-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q1BzLyEhmrk4B1D3YIRU6HlLXIl3Zl3duyoMCco502q1jjUcJA58TKKzShBDrYQP 4oVRZDhZ70+i4oD5ArXwSA== 0000877880-03-000003.txt : 20030829 0000877880-03-000003.hdr.sgml : 20030829 20030829145216 ACCESSION NUMBER: 0000877880-03-000003 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030829 EFFECTIVENESS DATE: 20030829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MUTUAL FUNDS INC CENTRAL INDEX KEY: 0000877880 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06373 FILM NUMBER: 03873946 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CENTER STREET 2: 90 S SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-32 MAIL ADDRESS: STREET 1: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST STREET 2: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING MUTUAL FUNDS INC DATE OF NAME CHANGE: 19920929 N-CSR 1 ncsrann.txt N-CSR 1 ncsr-603.txt SIT MUTUAL FUNDS, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR ---------- CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06373 --------- Sit Mutual Funds, Inc. (Exact name of registrant as specified in charter) 4600 Wells Fargo Center 90 South Seventh Street Minneapolis, Mn 55402 (Address of principal executive offices) Paul E. Rasmussen, VP Treasurer Sit Mutual Funds, Inc. 4600 Wells Fargo Center 90 South Seventh Street Minneapolis, Mn 55402 (Name and address of agent for service) Copy to: Mike Radmer, Esq. Dorsey & Whitney Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 Registrant's telephone number, including area code: (612) 344-5888 Date of fiscal year end: June 30, 2003 Date of reporting period: June 30, 2003 Item 1: Reports to Stockholders SIT MUTUAL FUNDS STOCK FUNDS ANNUAL REPORT YEAR ENDED JUNE 30, 2003 A FAMILY OF NO-LOAD FUNDS ------------------------- BALANCED FUND LARGE CAP 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 ------------------------- SIT MUTUAL FUNDS SIT MUTUAL FUNDS STOCK FUNDS ANNUAL REPORT TABLE OF CONTENTS PAGE Chairman's Letter 2 Performance Summary and Stock Funds Market Review 4 Average Annual Total Returns 6 FUND REVIEWS AND PORTFOLIOS OF INVESTMENTS Balanced Fund 8 Large Cap 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 47 Financial Highlights 54 Independent Auditors' Report 61 Information About Directors and Officers 62 Federal Tax Information 66 A Look at Sit Mutual Funds 67 1 SIT MUTUAL FUNDS ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- CHAIRMAN'S LETTER Dear Fellow Shareholders: Global equity markets have climbed higher in recent months due to a combination of diminishing risks and prospects for a significantly better economy in the months ahead. We remain particularly optimistic on the outlook for growth stocks, given the improvements in investor sentiment, attractive valuations, and signs of improving business conditions in the important technology sector. ECONOMIC OVERVIEW Although the performance of the U.S. economy has not been as robust as expected following the war with Iraq, all the pieces are in place for a strong rebound in the second half of 2003, with momentum carrying into 2004. Gross Domestic Product (GDP) was a mere +1.4% in the first quarter of 2003, but we believe more recent economic data suggest that the economy is picking up steam. Monthly data for consumer spending, for example, point to an improvement from the first quarter rate of growth. Moreover, the stimulative effect of the Bush Administration's tax package, combined with ongoing low interest rates and higher stock prices, should contribute to the momentum in the months ahead. A strengthening consumer, solid government spending, and slowly improving business investment are among the key factors supporting our second half 2003 GDP forecast of +3.5%. While inflation data continues to come in at very moderate levels, we believe the near-term fears over deflation are overstated. As discussed, the recently enacted tax bill will drive economic growth, which will serve to reduce the excess production capacity that is crimping manufacturers' pricing power. Moreover, it is important to remember that the economy is increasingly service-oriented, and prices in this sector have been rising +3%. Despite our expectation that inflation will remain well under control, it is our belief that interest rates will climb slowly higher over the next few months, reflecting a stronger economy and the fact that the Federal Reserve has cut rates to extraordinarily low levels in its efforts to revive the economy. In this regard, however, we do not expect the Federal Reserve to RAISE short-term interest rates in the foreseeable future, based on its clear goal of stemming deflationary risks and ensuring the economy is on a sustainable growth path. The $350 billion Jobs and Growth Tax Relief and Reconciliation Act of 2003 is the third largest tax cut in U.S. history and should provide more than $150 billion in consumer and business tax relief over the next sixteen months. The law also contains reductions in taxes on dividends and capital gains that have positive implications for investors in the stock market. Even though state and local budgets are a drag on the economy, we believe the federal package still produces a net positive effect of +1% in GDP in both 2003 and 2004. The downside, of course, is that it will accelerate the federal deficit, which is estimated to be between $400 billion and $425 billion for 2003. EQUITY STRATEGY SUMMARY Domestic equities have produced solid returns so far in 2003, as many of the uncertainties that have faced investors over the past three difficult years have finally begun to diminish. First, the worst of the news related to corporate governance, though never completely absent, seems to have already played out in 2002 and early-2003. Second, following the successful war in Iraq, the geopolitical environment appears to have stabilized. Third, the prospects for an economic recovery are brighter than ever in light of low interest rates, considerable monetary and fiscal stimuli, and early signs that business investment has finally turned the corner. Despite the sluggish economic backdrop, U.S. corporate 2 - - ------------------------------------------------------------------------- - -[LOGO] profits posted solid gains during the first quarter of 2003 and have actually been improving since the third quarter of 2002. Even with lackluster revenue growth, the combination of low interest rates, productivity gains, and cost reductions have led to impressive gains in earnings, particularly in the first quarter of 2003. We believe that once improvements in the economy begin to manifest in better revenues for corporate America, earnings will surprise on the upside and provide the basis for continued strength in stock prices. Although equity valuations may still edge higher from their current levels, we believe that earnings will be the key driver for stocks in the months ahead. Absolute valuations, while definitely more attractive than three years ago, remain "acceptable" versus current interest rates, but cannot be considered "cheap" by historical standards, with the S&P 500 Index trading at a price-earnings ratio of 19x (based on 2003 earnings). There are reasons, however, for supporting the notion that higher valuations may persist for quite some time. First, there are sizable pools of cash "on the sidelines" that are earnings subpar rates of return, given the low interest rate environment. Second, low inflation and lower capital gains taxes also support a continuation of above-average P/E ratios for stocks. Finally, it is not unusual for valuations to be higher than average at the beginning of an upturn in the economy, as investors realize that earnings (the "E" in the P/E ratio) are TEMPORARILY depressed by economic conditions. Growth stocks have rallied sharply thus far in 2003, and we continue to believe that the environment remains attractive for both strong relative (to value) and absolute performance of the growth style. While the breadth of the current market rally has been particularly encouraging, we believe the most significant potential rests in those sectors most likely to benefit from a stronger economy. In particular, we have added to our positions in the beleaguered technology sector in recent months, as our analysts are beginning to identify improvement in orders in many technology-related end markets. The healthcare segment also remains an area of focus, as there are numerous attractive investments in companies developing new drugs, medical instruments, and services to keep up with the nation's ever-increasing demand for better healthcare. We are also increasingly optimistic about investment opportunities outside the U.S. The same factors supporting a U.S. recovery, including low interest rates and global monetary and fiscal policies, hold true in many economies around the world. Specifically, we have added to our weightings in Asia in order to capitalize on a "post SARS" recovery in the regions and a slightly more optimistic outlook for economic and fiscal improvements in Japan. We remain significantly underweighted in Europe, based, in part, on concerns that the stronger euro may weaken the competitive position of the region's key export sector. Other areas with bright prospects include finance (due to continued low interest rates, strong capital markets), energy (based on a natural gas supply shortage), and retail (based on accelerating consumer spending). With best wishes, /s/ Eugene C. Sit Eugene C. Sit, CFA Chairman and Chief Investment Officer 3 SIT MUTUAL FUNDS ONE YEAR ENDED JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- PERFORMANCE SUMMARY AND STOCK FUNDS MARKET REVIEW Domestic equity returns generally were mixed over the past 12 months, but the year was marked by extreme weakness in the first quarter of the period and gathering strength since then, including solid double-digit gains in the latest quarter. The third quarter of 2002 was particularly challenging, as most indices fell -15% or more. Since the end of that quarter, which ended just prior to the October 2002 low mark for many indices, equity returns have been very strong by all measures. In contrast to numerous prior periods, small and mid-capitalization stocks trailed larger issues, albeit by a small differential. Over the past twelve months, the S&P 500 Index rose 0.3%, while the S&P 400 MidCap Index and the Russell 2000 Index fell -0.7% and -1.6%, respectively. In another change of leadership, growth stocks outperformed value issues over the period across all capitalization styles. For example, the Russell 1000 Growth Index rose +2.9% over the past year, while the Russell 1000 Value fell -1.0%, and the Russell 2000 Growth Index (+0.7% for the period) outperformed the Russell 2000 Value (-3.8%) by 450 basis points. The difference was most striking in the mid cap sector, where the Russell Mid Cap Growth Index return of +7.4% exceeded the - - -0.6% return for its value counterpart by a full eight percentage points. There was a particularly wide differential in sector performance over the past twelve months, with traditional "growth" sectors generally posting solid returns. For example, within the S&P 500 Index, sectors that outperformed the overall index over the period include health technology, electronic technology, and communications. Sectors that lagged the broader market included consumer durables, energy minerals, retail trade, and health services. In contrast to the U.S., global indices generally posted modest declines over the past twelve months. The broadest measure of global equity performance, the MSCI World Index, fell -2.4% over the twelve-month period. The MSCI Europe Index decreased -5.2% over the period. The MSCI Pacific Index fell -9.6%, weighed down by the heavily weighted Japanese component, which fell -14.6%. TOTAL RETURN - CALENDAR YEAR 1991 1992 1993 - - ------------------------------------------------------------------------- - ------- SIT BALANCED -- -- - -- - - ------------------------------------------------------------------------- - ------- SIT LARGE CAP GROWTH 32.72% 4.94% 3.15% - - ------------------------------------------------------------------------- - ------- SIT MID CAP GROWTH(1) 65.50 -2.14 8.55 - - ------------------------------------------------------------------------- - ------- SIT INTERNATIONAL GROWTH(2) 4.10(4) 2.69 48.37 - - ------------------------------------------------------------------------- - ------- SIT SMALL CAP GROWTH(1) -- -- - -- - - ------------------------------------------------------------------------- - ------- SIT SCIENCE AND TECHNOLOGY GROWTH(3) -- -- - -- - - ------------------------------------------------------------------------- - ------- SIT DEVELOPING MARKETS GROWTH(2) -- -- - -- - - ------------------------------------------------------------------------- - ------- S&P 500 INDEX 30.46 7.64 10.07 S&P MIDCAP 400 INDEX 50.11 11.92 13.95 MSCI EAFE INDEX 0.26(5) -12.17 32.56 RUSSELL 2000 INDEX -- -- - -- MSCI EMERGING MARKETS FREE INDEX -- -- - -- NASDAQ SYMBOL INCEPTION ------ --------- SIT BALANCED SIBAX 12/31/93 - - ---------------------------------------------------------------- SIT LARGE CAP GROWTH SNIGX 09/02/82 - - ---------------------------------------------------------------- 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(6) RUSSELL 2000 INDEX(7) MSCI EMERGING MARKETS FREE INDEX(8) (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. 4 - - ------------------------------------------------------------------------- - -[LOGO] TOTAL RETURN - CALENDAR YEAR
YTD 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT BALANCED -0.33% 25.43% 15.80% 21.73% 21.30% 20.15% -4.80% -12.99% -18.59% 9.62% - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT LARGE CAP GROWTH 2.83 31.66 23.05 31.70 30.56 33.41 -13.84 -27.70 -30.58 12.49 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT MID CAP GROWTH(1) -0.47 33.64 21.87 17.70 6.84 70.65 -4.35 -33.39 -34.64 18.01 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT INTERNATIONAL GROWTH(2) -2.99 9.36 10.31 4.81 18.95 50.77 -26.66 -33.26 -29.84 7.07 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT SMALL CAP GROWTH(1) 11.57(4) 52.16 14.97 7.63 1.97 108.63 6.25 -28.19 -26.22 16.34 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH(3) -- -- -- -- 38.40 85.98 -6.55 -47.78 -44.45 19.08 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT DEVELOPING MARKETS GROWTH(2) -2.02(4) -4.29 -17.27 -5.20 - -24.93 82.50 -30.18 -12.01 -18.37 14.21 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- S&P 500 INDEX 1.32 37.58 22.96 33.36 28.58 21.04 -9.11 -11.88 -22.10 11.76 S&P MIDCAP 400 INDEX -3.60 30.94 19.19 32.29 19.11 14.72 17.50 -0.61 -14.52 12.41 MSCI EAFE INDEX 7.78 11.21 6.05 1.78 20.00 26.96 -14.17 -21.44 -15.94 9.47 RUSSELL 2000 INDEX 4.61 28.45 16.49 22.36 - -2.54 21.26 -3.02 2.49 -20.48 17.88 MSCI EMERGING MARKETS FREE INDEX 2.80 -6.94 3.92 -13.40 - -27.52 63.70 -31.80 -4.91 -7.97 13.90 AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED JUNE 30, 2003 QUARTER SIX MONTHS SINCE ENDED 6/30/03 ENDED 6/30/03 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION SIT BALANCED 9.72% 9.62% 4.43% 10.41% -1.26% -- 6.98% - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT LARGE CAP GROWTH 14.50 12.49 1.97 -22.38 -7.22 6.77% 10.78 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT MID CAP GROWTH 16.81 18.01 1.90 -24.44 -4.41 6.42 13.09 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT INTERNATIONAL GROWTH 16.50 7.07 - -12.97 -25.80 -10.65 0.65 2.16 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT SMALL CAP GROWTH 20.02 16.34 2.75 -18.95 5.55 -- 12.67 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH 19.61 19.08 7.05 -37.10 -6.73 -- -3.31 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- SIT DEVELOPING MARKETS GROWTH 19.41 14.21 0.25 -15.44 -2.14 -- -2.21 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- S&P 500 INDEX(5) 15.39 11.76 0.25 -11.20 -1.61 10.04 13.68 S&P MIDCAP 400 INDEX(5) 17.63 12.41 - -0.71 0.99 7.14 12.65 16.03 MSCI EAFE INDEX(6) 19.27 9.47 - -6.46 -13.52 -4.00 2.78 3.10 RUSSELL 2000 INDEX(7) 23.42 17.88 - -1.64 -3.30 0.97 -- 8.64 MSCI EMERGING MARKETS FREE INDEX(8) 22.19 13.90 4.04 -9.28 0.13 -- -3.97
(5) FIGURES ASSUME AN INCEPTION DATE OF 09/02/82. (6) FIGURES ASSUME AN INCEPTION DATE OF 10/31/91. (7) FIGURES ASSUME AN INCEPTION DATE OF 07/01/94. (8) FIGURES ASSUME AN INCEPTION DATE OF 06/30/94. 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 SIT MUTUAL FUNDS - - ------------------------------------------------------------------------- - ------- AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2002 The tables on this page and the next page show the Funds' average annual total returns (before and after taxes) and the change in value of a broad-based market index over various periods ended December 31, 2002. The index information is intended to permit you to compare each Fund's performance to a broad measure of market performance. The after-tax returns are intended to show the impact of federal income taxes on an investment in a Fund. The highest individual federal marginal income tax rate in effect during the specified period are assumed, and the state and local tax impact is not reflected. A Fund's "Return After Taxes on Distributions" shows the effect of taxable distributions (dividends and capital gain distributions), but assumes that you still hold the fund shares at the end of the period and so do not have any taxable gain or loss on your investment in the Fund. A Fund's "Return After Taxes on Distributions and Sale of Fund Shares" shows the effect of both taxable distributions and any taxable gain or loss that would be realized if the Fund shares were purchased at the beginning and sold at the end of the specified period. The Funds' past performance, before and after taxes, is not an indication of how the Funds will perform in the future. Your actual after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns reflect past tax effects and are not predictive of future tax effects. After-tax returns are not relevant to investors who hold their Fund shares in a tax-deferred account (including a 401(k) or IRA account).
- - ------------------------------------------------------------------------- - ---------------------------------- SIT BALANCED FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -18.6% - -0.4% 6.3% Return After Taxes on Distributions -19.5% - -1.7% 4.8% Return After Taxes on Distributions and Sale of Fund Shares -15.3% - -0.6% 4.7% S&P 500 Index -22.1% - -0.6% 9.3% - - ------------------------------------------------------------------------- - ---------------------------------- - - ------------------------------------------------------------------------- - ---------------------------------- SIT LARGE CAP GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes -30.6% - -5.5% 5.5% Return After Taxes on Distributions -30.6% - -6.4% 3.9% Return After Taxes on Distributions and Sale of Fund Shares -24.5% - -3.7% 4.5% S&P 500 Index -22.1% - -0.6% 9.3% - - ------------------------------------------------------------------------- - ---------------------------------- - - ------------------------------------------------------------------------- - ---------------------------------- SIT MID CAP GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes -34.6% - -5.4% 4.6% Return After Taxes on Distributions -34.6% - -7.1% 2.3% Return After Taxes on Distributions and Sale of Fund Shares -27.7% - -3.1% 4.3% S&P MidCap 500 Index -14.5% 6.4% 12.0% - - ------------------------------------------------------------------------- - ----------------------------------
6 - - ------------------------------------------------------------------------- - -[LOGO]
- - ------------------------------------------------------------------------- - ---------------------------------- SIT INTERNATIONAL GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes -29.8% - -9.2% 1.2% Return After Taxes on Distributions -29.8% - -9.8% 0.4% Return After Taxes on Distributions and Sale of Fund Shares -23.9% - -6.7% 1.1% MSCI EAFE Index -15.9% - -2.9% 4.0% - - ------------------------------------------------------------------------- - ---------------------------------- - - ------------------------------------------------------------------------- - ---------------------------------- SIT SMALL CAP GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -26.2% 3.7% 11.5% Return After Taxes on Distributions -26.2% 2.9% 10.6% Return After Taxes on Distributions and Sale of Fund Shares -21.0% 2.9% 9.6% Russell 2000 Index 20.5% - -1.4% 7.1% - - ------------------------------------------------------------------------- - ---------------------------------- *Inception date 7/1/94. - - ------------------------------------------------------------------------- - ---------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -44.5% N/A -6.9% Return After Taxes on Distributions -44.5% N/A -7.1% Return After Taxes on Distributions and Sale of Fund Shares -35.6% N/A -5.1% S&P 500 Index -22.1% N/A -0.6% - - ------------------------------------------------------------------------- - ---------------------------------- *Inception date 12/31/97. - - ------------------------------------------------------------------------- - ---------------------------------- SIT DEVELOPING MARKETS GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes -18.4% - -7.2% -3.9% Return After Taxes on Distributions -18.4% - -7.2% -3.9% Return After Taxes on Distributions and Sale of Fund Shares -14.7% - -5.6% -2.9% MSCI Emerging Markets Free Index -8.0% - -6.7% -5.7% - - ------------------------------------------------------------------------- - ---------------------------------- *Inception date 7/1/94.
7 SIT BALANCED FUND ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- PETER L. MITCHELSON, CFA, SENIOR PORTFOLIO MANAGER BRYCE A. DOTY, CFA, SENIOR PORTFOLIO MANAGER The Sit Balanced Fund's past fiscal year return was +4.4%, while the Lipper Balanced Fund Index increased +3.5%. The S&P 500 Index return was +0.3%, while the Lehman Aggregate Bond Index increased +10.4%. EQUITY OUTLOOK: EARNINGS GROWTH SHOULD DRIVE STOCKS TO NEXT LEVEL Following a difficult third quarter of 2002, equities have gained momentum over the past three quarters as investor concerns have diminished over war, corporate governance, and economic conditions. While stocks are not as undervalued as they were at the market bottom, we believe valuations remain reasonable, particularly given the low level of interest rates. In addition, the prospects for economic growth have clearly improved, given the sizable tax cuts, continued low interest rates, and recent gains in consumer confidence. Corporate profits have already begun to turn higher, largely driven by cost-cutting efforts and productivity gains. As revenue growth resumes, concurrent with better economic activity, cost-cutting efforts should have even more dramatic impact on corporate profitability. Thus, we believe strong earnings growth will drive equity returns higher in the second half of 2003. FIXED INCOME: PREPARED FOR RISING RATES A stronger economy is likely to translate into higher interest rates as 2003 progresses and into 2004, and we continue to position the fixed-income portion of the portfolio for this eventuality. In fact, we believe that June 2003 marked the bottom for interest rates in this cycle, particularly for U.S. Treasuries. However, we believe that it is unlikely that the Federal Reserve will raise interest rates until the economy is on solid footing and fears of deflation subside. Based on our outlook for slowly rising interest rates over the near-to-intermediate term, we are maintaining our short duration within the bond portion of the Fund, while emphasizing corporate and mortgage-backed securities. ADDING TO EQUITY WEIGHTINGS Based on the stronger return potential for equities, we have gradually increased the Fund's equity allocation over the past 12 months. As of June 30th, the asset allocation of the Fund was 61% in stocks (vs. 53% in June 2002), 38% in bonds (vs. 45%), and only 1% (vs. 2%) in cash. 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 and bonds. The Fund may emphasize either equity securities or fixed-income securities, 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: 35-65% in equity securities and 35-65% in fixed-income securities. At all times at least 25% of the fixed-income assets will be invested in fixed-income senior securities. PORTFOLIO SUMMARY Net Asset Value 6/30/03: $12.47 Per Share 6/30/02: $12.29 Per Share Total Net Assets: $16.1 Million TOTAL DIVIDEND: $0.33 PER SHARE Ordinary Income: $0.33 Per Share PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) [PIE CHART] Equities: 61.2% Cash & Other Net Assets: 0.9% Bonds: 37.9% 8 - - ------------------------------------------------------------------------- - -[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX ---- --------- ---------- 3 Month** 9.72% 15.39% 2.50% 6 Month** 9.62 11.76 3.93 1 Year 4.43 0.25 10.40 3 Years -10.41 -11.20 10.08 5 Years -1.26 -1.61 7.55 Inception 6.98 10.03 7.31 (12/31/93) CUMULATIVE TOTAL RETURNS* SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX ---- --------- ---------- 1 Year 4.43% 0.25% 10.40% 3 Years -28.08 -29.98 33.39 5 Years -6.17 -7.81 43.87 Inception 89.86 148.05 95.42 (12/31/93) *AS OF 6/30/03 **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 GRAPH] THE SUM OF $10,000 INVESTED AT INCEPTION (12/31/93) AND HELD UNTIL 6/30/03 WOULD HAVE GROWN TO $18,986 IN THE FUND, $19,542 IN THE LEHMAN AGGREGATE BOND INDEX OR $24,805 IN THE S&P 500 INDEX ASSUMING REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. TOP HOLDINGS Stocks * Pfizer, Inc. * Amgen, Inc. * Target Corp. * Citigroup, Inc. * General Electric Co. Bonds * Conseco Home Equity Loan, 2001-A-1A5, 7.06%, 3/15/32 * Green Tree Home Eqty Loan Trust,1999-D A5,7.88%,9/15/30 * Advanta Mortgage Loan Trust, 1999-3 A4,7.75%,10/25/26 * Conseco Mfg. Housing, 2000-4 A5,7.97%, 5/1/32 * EQCC Home Equity Loan Trust, 1996-4 A8, 7.41%, 1/15/28 Total Number of Holdings: 136 9 SIT BALANCED FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- COMMON STOCKS (61.2%)(2) COMMERCIAL SERVICES (0.5%) 1,200 Omnicom Group, Inc. 86,040 ------ - ----- COMMUNICATIONS (3.0%) 14,200 AT&T Wireless Services, Inc.(3) 116,582 3,000 Nextel Communications, Inc.(3) 54,240 15,600 Sprint Corp.(3) 89,700 11,200 Vodafone Group, A.D.R. 220,080 ------ - ----- 480,602 ------ - ----- CONSUMER DURABLES (0.8%) 800 Electronic Arts, Inc.(3) 59,192 1,800 Harley-Davidson, Inc. 71,748 ------ - ----- 130,940 ------ - ----- CONSUMER NON-DURABLES (2.4%) 600 Colgate-Palmolive Co. 34,770 3,400 PepsiCo, Inc. 151,300 2,300 The Procter & Gamble Co. 205,114 ------ - ----- 391,184 ------ - ----- CONSUMER SERVICES (4.0%) 5,900 AOL Time Warner, Inc.(3) 94,931 13,960 AT&T Corp. - Liberty Media Group(3) 161,378 2,400 Comcast Corp.(3) 72,432 2,000 Harrah's Entertainment, Inc.(3) 80,480 5,500 Viacom, Inc.(3) 240,130 ------ - ----- 649,351 ------ - ----- ELECTRONIC TECHNOLOGY (8.5%) 5,800 Analog Devices, Inc.(3) 201,956 5,800 Applied Materials, Inc.(3) 91,988 15,600 Cisco Systems, Inc.(3) 260,364 4,700 Dell Computer Corp.(3) 150,212 7,200 EMC Corp.(3) 75,384 1,200 Hewlett-Packard Co. 25,560 8,100 Intel Corp. 168,350 1,900 International Business Machines Corp. 156,750 2,200 Linear Technology Corp. 70,862 6,200 Nokia Corp., A.D.R. 101,866 1,700 Qualcomm, Inc. 60,775 ------ - ----- 1,364,067 ------ - ----- ENERGY MINERALS (2.2%) 1,600 ConocoPhillips Co. 87,680 1,500 Devon Energy Corp. 80,100 1,600 Murphy Oil Corp. 84,160 2,800 Occidental Petroleum Corp. 93,940 ------ - ----- 345,880 ------ - ----- - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- FINANCE (8.6%) 4,600 ACE, Ltd. 157,734 4,321 American International Group, Inc. 238,433 8,366 Citigroup, Inc. 358,065 1,600 Fifth Third Bancorp 91,744 1,800 Goldman Sachs Group, Inc. 150,750 3,600 Marsh & McLennan Cos., Inc. 183,852 4,000 Wells Fargo Co. 201,600 ----- - ----- 1,382,178 ----- - ----- HEALTH SERVICES (1.4%) 4,400 UnitedHealth Group, Inc. 221,100 ----- - ----- HEALTH TECHNOLOGY (12.1%) 5,600 Amgen, Inc.(3) 372,064 2,800 Bristol-Myers Squibb Co. 76,020 1,000 Boston Scientific Corp.(3) 61,100 10,400 Elan Corp., A.D.R.(3) 58,656 1,600 Eli Lilly and Co. 110,352 1,000 Forest Laboratories, Inc.(3) 54,750 800 Genentech, Inc.(3) 57,696 800 Gilead Sciences, Inc.(3) 44,464 4,400 Johnson & Johnson 227,480 1,600 MedImmune, Inc.(3) 58,192 3,200 Medtronic, Inc. 153,504 3,000 Merck & Co., Inc. 181,650 11,455 Pfizer, Inc. 391,188 1,600 Teva Pharmaceutical, Ltd., A.D.R. 91,088 ----- - ----- 1,938,204 ----- - ----- INDUSTRIAL SERVICES (1.0%) 1,400 Noble Corp.(3) 48,020 2,200 Schlumberger Ltd. 104,654 ----- - ----- 152,674 ----- - ----- PRODUCER MANUFACTURING (4.1%) 800 Eaton Corp. 62,888 12,400 General Electric Co. 355,632 2,500 Lockheed Martin Corp. 118,925 1,000 3M Co. 128,980 ----- - ----- 666,425 ----- - ----- RETAIL TRADE (5.6%) 4,200 Best Buy Co., Inc. (3) 184,464 400 eBay, Inc. (3) 41,672 800 Home Depot, Inc. 26,496 1,600 Kohl's Corp. (3) 82,208 4,600 Lowe's Companies, Inc. 197,570 9,500 Target Corp. 359,480 ----- - ----- 891,890 ----- - ----- 10 - - ------------------------------------------------------------------------- - -[LOGO] - - ------------------------------------------------------------------------- - ------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- TECHNOLOGY SERVICES (6.4%) 4,400 Adobe Systems, Inc. 141,108 3,650 Check Point Software Technology(3) 71,358 4,200 First Data Corp. 174,048 13,400 Microsoft Corp. 343,174 6,600 Oracle Corp.(3) 79,332 1,500 Symantec Corp.(3) 65,790 5,400 Veritas Software Corp.(3) 154,818 ----- - ----- 1,029,628 ----- - ----- TRANSPORTATION (0.6%) 1,600 FedEx Corp. 99,248 ----- - ----- Total common stocks (cost: $11,172,584) 9,829,411 ----- - ----- BONDS (35.2%)(2) ASSET-BACKED SECURITIES (10.3%) 286,407 Advanta Mortgage Loan Trust, 1999-3 A4, 7.75%, 10/25/26 306,821 450,000 Conseco Home Equity Loan, 2001-A IA5, 7.06%, 3/15/32 476,643 250,000 Conseco Mfg. Housing, 2000-4 A5, 7.97%, 5/1/32 253,702 250,000 EQCC Home Equity Loan Trust, 1996-4 A8, 7.41%, 1/15/28 253,142 Green Tree Financial Corp.: 17,224 1995-5, 7.25%, 9/15/26 17,995 23,284 1997-4, 7.03%, 2/15/29 23,672 300,000 Green Tree Home Equity Loan Trust, 1999-D A5, 7.88%, 9/15/30 317,768 ----- - ----- 1,649,743 ----- - ----- COLLATERALIZED MORTGAGE OBLIGATIONS (2.1%) 116,969 FHR Series 2496-GN, 8.50%, 9/15/32 117,857 151,888 Merrill Lynch Trust, Series 45Z, 9.10%, 9/20/20 162,604 420 PNC Mortgage Securities Corp., Series 1998-6 4A, 6.75%, 8/25/13 420 Vendee Mortgage Trust: 30,662 Series 2000-3 2B, 7.50%, 4/15/08 30,889 18,536 Series 1997-2 E, 7.50%, 5/15/24 18,861 ------ - ---- 330,631 ------ - ---- - - ------------------------------------------------------------------------- - ------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- CORPORATE BONDS (12.6%) Continental Airlines: 89,511 Series 2000-2 A1, 7.71%, 4/2/21 88,010 150,000 Series 2001-1B, 7.37%, 12/15/15 121,753 92,000 Dow Capital BV, 8.70%, 5/15/22 95,232 95,000 Duke Realty LP, 7.375%, 9/22/05 104,062 150,000 Everest Reins. Hldgs., 8.75%, 3/15/10 179,397 100,000 Exxon Mobil Co. (Seariver), zero coupon, 4.04% effective yield, 9/1/12 68,271 100,000 First Hawaiian Cap., 8.34%, 7/1/27 119,246 75,000 Ford Motor Credit Co., 9.14%, 12/30/14 79,752 50,000 General Electric Cap. Corp., 6.75%, 3/15/32 58,478 General Motors Corp.: 100,000 Series 1991, 8.80%, 3/1/21 103,442 100,000 Series 2003, 8.375%, 7/15/33 99,875 200,000 Great Western Finance, 8.21%, 2/1/27 229,752 McDonald's Corp: 100,000 Series 1997, 7.31%, 9/15/27 107,746 100,000 Series 2003, 4.125%, 6/1/13 98,120 215,246 Northwest Airlines Corp., 8.07%, 10/1/19 234,343 100,000 Pacific Bell Corp., 7.25%, 11/1/27 112,757 100,000 Susa Partnership LP, 7.50%, 12/1/27 119,233 ----- - ----- 2,019,469 ----- - ----- FEDERAL HOME LOAN MORTGAGE CORPORATION (0.8%) 89,233 8.38%, 5/17/20 97,097 6,397 9.00%, 7/1/16 7,120 21,384 9.00%, 7/1/16 23,800 ----- - ----- 128,017 ----- - ----- FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.5%) 77,710 7.50%, 6/1/32 83,635 88,911 8.00%, 7/1/26 96,448 85,347 9.00%, 6/1/27 94,336 97,869 9.50%, 5/1/27 108,387 30,776 9.75%, 1/15/13 34,900 4,520 10.00%, 1/1/20 5,182 87,083 10.00%, 7/1/26 100,234 37,075 10.25%, 6/15/13 42,351 ----- - ----- 565,473 ----- - ----- See accompanying notes to portfolios of investments on page 38. 11 SIT BALANCED FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (4.2%) 204,811 7.50%, 7/15/23 219,263 9,284 9.00%, 6/15/11 10,176 31,613 9.00%, 6/15/09 34,561 81,619 9.00%, 11/15/16 90,957 1,811 9.50%, 1/15/04 1,883 9,602 9.50%, 11/15/04 9,983 8,682 9.50%, 7/20/05 9,214 4,610 9.50%, 5/20/16 5,168 117,746 9.50%, 9/15/30 131,061 60,748 9.50%, 3/15/18 68,437 22,478 9.50%, 9/20/18 25,233 14,043 9.50%, 2/20/19 15,771 15,015 9.75%, 10/15/05 16,006 30,480 10.00%, 3/20/16 34,875 1,632 10.25%, 1/15/04 1,703 4,554 11.25%, 10/15/11 5,147 ------ - ----- 679,438 ------ - ----- TAXABLE MUNICIPAL SECURITIES (1.7%) 10,000 Bernalillo Multifamily. Series 1998A, 7.50%, 9/20/20 11,268 199,000 CA Rural Home Mtg. Fin. Auth. Rev. Series 2003A, 5.25%, 12/1/24 202,130 67,670 Tobacco Settlement Series 2001A, 7.67%, 5/15/16 67,281 ------ - ----- 280,679 ------ - ----- Total bonds 5,653,450 (cost: $5,481,404) ------ - ----- CLOSED-END MUTUAL FUNDS (2.7%)(2) 6,009 American Select Portfolio 82,263 403 American Strategic, Inc. Portfolio 5,154 15,470 American Strategic, Inc. Portfolio II 210,701 10,609 American Strategic, Inc. Portfolio III 137,280 ------ - ----- Total closed-end mutual funds 435,398 (cost: $368,186) ------ - ----- SHORT-TERM SECURITIES (2.1%)(2) 331,000 Sit Money Market Fund, 0.63%(4) 331,000 (cost: $331,000) ------ - ----- Total investments in securities (cost: $17,353,174)(5) $16,249,259 =========== 12 See accompanying notes to portfolios of investments on page 38. - - ------------------------------------------------------------------------- - -[LOGO] This page has been left blank intentionally. 13 SIT LARGE CAP GROWTH FUND ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- SENIOR PORTFOLIO MANAGERS PETER L. MITCHELSON, CFA O ROGER J. SIT O RONALD D. SIT, CFA The Sit Large Cap Growth Fund's return was +2.0% for the past fiscal year, compared to the S&P 500 Index return of +0.3%. The Russell 1000 Growth Index returned +2.9% over the same time period. RECENT RETURNS RESCUE A CHOPPY YEAR While the Fund posted a modest +2.0% gain over the past 12 months, the path was volatile as returns were -15.2%, +6.8%, -1.8%, and +14.5% in the last four quarters, respectively. This mirrored the volatility of the S&P 500 Index which posted quarterly returns of -17.3%, +8.4%, -3.2%, and +15.4%, for a total return of only +0.3% for the fiscal year. BETTER EARNINGS SHOULD LEAD MARKET HIGHER While we believe much of the upward progress for the market in recent months represents a "snap back" from the depressed valuation levels of last fall, the improving outlook for corporate earnings provides a basis for continued optimism. S&P 500 constituent earnings for 1Q 2003 were up a surprisingly strong +10%, while U.S. GDP growth was a mere +1.4%. We see a significantly stronger economy during the second half of 2003 (and into 2004), and we view rising corporate profits as the catalyst for higher stock prices during that recovery. GROWTH SHOULD CONTINUE TO OUTPERFORM Growth stocks have turned in solid results in the last year, and have rallied sharply in 2003. Consequently, key growth sectors, including health technology, communications, technology services, and electronic technology have driven the Fund's outperformance relative to the S&P 500. Given the multi-year nature of growth versus value performance cycles, we expect growth stock leadership over the near- to intermediate-term for several reasons. First, a stronger market and economic environment should reduce investors' premium on "safety", a characteristic that typically favors value issues. Second, growth valuations are now attractive following the severe corrections since their peak in early 2000. Finally, the improving fundamentals for the heavily-weighted technology sector should positively impact the growth style. 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 at least 80% of its net assets in the common stocks of domestic growth companies with capitalizations of $5 billion or more at the time of purchase. PORTFOLIO SUMMARY Net Asset Value 6/30/03: $26.92 Per Share 6/30/02: $26.40 Per Share Total Net Assets: $59.3 Million Weighted Average Market Cap: $84.5 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] HEALTH TECHNOLOGY 19.6 FINANCE 14.7 ELECTRONIC TECHNOLOGY 12.6 TECHNOLOGY SERVICES 10.0 RETAIL TRADE 8.6 CONSUMER SERVICES 6.6 PRODUCER MANUFACTURING 6.2 SECTORS LESS THAN 5.0% 19.8 CASH & OTHER NET ASSETS 1.9 14 - - ------------------------------------------------------------------------- - -[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- --------- ------------ 3 Month** 14.50% 15.39% 14.30% 6 Month** 12.49 11.76 13.08 1 Year 1.97 0.25 2.93 5 Years -7.22 -1.61 -5.03 10 Year 6.77 10.04 8.29 Inception*** 10.78 13.68 12.25 (9/2/82) CUMULATIVE TOTAL RETURNS* SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- --------- ------------ 1 Year 1.97% 0.25% 2.93% 5 Year -31.23 -7.81 -22.76 10 Year 92.57 160.35 121.74 Inception*** 744.83 1347.38 1012.21 (9/2/82) *AS OF 6/30/03 **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 THES&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 6/30/03 WOULD HAVE GROWN TO $84,483 IN THE FUND OR $144,738 IN THE S&P 500 INDEX ASSUMING REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. TOP 10 HOLDINGS * Amgen, Inc. * Pfizer, Inc. * Target Corp. * General Electric Co. * Microsoft Corp. * Citigroup, Inc. * American International Group, Inc. * Viacom, Inc. * Johnson & Johnson * Wells Fargo Co. Total Number of Holdings: 77 15 SIT LARGE CAP GROWTH FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- COMMON STOCKS (98.1%)(2) COMMERCIAL SERVICES (1.7%) 6,500 Omnicom Group, Inc. 466,050 17,100 SYSCO Corp. 513,684 ----- - ----- 979,734 ----- - ----- COMMUNICATIONS (4.8%) 83,500 AT&T Wireless Services, Inc.(3) 685,535 17,500 Nextel Communications, Inc.(3) 316,400 95,000 Sprint Corp.(3) 546,250 66,200 Vodafone Group, A.D.R. 1,300,830 ----- - ----- 2,849,015 ----- - ----- CONSUMER DURABLES (1.3%) 4,500 Electronic Arts, Inc.(3) 332,955 10,900 Harley-Davidson, Inc. 434,474 ----- - ----- 767,429 ----- - ----- CONSUMER NON-DURABLES (3.9%) 4,500 Colgate-Palmolive Co. 260,775 20,000 PepsiCo, Inc. 890,000 13,250 Procter & Gamble Co. 1,181,635 ----- - ----- 2,332,410 ----- - ----- CONSUMER SERVICES (6.6%) 38,400 AOL Time Warner, Inc.(3) 617,856 13,500 Comcast Corp.(3) 407,430 11,500 Harrah's Entertainment, Inc.(3) 462,760 83,804 Liberty Media Corp.(3) 968,774 33,477 Viacom, Inc.(3) 1,461,606 ----- - ----- 3,918,426 ----- - ----- ELECTRONIC TECHNOLOGY (12.6%) 33,000 Analog Devices, Inc.(3) 1,149,060 36,000 Applied Materials, Inc.(3) 570,960 68,800 Cisco Systems, Inc.(3) 1,148,272 30,000 Dell Computer Corp.(3) 958,800 21,900 EMC Corp.(3) 229,293 11,000 Hewlett-Packard Co. 234,300 47,800 Intel Corp. 993,475 10,500 International Business Machines, Inc. 866,250 12,850 Linear Technology Corp. 413,899 36,500 Nokia Corp., A.D.R. 599,695 9,500 Qualcomm, Inc. 339,625 ----- - ----- 7,503,629 ----- - ----- ENERGY MINERALS (3.4%) 9,000 ConocoPhillips Co. 493,200 10,000 Devon Energy Corp. 534,000 8,500 Murphy Oil Corp. 447,100 16,000 Occidental Petroleum Corp. 536,800 ----- - ----- 2,011,100 ----- - ----- - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- FINANCE (14.7%) 28,462 American International Group, Inc. 1,570,533 44,000 Citigroup, Inc. 1,883,200 7,500 Freddie Mac 380,775 9,500 Fifth Third Bancorp 544,730 20,000 Marsh & McLennan Cos., Inc. 1,021,400 10,500 The St. Paul Companies, Inc. 383,355 11,500 The Goldman Sachs Group, Inc. 963,125 26,000 Wells Fargo Co. 1,310,400 8,000 XL Capital, Ltd. 664,000 ------ - ----- 8,721,518 ------ - ----- HEALTH SERVICES (2.2%) 2,850 Cardinal Health, Inc. 183,255 22,000 UnitedHealth Group, Inc. 1,105,500 ------ - ----- 1,288,755 ------ - ----- HEALTH TECHNOLOGY (19.6%) 35,200 Amgen, Inc.(3) 2,338,688 6,000 Boston Scientific Corp.(3) 366,600 16,500 Bristol-Myers Squibb Co. 447,975 62,550 Elan Corp., A.D.R.(3) 352,782 8,800 Eli Lilly and Co. 606,936 5,500 Forest Laboratories, Inc.(3) 301,125 4,000 Genentech, Inc.(3) 288,480 4,500 Gilead Sciences, Inc.(3) 250,110 25,650 Johnson & Johnson 1,326,105 10,700 MedImmune, Inc.(3) 389,159 20,650 Medtronic, Inc. 990,581 18,000 Merck & Co., Inc. 1,089,900 68,325 Pfizer, Inc. 2,333,299 9,200 Teva Pharmaceutical, Ltd., A.D.R. 523,756 ------ - ----- 11,605,496 ------ - ----- INDUSTRIAL SERVICES (1.6%) 8,500 Noble Corp.(3) 291,550 13,300 Schlumberger, Ltd. 632,681 ------ - ----- 924,231 ------ - ----- PRODUCER MANUFACTURING (6.2%) 3,750 Eaton Corp. 294,787 71,700 General Electric Co. 2,056,356 14,000 Lockheed Martin Corp. 665,980 5,000 3M Co. 644,900 ------ - ----- 3,662,023 ------ - ----- 16 - - ------------------------------------------------------------------------- - -[LOGO] - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- RETAIL TRADE (8.6%) 25,550 Best Buy Co., Inc.(3) 1,122,156 2,000 eBay, Inc.(3) 208,360 3,950 Home Depot, Inc. 130,824 9,600 Kohl's Corp.(3) 493,248 25,800 Lowe's Companies, Inc. 1,108,110 54,500 Target Corp. 2,062,280 ------ - ----- 5,124,978 ------ - ----- TECHNOLOGY SERVICES (10.0%) 25,000 Adobe Systems, Inc. 801,750 21,700 Check Point Software Tech., Ltd.(3) 424,235 25,000 First Data Corp. 1,036,000 76,000 Microsoft Corp. 1,946,360 40,000 Oracle Corp.(3) 480,800 8,500 Symantec Corp.(3) 372,810 30,900 Veritas Software Corp.(3) 885,903 ------ - ----- 5,947,858 ------ - ----- TRANSPORTATION (0.9%) 9,000 FedEx Corp. 558,270 ------ - ----- Total common stocks 58,194,872 (cost: $60,584,551) ------ - ----- SHORT-TERM SECURITIES (1.7%)(2) 1,029,000 Sit Money Market Fund, 0.63%(4) 1,029,000 (cost: $1,029,000) ------ - ----- Total investments in securities (cost: $61,613,551)(5) $59,223,872 =========== See accompanying notes to portfolios of investments on page 38. 17 SIT MID CAP GROWTH FUND ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER ERIK S. ANDERSON, CFA, SENIOR PORTFOLIO MANAGER Sit Mid Cap Growth Fund returned +1.9%, versus a -0.7% decline for the S&P Mid Cap 400 Index and a +7.4% gain for the Russell Mid Cap Growth Index for the year. The Fund's three-month return, ending June 30, 2003 was +16.8%, compared to a 17.6% return for the S&P Mid Cap 400 Index and +18.8% return for the Russell Mid Cap Growth Index. LINGERING FEARS HAVE DIMINISHED Mid cap stocks generally posted higher returns over the past 12 months, overcoming significant hurdles on a number of fronts, including a war with Iraq, terrorism warnings, corporate governance concerns, and muted growth in the economy. Recent market gains, however, have been particularly encouraging, as investors appear more convinced that these risks have significantly diminished. Moreover, growth stocks have fared particularly well in recent months, as signs of improvement in technology spending has led to strong sector performance in 2003. ECONOMY, EARNINGS, AND PRICES ON THE RISE With equity market valuations rising to more reasonable levels, we believe stocks' future advances will be driven by earnings gains amid an improving backdrop for the economy. Catalysts for improving economic growth in the months ahead include lower energy prices, continued low interest rates, tax reductions, and improving consumer confidence. MORE EXPOSURE TO GROWTH AND CYCLICALS Over the past 12 months, in anticipation of an economic rebound, we have added to positions in the technology services, electronic technology, and transportation sectors. We believe these groups have great potential for accelerating earnings growth as the economy picks up steam throughout 2003 and into 2004. Conversely, we have reduced the weighting in less economically sensitive sectors, including finance and health services. Although the portfolio emphasis has shifted to become more aggressive in response to a better environment that we see ahead, the Fund remains well diversified, with at least a 3% weighting in ten different economic sectors. As managers of (and investors in) the Fund, we are pleased to report positive returns over the three-month, YTD, and one-year periods. 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 at least 80% of its net assets in the common stocks of growth companies with capitalizations of $2 billion to $15 billion at the time of purchase. PORTFOLIO SUMMARY Net Asset Value 6/30/03: $ 8.06 Per Share 6/30/02: $ 7.91 Per Share Total Net Assets: $170.2 Million Weighted Average Market Cap: $ 7.7 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) Health Technology 16.6 Electronic Technology 15.3 Technology Services 14.2 Finance 8.8 Health Services 8.1 Retail Trade 7.3 Consumer Services 5.0 Sectors less than 4.0% 20.1 Cash and Other Net Assets 4.6 18 - - ------------------------------------------------------------------------- - -[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- --------- ------------ 3 Month** 16.81% 17.63% 18.76% 6 Month** 18.01 12.41 18.74 1 Year 1.90 -0.71 7.35 5 Year -4.41 7.14 -0.64 10 Year 6.42 12.65 8.46 Inception 13.09 16.03 -- (9/2/82) CUMULATIVE TOTAL RETURNS* SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- --------- ------------ 1 Year 1.90% -0.71% 7.35% 5 Year -20.18 41.18 -3.18 10 Year 86.28 229.13 125.22 Inception 1198.43 2114.29 -- (9/2/82) *AS OF 6/30/03 **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 SIT MID CAP GROWTH FUND [PLOT POINTS CHART] The sum of $10,000 invested at inception (9/2/82) and held until 6/30/03 WOULD HAVE GROWN TO $129,843 IN THE FUND, OR $221,429 IN THE S&P MIDCAP 400 INDEX ASSUMING REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. TOP 10 HOLDINGS * TCF Financial Corp. * Wellpoint Health Networks, Inc. * Boston Scientific Corp. * Devon Energy Corp. * Teva Pharmaceutical Industries, A.D.R. * KLA-Tencor Corp. * Veritas Software Corp. * Analog Devices, Inc. * Legg Mason, Inc. * EchoStar Communications Corp. Total Number of Holdings: 78 19 SIT MID CAP GROWTH FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- COMMON STOCKS (95.4%)(2) COMMERCIAL SERVICES (3.5%) 38,000 Fair Isaac Corp. 1,955,100 19,750 Iron Mountain, Inc.(3) 732,527 69,150 Lamar Advertising Co.(3) 2,434,771 15,550 Moody's Corp. 819,640 ------ - ----- 5,942,038 ------ - ----- COMMUNICATIONS (1.2%) 114,500 Nextel Communications, Inc.(3) 2,070,160 ------ - ----- CONSUMER DURABLES (1.3%) 29,900 Electronic Arts, Inc.(3) 2,212,301 ------ - ----- CONSUMER NON-DURABLES (1.8%) 45,500 Coach, Inc.(3) 2,263,170 42,600 Pepsi Bottling Group, Inc. 852,852 ------ - ----- 3,116,022 ------ - ----- CONSUMER SERVICES (5.0%) 44,000 Career Education Corp.(3) 3,010,480 91,100 EchoStar Communications Corp.(3) 3,153,882 31,400 Harrah's Entertainment, Inc.(3) 1,263,536 11,250 International Game Technology(3) 1,151,213 ------ - ----- 8,579,111 ------ - ----- ELECTRONIC TECHNOLOGY (15.3%) 484,200 ADC Telecommunications, Inc.(3) 1,127,218 92,550 Analog Devices, Inc.(3) 3,222,591 71,850 Broadcom Corp.(3) 1,789,783 118,350 Jabil Circuit, Inc.(3) 2,615,535 73,000 KLA-Tencor Corp.(3) 3,393,770 36,500 Lexmark International, Inc.(3) 2,583,105 51,550 Nvidia Corp.(3) 1,186,166 35,000 QLogic Corp.(3) 1,691,550 88,000 Rockwell Automation, Inc. 2,097,920 332,150 Sonus Networks, Inc.(3) 1,670,715 27,500 Synopsys, Inc.(3) 1,700,875 113,700 Xilinx, Inc.(3) 2,877,747 ------ - ----- 25,956,975 ------ - ----- ENERGY MINERALS (3.6%) 30,450 Apache Corp. 1,981,077 68,600 Devon Energy Corp. 3,663,240 21,600 XTO Energy, Inc. 434,376 ------ - ----- 6,078,693 ------ - ----- - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- FINANCE (8.8%) 71,350 Ace, Ltd. 2,446,592 25,000 Commerce Bancorp, Inc. 927,500 49,500 Legg Mason, Inc. 3,215,025 28,300 Lehman Brothers Holdings, Inc. 1,881,384 118,900 TCF Financial Corp. 4,736,976 54,900 Willis Group Holdings, Ltd. 1,688,175 ------ - ----- 14,895,652 ------ - ----- HEALTH SERVICES (8.1%) 30,200 AmerisourceBergen Corp. 2,094,370 121,350 Caremark Rx, Inc.(3) 3,116,268 99,300 Health Management Assoc., Inc. 1,832,085 28,800 Laboratory Corp.(3) 868,320 49,800 Stericycle, Inc.(3) 1,916,304 47,200 Wellpoint Health Networks, Inc.(3) 3,978,960 ------ - ----- 13,806,307 ------ - ----- HEALTH TECHNOLOGY (16.6%) 56,800 Alcon, Inc. 2,595,760 70,700 Biogen, Inc.(3) 2,686,600 107,850 Biomet, Inc. 3,090,981 34,150 Biovail Corp.(3) 1,607,099 62,000 Boston Scientific Corp.(3) 3,788,200 27,500 Celgene Corp.(3) 836,000 341,450 Elan Corp., A.D.R.(3) 1,925,778 38,500 Genzyme Corp.(3) 1,609,300 55,750 Gilead Sciences, Inc.(3) 3,098,585 58,600 MedImmune, Inc.(3) 2,131,282 62,900 Teva Pharmaceutical Industries, A.D.R. 3,580,897 22,500 Varian Medical Systems, Inc.(3) 1,295,325 ------ - ----- 28,245,807 ------ - ----- INDUSTRIAL SERVICES (2.7%) 71,400 BJ Services Co.(3) 2,667,504 55,000 Noble Corp.(3) 1,886,500 ------ - ----- 4,554,004 ------ - ----- PROCESS INDUSTRIES (0.9%) 70,500 Pall Corp. 1,586,250 ------ - ----- PRODUCER MANUFACTURING (3.1%) 31,350 Danaher Corp. 2,133,367 24,600 ITT Industries, Inc. 1,610,316 72,050 Thermo Electron Corp.(3) 1,514,491 ------ - ----- 5,258,174 ------ - ----- 20 - - ------------------------------------------------------------------------- - -[LOGO] - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- RETAIL TRADE (7.3%) 60,000 Bed Bath & Beyond, Inc.(3) 2,328,600 51,550 Best Buy Co., Inc.(3) 2,264,076 97,900 Chico's FAS, Inc.(3) 2,060,795 36,700 Family Dollar Stores, Inc. 1,400,105 64,000 Michaels Stores, Inc.(3) 2,435,840 101,800 TJX Companies, Inc. 1,917,912 ------ - ----- 12,407,328 ------ - ----- TECHNOLOGY SERVICES (14.2%) 89,590 Adobe Systems, Inc. 2,873,151 29,650 Affiliated Computer Services, Inc.(3) 1,355,894 147,450 BEA Systems, Inc.(3) 1,601,307 98,300 Ceridian Corp.(3) 1,668,151 103,550 Check Point Software Tech., Ltd.(3) 2,024,403 78,250 Citrix Systems, Inc.(3) 1,593,170 64,062 Fiserv, Inc.(3) 2,281,248 39,500 Intuit, Inc.(3) 1,758,935 83,900 SunGard Data Systems, Inc.(3) 2,173,849 48,000 Symantec Corp.(3) 2,105,280 112,600 Veritas Software Corp.(3) 3,228,242 46,500 Yahoo!, Inc.(3) 1,523,340 ------- - ----- 24,186,970 ------- - ----- TRANSPORTATION (2.0%) 63,000 Expeditors Intl. of Washington, Inc. 2,182,320 34,500 J. B. Hunt Transport Services, Inc.(3) 1,302,375 ------- - ----- 3,484,695 ------- - ----- Total common stocks 162,380,487 (cost: $155,552,404) ------- - ----- SHORT-TERM SECURITIES (4.8%)(2) 8,116,000 Sit Money Market Fund,0.63%(4) 8,116,000 (cost: $8,116,000) ------- - ----- Total investments in securities (cost: $163,668,404)(5) $170,496,487 ============ See accompanying notes to portfolios of investments on page 38. 21 SIT INTERNATIONAL GROWTH FUND ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER ROGER J. SIT, SENIOR PORTFOLIO MANAGER The Sit International Growth Fund returned -13.0% for the past fiscal year. During the same period, the MSCI EAFE and Lipper International Fund Indices returned -6.5% and -6.4%, respectively. The Fund's relative performance was helped by holdings in Israel, Japan, and several traditional growth sectors, but was more than offset by poor performance in Germany, France, utilities, and insurance. STOCK PICKERS MARKET The equity markets are attractively valued and have not discounted the positive long-term fundamentals of many companies. We believe that we are now in a stock picker's environment, where investors can focus on company and industry fundamentals after three years of short-term, emotional emphasis. Recent economic indicators in the U.S. and Asia ex-Japan show encouraging signs, with business confidence and industrial production improving. This should help lift the European, Latin American and Japanese economies. In Europe, the Fund's weight is 61.9% versus 69.6%. The Fund remains underweight in Japan, with a weighting of 12.4%, compared to 20.6%. The Fund has a weighting of 17.2% in Asia ex-Japan, compared to 9.8% for the EAFE Index. BETTING ON PACIFIC RIM, DESPITE SARS The Pacific Rim region has recovered rapidly from the SARS epidemic, and demand has built up during the past couple of months, which leads us to expect improved economic performance in the near term. Exports from Asia have been in an uptrend, and we believe that this will continue as the region's manufacturers continue to increase their global market share. Japanese stocks have recently seen a positive shift in investor sentiment, and the market's low valuations are beginning to attract the attention of global institutional investors. This combined with signs that some improvement may be occurring on the economic reform front have led us to adopt a modestly more positive outlook towards this market, and we are raising our weighting in Japan, with a target of 85% of the benchmark weighting. New additions to the Fund during the year included Johnson Electric, the Hong Kong micro-motor manufacturer with large-scale manufacturing facilities in China, and Hilton Group, the London-based hotel and health club operator. INVESTMENT OBJECTIVE AND STRATEGY The objective of the International Growth Fund is long-term growth. The Fund seeks to achieve its objective by investing at least 90% of its net assets in common stocks of growth companies domiciled outside the United States. In selecting investments for the Fund, the Sub-Adviser begins by selecting countries or regions in which to invest by considering several factors affecting the economy and equity market of foreign countries and regions. After the country and regional allocations are determined, the Sub-Adviser seeks industries and sectors that it believes have earnings growth prospects that are greater than the average. Within the selected industries and sectors, the Sub-Adviser invests in foreign growth-oriented companies it believes exhibit the potential for superior growth. PORTFOLIO SUMMARY Net Asset Value 6/30/03: $ 9.39 Per Share 6/30/02: $10.79 Per Share Total Net Assets: $ 48.5 Million Weighted Average Market Cap: $ 45.8 Billion PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) [BAR CHART] SIT INT'L MORGAN STANLEY GROWTH FUND EAFE INDEX ----------- ---------- France, Germany, UK 41.3 41.1 Europe Other 20.6 28.5 Pacific Basin 17.2 9.8 Japan 12.4 20.6 Africa/Middle East 3.0 0.0 Latin America 2.8 0.0 North America 1.1 0.0 Cash and Other Net Assets 1.6 0.0 22 - - ------------------------------------------------------------------------- - -[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX ----------- ---------- ----- 3 Month** 16.50% 19.27% 19.72% 6 Month** 7.07 9.47 9.18 1 Year -12.97 -6.46 -6.40 5 Year -10.65 -4.00 -2.79 10 Year 0.65 2.78 5.05 Inception 2.16 3.10 5.38 (11/1/91) CUMULATIVE TOTAL RETURNS* SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX ----------- ---------- ----- 1 Year -12.97% -6.46% -6.40% 5 Year -43.05 -18.46 -13.21 10 Year 6.70 31.53 63.70 Inception 28.29 42.74 84.27 (11/1/91) *AS OF 6/30/03 **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 GRAPH] The sum of $10,000 invested at inception (11/1/91) and held until 6/30/03 WOULD HAVE GROWN TO $12,829 IN THE FUND, OR $14,274 IN THE MORGAN STANLEY EAFE INDEX ASSUMING REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Finance 19.1 Health Technology 14.6 Consumer Non-Durables 12.1 Communications 9.3 Energy Minerals 8.5 Electronic Technology 7.6 Retail Trade 5.4 Consumer Services 5.2 Sectors Less Than 5.0% 16.6 Cash and Other Net Assets 1.6 23 SIT INTERNATIONAL GROWTH FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 TOP 10 HOLDINGS * Nestle, S.A. * Royal Bank of Scotland * Vodafone Group, p.l.c. * HSBC Holdings p.l.c. * Total, S.A. * GlaxoSmithkline, A.D.R. * BP p.l.c., A.D.R. * Barclays, p.l.c. * UBS, A.G. * L'oreal Co. Total Number of Holdings: 97 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- COMMON STOCKS (98.4%)(2) AFRICA/MIDDLE EAST (3.0%) ISRAEL (3.0%) 6,000 Amdocs, Ltd., A.D.R. (Tech. Services)(3) 144,000 21,600 Check Point Software Technologies, A.D.R. (Technology Services)(3) 422,280 15,600 Teva Pharmaceutical, A.D.R. (Health Tech.) 888,108 ------ - ----- 1,454,388 ------ - ----- ASIA (29.6%) AUSTRALIA (3.9%) 26,533 Australia and New Zealand Banking Group (Finance) 331,157 104,852 BHP Billiton, Ltd. (Non-Energy Minerals) 607,564 27,100 News Corp., Ltd., A.D.R. (Consumer Svcs.) 678,855 30,700 Woolworths, Ltd. (Retail Trade) 257,777 ------ - ----- 1,875,353 ------ - ----- HONG KONG (7.4%) 152,500 CLP Holdings, Ltd. (Utilities) 666,859 278,000 Citic Pacific, Ltd. (Industrial Services) 508,006 271,500 Cnooc, Ltd. (Energy Minerals) 400,385 80,000 Denway Motors, Ltd. (Producer Mfg.) 36,163 98,800 HSBC Holdings, p.l.c. (Finance) 1,171,948 110,500 Johnson Electric Holdings (Producer Mfg.) 136,741 216,000 Li & Fung, Ltd. (Retail Trade) 278,374 698,000 Petrochina Co., Ltd. (Energy Minerals) 210,345 284,000 Tsingtao Brewery Co., Ltd. (Consumer Non-Durables) 205,767 ------ - ----- 3,614,588 ------ - ----- - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- JAPAN (12.4%) 19,300 AFLAC, Inc., A.D.R. (Finance) 593,475 41,000 Ajinomoto Co. (Cons. Non-Durables) 392,671 10,000 Canon, Inc. (Electronic Technology) 458,880 74 East Japan Railway (Transportation) 329,094 9,000 Honda Motor Co., Ltd. (Producer Mfg.) 341,037 10,000 Ito Yokado Co., Ltd. (Retail Trade) 239,434 28,000 Kao Corp. (Consumber Non-Durables) 521,174 23,000 Nomura Holdings, Inc. (Finance) 291,918 358 NTT DoCoMo, Inc. (Communications) 775,182 11,700 Shin-Etsu Chemical Co., Ltd. (Industrial Svcs.) 399,500 11,700 Sony Corp. (Consumer Durables) 329,344 25,000 Takeda Chemical (Health Technology) 922,340 4,100 Tokyo Electron, Ltd. (Electronic Tech.) 194,287 23,000 Yamato Transport Co., Ltd. (Transportation) 254,566 ------ - ----- 6,042,902 ------ - ----- SINGAPORE (2.9%) 82,846 DBS Group Holdings, Ltd. (Finance) 484,557 18,600 Flextronics Intl. (Electronic Tech.)(3) 193,254 13,000 Singapore Press Hldgs. (Consumer Services) 135,092 65,000 Venture Corp. (Electronic Technology) 594,258 ------ - ----- 1,407,161 ------ - ----- SOUTH KOREA (1.0%) 26,000 Korea Electric Power Corp. (Utilities) 411,386 350 Samsung Electronics Co., G.D.R. (Electronic Technology) 52,009 ------ - ----- 463,395 ------ - ----- TAIWAN (1.1%) 72,226 Hon Hai Precision (Electronic Technology) 261,900 25,080 Taiwan Semiconductor, A.D.R. (Electronic Technology)(3) 252,806 ------ - ----- 514,706 ------ - ----- THAILAND (0.9%) 317,000 Advanced Info Services (Communications) 459,967 ------ - ----- EUROPE (61.9%) FINLAND (2.1%) 61,100 Nokia Corp., A.D.R. (Electronic Tech.) 1,003,873 ------ - ----- FRANCE (15.8%) 38,716 AXA (Finance) 600,644 12,641 Aventis, S.A. (Health Technology) 695,471 11,500 Business Objects, A.D.R. (Tech. Svcs.)(3) 252,425 20,400 Business Objects (Tech. Services)(3) 454,937 10,060 Carrefour, S.A. (Retail Trade) 493,054 5,803 Danone (Consumer Non-Durables) 802,992 24 - - ------------------------------------------------------------------------- - -[LOGO] - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- 14,422 L'oreal Co. (Consumer Non-Durables) 1,016,870 19,500 STMicroelectronics, A.D.R. (Elec. Tech.) 405,405 8,123 Sanofi-Synthelabo, S.A. (Health Tech.) 475,727 15,800 Schlumberger, Ltd. (Industrial Svcs.) 751,606 19,427 Suez, S.A. (Utilities) 309,201 7,300 Total, S.A. (Energy Minerals) 1,103,190 14,921 Veolia Environment (Utilities) 306,706 ------- - ----- 7,668,228 ------- - ----- GERMANY (1.4%) 3,246 Muenchener Rueckver (Finance) 328,022 2,782 SAP AG (Technology Services) 325,858 ------- - ----- 653,880 ------- - ----- IRELAND (1.6%) 26,000 Allied Irish Banks p.l.c. (Finance) 388,439 63,700 Elan Corp., A.D.R. (Health Technology)(3) 359,268 ------- - ----- 747,707 ------- - ----- ITALY (1.2%) 20,310 Telecom Italia (Saving) (Communications) 111,250 32,100 Telecom Italia (Ord.) (Communications) 290,471 37,050 Telecom Italia Mobile (Communications) 182,523 ------- - ----- 584,244 ------- - ----- NETHERLANDS (4.0%) 28,900 ASML Holding N.V., A.D.R. (Electronic Technology)(3) 276,284 48,235 ING Groep N.V. (Finance) 838,056 18,200 Royal Dutch Petroleum, A.D.R. (Energy Minerals) 848,484 ------- - ----- 1,962,824 ------- - ----- SPAIN (1.7%) 72,400 Telefonica, S.A. (Communications) 840,546 ------- - ----- SWEDEN (0.7%) 32,300 Securitas 'B' (Commercial Svcs.) 330,871 ------- - ----- SWITZERLAND (9.3%) 9,328 Adecco, S. A. (Commercial Svcs.) 384,265 18,034 Credit Suisse Group (Finance) 474,635 6,215 Nestle, S.A. (Consumer Non-Durables) 1,282,422 24,444 Novartis, A.G. (Health Technology) 967,264 5,115 Roche Holdings, A.G. (Health Tech.) 401,220 18,461 UBS, A.G. (Finance) 1,026,944 ------- - ----- 4,536,750 ------- - ----- UNITED KINGDOM (24.1%) 87,975 Acambis, p.l.c. (Health Technology)(3) 529,882 15,344 AstraZeneca, p.l.c. (Health Technology) 622,008 25,900 BP p.l.c., A.D.R. (Energy Minerals) 1,088,318 145,046 Barclays, p.l.c. (Finance) 1,077,074 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- 50,955 Burberry Group p.l.c. (Retail Trade)(3) 208,529 14,550 Cambridge Antibody Technology Group, p.l.c. (Health Technology)(3) 126,052 155,409 Compass Group, p.l.c. (Consumer Services) 837,952 60,844 Diageo, p.l.c. (Consumer Non-Durables) 649,605 27,184 GlaxoSmithkline, A.D.R. (Health Tech.) 1,102,039 140,204 Hilton Group, p.l.c. (Consumer Services) 425,702 46,178 Pearson, p.l.c. (Consumer Services) 431,300 13,754 Reckitt Benckiser, p.l.c. (Cons. Non-Durables) 252,384 43,482 Royal Bank of Scotland (Finance) 1,219,792 41,427 Shell Transport & Trading (Energy Minerals) 273,446 157,584 Tesco, p.l.c. (Retail Trade) 570,137 63,760 Unilever, p.l.c. (Consumer Non-Durables) 507,660 615,723 Vodafone Group, p.l.c. (Communications) 1,204,013 7,500 Vodafone Group, A.D.R. (Communications) 147,375 14,000 Willis Group Holdings, Ltd.(Finance) 430,500 ------ - ----- 11,703,768 ------ - ----- LATIN AMERICA (2.8%) BRAZIL (0.3%) 10,500 Tele Norte Leste Participacoes, A.D.R. (Communications) 122,642 ------ - ----- MEXICO (2.5%) 11,400 Coca-Cola Femsa, A.D.R. (Consumer Non-Durables) 245,100 12,900 Telefonos de Mexico, A.D.R. (Communications) 405,318 194,030 Wal-Mart de Mexico (Retail Trade) 573,489 ------ - ----- 1,223,907 ------ - ----- NORTH AMERICA (1.1%) CANADA (1.1%) 9,000 Precision Drilling Corp. (Industrial Svcs.)(3) 339,840 4,200 Talisman Energy, Inc. (Energy Minerals) 192,570 ------ - ----- 532,410 ------ - ----- Total common stocks 47,744,110 (cost: $57,669,291) ------ - ----- SHORT TERM SECURITIES (1.8%)(2) 881,000 Sit Money Market Fund, 0.63%(4) 881,000 (cost: $881,000) ------ - ----- Total investments in securities (cost: $58,550,291)(5) $48,625,110 =========== See accompanying notes to portfolios of investments on page 38. 25 SIT SMALL CAP GROWTH FUND ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER For the fiscal year, the Sit Small Cap Growth Fund's return was +2.8%, compared to the -1.6% and +0.7% returns for the Russell 2000 and Russell 2000 Growth indices, respectively. The Fund returned +20.0% over the past quarter, compared to the Russell 2000 Index return of +23.4%. The Russell 2000 Growth Index return was +24.2% over the same time period. IMPROVING TRENDS ACROSS THE BOARD In recent months, investor sentiment has sharply improved following the outcome of the Iraq conflict, along with strengthening corporate profits, substantial monetary stimuli (interest rate cuts), and fiscal stimuli (tax cuts). While the economy clearly did not reach its growth potential during the first half of 2003, we believe prospects are markedly better for the second half and 2004. ADDED VALUE THROUGH STOCK SELECTION Over the past 12 months, our strategy was to emphasize stock selection rather than making large sector "bets," in light of the many cross-currents in the economy over most of the period. We are pleased to report that the Fund's positive returns, by our calculations, were achieved primarily through sound stock picking, as we tried to take advantage of specific opportunities amid the market volatility. Specifically, the strongest contributors to the Fund's performance since June 30, 2002 included Netscreen Technologies (+143% total return), Mercury Interactive (+69%), Coach (+81%), Biosite (+71%), Career Education (+52%), and New York Community Bancorp (+50%). BETTING ON A BETTER ECONOMY Although the portfolio remains well diversified, the improving outlook for growth stocks and the economy, in general, have led us to take a more aggressive stance in our sector positioning. For example, we have recently added significantly to our weightings in both the electronic technology and health technology sectors, based on both the strong cyclical and secular growth prospects in these sectors. Conversely, health services has been reduced, as we see high valuations and limited opportunity for improving growth going forward. We are enthused about the prospects in the year ahead. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Small Cap Growth Fund is to maximize long-term capital appreciation. The Fund seeks to achieve its objective by investing at least 80% of its net assets in common stocks of small growth companies with capitalizations of $2.5 billion or less at the time of purchase. The Adviser invests in a diversified group of growing small companies it believes exhibit the potential for superior growth. The Adviser believes that a company's earnings 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. PORTFOLIO SUMMARY Net Asset Value 6/30/03: $ 21.64 Per Share 6/30/02: $ 21.06 Per Share Total Net Assets: $182.9 Million Weighted Average Market Cap: $ 2.0 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Electronic Technology 17.8 Finance 13.6 Health Technology 13.3 Technology Services 6.9 Process Industries 6.0 Health Services 5.0 Sectors less than 5.0% 31.3 Cash & Other Net Assets 6.1 26 - - ------------------------------------------------------------------------- - -[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----- ------------ 3 Month** 20.02% 23.42% 24.15% 6 Month** 16.34 17.88 19.32 1 Year 2.75 -1.64 0.67 3 Year -18.95 -3.30 -16.67 5 Year 5.55 0.97 -4.25 Inception 12.67 8.64 4.73 (7/1/94) CUMULATIVE TOTAL RETURNS* SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----- ------------ 1 Year 2.75% -1.64% 0.67% 3 Year -46.76 -9.58 -42.13 5 Year 30.98 4.92 -19.53 Inception 192.71 110.87 51.64 (7/1/94) *AS OF 6/30/03 **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 AND 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 6/30/03 WOULD HAVE GROWN TO $29,271 IN THE FUND, OR $21,087 IN THE RUSSELL 2000 INDEX ASSUMING REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. TOP 10 HOLDINGS * New York Community Bancorp, Inc. * Intersil Corp. * Biosite, Inc. * Millipore Corp. * Coach, Inc. * Mercury General Corp. * Cuno, Inc. * NetScreen Technologies, Inc. * Universal Health Services, Inc. * Airgas, Inc. Total Number of Holdings: 81 27 SIT SMALL CAP GROWTH FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- COMMON STOCKS (93.9%)(2) COMMERCIAL SERVICES (3.3%) 68,775 FTI Consulting, Inc.(3) 1,717,312 79,500 Performance Food Group Co.(3) 2,941,500 262,200 SkillSoft, A.D.R.(3) 1,324,110 ------ - ----- 5,982,922 ------ - ----- CONSUMER DURABLES (1.0%) 31,200 Polaris Industries, Inc. 1,915,680 ------ - ----- CONSUMER NON-DURABLES (4.0%) 79,850 Coach, Inc.(3) 3,971,739 92,500 Liz Claiborne, Inc. 3,260,625 ------ - ----- 7,232,364 ------ - ----- CONSUMER SERVICES (2.9%) 47,050 Career Education Corp.(3) 3,219,161 87,550 Emmis Communications Corp.(3) 2,009,272 ------ - ----- 5,228,433 ------ - ----- ELECTRONIC TECHNOLOGY (17.8%) 452,850 ADC Telecommunications, Inc.(3) 1,054,235 203,150 Applied Micro Circuits Corp.(3) 1,229,057 261,400 ChipPAC, Inc.(3) 2,004,938 263,550 Cray, Inc.(3) 2,082,045 86,700 Cymer, Inc.(3) 2,736,252 60,850 Emulex Corp.(3) 1,385,554 171,950 Extreme Networks, Inc.(3) 911,335 38,900 Integrated Circuit Systems, Inc.(3) 1,222,627 178,460 Intersil Corp.(3) 4,748,821 74,000 InVision Technologies, Inc.(3) 1,838,900 52,750 Kronos, Inc.(3) 2,680,227 151,850 NetScreen Technologies, Inc.(3) 3,424,218 49,000 Nvidia Corp.(3) 1,127,490 270,750 Oak Technology, Inc.(3) 1,681,358 86,650 Silicon Laboratories, Inc.(3) 2,308,356 69,800 Varian Semiconductor Equip. Associates, Inc.(3) 2,077,248 ------ - ----- 32,512,661 ------ - ----- ENERGY MINERALS (3.2%) 43,500 Newfield Exploration Co.(3) 1,633,425 49,000 Pogo Producing Co. 2,094,750 108,933 XTO Energy, Inc. 2,190,643 ------ - ----- 5,918,818 ------ - ----- - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- FINANCE (13.6%) 41,850 Affiliated Managers Group, Inc.(3) 2,550,757 72,900 Arthur J. Gallagher & Co. 1,982,880 33,850 HCC Insurance Holdings, Inc. 1,000,944 41,000 Legg Mason, Inc. 2,662,950 80,550 Mercury General Corp. 3,677,108 201,340 New York Community Bancorp, Inc. 5,856,981 53,650 PartnerRe, Ltd. Platinum Underwriters 2,742,052 89,000 Holdings, Ltd. 2,415,460 70,420 UCBH Holdings, Inc. 2,019,646 ------ - ----- 24,908,778 ------ - ----- HEALTH SERVICES (5.0%) 39,650 Accredo Health, Inc.(3) 864,370 64,700 AdvancePCS(3) 2,473,481 42,150 Allscripts Healthcare Solutions, Inc.(3) 154,690 59,950 Stericycle, Inc.(3) 2,306,876 84,950 Universal Health Services, Inc.(3) 3,365,719 ------ - ----- 9,165,136 ------ - ----- HEALTH TECHNOLOGY (13.3%) 19,000 Amylin Pharmaceuticals, Inc.(3) 415,910 95,650 Biosite, Inc.(3) 4,600,765 29,000 Celgene Corp.(3) 881,600 185,700 Cell Therapeutics, Inc.(3) 1,806,861 241,550 CryoLife, Inc.(3) 2,500,042 87,000 CTI Molecular Imaging, Inc.(3) 1,645,170 28,500 Invitrogen Corp.(3) 1,093,545 34,450 Neurocrine Biosciences, Inc.(3) 1,720,433 57,750 NPS Pharmaceuticals, Inc.(3) 1,405,635 53,150 Pharmaceutical Resources, Inc.(3) 2,586,279 162,700 Sangamo BioSciences, Inc.(3) 463,695 35,850 SurModics, Inc.(3) 1,093,425 60,200 Telik, Inc.(3) 967,414 27,950 Varian Medical Systems, Inc.(3) 1,609,082 78,400 Wright Medical Group, Inc.(3) 1,489,600 ------ - ----- 24,279,456 ------ - ----- INDUSTRIAL SERVICES (2.3%) 59,250 Chicago Bridge & Iron Co. 1,343,790 44,500 Smith International, Inc.(3) 1,634,930 64,350 Varco International, Inc.(3) 1,261,260 ------ - ----- 4,239,980 ------ - ----- 28 - - ------------------------------------------------------------------------- - -[LOGO] - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- PROCESS INDUSTRIES (6.0%) 199,150 Airgas, Inc. 3,335,762 98,700 Cuno, Inc.(3) 3,565,044 93,150 Millipore Corp.(3) 4,133,066 ------- - ----- 11,033,872 ------- - ----- PRODUCER MANUFACTURING (4.0%) 83,100 DRS Technologies, Inc.(3) 2,320,152 61,000 Flir Systems, Inc.(3) 1,839,150 54,500 Jacobs Engineering Group, Inc.(3) 2,297,175 25,150 Roper Industries, Inc. 935,580 ------- - ----- 7,392,057 ------- - ----- RETAIL TRADE (4.3%) 48,500 Advance Auto Parts, Inc.(3) 2,953,650 135,850 Chico's FAS, Inc.(3) 2,859,642 58,450 Cost Plus, Inc.(3) 2,084,327 ------- - ----- 7,897,619 ------- - ----- TECHNOLOGY SERVICES (6.9%) 98,000 Bisys Group, Inc.(3) 1,800,260 131,800 Business Objects S.A., A.D.R.(3) 2,893,010 140,700 Citrix Systems, Inc.(3) 2,864,652 82,700 Mercury Interactive Corp.(3) 3,193,047 158,150 Quest Software, Inc.(3) 1,881,985 ------- - ----- 12,632,954 ------- - ----- TRANSPORTATION (2.1%) 58,700 C.H. Robinson Worldwide, Inc. 2,087,372 29,000 UTI Worldwide, Inc. 904,510 37,500 Werner Enterprises, Inc. 795,000 ------- - ----- 3,786,882 ------- - ----- UTILITIES (4.2%) 437,400 Calpine Corp.(3) 2,886,840 63,700 Equitable Resources, Inc. 2,595,138 64,500 Questar Corp. 2,158,815 ------- - ----- 7,640,793 ------- - ----- Total common stocks (cost: $163,343,422) 171,768,405 ------- - ----- SHORT-TERM SECURITIES (5.9%)(2) 10,826,00 Sit Money Market Fund, 0.63%(4) 10,826,000 (cost: $10,826,000) ------- - ----- Total investments in securities (cost: $174,169,422)(5) $182,594,405 ============ See accompanying notes to portfolios of investments on page 38. 29 SIT SCIENCE AND TECHNOLOGY GROWTH FUND ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Science and Technology Growth Fund returned +7.1% in the past fiscal year, compared to the +0.3% return for the S&P 500 Index . EARNINGS WILL DRIVE FUTURE RETURNS Science and technology stocks have turned in solid performances since the market "bottom" in October 2002. While valuations remain attractive for companies held in the Fund, we believe earnings growth, rather than continued improvement in current valuations, will be the primary contributor to returns going forward. We believe that the Fund is well positioned to capitalize on continued innovation in science and technology industries, bolstered by improvements in the economy. As we have often discussed, the long-term fundamentals underlying science and technology are very positive, but in the end, technology spending is ultimately responsive to trends in corporate profitability and the availability of free cash flow. Even with tepid economic growth during 1Q2003, however, the companies held in the Fund reported median sales growth of +16% for the quarter (compared to 1Q2002). Based on the outlook for a significantly faster economic growth during the second half of 2003 into 2004, we expect that company growth prospects will brighten further with the "tailwind" of a stronger economy. STILL A MULTITUDE OF OPPORTUNITIES Despite the strong recent performance for many science and technology sectors, we continue to find many opportunities in a variety of high growth segments. Examples of current areas of emphasis include semiconductor capital equipment, business intelligence software, security software, biotechnology, and medical instrumentation. Given the ongoing innovation in these and other areas in technology-related industries, we remain keenly focused on finding the strongest long-term opportunities for our shareholders. We are pleased to report positive returns for the most recent periods. Recent improvements in investor sentiment, improving economic conditions, and strong growth prospects for companies held in the Fund, make us optimistic about the outlook for the year ahead. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Fund is to maximize long-term capital appreciation. The Fund seeks to achieve its objective by investing at least 80% of its net assets in common stocks of companies principally engaged in science and technology business activities. Such companies include those whose assets, gross income, or net profits are significantly committed to, or derived from, science and technology. The Adviser seeks stocks of science and technology companies having superior growth potential in virtually any industry in which they may be found. PORTFOLIO SUMMARY Net Asset Value 6/30/03: $ 8.05 Per Share 6/30/02: $ 7.52 Per Share Total Net Assets: $15.2 Million Weighted Average Market Cap: $29.8 Billion PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) Health Technology 33.0 Electronic Technology 32.8 Technology Services 20.8 Sectors Less Than 5.0% 12.0 Cash & Other Net Assets 1.4 30 - - ------------------------------------------------------------------------- - -[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT SCIENCE AND TECHNOLOGY S&P GROWTH FUND 500 INDEX ----------- --------- 3 Month** 19.61% 15.39% 6 Month** 19.08 11.76 1 Year 7.05 0.25 3 Years -37.10 -11.20 5 Years -6.73 -1.61 Inception -3.31 1.50 (12/31/97) CUMULATIVE TOTAL RETURNS* SIT SCIENCE AND TECHNOLOGY S&P GROWTH FUND 500 INDEX ----------- --------- 1 Year 7.05% 0.25% 3 Years -75.11 -29.98 5 Years -29.41 -7.81 Inception -16.91 8.52 (12/31/97) *AS OF 6/30/03 **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. - - ------------------------------------------------------------------------- - ------- GROWTH OF $10,000 [PLOT POINTS GRAPH] THE SUM OF $10,000 INVESTED AT INCEPTION (12/31/97) AND HELD UNTIL 6/30/03 WOULD HAVE DECLINED TO $8,309 IN THE FUND OR GROWN TO $10,852 IN THE S&P 500 INDEX. TOP 10 HOLDINGS * Elan Corp., A.D.R. * Amgen, Inc. * St. Jude Medical, Inc. * Analog Devices, Inc. * Boston Scientific Corp. * Synopsys, Inc. * Biogen, Inc. * Teva Pharmaceutical, Ltd., A.D.R. * Dell Computer Corp. * Millipore Corp. Total Number of Holdings: 62 31 SIT SCIENCE AND TECHNOLOGY GROWTH FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- COMMON STOCKS (98.6%)(2) COMMUNICATIONS (1.1%) 9,400 Nextel Communications, Inc.(3) 169,952 ------- - ----- CONSUMER DURABLES (1.9%) 3,800 Electronic Arts, Inc.(3) 281,162 ------- - ----- CONSUMER SERVICES (1.0%) 9,600 AOL Time Warner, Inc.(3) 154,464 ------- - ----- ELECTRONIC TECHNOLOGY (32.8%) 12,400 Analog Devices, Inc.(3) 431,768 60,000 ADC Telecommunications, Inc.(3) 139,680 8,000 Applied Materials, Inc.(3) 126,880 12,400 Broadcom Corp.(3) 308,884 17,000 Cisco Systems, Inc.(3) 283,730 41,200 Cray, Inc.(3) 325,480 10,300 Dell Computer Corp.(3) 329,188 19,100 EMC Corp.(3) 199,977 5,000 Hewlett-Packard Co. 106,500 11,200 Intel Corp. 232,781 13,600 Jabil Circuit, Inc.(3) 300,560 6,200 KLA-Tencor Corp.(3) 288,238 4,200 Linear Technology Corp. 135,282 5,400 Maxim Integrated Products, Inc. 184,626 11,600 Netscreen Technologies, Inc.(3) 261,580 14,900 Nokia Corp., A.D.R. 244,807 5,600 Novellus Systems, Inc.(3) 205,077 6,600 Qualcomm, Inc. 235,950 6,200 Synopsys, Inc.(3) 383,470 10,200 Xilinx, Inc.(3) 258,162 ------- - ----- 4,982,620 ------- - ----- HEALTH TECHNOLOGY (33.0%) 3,200 Alcon, Inc. 146,240 7,200 Amgen, Inc.(3) 478,368 8,900 Biogen, Inc.(3) 338,200 8,200 Biomet, Inc. 235,012 4,600 Biovail Corp.(3) 216,476 6,600 Boston Scientific Corp.(3) 403,260 90,000 Elan Corp., A.D.R(3) 507,600 3,600 Forest Laboratories, Inc.(3) 197,100 3,400 Genentech, Inc.(3) 245,208 6,600 Genzyme Corp.(3) 275,880 4,400 Gilead Sciences, Inc.(3) 244,552 5,200 IDEC Pharmaceuticals Corp.(3) 176,800 4,200 MedImmune, Inc.(3) 152,754 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- 5,800 Medtronic, Inc. 278,226 7,000 Pfizer, Inc. 239,050 37,200 Sangamo BioSciences, Inc.(3) 106,020 7,800 St. Jude Medical, Inc.(3) 448,500 5,800 Teva Pharmaceutical, Ltd., A.D.R. 330,194 ------- - ----- 5,019,440 ------- - ----- PROCESS INDUSTRIES (2.2%) 7,400 Millipore Corp.(3) 328,338 ------- - ----- PRODUCER MANUFACTURING (4.6%) 8,600 DRS Technologies, Inc.(3) 240,112 7,400 Harris Corp. 222,370 11,400 Thermo Electron Corp.(3) 239,628 ------- - ----- 702,110 ------- - ----- RETAIL TRADE (1.2%) 1,800 eBay, Inc.(3) 187,524 ------- - ----- TECHNOLOGY SERVICES (20.8%) 9,400 Adobe Systems, Inc. 301,458 4,800 Affiliated Computer Services, Inc.(3) 219,504 6,800 Amdocs, Ltd.(3) 163,200 20,400 BEA Systems, Inc.(3) 221,544 3,000 Business Objects, A.D.R.(3) 65,850 8,200 Check Point Software Technology(3) 160,310 7,400 First Data Corp. 306,656 3,600 Fiserv, Inc.(3) 128,196 5,000 Intuit, Inc.(3) 222,650 6,900 Mercury Interactive Corp.(3) 266,409 9,000 Microsoft Corp. 230,490 10,000 Oracle Corp.(3) 120,200 7,000 Symantec Corp.(3) 307,020 10,800 Veritas Software Corp.(3) 309,636 4,000 Yahoo!, Inc.(3) 131,040 ------- - ----- 3,154,163 ------- - ----- Total common stocks 14,979,773 (cost: $17,650,570) ------- - ----- SHORT-TERM SECURITIES (1.6%) (2) 247,000 Sit Money Market Fund, 0.63%(4) 247,000 (cost: $247,000) ------- - ----- Total investments in securities (cost: $17,897,570) $15,226,773 =========== 32 See accompanying notes to portfolios of investments on page 38. - - ------------------------------------------------------------------------- - -[LOGO] This page has been left blank intentionally. 33 SIT DEVELOPING MARKETS GROWTH FUND ONE YEAR ENDED JUNE 30, 2003 [PHOTO]-------------------------------------------------------------------- - ----- SENIOR PORTFOLIO MANAGERS EUGENE C. SIT, CFA AND ROGER J. SIT The Sit Developing Markets Growth Fund returned +0.3% during the fiscal year ending June 30, 2003, versus increases of +4.0% and +6.1% for the MSCI Emerging Markets Free and Lipper Emerging Markets Indices, respectively. The Fund's relative performance was helped by holdings in Israel, Spain, and several traditional growth sectors, but hampered by underweightings in Russia and Indonesia and poor performance from utilities and retailing. ASIA'S STRENGTH OVERPOWERS SARS SCARE The Fund remains overweight in Asia, with a weighting of 60.1%, compared with 52.9% for the Emerging Markets Free Index. The abating of SARS-related fears combined with increasing optimism over a global economic rebound and encouraging earnings results from many Asian companies have fueled the recent rally in the region's equity markets. We believe that the markets are only in the early stages of a sustainable long-term price appreciation, as valuation levels remain low relative to both historical ranges and the developed markets. Positive secular trends, such as outsourcing, fueled export growth and the emergence of China as a powerful economic force in the region provide a solid fundamental underpinning for future growth. During the year, Fund holding Petrochina, the largest oil company in China, saw its share price boosted when Warren Buffett's Berkshire Hathaway purchased a 7% stake in the company, a confirmation of our belief that the long-term fundamentals and valuation of the company remain attractive. LATIN AMERICAN OUTLOOK IS IMPROVING The outlook for Latin American economies is gradually improving and the liquidity-induced equity market rallies that occurred in the second quarter could carry prices still higher over the next few months. The expected recovery in the U.S. should benefit Mexico, and Brazil's avoidance of a debt default is another positive sign for the region. The Fund's weighting in Latin America is 21.5%, slightly overweight versus the 18.7% weighting for the MSCI benchmark Index. OTHER DEVELOPING MARKETS UNDERWEIGHTED The Fund has a weighting of 11.5% in Emerging Europe, the Middle East, and Africa, compared with 28.4% for the Index. While these regions are not relatively attractive, we look to specific stories, such as a new position in Vimpelcom, the Russian wireless telecom operator. INVESTMENT OBJECTIVE AND STRATEGY The Fund seeks to maximize long-term capital appreciation. The Fund seeks to achieve its objective by investing at least 80% of its net assets in common stocks of companies domiciled or operating in a developing market. In selecting investments for the Fund, the Sub-Adviser begins by selecting countries or regions in which to invest by considering several factors affecting the economy and equity market of foreign countries and regions. After the country and regional allocations are determined, the Sub-Adviser seeks industries and sectors that appear to 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 for superior growth. PORTFOLIO SUMMARY Net Asset Value 6/30/03: $8.12 Per Share 6/30/02: $8.10 Per Share Total Net Assets: $8.6 Million Weighted Average Market Cap: $27.9 Billion PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) [BAR CHART] SIT MSCI DEVELOPING EMERGING MARKETS GROWTH MARKETS GROWTH FUND INDEX Asia 60.1 52.9 Latin America 21.5 18.7 Africa / Middle East 10.1 18.5 Europe 1.4 9.9 Cash and Other Net Assets 6.9 0.0 34 - - ------------------------------------------------------------------------- - -[LOGO] AVERAGE ANNUAL TOTAL RETURNS* SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND FREE INDEX INDEX ----------- ---------- ----- 3 Month** 19.41% 22.19% 23.43% 6 Month** 14.21 13.90 15.96 1 Year 0.25 4.04 6.14 3 Year -15.44 -9.28 -6.56 5 Year -2.14 0.13 1.89 Inception -2.21 -3.97 -1.48 (7/1/94) CUMULATIVE TOTAL RETURNS* SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND FREE INDEX INDEX ----------- ---------- ----- 1 Year 0.25% 4.04% 6.14% 3 Year -39.53 -25.33 -18.42 5 Year -10.26 0.65 9.80 Inception -18.19 -30.57 -12.55 (7/1/94) *AS OF 6/30/03 **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 6/30/03 WOULD HAVE DECLINED TO $8,181 IN THE FUND, OR $6,943 IN THE MORGAN STANLEY CAPITAL INT'L EMERGING MARKETS FREE INDEX ASSUMING REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) [BAR CHART] Communications 16.8 Electronic Technology 16.5 Finance 11.6 Energy Minerals 10.5 Retail Trade 7.2 Health Technology 6.7 Consumer Services 6.1 Non-energy Minerals 5.0 Sectors Less Than 5.0% 12.7 Cash and Other Net Assets 6.9 35 SIT DEVELOPING MARKETS GROWTH FUND - - ------------------------------------------------------------------------- - ------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2003 10 LARGEST HOLDINGS * Samsung Electronics * Teva Pharmaceutical, A.D.R. * Petrochina Co. * Wal-Mart de Mexico * Taiwan Semiconductor * Telephonos de Mexico, A.D.R. * Hon Hai Precision Industry * HSBC Holdings p.l.c. * Advanced Info Service * BHP Billiton Limited, A.D.R. Total Number of Holdings: 54 - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- COMMON STOCKS (90.3%) (2) AFRICA/MIDDLE EAST (10.1%) ISRAEL (8.0%) 5,500 Check Point Software Technologies, Ltd. (Technology Services)(3) 107,525 2,600 Taro Pharmaceutical Industries, Ltd. (Health Technology)(3) 142,688 7,600 Teva Pharmaceutical, A.D.R. (Health Technology) 432,676 ----- - ----- 682,889 ----- - ----- SOUTH AFRICA (2.1%) 12,100 Anglo American p.l.c. (Non-Energy Minerals) 184,695 ----- - ----- ASIA (57.3%) AUSTRALIA (2.9%) 21,410 BHP Billiton, Ltd., A.D.R. (Non-Energy Minerals) 248,142 ----- - ----- CHINA/HONG KONG (14.1%) 56,000 China Mobile (Hong Kong), Ltd. (Communications) 132,134 62,000 Citic Pacific, Ltd. (Industrial Services) 113,296 29,500 CLP Holdings (Utilities) 128,999 38,000 CNOOC, Ltd. (Energy Minerals) 56,039 92,000 Denway Motors, Ltd. (Producer Manufacturing) 41,587 22,800 HSBC Holdings p.l.c. (Finance) 270,449 42,000 Li & Fung, Ltd. (Retail Trade) 54,128 1,074,000 PetroChina Co. (Energy Minerals) 323,655 2,900 PetroChina Co., A.D.R. (Energy Minerals) 87,580 ----- - ----- 1,207,867 ----- - ----- - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- MALAYSIA (3.3%) 47,000 Maxis Berhad (Communications) 70,500 40,000 Nestle Berhad (Consumer Non-Durables) 215,791 ---- - ----- 286,291 ---- - ----- PHILIPPINES (0.6%) 494,000 SM Prime Holdings, Inc. (Retail Trade) 54,535 ---- - ----- RUSSIA (3.2%) 700 LUKOIL, A.D.R. (Energy Minerals) 55,300 1,000 Vimpel Communications, A.D.R. (Communications)(3) 46,440 3,000 YUKOS, A.D.R. (Energy Minerals) 168,000 ---- - ----- 269,740 ---- - ----- SINGAPORE (3.6%) 24,097 DBS Group Holdings, Ltd. (Finance) 140,941 18,000 Venture Corp., Ltd. (Electronic Tech.) 164,564 ---- - ----- 305,505 ---- - ----- SOUTH KOREA (15.2%) 2,200 Kookmin Bank (Finance) 66,304 600 Kookmin Bank, A.D.R. (Finance) 18,150 20,300 Korea Electric Power, A.D.R. (Utilities) 180,873 3,000 KT Corp. (Communications) 117,288 1,769 Samsung Electronics (Electronic Technology) 525,739 15,600 Shinhan Financial Group (Finance) 162,595 570 Shinsegae Co., Ltd. (Retail Trade) 88,995 7,600 SK Telecom Co., A.D.R. (Communications) 143,336 ---- - ----- 1,303,280 ---- - ----- TAIWAN (8.5%) 68,677 Accton Technology Corp. (Electronic Technology) 52,584 146,056 Chroma Ate, Inc. (Electronic Technology) 91,575 76,625 Hon Hai Precision Industry (Electronic Technology) 277,851 186,391 Taiwan Semiconductor Co. (Electronic Technology) 306,972 ---- - ----- 728,982 ---- - ----- THAILAND (5.9%) 184,800 Advanced Info Service Public Co., Ltd. (Communications) 268,145 91,800 Bangkok Bank Public Co., Ltd. (Finance)(3) 147,395 15,600 BEC World Public Co. (Consumer Services) 89,058 ---- - ----- 504,598 ---- - ----- 36 - - ------------------------------------------------------------------------- - -[LOGO] - - ------------------------------------------------------------------------- - ------- QUANTITY NAME OF ISSUER MARKET VALUE ($)(1) - - ------------------------------------------------------------------------- - ------- EUROPE (1.4%) SPAIN (1.4%) 3,592 Telefonica, A.D.R. (Communications) 124,176 ----- - ----- LATIN AMERICA (21.5%) BRAZIL (7.7%) 19,936,532 Banco Bradesco S.A. (Finance) 74,631 2,000 Brasil Telecom, A.D.R. (Communications) 74,900 18,900 Copel, A.D.R. (Utilities) 56,700 3,883 Embraer de Aeronautica, A.D.R. (Transportation) 74,165 6,400 Pao de Acucar, A.D.R. (Retail Trade) 98,176 5,860 Petrobras (Energy Minerals) 103,964 5,300 Petrobras, A.D.R. (Energy Minerals) 103,668 6,100 Tele Norte Leste Participacoes, A.D.R. (Communications) 71,248 ----- - ----- 657,452 ----- - ----- MEXICO (13.8%) 6,200 America Movil, A.D.R. (Communications) 116,250 7,500 Coca-Cola Femsa S.A., A.D.R. (Consumer Non-Durables) 161,250 132,000 Grupo Financiero BBVA Bancomer, S.A. (Finance)(3) 111,815 5,600 Grupo Televisa S.A., A.D.R. (Consumer Services) 193,200 8,900 Telefonos de Mexico, A.D.R. (Communications) 279,638 109,270 Wal-Mart de Mexico (Retail Trade) 322,966 ----- - ----- 1,185,119 ----- - ----- Total common stocks 7,743,271 (cost: $7,776,669) ----- - ----- CLOSED-END MUTUAL FUND (2.8%)(2) 19,640 India Fund (Consumer Services) 240,590 (cost: $336,404) ----- - ----- SHORT-TERM SECURITIES (6.8%)(2) 587,000 Sit Money Market Fund, 0.63% (4) 587,000 (cost: $587,000) ----- - ----- Total investments in securities (cost: $8,700,073)(5) $8,570,861 ========== See accompanying notes to portfolios of investments on page 38. 37 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) This security represents an investment in an affiliated party. See note 3 to the accompanying financial statements. (5) At June 30, 2003, the cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation based on that cost were as follows:
LARGE CAP MID CAP INTERNATIONAL BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ----------- ----------- - ------------ ------------- Cost for federal income tax purposes $ 17,476,751 $ 61,737,184 $163,985,890 $ 58,550,291 ============ ============ ============ =========== Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 710,866 $ 7,435,576 $ 24,841,684 $ 3,752,208 Gross unrealized depreciation (1,938,358) (9,948,888) (18,331,087) (13,677,389) ------------ ------------ - ------------ ------------ Net unrealized appreciation (depreciation) ($ 1,227,492) ($ 2,513,312) $ 6,510,597 ($ 9,925,181) ============ ============ ============ ============ SCIENCE AND DEVELOPING SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH FUND FUND FUND ------------ ------------ - ------------ Cost for federal income tax purposes $174,538,604 $ 18,205,091 $ 8,700,073 ============ ============ ============ Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 26,649,131 $ 1,308,693 $ 1,373,185 Gross unrealized depreciation (18,593,330) (4,287,011) (1,502,397) ------------ ------------ - ------------ Net unrealized appreciation (depreciation) $ 8,055,801 ($ 2,978,318) ($ 129,212) ============ ============ ============
38 - - ------------------------------------------------------------------------- - -[LOGO] This page has been left blank intentionally. 39 SIT MUTUAL FUNDS JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- STATEMENTS OF ASSETS AND LIABILITIES
LARGE CAP MID CAP BALANCED GROWTH GROWTH ASSETS FUND FUND FUND --------------- -------------- - - --------------- Investments in securities, at identified cost $17,353,174 $61,613,551 $163,668,404 =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $16,249,259 $59,223,872 $170,496,487 Cash in bank on demand deposit -- 560 1,612 Receivables: Dividends and accrued interest 64,470 46,372 40,467 Fund shares sold 819 2,523 4,121 Investment securities sold 41,571 207,857 444,448 Other receivables -- 10,621 -- --------------- -------------- - - --------------- Total assets 16,356,119 59,491,805 170,987,135 --------------- -------------- - - --------------- LIABILITIES Payables: Disbursements in excess of cash balances 63,863 - - - -- Investment securities purchased 206,062 116,333 504,437 Fund shares redeemed 1,600 1,460 -- Accrued investment management and advisory services fee 13,625 50,319 162,819 Other payables 6,097 - - - 147,343 --------------- -------------- - - --------------- Total liabilities 291,247 168,112 814,599 --------------- -------------- - - --------------- Net assets applicable to outstanding capital stock 16,064,872 59,323,693 170,172,536 =============== =============== =============== Capital Stock Par $0.001 $0.001 $0.001 Authorized shares 10,000,000,000 10,000,000,000 10,000,000,000 Outstanding shares 1,288,762 2,203,754 21,102,929 =============== =============== =============== Net asset value per share of outstanding capital stock $12.47 $26.92 $8.06 =============== =============== ===============
40 - - ------------------------------------------------------------------------- - -[LOGO]
SCIENCE AND DEVELOPING INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH FUND FUND FUND FUND --------------- --------------- - --------------- --------------- ASSETS Investments in securities, at identified cost $58,550,291 $174,169,422 $17,897,570 $8,700,073 =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $48,625,110 $182,594,405 $15,226,773 $8,570,861 Cash in bank on demand deposit 315,935 1,192 6,666 725 Receivables: Dividends and accrued interest 71,912 37,516 898 15,204 Fund shares sold 3,390 39,982 2,202 758 Investment securities sold -- 2,019,049 - -- -- Other receivables -- 54,774 - -- 4,660 --------------- --------------- - --------------- --------------- Total assets 49,016,347 184,746,918 15,236,539 8,592,208 --------------- --------------- - --------------- --------------- LIABILITIES Payables: Disbursements in excess of cash balances -- -- - -- -- Investment securities purchased 102,852 1,574,890 - -- -- Fund shares redeemed 282,356 35,609 - -- 165 Accrued investment management and advisory services fee 68,044 224,547 17,165 14,773 Other payables 29,844 152 19,701 ------ --------------- --------------- - --------------- --------------- Total liabilities 483,096 1,835,198 36,866 14,938 --------------- --------------- - --------------- --------------- Net assets applicable to outstanding capital stock 48,533,251 182,911,720 15,199,673 8,577,270 =============== =============== =============== =============== 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 5,170,300 8,451,718 1,888,195 1,056,587 =============== =============== =============== =============== Net asset value per share of outstanding capital stock $9.39 $21.64 $8.05 $8.12 =============== =============== =============== ===============
See accompanying notes to financial statements on page 47. 41 SIT MUTUAL FUNDS ONE YEAR ENDED JUNE 30, 2003 - - ------------------------------------------------------------------------- - ------- STATEMENTS OF OPERATIONS
LARGE CAP MID CAP INTERNATIONAL BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------ -------- - ---- ------------ ------------ INVESTMENT INCOME: INCOME: Dividends * $148,754 $587,182 $559,701 $1,154,086 Interest 412,878 21,905 96,374 46,167 ------------ -------- - ---- ------------ ------------ Total income 561,632 609,087 656,075 1,200,253 ------------ -------- - ---- ------------ ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 158,894 565,330 1,935,217 962,154 Less fees and expenses absorbed by investment adviser -- - -- (154,818) (182,029) ------------ -------- - ---- ------------ ------------ Total net expenses 158,894 565,330 1,780,399 780,125 ------------ -------- - ---- ------------ ------------ Net investment income (loss) 402,738 43,757 (1,124,324) 420,128 ------------ -------- - ---- ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) (1,647,606) (6,536,986) (29,541,134) (11,557,686) Net change in unrealized appreciation (depreciation) on investments 1,829,489 7,056,934 31,743,942 4,260,724 Realized gain (loss) on foreign currency transactions -- - -- -- 4,027 Net change in unrealized appreciation (depreciation) on foreign currency transactions -- - -- -- (2,822) ------------ -------- - ---- ------------ ------------ Net gain (loss) on investments 181,883 519,948 2,202,808 (7,295,757) ------------ -------- - ---- ------------ ------------ Net increase (decrease) in net assets resulting from operations $584,621 $563,705 $1,078,484 ($6,875,629) ============ ============ ============ ============
- - --------------- * Dividends are net of foreign withholding tax of $108,332 and $19,842 in the International Growth Fund and Developing Markets Growth Fund, respectively. 42 - - ------------------------------------------------------------------------- - -[LOGO]
SCIENCE AND DEVELOPING SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH FUND FUND FUND ------------ -------- - ---- ------------ INVESTMENT INCOME: INCOME: Dividends * $622,430 $30,744 $200,592 Interest 171,911 6,825 6,215 ------------ -------- - ---- ------------ Total income 794,341 37,569 206,807 ------------ -------- - ---- ------------ EXPENSES (NOTE 3): Investment management and advisory services fee 2,362,299 190,028 178,798 Less fees and expenses absorbed by investment adviser -- (19,003) -- ------------ -------- - ---- ------------ Total net expenses 2,362,299 171,025 178,798 ------------ -------- - ---- ------------ Net investment income (loss) (1,567,958) (133,456) 28,009 ------------ -------- - ---- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) (24,258,198) (5,718,058) (692,664) Net change in unrealized appreciation (depreciation) on investments 29,931,512 6,706,666 684,551 Realized gain (loss) on foreign currency transactions -- - -- (65) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- - -- 12 ------------ -------- - ---- ------------ Net gain (loss) on investments 5,673,314 988,608 (8,166) ------------ -------- - ---- ------------ Net increase (decrease) in net assets resulting from operations $4,105,356 $855,152 $19,843 ============ ============ ============
- - ------------ See accompanying notes to financial statements on page 47. 43 SIT MUTUAL FUNDS - - ------------------------------------------------------------------------- - ------- STATEMENTS OF CHANGES IN NET ASSETS
BALANCED LARGE CAP FUND GROWTH FUND ------------------ - -------------- -------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2003 2002 2003 2002 ------------- - ------------- ------------- ------------- OPERATIONS: Net investment income (loss) $402,738 $546,453 $43,757 ($226,597) Net realized gain (loss) on investments (1,647,606) (3,053,017) (6,536,986) (16,004,850) Net change in unrealized appreciation (depreciation) on investments 1,829,489 (1,596,602) 7,056,934 (17,827,153) 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 584,621 (4,103,166) 563,705 (34,058,600) ------------- - ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (455,000) (596,000) -- -- Net realized gains on investments -- (9,747) -- (931,511) ------------- - ------------- ------------- ------------- Total distributions (455,000) (605,747) -- (931,511) ------------- - ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 4,198,470 5,679,337 10,694,474 11,394,068 Reinvested distributions 450,934 598,409 -- 880,335 Payments for shares redeemed (6,539,306) (8,690,437) (15,773,839) (36,274,376) ------------- - ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions (1,889,902) (2,412,691) (5,079,365) (23,999,973) ------------- - ------------- ------------- ------------- Total increase (decrease) in net assets (1,760,281) (7,121,604) (4,515,660) (58,990,084) NET ASSETS Beginning of period 17,825,153 24,946,757 63,839,353 122,829,437 ------------- - ------------- ------------- ------------- End of period $16,064,872 $17,825,153 $59,323,693 $63,839,353 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $22,477,433 $24,367,335 $85,275,589 $90,354,954 Undistributed (distributions in excess of) net investment income 80,738 133,000 43,757 -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (5,389,384) (3,741,778) (23,605,974) (17,068,988) Unrealized appreciation (depreciation) on investments (1,103,915) (2,933,404) (2,389,679) (9,446,613) Unrealized appreciation (depreciation) on foreign currency transactions -- - -- -- -- ------------- - ------------- ------------- ------------- $16,064,872 $17,825,153 $59,323,693 $63,839,353 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold 359,102 407,429 436,179 343,513 Reinvested distributions 39,140 42,385 -- 25,565 Redeemed (559,312) (626,912) (650,676) (1,101,363) ------------- - ------------- ------------- ------------- Net increase (decrease) (161,070) (177,098) (214,497) (732,285) ============= ============= ============= =============
44 - - ------------------------------------------------------------------------- - -[LOGO]
MID CAP INTERNATIONAL SMALL CAP GROWTH FUND GROWTH FUND GROWTH FUND - - -------------------------------- -------------------------------- - -------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2003 2002 2003 2002 2003 2002 - - ------------- ------------- ------------- ------------- - ------------- ------------- ($1,124,324) ($1,948,664) $420,128 ($193,630) ($1,567,958) ($1,954,876) (29,541,134) (30,225,225) (11,557,686) (15,739,196) (24,258,198) (49,917,873) 31,743,942 (76,620,570) 4,260,724 (10,198,066) 29,931,512 (12,837,016) -- -- 4,027 (5,938) - -- -- -- -- (2,822) 5,562 - -- -- - - ------------- ------------- ------------- ------------- - ------------- ------------- 1,078,484 (108,794,459) (6,875,629) (26,131,268) 4,105,356 (64,709,765) - - ------------- ------------- ------------- ------------- - ------------- ------------- - - ------------- ------------- ------------- ------------- - ------------- ------------- -- (5,755,281) -- -- - -- (319,828) - - ------------- ------------- ------------- ------------- - ------------- ------------- -- (5,755,281) -- -- - -- (319,828) - - ------------- ------------- ------------- ------------- - ------------- ------------- 36,506,428 77,479,794 232,337,183 376,817,380 59,140,518 133,648,941 -- 5,495,225 -- -- - -- 311,390 (48,759,036) (147,115,266) (246,748,641) (403,950,480) (61,017,722) (116,134,977) - - ------------- ------------- ------------- ------------- - ------------- ------------- (12,252,608) (64,140,247) (14,411,458) (27,133,100) (1,877,204) 17,825,354 - - ------------- ------------- ------------- ------------- - ------------- ------------- (11,174,124) (178,689,987) (21,287,087) (53,264,368) 2,228,152 (47,204,239) 181,346,660 360,036,647 69,820,338 123,084,706 180,683,568 227,887,807 - - ------------- ------------- ------------- ------------- - ------------- ------------- $170,172,536 $181,346,660 $48,533,251 $69,820,338 $182,911,720 $180,683,568 ============= ============= ============= ============= ============= ============= $229,024,402 $242,401,334 $92,375,615 $106,787,073 $254,617,566 $258,062,728 -- -- 424,155 -- - -- -- (65,679,949) (36,138,815) (34,342,194) (22,784,508) (80,130,829) (55,872,631) 6,828,083 (24,915,859) (9,925,181) (14,185,905) 8,424,983 (21,506,529) -- -- 856 3,678 - -- -- - - ------------- ------------- ------------- ------------- - ------------- ------------- $170,172,536 $181,346,660 $48,533,251 $69,820,338 $182,911,720 $180,683,568 ============= ============= ============= ============= ============= ============= 5,098,620 7,870,846 26,277,940 31,516,144 3,132,916 5,501,805 -- 524,854 -- -- - -- 12,317 (6,920,288) (14,579,237) (27,581,341) (33,468,771) (3,260,004) (4,797,505) - - ------------- ------------- ------------- ------------- - ------------- ------------- (1,821,668) (6,183,537) (1,303,401) (1,952,627) (127,088) 716,617 ============= ============= ============= ============= ============= =============
See accompanying notes to financial statements on page 47. 45 SIT MUTUAL FUNDS - - ------------------------------------------------------------------------- - ------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SCIENCE AND TECHNOLOGY DEVELOPING MARKETS GROWTH FUND GROWTH FUND ------------------- - ----------- ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2003 2002 2003 2002 ------------ - - ----------- ------------ ------------ OPERATIONS: Net investment income (loss) ($133,456) ($233,417) $28,009 ($23,766) Net realized gain (loss) on investments (5,718,058) (11,594,790) (692,664) (372,873) Net change in unrealized appreciation (depreciation) on investments 6,706,666 (3,413,606) 684,551 (965,437) Net realized gain (loss) on foreign currency transactions -- - -- (65) (837) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- - -- 12 (7) ------------ - - ----------- ------------ ------------ Net increase (decrease) in net assets resulting from operations 855,152 (15,241,813) 19,843 (1,362,920) ------------ - - ----------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- - -- -- (1,738) Net realized gains on investments -- (28,438) -- -- ------------ - - ----------- ------------ ------------ Total distributions -- (28,438) -- (1,738) ------------ - - ----------- ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 5,517,587 6,106,003 37,920,464 52,082,112 Reinvested distributions -- 27,921 -- 1,602 Payments for shares redeemed (5,190,596) (7,299,453) (40,613,325) (53,345,284) ------------ - - ----------- ------------ ------------ Increase (decrease) in net assets from capital share transactions 326,991 (1,165,529) (2,692,861) (1,261,570) ------------ - - ----------- ------------ ------------ Total increase (decrease) in net assets 1,182,143 (16,435,780) (2,673,018) (2,626,228) NET ASSETS Beginning of period 14,017,530 30,453,310 11,250,288 13,876,516 ------------ - - ----------- ------------ ------------ End of period $15,199,673 $14,017,530 $8,577,270 $11,250,288 =========== ============ ============ ============ NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $38,287,479 $38,093,944 $12,245,116 $14,937,977 Undistributed (distributions in excess of) net investment income -- - -- 27,944 -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (20,417,009) (14,698,951) (3,566,583) (2,873,919) Unrealized appreciation (depreciation) on investments (2,670,797) (9,377,463) (129,212) (813,763) Unrealized appreciation (depreciation) on foreign currency transactions -- - -- 5 (7) ------------ - - ----------- ------------ ------------ $15,199,673 $14,017,530 $8,577,270 $11,250,288 =========== ============ ============ ============ CAPITAL TRANSACTIONS IN SHARES: Sold 772,939 552,797 5,153,943 6,020,956 Reinvested distributions -- 2,200 -- 187 Redeemed (749,462) (690,196) (5,486,325) (6,145,987) ------------ - - ----------- ------------ ------------ Net increase (decrease) 23,477 (135,199) (332,382) (124,844) ============ ============ ============ ============
46 See accompanying notes to financial statements on page 47. SIT MUTUAL FUNDS - - ------------------------------------------------------------------------- - -[LOGO] NOTES TO FINANCIAL STATEMENTS (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, 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 ------------------------------------------------------------------ - ---------------------------------- Balanced Long-term capital appreciation consistent with the preservation of principal and to provide regular income. ------------------------------------------------------------------ - ---------------------------------- Large Cap Growth Fund, Inc. Maximize long-term capital appreciation. ------------------------------------------------------------------ - ---------------------------------- Mid Cap Growth Fund, Inc. Maximize long-term capital appreciation. ------------------------------------------------------------------ - ---------------------------------- International Growth Maximize long-term growth. ------------------------------------------------------------------ - ---------------------------------- Small Cap Growth Maximize long-term capital appreciation. ------------------------------------------------------------------ - ---------------------------------- Science and Technology Growth Fund Maximize long-term capital appreciation. ------------------------------------------------------------------ - ---------------------------------- Developing Markets Growth 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 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 cannot 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. 47 SIT MUTUAL FUNDS - - ------------------------------------------------------------------------- - ------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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, 2003, there were no securities held by the Funds deemed illiquid by the investment adviser. 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 is 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. 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. The tax character of distributions paid during the fiscal years ended June 30, was as follows: 48 - - ------------------------------------------------------------------------- - -[LOGO]
YEAR ENDED JUNE 30, 2003: Ordinary Income Long Term Capital Gain Total --------------- ------ - ---------------- ----- Balanced $455,000 - -- $455,000 Large Cap Growth -- - -- -- Mid Cap Growth -- - -- -- International Growth -- - -- -- Small Cap Growth -- - -- -- Science & Technology Growth -- - -- -- Developing Markets Growth -- - -- -- YEAR ENDED JUNE 30, 2002: Ordinary Income Long Term Capital Gain Total --------------- ------- - --------------- ----- Balanced $596,000 $9,747 $605,747 Large Cap Growth -- 931,511 931,511 Mid Cap Growth -- 5,755,281 5,755,281 International Growth -- - -- -- Small Cap Growth -- 319,828 319,828 Science & Technology Growth -- 28,438 28,438 Developing Markets Growth 1,738 - -- 1,738
As of June 30, 2003, the components of distributable earnings on a tax basis were as follows:
Undistributed Accumulated Unrealized Ordinary Capital Appreciation Income Gain (Loss) (Depreciation) ------------- ------ - ------- -------------- Balanced $80,738 ($5,265,807) ($1,227,492) Large Cap Growth 43,757 (23,482,341) (2,513,312) Mid Cap Growth -- (65,362,463) 6,510,597 International Growth 424,155 (34,342,194) (9,925,181) Small Cap Growth -- (79,761,647) 8,055,801 Science & Technology Growth -- (20,109,488) (2,978,318) Developing Markets Growth 27,944 (3,566,583) (129,212)
49 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 Additional net investment net realized paid-in income gains (losses) capital -------------- ---- - ---------- ---------- Mid Cap Growth 1,124,324 - -- (1,124,324) International Growth 4,027 (4,027) -- Small Cap Growth 1,567,958 - -- (1,567,958) Science & Technology Growth 133,456 - -- (133,456) Developing Markets Growth (65) 65 --
As of June 30, 2003, for federal income tax purposes, some Funds have capital loss carryovers which, if not offset by subsequent capital gains, will begin to expire as follows:
Loss Carryover Expiration Year -------------- - --------------- Balanced $5,265,807 2010 Large Cap Growth 23,482,341 2010 Mid Cap Growth 65,362,463 2010 International Growth 34,342,194 2009 Small Cap Growth 79,761,647 2010 Science & Technology Growth 20,109,488 2010 Developing Markets Growth 3,566,583 2007
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 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. 50 - - ------------------------------------------------------------------------- - -[LOGO] 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 accounting principles generally accepted in the United States of America 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. (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, 2003, were as follow:
Purchases ($) Proceeds ($) ------------- - ------------ Balanced Fund 7,580,497 9,316,061 Large Cap Growth Fund 18,432,448 24,337,522 Mid Cap Growth Fund 80,118,296 99,296,981 International Growth Fund 10,386,441 18,888,150 Small Cap Growth Fund 89,016,919 88,521,576 Science and Technology Growth Fund 6,546,684 6,122,477 Developing Markets Growth Fund 559,109 2,812,628
(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 current fee for investment management and advisory services is based on the average daily net assets of the Funds at the annual rate of: 51 SIT MUTUAL FUNDS - - ------------------------------------------------------------------------- - ------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) Contractual Net of Adviser's Management Voluntary Fee Fee Waiver ----------- ----------- - ----- Balanced Fund 1.00% 1.00% Large Cap Growth Fund 1.00% 1.00% Mid Cap Growth Fund 1.25% 1.15% International Growth Fund 1.85% 1.50% Small Cap Growth Fund 1.50% 1.50% Science and Technology Growth Fund 1.50% 1.35% Developing Markets Growth Fund 2.00% 2.00% 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 periods through December 31, 2004 the Adviser has agreed to limit the management fee of the Mid Cap Growth Fund, Science and Technology Growth Fund, and International Growth Fund to 1.15%, 1.35%, and 1.50% of the Fund's average daily net assets respectively. As of June 30, 2003, the Large Cap Growth Fund, International Growth Fund, Mid Cap Growth Fund, Small Cap Growth Fund, Science and Technology Growth Fund, Developing Markets Growth Fund, and Balanced Fund had invested $1,029,000, $881,000, $8,116,000, $10,826,000, $247,000, $587,000 and $331,000, 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% (.65% net of waiver for the International Growth Fund) 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 $401,354 were paid or payable to SKI for the year ended June 30, 2003. 52 - - ------------------------------------------------------------------------- - -[LOGO] 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, 2003: % Shares Shares Outstanding ------ ----------- Balanced Fund 214,401 16.64 Large Cap Growth Fund 416,589 18.90 Mid Cap Growth Fund 2,989,903 14.17 International Growth Fund 725,502 14.03 Small Cap Growth Fund 1,022,482 12.10 Science and Technology Growth Fund 505,177 26.75 Developing Markets Growth Fund 150,480 14.24 53 SIT BALANCED FUND - - ------------------------------------------------------------------------- - ------- FINANCIAL HIGHLIGHTS
Years Ended June 30, ---------------------- - ------------------------------------------ 2003 2002 2001 2000 1999 - - ------------------------------------------------------------------------- - -------------------------------------------- NET ASSET VALUE: Beginning of period $ 12.29 $ 15.33 $ 19.18 $ 17.38 $ 16.68 - - ------------------------------------------------------------------------- - -------------------------------------------- OPERATIONS: Net investment income(2) .29 .36 ..46 .40 .32 Net realized and unrealized gains (losses) on investments .22 (3.01) (3.51) 2.51 1.45 - - ------------------------------------------------------------------------- - -------------------------------------------- Total from operations .51 (2.65) (3.05) 2.91 1.77 - - ------------------------------------------------------------------------- - -------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.33) (.38) (.48) (.37) (.31) From realized gains -- (.01) (.32) (.74) (.76) - - ------------------------------------------------------------------------- - -------------------------------------------- Total distributions (.33) (.39) (.80) (1.11) (1.07) - - ------------------------------------------------------------------------- - -------------------------------------------- NET ASSET VALUE: End of period $ 12.47 $ 12.29 $ 15.33 $ 19.18 $ 17.38 - - ------------------------------------------------------------------------- - -------------------------------------------- Total investment return(1) 4.43% (17.62%) (16.39%) 17.28% 11.25% - - ------------------------------------------------------------------------- - -------------------------------------------- Net assets at end of period (000's omitted) $ 16,065 $ 17,825 $ 24,947 $ 19,304 $ 12,112 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 2.54% 2.52% 2.89% 2.34% 2.01% Portfolio turnover rate (excluding short-term securities) 48.86% 53.53% 63.32% 68.22% 89.37%
- - --------- (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) The net investment income (loss) per share is based on average shares outstanding for the period. 54 SIT LARGE CAP GROWTH FUND - - ------------------------------------------------------------------------- - ------- FINANCIAL HIGHLIGHTS
Years Ended June 30, ----------------------- - ------------------------------------------- 2003 2002 2001 2000 1999 - - ------------------------------------------------------------------------- - --------------------------------------------- NET ASSET VALUE: Beginning of period $ 26.40 $ 38.99 $ 63.66 $ 52.84 $ 49.34 - - ------------------------------------------------------------------------- - --------------------------------------------- OPERATIONS: Net investment income (loss)(2) .02 (.08) (.16) (.18) (.04) Net realized and unrealized gains (losses) on investments .50 (12.17) (19.48) 14.41 6.96 - - ------------------------------------------------------------------------- - --------------------------------------------- Total from operations .52 (12.25) (19.64) 14.23 6.92 - - ------------------------------------------------------------------------- - --------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- - -- -- (.01) From realized gains -- (.34) (5.03) (3.41) (3.41) - - ------------------------------------------------------------------------- - --------------------------------------------- Total distributions -- (.34) (5.03) (3.41) (3.42) - - ------------------------------------------------------------------------- - --------------------------------------------- NET ASSET VALUE: End of period $ 26.92 $ 26.40 $ 38.99 $ 63.66 $ 52.84 - - ------------------------------------------------------------------------- - --------------------------------------------- Total investment return(1) 1.97% (31.63%) (32.92%) 27.75% 15.10% - - ------------------------------------------------------------------------- - --------------------------------------------- Net assets at end of period (000's omitted) $ 59,324 $ 63,839 $ 122,829 $ 172,400 $ 140,258 RATIOS: Expenses to average daily net assets 1.00% 1.00% 1.00% 1.00% 1.00% Net investment income (loss) to average daily net assets 0.08% (0.25%) (0.33%) (0.31%) (0.09%) Portfolio turnover rate (excluding short-term securities) 33.40% 34.74% 45.26% 48.95% 70.51%
- - --------- (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) The net investment income (loss) per share is based on average shares outstanding for the period. See accompanying notes to financial statements on page 47. 55 SIT MID CAP GROWTH FUND - - ------------------------------------------------------------------------- - ------- FINANCIAL HIGHLIGHTS
Years Ended June 30, ---------------------- - ---------------------------------------------- 2003 2002 2001 2000 1999 - - ------------------------------------------------------------------------- - ------------------------------------------------ NET ASSET VALUE: Beginning of period $ 7.91 $ 12.37 $ 23.57 $ 14.54 $ 16.49 - - ------------------------------------------------------------------------- - ------------------------------------------------ OPERATIONS: Net investment income (loss)(3) (.05) (.07) (.08) (.12) (.06) Net realized and unrealized gains (losses) on investments .20 (4.16) (7.05) 10.38 .65 - - ------------------------------------------------------------------------- - ------------------------------------------------ Total from operations .15 (4.23) (7.13) 10.26 .59 - - ------------------------------------------------------------------------- - ------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- - -- -- -- From realized gains -- (.23) (4.07) (1.23) (2.54) - - ------------------------------------------------------------------------- - ------------------------------------------------ Total distributions -- (.23) (4.07) (1.23) (2.54) - - ------------------------------------------------------------------------- - ------------------------------------------------ NET ASSET VALUE: End of period $ 8.06 $ 7.91 $ 12.37 $ 23.57 $ 14.54 - - ------------------------------------------------------------------------- - ------------------------------------------------ Total investment return(1) 1.90% (34.66%) (35.21%) 73.01% 6.94% - - ------------------------------------------------------------------------- - ------------------------------------------------ Net assets at end of period (000's omitted) $170,173 $181,347 $360,037 $566,639 $375,343 RATIOS: Expenses to average daily net assets 1.15%(2) 1.15%(2) 1.06%(2) 1.00%(2) 1.00%(2) Net investment income (loss) to average daily net assets (0.73%)(2) (0.79%)(2) (0.49%)(2) (0.58%)(2) (0.46%)(2) Portfolio turnover rate (excluding short-term securities) 53.19% 60.88% 56.21% 62.21% 68.62%
- - --------- (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 1.25% of average daily net assets. However, during the years ended June 30, 2003, 2002, 2001, 2000, and 1999 the investment adviser voluntarily absorbed 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 each of these periods and the ratio of net investment income (loss) to average daily net assets would have been (0.83%), (0.89%), (0.68%), (0.83%), and (0.71%), respectively. (3) The net investment income (loss) per share is based on average shares outstanding for the period. 56 SIT INTERNATIONAL GROWTH FUND - - ------------------------------------------------------------------------- - -[LOGO] FINANCIAL HIGHLIGHTS
Years Ended June 30, ------------------------ - --------------------------------------------------------- 2003 2002 2001 2000 1999 1998 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 10.79 $ 14.61 $ 23.58 $ 18.77 $ 19.14 $ 18.57 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- OPERATIONS: Net investment income (loss)(3) .07 (.03) (.03) (.04) (.07) .02 Net realized and unrealized gains (losses) on investments (1.47) (3.79) (8.42) 6.36 .84 1.25 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- Total from operations (1.40) (3.82) (8.45) 6.32 .77 1.27 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- - -- (.23) (.06) (.03) From realized gains -- -- (.52) (1.28) (1.08) (.67) - - ------------------------------------------------------------------------- - ----------------------------------------------------------- Total distributions -- -- (.52) (1.51) (1.14) (.70) - - ------------------------------------------------------------------------- - ----------------------------------------------------------- NET ASSET VALUE: End of period $ 9.39 $ 10.79 $ 14.61 $ 23.58 $ 18.77 $ 19.14 - - ------------------------------------------------------------------------- - ----------------------------------------------------------- Total investment return(1) (12.97%) (26.15%) (36.43%) 33.38% 4.51% 7.50% - - ------------------------------------------------------------------------- - ----------------------------------------------------------- Net assets at end of period (000's omitted) $ 48,533 $ 69,820 $123,085 $167,909 $ 94,982 $ 99,721 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 0.81%(2) (0.22%)(2) (0.20%)(2) (0.40%)(2) (0.37%)(2) 0.12%(2) Portfolio turnover rate (excluding short-term securities) 21.02% 25.78% 25.22% 30.61% 45.91% 43.74%
- - --------- (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, 2003, 2002, 2001, 2000, and 1999 the investment adviser voluntarily absorbed 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 each of these periods and the ratio of net investment income (loss) to average daily net assets would have been 0.46%, (0.57%), (0.55%), (0.75%), and (0.72%), respectively. (3) The net investment income (loss) per share is based on average shares outstanding for the period. See accompanying notes to financial statements on page 47. 57 SIT SMALL CAP GROWTH FUND - - ------------------------------------------------------------------------- - -[LOGO] FINANCIAL HIGHLIGHTS
Years Ended June 30, ---------------------- - ------------------------------------------- 2003 2002 2001 2000 1999 - - ------------------------------------------------------------------------- - --------------------------------------------- NET ASSET VALUE: Beginning of period $ 21.06 $ 28.99 $ 41.35 $ 18.28 $ 20.35 - - ------------------------------------------------------------------------- - --------------------------------------------- OPERATIONS: Net investment income (loss)(2) (.18) (.24) (.13) (.18) (.18) Net realized and unrealized gains (losses) on investments .76 (7.65) (11.65) 23.25 1.20 - - ------------------------------------------------------------------------- - --------------------------------------------- Total from operations .58 (7.89) (11.78) 23.07 1.02 - - ------------------------------------------------------------------------- - --------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From realized gains -- (.04) (.58) -- (3.09) - - ------------------------------------------------------------------------- - --------------------------------------------- Total distributions -- (.04) (.58) -- (3.09) - - ------------------------------------------------------------------------- - --------------------------------------------- NET ASSET VALUE: End of period $ 21.64 $ 21.06 $ 28.99 $ 41.35 $ 18.28 - - ------------------------------------------------------------------------- - --------------------------------------------- Total investment return(1) 2.75% (27.24%) (28.79%) 126.20% 8.77% - - ------------------------------------------------------------------------- - --------------------------------------------- Net assets at end of period (000's omitted) $182,912 $180,684 $227,888 $190,630 $ 50,335 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 (1.00%) (0.99%) (0.41%) (0.83%) (1.08%) Portfolio turnover rate (excluding short-term securities) 59.98% 65.25% 39.91% 39.31% 71.84%
- - --------- (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) The net investment income (loss) per share is based on average shares outstanding for the period. 58 SIT SCIENCE AND TECHNOLOGY GROWTH FUND - - ------------------------------------------------------------------------- - -[LOGO] FINANCIAL HIGHLIGHTS
Years Ended June 30, --------------- - --------------------------------------------- 2003 2002 2001 2000 1999 - - ------------------------------------------------------------------------- - ----------------------------------------------- NET ASSET VALUE: Beginning of period $ 7.52 $ 15.23 $ 33.38 $ 15.23 $ 11.77 - - ------------------------------------------------------------------------- - ----------------------------------------------- Operations: Net investment income (loss)(3) (.07) (.12) (.19) (.17) (.07) Net realized and unrealized gains (losses) on investments .60 (7.58) (17.10) 18.32 3.53 - - ------------------------------------------------------------------------- - ----------------------------------------------- Total from operations .53 (7.70) (17.29) 18.15 3.46 - - ------------------------------------------------------------------------- - ----------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- - -- -- -- -- From realized gains -- (.01) (.86) -- -- - - ------------------------------------------------------------------------- - ----------------------------------------------- Total distributions -- (.01) (.86) -- -- - - ------------------------------------------------------------------------- - ----------------------------------------------- NET ASSET VALUE: End of period $8.05 $ 7.52 $ 15.23 $ 33.38 $ 15.23 - - ------------------------------------------------------------------------- - ----------------------------------------------- Total investment return(1) 7.05% (50.57%) (52.96%) 119.17% 29.40% - - ------------------------------------------------------------------------- - ----------------------------------------------- Net assets at end of period (000's omitted) $15,200 $14,018 $30,453 $ 46,173 $14,194 RATIOS: Expenses to average daily net assets 1.35%(2) 1.35%(2) 1.29%(2) 1.25%(2) 1.25%(2) Net investment income (loss) to average net assets (1.05%)(2) (1.06%)(2) (0.94%)(2) (0.86%)(2) (0.72%)(2) Portfolio turnover rate (excluding short-term securities) 49.67% 76.78% 34.59% 29.60% 58.29%
- - --------- (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 1.50% of average daily net assets. However, during the years ended June 30, 2003, 2002, 2001, 2000, and 1999 the investment adviser voluntarily absorbed 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 each of these periods and the ratio of net investment income (loss) to average daily net assets would have been (1.20%), (1.21%), (1.15%), (1.11%), and (0.97%), respectively. (3) The net investment income (loss) per share is based on average shares outstanding for the period. See accompanying notes to financial statements on page 47. 59 SIT DEVELOPING MARKETS GROWTH FUND - - ------------------------------------------------------------------------- - ------- FINANCIAL HIGHLIGHTS
Years Ended June 30, --------------- - ------------------------------------------ 2003 2002 2001 2000 1999 - - ------------------------------------------------------------------------- - -------------------------------------------- NET ASSET VALUE: Beginning of period $ 8.10 $ 9.17 $ 13.43 $ 9.98 $ 9.05 - - ------------------------------------------------------------------------- - -------------------------------------------- OPERATIONS: Net investment income (loss)(2) .02 (.02) -- (.06) -- Net realized and unrealized gains (losses) on investments -- (1.05) (4.26) 3.51 .93 - - ------------------------------------------------------------------------- - -------------------------------------------- Total from operations .02 (1.07) (4.26) 3.45 .93 - - ------------------------------------------------------------------------- - -------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- - -- -- -- -- From realized gains -- - -- -- -- -- - - ------------------------------------------------------------------------- - -------------------------------------------- Total distributions -- - -- -- -- -- - - ------------------------------------------------------------------------- - -------------------------------------------- NET ASSET VALUE: End of period $ 8.12 $ 8.10 $ 9.17 $ 13.43 $ 9.98 - - ------------------------------------------------------------------------- - -------------------------------------------- Total investment return(1) 0.25% (11.66%) (31.72%) 34.57% 10.28% - - ------------------------------------------------------------------------- - -------------------------------------------- Net assets at end of period (000's omitted) $ 8,577 $11,250 $13,877 $14,676 $11,338 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 0.31% (0.20%) 0.02% (0.55%) (0.05%) Portfolio turnover rate (excluding short-term securities) 6.61% 25.40% 21.87% 48.39% 98.24%
- - --------- (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) The net investment income (loss) per share is based on average shares outstanding for the period. 60 See accompanying notes to financial statements on page 47. INDEPENDENT AUDITORS' REPORT - - ------------------------------------------------------------------------- - -[LOGO] 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, of Sit Balanced Fund (a series of Sit Mutual Funds, Inc.), Sit Large Cap Growth Fund, 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, 2003; the related statements of operations for the year then ended; the statements of changes in net assets for each of the years in the two-year period then ended; and the financial highlights for each of the five years in the period then ended. These financial statements and the financial highlights are the responsibility of fund 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the 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. Our procedures included confirmation of securities owned as of June 30, 2003, by correspondence with the custodian or by 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 financial highlights referred to above present fairly, in all material respects, the financial position of Sit Balanced Fund, Sit Large Cap 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, 2003 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 accounting principles generally accepted in the United States of America. KPMG LLP August 1, 2003 61 INFORMATION ABOUT DIRECTORS AND OFFICERS - - ------------------------------------------------------------------------- - ------- The Sit Mutual Funds are a family of 12 no-load mutual funds. The seven Stock Funds described in this Stock Funds Annual Report are the Sit Mid Cap Growth Fund, Sit Large Cap Growth Fund, Sit International Growth Fund, Sit Balanced Fund, Sit Developing Markets Growth Fund, Sit Small Cap Growth Fund and the Sit Science and Technology Growth Fund (the "Funds" or individually, a "Fund"). The five Bond Funds within the Sit Mutual Fund family are described in a Bond Funds Annual Report. The Sit Mid Cap Growth Fund and Sit Large Cap Growth Fund, and the corporate issuer of the Sit International Growth Fund, Sit Balanced Fund, Sit Developing Markets Growth Fund, Sit Small Cap Growth Fund and the Sit Science and Technology Growth Fund have a Board of Directors and officers. 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. Information pertaining to the directors and officers of the Funds is set forth below. The Stock Funds SAI has additional information about the Fund directors and is available without charge upon request by calling the Sit Funds at 800-332- 5580.
OTHER TERM OF OFFICE(1) NUMBER OF DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) FUNDS IN FUND COMPLEX HELD BY AND AGE HELD WITH FUND TIME SERVED DURING PAST FIVE YEARS OVERSEEN BY DIRECTOR DIRECTOR(4) INDEPENDENT DIRECTORS: Director Director since 1995. Trustee, Pacific Gas & 12 None John E. Hulse Electric Nuclear Suite 4600 Decommissioning Trust. 90 South Seventh Street Minneapolis, MN 55402 Age: 70 Sidney L. Jones Director Director from 1988 to Lecturer, Washington 12 None Suite 4600 1989 and from 1993 or Campus Consortium of 90 South Seventh Street the Fund's inception 17 Universities; Minneapolis, MN 55402 if later. Senior Advisor to Age: 69 Lawrence and Company, Toronto, Canada. Donald Phillips Director Director of the CEO and CIO of WestLB 12 None Suite 4600 International Fund since Asset Management (USA) 90 South Seventh Street 1993 and since 1990 or LLC, 4/00 to present; Minneapolis, MN 55402 the Fund's inception if President of Forstmann- Age: 55 later for all other Funds. Leff International, Inc. from 1997 to 4/00. Melvin C. Bahle Director Director Emeritus since Director and/or officer 12 None Suite 4600 Emeritus 1995. of several foundations 90 South Seventh Street and charitable Minneapolis, MN 55402 organizations. Age: 84 INTERESTED DIRECTORS: Director and Director Chairman, CEO and CIO 12 None Eugene C. Sit(2) Chairman since inception. of Sit Investment Suite 4600 Associates, Inc. (the Minneapolis, MN 55402 "Adviser); and Sit/Kim 90 South Seventh Street International Investment Age: 64 Associates, Inc., ("Sit/Kim"); Director of SIA Securities Corp. (the "Distributor"); and Chairman and CEO of Sit Investment Fixed Income Advisors, Inc. ("SF")
62 - - ------------------------------------------------------------------------- - -[LOGO]
OTHER TERM OF OFFICE(1) NUMBER OF DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) FUNDS IN FUND COMPLEX HELD BY AND AGE HELD WITH FUND TIME SERVED DURING PAST FIVE YEARS OVERSEEN BY DIRECTOR DIRECTOR(4) William E. Frenzel(2) Director Director since 1991 or the Guest Scholar at the 12 None Suite 4600 Fund's inception if later. Brookings Institution 90 South Seventh Street and member of several Minneapolis, MN 55402 government policy Age: 74 committees, foundations and organizations. Advisory Director of the Adviser; Director of Sit/Kim and SF. OFFICERS: Vice Re-Elected by the Boards Director and President N/A N/A Peter L. Mitchelson Chairman annually; Officer since of the Adviser; Director Suite 4600 inception. and Executive Vice 90 South Seventh Street President of Sit/Kim; Minneapolis, MN 55402 Director of the Age: 62 Distributor; and Vice Chairman of SF. Director of the Sit Funds through 4/30/02. Roger J. Sit(3) Executive Re-Elected by the Boards Present: Executive Vice N/A N/A Suite 4600 Vice annually; Officer since President - Research and 90 South Seventh Street President 1998. Investment Management of Minneapolis, MN 55402 the Adviser; Director, Age: 41 President, COO and Deputy CIO of Sit/Kim. G. Todd Berkley Chief Re-Elected by the Boards COO of the Funds; Sr. N/A N/A Suite 4600 Operating annually; Officer since Vice President, US 90 South Seventh Street Officer 2002. Bancorp 12/00 to 2/01; Minneapolis, MN 55402 Vice President, US Bank Age: 41 5/95 to 12/99. Erik S. Anderson Vice Re-Elected by the Boards Vice President - Research N/A N/A Suite 4600 President - annually; Officer since and Investment Management 90 South Seventh Street Investments 1991. of the Adviser. Minneapolis, MN 55402 Age: 59 Ronald D. Sit(3) Vice Re-Elected by the Boards Vice President - Research N/A N/A Suite 4600 President - annually; Officer since and Investment Management 90 South Seventh Street Investments 1985. of the Adviser. Minneapolis, MN 55402 Age: 43
63 INFORMATION ABOUT DIRECTORS AND OFFICERS (CONTINUED) - - ------------------------------------------------------------------------- - -------
OTHER TERM OF OFFICE(1) NUMBER OF DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) FUNDS IN FUND COMPLEX HELD BY AND AGE HELD WITH FUND TIME SERVED DURING PAST FIVE YEARS OVERSEEN BY DIRECTOR DIRECTOR(4) Robert W. Sit(3) Vice Re-Elected by the Boards Vice President - Research N/A N/A Suite 4600 President - annually; Officer since and Investment Management 90 South Seventh Street Investments 1997. of the Adviser. Minneapolis, MN 55402 Age: 34 Bryce A. Doty Vice Re-Elected by the Boards Vice President and Fixed N/A N/A Suite 4600 President - annually; Officer since Income Portfolio Manager 90 South Seventh Street Investments. 1996. of SF. Minneapolis, MN 55402 Balanced Age: 36 Fund only. Michael P. Eckert Vice Re-Elected by the Boards Mutual Fund Institutional N/A N/A Suite 4600 President - annually; Officer since Client Group of Adviser 90 South Seventh Street Institutional 1989. Minneapolis, MN 55402 Client Age: 47 Group Paul E. Rasmussen Vice Re-Elected by the Boards Vice President, Secretary, N/A N/A Suite 4600 President annually; Officer since Controller and Chief 90 South Seventh Street and 1994. Compliance Officer of the Minneapolis, MN 55402 Treasurer Adviser; Vice President, Age: 42 Secretary, and Chief Compliance Officer of Sit/Kim and SF; President of the Distributor. Michael J. Radmer Secretary Re-Elected by the Boards Partner of the Funds' N/A N/A Suite 1500 annually; Officer since general counsel, Dorsey & 50 South Sixth Street 1984. Whitney, LLP Minneapolis, MN 55402 Age: 58 Carla J. Rose Vice Re-Elected by the Boards Vice President, N/A N/A Suite 4600 President, annually; Officer since Administration & Deputy 90 South Seventh Street Assistant 2000. Controller of the Minneapolis, MN 55402 Secretary & Adviser; Vice President, Age: 37 Assistant Administration and Treasurer Controller of Sit/Kim; Controller and Treasurer of SF. Kelly K. Boston Assistant Re-Elected by the Boards Staff Attorney of the N/A N/A Suite 4600 Secretary & annually; Officer since Adviser. 90 South Seventh Street Assistant 2000. Minneapolis, MN 55402 Treasurer Age: 34
64 - - ------------------------------------------------------------------------- - -[LOGO] (1) Each Director serves until his resignation, removal or the next meeting of the shareholders at which election of directors is an agenda item and until his successor is duly elected and shall qualify. (2) Directors who are deemed to be "interested person" of the Funds as that term is defined by the Investment Company Act of 1940. Mr. Sit is considered an "interested person" because he is an officer of Sit Investment Associates, Inc., the Fund's investment adviser. Mr. Frenzel is deemed to be an interested person because he is an advisory director and shareholder of the Fund's investment adviser. (3) Mr. Roger Sit, Mr. Ronald Sit, and Mr. Robert Sit are sons of Eugene C. Sit. (4) Includes only directorships of companies required to report under the Securities Exchange Act of 1934 (i.e. public companies) or other investment companies registered under the 1940 Act. 65 FEDERAL 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. ORDINARY FUND AND PAYABLE DATE INCOME(a) - - ---------------------- ------------ Balanced Fund October 8, 2002 $ 0.08431 December 10, 2002 0.07828 April 8, 2003 0.07618(b) July 8, 2003 0.06339(b) ------------ $ 0.30216(c) ============ (a) Includes distributions of short-term gains, if any, which are taxable as ordinary income. (b) Taxable as ordinary income, 35.81% qualifying for reduced dividend income tax rate for individuals. (c) Taxable as ordinary income, 32.27% qualifying for dividends-received deduction by corporations. 66 SIT MUTUAL FUNDS - - ------------------------------------------------------------------------- - -[LOGO] 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 $6.4 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds are comprised of twelve NO-LOAD funds. NO-LOAD means that Sit Mutual Funds have no sales charges on purchases, no deferred sales charges, no 12b-1 fees and 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 checkwriting 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 APPRECIATION AND INCOME MONEY MARKET U.S. GOVERNMENT BALANCED MID CAP GROWTH SECURITIES LARGE CAP GROWTH INTERNATIONAL GROWTH TAX-FREE INCOME SMALL CAP GROWTH MINNESOTA TAX-FREE SCIENCE AND INCOME TECHNOLOGY GROWTH BOND DEVELOPING MARKETS GROWTH 67 ANNUAL REPORT STOCK FUNDS Year Ended June 30, 2003 INVESTMENT ADVISER AUDITORS Sit Investment Associates, Inc. KPMG LLP 90 South Seventh Street, Suite 4600 90 South Seventh Street, Suite 4200 Minneapolis, MN 55402 Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 LEGAL COUNSEL DISTRIBUTOR Dorsey & Whitney LLP 220 South Sixth Street, Suite 1500 SIA Securities Corp. Minneapolis, MN 55402 90 South Seventh Street, Suite 4600 Minneapolis, MN 55402 612-334-5888 (Metro Area) INVESTMENT SUB-ADVISER 800-332-5580 (Developing Markets Growth Fund and CUSTODIAN International Growth Fund) Sit/Kim International Associates, Inc. The Northern Trust Company 90 South Seventh Street, Suite 4600 50 South LaSalle Street Minneapolis, MN 55402 Chicago, IL 60675 612-334-5888 (Metro Area) 800-332-5580 TRANSFER AGENT AND DISBURSING AGENT PFPC Inc. P.O. BOX 5166 Westboro, MA 01581-5166 [LOGO] SIT INVESTMENT ASSOCIATES ------------------------- SIT MUTUAL FUNDS Item 2: Code of Ethics. The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. A copy of the registrant's code of ethics is available without charge upon request by calling the registrant at 612-344-5888 or 1-800-332-5580, or by mail at Sit Mutual Funds, 4600 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402. Item 3: Audit Committee Financial Expert - the registrant's Board of Directors has determined that Mr. John E. Hulse is an audit committee financial expert serving on its audit committee. Mr. Hulse is independent for purposes of this item. Item 4: Principal Accountant Fees and Services - Not applicable to this Annual Report Items 5-6: Reserved. Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. - Not applicable Item 8: Reserved. Item 9: Controls and Procedures - (a) Based on their evaluation of the Registrant's Disclosure Controls and Procedures as of a date within 90 days of the Filing Date, the Registrant's Chairman and Treasurer have determined that the Disclosure Controls and Procedures (as defined in Rule 30a-2(c) under the Act) are designed to ensure that information required to be disclosed by the Registrant is recorded, processed, summarized and reported by the filing Date, and that information required to be disclosed in the report is communicated to the Registrant's management, as appropriate, to allow timely decisions regarding required disclosure. (b) There were no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses. Item 10: Exhibits: - Certifications required by Item 10(b) of Form N- CSR are filed herewith. (a) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. Not applicable. (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2). (c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIT MUTUAL FUNDS, INC. - -------------------------- By (Signature and Title)* /s/ Paul E. Rasmussen ------------------------ Paul E. Rasmussen Vice President Treasurer Date August 28, 2003 --------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIT MUTUAL FUNDS, INC. By (Signature and Title)* /s/ Eugene C. Sit ------------------------ Eugene C. Sit Chairman Date August 28, 2003 --------------------------------------------- EX-99.906 CERT 2 certs.txt EX-99.906.CERT ex99906cert-603.txt SECTION 906 CERTIFICATIONS CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Sit Mutual Funds, Inc., do hereby certify, to such officer's knowledge, that the report on Form N-CSR of Sit Mutual Funds, Inc. for the period ended April 30, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of Sit Mutual Funds, Inc. /s/ Eugene C. Sit /s/ Paul E. Rasmussen - ------------------------------------- ------------------------------------- Eugene C. Sit Paul E. Rasmussen Chairman VP Treasurer Sit Mutual Funds, Inc. Sit Mutual Funds, Inc. Dated: August 28, 2003 - ------------------ A signed original of this written statement required by Section 906 has been provided by Sit Mutual Funds, Inc. and will be retained by Sit Mutual funds, Inc. and furnished to the SEC or its staff upon request. EX-99.CERT 3 ncsrcert.txt EX-99.CERT ex99cert-603.txt CERTIFICATIONS FORM N-CSR CERTIFICATION I, Paul E. Rasmussen, certify that: 1. I have reviewed this report on Form N-CSR of Sit Mutual Funds, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 28, 2003 - --------------------- /s/ Paul E. Rasmussen - ----------------------------- Signature - Paul E. Rasmussen Vice President Treasurer FORM N-CSR CERTIFICATION I, Eugene C. Sit, certify that: 1. I have reviewed this report on Form N-CSR of Sit Mutual Funds, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 28, 2003 --------------------- /s/ Eugene C. Sit - ------------------------------- Signature - Eugene C. Sit Chairman -----END PRIVACY-ENHANCED MESSAGE-----