Registration No. 333- .
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 2000
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. |_|
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Post-Effective Amendment No. |_|
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(Check appropriate box or boxes)
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Exact Name of Registrant as Specified in Charter:
SIT LARGE CAP GROWTH FUND, INC.
Area Code and Telephone Number:
(612) 334-5888
Address of Principal Executive Offices:
4600 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4130
Name and Address of Agent for Service:
Paul Rasmussen
Sit Investment Associates, Inc.
4600 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4130
COPY TO:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Approximate Date of Proposed Public Offering:
As soon as possible following the effective date of this Registration Statement.
Title of Securities Being Registered:
Common Stock
(No filing fee is required because of reliance by
the Registrant on Section 24(f)of the Investment
Company Act of 1940.)
It is proposed that this filing become effective on May 10, 2000 (30
days after filing) pursuant to Rule 488.
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SIT LARGE CAP GROWTH FUND, INC.
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
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PART A OF FORM N-14 PROSPECTUS/PROXY STATEMENT CAPTION
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<S> <C>
1. Beginning of Registration Statement
and Outside Front Cover Page of Prospectus ........... Cross Reference Sheet and Cover Page
2. Beginning and Outside Back Cover Page
of Prospectus......................................... Table of Contents
3. Fee Table, Synopsis Information, and Risk Factors..... Fees and Expenses; Summary; Risk Factors
4. Information about the Transaction..................... Summary; Information About the Reorganization;
Voting Information
5. Information about the Registrant...................... Outside Front Cover; Information About Regional Fund
and Large Cap Fund
6. Information about the Company being
Acquired.............................................. Outside Front Cover; Summary; Information About
Regional Fund and Large Cap Fund
7. Voting Information.................................... Summary; Information About the Reorganization;
Voting Information
8. Interest of Certain Persons and Experts............... Voting Information
9. Additional Information................................ Not Applicable
STATEMENT OF ADDITIONAL
PART B OF FORM N-14 INFORMATION CAPTION
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10. Cover Page............................................ Cover Page
11. Table of Contents..................................... Not Applicable
12. Additional Information about the Registrant........... Cover Page (Incorporation by Reference)
13. Additional Information about the Company
Being Acquired........................................ Cover Page (Incorporation by Reference)
14. Financial Statements.................................. Financial Statements
PART C OF FORM N-14
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Information required to be included in Part C is set forth under the appropriate
item in Part C of this Registration Statement.
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SIT LARGE CAP GROWTH FUND, INC.
REGISTRATION STATEMENT ON FORM N-14
PART A
PRESIDENT'S LETTER
WHAT YOU SHOULD KNOW ABOUT THIS PROPOSED FUND REORGANIZATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
PROSPECTUS/PROXY STATEMENT
PROSPECTUS DATED NOVEMBER 1, 1999 OF SIT STOCK FUNDS
[TO BE DELIVERED WITH PROSPECTUS/PROXY STATEMENT]
ANNUAL REPORT OF SIT STOCK FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
[TO BE DELIVERED WITH PROSPECTUS/PROXY STATEMENT]
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SIT MUTUAL FUNDS, INC.
4600 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
________________, 2000
To the Shareholders of Sit Regional Growth Fund:
I am writing to inform you of a Special Meeting of the shareholders of
Sit Regional Growth Fund ("Regional Fund"), a series of Sit Mutual Funds, Inc.,
that will be held at a.m. on , 2000 at the offices of Sit Investment Associates,
Inc., 4600 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota. The
purpose of this meeting is to vote on a proposal to combine Regional Fund into
Sit Large Cap Growth Fund, Inc. ("Large Cap Fund"). If the proposed
reorganization is approved, you will receive shares of Large Cap Fund with a
value equal to the value of your Regional Fund shares.
The attached Prospectus/Proxy Statement provides you with additional
information about the proposed reorganization and a comparison of the two Funds.
There is also attached a "Q&A" which should provide answers to many of your
questions. We urge you to read all of the enclosed materials carefully.
Sit Mutual Funds' Board of Directors has approved the proposed
combination of the Funds and recommends it for your approval. I encourage you to
vote "FOR" the proposal, and ask that you please send your completed proxy
ballot in as soon as possible to help save the cost of additional solicitations.
As always, we thank you for your confidence and support.
Sincerely,
Mary K. Stern
President
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WHAT YOU SHOULD KNOW ABOUT
THIS PROPOSED FUND REORGANIZATION
THE BOARD OF DIRECTORS OF SIT MUTUAL FUNDS ENCOURAGES YOU TO READ THE
ENCLOSED PROSPECTUS/PROXY STATEMENT CAREFULLY. THE FOLLOWING IS A BRIEF OVERVIEW
OF THE KEY ISSUES.
WHY IS MY FUND HOLDING A SPECIAL SHAREHOLDERS MEETING?
The meeting is being called to ask you to approve the reorganization of
Regional Fund into Large Cap Fund, a similar fund in the Sit fund family. If
shareholders vote in favor of the reorganization, Large Cap Fund will acquire
all of the assets of Regional Fund and your shares of Regional Fund will be
exchanged for shares of Large Cap Fund with the same net asset value.
WHY WAS THE REORGANIZATION PROPOSED?
Sit Investment Associates, Inc. (the "Adviser), the investment adviser
to both Regional Fund and Large Cap Fund, recommended the reorganization to the
Board because it believes that Regional Fund is unlikely to grow to a size that
is economically viable. At December 31, 1999, Regional Fund has net assets of
less than $8 million. The small size of the Fund makes portfolio management
difficult. The Fund cannot maintain the level of investment diversification that
the Adviser desires. In addition, the Fund's midwestern geographic focus
precludes the Fund from taking advantage of a number of investment opportunities
available in other areas of the country. Large Cap Fund is a much larger Fund,
with net assets of approximately $164 million at December 31, 1999. Therefore,
Large Cap Fund is able to achieve greater investment diversification. In
addition, Large Cap Fund is not subject to any geographic limitations on its
investments.
ARE THERE ANY OTHER ADVANTAGES TO MERGING THE FUNDS?
The contractual advisory fee for Large Cap Fund is lower than for
Regional Fund. Because the Adviser pays all Fund expenses (other than interest,
brokerage commissions, transaction charges and certain extraordinary expenses),
overall expenses will be lower for Large Cap Fund. During the past year, the
Adviser waived fees for Regional Fund so that overall expenses were the same for
the two Funds. However, the Adviser is not obligated to continue these waivers
after December 31, 2000.
The potential benefits and possible disadvantages of merging the Funds
are explained in more detail in the enclosed Prospectus/Proxy Statement.
HOW ARE REGIONAL FUND AND LARGE CAP FUND ALIKE? HOW DO THEY DIFFER?
The investment objectives of these Funds are identical; each has an
objective of maximizing long-term capital appreciation. In addition, each Fund
invests in growth-oriented companies that the Adviser believes exhibit the
potential for superior growth. However, there are differences in the Funds'
investment strategies:
o Large Cap Fund invests at least 65% of its total assets in
stocks of large cap companies - that is, companies with
capitalizations of $5 billion or more at the time of purchase.
o Regional Fund's investments include stocks of small, mid and
large cap companies.
o Large Cap Fund invests primarily in stocks of domestic
companies, but is not subject to any other geographic
limitation on its investments.
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o Regional Fund invests at least 80% of its total assets in
common stocks of companies with their headquarters in a
midwest region comprised of Minnesota, Iowa, Missouri, North
Dakota, South Dakota, Nebraska, Kansas, Wisconsin, Illinois,
Michigan, Indiana and Ohio.
WHAT HAPPENS IF SHAREHOLDERS DECIDE IN FAVOR OF A REORGANIZATION?
A closing date will be set for the reorganization. Shareholders will
receive full and fractional shares of Large Cap Fund equal in value to the
shares of Regional Fund that they owned immediately prior to the reorganization.
IF THE FUNDS MERGE, WILL THERE BE TAX CONSEQUENCES FOR ME?
Unlike a transaction where you sell shares of one fund in order to buy
shares of another, the reorganization will not be considered a taxable event.
The Funds themselves will recognize no gains or losses on assets as a result of
the reorganization. So you will not have reportable capital gains or losses due
to the reorganization.
However, you should consult your own tax advisor regarding any possible
effect the proposed reorganization might have on you, given your personal
circumstances - particularly regarding state and local taxes.
WHO WILL PAY FOR THIS REORGANIZATION?
The expenses of the reorganization, including legal expenses, printing,
packaging and postage, plus the costs of any supplementary solicitation, will be
borne by the Adviser.
WHAT DOES THE BOARD OF DIRECTORS RECOMMEND?
The Board of Directors recommends that you vote in favor of the
reorganization. Before you do, however, be sure to study the issues involved and
call us with any questions, then vote promptly to ensure that a quorum will be
represented at the special shareholders meeting.
WHERE DO I GET MORE INFORMATION ABOUT LARGE CAP GROWTH FUND?
Please call the Fund at (800) 332-5580 or (612) 334-5888.
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SIT REGIONAL GROWTH FUND
A SERIES OF
SIT MUTUAL FUNDS, INC.
4600 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
(612) 334-5888
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD __________, 2000
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To the Shareholders of Sit Regional Growth Fund: _____________, 2000
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Sit
Regional Growth Fund ("Regional Fund"), a series of Sit Mutual Funds, Inc. ("Sit
Mutual Funds"), will be held at , Central time, on ___________, 2000, at the
offices of Sit Investment Associates, Inc., 4600 Norwest Center, 90 South
Seventh Street, Minneapolis, Minnesota. The purpose of the special meeting is as
follows:
1. To consider and vote on a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (a) the acquisition
of substantially all of the assets and the assumption of all
liabilities of Regional Fund by Sit Large Cap Growth Fund,
Inc. ("Large Cap Fund") in exchange for shares of common stock
of Large Cap Fund having an aggregate net asset value equal to
the aggregate value of the assets acquired (less the
liabilities assumed) of Regional Fund and (b) the liquidation
of Regional Fund and the pro rata distribution of Large Cap
Fund shares to Regional Fund shareholders. Under the Plan,
each Regional Fund shareholder will receive Large Cap Fund
shares with a net asset value equal as of the effective time
of the Plan to the net asset value of their Regional Fund
shares. A vote in favor of the Plan will be considered a vote
in favor of an amendment to the articles of incorporation of
Sit Mutual Funds required to effect the reorganization
contemplated by the Plan.
2. To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
Even if Regional Fund shareholders vote to approve the Plan,
consummation of the Plan is subject to certain other conditions. See
"Information About the Reorganization -- Plan of Reorganization" in the attached
Prospectus/Proxy Statement.
THE BOARD OF DIRECTORS OF SIT MUTUAL FUNDS RECOMMENDS APPROVAL OF THE
PLAN.
The close of business on ____________, 2000 has been fixed as the
record date for the determination of shareholders entitled to notice of and to
vote at the meeting and any adjournments or postponements thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IN
ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE RESPECTFULLY
ASK FOR YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY. If you are present
at the meeting, you may then revoke your proxy and vote in person, as explained
in the Prospectus/Proxy Statement in the section entitled "Voting Information."
By Order of the Board of Directors,
MICHAEL J. RADMER
SECRETARY
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PROSPECTUS/PROXY STATEMENT
DATED __________, 2000
SIT LARGE CAP GROWTH FUND, INC.
SIT MUTUAL FUNDS, INC.
4600 NORWEST CENTER, 90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
(612) 334-5888
ACQUISITION OF THE ASSETS OF SIT REGIONAL GROWTH FUND,
A SERIES OF SIT MUTUAL FUNDS, INC.,
BY AND IN EXCHANGE FOR SHARES OF SIT LARGE CAP GROWTH FUND, INC.
We are furnishing this combined Prospectus/Proxy Statement to the
shareholders of Sit Regional Growth Fund ("Regional Fund"), a series of Sit
Mutual Funds, Inc. ("Sit Mutual Funds"), in connection with a special meeting
(the "Meeting") of Regional Fund shareholders to be held at the offices of Sit
Investment Associates, Inc., 4600 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota, on _________, 2000, for the purposes set forth in the
accompanying Notice of Special Meeting of Shareholders. This Prospectus/Proxy
Statement is first being mailed to Regional Fund shareholders on or about
__________________, 2000.
This Prospectus/Proxy Statement relates to a proposed Agreement and
Plan of Reorganization (the "Plan") providing for (i) the acquisition of
substantially all the assets and the assumption of all liabilities of Regional
Fund by Sit Large Cap Growth Fund, Inc. ("Large Cap Fund") in exchange for
shares of common stock of Large Cap Fund having an aggregate net asset value
equal to the aggregate value of the assets acquired (less liabilities assumed)
of Regional Fund, and (ii) the liquidation of Regional Fund and the pro rata
distribution of its holdings of Large Cap Fund shares to Regional Fund
shareholders. As a result of the acquisition, each Regional Fund shareholder
will receive Large Cap Fund shares with a net asset value equal to the net asset
value of their Regional Fund shares.
Both Regional Fund and Large Cap Fund are diversified, open-end funds
with investment objectives of maximizing long-term capital appreciation. The
Funds' investment objectives, principal investment strategies and principal
risks are described and compared below under "Information About Regional Fund
and Large Cap Fund - Comparison of Investment Objectives, Principal Investment
Strategies and Principal Risks."
Because Regional Fund shareholders are being asked to approve a
transaction that will result in their receiving shares of Large Cap Fund, this
document also serves as a Prospectus for Large Cap Fund shares. This
Prospectus/Proxy Statement concisely sets forth information about Large Cap Fund
that shareholders of Regional Fund should know before voting on the Plan, and it
should be retained for future reference.
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.
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Additional information about Large Cap Fund has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by writing to the Funds at 4600 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402 or by calling (800) 332-5580. Information which has
been filed with the Commission includes a Statement of Additional Information
dated , 2000 relating to this Prospectus/Proxy Statement, which is incorporated
herein by reference. The Prospectus dated November 1, 1999 of Regional Fund and
Large Cap Fund also is incorporated into this Prospectus/Proxy Statement by
reference, and a copy accompanies this Prospectus/Proxy Statement. The documents
listed below are incorporated by reference into the Statement of Additional
Information and these items will be provided with any copy of the Statement of
Additional Information which is requested. Any documents requested will be sent
within one business day of receipt of the request by first class mail or other
means designed to ensure equally prompt delivery.
o The financial statements of Regional Fund and Large Cap Fund
included in the Sit Stock Funds Annual Report for the fiscal
year ended June 30, 1999 are incorporated by reference in the
Statement of Additional Information relating to this
Prospectus/Proxy Statement, and a copy of the Annual Report
accompanies this Prospectus/Proxy Statement.
o The financial statements of Regional Fund and Large Cap Fund
included in the Sit Stock Funds Semi-Annual Report for the
six-month period ended December 31, 1999 are incorporated by
reference in the Statement of Additional Information relating
to this Prospectus/Proxy Statement.
o The Statement of Additional Information dated November 1, 1999
of Regional Fund and Large Cap Fund is incorporated by
reference in its entirety in the Statement of Additional
Information relating to this Prospectus/Proxy Statement.
Also accompanying and attached to this Prospectus/Proxy Statement as
Exhibit A is a copy of the Plan for the proposed Reorganization.
2
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FEES AND EXPENSES
The following table shows the fees and expenses that:
o you currently bear as a Regional Fund shareholder (under the
"Regional Fund" column);
o shareholders of Large Cap Fund currently bear (under the
"Large Cap Fund" column); and
o you can expect to bear as a Large Cap Fund shareholder after
the proposed reorganization (under the "Pro Forma" column).
Both Funds are 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 either Fund, you
indirectly pay a portion of that Fund's operating expenses. These expenses are
deducted from Fund assets.
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<CAPTION>
REGIONAL LARGE CAP PRO
FUND FUND FORMA
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<S> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly
from your investment)......................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees............................................... 1.25%* 1.00% 1.00%
Distribution (12b-1) Fees..................................... None None None
Other Expenses................................................ None None None
---- ---- ----
Total Fund Operating Expenses................................. 1.25%* 1.00% 1.00%
Example
You would pay the following expenses on a $1,000 investment over
various time periods assuming: (1) a 5% annual return; and (2)
redemption at the end of each time period:
1 year........................................................ $128 $103 $103
3 years....................................................... $399 $320 $320
5 years....................................................... $690 $555 $555
10 years...................................................... $1,518 $1,229 $1,229
</TABLE>
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* Does not reflect the Adviser's waiver of fees for Regional Fund. As a result
of fee waivers, actual management fees and total annual operating expenses
for Regional Fund were 1.00% of average daily net assets for the fiscal year
ended June 30, 1999. After December 31, 2000, fee waivers may be terminated
at any time by the Adviser.
SUMMARY
This summary is qualified by reference to the more complete information
contained elsewhere in this Prospectus/Proxy Statement and in the documents
incorporated into this Prospectus/Proxy Statement, and by reference to the Plan,
a copy of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Regional Fund shareholders should review the accompanying documents carefully in
connection with their review of this Prospectus/Proxy Statement.
PROPOSED REORGANIZATION
The Plan provides for (i) the acquisition of substantially all of the
assets and the assumption of all liabilities of Regional Fund by Large Cap Fund
in exchange for shares of common stock of Large Cap Fund having an aggregate net
asset value equal to the aggregate value of the assets acquired (less
liabilities assumed) of Regional Fund and (ii) the liquidation of Regional Fund
and the pro rata distribution of its holdings of Large Cap Fund shares
3
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to Regional Fund shareholders as of the effective time of the Reorganization
(the "Effective Time"). As a result of the Reorganization, each shareholder of
Regional Fund will receive Large Cap Fund shares with an aggregate net asset
value equal to the aggregate net asset value of the shareholder's Regional Fund
shares as of the Effective Time. See "Information About the Reorganization."
For the reasons set forth below under "Information About the
Reorganization -- Reasons for the Reorganization," the Board of Directors of Sit
Mutual Funds, including all of the "non-interested" directors, as that term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"), has concluded that the Reorganization would be in the best
interests of the shareholders of Regional Fund and that the interests of
Regional Fund's existing shareholders would not be diluted as a result of the
transactions contemplated by the Reorganization. Therefore, the Board of
Directors has approved the Reorganization and has submitted the Plan for
approval by Regional Fund shareholders.
The Board of Directors of Large Cap Fund also has concluded that the
Reorganization would be in the best interests of Large Cap Fund's existing
shareholders and has therefore approved the Reorganization on behalf of Large
Cap Fund.
Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares of Regional Fund.
TAX CONSEQUENCES
Prior to completion of the Reorganization, Regional Fund will have
received from counsel an opinion that, upon the Reorganization, no gain or loss
will be recognized by Regional Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of Large Cap Fund shares
that are received by each Regional Fund shareholder will be the same as the
holding period and aggregate tax basis of Regional Fund shares previously held
by those shareholders. In addition, the holding period and tax basis of the
assets of Regional Fund in the hands of Large Cap Fund as a result of the
Reorganization will be the same as in the hands of Regional Fund immediately
prior to the Reorganization. See "Information About the Reorganization --
Federal Income Tax Consequences."
INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
Regional Fund and Large Cap Fund are both diversified, open-end funds
with an investment objective of maximizing long-term capital appreciation. Both
Funds invest primarily in common stocks of growth-oriented companies that the
Adviser believes exhibit the potential for superior growth. However, the Funds'
investment strategies differ in other respects.
Regional Fund invests at least 80% of its total assets in common stocks
of companies with their headquarters in a midwest region comprised of Minnesota,
Iowa, Missouri, North Dakota, South Dakota, Nebraska, Kansas, Wisconsin,
Illinois, Michigan, Indiana and Ohio. Regional Fund's investments include stocks
of small, mid and large cap companies. Large Cap Fund invests at least 65% of
its total assets in the common stocks of domestic growth companies with
capitalizations of $5 billion or more at the time of purchase. Large Cap Fund
has no geographic restrictions on the companies in which it investments.
FEES AND EXPENSES
Each Fund is a party to a separate Investment Management Agreement with
the Adviser under which the Adviser manages the 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. The
investment advisory fees for the two Funds, calculated as a percentage of Fund
net assets, are 1.00% for Large Cap Fund and 1.25% for Regional Fund. Thus, if
the Reorganization is approved, shareholders will experience lower contractual
advisory fees as shareholders of Large Cap Fund. See "Fees and Expenses," above.
For the fiscal year ended June 30, 1999, the Adviser waived a portion of its fee
for Regional Fund, resulting in advisory fees equal to 1.00% of average daily
net assets for the fiscal year.
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However, the Adviser may discontinue voluntary waivers for Regional Fund at any
time after December 31, 2000, in its sole discretion.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
Shares of Large Cap Fund received by Regional Fund shareholders in the
Reorganization will be subject to the same purchase, exchange and redemption
procedures that currently apply to Regional Fund shares. These procedures are
discussed in the accompanying prospectus of Large Cap Fund and Regional Fund
under the caption "Shareholder Information."
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes an annual dividend from its net investment
income. Capital gains, if any, are distributed at least once a year by each
Fund. 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, for each Fund, shareholders may request
that distributions be automatically reinvested in another Sit Mutual Fund, or
paid in cash.
RISK FACTORS
Because each Fund invests primarily in common stocks, the risks of the
two Funds are similar. Principal risks that apply to both Funds are "stock
market risk" and "management risk." Because of its differing investment
strategies, Regional Fund is also subject to "smaller company risk" and "risk of
geographic limitation." Each of these risks is discussed below. All investments
carry some degree of risk which will affect the value of each Fund's investments
and investment performance and the price of its shares. IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN EITHER FUND.
Each Fund is subject to the following risks:
o 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/Proxy Statement,
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.
o MANAGEMENT RISK: A strategy used by the investment team may
not produce the intended results.
Regional Fund is subject to the following additional risks:
o SMALLER COMPANY 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 change in their earnings and prospects.
o RISK OF GEOGRAPHIC LIMITATION: Regional Fund's policy of
investing primarily in a midwest 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. Regional Fund therefore may be less
diversified by industry and company than other funds with a
similar investment objective and no geographic limitation, and
its value may be more susceptible to adverse developments in
that region than a more diversified fund.
5
<PAGE>
The investment securities and techniques of the Funds, and the risks
associated therewith, are described in more detail in the Statement of
Additional Information of the Funds.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
The Boards of Directors of both Regional Fund and Large Cap Fund,
including all of the "non-interested" directors, have determined that it is
advantageous to the respective Funds to combine Regional Fund with Large Cap
Fund. As discussed in detail below under "Information About Regional Fund and
Large Cap Fund," the Funds have identical investment objectives and similar
investment strategies. The Funds also have the same investment adviser (with the
same team of individuals managing both Funds) and the same distributor,
auditors, legal counsel, custodian and transfer agent.
Each Fund's Board of Directors has determined that the Reorganization
is expected to provide certain benefits to its Fund and is in the best interests
of that Fund and its shareholders. Each Board of Directors has also determined
that the interests of the existing shareholders of its Fund will not be diluted
as a result of the Reorganization. The Boards considered, among other things,
the following factors in making such determinations:
o The assessment of the Adviser that Regional Fund is unlikely
to grow to a size which is economically viable. The Board
considered the Adviser's assertion that the small size of the
Fund makes portfolio management difficult. The Fund cannot
maintain the level of investment diversification that the
Adviser desires, and the Fund's smaller size results in
increased transaction costs which reduce the return to
shareholders. As a much larger fund, Large Cap Fund is able to
achieve greater investment diversification and generally has
lower transaction costs.
o The Fund's midwestern geographic focus precludes the Fund from
taking advantage of a number of investment opportunities
available in other areas of the country. Large Cap Fund is not
subject to any geographic limitations on its investments.
o Regional Fund shareholders will experience a lower contractual
management fee as a result of the Reorganization and, because
the Adviser bears all Fund expenses (except interest,
brokerage commissions and transaction charges and certain
extraordinary expenses), lower total Fund operating expenses.
o The proposed Reorganization will be tax-free.
o The terms and conditions of the Plan, including that the
exchange of Regional Fund shares for Large Cap Fund shares
will take place on a net asset value basis and that expenses
of the Reorganization will be borne by the Adviser.
The Boards concluded that the factors noted above render the proposed
Reorganization fair to and in the best interests of shareholders of Regional
Fund and Large Cap Fund.
PLAN OF REORGANIZATION
The following summary of the proposed Plan and the Reorganization is
qualified in its entirety by reference to the Plan attached to this
Prospectus/Proxy Statement as Exhibit A. The Plan provides that, as of the
Effective Time, Large Cap Fund will acquire all or substantially all of the
assets and assume all liabilities of Regional Fund in exchange for Large Cap
Fund shares having an aggregate net asset value equal to the aggregate value of
the assets acquired (less liabilities assumed) from Regional Fund. For corporate
law purposes the transaction is structured as a sale of the assets and
assumption of the liabilities of Regional Fund in exchange for the issuance of
Large Cap Fund shares to Regional Fund, followed immediately by the distribution
of such Large Cap Fund shares to Regional Fund shareholders and the cancellation
and retirement of outstanding Regional Fund shares. This reallocation of assets
and liabilities and exchange of shares is accomplished under the Plan by
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<PAGE>
amending the articles of incorporation of Sit Mutual Funds in the manner set
forth in the amendment to Sit Mutual Funds' articles of incorporation included
as Exhibit 1 to the Plan attached hereto as Exhibit A.
Under the Plan, each holder of Regional Fund shares will receive, at
the Effective Time, Large Cap Fund shares with an aggregate net asset value
equal to the aggregate net asset value of Regional Fund shares owned by that
shareholder immediately prior to the Effective Time. The net asset value per
share of each Fund's shares will be computed as of the Effective Time using the
valuation procedures set forth in the respective Funds' articles of
incorporation and bylaws and then-current Prospectus and Statement of Additional
Information and as may be required by the Investment Company Act.
At the Effective Time, Large Cap Fund will issue to Regional Fund, and
Regional Fund will distribute to Regional Fund's shareholders of record,
determined as of the Effective Time, the Large Cap Fund shares issued in
exchange for Regional Fund assets as described above. All outstanding shares of
Regional Fund will then be canceled and retired and no additional shares
representing interests in Regional Fund will be issued thereafter, and Regional
Fund will be deemed to be liquidated. The distribution of Large Cap Fund shares
to former Regional Fund shareholders will be accomplished by the establishment
of accounts on the share records of Large Cap Fund in the names of Regional Fund
shareholders, each representing the numbers of full and fractional Large Cap
Fund shares due such shareholders.
Regional Fund contemplates that it will make a distribution,
immediately prior to the Effective Time, of all of its current year net income
and net realized capital gains, if any, not previously distributed. This
distribution will be taxable to Regional Fund shareholders subject to taxation.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including, among others:
o approval of the Plan by the shareholders of Regional Fund;
o the delivery of the opinion of counsel described below under
"--Federal Income Tax Consequences;"
o the accuracy as of the Effective Time of the representations
and warranties made by Regional Fund and Large Cap Fund in the
Plan; and
o the delivery of customary closing certificates.
See the Plan attached to this Prospectus/Proxy Statement as Exhibit A for a
complete listing of the conditions to the consummation of the Reorganization.
The Plan may be terminated and the Reorganization abandoned at any time prior to
the Effective Time, before or after approval by shareholders of Regional Fund,
by resolution of the Board of Directors of either Regional Fund or Large Cap
Fund, if circumstances should develop that, in the opinion of that Board, make
proceeding with the consummation of the Plan and Reorganization not in the best
interests of the respective Fund's shareholders.
The Plan provides that all expenses incurred in connection with the
Reorganization will be borne by the Adviser.
Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares of Regional Fund. If the Plan is not approved, the Boards
of Directors of the respective Funds will consider other possible courses of
action. Regional Fund shareholders are not entitled to assert dissenters' rights
of appraisal in connection with the Plan or Reorganization. See "Voting
Information -- No Dissenters' Rights of Appraisal" below.
DESCRIPTION OF LARGE CAP FUND AND REGIONAL FUND SHARES
Sit Mutual Funds offers its shares in a number of separate series, one
of which is Regional Fund. Each share of a series has one vote (with
proportionate voting for fractional shares) irrespective of the relative net
assets values of the series' shares. On some issues, such as the election of
directors, all shares of Sit Mutual Funds vote together as one series. On an
issue affecting only a particular series, such as the Reorganization, the shares
of the affected series vote separately. Large Cap Fund offers a single series of
shares, each of which has one vote, with
7
<PAGE>
proportionate voting for fractional shares. All Large Cap Fund shares issued in
the Reorganization will be fully paid and non-assessable and will not be
entitled to pre-emptive or cumulative voting rights.
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the exchange of Large Cap Fund shares for Regional
Fund's net assets and the distribution of those shares to Regional Fund's
shareholders upon liquidation of Regional Fund will be treated as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended (the "Code"),
and that, for federal income tax purposes, no income, gain or loss will be
recognized by Regional Fund's shareholders (except that Regional Fund
contemplates that it will make a distribution, immediately prior to the
Effective Time, of all of its current year net income and net realized capital
gains, if any, not previously distributed, and this distribution will be taxable
to Regional Fund shareholders subject to taxation). Regional Fund has not asked,
nor does it plan to ask, the Internal Revenue Service to rule on the tax
consequences of the Reorganization.
As a condition to the closing of the Reorganization, the two Funds will
receive an opinion from Dorsey & Whitney LLP, counsel to the Funds, based in
part on certain representations to be furnished by each Fund, substantially to
the effect that the federal income tax consequences of the Reorganization will
be as follows:
o the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and Large Cap
Fund and Regional Fund each will qualify as a party to the
Reorganization under Section 368(b) of the Code;
o Regional Fund shareholders will recognize no income, gain or
loss upon receipt, pursuant to the Reorganization, of Large
Cap Fund shares. Regional Fund shareholders subject to
taxation will recognize income upon receipt of any net
investment income or net capital gains of Regional Fund which
are distributed by Regional Fund prior to the Effective Time;
o the tax basis of the Large Cap Fund shares received by each
Regional Fund shareholder pursuant to the Reorganization will
be equal to the tax basis of Regional Fund shares exchanged
therefor;
o the holding period of the Large Cap Fund shares received by
each Regional Fund shareholder pursuant to the Reorganization
will include the period during which the Regional Fund
shareholder held the Regional Fund shares exchanged therefor,
provided that the Regional Fund shares were held as a capital
asset at the Effective Time;
o Regional Fund will recognize no income, gain or loss by reason
of the Reorganization;
o Large Cap Fund will recognize no income, gain or loss by
reason of the Reorganization;
o the tax basis of the assets received by Large Cap Fund
pursuant to the Reorganization will be the same as the basis
of those assets in the hands of Regional Fund as of the
Effective Time;
o the holding period of the assets received by Large Cap Fund
pursuant to the Reorganization will include the period during
which such assets were held by Regional Fund; and
o Large Cap Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of
Regional Fund as of the Effective Time.
Shareholders of Regional Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of Regional
Fund should consult their tax advisors as to state and local tax consequences,
if any, of the Reorganization.
8
<PAGE>
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of Regional Fund, including the "non-interested"
directors, recommends that shareholders of Regional Fund approve the Plan.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of Regional Fund.
INFORMATION ABOUT REGIONAL FUND AND LARGE CAP FUND
Information concerning Large Cap Fund and Regional Fund is incorporated
into this Prospectus/Proxy Statement by reference from their current Prospectus
dated November 1, 1999. That Prospectus accompanies this Prospectus/Proxy
Statement and forms part of the Registration Statements of Large Cap Fund and
Regional Fund on Form N-1A which have been filed with the Commission.
Large Cap Fund and Regional Fund are subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance with those requirements file reports and other information including
proxy materials, reports and charter documents with the Commission. These proxy
materials, reports and other information filed by Large Cap Fund and Regional
Fund can be inspected and copies obtained at the Public Reference Facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the New York Regional Office of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of these materials can also
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C. 20549
at prescribed rates. In addition, the Commission maintains a website that
contains reports and information regarding issuers that file electronically with
the Commission. The address of this site is "http://www.sec.gov."
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
The investment objective of each Fund is to maximize long-term capital
appreciation. The principal investment strategies that the Funds use to achieve
this objective differ in a number of respects.
Large Cap Fund seeks to achieve its objective by investing at least 65%
of its total assets in the common stocks of domestic growth companies with
capitalizations of $5 billion or more at the time of purchase.
Regional Fund seeks to achieve its objective by investing at least 80%
of its total assets in common stocks of companies with their headquarters in a
midwest region comprised of Minnesota, Iowa, Missouri, North Dakota, South
Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana and Ohio. The
Fund's investments will include stocks of small, mid and large cap companies.
Because of its geographic limitation and its ability to invest in stocks of
smaller companies, Regional Fund is subject to additional risks when compared to
Large Cap Fund. See "Risk Factors."
For each Fund, the Adviser invests in growth-oriented companies that it
believes exhibit the potential for superior growth. The Adviser believes that a
company's earning growth is the primary determinant of its potential long-term
return and evaluates a company's potential for above average long-term earnings
and revenue growth. Several factors are considered in the Adviser's evaluation
of a company, including:
o unique product or service,
o growing product demand,
o dominant and growing market share,
o management experience and capabilities, and
o strong financial condition.
When selling equity securities for either Fund, the Adviser considers several
factors, including changes in a company's fundamentals and anticipated earnings.
9
<PAGE>
The foregoing comparison is not a complete summary of the investment
policies and restrictions of Regional Fund or Large Cap Fund. For more
information on the investment policies and restrictions of the respective Funds,
see the Statement of Additional Information of the Funds.
CAPITALIZATION
The following table shows the capitalization of Regional Fund and of
Large Cap Fund as of December 31, 1999 and on a pro forma basis as of that date,
giving effect to the proposed Reorganization:
<TABLE>
<CAPTION>
(In thousands, except per share values)
REGIONAL LARGE CAP
FUND FUND PRO FORMA
---- ---- ---------
<S> <C> <C> <C>
Net assets........................................... $7,887 $164,033 $171.920
Net asset value per share............................ $14.19 $61.20 $61.20
Shares outstanding................................... 556 2,680 2,809
</TABLE>
VOTING INFORMATION
GENERAL
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of Regional Fund to be used at
the Special Meeting of Regional Fund shareholders to be held at ____ a.m.,
Central time, on _______________, 2000, at the offices of the Adviser, 4600
Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota and at any
adjournments thereof. Only shareholders of record as of the close of business on
_________________, 2000 (the "Record Date") will be entitled to notice of, and
to vote at, the Meeting or any adjournment thereof. If the enclosed form of
proxy is properly executed and returned on time to be voted at the Meeting, the
proxies named in the form of proxy will vote the shares represented by the proxy
in accordance with the instructions marked thereon. Unmarked proxies will be
voted "for" the proposed Plan and Reorganization. A proxy may be revoked by
giving written notice, in person or by mail, of revocation before the Meeting to
Regional Fund at its principal executive offices, 4600 Norwest Center, 90 South
Seventh Street, Minneapolis, Minnesota, or by properly executing and submitting
a later-dated proxy, or by voting in person at the Meeting.
If a shareholder executes and returns a proxy but abstains from voting,
the shares held by that shareholder will be deemed present at the Meeting for
purposes of determining a quorum and will be included in determining the total
number of votes cast. If a proxy is received from a broker or nominee indicating
that such person has not received instructions from the beneficial owner or
other person entitled to vote Regional Fund shares (i.e., a broker "non-vote"),
the shares represented by that proxy will not be considered present at the
Meeting for purposes of determining a quorum and will not be included in
determining the number of votes cast. Brokers and nominees will not have
discretionary authority to vote shares for which instructions are not received
from the beneficial owner.
Approval of the Plan and Reorganization will require the affirmative
vote described above under "Information About the Reorganization --
Recommendation and Vote Required."
As of ________________, 2000, Regional Fund had ____ shares outstanding
and entitled to vote at the Meeting. As of that date, the directors and officers
of Large Cap Fund as a group owned less than one percent of the outstanding
shares of such Fund, and the Fund knew of no person or entity which owned of
record or beneficially more than 5% of the Fund's outstanding shares. The
following table sets forth, as of that date, (i) share ownership of individual
directors and officers who own of record or beneficially more than one percent
of the outstanding shares of Regional Fund; (ii) share ownership of all
directors and officers as a group; and (iii) share ownership of those persons
known by Regional Fund to own of record or beneficially more than 5% of the
outstanding shares of such, including persons and entities who beneficially own
more than 25% of either Fund. The persons named below have both record and
beneficial ownership, and their address is 4600 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402:
10
<PAGE>
<TABLE>
<CAPTION>
REGIONAL FUND NUMBER OF
RECORD HOLDER SHARES PERCENTAGE OWNERSHIP
------------- ------ --------------------
<S> <C> <C>
Eugene C. Sit 6,217.313 1.27%
William B. Frenzel 8,136.697 1.67%
All officers and directors
as a group 14,354.010 2.94%
Sit Investment Associates,
Inc.* 92,026.235 18.85%
</TABLE>
---------------
* Includes shares owned by profit sharing plans of this and affiliated
companies.
Proxies are solicited by mail. Additional solicitations may be made by
telephone or personal contact by officers or employees of the Adviser and its
affiliates without cost to the Funds. In addition, the services of a third-
party proxy solicitation firm may be utilized, with that firm's fees and
expenses to be borne by the Adviser.
In the event that sufficient votes to approve the Plan and
Reorganization are not received by the date set for the Meeting, the persons
named as proxies may propose one or more adjournments of the Meeting for up to
120 days to permit further solicitation of proxies. In determining whether to
adjourn the Meeting, the following factors may be considered: the percentage of
votes actually cast, the percentage of negative votes actually cast, the nature
of any further solicitation and the information to be provided to shareholders
with respect to the reasons for the solicitation. Any such adjournment will
require the affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote at the Meeting. The persons named as proxies will
vote upon such adjournment after consideration of the best interests of all
shareholders.
INTERESTS OF CERTAIN PERSONS
The following person affiliated with the Funds receives payments from
Regional Fund and Large Cap Fund for services rendered pursuant to contractual
arrangements with the Funds: Sit Investment Associates, Inc., as the investment
adviser to each Fund, receives payments for its investment advisory and
management services.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Investment Company Act, Regional Fund shareholders are not
entitled to assert dissenters' rights of appraisal in connection with the Plan
of Reorganization.
FINANCIAL STATEMENTS AND EXPERTS
The audited statements of assets and liabilities, including the
schedules of investments in securities, of Regional Fund and of Large Cap Fund
as of June 30, 1999, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the periods indicated
therein, and the financial highlights for the periods indicated therein, as
included in the Annual Report of Regional Fund and Large Cap Fund for the fiscal
year ended June 30, 1999, have been incorporated by reference into the Statement
of Additional Information relating to this Prospectus/Proxy Statement in
reliance on the reports of KPMG LLP, independent auditors for the Funds, given
on the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of the shares of Large
Cap Fund to be issued in the Reorganization will be passed by Dorsey & Whitney
LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402.
11
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
SIT REGIONAL GROWTH FUND AND SIT LARGE CAP GROWTH FUND, INC.
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ____ day of _______, 2000, by and between Sit Mutual Funds, Inc. ("Sit
Funds"), a Minnesota corporation, on behalf of its series Sit Regional Growth
Fund ("Regional Fund"), and Sit Large Cap Growth Fund, Inc. ("Large Cap Fund"),
a Minnesota corporation. As used in this Agreement, the term "Regional Fund"
shall be construed to mean "Sit Funds on behalf of Regional Fund" where
necessary to reflect the fact that a corporate series is generally considered
the beneficiary of corporate level actions taken with respect to the series and
is not itself recognized as a person under law. The shares of Regional Fund are
designated in the amended and restated articles of incorporation of Sit Funds as
the Series F shares of Sit Funds.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation pursuant to Sections 368(a)(1)(C) and
368(a)(2)(G) of the United States Internal Revenue Code of 1986, as amended (the
"Code"). The reorganization (the "Reorganization") will consist of the transfer
of all or substantially all of the assets of Regional Fund to Large Cap Fund and
the assumption by Large Cap Fund of all of the liabilities of Regional Fund in
exchange solely for full and fractional shares of common stock, par value $.01
per share, of Large Cap Fund (the "Large Cap Fund Shares"), having an aggregate
net asset value equal to the aggregate value of the assets acquired (less
liabilities assumed) of Regional Fund, and the distribution of Large Cap Fund
Shares to the shareholders of Regional Fund in liquidation of Regional Fund as
provided herein, all upon the terms and conditions hereinafter set forth. The
distribution of Large Cap Fund Shares to Regional Fund shareholders and the
retirement and cancellation of Regional Fund shares will be effected pursuant to
an amendment to the Articles of Incorporation of Sit Funds in the form attached
hereto as Exhibit 1 (the "Amendment"), to be adopted by Sit Funds in accordance
with the Minnesota Business Corporation Act.
WITNESSETH:
WHEREAS, each of Sit Funds and Large Cap Fund is a registered, open-end
management investment company, with Sit Funds offering its shares of common
stock in multiple series (each of which series represents a separate and
distinct portfolio of assets and liabilities), one of those series being
Regional Fund, and Large Cap Fund offering its shares of common stock in a
single series;
WHEREAS, Regional Fund owns securities which generally are assets of
the character in which Large Cap Fund is permitted to invest; and
WHEREAS, the Board of Directors of each of Sit Funds and Large Cap Fund
has determined that the exchange of all or substantially all of the assets of
Regional Fund for Large Cap Fund Shares and the assumption of all of the
liabilities of Regional Fund by Large Cap Fund is in the best interests of the
shareholders of Regional Fund and Large Cap Fund, respectively.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto covenant and agree as follows:
1. TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF REGIONAL FUND TO
LARGE CAP FUND SOLELY IN EXCHANGE FOR LARGE CAP FUND SHARES, THE
ASSUMPTION OF ALL REGIONAL FUND LIABILITIES AND THE LIQUIDATION OF
REGIONAL FUND
1.1 Subject to the requisite approval by Regional Fund shareholders and
to the other terms and conditions set forth herein and on the basis of the
representations and warranties contained herein, Regional Fund agrees to
transfer all or substantially all of Regional Fund's assets as set forth in
Section 1.2 to Large Cap Fund, and Large Cap Fund agrees in exchange therefor
(a) to deliver to Regional Fund that number of full and fractional Large Cap
A-1
<PAGE>
Fund Shares determined in accordance with Article 2, and (b) to assume all of
the liabilities of Regional Fund, as set forth in Section 1.3. Such transactions
shall take place as of the effective time provided for in Section 3.1 (the
"Effective Time").
1.2 (a) The assets of Regional Fund to be acquired by Large Cap Fund
shall consist of all or substantially all of Regional Fund's property,
including, but not limited to, all cash, securities, commodities, futures, and
interest and dividends receivable which are owned by Regional Fund as of the
Effective Time. All of said assets shall be set forth in detail in an unaudited
statement of assets and liabilities of Regional Fund as of the Effective Time
(the "Effective Time Statement"). The Effective Time Statement shall, with
respect to the listing of Regional Fund's portfolio securities, detail the
adjusted tax basis of such securities by lot, the respective holding periods of
such securities and the current and accumulated earnings and profits of Regional
Fund. The Effective Time Statement shall be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied from the prior audited period.
(b) Regional Fund has provided Large Cap Fund with a list of all of
Regional Fund's assets as of the date of execution of this Agreement. Regional
Fund reserves the right to sell any of these securities in the ordinary course
of its business and, subject to Section 5.1, to acquire additional securities in
the ordinary course of its business.
1.3 Large Cap Fund shall assume all of the liabilities, expenses,
costs, charges and reserves (including, but not limited to, expenses incurred in
the ordinary course of Regional Fund's operations, such as accounts payable
relating to custodian fees, investment management and administrative fees, legal
and audit fees, and expenses of state securities registration of Regional Fund's
shares), including those reflected in the Effective Time Statement.
1.4 Immediately after the transfer of assets provided for in Section
1.1 and the assumption of liabilities provided for in Section 1.3, and pursuant
to the plan of reorganization adopted herein, Regional Fund will distribute pro
rata (as provided in Article 2) to Regional Fund's shareholders of record,
determined as of the Effective Time (the "Regional Fund Shareholders"), the
Large Cap Fund Shares received by Regional Fund pursuant to Section 1.1, and all
other assets of Regional Fund, if any. Thereafter, no additional shares
representing interests in Regional Fund shall be issued. Such distribution will
be accomplished by the transfer of the Large Cap Fund Shares then credited to
the account of Regional Fund on the books of Large Cap Fund to open accounts on
the share records of Large Cap Fund in the names of Regional Fund shareholders
representing the numbers and classes of Large Cap Fund Shares due each such
shareholder. All issued and outstanding shares of Regional Fund will
simultaneously be canceled on the books of Regional Fund, although share
certificates representing interests in Regional Fund will represent those
numbers and classes of Large Cap Fund Shares after the Effective Time as
determined in accordance with Article 2. Unless requested by Regional Fund
Shareholders, Large Cap Fund will not issue certificates representing Large Cap
Fund Shares issued in connection with such exchange.
1.5 Ownership of Large Cap Fund Shares will be shown on the books of
Large Cap Fund. Large Cap Fund Shares will be issued in the manner described in
Large Cap Fund's Prospectus and Statement of Additional Information as in effect
as of the Effective Time.
1.6 Any reporting responsibility of Regional Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain the
responsibility of Regional Fund.
2. VALUATION; ISSUANCE OF LARGE CAP FUND SHARES
2.1 The net asset value per share of Regional Fund's shares shall be
computed as of the Effective Time using the valuation procedures set forth in
its articles of incorporation and bylaws, its then-current Prospectus and
Statement of Additional Information, and as may be required by the Investment
Company Act of 1940, as amended (the "1940 Act").
A-2
<PAGE>
2.2 The total number of Large Cap Fund shares to be issued (including
fractional shares, if any) in exchange for the assets and liabilities of
Regional Fund shall be determined as of the Effective Time by multiplying the
number of Regional Fund shares outstanding immediately prior to the Effective
Time by a fraction, the numerator of which is the net asset value per share of
Regional Fund's shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of Large Cap Fund's shares
immediately prior to the Effective Time, each as determined pursuant to Section
2.1.
2.3 Immediately after the Effective Time, Regional Fund shall
distribute to Regional Fund Shareholders in liquidation of Regional Fund pro
rata (based upon the ratio that the number of Regional Fund shares owned by each
Regional Fund Shareholder immediately prior to the Effective Time bears to the
total number of issued and outstanding Regional Fund shares immediately prior to
the Effective Time) the full and fractional Large Cap Fund Shares received by
Regional Fund pursuant to Section 2.2. Accordingly, each Regional Fund
Shareholder shall receive, immediately after the Effective Time, Large Cap Fund
shares with an aggregate net asset value equal to the aggregate net asset value
of the Regional Fund shares owned by such Regional Fund Shareholder immediately
prior to the Effective Time.
3. EFFECTIVE TIME; CLOSING
3.1 The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur as of the close of normal trading on the New York Stock
Exchange (the "Exchange") (currently, 4:00 p.m. Eastern time) on the first day
upon which the conditions to closing shall have been satisfied (but not prior to
, 2000), or at such time on such later date as provided herein or as the parties
otherwise may agree in writing (such time and date being referred to herein as
the "Effective Time"). All acts taking place at the Closing shall be deemed to
take place simultaneously as of the Effective Time unless otherwise agreed to by
the parties. The Closing shall be held at the offices of Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, Minnesota 55402, or at such other place as
the parties may agree.
3.2 Regional Fund shall deliver at the Closing its written instructions
to the custodian for Regional Fund, acknowledged and agreed to in writing by
such custodian, irrevocably instructing such custodian to transfer to Large Cap
Fund all of Regional Fund's portfolio securities, cash, and any other assets to
be acquired by Large Cap Fund pursuant to this Agreement.
3.3 In the event that the Effective Time occurs on a day on which (a)
the Exchange or another primary trading market for portfolio securities of Large
Cap Fund or Regional Fund shall be closed to trading or trading thereon shall be
restricted, or (b) trading or the reporting of trading on the Exchange or
elsewhere shall be disrupted so that accurate appraisal of the value of the net
assets of Large Cap Fund or Regional Fund is impracticable, the Effective Time
shall be postponed until the close of normal trading on the Exchange on the
first business day when trading shall have been fully resumed and reporting
shall have been restored.
3.4 Regional Fund shall deliver at the Closing its certificate stating
that the records maintained by its transfer agent (which shall be made available
to Large Cap Fund) contain the names and addresses of Regional Fund shareholders
and the number of outstanding Regional Fund shares owned by each such
shareholder as of the Effective Time. Large Cap Fund shall certify at the
Closing that Large Cap Fund Shares required to be issued by it pursuant to this
Agreement have been issued and delivered as required herein.
3.5 At the Closing, each party to this Agreement shall deliver to the
other such bills of sale, liability assumption agreements, checks, assignments,
share certificates, if any, receipts or other similar documents as such other
party or its counsel may reasonably request.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 Sit Funds represents, warrants and covenants to Large Cap Fund as
follows:
(a) Sit Funds is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota;
A-3
<PAGE>
(b) Sit Funds is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and of each series of
shares offered by Sit Funds under the Securities Act of 1933, as amended (the
"1933 Act"), is in full force and effect;
(c) All of the issued and outstanding shares of common stock of
Regional Fund have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state securities
laws. Shares of Regional Fund are registered in all jurisdictions in which they
are required to be registered under state securities laws and other laws, and
Sit Funds is not subject to any stop order and is fully qualified to sell
Regional Fund shares in each state in which such shares have been registered;
(d) The Prospectus and Statement of Additional Information of Regional
Fund, as of the date hereof and up to and including the Effective Time, conform
and will conform in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(e) Regional Fund is not, and the execution, delivery and performance
of this Agreement will not result, in a violation of Sit Fund's articles of
incorporation or bylaws or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which Regional Fund is a party or by
which it is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to the best of Regional Fund's knowledge, threatened against Regional Fund
or any of its properties or assets. Regional Fund is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(g) Regional Fund's Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets and Financial Highlights as of
June 30, 1999 and for the year then ended, certified by KPMG LLP, and Regional
Fund's unaudited Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of December 31,
1999 and for the six-month period then ended (copies of which have been
furnished to Large Cap Fund) fairly present, in all material respects, Regional
Fund's financial condition as of such dates, and its results of operations,
changes in its net assets and financial highlights for such periods in
accordance with generally accepted accounting principles, and as of such dates
there were no known liabilities of Regional Fund (contingent or otherwise) not
disclosed therein that would be required in accordance with generally accepted
accounting principles to be disclosed therein;
(h) Since the date of the most recent unaudited financial statements,
there has not been any material adverse change in Regional Fund's financial
condition, assets, liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by Regional Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred, except
as otherwise disclosed in writing to and acknowledged by Large Cap Fund prior to
the date of this Agreement and prior to the Closing Date. All liabilities of
Regional Fund (contingent and otherwise) are reflected in the Valuation Date
Statement. For the purpose of this subparagraph (h), neither a decline in
Regional Fund's net asset value per share nor a decrease in Regional Fund's size
due to redemptions by Regional Fund shareholders shall constitute a material
adverse change;
(i) All material federal and other tax returns and reports of Regional
Fund required by law to have been filed prior to the Effective Time shall have
been filed and shall be correct, and all federal and other taxes shown as due or
required to be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the best of
Regional Fund's knowledge, no such return is currently under audit and no
assessment shall have been asserted with respect to such returns;
(j) For each taxable year of its operation, Regional Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company, and Regional Fund intends to meet the
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requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company for its final, partial taxable year;
(k) All issued and outstanding shares of Regional Fund are, and at the
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable, and were offered for sale and sold in conformity with the
registration requirements of all applicable federal and state securities laws.
All of the issued and outstanding shares of Regional Fund will, at the Effective
Time, be held by the persons and in the amounts set forth in the records of
Regional Fund, as provided in Section 3.4. Regional Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any Regional Fund shares, and there is not outstanding any security convertible
into any Regional Fund shares;
(l) At the Effective Time, Regional Fund will have good and marketable
title to Regional Fund's assets to be transferred to Large Cap Fund pursuant to
Section 1.2 and full right, power, and authority to sell, assign, transfer and
deliver such assets hereunder, and upon delivery of and payment for such assets,
Large Cap Fund will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including such restrictions as might
arise under the 1933 Act other than as disclosed to Large Cap Fund in the
Effective Time Statement;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of Sit Fund's Board of Directors, and, subject to the approval of Regional
Fund shareholders, this Agreement will constitute a valid and binding obligation
of Regional Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws relating to or affecting creditors' rights and to the
application of equitable principles in any proceeding, whether at law or in
equity;
(n) The information to be furnished by and on behalf of Regional Fund
for use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby shall
be accurate and complete in all material respects;
(o) All information pertaining to Regional Fund, its agents and
affiliates and included in the Registration Statement referred to in Section 5.5
(or supplied by Regional Fund or its agents or affiliates for inclusion in said
Registration Statement), on the effective date of said Registration Statement
and up to and including the Effective Time, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially misleading
(other than as may timely be remedied by further appropriate disclosure);
(p) Since the end of Regional Fund's most recently concluded fiscal
year, there have been no material changes by Regional Fund in accounting
methods, principles or practices, including those required by generally accepted
accounting principles, except as disclosed in writing to Large Cap Fund; and
(q) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied and will present accurately the assets and liabilities of Regional Fund
as of the Effective Time, and the values of Regional Fund's assets and
liabilities to be set forth in the Effective Time Statement will be computed as
of the Effective Time using the valuation procedures set forth in Regional
Fund's articles of incorporation and bylaws, its then-current Prospectus and
Statement of Additional Information, and as may be required by the 1940 Act. At
the Effective Time, Regional Fund will have no liabilities, whether absolute or
contingent, known or unknown, accrued or unaccrued, which are not reflected in
the Effective Time Statement.
4.2 Large Cap Fund represents, warrants and covenants to Regional Fund
as follows:
(a) Large Cap Fund is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota;
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(b) Large Cap Fund is a registered investment company classified as a
management company of the open- end type, and its registration with the
Commission as an investment company under the 1940 Act, and of its shares under
the 1933 Act, is in full force and effect;
(c) All of the issued and outstanding shares of common stock of Large
Cap Fund have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities laws.
Shares of Large Cap Fund are registered in all jurisdictions in which they are
required to be registered under state securities laws and other laws, and Large
Cap Fund is not subject to any stop order and is fully qualified to sell Large
Cap Fund shares in each state in which such shares have been registered;
(d) The Prospectus and Statement of Additional Information of Large Cap
Fund, as of the date hereof and up to and including the Effective Time, conform
and will conform in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(e) Large Cap Fund is not, and the execution, delivery and performance
of this Agreement will not result, in a violation of its articles of
incorporation or bylaws or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which it is a party or by which it is
bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or, to the best of Large Cap Fund's knowledge, threatened against Large Cap Fund
or any of its properties or assets. Large Cap Fund is not a party to or subject
to the provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(g) Large Cap Fund's Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets and Financial Highlights as of
June 30, 1999, and for the year then ended, certified by KPMG LLP, and Large Cap
Fund's unaudited Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of December 31,
1999 and for the six-month period then ended (copies of which have been
furnished to Regional Fund), fairly present, in all material respects, Large Cap
Fund's financial condition as of such dates in accordance with generally
accepted accounting principles, and its results of operations, changes in its
net assets and financial highlights for such periods, and as of such dates there
were no known liabilities of Large Cap Fund (contingent or otherwise) not
disclosed therein that would be required in accordance with generally accepted
accounting principles to be disclosed therein;
(h) Since the date of the most recent unaudited financial statements,
there has not been any material adverse change in Large Cap Fund's financial
condition, assets, liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by Large Cap Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred, except
indebtedness incurred in the ordinary course of business. For the purpose of
this subparagraph (h), neither a decline in Large Cap Fund's net asset value per
share nor a decrease in Large Cap Fund's size due to redemptions by Large Cap
Fund shareholders shall constitute a material adverse change;
(i) All material federal and other tax returns and reports of Large Cap
Fund required by law to have been filed prior to the Effective Time shall have
been filed and shall be correct, and all federal and other taxes shown as due or
required to be shown as due on said returns and reports shall have been paid or
provision shall have been made for the payment thereof, and, to the best of
Large Cap Fund's knowledge, no such return is currently under audit and no
assessment shall have been asserted with respect to such returns;
(j) For each taxable year of its operation, Large Cap Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company, and Large Cap Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company in the current and future years;
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(k) All issued and outstanding shares of Large Cap Fund are, and at the
Effective Time will be, duly and validly issued and outstanding, fully paid and
non-assessable, and were offered for sale and sold in conformity with the
registration requirements of all applicable federal and state securities laws.
Large Cap Fund Shares to be issued and delivered to Regional Fund for the
account of Regional Fund Shareholders, pursuant to the terms of this Agreement,
at the Effective Time will have been duly authorized and, when so issued and
delivered, will be duly and validly issued and outstanding, fully paid and
non-assessable. Large Cap Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any Large Cap Fund shares, and
there is not outstanding any security convertible into any Large Cap Fund
shares;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on the
part of Large Cap Fund's Board of Directors, and at the Effective Time this
Agreement will constitute a valid and binding obligation of Large Cap Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws relating to or affecting creditors' rights and to the application of
equitable principles in any proceeding, whether at law or in equity.
Consummation of the transactions contemplated by this Agreement does not require
the approval of Large Cap Fund's shareholders;
(m) The information to be furnished by and on behalf of Large Cap Fund
for use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby shall
be accurate and complete in all material respects;
(n) Since the end of Large Cap Fund's most recently concluded fiscal
year, there have been no material changes by Large Cap Fund in accounting
methods, principles or practices, including those required by generally accepted
accounting principles, except as disclosed in writing to Regional Fund; and
(o) The Registration Statement referred to in Section 5.5, on its
effective date and up to and including the Effective Time, will (i) conform in
all material respects to the applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act
and the rules and regulations of the Commission thereunder, and (ii) not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
misleading (other than as may timely be remedied by further appropriate
disclosure); provided, however, that the representations and warranties in
clause (ii) of this paragraph shall not apply to statements in (or omissions
from) the Registration Statement concerning Regional Fund, its agents and
affiliates (or supplied by Regional Fund, its agents or affiliates for inclusion
in said Registration Statement).
5. FURTHER COVENANTS OF LARGE CAP FUND AND REGIONAL FUND
5.1 Each of Regional Fund and Large Cap Fund will operate its business
in the ordinary course between the date hereof and the Effective Time, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, and any other
distributions that may be advisable (which may include distributions prior to
the Effective Time of net income and/or net realized capital gains not
previously distributed). Regional Fund agrees that, through the Effective Time,
it will not acquire any securities which are not permissible investments for
Large Cap Fund.
5.2 Regional Fund will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3 Regional Fund will assist Large Cap Fund in obtaining such
information as Large Cap Fund reasonably requests concerning the beneficial
ownership of Regional Fund shares.
5.4 Subject to the provisions of this Agreement, Large Cap Fund and
Regional Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
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5.5 Regional Fund will provide Large Cap Fund with information
reasonably necessary with respect to Regional Fund and its agents and affiliates
for the preparation of the Registration Statement on Form N-14 of Large Cap Fund
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act.
5.6 Large Cap Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such
state blue sky or securities laws as may be necessary in order to conduct its
operations after the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF REGIONAL FUND
The obligations of Regional Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Large Cap Fund of all the obligations to be performed by it hereunder at or
before the Effective Time, and, in addition thereto, the following further
conditions (any of which may be waived by Regional Fund, in its sole and
absolute discretion):
6.1 All representations and warranties of Large Cap Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
6.2 Large Cap Fund shall have delivered to Regional Fund a certificate
executed in its name by its President or a Vice President, in a form reasonably
satisfactory to Regional Fund and dated as of the date of the Closing, to the
effect that the representations and warranties of Large Cap Fund made in this
Agreement are true and correct at the Effective Time, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as Regional Fund shall reasonably request; and
6.3 Large Cap Fund shall have delivered to Regional Fund the
certificate as to the issuance of Large Cap Fund shares contemplated by the
second sentence of Section 3.4.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF LARGE CAP FUND
The obligations of Large Cap Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Regional Fund of all of the obligations to be performed by it hereunder at or
before the Effective Time and, in addition thereto, the following conditions
(any of which may be waived by Large Cap Fund, in its sole and absolute
discretion):
7.1 All representations and warranties of Regional Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
7.2 Large Cap Fund shall have received, and certified as to its receipt
of, the Effective Time Statement;
7.3 Regional Fund shall have delivered to Large Cap Fund a certificate
executed in the name of Sit Funds by Sit Funds' President or a Vice President,
in a form reasonably satisfactory to Large Cap Fund and dated as of the date of
the Closing, to the effect that the representations and warranties of Sit Fund
and Regional Fund made in this Agreement are true and correct at the Effective
Time, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as Large Cap Fund shall reasonably
request;
7.4 Regional Fund shall have delivered to Large Cap Fund the written
instructions to the custodian for Regional Fund contemplated by Section 3.2;
7.5 Regional Fund shall have delivered to Large Cap Fund the
certificate as to its shareholder records contemplated by the first sentence of
Section 3.4;
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7.6 At or prior to the Effective Time, Regional Fund's investment
adviser, or an affiliate thereof, shall have reimbursed Regional Fund by the
amount, if any, that the expenses incurred by Regional Fund (or accrued up to
the Effective Time) exceed any applicable contractual expense limitations; and
7.7 Immediately prior to the Effective Time, Regional Fund shall not
hold any securities which are not permissible investments for Large Cap Fund.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF LARGE CAP FUND AND
REGIONAL FUND
The following shall constitute further conditions precedent to the
consummation of the Reorganization:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
Regional Fund in accordance with the provisions of Sit Funds' articles of
incorporation and bylaws and applicable law, and certified copies of the
resolutions evidencing such approval shall have been delivered to Large Cap
Fund. Notwithstanding anything herein to the contrary, neither Large Cap Fund
nor Regional Fund may waive the conditions set forth in this Section 8.1;
8.2 As of the Effective Time, no action, suit or other proceeding shall
be threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities deemed necessary by
Large Cap Fund or Regional Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of Large
Cap Fund or Regional Fund, provided that either party hereto may for itself
waive any of such conditions;
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop order suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act;
8.5 The parties shall have received the opinion of Dorsey & Whitney LLP
addressed to Sit Funds and Large Cap Fund, dated as of the date of the Closing,
and based in part on certain representations to be furnished by Sit Funds, Large
Cap Fund, and their investment adviser and other service providers,
substantially to the effect that:
(i) the Reorganization will constitute a reorganization within
the meaning of Section 368(a)(1)(C) of the Code, and Large Cap Fund and
Regional Fund each will qualify as a party to the Reorganization under
Section 368(b) of the Code;
(ii) Regional Fund shareholders will recognize no income, gain
or loss upon receipt, pursuant to the Reorganization, of Large Cap Fund
Shares. Regional Fund shareholders subject to taxation will recognize
income upon receipt of any net investment income or net capital gains
of Regional Fund which are distributed by Regional Fund prior to the
Effective Time;
(iii) the tax basis of the Large Cap Fund Shares received by
each Regional Fund shareholder pursuant to the Reorganization will be
equal to the tax basis of Regional Fund shares exchanged therefor;
(iv) the holding period of the Large Cap Fund Shares received
by each Regional Fund shareholder pursuant to the Reorganization will
include the period during which the Regional Fund shareholder held the
Regional Fund shares exchanged therefor, provided that the Regional
Fund shares were held as a capital asset at the Effective Time;
(v) Regional Fund will recognize no income, gain or loss by
reason of the Reorganization;
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(vi) Large Cap Fund will recognize no income, gain or loss by
reason of the Reorganization;
(vii) the tax basis of the assets received by Large Cap Fund
pursuant to the Reorganization will be the same as the basis of those
assets in the hands of Regional Fund as of the Effective Time;
(viii) the holding period of the assets received by Large Cap
Fund pursuant to the Reorganization will include the period during
which such assets were held by Regional Fund; and
(ix) Large Cap Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of Regional
Fund as of the Effective Time.
Notwithstanding anything herein to the contrary, neither Large
Cap Fund nor Regional Fund may waive the condition set forth in this paragraph
8.5.
8.6 The Amendment shall have been filed in accordance with applicable
provisions of Minnesota law.
9. EXPENSES
All expenses incurred by the parties hereto in connection with the
transactions contemplated hereby (including, without limitation, the fees and
expenses associated with the preparation and filing of the Registration
Statement referred to in Section 5.5 above and the expenses of printing and
mailing the prospectus/proxy statement, soliciting proxies and holding the
Regional Fund shareholders meeting required to approve the transactions
contemplated hereby) shall be borne by Sit Investment Associates, Inc.
10. ENTIRE AGREEMENT; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 Large Cap Fund and Regional Fund agree that neither party has made
any representation, warranty, covenant or agreement not set forth herein and
that this Agreement constitutes the entire agreement between the parties.
10.2 The representations and warranties contained in this Agreement or
in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereby.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be
terminated and abandoned by either party by resolution of the party's board of
directors at any time prior to the Effective Time, if circumstances should
develop that, in the good faith opinion of such board, make proceeding with this
Agreement and such transactions not in the best interest of the applicable
party's shareholders.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of Sit
Funds and Large Cap Fund; provided, however, that following the meeting of
Regional Fund shareholders called by Regional Fund pursuant to Section 5.2 of
this Agreement, no such amendment may have the effect of changing the provisions
for determining the number of Large Cap Fund Shares to be issued to Regional
Fund shareholders under this Agreement to the detriment of such shareholders
without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered or mailed by registered mail, postage prepaid, addressed to Large
Cap Fund or Regional Fund, 4600 Norwest Center, Minneapolis, MN 55402.
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14. HEADINGS; COUNTERPARTS; ASSIGNMENT; MISCELLANEOUS
14.1 The Article and Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same agreement.
14.3 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
either party without the prior written consent of the other party. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
14 .4 The validity, interpretation and effect of this Agreement shall
be governed exclusively by the laws of the State of Minnesota, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or Vice President.
SIT MUTUAL FUNDS, INC.
ON BEHALF OF SIT REGIONAL GROWTH FUND
By______________________________
Its_____________________________
SIT LARGE CAP GROWTH FUND, INC.
By______________________________
Its_____________________________
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EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SIT MUTUAL FUNDS, INC.
The undersigned officer of Sit Mutual Funds, Inc. ("Sit Funds"), a
corporation subject to the provisions of Chapter 302A of the Minnesota statutes,
hereby certifies that Sit Fund's (a) Board of Directors, at a meeting held
February 20, 2000, and (b) shareholders, at a meeting held _____________, 2000,
adopted the resolutions hereinafter set forth; and such officer further
certifies that the amendments to Sit Fund's Articles of Incorporation set forth
in such resolutions were adopted pursuant to Chapter 302A.
WHEREAS, Sit Funds is registered as an open-end management investment
company (I.E., a mutual fund) under the Investment Company Act of 1940 and
offers its shares to the public in more than one series, each of which
represents a separate and distinct portfolio of assets;
WHEREAS, it is desirable and in the best interest of the holders of the
Sit Regional Growth Fund ("Regional Fund"), a series of Sit Funds, that the
assets belonging to such series, subject to its stated liabilities, be sold to
Sit Large Cap Growth Fund, Inc. ("Growth Fund"), a Minnesota corporation and an
open-end management investment company registered under the Investment Company
Act of 1940, in exchange for shares of Growth Fund;
WHEREAS, Sit Funds wishes to provide for the PRO RATA distribution of
such shares of Growth Fund received by it to holders of shares of Regional Fund
and the simultaneous cancellation and retirement of the outstanding shares of
Regional Fund;
WHEREAS, Sit Funds and Growth Fund have entered into an Agreement and
Plan of Reorganization providing for the foregoing transactions; and
WHEREAS, the Agreement and Plan of Reorganization requires that, in
order to bind all shareholders of Regional Fund to the foregoing transactions,
and in particular to bind such shareholders to the cancellation and retirement
of the outstanding shares of Regional Fund, it is necessary to adopt an
amendment to Sit Fund's Amended and Restated Articles of Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that Sit Fund's Amended and Restated
Articles of Incorporation be, and the same hereby are, amended to add the
following Article 5A immediately following Article 5 thereof:
5A. (a) For purposes of this Article 5A, the following terms
shall have the following meanings:
"SIT FUNDS" means the Corporation.
"ACQUIRED FUND" means Sit Regional Growth Fund, the Series F
Shares of the Corporation.
"ACQUIRING FUND" means Sit Large Cap Growth Fund, Inc., a
Minnesota corporation.
"VALUATION DATE" means the day established in the Agreement
and Plan of Reorganization as the day upon which the value of the
Acquired Fund's assets is determined for purposes of the
reorganization.
"CLOSING DATE" means 5:00 p.m., Eastern time, on the Valuation
Date or such other date and time upon which Sit Funds and the Acquiring
Fund agree.
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(b) At the Closing Date, the assets belonging to the Acquired
Fund, the Special Liabilities associated with such assets, and the
General Assets and General Liabilities allocated to the Acquired Fund
shall be sold to and assumed by the Acquiring Fund in return for
Acquiring Fund shares, all pursuant to the Agreement and Plan of
Reorganization. For purposes of the foregoing, the terms "Assets
belonging to," "Special Liabilities," "General Assets" and "General
Liabilities" have the meanings assigned to them in Article 7(b), (c)
and (d) of Sit Fund's Articles of Incorporation.
(c) The number of Acquiring Fund shares to be received by the
Acquired Fund and distributed by it to the Acquired Fund shareholders
shall be determined as follows:
(i) The value of the Acquired Fund's assets and the
net asset value per share of the Acquiring Fund's shares shall
be computed as of the Valuation Date using the valuation
procedures set forth in the Acquiring Fund's then-current
Prospectus and Statement of Additional Information, and as may
be required by the Investment Company Act of 1940, as amended
(the "1940 Act").
(ii) The total number of Acquiring Fund shares to be
issued (including fractional shares, if any) in exchange for
assets and liabilities of the Acquired Fund shall be
determined as of the Valuation Date by dividing the value of
the Acquired Fund's assets, net of its stated liabilities on
the Closing Date to be assumed by the Acquiring Fund, by the
net asset value of the Acquiring Fund's shares, each as
determined pursuant to (i) above.
(iii) On the Closing Date, or as soon as practicable
thereafter, the Acquired Fund shall distribute PRO RATA to its
shareholders of record as of the Valuation Date the full and
fractional Acquiring Fund shares received by the Acquired Fund
pursuant to (ii) above.
(d) The distribution of Acquiring Fund shares to Acquired Fund
shareholders provided for in paragraph (c) above shall be accomplished
by an instruction, signed by Sit Fund's Secretary, to transfer
Acquiring Fund shares then credited to the Acquired Fund's account on
the books of the Acquiring Fund to open accounts on the books of the
Acquiring Fund in the names of the Acquired Fund shareholders in
amounts representing the respective PRO RATA number of Acquiring Fund
shares due each such shareholder pursuant to the foregoing provisions.
All issued and outstanding shares of the Acquired Fund shall
simultaneously be canceled on the books of the Acquired Fund and
retired.
(e) From and after the Closing Date, the Acquired Fund shares
canceled and retired pursuant to paragraph (d) above shall have the
status of authorized and unissued Shares of Sit Fund, without
designation as to series.
IN WITNESS WHEREOF, the undersigned officer of Sit Funds has executed
these Articles of Amendment on behalf of Sit Funds on __________, 2000.
SIT MUTUAL FUNDS, INC.
By______________________________
Its_____________________________
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PROSPECTUS /PROXY STATEMENT
__________, 2000
PROPOSED ACQUISITION OF ASSETS OF
SIT REGIONAL GROWTH FUND
A SEPARATELY MANAGED SERIES OF
SIT MUTUAL FUNDS, INC.
BY AND IN EXCHANGE FOR SHARES OF
SIT LARGE CAP GROWTH FUND, INC.
=======================================================
TABLE OF CONTENTS
=======================================================
PAGE
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FEES AND EXPENSES.....................................
SUMMARY...............................................
RISK FACTORS..........................................
INFORMATION ABOUT THE REORGANIZATION..................
INFORMATION ABOUT REGIONAL FUND AND
LARGE CAP FUND...................................
VOTING INFORMATION....................................
FINANCIAL STATEMENTS AND EXPERTS......................
LEGAL MATTERS.........................................
EXHIBIT A -- AGREEMENT AND PLAN OF
REORGANIZATION
=======================================================
THE FOLLOWING DOCUMENTS ACCOMPANY THIS PROSPECTUS/PROXY
STATEMENT:
PROSPECTUS DATED NOVEMBER 1, 1999 OF SIT REGIONAL GROWTH
FUND AND SIT LARGE CAP GROWTH FUND
ANNUAL REPORT OF SIT REGIONAL GROWTH FUND AND SIT LARGE
CAP GROWTH FUND FOR THE FISCAL YEAR ENDED JUNE 30, 1999
<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
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FUND SUMMARIES
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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
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Investment Adviser #
Investment Sub-Adviser #
Portfolio Management #
Distributor #
Custodian and Transfer Agent #
SHAREHOLDER INFORMATION
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Share Price #
When Orders are Effective #
Purchasing Shares #
Exchanging Shares #
Selling Shares #
Dividends and Distributions #
Retirement and other Tax-Deferred Accounts #
Taxes #
ADDITIONAL INFORMATION
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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>
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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>
STOCK FUNDS ANNUAL REPORT
YEAR ENDED JUNE 30, 1999
A FAMILY OF 100% NO-LOAD FUNDS
------------------------------
LARGE CAP GROWTH FUND
MID CAP GROWTH FUND
SMALL CAP GROWTH FUND
BALANCED FUND
INTERNATIONAL GROWTH FUND
DEVELOPING MARKETS GROWTH FUND
REGIONAL GROWTH FUND
SCIENCE AND TECHNOLOGY GROWTH FUND
[LOGO]
SIT MUTUAL FUNDS
----------------
THE INVESTMENT IS MUTUAL(SM)
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds are managed by Sit Investment Associates, Inc. Sit
Investment Associates was founded by Eugene C. Sit in July 1981 and is dedicated
to a single purpose, to be one of the premier investment management firms in the
United States. Sit Investment Associates currently manages approximately $7
billion for some of America's largest corporations, foundations and endowments.
Sit Mutual Funds are comprised of thirteen NO-LOAD funds. NO-LOAD means
that Sit Mutual Funds have no sales charges on purchases, no deferred sales
charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar
you invest goes to work for you.
Sit Mutual Funds offer:
* Free telephone exchange
* Dollar-cost averaging through an automatic investment plan
* Electronic transfer for purchases and redemptions
* Free check writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) Plans
SIT FAMILY OF FUNDS
[GRAPH]
STABILITY: INCOME: GROWTH: HIGH GROWTH:
Safety of principal Increased income Long-term capital Long-term capital
and current income appreciation and appreciation
income
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
PRINCIPAL STABILITY GROWTH
& CURRENT INCOME POTENTIAL
<PAGE>
SIT MUTUAL FUNDS
STOCK FUNDS ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
Chairman's Letter.................................... 2
Performance Review................................... 4
Fund Reviews and Portfolios of Investments
Balanced Fund................................ 6
Large Cap Growth Fund........................ 10
Regional Growth Fund......................... 14
Mid Cap Growth Fund.......................... 18
International Growth Fund.................... 22
Small Cap Growth Fund........................ 26
Science and Technology Growth Fund........... 30
Developing Markets Growth Fund............... 34
Notes to Portfolios of Investments................... 39
Statements of Assets and Liabilities................. 40
Statements of Operations............................. 42
Statements of Changes in Net Assets.................. 44
Notes to Financial Statements........................ 48
Financial Highlights................................. 53
Independent Auditors' Report......................... 61
Federal Income Tax Information....................... 62
Results of Shareholder Meeting....................... 63
This document must be preceded or accompanied by a Prospectus.
<PAGE>
SIT MUTUAL FUNDS
CHAIRMAN'S LETTER - YEAR ENDED JUNE 30, 1999
[PHOTO]
Dear Fellow Shareholders:
Despite considerable volatility in the global economic environment marked
by investor concerns first of deflation in late 1998 and then inflation in
mid-1999, most major equity market indices moved solidly higher over the last
twelve months.
Economic Overview
June represented the 100th month of the U.S. economic expansion, a long
cycle characterized by positive and balanced growth, generally declining
interest rates, subdued inflation, and record-setting gains in aggregate
employment. The resilience of consumer spending continues to be the primary
driver behind the above-trend growth for the U.S. economy. Over the last four
quarters, annualized growth in Gross Domestic Product (GDP) has averaged +4.1%,
a remarkable achievement given the turmoil in many economies throughout the
world. Since Personal Consumption Expenditures (PCE) now account for over
two-thirds of GDP, the +5.0% year-over-year gain over the last twelve months was
strong enough to overcome weakness in other components, particularly the severe
decline in net exports. Several factors suggest that real GDP growth will be
somewhat below the pace witnessed over the past year, although above the +2.3%
rate for the second quarter. First, consumer spending appears to be
decelerating, as second quarter PCE increased by +4.0%, down from the increase
of +6.7% in the first quarter. Second, we do not believe that consumer spending
will remain as robust if the savings rate continues in negative territory.
Third, fixed mortgage rates have increased nearly 100 basis points since the
beginning of the year, which has served to impede housing demand; however, given
the generally strong level of consumer confidence and continued high levels of
housing investment and consumer durables spending, together with capital
investment by business, we expect only a modest slowing in GDP growth for the
remainder of the year compared to the robust +4.1% average over the past twelve
months. Our expectation for calendar 1999 GDP growth is +3.8%.
In terms of inflation data, the news remains mixed. May and June Consumer
Price Index (CPI) reports showed no change from the previous month, which was
considerably better than expectations. The National Association of Purchasing
Managers Prices Paid Index, however, has increased for six consecutive months,
and although the June Producer Price Index showed a decrease for finished goods,
there have been monthly increases in intermediate and crude goods.
The government's data releases on July 29th also contained mixed messages.
While GDP growth slowed to +2.3% in the second quarter, the
stronger-than-expected +3.2% year-over-year increase in the Employment Cost
Index was greeted negatively. Inflation news will continue to be watched
intensely, but we expect only a moderate pick-up in the CPI data, which should
range between +2.0% and +2.5% for 1999.
The Federal Reserve continues to be highly sensitive to inflation as
evidenced by its modest 25 basis point increase in the federal funds rate. More
importantly, the Fed changed its policy stance from a "tightening" to a
"neutral" bias, reducing fears of successive near-term rate increases. The
Chairman's recent Humphrey-Hawkins testimony indicated that inflation continues
to be a concern, despite the recent change in bias.
As Mr. Greenspan stated in his address, "If new data suggest it is likely
that the pace of cost and price increases is picking up, the Federal Reserve
will have to react promptly and forcefully so as to preclude imbalances from
arising that would only require a more disruptive adjustment later."
Among his key concerns are the tightness in the labor market, the
sustainability of productivity gains, and the potential ramifications of a stock
market "bubble." In terms of Federal Reserve policy, given our outlook for only
a modest acceleration in consumer inflation and a slight deceleration in GDP in
the second half of 1999, we believe the Fed may rest after one or two more 25
basis point increases.
In terms of fiscal policy, escalating projections of federal budget
surpluses have tax-cut proponents calling for aggressive tax reductions--
especially since the non-Social Security operating surplus may be achieved as
early as fiscal-year 2000. If one can believe the typically overly optimistic
government projections, $2.9 trillion in total surpluses would be generated over
the next decade of which $1 trillion would be outside the Social Security
buildup. Tax bills are being worked on in both the House and Senate and, under
the most optimistic assumptions, a bill might be ready for the President by the
fall. If Democrats and Republicans fail to compromise on the myriad of issues
within a tax bill, the topic of taxation will be a focal issue in the 2000
election campaign. Another key fiscal event occurred in late June when the
President outlined a Medicare reform package. This included a prescription drug
program with a tax-cut-for-Medicare-drug-benefit deal also a possibility. The
new drug benefit is estimated to cost $118 billion over ten years with 60%
financed by what the Clinton administration has termed "savings from competition
and efficiency" and 40% from the expected surplus.
From an international perspective, the outlook for global
2
<PAGE>
economic growth continues to improve. Asian economies appear to be slowly
recovering from the "trough" experienced in fall of 1998. The Japanese economy,
most notably, is showing some signs of life. GDP growth in the most recent
quarter was a surprisingly strong +1.9%. Industrial production increased +3.0%
in June, and recent Bank of Japan business sentiment surveys have shown an
improvement over the March survey. Since the beginning of the year, various
European economies had mixed growth results that have led to an overall
slowdown. Weakness in Germany, Euroland's largest economy, has been a major
concern. We believe, however, that the German economy will be improving, largely
due to recovering Asian markets coupled with euro weakness, which has prompted
an improvement in exports. Thus far in 1999, Latin American financial markets
responded favorably to stabilization in the currencies; however, the region's
economies remain weak because many Latin American countries are large producers
of worldwide commodities whose prices, except for oil, remain depressed. We are
forecasting +2.0% global GDP growth in 1999, due to accelerating growth in
Europe, improving economic growth prospects in non-Japan Asia, bottoming of the
recession in Japan, and gradual slowing in the United States.
Equity Strategy Summary
Domestic stock indices were generally higher over the last twelve months,
with virtually all mid and large capitalization indices posting double-digit
returns. Two major changes in investment sentiment that may have future
investment implications occurred during the second quarter of 1999. First,
although larger cap issues have dramatically outperformed smaller stocks over
the past year (the Russell 1000 outperfomed the Russell 2000 by over 20
percentage points), small stocks came to life in the second quarter of 1999.
Extreme undervaluation of small stocks and renewed confidence in the global
economic environment were key elements behind the strong second quarter rally
for small cap stocks. In fact, this was the first quarter in seven that the
Russell 2000 Index outperformed the Russell 1000 Index. Given the duration and
magnitude of small cap underperformance in recent years, and the resulting
valuation disparity, we believe the potential exists for an extended small cap
rally. The second significant change in equity markets was the rebound in
economically sensitive, cyclical issues that had previously been depressed by
fears of an economic slowdown. While we believe that the economic backdrop has
generally improved the prospects for cyclical companies, it appears that a
significant portion of the anticipated improvement in the earnings cycle has
already been discounted in stock prices.
Although the rise in interest rates has caused volatility in the equity
markets, stocks have been able to advance because corporate earnings news has
been generally positive. It appears as though second quarter operating earnings
for the S&P 500 Index will show solid double-digit growth, and we estimate that
over two-thirds of companies were able to exceed analysts' consensus
expectations. Although a brightening earnings outlook has prompted a tug-of-war
among small cap/large cap and growth/value investment styles in recent months,
our expectation for a moderately slowing U.S. economy implies a continued
positive environment for growth stock investing.
Despite some valuation measures for the stock market being at extended
levels, many companies within the S&P 500 Index below the top 20 in
capitalization are at reasonable valuations in the context of current interest
rates and inflation levels. While the current S&P 500 Index
capitalization-weighted price-to-earnings ratio of 28.3x is the highest in 35
years, the median valuation is a much more reasonable 20.3x. These statistics
suggest that the very largest stocks in the Index (including such names as
Microsoft, GE, and Coca Cola) are disproportionately raising
capitalization-weighted valuation measures and obscuring the more reasonable
valuation for the broader market.
International investment performance has varied widely among markets so far
in 1999. There is continued evidence of an improving global economy fueled by
particularly strong performance in emerging markets. While sluggish economic
growth and investors' reallocation of assets to Asia have caused some weakness
in European equity markets, we believe performance will improve as key European
economies slowly improve, corporate restructuring continues, and mergers and
acquisition activity accelerates. Brightened economic prospects have led us to a
much more positive view on Asia, particularly Japan. Concerns over upcoming
elections and the region's economic reliance on commodity prices have led us to
underweight Latin America versus global benchmarks.
We greatly appreciate your support as shareholders in the Sit Mutual Funds.
With your investment objectives always in mind, we remain committed to seeking
out the best investment opportunities throughout the world.
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
3
<PAGE>
SIT MUTUAL FUNDS
YEAR ENDED JUNE 30, 1999 PERFORMANCE REVIEW - STOCK FUNDS
STOCK FUNDS REVIEW
Despite a great deal of quarterly volatility, global equity returns were
generally positive over the past twelve months.
In the United States, large capitalization stocks continued to outperform
smaller issues, but there were signs of improvement in small cap stocks in the
latest quarter. For the year ended June 30, 1999, the S&P 500 Index total return
was +22.8%, over twenty percentage points higher than the +1.5% return for the
Russell 2000 Index. While small and mid cap stock cumulative returns over the
last twelve months were relatively moderate, investment sentiment may be
changing based on the strong performance in the most recent quarter. For the
quarter ending June 30, 1999, the Russell 2000 Index returned +15.6%,
considerably higher than the +7.1% return for the S&P 500 Index. Largely due to
fears of a global slowdown that persisted over the period, particularly in the
second half of 1998, growth stocks posted very strong results relative to value
issues. The Russell 1000 Growth Index advanced +27.3% over the past twelve
months, while the Russell 1000 Value Index increased by +16.4%. The Russell 2000
Growth Index return of +8.3% was fourteen percentage points higher than the
- -5.7% return for the Russell 2000 Value Index.
Technology stocks, which are typically overweighted in Sit Mutual Funds
equity portfolios, performed exceptionally well over the past twelve months.
Within the Russell 1000 Growth Index, for example, both the Electronic
Technology and Technology Services sectors produced returns of over +60%.
Economically sensitive groups, including producer manufacturing,
consumer-durables, and process industries, lagged the market averages over the
period.
International equity market indices also moved higher over the last twelve
months, although results varied widely by geographic region. The MSCI EAFE Index
gained +7.6%, with strong returns in most Asian markets offsetting somewhat
lackluster returns in Europe. Continued evidence of an economic recovery in
emerging markets has led to strong returns for the MSCI Emerging Markets Free
Index, which advanced +25.2% over the past twelve months, with almost all of the
gains occurring during the second quarter of 1999.
-----------------------------
1987 1988 1989
-----------------------------
SIT BALANCED -- -- --
SIT LARGE CAP GROWTH 5.32% 5.33% 32.02%
SIT REGIONAL GROWTH -- -- --
SIT MID CAP GROWTH 5.50 9.77 35.15
SIT INTERNATIONAL GROWTH -- -- --
SIT SMALL CAP GROWTH -- -- --
SIT SCIENCE AND TECHNOLOGY GROWTH -- -- --
SIT DEVELOPING MARKETS GROWTH -- -- --
S&P 500 INDEX 5.28 16.55 31.61
S&P MIDCAP 400 INDEX -2.04 20.87 35.55
MSCI EAFE INDEX (2) -- -- --
RUSSELL 2000 INDEX (3) -- -- --
PSE TECH 100 INDEX -- -- --
MSCI EMERGING MARKETS FREE INDEX (4) -- -- --
NASDAQ
SYMBOL INCEPTION
------ ---------
SIT BALANCED SIBAX 12/31/93
SIT LARGE CAP GROWTH SNIGX 09/02/82
SIT REGIONAL GROWTH n/a 12/31/97
SIT MID CAP GROWTH NBNGX 09/02/82
SIT INTERNATIONAL GROWTH SNGRX 11/01/91
SIT SMALL CAP GROWTH SSMGX 07/01/94
SIT SCIENCE AND TECHNOLOGY GROWTH SISTX 12/31/97
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
S&P 500 INDEX (5)
S&P MIDCAP 400 INDEX (5)
MSCI EAFE INDEX (2)
RUSSELL 2000 INDEX (3)
PSE TECH 100 INDEX
MCSI EMERGING MARKETS FREE INDEX (4)
(1) PERIOD FROM FUND INCEPTION THROUGH CALENDAR YEAR-END.
(2) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91.
(3) FIGURES ASSUME AN INCEPTION DATE OF 7/1/94.
(4) FIGURES ASSUME AN INCEPTION DATE OF 6/30/94.
(5) FIGURES ASSUME AN INCEPTION DATE OF 9/2/82.
4
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN - CALENDAR YEAR SIX MONTHS
- ---------------------------------------------------------------------------------------------- ENDED
1990 1991 1992 1993 1994 1995 1996 1997 1998 6/30/99
- ---------------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- -0.33% 25.43% 15.80% 21.73% 21.30% 5.30%
-2.37% 32.72% 4.94% 3.15% 2.83 31.66 23.05 31.70 30.56 8.63
-- -- -- -- -- -- -- -- 23.05 7.25
-2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 12.36
-- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 1.73
-- -- -- -- 11.57(1) 52.16 14.97 7.63 1.97 13.47
-- -- -- -- -- -- -- -- 38.40 10.04
-- -- -- -- -2.02(1) -4.29 17.27 -5.20 -24.93 28.44
-3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 12.38
-5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 6.87
-- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 3.97
-- -- -- -- 4.61 28.45 16.49 22.36 -2.54 9.28
-- -- -- -- -- -- -- -- 54.60 33.54
-- -- -- -- 2.80 -6.94 3.92 -13.40 -27.52 38.41
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED JUNE 30, 1999
TOTAL RETURN ---------------------------------------------------------
QUARTER ENDED SIX MONTHS SINCE
6/30/99 ENDED 6/30/99 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ----------------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0.51% 5.30% 11.25% 19.07% 18.72% -- 15.90%
1.36 8.63 15.10 27.27 26.52 17.25% 17.04
6.99 7.25 17.21 -- -- -- 20.38
11.16 12.36 6.94 15.27 21.21 16.11 18.49
3.99 1.73 4.51 9.56 9.35 -- 11.82
18.70 13.47 8.77 7.54 -- -- 19.44
10.36 10.04 29.40 -- -- -- 32.48
29.11 28.44 10.28 -3.01 -- -- 0.11
7.05 12.38 22.76 29.11 27.87 18.78 19.21
14.16 6.87 17.18 22.50 22.28 17.87 18.88
2.54 3.97 7.62 8.81 8.21 -- 8.61
15.55 9.28 1.50 11.22 -- -- 15.32
20.62 33.54 73.40 -- -- -- 62.36
23.62 38.41 25.20 -6.18 -- -- -2.89
</TABLE>
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
5
<PAGE>
SIT BALANCED FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
PETER L. MITCHELSON, CFA
BRYCE A. DOTY, CFA
The Sit Balanced Fund posted strong returns for the fiscal year ended June
30, 1999. The Fund's total return was +11.3%. The Lehman Aggregate Bond Index
gained +3.2% over the last twelve months while the S&P 500 Index increased
+22.8%. For the quarter ended June 30th, the Fund gained +0.5% while the Lehman
Aggregate Bond Index declined -0.9% and the S&P 500 gained +7.1%.
As of June 30, 1999, the asset allocation of the Fund was 54% equities
(down from 56% at the end of March), 37% fixed income securities (down from
38%), and 9% cash reserve instruments (up from 6%).
The equity portion of the portfolio produced solid returns over the last
twelve months, and investors are now focusing on improving earnings prospects
for U.S. companies amid an improved global economy. We believe that the market's
focus on strong earnings growth will benefit the equity securities held in the
Fund. As of June 30th, the projected growth rate for companies held in the Fund
was +21.6%, which is more than twice the projected growth rate for the S&P 500.
The Fund's holdings are concentrated in high unit growth companies with unique
products and strong management teams able to thrive in an intensely competitive
global business environment. This leads to significant positions in technology
and health care. We will continue to underweight slow growth, commodity-oriented
companies, and generally avoid such industries as chemicals, papers, autos, and
heavy equipment and machinery.
While the improving global economy fueled the rally in equities over the
last quarter, bond prices suffered from fears over excessive economic growth.
Since bottoming at a 4.7% yield on October 5, 1998, U.S. Treasury bond yields
have risen about 130 basis points, and stood at just under 6% at the end of the
quarter. A recent change in fixed income strategy includes a sector shift to
increase U.S. Treasuries. In the coming months, we expect weakness in some
non-government sectors as investors become cautious due to of the Y2K
phenomenon. We are also increasing emphasis on securities with 5- to 10- year
average lives, which reflects a very flat yield curve that has reduced the
attractiveness of longer-maturity securities. The Fund will continue to focus on
high-quality securities that offer attractive total return opportunities.
INVESTMENT OBJECTIVE AND STRATEGY
The Sit Balanced Fund's dual objectives are to seek long-term growth of
capital consistent with the preservation of principal and to provide regular
income. It pursues its objectives by investing in a diversified portfolio of
stocks, bonds and short-term instruments. The Fund may emphasize either equity
securities, fixed-income securities, or short-term instruments or hold equal
amounts of each, dependent upon the Adviser's analysis of market, financial and
economic conditions.
The Fund's permissible investment allocation is: 40-60% in equity
securities, 40-60% in fixed-income securities, and up to 20% in short-term
fixed-income instruments. At all times at least 25% of the assets will be
invested in fixed-income senior securities.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $17.38 Per Share
6/30/98: $16.68 Per Share
Total Net Assets: $12.1 Million
TOTAL DIVIDEND: $ 1.07 PER SHARE
Long Term Capital Gain: $ 0.76 Per Share
Ordinary Income: $ 0.31 Per Share
PORTFOLIO STRUCTURE
(% of total net assets)
[PIE CHART]
Cash & Other Net Assets 8.5%
Bonds 36.9%
Stocks 54.6%
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------ ------------------------------------------
Balanced Lehman Aggregate S&P Balanced Lehman Aggregate S&P
Fund Bond Index 500 Index Fund Bond Index 500 Index
-------- ---------------- --------- -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months 0.51% -0.88% 7.05% 0.51% -0.88% 7.05%
(not annualized)
1 Year 11.25 3.15 22.76 11.25 3.15 22.76
3 Years 19.07 7.23 29.11 68.80 23.31 115.21
5 Years 18.72 7.83 27.87 135.86 45.75 241.87
Inception 15.90 6.33 24.27 125.09 40.11 230.29
(12/31/93)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND
INDEX NOR THE S&P 500 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/93) and held until 6/30/99 would
have grown to $22,509 in the Fund, $14,011 in the Lehman Aggregate Bond Index or
$33,029 in the S&P 500 Index assuming reinvestment of all dividends and capital
gains.
TOP HOLDINGS
STOCKS:
* Cisco Systems, Inc.
* General Electric Co.
* Microsoft Corp.
* Lucent Technologies, Inc.
* Tyco International, Ltd.
BONDS:
* U.S. Treasury Note, 6.125%, 8/15/07
* U.S. Treasury Strip, 5.95%, 11/15/09
* Union Tank Car Co., 6.57%, 1/2/14
* Delphi Auto Sys. Corp., 6.50%, 5/1/09
* U.S. Treasury Strip, 6.00%, 2/15/19
Total number of holdings: 128
7
<PAGE>
SIT BALANCED FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (54.6%) (2)
CONSUMER DURABLES (0.5%)
1,100 Harley-Davidson, Inc. $59,812
---------------
CONSUMER NON-DURABLES (2.3%)
1,100 Coca Cola Co. 68,750
700 Colgate-Palmolive Co. 69,125
1,000 Group Danone, A.D.R. 52,313
1,000 Proctor & Gamble Co. 89,250
---------------
279,438
---------------
CONSUMER SERVICES (2.6%)
1,500 Clear Channel Comm., Inc. (3) 103,406
2,000 Time Warner, Inc. 147,000
1,500 Viacom, Inc. - Class B (3) 66,000
---------------
316,406
---------------
ELECTRONIC TECHNOLOGY (16.0%)
1,200 ADC Telecommunications, Inc. (3) 54,675
5,300 Cisco Systems, Inc. (3) 341,850
1,000 Computer Sciences Corp. (3) 69,188
2,200 Dell Computer Corp. (3) 81,400
2,600 EMC Corp. (3) 143,000
1,000 General Dynamics Corp. 68,500
1,800 Intel Corp. 107,100
1,300 Int'l Business Machines Corp. 168,025
2,850 Lucent Technologies, Inc. 192,197
1,000 Raytheon Co. - Class B 70,375
2,500 Sun Microsystems, Inc. (3) 172,188
2,500 Tellabs, Inc. (3) 168,906
1,100 Texas Instruments, Inc. 159,500
1,058 United Technologies Corp. 75,845
1,200 Xerox Corp. 70,875
---------------
1,943,624
---------------
ENERGY MINERALS (0.5%)
1,500 Unocal Corp. 59,438
---------------
FINANCE (6.2%)
625 American International Group, Inc. 73,164
1,000 Associates First Capital Corp. 44,313
2,000 Chase Manhattan Corp. 173,250
900 Equitable Companies, Inc. 60,300
1,100 Federal Home Loan Mortgage Corp. 63,800
1,000 Marsh & McLennan Cos., Inc. 75,500
2,000 Mercury General Corp. 68,000
1,000 Merrill Lynch & Co., Inc. 79,938
1,500 Wells Fargo Co. 64,125
800 XL Capital, Ltd. 45,200
---------------
747,590
---------------
HEALTH SERVICES (1.2%)
2,073 McKesson HBOC, Inc. 66,595
1,500 Waste Management, Inc. 80,625
---------------
147,220
---------------
HEALTH TECHNOLOGY (8.3%)
1,000 American Home Products Corp. 57,500
1,500 Amgen, Inc. (3) 91,312
1,500 Bristol-Myers Squibb Co. 105,656
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
900 Eli Lilly & Co. 64,462
500 Johnson & Johnson Co. 49,000
1,500 Medtronic, Inc. 116,813
2,500 Merck & Co., Inc. 185,000
1,500 Pfizer, Inc. 164,625
1,500 Schering-Plough Corp. 79,500
1,300 Warner Lambert Corp. 90,188
---------------
1,004,056
---------------
PROCESS INDUSTRIES (0.5%)
1,500 Monsanto Co. 59,156
---------------
PRODUCER MANUFACTURING (4.4%)
3,000 General Electric Co. 339,000
2,000 Tyco International, Ltd. 189,500
---------------
528,500
---------------
RETAIL TRADE (4.0%)
2,500 Dayton Hudson Corp. 162,500
675 Gap, Inc. 34,003
2,000 Home Depot, Inc. 128,875
900 Kohl's Corp. (3) 69,469
3,000 Walgreen Co. 88,125
---------------
482,972
---------------
TECHNOLOGY SERVICES (4.4%)
900 America Online, Inc. (3) 99,450
3,000 Ceridian Corp. (3) 98,062
3,000 Microsoft Corp. (3) 270,562
1,750 Oracle Corp. (3) 64,969
---------------
533,043
---------------
TRANSPORTATION (0.5%)
2,000 Southwest Airlines Co. 62,250
---------------
UTILITIES (3.2%)
1,700 MCI WorldCom, Inc. (3) 146,306
1,200 Sprint Corp. 63,375
900 Vodafone Airtouch, A.D.R. 177,300
---------------
386,981
---------------
Total common stocks
(cost: $4,468,002) 6,610,486
---------------
BONDS (35.4%) (2)
U.S. TREASURY (8.6%)
550,000 U.S. Treasury Note, 6.125%, 8/15/07 555,737
50,000 U.S. Treasury Bond, 6.00%, 2/15/26 48,732
U.S. Treasury Strip:
25,000 6.93% Effective Yield, 11/15/04 18,302
50,000 4.72% Effective Yield, 5/15/06 33,395
450,000 5.95% Effective Yield, 11/15/09 238,630
500,000 6.00% Effective Yield, 2/15/19 146,620
---------------
1,041,416
---------------
ASSET-BACKED SECURITIES (4.0%)
Advanta Mortgage Loan Trust:
25,000 1995-3 A5, 7.37%, 2/25/27 24,790
50,000 1996-1 A7, 7.07%, 3/25/27 49,355
8
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
50,000 Cityscape Home Equity Loan Trust,
1996-3 A8, 7.65%, 9/25/25 47,767
74,999 ContiMortgage Home Equity Loan Tr.,
1996-1 A7, 7.00%, 3/15/27 74,396
25,000 EQCC Home Equity Loan Trust,
Series 1996-1, 6.93%, 3/15/27 24,347
75,000 Equivantage, 1996-3 A3,
7.70%, 9/25/27 75,376
Green Tree Financial Corp.:
20,000 1995-5, 7.25%, 9/15/25 19,860
25,000 1997-4, 7.03%, 2/15/29 25,267
100,000 1999-1, 6.37%, 3/1/30 94,603
50,000 Money Store Home Equity Mtg.,
7.265%, 7/15/38 50,500
---------------
486,261
---------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.4%)
100,000 Norwest Asset Securities Corp.,
Series 1998-19 2A12, 6.75%, 7/25/28 95,852
75,000 Residential Funding Mtg. Sec.
Series 1998-S5 A12, 6.75%, 3/25/28 70,510
---------------
166,362
---------------
CORPORATE BONDS (8.8%)
50,000 American Gen. Fin., 5.875%, 12/15/05 47,313
Continental Airlines:
25,000 1999-1B, 6.795%, 8/2/18 23,971
150,000 1999-1A, 6.545%, 2/2/19 142,089
50,000 Countrywide Capital, 8.00%, 12/15/26 47,812
175,000 Delphi Auto Sys. Corp., 6.50%, 5/1/09 165,812
50,000 First Industrial LP, 7.15%, 5/15/27 49,125
50,000 Franchise Fin. Corp., 8.25%, 10/30/03 49,812
25,000 GM Acceptance Corp., 5.85%, 1/14/09 22,844
25,000 Omega Healthcare Inv., 6.95%, 6/15/02 23,562
125,000 Ryder System, Inc., 8.75%, 3/15/17 130,312
100,000 Service Corp. Int'l, 7.375%, 4/15/04 100,250
25,000 Summit Prop., Inc., 7.20%, 8/15/07 23,031
6,000 Toys R Us, Inc., 8.25%, 2/1/17 6,203
50,000 Trinet Corp. Realty Tr., 7.70%, 7/15/17 40,062
200,000 Union Tank Car Co., 6.57%, 1/2/14 194,752
---------------
1,066,950
---------------
MORTGAGE PASS-THROUGH SECURITIES (12.7%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (1.3%)
70,693 9.00%, 7/1/16 74,920
21,077 9.00%, 7/1/16 22,329
20,154 9.25%, 6/1/02 20,954
31,055 10.00%, 10/1/18 33,401
---------------
151,604
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.9%)
24,607 9.00%, 11/1/06 25,918
77,055 9.75%, 1/1/13 83,798
21,694 10.00%, 1/1/20 23,259
82,741 10.25%, 6/1/13 90,653
---------------
223,628
---------------
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (9.5%)
22,536 9.00%, 6/15/11 23,529
104,787 9.00%, 6/15/09 110,629
41,514 9.00%, 8/15/16 43,847
109,713 9.00%, 12/15/19 116,334
23,080 9.25%, 9/15/01 24,169
24,599 9.50%, 1/15/04 25,918
52,012 9.50%, 11/15/04 54,794
33,700 9.50%, 7/20/05 35,008
37,807 9.50%, 12/15/09 40,701
23,576 9.50%, 5/20/16 24,961
118,148 9.50%, 12/15/17 127,768
67,120 9.50%, 3/15/18 71,817
88,137 9.50%, 9/20/18 93,318
63,236 9.50%, 1/20/19 66,942
82,687 9.50%, 2/20/19 87,544
77,548 9.50%, 3/20/19 82,101
43,730 9.50%, 12/15/19 47,074
40,820 10.25%, 1/15/04 43,126
5,748 11.25%, 10/15/00 5,793
16,797 11.25%, 10/15/11 18,120
Municipal (GNMA collateralized):
13,000 Bernalillo Multifamily. Ser. 1998A,
7.50%, 9/20/20 12,977
---------------
1,156,470
---------------
Total bonds
(cost: $4,367,382) 4,292,691
---------------
CLOSED-END MUTUAL FUNDS (1.4%) (2)
9,000 American Select Portfolio 105,750
500 American Strategic Inc. Portfolio 5,875
2,288 American Strategic Inc. Portfolio II 27,027
2,969 American Strategic Inc. Portfolio III 34,329
---------------
Total closed-end mutual funds 172,981
---------------
(cost: $169,146)
SHORT-TERM SECURITIES (12.5%) (2)
1,519,000 Sit Money Market Fund, 4.56% (6) 1,519,000
---------------
(cost: $1,519,000)
Total investments in securities
(cost: $10,523,530) (7) $12,595,158
===============
See accompanying notes to financial statements.
9
<PAGE>
SIT LARGE CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
PETER L. MITCHELSON, CFA
ROGER J. SIT
RONALD D. SIT, CFA
The Sit Large Cap Growth Fund posted strong performance during the fiscal
year ended June 30, 1999. The Fund's total return of +15.1% compared favorably
with the +13.6% return for the Lipper Growth and Income Index. Within the Lipper
Growth and Income Fund universe, the Fund's 1-year, 5-year and 10-year
annualized return was in the 47th, 8th and 17th percentile, respectively.
Most U.S. stock market indices posted impressive gains over the last twelve
months, driven largely by continued strength in the domestic economy. Despite
lingering effects of the Asian crisis in the fall of 1998, and the subsequent
rise in interest rates, stock market returns have broadened considerably thus
far in 1999, and many indices are reaching or approaching new highs. Although a
brightened earnings outlook has prompted a tug of war among small/large cap and
growth/value investment styles in recent months, our expectation for a
moderately slowing U.S. economy implies a continued positive environment for
growth stock investing. Securities in the Fund continue to maintain projected
earnings growth rates far in excess of S&P 500 averages. In each of the next two
years, projected growth rates for securities held in the Fund exceed +20%, which
is more than twice the expected earnings gain for the S&P 500. Furthermore, as
inflation fears have subsided, growth stocks have significantly outperformed
value issues as the perception of risk surrounding their higher
price-to-earnings valuations has diminished.
As of June 30th, the Fund was 93% invested in equities. Significant sector
weighting changes during the past year include increases in electronic
technology and health technology through the additions of Sun Microsystems,
International Business Machines, Raytheon, United Technologies, American Home
Products, and Amgen. Sector weighting decreases occurred in financial services
and consumer non-durables through the reduction or elimination of positions in
Citigroup, Franklin Resources, Mercury General, Unilever, and Gillette.
Net assets in the Fund totaled $140.3 million at the end of June, up from
$117.5 million a year ago. We very much appreciate shareholders' continued
interest and participation in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Large Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in common
stocks of growth companies with a capitalization of $5 billion or more at the
time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $ 52.84 Per Share
6/30/98: $ 49.34 Per Share
Total Net Assets: $140.3 Million
Weighted Average Market Cap: $127.1 Billion
TOTAL DIVIDEND: $ 3.42 PER SHARE
Long Term Capital Gain: $ 3.41 Per Share
Ordinary Income: $ 0.01 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 27.6
Health Technology 13.7
Finance 9.5
Technology Services 8.9
Retail Trade 8.6
Producer Manufacturing 6.3
Utilities 5.7
Consumer Services 4.7
Consumer Non-Durables 3.8
Health Services 1.7
Consumer Durables 0.9
Energy Minerals 0.9
Transportation 0.7
Cash & Other Net Assets 7.0
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------------- ----------------------------------------
Large Cap Russell 1000 S&P Large Cap Russell 1000 S&P
Growth Fund Growth Index 500 Index Growth Fund Growth Index 500 Index
----------- ------------ --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months 1.36% 3.85% 7.05% 1.36% 3.85% 7.05%
(not annualized)
1 Year 15.10 27.28 22.76 15.10 27.28 22.76
5 Years 26.52 29.65 27.87 224.21 266.38 241.87
10 Years 17.25 19.80 18.78 391.22 508.91 459.09
Inception 17.04 18.86 19.21 1314.09 1734.05 1827.27
(9/2/82)
</TABLE>
* As of 6/30/99
ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO
OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO
MORE THAN 80% STOCKS.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE
RUSSELL 1000 GROWTH INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM
LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/99 would
have grown to $141,409 in the Fund, or $192,727 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Cisco Systems, Inc.
* Microsoft Corp.
* General Electric Co.
* Lucent Technologies, Inc.
* Merck & Co., Inc.
* Tyco International, Ltd.
* Vodafone Airtouch, A.D.R.
* Int'l Business Machines Corp.
* Pfizer, Inc.
* MCI WorldCom, Inc.
Total number of holdings: 65
11
<PAGE>
SIT LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (93.0%) (2)
CONSUMER DURABLES (0.9%)
22,600 Harley-Davidson, Inc. $1,228,875
---------------
CONSUMER NON-DURABLES (3.8%)
25,500 Coca Cola Co. 1,593,750
15,100 Colgate-Palmolive Co. 1,491,125
14,800 Group Danone, A.D.R. 774,225
15,800 Procter & Gamble Co. 1,410,150
---------------
5,269,250
---------------
CONSUMER SERVICES (4.7%)
44,500 CBS Corp. (3) 1,932,969
21,900 Clear Channel Comm., Inc. (3) 1,509,731
23,800 Time Warner, Inc. 1,749,300
31,400 Viacom, Inc. - Class B (3) 1,381,600
---------------
6,573,600
---------------
ELECTRONIC TECHNOLOGY (27.6%)
29,500 ADC Telecommunications, Inc. (3) 1,344,094
119,150 Cisco Systems, Inc. (3) 7,685,175
24,800 Computer Sciences Corp. (3) 1,715,850
48,600 Dell Computer Corp. (3) 1,798,200
56,800 EMC Corp. (3) 3,124,000
21,000 General Dynamics Corp. 1,438,500
44,400 Intel Corp. 2,641,800
25,000 Int'l Business Machines Corp. 3,231,250
57,210 Lucent Technologies, Inc. 3,858,099
17,400 Raytheon Co. - Class B 1,224,525
46,000 Sun Microsystems, Inc. (3) 3,168,250
42,200 Tellabs, Inc. (3) 2,851,137
12,300 Texas Instruments, Inc. 1,783,500
17,323 United Technologies Corp. 1,241,843
26,000 Xerox Corp. 1,535,625
---------------
38,641,848
---------------
ENERGY MINERALS (0.9%)
32,000 Unocal Corp. 1,268,000
---------------
FINANCE (9.5%)
12,300 American International Group, Inc. 1,439,869
16,000 Associates First Capital Corp. 709,000
31,100 Chase Manhattan Corp. 2,694,038
24,000 Equitable Companies, Inc. 1,608,000
20,700 Federal Home Loan Mortgage Corp. 1,200,600
19,000 Marsh & McLennan Cos., Inc. 1,434,500
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
37,900 Mercury General Corp. 1,288,600
15,000 Merrill Lynch & Co., Inc. 1,199,063
31,300 Wells Fargo Co. 1,338,075
7,100 XL Capital, Ltd. 401,150
---------------
13,312,895
---------------
HEALTH SERVICES (1.7%)
36,996 McKesson HBOC, Inc. 1,188,497
22,500 Waste Management, Inc. 1,209,375
---------------
2,397,872
---------------
HEALTH TECHNOLOGY (13.7%)
20,400 American Home Products Corp. 1,173,000
21,000 Amgen, Inc. (3) 1,278,375
32,100 Bristol-Myers Squibb Co. 2,261,044
18,800 Eli Lilly & Co. 1,346,550
13,500 Johnson & Johnson Co. 1,323,000
27,100 Medtronic, Inc. 2,110,412
49,400 Merck & Co., Inc. 3,655,600
29,100 Pfizer, Inc. 3,193,725
28,400 Schering-Plough Corp. 1,505,200
20,700 Warner Lambert Corp. 1,436,062
---------------
19,282,968
---------------
PRODUCER MANUFACTURING (6.3%)
46,800 General Electric Co. 5,288,400
37,600 Tyco International, Ltd. 3,562,600
---------------
8,851,000
---------------
RETAIL TRADE (8.6%)
45,200 Dayton Hudson Corp. 2,938,000
32,025 Gap, Inc. 1,613,259
44,700 Home Depot, Inc. 2,880,356
18,500 Kohl's Corp. (3) 1,427,969
25,400 Lowe's Companies, Inc. 1,439,862
60,600 Walgreen Co. 1,780,125
---------------
12,079,571
---------------
TECHNOLOGY SERVICES (8.9%)
17,500 America Online, Inc. (3) 1,933,750
58,400 Ceridian Corp. (3) 1,908,950
64,000 Microsoft Corp. (3) 5,772,000
35,250 Oracle Corp. (3) 1,308,656
27,037 Paychex, Inc. 861,804
18,700 SAP, A.D.R. 647,487
---------------
12,432,647
---------------
TRANSPORTATION (0.7%)
33,500 Southwest Airlines Co. 1,042,688
---------------
12
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
UTILITIES (5.7%)
37,100 MCI WorldCom, Inc. (3) 3,192,919
24,000 Sprint Corp. 1,267,500
18,000 Vodafone Airtouch, A.D.R. 3,546,000
---------------
8,006,419
---------------
Total common stocks 130,387,633
---------------
(cost: $85,608,041)
SHORT-TERM SECURITIES (6.3%) (2)
8,807,000 Sit Money Market Fund, 4.56% (6) 8,807,000
---------------
(cost: $8,807,000)
Total investments in securities
(cost: $94,415,041) (7) $139,194,633
===============
See accompanying notes to portfolios of investments.
13
<PAGE>
SIT REGIONAL GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGER
EUGENE C. SIT, CFA
The Sit Regional Growth Fund rose +17.2% during the past year, while the
S&P 500's return was +22.8%. For the last quarter, the Fund's return was +7.0%
compared to the +7.1% return for the S&P 500. The Fund's performance
differential to the Index was essentially due to underweightings in the very
large companies outside of the Fund's regional focus. The Fund's cumulative
+32.0% return since inception, although lagging behind the
capitalization-weighted S&P 500 return, actually exceeds the estimated
equal-weighted capitalization return of +30.8% for the S&P Index. Because the
Fund's capitalization remains well below the popular large cap indices, the
widening breadth of the market during the second quarter bodes well for improved
relative performance going forward.
Strong earnings growth continues to be the primary focus of the portfolio.
We project earnings growth rates of more than +21% for the next two
years--approximately three times the projected growth estimates for the S&P
500--for securities held in the Fund. Our enthusiasm for the Fund is based on
the attractive valuation relative to the market. Despite significantly higher
projected earnings growth rates, the Fund's weighted price-to-earnings valuation
is 26 (based on 1999 estimates), which is equivalent to the current earnings
multiple of the S&P 500.
As of June 30th, the Fund was 95% invested in equity securities.
Significant sector weighting changes during the past year included increases in
electronic technology and technology services through the additions of Motorola,
National Computer Systems, Compuware, and First Data. Sector weighting decreases
occurred in financial services and health technology through the reduction or
elimination of positions in Charter One Financial, Household International,
Progressive, Hillenbrand, Stryker, and RP Scherer. Given the Fund's emphasis on
growth companies with unique product attributes, overweighted positions remain
in electronic technology and technology services.
Given the Fund's strong earnings growth prospects, attractive valuations,
and existing opportunities within our geographic region, we remain enthusiastic
about the Fund's potential.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies with their headquarters in Minnesota, Iowa, Missouri, North Dakota,
South Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana, and
Ohio. During normal market conditions, at least 80% of the Fund's total assets
will be invested in such securities. The Fund emphasizes securities of companies
that the Adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $13.17 Per Share
6/30/98: $11.26 Per Share
Total Net Assets: $ 7.5 Million
Weighted Average Market Cap: $22.0 Billion
TOTAL DIVIDEND: $ 0.02 PER SHARE
Ordinary Income: $ 0.02 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Technology Services 15.6
Retail Trade 15.0
Electronic Technology 14.9
Finance 12.5
Health Technology 10.0
Commercial Services 5.2
Utilities 4.4
Process Industries 3.7
Producer Manufacturing 3.3
Health Services 3.1
Consumer Services 2.6
Consumer Durables 1.8
Consumer Non-Durables 1.6
Transportation 1.4
Cash & Other Net Assets 4.9
14
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
--------------------------------- --------------------------------
Regional Russell S&P Regional Russell S&P
Growth 3000 500 Growth 3000 500
Fund Index Index Fund Index Index
-------- ------- ----- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
3 Months 6.99% 7.70% 7.05% 6.99% 7.70% 7.05%
(not annualized)
1 Year 17.21 20.11 22.76 17.21 20.11 22.76
Inception 20.38 24.18 27.90 31.97 38.25 44.50
(12/31/97)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE
RUSSELL 3000 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 6/30/99 would
have grown to $13,197 in the Fund, or $14,450 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Best Buy, Inc.
* Tellabs, Inc.
* Wells Fargo Co.
* Motorola, Inc.
* Dayton Hudson Corp.
* Ceridian Corp.
* Northern Trust Corp.
* Great Plains Software, Inc.
* Cardinal Health, Inc.
* ADC Telecommunications, Inc.
Total number of holdings: 39
15
<PAGE>
SIT REGIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (95.1%) (2)
COMMERCIAL SERVICES (5.2%)
3,000 Deluxe Corp. $116,813
4,500 Ecolab, Inc. 196,313
8,000 Ha-Lo Industries, Inc. (3) 79,000
---------------
392,126
---------------
CONSUMER DURABLES (1.8%)
2,500 Harley-Davidson, Inc. 135,937
---------------
CONSUMER SERVICES (2.6%)
4,000 Emmis Communications Corp. (3) 197,500
---------------
CONSUMER NON-DURABLES (1.6%)
1,500 General Mills, Inc. 120,562
---------------
ELECTRONIC TECHNOLOGY (14.9%)
5,000 ADC Telecommunications, Inc. (3) 227,813
2,000 Gateway 2000, Inc. (3) 118,000
3,000 Motorola, Inc. 284,250
4,500 National Computer Systems, Inc. 151,875
5,000 Tellabs, Inc. (3) 337,812
---------------
1,119,750
---------------
FINANCE (12.5%)
3,000 Aon Corp. 123,750
2,500 Northern Trust Corp. 242,500
2,500 Reliastar Financial Corp. 109,375
6,000 TCF Financial Corp. 167,250
7,000 Wells Fargo Co. 299,250
---------------
942,125
---------------
HEALTH SERVICES (3.1%)
3,637 Cardinal Health, Inc. 233,223
---------------
HEALTH TECHNOLOGY (10.0%)
2,500 Abbott Laboratories 113,750
1,500 Baxter International, Inc. 90,938
3,000 Eli Lilly & Co. 214,875
2,500 Medtronic, Inc. 194,688
5,000 Sybron Int'l Corp. (3) 137,812
---------------
752,063
---------------
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
PROCESS INDUSTRIES (3.7%)
2,000 H.B. Fuller Co. 136,750
3,500 Monsanto Co. 138,031
---------------
274,781
---------------
PRODUCER MANUFACTURING (3.3%)
2,000 Emerson Electric Co. 125,750
1,500 Illinois Tool Works, Inc. 123,000
---------------
248,750
---------------
RETAIL TRADE (15.0%)
7,000 Best Buy, Inc. (3) 472,500
4,000 Dayton Hudson Corp. 260,000
2,500 Kohl's Corp. (3) 192,969
7,000 Walgreen Co. 205,625
---------------
1,131,094
---------------
TECHNOLOGY SERVICES (15.6%)
7,500 Ceridian Corp. (3) 245,156
4,500 Compuware Corp. (3) 143,156
4,500 First Data Corp. 220,219
5,425 Fiserv, Inc. (3) 169,870
5,000 Great Plains Software, Inc. (3) 235,937
5,000 Whittman-Hart, Inc. (3) 158,750
---------------
1,173,088
---------------
TRANSPORTATION (1.4%)
2,800 C.H. Robinson Worldwide, Inc. 102,900
---------------
UTILITIES (4.4%)
2,000 Ameritech Corp. 147,000
3,500 Sprint Corp. 184,844
---------------
331,844
---------------
Total common stocks 7,155,743
---------------
(cost: $5,555,358)
SHORT-TERM SECURITIES (4.9%) (2)
365,000 Sit Money Market Fund, 4.56% (6) 365,000
---------------
(cost: $365,000)
Total investments in securities
(cost: $5,920,358) (7) $7,520,743
===============
See accompanying notes to portfolios of investments.
16
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
17
<PAGE>
SIT MID CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ERIK S. ANDERSON, CFA
During the June quarter of 1999, mid cap growth stocks rebounded strongly
and outperformed large cap growth stocks, as measured by the Frank Russell
Indices, for the first time in seven quarters. The Fund's quarterly return of
+11.2% compared favorably with the +10.4% return for the Russell Mid Cap Growth
Index.
For the year ended June 30, 1999, the Sit Mid Cap Growth Fund return was
+6.9% versus the +20.3% for the Russell Mid Cap Growth Index. Although the
Fund's performance has lagged behind the Index, our capitalization restrictions
and valuation disciplines resulted in limited exposure to areas which drove the
Index higher, namely large stocks with capitalizations greater than $10 billion
and Internet stocks. For example, we estimate that just two stocks, Yahoo! and
Charles Schwab, contributed approximately +4.5% to the +20.3% return for the
Index over the last year. These companies have current market capitalizations of
over $35 billion and are well in excess of our Fund parameters.
The recent outperformance of smaller cap issues can be attributed to
attractive valuations and renewed confidence in the global economy. Given the
dramatic differences in performance between mid and large cap issues over the
last two years, the potential for small and medium cap issues to catch up still
exists. Although the much publicized rally in cyclical stocks lifted value
stocks higher during the second quarter, growth issues in the mid cap sector
have significantly outperformed value issues on a year-to-date and twelve-month
basis. We believe that the Fund is very well positioned to capitalize on the
renewed market enthusiasm for smaller cap issues. The portfolio's average
projected earnings growth rate of +25% vastly exceeds the S&P 500's projected
growth rate of +10%.
Significant sector weighting changes during the past year include increases
in electronic technology and health technology through the additions of
Uniphase, Vitesse Semiconductor, Jabil Circuit, Applied Micro Devices, and
Lexmark International. Sector weighting decreases occurred in financial services
and health services through the reduction or elimination of positions in First
American of Tennessee, Nac Re, Mercury General, McKesson HBOC, and Healthsouth
Corporation. As of June 30th, the Fund was 94% invested in equities.
Given mid cap stocks' renewed momentum and strong growth prospects for the
companies in the portfolio, we remain optimistic about the Fund's outlook.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Mid Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of growth companies with a capitalization of $2 billion to $15
billion at the time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $ 14.54 Per Share
6/30/98: $ 16.49 Per Share
Total Net Assets: $375.3 Million
Weighted Average Market Cap: $ 10.3 Billion
TOTAL DIVIDEND: $ 2.54 PER SHARE
Long Term Capital Gain: $ 2.54 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 30.8
Technology Services 18.5
Health Technology 11.5
Finance 8.9
Retail Trade 8.3
Utilities 3.7
Commercial Services 3.2
Health Services 2.7
Consumer Non-Durables 2.0
Consumer Durables 1.3
Energy Minerals 1.0
Industrial Services 0.9
Commercial Services 0.7
Transportation 0.4
Cash & Other Net Assets 6.1
18
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------ -------------------------------------------
Mid Cap Russell Mid Cap S&P MidCap Mid Cap Russell Mid Cap S&P MidCap
Growth Fund Growth Index 400 Index Growth Fund Growth Index 400 Index
----------- --------------- ---------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
3 Months 11.16% 10.42% 14.16% 11.16% 10.42% 14.16%
(not annualized)
1 Year 6.94 20.32 17.18 6.94 20.32 17.18
5 Years 21.21 22.35 22.28 161.68 174.16 173.37
10 Years 16.11 17.04 17.87 345.36 382.26 417.69
Inception 18.49 n/a 18.88 1639.71 n/a 1737.95
(9/2/82)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL MID CAP GROWTH
INDEX NOR THE S&P MIDCAP 400 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 6/30/99 would
have grown to $173,971 in the Fund or $183,795 in the S&P MidCap 400 Index
assuming reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Biogen, Inc.
* Legato Systems, Inc.
* Xilinx, Inc.
* Uniphase Corp.
* Kohl's Corp.
* Dendrite International, Inc.
* Staples, Inc.
* Vitesse Semiconductor Corp.
* ADC Telecommunications, Inc.
* Elan Corp., A.D.R.
Total number of holdings: 63
19
<PAGE>
MID CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
COMMON STOCKS (93.9%) (2)
COMMERCIAL SERVICES (0.7%)
100,400 Sylvan Learning Systems, Inc. (3) $2,729,625
----------------
CONSUMER DURABLES (1.3%)
89,000 Harley-Davidson, Inc. 4,839,375
----------------
CONSUMER NON-DURABLES (2.0%)
106,100 Dial Corp. 3,945,594
72,000 Estee Lauder Companies, Inc. 3,609,000
----------------
7,554,594
----------------
CONSUMER SERVICES (3.2%)
55,500 Adelphia Communications Corp. (3) 3,531,188
152,800 Chancellor Media Corp. (3) 8,423,100
----------------
11,954,288
----------------
ELECTRONIC TECHNOLOGY (30.8%)
26,000 AAR Corp. 589,875
212,200 ADC Telecommunications, Inc. (3) 9,668,363
37,500 ASM Lithography Hldg., A.D.R. (3) 2,226,563
90,500 Analog Devices, Inc. (3) 4,541,969
88,500 Applied Micro Circuits Corp. (3) 7,279,125
234,500 Asyst Technologies, Inc. (3) 7,020,344
94,500 Computer Sciences Corp. (3) 6,538,219
52,500 Comverse Technology, Inc. (3) 3,963,750
55,000 General Dynamics Corp. 3,767,500
71,300 Jabil Circuit, Inc. (3) 3,217,412
83,000 Lexmark International Group, Inc. (3) 5,483,187
81,000 Linear Technology Corp. 5,447,250
84,150 Lucent Technologies, Inc. 5,674,866
61,000 Maxim Integrated Products, Inc. (3) 4,056,500
145,050 Symbol Technologies, Inc. 5,348,719
95,000 Teradyne, Inc. (3) 6,816,250
69,500 Uniphase Corp. (3) 11,537,000
149,900 Vitesse Semiconductor Corp. (3) 10,108,881
217,400 Xilinx, Inc. (3) 12,446,150
----------------
115,731,923
----------------
ENERGY MINERALS (1.0%)
177,000 Enron Oil & Gas Co. 3,584,250
----------------
FINANCE (8.9%)
248,300 Ace, Ltd. 7,014,475
111,500 Firstar Corp. 3,122,000
19,500 Goldman Sachs Group, Inc. 1,408,875
100,000 Mercury General Corp. 3,400,000
- -------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
132,000 Mutual Risk Mgmt., Ltd. 4,405,500
68,200 ReliaStar Financial Corp. 2,983,750
108,000 T. Rowe Price & Associates 4,144,500
244,800 TCF Financial Corp. 6,823,800
----------------
33,302,900
----------------
HEALTH SERVICES (2.7%)
69,250 Cardinal Health, Inc. 4,440,656
178,000 IMS Health, Inc. 5,562,500
----------------
10,003,156
----------------
HEALTH TECHNOLOGY (11.5%)
259,000 Biogen, Inc. (3) 16,656,938
134,000 Boston Scientific Corp. (3) 5,887,625
344,000 Elan Corp., A.D.R. (3) 9,546,000
39,000 Immunex Corp. (3) 4,970,062
64,000 MedImmune, Inc. (3) 4,336,000
21,000 VISX, Inc. (3) 1,662,937
----------------
43,059,562
----------------
INDUSTRIAL SERVICES (0.9%)
134,400 Transocean Offshore Drilling, Inc. 3,528,000
----------------
RETAIL TRADE (8.3%)
52,000 Bed Bath & Beyond, Inc. (3) 2,002,000
76,000 Best Buy Co., Inc. (3) 5,130,000
90,000 Dollar General Corp. 2,610,000
144,000 Kohl's Corp. (3) 11,115,000
337,475 Staples, Inc. (3) 10,440,633
----------------
31,297,633
----------------
TECHNOLOGY SERVICES (18.5%)
220,000 Aspen Technology, Inc. (3) 2,585,000
100,500 BMC Software, Inc. (3) 5,427,000
202,800 Ceridian Corp. (3) 6,629,025
146,000 Check Point Software Tech., Ltd. (3) 7,829,250
301,200 Dendrite International, Inc. (3) 10,880,850
18,000 DoubleClick, Inc. (3) 1,651,500
173,675 Fiserv, Inc. (3) 5,438,198
52,000 InfoSpace.com, Inc. (3) 2,444,000
55,000 Inktomi Corp. (3) 7,180,937
241,500 Legato Systems, Inc. (3) 13,946,625
81,300 Paychex, Inc. 2,591,437
73,500 Sterling Commerce, Inc. (3) 2,682,750
----------------
69,286,572
----------------
TRANSPORTATION (0.4%)
42,500 CNF Transportation, Inc. 1,630,937
----------------
20
<PAGE>
- -------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- -------------------------------------------------------------------------------
UTILITIES (3.7%)
92,000 Frontier Corp. 5,428,000
168,000 Nextel Communications, Inc. (3) 8,431,500
----------------
13,859,500
----------------
Total common stocks 352,362,315
----------------
(cost: $213,924,626)
SHORT-TERM SECURITIES (5.1%) (2)
3,975,000 American Express Credit Corp.,
5.50%, 7/1/99 3,974,393
15,042,000 Sit Money Market Fund, 4.56% (6) 15,042,000
----------------
(cost: $19,017,000) 19,016,393
----------------
Total investments in securities
(cost: $232,941,626) (7) $371,378,708
================
See accompanying notes to portfolios of investments.
21
<PAGE>
SIT INTERNATIONAL GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ANDREW B. KIM, CFA
ROGER J. SIT
The Sit International Growth Fund's 1-year return of +4.5% compares with
the MSCI EAFE Index gain of +7.6% and the Lipper International Fund Index rise
of +4.0%. A major reason for the Fund's underperformance relative to the EAFE
Index was a sector rotation from growth to cyclical stocks in the first half of
1999. Market participants anticipated a faster pace of global economic growth
accompanied by an upturn in basic commodity prices.
The Russian default in August 1998 was one of the most traumatic
experiences for the international markets last year. The EAFE Index declined
- -14.2% in the three months ended September 30, 1998, in part due to the
potential crisis associated with Long- Term Capital Management in the U.S.
Fortunately, the international equity markets were able to recover
substantially, enabling the Index to record a +20.7% gain in the December
quarter. Moreover, the first half of 1999 witnessed a lessening of market
volatility despite Brazil's currency devaluation. For the first six months of
1999, the Index increased by a modest +4.0%.
Notably, the first half of 1999 was marked by an unexpectedly steep
depreciation of the euro (down -13%). As a result, the Fund's European portfolio
holdings declined in the Netherlands, Belgium, Ireland and the U.K.
Subsequently, the euro began to rebound against the dollar in July in response
to indications of improved economic growth in Germany and the U.K. We expect the
euro's upward trend to continue in the remainder of 1999, and we are targeting a
European portfolio weighting of 62%, up from 58.3% at the end of June.
The Fund's Pacific Basin holdings increased to 12.9% of total assets vs.
the Index weighting of 6.6% due to the accelerating speed of recovery in the
crisis economies of Asia and ample liquidity. Recording substantial gains in
dollar terms were the Fund's holdings in Korea, Thailand and Hong Kong.
From a long-term perspective, the upward momentum in the Japanese market is
even more significant now that a relapse in the economy appears unlikely;
therefore, the Fund's Japanese weighting climbed to 25.0% at mid-1999 (from
12.8% a year ago), compared with 24.0% for the Index. The Fund partially hedged
its Japanese holdings in early July to protect local currency gains in the
future. We expect renewed yen weakness based on a resumption of Japanese capital
outflow and a decreasing current account surplus.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit International Growth Fund is to achieve long-term
growth of capital by investing in equity securities of issuers domiciled outside
the United States. The Fund's investment objective reflects the belief that
long-term investment planning should include the investment opportunities that
exist outside the U.S.
The Fund selects its investments based on the characteristics of the
particular markets and economies of the countries in which it invests. Emphasis
is placed on identifying securities of companies believed to be undervalued in
the marketplace in relation to factors such as the company's revenues, earnings,
assets and long-term competitive position which over time will enhance the
equity value of the company.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $18.77 Per Share
6/30/98: $19.14 Per Share
Total Net Assets: $95.0 Million
Weighted Average Market Cap: $36.7 Billion
TOTAL DIVIDEND: $ 1.14 PER SHARE
Long Term Capital Gain: $ 1.08 Per Share
Ordinary Income: $ 0.06 Per Share
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT INT'L Morgan Stanley
GROWTH FUND EAFE Index
Europe Other 34.9 27.8
Japan 25.0 24.0
France, Germany, UK 23.4 41.6
Pacific Basin 12.9 6.6
Latin America 0.5 0.0
Cash & Other Net Assets 3.3 0.0
22
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------------- -----------------------------------------
Morgan Stanley Lipper Morgan Stanley Lipper
International Capital Int'l Int'l Fund International Capital Int'l Int'l Fund
Growth Fund EAFE Index Index Growth Fund EAFE Index Index
------------- ------------- ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
3 Months 3.99% 2.54% 5.55% 3.99% 2.54% 5.55%
(not annualized)
1 Year 4.51 7.62 4.00 4.51 7.62 4.00
3 Years 9.56 8.81 10.79 31.50 28.83 35.99
5 Years 9.35 8.21 10.10 56.32 48.36 61.75
Inception 11.82 8.61 10.88 135.43 88.38 120.80
(11/1/91)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Finance 22.4
Utilities 19.3
Electronic Technology 15.1
Health Technology 10.5
Technology Services 10.0
Retail Trade 5.2
Commercial Services 4.4
Producer Manufacturing 3.9
Consumer Non-Durables 2.9
Consumer Services 2.4
Industrial Services 0.6
Cash & Other Net Assets 3.3
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (11/1/91) and held until 6/30/99 would
have grown to $23,543 in the Fund or $18,838 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
23
<PAGE>
SIT INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
10 LARGEST HOLDINGS
* Nokia Corp., A.D.R.
* AFLAC, Inc.
* Ryohin Keikaku Co.
* Mannesman, A.G.
* Misys, p.l.c.
* Takeda Chemical Industries
* Samsung Electronics
* Orix Corp.
* Telefonica, S.A.
* Wolters Kluwer
Total number of holdings: 77
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.9%)(2)
ASIA (37.1%)
AUSTRALIA (1.4%)
240,497 Colonial, Ltd. (Finance) (3) $850,546
88,900 Telstra Corp., Ltd. (Utilities) (3) 508,749
--------------
1,359,295
--------------
HONG KONG (3.0%)
63,000 Cheung Kong Hldgs., Ltd. (Industrial
Services) 560,281
304,000 China Telecom, Ltd. (Utilities) 844,379
226,000 Citic Pacific, Ltd. (Utilities) 720,942
19,200 HSBC Holdings, p.l.c. (Finance) 700,333
--------------
2,825,935
--------------
JAPAN (24.2%)
54,400 AFLAC, Inc. (Finance) 2,604,400
71,000 Banyu Pharmaceuticals (Health Tech.) 1,174,039
240 NTT Data Corp. (Tech. Services) 1,908,888
36 NTT Mobile Communications Network,
Inc. (Ord.) (Utilities) 488,136
144 NTT Mobile Communications Network,
Inc. (Utilities) 1,928,731
29,000 Nihon Unisys, Ltd. (Tech. Services) 629,392
85 Nippon Telephone (Utilities) 990,905
22,400 Orix Corp. (Finance) 2,000,165
10,300 Ryohin Keikaku Co., Ltd. (Retail Trade) 2,593,096
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
18,000 Seven Eleven Japan (Retail Trade) 1,765,027
1,600 Shohkoh Fund Co. (Finance) 1,148,243
50,000 Takeda Chemical Industries
(Health Technology) 2,319,140
16,000 TDK Corp. (Electronic Technology) 1,464,407
31,000 Terumo Corp. (Health Technology) 690,740
88,000 The Fuji Bank, Ltd. (Finance) 614,072
101,000 The Nikko Securities Co., Ltd. (Finance) 652,179
--------------
22,971,560
--------------
PHILIPPINES (0.5%)
141,500 Manila Electric Co. (Utilities) 509,474
--------------
TAIWAN (1.5%)
123,000 Hon Hai Precision Industry (Electronic
Technology) (3) 1,111,950
10,000 Taiwan Semiconductor Mfg. Co. Ltd.,
A.D.R. (Electronic Technology) (3) 340,000
--------------
1,451,950
--------------
SINGAPORE (2.2%)
42,000 Development Bank of Singapore, Ltd.
(Finance) 513,279
167,000 Natsteel Electronics, Ltd. (Electronic
Technology) 730,993
109,000 Venture Mfg., Ltd. (Electronic Tech.) 838,954
--------------
2,083,226
--------------
SOUTH KOREA (2.3%)
19,512 Samsung Electronics (Electronic Tech.) 2,140,841
THAILAND (2.0%)
101,000 Advanced Info Services (Utilities) 1,369,492
135,000 Bangkok Bank Public Co., Ltd.
(Finance) (3) 505,220
--------------
1,874,712
--------------
EUROPE (58.3%)
BELGIUM (0.8%)
17,600 UCB, S.A. (Health Technology) 752,568
--------------
FINLAND (7.1%)
52,800 Nokia Corp., A.D.R. (Electronic Tech.) 4,834,500
46,360 Tieto Corp. (Technology Services) 1,929,788
--------------
6,764,288
--------------
FRANCE (7.4%)
14,520 AXA-UAP (Finance) 1,769,849
38,200 Alstom, A.D.R. (Producer Mfg.) 1,200,461
24
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
3,894 Carrefour, S.A. (Retail Trade) 571,736
9,430 France Telecom, S.A. (Utilities) 711,712
6,560 Groupe Danone (Cons. Non-Durables) 1,689,774
1,615 L'oreal Co. (Consumer Non-Durables) 1,090,762
--------------
7,034,294
--------------
GERMANY (5.2%)
3,397 Allianz, A.G. (Finance) 941,527
21,930 Deutsche Telekom, A.G. (Utilities) 919,640
17,100 Mannesmann, A.G. (Producer Mfg.) 2,549,467
1,250 SAP Preferred (Technology Services) 499,076
--------------
4,909,710
--------------
IRELAND (3.6%)
98,800 Bank of Ireland (Finance) 1,660,119
64,400 Elan Corp., p.l.c., A.D.R. (Health
Technology) (3) 1,787,100
--------------
3,447,219
--------------
ITALY (4.5%)
272,200 Banca Fideuram (Finance) 1,584,606
123,000 Telecom Italia (Utilities) 1,277,469
242,100 Telecom Italia Mobile Spa (Utilities) 1,444,302
--------------
4,306,377
--------------
NETHERLANDS (7.3%)
8,200 ASM Lithography Holding N.V.
(Electronic Technology) (3) 486,875
20,740 Aegon N.V., A.D.R. (Finance) 1,534,729
60,360 CMG, p.l.c. (Technology Services) 1,585,894
5,100 Equant, A.D.R. (Technology Services) 480,038
22,640 Libertel N.V. (Electronic Technology) (3) 443,215
8,040 United Pan-Europe Communications
N.V. (Consumer Services) (3) 435,739
49,064 Wolters Kluwer (Commercial Svcs.) 1,951,349
--------------
6,917,839
--------------
PORTUGAL (0.9%)
20,500 Portugal Telecom, A.D.R. (Utilities) 844,344
--------------
SPAIN (5.2%)
68,220 Argentaria (Finance) 1,552,717
67,500 Endesa, A.D.R. (Utilities) 1,434,375
41,286 Telefonica, S.A. (Utilities) 1,986,998
--------------
4,974,090
--------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
SWEDEN (2.2%)
36,300 L.M. Ericsson Telephone Co., A.D.R.
(Electronic Technology) 1,195,631
60,800 Securitas AB (Commercial Svcs.) 909,681
--------------
2,105,312
--------------
SWITZERLAND (3.3%)
675 Novartis, A.G. (Health Technology) 985,053
50 Roche Holdings, A.G. (Health Tech.) 513,661
2,870 Zurich Allied, AG (Finance) 1,631,038
--------------
3,129,752
--------------
UNITED KINGDOM (10.8%)
28,924 AstraZeneca Group, p.l.c. (Health
Technology) 1,127,893
52,800 British Telecom, p.l.c. (Utilities) 884,693
55,550 Carlton Communications, p.l.c. (Consumer
Services) 461,007
46,190 Granada Group, p.l.c. (Consumer Services) 856,938
72,126 Lloyds TSB Group, p.l.c. (Finance) 977,722
292,585 Misys, p.l.c. (Technology Services) 2,504,247
23,305 Pearson, p.l.c. (Consumer Services) 473,508
334,670 Rentokil Group, p.l.c. (Commercial Svcs.) 1,305,621
9,600 SmithKline Beecham, p.l.c., A.D.R.
(Health Technology) 634,201
5,100 Vodafone Airtouch, A.D.R. (Utilities) 1,004,700
--------------
10,230,530
--------------
LATIN AMERICA (0.5%)
MEXICO (0.5%)
5,700 Telefonos de Mexico S.A., A.D.R.
(Utilities) 460,631
--------------
Total common stocks 91,093,947
--------------
(cost: $57,285,461)
STRUCTURED NOTE (0.8%) (2)
371 Sony Corp. (Currency Protected,
Equity-Linked), 7.50%, 5/8/00 (8) 779,205
--------------
(cost: $717,236)
SHORT TERM SECURITIES (3.3%) (2)
3,156,000 Sit Money Market Fund, 4.56% (6) 3,156,000
--------------
(cost: $3,156,000)
Total investments in securities
(cost: $61,158,697) (7) $95,029,152
==============
See accompanying notes to portfolios of investments.
25
<PAGE>
SIT SMALL CAP GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Small Cap Growth Fund's one-year return was +8.8% and compared
favorably to the +1.5% return for the Russell 2000 Index. Small cap stocks
regained significant momentum during the second quarter of 1999. The Fund's
quarterly return was +18.7% versus the +15.6% return for the Russell 2000 Index.
The Fund's average annual total return since inception was +19.4%, which
compared favorably to the +15.3% return for the Russell 2000 Index.
Extreme undervaluation of small stocks and renewed confidence in the global
economic environment were key elements behind the strong second quarter rally
for small cap stocks. In fact, this was the first quarter in seven that the
Russell 2000 Index outperformed the Russell 1000 Index. Given the duration and
magnitude of small cap underperformance in recent years and the resulting
valuation disparity, we believe the potential exists for an extended small cap
stock rally. Our enthusiasm for smaller stocks can be illustrated by a simple
analysis of price-to-earnings ratios relative to estimated long-term growth
rates. The P/E ratio for the Fund currently stands at 32 times estimated year
2000 earnings--which is BELOW the estimated earnings growth rate of 35%. In
contrast, the P/E ratio for the S&P 500 is 26 times estimated 2000 earnings and
well ABOVE the long-term earnings growth rate of 10%.
As of June 30th, the Fund was 96% invested in equities. The most
significant sector increases over the past year occurred in electronic
technology through purchases of Applied Micro Circuits, PMC Sierra, Galileo
Technology, and Flextronics. The financial services sector had the greatest
reduction in weighting, accomplished through sales of Imperial Credit
Industries, Life Re, Nac Re, Delphi Financial, and Community First Bank.
Electronic technology and technology services remain the heaviest weighted
sectors within the portfolio due to the robust earnings outlook for the
technology sectors.
Although the strong returns experienced during the second quarter are
unlikely to be repeated over each of the year's remaining quarters, we believe
the Fund is in position to benefit from the improving outlook for small
capitalization investing.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Small Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of small growth companies that have a capitalization of $2.5
billion or less at the time of purchase.
In addition, the Fund may purchase securities convertible into common
stocks, preferred stocks and warrants. The Fund may invest in securities not
listed on a national securities exchange but generally such securities will have
an established over-the-counter market.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $18.28 Per Share
6/30/98: $20.35 Per Share
Total Net Assets: $50.3 Million
Weighted Average Market Cap: $ 2.0 Billion
TOTAL DIVIDEND: $ 3.09 PER SHARE
Long Term Capital Gain: $ 3.09 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 30.1
Technology Services 23.9
Finance 8.9
Utilities 8.0
Health Technology 6.3
Consumer Services 4.7
Retail Trade 4.2
Transportation 3.8
Health Services 2.3
Energy Minerals 1.9
Industrial Services 1.1
Commercial Services 0.7
Cash & Other Net Assets 4.1
26
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
------------------------------------------- ------------------------------------------
Small Cap Russell 2000 Russell 2000 Small Cap Russell 2000 Russell 2000
Growth Fund Index Growth Index Growth Fund Index Growth Index
----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 18.70% 15.55% 14.75% 18.70% 15.55% 14.75%
(not annualized)
1 Year 8.77 1.50 8.30 8.77 1.50 8.30
3 Years 7.54 11.22 8.64 24.38 37.56 28.24
Inception 19.44 15.32 15.33 143.07 103.99 104.09
(7/1/94)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDEX NOR
THE RUSSELL 2000 GROWTH INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/99 would
have grown to $24,307 in the Fund or $20,399 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Applied Micro Circuits Corp.
* Uniphase Corp.
* Dendrite International, Inc.
* PMC-Sierra, Inc.
* Legato Systems, Inc.
* Galileo Technology, Ltd.
* Transaction Network Services, Inc.
* Allegiance Telecom, Inc.
* Siebel Systems, Inc.
* Inktomi Corp.
Total number of holdings: 58
27
<PAGE>
SIT SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.9%) (2)
COMMERCIAL SERVICES (0.7%)
35,000 HA-LO Industries, Inc. (3) $345,625
----------------
CONSUMER SERVICES (4.7%)
22,000 Emmis Broadcasting Corp. (3) 1,086,250
9,000 Jones Intercable, Inc. (3) 441,000
35,000 Rent-Way, Inc. (3) 861,875
----------------
2,389,125
----------------
ELECTRONIC TECHNOLOGY (30.1%)
28,000 AAR Corp. 635,250
25,000 Applied Micro Circuits Corp. (3) 2,056,250
33,500 Asyst Technologies, Inc. (3) 1,002,906
29,000 Burr-Brown Corp. (3) 1,062,125
3,000 Extreme Networks, Inc. (3) 174,187
22,500 Flextronics International, Ltd. (3) 1,248,750
33,500 Galileo Technology, Ltd. (3) 1,517,969
20,000 Gilat Satellite Networks, Ltd. (3) 1,050,000
1,500 Juniper Networks, Inc. (3) 223,500
30,000 PMC-Sierra, Inc. (3) 1,768,125
12,700 RF Micro Devices, Inc. (3) 947,738
18,000 SDL, Inc. (3) 919,125
25,000 Security Dynamics Tech., Inc. (3) 531,250
12,000 Uniphase Corp. (3) 1,992,000
----------------
15,129,175
----------------
ENERGY MINERALS (1.9%)
33,500 Newfield Exploration Co. (3) 952,656
----------------
FINANCE (8.9%)
18,500 Arthur J. Gallagher & Co. 915,750
38,500 Federated Investors, Inc. 690,594
17,500 Mutual Risk Management, Ltd. 584,063
39,325 Queens County Bancorp, Inc. 1,273,147
90,500 Scottish Annuity & Life Hldgs., Ltd. 972,875
7,300 Stirling Cooke Brown Holdings 30,112
----------------
4,466,541
----------------
HEALTH SERVICES (2.3%)
35,500 Stericycle, Inc. (3) 481,469
20,000 Sunrise Assisted Living, Inc. (3) 697,500
----------------
1,178,969
----------------
HEALTH TECHNOLOGY (6.3%)
44,000 Biosite Diagnostics, Inc. (3) 445,500
50,000 I-Stat Corp. (3) 456,250
9,000 IDEC Pharmaceuticals Corp. (3) 693,562
9,500 Novoste Corp. (3) 199,500
10,000 Sepracor, Inc. (3) 812,500
30,000 Ventana Medical Systems, Inc. (3) 573,750
----------------
3,181,062
----------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
INDUSTRIAL SERVICES (1.1%)
61,000 Newpark Resources, Inc. (3) 541,375
----------------
RETAIL TRADE (4.2%)
10,000 AnnTaylor Stores Corp. (3) 450,000
28,000 Cost Plus, Inc. (3) 1,274,000
15,500 Men's Wearhouse, Inc. (3) 395,250
----------------
2,119,250
----------------
TECHNOLOGY SERVICES (23.9%)
17,500 BISYS Group, Inc. (3) 1,023,750
11,500 Cais Internet, Inc. (3) 211,313
51,500 Dendrite International, Inc. (3) 1,860,438
20,000 Great Plains Software, Inc. (3) 943,750
10,000 Inktomi Corp. (3) 1,305,625
30,000 Legato Systems, Inc. (3) 1,732,500
34,300 Pervasive Software, Inc. (3) 853,212
2,500 Priceline.com, Inc. (3) 288,906
6,500 Razorfish, Inc. (3) 240,906
15,000 Sapient Corp. (3) 849,375
20,229 Siebel Systems, Inc. (3) 1,342,700
3,000 VerticalNet, Inc. (3) 315,000
26,000 Whittman-Hart, Inc. (3) 825,500
8,500 Ziff-Davis, Inc. (3) 221,000
----------------
12,013,975
----------------
TRANSPORTATION (3.8%)
25,000 C.H. Robinson Worldwide, Inc. 918,750
8,000 Eagle USA Airfreight, Inc. (3) 339,500
24,000 Expeditors International, Inc. 654,000
----------------
1,912,250
----------------
UTILITIES (8.0%)
26,000 Allegiance Telecom, Inc. (3) 1,426,750
12,000 Nextlink Communications (3) 892,500
5,000 Rhythms NetConnections, Inc. (3) 291,875
49,000 Transaction Network Svcs., Inc. (3) 1,433,250
----------------
4,044,375
----------------
Total common stocks 48,274,378
----------------
(cost: $31,802,635)
SHORT-TERM SECURITIES (3.0%) (2)
1,491,000 Sit Money Market Fund, 4.56% (6) 1,491,000
----------------
(cost: $1,491,000)
Total investments in securities
(cost: $33,293,635) (7) $49,765,378
================
See accompanying notes to portfolios of investments.
28
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
29
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] EUGENE C. SIT, CFA
SENIOR PORTFOLIO MANAGER
The Sit Science and Technology Fund posted a positive return of +29.4% for
the year ended June 30, 1999. The +32.5% annualized return since inception is in
excess of broad market averages. For example, the comparable S&P 500 return for
the same eighteen-month period was +27.8%
The Fund lagged behind the Pacific Stock Exchange Technology 100 Index
(PSE) due to the Index's disproportionate contribution from Internet securities
and the Fund's commitment to the health care sector. At the end of June, health
care stocks represented 24% of the portfolio compared to an estimated 15% health
care weight for the Index. During the past twelve months, health care holdings
have averaged approximately 33% of the portfolio. While we believe there are
many promising long-term investments within the health care sector, these stocks
have lagged behind the technology sector performance within the Fund over the
last twelve months. This relative underperformance has led to compelling
valuations for health care issues, and the Fund will continue to pursue
opportunities in this sector.
As of June 30th, the Fund was 99% invested in equity securities, up from
96% last year. The most significant sector change was related to a shift from
the technology services sector to the electronic technology sector. Since
lingering fears of a Year 2000-related slowdown may weigh down the performance
of technology service companies, total or partial sales were made in shares of
Computer Associates, Cadence Design, Intelligroup, Peoplesoft, and Security
Dynamics. Improving fundamentals in the telecommunications and semiconductor
industries led to increased weightings within the electronic technology and
utilities sectors through the purchase of Applied Micro Circuits, Jabil Circuit,
Motorola, Nokia, PMC-Sierra, Teradyne, Vitesse Semiconduictor, and MCI Worldcom.
Earnings for the stocks in the Fund are expected to grow +26% in 1999 and
+32% over the next five years. Despite growth rates of more than two and
one-half times the market, valuations do not appear excessive. The
price-to-earnings ratio for the Fund currently stands at 39 times 2000 earnings,
and the comparable ratio for the S&P 500 is 26 times earnings. Based on the
strong earnings growth and attractive relative valuations, we continue to be
optimistic about the outlook for companies in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies which Sit Investment Associates, Inc. expects to benefit from the
development, improvement, advancement and use of science and technology. During
normal market conditions, at least 80% of the Fund's total assets will be
invested in such securities. The Fund emphasizes securities of companies that
the adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $15.23 Per Share
6/30/98: $11.77 Per Share
Total Net Assets: $14.2 Million
Weighted Average Market Cap: $70.9 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Electronic Technology 49.7
Health Technology 23.5
Technology Services 22.7
Utilities 3.5
Cash & Other Net Assets 0.6
30
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
---------------------------------- ----------------------------------
Pacific Stock Pacific Stock
Science and Exchange Science and Exchange
Technology Technology Technology Technology
Growth Fund 100 Index Growth Fund 100 Index
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
3 Months 10.36% 20.62% 10.36% 20.62%
(not annualized)
1 Year 29.40 73.40 29.40 73.40
Inception 32.48 62.36 52.30 106.46
(12/31/97)
</TABLE>
*As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 6/30/99 would
have grown to $15,230 in the Fund, or $20,646 in the PSE Tech 100 Index assuming
reinvestment of all dividends and capital gains.
10 LARGEST HOLDINGS
* Microsoft Corp.
* International Business Machines Corp.
* Cisco Systems, Inc.
* Biogen, Inc.
* Tellabs, Inc.
* Vitesse Semiconductor Corp.
* Inktomi Corp.
* Unisys Corp.
* Intel Corp.
* Applied Micro Circuits Corp.
Total number of holdings: 55
31
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (99.2%) (2)
ELECTRONIC TECHNOLOGY (49.7%)
5,500 ADC Telecommunications, Inc. (3) $250,594
5,500 Analog Devices, Inc. (3) 276,031
4,000 Applied Micro Circuits Corp. (3) 329,000
8,000 Cisco Systems, Inc. (3) 516,000
3,750 Comverse Technology, Inc. (3) 283,125
6,000 Dell Computer Corp. (3) 222,000
5,600 EMC Corp. (3) 308,000
6,000 Intel Corp. 357,000
4,000 International Business Machines Corp. 517,000
5,000 Jabil Circuit, Inc. (3) 225,625
2,000 Lexmark International Group, Inc. (3) 132,125
4,000 Lucent Technologies, Inc. 269,750
3,000 Motorola, Inc. 284,250
3,000 Nokia Corp., A.D.R. 274,688
5,000 PMC-Sierra, Inc. (3) 294,687
4,000 RF Micro Devices, Inc. (3) 298,500
5,000 SDL, Inc. (3) 255,312
3,000 Synopsys, Inc. (3) 165,562
6,500 Tellabs, Inc. (3) 439,156
4,000 Teradyne, Inc. (3) 287,000
10,000 Unisys Corp. (3) 389,375
6,500 Vitesse Semiconductor Corp. (3) 438,344
4,000 Xerox Corp. 236,250
-----------------
7,049,374
-----------------
HEALTH TECHNOLOGY (23.5%)
8,000 Biogen, Inc. (3) 514,500
4,000 Bristol Myers Squibb Co. 281,750
8,000 Elan Corp., A.D.R. (3) 222,000
7,000 Guilford Pharmaceuticals, Inc. (3) 89,250
2,000 IDEC Pharmaceuticals Corp. (3) 154,125
2,000 Immunex Corp. (3) 254,875
2,000 Johnson & Johnson Co. 196,000
2,000 MedImmune, Inc. (3) 135,500
3,000 Medtronic, Inc. 233,625
4,000 Merck & Co., Inc. 296,000
3,000 Novoste Corp. (3) 63,000
5,000 Protein Design Labs (3) 110,937
2,300 Pfizer, Inc. 252,425
3,000 Schering-Plough Corp. 159,000
2,000 Sepracor, Inc. (3) 162,500
3,000 Warner Lambert Co. 208,125
-----------------
3,333,612
-----------------
- --------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
TECHNOLOGY SERVICES (22.5%)
2,200 America Online, Inc. (3) 243,100
2,600 At Home Corp. (3) 140,238
5,000 BMC Software, Inc. (3) 270,000
4,500 Check Point Software Technology (3) 241,312
4,500 Compuware Corp. (3) 143,156
7,500 Dendrite International, Inc. (3) 270,938
4,000 I2 Technologies, Inc. (3) 172,000
3,000 Inktomi Corp. (3) 391,688
5,500 Legato Systems, Inc. (3) 317,625
6,000 Microsoft Corp. (3) 541,125
3,000 New Era of Networks, Inc. (3) 131,813
4,000 Sterling Commerce, Inc. (3) 146,000
6,000 Whittman-Hart, Inc. (3) 190,500
-----------------
3,199,495
-----------------
UTILITIES (3.5%)
3,500 MCI WorldCom, Inc. (3) 301,219
6,000 Qwest Communications Int'l, Inc. (3) 198,375
-----------------
499,594
-----------------
Total common stocks 14,082,075
-----------------
(cost: $10,462,140)
CONVERTIBLE BONDS (0.2%) (2)
50,000 Tecnomatix Technologies Conv.,
5.25%, 8/15/04 (4) (5) 34,875
-----------------
(cost: $48,477)
SHORT-TERM SECURITIES (0.8%) (2)
120,000 Sit Money Market Fund, 4.56% (6) 120,000
-----------------
(cost: $120,000)
Total investments in securities
(cost: $10,630,617) (7) $14,236,950
=================
See accompanying notes to portfolios of investments.
32
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
33
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND REVIEW
YEAR ENDED JUNE 30, 1999
[PHOTO] SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA
ANDREW B. KIM, CFA
During the June quarter, the Sit Developing Markets Growth Fund (up +29.1%)
outperformed both the MSCI Emerging Markets Free Index (up +23.6%) and the
Lipper Emerging Markets Index (up +25.2%), reflecting the sizable positive
returns of the holdings in the Asian markets. At the end of June, equity
holdings in Asia increased to 58.1% of the net assets vs. 41.3% for the Index.
Weightings increased sharply from a year ago in Taiwan (13.2% vs. 8.4%), South
Korea (11.9% vs. 3.7%), and Singapore (10.9% vs. 6.3%) because of a continued
focus on the electronics sector's contract manufacturers.
The Fund's 1-year return, however, was less favorable increasing +10.3%
compared with the MSCI Emerging Markets Free Index benchmark gain of +25.2% and
the Lipper Emerging Market Index return of +19.0%. The underperformance relative
to the indices was in large part the result of our underweight in Mexico, South
Korea, and Greece as well as our lack of interest rate sensitive financial and
property sector exposures in Asia early in the year. Our exposure in some
non-index countries and our high cash position also hurt performance.
The overall Latin American weighting as of June 30th stood at 15.5% vs.
30.4% for the Index. In Latin America, the Fund's holdings continue to be
concentrated in Mexico (11.3% vs. 11.9%) based on its promising corporate
earnings outlook. The removal of near-term uncertainties over immediate U.S.
interest rate increases and higher oil prices should benefit emerging markets in
general. Specifically, Mexico should more fully benefit from strong NAFTA
economies. Brazil, however, is substantially underweight (3.0% vs. the Index's
8.7%) due to structural weakness stemming from its domestic fiscal problems.
Emerging-Europe, Middle East and Africa holdings were underweighted at
18.4% vs. 28.3%. The Fund continued to overweight Israel (4.4% vs. 2.9%) and
underweight South Africa (2.5% vs. 11.0%). Greece was the largest weighting
(7.1% vs. 6.1%).
Among new additions in the Fund's holdings were Korea Telecom, Development
Bank of Singapore, Hana Microelectronics in Thailand, Comverse Technology in
Israel, Philippine Long Distance Telephone in addition to Delta Dairy in Greece.
We believe the favorable liquidity conditions in Asia should continue in
the second half, aided by the increased current account surplus, foreign direct
investment, lower interest rates and stable currencies. In addition, we look for
Japan's improving business conditions and strong currency to contribute to
Asia's economic recovery.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
equity securities of companies located or otherwise operating in a developing
market.
Developing markets tend to be less economically developed regions of the
world. General characteristics also include a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, rapid economic growth and lower
degrees of political stability. Investors should carefully consider the risks
associated with developing markets such as currency flucuations, high
volatility, illiquidity and the possibility of political instability.
PORTFOLIO SUMMARY
Net Asset Value 6/30/99: $ 9.98 Per Share
6/30/98: $ 9.05 Per Share
Total Net Assets: $11.3 Million
Weighted Average Market Cap: $32.1 Billion
PORTFOLIO STRUCTURE - BY REGION
(% of total net assets)
[BAR CHART]
SIT DEVELOPING MSCI Emerging
MARKETS GROWTH FUND Markets Free Index
Asia 58.1 41.3
Latin America 15.5 30.4
Europe 11.5 13.4
Africa/Middle East 6.9 14.9
North America 0.9 0.0
Cash & Other Net Assets 7.1 0.0
34
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS*
-------------------------------------------- --------------------------------------------
Developing MSCI Lipper Developing MSCI Lipper
Markets Emerging Markets Emerging Markets Emerging Markets Emerging
Growth Fund Free Index Markets Index Growth Fund Free Index Markets Index
----------- ---------------- ------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
3 Months 29.11% 23.62% 25.17% 29.11% 23.62% 25.17%
(not annualized)
1 Year 10.28 25.20 19.04 10.28 25.20 19.04
3 Year -3.01 -6.18 -4.39 -8.76 -17.41 -12.59
Inception 0.11 -2.89 -1.06 0.53 -13.64 -5.18
(7/1/94)
</TABLE>
* As of 6/30/99
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY
INTERNATIONAL EMERGING MARKETS FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE
OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF
MUTUAL FUNDS.
PORTFOLIO STRUCTURE - BY SECTOR
(% of total net assets)
[BAR CHART]
Utilities 38.4
Electronic Technology 29.9
Retail Trade 9.4
Finance 7.4
Industrial Services 3.1
Technology Services 2.5
Consumer Non-Durables 1.4
Consumer Services 0.8
Cash & Other Net Assets 7.1
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 6/30/99 would
have grown to $10,053 in the Fund or $8,636 in the Morgan Stanley Capital Int'l
Emerging Markets Free Index assuming reinvestment of all dividends and capital
gains.
35
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
10 LARGEST HOLDINGS
* Hon Hai Precision Industry
* Advanced Info Services
* Telefonos de Mexico, A.D.R.
* Samsung Electronics
* Cifra, S.A.
* Datacraft Asia, Ltd.
* Korea Electric Power, A.D.R.
* Dimension Data Holdings, Ltd.
* Philippine Long Distance Telephone Co., A.D.R.
* Venture Manufacturing, Ltd.
Total number of holdings: 46
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (92.9%)(2)
AFRICA/ MIDDLE EAST (6.9%)
ISRAEL (4.4%)
2,500 Gilat Satellite Networks, Ltd., A.D.R.
(Electronic Technology) (3) $131,250
8,600 Nice Systems, Ltd., A.D.R. (Electronic
Technology ) (3) 237,038
1,700 Comverse Technology, Inc. (Electronic
Technology) (3) 128,350
-------------
496,638
-------------
SOUTH AFRICA (2.5%)
64,800 Dimension Data Holdings, Ltd.
(Technology Services) 286,735
-------------
ASIA (58.1%)
HONG KONG (6.5%)
13,000 Cheung Kong Hldgs., Ltd. (Indus. Svcs.) 115,614
640,000 China Hong Kong Photo Products Hldgs.,
Ltd. (Retail Trade) 102,287
74,000 China Telecom (Utilities) 205,540
48,000 Citic Pacific, Ltd. (Utilities) 153,120
4,400 HSBC Holdings, p.l.c. (Finance) 160,493
-------------
737,054
-------------
INDONESIA (1.6%)
258,000 PT Ramayana Lestari (Retail Trade) 182,556
-------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
PHILIPPINES (5.3%)
2,343,000 Digital Telecom Philippines (Utilities) (3) 144,090
173,000 Jollibee Foods Co. (Warrants) (Consumer
Services) (3)(4)(5) 88,660
9,200 Philippine Long Distance Telephone Co.,
A.D.R. (Utilities) 277,150
424,000 SM Prime Holdings, Inc. (Retail Trade) 95,832
-------------
605,732
-------------
SINGAPORE (10.9%)
60,000 Avimo Group, Ltd. (Electronic Tech.) 97,650
95,000 Datacraft Asia, Ltd. (Electronic Tech.) 414,200
19,000 Development Bank of Singapore, Ltd.
(Finance) 232,197
51,000 Natsteel Electronics, Ltd. (Electronic
Technology) 223,237
35,000 Venture Mfg., Ltd. (Electronic Tech.) 269,389
-------------
1,236,673
-------------
SOUTH KOREA (11.9%)
20,000 Korea Electric Power, A.D.R. (Utilities) 410,000
3,000 Korea Telecom Corporation (Utilities) 199,050
6,000 Korea Telecom Corp., A.D.R. (Utilities) (3) 240,000
4,564 Samsung Electronics (Electronic
Technology) 500,758
-------------
1,349,808
-------------
TAIWAN (13.2%)
75,698 Chroma Ate, Inc. (Electronic Technology) (3) 221,469
74,200 Hon Hai Precision Industry (Electronic
Technology) (3) 670,786
69,000 President Chain Store Corp. (Retail Trade) 233,916
64,000 Phoenixtec Power Co. (Elec. Tech.) (3) 127,802
62,730 Taiwan Semiconductor Co. (Electronic
Technology) (3) 239,850
-------------
1,493,823
-------------
THAILAND (8.7%)
48,800 Advanced Info Services (Utilities) 661,695
54,000 Bangkok Bank (Finance) 202,088
42,000 Hana Microelectronics Public Co., Ltd.
(Electronic Technology) 126,427
-------------
990,210
-------------
EUROPE (11.5%)
GREECE (7.1%)
3,937 Alpha Credit Bank (Finance) 253,476
3,000 Delta Dairy S.A. (Consumer Non-Durables) 58,468
11,700 Hellenic Telecommunications
Organization (Utilities) 250,476
10,250 Panafon Telecom (Utilities) (3) 246,904
-------------
809,324
-------------
36
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE(1)
- --------------------------------------------------------------------------------
PORTUGAL (2.0%)
5,500 Portugal Telecom, A.D.R. (Utilities) 226,531
-------------
SPAIN (2.4%)
1,815 Telefonica, A.D.R. (Utilities) 266,970
-------------
LATIN AMERICA (15.5%)
ARGENTINA (1.2%)
4,200 Telefonica de Argentina, A.D.R. (Utilities) 131,775
-------------
BRAZIL (3.0%)
6,500 Cemig, A.D.R. (Utilities) 137,995
1,800 Tele Centro Sul Participacoes S.A.,
A.D.R. (Utilities) 99,900
4,400 Telesp Participacoes S.A., A.D.R.
(Utilities) (3) 100,650
-------------
338,545
-------------
MEXICO (11.3%)
223,700 Cifra S.A. (Retail Trade) 445,740
5,000 Coca Cola Femsa S.A., A.D.R. (Consumer
Non-Durables) 96,875
55,700 Corporacion GEO - B
(Industrial Services) (3) 236,142
6,200 Telefonos de Mexico, A.D.R. (Utilities) 501,038
-------------
1,279,795
-------------
NORTH AMERICA (0.9%)
CANADA (0.9%)
5,800 Telesystems Int'l. Wireless, Inc.
(Utilities) (3) 104,309
-------------
Total common stocks 10,536,478
-------------
(cost: $7,751,078)
SHORT-TERM SECURITIES (9.6%) (2)
1,088,000 Sit Money Market Fund, 4.56% (6) 1,088,000
-------------
(cost: $1,088,000)
Total investments in securities
(cost: $8,839,078) (7) $11,624,478
=============
See accompanying notes to portfolios of investments.
37
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
38
<PAGE>
SIT MUTUAL FUNDS
NOTES TO PORTFOLIOS OF INVESTMENTS
(1) Securities are valued by procedures described in note 1 to the financial
statements.
(2) Percentage figures indicate percentage of total net assets.
(3) Presently non-income producing securities.
(4) Securities sold within terms of a private placement memorandum, exempt from
registration under section 144A of the Securities Act of 1933, as amended,
and sold only to dealers in that program or other "accredited investors".
(5) These securities have been identified by the investment adviser as illiquid
securities. The aggregate value of these these securities at June 30, 1999,
is $88,660 and $34,875 in Developing Markets Growth and Science and
Technology Growth Funds, respectively, which represents 0.8% and 0.2% of
the Funds' net assets, respectively. The following table summarizes the
purchase date(s) and cost basis of these securities:
<TABLE>
<CAPTION>
Purchase
Fund Security Date(s) Shares/Par Cost Basis
- ---------------------------------- ------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Developing Markets Growth Jollibee Foods 3/98 - 12/98 173,000 77,228
Science and Technology Growth Tecnomatix Tech. 1/98 50,000 48,477
</TABLE>
(6) This security represents an investment in an affiliated party. See note 3
to the accompanying financial statements.
(7) At June 30, 1999, the cost of securities for federal income tax purposes
and the aggregate gross unrealized appreciation and depreciation based on
that cost were as follows:
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost for federal income tax purposes $ 10,534,649 $ 94,434,800 $ 5,937,382 $ 234,957,758
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 2,204,615 $ 46,000,133 $ 1,681,551 $ 138,205,691
Gross unrealized depreciation (144,106) (1,240,300) (98,190) (1,784,741)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 2,060,509 $ 44,759,833 $ 1,583,361 $ 136,420,950
============= ============= ============= =============
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
Cost for federal income tax purposes $ 62,212,159 $ 33,293,635 $ 10,658,918 $ 8,839,078
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 33,093,304 $ 17,539,502 $ 3,879,914 $ 2,978,423
Gross unrealized depreciation (276,311) (1,067,759) (301,882) (193,023)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 32,816,993 $ 16,471,743 $ 3,578,032 $ 2,785,400
============= ============= ============= =============
</TABLE>
(8) Medium-term debt security whose return is linked to the performance of the
common stock of Sony Corporation. The security is subject to price
fluctuations of the Sony Corporation common stock, up to a limit of 130% of
its level at issue date (May 8, 1999), without being affected by changes in
the yen/U.S. dollar exchange rate. The quarterly interest payment for each
unit is based on the U.S. dollar equivalent market value of 20 shares of
Sony Corp. common stock on issue date.
39
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF ASSETS & LIABILITIES - JUNE 30, 1999
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
ASSETS FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investments in securities, at
identified cost $ 10,523,530 $ 94,415,041 $ 5,920,358 $ 232,941,626
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for
detail $ 12,595,158 $ 139,194,633 $ 7,520,743 $ 371,378,708
Cash in bank on demand
deposit 3,982 837 2,769 1,321
Receivables:
Dividends and accrued interest 57,528 75,303 4,506 129,871
Fund shares sold 8,917 43,023 138 2,410,671
Investment securities sold 156,774 3,370,949 -- 6,094,118
Unrealized appreciation on foreign
currency contracts held (Note 1) -- -- -- --
Other receivables -- 30,301 1,374 13,006
--------------- --------------- --------------- ---------------
Total assets 12,822,359 142,715,046 7,529,530 380,027,695
--------------- --------------- --------------- ---------------
LIABILITIES
Payables:
Investment securities purchased 697,956 2,267,673 -- 4,217,033
Fund shares redeemed 2,584 79,537 33 179,627
Accrued investment management
and advisory services fee 9,420 110,140 5,889 288,457
Other payables 36 -- -- --
--------------- --------------- --------------- ---------------
Total liabilities 709,996 2,457,350 5,922 4,685,117
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock 12,112,363 140,257,696 7,523,608 375,342,578
=============== =============== =============== ===============
Capital stock
Par $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares 697,061 2,654,228 571,098 25,812,041
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock $ 17.38 $ 52.84 $ 13.17 $ 14.54
=============== =============== =============== ===============
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investments in securities, at
identified cost $ 61,158,697 $ 33,293,635 $ 10,630,617 $ 8,839,078
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for
detail $ 95,029,152 $ 49,765,378 $ 14,236,950 $ 11,624,478
Cash in bank on demand
deposit 634 366,851 307 4,807
Receivables:
Dividends and accrued interest 158,662 10,784 5,133 9,736
Fund shares sold 21,626 121,789 874 47,287
Investment securities sold -- 185,615 36,138 275,051
Unrealized appreciation on foreign
currency contracts held (Note 1) -- -- -- 301
Other receivables 22,865 -- -- 5,119
--------------- --------------- --------------- ---------------
Total assets 95,232,939 50,450,417 14,279,402 11,966,779
--------------- --------------- --------------- ---------------
LIABILITIES
Payables:
Investment securities purchased 78,435 56,500 68,711 490,538
Fund shares redeemed 57,474 -- -- 121,635
Accrued investment management
and advisory services fee 114,810 56,172 13,852 16,860
Other payables -- 3,148 3,174 --
--------------- --------------- --------------- ---------------
Total liabilities 250,719 115,820 85,737 629,033
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock 94,982,220 50,334,597 14,193,665 11,337,746
=============== =============== =============== ===============
Capital stock
Par $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares 5,060,826 2,753,954 932,227 1,135,889
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock $ 18.77 $ 18.28 $ 15.23 $ 9.98
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
41
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF OPERATIONS - YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends $ 49,858 $ 744,174 $ 39,449 $ 1,013,159
Interest 212,293 389,174 17,599 863,486
------------ ------------ ------------ ------------
Total income 262,151 1,133,348 57,048 1,876,645
------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee 86,957 1,250,402 74,226 4,328,283
Less fees and expenses absorbed
by investment adviser -- -- (14,845) (865,657)
------------ ------------ ------------ ------------
Total net expenses 86,957 1,250,402 59,381 3,462,626
------------ ------------ ------------ ------------
Net investment income (loss) 175,194 (117,054) (2,333) (1,585,981)
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) (note 2) 591,404 17,648,687 (111,164) 25,382,637
Net change in unrealized appreciation
(depreciation) on investments 205,945 2,230,110 1,187,711 (2,614,204)
Realized gain (loss) on foreign
currency transactions -- -- -- --
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) -- -- -- --
------------ ------------ ------------ ------------
Net gain (loss) on investments 797,349 19,878,797 1,076,547 22,768,433
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 972,543 $ 19,761,743 $ 1,074,214 $ 21,182,452
============ ============ ============ ============
</TABLE>
- -----------------
42
<PAGE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INCOME:
Dividends * $ 824,377 $ 92,922 $ 22,201 $ 110,293
Interest 229,612 97,071 24,172 92,885
------------ ------------ ------------ ------------
Total income 1,053,989 189,993 46,373 203,178
------------ ------------ ------------ ------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee 1,718,057 683,493 132,050 208,718
Less fees and expenses absorbed
by investment adviser (325,038) -- (22,008) --
------------ ------------ ------------ ------------
Total net expenses 1,393,019 683,493 110,042 208,718
------------ ------------ ------------ ------------
Net investment income (loss) (339,030) (493,500) (63,669) (5,540)
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) (note 2) 2,669,179 (3,899,846) (316,306) (2,762,417)
Net change in unrealized appreciation
(depreciation) on investments 2,467,482 6,980,637 2,941,239 3,644,737
Realized gain (loss) on foreign
currency transactions 75,709 -- -- (33,292)
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) 1,383 -- -- (726)
------------ ------------ ------------ ------------
Net gain (loss) on investments 5,213,753 3,080,791 2,624,933 848,302
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 4,874,723 $ 2,587,291 $ 2,561,264 $ 842,762
============ ============ ============ ============
</TABLE>
- -----------------
* Dividends are net of foreign withholding tax of $2,261 and $90,652 in
the Developing Markets Growth Fund and International Growth Fund,
respectively.
43
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED LARGE CAP
FUND GROWTH FUND
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 175,194 $ 131,419 $ (117,054) $ 50,303
Net realized gain (loss) on investments 591,404 548,219 17,648,687 12,220,496
Net change in unrealized appreciation
(depreciation) on investments 205,945 624,195 2,230,110 14,921,853
Net realized gain (loss) on foreign currency transactions -- 5 -- (46)
Net change in unrealized appreciation (depreciation) on
foreign currency transactions -- -- -- 83
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations 972,543 1,303,838 19,761,743 27,192,689
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (147,000) (127,000) (17,000) (132,500)
Net realized gains on investments (350,000) (443,000) (9,200,000) (7,922,500)
------------- ------------- ------------- -------------
Total distributions (497,000) (570,000) (9,217,000) (8,055,000)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 6,001,022 2,008,168 55,525,759 35,549,440
Reinvested distributions 491,654 567,624 9,042,427 7,865,696
Payments for shares redeemed (2,277,394) (991,255) (52,351,385) (17,283,050)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions 4,215,282 1,584,537 12,216,801 26,132,086
------------- ------------- ------------- -------------
Total increase in net assets 4,690,825 2,318,375 22,761,544 45,269,775
NET ASSETS
Beginning of period 7,421,538 5,103,163 117,496,152 72,226,377
------------- ------------- ------------- -------------
End of period $ 12,112,363 $ 7,421,538 $ 140,257,696 $ 117,496,152
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 9,446,131 $ 5,230,849 $ 88,440,137 $ 66,308,638
Undistributed (distributions in excess of) net
investment income 63,689 35,495 -- 17,320
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions 530,915 289,511 7,037,967 8,620,712
Unrealized appreciation (depreciation) on investments 2,071,628 1,865,683 44,779,592 42,549,482
Unrealized appreciation (depreciation) on foreign
currency transactions -- -- -- --
------------- ------------- ------------- -------------
$ 12,112,363 $ 7,421,538 $ 140,257,696 $ 117,496,152
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold 359,829 129,469 1,156,108 796,463
Reinvested distributions 30,798 38,770 198,041 199,890
Redeemed (138,578) (65,109) (1,081,277) (403,112)
------------- ------------- ------------- -------------
Net increase (decrease) 252,049 103,130 272,872 593,241
============= ============= ============= =============
</TABLE>
* Period since commencement of operations (12/31/97)
44
<PAGE>
<TABLE>
<CAPTION>
REGIONAL MID CAP INTERNATIONAL SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
- ------------------------------ ------------------------------ ------------------------------ -----------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 * 1999 1998 1999 1998 1999 1998
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (2,333) $ 8,500 $ (1,585,981) $ (1,634,045) $ (339,030) $ 120,344 $ (493,500) $ (466,768)
(111,164) 26,658 25,382,637 82,862,743 2,669,179 6,485,017 (3,899,846) 10,959,585
1,187,711 412,674 (2,614,204) (831,087) 2,467,482 874,697 6,980,637 (3,664,222)
-- -- -- -- 75,709 831,317 -- --
-- -- -- -- 1,383 (805,596) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,074,214 447,832 21,182,452 80,397,611 4,874,723 7,505,779 2,587,291 6,828,595
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(12,000) -- -- -- (284,000) (159,683) -- --
-- -- (59,500,000) (46,136,334) (5,500,000) (3,469,317) (7,700,000) (2,211,000)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(12,000) 0 (59,500,000) (46,136,334) (5,784,000) (3,629,000) (7,700,000) (2,211,000)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
3,331,498 4,764,788 430,451,763 327,420,150 74,962,278 97,772,151 27,461,865 86,265,023
11,188 -- 56,956,588 43,699,380 5,530,038 3,462,126 7,467,439 2,167,174
(1,863,065) (230,847) (478,075,695) (387,596,125) (84,321,667) (104,669,312) (36,954,369) (93,935,313)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,479,621 4,533,941 9,332,656 (16,476,595) (3,829,351) (3,435,035) (2,025,065) (5,503,116)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,541,835 4,981,773 (28,984,892) 17,784,682 (4,738,628) 441,744 (7,137,774) (885,521)
4,981,773 0 404,327,470 386,542,788 99,720,848 99,279,104 57,472,371 58,357,892
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,523,608 $ 4,981,773 $ 375,342,578 $ 404,327,470 $ 94,982,220 $ 99,720,848 $ 50,334,597 $ 57,472,371
============= ============= ============= ============= ============= ============= ============= =============
$ 6,007,729 $ 4,533,941 $ 212,221,226 $ 204,046,842 $ 59,465,815 $ 63,131,461 $ 37,762,700 $ 40,267,154
-- 8,500 -- -- 552,506 284,937 -- --
(84,506) 26,658 24,684,270 59,229,342 1,100,069 4,909,485 (3,899,846) 7,714,111
1,600,385 412,674 138,437,082 141,051,286 33,870,455 31,402,973 16,471,743 9,491,106
-- -- -- -- (6,625) (8,008) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,523,608 $ 4,981,773 $ 375,342,578 $ 404,327,470 $ 94,982,220 $ 99,720,848 $ 50,334,597 $ 57,472,371
============= ============= ============= ============= ============= ============= ============= =============
289,865 463,573 31,884,953 20,467,307 4,137,747 5,340,368 1,551,586 4,344,293
979 -- 4,770,255 3,101,446 317,635 213,976 509,720 118,231
(162,044) (21,275) (35,369,826) (24,097,062) (4,605,179) (5,690,151) (2,131,506) (4,726,969)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
128,800 442,298 1,285,382 (528,309) (149,797) (135,807) (70,200) (264,445)
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
SIT MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SCIENCE AND
TECHNOLOGY DEVELOPING MARKETS
GROWTH FUND GROWTH FUND
----------------------------- -----------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 * 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (63,669) $ (3,908) $ (5,540) $ (72,297)
Net realized gain (loss) on investments (316,306) (44,932) (2,762,417) (532,256)
Net change in unrealized appreciation
(depreciation) on investments 2,941,239 665,094 3,644,737 (4,417,826)
Net realized gain (loss) on foreign currency transactions -- -- (33,292) (20,693)
Net change in unrealized appreciation (depreciation) on
foreign currency transactions -- -- (726) 550
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from
operations 2,561,264 616,254 842,762 (5,042,522)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- (13,900)
Net realized gains on investments -- -- -- --
------------ ------------ ------------ ------------
Total distributions 0 0 0 (13,900)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 9,619,464 4,529,940 11,372,665 10,606,901
Reinvested distributions -- -- -- 13,512
Payments for shares redeemed (2,845,402) (287,855) (12,382,569) (10,848,159)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from
capital share transactions 6,774,062 4,242,085 (1,009,904) (227,746)
------------ ------------ ------------ ------------
Total increase in net assets 9,335,326 4,858,339 (167,142) (5,284,168)
NET ASSETS
Beginning of period 4,858,339 0 11,504,888 16,789,056
------------ ------------ ------------ ------------
End of period $ 14,193,665 $ 4,858,339 $ 11,337,746 $ 11,504,888
============ ============ ============ ============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 10,948,570 $ 4,238,177 $ 12,251,919 $ 13,300,655
Undistributed (distributions in excess of) net
investment income -- -- -- --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions (361,238) (44,932) (3,697,984) (935,567)
Unrealized appreciation (depreciation) on investments 3,606,333 665,094 2,785,400 (859,337)
Unrealized appreciation (depreciation) on foreign
currency transactions -- -- (1,589) (863)
------------ ------------ ------------ ------------
$ 14,193,665 $ 4,858,339 $ 11,337,746 $ 11,504,888
============ ============ ============ ============
CAPITAL TRANSACTIONS IN SHARES:
Sold 733,282 439,554 1,343,413 960,282
Reinvested distributions -- -- -- 1,354
Redeemed (213,983) (26,626) (1,479,311) (977,683)
------------ ------------ ------------ ------------
Net increase (decrease) 519,299 412,928 (135,898) (16,047)
============ ============ ============ ============
</TABLE>
* Period since commencement of operations 912/31/97)
See accompanying notes to financial statements.
46
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
47
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sit Mutual Funds are no-load funds, and are registered under the Investment
Company Act of 1940 (as amended) as diversified, open-end management investment
companies, or series thereof. The Sit Developing Markets Growth, Sit Small Cap
Growth, Sit International Growth, Sit Balanced, Sit Regional, and Sit Science
and Technology Growth Funds are series funds of Sit Mutual Funds, Inc.
This report covers the equity funds of the Sit Mutual Funds (the Funds). The
investment objective for each Fund is as follows:
- --------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Large Cap Growth Fund, Inc. Maximize long-term capital appreciation
and, secondarily current income.
- --------------------------------------------------------------------------------
Mid Cap Growth Fund, Inc. Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Small Cap Growth Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Balanced Long-term capital appreciation consistent
with the preservation of principal and to
provide regular income.
- --------------------------------------------------------------------------------
International Growth Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Developing Markets Growth Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Regional Growth Fund Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Science and Technology Growth Fund Maximize long-term capital appreciation.
- --------------------------------------------------------------------------------
Significant accounting policies followed by the Funds are summarized below:
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges or on the NASDAQ National Market System are valued at the last quoted
sales price prior to the time when assets are valued; securities traded in the
over-the-counter market and listed securities for which no sale was reported on
that date are valued at the last bid price; foreign securities that are
purchased in the form of American Depository Receipts (ADRs) are valued in
United States dollars at the latest quoted price on the national securities
exchange on which the ADR is traded. When market quotations are not readily
available, securities are valued at fair value based on procedures determined in
good faith by the Board of Directors. Such fair values are determined using
prices quoted by independent brokers or pricing services. Securities maturing
more than 60 days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those securities with
maturities of less than 60 days when acquired, or which subsequently are within
60 days of maturity, are valued at amortized cost, which approximates market
value.
Security transactions are accounted for on the date the securities are purchased
or sold. Securities gains and losses are calculated on the identified-cost
basis. Dividend income is recorded on the ex-dividend date or upon the receipt
of ex-dividend notification in the case of certain foreign securities. Interest,
including level-yield amortization of long-term bond premium and discount, is
recorded on the accrual basis.
ILLIQUID SECURITIES
Each Fund currently limits investments in illiquid securities to 15% of net
assets. At June 30, 1999, the Developing Markets Growth Fund and Science and
Technology Growth Fund held investments in securities deemed illiquid by the
investment adviser. The aggregate value of such securities at June 30, 1999, was
$88,660 and $34,875, representing 0.8% and 0.2% of the Fund's net assets,
respectively. Pursuant to the guidelines adopted by the Board of Directors,
certain unregistered securities are determined to be liquid and are not included
within the limitation specified above.
48
<PAGE>
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
The market value of securities and other assets and liabilities denominated in
foreign currencies for Developing Markets Growth Fund and International Growth
Fund are translated daily into U.S. dollars at the closing rate of exchange.
Purchases and sales of securities, income and expenses are translated at the
exchange rate on the transaction date. Dividend and interest income includes
currency exchange gains (losses) realized between the accrual and payment dates
on such income. Exchange gains (losses) may also be realized between the trade
and settlement dates on security and forward contract transactions. For
securities denominated in foreign currencies, the effect of changes in foreign
exchange rates on realized and unrealized gains or losses is reflected as a
component of such gains or losses.
The Developing Markets Growth and International Growth Funds may enter into
forward foreign currency exchange contracts for operational purposes and to
protect against adverse exchange rate fluctuation. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the Funds and
the resulting unrealized appreciation or depreciation are determined using
foreign currency exchange rates from an independent pricing service. The Funds
are subject to the credit risk that the other party will not complete the
obligations of the contract.
At June 30, 1999, the Developing Markets Growth Fund had entered into a foreign
currency exchange contract that obligated the Fund to deliver currencies at
specified future dates. The unrealized appreciation and/or depreciation on these
contracts is included in the accompanying financial statements. The terms of the
open contracts are as follows:
DEVELOPING MARKETS GROWTH FUND:
Unrealized
Exchange date Currency to be Currency to be appreciation
delivered received (depreciation)
-------------------------------------------------------------------
July 2, 1999 151,720 102,687 $301
Canadian Dollar U.S. Dollar
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
Also, in order to avoid the payment of any federal excise taxes, the Funds will
distribute substantially all of their net investment income and net realized
gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes. The character of distributions made during the year for net
investment income or net realized gains may also differ from its ultimate
characterization for tax purposes. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gain (losses) were recorded by the Fund.
49
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Undistributed net investment income and accumulated net realized gains (losses)
from the Statement of Changes in Net Assets have been increased (decreased) by
current permanent book-to-tax differences resulting in reclassification of
additional paid-in capital as follows:
Undistributed Accumulated
net invest. net realized Additional
income gains (losses) paid-in capital
------------- -------------- ---------------
Developing Markets Growth 5,540 33,292 (38,832)
Small Cap Growth 493,500 (14,111) (479,389)
International Growth 890,599 (1,054,304) 163,705
Mid Cap Growth 1,585,981 (427,709) (1,158,272)
Regional Growth 5,833 -- (5,833)
Large Cap Growth 116,734 (10,031,432) 9,914,698
Science and Technology Growth 63,669 -- (63,669)
The International Growth, Mid Cap Growth, and Small Cap Growth Funds elected to
utilize equalization debits by which a portion of the costs of redemptions,
which occurred during the year ended June 30, 1998, reduced accumulated net
realized gains for tax purposes by $163,703, $427,709, and $14,112,
respectively. In addition, included in the Large Cap Growth Fund adjustment is
$10,031,752 related to an in-kind distribution.
For federal income tax purposes the Developing Markets Growth Fund has a capital
loss carryover of $3,697,984 at June 30, 1999 which, if not offset by subsequent
capital gains, will begin to expire in 2004. Also at June 30, 1999, the Small
Cap Growth, Science and Technology Growth, and Regional Growth Funds have
capital loss carryovers of $3,899,846, $332,937, and $67,482, respectively
which, if not offset by subsequent capital gains, will begin to expire in 2007.
It is unlikely that the Board of Directors will authorize a distribution of net
realized gains until the available capital loss carryovers are offset or expire.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of business on the
record date. Such distributions are payable in cash or reinvested in additional
shares of the Funds' capital stock. Distributions from net investment income, if
any, are declared and paid quarterly for the Balanced Fund and declared and paid
annually for Regional Growth, Science and Technology Growth, Developing Markets
Growth, Small Cap Growth, International Growth, Mid Cap Growth, and Large Cap
Growth Funds. Distributions from net realized gains, if any, will be made
annually for each of the Funds.
CONCENTRATION OF INVESTMENTS
The Developing Markets Growth Fund may concentrate investments in countries with
limited or developing capital markets which may involve greater risks than
investments in more developed markets and the prices of such investments may be
volatile. The consequences of political, social or economic changes in these
markets may have disruptive effects on the market prices of the Fund's
investments and the income it generates, as well as the Fund's ability to
repatriate such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results. Actual results could differ from those
estimates.
50
<PAGE>
NOTE 2 - INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment securities,
other than short-term securities, for the period ended June 30, 1999, were as
follows:
Purchases($) Proceeds($)
------------ -----------
Large Cap Growth Fund 82,563,058 84,877,677
Mid Cap Growth Fund 227,651,096 292,541,983
Small Cap Growth Fund 32,060,406 42,966,052
Balanced Fund 10,557,501 7,364,947
International Growth Fund 40,491,233 51,964,476
Developing Markets Growth Fund 8,575,203 9,190,590
Regional Growth Fund 5,044,562 3,851,083
Science and Technology Growth Fund 11,728,666 4,946,138
NOTE 3 - EXPENSES
INVESTMENT ADVISER
The Funds each have entered into an investment management agreement with Sit
Investment Associates, Inc. (SIA), under which SIA manages the Funds' assets and
provides research, statistical and advisory services, and pays related office
rental, executive expenses and executive salaries. The fee for investment
management and advisory services is based on the average daily net assets of the
Funds at the annual rate of:
Contractual Net of Adviser's
Management Voluntary Fee
Fee Waiver
----------- ----------------
Large Cap Growth Fund 1.00% 1.00%
Mid Cap Growth Fund 1.25% 1.00%
Small Cap Growth Fund 1.50% 1.50%
Balanced Fund 1.00% 1.00%
International Growth Fund 1.85% 1.50%
Developing Markets Growth Fund 2.00% 2.00%
Regional Growth Fund 1.25% 1.00%
Science and Technology Growth Fund 1.50% 1.25%
SIA is obligated to pay all of the Funds' expenses (excluding extraordinary
expenses, stock transfer taxes, interest, brokerage commissions and other
transaction charges relating to investing activities).
For the period November 1, 1996 through December 31, 2000 the Adviser has agreed
to limit the management fee (and, thereby, all Fund expenses, except those not
payable by the Fund as set forth above) of the Mid Cap Growth Fund to 1.00% of
the Fund's average daily net assets. For the period January 1, 1994 through
December 31, 2000, the Adviser has agreed to limit the management fee (and,
thereby, all Fund expenses, except those not payable by the Fund as set forth
above) of the International Growth Fund to 1.50% of the Fund's average daily net
assets. For the period January 1, 1998 through December 31, 2000 the Adviser has
agreed to limit the management fee (and, thereby, all fund expenses, except
those not payable by the Fund as set forth above) of the Regional Growth and
Science and Technology Growth Fund to 1.00% and 1.25%,
51
<PAGE>
SIT MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
respectively, of the Fund's average daily net assets. After December 31, 2000,
these voluntary fee waivers may be discontinued by the Adviser in its sole
discretion. During the period ended December 31, 1999, for the Mid Cap Growth,
International Growth, Regional Growth, and Science and Technology Growth Funds,
SIA voluntarily absorbed $865,657, $325,038, $14,845 and $22,008, respectively,
in expenses that were otherwise payable by the Funds.
As of June 30, 1999, the Large Cap Growth Fund, International Growth Fund, Mid
Cap Growth Fund, Small Cap Growth Fund, Regional Growth Fund, Science and
Technology Growth Fund, Developing Markets Growth Fund, and Balanced Fund had
invested $8,807,000, $3,156,000, $15,042,000, $1,491,000, $365,000, $120,000,
1,088,000, and $1,519,000, respectively, in the Sit Money Market Fund. The terms
of such transactions were identical to those of non-related entities except
that, to avoid duplicate investment advisory fees, SIA remits to each Fund an
amount equal to all fees otherwise due to them under their investment management
agreement for the assets invested in the Sit Money Market Fund.
INVESTMENT SUB-ADVISER
SIA has entered into a sub-advisory arrangement with an affiliated international
investment adviser, Sit/Kim International Investment Associates, Inc. ("SKI").
SKI provides investment research information and portfolio management service
for the Developing Markets Growth Fund and International Growth Fund. Generally,
as compensation for its services under the sub-advisory agreement, SIA pays SKI
a monthly fee of 1/12 of .75% on the first $100 million of each Fund's average
daily net assets, 1/12 of .50% on the next $100 million of average daily net
assets and 1/12 of .40% of average daily net assets in excess of $200 million.
SKI has agreed to waive any fees under the agreement to the extent that
cumulative out of pocket expenses of each Fund borne by SIA exceed the
cumulative fees received by SIA pursuant to each Fund's investment management
agreement. In accordance with the Agreement, fees of $681,189 were paid or
payable to SKI for the year ended June 30, 1999.
TRANSACTIONS WITH AFFILIATES
The investment adviser, affiliates of the investment adviser, directors and
officers of the Funds as a whole owned the following shares as of June 30, 1999:
% Shares
Shares Outstanding
--------- -----------
Large Cap Growth Fund 476,320 17.95
Mid Cap Growth Fund 3,574,953 13.85
Small Cap Growth Fund 1,080,271 39.23
Balanced Fund 136,323 19.56
International Growth Fund 1,099,222 21.72
Developing Markets Growth Fund 229,846 20.23
Regional Growth Fund 118,798 20.80
Science and Technology Growth Fund 229,850 24.66
52
<PAGE>
SIT BALANCED FUND
FINANCIAL HIGHLIGHTS
NOTE 4 - FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock outstanding during the period and
selected supplemental and ratio information for each period(s), are indicated in
the following financial highlights for each Fund.
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 16.68 $ 14.93 $ 12.57 $ 10.99 $ 9.48
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income .32 .34 .33 .30 .28
Net realized and unrealized gains
(losses) on investments 1.45 2.99 2.42 1.57 1.50
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations 1.77 3.33 2.75 1.87 1.78
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.31) (.35) (.32) (.29) (.27)
From realized gains (.76) (1.23) (.07) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.07) (1.58) (.39) (.29) (.27)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 17.38 $ 16.68 $ 14.93 $ 12.57 $ 10.99
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 11.25% 23.95% 22.42% 17.26% 19.16%
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $12,112 $ 7,422 $ 5,103 $ 4,062 $ 2,444
RATIOS:
Expenses to average daily net assets 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income to average daily net assets 2.01% 2.20% 2.48% 2.61% 2.97%
Portfolio turnover rate (excluding short-term securities) 89.37% 62.62% 38.16% 101.37% 50.61%
</TABLE>
- -----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
53
<PAGE>
SIT LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 49.34 $ 40.39 $ 32.75 $ 28.38 $ 23.89
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.04) .02 .07 .04 .11
Net realized and unrealized gains
(losses) on investments 6.96 13.17 10.02 6.61 5.88
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations 6.92 13.19 10.09 6.65 5.99
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.01) (.07) (.03) (.04) (.09)
From realized gains (3.41) (4.17) (2.42) (2.24) (1.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.42) (4.24) (2.45) (2.28) (1.50)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 52.84 $ 49.34 $ 40.39 $ 32.75 $ 28.38
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 15.10% 35.33% 32.36% 24.48% 26.33%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $140,258 $117,496 $ 72,226 $ 53,017 $ 45,211
RATIOS:
Expenses to average daily net assets 1.00% 1.00% 1.00%(2) 1.00%(2) 1.00%(2)
Net investment income (loss) to average daily net assets (0.09)% 0.06% 0.20%(2) 0.14%(2) 0.42%(2)
Portfolio turnover rate (excluding short-term securities) 70.51% 43.61% 32.23% 49.99% 67.14%
</TABLE>
- -----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) During the years ended June 30, 1997, 1996, and 1995, the investment
adviser voluntarily absorbed $50,548, $110,099, and $132,305, respectively,
in expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.08%, 1.23%, and 1.35% for the years ended June 30, 1997, 1996,
and 1995, respectively, and the ratio of net investment income(loss) to
average daily net assets would have been 0.11%, (.09%), and 0.07%,
respectively.
54
<PAGE>
SIT REGIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $ 11.26 $ 10.00
- -----------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.01) .02
Net realized and unrealized gains
on investments 1.94 1.24
- -----------------------------------------------------------------------------------------------------
Total from operations 1.93 1.26
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.02) --
From realized gains -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (.02) .00
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 13.17 $ 11.26
- -----------------------------------------------------------------------------------------------------
Total investment return (1) 17.21% 12.60%
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 7,524 $ 4,982
RATIOS:
Expenses to average daily net assets 1.00% (2) 1.00%(2)
Net investment income to average net assets (0.04)%(2) 0.44%(2)
Portfolio turnover rate (excluding short-term securities) 68.71% 19.71%
</TABLE>
- -----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Percentages for period ended June 30, 1998 are adjusted to an annual rate.
Total Fund expenses are contractually limited to 1.25% of average daily net
assets. However, during the periods ended June 30, 1999 and 1998, the
investment adviser voluntarily absorbed $14,845 and $3,611, respectively,
in expenses that were otherwise payable by the Fund. Had the fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.25% for the periods ended June 30, 1999 and 1998, and the ratio
of net investment income (loss) to average daily net assets would have been
(0.29%) and 0.19%, respectively.
55
<PAGE>
SIT MID CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 16.49 $ 15.43 $ 15.58 $ 13.00 $ 11.08
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.06) (.07) (.03) (.04) --
Net realized and unrealized gains
(losses) on investments .65 3.15 2.50 4.07 2.96
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations .59 3.08 2.47 4.03 2.96
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- -- --
From realized gains (2.54) (2.02) (2.62) (1.45) (1.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.54) (2.02) (2.62) (1.45) (1.04)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 14.54 $ 16.49 $ 15.43 $ 15.58 $ 13.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 6.94% 22.19% 17.23% 33.00% 28.44%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $375,343 $404,327 $386,543 $356,317 $327,879
RATIOS:
Expenses to average daily net assets 1.00% (2) 1.00% (2) 0.92% (2) 0.77% 0.83%
Net investment income (loss) to average daily net assets (0.46)%(2) (0.41)%(2) (0.20)%(2) (0.23)% 0.02%
Portfolio turnover rate (excluding short-term securities) 68.62% 52.62% 38.66% 50.38% 75.40%
</TABLE>
- ----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Effective November 1, 1996, total Fund expenses are contractually limited
to 1.25% of average daily net assets. However, during the years ended June
30, 1999, 1998 and 1997, the investment adviser voluntarily absorbed
$865,657, $1,004,074, and $609,840, respectively, in expenses that were
otherwise payable by the Fund. Had the Fund incurred these expenses, the
ratio of expenses to average daily net assets would have been 1.25%, 1.25%,
and 1.09% for the years ended June 30, 1999, 1998 and 1997, respectively,
and the ratio of net investment income (loss) to average daily net assets
would have been (0.71%), (0.66%) and (0.37%), respectively.
56
<PAGE>
SIT INTERNATIONAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 19.14 $ 18.57 $ 16.29 $ 15.71 $ 14.87
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.07) .02 .01 .02 .09
Net realized and unrealized gains
on investments .84 1.25 2.70 1.50 1.06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from operations .77 1.27 2.71 1.52 1.15
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.06) (.03) (.01) (.09) (.04)
From realized gains (1.08) (.67) (.42) (.85) (.27)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.14) (.70) (.43) (.94) (.31)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 18.77 $ 19.14 $ 18.57 $ 16.29 $ 15.71
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 4.51% 7.50% 17.04% 10.21% 7.86%
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $ 94,982 $ 99,721 $ 99,279 $ 88,712 $ 68,125
RATIOS:
Expenses to average daily net assets 1.50% (2) 1.50%(2) 1.50%(2) 1.50%(2) 1.50%(2)
Net investment income (loss) to average daily net assets (0.37)%(2) 0.12%(2) 0.05%(2) 0.13%(2) 0.62%(2)
Portfolio turnover rate (excluding short-term securities) 45.91% 43.74% 41.59% 38.55% 40.42%
</TABLE>
- ----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Total Fund expenses are contractually limited to 1.85% of average daily net
assets. However, during the years ended June 30, 1999, 1998, 1997, 1996,
and 1995, the investment adviser voluntarily absorbed $325,038, $338,651,
$306,575, $269,556, and $228,795, respectively, in expenses that were
otherwise payable by the fund. Had the Fund incurred these expenses, the
ratio of expenses to average daily net assets would have been 1.85% for the
years ended June 30, 1999, 1998, 1997, 1996, and 1995, and the ratio of net
investment income (loss) to average daily net assets would have been
(0.72%), (0.23%), (0.30%), (0.22%), and 0.27%, respectively.
57
<PAGE>
SIT SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 20.35 $ 18.89 $ 19.27 $ 13.49 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss (.18) (.17) (.14) (.11) (.02)
Net realized and unrealized gains
on investments 1.20 2.31 .57 6.03 3.56
- -----------------------------------------------------------------------------------------------------------------------
Total from operations 1.02 2.14 .43 5.92 3.54
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains (3.09) (.68) (.81) (.14) (.05)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions (3.09) (.68) (.81) (.14) (.05)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 18.28 $ 20.35 $ 18.89 $ 19.27 $ 13.49
- -----------------------------------------------------------------------------------------------------------------------
Total investment return (1) 8.77% 11.70% 2.37% 44.13% 35.59%
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $50,335 $57,472 $58,358 $50,846 $12,015
RATIOS:
Expenses to average daily net assets 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income (loss) to average daily net assets (1.08)% (0.72)% (0.81)% (0.91)% (0.30)%
Portfolio turnover rate (excluding short-term securities) 71.84% 79.54% 58.39% 69.92% 49.39%
</TABLE>
- ----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
58
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, June 30,
1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE:
Beginning of period $ 11.77 $ 10.00
- --------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.07) (.01)
Net realized and unrealized gains
on investments 3.53 1.78
- --------------------------------------------------------------------------------------------------
Total from operations 3.46 1.77
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- --
From realized gains -- --
- --------------------------------------------------------------------------------------------------
Total distributions .00 .00
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 15.23 $ 11.77
- --------------------------------------------------------------------------------------------------
Total investment return (1) 29.40% 17.70%
- --------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $14,194 $ 4,858
RATIOS:
Expenses to average daily net assets 1.25% (2) 1.25% (2)
Net investment income to average net assets (0.72)%(2) (0.21)%(2)
Portfolio turnover rate (excluding short-term securities) 58.29% 19.37%
</TABLE>
- ----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) Percentages for period ended June 30, 1998 are adjusted to an annual rate.
Total Fund expenses are contractually limited to 1.50% of average daily net
assets. However, during the periods ended June 30, 1999 and 1998, the
investment adviser voluntarily absorbed $22,008 and $4,655, respectively,
in expenses that were otherwise payable by the Fund. Had the fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.25% for the periods ended June 30, 1999 and 1998, and the ratio
of net investment income (loss) to average daily net assets would have been
(0.97%) and (0.46%), respectively.
59
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 9.05 $ 13.04 $ 10.95 $ 9.41 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) -- (.06) .03 -- --
Net realized and unrealized gains
(losses) on investments .93 (3.92) 2.06 1.55 (.54)
- -----------------------------------------------------------------------------------------------------------------------
Total from operations .93 (3.98) 2.09 1.55 (.54)
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (.01) -- -- --
From realized gains -- -- -- (.01) (.05)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions -- (.01) -- (.01) (.05)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 9.98 $ 9.05 $ 13.04 $ 10.95 $ 9.41
- -----------------------------------------------------------------------------------------------------------------------
Total investment return (1) 10.28% (30.52)% 19.09% 16.51% (5.44)%
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $11,338 $11,505 $16,789 $ 8,646 $ 4,618
RATIOS:
Expenses to average daily net assets 2.00% 2.00% 2.00% 2.00% 2.00%
Net investment income (loss) to average daily net assets (0.05)% (0.52)% 0.32% 0.06% 0.03%
Portfolio turnover rate (excluding short-term securities) 98.24% 53.36% 65.88% 46.22% 56.35%
</TABLE>
- ----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
60
<PAGE>
SIT MUTUAL FUNDS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sit Large Cap Growth Fund, Inc.
Sit Mid Cap Growth Fund, Inc.
Sit Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolios of investments in securities of Sit
Balanced Fund (a series of Sit Mutual Funds, Inc.), Sit Large Cap Growth Fund,
Inc., Sit Regional Growth Fund (a series of Sit Mutual Funds, Inc.), Sit Mid Cap
Growth Fund, Inc., Sit International Growth Fund (a series of Sit Mutual Funds,
Inc.), Sit Small Cap Growth Fund (a series of Sit Mutual Funds, Inc.), Sit
Science and Technology Growth Fund (a series of Sit Mutual Funds, Inc.), and Sit
Developing Markets Growth Fund (a series of Sit Mutual Funds, Inc.), as of June
30, 1999; the related statements of operations for the period ended June 30,
1999; the statements of changes in net assets for each of the periods in the
two-year period ended June 30, 1999; and the financial highlights as presented
in note 4 to the financial statements. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Sit Balanced Fund, Sit Large Cap Growth Fund, Sit Regional Growth
Fund, Sit Mid Cap Growth Fund, Sit International Growth Fund, Sit Small Cap
Growth Fund, Sit Science and Technology Growth Fund, and Sit Developing Markets
Growth Fund as of June 30, 1999 and the results of their operations, the changes
in their net assets, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG LLP
Minneapolis, Minnesota
August 6, 1999
61
<PAGE>
SIT MUTUAL FUNDS
FEDERAL INCOME TAX INFORMATION
We are required by Federal tax regulations to provide shareholders with certain
information regarding dividend distributions on an annual fiscal year basis. The
figures are for informational purposes only and should not be used for reporting
to federal or state revenue agencies. All necessary tax information will be
mailed in January each year.
LONG-TERM
ORDINARY CAPITAL
FUND AND PAYABLE DATE INCOME(a) GAIN(b)
- ---------------------------- --------- ---------
Large Cap Growth Fund
December 8, 1998 $0.00630(c) $3.40771
======== ========
Mid Cap Growth Fund
December 8, 1998 $0.00000 $2.54141
======== ========
Small Cap Growth Fund
December 8, 1998 $0.00000 $3.08936
======== ========
Balanced Fund
October 8, 1998 $0.07832 --
December 8, 1998 0.08245 $0.75940
April 9, 1999 0.06932 --
July 9, 1999 0.08984 --
-------- --------
$0.31993(d) $0.75940
======== ========
International Growth Fund
December 8, 1998 $0.05618(c) $1.08797
======== ========
Regional Growth Fund
December 8, 1998 $0.02366(c) $0.00000
======== ========
(a) Includes distributions of short-term gains, if any, which are taxable as
ordinary income.
(b) Taxable as long-term gain.
(c) Taxable as dividend income and does not qualify for dividends-received
deduction by corporations.
(d) Taxable as dividend income, 26.18% qualifying for dividends-received
deduction by corporations.
62
<PAGE>
SIT MUTUAL FUNDS
RESULTS OF SHAREHOLDERS MEETING
The annual meeting of the shareholders of the Funds was held on October 27,
1998. Directors elected by the shareholders at the meeting were as follows:
Eugene C. Sit, Peter L. Mitchelson, William E. Frenzel, John E. Hulse, Sidney L.
Jones, and Donald W. Phillips for all Funds and Michael C. Brilley for the Sit
Bond Funds only.
The matters voted on by the shareholders of record as of August 28, 1998 and the
results of the shareholders' vote at the October 27, 1998 meeting were as
follows:
1. Election of Directors:
For Withheld
--- --------
Eugene C. Sit
U.S. Government Securities 6,873,708 24,090
Money Market 26,128,992 4,702
Tax-Free Income 36,143,999 189,587
MN Tax-Free Income 9,603,984 16,735
Bond 860,136 20,877
William E. Frenzel
U.S. Government Securities 6,720,559 177,239
Money Market 26,128,992 4,702
Tax-Free Income 36,120,991 212,595
MN Tax-Free Income 9,597,075 23,644
Bond 860,136 20,877
John E. Hulse
U.S. Government Securities 6,855,034 42,764
Money Market 26,082,443 51,251
Tax-Free Income 36,066,969 266,617
MN Tax-Free Income 9,600,293 20,426
Bond 860,136 20,877
Sidney L. Jones
U.S. Government Securities 6,721,961 175,837
Money Market 26,128,992 4,702
Tax-Free Income 36,110,885 222,701
MN Tax-Free Income 6,622,814 49,597
Bond 860,136 20,877
Peter L. Mitchelson
U.S. Government Securities 6,864,314 33,484
Money Market 26,128,992 4,702
Tax-Free Income 36,136,087 197,499
MN Tax-Free Income 6,647,332 25,079
Bond 860,136 20,877
63
<PAGE>
SIT MUTUAL FUNDS
RESULTS OF SHAREHOLDERS MEETING
For Withheld
--- --------
Donald W. Phillips
U.S. Government Securities 6,721,720 176,078
Money Market 26,128,992 4,702
Tax-Free Income 36,084,897 248,689
MN Tax-Free Income 9,594,545 26,174
Bond 860,136 20,877
Michael C. Brilley
U.S. Government Securities 6,858,482 39,316
Money Market 26,128,992 4,702
Tax-Free Income 36,088,966 244,620
MN Tax-Free Income 9,603,984 16,735
Bond 860,136 20,877
2. Ratification of KPMG Peat Marwick LLP as independent auditors for the
Funds:
For Against Abstain
--- ------- -------
U.S. Government Securities 6,826,342 29,658 41,796
Money Market 25,996,350 113,330 24,013
Tax-Free Income 35,903,113 128,585 301,886
MN Tax-Free Income 9,556,517 17,679 46,521
Bond 879,527 1,485 000
3. Amendment of the Sit Large Cap Growth Fund, Sit Mid Cap Growth Fund, Sit
U.S. Government Securities Fund, and the Sit International Growth Fund's
fundamental investment restrictions to eliminate the restrictions on
investing in securities of investment companies.
For Against Abstain
--- ------- -------
Large Cap Growth 1,227,595 23,778 17,516
Mid Cap Growth 11,877,175 323,696 200,456
U.S. Government Securities 5,248,572 347,985 201,296
International Growth 2,424,429 45,534 50,026
64
<PAGE>
[LOGO]
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
William E. Frenzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern, CFA President
Roger J. Sit Executive Vice President
Erik S. Anderson, CFA Vice President - Investments
Ronald D. Sit, CFA Vice President - Investments
Bryce A. Doty, CFA (1) Vice President - Investments
Robert W. Sit (2) Vice President - Investments
John T. Groton, Jr., CFA (3) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Debra A. Sit, CFA Assistant Treasurer
Carla J. Rose Assistant Secretary
(1) Sit Balanced Fund only.
(2) Sit Science and Technology Growth Fund only.
(3) Sit Regional Growth Fund only.
<PAGE>
ANNUAL REPORT
STOCK FUNDS
YEAR ENDED JUNE 30, 1999
INVESTMENT ADVISER INVESTMENT SUB-ADVISER
SIT INVESTMENT ASSOCIATES, INC. (DEVELOPING MARKETS GROWTH FUND AND
4600 NORWEST CENTER INTERNATIONAL GROWTH FUND)
MINNEAPOLIS, MN 55402 SIT/KIM INTERNATIONAL INVESTMENT
612-334-5888 (METRO AREA) ASSOCIATES, INC.
800-332-5580 4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
DISTRIBUTOR 612-334-5888 (METRO AREA)
800-332-5580
SIA SECURITIES CORP.
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
CUSTODIAN
THE NORTHERN TRUST COMPANY
50 SOUTH LASALLE STREET
CHICAGO, IL 60675
TRANSFER AGENT AND
DISBURSING AGENT
FIRST DATA INVESTOR SERVICES
P.O. BOX 5166
WESTBORO, MA 01581-5166
AUDITORS
KPMG PEAT MARWICK LLP
4200 NORWEST CENTER
MINNEAPOLIS, MN 55402
LEGAL COUNSEL
DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
MINNEAPOLIS, MN 55402
MEMBER OF
====================
100% NO-LOAD
MUTUAL FUND
COUNCIL
====================
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED ________, 2000
SIT LARGE CAP GROWTH FUND, INC.
4600 NORWEST CENTER, 90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
(612) 334-5888
(800) 332-5580
ACQUISITION OF THE ASSETS OF SIT REGIONAL GROWTH FUND,
A SERIES OF SIT MUTUAL FUNDS, INC., BY AND IN EXCHANGE FOR SHARES
OF SIT LARGE CAP GROWTH FUND, INC.
This Statement of Additional Information relates to the proposed
Agreement and Plan of Reorganization providing for (a) the acquisition of
substantially all of the assets and the assumption of all liabilities of Sit
Regional Growth Fund (the "Acquired Fund"), a series of Sit Mutual Funds, Inc.,
in exchange for shares of common stock of Sit Large Cap Growth Fund, Inc. (the
"Acquiring Fund") having an aggregate net asset value equal to the aggregate
value of the assets acquired (less the liabilities assumed) of the Acquired Fund
and (b) the liquidation of the Acquired Fund and the pro rata distribution of
the Acquiring Fund shares to Acquired Fund shareholders.
This Statement of Additional Information consists of this cover page
and the following documents, which are incorporated by reference herein:
1. The Statement of Additional Information dated November 1, 1999
of the Acquiring Fund and the Acquired Fund.
2. Financial statements of the Acquiring Fund and the Acquired
Fund included in the Sit Stock Funds Annual Report for the
fiscal year ended June 30, 1999.
3. Financial statements of the Acquiring Fund and the Acquired
Fund included in the Sit Stock Funds Semi-Annual Report for
the six months ended December 31, 1999.
No additional financial statements are required by Form N-14, Item 14
because the net asset value of the Acquired Fund did not exceed 10% of the net
asset value of the Acquiring Fund as of March 31, 2000.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated _______, 2000 relating to the above-referenced
transaction may be obtained without charge by writing or calling the Acquired
Fund or the Acquiring Fund at the addresses or telephone numbers noted above.
This Statement of Additional Information relates to, and should be read in
conjunction with, such Prospectus/Proxy Statement.
B-1
<PAGE>
[Note: In the SEC filing package, Item No. 2 referred to above is
included in Part A as materials to be delivered with the Prospectus/Proxy
Statement. A copy of Item No. 2 also will be delivered to any person requesting
the Statement of Additional Information.]
B-2
<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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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
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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
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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>
STOCK FUNDS SEMI-ANNUAL REPORT
SIX MONTHS ENDED DECEMBER 31, 1999
A FAMILY OF NO-LOAD FUNDS
-------------------------
BALANCED FUND
LARGE CAP GROWTH FUND
REGIONAL GROWTH FUND
MID CAP GROWTH FUND
INTERNATIONAL GROWTH FUND
SMALL CAP GROWTH FUND
SCIENCE AND TECHNOLOGY GROWTH FUND
DEVELOPING MARKETS GROWTH FUND
[LOGO]
SIT MUTUAL FUNDS
----------------
THE INVESTMENT IS MUTUAL(SM)
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds are managed by Sit Investment Associates, Inc. Sit
Investment Associates was founded by Eugene C. Sit in July 1981 and is dedicated
to a single purpose, to be one of the premier investment management firms in the
United States. Sit Investment Associates currently manages approximately $8
billion for some of America's largest corporations, foundations and endowments.
Sit Mutual Funds are comprised of thirteen NO-LOAD funds. NO-LOAD means
that Sit Mutual Funds have no sales charges on purchases, no deferred sales
charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar
you invest goes to work for you.
Sit Mutual Funds offer:
* Free telephone exchange
* Dollar-cost averaging through an automatic investment plan
* Electronic transfer for purchases and redemptions
* Free check writing privileges on bond funds
* Retirement accounts including IRAs, Keoghs and 401(k) plan
[CHART]
- --------------------------------------------------------------------------------
SIT FAMILY OF FUNDS
- --------------------------------------------------------------------------------
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 & CURRENT INCOME [ ] GROWTH POTENTIAL
[LOGO]
SIT MUTUAL FUNDS
----------------
THE INVESTMENT IS MUTUAL(SM)
<PAGE>
SIT MUTUAL FUNDS
STOCK FUNDS SEMI-ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
Chairman's Letter 2
Performance Review 4
FUND REVIEWS AND PORTFOLIOS OF INVESTMENTS
Balanced Fund 6
Large Cap Growth Fund 10
Regional Growth Fund 14
Mid Cap Growth Fund 18
International Growth Fund 22
Small Cap Growth Fund 26
Science and Technology Growth Fund 30
Developing Markets Growth Fund 34
Notes to Portfolios of Investments 38
Statements of Assets and Liabilities 40
Statements of Operations 42
Statements of Changes in Net Assets 44
Notes to Financial Statements 48
Financial Highlights 53
Results of Shareholder Meeting 61
1
<PAGE>
[PHOTO] SIT MUTUAL FUNDS
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
CHAIRMAN'S LETTER
Dear Fellow Shareholders:
A strong year-end rally capped another year of excellent returns for domestic
equity indices. Despite the significant rise in interest rates in 1999, the
Standard & Poor's 500 Index posted gains of over 20% for a 5th consecutive year.
Economic Overview
December represented the 106th month of U.S. economic expansion, a period
characterized by strong economic growth and moderate inflation. Although there
was great debate over the potential Y2K impact in fourth quarter GDP, very
little evidence has emerged that the U.S economy slowed down from the rate
achieved during the first three quarters of 1999. We forecast over 5.5% GDP
growth in the fourth quarter, and as we examine momentum in key components
underlying the GDP calculation, it is very difficult to see how a major slowdown
will occur over the intermediate term. Strong employment and consumer confidence
levels have buoyed the largest component of GDP (personal consumption
expenditures) to consistent year-over-year growth of over 5.0%. Non-residential
fixed investment continues to be strong, and it appears that government spending
is on the rise. Finally, a strengthening global economy may support some
improvement in net exports, which have been the biggest drag on GDP growth. Our
only cautionary observation relates to the fact that consumer expenditures
continue to outpace personal income gains, and consumer borrowing has risen
sharply in recent months. Federal Reserve Chairman, Alan Greenspan, has
expressed similar concerns on this issue, specifically citing the "wealth
effect" created by the rising prices of homes and financial assets. Given
increasing evidence of the link between the equity markets and consumer
confidence (and spending), we believe that the Federal Reserve will apply the
brakes slowly to avoid any major disruption in the financial markets. Our
conclusion is that there will be "more of the same" in the year ahead;
therefore, we project full year GDP growth in the area of 4.0%.
Prospects for another year of solid global economic growth have pressured
interest rates upward in recent months, but we believe inflation pressures will
remain modest. While year-over-year consumer price index (CPI) data have
accelerated throughout the year, we believe this is largely commodity-related
and, specifically, oil-related. Excluding food and energy, the "core" rates of
both producer and consumer price inflation have been rising at a modest 2.0%
rate. We project a slight increase in the CPI in 2000, rising to 2.6% from 2.2%
in 1999. Part of our longer-term optimism on inflation stems from the rapid
introduction of new technology and the secular trend to substitute capital for
labor. In a recent speech before the Economic Club of New York, Mr. Greenspan
acknowledged the powerful impact that technology is having on the economy,
stating "What should be indisputable is that a number of new technologies that
evolved from the cumulative innovations of the past half century have now begun
to bring about awesome changes in the way goods and services are distributed to
final users." Global spending on technology, particularly the rapid adoption of
the Internet, is having the combined effect of increasing labor productivity,
while limiting price increases.
In spite of our optimism about inflation on a secular basis, we believe the
Federal Reserve is likely to raise rates as much as an additional one-half
percentage point in 25 basis point increments starting with the early February
Federal Open Markets Committee meeting. Tight labor markets in a rapidly growing
domestic economy concern Federal Reserve officials. Mr. Greenspan noted that,
despite the structural changes occurring in the economy that have to this point
contained inflation, the Federal Reserve's goal is "to extend the expansion by
containing its imbalances and avoiding the very recession that would complete a
business cycle."
With regard to U.S. fiscal policy, we believe that the fiscal 2000 budget
surplus will be considerably higher than the Clinton Administration's current
forecast of $142.5 billion. Our own forecast is $180-185 billion. Consequently,
President Clinton has advanced a number of spending plans focussed on education
and health care, while Republican presidential candidates are favoring a
balanced package including tax cuts. Spending is continuing to rise at faster
rates at the state and local government level than they had been previously. We
are monitoring all government spending patterns closely because of their
potentially inflationary implications.
In stark contrast to a year ago, economic growth outside the U.S. appears to
be on solid footing. We are estimating global GDP growth of 3.0% in 2000, ahead
of an estimated
2
<PAGE>
2.0% in 1999. Our optimistic view is based upon the following: European economic
growth is beginning to accelerate, the recession in Japan is coming to an end,
other Asian economies are recovering very quickly, and stronger commodity prices
and lower interest rates are aiding recovery in Latin America.
Equity Strategy Summary
A strong year-end rally helped push domestic equity indices markedly higher
in 1999, continuing the string of exceptional financial asset returns in the
U.S. Over the last five years, the cumulative total return for the Standard &
Poor's 500 Index has been a remarkable 250%.
1999 marked another year of wide dispersion among financial asset categories.
Stocks dramatically outperformed bonds, as investors shook off concerns over
higher interest rates and focussed on an improved outlook for corporate earnings
in the recovering global economy. Despite the strong performance of the U.S.
equity market, the U.S. ranked only 20th among the 33 largest markets worldwide.
Within the U.S., 1999 marked the widest differential favoring growth over
value in the history of the Frank Russell Company indices. The relatively higher
weightings within the technology sector were responsible for much of the
outperformance of growth over value. The technology-laden NASDAQ OTC Composite
posted an exceptional return for the year, increasing 85.6%. We estimate that
703 of the roughly 4000 companies in the Index for the entire year doubled in
price over the course of 1999. This strong performance relative to other market
indices perhaps best symbolizes the performance differential between the "New
Economy" and "Old Economy" sectors within the equity market. The surge in
technology shares has left many observers wondering if the trend will continue.
We believe the answer is yes, but it is clear that higher valuations imply a
higher level of risk going forward. Our enthusiasm for this sector is supported
by surging technological innovation coupled with strong global demand for
productivity-enhancing technology. In a market environment that has continuously
rewarded strong earnings growth, we attribute much of our success in 1999 to our
focus on enhancing projected earnings growth rates within our equity portfolios.
A sizable portfolio weighting in the fast-growing technology sector has been a
key factor in producing projected earnings growth rates that are at more than
twice that of the Standard & Poor's 500 Index based on 2000 estimates.
Internationally, we remain optimistic on the outlook for European equity
markets due to strengthened economic fundamentals, a widening corporate movement
to enhance productivity and profitability, and the growth of a capital
markets/equity culture in Europe. We are also positive on investment
opportunities in Japan, as the equity market posted strong results driven by
strong capital inflows, government fiscal stimulus, and corporate restructuring.
We are somewhat cautious on the near-term prospects for Latin America markets.
Political instability remains a key concern, and both Brazil and Argentina are
struggling with budget deficit reductions.
In general, we believe greatly improving economic conditions around the world
will continue to provide attractive investment opportunities in the year ahead.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
3
<PAGE>
SIT MUTUAL FUNDS
SIX MONTHS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY - STOCK FUNDS
Domestically, equity markets generated strong results during in 1999. Strong
corporate earnings growth and surging performance in the technology sector was
enough to overcome a significant rise in interest rates that occurred throughout
the year. 1999 marked an unprecedented 5th consecutive year of returns over 20%
for the equity market (as measured by the Standard & Poor's 500 Index). This was
also a record 9th consecutive year of positive returns for the market.
Smaller capitalization issues showed improved relative performance in 1999.
For the first time since 1994, the Russell 2000 Index return (+21.3%) was
modestly higher than the return for the S&P 500 Index (+21.0%). Growth stocks
outperformed value issues across the capitalization spectrum. The large cap
Russell 1000 Growth Index bested the Russell 1000 Value Index by nearly twenty
six percentage points during 1999, with returns of +33.2% and +7.4%,
respectively. The growth/value performance differential was even greater among
small cap issues, as the Russell 2000 Growth returned +43.1%, while the Russell
2000 Value returned -1.5%.
The technology sector was the best performing sector in the market in 1999 by
a wide margin. We estimate that the combined returns of the technology sectors
were +73.7% and +113.9% in the S&P 500 Index and the Russell 2000 Index,
respectively. Sectors that lagged the market over the past year include
financial services, utilities, health services and consumer non-durables.
Continuing the trend that has existed over the past few years, a select group of
large stocks, mostly within technology, have disproportionately driven indices
higher. We estimate that just seven stocks contributed half of the total return
for the S&P 500 Index in 1999.
International equity market indices also moved higher in 1999. In fact, every
major regional equity market delivered double-digit investment returns, largely
due to an improving outlook for the global economy and corporate profits.
Emerging markets benefited the most from this improving economic outlook, as the
MSCI Pacific ex-Japan Index rose 42.6% and the MSCI Latin America Free Index
increased 55.5%. Japan's equity market turned in its strongest performance of
the decade, gaining 61.5%. Investment returns in Europe were somewhat mixed in
1999 (although generally positive), as the MSCI Europe Index posted a return of
+15.9%.
1987 1988 1989
----------------------------
SIT BALANCED -- -- --
- --------------------------------------------------------------------
SIT LARGE CAP GROWTH 5.32% 5.33% 32.02%
- --------------------------------------------------------------------
SIT REGIONAL GROWTH -- -- --
- --------------------------------------------------------------------
SIT MID CAP GROWTH 5.50 9.77 35.15
- --------------------------------------------------------------------
SIT INTERNATIONAL GROWTH -- -- --
- --------------------------------------------------------------------
SIT SMALL CAP GROWTH -- -- --
- --------------------------------------------------------------------
SIT SCIENCE AND TECHNOLOGY GROWTH -- -- --
- --------------------------------------------------------------------
SIT DEVELOPING MARKETS GROWTH -- -- --
- --------------------------------------------------------------------
S&P 500 INDEX 5.28 16.55 31.61
S&P MIDCAP 400 INDEX -2.04 20.87 35.55
MSCI EAFE INDEX (3) -- -- --
RUSSELL 2000 INDEX (2) -- -- --
PSE TECH 100 INDEX -- -- --
MSCI EMERGING MARKETS FREE INDEX (4) -- -- --
NASDAQ
SYMBOL INCEPTION
------ -----------
SIT BALANCED SIBAX 12/31/93
- --------------------------------------------------------------------
SIT LARGE CAP GROWTH SNIGX 09/02/82
- --------------------------------------------------------------------
SIT REGIONAL GROWTH n/a 12/31/97
- --------------------------------------------------------------------
SIT MID CAP GROWTH NBNGX 09/02/82
- --------------------------------------------------------------------
SIT INTERNATIONAL GROWTH SNGRX 11/01/91
- --------------------------------------------------------------------
SIT SMALL CAP GROWTH SSMGX 07/01/94
- --------------------------------------------------------------------
SIT SCIENCE AND TECHNOLOGY GROWTH SISTX 12/31/97
- --------------------------------------------------------------------
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
- --------------------------------------------------------------------
S&P 500 INDEX(5)
S&P MIDCAP 400 INDEX(5)
MSCI EAFE INDEX (3)
RUSSELL 2000 INDEX (2)
PSE TECH 100 INDEX
MSCI EMERGING MARKETS FREE INDEX (4)
(1) PERIOD FROM FUND INCEPTION THROUGH CALENDAR YEAR-END.
(2) FIGURES ASSUME AN INCEPTION DATE OF 7/1/94.
(3) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91.
(4) FIGURES ASSUME AN INCEPTION DATE OF 6/30/94.
(5) FIGURES ASSUME AN INCEPTION DATE OF 9/2/82.
4
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN - CALENDAR YEAR
- ----------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- -0.33% 25.43% 15.80% 21.73% 21.30% 20.15%
- ----------------------------------------------------------------------------------------------------------------
-2.37% 32.72% 4.94% 3.15% 2.83 31.66 23.05 31.70 30.56 33.41
- ----------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- -- 23.05 15.55
- ----------------------------------------------------------------------------------------------------------------
-2.04 65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 70.65
- ----------------------------------------------------------------------------------------------------------------
-- 4.10(1) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 50.77
- ----------------------------------------------------------------------------------------------------------------
-- -- -- -- 11.57(1) 52.16 14.97 7.63 1.97 108.63
- ----------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- -- 38.40 85.98
- ----------------------------------------------------------------------------------------------------------------
-- -- -- -- -2.02(1) -4.29 17.27 -5.20 -24.93 82.50
- ----------------------------------------------------------------------------------------------------------------
-3.05 30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 21.04
-5.12 50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 14.72
-- 0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 26.96
-- -- -- -- 4.61 28.45 16.49 22.36 -2.54 21.26
-- -- -- -- -- -- -- -- 54.60 116.40
-- -- -- -- 2.80 -6.94 3.92 -13.40 -27.52 63.70
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1999
TOTAL RETURN ---------------------------------------------------------
QUARTER SIX MONTHS SINCE
ENDED 12/31/99 ENDED 12/31/99 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- ------------------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15.59% 14.11% 20.15% 21.06% 20.84% -- 17.02%
- ----------------------------------------------------------------------------------------------
26.01 22.81 33.41 31.89 30.02 18.28% 17.89
- ----------------------------------------------------------------------------------------------
14.99 7.74 15.55 -- -- -- 19.25
- ----------------------------------------------------------------------------------------------
45.95 51.87 70.65 28.98 28.43 19.60 20.78
- ----------------------------------------------------------------------------------------------
38.12 48.20 50.77 23.41 17.79 -- 16.52
- ----------------------------------------------------------------------------------------------
64.59 83.86 108.63 31.80 31.99 -- 31.26
- ----------------------------------------------------------------------------------------------
55.15 69.01 85.98 -- -- -- 60.44
- ----------------------------------------------------------------------------------------------
48.17 42.08 82.50 9.11 7.83 -- 6.69
- ----------------------------------------------------------------------------------------------
14.88 7.71 21.04 27.56 28.55 18.22 19.11
17.19 7.34 14.72 21.82 23.05 17.32 18.77
16.99 22.12 26.96 15.74 12.83 -- 10.73
18.44 10.96 21.26 13.08 16.69 -- 16.00
54.88 62.04 116.40 -- -- -- 82.91
25.15 18.27 63.70 0.91 -0.13 -- 0.38
</TABLE>
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS.
5
<PAGE>
[PHOTO] SIT BALANCED FUND
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
PETER L. MITCHELSON, CFA, SENIOR PORTFOLIO MANAGER
BRYCE A. DOTY, CFA, SENIOR PORTFOLIO MANAGER
The Sit Balanced Fund's +14.1% return over the past six months was strong on
both an absolute and relative basis and compared favorably to the +2.7% return
for the Lipper Balanced Fund Index. The Fund's 1999 return of +20.2% ranked in
the 6th percentile of the 449 balanced funds ranked by Lipper Analytical
Services. For the 3-year and 5-year periods, the Fund ranked in the 7th
percentile out of 333 funds and the 9th percentile out of 223 funds.
As of December 31, 1999, the asset allocation of the Fund was 60.9% equities
(up from 54.6% at the end of June), 35.0% fixed income securities (down from
36.9%), and 4.1% cash and other net assets.
A strong year-end rally helped push equity market returns solidly higher over
the past six months. Investors were able to shake off inflation and interest
rate concerns, and focus on the recovering global economy and resultant
acceleration in corporate earnings. Growth stocks continue to outperform value
issues, largely fueled by the surging technology sector. The Fund significantly
benefited from an overweighted position in the technology sectors, with greater
sector weights in both electronic technology and technology services than six
months ago. Sector weighting decreases occurred in health services and health
technology. Strong earnings growth continues to be a distinct attribute of the
Fund, with an average projected 1-year and 5-year earnings growth rate for
companies held in the Fund of 25.0% and 23.5%, respectively. This compares to a
projected earnings growth rate for the S&P 500 Index of 9.1% for 2000 and 10.0%
for the next five years.
While the outlook for improving corporate earnings and a strong global
economy provided support for the equity markets over the past year, bond prices
fell over continued fears about excessive economic growth and a potential
acceleration in inflation. Yields on 30-year U.S. Treasury bonds rose 47 basis
points over the last six months and 140 basis points for the 1999 calendar year,
with the yield at year-end standing at 6.48%. The most significant recent change
in fixed income strategy occurred toward the end of 1999, as we began to
emphasize corporate securities over U.S. Treasuries, and relative yields on
corporates became attractive as investors' Y2K fears caused a temporary flight
to safety in Treasuries. Going forward, we believe interest rates will creep
somewhat higher over the near-term.
INVESTMENT OBJECTIVE AND STRATEGY
The Sit Balanced Fund's dual objectives are to seek long-term growth of
capital consistent with the preservation of principal and to provide regular
income. It pursues its objectives by investing in a diversified portfolio of
stocks, bonds and short-term instruments. The Fund may emphasize either equity
securities, fixed-income securities, or short-term instruments or hold equal
amounts of each, dependent upon the Adviser's analysis of market, financial and
economic conditions.
The Fund's permissible investment allocation is: 40-60% in equity
securities, 40-60% in fixed-income securities, and up to 20% in short-term
fixed-income instruments. At all times at least 25% of the assets will be
invested in fixed-income senior securities.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $18.75 Per Share
6/30/99: $17.38 Per Share
Total Net Assets: $14.5 Million
TOTAL DIVIDEND: $ 1.02 PER SHARE
Long-Term Capital Gain: $ 0.74 Per Share
Ordinary Income: $ 0.28 Per Share
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[PIE CHART]
Cash & Other Net Assets 4.1%
Bonds 35.0%
Equities 60.9%
6
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT LEHMAN
BALANCED S&P AGGREGATE
FUND 500 INDEX BOND INDEX
-------- --------- ----------
3 Months** 15.59% 14.88% -0.12%
1 Year 20.15 21.04 -0.82
3 Years 21.06 27.56 5.73
5 Years 20.84 28.55 7.73
Inception 17.02 23.54 5.88
(12/31/93)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT LEHMAN
BALANCED S&P AGGREGATE
FUND 500 INDEX BOND INDEX
-------- --------- ----------
1 Year 20.15% 21.04% -0.82%
3 Years 77.41 107.55 18.20
5 Years 157.68 251.09 45.12
Inception 156.84 255.74 40.89
(12/31/93)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND
INDEX AND THE S&P 500 INDEX. LIPPER AVERAGES AND INDICES ARE OBTAINED FROM
LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/93) and held until 12/31/99
would have grown to $25,684 in the Fund, $14,089 in the Lehman Aggregate Bond
Index or $35,574 in the S&P 500 Index assuming reinvestment of all dividends and
capital gains.
TOP HOLDINGS
Stocks:
* Cisco Systems, Inc.
* Microsoft Corp.
* General Electric Co.
* QUALCOMM, Inc.
* Nokia Corp., A.D.R.
Bonds:
* U.S. Treasury Strip, 6.43%, 11/15/09
* EQCC HEL, 1996-4 A8, 7.41%, 1/15/28
* Pentair, Inc., 7.85%, 10/15/09
* Union Tank Car Co., 6.57%, 1/2/14
* TIPS, 3.875%, 1/15/09
Total Number of Holdings: 139
7
<PAGE>
SIT BALANCED FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (60.9%) (2)
COMMERCIAL SERVICES (0.3%)
1,000 SYSCO Corp. $39,563
--------------
CONSUMER DURABLES (0.5%)
1,100 Harley-Davidson, Inc. 70,469
--------------
CONSUMER NON-DURABLES (2.3%)
1,100 Coca Cola Co. 64,075
1,400 Colgate-Palmolive Co. 91,000
1,100 Kimberly-Clark Corp. 71,775
1,000 Procter & Gamble Co. 109,563
--------------
336,413
--------------
CONSUMER SERVICES (2.5%)
1,500 AT&T Corp.-Liberty Media Group (3) 85,125
1,500 Clear Channel Comm., Inc. (3) 133,875
2,000 Time Warner, Inc. 144,875
--------------
363,875
--------------
ELECTRONIC TECHNOLOGY (18.6%)
500 Applied Materials, Inc. (3) 63,344
5,500 Cisco Systems, Inc. (3) 589,187
1,900 EMC Corp. (3) 207,575
1,800 Intel Corp. 148,162
500 JDS Uniphase Corp. (3) 80,656
700 Lexmark International Group, Inc. (3) 63,350
500 Linear Technology Corp. 35,781
2,550 Lucent Technologies, Inc. 190,772
1,700 Nokia Corp., A.D.R. 323,000
200 Nortel Networks Corp. 20,200
2,000 QUALCOMM, Inc. (3) 352,250
3,300 Sun Microsystems, Inc. (3) 255,544
2,300 Tellabs, Inc. (3) 147,631
1,400 Texas Instruments, Inc. 135,625
2,000 Xilinx, Inc. (3) 90,938
--------------
2,704,015
--------------
ENERGY MINERALS (0.6%)
2,500 EOG Resources, Inc. 43,906
1,300 Unocal Corp. 43,631
--------------
87,537
--------------
FINANCE (6.0%)
1,681 American International Group, Inc. 181,758
1,400 Chase Manhattan Corp. 108,762
1,000 Citigroup, Inc. 55,563
1,500 Federal Home Loan Mortgage Corp. 70,594
1,500 Marsh & McLennan Cos., Inc. 143,531
1,000 Morgan Stanley Dean Witter & Co. 142,750
1,500 Wells Fargo Co. 60,656
2,000 XL Capital, Ltd. 103,750
--------------
867,364
--------------
HEALTH TECHNOLOGY (7.5%)
4,000 Amgen, Inc. (3) 240,250
500 Biogen, Inc. (3) 42,250
2,200 Bristol-Myers Squibb Co. 141,212
1,100 Johnson & Johnson Co. 102,437
400 MedImmune, Inc. (3) 66,350
3,000 Medtronic, Inc. 109,312
- --------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
1,900 Merck & Co., Inc. 127,419
3,700 Pfizer, Inc. 120,019
1,700 Warner Lambert Corp. 139,294
--------------
1,088,543
--------------
INDUSTRIAL SERVICES (0.3%)
1,000 Halliburton Co. 40,250
--------------
PROCESS INDUSTRIES (0.4%)
1,500 Monsanto Co. 53,438
--------------
PRODUCER MANUFACTURING (3.9%)
3,000 General Electric Co. 464,250
2,700 Tyco International, Ltd. 104,963
--------------
569,213
--------------
RETAIL TRADE (4.2%)
1,000 CVS Corp. 39,938
2,300 Dayton Hudson Corp. 168,906
3,000 Home Depot, Inc. 205,687
900 Kohl's Corp. (3) 64,969
600 Wal-Mart Stores, Inc 41,475
3,000 Walgreen Co. 87,750
--------------
608,725
--------------
TECHNOLOGY SERVICES (8.8%)
2,400 America Online, Inc. (3) 181,050
500 BMC Software, Inc. (3) 39,969
4,500 Ceridian Corp. (3) 97,031
1,400 Computer Sciences Corp. (3) 132,475
2,000 First Data Corp. 98,625
800 Inktomi Corp. (3) 71,000
4,000 Microsoft Corp. (3) 467,000
1,750 Oracle Corp. (3) 196,109
--------------
1,283,259
--------------
TRANSPORTATION (0.3%)
700 United Parcel Service, Inc. 48,300
--------------
UTILITIES (4.7%)
2,000 Global Crossing, Ltd. (3) 100,000
2,850 MCI WorldCom, Inc. (3) 151,228
500 Nextel Communications, Inc. (3) 51,563
2,600 Sprint Corp. 175,012
4,000 Vodafone Airtouch, A.D.R. 198,000
--------------
675,803
--------------
Total common stocks
(cost: $5,184,827) 8,836,767
--------------
BONDS (34.1%) (2)
U.S. TREASURY (8.3%)
U.S. Treasury Strip:
25,000 6.93% Effective Yield, 11/15/04 18,279
1,600,000 6.43% Effective Yield, 11/15/09 809,184
500,000 6.83% Effective Yield, 2/15/19 137,205
U.S.Treasury Inflation Index Bond:
153,833 3.875%, 1/15/09 148,658
102,310 3.875%, 4/15/29 95,522
--------------
1,208,848
--------------
8
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (4.9%)
Advanta Mortgage Loan Trust:
25,000 1995-3 A5, 7.37%, 2/25/27 24,812
50,000 1996-1 A7, 7.07%, 3/25/27 48,756
150,000 Conseco Home Equity Loan,
1999-F A3, 6.97%, 10/15/30 146,461
74,999 ContiMortgage Home Equity Loan Tr.,
1996-1 A7, 7.00%, 3/15/27 72,275
EQCC Home Equity Loan Trust:
25,000 1996-1 A5, 6.93%, 3/15/27 23,939
250,000 1996-4 A8, 7.41%, 1/15/28 253,660
Green Tree Financial Corp.:
20,000 1995-5, 7.25%, 9/15/25 19,862
25,000 1997-4, 7.03%, 2/15/29 24,553
50,000 1999-E A3, 7.18%, 8/30/30 49,891
50,000 Money Store Home Equity Mtg.,
7.265%, 7/15/38 49,325
--------------
713,534
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.1%)
73,258 PNC Mortgage Securities Corp.
Series 1998-6 4A, 6.75%, 8/25/13 72,611
100,000 Norwest Asset Securities Corp.
Series 1998-19 2A12, 6.75%, 7/25/28 91,226
--------------
163,837
--------------
CORPORATE BONDS (9.8%)
125,000 Allstate Finance, 7.83%, 12/1/45 114,687
American Airlines:
25,000 1999-1 A2, 7.024%, 10/15/09 24,229
25,000 1999-1 B, 7.324%, 10/15/09 24,238
100,000 Bank America, 8.25%, 4/15/27 96,500
50,000 Burlington North Santa Fe
Series 1999-2, 7.57%, 1/2/21 47,923
50,000 CIT Group, Inc., 7.125%, 10/15/04 49,625
Continental Airlines:
47,321 1997-1A, 7.461%, 4/1/15 45,429
75,000 1999-1B, 6.795%, 8/2/18 68,642
49,979 1999-1A, 6.545%, 2/2/19 45,521
50,000 First Industrial LP, 7.15%, 5/15/27 48,625
50,000 Ford Motor Credit Corp., 5.75%, 2/23/04 47,188
50,000 Franchise Fin. Corp., 8.25%, 10/30/03 49,500
150,000 Gen. Electric Capital, 6.52%, 10/8/02 148,500
50,000 May Department Stores, 9.875%, 6/15/21 53,500
200,000 Pentair, Inc., 7.85%, 10/15/09 195,750
32,000 Ryder System, Inc., 8.75%, 3/15/17 32,360
100,000 Service Corp. Int'l, 7.375%, 4/15/04 85,625
6,000 Toys R Us, Inc., 8.25%, 2/1/17 6,000
50,000 Union Carbide Corp., 8.75%, 8/1/22 52,313
200,000 Union Tank Car Co., 6.57%, 1/2/14 184,692
--------------
1,420,847
--------------
MORTGAGE PASS-THROUGH SECURITIES (10.0%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.8%)
36,552 9.00%, 7/1/16 38,110
20,888 9.00%, 7/1/16 21,776
16,632 9.25%, 6/1/02 17,236
- --------------------------------------------------------------------------------
QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
30,766 10.00%, 10/1/18 32,985
--------------
110,107
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.7%)
15,622 9.00%, 11/1/06 16,198
53,951 9.25%, 1/1/17 56,337
68,400 9.75%, 1/1/13 74,128
17,202 10.00%, 1/1/20 18,383
71,342 10.25%, 6/1/13 77,875
--------------
242,921
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (7.5%)
22,093 9.00%, 6/15/11 22,990
96,769 9.00%, 6/15/09 100,867
94,418 9.00%, 12/15/19 98,717
18,011 9.25%, 9/15/01 18,787
20,151 9.50%, 1/15/04 21,160
47,690 9.50%, 11/15/04 50,075
28,476 9.50%, 7/20/05 29,481
35,922 9.50%, 12/15/09 38,200
19,079 9.50%, 5/20/16 19,987
100,400 9.50%, 12/15/17 107,316
66,455 9.50%, 3/15/18 70,370
70,485 9.50%, 9/20/18 73,841
62,759 9.50%, 1/20/19 65,745
47,242 9.50%, 2/20/19 49,486
76,910 9.50%, 3/20/19 80,575
39,307 9.50%, 12/15/19 41,825
60,820 9.75%, 10/15/05 63,945
64,186 10.00%, 3/20/16 68,360
29,505 10.25%, 1/15/04 31,066
3,571 11.25%, 10/15/00 3,585
16,407 11.25%, 10/15/11 18,016
Municipal (GNMA collateralized):
13,000 Bernalillo Multifamily. Ser. 1998A,
7.50%, 9/20/20 12,244
--------------
1,086,638
--------------
Total bonds
(cost: $5,065,822) 4,946,732
--------------
CLOSED-END MUTUAL FUNDS (0.9%) (2)
7,009 American Select Portfolio 81,918
403 American Strategic, Inc. Portfolio 4,534
1,870 American Strategic, Inc. Portfolio II 21,271
2,209 American Strategic, Inc. Portfolio III 24,713
--------------
Total closed-end mutual funds 132,436
--------------
(cost: $131,807)
SHORT-TERM SECURITIES (3.7%) (2)
544,000 Sit Money Market Fund, 5.35% (6) 544,000
--------------
(cost: $544,000)
Total investments in securities
(cost: $10,926,456) (7) $14,459,935
==============
See accompanying notes to portfolios of investments on page 38.
9
<PAGE>
[PHOTO] SIT LARGE CAP GROWTH FUND
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
SENIOR PORTFOLIO MANAGERS
PETER L. MITCHELSON, CFA * ROGER J. SIT * RONALD D. SIT, CFA
The Sit Large Cap Growth Fund posted strong results for the last six months
and full calendar year of 1999, increasing 22.8% and 33.4%, respectively. By
comparison, the S&P 500 Index return was +7.7% for the final six months of 1999
and +21.0% for the calendar year.
A strong year-end rally capped another year of solid returns for most major
stock indices. Although concerns over inflation and a significant increase in
long-term interest rates caused volatility along the way, strong corporate
earnings provided key support for the advance in the equity markets. Growth
stocks continued their strong relative performance, largely due to the continued
exceptional performance of the technology sector. Although the strong
performance of technology issues has led to increased valuation for the sector,
we believe that future earnings growth will be significantly higher for these
companies than for the broader market. The rapid pace of technological
innovation is fueling robust corporate and consumer spending on information
technology, providing for a broad variety of investment opportunities in several
areas, including telecommunications, networking, E-commerce, semiconductors and
software applications. Since we believe that the technology boom is far from
over, the Fund continues to be significantly overweighted in the technology
sector.
The most significant sector weighting increases over the past six months
include electronic technology, technology services and utilities through the
purchases of Nokia, QUALCOMM, Global Crossing, First Data, Xilinx and JDS
Uniphase. Sector weighting decreases occurred in health technology, health
services and retail trade through the reduction or elimination of positions in
McKesson HBOC, Gap, Lowe's, American Home Products, Eli Lilly and
Schering-Plough. As of December 31st, the Fund was 97% invested in equities, up
from 93% six months ago.
Securities in the Fund continue to exhibit high projected earnings growth
rates. We estimate that companies within the Fund will grow earnings in excess
of 25% in the coming year, well above the 9% growth projection for the S&P 500
Index. In addition to strong fundamentals, attractive relative valuations for
fast-growing companies give us optimism about the Fund's outlook.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Large Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in common
stocks of growth companies with a capitalization of $5 billion or more at the
time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $ 61.20 Per Share
6/30/99: $ 52.84 Per Share
Total Net Assets: $164.0 Million
Weighted Average Market Cap: $152.7 Billion
TOTAL DIVIDEND: $ 3.41 PER SHARE
Long-Term Capital Gain: $ 3.41 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 28.9
Technology Services 14.1
Health Technology 12.6
Finance 8.8
Utilities 7.7
Retail Trade 7.1
Producer Manufacturing 6.0
Consumer Services 4.9
Consumer Non-Durables 4.1
Sectors Under 1.0% 3.2
Cash & Other Net Assets 2.6
10
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT RUSSELL
LARGE CAP S&P 1000
GROWTH FUND 500 INDEX GROWTH INDEX
----------- --------- ------------
3 Month** 26.01% 14.88% 25.15%
1 Year 33.41 21.04 33.16
5 Years 30.02 28.55 32.42
10 Year*** 18.28 18.22 20.32
Inception*** 17.89 19.11 19.54
(9/2/82)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT RUSSELL
LARGE CAP S&P 1000
GROWTH FUND 500 INDEX GROWTH INDEX
----------- --------- ------------
1 Year 33.41% 21.04% 33.16%
5 Year 271.64 251.09 307.10
10 Year*** 435.95 433.03 535.78
Inception*** 1636.64 1975.78 2109.42
(9/2/82)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 1000 GROWTH INDEX
AND THE S&P 500 INDEX.
***ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO
OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO
MORE THAN 80% STOCKS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 12/31/99 would
have grown to $173,664 in the Fund, or $207,578 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Cisco Systems, Inc.
* Microsoft Corp.
* General Electric Co.
* Nokia Corp., A.D.R.
* Sun Microsystems, Inc.
* Amgen, Inc.
* QUALCOMM, Inc.
* EMC Corp.
* Oracle Corp.
* Home Depot, Inc.
Total Number of Holdings: 68
11
<PAGE>
SIT LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.4%) (2)
COMMERCIAL SERVICES (0.5%)
21,500 SYSCO Corp. $850,594
----------------
CONSUMER DURABLES (0.9%)
22,600 Harley-Davidson, Inc. 1,447,812
----------------
CONSUMER NON-DURABLES (4.1%)
25,500 Coca Cola Co. 1,485,375
31,200 Colgate-Palmolive Co. 2,028,000
20,000 Kimberly-Clark Corp. 1,305,000
17,200 Procter & Gamble Co. 1,884,475
----------------
6,702,850
----------------
CONSUMER SERVICES (4.9%)
26,500 AT&T Corp.-Liberty Media Group (3) 1,503,875
44,500 CBS Corp. (3) 2,845,219
21,900 Clear Channel Communications, Inc. (3) 1,954,575
23,800 Time Warner, Inc. 1,724,012
----------------
8,027,681
----------------
ELECTRONIC TECHNOLOGY (28.9%)
9,000 Applied Materials, Inc. (3) 1,140,188
95,150 Cisco Systems, Inc. (3) 10,192,944
37,300 EMC Corp. (3) 4,075,025
43,900 Intel Corp. 3,613,519
10,000 JDS Uniphase Corp. (3) 1,613,125
12,500 Lexmark International Group, Inc. (3) 1,131,250
11,000 Linear Technology Corp. 787,188
41,710 Lucent Technologies, Inc. 3,120,429
30,500 Nokia Corp., A.D.R. 5,795,000
8,500 Nortel Networks Corp. 858,500
24,000 QUALCOMM, Inc. (3) 4,227,000
57,000 Sun Microsystems, Inc. (3) 4,413,937
39,700 Tellabs, Inc. (3) 2,548,244
23,100 Texas Instruments, Inc. 2,237,812
37,000 Xilinx, Inc. (3) 1,682,344
----------------
47,436,505
----------------
ENERGY MINERALS (0.9%)
43,500 EOG Resources, Inc. 763,969
23,000 Unocal Corp. 771,938
----------------
1,535,907
----------------
FINANCE (8.8%)
22,375 American International Group, Inc. 2,419,297
24,100 Chase Manhattan Corp. 1,872,269
13,500 Citigroup, Inc. 750,094
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
27,200 Federal Home Loan Mortgage Corp. 1,280,100
27,000 Marsh & McLennan Cos., Inc. 2,583,562
17,500 Morgan Stanley Dean Witter & Co. 2,498,125
31,300 Wells Fargo Co. 1,265,694
34,100 XL Capital, Ltd. 1,768,937
----------------
14,438,078
----------------
HEALTH TECHNOLOGY (12.6%)
71,000 Amgen, Inc. (3) 4,264,437
9,000 Biogen, Inc. (3) 760,500
40,400 Bristol-Myers Squibb Co. 2,593,175
21,000 Johnson & Johnson Co. 1,955,625
7,000 MedImmune, Inc. (3) 1,161,125
54,200 Medtronic, Inc. 1,974,912
39,900 Merck & Co., Inc. 2,675,794
77,300 Pfizer, Inc. 2,507,419
33,500 Warner Lambert Corp. 2,744,906
----------------
20,637,893
----------------
INDUSTRIAL SERVICES (0.4%)
18,000 Halliburton Co. 724,500
----------------
PRODUCER MANUFACTURING (6.0%)
51,100 General Electric Co. 7,907,725
48,200 Tyco International, Ltd. 1,873,775
----------------
9,781,500
----------------
RETAIL TRADE (7.1%)
17,000 CVS Corp. 678,938
41,700 Dayton Hudson Corp. 3,062,344
56,550 Home Depot, Inc. 3,877,209
18,500 Kohl's Corp. (3) 1,335,469
12,500 Wal-Mart Stores, Inc 864,063
60,600 Walgreen Co. 1,772,550
----------------
11,590,573
----------------
TECHNOLOGY SERVICES (14.1%)
43,000 America Online, Inc. (3) 3,243,813
10,500 BMC Software, Inc. (3) 839,344
65,900 Ceridian Corp. (3) 1,420,969
23,300 Computer Sciences Corp. (3) 2,204,762
2,500 Dendrite International, Inc. (3) 84,688
34,500 First Data Corp. 1,701,281
10,000 Inktomi Corp. (3) 887,500
75,000 Microsoft Corp. (3) 8,756,250
35,250 Oracle Corp. (3) 3,950,203
----------------
23,088,810
----------------
12
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
TRANSPORTATION (0.5%)
11,500 United Parcel Service, Inc. 793,500
----------------
UTILITIES (7.7%)
37,000 Global Crossing, Ltd. (3) 1,850,000
53,400 MCI WorldCom, Inc. (3) 2,833,537
14,500 Nextel Communications, Inc. (3) 1,495,312
45,000 Sprint Corp. 3,029,062
69,500 Vodafone Airtouch, A.D.R. 3,440,250
----------------
12,648,161
----------------
Total common stocks 159,704,364
----------------
(cost: $91,934,231)
SHORT-TERM SECURITIES (2.6%) (2)
4,239,000 Sit Money Market Fund, 5.35% (6) 4,239,000
----------------
(cost: $4,239,000)
Total investments in securities
(cost: $96,173,231) (7) $163,943,364
================
See accompanying notes to portfolios of investments on page 38.
13
<PAGE>
[PHOTO] SIT REGIONAL GROWTH FUND
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER
The Sit Regional Growth Fund rose +7.7% over the second half of 1999, equal
to the +7.7% return for the S&P 500 Index.
The Fund's longer term record relative to the S&P 500 Index has been
negatively impacted by the underweighting of the very large companies outside of
the Fund's regional focus, as a select few stocks have disproportionately driven
the Index higher. Recent evidence supporting a broadening market, however, bodes
well for the Fund's prospects, given that the Fund's weighted market
capitalization remains well below that of the S&P 500 Index.
Strong earnings growth continues to be a primary focus of the portfolio. We
project earnings growth of +21.9% over the next year and +19.4% over the next
five years, which compares quite favorably to the +9.1% and +10.0% projected
growth rates for the S&P 500 Index over the same time periods. We believe that
the valuations of companies held in the Fund are highly attractive, especially
in light of superior relative growth rates. For example, the weighted
price-to-earnings ratio for companies held in the Fund is 30x (based on 2000
estimates), which is only slightly higher than the S&P 500 Index multiple of
29x. We believe this valuation is compelling, given that the projected earnings
growth rate for companies held in the Fund is twice that of the S&P 500 Index
over the next year.
As of December 31st, the Fund was 98% invested in equity securities, up from
95% six months ago. Significant sector weighting changes over the past six
months include increases in electronic technology and consumer services, while
retail trade and health technology had the largest decrease. Given the Fund's
emphasis on growth companies and the dynamic changes occurring within our
economy, the electronic technology and technology services sectors are the
heaviest weighted sectors within the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies with their headquarters in Minnesota, Iowa, Missouri, North Dakota,
South Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana, and
Ohio. During normal market conditions, at least 80% of the Fund's total assets
will be invested in such securities. The Fund emphasizes securities of companies
that the Adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $14.19 Per Share
6/30/99: $13.17 Per Share
Total Net Assets: $ 7.9 Million
Weighted Average Market Cap: $22.5 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 20.1
Technology Services 15.3
Finance 12.6
Retail Trade 10.4
Health Technology 8.0
Consumer Services 8.0
Producer Manufacturing 5.0
Utilities 4.7
Commercial Services 4.1
Sectors 3.0% and Under 9.9
Cash & Other Net Assets 1.9
14
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT
REGIONAL S&P RUSSELL
GROWTH FUND 500 INDEX 3000 INDEX
----------- --------- ----------
3 Month** 14.99% 14.88% 16.22%
1 Year 15.55 21.04 20.89
Inception 19.25 24.75 22.51
(12/31/97)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT
REGIONAL S&P RUSSELL
GROWTH FUND 500 INDEX 3000 INDEX
----------- --------- ----------
1 Year 15.55% 21.04% 20.89%
Inception 42.19 55.63 50.08
(12/31/97)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX AND THE
RUSSELL 3000 INDEX. LIPPER ANALYTICAL SERVICES, INC. IS A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 12/31/99
would have grown to $14,219 in the Fund, or $15,563 in the S&P 500 Index
assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Motorola, Inc.
* Emmis Communications Corp.
* Sprint Corp.
* ADC Telecommunications, Inc.
* Tellabs, Inc.
* Great Plains Software, Inc.
* Gateway 2000, Inc.
* First Data Corp.
* Whittman-Hart, Inc.
* Northern Trust Corp.
Total Number of Holdings: 37
15
<PAGE>
SIT REGIONAL GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (98.1%) (2)
COMMERCIAL SERVICES (4.1%)
3,000 Deluxe Corp. $82,312
4,500 Ecolab, Inc. 176,062
1,500 Valassis Communications, Inc. (3) 63,375
----------------
321,749
----------------
CONSUMER DURABLES (2.0%)
2,500 Harley-Davidson, Inc. 160,156
----------------
CONSUMER SERVICES (8.0%)
3,500 Emmis Communications Corp. (3) 436,242
3,500 Tribune Co. 192,719
----------------
628,961
----------------
CONSUMER NON-DURABLES (1.3%)
3,000 General Mills, Inc. 107,250
----------------
ELECTRONIC TECHNOLOGY (20.1%)
5,000 ADC Telecommunications, Inc. (3) 362,812
4,000 Gateway 2000, Inc. (3) 288,250
3,000 Motorola, Inc. 441,750
4,500 National Computer Systems, Inc. 169,313
5,000 Tellabs, Inc. (3) 320,938
----------------
1,583,063
----------------
FINANCE (12.6%)
4,500 Aon Corp. 180,000
5,000 Northern Trust Corp. 265,000
4,000 Reliastar Financial Corp. 156,750
6,000 TCF Financial Corp. 149,250
6,000 Wells Fargo Co. 242,625
----------------
993,625
----------------
HEALTH SERVICES (2.2%)
3,637 Cardinal Health, Inc. 174,121
----------------
HEALTH TECHNOLOGY (8.0%)
2,500 Baxter International, Inc. 157,031
2,500 Eli Lilly & Co. 166,250
5,000 Medtronic, Inc. 182,188
5,000 Sybron Int'l Corp. (3) 123,438
----------------
628,907
----------------
PROCESS INDUSTRIES (3.0%)
2,000 H.B. Fuller Co. 111,875
3,500 Monsanto Co. 124,688
----------------
236,563
----------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
PRODUCER MANUFACTURING (5.0%)
3,000 Illinois Tool Works, Inc. 202,687
2,000 Minnesota Mining & Mfg. Co. 195,750
----------------
398,437
----------------
RETAIL TRADE (10.4%)
3,500 Best Buy, Inc. (3) 175,656
3,500 Dayton Hudson Corp. 257,031
2,500 Kohl's Corp. (3) 180,469
7,000 Walgreen Co. 204,750
----------------
817,906
----------------
TECHNOLOGY SERVICES (15.3%)
7,500 Ceridian Corp. (3) 161,719
5,500 First Data Corp. 271,219
5,425 Fiserv, Inc. (3) 207,845
4,000 Great Plains Software, Inc. (3) 299,000
5,000 Whittman-Hart, Inc. (3) 268,125
----------------
1,207,908
----------------
TRANSPORTATION (1.4%)
2,800 C.H. Robinson Worldwide, Inc. 111,300
----------------
UTILITIES (4.7%)
5,500 Sprint Corp. 370,219
----------------
Total common stocks 7,740,165
----------------
(cost: $5,569,139)
SHORT-TERM SECURITIES (1.9%) (2)
147,000 Sit Money Market Fund, 5.35% (6) 147,000
----------------
(cost: $147,000)
Total investments in securities
(cost: $5,716,139) (7) $7,887,165
=================
See accompanying notes to portfolios of investments on page 38.
16
<PAGE>
This page has been left blank intentionally.
17
<PAGE>
[PHOTO] SIT MID CAP GROWTH FUND
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER
ERIK S. ANDERSON, CFA, SENIOR PORTFOLIO MANAGER
The Sit Mid Cap Growth Fund returned +51.9% during the second half of 1999
and produced a calendar 1999 return of +70.7%. This compares favorably with the
+7.3% semi-annual return and +14.7% calendar return for the S&P MidCap 400
Index.
Over the past year, small and mid cap stocks posted improved returns relative
to larger cap issues, we attribute this outperformance to extreme undervaluation
and renewed investor confidence in the global economic environment. In addition,
the accelerating pace of change within technology has led to surging performance
of many dynamic small- and mid-sized technology companies. This sector's
performance has been strong enough to almost single-handedly drive most small
and mid cap indices higher. Indeed, the Fund's excess return over the S&P MidCap
400 Index is largely attributable to its overweighted position and favorable
stock selection within the electronic technology and technology services
sectors.
These sectors within the Fund posted a combined return of nearly 100% over
the past six months. Several large holdings, including JDS Uniphase, QUALCOMM,
Applied Micro Circuits and Check Point Software, posted returns of over +200%
for the period. Although such remarkable performance cannot be expected to
persist in the future, we believe the fundamentals underlying this strong stock
performance support continued overweighted position in the technology sectors.
Along with the Fund's positioning in other high growth sectors, technology
investments are a key element underlying the strong projected earnings growth
for companies held in the Fund, which we currently estimate at 37.0% for 2000
and 33.2% over the next five years. This compares quite favorably with the S&P
500 Index estimated 2000 earnings growth of 9.1% and 5-year projected growth
rate of 10.0%.
In terms of sector weightings, electronic technology, consumer services and
technology services showed the largest increases over the past six months. New
purchases included QUALCOMM, International Speedway, Siebel Systems and VERITAS
Software. Significant sector weighting decreases occurred in health technology,
retail trade and finance through the sale of Biogen, Boston Scientific, Elan,
Staples and Mutual Risk Management. As of December 31st, the Fund was 97%
invested in equity securities.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Mid Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of growth companies with a capitalization of $2 billion to $15
billion at the time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $ 20.69 Per Share
6/30/99: $ 14.54 Per Share
Total Net Assets: $510.5 Million
Weighted Average Market Cap: $ 16.3 Billion
TOTAL DIVIDEND: $ 1.23 PER SHARE
Long-Term Capital Gain: $ 1.23 Per Share
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 37.9
Technology Services 23.6
Health Technology 7.8
Consumer Services 7.1
Finance 6.4
Utilities 4.8
Retail Trade 4.6
Sectors Under 2.0% 5.2
Cash & Other Net Assets 2.6
18
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT S&P RUSSELL
MID CAP MIDCAP MID CAP
GROWTH FUND 400 INDEX GROWTH INDEX
----------- --------- ------------
3 Month** 45.95% 17.19% 39.47%
1 Year 70.65 14.72 51.29
5 Year 28.43 23.05 28.02
10 Year 19.60 17.32 18.96
Inception 20.78 18.77 --
(9/2/82)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT S&P RUSSELL
MID CAP MIDCAP MID CAP
GROWTH FUND 400 INDEX GROWTH INDEX
----------- --------- ------------
1 Year 70.65% 14.72% 51.29%
5 Year 249.46 182.14 243.93
10 Year 499.04 394.06 467.35
Inception 2542.12 1872.95 --
(9/2/82)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL MID CAP GROWTH
INDEX AND THE S&P MIDCAP 400 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/82) and held until 12/31/99
would have grown to $264,212 in the Fund, or $197,295 in the S&P MidCap 400
Index assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* JDS Uniphase Corp.
* QUALCOMM, Inc.
* Applied Micro Circuits Corp.
* Check Point Software Tech., Ltd.
* Xilinx, Inc.
* Legato Systems, Inc.
* Dendrite International, Inc.
* Vitesse Semiconductor Corp.
* Biogen, Inc.
* AMFM, Inc.
Total Number of Holdings: 73
19
<PAGE>
SIT MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.4%) (2)
COMMERCIAL SERVICES (0.4%)
23,000 Omnicom Group, Inc. $2,300,000
-----------------
CONSUMER DURABLES (1.3%)
26,800 Electronic Arts, Inc. (3) 2,251,200
65,800 Harley-Davidson, Inc. 4,215,313
-----------------
6,466,513
-----------------
CONSUMER NON-DURABLES (1.2%)
114,800 Dial Corp. 2,791,075
67,700 Estee Lauder Companies, Inc. 3,414,619
-----------------
6,205,694
-----------------
CONSUMER SERVICES (7.1%)
143,700 AMFM, Inc. (3) 11,244,525
133,500 Adelphia Communications Corp. (3) 8,760,937
35,700 BEA Systems, Inc. (3) 2,496,769
30,100 EchoStar Communications Corp. (3) 2,934,750
111,000 International Speedway Corp. 5,591,625
34,800 UnitedGlobalCom, Inc. (3) 2,457,750
24,900 Univision Communications, Inc. (3) 2,544,469
-----------------
36,030,825
-----------------
ELECTRONIC TECHNOLOGY (37.9%)
117,200 ADC Telecommunications, Inc. (3) 8,504,325
58,800 ASM Lithography Hldg., A.D.R. (3) 6,688,500
85,100 Analog Devices, Inc. (3) 7,914,300
157,000 Applied Micro Circuits Corp. (3) 19,978,250
75,200 Asyst Technologies, Inc. (3) 4,930,300
16,900 Brocade Communications Systems,
Inc. (3) 2,991,300
56,900 Comverse Technology, Inc. (3) 8,236,275
189,000 JDS Uniphase Corp. (3) 30,488,062
145,400 Jabil Circuit, Inc. (3) 10,614,200
93,500 Lexmark International Group, Inc. (3) 8,461,750
76,200 Linear Technology Corp. 5,453,062
114,700 Maxim Integrated Products, Inc. (3) 5,412,406
29,100 Network Appliance, Inc. (3) 2,417,119
1,200 PE Corp-PE Biosystems Group 144,375
135,200 QUALCOMM, Inc. (3) 23,812,100
93,150 Symbol Technologies, Inc. 5,920,847
148,600 Teradyne, Inc. (3) 9,807,600
254,600 Vitesse Semiconductor Corp. (3) 13,350,587
408,800 Xilinx, Inc. (3) 18,587,625
-----------------
193,712,983
-----------------
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
ENERGY MINERALS (1.9%)
88,200 Devon Energy Corp. 2,899,575
290,500 EOG Resources, Inc. 5,101,906
66,700 Newfield Exploration Co. (3) 1,784,225
-----------------
9,785,706
-----------------
FINANCE (6.4%)
283,300 Ace, Ltd. 4,727,569
110,500 Aon Corp. 4,420,000
70,000 Kansas City Southern Industries, Inc. 5,223,750
125,200 ReliaStar Financial Corp. 4,906,275
84,400 T. Rowe Price & Associates 3,117,525
230,200 TCF Financial Corp. 5,726,225
27,300 The Goldman Sachs Group, Inc. 2,571,319
32,900 Zions Bancorporation 1,947,269
-----------------
32,639,932
-----------------
HEALTH SERVICES (0.4%)
82,300 IMS Health, Inc. 2,237,531
-----------------
HEALTH TECHNOLOGY (7.8%)
155,600 Biogen, Inc. (3) 13,148,200
166,800 Elan Corp., A.D.R. (3) 4,920,600
87,400 Immunex Corp. (3) 9,570,300
60,200 MedImmune, Inc. (3) 9,985,675
37,600 VISX, Inc. (3) 1,945,800
-----------------
39,570,575
-----------------
RETAIL TRADE (4.6%)
84,100 Bed Bath & Beyond, Inc. (3) 2,922,475
90,500 Best Buy Co., Inc. (3) 4,541,969
135,400 Kohl's Corp. (3) 9,774,187
62,100 Tandy Corp. 3,054,544
36,700 Tiffany & Co. 3,275,475
-----------------
23,568,650
-----------------
TECHNOLOGY SERVICES (23.6%)
96,800 BMC Software, Inc. (3) 7,737,950
225,000 Ceridian Corp. (3) 4,851,563
95,700 Check Point Software Tech., Ltd. (3) 19,020,375
88,800 Computer Sciences Corp. (3) 8,402,700
404,700 Dendrite International, Inc. (3) 13,709,212
16,900 DoubleClick, Inc. (3) 4,276,756
246,075 Fiserv, Inc. (3) 9,427,748
7,500 I2 Technologies, Inc. (3) 1,462,500
38,300 InfoSpace.com, Inc. (3) 8,196,200
20
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
103,400 Inktomi Corp. (3) 9,176,750
263,700 Legato Systems, Inc. (3) 18,145,856
10,300 RealNetworks, Inc. (3) 1,239,219
56,900 Siebel Systems, Inc. (3) 4,779,600
18,800 Vignette Corp. (3) 3,064,400
8,900 VeriSign, Inc. (3) 1,699,344
36,700 VERITAS Software Corp. (3) 5,252,688
-----------------
120,442,861
-----------------
UTILITIES (4.8%)
71,000 Allegiance Telecom, Inc. (3) 6,549,750
135,400 Global TeleSystems Group, Inc. (3) 4,688,225
101,100 NEXTLINK Communications, Inc. (3) 8,397,619
37,100 Telephone and Data Systems, Inc. 4,674,600
-----------------
24,310,194
-----------------
Total common stocks 497,271,464
-----------------
(cost: $248,259,266)
SHORT-TERM SECURITIES (2.2%) (2)
931,000 American Express Credit Corp.,
1.50%, 1/3/00 930,922
10,547,000 Sit Money Market Fund, 5.35% (6) 10,547,000
-----------------
Total short-term securities 11,477,922
-----------------
(cost: $11,477,922)
Total investments in securities
(cost: $259,737,188) (7) $508,749,386
=================
See accompanying notes to portfolios of investments on page 38.
21
<PAGE>
[PHOTO] SIT INTERNATIONAL GROWTH FUND REVIEW
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
SENIOR PORTFOLIO MANAGERS
EUGENE C. SIT, CFA * ANDREW B. KIM, CFA * ROGER J. SIT
The Sit International Growth Fund gained 48.2% for the six months ended
December 31, 1999 compared with the MSCI EAFE Index return of +22.1% and the
Lipper International Fund Index return of +28.9%. The Fund's return for 1999 was
+50.8% compared with gains of 27.0% for the MSCI Index and 37.8% for the Lipper
Index. The Fund's outperformance had been primarily led by the portfolio's
Japanese and European holdings. The sector leaders continued to be information
technology services, telecommunications, technology and retailers.
The returns for the Fund's European holdings increased substantially in the
December quarter, up 43%, after being up only 1% in the September quarter.
European markets reacted favorably over the last three months, as investor
sentiment has become more positive. Structural and financial reforms are being
proposed and implemented. Merger and acquisition activity more than doubled in
1999 as European companies sought pan-European alliances and cross border deals
with rivals. Consolidation in the telecommunications and financial service
sectors is expected to continue. Lastly, companies are benefiting from
increasing exports, supported by the weak euro, as global growth accelerates. We
believe European equities will continue to outperform as economies improve,
corporate restructuring and consolidation continues, and Europe closes the
technology gap with the U.S.
The Fund's Japanese holdings continued to perform strongly, up 36.9% in the
December quarter, on top of the 36.8% in the preceding quarter. Foreign and
domestic investors have taken an optimistic view as corporate restructuring
gathers speed. As with Europe, focus is on the global technology boom
concentrated on telecommunications, Internet and service-related industries. Our
Japanese portfolio has greatly benefited by the price appreciation in these
sectors. Our non-Japan Asia investments remain directed toward semiconductor and
contract manufacturers.
We expect to maintain the Fund's European weighting in the mid 50% area and
the Japan weighting around 30% as we begin the new calendar year. We believe
capital flows will favor these markets. We also intend to retain our sector
preferences in those industries that have long-term growth opportunities:
technology, telecommunications and service.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit International Growth Fund is to achieve long-term
growth of capital by investing in equity securities of issuers domiciled outside
the United States. The Fund's investment objective reflects the belief that
long-term investment planning should include the investment opportunities that
exist outside the U.S.
The Fund selects its investments based on the characteristics of the
particular markets and economies of the countries in which it invests. Emphasis
is placed on identifying securities of companies believed to be undervalued in
the marketplace in relation to factors such as the company's revenues, earnings,
assets and long-term competitive position which over time will enhance the
equity value of the company.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $ 26.20 Per Share
6/30/99: $ 18.77 Per Share
Total Net Assets: $136.2 Million
Weighted Average Market Cap: $ 81.7 Billion
TOTAL DIVIDEND: $ 1.51 PER SHARE
Long-Term Capital Gain: $ 1.28 Per Share
Ordinary Income: $ 0.23 Per Share
PORTFOLIO STRUCTURE - BY REGION
(% OF TOTAL NET ASSETS)
[BAR CHART]
Sit Int'l Morgan Stanley
Growth Fund EAFE Index
Europe Other 30.9 26.5
Japan 29.0 27.4
France, Germany, UK 23.1 40.0
Pacific Basin 9.5 6.1
North America 2.3 0.0
Africa/Middle East 1.2 0.0
Latin America 0.5 0.0
Cash & Other Net Assets 3.5 0.0
22
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT MORGAN STANLEY LIPPER
INTERNATIONAL CAPITAL INT'L INT'L
GROWTH FUND EAFE INDEX INDEX
----------- ---------- -----
3 Month** 38.12% 16.99% 24.73%
1 Year 50.77 26.96 37.83
3 Year 23.41 15.74 18.53
5 Year 17.79 12.83 15.96
Inception 16.52 10.73 13.66
(11/1/91)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT MORGAN STANLEY LIPPER
INTERNATIONAL CAPITAL INT'L INT'L
GROWTH FUND EAFE INDEX INDEX
----------- ---------- -----
1 Year 50.77% 26.96% 37.83%
3 Year 87.97 55.06 66.54
5 Year 126.77 82.87 109.67
Inception 248.91 130.05 184.69
(11/1/91)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (11/1/91) and held until 12/31/99 would
have grown to $34,891 in the Fund, or $23,005 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
PORTFOLIO STRUCTURE - BY REGION
(% OF TOTAL NET ASSETS)
[BAR CHART]
Utilities 19.9
Electronic Technology 18.8
Finance 18.5
Technology Services 15.9
Retail Trade 6.8
Health Technology 5.2
Producer Manufacturing 4.8
Sectors Under 3.0% 6.6
Cash & Other Net Assets 3.5
23
<PAGE>
SIT INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
TOP 10 HOLDINGS
* Nokia Corp., A.D.R.
* NTT Mobile Communications Network, Inc.
* Seven Eleven Japan
* NTT Data Corp.
* Mannesmann, A.G.
* CMG, p.l.c.
* Orix Corp.
* Misys, p.l.c.
* Telefonica, S.A.
* Tietoenator Corp.
Total Number of Holdings: 81
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.8%)(2)
AFRICA/ MIDDLE EAST (1.2%)
ISRAEL (0.7%)
6,400 Comverse Technology, Inc. (Electronic
Technology) (3) $926,400
----------------
SOUTH AFRICA (0.5%)
242,280 Old Mutual, p.l.c. (Finance) (3) 659,433
----------------
ASIA (37.8%)
AUSTRALIA (1.3%)
131,007 Colonial, Ltd. (Finance) (3) 585,702
88,900 Telstra Corp., Ltd. (Utilities) 483,245
202,040 Telstra Corp., Ltd. Installment
Receipts (Utilities) 712,273
----------------
1,781,220
----------------
HONG KONG (2.4%)
63,000 Cheung Kong Hldgs., Ltd. (Industrial
Services) 800,315
140,000 China Telecom, Ltd. (Utilities) 875,281
226,000 Citic Pacific, Ltd. (Utilities) 850,389
57,600 HSBC Holdings, p.l.c. (Finance) 807,667
----------------
3,333,652
----------------
JAPAN (28.3%)
27,200 AFLAC, Inc. (Finance) 1,283,500
223,000 Asahi Bank, Ltd. (Finance) 1,375,061
59 East Japan Railway Co. (Transportation) 318,185
240 NTT Data Corp. (Tech. Services) 5,520,211
180 NTT Mobile Communications Network,
Inc. (Ord.) (Utilities) 6,923,755
29,000 Nihon Unisys, Ltd. (Tech. Services) 999,119
102 Nippon Telephone (Utilities) 1,747,088
18,800 Orix Corp. (Finance) 4,235,842
14,000 Ryohin Keikaku Co., Ltd. (Retail Trade) 2,810,414
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
36,000 Seven Eleven Japan (Retail Trade) 5,708,134
1,800 Softbank Corp. (Technology Services) 1,723,011
50,000 Takeda Chemical Industries
(Health Technology) 2,471,371
128,000 The Fuji Bank, Ltd. (Finance) 1,244,044
172,000 The Nikko Securities Co., Ltd. (Finance) 2,176,725
----------------
38,536,460
----------------
TAIWAN (1.5%)
172,200 Hon Hai Precision Industry (Electronic
Technology) (3) 1,283,887
15,700 Taiwan Semiconductor Mfg. Co.,
A.D.R. (Electronic Technology) (3) 706,500
----------------
1,990,387
----------------
SINGAPORE (2.2%)
48,846 DBS Group Holdings, Ltd. (Finance) 800,658
167,000 Natsteel Electronics, Ltd. (Electronic
Technology) 882,378
109,000 Venture Mfg., Ltd. (Electronic Tech.) 1,250,015
----------------
2,933,051
----------------
SOUTH KOREA (1.5%)
8,764 Samsung Electronics (Electronic Tech.) 2,053,037
----------------
THAILAND (0.6%)
50,500 Advanced Info Services (Utilities) 847,365
----------------
EUROPE (54.0%)
BELGIUM (0.6%)
17,600 UCB, S.A. (Health Technology) 763,173
----------------
FINLAND (7.8%)
40,900 Nokia Corp., A.D.R. (Electronic Tech.) 7,771,000
46,360 Tietoenator Corp. (Technology Services) 2,895,159
----------------
10,666,159
----------------
FRANCE (7.4%)
14,520 AXA-UAP (Finance) 2,024,138
38,200 Alstom, A.D.R. (Producer Mfg.) 1,273,587
3,894 Carrefour, S.A. (Retail Trade) 718,161
9,430 France Telecom, S.A. (Utilities) 1,247,136
6,560 Groupe Danone (Cons. Non-Durables) 1,546,169
1,615 L'oreal Co. (Consumer Non-Durables) 1,295,674
12,800 STMicroelectronics, A.D.R. (Electronic
Technology) 1,938,400
----------------
10,043,265
----------------
GERMANY (7.0%)
3,397 Allianz, A.G. (Finance) 1,141,113
21,930 Deutsche Telekom, A.G. (Utilities) 1,561,692
10,350 Epcos, A.G. (Electronic Technology) (3) 776,666
21,677 Mannesmann, A.G. (Producer Mfg.) 5,284,005
1,250 SAP Preferred (Technology Services) 752,920
----------------
9,516,396
----------------
24
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
IRELAND (1.3%)
136,800 Bank of Ireland (Finance) 1,088,556
23,400 Elan Corp., p.l.c., A.D.R. (Health
Technology) (3) 690,300
----------------
1,778,856
----------------
ITALY (5.2%)
224,300 Banca Fideuram (Finance) 2,656,892
106,000 Enel Spa (Utilities) (3) 444,157
123,000 Telecom Italia (Utilities) 1,734,485
203,200 Telecom Italia Mobile Spa (Utilities) 2,269,826
----------------
7,105,360
----------------
NETHERLANDS (8.2%)
15,500 ASM Lithography Holding, A.D.R.
(Electronic Technology) (3) 1,763,125
13,940 Aegon N.V., A.D.R. (Finance) 1,331,230
60,360 CMG, p.l.c. (Technology Services) 4,492,944
8,000 Equant, A.D.R. (Technology Services) 896,000
22,640 Libertel N.V. (Elec. Technology) (3) 592,908
7,900 Royal Dutch Petroleum, A.D.R.
(Energy Minerals) 477,456
8,040 United Pan-Europe Communications
N.V. (Consumer Services) (3) 1,028,483
18,064 Wolters Kluwer (Commercial Svcs.) 611,351
----------------
11,193,497
----------------
SPAIN (3.7%)
52,640 Argentaria (Finance) 1,236,995
5,000 Jazztel, A.D.R. (Electronic Tech.) (3) 325,625
126,335 Telefonica, S.A. (Utilities) 3,155,824
6,400 Terra Networks, S.A. (Technology
Services) (3) 349,717
----------------
5,068,161
----------------
SWEDEN (1.7%)
18,200 L.M. Ericsson Telephone Co., A.D.R.
(Electronic Technology) 1,195,513
60,800 Securitas AB (Commercial Svcs.) 1,100,517
----------------
2,296,030
----------------
SWITZERLAND (2.4%)
675 Novartis, A.G. (Health Technology) 991,114
50 Roche Holdings, A.G. (Health Tech.) 593,481
2,870 Zurich Allied, AG (Finance) 1,636,601
----------------
3,221,196
----------------
UNITED KINGDOM (8.7%)
21,454 AstraZeneca Group, p.l.c. (Health
Technology) 907,786
19,200 BP Amoco, A.D.R. (Energy Minerals) 1,138,800
52,800 British Telecom, p.l.c. (Utilities) 1,290,405
72,126 Lloyds TSB Group, p.l.c. (Finance) 902,332
260,535 Misys, p.l.c. (Technology Services) 4,061,127
23,305 Pearson, p.l.c. (Consumer Services) 754,397
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
9,600 SmithKline Beecham, p.l.c., A.D.R.
(Health Technology) 618,600
58,800 Thus, p.l.c. (Utilities) (3) 368,521
38,000 Vodafone Airtouch, A.D.R. (Utilities) 1,881,000
----------------
11,922,968
----------------
LATIN AMERICA (0.5%)
MEXICO (0.5%)
5,700 Telefonos de Mexico S.A., A.D.R.
(Utilities) 641,250
----------------
NORTH AMERICA (2.3%)
CANADA (2.3%)
6,600 Nortel Networks Corp. (Electronic
Technology) 666,600
15,900 PMC-Sierra, Inc., A.D.R. (Electronic
Technology) (3) 2,548,969
----------------
3,215,569
----------------
Total common stocks 130,492,885
----------------
(cost: $55,551,487)
STRUCTURED NOTE (0.7%) (2)
371 Sony Corp. (Currency Protected,
Equity-Linked), 7.50%, 5/8/00 (8) 935,634
----------------
(cost: $717,236)
SHORT TERM SECURITIES (5.5%) (2)
7,427,000 Sit Money Market Fund, 5.35% (6) 7,427,000
----------------
(cost: $7,427,000)
Total investments in securities
(cost: $66,695,723) (7) $138,855,519
================
See accompanying notes to portfolios of investments on page 38.
25
<PAGE>
[PHOTO] SIT SMALL CAP GROWTH FUND
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER
The Sit Small Cap Growth Fund returned +83.9% over the last six months and
+108.6% for the calendar year. This compares favorably to the six-month return
of +11.0% and the 1999 return of +21.3% for the Russell 2000 Index. The Fund's
annual return ranked in the 12th percentile of the 263 small cap growth funds
ranked by Lipper Analytical Services. For the 3-year and 5-year periods, the
Fund ranked in the 25th percentile out of 165 funds and 9th percentile out of 91
funds, respectively.
In 1999, small stocks rebounded after three years of underperformance
relative to larger capitalization issues. Given that there is still a
significant valuation gap between large and small cap stocks, we believe
smaller-capitalization outperformance may be in the early stages. The technology
sector remains a key driver of small stock performance, as innovation within the
"new economy" is opening up investment opportunities in dynamic industries such
as telecommunications, the Internet and biotechnology. A significant
overweighting in the technology sector was a key factor underlying the Fund's
strong performance relative to the Russell 2000 Index. We estimate that over the
past six months, the Fund's positions in the electronic technology and
technology services sectors returned +152.0% and +103.7%, respectively, compared
to the +59.4% and +86.5% return for the same sectors within the Russell 2000
Index. Four of the Fund's largest positions, including JDS Uniphase, Applied
Micro Circuits, SDL and Sapient, posted six-month returns in excess of 200%.
Given the dynamic investment opportunities within the sector, the Fund will
continue to hold a significantly overweighted position across many different
industries within technology.
We believe the equity market's focus on strong earnings growth has been a key
element behind the Fund's performance. The projected earnings growth rates for
companies held in the Fund is 37.7% for 2000 and 35.6% over the next five years.
This compares to a growth rate of 9.1% and 10.0% over the next 1-year and 5-year
periods, respectively, for the S&P 500.
The most significant sector weighting increases occurred in the electronic
technology and health technology sectors. Weightings decreased in the finance
and utilities sectors. As of December 31, 1999, the Fund was 95.5% invested in
equity securities.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Small Cap Growth Fund is to maximize long-term
capital appreciation. The Fund pursues this objective by investing primarily in
the common stocks of small growth companies that have a capitalization of $2.5
billion or less at the time of purchase.
In addition, the Fund may purchase securities convertible into common
stocks, preferred stocks and warrants. The Fund may invest in securities not
listed on a national securities exchange but generally such securities will have
an established over-the-counter market.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $ 33.61 Per Share
6/30/99: $ 18.28 Per Share
Total Net Assets: $102.9 Million
Weighted Average Market Cap: $ 6.2 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 34.1
Technology Services 21.2
Health Technology 13.9
Finance 6.5
Consumer Services 5.0
Utilities 4.8
Sectors Under 3.0% 10.0
Cash & Other Net Assets 4.5
26
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT RUSSELL
SMALL CAP RUSSELL 2000 2000
GROWTH FUND INDEX GROWTH INDEX
----------- ------------ ------------
3 Month** 64.59% 18.44% 33.39%
1 Year 108.63 21.26 43.10
3 Year 31.80 13.08 17.84
5 Year 31.99 16.69 18.99
Inception 31.26 16.00 18.85
(7/1/94)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT RUSSELL
SMALL CAP RUSSELL 2000 2000
GROWTH FUND INDEX GROWTH INDEX
----------- ------------ ------------
1 Year 108.63% 21.26% 43.10%
3 Year 128.96 44.60 63.62
5 Year 300.57 116.37 138.55
Inception 346.92 126.34 158.87
(7/1/94)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDEX.
LIPPER ANALYTICAL SERVICES, INC. IS A LARGE INDEPENDENT EVALUATOR OF MUTUAL
FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 12/31/99 would
have grown to $44,692 in the Fund, or $22,634 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* JDS Uniphase Corp.
* Applied Micro Circuits Corp.
* Sapient Corp.
* PMC-Sierra, Inc.
* Legato Systems, Inc.
* SDL, Inc.
* Emmis Communications Corp.
* RSA Security, Inc.
* Dendrite International, Inc.
* Progenics Pharmaceuticals, Inc.
Total Number of Holdings: 70
27
<PAGE>
SIT SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.5%) (2)
COMMERCIAL SERVICES (1.8%)
12,000 CBT Group, A.D.R. (3) $402,000
55,000 Profit Recovery Group, Inc. (3) 1,460,937
---------------
1,862,937
---------------
CONSUMER SERVICES (5.0%)
28,900 Emmis Communications Corp. (3) 3,602,114
21,500 Jones Intercable, Inc. (3) 1,490,219
---------------
5,092,333
---------------
ELECTRONIC TECHNOLOGY (34.1%)
38,500 Applied Micro Circuits Corp. (3) 4,899,125
33,500 Asyst Technologies, Inc. (3) 2,196,344
43,500 Burr-Brown Corp. (3) 1,571,437
13,500 Carrier Access Corp. (3) 908,719
6,100 Cobalt Networks, Inc. (3) 661,088
3,000 Extreme Networks, Inc. (3) 250,500
45,000 Flextronics International, Ltd. (3) 2,070,000
11,500 Gilat Satellite Networks, Ltd. (3) 1,365,625
39,000 JDS Uniphase Corp. (3) 6,291,187
3,500 Juniper Networks, Inc. (3) 1,190,000
27,500 PMC-Sierra, Inc. (3) 4,408,594
25,400 RF Micro Devices, Inc. (3) 1,738,312
38,000 RSA Security, Inc. (3) 2,945,000
18,000 SDL, Inc. (3) 3,924,000
2,000 Sycamore Networks, Inc. (3) 616,000
---------------
35,035,931
---------------
ENERGY MINERALS (1.3%)
50,500 Newfield Exploration Co. (3) 1,350,875
---------------
FINANCE (6.5%)
30,000 Arthur J. Gallagher & Co. 1,942,500
38,500 Federated Investors, Inc. 772,406
10,000 InsWeb Corp. (3) 255,625
26,500 Legg Mason, Inc. 960,625
29,000 Protective Life Corp. 922,562
39,325 Queens County Bancorp, Inc. 1,066,691
94,000 Scottish Annuity & Life Hldgs., Ltd. 769,625
---------------
6,690,034
---------------
HEALTH SERVICES (1.1%)
11,500 Allscripts, Inc. (3) 506,000
35,500 Stericycle, Inc. (3) 667,844
---------------
1,173,844
---------------
HEALTH TECHNOLOGY (13.9%)
9,000 Affymetrix, Inc. (3) 1,527,187
14,500 Alexion Pharmaceuticals, Inc. (3) 436,813
71,500 Biosite Diagnostics, Inc. (3) 1,144,000
5,500 Celera Genomics (3) 819,500
39,000 Guilford Pharmaceuticals, Inc. (3) 663,000
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
50,000 I-Stat Corp. (3) 725,000
20,000 IDEC Pharmaceuticals Corp. (3) 1,965,000
10,500 Maxygen, Inc. (3) 745,500
4,000 Millenium Pharmaceuticals, Inc. (3) 488,000
9,500 Novoste Corp. (3) 156,750
47,500 Progenics Pharmaceuticals, Inc. (3) 2,321,562
17,100 Protein Design Labs, Inc. (3) 1,197,000
13,000 QLT PhotoTherapeutics, Inc. (3) 763,750
6,500 Sepracor, Inc. (3) 644,719
30,000 Ventana Medical Systems, Inc. (3) 746,250
---------------
14,344,031
---------------
PROCESS INDUSTRIES (0.9%)
23,500 Millipore Corp. 907,688
---------------
PRODUCER MANUFACTURING (0.6%)
11,500 C & D Technologies, Inc. 488,750
5,300 Kennametal, Inc. 178,213
---------------
666,963
---------------
RETAIL TRADE (2.2%)
10,000 AnnTaylor Stores Corp. (3) 344,375
48,700 Cost Plus, Inc. (3) 1,734,937
13,000 PlanetRX.Com, Inc. (3) 188,500
---------------
2,267,812
---------------
TECHNOLOGY SERVICES (21.2%)
22,000 BISYS Group, Inc. (3) 1,435,500
3,500 Business Objects S.A., A.D.R. (3) 467,688
11,500 Cais Internet, Inc. (3) 408,250
79,250 Dendrite International, Inc. (3) 2,684,594
20,000 Great Plains Software, Inc. (3) 1,495,000
20,000 Inktomi Corp. (3) 1,775,000
3,000 Internap Network Services Corp. (3) 519,000
60,000 Legato Systems, Inc. (3) 4,128,750
9,000 Portal Software, Inc. (3) 925,875
12,932 PSINet, Inc. (3) 798,551
34,000 Sapient Corp. (3) 4,791,875
6,000 VerticalNet, Inc. (3) 984,000
26,000 Whittman-Hart, Inc. (3) 1,394,250
---------------
21,808,333
---------------
TRANSPORTATION (2.1%)
25,000 C.H. Robinson Worldwide, Inc. 993,750
26,500 Eagle USA Airfreight, Inc. (3) 1,142,812
---------------
2,136,562
---------------
UTILITIES (4.8%)
27,500 Adelphia Business Solutions, Inc. (3) 1,320,000
24,000 Nextlink Communications (3) 1,993,500
10,500 Rhythms NetConnections, Inc. (3) 325,500
9,000 Rural Cellular Corp. (3) 814,500
11,500 TeleCorp PCS, Inc. (3) 437,000
---------------
4,890,500
---------------
28
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
Total common stocks 98,227,843
---------------
(cost: $42,408,254)
SHORT-TERM SECURITIES (4.6%) (2)
4,719,000 Sit Money Market Fund, 5.35% (6) 4,719,000
---------------
(cost: $4,719,000)
Total investments in securities
(cost: $47,127,254) (7) $102,946,843
===============
See accompanying notes to portfolios of investments on page 38.
29
<PAGE>
[PHOTO] SIT SCIENCE AND TECHNOLOGY GROWTH FUND
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER
The Sit Science and Technology Growth Fund returned +69.0% over the last six
months and +86.0% for calendar year 1999. The S&P 500 Index return was +7.7% and
+21.0% over the past six-month and twelve-month periods, respectively. The
six-month return for the Pacific Stock Exchange (PSE) Technology 100 Index was
+62.0%, while the 1999 calendar year return was +116.4%.
Science and technology stocks posted excellent returns in 1999, driven by the
remarkable surge in technological innovation combined with accelerating
worldwide spending on information technology. Enthusiasm for technology was
broad-based. The explosive growth in e-commerce, rapid upgrading of
telecommunications and networking infrastructure, the cyclical recovery of the
semiconductor industry, and rapid new product development occurring within
biotechnology are all examples of this enthusiasm. We continue to believe that
the technology boom is in its early stages, with continued innovation and strong
global demand for productivity-enhancing technology providing strong underlying
support for companies within the Fund.
Returns in the electronic technology sector were particularly strong over the
last six months, producing an estimated return of nearly +85% over the period.
SDL, Applied Micro Circuits, QUALCOMM, and PMC-Sierra were among the strongest
performers in the electronic technology sector, increasing 327%, 209%, 395%, and
172%, respectively. Biotechnology companies (Protein Design, up 215%, and IDEC
Pharmaceuticals, up 155%) and software providers (Checkpoint Software, up 271%
and I2 Technologies, up 353%) were other important contributors to the Fund's
semi-annual performance.
There were only minor changes in sector weightings over the past six months,
with a modest increase in the electronic technology and technology services
sectors, and a slight decrease in the health care sector weighting. Although our
commitment to the health care sector has been a detriment to returns since the
inception of the Fund, particularly relative to purer technology indices like
the PSE Technology 100 Index, we believe that compelling fundamentals and
favorable valuations exist within this sector. As of December 31st, the Fund was
97% invested in equity securities, down from 99% six months ago.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies which Sit Investment Associates, Inc. expects to benefit from the
development, improvement, advancement and use of science and technology. During
normal market conditions, at least 80% of the Fund's total assets will be
invested in such securities. The Fund emphasizes securities of companies that
the adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $25.74 Per Share
6/30/99: $15.23 Per Share
Total Net Assets: $26.1 Million
Weighted Average Market Cap: $64.1 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 52.6
Technology Services 23.6
Health Technology 18.8
Consumer Services 1.3
Utilities 1.1
Cash & Other Net Assets 2.6
30
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT PACIFIC STOCK
SCIENCE AND EXCHANGE
TECHNOLOGY TECHNOLOGY S&P
GROWTH FUND 100 INDEX 500 INDEX*
----------- --------- ----------
3 Month** 55.15% 54.88% 14.88%
1 Year 85.98 116.40 21.04
Inception 60.44 82.91 24.75
(12/31/97)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT PACIFIC STOCK
SCIENCE AND EXCHANGE
TECHNOLOGY TECHNOLOGY S&P
GROWTH FUND 100 INDEX 500 INDEX*
----------- --------- ----------
1 Year 85.98% 116.40% 21.04%
Inception 157.40 234.55 55.63
(12/31/97)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX AND THE S&P 500 INDEX.
*THE FUND HAS DETERMINED THAT THE S&P 500 INDEX IS MORE REPRESENTATIVE OF THE
PORTFOLIO AND IS NOW USING THIS INDEX AS ITS PRIMARY INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (12/31/97) and held until 12/31/99
would have grown to $25,740 in the Fund, $15,563 in the S&P 500 Index, or
$33,455 in the PSE Tech 100 Index assuming reinvestment of all dividends and
capital gains.
TOP 10 HOLDINGS
* SDL, Inc.
* Applied Micro Circuits Corp.
* Cisco Systems, Inc.
* PMC-Sierra, Inc.
* I2 Technologies, Inc.
* Legato Systems, Inc.
* QUALCOMM, Inc.
* Microsoft Corp.
* Check Point Software Technology
* Dendrite International, Inc.
Total Number of Holdings: 58
31
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.4%) (2)
ELECTRONIC TECHNOLOGY (52.6%)
5,500 ADC Telecommunications, Inc. (3) $399,094
5,500 Analog Devices, Inc. (3) 511,500
8,000 Applied Micro Circuits Corp. (3) 1,018,000
8,000 Cisco Systems, Inc. (3) 857,000
3,750 Comverse Technology, Inc. (3) 542,812
4,600 EMC Corp. (3) 502,550
2,500 Harmonic, Inc. (3) 237,344
6,000 Intel Corp. 493,875
3,000 JDS Uniphase Corp. (3) 483,937
7,000 Jabil Circuit, Inc. (3) 511,000
5,000 Lexmark International Group, Inc. (3) 452,500
4,000 Lucent Technologies, Inc. 299,250
3,000 Motorola, Inc. 441,750
3,000 Nokia Corp., A.D.R. 570,000
5,000 PMC-Sierra, Inc. (3) 801,563
4,000 QUALCOMM, Inc. (3) 704,500
8,000 RF Micro Devices, Inc. (3) 547,500
5,000 SDL, Inc. (3) 1,090,000
4,000 STMicroelectronics N.V. 605,750
3,500 Scientific-Atlanta, Inc. 194,688
3,000 Synopsys, Inc. (3) 200,250
6,500 Tellabs, Inc. (3) 417,219
8,000 Teradyne, Inc. (3) 528,000
2,000 Texas Instruments, Inc. 193,750
8,000 Three-Five Systems, Inc. (3) 328,000
10,000 Vitesse Semiconductor Corp. (3) 524,375
6,000 Xilinx, Inc. (3) 272,813
---------------
13,729,020
---------------
CONSUMER SERVICES (1.3%)
5,000 BEA Systems, Inc. (3) 349,687
---------------
HEALTH TECHNOLOGY (18.8%)
2,000 Affymetrix, Inc. (3) 339,375
5,000 Biogen, Inc. (3) 422,500
4,000 Bristol Myers Squibb Co. 256,750
1,500 Celera Genomics (3) 223,500
11,000 Guilford Pharmaceuticals, Inc. (3) 187,000
4,000 IDEC Pharmaceuticals Corp. (3) 393,000
4,000 Immunex Corp. (3) 438,000
2,000 Johnson & Johnson Co. 186,250
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
2,000 MedImmune, Inc. (3) 331,750
6,000 Medtronic, Inc. 218,625
4,000 Merck & Co., Inc. 268,250
2,500 Millennium Pharmaceuticals, Inc. (3) 305,000
3,000 Novoste Corp. (3) 49,500
8,500 Protein Design Labs (3) 595,000
6,900 Pfizer, Inc. 223,819
4,000 QLT PhotoTherapeutics, Inc. (3) 235,000
3,000 Warner Lambert Co. 245,813
---------------
4,919,132
---------------
TECHNOLOGY SERVICES (23.6%)
6,000 America Online, Inc. (3) 452,625
5,000 BMC Software, Inc. (3) 399,687
3,500 Check Point Software Technology (3) 695,625
20,000 Dendrite International, Inc. (3) 677,500
6,100 Digital Insight Corp. (3) 221,887
4,000 I2 Technologies, Inc. (3) 780,000
6,000 Inktomi Corp. (3) 532,500
11,000 Legato Systems, Inc. (3) 756,937
2,500 Mercury Interactive Corp. (3) 269,844
2,000 Micromuse, Inc. (3) 340,000
6,000 Microsoft Corp. (3) 700,500
6,000 Whittman-Hart, Inc. (3) 321,750
---------------
6,148,855
---------------
UTILITIES (1.1%)
5,250 MCI WorldCom, Inc. (3) 278,578
---------------
Total common stocks 25,425,272
---------------
(cost: $11,645,028)
SHORT-TERM SECURITIES (2.3%) (2)
612,000 Sit Money Market Fund, 5.35% (6) 612,000
---------------
(cost: $612,000)
Total investments in securities
(cost: $12,257,028) (7) $26,037,272
===============
See accompanying notes to portfolios of investments on page 38.
32
<PAGE>
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33
<PAGE>
[PHOTO] SIT DEVELOPING MARKETS GROWTH FUND
SIX MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER
ANDREW B. KIM, CFA, SENIOR PORTFOLIO MANAGER
The Sit Developing Markets Growth Fund outperformed the MSCI Emerging Markets
Free Index and the Lipper Emerging Markets Index for the six months ended
December 31, 1999. The Fund gained 42.1% versus 18.3% for the MSCI Index and
25.1% for the Lipper Index. As the global rally continued in companies perceived
to be internet-related, the Fund benefited from its overweighted position and
stock selection in the telecommunications and technology sectors.
The Fund continues to hold an overweighted position in Asia, with a 60.3%
weighting as of December 31st vs. 38.2% for the Index. Higher-than-expected GDP
and export growth figures announced during the past six months demonstrated that
the economic rebound in the region has been sustained. The recent WTO agreement
between China and the U.S. bodes well for the Asian markets as increased
economic ties between China and the rest of the world will create new investment
opportunities for Asian firms and reduce the security risks in the region.
During the past six months, we added three Malaysian stocks--Maybank, Commerce
Asset, and Resorts World--in anticipation of economic reform in Malaysia and the
abolition of its exit tax on foreign investment.
Over the past six months, the Fund increased its weighting in Latin America
to 13.9% vs. 30.5% for the Index. Rebounding GDP growth, rising commodity
prices, and a recovery in corporate earnings suggest that fundamentals are
improving. Our purchases of Brazilian retailer, Grupo Pao de Acucar, and Grupo
Televisa, the leading Mexican media conglomerate, reflect our more optimistic
view on the region. We will be making additional purchases in Latin America in
the near future if these positive trends continue.
We are maintaining an underweighted position in Emerging-Europe, Middle East
and Africa of 17.2% vs. 31.2% for the Index. Our holdings in these regions
continue to focus on globally-competitive technology firms, such as South
African systems integrator Dimension Data and Comverse Technology, an Israeli
firm specializing in enhanced wireless services.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
equity securities of companies located or otherwise operating in a developing
market.
Developing markets tend to be less economically developed regions of the
world. General characteristics also include a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, rapid economic growth and lower
degrees of political stability. Investors should carefully consider the risks
associated with developing markets such as currency flucuations, high
volatility, illiquidity and the possibility of political instability.
PORTFOLIO SUMMARY
Net Asset Value 12/31/99: $14.18 Per Share
6/30/99: $ 9.98 Per Share
Total Net Assets: $14.6 Million
Weighted Average Market Cap: $48.6 Billion
PORTFOLIO STRUCTURE - BY REGION
(% OF TOTAL NET ASSETS)
[BAR CHART]
Sit Developing MSCI Emerging
Markets Growth Fund Markets Free Index
Asia 60.3 38.2
Latin America 13.9 30.5
Africa/Middle East 11.1 15.1
Europe 6.1 16.1
North America 1.5 0.0
Cash & Other Net Assets 7.1 0.0
34
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
-----------------------------
SIT MSCI LIPPER
DEVELOPING EMERGING EMERGING
MARKETS MARKETS MARKETS
GROWTH FUND FREE INDEX INDEX
----------- ---------- --------
3 Month** 48.17% 25.15% 34.47%
1 Year 82.50 63.70 68.96
3 Year 9.11 0.91 3.53
5 Year 7.83 -0.13 3.02
Inception 6.69 0.38 3.14
(7/1/94)
CUMULATIVE TOTAL RETURNS*
-------------------------
SIT MSCI LIPPER
DEVELOPING EMERGING EMERGING
MARKETS MARKETS MARKETS
GROWTH FUND FREE INDEX INDEX
----------- ---------- --------
1 Year 82.50% 63.70% 68.96%
3 Year 29.88 2.75 10.97
5 Year 45.79 -0.64 16.02
Inception 42.84 2.14 18.58
(7/1/94)
*AS OF 12/31/99 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MSCI EMERGING MARKETS
FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL
SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (7/1/94) and held until 12/31/99 would
have grown to $14,284 in the Fund, or $10,214 in the Morgan Stanley Capital
Int'l Emerging Markets Free Index assuming reinvestment of all dividends and
capital gains.
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 33.3
Utilities 30.2
Retail Trade 10.1
Finance 7.5
Technology Services 5.9
Consumer Services 4.0
Industrial Services 1.1
Consumer Non-Durables 0.8
Cash & Other Net Assets 7.1
35
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1999 (UNAUDITED)
10 LARGEST HOLDINGS
* SK Telecom Co. Ltd.
* Telefonos de Mexico, A.D.R.
* Hon Hai Precision Industry
* Datacraft Asia, Ltd.
* Advanced Info Services
* Samsung Electronics
* President Chain Store Corp.
* Korea Telecom Corp.
* Korea Thrunet Co., Ltd.
* Cifra, S.A.
Total Number of Holdings: 49
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
COMMON STOCKS (92.9%)(2)
AFRICA/ MIDDLE EAST (11.1%)
ISRAEL (7.8%)
1,700 Comverse Technology, Inc. (Electronic
Technology) (3) $246,075
2,500 Gilat Satellite Networks, Ltd., A.D.R.
(Electronic Technology) (3) 296,875
8,600 Nice Systems, Ltd., A.D.R. (Electronic
Technology ) (3) 423,013
4,200 RADWARE, Ltd. (Electronic Technology) (3) 181,125
--------------
1,147,088
--------------
SOUTH AFRICA (3.3%)
65,506 Dimension Data Holdings, Ltd.
(Technology Services) 410,811
25,000 Old Mutual p.l.c. (Finance) (3) 68,045
--------------
478,856
--------------
ASIA (60.3%)
HONG KONG (4.4%)
13,000 Cheung Kong Hldgs., Ltd. (Indus. Svcs.) 165,144
640,000 China Hong Kong Photo Products Hldgs.,
Ltd. (Retail Trade) 82,331
44,000 China Telecom (Utilities) 275,088
97,000 Founder Hong Kong, Ltd. (Elec. Tech.) 118,544
--------------
641,107
--------------
INDONESIA (1.1%)
189,000 PT Ramayana Lestari (Retail Trade) 159,585
--------------
MALAYSIA (1.6%)
24,000 Commerce Asset-Holding Berhad (Finance) 61,579
15,000 Malayan Banking Berhad (Finance) 53,289
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
43,000 Resorts World Berhad (Consumer
Services) 123,342
--------------
238,210
--------------
PHILIPPINES (2.3%)
224,000 Del Monte Pacific, Ltd. (Consumer
Non-Durables) (3) 108,940
2,343,000 Digital Telecom Philippines (Utilities) (3) 81,395
173,000 Jollibee Foods Co. (Warrants) (Consumer
Services) (3)(4)(5) 72,978
424,000 SM Prime Holdings, Inc. (Retail Trade) 79,960
--------------
343,273
--------------
SINGAPORE (11.2%)
9,700 Creative Technology, Ltd. (Electronic
Technology) (3) 168,538
70,000 Datacraft Asia, Ltd. (Electronic Tech.) 581,000
22,097 DBS Group Holdings Ltd. (Finance) 362,202
51,000 Natsteel Electronics, Ltd. (Electronic
Technology) 269,469
23,000 Venture Mfg., Ltd. (Electronic Tech.) 263,765
--------------
1,644,974
--------------
SOUTH KOREA (18.5%)
20,000 Korea Electric Power, A.D.R. (Utilities) 335,000
3,000 Korea Telecom Corporation (Utilities) 472,919
3,000 Korea Telecom Corp., A.D.R. (Utilities) (3) 224,250
6,700 Korea Thrunet Co., Ltd. (Technology
Services) (3) 454,763
18,746 SK Telecom Co., A.D.R. (Utilities) 719,378
2,129 Samsung Electronics (Electronic
Technology) 498,735
--------------
2,705,045
--------------
TAIWAN (15.2%)
35,000 Accton Technology Corp., G.D.R
(Electronic Technology) (3) 255,500
70,698 Chroma Ate, Inc. (Electronic Technology) (3) 207,239
84,880 Hon Hai Precision Industry (Electronic
Technology) (3) 632,848
110,420 President Chain Store Corp. (Retail Trade) 487,276
104,902 Phoenixtec Power Co. (Elec. Tech.) (3) 202,217
62,730 Taiwan Semiconductor Co. (Electronic
Technology) (3) 333,787
84,000 United World Chinese Commercial Bank
(Finance) 101,437
--------------
2,220,304
--------------
THAILAND (6.0%)
32,800 Advanced Info Services (Utilities) 550,368
36
<PAGE>
- --------------------------------------------------------------------------------
QUANTITY NAME OF ISSUER MARKET VALUE ($)(1)
- --------------------------------------------------------------------------------
54,000 Bangkok Bank (Finance) 136,201
42,000 Hana Microelectronics Public Co., Ltd.
(Electronic Technology) 189,566
--------------
876,135
--------------
EUROPE (6.1%)
GREECE (3.1%)
3,937 Alpha Credit Bank (Finance) 308,280
10,500 Panafon Telecom (Utilities) (3) 140,983
--------------
449,263
--------------
SPAIN (3.0%)
5,550 Telefonica, A.D.R. (Utilities) 437,409
--------------
LATIN AMERICA (13.9%)
BRAZIL (3.4%)
6,900 Companhia Brasileira de Distribuicao
Grupo Pao de Acucar (Retail Trade) 222,956
1,800 Tele Centro Sul Participacoes S.A.,
A.D.R. (Utilities) 163,350
4,400 Telesp Participacoes S.A., A.D.R.
(Utilities) (3) 107,525
--------------
493,831
--------------
MEXICO (10.5%)
223,700 Cifra S.A. (Retail Trade) 448,580
5,800 Grupo Televisa S.A. (Consumer Services) 395,850
6,200 Telefonos de Mexico, A.D.R. (Utilities) 697,500
--------------
1,541,930
--------------
NORTH AMERICA (1.5%)
CANADA (1.5%)
5,800 Telesystems Int'l. Wireless, Inc.
(Utilities) (3) 213,356
--------------
Total common stocks 13,590,366
--------------
(cost: $7,338,939)
SHORT-TERM SECURITIES (7.8%) (2)
1,137,000 Sit Money Market Fund, 5.35% (6) 1,137,000
--------------
(cost: $1,137,000)
Total investments in securities
(cost: $8,475,939) (7) $14,727,366
==============
See accompanying notes to portfolios of investments on page 38.
37
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIOS OF INVESTMENTS
(1) Securities are valued by procedures described in note 1 to the financial
statements.
(2) Percentage figures indicate percentage of total net assets.
(3) Presently non-income producing securities.
(4) Securities sold within terms of a private placement memorandum, exempt from
registration under section 144A of the Securities Act of 1933, as amended,
and sold only to dealers in that program or other "accredited investors".
(5) This security has been identified by the investment adviser as an illiquid
security. The aggregate value of the security at December 31, 1999, is
$72,978 in Developing Markets Growth which represents 0.5% of the Funds'
net assets. The following table summarizes the purchase date(s) and cost
basis of the security.
<TABLE>
<CAPTION>
Purchase
Fund Security Date(s) Shares/Par Cost Basis
----------------------------- ------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Developing Markets Growth Jollibee Foods 3/98 - 12/98 173,000 77,228
</TABLE>
(6) This security represents an investment in an affiliated party. See note 3
to the accompanying financial statements.
(7) At December 31, 1999, the cost of securities for federal income tax
purposes and the aggregate gross unrealized appreciation and depreciation
based on that cost were as follows:
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost for federal income tax purposes $ 10,926,456 $ 96,173,231 $ 5,716,139 $ 259,737,188
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 3,731,653 $ 68,617,094 $ 2,384,038 $ 257,740,485
Gross unrealized depreciation (198,174) (846,961) (213,012) (8,728,286)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 3,533,479 $ 67,770,133 $ 2,171,026 $ 249,012,199
============= ============= ============= =============
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
Cost for federal income tax purposes $ 66,695,723 $ 47,127,254 $ 12,257,028 $ 8,475,939
============= ============= ============= =============
Unrealized appreciation (depreciation) on
investments:
Gross unrealized appreciation $ 72,852,990 $ 56,858,962 $ 13,853,679 $ 6,317,492
Gross unrealized depreciation (693,193) (1,039,372) (73,435) (66,065)
------------- ------------- ------------- -------------
Net unrealized appreciation $ 72,159,797 $ 55,819,590 $ 13,780,244 $ 6,251,427
============= ============= ============= =============
</TABLE>
(8) Medium-term debt security whose return is linked to the performance of the
common stock of Sony Corporation. The security is subject to price
fluctuations of the Sony Corporation common stock, up to a limit of 130% of
its level at issue date (May 8, 1999), without being affected by changes in
the yen/U.S. dollar exchange rate. The quarterly interest payment for each
unit is based on the U.S. dollar equivalent market value of 20 shares of
Sony Corp. common stock on issue date.
38
<PAGE>
This page has been left blank intentionally.
39
<PAGE>
SIT MUTUAL FUNDS
DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost $ 10,926,456 $ 96,173,231 $ 5,716,139 $ 259,737,188
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for detail $ 14,459,935 $ 163,943,364 $ 7,887,165 $ 508,749,386
Cash in bank on demand
deposit 11,060 110,857 460 2,000,717
Receivables:
Dividends and accrued interest 53,442 66,359 3,938 131,664
Fund shares sold 131 45,637 1,826 41,635
Investment securities sold -- -- -- --
Other receivables -- 6,596 309 6,661
--------------- --------------- --------------- ---------------
Total assets 14,524,568 164,172,813 7,893,698 510,930,063
--------------- --------------- --------------- ---------------
LIABILITIES
Payables:
Disbursements in excess of
cash balances -- -- -- --
Investment securities purchased -- -- -- --
Forward currency contracts, net (note 1) -- -- -- --
Fund shares redeemed 1,156 7,303 33 60,865
Accrued investment management
and advisory services fee 11,705 132,141 6,495 412,590
Other payables 38 -- -- --
--------------- --------------- --------------- ---------------
Total liabilities 12,899 139,444 6,528 473,455
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock 14,511,669 164,033,369 7,887,170 510,456,608
=============== =============== =============== ===============
Capital stock
Par $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares 773,964 2,680,214 555,748 24,667,831
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock $ 18.75 $ 61.20 $ 14.19 $ 20.69
=============== =============== =============== ===============
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at
identified cost $ 66,695,723 $ 47,127,254 $ 12,257,028 $ 8,475,939
=============== =============== =============== ===============
Investments in securities, at
market value - see
accompanying schedule for detail $ 138,855,519 $ 102,946,843 $ 26,037,272 $ 14,727,366
Cash in bank on demand
deposit -- -- 66,079 --
Receivables:
Dividends and accrued interest 91,272 35,765 3,475 6,822
Fund shares sold 107,888 73,914 43,819 23,142
Investment securities sold -- -- -- --
Other receivables 827 10,775 -- 3,416
--------------- --------------- --------------- ---------------
Total assets 139,055,506 103,067,297 26,150,645 14,760,746
--------------- --------------- --------------- ---------------
LIABILITIES
Payables:
Disbursements in excess of
cash balances 109,827 41,954 -- 103,270
Investment securities purchased -- -- -- --
Forward currency contracts, net (note 1) 2,023,930 -- -- --
Fund shares redeemed 601,497 55,166 15,893 --
Accrued investment management
and advisory services fee 161,921 112,981 24,503 22,850
Other payables -- -- 2,192 --
--------------- --------------- --------------- ---------------
Total liabilities 2,897,175 210,101 42,588 126,120
--------------- --------------- --------------- ---------------
Net assets applicable to
outstanding capital stock 136,158,331 102,857,196 26,108,057 14,634,626
=============== =============== =============== ===============
Capital stock
Par $ 0.001 $ 0.001 $ 0.001 $ 0.001
Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
Outstanding shares 5,197,193 3,059,919 1,014,452 1,032,027
=============== =============== =============== ===============
Net asset value per share of
outstanding capital stock $ 26.20 $ 33.61 $ 25.74 $ 14.18
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements on page 48.
41
<PAGE>
SIT MUTUAL FUNDS
SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
LARGE CAP REGIONAL MID CAP
BALANCED GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income:
INCOME:
Dividends * $ 27,876 $ 341,584 $ 27,048 $ 373,116
Interest 169,810 171,181 4,831 450,947
------------- ------------- ------------- -------------
Total income 197,686 512,765 31,879 824,063
------------- ------------- ------------- -------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee 63,710 713,988 46,139 2,588,756
Less fees and expenses absorbed
by investment adviser -- -- (9,228) (517,751)
------------- ------------- ------------- -------------
Total net expenses 63,710 713,988 36,911 2,071,005
------------- ------------- ------------- -------------
Net investment income (loss) 133,976 (201,223) (5,032) (1,246,942)
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2) 150,922 7,896,562 5,710 76,835,748
Net change in unrealized appreciation
(depreciation) on investments 1,461,851 22,990,541 570,641 110,575,117
Realized gain (loss) on foreign
currency transactions -- -- -- --
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) -- -- -- --
------------- ------------- ------------- -------------
Net gain (loss) on investments 1,612,773 30,887,103 576,351 187,410,865
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations $ 1,746,749 $ 30,685,880 $ 571,319 $ 186,163,923
============= ============= ============= =============
</TABLE>
- -------------------
42
<PAGE>
<TABLE>
<CAPTION>
SCIENCE AND DEVELOPING
INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS
GROWTH GROWTH GROWTH GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income:
INCOME:
Dividends * $ 290,705 $ 61,902 $ 9,009 $ 51,570
Interest 126,273 75,728 13,200 57,954
------------- ------------- ------------- -------------
Total income 416,978 137,630 22,209 109,524
------------- ------------- ------------- -------------
EXPENSES (NOTE 3):
Investment management and
advisory services fee 987,790 485,191 132,223 112,586
Less fees and expenses absorbed
by investment adviser (186,879) -- (22,037) --
------------- ------------- ------------- -------------
Total net expenses 800,911 485,191 110,186 112,586
------------- ------------- ------------- -------------
Net investment income (loss) (383,933) (347,561) (87,977) (3,062)
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS :
Net realized gain (loss) (note 2) 8,974,676 5,668,141 261,829 910,676
Net change in unrealized appreciation
(depreciation) on investments 38,289,342 39,347,847 10,173,911 3,466,027
Realized gain (loss) on foreign
currency transactions (93,132) -- -- (5,078)
Net change in unrealized appreciation
(depreciation) on foreign currency
transactions (note 3) (2,017,359) -- -- 1,586
------------- ------------- ------------- -------------
Net gain (loss) on investments 45,153,527 45,015,988 10,435,740 4,373,211
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations $ 44,769,594 $ 44,668,427 $ 10,347,763 $ 4,370,149
============= ============= ============= =============
</TABLE>
- -------------------
* Dividends are net of foreign withholding tax of $32,578 and $2,719 in the
International Growth Fund and Developing Markets Growth Fund, respectively.
43
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED LARGE CAP
FUND GROWTH FUND
----------------------------- -----------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 133,976 $ 175,194 $ (201,223) $ (117,054)
Net realized gain (loss) on investments 150,922 591,404 7,896,562 17,648,687
Net change in unrealized appreciation
(depreciation) on investments 1,461,851 205,945 22,990,541 2,230,110
Net realized gain (loss) on foreign currency transactions -- -- -- --
Net change in unrealized appreciation (depreciation) on
foreign currency transactions -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations 1,746,749 972,543 30,685,880 19,761,743
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (198,000) (147,000) -- (17,000)
Net realized gains on investments (542,000) (350,000) (8,800,000) (9,200,000)
------------- ------------- ------------- -------------
Total distributions (740,000) (497,000) (8,800,000) (9,217,000)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 2,041,068 6,001,022 16,228,480 55,525,759
Reinvested distributions 734,369 491,654 8,605,885 9,042,427
Payments for shares redeemed (1,382,880) (2,277,394) (22,944,572) (52,351,385)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions 1,392,557 4,215,282 1,889,793 12,216,801
------------- ------------- ------------- -------------
Total increase in net assets 2,399,306 4,690,825 23,775,673 22,761,544
NET ASSETS
Beginning of period 12,112,363 7,421,538 140,257,696 117,496,152
------------- ------------- ------------- -------------
End of period $ 14,511,669 $ 12,112,363 $ 164,033,369 $ 140,257,696
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 10,838,688 $ 9,446,131 $ 90,329,930 $ 88,440,137
Undistributed (distributions in excess of) net
investment income (335) 63,689 (201,223) --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions 139,837 530,915 6,134,529 7,037,967
Unrealized appreciation (depreciation) on investments 3,533,479 2,071,628 67,770,133 44,779,592
Unrealized appreciation (depreciation) on foreign
currency transactions -- -- -- --
------------- ------------- ------------- -------------
$ 14,511,669 $ 12,112,363 $ 164,033,369 $ 140,257,696
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold 115,880 359,829 294,346 1,156,108
Reinvested distributions 41,237 30,798 152,479 198,041
Redeemed (80,214) (138,578) (420,839) (1,081,277)
------------- ------------- ------------- -------------
Net increase (decrease) 76,903 252,049 25,986 272,872
============= ============= ============= =============
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
REGIONAL MID CAP INTERNATIONAL SMALL CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1999 JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999 (UNAUDITED) 1999 (UNAUDITED) 1999
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (5,032) $ (2,333) $ (1,246,942) $ (1,585,981) $ (383,933) $ (339,030) $ (347,561) $ (493,500)
5,710 (111,164) 76,835,748 25,382,637 8,974,676 2,669,179 5,668,141 (3,899,846)
570,641 1,187,711 110,575,117 (2,614,204) 38,289,342 2,467,482 39,347,847 6,980,637
-- -- -- -- (93,132) 75,709 -- --
-- -- -- -- (2,017,359) 1,383 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
571,319 1,074,214 186,163,923 21,182,452 44,769,594 4,874,723 44,668,427 2,587,291
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- (12,000) -- -- (1,100,000) (284,000) -- --
-- -- (30,425,000) (59,500,000) (6,300,000) (5,500,000) -- (7,700,000)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
-- (12,000) (30,425,000) (59,500,000) (7,400,000) (5,784,000) -- (7,700,000)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
281,723 3,331,498 100,859,039 430,451,763 26,058,137 74,962,278 20,251,738 27,461,865
-- 11,188 29,067,082 56,956,588 7,152,503 5,530,038 -- 7,467,439
(489,480) (1,863,065) (150,551,014) (478,075,695) (29,404,123) (84,321,667) (12,397,566) (36,954,369)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(207,757) 1,479,621 (20,624,893) 9,332,656 3,806,517 (3,829,351) 7,854,172 (2,025,065)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
363,562 2,541,835 135,114,030 (28,984,892) 41,176,111 (4,738,628) 52,522,599 (7,137,774)
7,523,608 4,981,773 375,342,578 404,327,470 94,982,220 99,720,848 50,334,597 57,472,371
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,887,170 $ 7,523,608 $ 510,456,608 $ 375,342,578 $ 136,158,331 $ 94,982,220 $ 102,857,196 $ 50,334,597
============= ============= ============= ============= ============= ============= ============= =============
$ 5,799,972 $ 6,007,729 $ 191,596,333 $ 212,221,226 $ 63,272,332 $ 59,465,815 $ 45,616,872 $ 37,762,700
(5,032) -- (1,246,942) -- (931,427) 552,506 (347,561) --
(78,796) (84,506) 71,095,018 24,684,270 3,681,613 1,100,069 1,768,295 (3,899,846)
2,171,026 1,600,385 249,012,199 138,437,082 72,159,797 33,870,455 55,819,590 16,471,743
-- -- -- -- (2,023,984) (6,625) -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 7,887,170 $ 7,523,608 $ 510,456,608 $ 375,342,578 $ 136,158,331 $ 94,982,220 $ 102,857,196 $ 50,334,597
============= ============= ============= ============= ============= ============= ============= =============
21,619 289,865 6,640,707 31,884,953 1,228,941 4,137,747 869,453 1,551,586
-- 979 1,590,973 4,770,255 292,775 317,635 -- 509,720
(36,968) (162,044) (9,375,890) (35,369,826) (1,385,349) (4,605,179) (563,488) (2,131,506)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(15,349) 128,800 (1,144,210) 1,285,382 136,367 (149,797) 305,965 (70,200)
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements on page 48.
45
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SCIENCE AND
TECHNOLOGY DEVELOPING MARKETS
GROWTH FUND GROWTH FUND
----------------------------- -----------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (87,977) $ (63,669) $ (3,062) $ (5,540)
Net realized gain (loss) on investments 261,829 (316,306) 910,676 (2,762,417)
Net change in unrealized appreciation
(depreciation) on investments 10,173,911 2,941,239 3,466,027 3,644,737
Net realized gain (loss) on foreign currency transactions -- -- (5,078) (33,292)
Net change in unrealized appreciation (depreciation) on
foreign currency transactions -- -- 1,586 (726)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations 10,347,763 2,561,264 4,370,149 842,762
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- --
Net realized gains on investments -- -- -- --
------------- ------------- ------------- -------------
Total distributions -- -- -- --
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 2,854,057 9,619,464 3,483,258 11,372,665
Reinvested distributions -- -- -- --
Payments for shares redeemed (1,287,428) (2,845,402) (4,556,527) (12,382,569)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from
capital share transactions 1,566,629 6,774,062 (1,073,269) (1,009,904)
------------- ------------- ------------- -------------
Total increase in net assets 11,914,392 9,335,326 3,296,880 (167,142)
NET ASSETS
Beginning of period 14,193,665 4,858,339 11,337,746 11,504,888
------------- ------------- ------------- -------------
End of period $ 26,108,057 $ 14,193,665 $ 14,634,626 $ 11,337,746
============= ============= ============= =============
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 12,515,199 $ 10,948,570 $ 11,178,650 $ 12,251,919
Undistributed (distributions in excess of) net
investment income (87,977) -- (3,062) --
Accumulated net realized gain (loss) from
security transactions and foreign
currency transactions (99,409) (361,238) (2,792,386) (3,697,984)
Unrealized appreciation (depreciation) on investments 13,780,244 3,606,333 6,251,427 2,785,400
Unrealized appreciation (depreciation) on foreign
currency transactions -- -- (3) (1,589)
------------- ------------- ------------- -------------
$ 26,108,057 $ 14,193,665 $ 14,634,626 $ 11,337,746
============= ============= ============= =============
CAPITAL TRANSACTIONS IN SHARES:
Sold 151,656 733,282 331,108 1,343,413
Reinvested distributions -- -- -- --
Redeemed (69,431) (213,983) (434,969) (1,479,311)
------------- ------------- ------------- -------------
Net increase (decrease) 82,225 519,299 (103,861) (135,898)
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements on page 48.
46
<PAGE>
This page has been left blank intentionally.
47
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sit Mutual Funds are no-load funds, and are registered under the Investment
Company Act of 1940 (as amended) as diversified, open-end management investment
companies, or series thereof. The Sit Developing Markets Growth, Sit Small Cap
Growth, Sit International Growth, Sit Balanced, Sit Regional, and Sit Science
and Technology Growth Funds are series funds of Sit Mutual Funds, Inc.
This report covers the equity funds of the Sit Mutual Funds (the Funds). The
investment objective for each Fund is as follows:
--------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
--------------------------------------------------------------------------
Large Cap Growth Fund, Inc. Maximize long-term capital appreciation and,
secondarily current income.
--------------------------------------------------------------------------
Mid Cap Growth Fund, Inc. Maximize long-term capital appreciation.
--------------------------------------------------------------------------
Small Cap Growth Maximize long-term capital appreciation.
--------------------------------------------------------------------------
Balanced Long-term capital appreciation consistent
with the preservation of principal and to
provide regular income.
--------------------------------------------------------------------------
International Growth Maximize long-term capital appreciation.
--------------------------------------------------------------------------
Developing Markets Growth Maximize long-term capital appreciation.
--------------------------------------------------------------------------
Regional Growth Fund Maximize long-term capital appreciation.
--------------------------------------------------------------------------
Science and Technology Maximize long-term capital appreciation.
Growth Fund
--------------------------------------------------------------------------
Significant accounting policies followed by the Funds are summarized below:
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges are valued at the last reported sales price prior to the time when
assets are valued. Securities traded on the over-the-counter market are valued
at the last reported sales price or if the last sales price is not available at
the last reported bid price. The sale and bid prices are obtained from
independent pricing services. Debt securities maturing more than 60 days are
priced by an independent pricing service. When market quotations are not readily
available, or securities can not be valued by the pricing service, securities
are valued at fair value as determined in good faith using procedures
established by the Board of Directors, which may include dealer supplied
valuations. Debt securities maturing in less than 60 days when acquired, or
which subsequently are within 60 days of maturity, are valued at amortized cost.
Security transactions are accounted for on the date the securities are purchased
or sold. Securities gains and losses are calculated on the identified-cost
basis. Dividend income is recorded on the ex-dividend date or upon the receipt
of ex-dividend notification in the case of certain foreign securities. Interest,
including level-yield amortization of long-term bond premium and discount, is
recorded on the accrual basis.
48
<PAGE>
ILLIQUID SECURITIES
Each Fund currently limits investments in illiquid securities to 15% of net
assets. At December 31, 1999, the Developing Markets Growth Fund held
investments in securities deemed illiquid by the investment adviser. The
aggregate value of such securities at December 31, 1999, was $72,978,
representing 0.5% of the Fund's net assets. Pursuant to the guidelines adopted
by the Board of Directors, certain unregistered securities are determined to be
liquid and are not included within the limitation specified above.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
The market value of securities and other assets and liabilities denominated in
foreign currencies for Developing Markets Growth Fund and International Growth
Fund are translated daily into U.S. dollars at the closing rate of exchange.
Purchases and sales of securities, income and expenses are translated at the
exchange rate on the transaction date. Dividend and interest income includes
currency exchange gains (losses) realized between the accrual and payment dates
on such income. Exchange gains (losses) may also be realized between the trade
and settlement dates on security and forward contract transactions. For
securities denominated in foreign currencies, the effect of changes in foreign
exchange rates on realized and unrealized gains or losses is reflected as a
component of such gains or losses.
The Developing Markets Growth and International Growth Funds may enter into
forward foreign currency exchange contracts for operational purposes and to
protect against adverse exchange rate fluctuation. The net U.S. dollar value of
foreign currency underlying all contractual commitments held by the Funds and
the resulting unrealized appreciation or depreciation are determined using
foreign currency exchange rates from an independent pricing service. The Funds
are subject to the credit risk that the other party will not complete the
obligations of the contract.
As of December 31, 1999, the International Growth Fund had entered into an open
forward currency exchange contract with an exchange date of January 12, 2000.
The net unrealized depreciation of $2,023,930 for this contract is included in
the accompanying financial statements.
U.S. Dollar Value as of
December 31, 1999
-----------------
Currency to be Delivered 1,417,495,488 Japanese Yen $13,899,730
Currency to be Received 11,875,800 U.S. Dollars 11,875,800
-----------
Net Unrealized Depreciation $ 2,023,930
-----------
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders. Therefore, no income tax provision is required.
Also, in order to avoid the payment of any federal excise taxes, the Funds will
distribute substantially all of their net investment income and net realized
gains on a calendar year basis.
Net investment income and net realized gains may differ for financial statement
and tax purposes. The character of distributions made during the year for net
investment income or net realized gains may also differ from its ultimate
characterization for tax purposes. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gains (losses) were recorded by the Fund.
49
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For federal income tax purposes the Developing Markets Growth Fund has a capital
loss carryover of $3,697,984 at June 30, 1999 which, if not offset by subsequent
capital gains, will begin to expire in 2004. Also at June 30, 1999, the Small
Cap Growth, Science and Technology Growth, and Regional Growth Funds have
capital loss carryovers of $3,899,846, $332,937, and $67,482, respectively
which, if not offset by subsequent capital gains, will begin to expire in 2007.
It is unlikely that the Board of Directors will authorize a distribution of net
realized gains until the available capital loss carryovers are offset or expire.
DISTRIBUTIONS
Distributions to shareholders are recorded as of the close of business on the
record date. Such distributions are payable in cash or reinvested in additional
shares of the Funds' capital stock. Distributions from net investment income, if
any, are declared and paid quarterly for the Balanced Fund and declared and paid
annually for Regional Growth, Science and Technology Growth, Developing Markets
Growth, Small Cap Growth, International Growth, Mid Cap Growth, and Large Cap
Growth Funds. Distributions from net realized gains, if any, will be made
annually for each of the Funds.
CONCENTRATION OF INVESTMENTS
The Developing Markets Growth Fund may concentrate investments in countries with
limited or developing capital markets which may involve greater risks than
investments in more developed markets and the prices of such investments may be
volatile. The consequences of political, social or economic changes in these
markets may have disruptive effects on the market prices of the Fund's
investments and the income it generates, as well as the Fund's ability to
repatriate such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results. Actual results could differ from those
estimates.
NOTE 2 - INVESTMENT SECURITY TRANSACTIONS
Purchases of and proceeds from sales and maturities of investment securities,
other than short-term securities, for the period ended December 31, 1999, were
as follow:
PURCHASES ($) PROCEEDS ($)
------------- ------------
Large Cap Growth Fund 43,683,778 45,254,150
Mid Cap Growth Fund 135,380,857 177,881,965
Small Cap Growth Fund 21,917,852 16,980,375
Balanced Fund 6,878,239 5,649,461
International Growth Fund 16,450,241 24,248,892
Developing Markets Growth Fund 2,963,861 4,286,676
Regional Growth Fund 1,009,927 1,001,856
Science and Technology Growth Fund 4,236,236 3,363,779
50
<PAGE>
NOTE 3 - EXPENSES
INVESTMENT ADVISER
The Funds each have entered into an investment management agreement with Sit
Investment Associates, Inc. (SIA), under which SIA manages the Funds' assets and
provides research, statistical and advisory services, and pays related office
rental, executive expenses and executive salaries. The fee for investment
management and advisory services is based on the average daily net assets of the
Funds at the annual rate of:
CONTRACTUAL NET OF ADVISER'S
MANAGEMENT VOLUNTARY FEE
FEE WAIVER
--- ------
Large Cap Growth Fund 1.00% 1.00%
Mid Cap Growth Fund 1.25% 1.00%
Small Cap Growth Fund 1.50% 1.50%
Balanced Fund 1.00% 1.00%
International Growth Fund 1.85% 1.50%
Developing Markets Growth Fund 2.00% 2.00%
Regional Growth Fund 1.25% 1.00%
Science and Technology Growth Fund 1.50% 1.25%
SIA is obligated to pay all of the Funds' expenses (excluding extraordinary
expenses, stock transfer taxes, interest, brokerage commissions and other
transaction charges relating to investing activities).
For the period November 1, 1996 through December 31, 2000 the Adviser has agreed
to limit the management fee (and, thereby, all Fund expenses, except those not
payable by the Fund as set forth above) of the Mid Cap Growth Fund to 1.00% of
the Fund's average daily net assets. For the period January 1, 1994 through
December 31, 2000, the Adviser has agreed to limit the management fee (and,
thereby, all Fund expenses, except those not payable by the Fund as set forth
above) of the International Growth Fund to 1.50% of the Fund's average daily net
assets. For the period January 1, 1998 through December 31, 2000 the Adviser has
agreed to limit the management fee (and, thereby, all fund expenses, except
those not payable by the Fund as set forth above) of the Regional Growth and
Science and Technology Growth Fund to 1.00% and 1.25%, respectively, of the
Fund's average daily net assets. After December 31, 2000, these voluntary fee
waivers may be discontinued by the Adviser in its sole discretion. During the
period ended December 31, 1999, for the Mid Cap Growth, International Growth,
Regional Growth, and Science and Technology Growth Funds, SIA voluntarily
absorbed an additional $517,751, $186,879, $9,228 and $22,037, respectively, in
expenses that were otherwise payable by the Funds.
As of December 31, 1999, the Large Cap Growth Fund, International Growth Fund,
Mid Cap Growth Fund, Small Cap Growth Fund, Regional Growth Fund, Science and
Technology Growth Fund, Developing Markets Growth Fund, and Balanced Fund had
invested $4,239,000, $7,427,000, $10,547,000, $4,719,000, $147,000, $612,000,
$1,137,000, and $544,000, respectively, in the Sit Money Market Fund. The terms
of such transactions were identical to those of non-related entities except
that, to avoid duplicate investment advisory fees, SIA remits to each Fund an
amount equal to all fees otherwise due to them under their investment management
agreement for the assets invested in the Sit Money Market Fund.
51
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVESTMENT SUB-ADVISER
SIA has entered into a sub-advisory arrangement with an affiliated international
investment adviser, Sit/Kim International Investment Associates, Inc. ("SKI").
SKI provides investment research information and portfolio management service
for the Developing Markets Growth Fund and International Growth Fund. Generally,
as compensation for its services under the sub-advisory agreement, SIA pays SKI
a monthly fee of 1/12 of .75% on the first $100 million of each Fund's average
daily net assets, 1/12 of .50% on the next $100 million of average daily net
assets and 1/12 of .40% of average daily net assets in excess of $200 million.
SKI has agreed to waive any fees under the agreement to the extent that
cumulative out of pocket expenses of each Fund borne by SIA exceed the
cumulative fees received by SIA pursuant to each Fund's investment management
agreement. In accordance with the Agreement, fees of $724,675 were paid or
payable to SKI for the year ended December 31, 1999.
TRANSACTIONS WITH AFFILIATES
The investment adviser, affiliates of the investment adviser, directors and
officers of the Funds as a whole owned the following shares as of December 31,
1999:
% SHARES
SHARES OUTSTANDING
------ -----------
Large Cap Growth Fund 481,547 17.97
Mid Cap Growth Fund 4,483,527 18.18
Small Cap Growth Fund 1,025,761 33.52
Balanced Fund 149,303 19.29
International Growth Fund 1,435,386 27.62
Developing Markets Growth Fund 198,053 19.19
Regional Growth Fund 114,042 20.52
Science and Technology Growth Fund 237,407 23.40
52
<PAGE>
SIT BALANCED FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
NOTE 4 - FINANCIAL HIGHLIGHTS
Per share data for a share of capital stock outstanding during the period and
selected supplemental and ratio information for each period(s), are indicated in
the following highlights for each Fund.
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1999 ------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 17.38 $ 16.68 $ 14.93 $ 12.57 $ 10.99 $ 9.48
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income 0.18 .32 .34 .33 .30 .28
Net realized and unrealized gains
(losses) on investments 2.21 1.45 2.99 2.42 1.57 1.50
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations 2.39 1.77 3.33 2.75 1.87 1.78
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.28) (.31) (.35) (.32) (.29) (.27)
From realized gains (.74) (.76) (1.23) (.07) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.02) (1.07) (1.58) (.39) (.29) (.27)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 18.75 $ 17.38 $ 16.68 $ 14.93 $ 12.57 $ 10.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 14.11% 11.25% 23.95% 22.42% 17.26% 19.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $14,512 $12,112 $ 7,422 $ 5,103 $ 4,062 $ 2,444
RATIOS:
Expenses to average daily net assets 1.00%(2) 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income to average daily net assets 2.10%(2) 2.01% 2.20% 2.48% 2.61% 2.97%
Portfolio turnover rate (excluding short-term securities) 45.94% 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.
(2) Percentages are adjusted to an annual rate.
53
<PAGE>
SIT LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1999 ----------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 52.84 $ 49.34 $ 40.39 $ 32.75 $ 28.38 $ 23.89
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (.08) (.04) .02 .07 .04 .11
Net realized and unrealized gains
(losses) on investments 11.85 6.96 13.17 10.02 6.61 5.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from operations 11.77 6.92 13.19 10.09 6.65 5.99
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income .00 (.01) (.07) (.03) (.04) (.09)
From realized gains (3.41) (3.41) (4.17) (2.42) (2.24) (1.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.41) (3.42) (4.24) (2.45) (2.28) (1.50)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 61.20 $ 52.84 $ 49.34 $ 40.39 $ 32.75 $ 28.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 22.81% 15.10% 35.33% 32.36% 24.48% 26.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $164,033 $140,258 $117,496 $ 72,226 $ 53,017 $ 45,211
RATIOS:
Expenses to average daily net assets 1.00% (3) 1.00% 1.00% 1.00%(2) 1.00%(2) 1.00%(2)
Net investment income (loss) to average daily net assets (0.28%)(3) (0.09%) 0.06% 0.20%(2) 0.14%(2) 0.42%(2)
Portfolio turnover rate (excluding short-term securities) 31.82% 70.51% 43.61% 32.23% 49.99% 67.14%
</TABLE>
- -----------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value.
(2) During the years ended June 30, 1997, 1996, and 1995, the investment
adviser voluntarily absorbed $50,548, $110,099, and $132,305, respectively,
in expenses that were otherwise payable by the Fund. Had the Fund incurred
these expenses, the ratio of expenses to average daily net assets would
have been 1.08%, 1.23%, and 1.35% for the years ended June 30, 1997, 1996,
and 1995, respectively, and the ratio of net investment income(loss) to
average daily net assets would have been 0.11%, (.09%), and 0.07%,
respectively.
(3) Percentages are adjusted to an annual rate.
54
<PAGE>
SIT REGIONAL GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended Six Months
December 31, Year Ended Ended
1999 June 30, June 30,
(Unaudited) 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $13.17 $11.26 $10.00
- -----------------------------------------------------------------------------------------------------
Operations:
Net investment income (.01) (.01) .02
Net realized and unrealized gains
on investments 1.03 1.94 1.24
- -----------------------------------------------------------------------------------------------------
Total from operations 1.02 1.93 1.26
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (.02) --
From realized gains -- -- --
- -----------------------------------------------------------------------------------------------------
Total distributions .00 (.02) .00
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $14.19 $13.17 $11.26
- -----------------------------------------------------------------------------------------------------
Total investment return (1) 7.74% 17.21% 12.60%
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $7,887 $7,524 $4,982
RATIOS:
Expenses to average daily net assets 1.00% (2) 1.00% (2) 1.00%(2)
Net investment income to average net assets (0.14%)(2) (0.04%)(2) 0.44%(2)
Portfolio turnover rate (excluding short-term securities) 14.00% 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 periods ended December 31, 1999 and June 30, 1998 are
adjusted to an annual rate. Total Fund expenses are contractually limited
to 1.25% of average daily net assets. However, during the periods ended
December 31, 1999, June 30, 1999 and 1998, the investment adviser
voluntarily absorbed $9,228, $14,845 and $3,611, respectively, in expenses
that were otherwise payable by the Fund. Had the fund incurred these
expenses, the ratio of expenses to average daily net assets would have been
1.25% for the periods ended December 31, 1999, June 30, 1999 and 1998, and
the ratio of net investment income (loss) to average daily net assets would
have been (0.39%), (0.29%) and 0.19%, respectively.
55
<PAGE>
SIT MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1999 ---------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 14.54 $ 16.49 $ 15.43 $ 15.58 $ 13.00 $ 11.08
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.05) (.06) (.07) (.03) (.04) --
Net realized and unrealized gains
(losses) on investments 7.43 .65 3.15 2.50 4.07 2.96
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations 7.38 .59 3.08 2.47 4.03 2.96
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- -- -- --
From realized gains (1.23) (2.54) (2.02) (2.62) (1.45) (1.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.23) (2.54) (2.02) (2.62) (1.45) (1.04)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 20.69 $ 14.54 $ 16.49 $ 15.43 $ 15.58 $ 13.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 51.87% 6.94% 22.19% 17.23% 33.00% 28.44%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $510,457 $375,343 $404,327 $386,543 $356,317 $327,879
RATIOS:
Expenses to average daily net assets 1.00% (2) 1.00% (2) 1.00% (2) 0.92% (2) 0.77% 0.83%
Net investment income (loss) to average daily
net assets (0.60%)(2) (0.46%)(2) (0.41%)(2) (0.20%)(2) (0.23%) 0.02%
Portfolio turnover rate (excluding short-term
securities) 33.93% 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) Percentages for the period ended December 31, 1999 are adjusted to an
annual rate. Effective November 1, 1996, total Fund expenses are
contractually limited to 1.25% of average daily net assets. However, during
the period ended December 31, 1999, and the years ended June 30, 1999, 1998
and 1997, the investment adviser voluntarily absorbed $517,751, $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%, 1.25%,
and 1.09% for the period ended December 31, 1999, and 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 (0.85%), (0.71%),
(0.66%) and (0.37%), respectively.
56
<PAGE>
SIT INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1999 -----------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 18.77 $ 19.14 $ 18.57 $ 16.29 $ 15.71 $ 14.87
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) (.06) (.07) .02 .01 .02 .09
Net realized and unrealized gains
on investments 9.00 .84 1.25 2.70 1.50 1.06
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations 8.94 .77 1.27 2.71 1.52 1.15
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (.23) (.06) (.03) (.01) (.09) (.04)
From realized gains (1.28) (1.08) (.67) (.42) (.85) (.27)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.51) (1.14) (.70) (.43) (.94) (.31)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 26.20 $ 18.77 $ 19.14 $ 18.57 $ 16.29 $ 15.71
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 48.20% 4.51% 7.50% 17.04% 10.21% 7.86%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $136,158 $ 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) 1.50%(2)
Net investment income (loss) to average daily
net assets (0.72%)(2) (0.37%)(2) 0.12%(2) 0.05%(2) 0.13%(2) 0.62%(2)
Portfolio turnover rate (excluding short-term
securities) 15.86% 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) Percentages for the period ended December 31, 1999, are adjusted to an
annual rate. Total Fund expenses are contractually limited to 1.85% of
average daily net assets. However, during the period ended December 31,
1999, and the years ended June 30, 1999, 1998, 1997, 1996, and 1995, the
investment adviser voluntarily absorbed $186,879, $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
period ended December 31, 1999, and 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 (1.07%), (0.72%), (0.23%),
(0.30%), (0.22%), and 0.27%, respectively.
57
<PAGE>
SIT SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1999 ----------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 18.28 $ 20.35 $ 18.89 $ 19.27 $ 13.49 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment loss (.11) (.18) (.17) (.14) (.11) (.02)
Net realized and unrealized gains
on investments 15.44 1.20 2.31 .57 6.03 3.56
- ------------------------------------------------------------------------------------------------------------------------------------
Total from operations 15.33 1.02 2.14 .43 5.92 3.54
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From realized gains -- (3.09) (.68) (.81) (.14) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (3.09) (.68) (.81) (.14) (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 33.61 $ 18.28 $ 20.35 $ 18.89 $ 19.27 $ 13.49
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 83.86% 8.77% 11.70% 2.37% 44.13% 35.59%
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $102,857 $ 50,335 $ 57,472 $ 58,358 $ 50,846 $ 12,015
RATIOS:
Expenses to average daily net assets 1.50% (2) 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income (loss) to average daily net assets (1.08%)(2) (1.08%) (0.72%) (0.81%) (0.91%) (0.30%)
Portfolio turnover rate (excluding short-term securities) 26.79% 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.
(2) Percentages are adjusted to an annual rate.
58
<PAGE>
SIT SCIENCE AND TECHNOLOGY GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended Six Months
December 31, Year Ended Ended
1999 June 30, June 30,
(Unaudited) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 15.23 $ 11.77 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Operations:
Net investment income (.09) (.07) (.01)
Net realized and unrealized gains
on investments 10.60 3.53 1.78
- ------------------------------------------------------------------------------------------------------------
Total from operations 10.51 3.46 1.77
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- --
From realized gains -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions .00 .00 .00
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 25.74 $ 15.23 $ 11.77
- ------------------------------------------------------------------------------------------------------------
Total investment return (1) 69.01% 29.40% 17.70%
- ------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $26,108 $14,194 $ 4,858
RATIOS:
Expenses to average daily net assets 1.25% (2) 1.25% (2) 1.25% (2)
Net investment income to average net assets (1.00%)(2) (0.72%)(2) (0.21%)(2)
Portfolio turnover rate (excluding short-term securities) 19.39% 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 periods ended December 31, 1999 and June 30, 1998 are
adjusted to an annual rate. Total Fund expenses are contractually limited
to 1.50% of average daily net assets. However, during the periods ended
December 31, 1999, June 30, 1999 and 1998, the investment adviser
voluntarily absorbed $22,037, $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
1.50% for the periods ended December 31, 1999, June 30, 1999 and 1998, and
the ratio of net investment income (loss) to average daily net assets would
have been (1.25%), (0.97%) and (0.46%), respectively.
59
<PAGE>
SIT DEVELOPING MARKETS GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Years Ended June 30,
1999 -------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $ 9.98 $ 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 4.20 .93 (3.92) 2.06 1.55 (.54)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations 4.20 .93 (3.98) 2.09 1.55 (.54)
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- (.01) -- -- --
From realized gains -- -- -- -- (.01) (.05)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (.01) -- (.01) (.05)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE:
End of period $ 14.18 $ 9.98 $ 9.05 $ 13.04 $ 10.95 $ 9.41
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return (1) 42.08% 10.28% (30.52%) 19.09% 16.51% (5.44%)
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's omitted) $14,635 $11,338 $11,505 $16,789 $ 8,646 $ 4,618
RATIOS:
Expenses to average daily net assets 2.00% (2) 2.00% 2.00% 2.00% 2.00% 2.00%
Net investment income (loss) to average daily net assets (0.05%)(2) (0.05%) (0.52%) 0.32% 0.06% 0.03%
Portfolio turnover rate (excluding short-term securities) 27.56% 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.
(2) Percentages are adjusted to an annual rate.
60
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
RESULTS OF THE SHAREHOLDER MEETING
The annual meeting of the shareholders of the Funds was held on October 26,
1999. Directors elected by the shareholders at the meeting were as follows:
Eugene C. Sit, Peter L. Mitchelson, William E. Frenzel, John E. Hulse, Sidney L.
Jones, and Donald W. Phillips for all Funds and Michael C. Brilley for the Sit
bond funds only.
The matters voted on by the shareholders of record as of August 25, 1999 and the
results of the shareholders' vote at the October 26, 1999 meeting were as
follows:
1. Election of Directors:
For Withheld
--- --------
Eugene C. Sit
Large Cap Growth 1,584,815 15,449
Mid Cap Growth 16,122,299 68,696
Small Cap Growth 2,042,807 4,444
Balanced 339,896 3,747
Regional Growth 405,167 2,690
Science and Technology Growth 647,082 1,651
International Growth 2,954,786 7,498
Developing Markets Growth 714,539 3,496
William E. Frenzel
Large Cap Growth 1,584,815 15,449
Mid Cap Growth 16,070,728 120,267
Small Cap Growth 2,041,437 5,814
Balanced 336,421 7,222
Regional Growth 405,006 2,851
Science and Technology Growth 645,937 2,796
International Growth 2,945,616 7,668
Developing Markets Growth 714,539 3,496
John E. Hulse
Large Cap Growth 1,594,548 15,715
Mid Cap Growth 16,102,501 88,494
Small Cap Growth 2,042,807 4,444
Balanced 337,035 6,608
Regional Growth 405,005 2,852
Science and Technology Growth 647,082 1,651
International Growth 2,954,786 7,498
Developing Markets Growth 714,480 3,555
61
<PAGE>
SIT MUTUAL FUNDS
- --------------------------------------------------------------------------------
RESULTS OF THE SHAREHOLDER MEETING (CONTINUED)
For Withheld
--- --------
Sidney L. Jones
Large Cap Growth 1,585,006 15,257
Mid Cap Growth 16,108,198 82,797
Small Cap Growth 2,041,677 5,574
Balanced 336,421 7,222
Regional Growth 405,005 2,852
Science and Technology Growth 645,777 2,956
International Growth 2,954,687 7,597
Developing Markets Growth 714,480 3,555
Peter L. Mitchelson
Large Cap Growth 1,584,816 15,447
Mid Cap Growth 16,122,152 68,843
Small Cap Growth 2,042,807 4,444
Balanced 337,035 6,608
Regional Growth 405,167 2,690
Science and Technology Growth 645,912 2,821
International Growth 2,954,616 7,668
Developing Markets Growth 714,480 3,555
Donald W. Phillips
Large Cap Growth 1,583,241 17,022
Mid Cap Growth 16,121,796 69,199
Small Cap Growth 2,041,885 5,366
Balanced 337,035 6,608
Regional Growth 404,844 3,013
Science and Technology Growth 645,912 2,821
International Growth 2,954,786 7,498
Developing Markets Growth 714,480 3,555
2. Ratification of KPMG LLP as independent auditors for the Funds:
For Against Abstain
--- ------- -------
Large Cap Growth 1,588,906 5,945 5,411
Mid Cap Growth 16,106,855 24,083 60,057
Small Cap Growth 2,030,257 10,686 6,308
Balanced 339,368 926 3,349
Regional Growth 402,908 1,686 3,263
Science and Technology Growth 644,922 1,025 2,786
International Growth 2,942,545 12,657 7,092
Developing Markets Growth 706,257 11,078 700
62
<PAGE>
[LOGO]
Directors:
Eugene C. Sit, CFA
Peter L. Mitchelson, CFA
William E. Frenzel
John E. Hulse
Sidney L. Jones
Donald W. Phillips
Director Emeritus:
Melvin C. Bahle
Officers:
Eugene C. Sit, CFA Chairman
Peter L. Mitchelson, CFA Vice Chairman
Mary K. Stern, CFA President
Roger J. Sit Executive Vice President
Erik S. Anderson, CFA Vice President - Investments
Ronald D. Sit, CFA Vice President - Investments
Bryce A. Doty, CFA (1) Vice President - Investments
Robert W. Sit (2) Vice President - Investments
John T. Groton, Jr., CFA (3) Vice President - Investments
Paul E. Rasmussen Vice President & Treasurer
Michael P. Eckert Vice President
Michael J. Radmer Secretary
Debra A. Sit, CFA Assistant Treasurer
Carla J. Rose Assistant Secretary
(1) Sit Balanced Fund only.
(2) Sit Science and Technology Growth Fund only.
(3) Sit Regional Growth Fund only.
<PAGE>
SEMI-ANNUAL REPORT STOCK FUNDS
SIX MONTHS ENDED DECEMBER 31, 1999
INVESTMENT ADVISER AUDITORS
SIT INVESTMENT ASSOCIATES, INC. KPMG LLP
4600 NORWEST CENTER 4200 NORWEST CENTER
MINNEAPOLIS, MN 55402 MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA)
800-332-5580
LEGAL COUNSEL
DISTRIBUTOR DORSEY & WHITNEY LLP
220 SOUTH SIXTH STREET
SIA SECURITIES CORP. MINNEAPOLIS, MN 55402
4600 NORWEST CENTER
MINNEAPOLIS, MN 55402
612-334-5888 (METRO AREA) INVESTMENT SUB-ADVISER
800-332-5580
(DEVELOPING MARKETS GROWTH FUND AND
INTERNATIONAL GROWTH FUND)
CUSTODIAN SIT/KIM INTERNATIONAL INVESTMENT
ASSOCIATES, INC.
THE NORTHERN TRUST COMPANY 4600 NORWEST CENTER
50 SOUTH LASALLE STREET MINNEAPOLIS, MN 55402
CHICAGO, IL 60675 612-334-5888 (METRO AREA)
800-332-5580
TRANSFER AGENT AND
DISBURSING AGENT
FIRST DATA INVESTOR SERVICES
P.O. BOX 5166
WESTBORO, MA 01581-5166
[LOGO]
SIT MUTUAL FUNDS
----------------
THE INVESTMENT IS MUTUAL(SM)
<PAGE>
PART C
SIT LARGE CAP GROWTH FUND, INC.
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Incorporated by reference to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on Form N-1A, File No. 2-75152.
ITEM 16. EXHIBITS.
1 Articles of Incorporation (1)
2 Bylaws (1)
3 Not Applicable
4 Agreement and Plan of Reorganization is attached as Exhibit A
to the Prospectus/Proxy Statement included in Part A of this
Registration Statement on Form N-14.
5 See 1 and 2 above.
6 Investment Advisory Agreement (1)
7 Underwriting and Distribution Agreement (2)
8 Not Applicable
9 Custodian Agreement (3)
10 Not Applicable
11 Opinion and Consent of Dorsey & Whitney LLP with respect to
the legality of the securities being registered *
12 Opinion and Consent of Dorsey & Whitney LLP with respect to
tax matters **
13 Not Applicable
14 Consent of KPMG LLP *
15 Not Applicable
C-1
<PAGE>
16 Power of Attorney *
17 Form of Proxy Card*
- ------------------------
* Filed herewith.
** To be filed by post-effective amendment.
(1) Incorporated by reference to Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on Form N-1A, File No. 2-75152.
(2) Incorporated by reference to Post-Effective Amendment No. 17 to the
Registrant's Registration Statement on Form N-1A, File No. 2-75152.
(3) Incorporated by reference to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement on Form N-1A, File No. 2-75152.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post- effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) The undersigned Registrant undertakes to file, by post-effective
amendment, an opinion of counsel supporting the tax consequences of the proposed
reorganization within a reasonable time after the receipt of such opinion.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the registrant, in the City of Minneapolis, State
of Minnesota, on the 10th day of April, 2000.
SIT LARGE CAP GROWTH FUND, INC.
By: /s/ Eugene C. Sit
----------------------------
Eugene C. Sit, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Eugene C. Sit Chairman (principal April 10, 2000
- ---------------------------- executive officer)
Eugene C. Sit
/s/ Paul E. Rasmussen Treasurer (principal April 10, 2000
- ---------------------------- financial and accounting
Paul E. Rasmussen officer)
Peter L. Mitchelson* Director
William E. Frenzel* Director
John E. Hulse* Director
Sidney L. Jones* Director
Donald W. Phillips* Director
* By /s/ Paul E. Rasmussen April 10, 2000
-----------------------
Paul E. Rasmussen
Attorney-in-Fact
C-3
Exhibit 11
DORSEY & WHITNEY LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
April 10, 2000
Sit Large Cap Growth Fund, Inc.
4600 Norwest Center, 90 South Seventh Street
Minneapolis, Minnesota 55402
Re: Shares to be Issued Pursuant to Agreement and Plan of
Reorganization
Ladies and Gentlemen:
We have acted as counsel to Sit Large Cap Growth Fund, Inc., a
Minnesota corporation ("Large Cap Fund"), in connection with the authorization
and proposed issuance of its common shares, par value $.01 per share (the
"Shares"). The Shares are to be issued pursuant to an Agreement and Plan of
Reorganization (the "Agreement"), by and between Large Cap Fund and Sit Mutual
Funds, Inc., a Minnesota corporation, the form of which Agreement is included as
Exhibit A to the Prospectus/Proxy Statement relating to the transactions
contemplated by the Agreement included in Large Cap Fund's Registration
Statement on Form N-14 filed with the Securities and Exchange Commission (the
"Registration Statement").
In rendering the opinions hereinafter expressed, we have reviewed the
corporate proceedings taken by Large Cap Fund in connection with the
authorization and issuance of the Shares, and we have reviewed such questions of
law and examined copies of such corporate records of Large Cap Fund,
certificates of public officials and of responsible officers of Large Cap Fund,
and other documents as we have deemed necessary as a basis for such opinions. As
to the various matters of fact material to such opinions, we have, when such
facts were not independently established, relied to the extent we deem proper on
certificates of public officials and of responsible officers of Large Cap Fund.
In connection with such review and examination, we have assumed that all copies
of documents provided to us conform to the originals; that all signatures are
genuine; and that prior to the consummation of the transactions contemplated
thereby, the Agreement will have been duly and validly executed and delivered on
behalf of each of the parties thereto in substantially the form included in the
Registration Statement.
Based on the foregoing, it is our opinion that the Shares, when issued
and delivered by Large Cap Fund pursuant to, and upon satisfaction of the
conditions contained in, the Agreement, will be duly authorized, validly issued,
fully paid and non-assessable.
<PAGE>
Sit Large Cap Growth Fund, Inc.
April 10, 2000
Page 2
In rendering the foregoing opinions (a) we express no opinion as to the
laws of any jurisdiction other than the State of Minnesota; and (b) we have
assumed, with your concurrence, that the conditions to closing set forth in the
Agreement will have been satisfied.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in Large Cap Fund's final Prospectus/Proxy Statement relating to
the Shares included in the Registration Statement.
Very truly yours,
KLP /s/ Dorsey & Whitney LLP
EXHIBIT 14
INDEPENDENT AUDITORS' CONSENT
The Boards of Directors
Sit Mutual Funds, Inc. and
Sit Large Cap Growth Fund, Inc.:
We consent to the use of our report dated August 6, 1999 for Sit Regional Growth
Fund and Sit Large Cap Growth Fund incorporated by reference herein, and to the
reference to our Firm under the heading "FINANCIAL STATEMENTS AND EXPERTS" in
Part A of this combined Proxy/Registration Statement on Form N-14.
KPMG LLP
Minneapolis, Minnesota
April 7, 2000
EXHIIT 16
SIT LARGE CAP GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Eugene C. Sit and Paul E.
Rasmussen, and each of them, his or her true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign a Registration Statement on Form N-14 of Sit Large Cap
Growth Fund, Inc. (the "Company"), and any and all amendments thereto, including
post-effective amendments, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or the substitutes for such
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
--------- ----- ----
/s/ Paul E. Rasmussen Treasurer March 31, 2000
- -------------------------------
Paul E. Rasmussen
/s/ Eugene C. Sit Chairman and March 31, 2000
- ------------------------------- Director
Eugene C. Sit
/s/ Peter L. Mitchelson Director March 31, 2000
- -------------------------------
Peter L. Mitchelson
/s/ William E. Frenzel Director March 31, 2000
- -------------------------------
William E. Frenzel
/s/ John E. Hulse Director March 31, 2000
- -------------------------------
John E. Hulse
/s/ Sidney L. Jones Director March 31, 2000
- -------------------------------
Sidney L. Jones
/s/ Donald W. Phillips Director March 31, 2000
- -------------------------------
Donald W. Phillips
A-15
EXHIBIT 17
PROXY
SIT REGIONAL GROWTH FUND A SERIES
OF SIT MUTUAL FUNDS, INC.
4600 NORWEST CENTER, 90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SIT LARGE
CAP GROWTH FUND, INC.
The undersigned hereby appoints Eugene C. Sit and Paul E. Rasmussen,
and each of them, with power to act without the other and with the right of
substitution in each, as proxies of the undersigned and hereby authorizes each
of them to represent and to vote, as designated below, all the shares of Sit
Regional Growth Fund (the "Regional Fund"), a series of Sit Mutual Funds, Inc.,
held of record by the undersigned on ,2000 at the Special Meeting of
shareholders of the Acquired Fund to be held on , 2000, or any adjournments or
postponements thereof, with all powers the undersigned would possess if present
in person. All previous proxies given with respect to the Special Meeting hereby
are revoked.
THE PROXIES ARE INSTRUCTED TO VOTE AS FOLLOWS:
1. PROPOSAL TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION (the
"Plan") providing for (a) the acquisition of substantially all of the
assets and the assumption of all liabilities of Regional Fund by Sit
Large Cap Growth Fund, Inc. ("Large Cap Fund") in exchange for shares
of common stock of Large Cap Fund having an aggregate net asset value
equal to the aggregate value of the assets acquired (less the
liabilities assumed) of Regional Fund and (b) the liquidation of
Regional Fund and the pro rata distribution of Large Cap Fund shares to
Regional Fund shareholders. Under the Plan, each Regional Fund
shareholder will receive Large Cap Fund shares with a net asset value
equal as of the effective time of the Plan to the net asset value of
their Regional Fund shares. A vote in favor of the Plan will be
considered a vote in favor of an amendment to the articles of
incorporation of Sit Mutual Funds, Inc. required to effect the
reorganization contemplated by the Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED ABOVE. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
PROPOSAL 1 ABOVE. UPON ALL OTHER MATTERS THE PROXIES SHALL VOTE AS THEY DEEM IN
THE BEST INTERESTS OF REGIONAL FUND. RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND THE PROXY STATEMENT RELATING TO THE MEETING IS ACKNOWLEDGED BY
YOUR EXECUTION OF THIS PROXY.
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY PARTNER OR OTHER
AUTHORIZED PERSON.
DATED: , 2000
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Signature
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Signature if held jointly
TO SAVE FURTHER SOLICITATION EXPENSE, PLEASE MARK,
SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
