ended June 30, 1999 and 1998, the
investment adviser voluntarily absorbed $14,845 and $3,611 in expenses
that were otherwise payable by the Fund. Had the Fund incurred these
expenses, the ratio of expenses to average daily net assets would have
been 1.25% for the period ended June 30, 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.
<PAGE>
SIT MID CAP GROWTH FUND
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $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 year $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 year (000s 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.
<PAGE>
SIT INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
FISCAL 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 gain 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 (000s 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.
<PAGE>
SIT SMALL CAP GROWTH FUND
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $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 year $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 year (000s 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 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.
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $11.77 $10.00
- -------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.07) (.01)
Net realized and unrealized gain 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 (000s omitted) $14,194 $4,858
RATIOS:
Expenses to average daily net assets 1.25%(2) 1.25%(2)
Net investment income (loss) to average daily 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 period 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 period 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.
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of year $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 year $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 year (000s 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 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.
<PAGE>
FOR MORE INFORMATION
FOR MORE INFORMATION ABOUT THE FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:
STATEMENT OF ADDITIONAL ANNUAL / SEMI-ANNUAL REPORT
INFORMATION The Funds' Annual and
The SAI contains more details Semi-Annual Reports include a
about the Funds and their discussion of the market
investment policies. The SAI is conditions and investment
incorporated in this Prospectus strategies that significantly
by reference. affected the Funds' performance.
TO REQUEST A COPY OF THE DOCUMENTS LISTED ABOVE, OR TO OBTAIN MORE INFORMATION
ABOUT THE FUNDS:
BY TELEPHONE: BY E-MAIL: ON THE INTERNET:
(800) 332-5580 [email protected] Visit our website at www.sitfunds.com
or Visit the SEC website at www.sec.gov
(612) 334-5888
BY REGULAR MAIL: BY EXPRESS MAIL:
Sit Mutual Funds Sit Mutual Funds
P. O. Box 5166 4400 Computer Drive
Westboro, MA 01581-5166 Westboro, MA 01581
TO WIRE MONEY FOR A PURCHASE:
Boston Safe Deposit & Trust, Boston, MA
ABA #011001234
DDA #056146
Sit Mutual Funds
For Further Credit: (Shareholder name)
Account Number: (Shareholder account #)
The SAI and the Funds' reports may also be reviewed at the Public Reference Room
of the Securities and Exchange Commission in Washington, D.C. You can get copies
free from the SEC's Website listed above, or by mail, for a fee, by calling the
SEC at 1-800-SEC-0330 or by writing the SEC's Public Reference Section, 450
Fifth Street NW, Washington, D.C. 20549-6009.
(SIT LOGO & TAG LINE)
1940 Act File Nos. 811-03342; 811-03343; 811-06373
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
SIT BALANCED FUND
SIT LARGE CAP GROWTH FUND, INC.
SIT REGIONAL GROWTH FUND
SIT MID CAP GROWTH FUND, INC.
SIT INTERNATIONAL GROWTH FUND
SIT SMALL CAP GROWTH FUND
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
SIT DEVELOPING MARKETS GROWTH FUND
4600 Norwest Center, 90 S. 7th Street
Minneapolis, Minnesota 55402-4130
www.sitfunds.com; e-mail: [email protected]
612-334-5888 -- 800-332-5580
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Funds' Prospectus. The financial statements included as
part of the Funds' Annual Report to shareholders for fiscal year ended June 30,
1999 are incorporated by reference into this Statement of Additional
Information. Copies of the Funds' Prospectus and/or Annual Report may be
obtained from the Funds without charge by contacting the Funds by telephone at
(612) 334-5888 or (800) 332-5580 or by mail at 4600 Norwest Center, 90 S.7th
Street, Minneapolis, Minnesota 55402-4130, or by visiting the SEC website at
www.sec.com. The date of this Statement of Additional Information is November 1,
1999, and it is to be used with the Funds' Prospectus dated November 1, 1999.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
----
FUND BACKGROUND............................................................. 2
ADDITIONAL INVESTMENT RESTRICTIONS
Balanced Fund............................................................ 3
Large Cap Growth Fund and Mid Cap Growth Fund............................ 4
Regional Growth Fund and Science and Technology Growth Fund.............. 5
International Growth Fund................................................ 5
Small Cap Growth Fund.................................................... 6
Developing Markets Growth Fund........................................... 7
COUNTRIES IN WHICH THE INTERNATIONAL GROWTH FUND MIGHT INVEST............... 8
COUNTRIES IN WHICH THE DEVELOPING MARKETS GROWTH FUND MIGHT INVEST.......... 9
INTERNATIONAL RISK CONSIDERATIONS........................................... 9
Investment and Repatriation Restrictions................................. 10
ADDITIONAL INVESTMENT OBJECTIVES, POLICIES & RISKS
Convertible Securities................................................... 11
Commercial Paper......................................................... 11
Obligations of the U.S. Government....................................... 11
Obligations of Banks..................................................... 11
International Bank Obligations........................................ 12
Depository Receipts...................................................... 12
Forward Foreign Currency Exchange Contracts.............................. 13
Options - Puts and Calls................................................. 13
When-Issued and Forward Commitment Securities............................ 13
Repurchase Agreements.................................................... 14
Futures Contracts, Options on Futures Contracts, and Swap Agreements..... 14
Additional Fixed-Income Securities in Which the Balanced Fund May Invest
Mortgage-Backed Securities............................................ 16
U.S. Treasury Inflation-Protection Securities......................... 18
Other Asset-Backed Securities......................................... 18
Municipal Securities.................................................. 19
<PAGE>
Collaterialized Mortgage Obligations.................................. 19
Variable Rate Notes................................................... 19
Zero Coupon Securities................................................ 19
Trust Preferred Securities............................................ 19
Illiquid Securities...................................................... 20
Ratings of Debt Securities............................................... 20
Sit Money Market Fund.................................................... 20
Diversification.......................................................... 21
Securities Lending....................................................... 21
ADDITIONAL INFORMATION ABOUT SELLING SHARES
Suspension of Selling Ability............................................ 22
Telephone Transactions................................................... 22
Redemption-In-Kind ...................................................... 22
COMPUTATION OF NET ASSET VALUE.............................................. 22
CALCULATION OF PERFORMANCE DATA............................................. 23
MANAGEMENT ................................................................. 24
INVESTMENT ADVISER.......................................................... 26
DISTRIBUTOR................................................................. 29
BROKERAGE .................................................................. 30
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................... 32
TAXES ...................................................................... 33
FINANCIAL STATEMENTS........................................................ 34
OTHER INFORMATION........................................................... 34
LIMITATION OF DIRECTOR LIABILITY............................................ 36
APPENDIX A - BOND AND COMMERCIAL PAPER RATINGS.............................. 38
FUND BACKGROUND
- --------------------------------------------------------------------------------
Sit Mutual Funds are managed by Sit Investment Associates, Inc., (the
"Adviser"). Sit Mutual Funds are comprised of thirteen 100% no-load funds. The
Statement of Additional Information contains the eight stock funds, which are:
Balanced Fund, large Cap Growth Fund, Regional Growth Fund, Mid Cap Growth Fund,
International Growth Fund, Small Cap Growth Fund, Science and Technology Growth
Fund, and the Developing Markets Growth Fund (collectively, the "Funds").
Each of the Funds (or the corporate issuer of their shares) is organized as a
Minnesota corporation. The Large Cap Growth Fund and Mid Cap Growth Fund were
incorporated on July 14, 1981. The corporate issuer of the International Growth
Fund, Balanced Fund, Developing Markets Growth Fund, Small Cap Growth Fund,
Science and Technology Growth Fund, and Regional Growth Fund was incorporated on
July 30, 1991.
ADDITIONAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment objectives and investment strategies of the Funds are set forth
in the Prospectus under "Fund Summaries". Certain additional investment
practices and risks of investing in the Funds are set forth below. In addition
to the restrictions in the Prospectus, each Fund is subject to other
restrictions which are fundamental and may not be changed without shareholder
approval. Shareholder approval, as defined in the Investment Company Act of
1940, means the lesser of the vote of (a) 67% of the shares of a Fund at a
meeting where more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (b) more than 50% of the outstanding shares of a Fund. A
percentage limitation must be met at the time of investment and a later
deviation resulting from a change in values or net assets will not be a
violation.
2
<PAGE>
BALANCED FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following fundamental investment restrictions. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase or sell commodities or commodity futures, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities;
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6;
9. Invest less than 25% of the fixed-income portion of its portfolio in
fixed-income senior securities; or
10. Invest in a portfolio that is not balanced between equity securities and
fixed-income securities.
The following investment restrictions of the Fund are not fundamental. The Fund
will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
3. Purchase or retain securities of any issuer if to the knowledge of the
Fund, officers and directors of either the Fund its investment adviser
beneficially owning more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest more than 10% of its net assets in securities of issuers which, with
their predecessors have a record of less than three years continuous
operation. Securities of such issuers will not be deemed to fall within
this limitation if they are guaranteed by an entity in continuous operation
for more than three years;
5. Invest for the purpose of exercising control or management;
6. Enter into reverse repurchase agreements;
7. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
8. Invest in more than 10% of the outstanding voting securities of any one
issuer;
9. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
10. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York or American Stock Exchanges. For this purpose, warrants acquired
by the Fund in units or attached to other securities will be deemed to be
without value;
11. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings;
12. Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options;
13. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 10% of the Fund's total assets;
14. Invest more than 25% of the fixed-income portion of its portfolio in debt
securities that are rated below investment grade; or
15. Invest less than 40% and not more than 60% of its assets in equity
securities and no less than 40% and not more than 60% of its assets in
finxed-income securities, under normal circumstances.
3
<PAGE>
LARGE CAP GROWTH FUND AND MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Large Cap Growth Fund and Mid Cap Growth Fund are subject to the following
fundamental investment restrictions. The Funds will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
3. Invest more than 10% of the Fund's net assets in securities of companies
which have (with their predecessors) a record of less than five years
continuous operation;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33-1/3%
of the Fund's total net assets.
6. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York or American Stock Exchanges. For this purpose, warrants acquired
by the Fund in units or attached to other securities will be deemed to be
without value;
7. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions;
8. Concentrate more than 25% of its net assets in any one industry, provided
that (i) there shall be no limitation on the purchase of obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities and
(ii) utility companies will be classified according to their services, for
example, water, gas, electric and communications, and each will be
considered a separate industry;
9. Purchase or retain the securities of any issuer if, in total, the holdings
of all officers and directors of the Fund and of its investment adviser,
who individually own beneficially more than 0.5% of such securities,
together own more than 5% of such securities;
10. Invest for the purpose of controlling management of any company;
11. Invest in commodities or commodity futures contracts or in real estate,
although it may invest in securities which are secured by interests in real
estate and in securities of companies which invest or deal in real estate;
12. Invest in exploration or development for oil, gas or other minerals,
although it may invest in the securities of issuers which deal in or
sponsor such activities;
13. Underwrite the securities of other issuers;
14. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 5;
15. Invest more than 15% of its net assets collectively in all types of
illiquid securities; or
16. Invest less than 65% of its total assets in common stocks of growth
companies.
The following investment restrictions of the Funds are not fundamental and may
be changed by the Board of Directors of the Funds. The Funds will not:
1. Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options;
2. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 5% of the Fund's net assets;
3. Pledge, mortgage, hypothecate, or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings; or
4. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission.
4
<PAGE>
REGIONAL GROWTH FUND AND SCIENCE AND TECHNOLOGY GROWTH FUND
- --------------------------------------------------------------------------------
The Funds are subject to the following fundamental investment restrictions. The
Funds will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase or sell commodities or commodity futures, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments, and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities;
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6;
9. The Regional Growth Fund will not invest less than 80% of its total assets
in common stocks of companies with their headquarters in Minnesota, Iowa,
Missouri, North Dakota, South Dakota, Nebraska, Kansas, Wisconsin,
Illinois, Michigan, Indiana and Ohio, under normal conditions.; or
10. The Science and Technology Growth Fund will not invest less than 80% of its
total assets in common stocks of companies the Adviser expects to benefit
from the development, improvement, advancement and use of science and
technology, under normal conditions.
The following investment restrictions of the Funds are not fundamental. The
Funds will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest for the purpose of exercising control or management;
3. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
4. Invest in more than 10% of the outstanding voting securities of any one
issuer;
5. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
6. Pledge, mortgage, hypothecate or otherwise encumber either Fund's assets
except to the extent necessary to secure the permitted borrowings;
7. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
8. Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options; or
9. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 5% of the Fund's net assets.
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following fundamental investment restrictions. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
5
<PAGE>
2. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
3. Invest more than 5% of the Fund's net assets in securities of companies
which have (with their predecessors) a record of less than three years
continuous operation;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
6. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York Stock Exchange, American Stock Exchange or a recognized foreign
exchange. For this purpose, warrants acquired by the Fund in units or
attached to other securities will be deemed to be without value;
7. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions;
8. Concentrate more than 25% of its net assets in any one industry, provided
that there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
9. Purchase or retain the securities of any issuer if, to the Fund's
knowledge, those holdings of all officers and directors of the Fund or its
affiliates, who individually own beneficially more than 0.5% of such
securities, together own more than 5% of such securities;
10. Invest for the purpose of controlling management of any company;
11. Invest in commodities or commodity futures contracts provided; however,
that the entering into of a foreign currency contract shall not be
prohibited by this restriction;
12. Invest in real estate or limited partnerships with assets invested in real
estate, although the Fund may invest in securities which are secured by
interests in real estate and in securities of companies which invest or
deal in real estate;
13. Invest in exploration or development for oil, gas or other minerals,
although it may invest in the securities of issuers which deal in or
sponsor such activities;
14. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
15. Underwrite the securities of other issuers;
16. Modify the Fund's investment objective;
17. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 5; or
18. Invest less than 90% of the its total assets in international equity
securities, under normal conditions.
The following investment restrictions of the Fund are not fundamental. The Fund
will not:
1. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets in an
amount exceeding the amount of the borrowing secured thereby except to the
extent necessary to secure permitted borrowings; or
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission.
SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following fundamental investment restrictions. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase or sell commodities or commodity futures, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
6
<PAGE>
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-dealers, banks and other institutions in an
amount not to exceed 33-1/3% of its total net assets if such loans are
secured by collateral equal to 100% of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities;
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6; or
9. Invest less than 65% of its total assets in common stocks, under normal
conditions.
The following investment restrictions of the Fund are not fundamental. The Fund
will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
3. Purchase or retain securities of any issuer if to the knowledge of the
Fund, officers and directors of either the Fund or its investment adviser
beneficially owning more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest more than 10% of its net assets in securities of issuers which, with
their predecessors have a record of less than three years continuous
operation. Securities of such issuers will not be deemed to fall within
this limitation if they are guaranteed by an entity in continuous operation
for more than three years;
5. Invest for the purpose of exercising control or management;
6. Enter into reverse repurchase agreements;
7. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
8. Invest in more than 10% of the outstanding voting securities of any one
issuer;
9. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are each
considered as one class. This restriction is limited to 75% of the Fund's
net assets;
10. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York or American Stock Exchanges. For this purpose, warrants acquired
by the Fund in units or attached to other securities will be deemed to be
without value;
11. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings;
12. Engage in arbitrage transactions or write unsecured put options but may
write fully covered call options; or
13. Purchase put and call options provided that the aggregate premiums paid for
all such options exceed 5% of the Fund's net assets.
DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
The Fund is subject to the following restrictions which are fundamental. The
Fund will not:
1. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. government or its agencies or instrumentalities), if as a
result, more than 5% of the Fund's net assets would be invested in
securities of that issuer. This restriction is limited to 75% of the Fund's
net assets;
2. Purchase or sell commodities or commodity contracts, provided that this
restriction does not apply to financial futures contracts or options
thereon;
3. Invest in real estate (including real estate limited partnerships),
although it may invest in securities which are secured by or represent
interests in real estate;
4. Make loans except by (a) purchasing publicly distributed debt securities
such as bonds, debentures and similar securities in which the Fund may
invest consistent with its investment policies, and (b) by lending its
portfolio securities to broker-
7
<PAGE>
dealers, banks and other institutions in an amount not to exceed 33-1/3% of
its total net assets if such loans are secured by collateral equal to 100%
of the value of the securities lent;
5. Underwrite the securities of other issuers;
6. Borrow money, except temporarily in emergency or extraordinary situations
and then not for the purchase of investments and not in excess of 33 1/3%
of the Fund's total net assets;
7. Invest in exploration or development for oil, gas or other minerals
(including mineral leases), although it may invest in the securities of
issuers which deal in or sponsor such activities;
8. Issue senior securities as defined in the Investment Company Act of 1940,
except for borrowing as permitted in restriction number 6; or
9. Invest less than 65% of its total assets in developing market equity
securities, under normal conditions.
The following investment restrictions of the Fund are not fundamental and may be
changed by the Board of Directors of the Fund. The Fund will not:
1. Purchase on margin or sell short except to obtain short-term credit as may
be necessary for the clearance of transactions and it may make margin
deposits in connection with futures contracts;
2. Invest more than 5% of the value of its total assets in the securities of
any one investment company or more than 10% of the value of its total
assets, in the aggregate, in the securities of two or more investment
companies, or acquire more than 3% of the total outstanding voting
securities of any one investment company, except a.) as part of a merger,
consolidation, acquisition, or reorganization or b.) in a manner consistent
with the requirements of an exemptive order issued to the Fund and/or the
Adviser by the Securities and Exchange Commission;
3. Purchase or retain the securities of any issuer if, to the Fund's
knowledge, those holdings of all officers and directors of the Fund or its
affiliates, who individually own beneficially more than 0.5% of such
securities, together own more than 5% of such securities;
4. Invest more than 5% of its net assets in securities of companies which have
(with their predecessors) a record of less than three years' continuous
operation;
5. Invest for the purpose of exercising control or management;
6. Invest more than 5% of the Fund's net assets in warrants (valued at lower
of cost or market) including a maximum of 2% which are not listed on the
New York Stock Exchange, American Stock Exchange or a recognized foreign
exchange. For this purpose, warrants acquired by the Fund in units or
attached to other securities will be deemed to be without value;
7. Enter into reverse repurchase agreements;
8. Invest more than 15% of its net assets collectively in all types of
illiquid securities;
9. Purchase more than 10% of any class of securities of any issuer except
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. All debt securities and all preferred stocks are
considered as one class. This restriction is limited to 75% of the Fund's
net assets; or
10. Pledge, mortgage, hypothecate or otherwise encumber the Fund's assets
except to the extent necessary to secure permitted borrowings.
COUNTRIES IN WHICH THE INTERNATIONAL GROWTH FUND MIGHT INVEST
- --------------------------------------------------------------------------------
The countries in which the Fund will seek investments include those listed
below. The Fund is not obligated and may not invest in all the countries listed;
moreover the Fund may invest in countries other than those listed below, when
such investments are consistent with the Fund's investment objective and
policies.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pacific Basin: Australia Hong Kong Indonesia Japan Malaysia New Zealand
- -------------- Philippines Singapore South Korea Taiwan Thailand
Europe: Austria Belgium Czech Republic Denmark Finland France
- ------- Germany Greece Hungary + Ireland Italy Luxembourg
Netherlands Norway Poland Portugal Spain Sweden
Switzerland United Kingdom
Other: Argentina Brazil Canada Chile India Mexico
- ------ Peru Turkey Venezuela Israel
</TABLE>
+ Indicates countries in which the Fund effectively may invest primarily
through investment funds. Such investments are subject to the provisions of
the Investment Company Act of 1940 relating to the purchase of securities
of investment companies. See "Investment Restrictions".
8
<PAGE>
Under exceptional economic or market conditions abroad, the Fund may temporarily
invest all or a major portion of its assets in United States government
obligations or high grade debt obligations of companies incorporated in or
having their principal activities in the United States.
COUNTRIES IN WHICH THE DEVELOPING MARKETS GROWTH FUND MIGHT INVEST
- --------------------------------------------------------------------------------
The Fund defines "developing markets" as those countries determined by the
Sub-Adviser to have developing or emerging markets or economies. Such countries
will generally be defined as "emerging stock markets" by the International
Finance Corporation, demonstrate low- to middle-income economies according to
the International Bank for Reconstruction and Development (the World Bank), or
be listed in World Bank publications as developing. Countries currently not
considered as having "developing markets" presently include: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the United
Kingdom, and the United States.
The countries in which the Fund may seek to invest include those listed below
and, unless otherwise prohibited herein, the countries listed as potential
investments for the International Growth Fund as well. The Fund is not obligated
and may not invest in all the countries listed; moreover the Fund may invest in
countries other than those listed below, when such investments are consistent
with the Fund's investment objectives and policies. The Fund will also not seek
to diversify investments among geographic regions or levels of economic
development in any particular country.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Pacific Basin: Bangladesh China Hong Kong India Indonesia Malaysia
- -------------- Pakistan Philippines Singapore South Korea Sri Lanka Taiwan
Thailand Vietnam +
Europe: Czech Rep. Greece Hungary + Poland Portugal
- -------
Latin America: Argentina Barbados Belize Bolivia Brazil Chile
- -------------- Colombia Costa Rica Ecuador Jamaica Mexico Panama
Paraguay Peru Trinidad & Tobago Uruguay Venezuela
Africa: Botswana Egypt Ghana+ Ivory Coast + Kenya + Mauritius +
- ------- Morocco Namibia + Nigeria South Africa Swaziland + Tunisia
Zimbabwe
Other: Bermuda Cyprus + Israel Jordan Kuwait + Russia
- ------ Turkey
</TABLE>
+ Indicates countries in which the Fund effectively may invest primarily
through investment funds. Such investments are subject to the provisions of
the Investment Company Act of 1940 relating to the purchase of securities
of investment companies. See "Additional Investment Restrictions".
Under exceptional economic or market conditions abroad, the Fund may temporarily
invest all or a major portion of its assets in United States government
obligations or high grade debt obligations of companies incorporated in or
having their principal activities in the United States.
INTERNATIONAL RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
Investors should consider carefully the substantial risks involved in securities
of companies and governments of foreign nations, which are in addition to the
usual risks inherent in domestic investments. There may be less publicly
available information about foreign companies comparable to the reports and
ratings published regarding companies in the United States. Foreign companies
are not generally subject to uniform accounting, auditing and financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to United States companies. Many foreign markets
have substantially less volume than either the established domestic securities
exchanges or the OTC markets. Securities of some foreign companies are less
liquid and more volatile than securities of comparable United States companies.
Commission rates in foreign countries, which may be fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of securities
exchanges, brokers and listed companies than in the United States and capital
requirements for brokerage firms are generally
9
<PAGE>
lower. Settlement of transactions in foreign securities may, in some instances,
be subject to delays and related administrative uncertainties.
Investments in companies domiciled in developing market countries may be subject
to potentially higher risks than investments in developed countries. These risks
include (i) volatile social, political and economic conditions; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) the existence of national policies which may
restrict the Funds' investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests; (iv)
foreign taxation; (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain developing market
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in certain
developing market countries may be slowed or reversed by unanticipated political
or social events in such countries.
The Funds endeavor to buy and sell foreign currencies on favorable terms. Some
price spread on currency exchange (to cover service charges) may be incurred,
particularly when the Funds change investments from one country to another or
when proceeds for the sale of shares in U.S. dollars are used for the purchase
of securities in foreign countries. Also, some countries may adopt policies
which would prevent the Funds from repatriating invested capital and dividends,
withhold portions of interest and dividends at the source, or impose other
taxes, with respect to the Funds' investments in securities of issuers of that
country. There also is the possibility of expropriation, nationalization,
confiscatory or other taxation, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), default in
foreign government securities, political or social instability, or diplomatic
developments that could adversely affect investments in securities of issuers in
those nations.
The Funds may be affected either favorably or unfavorably by fluctuations in the
relative rates of exchange between the currencies of different nations, exchange
control regulations and indigenous economic and political developments.
While transactions in forward currency contracts, options, futures contracts and
options on futures contracts (i.e., "hedging positions") may reduce certain
risks, such transactions themselves entail certain other risks. Thus, while the
Funds may benefit from the use of hedging positions, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance for the Funds than if they had not entered into any
hedging positions. In the event of an imperfect correlation between a hedging
position and portfolio position which is intended to be protected, the desired
protection may not be obtained and the Funds may be exposed to risk of financial
loss.
Perfect correlation between the Funds' hedging positions and portfolio positions
may be difficult to achieve because hedging instruments in most developing
market countries are not yet available. In addition, it is not possible to hedge
fully or perfectly against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
INVESTMENT AND REPATRIATION RESTRICTIONS
- --------------------------------------------------------------------------------
Several of the countries in which the Funds may invest restrict, to varying
degrees, foreign investments in their securities markets. Governmental and
private restrictions take a variety of forms, including (i) limitations on the
amount of funds that may be invested into or repatriated from the country
(including limitations on repatriation of investment income and capital gains),
(ii) prohibitions or substantial restrictions on foreign investment in certain
industries or market sectors, such as defense, energy and transportation, (iii)
restrictions (whether contained in the charter of an individual company or
mandated by the government) on the percentage of securities of a single issuer
which may be owned by a foreign investor, (iv) limitations on the types of
securities which a foreign investor may purchase and (v) restrictions on a
foreign investor's right to invest in companies whose securities are not
publicly traded. In some circumstances, these restrictions may limit or preclude
investment in certain countries and the Funds intend to invest only through the
purchase of shares of investment funds organized under the laws of such
countries.
The return on the Funds' investments in investment companies will be reduced by
the operating expenses, including investment advisory and administrative fees,
of such companies. The Funds' investment in an investment company may require
the payment of a premium above the net asset value of the investment company's
shares, and the market price of the investment company thereafter may decline
without any change in the value of the investment company's assets. The
10
<PAGE>
Funds, however, will not invest in any investment company or trust unless it is
believed that the potential benefits of such investment are sufficient to
warrant the payment of any such premium.
ADDITIONAL INVESTMENT OBJECTIVES, POLICIES & RISKS
- --------------------------------------------------------------------------------
CONVERTIBLE SECURITIES
- --------------------------------------------------------------------------------
Each of the Funds may purchase securities convertible into common stocks,
preferred stocks and warrants.
COMMERCIAL PAPER
- --------------------------------------------------------------------------------
Short-term debt instruments purchased by the Funds consist of commercial paper
(including variable amount master demand notes), which refers to short-term,
unsecured promissory notes issued by corporations to finance short-term credit
needs. Commercial paper is usually sold on a discount basis and has a maturity
at the time of issuance not exceeding nine months. Variable amount master demand
notes are demand obligations that permit the investment of fluctuating amounts
at varying market rates of interest pursuant to arrangements between the issuer
and a commercial bank acting as agent for the payees of such notes, whereby both
parties have the right to vary the amount of the outstanding indebtedness of the
notes.
The Balanced Fund may invest in commercial paper obligations issued by domestic
and foreign entities which, at the time of their purchase, are rated in the
highest rating category assigned by Moody's, S&P, Duff and Phelps, Inc. or Fitch
Investors Service, Inc. or, if not rated, are issued or guaranteed by companies
with an unsecured debt issue currently outstanding rated A or better by Moody's
or S&P. The Fund may also invest in participation interests in loans extended by
banks or other financial institutions to such companies, and other domestic
corporate obligations such as publicly traded bonds, debentures and notes
(including variable amount master demand notes) rated in the highest category by
the aforementioned rating services.
OBLIGATIONS OF, OR GUARANTEED BY, THE UNITED STATES GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES
- --------------------------------------------------------------------------------
Securities issued or guaranteed by the United States include a variety of
Treasury securities, which differ only in their interest rates, maturities and
dates of issuance. Treasury bills have a maturity of one year or less. Treasury
notes have maturities of one to ten years and Treasury bonds generally have
maturities of greater than ten years at the date of issuance.
Securities issued and or guaranteed by agencies of the U.S. government and
various instrumentalities which have been established or sponsored by the U.S.
government may or may not be backed by the "full faith and credit" of the United
States. In the case of securities not backed by the full faith and credit of the
United States, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment.
Some of the government agencies which issue or guarantee securities are the
Department of Housing and Urban Development, the Department of Health and Human
Services, the Government National Mortgage Association, the Farmers Home
Administration, the Department of Transportation, the Department of Defense and
the Department of Commerce. Instrumentalities which issue or guarantee
securities include the Export-Import Bank, the Federal Farm Credit System,
Federal Land Banks, the Federal Intermediate Credit Bank, the Bank for
Cooperatives, Federal Home Loan Banks, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation.
OBLIGATIONS OF BANKS
- --------------------------------------------------------------------------------
Bank money instruments in which the Funds may invest include certificates of
deposit, including variable rate certificates of deposit, bankers' acceptances
and time deposits. "Bank" includes commercial banks, savings banks and savings
and loan associations. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution.
Variable rate certificates of deposit are certificates of deposit on which the
interest rate is periodically adjusted prior to their stated maturity, usually
at 30, 90 or 180 day intervals ("coupon dates"), based upon a specified market
rate, which is tied to the then prevailing certificate of deposit rate, with
some premium paid because of the longer final maturity date of the variable rate
certificate of deposit. As a result of these adjustments, the interest rate on
these obligations may be increased or decreased periodically. Variable rate
certificates of deposit normally carry a higher interest rate than fixed rate
certificates of deposit with shorter maturities, because the bank issuing the
variable rate certificate of deposit pays the investor a premium as the bank has
the use of the investor's money for a longer period of time. Variable rate
certificates of deposit can be sold in the secondary market. In
11
<PAGE>
addition, frequently banks or dealers sell variable rate certificates of deposit
and simultaneously agree, either formally or informally, to repurchase such
certificates, at the option of the purchaser of the certificate, at par on the
coupon dates. In connection with the Fund's purchase of variable rate certifies
of deposit, it may enter into formal or informal agreements with banks or
dealers allowing the Fund to resell the certificates to the bank or dealer, at
the Fund's option. If the agreement to repurchase is informal, there can be no
assurance that the Fund would always be able to resell such certificates. Before
entering into any such transactions governed by formal agreements, however, the
Fund will comply with the provisions of SEC Release 10666 which generally
provides that the repurchase agreement must be fully collateralized. With
respect to variable rate certificates of deposit maturing in 180 days or less
from the time of purchase with interest rates adjusted on a monthly cycle, the
Fund uses the period remaining until the next rate adjustment date for purposes
of determining the average weighted maturity of its portfolio. With respect to
all variable rate instruments not meeting the foregoing criteria, the Fund uses
the remaining period to maturity for purposes of determining the average
weighted maturity of its portfolio until such time as the Securities and
Exchange Commission has determined otherwise.
A banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to pay the draft
at its face amount on the maturity date. Most acceptances have maturities of six
months or less and are traded in secondary markets prior to maturity.
Both domestic banks and foreign branches of domestic banks are subject to
extensive, but different, governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing short-term debt conditions. General economic
conditions, as well as exposure to credit losses arising from possible financial
difficulties of borrowers, also play an important part in the operations of the
banking industry.
As a result of federal and state laws and regulations, domestic banks are, among
other things, generally required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and are subject
to other regulations designed to promote financial soundness. Since the
portfolio may contain securities of foreign banks and foreign branches of
domestic banks, the Fund may be subject to additional investment risks that are
different in some respects from those incurred by a fund that invests only in
debt obligations of domestic banks.
The Fund only purchases certificates of deposit from savings and loan
institutions which are members of the Federal Home Loan Bank and are insured by
the Federal Savings and Loan Insurance Corporation. Such savings and loan
associations are subject to regulation and examination. Unlike most savings
accounts, certificates of deposit held by the Fund do not benefit materially
from insurance either from the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation. Certificates of deposit of
foreign branches of domestic banks are not covered by such insurance and
certificates of deposit of domestic banks purchased by the Fund are generally in
denominations far in excess of the dollar limitations on insurance coverage.
INTERNATIONAL BANK OBLIGATIONS. For the purposes of the Developing Markets
Growth Fund's and International Growth Fund's investment policies with respect
to bank obligations, obligations of foreign branches of U.S. banks and of
foreign banks may be obligations of the parent bank in addition to the issuing
bank, or may be limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general, investments in
the obligations of foreign branches of U.S. banks and of foreign banks may
subject the Funds to investment risks that are different in some respects from
those of investments in obligations of domestic issuers. Although the Funds will
typically acquire obligations issued and supported by the credit of U.S. or
foreign banks having total assets at the time of purchase in excess of $1
billion, this $1 billion figure is not a fundamental investment policy or
restriction of the Fund. For the purposes of calculation with respect to the $1
billion figure, the assets of a bank will be deemed to include the assets of its
U.S. and non-U.S. branches.
DEPOSITORY RECEIPTS
- --------------------------------------------------------------------------------
The Funds may hold securities of foreign issuers in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Government
Depository Receipts ("GDRs") and other similar global instruments available in
developing markets, or other securities convertible into securities of eligible
issuers. These securities may not necessarily be
12
<PAGE>
denominated in the same currency as the securities for which they may be
exchanged. Generally, ADRs in registered form are designed for use in United
States securities markets, and EDRs and other similar global instruments in
bearer form are designed for use in European securities markets. For purposes of
the Fund's investment policies, the Fund's investment in ADRs, EDRs, and similar
instruments will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- --------------------------------------------------------------------------------
The Developing Markets Growth Fund and International Growth Fund may enter into
forward currency contracts to attempt to minimize the risk to the Funds from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward currency contract is an obligation to purchase or sell a
specific currency for an agreed upon price at a future date which is
individually negotiated and privately traded by currency traders and their
customers. The Funds may enter into a forward currency contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency or is expecting a dividend or interest payment
in order to "lock in" the U.S. dollar price of the security or dividend or
interest payment. In addition, when the Funds believe that a foreign currency or
currencies may suffer a substantial decline against the U.S. dollar, it may
enter into a forward currency contract to sell an amount of a foreign currency
approximating the value of some or all of the Funds' portfolio securities
denominated in such foreign currency or related currencies that the Adviser
feels demonstrate correlation in exchange rate movements (such a practice is
called "crosshedging"), or when the Funds believe that the U.S. dollar may
suffer a substantial decline against a foreign currency or currencies, it may
enter into a forward contract to buy a foreign currency for a fixed dollar
amount. In connection with the Funds' forward contract transactions, an amount
of the Funds' assets equal to the amount of the Fund's commitment will be held
aside or segregated to be used to pay for the commitment. Accordingly, the Funds
will always have cash, cash equivalents or high quality debt securities
denominated in the appropriate currency available in an amount sufficient to
cover any commitments under these contracts. Segregated assets used to cover
forward currency contracts will be marked to market on a daily basis. While
these contracts are not presently regulated by the Commodity Futures Trading
Commission ("CFTC"), the CFTC may in the future regulate forward currency
contracts. In such event, the Funds' ability to utilize forward currency
contracts in the manner set forth above may be restricted. Forward currency
contracts may limit potential gain from a positive change in the relationship
between the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance by the Funds than if it
had not engaged in such contracts. The Funds will generally not enter into a
forward foreign currency exchange contract with a term greater than one year.
OPTIONS - PUTS AND CALLS
- --------------------------------------------------------------------------------
The Funds may purchase exchange traded put and call options on debt securities
up to 5% of its net assets for the purpose of hedging. A put option (sometimes
called a standby commitment) gives the purchaser of the option, in return for a
premium paid, the right to sell the underlying security at a specified price
during the term of the option. The writer of the put option receives the premium
and has the obligation to buy the underlying securities upon exercise at the
exercise price during the option period. A call option (sometimes called a
reverse standby commitment) gives the purchaser of the option, in return for a
premium, the right to buy the security underlying the option at a specified
exercise price at any time during the term of the option. The writer of the call
option receives the premium and has the obligation at the exercise of the
option, to deliver the underlying security against payment of the exercise price
during the option period. A principal risk of standby commitments is that the
writer of a commitment may default on its obligation to repurchase or deliver
the securities.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
- --------------------------------------------------------------------------------
The Funds may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis. When such transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date, which can be a month
or more after the date of the transaction. The Funds will not accrue income on
securities purchased on a forward commitment basis prior to their stated
delivery date. At the time the Funds make the commitment to purchase securities
on a when-issued or forward commitment basis, they will record the transaction
and thereafter reflect the value of such securities in determining their net
asset value. At the time the Funds enter into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash and liquid
securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with the custodian and will be
marked to the market daily. On the delivery date, the Funds will meet their
obligations from securities that are then maturing or sales of the securities
held in the segregated asset account and/or from then available cash flow. If
the Funds dispose of the right to acquire a when-issued
13
<PAGE>
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it can incur a gain or loss due to market
fluctuation.
There is always a risk that the securities may not be delivered and that the
Fund may incur a loss or will have lost the opportunity to invest the amount set
aside for such transaction in the segregated asset account. Settlements in the
ordinary course of business, which may take substantially more than five
business days for non-U.S. securities, are not treated by the Fund as
when-issued or forward commitment transactions and, accordingly, are not subject
to the foregoing limitations even though some of the risks described above may
be present in such transactions.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
Each Fund is permitted to invest in repurchase agreements. A repurchase
agreement is a contract by which the Fund acquires the security ("collateral")
subject to the obligation of the seller to repurchase the security at a fixed
price and date (within seven days). A repurchase agreement may be construed as a
loan pursuant to the 1940 Act. The Funds may enter into repurchase agreements
with respect to any securities which it may acquire consistent with its
investment policies and restrictions. The Funds' custodian will hold the
securities underlying any repurchase agreement in a segregated account. In
investing in repurchase agreements, the Funds' risk is limited to the ability of
the seller to pay the agreed-upon price at the maturity of the repurchase
agreement. In the opinion of the Adviser, such risk is not material, since in
the event of default, barring extraordinary circumstances, the Funds would be
entitled to sell the underlying securities or otherwise receive adequate
protection under federal bankruptcy laws for its interest in such securities.
However, to the extent that proceeds from any sale upon a default are less than
the repurchase price, the Funds could suffer a loss. In addition, the Funds may
incur certain delays in obtaining direct ownership of the collateral. The
Adviser will continually monitor the value of the underlying securities to
ensure that their value always equals or exceeds the repurchase price. The
Adviser will submit a list of recommended issuers of repurchase agreements and
other short-term securities which it has reviewed for credit worthiness to the
Funds' directors at least quarterly for their approval.
FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS, AND SWAP AGREEMENTS
- --------------------------------------------------------------------------------
The Balanced Fund, Developing Markets Growth Fund and International Growth Fund
may invest in interest rate futures contracts, index futures contracts and may
buy options on such contracts for the purpose of hedging its portfolio of fixed
income securities (and not for speculative purposes) against the adverse effects
of anticipated movements in interest rates. As a result of entering into futures
contracts, no more than 5% of a Fund's net assets may be committed to margin.
DESCRIPTION OF FUTURES CONTRACTS. A futures contract sale creates an obligation
by a Fund, as seller, to deliver the type of financial instrument called for in
the contract at a specified future time for a stated price. A futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of
the underlying financial instrument at a specified future time for a stated
price. The specific securities delivered or taken, respectively, at settlement
date, are not determined until at or near that date. The determination is made
in accordance with the rules of the exchange on which the futures contract sale
or purchase was made.
Although futures contracts by their terms call for actual delivery or acceptance
of securities, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery. Closing out a futures contract
sale is effected by purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument and the same delivery date. If the
price of the initial sale of the futures contract exceeds the price of the
offsetting purchase, the Fund is paid the difference and realizes a gain. If the
price of the offsetting purchase exceeds the price of the initial sale, the Fund
pays the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the purchase price exceeds the offsetting sale price, the Fund
realizes a loss.
The Fund is required to maintain margin deposits with brokerage firms through
which it enters into futures contracts. Margin balances will be adjusted at
least weekly to reflect unrealized gains and losses on open contracts. In
addition, the Fund will pay a commission on each contract, including offsetting
transactions.
Futures contracts are traded only on commodity exchanges--known as "contract
markets"--approved for such trading by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market. The CFTC
regulates trading activity on the exchanges
14
<PAGE>
pursuant to the Commodity Exchange Act. The principal exchanges are the Chicago
Board of Trade, the Chicago Mercantile Exchange and the New York Futures
Exchange. Each exchange guarantees performance under contract provisions through
a clearing corporation, a nonprofit organization managed by the exchange
membership. The staff of the CFTC has indicated that an entity such as the Fund
would not be a "pool" if it traded commodity futures contracts solely for
hedging purposes and not for speculation. Furthermore, the Fund is restricted to
no more than 5% of its net assets being committed to margin on futures contracts
and premiums for options on futures contracts, and therefore will not operate as
a "pool" as that term is defined by the CFTC.
The Funds may use interest rate futures solely as a defense or hedge against
anticipated interest rate changes and not for speculation. The Funds presently
could accomplish a similar result to that which it hopes to achieve through the
use of futures contracts by selling debt securities with long maturities and
investing in debt securities with short maturities when interest rates are
expected to increase, or conversely, selling short-term debt securities and
investing in long-term debt securities when interest rates are expected to
decline. However, because of the liquidity that is often available in the
futures market, such protection is more likely to be achieved, perhaps at a
lower cost and without changing the rate of interest being earned by the Funds,
through using futures contracts.
RISKS IN FUTURES CONTRACTS. One risk in employing futures contracts to protect
against cash market price volatility is the prospect that futures prices will
correlate imperfectly with the behavior of cash prices. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest trends by the Adviser may
still not result in a successful transaction.
Another risk is that the Adviser would be incorrect in its expectation as to the
extent of various interest rate movements (anticipated securities prices and
foreign currency exchange rates for the Developing Markets Growth Fund and
International Growth Fund) or the time span within which the movements take
place and other economic factors. Closing out an interest rate futures contract
purchase at a loss because of higher interest rates will generally have one or
two consequences depending on whether, at the time of closing out, the "yield
curve" is normal (long-term rates exceeding short-term). If the yield curve is
normal, it is possible that the Fund will still be engaged in a program of
buying long-term securities. Thus, closing out the futures contract purchase at
a loss will reduce the benefit of the reduced price of the securities purchased.
If the yield curve is inverted, it is possible that the Fund will retain its
investments in short-term securities earmarked for purchase of longer term
securities. Thus, closing out of a loss will reduce the benefit of the
incremental income that the Fund will experience by virtue of the high
short-term rates. Although futures contracts are traded only on commodity
exchanges, there can be no assurance that a liquid secondary market will exist
for any particular future, and theoretically losses from investing in futures
transactions are potentially unlimited.
RISKS OF OPTIONS. The use of options and options on interest rate futures
contracts also involves additional risk. Compared to the purchase or sale of
futures contracts, the purchase of call or put options and options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs).
The effective use of options strategies is dependent, among other things, upon
the Fund's ability to terminate options positions at a time when the Adviser
deems it desirable to do so. Although the Fund will enter into an option
position only if the Adviser believes that a liquid secondary market exists for
such option, there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price. The Fund's
transactions involving options on futures contracts will be conducted only on
recognized exchanges.
Although the Funds will generally purchase only those options for which there
appears to be an active secondary market, there can be no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any
15
<PAGE>
particular time. For some options no secondary market on an exchange may exist.
In such event, it might not be possible to effect closing transactions in
particular options, with the result that the Funds would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the purchase or sale of underlying securities.
Secondary markets on an exchange may not exist or may not be liquid for a
variety of reasons including: (i) insufficient trading interest in certain
options; (ii) restrictions on opening transactions or closing transactions
imposed by an exchange; (iii) trading halts, suspension or other restrictions
may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal operations on an
exchange; (v) inadequate facilities of an exchange or the Options Clearing
Corporation to handle current trading volume at all times; or (vi)
discontinuance in the future by one or more exchanges for economic or other
reasons, of trading of options (or of a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
PURCHASE OF PUT OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Balanced Fund,
Developing Markets Growth Fund, and International Growth Fund may purchase put
options on interest rate futures contracts if the Adviser anticipates a rise in
interest rates. Because the value of an interest rate or municipal bond index
futures contract moves inversely in relation to changes in interest rates, a put
option on such a contract becomes more valuable as interest rates rise. By
purchasing put options on futures contracts at a time when the Adviser expects
interest rates to rise, the Fund will seek to realize a profit to offset the
loss in value of its portfolio securities.
PURCHASE OF CALL OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Balanced Fund,
Developing Markets Growth Fund, and International Growth Fund may purchase call
options on interest rate futures contracts if the Adviser anticipates a decline
in interest rates. The purchase of a call option on an interest rate of
municipal bond index futures contract represents a means of obtaining temporary
exposure to market appreciation at limited risk. Because the value of an
interest rate or municipal bond index futures contract moves inversely in
relation to changes to interest rates, a call option on such a contract becomes
more valuable as interest rates decline. The Fund will purchase a call option on
a futures contract to hedge against a decline in interest rates in a market
advance when the Fund is holding cash. The Fund can take advantage of the
anticipated rise in the value of long-term securities without actually buying
them until the market is stabilized. At that time, the options can be liquidated
and the Fund's cash can be used to buy long-term securities.
The Funds expect that new types of securities, futures contracts, options
thereon, and put and call options on securities and indices may be developed in
the future. As new types of instruments are developed and offered to investors,
the Adviser will be permitted to invest in them provided that the Adviser
believes their quality is equivalent to the Fund's quality standards.
SWAP AGREEMENTS. Swap agreements are two party contracts entered into primarily
by institutional investors in which two parties agree to exchange the returns
(or differential rates of return) earned or realized on particular predetermined
investments or instruments.
The Funds may enter into swap agreements for purposes of attempting to obtain a
particular investment return at a lower cost to the Funds than if the Funds had
invested directly in an instrument that provided that desired return. Each Fund
bears the risk of default by its swap counterpart and may not be able to
terminate its obligations under the agreement when it is most advantageous to do
so. In addition, certain tax aspects of swap agreements are not entirely clear
and their use, therefore, may be limited by the requirements relating to the
qualification of a Fund as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code").
ADDITIONAL FIXED-INCOME SECURITIES IN WHICH THE BALANCED FUND MAY INVEST
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES. The mortgage-backed securities in which the Balanced
Fund invests provide funds for mortgage loans made to residential home buyers.
These include securities which represent interests in pools of mortgage loans
made by lenders such as savings and loan institutions, mortgage banks,
commercial banks and insurance companies. Pools of mortgage loans are assembled
for sale to investors such as the Fund by various private, governmental and
government-related organizations.
16
<PAGE>
Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates.
Mortgage-backed securities provide monthly payments which consist of both
interest and principal payments to the investor. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer, servicer, or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs which may be incurred. Some
mortgage-backed securities, i.e., GNMA's, are described as "modified
pass-through." These securities entitle the holders to receive all interest and
principal payments owed on the mortgages in the pool, net of certain fees,
regardless of whether or not the mortgagors actually make the payments.
The principal government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
government corporation within the Department of Housing and Urban Development.
GNMA is authorized to issue mortgage pass-through securities and guarantee, with
the full faith and credit of the U.S. government, the timely payment of
principal and interest on loans originated by approved institutions and backed
by pools of FHA-insured or VA-guaranteed mortgages.
The Federal Home Loan Mortgage Corporation ("FHLMC") also pools mortgage loans
and issues pass-through securities. FHLMC is a corporate instrumentality of the
U.S. government and was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PC's") which represent interest in mortgages from FHLMC's
national portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, however, PC's are not backed by the full faith and
credit of the U.S. government.
The Federal National Mortgage Association ("FNMA") is a government sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller/services which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage banks. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA, but are not backed by the full faith and credit of the U.S.
government.
The Federal Housing Administration ("FHA") was established by Congress in 1934
under the National Housing Act. A major purpose of the Act was to encourage the
flow of private capital into residential financing on a protected basis. FHA is
authorized to insure mortgage loans, primarily those related to residential
housing. FHA does not make loans and does not plan or build housing. FHA Project
Pools are pass-through securities representing undivided interests in pools of
FHA-insured multi-family project mortgage loans.
The Fund may purchase securities which are insured but not issued or guaranteed
by the U.S. government, its agencies or instrumentalities. An example of such a
security is a housing revenue bond (the interest on which is subject to federal
taxation) issued by a state and insured by an FHA mortgage loan. The Fund has
not purchased this type of security and has no current intent to do so. This
type of mortgage is insured by FHA pursuant to the provisions of Section
221(d)(4) of the National Housing Act of 1934, as amended. After a mortgagee
files a claim for insurance benefits, FHA will pay insurance benefits up to 100%
of the unpaid principal amount of the mortgage (generally 70% of the amount is
paid within six months of the claim and the remainder within the next six
months). The risks associated with this type of security are the same as other
mortgage securities -- prepayment and/or redemption prior to maturity, loss of
premium (if paid) if the security is redeemed prior to maturity and fluctuation
in principal value due to an increase or decrease in interest rates.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, the pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayment is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. Mortgage pass-through
securities which receive regular principal payments have an average life less
than their maturity. The average life of mortgage pass-through investments will
typically vary from 1 to 18 years.
17
<PAGE>
Yields on pass-through mortgage-backed securities are typically quoted based on
the maturity of the underlying instruments and the associated average life
assumption. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. The compounding effect from reinvestments of monthly
payments received by the Fund will increase the yield to shareholders.
U.S. TREASURY INFLATION-PROTECTION SECURITIES. The Balanced Fund may invest in
inflation-protection securities, which are a new type of marketable book-entry
security issued by the United States Department of Treasury ("Treasury") with a
nominal return linked to the inflation rate in prices. Inflation-protection
securities will be auctioned and issued on a quarterly basis on the 15th of
January, April, July, and October, beginning on January 15, 1997. Initially,
they will be issued as 10-year notes, with other maturities added thereafter.
The index used to measure inflation will be the non-seasonably adjusted U.S.
City Average All Items Consumer Price Index for All Urban Consumers ("CPI-U").
The value of the principal will be adjusted for inflation, and every six months
the security will pay interest, which will be an amount equal to a fixed
percentage of the inflation-adjusted value of the principal. The final payment
of principal of the security will not be less than the original par amount of
the security at issuance.
The principal of the inflation-protection security will be indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is larger,
will be paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount will be paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal would receive this additional
amount. The final interest payment, however, will be based on the final
inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U for the
third preceding calendar month. (For example, the reference CPI for December 1
is the CPI-U reported for September of the same year, which is released in
October). The reference CPI for any other day of the month is calculated by a
linear interpolation between the reference CPI applicable to the first day of
the month and the reference CPI applicable to the first day of the following
month.
Any revisions the Bureau of Labor Statistics (or successor agency) makes to any
CPI-U number that had been previously released will not be used in calculations
of the value of outstanding inflation-protection securities. In the case that
the CPI-U for a particular month is not reported by the last day of the
following month, the Treasury will announce an index number based on the last
year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
had announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the
inflation-protection security is outstanding, the Treasury will, in consultation
with the Bureau of Labor Statistics (or successor agency), determine an
appropriate substitute index and methodology for linking the discontinued series
with the new price index series. Determinations of the Secretary of the Treasury
in the regard are final.
Inflation-protection securities will be held and transferred in either of two
book-entry systems: the commercial book-entry system (TRADES) and TREASURY
DIRECT. The securities will be maintained and transferred at their original par
amount, i.e., not at their inflation-adjusted value. STRIPS components will be
maintained and transferred in TRADES at their value based on the original par
amount of the fully constituted security.
OTHER ASSET-BACKED SECURITIES. The Balanced Fund may invest in asset-backed
securities that are backed by consumer credit such as automobile receivables,
consumer credit card receivables, and home equity loans.
18
<PAGE>
MUNICIPAL SECURITIES. Municipal securities in which the Balanced Fund may invest
include securities that are issued by states, territories and possessions of the
United States and the District of Columbia and their agencies, instrumentalities
and political subdivisions. Tax-exempt municipal securities include municipal
bonds, municipal notes and municipal commercial paper. MUNICIPAL BONDS generally
have maturities at the time of issuance ranging from one to thirty years, or
more. MUNICIPAL NOTES are short-term and generally mature in three months to
three years. MUNICIPAL COMMERCIAL PAPER matures in one year or less.
The yields on municipal securities are dependent on a variety of factors,
including the general level of interest rates, the financial condition of the
issuer, general conditions of the tax-exempt securities market, the size of the
issue, the maturity of the obligation and the rating of the issue. Ratings are
general, and not absolute, standards of quality. Consequently, securities of the
same maturity, interest rate and rating may have different yields, while
securities of the same maturity and interest rate with different ratings may
have the same yield.
COLLATERIALIZED MORTGAGE OBLIGATIONS (CMOs). The Balanced Fund may invest in
CMOs. CMOs are hybrid instruments with characteristics of both mortgage-backed
bonds and mortgage pass-through securities. Similar to a bond, interest and
principal on a CMO are paid, in most cases, monthly. CMOs may be collateralized
by whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA. Since CMOs
derive their return from underlying mortgages, they are commonly referred to as
derivative securities, but are not subject to the 100% limitation as discussed
in the "Futures and Options" section below. CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Monthly payments
of principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the earlier classes have been retired. CMOs that are issued
or guaranteed by the U.S. Government or by any of its agencies or
instrumentalities will be considered U.S. Government securities by the Balanced
Fund, while other CMOs, even if collateralized by U.S. Government securities,
will have the same status as other privately issued securities for purposes of
applying the Fund's diversification tests. For a discussion of prepayment risks,
see "Mortgage and Other Asset-Backed Securities" section above.
VARIABLE RATE NOTES. The Balanced Fund may purchase floating and variable rate
notes. The interest rate is adjusted either at predesignated periodic intervals
(variable rate) or when there is a change in the index rate on which the
interest rate on the obligation is based (floating rate). These notes normally
have a demand feature which permit the holder to demand payment of principal
plus accrued interest upon a specified number of days' notice. The issuer of
floating and variable rate demand notes normally has a corresponding right,
after a given period, to prepay at its discretion the outstanding principal
amount of the note plus accrued interest upon a specified number of days' notice
to the noteholders.
ZERO COUPON SECURITIES. The Balanced Fund is permitted to invest in zero coupon
securities. Such securities are debt obligations which do not entitle the holder
to periodic interest payments prior to maturity and are issued and traded at a
discount from their face amounts. The discount varies depending on the time
remaining until maturity, prevailing interest rates, liquidity of the security
and the perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity of the
security approaches. Zero coupon securities can be sold prior to their due date
in the secondary market at the then-prevailing market value which depends
primarily on the time remaining to maturity, prevailing levels of interest rates
and the perceived credit quality of the issuer. The market prices of zero coupon
securities are more volatile than the market prices of securities of comparable
quality and similar maturity that pay interest periodically and may respond to a
greater degree to fluctuations in interest rates than do such non-zero coupon
securities.
TRUST PREFERRED SECURITIES. The Balanced Fund may purchase trust preferred
securities issued primarily by financial institutions such as banks and
insurance companies. Trust preferred securities purchased by the Fund generally
have a stated par value, a stated maturity typically of 30 years, are callable
after a set time period of typically five or ten years and pay interest
quarterly or semi-annually. The proceeds from the issuance of the securities are
placed in a single asset trust controlled by the issuer holding company, and the
trust in-turn purchases long-term junior subordinated debt of the issuer holding
company. The junior subordinated debt held by the trust is senior to all common
and preferred stock of the issuer. The junior subordinated debt instruments
include deferral provisions whereby the issuer holding company may defer
interest payments for up to five years under certain circumstances, provided
that no dividend payments are made with respect to outstanding common and
preferred stock, and during a period of interest deferral the securities earn
19
<PAGE>
compounded interest which is accrued by the issuer as an interest expense. The
Federal Reserve Bank limits the amount of trust preferred securities that an
issuer may have outstanding such that the total of cumulative preferred stock
and trust preferred securities outstanding may not exceed 25 percent of the
issuer's Tier 1 capital base. The securities provide that they are immediately
callable in the event of a change in the tax law whereby the interest paid by
the issuer is no longer treated as an interest expense deduction by the issuer.
ILLIQUID SECURITIES
- --------------------------------------------------------------------------------
Each Fund may invest up to 15% of its net assets in all forms of "illiquid
securities." An investment is generally deemed to be "illiquid" if it cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which such securities are valued by the Fund.
Restricted securities are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid by the
staff of the Securities and Exchange Commission (the "SEC"), since such
securities may be resold only subject to statutory restrictions and delays or if
registered under the 1933 Act. However, the SEC has recently acknowledged that a
market exists for certain restricted securities (for example, securities
qualifying for resale to certain "qualified institutional buyers" pursuant to
Rule 144A under the 1933 Act). Additionally, a similar market exists for
commercial paper issued pursuant to the private placement exemption of Section
4(2) of the 1933 Act. As a fundamental policy, the Funds may invest without
limitation in these forms of restricted securities if such securities are
determined by the Adviser to be liquid in accordance with standards established
by the Funds' Board of Directors.
Under these standards, the Adviser must consider (a) the frequency of trades and
quotes for the security, (b) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (c) dealer
undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer).
At the present time, it is not possible to predict with accuracy how the markets
for certain restricted securities will develop. Investing in restricted
securities could have the effect of increasing the level of a Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.
RATINGS OF DEBT SECURITIES
- --------------------------------------------------------------------------------
Investment grade debt securities are rated AAA, AA, A or BBB by Standard &
Poor's Corporation ("S& P"), Fitch IBCA ("Fitch"), and Duff & Phelps Credit
Rating Co. ("Duff & Phelps"); or Aaa, Aa, A or Baa by Moodys Investors Services
("Moody's"). Investment grade municipal notes are rated MIG 1, MIG 2, MIG 3 or
MIG 4 (VMIG 1, VMIG 2, VMIG 3 or VMIG 4 for notes with a demand feature) by
Moodys or SP-1 or SP-2 by S&P. Securities rated Baa, MIG 4, VMIG 4 or BBB are
medium grade, involve some speculative elements and are the lowest investment
grade available. These securities generally have less certain protection of
principal and interest payments than higher rated securities. Securities rated
Ba or BB (in which Large Cap Fund, Balanced Fund and Developing Markets Growth
Fund may invest) are judged to have some speculative elements with regard to
capacity to pay interest and repay principal. Debt securities rated C (in which
the Developing Markets Growth Fund may invest) are regarded as having
predominantly speculative characteristics. DEBT SECURITIES RATED BELOW
INVESTMENT GRADE ARE COMMONLY KNOWN AS JUNK BONDS. Presently, other than with
respect to the Balanced Fund, the Adviser intends to invest only in debt
securities rated at investment grade at the time of purchase, or if not rated,
deemed by the Adviser to be of comparable quality. See the section "Investment
Objectives and Policies" above for a discussion regarding the Balanced Fund's
debt securities ratings. See the Statement of Additional Information for further
information about ratings.
The commercial paper purchased by the Funds will consist only of direct
obligations which, at the time of purchase, are (a) rated P-1 by Moody's or A-1
by S& P, or (b) if not rated, issued by companies having an outstanding
unsecured debt issue which at the time of purchase is rated Aa or higher by
Moody's or AA or higher by S&P.
SIT MONEY MARKET FUND
- --------------------------------------------------------------------------------
The Funds may invest up to 25% of their total net assets in shares of money
market funds advised by the Adviser, which includes the Money Market Fund,
subject to the conditions contained in an exemptive order (the "Exemptive
Order") issued to the Funds and the Adviser by the Securities and Exchange
Commission.
20
<PAGE>
Such investments may be made in lieu of direct investments in short term money
market instruments if the Adviser believes that they are in the best interest of
the Funds. The Exemptive Order requires the Adviser and its affiliates, in their
capacities as service providers for the Money Market Fund, to remit to the
Funds, or waive, an amount equal to all fees otherwise due to them under their
advisory and other agreements with the Money Market Fund to the extent such fees
are based upon a Fund's assets invested in shares of the Money Market Fund. This
requirement is intended to prevent shareholders of the Funds from being
subjected to double management and other asset-based fees as a result of a
Fund's investments in the Money Market Fund.
DIVERSIFICATION
- --------------------------------------------------------------------------------
As a fundamental policy (in addition to the fundamental policies and
restrictions set forth in the Prospectus and this Statement of Additional
Information), each Fund intends to operate as a "diversified" management
investment company, as defined in the Investment Company Act of 1940, as
amended. A "diversified" investment company means a company which meets the
following requirements: At least 75% of the value of the company's total assets
is represented by cash and cash items (including receivables), "Government
Securities", securities of other investment companies, and other securities for
the purposes of this calculation limited in respect of any one issuer to an
amount not greater in value than 5% of the value of the total assets of such
management company and to not more than 10% of the outstanding voting securities
of such issuer. "Government Securities" means securities issued or guaranteed as
to principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States; or
certificates of deposit for any of the foregoing. Additionally, as set forth
above, each of the Funds has adopted certain restrictions that are more
restrictive than the policies set forth in this paragraph.
SECURITIES LENDING
- --------------------------------------------------------------------------------
The lending of portfolio securities to broker-dealers, banks, and other
institutions may increase the average annual return to shareholders. Lending of
portfolio securities also involves certain risks to a Fund. As with other
extensions of credit, there are risks of delay in recovery of loaned securities,
or even loss of rights in collateral pledged by the borrower, should the
borrower fail financially. However, the Funds will only enter into loan
agreements with broker-dealers, banks, and other institutions which the Adviser
has determined are creditworthy. The Funds may also experience a loss if, upon
the failure of a borrower to return loaned securities, the collateral is not
sufficient in value or liquidity to cover the value of such loaned securities
(including accrued interest thereon). However, the borrower will be required to
pledge collateral which the custodian for a Fund's portfolio securities will
take into possession before any securities are loaned. Additionally, the
borrower may pledge only cash, securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities, certificate of deposit or
other high-grade, short-term obligations or interest-bearing cash equivalents as
collateral. There will be a daily procedure to ensure that the pledged
collateral is equal in value to at least 100% of the value of the securities
loaned. Under such procedure, the value of the collateral pledged by the
borrower as of any particular business day will be determined on the next
succeeding business day. If such value is less than 100% of the value of the
securities loaned, the borrower will be required to pledge additional
collateral. The risks of borrower default (and the resultant risk of loss to a
Fund) also are reduced by lending only securities for which a ready market
exists. This will reduce the risk that the borrower will not be able to return
such securities due to its inability to cover its obligation by purchasing such
securities on the open market.
To the extent that collateral is comprised of cash, a Fund will be able to
invest such collateral only in securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities and in certificates of deposit
or other high-grade, short-term obligations or interest-bearing cash
equivalents. If a Fund invests cash collateral in such securities, the Fund
could experience a loss if the value of such securities declines below the value
of the cash collateral pledged to secure the loaned securities. The amount of
such loss would be the difference between the value of the collateral pledged by
the borrower and the value of the securities in which the pledged collateral was
invested.
Although there can be no assurance that the risks described above will not
adversely affect a Fund, the Adviser believes that the potential benefits that
may accrue to a Fund as a consequence of securities lending will outweigh any
such increase in risk.
21
<PAGE>
ADDITIONAL INFORMATION ABOUT SELLING SHARES
- --------------------------------------------------------------------------------
SUSPENSION OF SELLING ABILITY
- --------------------------------------------------------------------------------
Each Fund may suspend selling privileges or postpone the date of payment:
- - During any period that the NYSE is closed other than customary weekend or
holiday closings, or when trading is restricted, as determined by the
Securities and Exchange Commission ("SEC");
- - During any period when an emergency exists, as determined by the SEC, as a
result of which it is not reasonably practical for the Fund to dispose of
securities owned by it or to fairly determine the value of its assets;
- - For such other periods as the SEC may permit.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Once you place a telephone transaction request to Sit Mutual Funds, it cannot be
canceled or modified. The Funds use reasonable procedures to confirm that
telephone instructions are genuine, including requiring that payments be made
only to the shareholder's address of record or the bank account designated on
the application and requiring certain means of telephone identification. If the
Fund fails to employ such procedures, it may be liable for any losses suffered
by Fund shareholders as a result of unauthorized or fraudulent instructions.
During times of chaotic economic or market circumstances, a shareholder may have
difficulty reaching the Funds by telephone. Consequently, a redemption or
exchange by telephone may be difficult to implement at those times.
REDEMPTION-IN-KIND
- --------------------------------------------------------------------------------
If the Adviser determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other financial assets, valued for this purpose as they are valued in
computing the NAV for a Fund's shares. Shareholders receiving securities or
other financial assets on redemption may realize a gain or loss for tax purposes
and will incur any costs of sale, as well as the associated inconveniences.
COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value is determined as of the close of the New York Stock Exchange on
each day that the exchange is open for business and on any other day on which
there is sufficient trading in a Fund's securities to materially affect the
Fund's net asset value per share. The customary national business holidays
observed by the New York Stock Exchange and on which the Funds are closed are:
New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, July Fourth, Labor Day, Thanksgiving Day and Christmas Day. The
net asset value per share will not be determined on these national holidays.
On June 30, 1999, the net asset value and public offering price per share for
each Fund was calculated as follows:
Balanced Fund:
net assets $12,112,363
------------------------------
shares outstanding 697,061 = net asset value (NAV) per share =
public offering price per share $17.38
Large Cap Growth Fund:
net assets $140,257,696
------------------------------
shares outstanding 2,654,228 = NAV per share = public offering
price per share $52.84
Regional Growth Fund:
net assets $7,523,608
------------------------------
shares outstanding 571,098 = NAV per share = public offering
price per share $13.17
Mid Cap Growth Fund:
net assets $375,342,578
------------------------------
shares outstanding 25,812,041 = NAV per share = public offering
price per share $14.54
22
<PAGE>
International Growth Fund:
net assets $94,982,220
------------------------------
shares outstanding 5,060,826 = NAV per share = public offering
price per share $18.77
Small Cap Growth Fund:
net assets $50,334,597
------------------------------
shares outstanding 2,753,954 = NAV per share = public offering
price per share $18.28
Science and Technology Growth Fund:
net assets $14,193,665
------------------------------
shares outstanding 932,227 = NAV per share = public offering
price per share $15.23
Developing Markets Growth Fund:
net assets $11,337,746
------------------------------
shares outstanding 1,135,889 = NAV per share = public offering
price per share $9.98
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
Advertisements and other sales literature for the Funds may refer to cumulative
total return, average annual total return and yield.
CUMULATIVE TOTAL RETURN. Total return means cumulative total return and is
calculated by finding the cumulative compounded rate of return over the period
indicated that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
EVR - P
CTR = ( ------- ) x 100
P
CTR = cumulative total return
ERV = ending redeemable value at the end of the period of a hypothetical
$1,000 payment made at the beginning of such period
P = initial payment of $1,000
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates and includes
all recurring fees, such as investment advisory and management fees, charged to
all shareholder accounts.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding
the average annual compounded rates of return over the periods indicated that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)nth power = ERV
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates and includes
all recurring fees, such as investment advisory and management fees, charged to
all shareholder accounts.
YIELD. Yield is computed by dividing the net investment income per share (as
defined under Securities and Exchange Commission rules and regulations) earned
during the computation period by the maximum offering price per share on the
last day of the period, according to the following formula:
23
<PAGE>
a - b
Yield = 2 ( ----- + 1 ) 6th power - 1
cd
a = dividends and interest earned during the periods;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the
period.
MANAGEMENT
- --------------------------------------------------------------------------------
The Large Cap Growth Fund, Mid Cap Growth Fund, and the corporate issuer of the
Balanced Fund, Regional Growth Fund, International Growth Fund, Small Cap Growth
Fund, Science and Technology Growth Fund and Developing Markets Growth Fund,
have corporate officers and Boards of Directors. Pursuant to Minnesota law, the
Boards of Directors are responsible for the management of the Funds and the
establishment of the Funds' policies. The officers of the Funds manage the
day-to-day operation of the Funds.
The Sit Funds as a group (a total of 13 Funds) pay each director, who is not
also an officer, an annual total fee of $12,000, $2,000 for each meeting
attended, and provide reimbursement for travel and other expenses. The following
table sets forth the aggregate compensation received by each Director for
services provided to the thirteen funds of the Sit Mutual Funds. Pursuant to
each Fund's investment management agreement with the Adviser, the Adviser is
obligated to pay the Funds' expenses, including fees paid to the directors. (See
discussion under "Investment Adviser" below.) Directors who are officers of the
Adviser or any of its affiliates did not receive any such compensation and are
not included in the table.
<TABLE>
<CAPTION>
Aggregate Pension or
Compensation For Retirement Benefits Estimated Total
Services Rendered Accrued As Part Annual Benefits Compensation From
Director to Each Fund of Fund Expenses Upon Retirement Fund Complex
<S> <C> <C> <C> <C>
John E. Hulse 1,355 None None 20,000
William E. Frenzel 1,355 None None 20,000
Sidney L. Jones 1,355 None None 20,000
Donald W. Phillips 1,355 None None 18,000
</TABLE>
The names, addresses, principal occupations and other affiliations of directors
and officers of the Funds are given below. Except as noted below, the business
address of each officer and director is the same as that of the Adviser - 4600
Norwest Center, Minneapolis, Minnesota.
<TABLE>
<CAPTION>
NAME & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------- ----------------------- ----------------------------------------
<S> <C> <C>
Eugene C. Sit, CFA* Director - All Funds Chairman, CEO and CIO of Sit Investment Associates, Inc.
Chairman - All Funds (the "Adviser"); Chairman, CEO and CIO of Sit/Kim
International Investment Associates, Inc. (the "Sub-Adviser");
Chairman of the Funds and Director of SIA Securities Corp.
(the "Distributor")
Peter L. Mitchelson, CFA* Director - All Funds President and Director of the Adviser; Executive Vice
Vice Chairman - All Funds President and Director of the Sub-Adviser; Director and
Sr. Portfolio Manager - Vice Chairman of the Funds; Director of the Distributor
Large Cap Growth
and Balanced Funds
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NAME & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------- ----------------------- ----------------------------------------
<S> <C> <C>
William E. Frenzel * Director - All Funds Director of the Funds; Director of the Adviser; Director of
1775 Massachusetts Ave. N.W. the Sub-Adviser; Senior Visiting Scholar at The Brookings
Washington, D.C. 20036 Institution; Former senior member of Congress and a ranking
member on the House Ways and Means Committee and Vice
Chairman of the House Budget Committee
John E. Hulse Director - All Funds Director of the Funds; Director, Trustee, Benilde Religious
4303 Quail Run Lane & Charitable Trust; Trustee, Pacific Gas & Electric Nuclear
Danville, CA 94506 Decommissioning Trust
Sidney L. Jones Director - All Funds Director of the Funds; Adjunct Faculty, Center for Public
8505 Parliament Drive Policy Education, The Brookings Institution; Visiting
Potomac, MD 20854 Research Associate in Economics at Carleton College; Former
Assistant Secretary for Economic Policy, United States
Department of the Treasury
Donald W. Phillips Director - All Funds Director of the Funds; President of Forstmann-Leff
111 West Jackson International Inc.; Executive Vice President of Equity
Chicago, IL 60604 Financial and Management Company until 1997;
Chairman of Equity Institutional Investors, Inc. until 1997.
Melvin C. Bahle Director Emeritus - Director of the Funds; Financial consultant; Director and/or
#1 Muirfield Lane All Funds Officer of several companies, foundations and religious
St. Louis, MO 63141 organizations
Mary K. Stern, CFA President - All Funds Vice President - Mutual Funds of the Adviser
Roger J. Sit Senior Vice President - Senior Vice President for the Adviser and Sub-Adviser; Vice
Equity Funds President and Senior Equity Research Analyst for Goldman Sachs &
Company until January, 1998
Paul E. Rasmussen Vice President & Treasurer - Vice President, Secretary and Controller for the Adviser and
All Funds Sub-Adviser; Vice President and Treasurer of the Funds;
President and Treasurer of the Distributor
Erik S. Anderson, CFA Vice President - Investments Vice President - Equity Research and Portfolio Management
All Funds of the Adviser
Ronald D. Sit, CFA Vice President - Investments Vice President - Equity Research and Portfolio Management
All Funds of the Adviser
Michael C. Brilley Senior Vice President - Senior Vice President and Senior Fixed Income Officer
Balanced Fund of the Adviser; Senior Vice President of the Sit Bond Funds
Bryce A. Doty, CFA Vice President - Investments Vice President - Fixed Income Research and Portfolio
Balanced Fund Management of the Balanced Fund
John T. Groton, Jr., CFA Vice President - Investments Vice President - Equity Research Analyst of the Adviser
Regional Growth Fund
Robert W. Sit Vice President - Investments Vice President - Equity Research Analyst of the Adviser
Science and Technology
Growth Fund
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NAME & ADDRESS POSITION WITH THE FUNDS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------- ----------------------- ----------------------------------------
<S> <C> <C>
Michael P. Eckert Vice President - All Funds Vice President - Mutual fund sales of the Adviser
Michael J. Radmer Secretary - All Funds Secretary of the Funds; Partner of the Funds' general counsel,
220 South Sixth Street Dorsey & Whitney LLP
Minneapolis, MN
</TABLE>
- ---------------
* Directors who are deemed to be "interested persons" of the Funds as that
term is defined by the Investment Company Act of 1940. Messrs. Sit and
Mitchelson are interested persons because they are officers of the Adviser.
Mr. Frenzel is an interested person of the International Growth Fund and
Developing Markets Growth Fund because he is a director of the Sub-Adviser,
and may be deemed to be an interested person of all Funds because he is an
advisory director and shareholder of the Adviser.
Mr. Roger Sit, Mr. Ron Sit, and Mr. Robert Sit are sons of Eugene C. Sit.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The Adviser (or an affiliate) has served as the investment adviser for each Fund
since the inception of each Fund.
TERMS COMMON TO ALL FUNDS' INVESTMENT MANAGEMENT AGREEMENTS
- --------------------------------------------------------------------------------
Each Fund's Investment Management Agreement provides that the Adviser will
manage the investment of the Fund's assets, subject to the applicable provisions
of the Fund's articles of incorporation, bylaws and current registration
statement (including, but not limited to, the investment objective, policies and
restrictions delineated in the Fund's current prospectus and Statement of
Additional Information), as interpreted from time to time by the Fund's Board of
Directors. Under each Agreement, the Adviser has the sole and exclusive
responsibility for the management of the Fund's investment portfolio and for
making and executing all investment decisions for the Fund. The Adviser is
obligated under each Agreement to report to the Fund's Board of Directors
regularly at such times and in such detail as the Board may from time to time
determine appropriate, in order to permit the Board to determine the adherence
of the Adviser to the Fund's investment policies. Each Agreement also provides
that the Adviser shall not be liable for any loss suffered by the Fund in
connection with the matters to which the Agreement relates, except losses
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties or by reason of its
reckless disregard of its obligations and duties under the Agreement.
Each Agreement provides that the Adviser shall, at its own expense, furnish all
office facilities, equipment and personnel necessary to discharge its
responsibilities and duties under the Agreement and that the Adviser will
arrange, if requested by the Fund, for officers or employees of the Adviser to
serve without compensation from the Fund as directors, officers or employees of
the Fund if duly elected to such positions by the shareholders or directors of
the Fund.
Each Agreement provides that the Adviser will bear all of the Fund's expenses,
except for extraordinary expenses (as designated by a majority of the Fund's
disinterested directors), interest, brokerage commissions and other transaction
charges relating to the investing activities of the Fund.
Each Investment Management Agreement provides that it will continue in effect
from year to year only as long as such continuance is specifically approved at
least annually by the applicable Fund's Board of Directors or shareholders and
by a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Adviser or the Fund. The Agreement is terminable
upon 60 days' written notice by the Adviser or the Fund and will terminate
automatically in the event of its "assignment" (as defined in the 1940 Act).
COMPENSATION AND ALLOCATION OF EXPENSES
- --------------------------------------------------------------------------------
Under each of the Fund's Investment Management Agreement, the Fund is obligated
to pay the Adviser a flat monthly fee, which is equal on an annual basis to the
following percentages of the average daily net assets of the Funds:
Sit Balanced Fund 1.00%
Sit Large Cap Growth Fund, Inc. 1.00%
Sit Regional Growth Fund 1.25%(1)
26
<PAGE>
Sit Mid Cap Growth Fund, Inc. 1.25%(2)
Sit International Growth Fund 1.85%(3)
Sit Small Cap Growth Fund 1.50%
Sit Science and Technology Growth Fund 1.50%(1)
Sit Developing Markets Growth Fund 2.00%
(1) For the period December 31, 1997 (date of inception) through December 31,
2000, the Adviser has voluntarily agreed to limit management fee (and
thereby, all Fund expenses, except those not payable by the Adviser as set
forth above) to 1.00% of the Regional Growth Fund's average daily net
assets and 1.25% of the Science and Technology Growth Fund's average daily
net assets. After December 31, 2000, these voluntary fee waivers may be
discontinued by the Adviser in its sole discretion.
(2) For the period November 1, 1996 through December 31, 2000, the Adviser has
voluntarily agreed to limit the management fee (and thereby, all Fund
expenses, except those not payable by the Adviser as set forth above) of
the Mid Cap Growth Fund to 1.00% of the Fund's average daily net assets.
After December 31, 2000, this voluntary fee waiver may be discontinued by
the Adviser in its sole discretion.
(3) For the period January 1, 1994 through December 31, 2000, the Adviser has
voluntary agreed to limit the management fee (and thereby, all Fund
expenses, except those not payable by the Adviser as set forth above) of
the International Growth Fund to 1.50% per year of the Fund's average daily
net assets. After December 31, 2000, this voluntary fee waiver may be
discontinued by the Adviser at its sole discretion.
Prior to November 1, 1996 the Investment Management Agreement between the
Adviser and each of Large Cap Growth Fund and Mid Cap Growth Fund provided that
the Fund was obligated to pay the Adviser a monthly fee based on average daily
net assets ("net assets") on an annual basis equal to 1.00% for the first $30
million of net assets, .75% for the next $70 million of net assets and .50% for
the excess of $100 million of net assets. The Adviser was obligated to reimburse
each of Large Cap Growth Fund and Mid Cap Growth Fund for all of the Fund's
expenses except for extraordinary expenses (as designated by a majority of each
Fund's disinterested directors), interest, brokerage commissions and other
transaction charges relating to each Fund's investing activities (which expenses
were the sole responsibility of the Fund, irrespective of amount), which exceed,
on an annual basis, an amount equal to 1.50% of the first $30 million of the
Fund's average daily net assets and 1.00% of average daily net assets in excess
of $30 million. Subject to this expense limitation, each of Large Cap Growth
Fund and Mid Cap Growth Fund was responsible for all of its expenses to the
extent not specifically assumed by the Adviser under the Agreement. For the
period October 1, 1993 through October 31, 1996, the Adviser voluntarily agreed
to absorb expenses that were otherwise payable by the Large Cap Growth Fund
which exceeded 1.00% of the Fund's average daily net assets.
Set forth below are the investment management fees and other expenses paid by
each of the Large Cap Growth Fund, Mid Cap Growth Fund, Small Cap Growth Fund,
Balanced Fund, International Growth Fund, and Developing Markets Growth Fund
during the fiscal years ended June 30, 1999, 1998, and 1997; the Regional Growth
Fund and Science and Technology Growth Fund during the fiscal year ended June
30, 1998. Fees and expenses of the Funds waived or paid by the Adviser during
such fiscal years are also set forth below.
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP REGIONAL
GROWTH GROWTH GROWTH GROWTH
1999 FUND FUND FUND FUND
- ---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AVERAGE NET ASSETS $ 125,102,962 $ 346,171,200 $ 45,544,647 $ 5,945,176
Investment Advisory Fees 1,250,402 4,328,283 683,493 74,226
Other Expenses 00 00 00 00
Expenses Waived 00 (865,657) 00 (14,845)
------------- ------------- ------------- -------------
Net Fund Expenses 1,250,402 3,462,626 683,493 59,381
Ratio of expenses to average
daily net assets 1.00% 1.00% 1.50% 1.00%
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
TECHNOLOGY INT'L MARKETS
GROWTH BALANCED GROWTH GROWTH
1999 (CONTINUED) FUND FUND FUND FUND
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AVERAGE NET ASSETS $ 8,828,949 $ 8,708,561 $ 92,851,503 $ 10,435,959
Investment Advisory Fees 132,050 86,957 1,718,057 208,718
Other Expenses 00 00 00 00
Expenses Waived (22,008) 00 (325,038) 00
------------ ------------ ------------ ------------
Net Fund Expenses 110,042 86,957 1,393,019 208,718
Ratio of expenses to average
daily net assets 1.25% 1.00% 1.50% 2.00%
</TABLE>
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP REGIONAL
GROWTH GROWTH GROWTH GROWTH
1998 FUND FUND FUND FUND
- ---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AVERAGE NET ASSETS $ 88,152,918 $ 401,679,671 $ 64,558,158 $ 3,944,416
Investment Advisory Fees 880,285 5,020,370 968,377 23,035
Other Expenses 00 00 00 00
Expenses Waived 00 (1,004,074) 00 (3,611)
------------- ------------- ------------- -------------
Net Fund Expenses 880,285 4,016,296 968,377 19,424
Ratio of expenses to average
daily net assets 1.00% 1.00% 1.50% .49%*
</TABLE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
TECHNOLOGY INT'L MARKETS
GROWTH BALANCED GROWTH GROWTH
1998 (CONTINUED) FUND FUND FUND FUND
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AVERAGE NET ASSETS $ 3,760,994 $ 5,969,736 $ 96,761,406 $ 13,914,844
Investment Advisory Fees 27,931 59,634 1,790,014 278,595
Other Expenses 00 00 00 00
Expenses Waived (3,611) 00 (338,651) 00
------------ ------------ ------------ ------------
Net Fund Expenses 23,276 59,634 1,451,363 278,595
Ratio of expenses to average
daily net assets .62%* 1.00% 1.50% 2.00%
</TABLE>
*December 31, 1997 (date of inception) through June 31, 1998
<TABLE>
<CAPTION>
LARGE CAP MID CAP SMALL CAP INT'L MARKETS
GROWTH GROWTH GROWTH BALANCED GROWTH GROWTH
1997 FUND FUND FUND FUND FUND FUND
- ---- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE NET ASSETS $ 59,728,101 $364,106,590 $ 53,823,220 $ 4,436,834 $ 87,622,427 $ 11,513,549
Investment Advisory Fees 595,823 3,757,126 807,030 44,340 1,620,463 229,821
Other Expenses 51,486 218,000 00 00 00 00
Expenses Waived (50,548) (609,840) 00 00 (306,575) 00
------------ ------------ ------------ ------------ ------------ ------------
Net Fund Expenses 596,761 3,365,286 807,030 44,340 1,313,888 229,821
Ratio of expenses to average
daily net assets 1.00% .92% 1.50% 1.00% 1.50% 2.00%
</TABLE>
THE SUB-ADVISER - INTERNATIONAL GROWTH FUND AND DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
The International Growth Fund's and Developing Markets Growth Fund's Investment
Management Agreements authorize the Adviser, at its option and at its sole
expense, to appoint a sub-adviser, which may assume all or such responsibilities
and obligations of the Adviser pursuant to the Investment Management Agreement
as shall be delegated to the sub-adviser; provided, however, that any
discretionary investment decisions made by the sub-adviser shall be subject to
approval or ratification by the Adviser, and any appointment of a sub-adviser
and assumption of responsibilities and obligations of the Adviser by such
sub-adviser shall be subject to approval by the Board of Directors, and as
required by law the shareholders,
28
<PAGE>
of the Company; and provided, further, that the appointment of any sub-adviser
shall in no way limit or diminish the Adviser's obligations and responsibilities
under the Investment Management Agreement. Pursuant to this authority, the
Sub-Adviser serves as International Growth Fund's and Developing Markets Growth
Fund's Sub-Adviser.
The current Sub-Advisory Agreement provides that the Sub-Adviser agrees to
manage the investment of International Growth Fund's and Developing Markets
Growth Fund's assets, subject to the applicable provisions of the Funds'
articles of incorporation, bylaws and current registration statement (including,
but not limited to, the investment objective, policies and restrictions
delineated in the Fund's current prospectus and Statement of Additional
Information), as interpreted from time to time by the Fund's Board of Directors.
The Agreement also provides that any discretionary investment decisions made by
the Sub-Adviser are subject to the Adviser's review, approval or ratification at
the Adviser's discretion.
For its services under the Sub-Advisory Agreement, absent any voluntary fee
waivers, the Adviser has agreed to pay the Sub-Adviser a monthly fee equal to
the percentages set forth below of the value of the International Growth Fund's
and Developing Markets Growth Fund's average daily net assets:
<TABLE>
<CAPTION>
International Growth Developing Markets
Fund Growth Fund
-------------------- ------------------
<S> <C> <C>
First $100 million of average daily net assets .75% .75%
Next $100 million of average daily net assets .50% .60%
Assets in excess of $200 million .40% .50%
</TABLE>
Pursuant to the Investment Management Agreement the Adviser paid the Sub-Adviser
fees of $569,650, $627,994 and $602,981 for the fiscal years ended June 30,
1997, 1998 and 1999 respectively with respect to services provided on behalf of
the International Growth Fund; and fees of $86,493, $104,245 and $78,208 for the
fiscal years ended June 30, 1997, 1998 and 1999 with respect to services
provided on behalf of the Developing Markets Growth Fund.
The Sub-Advisory Agreement continues in effect from year to year only as long as
such continuance is specifically approved at least annually by (i) the Board of
Directors of the Fund or by the vote of a majority of the outstanding voting
shares of the Fund, and (ii) by the vote of a majority of the directors of the
Company who are not parties to the Agreement or interested persons of the
Adviser, the Sub-Adviser, the International Growth Fund or the Developing
Markets Growth Fund. The Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of Sit Mutual Funds, Inc., the
issuer of the International Growth Fund and Developing Markets Growth Fund or by
the vote of a majority of the outstanding voting shares of the Fund, or by the
Sub-Adviser or the Adviser, upon 30 days' written notice to the other party.
Additionally, the Agreement automatically terminates in the event of its
assignment.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Each of the Funds have entered into Underwriting and Distribution Agreements
with SIA Securities Corp. ("Securities"), an affiliate of the Adviser, pursuant
to which Securities will act as each Fund's principal underwriter. Securities
will market each Fund's shares only to certain institutional investors and all
other sales of each Fund's shares will be made by each Fund. The Adviser will
pay all expenses of Securities in connection with such services and Securities
is otherwise not entitled to any other compensation under the Underwriting and
Distribution Agreement. Each Fund will incur no additional fees in connection
with the Underwriting and Distribution Agreement.
Pursuant to the Underwriting and Distribution Agreement, Securities has agreed
to act as the principal underwriter for each Fund in the sale and distribution
to the public of shares of each Fund, either through dealers or otherwise.
Securities has agreed to offer such shares for sale at all times when such
shares are available for sale and may lawfully be offered for sale and sold. The
Underwriting and Distribution Agreement is renewable from year to year if the
Fund's directors approve such agreement. The Fund or Securities can terminate
the Underwriting and Distribution Agreement at any time without penalty on 60
days' notice written notice to the other party. The Underwriting and
Distribution Agreement terminates automatically upon its assignment. In the
Underwriting and Distribution Agreement, Securities agrees to indemnify each
Fund against all costs of litigation and other legal proceedings and against any
liability incurred by or imposed on the Fund in any way arising out of or in
connection with the sale or distribution of each Fund's shares, except to the
extent that such liability is the result of information which was obtainable by
Securities only from persons affiliated with the Fund but not Securities.
29
<PAGE>
Securities or the Adviser may enter into agreements with various brokerage or
other firms pursuant to which such firms provide certain administrative services
with respect to customers who are beneficial owners of shares of the Funds. The
Adviser or Securities may compensate such firms for the services provided, which
compensation is based on the aggregate assets of customers that are invested in
the Funds.
BROKERAGE
- --------------------------------------------------------------------------------
Transactions on a stock exchange in equity securities will be executed primarily
through brokers that will receive a commission paid by the applicable Fund.
Fixed income securities, as well as equity securities traded in the
over-the-counter market, are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten fixed income and equity offerings, securities are purchased at a
fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's selling concession or discount.
Certain of these securities may also be purchased directly from the issuer, in
which case neither commissions nor discounts are paid.
The Adviser (or Sub-Adviser, as applicable) selects and, where applicable,
negotiates commissions with the broker-dealers who execute the transactions for
one or more of the Funds. The primary criterion for the selection of a
broker-dealer is the ability of the broker-dealer, in the opinion of the Adviser
(or Sub-Adviser, as applicable) to secure prompt execution of the transactions
on favorable terms, including the best price of the security, the reasonableness
of the commission and considering the state of the market at the time. When
consistent with these objectives, business may be placed with broker-dealers who
furnish investment research or services to the Adviser or Sub-Adviser. Such
research or services include advice, both directly and in writing, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities, or purchasers or sellers of
securities. Such services also may include analyses and reports concerning
investment issues, industries, securities, economic factors and trends,
portfolio strategy, the performance of accounts, and trading systems. Some
services may require the use of hardware provided by the information provider.
This allows the Adviser (or Sub-Adviser, as applicable) to supplement its own
investment research activities and enables the Adviser (or Sub-Adviser, as
applicable) to obtain the views and information of individuals and research
staffs of many different securities firms prior to making investment decisions
for the Funds. To the extent portfolio transactions are effected with
broker-dealers who furnish research services to the Adviser or Sub-Adviser, the
Adviser or Sub-Adviser receives a benefit, not capable of valuation in dollar
amounts, without providing any direct monetary benefit to the applicable Funds
from these transactions. The Adviser and the Sub-Adviser believe that most
research services they receive generally benefit several or all of the
investment companies and private accounts which they manage, as opposed to
solely benefiting one specific managed fund or account. Normally, research
services obtained through managed funds or accounts investing in common stocks
would primarily benefit the managed funds or accounts which invest in common
stock; similarly, services obtained from transactions in fixed income securities
would normally be of greater benefit to the managed funds or accounts which
invest in debt securities.
Both the Adviser and the Sub-Adviser maintain an informal list of
broker-dealers, which is used from time to time as a general guide in the
placement of Fund business, in order to encourage certain broker-dealers to
provide the Adviser and the Sub-Adviser with research services which the Adviser
and the Sub-Adviser anticipate will be useful to them in managing the Funds.
Because the list is merely a general guide, which is to be used only after the
primary criterion for the selection of broker-dealers (discussed above) has been
met, substantial deviations from the list are permissible and may be expected to
occur. Each of the Adviser and the Sub-Adviser will authorize a Fund to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker-dealer would have charged only if the
Adviser (or Sub-Adviser, as applicable) determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage and
research services provided by such broker-dealer, viewed in terms of either that
particular transaction or the Adviser's or Sub-Adviser's overall
responsibilities with respect to the accounts as to which it exercises
investment discretion. Generally, the Fund pays commissions higher than the
lowest commission rates available. Some investment companies enter into
arrangements under which a broker-dealer agrees to pay the cost of certain
products or services (not including research services) in exchange for fund
brokerage ("brokerage/services arrangements"). Under a typical brokerage/service
arrangement, a broker agrees to pay a fund's custodian fees or transfer agent
fees and, in exchange, the fund agrees to direct a minimum amount of brokerage
to the broker. The Adviser does not intend to enter into such brokerage/service
arrangements on behalf of the Funds. Some investment companies enter into
arrangements that provide for
30
<PAGE>
specified or reasonably ascertainable fee reductions in exchange for the use of
fund assets ("expense offset arrangements"). Under such expense offset
agreements, expenses are reduced by foregoing income rather than by
re-characterizing them as capital items. For example, a fund may have a
"compensating balance" agreement with its custodian under which the custodian
reduces its fee if the fund maintains cash or deposits with the custodian in
non-interest bearing accounts. The Adviser does not intend to enter into expense
offset agreements involving assets of the Funds.
Most all domestic (U.S.) securities trades will be executed through U.S.
brokerage firms and commercial banks. Most foreign equity securities will be
obtained in over-the-counter markets or stock exchanges located in the countries
in which the respective principal offices of the issuers of the various
securities are located, if that is the best available market. The fixed
commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less government supervision and regulation of foreign stock
exchanges and brokers than in the United States. Foreign security settlements
may in some instances be subject to delays and related administrative
uncertainties.
Foreign equity securities may be held in the form of American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), or securities
convertible into foreign equity securities. ADRs or EDRs may be listed on stock
exchanges, or traded in the over-the-counter markets in the United States or
Europe, as the case may be. ADRs, like other securities traded in the United
States, will be subject to negotiated commission rates. The foreign and domestic
debt securities and money market instruments in which International Growth Fund
may invest are generally traded in the over-the-counter markets.
Fund management does not currently anticipate that the Fund will effect
brokerage transactions in its portfolio securities with any broker-dealer
affiliated directly or indirectly with the Funds, the Adviser or the
Sub-Adviser.
The Adviser has entered into agreements with Capital Institutional Services,
Inc. ("CIS"), and Autranet, Inc. ("AI"), unaffiliated registered broker-dealers.
All transactions placed with CIS and LAS are subject to the above criteria. CIS
and AI provide the Adviser with a wide variety of economic, performance, and
investment research information, resources from Egan-Jones Rating Company, Fitch
Investors Service, Inc., Moody's Investors Service Inc., Municipal Market Data,
Standard & Poor's Corporation, Bloomburg, L.P., Institutional Investor, Pattern
Recognition Research Inc., and Stone & McCarthy Research Associates.
Investment decisions for each Fund are made independently of those for other
clients of the Adviser, including the other Funds. When the Funds or clients
simultaneously engage in the purchase or sale of the same securities, the price
of the transactions is averaged and the amount allocated in accordance with a
formula deemed equitable to each Fund and client. In some cases, this system may
adversely affect the price paid or received by the Fund or the size of the
position obtainable. Total brokerage commissions paid by the Funds for the three
most recent fiscal years include commissions as set forth below which were paid
to firms that supplied the Funds and Adviser with statistical and research
services.
<TABLE>
<CAPTION>
1999 1998 1997
AMT PAID TO AMT PAID TO AMT PAID TO
FIRMS FOR FIRMS FOR FIRMS FOR
STATISTICS & STATISTICS & STATISTICS &
FUND TOTAL RESEARCH TOTAL RESEARCH TOTAL RESEARCH
- ---- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced $6,571 $3,962 $3,578 $1,608 $1,736 $638
Large Cap Growth 126,142 74,829 82,201 40,346 38,746 11,214
Regional Growth 10,175 3,030 5,367 480 n/a n/a
Mid Cap Growth 603,028 398,377 459,643 237,865 304,909 63,380
International Growth 288,891 266,092 247,731 196,276 260,243 11,840
Small Cap Growth 146,914 34,423 147,191 23,910 77,528 25,084
Science and Technology Growth 13,053 2,280 4,102 480 n/a n/a
Developing Markets Growth 79,045 75,952 50,695 44,935 85,207 1,224
</TABLE>
31
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
The following persons owned of record or beneficially 5% or more of the
respective Fund's outstanding shares as of August 23, 1999:
<TABLE>
<CAPTION>
Record Beneficially Of Record &
Person Only Only Beneficially
- ------ ------ ------------ ------------
<S> <C> <C> <C>
BALANCED FUND
- -------------
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 18.77%
Charles Schwab & Co., Inc., Special Custody Acct FBO Cust., 101
Montgomery Street, San Francisco, CA 14.69%
National Financial Services Corp., FBO Cust., Church Street
Station, P.O. Box 3908, New York, NY 6.37%
Dennis W. Gartner, Trustee, Electric Component Sales Inc., Profit Sharing
Plan & Trust, 6474 City West Parkway, Eden Prairie, MN 5.87%
Richard & Marlys Lynch, Trustees, El-Tronic Precision, Inc., Profit
Sharing Plan & 401K Plan, 441 93rd Avenue NW, Coon Rapids, MN 5.22%
LARGE CAP GROWTH FUND
- ---------------------
Charles Schwab & Co., Inc., Special Custody Acct FBO Cust., 101
Montgomery Street, San Francisco, CA 8.92%
The Danforth Foundation, c/o Melvin C. Bahle, 211 N. Broadway
Ste. 2390, St. Louis, MO 5.13%
REGIONAL GROWTH FUND
- --------------------
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 8.91%
Minnesota Lawyers Mutual, 3850 Norwest Center, 90 S. 7th Street,
Minneapolis, MN 6.57%
MID CAP GROWTH FUND
- -------------------
Fishnet & Co., Master Trust Division, c/o State Street Bank & Trust Co.,
P.O. Box 1992, Boston, MA 6.43%
Chemical Bank Corporation, Hearst Corp. Master Trust, 4 New York Plaza
Fl 4, New York, NY 5.70%
Charles Schwab & Co., Inc., Special Custody Acct FBO Cust., 101
Montgomery Street, San Francisco, CA 5.59%
INTERNATIONAL GROWTH FUND
- -------------------------
Charles Schwab & Co., Special Custody Acct FBO Cust., 101
Montgomery St., San Francisco, CA 9.41%
Northern Trust Company, Trust, J. Paul Getty Retirement Plan,
P.O. Box 92956, Chicago, IL 6.19%
SMALL CAP GROWTH FUND
- ---------------------
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 9.70%
National Financial Services Corp., FBO Cust., Church Street
Station, P.O. Box 3908, New York, NY 7.54%
Eugene C. Sit and Gail V. Sit, P.O. Box 2132,
Minneapolis, MN 6.97%
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Record Beneficially Of Record &
Person Only Only Beneficially
- ------ ------ ------------ ------------
<S> <C> <C> <C>
SCIENCE AND TECHNOLOGY GROWTH FUND
- ----------------------------------
Sit Investment Associates (various accounts) 4600 Norwest Center
Minneapolis, MN 5.33%
DEVELOPING MARKETS GROWTH FUND
- ------------------------------
National Financial Services Corp., FBO Cust., Church Street
Station, P.O. Box 3908, New York, NY 18.64%
Charles Schwab & Co., Special Custody Acct FBO Cust., 101
Montgomery St., San Francisco, CA 16.91%
</TABLE>
TAXES
- --------------------------------------------------------------------------------
The tax status of the Funds and the distributions which they may make are
summarized in the prospectus in the section entitled "Taxes." Each Fund intends
to fulfill the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), as a regulated investment company. If so
qualified, each Fund will not be liable for federal income taxes to the extent
it distributes its taxable income to its shareholders.
To qualify under Subchapter M for tax treatment as a regulated investment
company, each Fund must, among other things: (1) distribute to its shareholders
at least 90% of its investment company taxable income (as that term is defined
in the Code determined without regard to the deduction for dividends paid) and
90% of its net tax-exempt income; (2) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities, or other income derived
with respect to its business of investing in such stocks, securities, or
currency; and (3) diversify its holdings so that, at the end of each fiscal
quarter of the Fund, (a) at least 50% of the market value of the Fund's assets
is represented by cash, cash items, United States Government securities and
securities of other regulated investment companies, and other securities, with
these other securities limited, with respect to any one issuer, to an amount no
greater than 5% of the Fund's total assets and no greater than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
market value of the Fund's total assets is invested in the securities of any one
issuer (other than United States Government securities or securities of other
regulated investment companies).
Each Fund is subject to a non-deductible excise tax equal to 4% of the excess,
if any, of the amount required to be distributed for each calendar year over the
amount actually distributed. In order to avoid the imposition of this excise
tax, each Fund must declare and pay dividends representing 98% of its net
investment income for that calendar year and 98% of its capital gains (both
long-term and short-term) for the twelve-month period ending October 31 of the
calendar year.
When shares of a Fund are sold or otherwise disposed of, the Fund shareholder
will realize a capital gain or loss equal to the difference between the purchase
price and the sale price of the shares disposed of, if, as is usually the case,
the Fund shares are a capital asset in the hands of the Fund shareholder. In
addition, pursuant to a special provision in the Code, if Fund shares with
respect to which a long-term capital gain distribution has been made are held
for six months or less, any loss on the sale or other disposition of such shares
will be a long-term capital loss to the extent of such long-term capital gain
distribution. Any loss on the sale or exchange of shares of a Fund generally
will be disallowed to the extent that a shareholder acquires or contracts to
acquire shares of the same Fund within 30 days before or after such sale or
exchange.
Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and, particularly in the case of transactions in or with respect to
foreign currencies, affect the character of the gains or losses realized. These
provisions may also require the Funds to mark-to market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes. Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities. Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.
33
<PAGE>
It is expected that any net gain realized from the closing out of forward
currency contracts will be considered gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above.
The Developing Markets Growth Fund and International Growth Fund may purchase
the securities of certain foreign investment funds or trusts called passive
foreign investment companies. Currently, such funds are the only or primary
means by which the Funds may invest in Hungary and India. In addition to bearing
their proportionate share of the Developing Markets Growth Fund's and
International Growth Fund's expenses (management fees and operating expenses),
shareholders will also bear indirectly similar expenses of such funds. Capital
gains on the sale of such holdings will be deemed to be ordinary income
regardless of how long the Fund holds its investment. In addition, the
Developing Markets Growth Fund and International Growth Fund may be subject to
corporate income tax and an interest charge on certain dividends and capital
gains earned from these investments, regardless of whether such income and gains
are distributed to shareholders.
The foregoing relates only to federal income taxation and is a general summary
of the federal tax law in effect as of the date of this Statement of Additional
Information.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The information contained in the financial statements and annual reports to
shareholders of the Funds is incorporated by reference in this Statement of
Additional Information.
OTHER INFORMATION
- --------------------------------------------------------------------------------
CUSTODIAN; SUB-CUSTODIAN; COUNSEL; ACCOUNTANTS
- --------------------------------------------------------------------------------
The Northern Trust Company, 50 South LaSalle Street, Chicago, IL 60675 acts as
custodian of the Funds' assets and portfolio securities; Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, Minnesota 55402, is the independent General
Counsel for the Funds; and KPMG LLP, 4200 Norwest Center, Minneapolis, Minnesota
55402, acts as the Funds' independent accountants.
Set forth below is a list of the countries and banks / depositories in which the
assets of the Developing Markets Growth Fund and International Growth Fund may
be held.
COUNTRY BANK/DEPOSITORY
- ------- ---------------
Argentina Bank Boston
Caja de Valores
Australia Westpac Banking Corporation
Austria Bank Austria
Belgium Banque Bruxelles Lambert
Caisse Interprofessionelle de Depots et de Virement
de Titres - CIK
Brazil Bank Boston
Bolsa de Valores de Sao Paulo - BOVESPA
Canada Royal Bank of Canada
Canadian Depository for Securities - CDS
Chile Citibank
China Hong Kong and Shanghai Bank
Colombia Cititrust Colombia
Czech Republic Ceskoslovenska Obchodni Banka
Stredisko Cennych Papiru
Denmark Den Danske Bank
Vaerdipapercentralen - VP Center
Egypt Citibank
Finland Merita Bank
34
<PAGE>
COUNTRY BANK/DEPOSITORY
- ------- ---------------
France Banque Paribas
Societe Interprofessionelle pour la Compensation
des Valeurs Mobilieres - SICOVAM
Banque de France
Germany Dresdner Bank
Greece Barclays Bank
Central Securities Depository
Hong Kong HongKong & Shanghai Bank
Hong Kong Securities Clearing Co. Ltd.
Hungary Citibank Budapest
The Central Depository and Clearing House
India Citibank
National Security Depository Limited
Indonesia Standard Chartered Bank
Ireland Allied Irish Bank
The Gilt Settlement Office
Israel Bank Leumi
Italy Banque Paribas
Monte Titoli
Japan Bank of Tokyo - Mitsubishi
Japan Securities Depository Center
Bank of Japan
South Korea Hong Kong & Shanghai Bank
Korea Securities Depository Corp - KSD
Malaysia Citibank Berhad
Malaysian Central Depository System
Mexico Banco Nacional de Mexico
Instituto para el Deposito de Valores - INDEVAL
Netherlands MeesPierson
Nederlands Centraal Insituut voor Girall
Effectenverkeer B.V. - NECIGEF
New Zealand ANZ Banking Group (New Zealand)
Austraclear New Zealand System
Norway Christiania Bank og Kreditkasse
Verdipapirsentralen - The Norwegian Registry of Securities
Pakistan Citibank
Peru Citibank
Caja do Valores y Liquidaciones - CAVAL
Philippines HongKong & Shanghai Bank
Poland Bank Handlowy W Warszawie
National Depository for Securities
Portugal Banco Espirito Santo e Commercial
Central do Valores Mobiliarios
Singapore Development Bank of Singapore
The Central Depository Pte Ltd.
South Africa Standard Bank of South Africa
Spain Banque Paribas
Servicio de Compensation y Liquidacion de Valores, S.A.
Sri Lanka Standard Chartered Bank
Central Depository System
Sweden Skandinaviska Enskilda Banken
Vardepapperscentralen
35
<PAGE>
COUNTRY BANK/DEPOSITORY
- ------- ---------------
Switzerland Bank Leu
Schweizerische Effeckten Giro - SEGA
Taiwan Central Trust of China
Taiwan Securities Central Depository
Thailand Citibank
Share Depository Center - SDC
Turkey Citibank
Settlement & Custody Company
Central Bank of Turkey
United Kingdom The Northern Trust Company
First Chicago Clearing Centre (CDs only)
Central Gilts Office
Venezuela Citibank
LIMITATION OF DIRECTOR LIABILITY
- --------------------------------------------------------------------------------
Under Minnesota law, each director of the Funds owes certain fiduciary duties to
the Funds and to their shareholders. Minnesota law provides that a director
"shall discharge the duties of the position of director in good faith, in a
manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care". Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws or (iv) for any transaction from which the director derived an improper
personal benefit. The Articles of Incorporation of the Company limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such liability cannot be limited as provided in the
Investment Company Act of 1940 (which Act prohibits any provisions which purport
to limit the liability of directors arising from such directors' willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a director. It
only authorizes a corporation to eliminate monetary liability for violations of
that duty. Minnesota law, further, does not permit elimination or limitation of
liability of "officers" to the corporation for breach of their duties as
officers (including the liability of directors who serve as officers for breach
of their duties as officers). Minnesota law does not permit elimination or
limitation of the availability of equitable relief, such as injunctive or
rescissionary relief. Further, Minnesota law does not permit elimination or
limitation of a director's liability under the Securities Act of 1933 or the
Securities Exchange Act of 1934, and it is uncertain whether and to what extent
the elimination of monetary liability would extend to violations of duties
imposed on directors by the Investment Company Act of 1940 and the rules and
regulations adopted under such Act.
The Funds are not required under Minnesota law to hold annual or periodically
scheduled meetings of shareholders. Minnesota corporation law provides for the
Board of Directors to convene shareholder meetings when it deems appropriate.
However, the Funds intend to hold meetings of shareholders annually. In
addition, if a regular meeting of shareholders has not been held during the
immediately preceding fifteen months, a shareholder or shareholders holding
three percent or more of the voting shares of the Funds may demand a regular
meeting of shareholders by written notice of demand given to the chief executive
officer or the chief financial officer of the Funds. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
expense of the Funds. Irrespective of whether a regular meeting of shareholders
has been held during the immediately preceding fifteen months, in accordance
with Section 16(c) under the 1940 Act, the Board of Directors of the Funds shall
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any director when requested in writing so to do by the
record holders of not less than 10 percent of the
36
<PAGE>
outstanding shares. Additionally, the 1940 Act requires shareholder votes for
all amendments to fundamental investment policies and restrictions and for all
investment advisory contracts and amendments thereto. The Funds will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act.
37
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
-------------------------------
Aaa Judged to be the best quality, carry the smallest degree of
investment risk
Aa Judged to be of high quality by all standards
A Possess many favorable investment attributes and are to be
considered as higher medium grade obligations
Baa Medium grade obligations. Lack outstanding investment
characteristics.
Ba Judged to have speculative elements. Protection of interest and
principal payments may be very moderate.
B Generally lack characteristics of a desirable investment. Assurance
of interest and principal payments over any long period of time may
be small.
Caa May be present elements of danger with respect to principal or
interest or may be in default
Ca Represent obligations which are speculative in a high degree. Often
in default.
C Lowest class of bonds and issued regarded as having extremely poor
prospects of attaining any real investment standing.
Moody's also applies numerical indicators, 1, 2, and 3, to rating
categories Aa through Ba. The modifier 1 indicates that the security is in
the higher end of the rating category; the modifier 2 indicates a
mid-range ranking; and 3 indicates a ranking toward the lower end of the
category.
STANDARD & POOR'S CORPORATION
-----------------------------
AAA Highest grade obligations and possess the ultimate degree of
protection as to principal and interest
AA Also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in small degree
A Regarded as upper medium grade, have considerable investment
strength but are not entirely free from adverse effects of changes
in economic and trade conditions, interest and principal are
regarded as safe
BBB Considered investment grade with adequate capacity to pay interest
and repay principal.
BB Judged to be speculative with some inadequacy to meet timely
interest and principal payments.
B Has greater vulnerability to default than other speculative grade
securities. Adverse economic conditions will likely impair capacity
or willingness to pay interest and principal.
CCC Has a vulnerability to default and is dependent upon favorable
business, financial and economic conditions to meet timely payment
of interest and repayment of principal.
CC Applied to debt subordinated to senior debt
C Applied to debt subordinated to senior debt that is assigned an
actual or implied CCC debt rating
Standard & Poor's applies indicators "+", no character, and "-" to the
above rating categories AA through BB. The indicators show relative
standing within the major rating categories.
FITCH IBCA
----------
AAA Highest credit quality with exceptional ability to pay interest and
repay principal
AA Investment grade and very high credit quality ability to pay
interest and repay principal is very strong, although not quite as
strong as AAA
A Investment grade with high credit quality. Ability to pay interest
and repay principal is strong.
BBB Investment grade and has satisfactory credit quality. Adequate
ability to pay interest and repay principal.
BB Considered speculative. Ability to pay interest and repay principal
may be affected over time by adverse economic changes.
B Considered highly speculative. Currently meeting interest and
principal obligations, but probability of continued payment reflects
limited margin of safety.
CCC Identifiable characteristics which if not remedied may lead to
default. Ability to meet obligations requires an advantageous
business and economic environment.
CC Minimally protected bonds. Default in payment of interest and/or
principal seems probable over time.
C Imminent default in payment of interest or principal
+ and - indicators indicate the relative position within the rating
category, but are not used in AAA category.
38
<PAGE>
DUFF & PHELPS CREDIT RATING CO.
-------------------------------
AAA Highest credit quality, risk factors are negligible
AA+,AA,AA- High credit quality with moderate risk
A+,A,A- Protection factors are average but adequate, however, risk
factors are more variable and greater in periods of
economic stress
BBB+,BBB,BBB- Below average protection factors, but still considered
sufficient for prudent investment
BB+,BB,BB- Below investment grade but likely to meet obligations when
due.
B+,B,B- Below investment grade and possessing risk that obligations
will not be met when due.
CCC Well below investment grade. May be in default or
considerable uncertainty as to timely payment of interest
and/or principal.
COMMERCIAL PAPER RATINGS
MOODY'S
-------
Commercial paper rated "Prime" carries the smallest degree of
investment risk. The modifiers 1, 2, and 3 are used to denote relative
strength within this highest classification.
STANDARD & POOR'S
-----------------
The rating A-1 is the highest commercial paper rating assigned by
Standard & Poor's Corporation. The modifier "+" indicates that the
security is in the higher end of this rating category.
FITCH'S
-------
F-1+ Exceptionally strong credit quality
DUFF & PHELPS'
--------------
Category 1 (top grade):
Duff1+ Highest certainty of timely payment
Duff1 Very high certainty of timely payment
Duff1- High certainty of timely payment
39
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
Explanatory Notes: This Registration Statement contains the combined Part
C for the Sit Large Cap Growth Fund, Inc., Mid Cap Growth Fund, Inc. and
Sit Mutual Funds, Inc.
(a) Articles of Incorporation
1. Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
2. Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
3. Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 3 to the Fund's Registration
Statement.)
(b) Bylaws
1. Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
2. Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
3. Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 10 to the Fund's Registration
Statement.)
(c) Instruments Defining Rights of Security Holders
Not applicable.
(d) Investment Management Agreement
1. Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
2. Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
3. Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 2 to the Fund's Registration
Statement.)
(d.1) Sub-Advisory Agreement
1. Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 2 to the Fund's Registration
Statement.)
(e) Underwriting and Distribution Agreement
1. Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 17 to the Fund's Registration
Statement.)
2. Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 17 to the Fund's Registration
Statement.)
3. Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 6 to the Fund's Registration
Statement.)
(f) Bonus or Profit Sharing Contracts
Not applicable.
(g) Custodian Agreement
1. Sit Large Cap Growth Fund, Inc. (Filed herewith.)
2. Sit Mid Cap Growth Fund, Inc. (Filed herewith.)
3. Sit Mutual Funds, Inc. (Filed herewith.)
<PAGE>
(h.1) Transfer Agency and Services Agreement
1. Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
2. Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 20 to the Fund's Registration
Statement.)
3. Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 10 to the Fund's Registration
Statement.)
(h.2) Accounting Services Agreement
1. Sit Large Cap Growth Fund, Inc. (Filed herewith.)
2. Sit Mid Cap Growth Fund, Inc. (Filed herewith.)
3. Sit Mutual Funds, Inc. (Filed herewith.)
(i) Opinions and Consents of Dorsey & Whitney
1. Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 13 to the Fund's Registration
Statement.)
2. Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 13 to the Fund's Registration
Statement.)
3. Sit Mutual Funds, Inc. (Incorporated by reference to
Pre-Effective Amendment No. 1 to the Fund's original
Registration Statement.)
(j) Consent of KPMG Peat Marwick
1. Sit Large Cap Growth Fund, Inc. (Filed herewith.)
2. Sit Mid Cap Growth Fund, Inc. (Filed herewith.)
3. Sit Mutual Funds, Inc. (Filed herewith.)
(k) Omitted Financial Statements
Not applicable.
(l) Letter of Investment Intent
1. Sit Large Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 14 to the Fund's Registration
Statement.)
2. Sit Mid Cap Growth Fund, Inc. (Incorporated by reference to
Post-Effective Amendment No. 14 to the Fund's Registration
Statement.)
3. Sit Mutual Funds, Inc. (Incorporated by reference to
Post-Effective Amendment No. 2 to the Fund's original
Registration Statement.)
(m) Rule 12b-1 Plan
Not applicable.
(n) Financial Data Schedule
1. Sit Large Cap Growth Fund, Inc. (Filed herewith.)
2. Sit Mid Cap Growth Fund, Inc. (Filed herewith.)
3. Sit Mutual Funds, Inc. (Filed herewith.)
(o) Rule 18f-3 Plan
Not applicable.
Item 24. Persons Controlled by or Under Common Control with Registrant
See the section of the Prospectus entitled "Investment Adviser" and
"Investment Sub-Adviser" and the section of the Statement of Additional
Information entitled "Investment Adviser."
C-2
<PAGE>
Item 25. Indemnification
Each Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons, for such expenses and liabilities, in
such manner, under such circumstances, and to such extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations or releases promulgated
thereunder.
Each Registrant may indemnify its officers and directors and other
"persons" acting in an "official capacity" (as such terms are defined in Section
302A.521) pursuant to a determination by the board of directors or shareholders
of the Registrant as set forth in Section 302A.521, by special legal counsel
selected by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of a Registrant, then such director generally
may not be counted for the purpose of determining either the presence of a
quorum or such director's eligibility to be indemnified.
In any case, indemnification is proper only if the eligibility determining
body decides that the person seeking indemnification:
(a) has not received indemnification for the same conduct from any other
party or organization;
(b) acted in good faith;
(c) received no improper personal benefit;
(d) in the case of criminal proceedings, had no reasonable cause to
believe the conduct was unlawful;
(e) reasonably believed that the conduct was in the best interest of a
Registrant, or in certain contexts, was not opposed to the best
interest of a Registrant; and
(f) had not otherwise engaged in conduct which precludes indemnification
under either Minnesota or Federal law (including, but not limited
to, conduct constituting willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties as set forth in Section
17(h) and (i) of the Investment Company Act of 1940).
If a person is made or threatened to be made a party to a proceeding, the
person is entitled, upon written request to a Registrant, to payment or
reimbursement by a Registrant of reasonable expenses, including attorneys' fees
and disbursements, incurred by the person in advance of the final disposition of
the proceeding, (a) upon receipt by a Registrant of a written affirmation by the
person of a good faith belief that the criteria for indemnification set forth in
Section 302A.521 have been satisfied and a written undertaking by the person to
repay all amounts so paid or reimbursed by the Registrant, if it is ultimately
determined that the criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making the
determination would not preclude indemnification under Section 302A.521. The
written undertaking required by clause (a) is an unlimited general obligation of
the person making it, but need not be secured and shall be accepted without
reference to financial ability to make the repayment.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of a
Registrant pursuant to the foregoing provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by a Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Each Registrant undertakes to comply with the indemnification requirements
of Investment Company Release 7221 (June 9, 1972) and Investment Company Release
11330 (September 2, 1980).
C-3
<PAGE>
Item 26. Business and other Connections of Investment Adviser
Sit Investment Associates, Inc. (the "Adviser"), serves as the investment
adviser. Sit/Kim International Investment Associates, Inc. (the "Sub-Adviser")
serves as the Sub-Adviser of the Series A and Series C of Sit Mutual Funds, Inc.
Below is a list of the officers and directors of the Adviser and the Sub-Adviser
and their business/employment during the past two years.
Business and Employment During Past Two Years;
Name Principal Business Address
---- ----------------------------------------------
Eugene C. Sit Chairman, CEO, CIO and Treasurer of the Adviser;
Chairman and CEO of the Sub-Adviser; Director of
SIA Securities Corp. (the "Distributor"); Chairman
& Director of all Sit Mutual Funds
Peter L. Mitchelson President and Director of the Adviser; Director
and Executive Vice President of the Sub-Adviser;
Senior Portfolio Manager of the Sit Large Cap
Growth Fund; Vice Chairman & Director of all Sit
Mutual Funds
Roger J. Sit Executive Vice President - Research & Investment
Management of the Adviser; Assistant to the
Sit/Kim International Chief Investment Officer for
Investment Policy and Portfolio Management; Vice
President and Senior Equity Research Analyst for
Goldman Sachs & Company until December, 1997
Frederick Adler Director of the Adviser; Senior Partner, Fulbright
& Jaworski
1520 S. Ocean Boulevard
Palm Beach, FL 33480
Norman Bud Grossman Director of the Adviser; President, Cogel
Management;
4670 Norwest Center
Minneapolis MN 55402
William E. Frenzel Advisory Director of the Adviser; Director of Sit
Mutual Funds; Director of the Sub-Adviser; Senior
Visiting Scholar at the Brookings Institution
1775 Massachusetts Avenue N.W.
Washington, D.C. 20036
Andrew B. Kim Director and President of the Sub-Adviser
375 Park Avenue, Suite 1909
New York, NY 10152
Charles W. Battey Director of the Sub-Adviser
7500 West 110th Street
Overland Park, KS 66210
David L. Redo Director of the Sub-Adviser; Managing Director of
Fremont Investment Advisors, Inc.
333 Market Street, Suite 2600
San Francisco, CA 94105
Michael C. Brilley Senior Vice President and Senior Fixed Income
Officer of the Adviser; Director and Senior Vice
President of Sit U.S. Government Securities Fund,
Inc., Sit Money Market Fund, Inc., and Sit Mutual
Funds II, Inc. and Sit Balanced Fund
C-4
<PAGE>
Business and Employment During Past Two Years;
Name Principal Business Address
---- ----------------------------------------------
Debra A. Sit Vice President - Bond Investments of the Adviser;
Assistant Treasurer of all Sit Mutual Funds;
Assistant Treasurer of the Sub-Adviser; Vice
President - Investments of Sit U.S. Government
Securities Fund, Inc., Sit Money Market Fund,
Inc., and Sit Mutual Funds II, Inc.
Ronald D. Sit Vice President - Research and Investment
Management of the Adviser
Erik S. Anderson Vice President - Research and Investment
Management of the Adviser
John T. Groton, Jr. Vice President - Research and Investment
Management of the Adviser
Kent L. Johnson Vice President - Research and Investment
Management of the Adviser
Robert W. Sit Vice President - Research and Investment
Management of the Adviser
Paul E. Rasmussen Vice President, Secretary and Controller of the
Adviser and the Sub-Adviser; Vice President and
Treasurer of all Sit Mutual Funds.
Mary K. Stern Vice President of the Adviser; President of all
Sit Mutual Funds
Michael P. Eckert Vice President - Mutual Fund Sales of the Adviser
David A. Brown Vice President - Client Relations Marketing of the
Adviser
Carla J. Rose Vice President - Administration & Deputy
Controller of the Adviser
Debra K. Beaudet Vice President - Staff Operations of the Adviser
Item 27. Principal Underwriters
The Distributor for each Registrant is SIA Securities Corp., 4600 Norwest
Center, Minneapolis, MN 55402, an affiliate of the Adviser. The Distributor
distributes only shares of each Registrant.
Below is a list of the officers and directors of the Distributor and their
business/employment during the past two years:
Business and Employment During Past Two Years;
Name Principal Business Address
---- ----------------------------------------------
Eugene C. Sit Chairman, CIO and Treasurer of the Adviser;
Chairman and CEO of the Sub-Adviser; Director of
the Distributor; Chairman of the Board of
Directors of all Sit Mutual Funds
Peter L. Mitchelson President and Director of the Adviser; Director
and Executive Vice President of the Sub-Adviser;
Senior Portfolio Manager of the Sit Large Cap
Growth Fund; Director of the Distributor; Vice
Chairman & Director of all Sit Mutual Funds
Paul E. Rasmussen Vice President, Secretary and Controller for the
Adviser and Sub-Adviser; President and Treasurer
of the Distributor; Vice President & Treasurer of
all Sit Mutual Funds
Item 28. Location of Accounts and Records
The Custodian for each Registrant is The Northern Trust Company, 50 South
LaSalle Street, Chicago, IL 60675. The Transfer Agent for each Registrant is
First Data Investor Services, 4400 Computer Drive, Westboro, MA 01581.
C-5
<PAGE>
Other books and records are maintained by the Adviser, which is located at 4600
Norwest Center, Minneapolis, MN 55402 and the Sub-Adviser, which is located at
the same address.
Item 29. Management Services
Not applicable
Item 32. Undertakings
Not applicable
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Minneapolis, State of Minnesota, on the 31st day
of August, 1999.
SIT LARGE CAP GROWTH FUND, INC.
(Registrant)
By /s/ Eugene C. Sit
------------------------------
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
-------------------
/s/ Eugene C. Sit Dated: August 31, 1999
- ---------------------------------------------
Eugene C. Sit Chairman
(Principal Executive Officer and Director)
/s/ Paul E. Rasmussen Dated: August 31, 1999
- ---------------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)
William E. Frenzel, Director*
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: August 31, 1999
---------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Minneapolis, State of Minnesota, on the 31st day
of August, 1999.
SIT MID CAP GROWTH FUND, INC.
(Registrant)
By /s/ Eugene C. Sit
----------------------------
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
-------------------
/s/ Eugene C. Sit Dated: August 31, 1999
- ---------------------------------------------
Eugene C. Sit, Chairman
(Principal Executive Officer and Director)
/s/ Paul E. Rasmussen Dated: August 31, 1999
- ---------------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)
William E. Frenzel, Director*
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: August 31, 1999
---------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of Minneapolis, State of Minnesota, on the 31st day
of August, 1999.
SIT MUTUAL FUNDS, INC.
(Registrant)
By /s/ Eugene C. Sit
-------------------------
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature and Title
-------------------
/s/ Eugene C. Sit Dated: August 31, 1999
- ---------------------------------------------
Eugene C. Sit, Chairman
(Principal Executive Officer and Director)
/s/Paul E. Rasmussen Dated: August 31, 1999
- ---------------------------------------------
Paul E. Rasmussen, Treasurer
(Principal Financial Officer and Accounting Officer)
William E. Frenzel, Director*
John E. Hulse, Director*
Sidney L. Jones, Director*
Peter L. Mitchelson, Director*
Donald W. Phillips, Director*
*By /s/ Eugene C. Sit Dated: August 31, 1999
---------------------------------------
Eugene C. Sit, Attorney-in-fact
(Pursuant to Powers of Attorney filed
previously with the Commission.)
C-9
<PAGE>
REGISTRATION STATEMENT ON FORM N-1A
EXHIBIT INDEX
EXHIBIT NO. NAME OF EXHIBIT PAGE NO.
- ----------- --------------- --------
(g) Custodian Agreement C-11
(h.2) Accounting Services Agreement C-81
(j) Independent Auditors' Consent C-93
(n) Financial Data Schedule C-94
C-10
<PAGE>
EXHIBIT (g)
Custodian Agreement
CUSTODY AGREEMENT
AGREEMENT dated as of July 1, 1999, between Sit Growth & Income
Fund, Inc., a corporation organized under the laws of the State of Minnesota,
having its principal office and place of business at 4600 Norwest Center, 90
South Seventh Street, Minneapolis, Minnesota 55402 (the "Fund"), and THE
NORTHERN TRUST COMPANY (the "Custodian"), an Illinois company with its principal
place of business at 50 South LaSalle Street, Chicago, Illinois 60675.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this
Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Articles of Incorporation " shall mean the Articles of
Incorporation of the Fund, including all amendments thereto.
(b) "Authorized Person" shall be deemed to include the Chairman of
the Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any
such person is an officer or employee of the Fund, duly authorized
by the Board of Directors to give Instructions on behalf of the Fund
and listed in the certification annexed hereto as Schedule A or such
other certification as may be received by the Custodian from time to
time pursuant to Section 18(a).
(c) "Board of Directors" shall mean the Board of Directors or
Trustees of the Fund.
(d) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities,
its successor or successors and its nominee or nominees.
(e) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended,
its successor or successors and its nominee or nominees, the use of
which is hereby specifically authorized. The term "Depository" shall
further mean and include any other person named in an Instruction
and approved by the Fund to act as a depository in the manner
required by Rule 17f-4 of the 1940 Act, its successor or successors
and its nominee or nominees.
(f) "Instruction" shall mean written (including telecopied, telexed,
or electronically transmitted in a form that can be converted to
print) or oral instructions actually received by the Custodian which
the Custodian reasonably believes were given by an Authorized
Person. An Instruction shall also include any instrument in writing
actually received by the Custodian which the Custodian reasonably
believes to be genuine and to be signed by any two officers of the
Fund, whether or not such officers are Authorized Persons. Except as
otherwise provided in this Agreement, "Instructions" may include
instructions given on a standing basis.
C-11
<PAGE>
(g) "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to
time.
(h) "Portfolio" refers to each of the separate and distinct
investment portfolios of the Fund which the Fund and the Custodian
shall have agreed in writing shall be subject to this Agreement, as
identified in Schedule B hereto.
(i) "Prospectus" shall include each current prospectus and statement
of additional information of the Fund with respect to a Portfolio.
(j) "Shares" refers to the shares of the Fund.
(k) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and
other securities, commodity interests and investments from time to
time owned by the Fund and held in a Portfolio.
(l) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any "eligible foreign custodian," as that term is
defined in Rule 17f-5 under the 1940 Act, approved by the Fund in
the manner required by Rule 17f-5, and (iii) any securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, which securities
depository or clearing agency has been approved by the Fund in the
manner required by Rule 17f-5; provided, that the Custodian or a
Sub-Custodian has entered into an agreement with such securities
depository or clearing agency.
(m) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Fund.
2. Appointment of Custodian.
(a) The Fund hereby constitutes and appoints the Custodian as
custodian of all the Securities and moneys owned by or in the
possession of a Portfolio during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time held in any Portfolio, upon the
terms and conditions specified in this Agreement. The Custodian
shall oversee the maintenance by any Sub-Custodian of any Securities
or moneys of any Portfolio.
(b) The Agreement between the Custodian and each Sub-Custodian
described in clause (ii) or (iii) of Section 1(l) and acting
hereunder shall contain the provisions required by Rule 17f-5 under
the 1940 Act.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (ii) or (iii) of Paragraph 1(l), the Fund must approve such
Sub-Custodian in the manner required by Rule 17f-5 and provide the
Custodian with satisfactory evidence of such approval.
(d) The Custodian shall promptly take such steps as may be required
to remove any Sub-Custodian that has ceased to be an "eligible
foreign custodian" or has otherwise ceased to meet the requirements
under Rule 17f-5. If the Custodian intends to remove any
Sub-Custodian previously approved by the Fund pursuant to paragraph
3(c), and the Custodian proposes to replace such Sub-Custodian with
a Sub-Custodian that has not yet been approved by the Fund, it will
so notify the Fund and provide it with
C-12
<PAGE>
information reasonably necessary to determine such proposed
Sub-Custodian's eligibility under Rule 17f-5, including a copy of
the proposed agreement with such Sub-Custodian. The Fund shall at
the meeting of the Board of Directors next following receipt of such
notice and information determine whether to approve the proposed
Sub-Custodian and will promptly thereafter give written notice of
the approval or disapproval of the proposed action.
(e) The Custodian hereby warrants to the Fund that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not a foreign securities depository or
clearing agency) in connection with the safekeeping of property of a
Portfolio pursuant to this Agreement afford protection for such
property not materially different from that afforded by the
Custodian's established safekeeping procedures with respect to
similar property held by it in Chicago, Illinois.
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement
with the Custodian to identify on its books such Securities as being
held for the account of the Custodian as a custodian for its
customers.
(c) Any Securities held by a Sub-Custodian will be subject only to
the instructions of the Custodian or its agents; and any Securities
held in an eligible foreign securities depository for the account of
a Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets
held by the Custodian for its customers, and will cause such account
to be designated by such Sub-Custodian as a special custody account
for the exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Fund will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the
Fee Schedule annexed hereto as Schedule C and incorporated herein.
Such Fee Schedule does not include out-of-pocket disbursements of
the Custodian for which the Custodian shall be entitled to bill
separately; provided that out-of-pocket disbursements may include
only the items specified in Schedule C.
(b) If the Fund requests that the Custodian act as Custodian for any
Portfolio hereafter established, at the time the Custodian commences
serving as such for said Portfolio, the compensation for such
services shall be reflected in a fee schedule for that Portfolio,
dated and signed by an officer of each party hereto, which shall be
attached to or otherwise reflected in Schedule C of this Agreement.
(c) Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule C, or replacing Schedule C with, a
revised Fee Schedule, dated and signed by an officer of each party
hereto.
(d) The Custodian will bill the Fund for its services to each
Portfolio hereunder as soon as practicable after the end of each
calendar quarter, and said billings will be detailed in accordance
with the Fee
C-13
<PAGE>
Schedule for the Fund. The Fund will promptly pay to the Custodian
the amount of such billing. The Custodian shall have a claim of
payment against the property in each Portfolio for any compensation
or expense amount owing to the Custodian in connection with such
Portfolio from time to time under this Agreement.
(e) The Custodian (not the Fund) will be responsible for the payment
of the compensation of each Sub-Custodian.
6. Custody of Cash and Securities
(a) Receipt and Holding of Assets. The Fund will deliver or cause to
be delivered to the Custodian and any Sub-Custodians all Securities
and moneys of any Portfolio at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities
and moneys are to be specifically allocated. The Custodian will not
be responsible for such Securities and moneys until actually
received by it or by a Sub-Custodian. The Fund may, from time to
time in its sole discretion, provide the Custodian with Instructions
as to the manner in which and in what amounts Securities, and moneys
of a Portfolio are to be held on behalf of such Portfolio in the
Book-Entry System or a Depository. Securities and moneys of a
Portfolio held in the Book-Entry System or a Depository will be held
in accounts which include only assets of Custodian that are held for
its customers.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to
the separate account all moneys received by it or a Sub-Custodian
for the account of such Portfolio and shall disburse, or cause a
Sub-Custodian to disburse, the same only:
1. In payment for Securities purchased for the
Portfolio, as provided in Section 7 hereof;
2. In payment of dividends or distributions with respect
to the Shares of such Portfolio, as provided in Section
11 hereof;
3. In payment of original issue or other taxes with
respect to the Shares of such Portfolio, as provided in
Section 12(c) hereof;
4. In payment for Shares which have been redeemed by
such Portfolio, as provided in Section 12 hereof;
5. In payment of fees and in reimbursement of the
expenses and liabilities of the Custodian attributable
to the Fund, as provided in Sections 5 and 16(h) hereof;
6. Pursuant to Instructions setting forth the name of
the Portfolio and the name and address of the person to
whom the payment is to be made, the amount to be paid
and the purpose for which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may
be, may, in its discretion, advance the Fund on behalf of that
Portfolio an amount equal to such excess and such advance shall be
deemed an overdraft from the Custodian or such Sub-Custodian to that
Portfolio payable on demand, bearing interest at the rate of
interest customarily charged by the Custodian or such Sub-Custodian
on similar overdrafts.
(d) Confirmation and Statements. At least monthly, the Custodian
shall furnish the Fund with a detailed statement of the Securities
and moneys held by it and all Sub-Custodians for each Portfolio.
Where securities purchased for a Portfolio are in a fungible bulk of
securities registered in the name of the Custodian (or its nominee)
or shown on the Custodian's account on the books of a Depository,
the Book-
C-14
<PAGE>
Entry System or a Sub-Custodian, the Custodian shall maintain such
records as are necessary to enable it to identify the quantity of
those securities held for such Portfolio. In the absence of the
filing in writing with the Custodian by the Fund of exceptions or
objections to any such statement within 60 days after the date that
a material defect is reasonably discoverable, the Fund shall be
deemed to have approved such statement; and in such case or upon
written approval of the Fund of any such statement the Custodian
shall, to the extent permitted by law and provided the Custodian has
met the standard of care in Section 16 hereof, be released, relieved
and discharged with respect to all matters and things set forth in
such statement as though such statement had been settled by the
decree of a court of competent jurisdiction in an action in which
the Fund and all persons having any equity interest in the Fund were
parties.
(e) Registration of Securities and Physical Separation. All
Securities held for a Portfolio which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian or a Sub-Custodian in that
form; all other Securities held for a Portfolio may be registered in
the name of that Portfolio, in the name of any duly appointed
registered nominee of the Custodian or a Sub-Custodian as the
Custodian or such Sub-Custodian may from time to time determine, or
in the name of the Book-Entry System or a Depository or their
successor or successors, or their nominee or nominees. The Fund
reserves the right to instruct the Custodian as to the method of
registration and safekeeping of the Securities. The Fund agrees to
furnish to the Custodian appropriate instruments to enable the
Custodian or any Sub-Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in
the name of the Book-Entry System or a Depository, any Securities
which the Custodian of a Sub-Custodian may hold for the account of a
Portfolio and which may from time to time be registered in the name
of a Portfolio. The Custodian shall hold all such Securities
specifically allocated to a Portfolio which are not held in the
Book-Entry System or a Depository in a separate account for such
Portfolio in the name of such Portfolio physically segregated at all
times from those of any other person or persons.
(f) Segregated Accounts. Upon receipt of an Instruction, the
Custodian will establish segregated accounts on behalf of a
Portfolio to hold liquid or other assets as it shall be directed by
such Instruction and shall increase or decrease the assets in such
segregated accounts only as it shall be directed by subsequent
Instruction.
(g) Collection of Income and Other Matters Affecting Securities.
Except as otherwise provided in an Instruction, the Custodian, by
itself or through the use of the Book-Entry System or a Depository
with respect to Securities therein maintained, shall, or shall
instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to
Securities in accordance with this Agreement;
2. Present for payment and collect the amount payable
upon all Securities which may mature or be called,
redeemed or retired, or otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute any necessary declarations or certificates of
ownership under the federal income tax laws or the laws
or regulations of any other taxing authority now or
hereafter in effect; and
5. Hold directly, or through the Book-Entry System or a
Depository with respect to Securities therein deposited,
for the account of each Portfolio all rights and similar
Securities issued with respect to any Securities held by
the Custodian or relevant Sub-Custodian for each
Portfolio.
C-15
<PAGE>
(h) Delivery of Securities and Evidence of Authority. Upon receipt
of an Instruction, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall, or shall instruct the
relevant Sub-Custodian to:
1. Execute and deliver or cause to be executed and
delivered to such persons as may be designated in such
Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Fund as
owner of any Securities may be exercised;
2. Deliver or cause to be delivered any Securities held
for a Portfolio in exchange for other Securities or cash
issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of
any conversion privilege;
3. Deliver or cause to be delivered any Securities held
for a Portfolio to any protective committee,
reorganization committee or other person in connection
with the reorganization, refinancing, merger,
consolidation or recapitalization or sale of assets of
any corporation, and receive and hold under the terms of
this Agreement in the separate account for each such
Portfolio certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
4. Make or cause to be made such transfers or exchanges
of the assets specifically allocated to the separate
account of a Portfolio and take such other steps as
shall be stated in Written Instructions to be for the
purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
5. Deliver Securities upon sale of such Securities for
the account of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to such
Securities entered into on behalf of a Portfolio;
7. Deliver Securities of a Portfolio to the issuer
thereof or its agent when such Securities are called,
redeemed, retired or otherwise become payable; provided,
however, that in any such case the cash or other
consideration is to be delivered to the Custodian or
Sub-Custodian, as the case may be;
8. Deliver Securities for delivery in connection with
any loans of securities made by a Portfolio but only
against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund which
may be in the form of cash or obligations issued by the
United States Government, its agencies or
instrumentalities;
9. Deliver Securities for delivery as security in
connection with any borrowings by a Portfolio requiring
a pledge of Portfolio assets, but only against receipt
of the amounts borrowed;
10. Deliver Securities to the Transfer Agent or its
designee or to the holders of Shares in connection with
distributions in kind, in satisfaction of requests by
holders of Shares for repurchase or redemption;
11. Deliver Securities for any other proper business
purpose, but only upon receipt of, in addition to
written Instructions, a copy of a resolution or other
authorization of the Fund certified by the Secretary of
the Fund, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom
delivery of such Securities shall be made.
C-16
<PAGE>
(i) Endorsement and Collection of Checks, Etc. The Custodian is
hereby authorized to endorse and collect all checks, drafts or other
orders for the payment of money received by the Custodian for the
account of a Portfolio.
(j) Execution of Required Documents. The Custodian is hereby
authorized to execute any and all applications or other documents
required by a regulatory agency or similar entity as a condition of
making investments in the foreign market under such entity's
jurisdiction.
7. Purchase and Sale of Securities.
(a) Promptly after the purchase of Securities, the Fund or its
designee shall deliver to the Custodian an Instruction specifying
with respect to each such purchase: (1) the name of the Portfolio to
which such Securities are to be specifically allocated; (2) the name
of the issuer and the title of the Securities; (3) the number of
shares or the principal amount purchased and accrued interest, if
any; (4) the date of purchase and settlement; (5) the purchase price
per unit; (6) the total amount payable upon such purchase; and (7)
the name of the person from whom or the broker through whom the
purchase was made, if any. The Custodian or specified Sub-Custodian
shall receive the Securities purchased by or for a Portfolio and
upon receipt thereof (or upon receipt of advice from a Depository or
the Book-Entry System that the Securities have been transferred to
the Custodian's account) shall pay to the broker or other person
specified by the Fund or its designee out of the moneys held for the
account of such Portfolio the total amount payable upon such
purchase, provided that the same conforms to the total amount
payable as set forth in such Instruction.
(b) Promptly after the sale of Securities, the Fund or its designee
shall deliver to the Custodian an Instruction specifying with
respect to each such sale: (1) the name of the Portfolio to which
the Securities sold were specifically allocated; (2) the name of the
issuer and the title of the Securities; (3) the number of shares or
principal amount sold, and accrued interest, if any; (4) the date of
sale; (5) the sale price per unit; (6) the total amount payable to
the Portfolio upon such sale; and (7) the name of the broker through
whom or the person to whom the sale was made. The Custodian or
relevant Sub-Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Fund upon
receipt of the total amount payable to such Portfolio upon such
sale, provided that the same conforms to the total amount payable to
such Portfolio as set forth in such Instruction. Subject to the
foregoing, the Custodian or relevant Sub-Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
(c) Notwithstanding (a) and (b) above, cash in any of the Portfolios
may be invested by the Custodian for short term purposes pursuant to
standing Instructions from the Fund.
8. Lending of Securities.
If the Fund and the Custodian enter into a separate written
agreement authorizing the Custodian to lend Securities, the
Custodian may lend Securities pursuant to such agreement. Such
agreement must be approved by the Fund in the manner required by any
applicable law, regulation or administrative pronouncement, and may
provide for the payment of additional reasonable compensation to the
Custodian.
9. Investment in Futures and Options
The Custodian shall pursuant to Instructions (which may be standing
instructions) (i) transfer initial margin to a safekeeping bank or,
with respect to options, broker; (ii) pay or demand variation margin
to or from a designated futures commission merchant or other broker
based on daily marking to market
C-17
<PAGE>
calculations and in accordance with accepted industry practices; and
(iii) subject to the Custodian's consent, enter into separate
procedural, safekeeping or other agreements with safekeeping banks,
futures commission merchants and other brokers pursuant to which
such banks and, in the case of options, brokers, will act as
custodian for initial margin deposits in transactions involving
futures contracts and options. The Custodian shall have no custodial
or investment responsibility for any assets transferred to a
safekeeping bank, futures commission merchant or broker pursuant to
this paragraph.
10. Provisional Credits and Debits.
(a) The Custodian is authorized, but shall not be obligated, to
credit the account of a Portfolio provisionally on payable date with
interest, dividends, distributions, redemptions or other amounts
due. Otherwise, such amounts will be credited to the Portfolio on
the date such amounts are actually received and reconciled to the
Portfolio. In cases where the Custodian has credited a Portfolio
with such amounts prior to actual collection and reconciliation, the
Fund acknowledges that the Custodian shall be entitled to recover
any such credit on demand from the Fund and further agrees that the
Custodian may reverse such credit if and to the extent that
Custodian does not receive such amounts in the ordinary course of
business.
(b) If the Portfolio is maintained as a global custody account it
shall participate in the Custodian's contractual settlement date
processing service ("CSDP") unless the Custodian directs the Fund,
or the Fund informs the Custodian, otherwise. Pursuant to CSDP the
Custodian shall be authorised, but not obligated, to automatically
credit or debit the Portfolio provisionally on contractual
settlement date with cash or securities in connection with any sale,
exchange or purchase of securities. Otherwise, such cash or
securities shall be credited to the Portfolio on the day such cash
or securities are actually received by the Custodian and reconciled
to the Portfolio. In cases where the Custodian credits or debits the
Portfolio with cash or securities prior to actual receipt and
reconciliation, the Custodian may reverse such credit or debit as of
contractual settlement date if and to the extent that any securities
delivered by the Custodian are returned by the recipient, or if the
related transaction fails to settle (or fails, due to market change
or other reasons, to settle on terms which provide the Custodian
full reimbursement of any provisional credit the Custodian has
granted) within a period of time judged reasonable by the Custodian
under the circumstances. The Fund agrees that it will not make any
claim or pursue any legal action against the Custodian for loss or
other detriment allegedly arising or resulting from the Custodian's
good faith determination to effect, not effect or reverse any
provisional credit or debit to the Portfolio.
The Fund acknowledges and agrees that funds debited from
the Portfolio on contractual settlement date including, without
limitation, funds provided for the purchase of any securities under
circumstances where settlement is delayed or otherwise does not take
place in a timely manner for any reason, shall be held pending
actual settlement of the related purchase transaction in a
non-interest bearing deposit at the Custodian's London Branch; that
such funds shall be available for use in the Custodian's general
operations; and that the Custodian's maintenance and use of such
funds in such circumstances are, without limitation, in
consideration of the Custodian's providing CSDP.
(c) The Fund recognizes that any decision to effect a provisional
credit or an advancement of the Custodian's own funds under this
agreement will be an accommodation granted entirely at the
Custodian's option and in light of the particular circumstances,
which circumstances may involve conditions in different countries,
markets and classes of assets at different times. The Fund shall
make the Custodian whole for any loss which it may incur from
granting such accommodations and acknowledges that the Custodian
shall be entitled to recover any relevant amounts from the Fund on
demand. All amounts thus due to the Custodian shall be paid by the
Fund from the account of the relevant Portfolio unless otherwise
paid on a timely basis and in that connection the Fund acknowledges
that the Custodian has a continuing lien on all assets of such
Portfolio to secure such payments and agrees that the Custodian may
apply or set off against such amounts any amounts credited by or due
from the Custodian to the Fund. If funds in the Portfolio are
insufficient to make any such payment the Fund shall
C-18
<PAGE>
promptly deliver to the Custodian the amount of such deficiency in
immediately available funds when and as specified by the Custodian's
written or oral notification to the Fund.
(d) In connection with the Custodian's global custody service the
Fund will maintain deposits at the Custodian's London Branch. The
Fund acknowledges and agrees that such deposits are payable only in
the currency in which an applicable deposit is denominated; that
such deposits are payable only on the Fund's demand at the
Custodian's London Branch; that such deposits are not payable at any
of the Custodian's offices in the United States; and that the
Custodian will not in any manner directly or indirectly promise or
guarantee any such payment in the United States.
The Fund further acknowledges and agrees that such
deposits are subject to cross-border risk, and therefore the
Custodian will have no obligation to make payment of deposits if and
to the extent that the Custodian is prevented from doing so by
reason of applicable law or regulation or any Sovereign Risk event
affecting the London Branch or the currency in which the applicable
deposit is denominated. "Sovereign Risk" for this purpose means
nationalisation, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment,
promulgation, imposition or enforcement by any such governmental
authority of currency restrictions, exchange controls, taxes, levies
or other charges affecting the property rights of persons who are
not residents of the affected jurisdiction; or acts of war,
terrorism, insurrection or revolution; or any other act or event
beyond the Custodian's control.
THE FUND ACKNOWLEDGES AND AGREES THAT DEPOSIT ACCOUNTS
MAINTAINED AT FOREIGN BRANCHES OF UNITED STATES BANKS (INCLUDING, IF
APPLICABLE, ACCOUNTS IN WHICH CUSTOMER FUNDS FOR THE PURCHASE OF
SECURITIES ARE HELD ON AND AFTER CONTRACTUAL SETTLEMENT DATE), ARE
NOT INSURED BY THE U.S. FEDERAL DEPOSIT INSURANCE CORPORATION; MAY
NOT BE GUARANTEED BY ANY LOCAL OR FOREIGN GOVERNMENTAL AUTHORITY;
ARE UNSECURED; AND IN A LIQUIDATION MAY BE SUBORDINATED IN PRIORITY
OF PAYMENT TO DOMESTIC (U.S.- DOMICILED) DEPOSITS. THEREFORE,
BENEFICIAL OWNERS OF SUCH FOREIGN BRANCH DEPOSITS MAY BE UNSECURED
CREDITORS OF THE NORTHERN TRUST COMPANY.
Deposit account balances that are owned by United States
residents are expected to be maintained in an aggregate amount of at
least $100,000 or the equivalent in other currencies.
11. Payment of Dividends or Distributions.
(a) In the event that the Board of Directors of the Fund (or a
committee thereof) authorizes the declaration of dividends or
distributions with respect to a Portfolio, an Authorized Person
shall provide the Custodian with Instructions specifying the record
date, the date of payment of such distribution and the total amount
payable to the Transfer Agent or its designee on such payment date.
(b) Upon the payment date specified in such Instructions, the
Custodian shall pay the total amount payable to the Transfer Agent
or its designee out of the moneys specifically allocated to and held
for the account of the appropriate Portfolio.
12. Sale and Redemption of Shares.
(a) Whenever the Fund shall sell any Shares, the Fund shall deliver
or cause to be delivered to the Custodian an Instruction specifying
the name of the Portfolio whose Shares were sold and the amount to
be received by the Custodian for the sale of such Shares.
C-19
<PAGE>
(b) Upon receipt of such amount from the Transfer Agent or its
designee, the Custodian shall credit such money to the separate
account of the Portfolio specified in the Instruction described in
paragraph (a) above.
(c) Upon issuance of any Shares in accordance with the foregoing
provisions of this Section 12, the Custodian shall pay all original
issue or other taxes required to be paid in connection with such
issuance upon the receipt of an Instruction specifying the amount to
be paid.
(d) Except as provided hereafter, whenever any Shares are redeemed,
the Fund shall deliver or cause to be delivered to the Custodian an
Instruction specifying the name of the Portfolio whose Shares were
redeemed and the total amount to be paid for the Shares redeemed.
(e) Upon receipt of an Instruction described in paragraph (d) above,
the Custodian shall pay to the Transfer Agent (or such other person
as the Transfer Agent directs) the total amount specified in such
Instruction. Such payment shall be made from the separate account of
the Portfolio specified in such Instruction.
13. Indebtedness.
(a) The Fund or its designee will cause to be delivered to the
Custodian by any bank (excluding the Custodian) from which the Fund
borrows money, using Securities as collateral, a notice or
undertaking in the form currently employed by any such bank setting
forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly
deliver to the Custodian an Instruction stating with respect to each
such borrowing: (1) the name of the Portfolio for which the
borrowing is to be made; (2) the name of the bank; (3) the amount
and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by the Fund,
or other loan agreement; (4) the time and date, if known, on which
the loan is to be entered into (the "borrowing date"); (5) the date
on which the loan becomes due and payable; (6) the total amount
payable to the Fund for the separate account of the Portfolio on the
borrowing date; (7) the market value of Securities to be delivered
as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any
particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book-Entry System or a Depository; and (9) a
statement that such loan is in conformance with the 1940 Act and the
Prospectus.
(b) Upon receipt of the Instruction referred to in paragraph (a)
above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable
as set forth in the Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The
Custodian shall deliver as additional collateral in the manner
directed by the Fund from time to time such Securities specifically
allocated to such Portfolio as may be specified in the Instruction
to collateralize further any transaction described in this Section
13. The Fund shall cause all Securities released from collateral
status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be
tendered to it. In the event that the Fund fails to specify in such
Instruction all of the information required by this Section 13, the
Custodian shall not be under any obligation to deliver any
Securities. Collateral returned to the Custodian shall be held
hereunder as it was prior to being used as collateral.
14. Corporate Action.
Whenever the Custodian or any Sub-Custodian receives information
concerning Securities held for a Portfolio which requires
discretionary action by the beneficial owner of the Securities
(other than a
C-20
<PAGE>
proxy), such as subscription rights, bond issues, stock repurchase
plans and rights offerings, or legal notices or other material
intended to be transmitted to Securities holders ("Corporate
Actions"), the Custodian will give the Fund or its designee notice
of such Corporate Actions to the extent that the Custodian's central
corporate actions department has actual knowledge of a Corporate
Action in time to notify the Fund.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate
Action which bears an expiration date is received, the Custodian
will endeavor to obtain an Instruction relating to such Corporate
Action from an Authorized Person, but if such Instruction is not
received in time for the Custodian to take timely action, or actual
notice of such Corporate Action was received too late to seek such
an Instruction, the Custodian is authorized to sell, or cause a
Sub-Custodian to sell, such rights entitlement or fractional
interest and to credit the applicable account with the proceeds and
to take any other action it deems, in good faith, to be appropriate,
in which case, provided it has met the standard of care in Section
16 hereof, it shall be held harmless by the particular Portfolio
involved for any such action.
The Custodian will deliver proxies to the Fund or its designated
agent pursuant to special arrangements which may have been agreed to
in writing between the parties hereto. Such proxies shall be
executed in the appropriate nominee name relating to Securities
registered in the name of such nominee but without indicating the
manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance
with an applicable Instruction, if any.
15. Persons Having Access to the Portfolios.
(a) Neither the Fund nor any officer, director, employee or agent of
the Fund, the Fund's investment adviser, or any sub-investment
adviser, shall have physical access to the assets of any Portfolio
held by the Custodian or any Sub-Custodian or be authorized or
permitted to withdraw any investments of a Portfolio, nor shall the
Custodian or any Sub-Custodian deliver any assets of a Portfolio to
any such person. No officer, director, employee or agent of the
Custodian who holds any similar position with the Fund's investment
adviser, with any sub-investment adviser of the Fund or with the
Fund shall have access to the assets of any Portfolio.
(b) Nothing in this Section 15 shall prohibit any Authorized Person
from giving Instructions to the Custodian so long as such
Instructions do not result in delivery of or access to assets of a
Portfolio prohibited by paragraph (a) of this Section 15.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having
access to the assets that it holds (by any means) for its customers.
16. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform
only such services as are set forth in this Agreement or expressly
contained in an Instruction given to the Custodian which is not
contrary to the provisions of this Agreement.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect
to its obligations under this Agreement and the
safekeeping of property of the Portfolios. The Custodian
shall be liable to, and shall indemnify and hold
harmless the Fund from and against any loss which shall
occur as the result of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable
care with respect to their respective obligations under
this Agreement and the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian
has exercised reasonable care in connection with the
safekeeping of Fund property shall be made in light of
the standards applicable to the Custodian with respect
to similar property held by it in Chicago, Illinois. The
determination of
C-21
<PAGE>
whether the Custodian or Sub-Custodian has exercised
reasonable care in connection with their other
obligations under this Agreement shall be made in light
of prevailing standards applicable to professional
custodians in the jurisdiction in which such custodial
services are performed. In the event of any loss to the
Fund by reason of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable
care, the Custodian shall be liable to the Fund only to
the extent of the Fund's direct damages and expenses,
which damages, for purposes of property only, shall be
determined based on the market value of the property
which is the subject of the loss at the date of
discovery of such loss and without reference to any
special condition or circumstances.
2. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any
foreign securities depository or clearing agency
approved by the Board of Directors pursuant to Section
(1)(l) or Section 3 hereof.
3. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any
broker or agent (not referred to in paragraph (b)(2)
above) which it or a Sub-Custodian appoints and uses
unless such appointment and use is made or done
negligently or in bad faith. In the event such an
appointment and use is made or done negligently or in
bad faith, the Custodian shall be liable to the Fund
only for direct damages and expenses (determined in the
manner described in paragraph (b)(1) above) resulting
from such appointment and use and, in the case of any
loss due to an act, omission or default of such agent or
broker, only to the extent that such loss occurs as a
result of the failure of the agent or broker to exercise
reasonable care ("reasonable care" for this purpose to
be determined in light of the prevailing standards
applicable to agents or brokers, as appropriate, in the
jurisdiction where the services are performed).
4. The Custodian shall be entitled to rely, and may act,
upon the advice of counsel (who may be counsel for the
Fund) on all matters and shall be without liability for
any action reasonably taken or omitted in good faith and
without negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Instruction it receives pursuant to the applicable
Sections of this Agreement that it reasonably believes
to be genuine and to be from an Authorized Person. In
the event that the Custodian receives oral Instructions,
the Fund or its designee shall cause to be delivered to
the Custodian, by the close of business on the same day
that such oral Instructions were given to the Custodian,
written Instructions confirming such oral Instructions,
whether by hand delivery, telex or otherwise. The Fund
agrees that the fact that no such confirming written
Instructions are received by the Custodian shall in no
way affect the validity of the transactions or
enforceability of the transactions hereby authorized by
the Fund. The Fund agrees that the Custodian shall incur
no liability to the Fund in connection with (i) acting
upon oral Instructions given to the Custodian hereunder,
provided such instructions reasonably appear to have
been received from an Authorized Person or (ii) deciding
not to act solely upon oral Instructions, provided that
the Custodian first contacts the giver of such oral
Instructions and requests written confirmation
immediately following any such decision not to act.
6. The Custodian shall supply the Fund or its designee
with such daily information regarding the cash and
Securities positions and activity of each Portfolio as
the Custodian and the Fund or its designee shall from
time to time agree. It is understood that such
information will not be audited by the Custodian and the
Custodian represents that such information will be the
best information then available to the Custodian. The
Custodian shall have no responsibility whatsoever for
the pricing of Securities, accruing for income, valuing
the effect of Corporate
C-22
<PAGE>
Actions, or for the failure of the Fund or its designee
to reconcile differences between the information
supplied by the Custodian and information obtained by
the Fund or its designee from other sources, including
but not limited to pricing vendors and the Fund's
investment adviser. Subject to the foregoing, to the
extent that any miscalculation by the Fund or its
designee of a Portfolio's net asset value is
attributable to the willful misfeasance, bad faith or
negligence of the Custodian (including any Sub-Custodian
other than a foreign securities depository or clearing
agency) in supplying or omitting to supply the Fund or
its designee with information as aforesaid, the
Custodian shall be liable to the Fund for any resulting
loss (subject to such de minimis rule of change in value
as the Board of Directors may from time to time adopt).
(c) Limit of Duties. Without limiting the generality of the
foregoing, the Custodian shall be under no duty or obligation to
inquire into, and shall not be liable for:
1. The validity of the issue of any Securities purchased
by any Portfolio, the legality of the purchase thereof,
or the propriety of the amount specified by the Fund or
its designee for payment therefor;
2. The legality of the sale of any Securities by any
Portfolio or the propriety of the amount of
consideration for which the same are sold;
3. The legality of the issue or sale of any Shares, or
the sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
dividend or distribution by the Fund; or
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Fund, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees
to notify the Fund in the event that such bond is canceled or
otherwise lapses.
(e) Consistent with and without limiting the language contained in
Section 16(a), it is specifically acknowledged that the Custodian
shall have no duty or responsibility to:
1. Question any Instruction or make any suggestions to
the Fund or an Authorized Person regarding any
Instruction;
2. Supervise or make recommendations with respect to
investments or the retention of Securities;
3. Subject to Section 16(b)(3) hereof, evaluate or
report to the Fund or an Authorized Person regarding the
financial condition of any broker, agent or other party
to which Securities are delivered or payments are made
pursuant to this Agreement; or
4. Review or reconcile trade confirmations received from
brokers.
(f) Amounts Due from or to Transfer Agent. The Custodian shall not
be under any duty or obligation to take action to effect collection
of any amount due to any Portfolio from the Transfer Agent or its
designee nor to take any action to effect payment or distribution by
the Transfer Agent or its designee of any amount paid by the
Custodian to the Transfer Agent in accordance with this Agreement.
C-23
<PAGE>
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any
time delivered to or held by it for the Fund and specifically
allocated to a Portfolio are such as may properly be held by the
Fund under the provisions of the Articles of Incorporation and the
Prospectus.
(h) Indemnification. The Fund agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange
Act of 1934 and the 1940 Act and state or foreign securities laws)
and expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by
the Custodian (i) at the request or on the direction of or in
reliance on the advice of the Fund or in reasonable reliance upon
the Prospectus or (ii) upon an Instruction; provided, that the
foregoing indemnity shall not apply to any loss, cost, tax, charge,
assessment, claim, liability or expense to the extent the same is
attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence,
willful misconduct, bad faith or reckless disregard of duties and
obligations under this Agreement or any other agreement relating to
the custody of Fund property.
(i) The Fund agrees to hold the Custodian harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be
liable for any loss which results from:
1. the general risk of investing;
2. subject to Section 16(b) hereof, investing or holding
property in a particular country including, but not
limited to, losses resulting from nationalization,
expropriation or other governmental actions; regulation
of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market
conditions which prevent the orderly execution of
securities transactions or affect the value of property
held pursuant to this Agreement; or
3. consequential, special or punitive damages for any
act or failure to act under any provision of this
Agreement, even if advised of the possibility thereof.
(k) Force Majeure. No party shall be liable to the other for any
delay in performance, or non- performance, of any obligation
hereunder to the extent that the same is due to forces beyond its
reasonable control, including but not limited to delays, errors or
interruptions caused by the other party or third parties, any
industrial, juridical, governmental, civil or military action, acts
of terrorism, insurrection or revolution, nuclear fusion, fission or
radiation, failure or fluctuation in electrical power, heat, light,
air conditioning or telecommunications equipment, or acts of God.
(l) Inspection of Books and Records. The Custodian shall create and
maintain all records relating to its activities and obligations
under this Agreement in such manner as will meet the obligations of
the Fund under the 1940 Act, with particular attention to Section 31
thereof and Rules 31a-1 and 31a-2 thereunder, and under applicable
federal and state laws. All such records shall be the property of
the Fund and shall at all times during regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees and agents of the Fund and by the appropriate employees of
the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of Securities and
shall, when requested to do so by the Fund and for such compensation
as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
C-24
<PAGE>
(m) Accounting Control Reports. The Custodian shall provide the Fund
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, each Depository, and
each Sub-Custodian and with an annual report on its own systems of
internal accounting control.
17. Term and Termination.
(a) This Agreement shall become effective on the date first set
forth above (the "Effective Date") and shall continue in effect
thereafter until terminated in accordance with Section 17(b).
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Fund is the terminating party, shall be not less than 60 days after
the date of Custodian receives such notice or, in case the Custodian
is the terminating party, shall be not less than 90 days after the
date the Fund receives such notice. In the event such notice is
given by the Fund, it shall be accompanied by a certified resolution
of the Board of Directors, electing to terminate this Agreement with
respect to any Portfolio and designating a successor custodian or
custodians.
In the event such notice is given by the Custodian, the
Fund shall, on or before the termination date, deliver to the
Custodian a certified resolution of the Board of Directors,
designating a successor custodian or custodians. In the absence of
such designation by the Fund, the Custodian may designate a
successor custodian, which shall be a person qualified to so act
under the 1940 Act. If the Fund fails to designate a successor
custodian with respect to any Portfolio, the Fund shall upon the
date specified in the notice of termination of this Agreement and
upon the delivery by the Custodian of all Securities (other than
Securities held in the Book-Entry System which cannot be delivered
to the Fund) and moneys of such Portfolio, be deemed to be its own
custodian and the Custodian shall thereby be relieved of all duties
and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System which
cannot be delivered to the Fund.
(c) Upon the date set forth in such notice under paragraph (b) of
this Section 17, this Agreement shall terminate to the extent
specified in such notice, and the Custodian shall upon receipt of a
notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then
held by the Custodian and specifically allocated to the Portfolio or
Portfolios specified, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be
entitled with respect to such Portfolio or Portfolios.
18. Miscellaneous.
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Fund setting forth the names of the
present Authorized Persons. The Fund agrees to furnish to the
Custodian a new certification in similar form in the event that any
such present Authorized Person ceases to be such an Authorized
Person or in the event that other or additional Authorized Persons
are elected or appointed.
Until such new certification is received by the
Custodian, the Custodian shall be fully protected in acting under
the provisions of this Agreement upon Instructions which Custodian
reasonably believes were given by an Authorized Person, as
identified in the last delivered certification. Unless such
certification specifically limits the authority of an Authorized
Person to specific matters or requires that the approval of another
Authorized Person is required, Custodian shall be under no duty to
inquire into the right of such person, acting alone, to give any
instructions whatsoever under this Agreement.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at its address stated on the first
page hereof or at such other place as the Custodian may from time to
time designate in writing.
C-25
<PAGE>
(c) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund, shall be
sufficiently given if addressed to the Fund and mailed or delivered
to it at its offices at its address shown on the first page hereof
or at such other place as the Fund may from time to time designate
in writing.
(d) Except as expressly provided herein, Agreement may not be
amended or modified in any manner except by a written agreement
executed by both parties with the same formality as this Agreement.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by
the Fund without the written consent of the Custodian, or by the
Custodian without the written consent of the Fund, and any attempted
assignment without such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
C-26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective representatives duly authorized as of the day
and year first above written.
SIT GROWTH & INCOME FUND, INC.
By: /s/ Mary K. Stern
---------------------------------------
Name: Mary K. Stern
Title: President
The undersigned, Michael J. Radmer, does hereby certify that he/she is the duly
elected, qualified and acting Secretary of Sit Growth & Income Fund, Inc. (the
"Fund") and further certifies that the person whose signature appears above is a
duly elected, qualified and acting officer of the Fund with full power and
authority to execute this Custody Agreement on behalf of the Fund and to take
such other actions and execute such other documents as may be necessary to
effectuate this Agreement.
/s/ Michael J. Radmer
- ------------------------------------
Secretary
SIT GROWTH & INCOME FUND, INC.
THE NORTHERN TRUST COMPANY
By: /s/ Michael J. Lies
---------------------------------------
Name: Michael J. Lies
Title: Second Vice President
C-27
<PAGE>
SCHEDULE A
CERTIFICATION OF AUTHORIZED PERSONS
Pursuant to paragraphs 1(b) and 18(a) of the Agreement, the
undersigned officers of Sit Growth & Income Fund, Inc. hereby certify that the
person(s) whose name(s) and signature(s) appear below have been duly authorized
by the Board of Directors to give Instructions on behalf of the Fund.
NAME SIGNATURE
Eugene C. Sit /s/ Eugene C. Sit
--------------------------------------------------------------------
Peter L. Mitchelson /s/ Peter L. Mitchelson
--------------------------------------------------------------------
Mary K/ Stern /s/ Mary K. Stern
--------------------------------------------------------------------
Michael C. Brilley /s/ Michael C. Brilley
--------------------------------------------------------------------
Roger J. Sit /s/ Roger J. Sit
--------------------------------------------------------------------
Paul E. Rasmussen /s/ Paul E. Rasmussen
--------------------------------------------------------------------
Certified as of the _28th___ day of __July___________, 1999:
OFFICER: OFFICER:
/s/ Mary K. Stern /s/ Paul E. Rasmussen
- --------------------------------- -------------------------------
(Signature) (Signature)
Mary K. Stern Paul E. Rasmussen
- --------------------------------- -------------------------------
(Name) (Name)
President Vice President
- --------------------------------- -------------------------------
(Title) (Title)
C-28
<PAGE>
SCHEDULE B
* SIT GROWTH & INCOME FUND, INC.
As of July 1, 1999
Sit Growth & Income Fund
C-29
<PAGE>
SCHEDULE C
FEE SCHEDULE
* SIT MUTUAL FUND GROUP
Northern Trust has three components to its Global Custody fee
structure:
a) A variable charge on the market value of assets based upon the
country of investment;
b) A variable charge per transaction, and;
c) A charge per investment manager portfolio.
We do NOT impose additional charges for facsimile, telex, income
collection, tax reclamation, administration or other "miscellaneous"
activities. Execution costs, not limited to but including stamp
duty, third-party foreign exchange, and re-registration charges will
be passed through at cost if and as applicable.
Global Custody fees are all inclusive and cover:
* Safekeeping of assets
* Settlement of trades
* Facilitation of foreign exchange
* Management of excess cash balances
* Collection of interest and dividends
* Tax withholding and reclamation
* Proxy handling
* Corporate actions
* Fully audited monthly reporting
* On-line daily reporting to all parties
MATERIAL CHANGES
The fees quoted above are offered contingent upon the current levels
of investment activity as indicated above. "Material" changes, for
the purposes of this provision, will be changes in excess of 10%
from the assumptions used.
INVOICES
Invoices are presented at the end of each quarter on a quarter in
arrears basis. All out of pocket expense recoveries are charged
directly to the account(s) in the month following the actual expense
C-30
<PAGE>
DOMESTIC FUNDS
Domestic accounts $0.00
Market value(000,000s) 0.75 bps
Equity/Fixed income security trades $6.00
Cash & Equivalent security trades $10.00
Wires transfers $5.00
Free delivery/receipt $10.00
INTERNATIONAL FUNDS
Global accounts $0.00
Market value - Tier I (000s) 0.75 bps
Market value - Tier II (000s) 3.0 bps
Market value - Tier III (000s) 8.0 bps
Market value - Tier IV (000s) 15.0 bps
Market value - Tier V (000s) 30.0 bps
Security trades - Tier I / Equity $6.00
Security trades - Tier I / Cash & Equiv $10.00
Security trades - Tier II $25.00
Security trades - Tier III $50.00
Security trades - Tier IV $75.00
Security trades - Tier V $125.00
Wire transfers $5.00
Free delivery/receipt $10.00
Tier I United States
Tier II Australia, Belgium, Canada, Denmark, Euroclear,
France, Germany, Ireland, Italy, Japan,
Luxembourg, Malaysia, Netherlands, New Zealand,
Sweden and United Kingdom
Tier III Austria, Hong Kong, Norway, Singapore, South
Korea, Spain, Switzerland, Taiwan and Thailand
Tier IV Argentina, China, Finland, Mexico, Portugal, Sri
Lanka, South Africa and Turkey
Tier V Bangladesh, Bolivia, Botswana, Brazil, Czech Rep.,
Chile, Colombia, Cyprus, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Israel, Jamaica,
Jordan, Morocco, Nigeria, Pakistan, Peru,
Philippines, Poland, Trinidad, Tunisia, Uruguay,
Venezuela, Vietnam and Zimbabwe
Sit Mutual Funds
Quarterly Custody Fee Assumption
1st Quarter 1999
1.19377 US ave bps
US
Market Value US 1,935,317,432 0.75 36,287
C-31
<PAGE>
Security Trades
Equity/Fixed 951 6 5,706
Cash & Equiv 919 10 9,190
Wires 1,315 5 6,575
Free Receipt/Delivery - 10 -
Security Holdings 1,696 0 -
Accounts 11 0 -
Total US 57,758
Global 6.320 Glb Ave Bps
Market Value
Tier I 22,178,394 0.75 416
Tier II 61,750,074 3 4,631
Tier III 14,281,953 8 2,856
Tier IV 826,397 15 310
Tier V 2,532,361 30 1,899
101,569,177
Transactions
Tier I Equity/Fixed 15 6 90
Tier I Cash/Equiv 162 10 1,620
Tier II 38 25 950
Tier III 14 50 700
Tier IV 4 75 300
Tier V 13 125 1,625
Holdings 146 0 -
Accounts 2 0 -
Wires 130 5 650
Free Receipt/Delivery - 10 -
Total Global 16,048
Total Custody Fees 73,806
C-32
<PAGE>
CUSTODY AGREEMENT
AGREEMENT dated as of July 1, 1999, between Sit Growth Fund, Inc., a
corporation organized under the laws of the State of Minnesota, having its
principal office and place of business at 4600 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402 (the "Fund"), and THE NORTHERN TRUST
COMPANY (the "Custodian"), an Illinois company with its principal place of
business at 50 South LaSalle Street, Chicago, Illinois 60675.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this
Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Articles of Incorporation " shall mean the Articles of
Incorporation of the Fund, including all amendments thereto.
(b) "Authorized Person" shall be deemed to include the Chairman of
the Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any
such person is an officer or employee of the Fund, duly authorized
by the Board of Directors to give Instructions on behalf of the Fund
and listed in the certification annexed hereto as Schedule A or such
other certification as may be received by the Custodian from time to
time pursuant to Section 18(a).
(c) "Board of Directors" shall mean the Board of Directors or
Trustees of the Fund.
(d) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities,
its successor or successors and its nominee or nominees.
(e) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended,
its successor or successors and its nominee or nominees, the use of
which is hereby specifically authorized. The term "Depository" shall
further mean and include any other person named in an Instruction
and approved by the Fund to act as a depository in the manner
required by Rule 17f-4 of the 1940 Act, its successor or successors
and its nominee or nominees.
(f) "Instruction" shall mean written (including telecopied, telexed,
or electronically transmitted in a form that can be converted to
print) or oral instructions actually received by the Custodian which
the Custodian reasonably believes were given by an Authorized
Person. An Instruction shall also include any instrument in writing
actually received by the Custodian which the Custodian reasonably
believes to be genuine and to be signed by any two officers of the
Fund, whether or not such officers are Authorized Persons. Except as
otherwise provided in this Agreement, "Instructions" may include
instructions given on a standing basis.
(g) "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to
time.
C-33
<PAGE>
(h) "Portfolio" refers to each of the separate and distinct
investment portfolios of the Fund which the Fund and the Custodian
shall have agreed in writing shall be subject to this Agreement, as
identified in Schedule B hereto.
(i) "Prospectus" shall include each current prospectus and statement
of additional information of the Fund with respect to a Portfolio.
(j) "Shares" refers to the shares of the Fund.
(k) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and
other securities, commodity interests and investments from time to
time owned by the Fund and held in a Portfolio.
(l) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any "eligible foreign custodian," as that term is
defined in Rule 17f-5 under the 1940 Act, approved by the Fund in
the manner required by Rule 17f-5, and (iii) any securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, which securities
depository or clearing agency has been approved by the Fund in the
manner required by Rule 17f-5; provided, that the Custodian or a
Sub-Custodian has entered into an agreement with such securities
depository or clearing agency.
(m) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Fund.
2. Appointment of Custodian.
(a) The Fund hereby constitutes and appoints the Custodian as
custodian of all the Securities and moneys owned by or in the
possession of a Portfolio during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time held in any Portfolio, upon the
terms and conditions specified in this Agreement. The Custodian
shall oversee the maintenance by any Sub-Custodian of any Securities
or moneys of any Portfolio.
(b) The Agreement between the Custodian and each Sub-Custodian
described in clause (ii) or (iii) of Section 1(l) and acting
hereunder shall contain the provisions required by Rule 17f-5 under
the 1940 Act.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (ii) or (iii) of Paragraph 1(l), the Fund must approve such
Sub-Custodian in the manner required by Rule 17f-5 and provide the
Custodian with satisfactory evidence of such approval.
(d) The Custodian shall promptly take such steps as may be required
to remove any Sub-Custodian that has ceased to be an "eligible
foreign custodian" or has otherwise ceased to meet the requirements
under Rule 17f-5. If the Custodian intends to remove any
Sub-Custodian previously approved by the Fund pursuant to paragraph
3(c), and the Custodian proposes to replace such Sub-Custodian with
a Sub-Custodian that has not yet been approved by the Fund, it will
so notify the Fund and provide it with information reasonably
necessary to determine such proposed Sub-Custodian's eligibility
under Rule 17f-5, including a copy of the proposed agreement with
such Sub-Custodian. The Fund shall at the meeting of the Board of
Directors next following receipt of such notice and information
determine whether to
C-34
<PAGE>
approve the proposed Sub-Custodian and will promptly thereafter give
written notice of the approval or disapproval of the proposed
action.
(e) The Custodian hereby warrants to the Fund that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not a foreign securities depository or
clearing agency) in connection with the safekeeping of property of a
Portfolio pursuant to this Agreement afford protection for such
property not materially different from that afforded by the
Custodian's established safekeeping procedures with respect to
similar property held by it in Chicago, Illinois.
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement
with the Custodian to identify on its books such Securities as being
held for the account of the Custodian as a custodian for its
customers.
(c) Any Securities held by a Sub-Custodian will be subject only to
the instructions of the Custodian or its agents; and any Securities
held in an eligible foreign securities depository for the account of
a Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets
held by the Custodian for its customers, and will cause such account
to be designated by such Sub-Custodian as a special custody account
for the exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Fund will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the
Fee Schedule annexed hereto as Schedule C and incorporated herein.
Such Fee Schedule does not include out-of-pocket disbursements of
the Custodian for which the Custodian shall be entitled to bill
separately; provided that out-of-pocket disbursements may include
only the items specified in Schedule C.
(b) If the Fund requests that the Custodian act as Custodian for any
Portfolio hereafter established, at the time the Custodian commences
serving as such for said Portfolio, the compensation for such
services shall be reflected in a fee schedule for that Portfolio,
dated and signed by an officer of each party hereto, which shall be
attached to or otherwise reflected in Schedule C of this Agreement.
(c) Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule C, or replacing Schedule C with, a
revised Fee Schedule, dated and signed by an officer of each party
hereto.
(d) The Custodian will bill the Fund for its services to each
Portfolio hereunder as soon as practicable after the end of each
calendar quarter, and said billings will be detailed in accordance
with the Fee Schedule for the Fund. The Fund will promptly pay to
the Custodian the amount of such billing. The Custodian shall have a
claim of payment against the property in each Portfolio for any
compensation or
C-35
<PAGE>
expense amount owing to the Custodian in connection with such
Portfolio from time to time under this Agreement.
(e) The Custodian (not the Fund) will be responsible for the payment
of the compensation of each Sub-Custodian.
6. Custody of Cash and Securities
(a) Receipt and Holding of Assets. The Fund will deliver or cause to
be delivered to the Custodian and any Sub-Custodians all Securities
and moneys of any Portfolio at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities
and moneys are to be specifically allocated. The Custodian will not
be responsible for such Securities and moneys until actually
received by it or by a Sub-Custodian. The Fund may, from time to
time in its sole discretion, provide the Custodian with Instructions
as to the manner in which and in what amounts Securities, and moneys
of a Portfolio are to be held on behalf of such Portfolio in the
Book-Entry System or a Depository. Securities and moneys of a
Portfolio held in the Book-Entry System or a Depository will be held
in accounts which include only assets of Custodian that are held for
its customers.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to
the separate account all moneys received by it or a Sub-Custodian
for the account of such Portfolio and shall disburse, or cause a
Sub-Custodian to disburse, the same only:
1. In payment for Securities purchased for the
Portfolio, as provided in Section 7 hereof;
2. In payment of dividends or distributions with respect
to the Shares of such Portfolio, as provided in Section
11 hereof;
3. In payment of original issue or other taxes with
respect to the Shares of such Portfolio, as provided in
Section 12(c) hereof;
4. In payment for Shares which have been redeemed by
such Portfolio, as provided in Section 12 hereof;
5. In payment of fees and in reimbursement of the
expenses and liabilities of the Custodian attributable
to the Fund, as provided in Sections 5 and 16(h) hereof;
6. Pursuant to Instructions setting forth the name of
the Portfolio and the name and address of the person to
whom the payment is to be made, the amount to be paid
and the purpose for which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may
be, may, in its discretion, advance the Fund on behalf of that
Portfolio an amount equal to such excess and such advance shall be
deemed an overdraft from the Custodian or such Sub-Custodian to that
Portfolio payable on demand, bearing interest at the rate of
interest customarily charged by the Custodian or such Sub-Custodian
on similar overdrafts.
(d) Confirmation and Statements. At least monthly, the Custodian
shall furnish the Fund with a detailed statement of the Securities
and moneys held by it and all Sub-Custodians for each Portfolio.
Where securities purchased for a Portfolio are in a fungible bulk of
securities registered in the name of the Custodian (or its nominee)
or shown on the Custodian's account on the books of a Depository,
the Book-Entry System or a Sub-Custodian, the Custodian shall
maintain such records as are necessary to enable it to identify the
quantity of those securities held for such Portfolio. In the absence
of the filing in writing
C-36
<PAGE>
with the Custodian by the Fund of exceptions or objections to any
such statement within 60 days after the date that a material defect
is reasonably discoverable, the Fund shall be deemed to have
approved such statement; and in such case or upon written approval
of the Fund of any such statement the Custodian shall, to the extent
permitted by law and provided the Custodian has met the standard of
care in Section 16 hereof, be released, relieved and discharged with
respect to all matters and things set forth in such statement as
though such statement had been settled by the decree of a court of
competent jurisdiction in an action in which the Fund and all
persons having any equity interest in the Fund were parties.
(e) Registration of Securities and Physical Separation. All
Securities held for a Portfolio which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian or a Sub-Custodian in that
form; all other Securities held for a Portfolio may be registered in
the name of that Portfolio, in the name of any duly appointed
registered nominee of the Custodian or a Sub-Custodian as the
Custodian or such Sub-Custodian may from time to time determine, or
in the name of the Book-Entry System or a Depository or their
successor or successors, or their nominee or nominees. The Fund
reserves the right to instruct the Custodian as to the method of
registration and safekeeping of the Securities. The Fund agrees to
furnish to the Custodian appropriate instruments to enable the
Custodian or any Sub-Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in
the name of the Book-Entry System or a Depository, any Securities
which the Custodian of a Sub-Custodian may hold for the account of a
Portfolio and which may from time to time be registered in the name
of a Portfolio. The Custodian shall hold all such Securities
specifically allocated to a Portfolio which are not held in the
Book-Entry System or a Depository in a separate account for such
Portfolio in the name of such Portfolio physically segregated at all
times from those of any other person or persons.
(f) Segregated Accounts. Upon receipt of an Instruction, the
Custodian will establish segregated accounts on behalf of a
Portfolio to hold liquid or other assets as it shall be directed by
such Instruction and shall increase or decrease the assets in such
segregated accounts only as it shall be directed by subsequent
Instruction.
(g) Collection of Income and Other Matters Affecting Securities.
Except as otherwise provided in an Instruction, the Custodian, by
itself or through the use of the Book-Entry System or a Depository
with respect to Securities therein maintained, shall, or shall
instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to
Securities in accordance with this Agreement;
2. Present for payment and collect the amount payable
upon all Securities which may mature or be called,
redeemed or retired, or otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute any necessary declarations or certificates of
ownership under the federal income tax laws or the laws
or regulations of any other taxing authority now or
hereafter in effect; and
5. Hold directly, or through the Book-Entry System or a
Depository with respect to Securities therein deposited,
for the account of each Portfolio all rights and similar
Securities issued with respect to any Securities held by
the Custodian or relevant Sub-Custodian for each
Portfolio.
(h) Delivery of Securities and Evidence of Authority. Upon receipt
of an Instruction, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall, or shall instruct the
relevant Sub-Custodian to:
C-37
<PAGE>
1. Execute and deliver or cause to be executed and
delivered to such persons as may be designated in such
Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Fund as
owner of any Securities may be exercised;
2. Deliver or cause to be delivered any Securities held
for a Portfolio in exchange for other Securities or cash
issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of
any conversion privilege;
3. Deliver or cause to be delivered any Securities held
for a Portfolio to any protective committee,
reorganization committee or other person in connection
with the reorganization, refinancing, merger,
consolidation or recapitalization or sale of assets of
any corporation, and receive and hold under the terms of
this Agreement in the separate account for each such
Portfolio certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
4. Make or cause to be made such transfers or exchanges
of the assets specifically allocated to the separate
account of a Portfolio and take such other steps as
shall be stated in Written Instructions to be for the
purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
5. Deliver Securities upon sale of such Securities for
the account of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to such
Securities entered into on behalf of a Portfolio;
7. Deliver Securities of a Portfolio to the issuer
thereof or its agent when such Securities are called,
redeemed, retired or otherwise become payable; provided,
however, that in any such case the cash or other
consideration is to be delivered to the Custodian or
Sub-Custodian, as the case may be;
8. Deliver Securities for delivery in connection with
any loans of securities made by a Portfolio but only
against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund which
may be in the form of cash or obligations issued by the
United States Government, its agencies or
instrumentalities;
9. Deliver Securities for delivery as security in
connection with any borrowings by a Portfolio requiring
a pledge of Portfolio assets, but only against receipt
of the amounts borrowed;
10. Deliver Securities to the Transfer Agent or its
designee or to the holders of Shares in connection with
distributions in kind, in satisfaction of requests by
holders of Shares for repurchase or redemption;
11. Deliver Securities for any other proper business
purpose, but only upon receipt of, in addition to
written Instructions, a copy of a resolution or other
authorization of the Fund certified by the Secretary of
the Fund, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom
delivery of such Securities shall be made.
(i) Endorsement and Collection of Checks, Etc. The Custodian is
hereby authorized to endorse and collect all checks, drafts or other
orders for the payment of money received by the Custodian for the
account of a Portfolio.
C-38
<PAGE>
(j) Execution of Required Documents. The Custodian is hereby
authorized to execute any and all applications or other documents
required by a regulatory agency or similar entity as a condition of
making investments in the foreign market under such entity's
jurisdiction.
7. Purchase and Sale of Securities.
(a) Promptly after the purchase of Securities, the Fund or its
designee shall deliver to the Custodian an Instruction specifying
with respect to each such purchase: (1) the name of the Portfolio to
which such Securities are to be specifically allocated; (2) the name
of the issuer and the title of the Securities; (3) the number of
shares or the principal amount purchased and accrued interest, if
any; (4) the date of purchase and settlement; (5) the purchase price
per unit; (6) the total amount payable upon such purchase; and (7)
the name of the person from whom or the broker through whom the
purchase was made, if any. The Custodian or specified Sub-Custodian
shall receive the Securities purchased by or for a Portfolio and
upon receipt thereof (or upon receipt of advice from a Depository or
the Book-Entry System that the Securities have been transferred to
the Custodian's account) shall pay to the broker or other person
specified by the Fund or its designee out of the moneys held for the
account of such Portfolio the total amount payable upon such
purchase, provided that the same conforms to the total amount
payable as set forth in such Instruction.
(b) Promptly after the sale of Securities, the Fund or its designee
shall deliver to the Custodian an Instruction specifying with
respect to each such sale: (1) the name of the Portfolio to which
the Securities sold were specifically allocated; (2) the name of the
issuer and the title of the Securities; (3) the number of shares or
principal amount sold, and accrued interest, if any; (4) the date of
sale; (5) the sale price per unit; (6) the total amount payable to
the Portfolio upon such sale; and (7) the name of the broker through
whom or the person to whom the sale was made. The Custodian or
relevant Sub-Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Fund upon
receipt of the total amount payable to such Portfolio upon such
sale, provided that the same conforms to the total amount payable to
such Portfolio as set forth in such Instruction. Subject to the
foregoing, the Custodian or relevant Sub-Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
(c) Notwithstanding (a) and (b) above, cash in any of the Portfolios
may be invested by the Custodian for short term purposes pursuant to
standing Instructions from the Fund.
8. Lending of Securities.
If the Fund and the Custodian enter into a separate written
agreement authorizing the Custodian to lend Securities, the
Custodian may lend Securities pursuant to such agreement. Such
agreement must be approved by the Fund in the manner required by any
applicable law, regulation or administrative pronouncement, and may
provide for the payment of additional reasonable compensation to the
Custodian.
9. Investment in Futures and Options
The Custodian shall pursuant to Instructions (which may be standing
instructions) (i) transfer initial margin to a safekeeping bank or,
with respect to options, broker; (ii) pay or demand variation margin
to or from a designated futures commission merchant or other broker
based on daily marking to market calculations and in accordance with
accepted industry practices; and (iii) subject to the Custodian's
consent, enter into separate procedural, safekeeping or other
agreements with safekeeping banks, futures commission merchants and
other brokers pursuant to which such banks and, in the case of
options, brokers, will act as custodian for initial margin deposits
in transactions involving futures contracts and
C-39
<PAGE>
options. The Custodian shall have no custodial or investment
responsibility for any assets transferred to a safekeeping bank,
futures commission merchant or broker pursuant to this paragraph.
10. Provisional Credits and Debits.
(a) The Custodian is authorized, but shall not be obligated, to
credit the account of a Portfolio provisionally on payable date with
interest, dividends, distributions, redemptions or other amounts
due. Otherwise, such amounts will be credited to the Portfolio on
the date such amounts are actually received and reconciled to the
Portfolio. In cases where the Custodian has credited a Portfolio
with such amounts prior to actual collection and reconciliation, the
Fund acknowledges that the Custodian shall be entitled to recover
any such credit on demand from the Fund and further agrees that the
Custodian may reverse such credit if and to the extent that
Custodian does not receive such amounts in the ordinary course of
business.
(b) If the Portfolio is maintained as a global custody account it
shall participate in the Custodian's contractual settlement date
processing service ("CSDP") unless the Custodian directs the Fund,
or the Fund informs the Custodian, otherwise. Pursuant to CSDP the
Custodian shall be authorized, but not obligated, to automatically
credit or debit the Portfolio provisionally on contractual
settlement date with cash or securities in connection with any sale,
exchange or purchase of securities. Otherwise, such cash or
securities shall be credited to the Portfolio on the day such cash
or securities are actually received by the Custodian and reconciled
to the Portfolio. In cases where the Custodian credits or debits the
Portfolio with cash or securities prior to actual receipt and
reconciliation, the Custodian may reverse such credit or debit as of
contractual settlement date if and to the extent that any securities
delivered by the Custodian are returned by the recipient, or if the
related transaction fails to settle (or fails, due to market change
or other reasons, to settle on terms which provide the Custodian
full reimbursement of any provisional credit the Custodian has
granted) within a period of time judged reasonable by the Custodian
under the circumstances. The Fund agrees that it will not make any
claim or pursue any legal action against the Custodian for loss or
other detriment allegedly arising or resulting from the Custodian's
good faith determination to effect, not effect or reverse any
provisional credit or debit to the Portfolio.
The Fund acknowledges and agrees that funds debited from
the Portfolio on contractual settlement date including, without
limitation, funds provided for the purchase of any securities under
circumstances where settlement is delayed or otherwise does not take
place in a timely manner for any reason, shall be held pending
actual settlement of the related purchase transaction in a
non-interest bearing deposit at the Custodian's London Branch; that
such funds shall be available for use in the Custodian's general
operations; and that the Custodian's maintenance and use of such
funds in such circumstances are, without limitation, in
consideration of the Custodian's providing CSDP.
(c) The Fund recognizes that any decision to effect a provisional
credit or an advancement of the Custodian's own funds under this
agreement will be an accommodation granted entirely at the
Custodian's option and in light of the particular circumstances,
which circumstances may involve conditions in different countries,
markets and classes of assets at different times. The Fund shall
make the Custodian whole for any loss which it may incur from
granting such accommodations and acknowledges that the Custodian
shall be entitled to recover any relevant amounts from the Fund on
demand. All amounts thus due to the Custodian shall be paid by the
Fund from the account of the relevant Portfolio unless otherwise
paid on a timely basis and in that connection the Fund acknowledges
that the Custodian has a continuing lien on all assets of such
Portfolio to secure such payments and agrees that the Custodian may
apply or set off against such amounts any amounts credited by or due
from the Custodian to the Fund. If funds in the Portfolio are
insufficient to make any such payment the Fund shall promptly
deliver to the Custodian the amount of such deficiency in
immediately available funds when and as specified by the Custodian's
written or oral notification to the Fund.
(d) In connection with the Custodian's global custody service the
Fund will maintain deposits at the Custodian's London Branch. The
Fund acknowledges and agrees that such deposits are payable only in
C-40
<PAGE>
the currency in which an applicable deposit is denominated; that
such deposits are payable only on the Fund's demand at the
Custodian's London Branch; that such deposits are not payable at any
of the Custodian's offices in the United States; and that the
Custodian will not in any manner directly or indirectly promise or
guarantee any such payment in the United States.
The Fund further acknowledges and agrees that such
deposits are subject to cross-border risk, and therefore the
Custodian will have no obligation to make payment of deposits if and
to the extent that the Custodian is prevented from doing so by
reason of applicable law or regulation or any Sovereign Risk event
affecting the London Branch or the currency in which the applicable
deposit is denominated. "Sovereign Risk" for this purpose means
nationalisation, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment,
promulgation, imposition or enforcement by any such governmental
authority of currency restrictions, exchange controls, taxes, levies
or other charges affecting the property rights of persons who are
not residents of the affected jurisdiction; or acts of war,
terrorism, insurrection or revolution; or any other act or event
beyond the Custodian's control.
THE FUND ACKNOWLEDGES AND AGREES THAT DEPOSITACCOUNTS
MAINTAINED AT FOREIGN BRANCHES OF UNITED STATES BANKS (INCLUDING, IF
APPLICABLE, ACCOUNTS IN WHICH CUSTOMER FUNDS FOR THE PURCHASE OF
SECURITIES ARE HELD ON AND AFTER CONTRACTUAL SETTLEMENT DATE), ARE
NOT INSURED BY THE U.S. FEDERAL DEPOSIT INSURANCE CORPORATION; MAY
NOT BE GUARANTEED BY ANY LOCAL OR FOREIGN GOVERNMENTAL AUTHORITY;
ARE UNSECURED; AND IN A LIQUIDATION MAY BE SUBORDINATED IN PRIORITY
OF PAYMENT TO DOMESTIC (U.S.- DOMICILED) DEPOSITS. THEREFORE,
BENEFICIAL OWNERS OF SUCH FOREIGN BRANCH DEPOSITS MAY BE UNSECURED
CREDITORS OF THE NORTHERN TRUST COMPANY.
Deposit account balances that are owned by United States
residents are expected to be maintained in an aggregate amount of at
least $100,000 or the equivalent in other currencies.
11. Payment of Dividends or Distributions.
(a) In the event that the Board of Directors of the Fund (or a
committee thereof) authorizes the declaration of dividends or
distributions with respect to a Portfolio, an Authorized Person
shall provide the Custodian with Instructions specifying the record
date, the date of payment of such distribution and the total amount
payable to the Transfer Agent or its designee on such payment date.
(b) Upon the payment date specified in such Instructions, the
Custodian shall pay the total amount payable to the Transfer Agent
or its designee out of the moneys specifically allocated to and held
for the account of the appropriate Portfolio.
12. Sale and Redemption of Shares.
(a) Whenever the Fund shall sell any Shares, the Fund shall deliver
or cause to be delivered to the Custodian an Instruction specifying
the name of the Portfolio whose Shares were sold and the amount to
be received by the Custodian for the sale of such Shares.
(b) Upon receipt of such amount from the Transfer Agent or its
designee, the Custodian shall credit such money to the separate
account of the Portfolio specified in the Instruction described in
paragraph (a) above.
C-41
<PAGE>
(c) Upon issuance of any Shares in accordance with the foregoing
provisions of this Section 12, the Custodian shall pay all original
issue or other taxes required to be paid in connection with such
issuance upon the receipt of an Instruction specifying the amount to
be paid.
(d) Except as provided hereafter, whenever any Shares are redeemed,
the Fund shall deliver or cause to be delivered to the Custodian an
Instruction specifying the name of the Portfolio whose Shares were
redeemed and the total amount to be paid for the Shares redeemed.
(e) Upon receipt of an Instruction described in paragraph (d) above,
the Custodian shall pay to the Transfer Agent (or such other person
as the Transfer Agent directs) the total amount specified in such
Instruction. Such payment shall be made from the separate account of
the Portfolio specified in such Instruction.
13. Indebtedness.
(a) The Fund or its designee will cause to be delivered to the
Custodian by any bank (excluding the Custodian) from which the Fund
borrows money, using Securities as collateral, a notice or
undertaking in the form currently employed by any such bank setting
forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly
deliver to the Custodian an Instruction stating with respect to each
such borrowing: (1) the name of the Portfolio for which the
borrowing is to be made; (2) the name of the bank; (3) the amount
and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by the Fund,
or other loan agreement; (4) the time and date, if known, on which
the loan is to be entered into (the "borrowing date"); (5) the date
on which the loan becomes due and payable; (6) the total amount
payable to the Fund for the separate account of the Portfolio on the
borrowing date; (7) the market value of Securities to be delivered
as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any
particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book-Entry System or a Depository; and (9) a
statement that such loan is in conformance with the 1940 Act and the
Prospectus.
(b) Upon receipt of the Instruction referred to in paragraph (a)
above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable
as set forth in the Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The
Custodian shall deliver as additional collateral in the manner
directed by the Fund from time to time such Securities specifically
allocated to such Portfolio as may be specified in the Instruction
to collateralize further any transaction described in this Section
13. The Fund shall cause all Securities released from collateral
status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be
tendered to it. In the event that the Fund fails to specify in such
Instruction all of the information required by this Section 13, the
Custodian shall not be under any obligation to deliver any
Securities. Collateral returned to the Custodian shall be held
hereunder as it was prior to being used as collateral.
14. Corporate Action.
Whenever the Custodian or any Sub-Custodian receives information
concerning Securities held for a Portfolio which requires
discretionary action by the beneficial owner of the Securities
(other than a proxy), such as subscription rights, bond issues,
stock repurchase plans and rights offerings, or legal notices or
other material intended to be transmitted to Securities holders
("Corporate Actions"), the Custodian will give the Fund or its
designee notice of such Corporate Actions to the extent that the
C-42
<PAGE>
Custodian's central corporate actions department has actual
knowledge of a Corporate Action in time to notify the Fund.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate
Action which bears an expiration date is received, the Custodian
will endeavor to obtain an Instruction relating to such Corporate
Action from an Authorized Person, but if such Instruction is not
received in time for the Custodian to take timely action, or actual
notice of such Corporate Action was received too late to seek such
an Instruction, the Custodian is authorized to sell, or cause a
Sub-Custodian to sell, such rights entitlement or fractional
interest and to credit the applicable account with the proceeds and
to take any other action it deems, in good faith, to be appropriate,
in which case, provided it has met the standard of care in Section
16 hereof, it shall be held harmless by the particular Portfolio
involved for any such action.
The Custodian will deliver proxies to the Fund or its designated
agent pursuant to special arrangements which may have been agreed to
in writing between the parties hereto. Such proxies shall be
executed in the appropriate nominee name relating to Securities
registered in the name of such nominee but without indicating the
manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance
with an applicable Instruction, if any.
15. Persons Having Access to the Portfolios.
(a) Neither the Fund nor any officer, director, employee or agent of
the Fund, the Fund's investment adviser, or any sub-investment
adviser, shall have physical access to the assets of any Portfolio
held by the Custodian or any Sub-Custodian or be authorized or
permitted to withdraw any investments of a Portfolio, nor shall the
Custodian or any Sub-Custodian deliver any assets of a Portfolio to
any such person. No officer, director, employee or agent of the
Custodian who holds any similar position with the Fund's investment
adviser, with any sub-investment adviser of the Fund or with the
Fund shall have access to the assets of any Portfolio.
(b) Nothing in this Section 15 shall prohibit any Authorized Person
from giving Instructions to the Custodian so long as such
Instructions do not result in delivery of or access to assets of a
Portfolio prohibited by paragraph (a) of this Section 15.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having
access to the assets that it holds (by any means) for its customers.
16. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform
only such services as are set forth in this Agreement or expressly
contained in an Instruction given to the Custodian which is not
contrary to the provisions of this Agreement.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect
to its obligations under this Agreement and the
safekeeping of property of the Portfolios. The Custodian
shall be liable to, and shall indemnify and hold
harmless the Fund from and against any loss which shall
occur as the result of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable
care with respect to their respective obligations under
this Agreement and the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian
has exercised reasonable care in connection with the
safekeeping of Fund property shall be made in light of
the standards applicable to the Custodian with respect
to similar property held by it in Chicago, Illinois. The
determination of whether the
C-43
<PAGE>
Custodian or Sub-Custodian has exercised reasonable care
in connection with their other obligations under this
Agreement shall be made in light of prevailing standards
applicable to professional custodians in the
jurisdiction in which such custodial services are
performed. In the event of any loss to the Fund by
reason of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable
care, the Custodian shall be liable to the Fund only to
the extent of the Fund's direct damages and expenses,
which damages, for purposes of property only, shall be
determined based on the market value of the property
which is the subject of the loss at the date of
discovery of such loss and without reference to any
special condition or circumstances.
2. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any
foreign securities depository or clearing agency
approved by the Board of Directors pursuant to Section
(1)(l) or Section 3 hereof.
3. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any
broker or agent (not referred to in paragraph (b)(2)
above) which it or a Sub-Custodian appoints and uses
unless such appointment and use is made or done
negligently or in bad faith. In the event such an
appointment and use is made or done negligently or in
bad faith, the Custodian shall be liable to the Fund
only for direct damages and expenses (determined in the
manner described in paragraph (b)(1) above) resulting
from such appointment and use and, in the case of any
loss due to an act, omission or default of such agent or
broker, only to the extent that such loss occurs as a
result of the failure of the agent or broker to exercise
reasonable care ("reasonable care" for this purpose to
be determined in light of the prevailing standards
applicable to agents or brokers, as appropriate, in the
jurisdiction where the services are performed).
4. The Custodian shall be entitled to rely, and may act,
upon the advice of counsel (who may be counsel for the
Fund) on all matters and shall be without liability for
any action reasonably taken or omitted in good faith and
without negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Instruction it receives pursuant to the applicable
Sections of this Agreement that it reasonably believes
to be genuine and to be from an Authorized Person. In
the event that the Custodian receives oral Instructions,
the Fund or its designee shall cause to be delivered to
the Custodian, by the close of business on the same day
that such oral Instructions were given to the Custodian,
written Instructions confirming such oral Instructions,
whether by hand delivery, telex or otherwise. The Fund
agrees that the fact that no such confirming written
Instructions are received by the Custodian shall in no
way affect the validity of the transactions or
enforceability of the transactions hereby authorized by
the Fund. The Fund agrees that the Custodian shall incur
no liability to the Fund in connection with (i) acting
upon oral Instructions given to the Custodian hereunder,
provided such instructions reasonably appear to have
been received from an Authorized Person or (ii) deciding
not to act solely upon oral Instructions, provided that
the Custodian first contacts the giver of such oral
Instructions and requests written confirmation
immediately following any such decision not to act.
6. The Custodian shall supply the Fund or its designee
with such daily information regarding the cash and
Securities positions and activity of each Portfolio as
the Custodian and the Fund or its designee shall from
time to time agree. It is understood that such
information will not be audited by the Custodian and the
Custodian represents that such information will be the
best information then available to the Custodian. The
Custodian shall have no responsibility whatsoever for
the pricing of Securities, accruing for income, valuing
the effect of Corporate Actions, or for the failure of
the Fund or its designee to reconcile differences
between the information supplied by the Custodian and
information obtained by the Fund or its designee from
other sources, including but not limited to pricing
vendors and the Fund's investment adviser.
C-44
<PAGE>
Subject to the foregoing, to the extent that any
miscalculation by the Fund or its designee of a
Portfolio's net asset value is attributable to the
willful misfeasance, bad faith or negligence of the
Custodian (including any Sub-Custodian other than a
foreign securities depository or clearing agency) in
supplying or omitting to supply the Fund or its designee
with information as aforesaid, the Custodian shall be
liable to the Fund for any resulting loss (subject to
such de minimis rule of change in value as the Board of
Directors may from time to time adopt).
(c) Limit of Duties. Without limiting the generality of the
foregoing, the Custodian shall be under no duty or obligation to
inquire into, and shall not be liable for:
1. The validity of the issue of any Securities purchased
by any Portfolio, the legality of the purchase thereof,
or the propriety of the amount specified by the Fund or
its designee for payment therefor;
2. The legality of the sale of any Securities by any
Portfolio or the propriety of the amount of
consideration for which the same are sold;
3. The legality of the issue or sale of any Shares, or
the sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
dividend or distribution by the Fund; or
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Fund, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees
to notify the Fund in the event that such bond is canceled or
otherwise lapses.
(e) Consistent with and without limiting the language contained in
Section 16(a), it is specifically acknowledged that the Custodian
shall have no duty or responsibility to:
1. Question any Instruction or make any suggestions to
the Fund or an Authorized Person regarding any
Instruction;
2. Supervise or make recommendations with respect to
investments or the retention of Securities;
3. Subject to Section 16(b)(3) hereof, evaluate or
report to the Fund or an Authorized Person regarding the
financial condition of any broker, agent or other party
to which Securities are delivered or payments are made
pursuant to this Agreement; or
4. Review or reconcile trade confirmations received from
brokers.
(f) Amounts Due from or to Transfer Agent. The Custodian shall not
be under any duty or obligation to take action to effect collection
of any amount due to any Portfolio from the Transfer Agent or its
designee nor to take any action to effect payment or distribution by
the Transfer Agent or its designee of any amount paid by the
Custodian to the Transfer Agent in accordance with this Agreement.
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any
time delivered to or held by it for the Fund and specifically
C-45
<PAGE>
allocated to a Portfolio are such as may properly be held by the
Fund under the provisions of the Articles of Incorporation and the
Prospectus.
(h) Indemnification. The Fund agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange
Act of 1934 and the 1940 Act and state or foreign securities laws)
and expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by
the Custodian (i) at the request or on the direction of or in
reliance on the advice of the Fund or in reasonable reliance upon
the Prospectus or (ii) upon an Instruction; provided, that the
foregoing indemnity shall not apply to any loss, cost, tax, charge,
assessment, claim, liability or expense to the extent the same is
attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence,
willful misconduct, bad faith or reckless disregard of duties and
obligations under this Agreement or any other agreement relating to
the custody of Fund property.
(i) The Fund agrees to hold the Custodian harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be
liable for any loss which results from:
1. the general risk of investing;
2. subject to Section 16(b) hereof, investing or holding
property in a particular country including, but not
limited to, losses resulting from nationalization,
expropriation or other governmental actions; regulation
of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market
conditions which prevent the orderly execution of
securities transactions or affect the value of property
held pursuant to this Agreement; or
3. consequential, special or punitive damages for any
act or failure to act under any provision of this
Agreement, even if advised of the possibility thereof.
(k) Force Majeure. No party shall be liable to the other for any
delay in performance, or non- performance, of any obligation
hereunder to the extent that the same is due to forces beyond its
reasonable control, including but not limited to delays, errors or
interruptions caused by the other party or third parties, any
industrial, juridical, governmental, civil or military action, acts
of terrorism, insurrection or revolution, nuclear fusion, fission or
radiation, failure or fluctuation in electrical power, heat, light,
air conditioning or telecommunications equipment, or acts of God.
(1) Inspection of Books and Records. The Custodian shall create and
maintain all records relating to its activities and obligations
under this Agreement in such manner as will meet the obligations of
the Fund under the 1940 Act, with particular attention to Section 31
thereof and Rules 31a-1 and 31a-2 thereunder, and under applicable
federal and state laws. All such records shall be the property of
the Fund and shall at all times during regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees and agents of the Fund and by the appropriate employees of
the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of Securities and
shall, when requested to do so by the Fund and for such compensation
as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
(m) Accounting Control Reports. The Custodian shall provide the Fund
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, each Depository, and
each Sub-Custodian and with an annual report on its own systems of
internal accounting control.
17. Term and Termination.
C-46
<PAGE>
(a) This Agreement shall become effective on the date first set
forth above (the "Effective Date") and shall continue in effect
thereafter until terminated in accordance with Section 17(b).
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Fund is the terminating party, shall be not less than 60 days after
the date of Custodian receives such notice or, in case the Custodian
is the terminating party, shall be not less than 90 days after the
date the Fund receives such notice. In the event such notice is
given by the Fund, it shall be accompanied by a certified resolution
of the Board of Directors, electing to terminate this Agreement with
respect to any Portfolio and designating a successor custodian or
custodians.
In the event such notice is given by the Custodian, the Fund shall,
on or before the termination date, deliver to the Custodian a
certified resolution of the Board of Directors, designating a
successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a successor
custodian, which shall be a person qualified to so act under the
1940 Act. If the Fund fails to designate a successor custodian with
respect to any Portfolio, the Fund shall upon the date specified in
the notice of termination of this Agreement and upon the delivery by
the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys
of such Portfolio, be deemed to be its own custodian and the
Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System which
cannot be delivered to the Fund.
(c) Upon the date set forth in such notice under paragraph (b) of
this Section 17, this Agreement shall terminate to the extent
specified in such notice, and the Custodian shall upon receipt of a
notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then
held by the Custodian and specifically allocated to the Portfolio or
Portfolios specified, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be
entitled with respect to such Portfolio or Portfolios.
18. Miscellaneous.
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Fund setting forth the names of the
present Authorized Persons. The Fund agrees to furnish to the
Custodian a new certification in similar form in the event that any
such present Authorized Person ceases to be such an Authorized
Person or in the event that other or additional Authorized Persons
are elected or appointed. Until such new certification is received
by the Custodian, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Instructions which
Custodian reasonably believes were given by an Authorized Person, as
identified in the last delivered certification. Unless such
certification specifically limits the authority of an Authorized
Person to specific matters or requires that the approval of another
Authorized Person is required, Custodian shall be under no duty to
inquire into the right of such person, acting alone, to give any
instructions whatsoever under this Agreement.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at its address stated on the first
page hereof or at such other place as the Custodian may from time to
time designate in writing.
(c) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund, shall be
sufficiently given if addressed to the Fund and mailed or delivered
to it at its offices at its address shown on the first page hereof
or at such other place as the Fund may from time to time designate
in writing.
C-47
<PAGE>
(d) Except as expressly provided herein, Agreement may not be
amended or modified in any manner except by a written agreement
executed by both parties with the same formality as this Agreement.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by
the Fund without the written consent of the Custodian, or by the
Custodian without the written consent of the Fund, and any attempted
assignment without such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
C-48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective representatives duly authorized as
of the day and year first above written.
SIT GROWTH FUND, INC.
By: /s/ Mary K. Stern
-------------------------------
Name: Mary K. Stern
Title: President
The undersigned, Michael J. Radmer, does hereby certify that he/she is the duly
elected, qualified and acting Secretary of Sit Growth Fund, Inc. (the "Fund")
and further certifies that the person whose signature appears above is a duly
elected, qualified and acting officer of the Fund with full power and authority
to execute this Custody Agreement on behalf of the Fund and to take such other
actions and execute such other documents as may be necessary to effectuate this
Agreement.
/s/ Michael J. Radmer
- ----------------------------------
Secretary
SIT GROWTH FUND, INC.
THE NORTHERN TRUST COMPANY
By: /s/ Michael J. Lies
------------------------------
Name: Michael J. Lies
Title: Second Vice President
C-49
<PAGE>
SCHEDULE A
CERTIFICATION OF AUTHORIZED PERSONS
Pursuant to paragraphs 1(b) and 18(a) of the Agreement, the
undersigned officers of Sit Growth Fund, Inc. hereby certify that the person(s)
whose name(s) and signature(s) appear below have been duly authorized by the
Board of Directors to give Instructions on behalf of the Fund.
NAME SIGNATURE
Eugene C. Sit /s/ Eugene C. Sit
--------------------------------------------------------------------
Peter L. Mitchelson /s/ Peter L. Mitchelson
--------------------------------------------------------------------
Mary K. Stern /s/ Mary K. Stern
--------------------------------------------------------------------
Michael C. Brilley /s/ Michael C. Brilley
--------------------------------------------------------------------
Roger J. Sit /s/ Roger J. Sit
--------------------------------------------------------------------
Paul E. Rasmussen /s/ Paul E. Rasmussen
--------------------------------------------------------------------
Certified as of the _28th___ day of __July___________, 1999:
OFFICER: OFFICER:
/s/ Mary K. Stern /s/ Paul E. Rasmussen
- --------------------------------- -------------------------------
(Signature) (Signature)
Mary K. Stern Paul E. Rasmussen
- --------------------------------- -------------------------------
(Name) (Name)
President Vice President
- --------------------------------- -------------------------------
(Title) (Title)
C-50
<PAGE>
SCHEDULE B
* SIT GROWTH FUND, INC.
As of July 1, 1999
Sit Growth Fund
C-51
<PAGE>
SCHEDULE C
FEE SCHEDULE
* SIT MUTUAL FUND GROUP
Northern Trust has three components to its Global Custody fee
structure:
d) A variable charge on the market value of assets based upon the
country of investment;
e) A variable charge per transaction, and;
f) A charge per investment manager portfolio.
We do NOT impose additional charges for facsimile, telex, income
collection, tax reclamation, administration or other "miscellaneous"
activities. Execution costs, not limited to but including stamp
duty, third-party foreign exchange, and re-registration charges will
be passed through at cost if and as applicable.
Global Custody fees are all inclusive and cover:
* Safekeeping of assets
* Settlement of trades
* Facilitation of foreign exchange
* Management of excess cash balances
* Collection of interest and dividends
* Tax withholding and reclamation
* Proxy handling
* Corporate actions
* Fully audited monthly reporting
* On-line daily reporting to all parties
MATERIAL CHANGES
The fees quoted above are offered contingent upon the current levels
of investment activity as indicated above. "Material" changes, for
the purposes of this provision, will be changes in excess of 10%
from the assumptions used.
INVOICES
Invoices are presented at the end of each quarter on a quarter in
arrears basis. All out of pocket expense recoveries are charged
directly to the account(s) in the month following the actual expense
C-52
<PAGE>
DOMESTIC FUNDS
Domestic accounts $0.00
Market value(000,000s) 0.75 bps
Equity/Fixed income security trades $6.00
Cash & Equivalent security trades $10.00
Wires transfers $5.00
Free delivery/receipt $10.00
INTERNATIONAL FUNDS
Global accounts $0.00
Market value - Tier I (000s) 0.75 bps
Market value - Tier II (000s) 3.0 bps
Market value - Tier III (000s) 8.0 bps
Market value - Tier IV (000s) 15.0 bps
Market value - Tier V (000s) 30.0 bps
Security trades - Tier I/Equity $6.00
Security trades - Tier I/Cash & Equiv $10.00
Security trades - Tier II $25.00
Security trades - Tier III $50.00
Security trades - Tier IV $75.00
Security trades - Tier V $125.00
Wire transfers $5.00
Free delivery/receipt $10.00
Tier I United States
Tier II Australia, Belgium, Canada, Denmark, Euroclear,
France, Germany, Ireland, Italy, Japan,
Luxembourg, Malaysia, Netherlands, New Zealand,
Sweden and United Kingdom
Tier III Austria, Hong Kong, Norway, Singapore, South
Korea, Spain, Switzerland, Taiwan and Thailand
Tier IV Argentina, China, Finland, Mexico, Portugal, Sri
Lanka, South Africa and Turkey
Tier V Bangladesh, Bolivia, Botswana, Brazil, Czech Rep.,
Chile, Colombia, Cyprus, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Israel, Jamaica,
Jordan, Morocco, Nigeria, Pakistan, Peru,
Philippines, Poland, Trinidad, Tunisia, Uruguay,
Venezuela, Vietnam and Zimbabwe
Sit Mutual Funds
Quarterly Custody Fee Assumption
1st Quarter 1999
1.19377 US ave bps
US
Market Value US 1,935,317,432 0.75 36,287
C-53
<PAGE>
Security Trades
Equity/Fixed 951 6 5,706
Cash & Equiv 919 10 9,190
Wires 1,315 5 6,575
Free Receipt/Delivery - 10 -
Security Holdings 1,696 0 -
Accounts 11 0 -
Total US 57,758
Global 6.320 Glb Ave Bps
Market Value
Tier I 22,178,394 0.75 416
Tier II 61,750,074 3 4,631
Tier III 14,281,953 8 2,856
Tier IV 826,397 15 310
Tier V 2,532,361 30 1,899
101,569,177
Transactions
Tier I Equity/Fixed 15 6 90
Tier I Cash/Equiv 162 10 1,620
Tier II 38 25 950
Tier III 14 50 700
Tier IV 4 75 300
Tier V 13 125 1,625
Holdings 146 0 -
Accounts 2 0 -
Wires 130 5 650
Free Receipt/Delivery - 10 -
Total Global 16,048
Total Custody Fees 73,806
C-54
<PAGE>
CUSTODY AGREEMENT
AGREEMENT dated as of July 1, 1999, between Sit Mutual Funds, Inc.,
a corporation organized under the laws of the State of Minnesota, having its
principal office and place of business at 4600 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402 (the "Fund"), and THE NORTHERN TRUST
COMPANY (the "Custodian"), an Illinois company with its principal place of
business at 50 South LaSalle Street, Chicago, Illinois 60675.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this
Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
(a) "Articles of Incorporation " shall mean the Articles of
Incorporation of the Fund, including all amendments thereto.
(b) "Authorized Person" shall be deemed to include the Chairman of
the Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any
such person is an officer or employee of the Fund, duly authorized
by the Board of Directors to give Instructions on behalf of the Fund
and listed in the certification annexed hereto as Schedule A or such
other certification as may be received by the Custodian from time to
time pursuant to Section 18(a).
(c) "Board of Directors" shall mean the Board of Directors or
Trustees of the Fund.
(d) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities,
its successor or successors and its nominee or nominees.
(e) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended,
its successor or successors and its nominee or nominees, the use of
which is hereby specifically authorized. The term "Depository" shall
further mean and include any other person named in an Instruction
and approved by the Fund to act as a depository in the manner
required by Rule 17f-4 of the 1940 Act, its successor or successors
and its nominee or nominees.
(f) "Instruction" shall mean written (including telecopied, telexed,
or electronically transmitted in a form that can be converted to
print) or oral instructions actually received by the Custodian which
the Custodian reasonably believes were given by an Authorized
Person. An Instruction shall also include any instrument in writing
actually received by the Custodian which the Custodian reasonably
believes to be genuine and to be signed by any two officers of the
Fund, whether or not such officers are Authorized Persons. Except as
otherwise provided in this Agreement, "Instructions" may include
instructions given on a standing basis.
(g) "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to
time.
C-55
<PAGE>
(h) "Portfolio" refers to each of the separate and distinct
investment portfolios of the Fund which the Fund and the Custodian
shall have agreed in writing shall be subject to this Agreement, as
identified in Schedule B hereto.
(i) "Prospectus" shall include each current prospectus and statement
of additional information of the Fund with respect to a Portfolio.
(j) "Shares" refers to the shares of the Fund.
(k) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and
other securities, commodity interests and investments from time to
time owned by the Fund and held in a Portfolio.
(l) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any "eligible foreign custodian," as that term is
defined in Rule 17f-5 under the 1940 Act, approved by the Fund in
the manner required by Rule 17f-5, and (iii) any securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, which securities
depository or clearing agency has been approved by the Fund in the
manner required by Rule 17f-5; provided, that the Custodian or a
Sub-Custodian has entered into an agreement with such securities
depository or clearing agency.
(m) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Fund.
2. Appointment of Custodian.
(a) The Fund hereby constitutes and appoints the Custodian as
custodian of all the Securities and moneys owned by or in the
possession of a Portfolio during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time held in any Portfolio, upon the
terms and conditions specified in this Agreement. The Custodian
shall oversee the maintenance by any Sub-Custodian of any Securities
or moneys of any Portfolio.
(b) The Agreement between the Custodian and each Sub-Custodian
described in clause (ii) or (iii) of Section 1(l) and acting
hereunder shall contain the provisions required by Rule 17f-5 under
the 1940 Act.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (ii) or (iii) of Paragraph 1(l), the Fund must approve such
Sub-Custodian in the manner required by Rule 17f-5 and provide the
Custodian with satisfactory evidence of such approval.
(d) The Custodian shall promptly take such steps as may be required
to remove any Sub-Custodian that has ceased to be an "eligible
foreign custodian" or has otherwise ceased to meet the requirements
under Rule 17f-5. If the Custodian intends to remove any
Sub-Custodian previously approved by the Fund pursuant to paragraph
3(c), and the Custodian proposes to replace such Sub-Custodian with
a Sub-Custodian that has not yet been approved by the Fund, it will
so notify the Fund and provide it with information reasonably
necessary to determine such proposed Sub-Custodian's eligibility
under Rule 17f-5, including a copy of the proposed agreement with
such Sub-Custodian. The Fund shall at the meeting of the Board of
Directors next following receipt of such notice and information
determine whether to
C-56
<PAGE>
approve the proposed Sub-Custodian and will promptly thereafter give
written notice of the approval or disapproval of the proposed
action.
(e) The Custodian hereby warrants to the Fund that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not a foreign securities depository or
clearing agency) in connection with the safekeeping of property of a
Portfolio pursuant to this Agreement afford protection for such
property not materially different from that afforded by the
Custodian's established safekeeping procedures with respect to
similar property held by it in Chicago, Illinois.
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the custody of a Sub-Custodian pursuant to Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement
with the Custodian to identify on its books such Securities as being
held for the account of the Custodian as a custodian for its
customers.
(c) Any Securities held by a Sub-Custodian will be subject only to
the instructions of the Custodian or its agents; and any Securities
held in an eligible foreign securities depository for the account of
a Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets
held by the Custodian for its customers, and will cause such account
to be designated by such Sub-Custodian as a special custody account
for the exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Fund will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the
Fee Schedule annexed hereto as Schedule C and incorporated herein.
Such Fee Schedule does not include out-of-pocket disbursements of
the Custodian for which the Custodian shall be entitled to bill
separately; provided that out-of-pocket disbursements may include
only the items specified in Schedule C.
(b) If the Fund requests that the Custodian act as Custodian for any
Portfolio hereafter established, at the time the Custodian commences
serving as such for said Portfolio, the compensation for such
services shall be reflected in a fee schedule for that Portfolio,
dated and signed by an officer of each party hereto, which shall be
attached to or otherwise reflected in Schedule C of this Agreement.
(c) Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule C, or replacing Schedule C with, a
revised Fee Schedule, dated and signed by an officer of each party
hereto.
(d) The Custodian will bill the Fund for its services to each
Portfolio hereunder as soon as practicable after the end of each
calendar quarter, and said billings will be detailed in accordance
with the Fee Schedule for the Fund. The Fund will promptly pay to
the Custodian the amount of such billing. The Custodian shall have a
claim of payment against the property in each Portfolio for any
compensation or
C-57
<PAGE>
expense amount owing to the Custodian in connection with such
Portfolio from time to time under this Agreement.
(e) The Custodian (not the Fund) will be responsible for the payment
of the compensation of each Sub-Custodian.
6. Custody of Cash and Securities
(a) Receipt and Holding of Assets. The Fund will deliver or cause to
be delivered to the Custodian and any Sub-Custodians all Securities
and moneys of any Portfolio at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities
and moneys are to be specifically allocated. The Custodian will not
be responsible for such Securities and moneys until actually
received by it or by a Sub-Custodian. The Fund may, from time to
time in its sole discretion, provide the Custodian with Instructions
as to the manner in which and in what amounts Securities, and moneys
of a Portfolio are to be held on behalf of such Portfolio in the
Book-Entry System or a Depository. Securities and moneys of a
Portfolio held in the Book-Entry System or a Depository will be held
in accounts which include only assets of Custodian that are held for
its customers.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to
the separate account all moneys received by it or a Sub-Custodian
for the account of such Portfolio and shall disburse, or cause a
Sub-Custodian to disburse, the same only:
1. In payment for Securities purchased for the
Portfolio, as provided in Section 7 hereof;
2. In payment of dividends or distributions with respect
to the Shares of such Portfolio, as provided in Section
11 hereof;
3. In payment of original issue or other taxes with
respect to the Shares of such Portfolio, as provided in
Section 12(c) hereof;
4. In payment for Shares which have been redeemed by
such Portfolio, as provided in Section 12 hereof;
5. In payment of fees and in reimbursement of the
expenses and liabilities of the Custodian attributable
to the Fund, as provided in Sections 5 and 16(h) hereof;
6. Pursuant to Instructions setting forth the name of
the Portfolio and the name and address of the person to
whom the payment is to be made, the amount to be paid
and the purpose for which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may
be, may, in its discretion, advance the Fund on behalf of that
Portfolio an amount equal to such excess and such advance shall be
deemed an overdraft from the Custodian or such Sub-Custodian to that
Portfolio payable on demand, bearing interest at the rate of
interest customarily charged by the Custodian or such Sub-Custodian
on similar overdrafts.
(d) Confirmation and Statements. At least monthly, the Custodian
shall furnish the Fund with a detailed statement of the Securities
and moneys held by it and all Sub-Custodians for each Portfolio.
Where securities purchased for a Portfolio are in a fungible bulk of
securities registered in the name of the Custodian (or its nominee)
or shown on the Custodian's account on the books of a Depository,
the Book-Entry System or a Sub-Custodian, the Custodian shall
maintain such records as are necessary to enable it to identify the
quantity of those securities held for such Portfolio. In the absence
of the filing in writing
C-58
<PAGE>
with the Custodian by the Fund of exceptions or objections to any
such statement within 60 days after the date that a material defect
is reasonably discoverable, the Fund shall be deemed to have
approved such statement; and in such case or upon written approval
of the Fund of any such statement the Custodian shall, to the extent
permitted by law and provided the Custodian has met the standard of
care in Section 16 hereof, be released, relieved and discharged with
respect to all matters and things set forth in such statement as
though such statement had been settled by the decree of a court of
competent jurisdiction in an action in which the Fund and all
persons having any equity interest in the Fund were parties.
(e) Registration of Securities and Physical Separation. All
Securities held for a Portfolio which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian or a Sub-Custodian in that
form; all other Securities held for a Portfolio may be registered in
the name of that Portfolio, in the name of any duly appointed
registered nominee of the Custodian or a Sub-Custodian as the
Custodian or such Sub-Custodian may from time to time determine, or
in the name of the Book-Entry System or a Depository or their
successor or successors, or their nominee or nominees. The Fund
reserves the right to instruct the Custodian as to the method of
registration and safekeeping of the Securities. The Fund agrees to
furnish to the Custodian appropriate instruments to enable the
Custodian or any Sub-Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in
the name of the Book-Entry System or a Depository, any Securities
which the Custodian of a Sub-Custodian may hold for the account of a
Portfolio and which may from time to time be registered in the name
of a Portfolio. The Custodian shall hold all such Securities
specifically allocated to a Portfolio which are not held in the
Book-Entry System or a Depository in a separate account for such
Portfolio in the name of such Portfolio physically segregated at all
times from those of any other person or persons.
(f) Segregated Accounts. Upon receipt of an Instruction, the
Custodian will establish segregated accounts on behalf of a
Portfolio to hold liquid or other assets as it shall be directed by
such Instruction and shall increase or decrease the assets in such
segregated accounts only as it shall be directed by subsequent
Instruction.
(g) Collection of Income and Other Matters Affecting Securities.
Except as otherwise provided in an Instruction, the Custodian, by
itself or through the use of the Book-Entry System or a Depository
with respect to Securities therein maintained, shall, or shall
instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to
Securities in accordance with this Agreement;
2. Present for payment and collect the amount payable
upon all Securities which may mature or be called,
redeemed or retired, or otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute any necessary declarations or certificates of
ownership under the federal income tax laws or the laws
or regulations of any other taxing authority now or
hereafter in effect; and
5. Hold directly, or through the Book-Entry System or a
Depository with respect to Securities therein deposited,
for the account of each Portfolio all rights and similar
Securities issued with respect to any Securities held by
the Custodian or relevant Sub-Custodian for each
Portfolio.
(h) Delivery of Securities and Evidence of Authority. Upon receipt
of an Instruction, the Custodian, directly or through the use of the
Book-Entry System or a Depository, shall, or shall instruct the
relevant Sub-Custodian to:
C-59
<PAGE>
1. Execute and deliver or cause to be executed and
delivered to such persons as may be designated in such
Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Fund as
owner of any Securities may be exercised;
2. Deliver or cause to be delivered any Securities held
for a Portfolio in exchange for other Securities or cash
issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise of
any conversion privilege;
3. Deliver or cause to be delivered any Securities held
for a Portfolio to any protective committee,
reorganization committee or other person in connection
with the reorganization, refinancing, merger,
consolidation or recapitalization or sale of assets of
any corporation, and receive and hold under the terms of
this Agreement in the separate account for each such
Portfolio certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
4. Make or cause to be made such transfers or exchanges
of the assets specifically allocated to the separate
account of a Portfolio and take such other steps as
shall be stated in Written Instructions to be for the
purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
5. Deliver Securities upon sale of such Securities for
the account of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to such
Securities entered into on behalf of a Portfolio;
7. Deliver Securities of a Portfolio to the issuer
thereof or its agent when such Securities are called,
redeemed, retired or otherwise become payable; provided,
however, that in any such case the cash or other
consideration is to be delivered to the Custodian or
Sub-Custodian, as the case may be;
8. Deliver Securities for delivery in connection with
any loans of securities made by a Portfolio but only
against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund which
may be in the form of cash or obligations issued by the
United States Government, its agencies or
instrumentalities;
9. Deliver Securities for delivery as security in
connection with any borrowings by a Portfolio requiring
a pledge of Portfolio assets, but only against receipt
of the amounts borrowed;
10. Deliver Securities to the Transfer Agent or its
designee or to the holders of Shares in connection with
distributions in kind, in satisfaction of requests by
holders of Shares for repurchase or redemption;
11. Deliver Securities for any other proper business
purpose, but only upon receipt of, in addition to
written Instructions, a copy of a resolution or other
authorization of the Fund certified by the Secretary of
the Fund, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom
delivery of such Securities shall be made.
(i) Endorsement and Collection of Checks, Etc. The Custodian is
hereby authorized to endorse and collect all checks, drafts or other
orders for the payment of money received by the Custodian for the
account of a Portfolio.
C-60
<PAGE>
(j) Execution of Required Documents. The Custodian is hereby
authorized to execute any and all applications or other documents
required by a regulatory agency or similar entity as a condition of
making investments in the foreign market under such entity's
jurisdiction.
7. Purchase and Sale of Securities.
(a) Promptly after the purchase of Securities, the Fund or its
designee shall deliver to the Custodian an Instruction specifying
with respect to each such purchase: (1) the name of the Portfolio to
which such Securities are to be specifically allocated; (2) the name
of the issuer and the title of the Securities; (3) the number of
shares or the principal amount purchased and accrued interest, if
any; (4) the date of purchase and settlement; (5) the purchase price
per unit; (6) the total amount payable upon such purchase; and (7)
the name of the person from whom or the broker through whom the
purchase was made, if any. The Custodian or specified Sub-Custodian
shall receive the Securities purchased by or for a Portfolio and
upon receipt thereof (or upon receipt of advice from a Depository or
the Book-Entry System that the Securities have been transferred to
the Custodian's account) shall pay to the broker or other person
specified by the Fund or its designee out of the moneys held for the
account of such Portfolio the total amount payable upon such
purchase, provided that the same conforms to the total amount
payable as set forth in such Instruction.
(b) Promptly after the sale of Securities, the Fund or its designee
shall deliver to the Custodian an Instruction specifying with
respect to each such sale: (1) the name of the Portfolio to which
the Securities sold were specifically allocated; (2) the name of the
issuer and the title of the Securities; (3) the number of shares or
principal amount sold, and accrued interest, if any; (4) the date of
sale; (5) the sale price per unit; (6) the total amount payable to
the Portfolio upon such sale; and (7) the name of the broker through
whom or the person to whom the sale was made. The Custodian or
relevant Sub-Custodian shall deliver or cause to be delivered the
Securities to the broker or other person designated by the Fund upon
receipt of the total amount payable to such Portfolio upon such
sale, provided that the same conforms to the total amount payable to
such Portfolio as set forth in such Instruction. Subject to the
foregoing, the Custodian or relevant Sub-Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
(c) Notwithstanding (a) and (b) above, cash in any of the Portfolios
may be invested by the Custodian for short term purposes pursuant to
standing Instructions from the Fund.
8. Lending of Securities.
If the Fund and the Custodian enter into a separate written
agreement authorizing the Custodian to lend Securities, the
Custodian may lend Securities pursuant to such agreement. Such
agreement must be approved by the Fund in the manner required by any
applicable law, regulation or administrative pronouncement, and may
provide for the payment of additional reasonable compensation to the
Custodian.
9. Investment in Futures and Options
The Custodian shall pursuant to Instructions (which may be standing
instructions) (i) transfer initial margin to a safekeeping bank or,
with respect to options, broker; (ii) pay or demand variation margin
to or from a designated futures commission merchant or other broker
based on daily marking to market calculations and in accordance with
accepted industry practices; and (iii) subject to the Custodian's
consent, enter into separate procedural, safekeeping or other
agreements with safekeeping banks, futures commission merchants and
other brokers pursuant to which such banks and, in the case of
options, brokers, will act as custodian for initial margin deposits
in transactions involving futures contracts and
C-61
<PAGE>
options. The Custodian shall have no custodial or investment
responsibility for any assets transferred to a safekeeping bank,
futures commission merchant or broker pursuant to this paragraph.
10. Provisional Credits and Debits.
(a) The Custodian is authorized, but shall not be obligated, to
credit the account of a Portfolio provisionally on payable date with
interest, dividends, distributions, redemptions or other amounts
due. Otherwise, such amounts will be credited to the Portfolio on
the date such amounts are actually received and reconciled to the
Portfolio. In cases where the Custodian has credited a Portfolio
with such amounts prior to actual collection and reconciliation, the
Fund acknowledges that the Custodian shall be entitled to recover
any such credit on demand from the Fund and further agrees that the
Custodian may reverse such credit if and to the extent that
Custodian does not receive such amounts in the ordinary course of
business.
(b) If the Portfolio is maintained as a global custody account it
shall participate in the Custodian's contractual settlement date
processing service ("CSDP") unless the Custodian directs the Fund,
or the Fund informs the Custodian, otherwise. Pursuant to CSDP the
Custodian shall be authorised, but not obligated, to automatically
credit or debit the Portfolio provisionally on contractual
settlement date with cash or securities in connection with any sale,
exchange or purchase of securities. Otherwise, such cash or
securities shall be credited to the Portfolio on the day such cash
or securities are actually received by the Custodian and reconciled
to the Portfolio. In cases where the Custodian credits or debits the
Portfolio with cash or securities prior to actual receipt and
reconciliation, the Custodian may reverse such credit or debit as of
contractual settlement date if and to the extent that any securities
delivered by the Custodian are returned by the recipient, or if the
related transaction fails to settle (or fails, due to market change
or other reasons, to settle on terms which provide the Custodian
full reimbursement of any provisional credit the Custodian has
granted) within a period of time judged reasonable by the Custodian
under the circumstances. The Fund agrees that it will not make any
claim or pursue any legal action against the Custodian for loss or
other detriment allegedly arising or resulting from the Custodian's
good faith determination to effect, not effect or reverse any
provisional credit or debit to the Portfolio.
The Fund acknowledges and agrees that funds debited from
the Portfolio on contractual settlement date including, without
limitation, funds provided for the purchase of any securities under
circumstances where settlement is delayed or otherwise does not take
place in a timely manner for any reason, shall be held pending
actual settlement of the related purchase transaction in a
non-interest bearing deposit at the Custodian's London Branch; that
such funds shall be available for use in the Custodian's general
operations; and that the Custodian's maintenance and use of such
funds in such circumstances are, without limitation, in
consideration of the Custodian's providing CSDP.
(c) The Fund recognizes that any decision to effect a provisional
credit or an advancement of the Custodian's own funds under this
agreement will be an accommodation granted entirely at the
Custodian's option and in light of the particular circumstances,
which circumstances may involve conditions in different countries,
markets and classes of assets at different times. The Fund shall
make the Custodian whole for any loss which it may incur from
granting such accommodations and acknowledges that the Custodian
shall be entitled to recover any relevant amounts from the Fund on
demand. All amounts thus due to the Custodian shall be paid by the
Fund from the account of the relevant Portfolio unless otherwise
paid on a timely basis and in that connection the Fund acknowledges
that the Custodian has a continuing lien on all assets of such
Portfolio to secure such payments and agrees that the Custodian may
apply or set off against such amounts any amounts credited by or due
from the Custodian to the Fund. If funds in the Portfolio are
insufficient to make any such payment the Fund shall promptly
deliver to the Custodian the amount of such deficiency in
immediately available funds when and as specified by the Custodian's
written or oral notification to the Fund.
(d) In connection with the Custodian's global custody service the
Fund will maintain deposits at the Custodian's London Branch. The
Fund acknowledges and agrees that such deposits are payable only in
C-62
<PAGE>
the currency in which an applicable deposit is denominated; that such
deposits are payable only on the Fund's demand at the Custodian's
London Branch; that such deposits are not payable at any of the
Custodian's offices in the United States; and that the Custodian will
not in any manner directly or indirectly promise or guarantee any
such payment in the United States.
The Fund further acknowledges and agrees that such
deposits are subject to cross-border risk, and therefore the
Custodian will have no obligation to make payment of deposits if and
to the extent that the Custodian is prevented from doing so by reason
of applicable law or regulation or any Sovereign Risk event affecting
the London Branch or the currency in which the applicable deposit is
denominated. "Sovereign Risk" for this purpose means nationalisation,
expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of
currency restrictions, exchange controls, taxes, levies or other
charges affecting the property rights of persons who are not
residents of the affected jurisdiction; or acts of war, terrorism,
insurrection or revolution; or any other act or event beyond the
Custodian's control.
THE FUND ACKNOWLEDGES AND AGREES THAT DEPOSIT ACCOUNTS
MAINTAINED AT FOREIGN BRANCHES OF UNITED STATES BANKS (INCLUDING, IF
APPLICABLE, ACCOUNTS IN WHICH CUSTOMER FUNDS FOR THE PURCHASE OF
SECURITIES ARE HELD ON AND AFTER CONTRACTUAL SETTLEMENT DATE), ARE
NOT INSURED BY THE U.S. FEDERAL DEPOSIT INSURANCE CORPORATION; MAY
NOT BE GUARANTEED BY ANY LOCAL OR FOREIGN GOVERNMENTAL AUTHORITY; ARE
UNSECURED; AND IN A LIQUIDATION MAY BE SUBORDINATED IN PRIORITY OF
PAYMENT TO DOMESTIC (U.S.- DOMICILED) DEPOSITS. THEREFORE, BENEFICIAL
OWNERS OF SUCH FOREIGN BRANCH DEPOSITS MAY BE UNSECURED CREDITORS OF
THE NORTHERN TRUST COMPANY.
Deposit account balances that are owned by United States
residents are expected to be maintained in an aggregate amount of at
least $100,000 or the equivalent in other currencies.
11. Payment of Dividends or Distributions.
(a) In the event that the Board of Directors of the Fund (or a
committee thereof) authorizes the declaration of dividends or
distributions with respect to a Portfolio, an Authorized Person
shall provide the Custodian with Instructions specifying the record
date, the date of payment of such distribution and the total amount
payable to the Transfer Agent or its designee on such payment date.
(b) Upon the payment date specified in such Instructions, the
Custodian shall pay the total amount payable to the Transfer Agent
or its designee out of the moneys specifically allocated to and held
for the account of the appropriate Portfolio.
12. Sale and Redemption of Shares.
(a) Whenever the Fund shall sell any Shares, the Fund shall deliver
or cause to be delivered to the Custodian an Instruction specifying
the name of the Portfolio whose Shares were sold and the amount to
be received by the Custodian for the sale of such Shares.
(b) Upon receipt of such amount from the Transfer Agent or its
designee, the Custodian shall credit such money to the separate
account of the Portfolio specified in the Instruction described in
paragraph (a) above.
(c) Upon issuance of any Shares in accordance with the foregoing
provisions of this Section 12, the Custodian shall pay all original
issue or other taxes required to be paid in connection with such
issuance upon the receipt of an Instruction specifying the amount to
be paid.
C-63
<PAGE>
(d) Except as provided hereafter, whenever any Shares are redeemed,
the Fund shall deliver or cause to be delivered to the Custodian an
Instruction specifying the name of the Portfolio whose Shares were
redeemed and the total amount to be paid for the Shares redeemed.
(e) Upon receipt of an Instruction described in paragraph (d) above,
the Custodian shall pay to the Transfer Agent (or such other person
as the Transfer Agent directs) the total amount specified in such
Instruction. Such payment shall be made from the separate account of
the Portfolio specified in such Instruction.
13. Indebtedness.
(a) The Fund or its designee will cause to be delivered to the
Custodian by any bank (excluding the Custodian) from which the Fund
borrows money, using Securities as collateral, a notice or
undertaking in the form currently employed by any such bank setting
forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly
deliver to the Custodian an Instruction stating with respect to each
such borrowing: (1) the name of the Portfolio for which the
borrowing is to be made; (2) the name of the bank; (3) the amount
and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by the Fund,
or other loan agreement; (4) the time and date, if known, on which
the loan is to be entered into (the "borrowing date"); (5) the date
on which the loan becomes due and payable; (6) the total amount
payable to the Fund for the separate account of the Portfolio on the
borrowing date; (7) the market value of Securities to be delivered
as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any
particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book-Entry System or a Depository; and (9) a
statement that such loan is in conformance with the 1940 Act and the
Prospectus.
(b) Upon receipt of the Instruction referred to in paragraph (a)
above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable
as set forth in the Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The
Custodian shall deliver as additional collateral in the manner
directed by the Fund from time to time such Securities specifically
allocated to such Portfolio as may be specified in the Instruction
to collateralize further any transaction described in this Section
13. The Fund shall cause all Securities released from collateral
status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be
tendered to it. In the event that the Fund fails to specify in such
Instruction all of the information required by this Section 13, the
Custodian shall not be under any obligation to deliver any
Securities. Collateral returned to the Custodian shall be held
hereunder as it was prior to being used as collateral.
14. Corporate Action.
Whenever the Custodian or any Sub-Custodian receives information
concerning Securities held for a Portfolio which requires
discretionary action by the beneficial owner of the Securities
(other than a proxy), such as subscription rights, bond issues,
stock repurchase plans and rights offerings, or legal notices or
other material intended to be transmitted to Securities holders
("Corporate Actions"), the Custodian will give the Fund or its
designee notice of such Corporate Actions to the extent that the
Custodian's central corporate actions department has actual
knowledge of a Corporate Action in time to notify the Fund.
C-64
<PAGE>
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate
Action which bears an expiration date is received, the Custodian
will endeavor to obtain an Instruction relating to such Corporate
Action from an Authorized Person, but if such Instruction is not
received in time for the Custodian to take timely action, or actual
notice of such Corporate Action was received too late to seek such
an Instruction, the Custodian is authorized to sell, or cause a
Sub-Custodian to sell, such rights entitlement or fractional
interest and to credit the applicable account with the proceeds and
to take any other action it deems, in good faith, to be appropriate,
in which case, provided it has met the standard of care in Section
16 hereof, it shall be held harmless by the particular Portfolio
involved for any such action.
The Custodian will deliver proxies to the Fund or its designated
agent pursuant to special arrangements which may have been agreed to
in writing between the parties hereto. Such proxies shall be
executed in the appropriate nominee name relating to Securities
registered in the name of such nominee but without indicating the
manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance
with an applicable Instruction, if any.
15. Persons Having Access to the Portfolios.
(a) Neither the Fund nor any officer, director, employee or agent of
the Fund, the Fund's investment adviser, or any sub-investment
adviser, shall have physical access to the assets of any Portfolio
held by the Custodian or any Sub-Custodian or be authorized or
permitted to withdraw any investments of a Portfolio, nor shall the
Custodian or any Sub-Custodian deliver any assets of a Portfolio to
any such person. No officer, director, employee or agent of the
Custodian who holds any similar position with the Fund's investment
adviser, with any sub-investment adviser of the Fund or with the
Fund shall have access to the assets of any Portfolio.
(b) Nothing in this Section 15 shall prohibit any Authorized Person
from giving Instructions to the Custodian so long as such
Instructions do not result in delivery of or access to assets of a
Portfolio prohibited by paragraph (a) of this Section 15.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having
access to the assets that it holds (by any means) for its customers.
16. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform
only such services as are set forth in this Agreement or expressly
contained in an Instruction given to the Custodian which is not
contrary to the provisions of this Agreement.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect
to its obligations under this Agreement and the
safekeeping of property of the Portfolios. The Custodian
shall be liable to, and shall indemnify and hold
harmless the Fund from and against any loss which shall
occur as the result of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable
care with respect to their respective obligations under
this Agreement and the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian
has exercised reasonable care in connection with the
safekeeping of Fund property shall be made in light of
the standards applicable to the Custodian with respect
to similar property held by it in Chicago, Illinois. The
determination of whether the Custodian or Sub-Custodian
has exercised reasonable care in connection with their
other obligations under this Agreement shall be made in
light of prevailing standards applicable to professional
custodians in the jurisdiction in which such custodial
services are performed. In the
C-65
<PAGE>
event of any loss to the Fund by reason of the failure
of the Custodian or a Sub-Custodian (other than a
foreign securities depository or clearing agency) to
exercise reasonable care, the Custodian shall be liable
to the Fund only to the extent of the Fund's direct
damages and expenses, which damages, for purposes of
property only, shall be determined based on the market
value of the property which is the subject of the loss
at the date of discovery of such loss and without
reference to any special condition or circumstances.
2. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any
foreign securities depository or clearing agency
approved by the Board of Directors pursuant to Section
(1)(l) or Section 3 hereof.
3. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any
broker or agent (not referred to in paragraph (b)(2)
above) which it or a Sub-Custodian appoints and uses
unless such appointment and use is made or done
negligently or in bad faith. In the event such an
appointment and use is made or done negligently or in
bad faith, the Custodian shall be liable to the Fund
only for direct damages and expenses (determined in the
manner described in paragraph (b)(1) above) resulting
from such appointment and use and, in the case of any
loss due to an act, omission or default of such agent or
broker, only to the extent that such loss occurs as a
result of the failure of the agent or broker to exercise
reasonable care ("reasonable care" for this purpose to
be determined in light of the prevailing standards
applicable to agents or brokers, as appropriate, in the
jurisdiction where the services are performed).
4. The Custodian shall be entitled to rely, and may act,
upon the advice of counsel (who may be counsel for the
Fund) on all matters and shall be without liability for
any action reasonably taken or omitted in good faith and
without negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Instruction it receives pursuant to the applicable
Sections of this Agreement that it reasonably believes
to be genuine and to be from an Authorized Person. In
the event that the Custodian receives oral Instructions,
the Fund or its designee shall cause to be delivered to
the Custodian, by the close of business on the same day
that such oral Instructions were given to the Custodian,
written Instructions confirming such oral Instructions,
whether by hand delivery, telex or otherwise. The Fund
agrees that the fact that no such confirming written
Instructions are received by the Custodian shall in no
way affect the validity of the transactions or
enforceability of the transactions hereby authorized by
the Fund. The Fund agrees that the Custodian shall incur
no liability to the Fund in connection with (i) acting
upon oral Instructions given to the Custodian hereunder,
provided such instructions reasonably appear to have
been received from an Authorized Person or (ii) deciding
not to act solely upon oral Instructions, provided that
the Custodian first contacts the giver of such oral
Instructions and requests written confirmation
immediately following any such decision not to act.
6. The Custodian shall supply the Fund or its designee
with such daily information regarding the cash and
Securities positions and activity of each Portfolio as
the Custodian and the Fund or its designee shall from
time to time agree. It is understood that such
information will not be audited by the Custodian and the
Custodian represents that such information will be the
best information then available to the Custodian. The
Custodian shall have no responsibility whatsoever for
the pricing of Securities, accruing for income, valuing
the effect of Corporate Actions, or for the failure of
the Fund or its designee to reconcile differences
between the information supplied by the Custodian and
information obtained by the Fund or its designee from
other sources, including but not limited to pricing
vendors and the Fund's investment adviser. Subject to
the foregoing, to the extent that any miscalculation by
the Fund or its designee of a Portfolio's net asset
value is attributable to the willful misfeasance, bad
faith or negligence of the Custodian (including any
Sub-Custodian other than a foreign securities depository
or clearing
C-66
<PAGE>
agency) in supplying or omitting to supply the Fund or
its designee with information as aforesaid, the
Custodian shall be liable to the Fund for any resulting
loss (subject to such de minimis rule of change in value
as the Board of Directors may from time to time adopt).
(c) Limit of Duties. Without limiting the generality of the
foregoing, the Custodian shall be under no duty or obligation to
inquire into, and shall not be liable for:
1. The validity of the issue of any Securities purchased
by any Portfolio, the legality of the purchase thereof,
or the propriety of the amount specified by the Fund or
its designee for payment therefor;
2. The legality of the sale of any Securities by any
Portfolio or the propriety of the amount of
consideration for which the same are sold;
3. The legality of the issue or sale of any Shares, or
the sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
dividend or distribution by the Fund; or
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Fund, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees
to notify the Fund in the event that such bond is canceled or
otherwise lapses.
(e) Consistent with and without limiting the language contained in
Section 16(a), it is specifically acknowledged that the Custodian
shall have no duty or responsibility to:
1. Question any Instruction or make any suggestions to
the Fund or an Authorized Person regarding any
Instruction;
2. Supervise or make recommendations with respect to
investments or the retention of Securities;
3. Subject to Section 16(b)(3) hereof, evaluate or
report to the Fund or an Authorized Person regarding the
financial condition of any broker, agent or other party
to which Securities are delivered or payments are made
pursuant to this Agreement; or
4. Review or reconcile trade confirmations received from
brokers.
(f) Amounts Due from or to Transfer Agent. The Custodian shall not
be under any duty or obligation to take action to effect collection
of any amount due to any Portfolio from the Transfer Agent or its
designee nor to take any action to effect payment or distribution by
the Transfer Agent or its designee of any amount paid by the
Custodian to the Transfer Agent in accordance with this Agreement.
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any
time delivered to or held by it for the Fund and specifically
allocated to a Portfolio are such as may properly be held by the
Fund under the provisions of the Articles of Incorporation and the
Prospectus.
C-67
<PAGE>
(h) Indemnification. The Fund agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange
Act of 1934 and the 1940 Act and state or foreign securities laws)
and expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by
the Custodian (i) at the request or on the direction of or in
reliance on the advice of the Fund or in reasonable reliance upon
the Prospectus or (ii) upon an Instruction; provided, that the
foregoing indemnity shall not apply to any loss, cost, tax, charge,
assessment, claim, liability or expense to the extent the same is
attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence,
willful misconduct, bad faith or reckless disregard of duties and
obligations under this Agreement or any other agreement relating to
the custody of Fund property.
(i) The Fund agrees to hold the Custodian harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be
liable for any loss which results from:
1. the general risk of investing;
2. subject to Section 16(b) hereof, investing or holding
property in a particular country including, but not
limited to, losses resulting from nationalization,
expropriation or other governmental actions; regulation
of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market
conditions which prevent the orderly execution of
securities transactions or affect the value of property
held pursuant to this Agreement; or
3. consequential, special or punitive damages for any
act or failure to act under any provision of this
Agreement, even if advised of the possibility thereof.
(k) Force Majeure. No party shall be liable to the other for any
delay in performance, or non- performance, of any obligation
hereunder to the extent that the same is due to forces beyond its
reasonable control, including but not limited to delays, errors or
interruptions caused by the other party or third parties, any
industrial, juridical, governmental, civil or military action, acts
of terrorism, insurrection or revolution, nuclear fusion, fission or
radiation, failure or fluctuation in electrical power, heat, light,
air conditioning or telecommunications equipment, or acts of God.
(l) Inspection of Books and Records. The Custodian shall create and
maintain all records relating to its activities and obligations
under this Agreement in such manner as will meet the obligations of
the Fund under the 1940 Act, with particular attention to Section 31
thereof and Rules 31a-1 and 31a-2 thereunder, and under applicable
federal and state laws. All such records shall be the property of
the Fund and shall at all times during regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees and agents of the Fund and by the appropriate employees of
the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of Securities and
shall, when requested to do so by the Fund and for such compensation
as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
(m) Accounting Control Reports. The Custodian shall provide the Fund
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System, each Depository, and
each Sub-Custodian and with an annual report on its own systems of
internal accounting control.
17. Term and Termination.
(a) This Agreement shall become effective on the date first set
forth above (the "Effective Date") and shall continue in effect
thereafter until terminated in accordance with Section 17(b).
C-68
<PAGE>
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Fund is the terminating party, shall be not less than 60 days after
the date of Custodian receives such notice or, in case the Custodian
is the terminating party, shall be not less than 90 days after the
date the Fund receives such notice. In the event such notice is
given by the Fund, it shall be accompanied by a certified resolution
of the Board of Directors, electing to terminate this Agreement with
respect to any Portfolio and designating a successor custodian or
custodians.
In the event such notice is given by the Custodian, the Fund shall,
on or before the termination date, deliver to the Custodian a
certified resolution of the Board of Directors, designating a
successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a successor
custodian, which shall be a person qualified to so act under the
1940 Act. If the Fund fails to designate a successor custodian with
respect to any Portfolio, the Fund shall upon the date specified in
the notice of termination of this Agreement and upon the delivery by
the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys
of such Portfolio, be deemed to be its own custodian and the
Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System which
cannot be delivered to the Fund.
(c) Upon the date set forth in such notice under paragraph (b) of
this Section 17, this Agreement shall terminate to the extent
specified in such notice, and the Custodian shall upon receipt of a
notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then
held by the Custodian and specifically allocated to the Portfolio or
Portfolios specified, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be
entitled with respect to such Portfolio or Portfolios.
18. Miscellaneous.
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Fund setting forth the names of the
present Authorized Persons. The Fund agrees to furnish to the
Custodian a new certification in similar form in the event that any
such present Authorized Person ceases to be such an Authorized
Person or in the event that other or additional Authorized Persons
are elected or appointed. Until such new certification is received
by the Custodian, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Instructions which
Custodian reasonably believes were given by an Authorized Person, as
identified in the last delivered certification. Unless such
certification specifically limits the authority of an Authorized
Person to specific matters or requires that the approval of another
Authorized Person is required, Custodian shall be under no duty to
inquire into the right of such person, acting alone, to give any
instructions whatsoever under this Agreement.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or
delivered to it at its offices at its address stated on the first
page hereof or at such other place as the Custodian may from time to
time designate in writing.
(c) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund, shall be
sufficiently given if addressed to the Fund and mailed or delivered
to it at its offices at its address shown on the first page hereof
or at such other place as the Fund may from time to time designate
in writing.
(d) Except as expressly provided herein, Agreement may not be
amended or modified in any manner except by a written agreement
executed by both parties with the same formality as this Agreement.
C-69
<PAGE>
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by
the Fund without the written consent of the Custodian, or by the
Custodian without the written consent of the Fund, and any attempted
assignment without such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
C-70
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective representatives duly authorized as
of the day and year first above written.
SIT MUTUAL FUNDS, INC.
By: /s/ Mary K. Stern
------------------------------
Name: Mary K. Stern
Title: President
The undersigned, Michael J. Radmer, does hereby certify that he/she is the duly
elected, qualified and acting Secretary of Sit Mutual Funds, Inc. (the "Fund")
and further certifies that the person whose signature appears above is a duly
elected, qualified and acting officer of the Fund with full power and authority
to execute this Custody Agreement on behalf of the Fund and to take such other
actions and execute such other documents as may be necessary to effectuate this
Agreement.
/s/ Michael J. Radmer
- ----------------------------------------
Secretary
SIT MUTUAL FUNDS, INC.
THE NORTHERN TRUST COMPANY
By: /s/ Michael J. Lies
----------------------------
Name: Michael J. Lies
Title: Second Vice President
C-71
<PAGE>
SCHEDULE A
CERTIFICATION OF AUTHORIZED PERSONS
Pursuant to paragraphs 1(b) and 18(a) of the Agreement, the
undersigned officers of Sit Mutual Funds, Inc. hereby certify that the person(s)
whose name(s) and signature(s) appear below have been duly authorized by the
Board of Directors to give Instructions on behalf of the Fund.
NAME SIGNATURE
Eugene C. Sit /s/ Eugene C. Sit
--------------------------------------------------------------------
Peter L. Mitchelson /s/ Peter L. Mitchelson
--------------------------------------------------------------------
Mary K/ Stern /s/ Mary K. Stern
--------------------------------------------------------------------
Michael C. Brilley /s/ Michael C. Brilley
--------------------------------------------------------------------
Roger J. Sit /s/ Roger J. Sit
--------------------------------------------------------------------
Paul E. Rasmussen /s/ Paul E. Rasmussen
--------------------------------------------------------------------
Certified as of the _28th___ day of __July___________, 1999:
OFFICER: OFFICER:
/s/ Mary K. Stern /s/ Paul E. Rasmussen
- --------------------------------- -------------------------------
(Signature) (Signature)
Mary K. Stern Paul E. Rasmussen
- --------------------------------- -------------------------------
(Name) (Name)
President Vice President
- --------------------------------- -------------------------------
(Title) (Title)
C-72
<PAGE>
SCHEDULE B
* SIT MUTUAL FUNDS, INC.
As of July 1, 1999
Sit International Growth Fund (Series A)
Sit Balanced Fund (Series B)
Sit Developing Markets Growth Fund (Series C)
Sit Small Cap Growth Fund (Series D)
Sit Science and Technology Growth Fund (Series E)
Sit Regional Growth Fund (Series F)
C-73
<PAGE>
SCHEDULE C
FEE SCHEDULE
* SIT MUTUAL FUND GROUP
Northern Trust has three components to its Global Custody fee
structure:
g) A variable charge on the market value of assets based upon the
country of investment;
h) A variable charge per transaction, and;
i) A charge per investment manager portfolio.
We do NOT impose additional charges for facsimile, telex, income
collection, tax reclamation, administration or other "miscellaneous"
activities. Execution costs, not limited to but including stamp
duty, third-party foreign exchange, and re-registration charges will
be passed through at cost if and as applicable.
Global Custody fees are all inclusive and cover:
* Safekeeping of assets
* Settlement of trades
* Facilitation of foreign exchange
* Management of excess cash balances
* Collection of interest and dividends
* Tax withholding and reclamation
* Proxy handling
* Corporate actions
* Fully audited monthly reporting
* On-line daily reporting to all parties
MATERIAL CHANGES
The fees quoted above are offered contingent upon the current levels
of investment activity as indicated above. "Material" changes, for
the purposes of this provision, will be changes in excess of 10%
from the assumptions used.
INVOICES
Invoices are presented at the end of each quarter on a quarter in
arrears basis. All out of pocket expense recoveries are charged
directly to the account(s) in the month following the actual expense
C-74
<PAGE>
DOMESTIC FUNDS
Domestic accounts $0.00
Market value(000,000s) 0.75 bps
Equity/Fixed income security trades $6.00
Cash & Equivalent security trades $10.00
Wires transfers $5.00
Free delivery/receipt $10.00
INTERNATIONAL FUNDS
Global accounts $0.00
Market value - Tier I (000s) 0.75 bps
Market value - Tier II (000s) 3.0 bps
Market value - Tier III (000s) 8.0 bps
Market value - Tier IV (000s) 15.0 bps
Market value - Tier V (000s) 30.0 bps
Security trades - Tier I / Equity $6.00
Security trades - Tier I / Cash & Equiv $10.00
Security trades - Tier II $25.00
Security trades - Tier III $50.00
Security trades - Tier IV $75.00
Security trades - Tier V $125.00
Wire transfers $5.00
Free delivery/receipt $10.00
Tier I United States
Tier II Australia, Belgium, Canada, Denmark, Euroclear,
France, Germany, Ireland, Italy, Japan,
Luxembourg, Malaysia, Netherlands, New Zealand,
Sweden and United Kingdom
Tier III Austria, Hong Kong, Norway, Singapore, South
Korea, Spain, Switzerland, Taiwan and Thailand
Tier IV Argentina, China, Finland, Mexico, Portugal, Sri
Lanka, South Africa and Turkey
Tier V Bangladesh, Bolivia, Botswana, Brazil, Czech Rep.,
Chile, Colombia, Cyprus, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Israel, Jamaica,
Jordan, Morocco, Nigeria, Pakistan, Peru,
Philippines, Poland, Trinidad, Tunisia, Uruguay,
Venezuela, Vietnam and Zimbabwe
Sit Mutual Funds
Quarterly Custody Fee Assumption
1st Quarter 1999
1.19377 US ave bps
US
Market Value US 1,935,317,432 0.75 36,287
C-75
<PAGE>
Security Trades
Equity/Fixed 951 6 5,706
Cash & Equiv 919 10 9,190
Wires 1,315 5 6,575
Free Receipt/Delivery - 10 -
Security Holdings 1,696 0 -
Accounts 11 0 -
Total US 57,758
Global 6.320 Glb Ave Bps
Market Value
Tier I 22,178,394 0.75 416
Tier II 61,750,074 3 4,631
Tier III 14,281,953 8 2,856
Tier IV 826,397 15 310
Tier V 2,532,361 30 1,899
101,569,177
Transactions
Tier I Equity/Fixed 15 6 90
Tier I Cash/Equiv 162 10 1,620
Tier II 38 25 950
Tier III 14 50 700
Tier IV 4 75 300
Tier V 13 125 1,625
Holdings 146 0 -
Accounts 2 0 -
Wires 130 5 650
Free Receipt/Delivery - 10 -
Total Global 16,048
Total Custody Fees 73,806
C-76
<PAGE>
FIRST AMENDMENT
TO CUSTODY AGREEMENT
This instrument dated July 1, 1999, is a First Amendment to that
certain Custody Agreement dated July 1, 1999, by and between Sit Mutual Funds,
Inc., a corporation organized under the laws of the State of Minnesota, having
its principal office and place of business at 4600 Norwest Center, 90 South
Seventh Street, Minneapolis, Minnesota (the "Fund"), and THE NORTHERN TRUST
COMPANY (the "Custodian"), an Illinois company with its principal place of
business at 50 South LaSalle Street, Chicago, Illinois 60675.
WHEREAS, the Fund is a registered open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund has retained Custodian to furnish custodial
services;
WHEREAS, the Board of Directors of the Fund wishes to delegate to
Custodian certain responsibilities of managing the Fund's foreign custody
arrangements as provided in Rule 17f-5 under the 1940 Act, except with respect
to central depositories and clearing agencies or with respect to custody
arrangements in the countries listed on Schedule I, attached, as that Schedule
may be amended from time to time by written notice to the Fund;
WHEREAS, the Board of Directors of the Fund has determined that it
is reasonable to rely on Custodian to perform the responsibilities delegated to
it under this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Section 1(l) of the Custody Agreement is amended to read as
follows:
(l) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any "eligible foreign custodian," as that term is
defined in Rule 17f-5 under the 1940 Act, approved by the Fund or a
Delegate of the Fund in the manner required by Rule 17f-5, and (iii)
any securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States,
which securities depository or clearing agency has been approved by
the Fund or a Delegate of the Fund in the manner required by Rule
17f-5; provided, that the Custodian or a Sub-Custodian has entered
into an agreement with such securities depository or clearing
agency.
2. The following is added as Section 1(n):
(n) "Delegate of the Fund" shall mean and include any entity to whom
the Board of Directors of the Fund has delegated any responsibility under Rule
17f-5 of the 1940 Act.
3. Section 3 of the Custody Agreement is amended to read as follows:
"3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time held in any Portfolio, upon the
terms and conditions specified in this Agreement. The Custodian
shall oversee the maintenance by any Sub-Custodian of any Securities
or moneys of any Portfolio.
C-77
<PAGE>
(b) The Agreement between the Custodian and each Sub-Custodian
described in clause (ii) or (iii) of Section 1(l) and acting
hereunder shall contain any provisions necessary to comply with Rule
17f-5 under the 1940 Act.
(c) Prior to the Custodian's use of any Sub-Custodian described in
clause (ii) or (iii) of Paragraph 1(l), the Fund or a Delegate of
the Fund must approve such Sub-Custodian in the manner required by
Rule 17f-5 and provide the Custodian with satisfactory evidence of
such approval.
(d) The Custodian shall promptly take such steps as may be required
to remove any Sub-Custodian that has ceased to be an "eligible
foreign custodian" or has otherwise ceased to meet the requirements
under Rule 17f-5. If the Custodian intends to remove any
Sub-Custodian previously approved by the Fund or a Delegate of the
Fund pursuant to paragraph 3(c), and the Custodian proposes to
replace such Sub-Custodian with a Sub-Custodian that has not yet
been approved by the Fund or a Delegate of the Fund, it will so
notify the Fund or a Delegate of the Fund and provide it with
information reasonably necessary to determine such proposed
Sub-Custodian's eligibility under Rule 17f-5, including a copy of
the proposed agreement with such Sub-Custodian. The Fund shall at
the meeting of the Board of Directors next following receipt of such
notice and information, or a Delegate of the Fund shall promptly,
determine whether to approve the proposed Sub-Custodian and will
promptly thereafter give written notice of the approval or
disapproval of the proposed action.
(e) The Custodian hereby warrants to the Fund that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not a foreign securities depository or
clearing agency) in connection with the safekeeping of property of a
Portfolio pursuant to this Agreement afford reasonable care for the
safekeeping of such property based on the standards applicable in
the relevant market.
4. The following is added as Section 3A to the Custody Agreement:
"3A. Delegation of Foreign Custody Management.
(a) The Fund hereby delegates to Custodian the
responsibilities set forth in subparagraph (b) below of this Section
3A, in accordance with Rule 17f-5 under the 1940 Act, with respect
to foreign custody arrangements for the Fund's existing and future
investment portfolios, except that the Custodian shall not have such
responsibility with respect to central depositories and clearing
agencies or with respect to custody arrangements in the countries
listed on Schedule I, attached hereto, as that Schedule may be
amended from time to time by notice to the Fund.
(b) With respect to each foreign custody arrangement
regarding the assets of any investment portfolio of the Fund for
which Custodian has responsibility under this Section 3A, Custodian
shall:
(i) determine that the Fund's assets will be subject to
reasonable care, based on the standards applicable to
custodians in the relevant market, if maintained with an
"eligible foreign custodian", as that term is defined in
Rule 17f-5 under the 1940 Act, after considering all
factors relevant to the safekeeping of such assets;
(ii) determine that the written contract with such
foreign custodian governing the foreign custody
arrangements will provide reasonable care for the Fund's
assets;
(iii) establish a system to monitor the appropriateness
of maintaining the Fund's assets with such foreign
custodian and the contract governing the Fund's foreign
custody arrangements;
C-78
<PAGE>
(iv) provide to the Fund's Board of Directors, at least
annually, written reports notifying the Board of the
placement of the Fund's assets with a particular foreign
custodian and periodic reports of any material changes
to the Fund's foreign custodian arrangements; and
(v) withdraw the Fund's assets from any foreign
custodian as soon as reasonably practicable, if the
foreign custody arrangement no longer meets the
requirement of Rule 17f-5.
5. Sections 16(b)1 and 16(b)2 of the Custody Agreement are amended
to read as follows:
"1. The Custodian will use reasonable care with respect
to its obligations under this Agreement and the safekeeping of
property of the Portfolios. The Custodian shall be liable to, and
shall indemnify and hold harmless the Fund from and against any loss
which shall occur as the result of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities depository or
clearing agency) to exercise reasonable care with respect to their
respective obligations under this Agreement and the safekeeping of
such property. The determination of whether the Custodian or
Sub-Custodian has exercised reasonable care in connection with their
obligations under this Agreement shall be made in light of
prevailing standards applicable to professional custodians in the
jurisdiction in which such custodial services are performed. In the
event of any loss to the Fund by reason of the failure of the
Custodian or a Sub-Custodian (other than a foreign securities
depository or clearing agency) to exercise reasonable care, the
Custodian shall be liable to the Fund only to the extent of the
Fund's direct damages and expenses, which damages, for purposes of
property only, shall be determined based on the market value of the
property which is the subject of the loss at the date of discovery
of such loss and without reference to any special condition or
circumstances.
2. The Custodian will not be responsible for any act,
omission, or default of, or for the solvency of, any foreign
securities depository or clearing agency approved by the Board of
Directors or a Delegate of the Fund pursuant to Section (1)(l) or
Section 3 hereof."
Except as set forth above, all terms of the Custody Agreement as in
effect immediately prior to this amendment shall remain in full force and
effect.
Executed this ____ day of _______________, 199_.
THE NORTHERN TRUST COMPANY SIT MUTUAL FUNDS, INC.
By:______________________________ By:__________________________
Its:_____________________________ Its:_________________________
C-79
<PAGE>
SCHEDULE I
(Countries for which Custodian shall NOT have responsibility under
Section 3A for management of foreign custody arrangements)
Russia
Lithuania
Romania
Croatia
C-80
<PAGE>
EXHIBIT (h.2)
Accounting Services Agreement
AMENDMENT TO
ACCOUNTING SERVICES AGREEMENT
This Amendment dated as of July 1, 1999, is entered into by SIT LARGE CAP
GROWTH FUND, INC. (the "Company") and FIRST DATA INVESTOR SERVICES GROUP, INC.
("FDISG").
WHEREAS, the Company and FDISG entered into an Accounting Services
Agreement dated as of April 1, 1996 (as amended and supplemented, the
"Agreement");
WHEREAS, the Company and FDISG wish to amend certain terms of the
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
hereby agree as follows:
I. Paragraph (a) of Section 4 is hereby deleted in its entirety and replaced
with the following:
(a) For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, the Company, on
behalf of each Fund, will pay FDISG on the first business day of each month a
fee for the previous month at the annual rate as follows:
Assets Basis Point Charge
$1 > $2,000,000,000 4.0
$2,000,000,000 - $5,000,000,000 2.5
> $5,000,000,000 2.0
For purposes of determining the asset levels in the foregoing fee schedule, the
assets of all Sit Mutual Funds serviced by FDISG , shall be combined. In
addition, for each fund added, if any, to the Sit Mutual Funds listed on Exhibit
1 and serviced hereunder by FDISG (a "New Fund") the Company shall pay FDISG a
minimum annual fee in an amount equal to a.) $30,000 less b.) an amount
calculated in accordance with the foregoing fee schedule for the New Fund on a
stand alone basis without regard to other Sit Mutual Funds serviced by FDISG.
For each fund listed on Exhibit 1 that is liquidated or dissolved, or merged
into another fund included on Exhibit 1, the aggregate fee paid to FDISG by the
remaining funds listed on Exhibit 1 will be reduced by $15,000 annually. The
annual fee reduction will be applied as a credit monthly in arrears. The annual
fee reduction will commence in the month of the liquidation, dissolution or
merger if the liquidation, dissolution or merger takes place on or before the
15th of a month, and will commence in the month following the liquidation,
dissolution or merger if the liquidation, dissolution or merger takes place
after the 15th of a month.
II. Schedule B to the Agreement is hereby deleted in its entirety and replaced
with the attached Schedule B.
III. Paragraph (a) of Section 8 is hereby deleted in its entirety and replaced
with the following:
(a) The Agreement shall continue until March 31, 2003 (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall automatically be renewed for successive terms of three (3)
years ("Renewal Terms") each.
IV. Section 8 is hereby amended to include the following Paragraph (e):
e.) In the event that prior to March 31, 2002 this Agreement and the Accounting
Services Agreements entered into by each fund on Exhibit 1 and FDISG are
terminated, or as a result of a purchase or merger the assets of such
C-81
<PAGE>
funds as of the date of this Amendment are not serviced by FDISG hereunder, the
Company and the funds on Exhibit 1 shall be liable for all amounts payable under
Section 4 hereof calculated at the asset level on the date notice of termination
was delivered to FDISG, or if no notice was delivered to FDISG then the date of
the merger or purchase. Notwithstanding anything contained in this Agreement to
the contrary, after March 31, 2002, the Company may terminate this Agreement for
any reason, or no reason, upon ninety (90) days written notice to FDISG and the
payment to FDISG of an early termination penalty equal to $200,000.
V. Except to the extent amended hereby, the Agreement shall remain unchanged and
in full force and effect and is hereby ratified and confirmed in all respects as
amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date
and year first written above.
SIT LARGE CAP GROWTH FUND, INC.
By: /s/ Mary K. Stern
------------------------------
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Robert W. Gilbert
------------------------------
C-82
<PAGE>
SCHEDULE B
Out-Of-Pocket Expenses and Other Charges
1. Out-of-Pocket Expenses. The Company shall reimburse FDISG monthly for
applicable out-of-pocket expenses, including, but not limited to the following
items:
* Postage
* Telephone and telecommunication costs, including all lease, maintenance and
line costs
* Shipping, Certified and Overnight mail and insurance
* Terminals, communication lines, printers and other equipment and any expenses
incurred in connection with such terminals and lines
* Duplicating services
* Courier services
* Overtime, as approved by the Company
* Temporary staff, as approved by the Company
* Travel and entertainment, as approved by the Company
* Record retention, retrieval and destruction costs, including, but not limited
to exit fees charged by third party record keeping vendors
* Third party audit reviews (SAS 70)
* Pricing services (or services used to determine Company NAV)
* Vendor pricing comparison
* Such other expenses as are agreed to by FDISG and the Company
2. Miscellaneous Charges. The Company shall be charged for the following
products and services as applicable:
* Ad hoc reports
* Manual Pricing
* Materials for Rule 15c-3 Presentations
3. Programming Costs. The following programming rates are subject to an annual
5% increase after the one year anniversary of the effective date of this
Agreement.
System Enhancements (Non Dedicated Team): $150.00 per/hr per programmer
C-83
<PAGE>
Amendment to Accounting Services Agreement
EXHIBIT 1
Sit Mutual Funds
Sit Mid Cap Growth Fund, Inc.
Sit Large Cap Growth Fund, Inc.
Sit U.S. Government Securities Fund, Inc.
Sit Money Market Fund, Inc.
Sit Mutual Funds, Inc.
Sit International Growth Fund (Series A)
Sit Balanced Fund (Series B)
Sit Developing Markets Growth Fund (Series C)
Sit Small Cap Growth Fund (Series D)
Sit Science and Technology Growth Fund (Series E)
Sit Regional Growth Fund (Series F)
Sit Mutual Funds II, Inc.
Sit Tax-Free Income Fund (Series A)
Sit Minnesota Tax-Free Income Fund (Series B)
Sit Bond Fund (Series C)
C-84
<PAGE>
AMENDMENT TO
ACCOUNTING SERVICES AGREEMENT
This Amendment dated as of July 1, 1999, is entered into by SIT MID CAP
GROWTH FUND, INC. (the "Company") and FIRST DATA INVESTOR SERVICES GROUP, INC.
("FDISG").
WHEREAS, the Company and FDISG entered into an Accounting Services
Agreement dated as of April 1, 1996 (as amended and supplemented, the
"Agreement");
WHEREAS, the Company and FDISG wish to amend certain terms of the
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
hereby agree as follows:
I. Paragraph (a) of Section 4 is hereby deleted in its entirety and replaced
with the following:
(a) For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, the Company, on
behalf of each Fund, will pay FDISG on the first business day of each month a
fee for the previous month at the annual rate as follows:
Assets Basis Point Charge
$1 > $2,000,000,000 4.0
$2,000,000,000 - $5,000,000,000 2.5
> $5,000,000,000 2.0
For purposes of determining the asset levels in the foregoing fee schedule, the
assets of all Sit Mutual Funds serviced by FDISG , shall be combined. In
addition, for each fund added, if any, to the Sit Mutual Funds listed on Exhibit
1 and serviced hereunder by FDISG (a "New Fund") the Company shall pay FDISG a
minimum annual fee in an amount equal to a.) $30,000 less b.) an amount
calculated in accordance with the foregoing fee schedule for the New Fund on a
stand alone basis without regard to other Sit Mutual Funds serviced by FDISG.
For each fund listed on Exhibit 1 that is liquidated or dissolved, or merged
into another fund included on Exhibit 1, the aggregate fee paid to FDISG by the
remaining funds listed on Exhibit 1 will be reduced by $15,000 annually. The
annual fee reduction will be applied as a credit monthly in arrears. The annual
fee reduction will commence in the month of the liquidation, dissolution or
merger if the liquidation, dissolution or merger takes place on or before the
15th of a month, and will commence in the month following the liquidation,
dissolution or merger if the liquidation, dissolution or merger takes place
after the 15th of a month.
II. Schedule B to the Agreement is hereby deleted in its entirety and replaced
with the attached Schedule B.
III. Paragraph (a) of Section 8 is hereby deleted in its entirety and replaced
with the following:
(a) The Agreement shall continue until March 31, 2003 (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall automatically be renewed for successive terms of three (3)
years ("Renewal Terms") each.
IV. Section 8 is hereby amended to include the following Paragraph (e):
e.) In the event that prior to March 31, 2002 this Agreement and the
Accounting Services Agreements entered into by each fund on Exhibit 1 and FDISG
are terminated, or as a result of a purchase or merger the assets of such funds
as of the date of this Amendment are not serviced by FDISG hereunder, the
Company and the funds on Exhibit 1 shall be liable for all amounts payable under
Section 4 hereof calculated at the asset level on the date notice of termination
was delivered to FDISG, or if no notice was delivered to FDISG then the date of
the merger or purchase. Notwithstanding anything contained in this Agreement to
the contrary, after March 31, 2002, the Company may
C-85
<PAGE>
terminate this Agreement for any reason, or no reason, upon ninety (90) days
written notice to FDISG and the payment to FDISG of an early termination penalty
equal to $200,000.
V. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date
and year first written above.
SIT MID CAP GROWTH FUND, INC.
By: /s/ Mary K. Stern
-----------------------------
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Robert W. Gilbert
-----------------------------
C-86
<PAGE>
SCHEDULE B
Out-Of-Pocket Expenses and Other Charges
1. Out-of-Pocket Expenses. The Company shall reimburse FDISG monthly for
applicable out-of-pocket expenses, including, but not limited to the following
items:
* Postage
* Telephone and telecommunication costs, including all lease, maintenance and
line costs
* Shipping, Certified and Overnight mail and insurance
* Terminals, communication lines, printers and other equipment and any expenses
incurred in connection with such terminals and lines
* Duplicating services
* Courier services
* Overtime, as approved by the Company
* Temporary staff, as approved by the Company
* Travel and entertainment, as approved by the Company
* Record retention, retrieval and destruction costs, including, but not limited
to exit fees charged by third party record keeping vendors
* Third party audit reviews (SAS 70)
* Pricing services (or services used to determine Company NAV)
* Vendor pricing comparison
* Such other expenses as are agreed to by FDISG and the Company
2. Miscellaneous Charges. The Company shall be charged for the following
products and services as applicable:
* Ad hoc reports
* Manual Pricing
* Materials for Rule 15c-3 Presentations
3. Programming Costs. The following programming rates are subject to an annual
5% increase after the one year anniversary of the effective date of this
Agreement.
System Enhancements (Non Dedicated Team): $150.00 per/hr per programmer
C-87
<PAGE>
Amendment to Accounting Services Agreement
EXHIBIT 1
Sit Mutual Funds
Sit Mid Cap Growth Fund, Inc.
Sit Large Cap Growth Fund, Inc.
Sit U.S. Government Securities Fund, Inc.
Sit Money Market Fund, Inc.
Sit Mutual Funds, Inc.
Sit International Growth Fund (Series A)
Sit Balanced Fund (Series B)
Sit Developing Markets Growth Fund (Series C)
Sit Small Cap Growth Fund (Series D)
Sit Science and Technology Growth Fund (Series E)
Sit Regional Growth Fund (Series F)
Sit Mutual Funds II, Inc.
Sit Tax-Free Income Fund (Series A)
Sit Minnesota Tax-Free Income Fund (Series B)
Sit Bond Fund (Series C)
C-88
<PAGE>
AMENDMENT TO
ACCOUNTING SERVICES AGREEMENT
This Amendment dated as of July 1, 1999, is entered into by SIT MUTUAL
FUNDS, INC. (the "Company") and FIRST DATA INVESTOR SERVICES GROUP, INC.
("FDISG").
WHEREAS, the Company and FDISG entered into an Accounting Services
Agreement dated as of April 1, 1996 (as amended and supplemented, the
"Agreement");
WHEREAS, the Company and FDISG wish to amend certain terms of the
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
hereby agree as follows:
I. Paragraph (a) of Section 4 is hereby deleted in its entirety and replaced
with the following:
(a) For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, the Company, on
behalf of each Fund, will pay FDISG on the first business day of each month a
fee for the previous month at the annual rate as follows:
Assets Basis Point Charge
$1 > $2,000,000,000 4.0
$2,000,000,000 - $5,000,000,000 2.5
> $5,000,000,000 2.0
For purposes of determining the asset levels in the foregoing fee schedule, the
assets of all Sit Mutual Funds serviced by FDISG , shall be combined. In
addition, for each fund added, if any, to the Sit Mutual Funds listed on Exhibit
1 and serviced hereunder by FDISG (a "New Fund") the Company shall pay FDISG a
minimum annual fee in an amount equal to a.) $30,000 less b.) an amount
calculated in accordance with the foregoing fee schedule for the New Fund on a
stand alone basis without regard to other Sit Mutual Funds serviced by FDISG.
For each fund listed on Exhibit 1 that is liquidated or dissolved, or merged
into another fund included on Exhibit 1, the aggregate fee paid to FDISG by the
remaining funds listed on Exhibit 1 will be reduced by $15,000 annually. The
annual fee reduction will be applied as a credit monthly in arrears. The annual
fee reduction will commence in the month of the liquidation, dissolution or
merger if the liquidation, dissolution or merger takes place on or before the
15th of a month, and will commence in the month following the liquidation,
dissolution or merger if the liquidation, dissolution or merger takes place
after the 15th of a month.
II. Schedule B to the Agreement is hereby deleted in its entirety and replaced
with the attached Schedule B.
III. Paragraph (a) of Section 8 is hereby deleted in its entirety and replaced
with the following:
(a) The Agreement shall continue until March 31, 2003 (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall automatically be renewed for successive terms of three (3)
years ("Renewal Terms") each.
IV. Section 8 is hereby amended to include the following Paragraph (e):
e.) In the event that prior to March 31, 2002 this Agreement and the
Accounting Services Agreements entered into by each fund on Exhibit 1 and FDISG
are terminated, or as a result of a purchase or merger the assets of such funds
as of the date of this Amendment are not serviced by FDISG hereunder, the
Company and the funds on Exhibit 1 shall be liable for all amounts payable under
Section 4 hereof calculated at the asset level on the date notice of termination
was delivered to FDISG, or if no notice was delivered to FDISG then the date of
the merger or purchase. Notwithstanding anything contained in this Agreement to
the contrary, after March 31, 2002, the Company may
C-89
<PAGE>
terminate this Agreement for any reason, or no reason, upon ninety (90) days
written notice to FDISG and the payment to FDISG of an early termination penalty
equal to $200,000.
V. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date
and year first written above.
SIT MUTUAL FUNDS, INC.
By: /s/ Mary K. Stern
------------------------------
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Robert W. Gilbert
-------------------------------
C-90
<PAGE>
SCHEDULE B
Out-Of-Pocket Expenses and Other Charges
1. Out-of-Pocket Expenses. The Company shall reimburse FDISG monthly for
applicable out-of-pocket expenses, including, but not limited to the following
items:
* Postage
* Telephone and telecommunication costs, including all lease, maintenance and
line costs
* Shipping, Certified and Overnight mail and insurance
* Terminals, communication lines, printers and other equipment and any expenses
incurred in connection with such terminals and lines
* Duplicating services
* Courier services
* Overtime, as approved by the Company
* Temporary staff, as approved by the Company
* Travel and entertainment, as approved by the Company
* Record retention, retrieval and destruction costs, including, but not limited
to exit fees charged by third party record keeping vendors
* Third party audit reviews (SAS 70)
* Pricing services (or services used to determine Company NAV)
* Vendor pricing comparison
* Such other expenses as are agreed to by FDISG and the Company
2. Miscellaneous Charges. The Company shall be charged for the following
products and services as applicable:
* Ad hoc reports
* Manual Pricing
* Materials for Rule 15c-3 Presentations
3. Programming Costs. The following programming rates are subject to an annual
5% increase after the one year anniversary of the effective date of this
Agreement.
System Enhancements (Non Dedicated Team): $150.00 per/hr per programmer
C-91
<PAGE>
Amendment to Accounting Services Agreement
EXHIBIT 1
Sit Mutual Funds
Sit Mid Cap Growth Fund, Inc.
Sit Large Cap Growth Fund, Inc.
Sit U.S. Government Securities Fund, Inc.
Sit Money Market Fund, Inc.
Sit Mutual Funds, Inc.
Sit International Growth Fund (Series A)
Sit Balanced Fund (Series B)
Sit Developing Markets Growth Fund (Series C)
Sit Small Cap Growth Fund (Series D)
Sit Science and Technology Growth Fund (Series E)
Sit Regional Growth Fund (Series F)
Sit Mutual Funds II, Inc.
Sit Tax-Free Income Fund (Series A)
Sit Minnesota Tax-Free Income Fund (Series B)
Sit Bond Fund (Series C)
C-92
<PAGE>
EXHIBIT (j)
Independent Auditors' Consent
The Board of Directors and Shareholders
Sit Mutual Funds, Inc.
Sit Large Cap Growth Fund, Inc.
Sit Mid Cap Growth Fund, Inc.
We consent to the use of our report dated August 6, 1999 incorporated herein by
reference and to the references to our Firm under the headings "Financial
Highlights" in Part A and "Custodian; Sub-Custodian; Counsel; Accountants" in
Part B of the Registration Statement.
/s/ KPMG LLP
KPMG LLP
Minneapolis, Minnesota
August 27, 1999
C-93
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877880
<NAME> SIT MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 02
<NAME> SIT BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 10,523,530
<INVESTMENTS-AT-VALUE> 12,595,158
<RECEIVABLES> 227,201
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,822,359
<PAYABLE-FOR-SECURITIES> 697,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,040
<TOTAL-LIABILITIES> 709,996
<SENIOR-EQUITY> 697
<PAID-IN-CAPITAL-COMMON> 9,445,434
<SHARES-COMMON-STOCK> 697,061
<SHARES-COMMON-PRIOR> 445,012
<ACCUMULATED-NII-CURRENT> 63,689
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 530,915
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,071,628
<NET-ASSETS> 12,112,363
<DIVIDEND-INCOME> 49,858
<INTEREST-INCOME> 212,293
<OTHER-INCOME> 0
<EXPENSES-NET> 86,957
<NET-INVESTMENT-INCOME> 175,194
<REALIZED-GAINS-CURRENT> 591,404
<APPREC-INCREASE-CURRENT> 205,945
<NET-CHANGE-FROM-OPS> 972,543
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 147,000
<DISTRIBUTIONS-OF-GAINS> 350,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 359,829
<NUMBER-OF-SHARES-REDEEMED> 138,578
<SHARES-REINVESTED> 30,798
<NET-CHANGE-IN-ASSETS> 4,690,825
<ACCUMULATED-NII-PRIOR> 35,495
<ACCUMULATED-GAINS-PRIOR> 289,511
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,957
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 86,957
<AVERAGE-NET-ASSETS> 8,788,562
<PER-SHARE-NAV-BEGIN> 16.68
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.38
<EXPENSE-RATIO> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000356786
<NAME> SIT LARGE CAP GROWTH FUND, INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 94,415,041
<INVESTMENTS-AT-VALUE> 139,194,633
<RECEIVABLES> 3,520,413
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142,715,046
<PAYABLE-FOR-SECURITIES> 2,267,673
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,677
<TOTAL-LIABILITIES> 2,459,350
<SENIOR-EQUITY> 2,654
<PAID-IN-CAPITAL-COMMON> 88,437,483
<SHARES-COMMON-STOCK> 2,654,228
<SHARES-COMMON-PRIOR> 2,381,356
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,037,967
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,779,592
<NET-ASSETS> 140,257,696
<DIVIDEND-INCOME> 744,174
<INTEREST-INCOME> 389,174
<OTHER-INCOME> 0
<EXPENSES-NET> 1,250,402
<NET-INVESTMENT-INCOME> (117,054)
<REALIZED-GAINS-CURRENT> 17,648,687
<APPREC-INCREASE-CURRENT> 2,230,110
<NET-CHANGE-FROM-OPS> 19,761,743
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,000
<DISTRIBUTIONS-OF-GAINS> 9,200,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,156,108
<NUMBER-OF-SHARES-REDEEMED> 1,081,277
<SHARES-REINVESTED> 198,041
<NET-CHANGE-IN-ASSETS> 22,761,544
<ACCUMULATED-NII-PRIOR> 17,320
<ACCUMULATED-GAINS-PRIOR> 8,620,712
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,250,402
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,250,402
<AVERAGE-NET-ASSETS> 124,089,193
<PER-SHARE-NAV-BEGIN> 49.34
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 6.96
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 3.42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 52.84
<EXPENSE-RATIO> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877880
<NAME> SIT MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 06
<NAME> REGIONAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 5,920,358
<INVESTMENTS-AT-VALUE> 7,520,743
<RECEIVABLES> 8,787
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,529,530
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,922
<TOTAL-LIABILITIES> 5,922
<SENIOR-EQUITY> 571
<PAID-IN-CAPITAL-COMMON> 6,007,158
<SHARES-COMMON-STOCK> 571,098
<SHARES-COMMON-PRIOR> 442,298
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 84,506
<ACCUM-APPREC-OR-DEPREC> 1,600,385
<NET-ASSETS> 7,523,608
<DIVIDEND-INCOME> 39,449
<INTEREST-INCOME> 17,599
<OTHER-INCOME> 0
<EXPENSES-NET> 59,381
<NET-INVESTMENT-INCOME> (2,333)
<REALIZED-GAINS-CURRENT> (111,164)
<APPREC-INCREASE-CURRENT> 1,187,711
<NET-CHANGE-FROM-OPS> 1,074,214
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,000
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 289,865
<NUMBER-OF-SHARES-REDEEMED> 162,044
<SHARES-REINVESTED> 979
<NET-CHANGE-IN-ASSETS> 2,541,835
<ACCUMULATED-NII-PRIOR> 8,500
<ACCUMULATED-GAINS-PRIOR> 26,658
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 74,226
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74,226
<AVERAGE-NET-ASSETS> 5,939,163
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.17
<EXPENSE-RATIO> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000356787
<NAME> SIT MID CAP GROWTH FUND, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 232,941,626
<INVESTMENTS-AT-VALUE> 371,378,708
<RECEIVABLES> 8,648,987
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 380,027,695
<PAYABLE-FOR-SECURITIES> 4,217,033
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 468,084
<TOTAL-LIABILITIES> 4,685,117
<SENIOR-EQUITY> 25,812
<PAID-IN-CAPITAL-COMMON> 212,195,414
<SHARES-COMMON-STOCK> 25,812,041
<SHARES-COMMON-PRIOR> 25,526,659
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,684,270
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 138,437,082
<NET-ASSETS> 375,342,578
<DIVIDEND-INCOME> 1,013,159
<INTEREST-INCOME> 863,486
<OTHER-INCOME> 0
<EXPENSES-NET> 3,462,626
<NET-INVESTMENT-INCOME> (1,585,981)
<REALIZED-GAINS-CURRENT> 25,382,637
<APPREC-INCREASE-CURRENT> (2,614,204)
<NET-CHANGE-FROM-OPS> 21,182,452
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 59,500,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,884,953
<NUMBER-OF-SHARES-REDEEMED> 35,369,826
<SHARES-REINVESTED> 4,770,255
<NET-CHANGE-IN-ASSETS> (28,984,892)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 59,229,342
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,328,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,328,283
<AVERAGE-NET-ASSETS> 347,625,096
<PER-SHARE-NAV-BEGIN> 16.49
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> .65
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.54
<EXPENSE-RATIO> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877880
<NAME> SIT MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> INTERNATIONAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 61,158,697
<INVESTMENTS-AT-VALUE> 95,029,152
<RECEIVABLES> 203,787
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,232,939
<PAYABLE-FOR-SECURITIES> 78,435
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 172,284
<TOTAL-LIABILITIES> 250,719
<SENIOR-EQUITY> 5,061
<PAID-IN-CAPITAL-COMMON> 59,460,754
<SHARES-COMMON-STOCK> 5,210,623
<SHARES-COMMON-PRIOR> 5,208,783
<ACCUMULATED-NII-CURRENT> 552,506
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,100,069
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,863,830
<NET-ASSETS> 94,982,220
<DIVIDEND-INCOME> 824,377
<INTEREST-INCOME> 229,612
<OTHER-INCOME> 0
<EXPENSES-NET> 1,393,019
<NET-INVESTMENT-INCOME> (339,030)
<REALIZED-GAINS-CURRENT> 2,744,888
<APPREC-INCREASE-CURRENT> 2,468,865
<NET-CHANGE-FROM-OPS> 4,874,723
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 284,000
<DISTRIBUTIONS-OF-GAINS> 5,500,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,137,747
<NUMBER-OF-SHARES-REDEEMED> 4,605,179
<SHARES-REINVESTED> 317,635
<NET-CHANGE-IN-ASSETS> (4,738,628)
<ACCUMULATED-NII-PRIOR> 284,937
<ACCUMULATED-GAINS-PRIOR> 4,909,485
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,718,057
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,718,057
<AVERAGE-NET-ASSETS> 93,003,591
<PER-SHARE-NAV-BEGIN> 19.14
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> .84
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.77
<EXPENSE-RATIO> 1.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877880
<NAME> SIT MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 04
<NAME> SMALL CAP GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 33,293,635
<INVESTMENTS-AT-VALUE> 49,765,378
<RECEIVABLES> 685,039
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,450,417
<PAYABLE-FOR-SECURITIES> 56,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,320
<TOTAL-LIABILITIES> 115,820
<SENIOR-EQUITY> 2,754
<PAID-IN-CAPITAL-COMMON> 37,759,946
<SHARES-COMMON-STOCK> 2,753,954
<SHARES-COMMON-PRIOR> 2,824,154
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,899,846
<ACCUM-APPREC-OR-DEPREC> 16,471,743
<NET-ASSETS> 50,334,597
<DIVIDEND-INCOME> 92,922
<INTEREST-INCOME> 97,071
<OTHER-INCOME> 0
<EXPENSES-NET> 683,493
<NET-INVESTMENT-INCOME> (493,500)
<REALIZED-GAINS-CURRENT> (3,899,846)
<APPREC-INCREASE-CURRENT> 6,980,637
<NET-CHANGE-FROM-OPS> 2,587,291
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 7,700,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,551,586
<NUMBER-OF-SHARES-REDEEMED> 2,131,506
<SHARES-REINVESTED> 509,720
<NET-CHANGE-IN-ASSETS> (7,137,774)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,714,111
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 683,493
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 683,493
<AVERAGE-NET-ASSETS> 46,237,754
<PER-SHARE-NAV-BEGIN> 20.35
<PER-SHARE-NII> (.18)
<PER-SHARE-GAIN-APPREC> 1.20
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 3.09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.28
<EXPENSE-RATIO> 1.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877880
<NAME> SIT MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 05
<NAME> SCIENCE & TECHNOLOGY GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 10,630,617
<INVESTMENTS-AT-VALUE> 14,236,950
<RECEIVABLES> 42,452
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,279,402
<PAYABLE-FOR-SECURITIES> 68,711
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,026
<TOTAL-LIABILITIES> 85,737
<SENIOR-EQUITY> 932
<PAID-IN-CAPITAL-COMMON> 10,947,638
<SHARES-COMMON-STOCK> 932,227
<SHARES-COMMON-PRIOR> 419,928
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 361,238
<ACCUM-APPREC-OR-DEPREC> 3,606,333
<NET-ASSETS> 14,193,665
<DIVIDEND-INCOME> 22,201
<INTEREST-INCOME> 24,172
<OTHER-INCOME> 0
<EXPENSES-NET> 110,042
<NET-INVESTMENT-INCOME> (63,669)
<REALIZED-GAINS-CURRENT> (316,306)
<APPREC-INCREASE-CURRENT> 2,941,239
<NET-CHANGE-FROM-OPS> 2,561,264
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 733,282
<NUMBER-OF-SHARES-REDEEMED> 213,983
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,335,326
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 44,932
<GROSS-ADVISORY-FEES> 132,050
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 132,050
<AVERAGE-NET-ASSETS> 8,839,901
<PER-SHARE-NAV-BEGIN> 11.77
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> 3.53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.23
<EXPENSE-RATIO> 1.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877880
<NAME> SIT MUTUAL FUNDS, INC.
<SERIES>
<NUMBER> 03
<NAME> DEVELOPING MARKETS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 8,839,078
<INVESTMENTS-AT-VALUE> 11,624,478
<RECEIVABLES> 342,301
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,966,779
<PAYABLE-FOR-SECURITIES> 490,538
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138,495
<TOTAL-LIABILITIES> 629,033
<SENIOR-EQUITY> 1,136
<PAID-IN-CAPITAL-COMMON> 12,250,783
<SHARES-COMMON-STOCK> 1,135,889
<SHARES-COMMON-PRIOR> 1,271,787
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,697,984
<ACCUM-APPREC-OR-DEPREC> 2,783,811
<NET-ASSETS> 11,337,746
<DIVIDEND-INCOME> 110,293
<INTEREST-INCOME> 92,885
<OTHER-INCOME> 0
<EXPENSES-NET> 208,718
<NET-INVESTMENT-INCOME> (5,540)
<REALIZED-GAINS-CURRENT> (2,795,709)
<APPREC-INCREASE-CURRENT> 3,644,011
<NET-CHANGE-FROM-OPS> 842,762
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,343,413
<NUMBER-OF-SHARES-REDEEMED> 1,479,311
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (167,142)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (935,567)
<GROSS-ADVISORY-FEES> 208,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 208,718
<AVERAGE-NET-ASSETS> 10,412,475
<PER-SHARE-NAV-BEGIN> 9.05
<PER-SHARE-NII> .93
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> 2.00
</TABLE>
