SIT MUTUAL FUNDS
STOCK FUNDS QUARTERLY REPORT
QUARTER ENDED MARCH 31, 2000
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 INVESTMENT ASSOCIATES
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SIT MUTUAL FUNDS
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Sit Mutual Funds
STOCK FUNDS QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
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Chairman's Letter 1
Performance Review 2
FUND REVIEWS AND PORTFOLIOS OF INVESTMENTS
Balanced Fund 4
Large Cap Growth Fund 6
Regional Growth Fund 8
Mid Cap Growth Fund 10
International Growth Fund 12
Small Cap Growth Fund 14
Science and Technology Growth Fund 16
Developing Markets Growth Fund 18
A Look At Sit Mutual Funds 20
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[PHOTO] SIT MUTUAL FUNDS
Quarter Ended March 31, 2000 [LOGO]
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Chairman's Letter
Dear Fellow Shareholders:
Financial markets were particularly volatile during the first quarter of
2000, largely due to the continuation of the "cross-currents" that persisted
during 1999, including strong corporate earnings, the high level of equity
valuations, and Federal Reserve interest rate increases. Most domestic indices
moved solidly higher during the quarter, while fixed income indices showed
modest positive returns.
ECONOMIC OVERVIEW
The economy continues to surge ahead as the fourth quarter GDP's final
revision was moved up to 7.3% - the sharpest quarterly gain since the first
quarter of 1984. In terms of GDP components, the consumer sector continues to be
extremely powerful, with year-over-year growth of 5.6% in the last quarter.
Based on consumer spending data through the first two months of the year, we
believe this number could be even higher for the first quarter. Another area
that could provide a positive surprise is the net export sector, which has begun
displaying improvement since the second quarter of 1998. Exports have been
slowly improving on a trend basis since 3Q98 and are likely to continue on this
track as foreign economies recover, particularly in Asia. Also, government
spending is increasing at an accelerating rate, and the combination of an
election year with burgeoning surpluses is likely to spur continued strong
spending. We believe the U.S. economy will continue to be strong in 2000. We are
forecasting full-year GDP of +5.4%.
The impressive strength of the economy has raised concerns over inflationary
pressures, and recent inflation statistics have shown a modest acceleration. We
believe, however, there are several reasons to be more optimistic about the
direction of inflation. The first is that with oil prices already starting to
recede from the $30-plus level, the energy component of the CPI should result in
a flattening in the rate of year-over-year advance in the CPI in the second half
of the year. Second, the latest data on employee compensation show that average
hourly earnings have remained steady at +3.7%, while the unemployment rate of
4.1% also remained stable. Importantly, productivity gains appear to be
offsetting the rise in wage costs.
Despite the prospect for continued moderate inflation in the months ahead, we
believe that another rate hike is likely at the May 16th FOMC meeting. Minutes
of the February FOMC meeting suggested that some members supported a 50 basis
point hike, but we believe this is unlikely unless some alarming news on growth
or inflation develops over the near term.
EQUITY STRATEGY SUMMARY
Positive returns were registered for most market indices during the first
quarter of 2000. Volatility and sector rotation characterized the period,
particularly in the final month, as the S&P 500 Index experienced moves of plus
or minus one percent (or greater) on almost half the trading days in March. The
same phenomenon occurred for the NASDAQ composite during 60 percent of the
trading days. Although there was a distinct broadening of the market toward the
end of the quarter, industry leadership remained quite narrow for the quarter as
a whole, with only three of seventeen sectors within the S&P 500 Index
outperforming the total Index return.
Since the end of the March quarter, extreme volatility and roller coaster
market performances continued. There has been tremendous concern that interest
rates are headed significantly higher and that stocks are over valued. Investors
fear that "new economy" companies that do not have long earnings track records
have significantly appreciated due to speculation and are not supported by
fundamentals. We continue to believe the economic and financial conditions
globally remain healthy with inflation under control and that interest rates
will only increase modestly. Japan is improving despite mixed news, and the rest
of Asia is on a solid recovery path. The European economic environment is
materially strengthening and is attractive in the intermediate to longer term.
The U.S. economy also continues to grow moderately, and we believe the Federal
Reserve will raise interest rates to control inflation successfully.
We continue to invest in the highest quality, globally or regionally dominant
companies that have significant, real earnings growth potential. We think
technology continues to be the key leadership group for the market. We believe
that strong fundamentals support an overweighted position in the sector.
Corporations are seeking productivity-enhancing technology, perhaps best
exemplified by the far-reaching applications of the Internet. Corporations
around the world are developing e-commerce strategies to accelerate growth,
improve productivity, and reduce costs. The narrowness of the market's advance
in recent months has also led to attractive valuations for several sectors
outside technology, providing for investment opportunities in retail trade,
financial services, and health care. In terms of asset allocation, we believe
that there is no major reason to raise significant cash levels at the present
time.
In Asia, we maintain our overweighting in Japan based on prospects for
continued economic and financial recovery. Outside Japan, Asian economies and
corporate profits are growing nicely, and we retain our positive stance toward
this region, particularly Taiwan and Singapore. In Europe, we are benchmark
weighted in Euroland countries and underweight in non-Euroland regions.
With best wishes,
/s/ Eugene C. Sit
Eugene C. Sit, CFA
Chairman and Chief Investment Officer
1
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SIT MUTUAL FUNDS
Quarter Ended March 31, 2000
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Performance Summary - Stock Funds
Domestic stocks began 2000 on a strong note, with virtually all equity
indices posting solid gains for the first quarter. In fact, out of all the major
indices that we follow, the Dow Jones Industrial Average was the only major
index to decline in the quarter.
Small and mid capitalization stocks posted the strongest returns for the
quarter, with the S&P 400 MidCap Index and Russell 2000 Index increasing 12.7%
and 7.1%, respectively. The S&P 500 Index first quarter return was +2.3%.
Despite a narrowing of the gap in the month of March, growth stocks handily
outperformed value stocks across the market capitalization spectrum during the
quarter. The disparity was most notable in the mid cap sector, as the Russell
Mid Cap Growth Index outperformed the Russell MidCap Value Index by over 21
percentage points.
The strong performance of technology stocks was the primary factor behind
growth stock outperformance during the quarter. By our calculations, the
electronic technology sector was solely responsible for the overall positive
returns for many of the indices. For example, within the S&P 500 Index, we
estimate that if one excludes the +21.5% return for the electronic technology
sector, the total Index return would have been -2.3% (compared to the actual
+2.3% return) during the quarter.
International equity markets turned in a mixed performance in the first
quarter of 2000. Many markets consolidated after achieving large gains in 1999,
as interest rates in the U.S. and Europe continued to rise. The MSCI Europe
Index return was +0.1%, while the MSCI Pacific Index rose 0.5%. Latin American
markets generally moved higher during the quarter.
1988 1989 1990
---------------------------------
SIT BALANCED -- -- --
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SIT LARGE CAP GROWTH 5.33% 32.02% -2.37%
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SIT REGIONAL GROWTH -- -- --
- -------------------------------------------------------------------------
SIT MID CAP GROWTH(1) 9.77 35.15 -2.04
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SIT INTERNATIONAL GROWTH(2) -- -- --
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SIT SMALL CAP GROWTH(1) -- -- --
- -------------------------------------------------------------------------
SIT SCIENCE AND TECHNOLOGY GROWTH(3) -- -- --
- -------------------------------------------------------------------------
SIT DEVELOPING MARKETS GROWTH(2) -- -- --
- -------------------------------------------------------------------------
S&P 500 INDEX 16.55 31.61 -3.05
S&P MIDCAP 400 INDEX 20.87 35.55 -5.12
MSCI EAFE INDEX (5) -- -- --
RUSSELL 2000 INDEX (6) -- -- --
PSE TECH 100 INDEX -- -- --
MSCI EMERGING MARKETS FREE INDEX (7) -- -- --
NASDAQ
SYMBOL INCEPTION
------ ---------
SIT BALANCED SIBAX 12/31/93
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SIT LARGE CAP GROWTH SNIGX 09/02/82
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SIT REGIONAL GROWTH n/a 12/31/97
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SIT MID CAP GROWTH NBNGX 09/02/82
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SIT INTERNATIONAL GROWTH SNGRX 11/01/91
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SIT SMALL CAP GROWTH SSMGX 07/01/94
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SIT SCIENCE AND TECHNOLOGY GROWTH SISTX 12/31/97
- -------------------------------------------------------------------------
SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94
- -------------------------------------------------------------------------
S&P 500 INDEX(8)
S&P MIDCAP 400 INDEX(8)
MSCI EAFE INDEX (5)
RUSSELL 2000 INDEX (6)
PSE TECH 100 INDEX
MSCI EMERGING MARKETS FREE INDEX (7)
- -------------------------------------------------------------------------
(1) STOCKS OF SMALL- AND MID-SIZED COMPANIES MAY BE SUBJECT TO MORE ABRUPT OR
ERRATIC MARKET MOVEMENTS THAN STOCKS OF LARGER, MORE ESTABLISHED COMPANIES.
(2) INTERNATIONAL INVESTING HAS SPECIAL RISKS, SUCH AS CURRENCY EXCHANGE
FLUCTUATIONS, HIGH VOLITILITY, ILLIQUIDITY AND THE POSSIBILITY OF POLITICAL
INSTABILITY.
(3) SINCE THE FUND FOCUSES ITS INVESTMENT ON COMPANIES INVOLVED IN THE
TECHNOLOGY SECTOR, AN INVESTMENT IN THE FUND MAY INVOLVE A GREATER DEGREE OF
RISK THAN AN INVESTMENT IN OTHER MUTUAL FUNDS WITH GREATER DIVERSIFICATION.
(4) PERIOD FROM FUND INCEPTION THROUGH CALENDAR YEAR-END.
2
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TOTAL RETURN - CALENDAR YEAR
<TABLE>
<CAPTION>
YTD
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
- ----------------------------------------------------------------------------------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -0.33% 25.43% 15.80% 21.73% 21.30% 20.15% 5.44%
- ----------------------------------------------------------------------------------------------------
32.72% 4.94% 3.15% 2.83 31.66 23.05 31.70 30.56 33.41 8.50
- ----------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- 23.05 15.55 -1.69
- ----------------------------------------------------------------------------------------------------
65.50 -2.14 8.55 -0.47 33.64 21.87 17.70 6.84 70.65 22.91
- ----------------------------------------------------------------------------------------------------
4.10(4) 2.69 48.37 -2.99 9.36 10.31 4.81 18.95 50.77 5.73
- ----------------------------------------------------------------------------------------------------
-- -- -- 11.57(4) 52.16 14.97 7.63 1.97 108.63 26.12
- ----------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- 38.40 85.98 30.38
- ----------------------------------------------------------------------------------------------------
-- -- -- -2.02(4) -4.29 17.27 -5.20 -24.93 82.50 8.18
- ----------------------------------------------------------------------------------------------------
30.46 7.64 10.07 1.32 37.58 22.96 33.36 28.58 21.04 2.29
50.11 11.92 13.95 -3.60 30.94 19.19 32.29 19.11 14.72 12.69
0.26 -12.17 32.56 7.78 11.21 6.05 1.78 20.00 26.96 -0.11
-- -- -- 4.61 28.45 16.49 22.36 -2.54 21.26 7.08
-- -- -- -- -- -- -- 54.60 116.40 19.54
-- -- -- 2.80 -6.94 3.92 -13.40 -27.52 63.70 2.04
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
TOTAL RETURN PERIODS ENDED MARCH 31, 2000
QUARTER SIX MONTHS SINCE
ENDED 3/31/00 ENDED 3/31/00 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5.44% 21.87% 20.92% 23.52% 20.74% -- 17.27%
8.50 36.71 35.06 35.90 30.39 19.68% 18.17
-1.69 13.05 13.32 -- -- -- 16.06
22.91 79.39 107.50 43.15 32.56 22.31 21.88
5.73 46.03 62.94 25.90 19.93 -- 16.76
26.12 107.59 175.26 49.97 35.54 -- 35.06
30.38 102.29 143.19 -- -- -- 71.30
8.18 60.29 98.45 9.77 12.46 -- 7.86
2.29 17.51 17.94 27.40 26.76 18.84 18.97
12.69 32.05 38.09 27.39 24.06 19.11 19.28
-0.11 16.86 25.09 16.31 12.39 -- 10.38
7.08 26.84 37.29 17.76 17.24 -- 16.63
19.54 85.15 133.65 -- -- -- 85.19
2.04 27.70 49.19 -0.99 3.05 -- 0.72
- ---------------------------------------------------------------------------------------------------
</TABLE>
(5) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91.
(6) FIGURES ASSUME AN INCEPTION DATE OF 07/01/94.
(7) FIGURES ASSUME AN INCEPTION DATE OF 06/30/94.
(8) FIGURES ASSUME AN INCEPTION DATE OF 09/02/82.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. HIGH DOUBLE
AND TRIPLE DIGIT PERFORMANCE FIGURES ARE ATTRIBUTABLE TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
3
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[PHOTO] SIT BALANCED FUND
Quarter Ended March 31, 2000
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Peter L. Mitchelson, CFA, Senior Portfolio Manager
Bryce A. Doty, CFA, Senior Portfolio Manager
The Sit Balanced Fund posted a strong relative and absolute return of +5.4%
over the past three months, comparing favorably to the S&P 500 Index return of
+2.3% and the Lehman Aggregate Bond Index return of +2.2%. The Fund ranked in
the 21st percentile out of 341 funds and in the 16th percentile out of 237 funds
for the 3- and 5-year periods, respectively, by Lipper Anaylytical Services.
As of March 31, 2000, the asset allocation of the Fund was 53.5% equities
(down from 60.9% at the end of 1999), 40.3% fixed income securities (up from
35.0%), and 6.2% cash and other net assets (up from 4.1%).
Domestic equity market indices generally moved higher for the first three
months of 2000, although significant volatility and sector rotation occurred
along the way. The Fund's equity returns were led by continued strong
performance by technology stocks, as the Fund benefited from stock selection and
an overweighted position in the sector. Within the equity portion of the
portfolio, electronic technology and technology services continue to be the
heaviest sector weightings. Although the strong performance has led to a marked
increase in valuations for the sector, business prospects and earnings growth
remain far superior relative to the rest of the market. Accelerating earnings
growth is being driven by powerful trends in high tech industries, including
telecommunications, e-commerce, and semiconductors.
There was also considerable volatility in the fixed income markets during the
quarter. Yields on non-government securities and short-term Treasury securities
rose, while long-term Treasury yields fell sharply during the quarter. This
divergence was sparked by strong demand for long-term Treasuries due to the U.S.
Treasury Department's decision to purchase the securities to reduce debt. The
yield differential between government securities and corporates, has led us to
become very optimistic in the corporate and asset-backed sectors. Given our
greater than 5% real GDP growth forecast for the full year, we believe that the
Federal Reserve will increase the fed funds rate at least one more time in 2000.
INVESTMENT OBJECTIVE AND STRATEGY
The Sit Balanced Fund's dual objectives are to seek long-term growth of
capital consistent with the preservation of principal and to provide regular
income. It pursues its objectives by investing in a diversified portfolio of
stocks, bonds and short-term instruments. The Fund may emphasize either equity
securities, fixed-income securities, or short-term instruments or hold equal
amounts of each, dependent upon the Adviser's analysis of market, financial and
economic conditions.
The Fund's permissible investment allocation is: 40-60% in equity
securities, 40-60% in fixed-income securities, and up to 20% in short-term
fixed-income instruments. At all times at least 25% of the assets will be
invested in fixed-income senior securities.
PORTFOLIO SUMMARY
Net Asset Value 3/31/00: $19.77 Per Share
12/31/99: $18.75 Per Share
Total Net Assets: $17.7 Million
PORTFOLIO STRUCTURE
(% OF TOTAL NET ASSETS)
[PIE CHART]
Cash & Other Net Assets 6.2%
Bonds 40.3%
Equities 53.5%
4
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AVERAGE ANNUAL TOTAL RETURNS*
SIT LEHMAN
BALANCED S&P AGGREGATE
FUND 500 INDEX BOND INDEX
-------- --------- ----------
3 Months** 5.44% 2.29% 2.21%
1 Year 20.92 17.94 1.87
3 Years 23.52 27.40 6.70
5 Years 20.74 26.76 7.14
Inception 17.27 22.95 6.01
(12/31/93)
CUMULATIVE TOTAL RETURNS*
SIT LEHMAN
BALANCED S&P AGGREGATE
FUND 500 INDEX BOND INDEX
-------- --------- ----------
1 Year 20.92% 17.94% 1.87%
3 Years 88.47 106.79 21.49
5 Years 156.60 227.28 41.20
Inception 170.81 263.90 44.00
(12/31/93)
* AS OF 3/31/00 **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 3/31/00 would
have grown to $27,081 in the Fund, $14,400 in the Lehman Aggregate Bond Index or
$36,390 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.
* Sun Microsystems, Inc.
* Nokia Corp., A.D.R.
Bonds: * U.S. Treasury Strip, 6.43%, 11/15/09
* U.S. Treasury Note, 6.875%, 5/15/06
* U.S. Treasury Inflation Index Bond,
3.375%, 1/15/07
* Whirlpool Corp., 9.00%, 3/1/03
* Bradley Operating LP, 8.875%, 3/15/06
Total Number of Holdings: 144
Top Holdings represent 27.1% of the portfolio.
5
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[PHOTO] SIT LARGE CAP GROWTH FUND REVIEW
Quarter Ended March 31, 2000
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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 first three
months of 2000, increasing 8.5%. By comparison, the S&P 500 Index return was
+2.3%, and the Russell 1000 Growth Index return was +7.1%.
Most domestic equity market indices posted solid gains in the first quarter
as investors, once again, shrugged off more interest rate increases by the
Federal Reserve. Although the ongoing strength in the U.S. economy may cause
further interest rate hikes in the months ahead, investors have been focusing on
the positive aspect of a strong economy: stronger corporate earnings. The first
quarter should mark the fourth consecutive quarter in which reported profit
growth for the S&P 500 Index exceeds +20%.
Despite some significant volatility during the quarter, particularly in
March, the technology sector provided leadership for the market. We estimate
that the electronic technology sector component of the S&P 500 Index returned
over 21.5% in the quarter, while the same sector within the Sit Large Cap Growth
Fund produced an estimated return of 25.6%. The Fund also benefited from an
overweighted position in the sector (relative to the S&P 500 Index), along with
strong stock selection in the finance and health technology sectors.
The most significant sector weighting increases over the past three months
include electronic technology and financial services through the purchases of
Motorola, General Motors- Class H, AXA Financial, and American International
Group. Sector weighting decreases occurred in consumer non-durables and
technology services through the reduction or elimination of positions in Procter
& Gamble, Oracle Systems, and BMC Software. As of March 31st, the Fund was 97%
invested in equities. Electronic technology, technology services, and health
technology remain the most heavily weighted economic sectors.
Assets in the Sit Large Cap Growth Fund totaled $178.3 million, up from
$136.7 million a year ago. We greatly appreciate shareholders' continued
interest and participation in the Fund.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Large Cap Growth Fund is to maximize long-term capital
appreciation. The Fund pursues this objective by investing primarily in common
stocks of growth companies with a capitalization of $5 billion or more at the
time of purchase.
PORTFOLIO SUMMARY
Net Asset Value 3/31/00: $ 66.40 Per Share
12/31/99: $ 61.20 Per Share
Total Net Assets: $178.3 Million
Weighted Average Market Cap: $168.7 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 32.6
Technology Services 13.0
Health Technology 12.4
Finance 9.7
Utilities 7.3
Retail Trade 6.5
Producer Manufacturing 5.8
Consumer Services 5.0
Sectors Under 3.0% 5.0
Cash & Other Net Assets 2.7
6
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AVERAGE ANNUAL TOTAL RETURNS*
SIT RUSSELL
LARGE CAP S&P 1000
GROWTH FUND 500 INDEX GROWTH INDEX
----------- --------- ------------
3 Month** 8.50% 2.29% 7.13%
1 Year 35.06 17.94 34.12
5 Years 30.39 26.76 31.83
10 Year*** 19.68 18.84 21.61
Inception*** 18.17 18.97 19.71
(9/2/82)
CUMULATIVE TOTAL RETURNS*
SIT RUSSELL
LARGE CAP S&P 1000
GROWTH FUND 500 INDEX GROWTH INDEX
----------- --------- ------------
1 Year 35.06% 17.94% 34.12%
5 Year 276.93 227.28 298.20
10 Year*** 502.68 461.75 607.29
Inception*** 1784.20 2023.39 2266.92
(9/2/82)
* AS OF 3/31/00 **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
3/31/00 would have grown to $188,420 in the Fund, or $212,339 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.
* Intel Corp.
* Nokia Corp., A.D.R.
* Sun Microsystems, Inc.
* Oracle Corp.
* EMC Corp.
* Amgen, inc.
* Vodafone Airtouch, A.D.R.
Total Number of Holdings: 68
Top 10 Holdings represent 35.6% of the portfolio.
7
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[PHOTO] SIT REGIONAL GROWTH FUND
Quarter Ended March 31, 2000
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
The Sit Regional Growth Fund fell 1.7% for the first quarter of 2000,
compared to the +2.3% return for the S&P 500 Index.
The recent broadening of the market beyond large capitalization stocks and
the technology sector may portend a better investment environment in the months
ahead for companies held in the Fund. Since inception, the relative performance
of the Fund has been negatively impacted by a modest underweight in technology
along with the smaller capitalization bias of investment opportunities inherent
within the Fund's regional focus. The narrowness of market leadership in recent
years, however, led to attractive valuations for the growth-oriented companies
held in the Fund, as the overall price-to-earnings ratio of 31 (on 2000
estimated EPS) for the Fund is only slightly higher than the comparable S&P
ratio of 28.
During the quarter, the Fund benefited from strong stock selection in the
retail trade and health technology sectors, driven by particularly strong
performance by Best Buy, Kohl's, and Medtronic. The Fund's underweighting of
large capitalization technology stocks (i.e., Cisco Systems, Sun Microsystems),
relative to the S&P 500, was a primary contributor behind the underperformance
during the quarter.
Significant sector weighting changes over the past three months include
increases in retail trade, consumer services, and health technology while
commercial services and electronic technology had the largest decrease in sector
weightings. As of March 31, 2000, the Fund was 99% invested in equity
securities. Electronic technology, technology services, and retail trade remain
the heaviest weighted sectors within the Fund.
We believe the combination of strong relative earnings growth rates and
attractive valuations for companies held in the Fund provide for investment
opportunities for long-term investors. We greatly appreciate shareholders
continued interest and participation 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 with their headquarters in Minnesota, Iowa, Missouri, North Dakota,
South Dakota, Nebraska, Kansas, Wisconsin, Illinois, Michigan, Indiana, and
Ohio. During normal market conditions, at least 80% of the Fund's total assets
will be invested in such securities. The Fund emphasizes securities of companies
that the Adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 3/31/00: $13.95 Per Share
12/31/99: $14.19 Per Share
Total Net Assets: $ 6.8 Million
Weighted Average Market Cap: $25.1 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 17.9
Retail Trade 14.7
Technology Services 13.6
Finance 12.2
Health Technology 10.5
Consumer Services 6.7
Producer Manufacturing 5.0
Utilities 4.6
Commercial Services 4.1
Sectors 4.0% and Under 9.8
Cash & Other Net Assets 0.9
8
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AVERAGE ANNUAL TOTAL RETURNS*
SIT
REGIONAL S&P RUSSELL
GROWTH FUND 500 INDEX 3000 INDEX
----------- --------- ----------
3 Month** -1.69% 2.29% 4.57%
1 Year 13.32 17.94 22.26
Inception 16.06 22.97 22.19
(12/31/97)
CUMULATIVE TOTAL RETURNS*
SIT
REGIONAL S&P RUSSELL
GROWTH FUND 500 INDEX 3000 INDEX
----------- --------- ----------
1 Year 13.32% 17.94% 22.26%
Inception 39.79 59.20 56.94
(12/31/97)
* AS OF 3/31/00 **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 3/31/00 would
have grown to $13,979 in the Fund, or $15,920 in the S&P 500 Index assuming
reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Motorola, Inc.
* Emmis Communications Corp.
* ADC Telecommunications, Inc.
* Sprint Corp.
* Tellabs, Inc.
* Northern Trust Corp.
* Best Buy, Inc.
* Target Corp.
* Medtronic, Inc.
* Kohl's Corp.
Total Number of Holdings: 34
Top 10 Holdings represent 44.3% of the portfolio.
9
<PAGE>
[PHOTO] SIT MID CAP GROWTH FUND
Quarter Ended March 31, 2000
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
Erik S. Anderson, CFA, Senior Portfolio Manager
The Sit Mid Cap Growth Fund provided solid returns, in relative and absolute
terms, during the first quarter of 2000. The Fund's quarterly return of +22.9%
compared favorably with the +12.7% return for the S&P MidCap 400 Index and the
+21.1% return for the Russell MidCap Growth Index.
Continuing the trend that began in 1999, mid cap growth stocks strongly
outperformed larger issues during the first quarter. Part of the strong relative
performance can be traced to attractive valuations for smaller stocks after an
extended period of underperformance prior to last year. More specifically, there
is an increasing number of up-and-coming high growth companies, particularly
within technology, that are capitalizing on the dynamic growth opportunities in
the "new economy." The Sit Mid Cap Growth Fund has maintained significant
exposure to some of the fastest growing segments, including: computer software
(Check Point Software, Veritas Software), telecommunications (QUALCOMM, ADC
Telecommunications), semiconductors (Analog Devices, Xilinx), and biotechnology
(Biogen, Immunex). Although increased valuations for many of these stocks should
be expected to lead to increased volatility, we believe that the exceptional
earnings growth will catch up to valuations over time.
In terms of sector weightings, electronic technology and health technology
showed the largest increases over the past six months. New purchases included
3COM, Allegiance Telecom, Waters, Human Genome Sciences, and PE Biosystems.
Significant sector weighting decreases occurred in financial services and
technology services through the sale of AON, T. Rowe Price, Check Point
Software, Infospace, and BMC Software. As of March 31, 2000, the Fund was 95%
invested in equity securities, down slightly from 97% at the end of 1999.
Although the strong returns experienced during the first quarter are unlikely
to be repeated over each of this year's remaining quarters, we believe that the
business fundamentals for the companies held in the Fund are exceptionally
strong and current valuations attractive for the long-term investor.
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 3/31/00: $ 25.43 Per Share
12/31/99: $ 20.69 Per Share
Total Net Assets: $635.4 Million
Weighted Average Market Cap: $ 21.6 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 44.0
Technology Services 18.0
Health Technology 8.8
Consumer Services 5.6
Utilities 5.5
Retail Trade 4.4
Finance 4.1
Sectors Under 2.0% 4.5
Cash & Other Net Assets 5.1
10
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT S&P RUSSELL
MID CAP MIDCAP MID CAP
GROWTH FUND 400 INDEX GROWTH INDEX
----------- --------- ------------
3 Month** 22.91% 12.69% 21.12%
1 Year 107.50 38.09 77.18
5 Year 32.56 24.06 30.32
10 Year 22.31 19.11 21.69
Inception 21.88 19.28 --
(9/2/82)
CUMULATIVE TOTAL RETURNS*
SIT S&P RUSSELL
MID CAP MIDCAP MID CAP
GROWTH FUND 400 INDEX GROWTH INDEX
----------- --------- ------------
1 Year 107.50% 38.09% 77.18%
5 Year 309.26 193.89 275.93
10 Year 649.22 474.66 612.25
Inception 3147.42 2123.25 --
(9/2/82)
* AS OF 3/31/00 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
STOCKS OF SMALL- AND MID-SIZED COMPANIES MAY BE SUBJECT TO MORE ABRUPT OR
ERRATIC MARKET MOVEMENTS THAN STOCKS OF LARGER, MORE ESTABLISHED COMPANIES.
HIGH DOUBLE AND TRIPLE DIGIT PERFORMANCE FIGURES ARE ATTRIBUTABLE TO UNUSUALLY
FAVORABLE MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN
THE FUTURE.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL MID CAP GROWTH
INDEX AND THE S&P MIDCAP 400 INDEX.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (9/2/82) and held until 3/31/00 would
have grown to $324,742 in the Fund, or $222,325 in the S&P MidCap 400 Index
assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* JDS Uniphase Corp.
* Applied Micro Circuits Corp.
* Xilinx, Inc.
* QUALCOMM, Inc.
* Inktomi Corp.
* Check Point Software Tech., Ltd.
* Vitesse Semiconductor Corp.
* Allegiance Telecom, Inc.
* Lexmark International Group, Inc.
* Kohl's Corp.
Total Number of Holdings: 76
Top 10 Holdings represent 35.2% of the portfolio.
11
<PAGE>
[PHOTO] SIT INTERNATIONAL GROWTH FUND REVIEW
Quarter Ended March 31, 2000
-----------------------------------------------------------------------
Senior Portfolio Managers
Eugene C. Sit, CFA * Roger J. Sit
The Sit International Growth Fund gained 5.73% for the three months ended
March 31, 2000. This compares with the MSCI Index loss of 0.1% and the Lipper
International Fund Index 0.6% rise. The Fund's outperformance in the first
quarter can be largely attributed to our non-Index Canadian holdings. Our
Canadian holdings accounted for 5% of net assets and returned 126.5%, led by
PMC-Sierra. The other major contributor to returns resulted from our German
holding, Mannesmann, following their acquisition by Vodafone Airtouch.
The global stock markets experienced extreme volatility in the first three
months of the year. European markets and many of the Asian markets saw record
highs in February and early March only to be rocked by market sell-offs in late
March. The sector leaders of technology and telecommunications were hardest hit
as stretched valuations were questioned, and investors took profits to lock-in
the substantial gains over the last several months. We believe that despite the
recent market volatility, the fundamentals of the core holdings have not
changed, and the technology, telecommunications and information technology
service sectors will remain market leaders. We continue to see improvement in
the global economies led by recoveries in continental Europe and Japan. Europe
remains our primary focus as we continue to see economic and corporate
structural and financial reforms being proposed and implemented in continental
Europe. We intend to stay slightly overweighted in continental Europe and
underweighted in the UK where economic expansion is more mature. The Fund's
Japanese holdings, which had performed strongly throughout most of 1999, saw
weakness in the March quarter, down 7%. We remain at the market weight of 26%in
Japan and believe corporate restructuring is on track for a sustained recovery.
Currency markets for the most part were stable in the March quarter. The euro
dropped below parity to the U.S. dollar in early January but has settled in the
$0.96 area with the yen in the 105 to the dollar area. The euro is down nearly
18% since its introduction in January 1999. We believe the euro will slowly
appreciate from current levels to 1.05 to the dollar by year end, a 10%
appreciation, as Euroland economies recover. The yen will likely weaken slightly
to the 110 to the dollar area as the Bank of Japan also ensures a stimulating
environment to keep the Japanese economy on the road to recovery.
As planned over the last three years, Andrew Kim has become an advisory
director to the sub-advisor. Eugene Sit and Roger Sit continue their roles as
senior portfolio managers and have assumed Mr. Kim's portfolio management
responsibilities.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit International Growth Fund is to achieve long-term
growth of capital by investing in equity securities of issuers domiciled outside
the United States. The Fund's investment objective reflects the belief that
long-term investment planning should include the investment opportunities that
exist outside the U.S.
The Fund selects its investments based on the characteristics of the
particular markets and economies of the countries in which it invests. Emphasis
is placed on identifying securities of companies believed to be undervalued in
the marketplace in relation to factors such as the company's revenues, earnings,
assets and long-term competitive position which over time will enhance the
equity value of the company.
PORTFOLIO SUMMARY
Net Asset Value 3/31/00: $ 27.70 Per Share
12/31/99: $ 26.20 Per Share
Total Net Assets: $189.2 Million
Weighted Average Market Cap: $ 73.2 Billion
PORTFOLIO STRUCTURE - BY REGION
(% OF TOTAL NET ASSETS)
[BAR CHART]
SIT INT'L Morgan Stanley
GROWTH FUND EAFE Index
----------- ----------
Europe Other 28.9 26.5
Japan 24.6 27.9
France, Germany, UK 22.7 40.1
Pacific Basin 8.8 5.5
North America 5.0 0.0
Africa/Middle East 1.7 0.0
Latin America 0.4 0.0
Cash & Other Net Assets 7.9 0.0
12
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT MORGAN STANLEY LIPPER
INTERNATIONAL CAPITAL INT'L INT'L
GROWTH FUND EAFE INDEX INDEX
----------- ---------- -----
3 Month** 5.73% -0.11% 0.62%
1 Year 62.94 25.09 36.93
3 Year 25.90 16.31 17.80
5 Year 19.93 12.39 16.69
Inception 16.76 10.38 13.31
(11/1/91)
CUMULATIVE TOTAL RETURNS*
SIT MORGAN STANLEY LIPPER
INTERNATIONAL CAPITAL INT'L INT'L
GROWTH FUND EAFE INDEX INDEX
----------- ---------- -----
1 Year 62.94% 25.09% 36.93%
3 Year 99.58 57.36 63.48
5 Year 148.09 79.34 116.34
Inception 268.89 129.81 186.45
(11/1/91)
* AS OF 3/31/00 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
INTERNATIONAL INVESTING HAS SPECIAL RISKS, SUCH AS CURRENCY EXCHANGE
FLUCTUATIONS, HIGH VOLITILITY, ILLIQUIDITY AND THE POSSIBILITY OF POLITICAL
INSTABILITY.
HIGH DOUBLE AND TRIPLE DIGIT PERFORMANCE FIGURES ARE ATTRIBUTABLE TO UNUSUALLY
FAVORABLE MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN
THE FUTURE.
PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS.
INVESTMENT RETURNS AND PRINCIPAL VALUE WILL VARY, AND YOU MAY HAVE A GAIN OR
LOSS WHEN YOU SELL SHARES. AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE
PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT
FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE;
HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL
INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND
INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT
EVALUATOR OF MUTUAL FUNDS.
GROWTH OF $10,000
[PLOT POINTS CHART]
The sum of $10,000 invested at inception (11/1/91) and held until 3/31/00 would
have grown to $36,889 in the Fund, or $22,981 in the Morgan Stanley EAFE Index
assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* Nokia Corp., A.D.R.
* NTT Mobile Communications Network, Inc.
* PMC-Sierra, Inc., A.D.R.
* Vodafone Airtouch, p.l.c.
* CMG, p.l.c.
* NTT Data Corp.
* Seven Eleven Japan
* Takeda Chemical Industries
* Orix Corp.
* Banca Fideuram
Total Number of Holdings: 88
Top 10 Holdings represent 31.0% of the portfolio.
13
<PAGE>
[PHOTO] SIT SMALL CAP GROWTH FUND
Quarter Ended March 31, 2000
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
The Sit Small Cap Growth Fund's first quarter return was +26.1%, comparing
favorably to the +7.1% return for the Russell 2000 Index and the +9.3% return
for the Russell 2000 Growth Index. The Fund's average annual return since
inception was +35.1%, while the Russell 2000 Index return was +16.6% over the
same period. In recognition of this strong long-term performance, Morningstar
assigned the Fund a five-star rating for the 3- and 5-year periods out of 3571
and 2283 funds, respectively, as of March 31, 2000.
Led by the exceptional performance in technology-related sectors, small
stocks continued to post strong relative returns. For example, within the Sit
Small Cap Growth Fund, we estimate that the electronic technology sector's first
quarter return was +68.6%. There was particularly strong performance during the
period from semiconductor companies such as PMC Sierra (+154.1%) and Applied
Micro Circuits (+135.9%), and telecommunications equipment companies such as JDS
Uniphase (+49.5%) and SDL (+95.3%). Strong stock selection and an overweighted
position in health technology also contributed to the strong relative
performance during the quarter. Although it is unrealistic to expect the recent
extraordinary performance of the technology sector to be repeated in the future,
we believe the fundamentals underlying this strong performance support a
continued overweight position in technology sectors.
In terms of portfolio structure, the most significant sector weighting
increases occurred in electronic technology and health technology, while
weightings decreased in the retail trade and financial services sector. The
largest purchases during the quarter occurred in Perkin Elmer, Adelphia Business
Solutions, Business Objects ADR, and Millipore. Significant sales or position
reductions occurred in Applied Micro Circuits, Guilford Pharmaceuitcals, and
PSINet. The largest sector weightings remain electronic technology, health
technology, and technology services. As of March 31st, the Fund was 92% invested
in equity securities.
Assets in the Sit Small Cap Growth Fund totaled $148.5 million, up from $43.0
million a year ago. We greatly appreciate shareholders' continued interest and
participation in the Fund.
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 3/31/00: $ 42.39 Per Share
12/31/99: $ 33.61 Per Share
Total Net Assets: $148.5 Million
Weighted Average Market Cap: $ 12.5 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 40.7
Technology Services 15.3
Health Technology 12.2
Utilities 6.4
Finance 4.3
Sectors Under 3.0% 12.9
Cash & Other Net Assets 8.2
14
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT RUSSELL
SMALL CAP RUSSELL 2000 2000
GROWTH FUND INDEX GROWTH INDEX
----------- ----- ------------
3 Month** 26.12% 7.08% 9.29%
1 Year 175.26 37.29 59.06
3 Year 49.97 17.76 25.94
5 Year 35.54 17.24 19.84
Inception 35.06 16.63 19.80
(7/1/94)
CUMULATIVE TOTAL RETURNS*
SIT RUSSELL
SMALL CAP RUSSELL 2000 2000
GROWTH FUND INDEX GROWTH INDEX
----------- ----- ------------
1 Year 175.26% 37.29% 59.06%
3 Year 237.27 63.28 99.77
5 Year 357.41 121.47 147.16
Inception 463.66 142.38 182.91
(7/1/94)
* AS OF 3/31/00 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
STOCKS OF SMALL- AND MID-SIZED COMPANIES MAY BE SUBJECT TO MORE ABRUPT OR
ERRATIC MARKET MOVEMENTS THAN STOCKS OF LARGER, MORE ESTABLISHED COMPANIES.
HIGH DOUBLE AND TRIPLE DIGIT PERFORMANCE FIGURES ARE ATTRIBUTABLE TO UNUSUALLY
FAVORABLE MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN
THE FUTURE.
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 3/31/00 would
have grown to $56,366 in the Fund, or $24,238 in the Russell 2000 Index assuming
reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* PMC-Sierra, Inc.
* JDS Uniphase Corp.
* SDL, Inc.
* Applied Micro Circuits Corp.
* Emmis Communications Corp.
* Asyst Technologies, Inc.
* Inktomi Corp.
* Sapient Corp.
* RF Micro Devices, Inc.
* Millipore Corp.
Total Number of Holdings: 67
Top 10 Holdings represent 39.0% of the portfolio.
15
<PAGE>
[PHOTO] SIT SCIENCE AND TECHNOLOGY GROWTH FUND
Quarter Ended March 31, 2000
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
The Sit Science and Technology Growth Fund delivered a strong 30.4% return
for the first quarter of 2000, comparing favorably to the 19.5% return for the
Pacific Stock Exchange (PSE) Technology 100 Index. Over the past year, the
Fund's return was +143.2%, while the PSE Index increased 133.7%.
Exciting developments spanning a wide variety of high tech industries
continue to provide an excellent backdrop for science and technology investing.
The electronic technology sector, in particular, has been a key leadership group
for the overall market for the last several quarters, and the first quarter of
2000 was no exception. We estimate that if one excludes the +21.5% return for
the electronic technology sector, the S&P 500 Index return would have been -2.3%
(compared to the actual +2.3% return) during the quarter. Electronic technology
stocks within the Fund posted strong returns during the quarter; we estimate the
sector return was +53.0%. Applied Micro Circuits (+135.9%), PMC-Sierra
(+154.1%), SDL (+95.3%), and Vitesse Semiconductor (+83.6%) were among the
leading stocks for the Fund. Several stocks within health technology were strong
performers during the first quarter. Immunex and Guilford Pharmaceuticals
increased 73.8% and 92.6%, respectively.
As of March 31st, the Fund was 99% invested in equity securities. Through
strong relative price appreciation and new purchases, the Fund's allocation to
the electronic technology sector increased to 59.0%, up from 52.6% at year-end
1999. There were modest decreases in the health technology and technology
service sector weights during the quarter. New purchases within the Fund
included Corning, Tibco Software, Amdocs, and Harmonic. Sales included
Microstrategy, Lucent Technologies, and BMC Software.
The portfolio continues to be diversified across a number of industries and
investment themes. We see significant long-term growth opportunities in several
areas, including communication semiconductors (Applied Micro Circuits,
PMC-Sierra), optical electronics (JDS Uniphase, SDL), Biotechnology (Immunex,
Protein Design Labs), and wireless infrastructure (QUALCOMM, Motorola).
The recent strong performance has led to increased valuations--and price
volatility--for many companies within the Fund. We believe, however, that
fundamentals within many segments of technology and dynamic growth opportunities
within our "new economy" will lead to significantly higher earnings for
technology companies in the future.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Fund is to maximize long-term capital appreciation.
The Fund pursues this objective by investing primarily in common stocks of
companies which Sit Investment Associates, Inc. expects to benefit from the
development, improvement, advancement and use of science and technology. During
normal market conditions, at least 80% of the Fund's total assets will be
invested in such securities. The Fund emphasizes securities of companies that
the adviser believes have potential for long-term capital growth.
PORTFOLIO SUMMARY
Net Asset Value 3/31/00: $33.56 Per Share
12/31/99: $25.74 Per Share
Total Net Assets: $40.7 Million
Weighted Average Market Cap: $78.5 Billion
PORTFOLIO STRUCTURE - BY SECTOR
(% OF TOTAL NET ASSETS)
[BAR CHART]
Electronic Technology 59.0
Technology Services 20.8
Health Technology 16.1
Utilities 1.7
Consumer Services 1.2
Cash & Other Net Assets 1.2
16
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT PACIFIC STOCK
SCIENCE AND EXCHANGE
TECHNOLOGY TECHNOLOGY S&P
GROWTH FUND 100 INDEX 500 INDEX*
----------- --------- ----------
3 Month** 30.38% 19.54% 2.29%
1 Year 143.19 133.65 17.94
Inception 71.30 85.19 22.97
(12/31/97)
CUMULATIVE TOTAL RETURNS*
SIT PACIFIC STOCK
SCIENCE AND EXCHANGE
TECHNOLOGY TECHNOLOGY S&P
GROWTH FUND 100 INDEX 500 INDEX*
----------- --------- ----------
1 Year 143.19% 133.65% 17.94%
Inception 235.60 299.92 59.20
(12/31/97)
* AS OF 3/31/00 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
SINCE THE FUND FOCUSES ITS INVESTMENT ON COMPANIES INVOLVED IN THE TECHNOLOGY
SECTOR, AN INVESTMENT IN THE FUND MAY INVOLVE A GREATER DEGREE OF RISK THAN AN
INVESTMENT IN OTHER MUTUAL FUNDS WITH GREATER DIVERSIFICATION.
HIGH DOUBLE AND TRIPLE DIGIT PERFORMANCE FIGURES ARE ATTRIBUTABLE TO UNUSUALLY
FAVORABLE MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN
THE FUTURE.
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 3/31/00 would
have grown to $33,560 in the Fund, $15,920 in the S&P 500 Index, or $39,992 in
the PSE Tech 100 Index assuming reinvestment of all dividends and capital gains.
TOP 10 HOLDINGS
* SDL, Inc.
* Applied Micro Circuits Corp.
* PMC-Sierra, Inc.
* Microsoft Corp.
* Cisco Systems, Inc.
* Check Point Software Technology
* Intel Corp.
* Inktomi Corp.
* RF Micro Devices, Inc.
* I2 Technologies, Inc.
Total Number of Holdings: 59
Top 10 Holdings represent 35.9% of the portfolio.
17
<PAGE>
[PHOTO] SIT DEVELOPING MARKETS GROWTH FUND
Quarter Ended March 31, 2000
-----------------------------------------------------------------------
Eugene C. Sit, CFA, Senior Portfolio Manager
The Sit Developing Markets Growth Fund outperformed the MSCI Emerging Markets
Free Index and the Lipper Emerging Markets Index in the March quarter. The Fund
gained 8.2% versus 2.0% for the MSCI Index and 2.1% for the Lipper Index. The
Fund continued to benefit from its holdings in the telecommunications and
technology sectors.
The Fund remains overweighted in Asia, with a 55.2% weighting as of March
31st vs. 40.6% for the Index. During the quarter, however, we reduced our
overall weighting in the region by taking profits in several fully-valued
technology sector holdings and cutting back our exposure in the Philippines,
where macroeconomic and political fundamentals are worsening. Although the
economies elsewhere in Asia continue to strengthen, the Internet stock boom of
the past several months shows signs of overheating, and we continue to emphasize
well-managed, export-oriented companies with profitable core businesses.
During the quarter, the Fund increased its weighting in Latin America to
16.0% vs. 30.0% for the Index. Moody's and S&P's recent upgrade of Mexican
sovereign debt and diminished political uncertainties following orderly
elections in Argentina and Mexico demonstrate that the investment environment in
the region continues to improve. The Fund has recently added two Brazilian
stocks: Petrobras, the leading oil producer in the country, and Embratel, a
telecommunications service provider.
We maintain an underweighted position in Emerging-Europe, the Middle East,
and Africa of 20.5% vs. 29.4% for the Index. Our exposure to this region
increased during the quarter through new additions in Israel and Spain.
As planned over the last three years, Andrew Kim has become an advisory
director to the sub-advisor. Eugene Sit continues his role as senior portfolio
manager and has assumed Mr. Kim's portfolio management responsibilities.
INVESTMENT OBJECTIVE AND STRATEGY
The objective of the Sit Developing Markets Growth Fund is to maximize
long-term capital appreciation. The Fund pursues this objective by investing in
equity securities of companies located or otherwise operating in a developing
market.
Developing markets tend to be less economically developed regions of the
world. General characteristics also include a high demand for capital
investment, a high dependence on export markets for their major industries, a
need to develop basic economic infrastructures, rapid economic growth and lower
degrees of political stability. Investors should carefully consider the risks
associated with developing markets such as currency flucuations, high
volatility, illiquidity and the possibility of political instability.
PORTFOLIO SUMMARY
Net Asset Value 3/31/00: $15.34 Per Share
12/31/99: $14.18 Per Share
Total Net Assets: $15.7 Million
Weighted Average Market Cap: $59.6 Billion
PORTFOLIO STRUCTURE - BY REGION
(% OF TOTAL NET ASSETS)
[BAR CHART]
SIT Developing MSCI Emerging
Markets Growth Fund Markets Free Index
------------------- ------------------
Asia 55.2 40.6
Latin America 16.0 30.0
Africa/Middle East 14.1 13.6
Europe 6.4 15.8
North America 1.3 0.0
Cash & Other Net Assets 7.0 0.0
18
<PAGE>
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- -------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS*
SIT MSCI LIPPER
DEVELOPING EMERGING EMERGING
MARKETS MARKETS MARKETS
GROWTH FUND FREE INDEX INDEX
----------- ---------- --------
3 Month** 8.18% 2.04% 2.09%
1 Year 98.45 49.19 59.80
3 Year 9.77 -0.99 1.42
5 Year 12.46 3.05 5.96
Inception 7.86 0.72 3.38
(7/1/94)
CUMULATIVE TOTAL RETURNS*
SIT MSCI LIPPER
DEVELOPING EMERGING EMERGING
MARKETS MARKETS MARKETS
GROWTH FUND FREE INDEX INDEX
----------- ---------- --------
1 Year 98.45% 49.19% 59.80%
3 Year 32.28 -2.95 4.33
5 Year 79.85 16.19 33.58
Inception 54.53 4.22 21.05
(7/1/94)
* AS OF 3/31/00 **NOT ANNUALIZED.
- --------------------------------------------------------------------------------
INTERNATIONAL INVESTING HAS SPECIAL RISKS, SUCH AS CURRENCY EXCHANGE
FLUCTUATIONS, HIGH VOLITILITY, ILLIQUIDITY AND THE POSSIBILITY OF POLITICAL
INSTABILITY.
HIGH DOUBLE AND TRIPLE DIGIT PERFORMANCE FIGURES ARE ATTRIBUTABLE TO UNUSUALLY
FAVORABLE MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN
THE FUTURE.
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
3/31/00 would have grown to $15,453 in the Fund, or $10,422 in the Morgan
Stanley Capital Int'l Emerging Markets Free Index assuming reinvestment of all
dividends and capital gains.
10 LARGEST HOLDINGS
* Telefonos de Mexico, A.D.R.
* Hon Hai Precision Industry
* Datacraft Asia, Ltd.
* Samsung Electronics
* Dimension Data Holdings, Ltd.
* SK Telecom Co., A.D.R.
* Wal-Mart de Mexico
* Advanced Info Services
* Nice Systems, Ltd., A.D.R.
* Taiwan Semiconductor Co.
Total Number of Holdings: 56
Top 10 Holdings represent 38.1% of the portfolio.
19
<PAGE>
A LOOK AT THE SIT MUTUAL FUNDS
Sit Mutual Funds are managed by Sit Investment Associates, Inc. Sit
Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a
single purpose, to be one of the premier investment management firms in the
United States. Sit Investment Associates currently manages approximately $10
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 and 401(k) plans
SIT FAMILY OF FUNDS
[GRAPH]
STABILITY: INCOME: GROWTH: HIGH GROWTH:
SAFETY OF PRINCIPAL INCREASED INCOME LONG-TERM CAPITAL LONG-TERM CAPITAL
AND CURRENT INCOME APPRECIATION AND APPRECIATION
INCOME
MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH
SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH
TAX-FREE INCOME REGIONAL GROWTH SMALL CAP GROWTH
MINNESOTA TAX-FREE SCIENCE AND
INCOME TECHNOLOGY GROWTH
BOND DEVELOPING MARKETS
GROWTH
<PAGE>
QUARTERLY REPORT STOCK FUNDS
Quarter Ended March 31, 2000
INVESTMENT ADVISER
Sit Investment Associates, Inc.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
DISTRIBUTOR
SIA Securities Corp.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
CUSTODIAN
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
TRANSFER AGENT AND
DISBURSING AGENT
PFPC Inc.
P.O. Box 5166
Westboro, MA 01581-5166
AUDITORS
KPMG LLP
4200 Norwest Center
Minneapolis, MN 55402
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402
INVESTMENT SUB-ADVISER
(Developing Markets Growth Fund and
International Growth Fund)
Sit/Kim International Investment Associates, Inc.
4600 Norwest Center
Minneapolis, MN 55402
612-334-5888 (Metro Area)
800-332-5580
[LOGO]
SIT INVESTMENT ASSOCIATES
-------------------------
SIT MUTUAL FUNDS
