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) 3300 IDS Center 80 South Eighth Street Minneapolis, MN 55402 (Address of principal executive offices) Paul E. Rasmussen, VP Treasurer Sit Mutual Funds, Inc. 3300 IDS Center 80 South Eighth 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) 334-5888 Date of fiscal year end: June 30, 2004 Date of reporting period: June 30, 2004 Item 1: Reports to Stockholders 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: 811-03343 --------- Sit Large Cap Growth Fund, Inc. (Exact name of registrant as specified in charter) 3300 IDS Center 80 South Eighth Street Minneapolis, MN 55402 (Address of principal executive offices) Paul E. Rasmussen, VP Treasurer Sit Mutual Funds, Inc. 3300 IDS Center 80 South Eighth 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) 334-5888 Date of fiscal year end: June 30, 2004 Date of reporting period: June 30, 2004 Item 1: Reports to Stockholders 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: 811-03342 --------- Sit Mid Cap Growth Fund, Inc. (Exact name of registrant as specified in charter) 3300 IDS Center 80 South Eighth Street Minneapolis, Mn 55402 (Address of principal executive offices) Paul E. Rasmussen, VP Treasurer Sit Mutual Funds, Inc. 3300 IDS Center 80 South Eighth 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) 334-5888 Date of fiscal year end: June 30, 2004 Date of reporting period: June 30, 2004 Item 1: Reports to Stockholders SIT MUTUAL FUNDS STOCK FUNDS ANNUAL REPORT YEAR ENDED JUNE 30, 2004 A FAMILY OF NO-LOAD FUNDS ------------------------- BALANCED FUND DIVIDEND GROWTH 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 S I T M U T U A L F U N D S 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 Dividend Growth Fund 14 Large Cap Growth Fund 18 Mid Cap Growth Fund 22 International Growth Fund 26 Small Cap Growth Fund 30 Science and Technology Growth Fund 34 Developing Markets Growth Fund 38 Notes to Portfolios of Investments 42 Statements of Assets and Liabilities 44 Statements of Operations 46 Statements of Changes in Net Assets 48 Notes to Financial Statements 52 Financial Highlights 58 Report of Independent Registered Public Accounting Firm 66 Information About Directors and Officers 67 Federal Tax Information 70 Proxy Voting Policies and Procedures, Voting Record 71 A Look at Sit Mutual Funds 72 1 SIT MUTUAL FUNDS ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- CHAIRMAN'S LETTER Dear Fellow Shareholders: Although global equity markets are at significantly higher levels compared to this time last year, several headwinds have emerged in recent months that have served to limit gains thus far in 2004. We remain particularly optimistic on the outlook for growth stocks, as attractive valuations and the prospect of improving relative earnings growth support our positive outlook for the year ahead. ECONOMIC OVERVIEW The improvements in the U.S. economy that began in 2003 have proven to be sustainable thus far in 2004. Gross Domestic Product (GDP) increased +3.9% in the first quarter of 2004, driven by steady consumer spending and a continued recovery in business investment. Recent trends, though, point to a somewhat slower pace of growth in the second quarter of 2004, as data on consumer spending and the June labor report were both below consensus expectations. We do not believe, however, that the consumer sector is on the verge of a major downturn. Both key measures of consumer confidence (University of Michigan, Conference Board) were up strongly in June and, while the significant job growth took a pause in June, it remains on a clear uptrend, as 1.5 million jobs have been created over the past ten months. In addition to the underlying health of the consumer, virtually all signs point to ongoing improvement in the industrial economy, with statistics measuring industrial production continuing to post year-over-year gains, and the Institute for Supply Management's manufacturing Index still hovering near its recent highs. In short, it is our view that the economy continues on a path of sustained recovery, and we believe our estimate for GDP growth of approximately +4.0% in 2004 is achievable. On the list of key items we monitor, inflation is emerging as a potential concern. Based on evidence accumulating from a wide variety of pricing series, inflation appears to be accelerating beyond our expectations at the beginning of the year. The Consumer Price Index has risen steadily over the past several months, with the latest report for June showing a gain of +3.3% year-over-year. Energy and food prices have been the key culprits behind recent increases, however our analysis points to a broadening of inflation pressures beyond these two key areas. Although all signals from the Federal Reserve point to their desire to increase federal funds rate at a measured pace (which began with a 25 basis point increase on June 30th), this gradual approach is only realistic if inflation measures do not accelerate unexpectedly from here. While the outcome of the presidential election remains a "jump ball" at the moment, the impact on the country's fiscal policy and direction is hard to gauge. Regardless, it is difficult to be optimistic about the direction of the federal deficit. A key goal of President Bush is to make permanent the tax cut measures passed over the last three years. This, all else equal, would add to deficit concerns. Senator Kerry's economic agenda includes selective increases in income taxes, along with potentially costly initiatives to subsidize employer-provided insurance, expansion of Medicaid to pay for uncovered children, and provision of tax credits for small businesses' health insurance coverage. In short, while the strong economy is currently resulting in a modest improvement in the budget deficit, the intermediate- to longer-term outlook appears destined to stagnate or potentially worsen under the burden of expanded programs or constrained receipts. EQUITY STRATEGY SUMMARY While the first six months of 2004 have given way to a more challenging equity market compared to 2003, we believe that equities remain attractively priced based on our expectations for sustained earnings growth over the intermediate term. Stocks have recently struggled to gain ground as investors have been confronted by a number of uncertainties over the past several months, including the extent of interest rate increases, decelerating earnings growth for the broader mar- 2 ket, the transfer of power in Iraq, higher energy prices, and the outcome of the upcoming presidential election. While it is difficult to gauge precisely the longer-term direction of each of these concerns, history has consistently shown that buying opportunities emerge as markets eventually discount the risks associated with such uncertainties. Although the market is not truly "cheap" based on most valuation metrics, we believe that there continue to be many opportunities in selected stocks and industry groups that have strong fundamentals and reasonable valuations, therefore suggesting long-term appreciation potential. Importantly, we believe that economic and market conditions are quite supportive for improving relative performance for growth stocks. In an environment of decelerating earnings momentum and modestly contracting valuations for stocks (due to rising interest rates), we believe that investors will be increasingly focused on identifying the companies and sectors that are likely to post strong and consistent earnings gains, particularly as the current economic recovery matures. In this regard, we believe that it is appropriate to maintain a substantial sector weight in the technology and healthcare related sectors, given the favorable cyclical and secular growth prospects in both areas. At the same time, since the capital spending cycle appears to be in the early innings and consumer incomes are rising, portfolios remain well diversified as growth opportunities have emerged in a broad range of industry sectors (i.e., capital goods, retail, transportation etc.) outside of traditional growth groups. In addition, each cycle offers unique opportunities. For example, we believe that the outlook for the energy sector is stronger than any time in the past twenty years. Rising global demand, particularly from China, significant under-capacity in production and refining, and high barriers to entry offer the sector unusual growth opportunities. Conversely, we have taken steps to reduce our exposure to the financial sector, given the interest rate sensitivity of many key businesses, until the impact of the current interest rate upcycle has more fully played out. Most international markets have been weighed down by some of the same factors influencing the U.S. A key issue that we are monitoring relates to the Chinese economy and policymakers' ability to engineer a moderate slowdown from the torrid pace of the past few quarters. Asia remains our preferred region, and we have recently increased the weight in Japan as economic conditions continue to improve. Sluggish economic growth in Europe has led us to maintain an underweighted position in the region. We have increased our weightings in Canada significantly, largely based on our positive view on energy. Our research team remains dedicated to identifying the strongest growth opportunities around the world, with the goal of helping your investment grow now and in the future. 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, 2004 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY AND STOCK FUNDS MARKET REVIEW Domestic equity returns posted broad-based gains over the past twelve months, as every major index we monitor posted double-digit gains during the period. Small and mid-capitalization stocks once again posted strong returns in both absolute terms and relative to larger issues. Over the past twelve months, the S&P MidCap 400 Index and the Russell 2000 Index rose +28.0% and +33.4%, respectively, while the S&P 500 Index gained +19.1%. With uncertainty weighing on the market more recently, however, large capitalization stocks outperformed smaller issues in the most recent quarter, reversing the trend of prior quarters. Although both growth and value indices were up sharply over the past twelve months, value stocks edged growth issues in each capitalization style. For example, the Russell 1000 Value Index increased +21.1%, outperforming the Russell 1000 Growth Index return of +17.9%. In reviewing sector performance for the past year, the overriding theme was that sectors most tied to the improving industrial economy outperformed the less economically sensitive groups. Within the S&P 500 Index, the strongest sectors included consumer durables, energy minerals, producer manufacturing, electronic technology and non-energy minerals. We estimate that each of these sectors gained +25.0% or more. The relatively weaker groups included less cyclical areas such as health technology, consumer services and communications. The strong performance of the technology sector was the primary factor driving the NASDAQ OTC Composite, which gained +26.2%. Despite achieving strong absolute returns over the past year, the broad U.S. stock market fared relatively poorly in international comparisons, largely due to the weakness of the U.S. dollar. The MSCI World Index gained +24.0%, with the U.S. component up only +18.1%. The MSCI Europe Index increased +28.9% over the period. The MSCI Pacific Index rose +41.1%, led by the Japan component (+46.2%). TOTAL RETURN - CALENDAR YEAR 1992 1993 1994 ------- ------- ------- SIT BALANCED -- -- -0.33% - -------------------------------------------------------------------------------- SIT DIVIDEND GROWTH FUND - -------------------------------------------------------------------------------- SIT LARGE CAP GROWTH 4.94% 3.15% 2.83 - -------------------------------------------------------------------------------- SIT MID CAP GROWTH(1) -2.14 8.55 -0.47 - -------------------------------------------------------------------------------- SIT INTERNATIONAL GROWTH(2) 2.69 48.37 -2.99 - -------------------------------------------------------------------------------- SIT SMALL CAP GROWTH(1) -- -- 11.57(4) - -------------------------------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY GROWTH(3) -- -- -- - -------------------------------------------------------------------------------- SIT DEVELOPING MARKETS GROWTH(2) -- -- -2.02(4) - -------------------------------------------------------------------------------- S&P 500 INDEX 7.64 10.07 1.32 S&P MIDCAP 400 INDEX 11.92 13.95 -3.60 MSCI EAFE INDEX -12.17 32.56 7.78 RUSSELL 2000 INDEX -- -- 4.61 MSCI EMERGING MARKETS INDEX -- -- 2.80 NASDAQ SYMBOL INCEPTION SIT BALANCED SIBAX 12/31/93 - -------------------------------------------------------------------------------- DIVIDEND GROWTH FUND SDVGX 12/31/03 - -------------------------------------------------------------------------------- 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 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 TOTAL RETURN - CALENDAR YEAR YTD 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - -------------------------------------------------------------------------------------------------------- 25.43% 15.80% 21.73% 21.30% 20.15% -4.80% -12.99% -18.59% 19.20% 3.49% - -------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- -- -- 1.75 - -------------------------------------------------------------------------------------------------------- 31.66 23.05 31.70 30.56 33.41 -13.84 -27.70 -30.58 26.34 5.79 - -------------------------------------------------------------------------------------------------------- 33.64 21.87 17.70 6.84 70.65 -4.35 -33.39 -34.64 38.51 8.14 - -------------------------------------------------------------------------------------------------------- 9.36 10.31 4.81 18.95 50.77 -26.66 -33.26 -29.84 28.70 0.36 - -------------------------------------------------------------------------------------------------------- 52.16 14.97 7.63 1.97 108.63 6.25 -28.19 -26.22 34.57 1.04 - -------------------------------------------------------------------------------------------------------- -- -- -- 38.40 85.98 -6.55 -47.78 -44.45 40.09 5.81 - -------------------------------------------------------------------------------------------------------- -4.29 17.27 -5.20 -24.93 82.50 -30.18 -12.01 -18.37 45.96 -4.17 - -------------------------------------------------------------------------------------------------------- 37.58 22.96 33.36 28.58 21.04 -9.11 -11.88 -22.10 28.68 3.44 30.94 19.19 32.29 19.11 14.72 17.50 -0.61 -14.52 35.62 6.09 11.21 6.05 1.78 20.00 26.96 -14.17 -21.44 -15.94 38.59 4.56 28.45 16.49 22.36 -2.54 21.26 -3.02 2.49 -20.48 47.25 6.76 -6.94 3.92 -13.40 -27.52 63.70 -31.80 -4.91 -7.97 51.59 -2.39 AVERAGE ANNUAL TOTAL RETURNS FOR THE TOTAL RETURN PERIODS ENDED JUNE 30, 2004 QUARTER SIX MONTHS SINCE ENDED 6/30/04 ENDED 6/30/04 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION 0.05% 3.49% 12.53% -1.08% -1.04% 8.39% 7.49% - ----------------------------------------------------------------------------------------------- 0.25 1.75 -- -- -- -- 1.75* - ----------------------------------------------------------------------------------------------- 1.43 5.79 18.81 -6.09 -6.63 8.69 11.14 - ----------------------------------------------------------------------------------------------- 1.89 8.14 26.92 -5.46 -1.08 9.50 13.69 - ----------------------------------------------------------------------------------------------- -2.85 0.36 20.63 -8.13 -8.05 0.27 3.51 - ----------------------------------------------------------------------------------------------- -2.01 1.04 16.87 -4.40 7.07 -- 13.08 - ----------------------------------------------------------------------------------------------- 2.98 5.81 24.47 -12.99 -7.45 -- 0.52 - ----------------------------------------------------------------------------------------------- -9.10 -4.17 22.48 2.75 -0.07 -- 0.02 - ----------------------------------------------------------------------------------------------- 1.72 3.44 19.11 -0.70 -2.21 11.83 13.92 0.97 6.09 27.98 6.58 9.05 15.47 16.55 0.22 4.56 32.37 3.87 0.06 4.06 5.15 0.47 6.76 33.37 6.24 6.63 -- 10.89 -10.34 -2.39 29.91 10.21 0.87 -- -1.03 (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. (*) FUND'S INCEPTION DATE WAS DECEMBER 31, 2003. 5 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2003 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, 2003. 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). Indices reflect no deduction for fees, expenses, or taxes. - ------------------------------------------------------------------------------------------------------- SIT BALANCED FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 19.2% -0.7% 7.5% Return After Taxes on Distributions 18.6% -1.8% 6.1% Return After Taxes on Distributions and Sale of Fund Shares 16.0% -1.1% 5.8% Lehman Aggregate Bond Index 4.1% 6.6% 7.0% S&P 500 Index 28.7% -0.6% 11.1% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- SIT LARGE CAP GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 26.3% -6.1% 7.6% Return After Taxes on Distributions 26.3% -6.7% 6.3% Return After Taxes on Distributions and Sale of Fund Shares 22.4% -5.0% 6.3% S&P 500 Index 28.7% -0.6% 11.1% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- SIT MID CAP GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 38.5% -0.3% 7.2% Return After Taxes on Distributions 38.5% -1.4% 4.9% Return After Taxes on Distributions and Sale of Fund Shares 32.7% -0.1% 5.6% S&P MidCap 400 Index 35.6% 9.2% 13.9% - ------------------------------------------------------------------------------------------------------- 6 - ------------------------------------------------------------------------------------------------------------ SIT INTERNATIONAL GROWTH FUND 1 YEAR 5 YEARS 10 YEARS Return Before Taxes 28.7% -7.8% -0.3% Return After Taxes on Distributions 28.6% -8.2% -1.0% Return After Taxes on Distributions and Sale of Fund Shares 24.4% -6.4% -0.4% MSCI EAFE Index 38.6% -0.1% 4.5% - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ SIT SMALL CAP GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes 34.6% 9.6% 13.7% Return After Taxes on Distributions 34.6% 9.5% 12.9% Return After Taxes on Distributions and Sale of Fund Shares 29.4% 8.4% 11.9% Russell 2000 Index 47.3% 7.1% 10.7% - ------------------------------------------------------------------------------------------------------------ *Inception date 7/1/94. - ------------------------------------------------------------------------------------------------------------ SIT SCIENCE AND TECHNOLOGY GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes 40.1% -6.7% -0.4% Return After Taxes on Distributions 40.1% -6.8% -0.5% Return After Taxes on Distributions and Sale of Fund Shares 34.1% -5.5% -0.2% S&P 500 Index 28.7% -0.6% 3.8% - ------------------------------------------------------------------------------------------------------------ *Inception date 12/31/97. - ------------------------------------------------------------------------------------------------------------ SIT DEVELOPING MARKETS GROWTH FUND 1 YEAR 5 YEARS SINCE INCEPTION* Return Before Taxes 46.0% 6.0% 0.5% Return After Taxes on Distributions 45.8% 5.9% 0.4% Return After Taxes on Distributions and Sale of Fund Shares 39.1% 5.2% 0.4% MSCI Emerging Markets Free Index 51.6% 8.2% -0.8% - ------------------------------------------------------------------------------------------------------------ *Inception date 7/1/94. NOTES: (1) After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact on state and local taxes. (2) Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. (3) Indices reflect no deduction for fees, expenses, or taxes. 7 SIT BALANCED FUND ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- PETER L. MITCHELSON, CFA, SENIOR PORTFOLIO MANAGER BRYCE A. DOTY, CFA, SENIOR PORTFOLIO MANAGER The Sit Balanced Fund's twelve-month return was +12.53%, largely reflecting strong equity markets during the second half of 2003. The S&P 500 Index return was +19.11% over the period, while the Lehman Aggregate Bond Index increased +0.32%. The strong rebound in the U.S. economy was the key factor driving equity markets higher over the last twelve months. While we remain positive on the outlook for stocks, it is clear that the tailwinds helping equities - particularly low interest rates and accelerating earnings - are now reversing. While this may limit the upside potential for equities over the intermediate term, we believe that the prospects for strong relative performance for growth stocks are enhanced in this environment. Strong relative earnings gains from growth stocks stand out as earnings for the broad market decelerate, which have historically led to the growth style outperforming value in similar periods. Our current sector allocations reflect this focus on earnings growth, with the most heavily-weighted sectors being electronic technology, health technology and technology services. We continue to maintain a relatively defensive stance in the fixed income portion of the Fund. While interest rates have stayed low for longer than many had predicted, we believe that the tide has turned over the past several months, largely due to signs of higher inflation and a strong uptick in the labor market. The Federal Reserve acknowledged the changing environment by increasing the target federal funds rate by 25 basis points to 1.25% on June 30th. Our strategy for "playing defense" in this setting includes a focus on securities that provide high levels of income and maintaining a relatively short duration. Based on the stronger return potential for equities, we believe it remains prudent to maintain an above average allocation to stocks. As of June 30th, the asset allocation of the Fund was 65% equities, 32% fixed-income, and 3% cash. We will continue to emphasize high quality securities in each asset class within the Fund, and we appreciate shareholders' continued interest. - -------------------------------------------------------------------------------- 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 6/30/04: $13.80 PerShare 6/30/03: $12.47 PerShare Total Net Assets: $12.4 Million - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Cash & Other Net Assets 2.9% Bonds 31.7% Equities 65.4% 8 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX ---- --------- ---------- 3 Month** 0.05% 1.72% -2.44% 6 Month** 3.49 3.44 0.15 1 Year 12.53 19.11 0.32 5 Years -1.04 -2.21 6.95 10 Years 8.39 11.83 7.39 Inception 7.49 10.86 6.62 (12/31/93) - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT LEHMAN BALANCED S&P AGGREGATE FUND 500 INDEX BOND INDEX ---- --------- ---------- 1 Year 12.53% 19.11% 0.32% 5 Years -5.09 -10.55 39.93 10 Years 123.86 205.80 103.94 Inception 113.64 195.44 96.05 (12/31/93) *AS OF 6/30/04 **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 - -------------------------------------------------------------------------------- The sum of $10,000 invested at inception (12/31/93) and held until 6/30/04 would have grown to $21,364 in the Fund, $19,605 in the Lehman Aggregate Bond Index or $29,544 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP HOLDINGS Stocks * Citigroup, Inc. * Target Corp. * Cisco Systems, Inc. * Microsoft Corp. * Pfizer, Inc. Bonds * Northwest Airlines Corp., 8.07%, 10/1/19 * American Strategic Income Portfolio II * Prologis Trust, 7.625%, 7/1/17 * FNMA, 7.00%, 10/1/11 * GNMA, 7.00%, 7/15/23 Total Number of Holdings: 126 9 SIT BALANCED FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 - -------------------------------------------------------------------------------- QUANTITY Name of Issuer MARKET VALUE($)(1) - -------------------------------------------------------------------------------- COMMON STOCKS (65.4%) (2) COMMERCIAL SERVICES (0.6%) 1,000 Omnicom Group, Inc. 75,890 ------------- COMMUNICATIONS (2.7%) 4,300 Nextel Communications, Inc. (3) 114,638 3,900 Sprint Corp. - FON Group 68,640 6,900 Vodafone Group, A.D.R. 152,490 ------------- 335,768 ------------- CONSUMER DURABLES (0.9%) 2,000 Electronic Arts, Inc. (3) 109,100 ------------- CONSUMER NON-DURABLES (2.9%) 3,700 PepsiCo, Inc. 199,356 3,000 The Procter & Gamble Co. 163,320 ------------- 362,676 ------------- CONSUMER SERVICES (3.9%) 2,600 Comcast Corp. (3) 72,878 1,500 Harrah's Entertainment, Inc. 81,150 3,400 International Game Technology 131,240 5,360 Liberty Media Group (3) 48,186 500 Royal Caribbean Cruises, Ltd. 21,705 2,300 Time Warner, Inc. (3) 40,434 2,500 Viacom, Inc. 89,300 ------------- 484,893 ------------- ELECTRONIC TECHNOLOGY (10.1%) 4,200 Analog Devices, Inc. 197,736 5,100 Applied Materials, Inc. (3) 100,062 10,600 Cisco Systems, Inc. (3) 251,220 3,600 Dell Computer Corp. (3) 128,952 6,700 EMC Corp. (3) 76,380 6,000 Intel Corp. 165,600 3,000 Jabil Circuit, Inc. (3) 75,540 2,800 Juniper Networks, Inc. (3) 68,796 4,600 Nokia Corp., A.D.R. 66,884 1,800 Qualcomm, Inc. 131,364 ------------- 1,262,534 ------------- ENERGY MINERALS (5.0%) 1,300 ConocoPhillips Co. 99,177 1,200 Murphy Oil Corp. 88,440 2,300 Occidental Petroleum Corp. 111,343 4,000 Suncor Energy, Inc. 102,440 1,800 Valero Energy Corp. 132,768 2,800 XTO Energy, Inc. 83,412 ------------- 617,580 ------------- - -------------------------------------------------------------------------------- QUANTITY Name of Issuer MARKET VALUE($)(1) - -------------------------------------------------------------------------------- FINANCE (6.6%) 2,321 American International Group, Inc. 165,441 6,166 Citigroup, Inc. 286,719 2,300 Franklin Resources, Inc. 115,184 1,300 Goldman Sachs Group, Inc. 122,408 2,300 Wells Fargo Co. 131,629 ------------- 821,381 ------------- HEALTH SERVICES (1.6%) 3,200 UnitedHealth Group, Inc. 199,200 ------------- HEALTH TECHNOLOGY (10.0%) 3,300 Amgen, Inc. (3) 180,081 2,500 Boston Scientific Corp. (3) 107,000 6,300 Elan Corp., A.D.R. (3) 155,862 1,800 Eli Lilly and Co. 125,838 1,900 Genentech, Inc. (3) 106,780 1,400 Gilead Sciences, Inc. (3) 93,800 1,600 Johnson & Johnson 89,120 1,300 Medtronic, Inc. 63,336 6,755 Pfizer, Inc. 231,561 1,300 Teva Pharmaceutical, Ltd., A.D.R. 87,477 ------------- 1,240,855 ------------- INDUSTRIAL SERVICES (0.8%) 1,600 Schlumberger Ltd. 101,616 ------------- PRODUCER MANUFACTURING (6.3%) 1,400 Caterpillar, Inc. 111,216 2,800 Danaher Corp. 145,180 800 Eaton Corp. 51,792 6,700 General Electric Co. 217,080 1,600 ITT Industries, Inc. 132,800 1,400 3M Co. 126,014 ------------- 784,082 ------------- RETAIL TRADE (5.8%) 2,500 Best Buy Co., Inc. 126,850 500 eBay, Inc. (3) 45,975 2,400 J.C. Penney Co., Inc. 90,624 3,800 Lowe's Companies, Inc. 199,690 6,200 Target Corp. 263,314 ------------- 726,453 ------------- TECHNOLOGY SERVICES (7.5%) 1,300 Adobe Systems, Inc. 60,450 3,100 Check Point Software Technology (3) 83,669 2,200 First Data Corp. 97,944 8,600 Microsoft Corp. 245,616 2,100 SAP AG 87,801 2,700 Symantec Corp. (3) 118,206 3,600 Veritas Software Corp. (3) 99,720 3,700 Yahoo!, Inc. (3) 134,421 ------------- 927,827 ------------- 10 - -------------------------------------------------------------------------------- QUANTITY/PAR($) Name of Issuer MARKET VALUE($)(1) - -------------------------------------------------------------------------------- TRANSPORTATION (0.7%) 1,200 United Parcel Service, Inc. 90,204 ------------- Total common stocks 8,140,059 (cost: $7,311,296) ------------- BONDS (28.5%) (2) ASSET-BACKED SECURITIES (3.8%) 117,444 Advanta Mortgage Loan Trust, 1999-3 A4, 7.75%, 10/25/26 122,745 75,663 Conseco Mfg. Housing Series 2002, 6.03%, 3/1/33 76,177 Green Tree Financial Corp.: 11,981 1995-5, 7.25%, 9/15/26 12,490 117,554 1999-4, 6.97%, 5/1/31 121,708 84,924 Green Tree Home Equity Loan Trust, 1999-D A5, 7.88%, 9/15/30 86,293 50,000 Origen Mfg. Housing Series 2001A, 7.08%, 3/15/32 51,115 ------------- 470,528 ------------- COLLATERALIZED MORTGAGE OBLIGATIONS (1.5%) Washington Mutual Mtg. Pass-Through: 70,719 Series 2002-S8, 5.25%, 1/25/18 71,820 115,180 Series 2003-MS5, 5.00%, 3/25/18 114,554 ------------- 186,374 ------------- CORPORATE BONDS (10.8%) 100,000 Academica Charter School, 8.00%, 8/15/24 99,065 Continental Airlines: 84,645 Series 2000-2 A1, 7.71%, 4/2/21 82,438 85,423 Series 2001-1B, 7.37%, 12/15/15 68,293 100,000 CSX Corp., 7.90%, 5/1/17 116,518 84,000 Dow Capital BV, 8.70%, 5/15/22 86,267 50,000 Everest Reins. Hldgs., 8.75%, 3/15/10 59,539 100,000 General Motors Corp., Series 1991, 8.80%, 3/1/21 109,612 100,000 McDonald's Corp., 7.31%, 9/15/27 105,505 100,000 NB Capital Trust IV (Bank of America), 8.25%, 4/15/27 110,883 208,230 Northwest Airlines Corp., 8.07%, 10/1/19 222,745 150,000 Prologis Trust, 7.625%, 7/1/17 172,947 100,000 Virginia Electric & Power, 8.25%, 3/1/25 106,511 ------------- 1,340,323 ------------- FEDERAL HOME LOAN MORTGAGE CORPORATION (1.6%) 68,458 8.38%, 5/17/20 74,755 87,691 8.50%, 10/1/30 94,883 6,135 9.00%, 7/1/16 6,869 20,528 9.00%, 7/1/16 22,984 ------------- 199,491 ------------- - -------------------------------------------------------------------------------- QUANTITY/PAR($) Name of Issuer MARKET VALUE($)(1) - -------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION (5.4%) 23,427 7.00%, 3/1/07 24,148 148,645 7.00%, 10/1/11 157,893 49,166 7.50%, 6/1/32 53,072 45,409 8.00%, 7/1/26 49,676 46,834 8.00%, 12/1/27 51,355 74,333 8.46%, 4/15/26 82,677 46,866 9.00%, 6/1/27 52,532 70,121 9.50%, 5/1/27 78,626 19,572 9.75%, 1/15/13 21,538 2,396 10.00%, 1/1/20 2,678 63,696 10.00%, 7/1/26 71,000 21,656 10.25%, 6/15/13 23,996 ------------- 669,191 ------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (3.7%) 136,666 7.00%, 7/15/23 145,948 95,055 7.50%, 7/15/23 102,974 6,806 9.00%, 6/15/11 7,655 18,637 9.00%, 6/15/09 20,362 28,891 9.00%, 11/15/16 32,437 1,109 9.50%, 11/15/04 1,121 3,565 9.50%, 7/20/05 3,661 3,141 9.50%, 5/20/16 3,529 63,516 9.50%, 9/15/30 71,595 10,980 9.50%, 9/20/18 12,362 13,593 9.50%, 2/20/19 15,304 7,403 9.75%, 10/15/05 7,647 29,196 10.00%, 3/20/16 32,433 2,603 11.25%, 10/15/11 2,958 ------------- 459,986 ------------- TAXABLE MUNICIPAL SECURITIES (1.0%) 10,000 Bernalillo Multifamily. Series 1998A, 7.50%, 9/20/20 10,897 69,000 CA Rural Home Mtg. Fin. Auth. Rev. Series 2003A, 5.25%, 12/1/24 69,388 55,550 Tobacco Settlement Series 2001A, 7.67%, 5/15/16 52,646 ------------- 132,931 ------------- U.S. GOVERNMENT SECURITIES (0.7%) 330,000 U.S. Treasury Strip, Zero Coupon, 5.64% Effective Yield, 11/15/27 88,924 ------------- Total bonds 3,547,748 (cost: $3,537,580) ------------- See accompanying notes to portfolios of investments on page 42. 11 SIT BALANCED FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 - -------------------------------------------------------------------------------- QUANTITY/PAR($) Name of Issuer MARKET VALUE($)(1) - -------------------------------------------------------------------------------- CLOSED-END MUTUAL FUNDS (3.2%) (2) 6,009 American Select Portfolio 75,533 403 American Strategic, Inc. Portfolio 4,993 15,470 American Strategic, Inc. Portfolio II 196,778 10,609 American Strategic, Inc. Portfolio III 125,398 ------------- Total closed-end mutual funds 402,702 ------------- (cost: $368,185) SHORT-TERM SECURITIES (2.3%) (2) 283,000 Sit Money Market Fund, 0.65% (4) 283,000 ------------- (cost: $283,000) Total investments in securities (cost: $11,500,061) (5) $12,373,509 ============= 12 See accompanying notes to portfolios of investments on page 42. This page has been left blank intentionally. 13 SIT DIVIDEND GROWTH FUND PERIOD ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- EQUITY MANAGEMENT TEAM The Sit Dividend Growth Fund posted a +1.75% return for the first six months of 2004, compared to the +3.44% return for the S&P 500 Index. The Fund's inception date was December 31, 2003. We are pleased to provide an update on the newest equity Fund within the Sit family of mutual funds, the Sit Dividend Growth Fund. The first six months of 2004 have given way to a more challenging equity market compared to 2003 as investors have been confronted by a number of uncertainties, including the extent of interest rate increases, decelerating earnings growth for the broader market, higher energy prices, and the outcome of the upcoming presidential election. Although these factors will likely limit the overall market's upside over the near- to intermediate-term, the uncertainty has recently led to a shift in market psychology away from high risk, high beta stocks to larger cap, higher quality stocks that tend to be emphasized in the Fund. A somewhat less robust profit outlook, combined with the exceptional balance sheets for many U.S. companies, is likely to motivate corporate management teams to return capital to shareholders through dividend increases. This encouraging trend has been witnessed in the Fund during the first six months of 2004, as over half of the companies held in the Fund have announced dividend increases, with a +13% average increase. While the Fund's performance for the first half of 2004 has lagged that of the S&P 500 Index, it is important to note that most of the differential was due to the impact of cash reserves, as inflows were concentrated during the market's advance in early January. In addition to this impact, the Fund's performance was also hurt by holdings in the pharmaceutical industry, as several key holdings (Bristol-Myers Squibb, Merck, Pfizer) continue to be pressured by concerns over patent expirations. On the positive side, the Fund benefited from an overweighted position in the energy sector, along with strong stock selections in utilities, transportation, and process industries. The key attributes of the Fund's holdings have not changed from its inception. Relative to the S&P 500 Index, the Fund has a significantly higher dividend yield than the S&P 500 Index, a lower P/E ratio and a lower projected beta. Based on valuations and the prospects for earnings and dividend growth, the Fund's key sector overweights include producer manufacturing, energy and utilities, with underweights in electronic technology and technology services. - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE AND STRATEGY - -------------------------------------------------------------------------------- The objective of the Dividend Growth Fund is to provide current income that exceeds the dividend yield of the S&P 500 Index and that grows over a period of years. Secondarily, the Fund seeks long-term capital appreciation. The Fund seeks to achieve its objectives by investing, under normal market conditions, at least 80% of its net assets in dividend-paying common stocks. The Fund may invest the balance of its assets in preferred stocks, convertible bonds, and U.S. Treasury securities. - -------------------------------------------------------------------------------- PORTFOLIO SUMMARY - -------------------------------------------------------------------------------- Net Asset Value 6/30/04: $10.14 PerShare 6/30/03: n/a Total Net Assets: $6.9 Million Weighted Average Market Cap: $59.6 Billion - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Finance 18.0 Producer Manufacturing 13.8 Energy Minerals 11.4 Consumer Non-Durables 9.2 Health Technology 9.0 Utilities 6.4 Industrial Services 5.2 Sectors less than 5.0% 21.5 Cash & Other Net Assets 5.5 14 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT DIVIDEND S&P GROWTH FUND 500 INDEX ----------- --------- 3 Month** 0.25% 1.72% 6 Month** 1.75 3.44 1 Year n/a n/a 3 Years n/a n/a 5 Years n/a n/a Inception 1.75** 3.44** (12/31/03) - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT DIVIDEND S&P GROWTH FUND 500 INDEX ----------- --------- 1 Year n/a n/a 3 Years n/a n/a 5 Years n/a n/a Inception 1.75% 3.44% (12/31/03) - -------------------------------------------------------------------------------- *As of 6/30/04 **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 - -------------------------------------------------------------------------------- The sum of $10,000 invested at inception (12/31/03) and held until 6/30/04 would have grown to $10,175 in the Fund or $10,344 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * General Electric Co. * Wells Fargo Co. * BP p.l.c., A.D.R. * Tortoise Energy Infrastructure Corp. * Citigroup, Inc. * Merck & Co., Inc. * Kinder Morgan, Inc. * Equitable Resources, Inc. * Proctor & Gamble Co. * Pfizer, Inc. Total Number of Holdings: 61 15 SIT DIVIDEND GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 - -------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------- COMMON STOCKS (91.8%) (2) COMMERCIAL SERVICES (0.9%) 850 McGraw-Hill Companies, Inc. 65,085 --------------- COMMUNICATIONS (1.1%) 3,500 Vodafone Group, A.D.R. 77,350 --------------- CONSUMER DURABLES (2.9%) 800 Briggs & Stratton Corp. 70,680 1,200 CLARCOR, Inc. 54,960 1,500 Polaris Industries, Inc. 72,000 --------------- 197,640 --------------- CONSUMER NON-DURABLES (9.2%) 2,000 Diageo p.l.c. 109,500 2,400 General Mills, Inc. 114,072 1,800 Kimberly-Clark Corp. 118,584 2,500 PepsiCo, Inc. 134,700 2,900 Procter & Gamble Co. 157,876 --------------- 634,732 --------------- CONSUMER SERVICES (2.4%) 2,000 H&R Block, Inc. 95,360 1,800 International Game Technology 69,480 --------------- 164,840 --------------- ELECTRONIC TECHNOLOGY (3.1%) 5,500 Hewlett-Packard Co. 116,050 6,500 Nokia Corp., A.D.R. 94,510 --------------- 210,560 --------------- ENERGY MINERALS (11.4%) 3,800 BP p.l.c. , A.D.R. 203,566 6,500 Hugoton Royalty Trust 148,590 3,950 Marathon Oil Corp. 149,468 3,000 Occidental Petroleum Corp. 145,230 1,400 Total S.A. 134,512 --------------- 781,366 --------------- FINANCE (18.0%) 2,000 AMB Property Corp. 69,260 3,900 Citigroup, Inc. 181,350 1,400 Commerce Group, Inc. 69,118 2,650 General Growth Properties, Inc. 78,360 2,050 J.P. Morgan Chase & Co. 79,478 1,400 Lincoln National Corp. 66,150 1,100 Mercury General Corp. 54,615 2,700 Montpelier Re Holdings, Ltd. 94,365 2,266 New York Community Bancorp, Inc. 44,482 3,000 Prudential Financial, Inc. 139,410 2,950 U.S. Bancorp 81,302 3,200 Waddell & Reed Financial, Inc. 70,752 3,600 Wells Fargo Co. 206,028 --------------- 1,234,670 --------------- - -------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------- HEALTH TECHNOLOGY (9.0%) 1,200 Abbott Laboratories 48,912 6,000 Bristol-Myers Squibb Co. 147,000 1,450 Eli Lilly and Co. 101,369 3,600 Merck & Co., Inc. 171,000 4,400 Pfizer, Inc. 150,832 --------------- 619,113 --------------- INDUSTRIAL SERVICES (2.5%) 2,850 Kinder Morgan, Inc. 168,976 --------------- PROCESS INDUSTRIES (4.7%) 3,600 Bemis Company, Inc. 101,700 3,600 Pall Corp. 94,284 3,000 Sherwin-Williams Co. 124,650 --------------- 320,634 --------------- PRODUCER MANUFACTURING (13.8%) 3,250 American Power Conversion Corp. 63,863 1,300 Caterpillar, Inc. 103,272 1,200 Dover Corp. 50,520 7,300 General Electric Co. 236,520 2,100 IDEX Corp. 72,135 1,050 Illinois Tool Works, Inc. 100,684 1,100 ITT Industries, Inc. 91,300 1,000 United Technologies Corp. 91,480 1,550 3M Co. 139,516 --------------- 949,290 --------------- RETAIL TRADE (2.2%) 5,450 Limited Brands 101,915 2,850 Pier 1 Imports, Inc. 50,417 --------------- 152,332 --------------- TRANSPORTATION (4.2%) 1,600 C.H. Robinson Worldwide, Inc. 73,344 2,200 Tsakos Energy Navigation, Ltd. 74,712 1,850 United Parcel Service, Inc. 139,065 --------------- 287,121 --------------- UTILITIES (6.4%) 1,500 Entergy Corp. 84,015 3,200 Equitable Resources, Inc. 165,472 3,600 MDU Resources Group, Inc. 86,508 2,400 South Jersey Industries, Inc. 105,600 --------------- 441,595 --------------- Total common stocks 6,305,304 (cost: $6,167,943) --------------- 16 - -------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - -------------------------------------------------------------------- CLOSED-END MUTUAL FUND (2.7%) (2) 8,200 Tortoise Energy Infrastructure Corp. 187,698 --------------- (cost: $202,875) SHORT-TERM SECURITIES (7.9%) (2) 546,000 Sit Money Market Fund, 0.65% (4) 546,000 --------------- (cost: $546,000) Total investments in securities (cost: $6,916,818) $7,039,002 =============== See accompanying notes to portfolios of investments on page 42. 17 SIT LARGE CAP GROWTH FUND ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS PETER L. MITCHELSON, CFA * ROGER J. SIT * RONALD D. SIT, CFA The Sit Large Cap Growth Fund's one-year return was +18.81%, compared to the +19.11% return for the S&P 500 Index. The Russell 1000 Growth Index return for the period was +17.89% Equity markets have rallied strongly over the past twelve months, largely due to some easing of geopolitical tensions and a dramatic improvement in global economic conditions. Although equity market gains have moderated thus far in 2004, we believe that a key driver of stock returns - strong corporate earnings - - remains very much in place. Corporate Americas' efforts to reduce its cost structure in recent years have resulted in a sharp improvement in profitability that has become more evident now that revenues are improving. While interest rates are now climbing and may limit higher valuations for stocks, we do not believe the impact will dramatically alter the earnings outlook for most major industries. Relative to the S&P 500 Index twelve-month return, the Fund benefited from strong stock selection in the communications, technology services and health technology sectors. Conversely, returns were negatively impacted by an overweighted position in the health technology sector. We attribute the underperformance in this sector to a combination of investors' preference for higher beta, more economically sensitive stocks, along with the negative sentiment related to patent expirations for the major pharmaceutical companies. In terms of individual stocks, the notable outperformer was Elan, which rose +339% over the period, as the company emerged from an SEC investigation with a dramatically improved balance sheet and a strong, new product pipeline. Conversely, Amgen was the most negative influence on the Fund's performance, falling -17% over the past twelve months. The changes in the portfolio over the past year reflect our view that the economy is in a sustained expansion that is likely to be accompanied by higher interest rates. Since June 2003, we have increased our allocation to the electronic technology and producer manufacturing sectors, based on improvements in capital spending and industrial production. Rising interest rates will likely raise concerns over earnings in the finance sector, which we are underweighting relative to the S&P 500 Index. - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE AND STRATEGY - -------------------------------------------------------------------------------- The objective of the Large Cap Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objec- tive 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 6/30/04: $31.96 Per Share 6/30/03: $26.92 Per Share Total Net Assets: $63.8 Million Weighted Average Market Cap: $80.7 Billion - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Health Technology 15.2 Electronic Technology 15.1 Finance 11.4 Technology Services 11.2 Producer Manufacturing 8.8 Retail Trade 8.3 Energy Minerals 7.0 Consumer Services 6.1 Sectors less than 5.0% 15.3 Cash & Other Net Assets 1.6 18 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- --------- ------------ 3 Month** 1.43% 1.72% 1.94% 6 Month** 5.79 3.44 2.74 1 Year 18.81 19.11 17.89 5 Years -6.63 -2.21 -6.48 10 Year 8.69 11.83 10.12 Inception*** 11.14 13.92 12.51 (9/2/82) CUMULATIVE TOTAL RETURNS* SIT RUSSELL LARGE CAP S&P 1000 GROWTH FUND 500 INDEX GROWTH INDEX ----------- --------- ------------ 1 Year 18.81% 19.11% 17.89% 5 Year -29.02 -10.55 -28.46 10 Year 130.13 205.80 162.11 Inception*** 903.74 1623.93 1211.16 (9/2/82) *AS OF 6/30/04 **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 AVERAGE ANNUAL TOTAL WHEN YOU SELL SHARES. RETURNS INCLUDE CHANGES IN SHARE PRICE AS WELL AS REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 1000 GROWTH INDEX AND THE S&P 500 INDEX. ***ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS TO CONTAIN NO MORE THAN 80% STOCKS. - -------------------------------------------------------------------------------- GROWTH OF $10,000 - -------------------------------------------------------------------------------- The sum of $10,000 invested at inception (9/2/82) and held until 6/30/04 would have grown to $100,374 in the Fund or $172,393 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * Citigroup, Inc. * Microsoft Corp. * Target Corp. * Pfizer, Inc. * General Electric Co. * Cisco Systems, Inc. * Analog Devices, Inc. * Lowe's Companies, Inc. * PepsiCo, Inc. * Procter & Gamble Co. Total Number of Holdings: 72 19 SIT LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - June 30, 2004 - ----------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ----------------------------------------------------------------------------- COMMON STOCKS (98.4%) (2) COMMERCIAL SERVICES (0.8%) 7,000 Omnicom Group, Inc. 531,230 --------------- COMMUNICATIONS (3.9%) 32,000 Nextel Communications, Inc. (3) 853,120 26,000 Sprint Corp. - Fon Group 457,600 52,700 Vodafone Group, A.D.R. 1,164,670 --------------- 2,475,390 --------------- CONSUMER DURABLES (1.3%) 15,500 Electronic Arts, Inc. (3) 845,525 --------------- CONSUMER NON-DURABLES (4.6%) 27,000 PepsiCo, Inc. 1,454,760 26,500 Procter & Gamble Co. 1,442,660 --------------- 2,897,420 --------------- CONSUMER SERVICES (6.1%) 19,500 Comcast Corp. (3) 546,585 11,500 Harrah's Entertainment, Inc. 622,150 25,500 International Game Technology 984,300 40,804 Liberty Media Corp. (3) 366,835 4,000 Royal Caribbean Cruises, Ltd. 173,640 18,400 Time Warner, Inc. (3) 323,472 23,477 Viacom, Inc. 838,599 --------------- 3,855,581 --------------- ELECTRONIC TECHNOLOGY (15.1%) 33,000 Analog Devices, Inc. 1,553,640 40,500 Applied Materials, Inc. (3) 794,610 68,800 Cisco Systems, Inc. (3) 1,630,560 27,000 Dell Computer Corp. (3) 967,140 52,400 EMC Corp. (3) 597,360 47,800 Intel Corp. 1,319,280 22,500 Jabil Circuit, Inc. (3) 566,550 18,000 Juniper Networks, Inc. (3) 442,260 5,350 Linear Technology Corp. 211,165 36,500 Nokia Corp., A.D.R. 530,710 14,000 Qualcomm, Inc. 1,021,720 --------------- 9,634,995 --------------- ENERGY MINERALS (7.0%) 11,000 ConocoPhillips Co. 839,190 9,000 Murphy Oil Corp. 663,300 18,000 Occidental Petroleum Corp. 871,380 24,000 Suncor Energy, Inc. 614,640 13,500 Valero Energy Corp. 995,760 16,500 XTO Energy, Inc. 491,535 --------------- 4,475,805 --------------- - ----------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ----------------------------------------------------------------------------- FINANCE (11.4%) 17,962 American International Group, Inc. 1,280,331 44,000 Citigroup, Inc. 2,046,000 17,500 Franklin Resources, Inc. 876,400 13,000 J.P. Morgan Chase & Co. 504,010 10,500 Prudential Financial, Inc. 487,935 11,500 The Goldman Sachs Group, Inc. 1,082,840 17,500 Wells Fargo Co. 1,001,525 --------------- 7,279,041 --------------- HEALTH SERVICES (2.3%) 23,000 UnitedHealth Group, Inc. 1,431,750 --------------- HEALTH TECHNOLOGY (15.2%) 25,200 Amgen, Inc. (3) 1,375,164 20,000 Boston Scientific Corp. (3) 856,000 48,550 Elan Corp., A.D.R. (3) 1,201,127 13,800 Eli Lilly and Co. 964,758 14,000 Genentech, Inc. (3) 786,800 11,000 Gilead Sciences, Inc. (3) 737,000 12,150 Johnson & Johnson 676,755 9,700 Medtronic, Inc. 472,584 6,000 Merck & Co., Inc. 285,000 48,825 Pfizer, Inc. 1,673,721 9,500 Teva Pharmaceutical, Ltd., A.D.R. 639,255 --------------- 9,668,164 --------------- INDUSTRIAL SERVICES (1.3%) 13,300 Schlumberger, Ltd. 844,683 --------------- PRODUCER MANUFACTURING (8.8%) 10,500 Caterpillar, Inc. 834,120 21,000 Danaher Corp. 1,088,850 5,500 Eaton Corp. 356,070 51,200 General Electric Co. 1,658,880 8,500 ITT Industries, Inc. 705,500 11,000 3M Co. 990,110 --------------- 5,633,530 --------------- RETAIL TRADE (8.3%) 18,050 Best Buy Co., Inc. 915,857 4,000 eBay, Inc. (3) 367,800 14,000 J.C. Penney Co., Inc. 528,640 28,800 Lowe's Companies, Inc. 1,513,440 46,500 Target Corp. 1,974,855 --------------- 5,300,592 --------------- 20 - ----------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ----------------------------------------------------------------------------- TECHNOLOGY SERVICES (11.2%) 9,500 Adobe Systems, Inc. 441,750 23,800 Check Point Software Tech., Ltd. (3) 642,362 16,500 First Data Corp. 734,580 71,300 Microsoft Corp. 2,036,328 16,000 SAP AG 668,960 20,000 Symantec Corp. (3) 875,600 27,400 Veritas Software Corp. (3) 758,980 27,000 Yahoo!, Inc. (3) 980,910 --------------- 7,139,470 --------------- TRANSPORTATION (1.1%) 9,500 United Parcel Service, Inc. 714,115 --------------- Total common stocks 62,727,291 --------------- (cost: $54,591,308) SHORT-TERM SECURITIES (1.3%) (2) 803,000 Sit Money Market Fund, 0.65% (4) 803,000 (cost: $803,000) --------------- Total investments in securities (cost: $55,394,308) (5) $63,530,291 =============== See accompanying notes to portfolios of investments on page 42. 21 SIT MID CAP GROWTH FUND ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER ERIK S. ANDERSON, CFA, SENIOR PORTFOLIO MANAGER The Sit Mid Cap Growth Fund's twelve-month return was +26.92%, compared to +27.98% for the S&P Mid Cap 400 Index. The Russell Mid Cap Growth Index rose +27.33% during the period. Relative performance has been strong year-to-date, as the Fund's +8.14% return has outstripped the +6.09% and +5.94% for the S&P Mid Cap 400 and the Russell Midcap Growth Indices, respectively. The past year has proven to be a rewarding period for equity investors, as the markets rebounded sharply amid accelerating growth in the U.S. economy, driven by highly accommodative monetary and fiscal policy. Despite the strong advance over the period, we believe stocks remain attractive at current levels given corporate profit trends and the likelihood, in our view, that interest rates will rise at only a gradual pace in the coming months. However, since P/E ratios are likely to contract somewhat as interest rates climb, our research team remains highly focused on determining which sectors and companies will grow earnings at a more rapid pace than the overall market. We believe that the Fund's three most heavily-weighted sectors - health technology, technology services, and electronic technology - have superior secular growth prospects relative to other market sectors. In reviewing the performance among sectors over the past twelve months, it is striking how broad-based the price gains have been. Each major sector within the Fund posted gains of +20% or more over the period. Relative to the Russell Midcap Growth Index, strong stock selection within the health technology, retail trade and producer manufacturing sectors helped returns. The lagging groups within the Fund during the period were technology services, commercial services and health services. The strongest individual stocks held throughout the period included Elan PLC (+339%), Chicos (+115%), Symantec (+99%), and Celgene (+89%). On the downside, positions in Biovail (-60%), Par Pharmaceuticals (-45%) and NewYork Community Bank (-15%) detracted from performance over the past twelve months. Given the improving earnings outlook and attractive valuations of companies held in the Fund, we remain enthusiastic about the Fund's prospects in the year ahead. - -------------------------------------------------------------------------------- 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 6/30/04: $10.23 Per Share 6/30/03: $ 8.06 Per Share Total Net Assets: $204.9 Million Weighted Average Market Cap: $9.0 Billion - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Health Technology 17.5 Technology Services 15.7 Electronic Technology 15.4 Finance 8.0 Health Services 7.2 Consumer Services 6.3 Energy Minerals 6.3 Retail Trade 6.0 Producer Manufacturing 5.9 Sectors less than 5.0% 9.1 Cash & Other Net Assets 2.6 22 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- --------- ------------ 3 Month** 1.89% 0.97% 1.05% 6 Month** 8.14 6.09 5.94 1 Year 26.92 27.98 27.33 5 Year -1.08 9.05 0.49 10 Year 9.50 15.47 10.88 Inception 13.69 16.55 n/a (9/2/82) - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT S&P RUSSELL MID CAP MIDCAP MID CAP GROWTH FUND 400 INDEX GROWTH INDEX ----------- --------- ------------ 1 Year 26.92% 27.98% 27.33% 5 Year -5.27 54.19 2.46 10 Year 147.89 321.51 180.92 Inception 1548.00 2733.92 n/a (9/2/82) *AS OF 6/30/04 **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 ARE INCLUDED IN THE FUND'S EXPENSES 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 - -------------------------------------------------------------------------------- The sum of $10,000 invested at inception (9/2/82) and held until 6/30/04 would have grown to $164,800 in the Fund, or $283,392 in the S&P MidCap 400 Index assuming reinvestment of all dividends and capital gains. - -------------------------------------------------------------------------------- TOP 10 HOLDINGS - -------------------------------------------------------------------------------- * TCF Financial Corp. * Elan Corp., A.D.R. * Biogen Idec, Inc. * Celgene Corp. * Chico s FAS, Inc. * Symantec Corp. * International Game Technology * Fisher Scientific International, Inc. * Coach, Inc. * WellChoice, Inc. Total Number of Holdings: 80 23 SIT MID CAP GROWTH FUND - ---------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - June 30, 2004 - ---------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ---------------------------------------------------------------------------- COMMON STOCKS (97.4%) (2) COMMERCIAL SERVICES (0.5%) 23,500 ChoicePoint, Inc. (3) 1,073,010 ------------------ COMMUNICATIONS (2.0%) 51,750 Nextel Communications, Inc. (3) 1,379,655 173,250 Nextel Partners, Inc. (3) 2,758,140 ------------------ 4,137,795 ------------------ CONSUMER DURABLES (1.6%) 59,800 Electronic Arts, Inc. (3) 3,262,090 ------------------ CONSUMER NON-DURABLES (2.0%) 91,000 Coach, Inc. (3) 4,112,290 ------------------ CONSUMER SERVICES (6.3%) 40,500 Career Education Corp. (3) 1,845,180 68,100 Corinthian Colleges, Inc. (3) 1,684,794 39,900 Harrah's Entertainment, Inc. 2,158,590 108,500 International Game Technology 4,188,100 45,500 Royal Caribbean Cruises, Ltd. 1,975,155 39,200 XM Satellite Radio Holdings, Inc. (3) 1,069,768 ------------------ 12,921,587 ------------------ ELECTRONIC TECHNOLOGY (15.4%) 45,050 Analog Devices, Inc. 2,120,954 168,500 ASML Holding N.V. (3) 2,883,035 67,500 ATI Technologies, Inc. (3) 1,273,050 58,850 Broadcom Corp. (3) 2,752,414 130,000 Foundry Networks, Inc. (3) 1,829,100 102,850 Jabil Circuit, Inc. (3) 2,589,763 138,850 Juniper Networks, Inc. (3) 3,411,544 33,500 KLA-Tencor Corp. (3) 1,654,230 69,800 Lam Research Corp. (3) 1,870,640 36,500 Lexmark International, Inc. (3) 3,523,345 94,000 Marvell Technology Group, Ltd. (3) 2,509,800 19,350 Nvidia Corp. (3) 396,675 246,150 Sonus Networks, Inc. (3) 1,176,597 107,200 Xilinx, Inc. 3,570,832 ------------------ 31,561,979 ------------------ ENERGY MINERALS (6.3%) 59,100 Apache Corp. 2,573,805 35,500 Murphy Oil Corp. 2,616,350 48,500 Premcor, Inc. (3) 1,818,750 34,000 Valero Energy Corp. 2,507,840 112,812 XTO Energy, Inc. 3,360,669 ------------------ 12,877,414 ------------------ - ---------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ---------------------------------------------------------------------------- FINANCE (8.0%) 44,350 Ace, Ltd. 1,875,118 34,000 Legg Mason, Inc. 3,094,340 30,300 Lehman Brothers Holdings, Inc. 2,280,075 114,666 New York Community Bancorp, Inc. 2,250,894 118,900 TCF Financial Corp. 6,902,145 ------------------ 16,402,572 ------------------ HEALTH SERVICES (7.2%) 98,350 Caremark Rx, Inc. (3) 3,239,649 54,800 Laboratory Corp. (3) 2,175,560 47,250 Oxford Health Plans, Inc. 2,600,640 49,800 Stericycle, Inc. (3) 2,576,652 99,000 WellChoice, Inc. (3) 4,098,600 ------------------ 14,691,101 ------------------ HEALTH TECHNOLOGY (17.5%) 25,800 Alcon, Inc. 2,029,170 75,205 Biogen Idec, Inc. (3) 4,756,716 58,000 Boston Scientific Corp. (3) 2,482,400 81,500 Celgene Corp. (3) 4,666,690 277,250 Elan Corp., A.D.R. (3) 6,859,165 72,000 Fisher Scientific International, Inc. (3) 4,158,000 49,250 Gilead Sciences, Inc. (3) 3,299,750 14,450 Neurocrine Biosciences, Inc. (3) 749,233 13,000 OSI Pharmaceuticals, Inc. (3) 915,720 35,350 Par Pharmaceutical Cos., Inc. (3) 1,244,674 30,800 Teva Pharmaceutical Industries, A.D.R. 2,072,532 31,500 Varian Medical Systems, Inc. (3) 2,499,525 ------------------ 35,733,575 ------------------ INDUSTRIAL SERVICES (2.1%) 79,100 Chicago Bridge & Iron Co. 2,202,935 38,000 Smith International, Inc. (3) 2,118,880 ------------------ 4,321,815 ------------------ PRODUCER MANUFACTURING (5.9%) 86,000 AMETEK, Inc. 2,657,400 68,700 Danaher Corp. 3,562,095 33,100 ITT Industries, Inc. 2,747,300 100,550 Thermo Electron Corp. (3) 3,090,907 ------------------ 12,057,702 ------------------ RETAIL TRADE (6.0%) 46,050 Best Buy Co., Inc. 2,336,577 97,900 Chico's FAS, Inc. (3) 4,421,164 42,000 PETsMART, Inc. 1,362,900 59,050 Staples, Inc. 1,730,756 101,800 TJX Companies, Inc. 2,457,452 ------------------ 12,308,849 ------------------ 24 - ---------------------------------------------------------------------------- QUANTITY/PAR($) NAME OF ISSUER MARKET VALUE($)(1) - ---------------------------------------------------------------------------- TECHNOLOGY SERVICES (15.7%) 68,590 Adobe Systems, Inc. 3,189,435 80,000 Amdocs, Ltd. (3) 1,874,400 48,000 Autodesk, Inc. 2,054,880 147,450 BEA Systems, Inc. (3) 1,212,039 81,500 Business Objects, A.D.R. (3) 1,844,345 100,100 Ceridian Corp. (3) 2,252,250 117,550 Check Point Software Tech., Ltd. (3) 3,172,675 46,750 Citrix Systems, Inc. (3) 951,830 65,500 Cognos, Inc. (3) 2,368,480 64,062 Fiserv, Inc. (3) 2,491,371 41,500 Mercury Interactive Corp. (3) 2,067,945 84,500 Novell, Inc. (3) 708,955 66,900 SunGard Data Systems, Inc. (3) 1,739,400 98,000 Symantec Corp. (3) 4,290,440 70,100 Veritas Software Corp. (3) 1,941,770 ------------------ 32,160,215 ------------------ TRANSPORTATION (0.9%) 39,000 Expeditors Intl. of Washington, Inc. 1,926,990 ------------------ Total common stocks 199,548,984 (cost: $153,262,361) ------------------ SHORT-TERM SECURITIES (2.8%) (2) 5,662,000 Sit Money Market Fund, 0.65% (4) 5,662,000 (cost: $5,662,000) ------------------ Total investments in securities (cost: $158,924,361) (5) $205,210,984 ================== See accompanying notes to portfolios of investments on page 42. 25 SIT INTERNATIONAL GROWTH FUND ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER ROGER J. SIT, SENIOR PORTFOLIO MANAGER The Sit International Growth Fund returned +20.63% for the last fiscal year compared with +32.37% for the MSCI EAFE Index. The Fund's holdings in Ireland, the Netherlands, Spain and Australia contributed positively due to stock selection, while the Fund's allocations and stock selections in Japan, Hong Kong, capital goods and technology hardware more than offset the positive relative performance. The Fund had a weighting of 49.8% in Europe at fiscal year-end, versus 66.2% for the Index. Even though the European economies are experiencing modest improvement, we are shifting our weights to Canada and Japan where we see more attractive opportunities and favorable shifts in fundamentals. Within Europe we hold higher-quality companies with high, consistent and conservative growth prospects. We added to Ericsson (telecom equipment), Roche (pharmaceuticals) and Tesco (UK food retailer). Recent purchases include Cairn Energy, Tsakos Energy Navigation (Greek tankers) and Synthes (medial device maker). In Japan, our weight increased to 19.9% versus 24.0% for the Index reflecting our belief in the improving economy and strong company fundamentals. We have a balanced portfolio with domestic consumption and export-oriented, globally dominant companies. We have added to consumer stocks such as East Japan Railway, Nitto Denko (LCD films), Softbank (broadband), Takashimaya (department store), and Yamato Transport. Our weighting in Asia ex-Japan was 17.3%, slightly less than twice the Index weight of 9.8%. We believe China will experience more moderate growth from that of the rapid pace in 2003 and are adopting a more conservative stance in the short term due to headline risk and anticipated higher interest rates. Even with higher interest rates, we are expecting Hong Kong property price appreciation; we added Hong Kong Land and Sun Hung Kai Property. Our new holding in Techtronic Industries (power tool exporter) reflects our view of US. consumer strength. The Fund had a weighting 5.7% in Canada versus 0.0% for the Index. We have added to global, economy-sensitive stocks with superior fundamentals such as Four Seasons Hotels, Great Canadian Gaming (Canadian casinos) and Encana (natural gas giant). - -------------------------------------------------------------------------------- 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 6/30/04: $11.24 Per Share 6/30/03: $9.39 Per Share Total Net Assets: $34.3 Million Weighted Average Market Cap: $46.1 Billion - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- [BAR CHART] Sit Int'l Morgan Stanley Growth Fund EAFE Index Europe 49.8 66.2 Asia 37.2 33.8 Other 10.7 0.0 Cash & Other Net Assets 2.3 0.0 26 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX ----------- ---------- ----- 3 Month** -2.85% 0.22% -1.08% 6 Month** 0.36 4.56 3.86 1 Year 20.63 32.37 29.36 5 Year -8.05 0.06 1.54 10 Year 0.27 4.06 5.73 Inception 3.51 5.15 7.09 (11/1/91) - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT MORGAN STANLEY LIPPER INTERNATIONAL CAPITAL INT'L INT'L GROWTH FUND EAFE INDEX INDEX ----------- ---------- ----- 1 Year 20.63% 32.37% 29.36% 5 Year -34.27 0.30 7.96 10 Year 2.75 48.81 74.63 Inception 54.76 88.95 138.38 (11/1/91) *AS OF 6/30/04 **NOT ANNUALIZED. - -------------------------------------------------------------------------------- PERFORMANCE FIGURES ARE HISTORICAL AND DO NOT INVESTMENT RETURNS GUARANTEE FUTURE RESULTS. 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 PERFOR- MANCE; 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 - -------------------------------------------------------------------------------- The sum of $10,000 invested at inception (11/1/91) and held until 6/30/04 would have grown to $15,476 in the Fund, or $18,895 in the Morgan Stanley EAFE Index assuming reinvestment of all dividends and capital gains. - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Finance 22.3 Health Technology 10.4 Electronic Technology 9.2 Communications 8.7 Energy Minerals 7.9 Consumer Services 7.3 Consumer Non-Durables 6.9 Retail Trade 6.7 Sectors less than 5.0% 18.3 Cash & Other Net Assets 2.3 27 SIT INTERNATIONAL GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 - -------------------------------------------------------------------------------- TOP 10 HOLDINGS - -------------------------------------------------------------------------------- * Vodafone Group, p.l.c. * Royal Bank of Scotland * Total, S.A. * Elan Corp., A.D.R. * Novartis, A.G. * Sumitomo Mitsui Financial Group, Inc. * Nestle, S.A. * Tesco, p.l.c. * UBS, A.G. * East Japan Railway Total Number of Holdings: 99 - ------------------------------------------------------------------------------------------------ QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------------------------ COMMON STOCKS (96.7%) (2) AFRICA/ MIDDLE EAST (2.8%) ISRAEL (2.8%) 21,600 Amdocs, Ltd., A.D.R. (Tech. Services) (3) 506,088 6,000 Teva Pharmaceutical, A.D.R. (Health Tech.) 403,740 --------------------- 909,828 --------------------- ASIA (36.2%) AUSTRALIA (4.1%) 20,568 Australia and New Zealand Banking Group (Finance) 261,911 58,000 BHP Billiton, Ltd. (Non-Energy Minerals) 506,249 16,900 News Corp., Ltd., A.D.R. (Consumer Svcs.) 555,672 900 Rio Tinto, p.l.c., A.D.R. (Non-Energy Minerals) 88,245 --------------------- 1,412,077 --------------------- HONG KONG / CHINA (5.9%) 102,300 Hongkong Land Holdings, Ltd. (Finance) 159,588 36,200 HSBC Holdings, p.l.c. (Finance) 545,334 160,000 Li & Fung, Ltd. (Retail Trade) 233,852 282,000 Nam Tai Electronic, Ltd. (Electronic Tech.) (3) 107,560 434,000 Petrochina Co., Ltd. (Energy Minerals) 200,313 40,600 Sun Hung Kai Properties, Ltd. (Finance) 333,137 185,000 Techtronic Industries Co., Ltd. (Consumer Durables) 295,296 178,000 Tsingtao Brewing Co., Ltd. (Consumer Non- Durables) 157,466 --------------------- 2,032,546 --------------------- INDIA (0.7%) 18,500 ICICI Bank, A.D.R. (Finance) 223,850 --------------------- - ------------------------------------------------------------------------------------------------ QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------------------------ JAPAN (19.9%) 8,100 AFLAC, Inc., A.D.R. (Finance) 330,561 8,000 Canon, Inc. (Electronic Technology) 421,574 106 East Japan Railway (Transportation) 594,529 5,600 Honda Motor Co., Ltd. (Producer Mfg.) 269,954 2,500 Hitachi, Ltd. (Electronic Technology) 173,975 45 Mitsubishi Tokyo Financial Group, Inc. (Finance) 416,533 35,500 Nikko Cordial Corp. (Finance) 172,107 7,500 NITTO DENKO Corp. (Producer Manufacturing) 383,540 36,000 Nomura Holdings, Inc. (Finance) 532,832 192 NTT DoCoMo, Inc. (Communications) 343,124 7,700 Shin-Etsu Chemical Co., Ltd. (Industrial Svcs.) 275,214 2,200 SMC Corp. (Producer Manufacturing) 237,914 3,500 Softbank Corp. (Technology Services) 153,966 93 Sumitomo Mitsui Financial Group, Inc. (Finance) 637,529 35,000 Takashimaya Co., Ltd. (Retail Trade) 404,802 8,500 Takeda Chemical (Health Technology) 373,138 4,700 Tokyo Electron, Ltd. (Electronic Tech.) 263,612 29 UFJ Holdings, Inc. (Finance) 128,103 15,200 Yamada Denki Co. (Consumer Durables) 566,962 9,000 Yamato Transport Co., Ltd. (Transportation) 146,900 --------------------- 6,826,869 --------------------- SINGAPORE (3.3%) 43,446 DBS Group Holdings, Ltd. (Finance) 363,217 29,000 Flextronics Intl. (Electronic Tech.) (3) 462,554 30,000 Venture Corp. (Electronic Technology) 313,507 --------------------- 1,139,278 --------------------- SOUTH KOREA (0.5%) 17,523 Industrial Bank of Korea, G.D.R. (Finance) 110,395 750 Samsung Electronics Co., G.D.R. (Electronic Technology) 154,803 --------------------- 265,198 --------------------- TAIWAN (0.9%) 35,350 Taiwan Semiconductor, A.D.R. (Electronic Technology) (3) 293,759 --------------------- THAILAND (0.9%) 134,000 Advanced Info Services (Communications) 291,696 --------------------- EUROPE (49.8%) FINLAND (0.8%) 18,050 Nokia Corp., A.D.R. (Electronic Tech.) 262,447 --------------------- 28 - ------------------------------------------------------------------------------------------------ QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------------------------ FRANCE (7.2%) 21,952 AXA (Finance) 483,412 8,000 Business Objects, A.D.R. (Tech. Svcs.) (3) 181,040 3,472 Danone (Consumer Non-Durables) 302,875 3,403 L'oreal Co. (Consumer Non-Durables) 271,808 5,600 Schlumberger, Ltd. (Industrial Svcs.) 355,656 3,600 Total, S.A. (Energy Minerals) 686,336 6,437 Veolia Environment (Utilities) 181,614 --------------------- 2,462,741 --------------------- GERMANY (3.1%) 3,855 Muenchener Rueckver (Finance) 418,833 2,723 SAP AG (Technology Services) 453,872 2,558 Siemens AG (Technology Services) 183,961 --------------------- 1,056,666 --------------------- GREECE (0.5%) 5,500 Tsakos Energy Navigation, Ltd., A.D.R. (Transportation) 186,780 --------------------- IRELAND (2.0%) 27,500 Elan Corp., A.D.R. (Health Technology) (3) 680,350 --------------------- ITALY (1.7%) 66,957 Telecom Italia (Saving) (Communications) 208,138 39,540 Telecom Italia (Ord.) (Communications) 87,313 47,750 Telecom Italia Mobile (Communications) 270,723 --------------------- 566,174 --------------------- NETHERLANDS (3.8%) 18,000 ASML Holding N.V., A.D.R. (Electronic Technology) (3) 307,980 20,590 ING Groep N.V. (Finance) 485,985 12,000 Koninklijke (Royal) Philips Electronics N.V. (Electronic Technology) 323,093 3,500 Royal Dutch Petroleum, A.D.R. (Energy Minerals) 180,845 --------------------- 1,297,903 --------------------- SPAIN (1.6%) 38,100 Telefonica, S.A. (Communications) 563,205 --------------------- SWEDEN (1.1%) 12,500 Ericsson, A.D.R. (Electronic Tech.) (3) 374,000 --------------------- SWITZERLAND (8.6%) 1,578 Adecco, S.A. (Commercial Services) 78,623 10,234 Credit Suisse Group (Finance) 363,632 2,358 Nestle, S.A. (Consumer Non-Durables) 628,850 14,960 Novartis, A.G. (Health Technology) 659,965 4,243 Roche Holdings, A.G. (Health Tech.) 420,099 1,789 Synthes, Inc. (Health Technology) 203,912 8,500 UBS, A.G. (Finance) 598,950 --------------------- 2,954,031 --------------------- - ------------------------------------------------------------------------------------------------ QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ------------------------------------------------------------------------------------------------ UNITED KINGDOM (19.4%) 9,544 AstraZeneca, p.l.c. (Health Technology) 433,303 7,100 BP p.l.c., A.D.R. (Energy Minerals) 380,347 38,084 Barclays, p.l.c. (Finance) 324,434 50,056 Burberry Group, p.l.c. (Retail Trade) 371,049 13,914 Cairn Energy, p.l.c. (Energy Minerals) (3) 355,786 56,034 Compass Group, p.l.c. (Consumer Services) 341,943 16,666 Diageo, p.l.c. (Consumer Non-Durables) 224,714 9,000 GlaxoSmithkline, A.D.R. (Health Tech.) 373,140 78,055 Hilton Group, p.l.c. (Consumer Services) 390,685 8,778 Pearson, p.l.c. (Consumer Services) 106,657 13,754 Reckitt Benckiser, p.l.c. (Cons. Non-Durables) 389,358 26,515 Royal Bank of Scotland (Finance) 763,589 124,762 Tesco, p.l.c. (Retail Trade) 602,406 38,380 Unilever, p.l.c. (Consumer Non-Durables) 376,547 383,323 Vodafone Group, p.l.c. (Communications) 839,401 37,200 WPP Group p.l.c. (Consumer Services) 377,788 --------------------- 6,651,147 --------------------- LATIN AMERICA (2.2%) MEXICO (2.2%) 4,500 NII Holdings, Inc. (Communications) (3) 151,605 6,900 Telefonos de Mexico, A.D.R. (Communications) 229,563 121,130 Wal-Mart de Mexico (Retail Trade) 359,199 --------------------- 740,367 --------------------- NORTH AMERICA (5.7%) CANADA (5.7%) 8,500 Cognos, Inc. (Technology Services) (3) 307,360 4,500 EnCana Corp. (Energy Minerals) 193,392 1,800 Four Seasons Hotels, Inc. (Consumer Svcs.) 108,378 12,500 Great Canadian Gaming Corp. (Consumer Services) (3) 287,153 7,500 Precision Drilling Corp. (Industrial Svcs.) (3) 360,075 12,500 Suncor Energy, Inc. (Energy Minerals) 320,125 17,100 Talisman Energy, Inc. (Energy Minerals) 371,754 --------------------- 1,948,237 --------------------- Total common stocks 33,139,149 --------------------- (cost: $30,560,015) CLOSED-END MUTUAL FUND (1.0%) (2) 15,500 India Fund (Consumer Services) 332,940 --------------------- (cost: $277,184) SHORT TERM SECURITIES (2.1%) (2) 736,000 Sit Money Market Fund, 0.65% (4) 736,000 (cost: $736,000) --------------------- Total investments in securities (cost: $31,573,199) (5) $34,208,089 ===================== See accompanying notes to portfolios of investments on page 42. 29 SIT SMALL CAP GROWTH FUND ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Small Cap Growth Fund returned +16.87% over the past twelve months. This compares to the return of +33.37% for the Russell 2000 Index, while the Russell 2000 Growth Index rose +31.56% over the period. Small cap stocks posted solid returns over the past twelve months, as improving economic conditions and continued low interest rates provided a strong backdrop for stocks. Broad-based improvement in the economy should continue to support strong corporate earnings growth, although the likelihood that interest rates are now on a cyclical upswing may lead to more moderate market gains in the months ahead. Relative to its primary benchmark, the Russell 2000 Index, the Fund's performance was positively impacted by strong stock selection in energy minerals, retail trade and consumer services. Strong performers within these sectors included Quicksilver Resources (+86%), XTO Energy (+87%), Chicos FAS (+115%) and Career Education (+33%). Conversely, in addition to the negative impact from holding cash reserves, particularly during the second half of 2003, the Fund's performance was hurt by several holdings in the electronic technology and technology services sector, including BISYS, Business Objects, Emulex and Intersil. Although the Fund has lagged the Russell Indices over the past year, we believe the foundation is in place for improved relative performance in months ahead. Market leadership, for example, has recently transitioned from highly risky, more speculative names that strongly outperformed in 2003, to companies with stronger balance sheets, profitability and long-term growth prospects. We believe that this trend is likely to stay in place for some time and should favor the types of companies we tend to emphasize in the Fund. Importantly, we believe there are attractive investment opportunities across a number of different industries, driven by the broad-based improvement in economic conditions. Current areas of emphasis include capital goods, semiconductors, software, biotechnology, energy and natural gas. Our research team remains focused on identifying the best long-term investment opportunities on the behalf of our shareholders. - -------------------------------------------------------------------------------- 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 6/30/04: $25.29 Per Share 6/30/03: $21.64 Per Share Total Net Assets: $199.8 Million Weighted Average Market Cap: $2.3 Billion - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Electronic Technology 19.2 Health Technology 16.7 Technology Services 8.6 Finance 8.5 Energy Minerals 6.6 Producer Manufacturing 5.6 Retail Trade 5.5 Sectors less than 5.0% 26.7 Cash & Other Net Assets 2.6 30 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----- ------------ 3 Month** -2.01% 0.47% 0.10% 6 Month** 1.04 6.76 5.69 1 Year 16.87 33.37 31.56 3 Year -4.40 6.24 -0.23 5 Year 7.07 6.63 -0.45 Inception 13.08 10.89 7.14 (7/1/94) - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT RUSSELL SMALL CAP RUSSELL 2000 2000 GROWTH FUND INDEX GROWTH INDEX ----------- ----- ------------ 1 Year 16.87% 33.37% 31.56% 3 Year -12.63 19.90 -0.68 5 Year 40.73 37.86 -2.25 Inception 242.08 181.22 99.50 (7/1/94) *As of 6/30/04 **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 - -------------------------------------------------------------------------------- The sum of $10,000 invested at inception (7/1/94) and held until 6/30/04 would have grown to $34,208 in the Fund, or $28,122 in the Russell 2000 Index assuming reinvestment of all dividends and capital gains. TOP 10 HOLDINGS * Biosite, Inc. * Quicksilver Resources, Inc. * Juniper Networks, Inc. * Celgene Corp. * Chico's FAS, Inc. * Cuno, Inc. * Chicago Bridge & Iron Co. * New York Community Bancorp, Inc. * C.H. Robinson Worldwide, Inc. * Equitable Resources, Inc. Total Number of Holdings: 91 31 SIT SMALL CAP GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 - --------------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - --------------------------------------------------------------------------------------- COMMON STOCKS (97.4%) (2) COMMERCIAL SERVICES (3.4%) 48,500 Getty Images, Inc. (3) 2,910,000 142,700 SkillSoft, A.D.R. (3) 1,084,520 32,000 Zebra Technologies Corp. (3) 2,784,000 ----------------- 6,778,520 ----------------- COMMUNICATIONS (0.6%) 37,250 NII Holdings, Inc. (3) 1,254,953 ----------------- CONSUMER DURABLES (2.5%) 31,400 Polaris Industries, Inc. 1,507,200 54,900 Scientific Games Corp. (3) 1,050,786 84,000 WMS Industries, Inc. (3) 2,503,200 ----------------- 5,061,186 ----------------- CONSUMER NON-DURABLES (1.7%) 72,750 Coach, Inc. (3) 3,287,572 ----------------- CONSUMER SERVICES (2.1%) 45,000 Aztar Corp. (3) 1,260,000 29,100 Career Education Corp. (3) 1,325,796 67,000 Corinthian Colleges, Inc. (3) 1,657,580 ----------------- 4,243,376 ----------------- ELECTRONIC TECHNOLOGY (19.2%) 21,500 Avid Technology, Inc. (3) 1,173,255 82,950 Brooks Automation, Inc. (3) 1,671,442 322,400 ChipPAC, Inc. (3) 2,021,448 51,850 Cognex Corp. 1,995,188 376,916 Conexant Systems, Inc. (3) 1,632,046 188,500 Cray, Inc. (3) 1,247,870 78,700 Cymer, Inc. (3) 2,946,528 122,850 Emulex Corp. (3) 1,757,983 139,500 Foundry Networks, Inc. (3) 1,962,765 131,960 Intersil Corp. 2,858,254 200,161 Juniper Networks, Inc. (3) 4,917,956 80,125 Kronos, Inc. (3) 3,301,150 100,200 OmniVision Technologies, Inc. (3) 1,598,190 41,300 Plantronics, Inc. (3) 1,738,730 71,200 Silicon Laboratories, Inc. (3) 3,300,120 330,300 Sonus Networks, Inc. (3) 1,578,834 69,800 Varian Semiconductor Equip. Associates, Inc. (3) 2,691,488 ----------------- 38,393,247 ----------------- ENERGY MINERALS (6.6%) 38,600 Carrizo Oil & Gas, Inc. (3) 394,106 126,950 Frontier Oil Corp. 2,690,071 755,575 Gasco Energy, Inc. (3) 1,473,371 77,550 Quicksilver Resources, Inc. (3) 5,201,279 73,300 Southwestern Energy Co. (3) 2,101,511 45,391 XTO Energy, Inc. 1,352,198 ----------------- 13,212,536 ----------------- - --------------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - --------------------------------------------------------------------------------------- FINANCE (8.5%) 33,275 Affiliated Managers Group, Inc. (3) 1,676,062 107,000 Aspen Insurance Holdings, Ltd. 2,485,610 50,300 National Financial Partners Corp. 1,774,081 184,636 New York Community Bancorp, Inc. 3,624,405 68,000 Platinum Underwriters Holdings, Ltd. 2,069,240 85,420 UCBH Holdings, Inc. 3,375,798 33,850 Wintrust Financial Corp. 1,709,764 ----------------- 16,714,960 ----------------- HEALTH SERVICES (3.9%) 52,900 Accredo Health, Inc. (3) 2,060,455 43,000 Covance, Inc. (3) 1,658,940 64,500 e-Research Technology, Inc. (3) 1,806,000 44,350 Stericycle, Inc. (3) 2,294,669 ----------------- 7,820,064 ----------------- HEALTH TECHNOLOGY (16.7%) 43,500 Amylin Pharmaceuticals, Inc. (3) 991,800 52,950 Ariad Pharmaceuticals, Inc. (3) 396,595 130,800 Biosite, Inc. (3) 5,875,536 76,500 Celgene Corp. (3) 4,380,390 210,850 CryoLife, Inc. (3) 1,111,179 117,250 Dendreon Corp. (3) 1,436,312 245,170 Encore Medical Corp. (3) 1,544,571 62,700 Given Imaging, Ltd. (3) 2,220,207 41,500 Invitrogen Corp. (3) 2,987,585 25,500 Kyphon, Inc. (3) 718,590 51,150 NeoPharm, Inc. (3) 528,380 53,950 Neurocrine Biosciences, Inc. (3) 2,797,308 42,500 NuVasive, Inc. (3) 463,675 37,150 Par Pharmaceutical Cos., Inc. (3) 1,308,052 162,700 Sangamo BioSciences, Inc. (3) 979,454 117,400 Telik, Inc. (3) 2,802,338 78,400 Wright Medical Group, Inc. (3) 2,791,040 ----------------- 33,333,012 ----------------- INDUSTRIAL SERVICES (2.8%) 29,300 CARBO Ceramics, Inc. 1,999,725 130,400 Chicago Bridge & Iron Co. 3,631,640 ----------------- 5,631,365 ----------------- PROCESS INDUSTRIES (4.4%) 76,550 Cuno, Inc. (3) 4,083,942 33,950 Dionex Corp. (3) 1,873,021 52,000 Millipore Corp. (3) 2,931,240 ----------------- 8,888,203 ----------------- 32 - --------------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - --------------------------------------------------------------------------------------- PRODUCER MANUFACTURING (5.6%) 95,200 AMETEK, Inc. 2,941,680 34,000 Jacobs Engineering Group, Inc. (3) 1,338,920 83,000 Joy Global, Inc. 2,485,020 61,050 Kaydon Corp. 1,888,277 45,800 Roper Industries, Inc. 2,606,020 ----------------- 11,259,917 ----------------- RETAIL TRADE (5.5%) 57,000 Advance Auto Parts, Inc. (3) 2,518,260 94,750 Chico's FAS, Inc. (3) 4,278,910 53,500 Cost Plus, Inc. (3) 1,736,075 74,200 PETCO Animal Supplies, Inc. (3) 2,389,982 ----------------- 10,923,227 ----------------- TECHNOLOGY SERVICES (8.6%) 65,000 Altiris, Inc. (3) 1,794,650 103,550 Business Objects S.A., A.D.R. (3) 2,343,336 45,600 CACI International, Inc. (3) 1,844,064 104,200 Citrix Systems, Inc. (3) 2,121,512 163,600 Informatica Corp. (3) 1,248,268 37,500 InfoSpace, Inc. (3) 1,426,500 50,700 Mercury Interactive Corp. (3) 2,526,381 211,000 Quest Software, Inc. (3) 2,721,900 41,950 SS&C Technologies, Inc. 784,465 45,700 Zix Corp. (3) 362,858 ----------------- 17,173,934 ----------------- TRANSPORTATION (3.6%) 77,350 C.H. Robinson Worldwide, Inc. 3,545,724 32,550 Tsakos Energy Navigation, Ltd. 1,105,398 49,500 UTI Worldwide, Inc. 2,608,155 ----------------- 7,259,277 ----------------- UTILITIES (1.7%) 66,700 Equitable Resources, Inc. 3,449,057 ----------------- Total common stocks (cost: $167,784,412) 194,684,406 ----------------- SHORT-TERM SECURITIES (2.4%) (2) 4,730,000 Sit Money Market Fund, 0.65% (4) 4,730,000 (cost: $4,730,000) ----------------- Total investments in securities (cost: $172,514,412) (5) $199,414,406 ================= See accompanying notes to portfolios of investments on page 42. 33 SIT SCIENCE AND TECHNOLOGY GROWTH FUND ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- EUGENE C. SIT, CFA, SENIOR PORTFOLIO MANAGER The Sit Science and Technology Growth Fund returned +24.47% over the past twelve months, compared to the +19.11% return for the S&P 500 Index. Technology-related stocks posted strong results over the past year, as an improving economic backdrop and greater business confidence led to a resurgence in capital spending. The improved environment quickly translated into strong sales and earnings growth for most science and technology sectors that was well above market averages. It is particularly interesting to note that, despite the strong performance over the past year, valuations for companies held in the Fund remain very attractive. For example, we estimate that P/E ratios, based on the next twelve months projected earnings, are currently lower now (25x as of 6/30/04) compared to twelve months ago (27x as of 6/30/03). Contributing to the strong absolute returns over the past year were shares of Elan (+339% return), an Irish pharmaceutical company that overcame balance sheet and accounting concerns and has generated an improved product pipeline. Other strong individual performers included eResearch Technology (116%), eBay (+77%), Symantec (+99%), and Broadcom (+87%). We continue to find both cyclical and secular growth opportunities in many different science and technology industries, including network security, semiconductors, business intelligence software, biotechnology and medical devices. Importantly, the recent market volatility has given us the opportunity to make portfolio adjustments, further positioning the portfolio for the improvements in technology spending that we foresee in 2004. In this regard, we continue to be enthusiastic about the near- and long-term prospects for companies held in the Fund. - -------------------------------------------------------------------------------- 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 6/30/04: $10.02 Per Share 6/30/03: $8.05 Per Share Total Net Assets: $19.1 Million Weighted Average Market Cap: $30.0 Billion - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Electronic Technology 35.7 Health Technology 27.1 Technology Services 23.9 Sectors less than 5.0% 11.6 Cash & Other Net Assets 1.7 34 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY S&P GROWTH FUND 500 INDEX ----------- --------- 3 Month** 2.98% 1.72% 6 Month** 5.81 3.44 1 Year 24.47 19.11 3 Years -12.99 -0.70 5 Years -7.45 -2.21 Inception 0.52 4.03 (12/31/97) - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT SCIENCE AND TECHNOLOGY S&P GROWTH FUND 500 INDEX ----------- --------- 1 Year 24.47% 19.11% 3 Years -34.14 -2.07 5 Years -32.10 -10.55 Inception 3.42 29.25 (12/31/97) *AS OF 6/30/04 **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 - -------------------------------------------------------------------------------- The sum of $10,000 invested at inception (12/31/97) and held until 6/30/04 would have grown to $10,342 in the Fund or grown to $12,925 in the S&P 500 Index. TOP 10 HOLDINGS * Elan Corp., A.D.R. * Juniper Networks, Inc. * Cisco Systems, Inc. * Qualcomm, Inc. * Analog Devices, Inc. * St. Jude Medical, Inc. * Yahoo!, Inc. * Check Point Software Technology * Autodesk, Inc. * Boston Scientific Corp. Total Number of Holdings: 65 35 SCIENCE AND TECHNOLOGY GROWTH FUND - ---------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - June 30, 2004 - ---------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ---------------------------------------------------------------------------- COMMON STOCKS (98.3%) (2) COMMUNICATIONS (1.8%) 12,600 Nextel Communications, Inc. (3) 335,916 ---------------- CONSUMER DURABLES (2.2%) 7,600 Electronic Arts, Inc. (3) 414,580 ---------------- ELECTRONIC TECHNOLOGY (35.7%) 10,000 Analog Devices, Inc. 470,800 13,800 Applied Materials, Inc. (3) 270,756 10,400 ASML Holding N.V. (3) 177,944 9,000 Broadcom Corp. (3) 420,930 25,200 Cisco Systems, Inc. (3) 597,240 6,400 Cognex Corp. 246,272 32,400 Conexant Systems, Inc. (3) 140,292 37,000 Cray, Inc. (3) 244,940 5,200 Cymer, Inc. (3) 194,688 9,000 Dell Computer Corp. (3) 322,380 19,100 EMC Corp. (3) 217,740 14,800 Foundry Networks, Inc. (3) 208,236 7,800 Hewlett-Packard Co. 164,580 11,200 Intel Corp. 309,120 5,600 Jabil Circuit, Inc. (3) 141,008 28,617 Juniper Networks, Inc. (3) 703,120 6,200 KLA-Tencor Corp. (3) 306,156 9,200 Lam Research Corp. (3) 246,560 12,400 National Semiconductor Corp. (3) 272,676 7,700 Qualcomm, Inc. 561,946 11,200 Rimage Corp. (3) 168,112 40,200 Sonus Networks, Inc. (3) 192,156 6,800 Xilinx, Inc. 226,508 ---------------- 6,804,160 ---------------- HEALTH SERVICES (1.8%) 12,150 e-Research Technology, Inc. (3) 340,200 ---------------- HEALTH TECHNOLOGY (27.1%) 7,200 Amgen, Inc. (3) 392,904 3,600 Biogen Idec, Inc. (3) 227,700 4,200 Biomet, Inc. 186,648 10,000 Boston Scientific Corp. (3) 428,000 4,600 Connetics Corp. (3) 92,920 2,000 Cyberonics, Inc. (3) 66,720 37,000 Elan Corp., A.D.R (3) 915,380 3,400 Eyetech Pharmaceuticals, Inc. (3) 145,928 7,000 Genentech, Inc. (3) 393,400 5,800 Gilead Sciences, Inc. (3) 388,600 6,000 Given Imaging, Ltd. (3) 212,460 9,600 Kyphon, Inc. (3) 270,528 4,600 Medtronic, Inc. 224,112 17,400 NuVasive, Inc. (3) 189,834 - ---------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - ---------------------------------------------------------------------------- 21,600 Sangamo BioSciences, Inc. (3) 130,032 6,000 St. Jude Medical, Inc. (3) 453,900 30,000 Tercica, Inc. (3) 245,400 2,900 Teva Pharmaceutical, Ltd., A.D.R. 195,141 ---------------- 5,159,607 ---------------- PROCESS INDUSTRIES (1.5%) 5,000 Millipore Corp. (3) 281,850 ---------------- PRODUCER MANUFACTURING (2.6%) 8,000 American Power Conversion Corp. 157,200 11,400 Thermo Electron Corp. (3) 350,436 ---------------- 507,636 ---------------- RETAIL TRADE (1.7%) 3,600 eBay, Inc. (3) 331,020 ---------------- TECHNOLOGY SERVICES (23.9%) 7,600 Adobe Systems, Inc. 353,400 7,400 Amdocs, Ltd. (3) 173,382 10,000 Autodesk, Inc. 428,100 22,600 BEA Systems, Inc. (3) 185,772 7,800 Business Objects, A.D.R. (3) 176,514 16,000 Check Point Software Technology (3) 431,840 8,200 Cognos, Inc. (3) 296,512 5,000 First Data Corp. 222,600 20,600 Informatica Corp. (3) 157,178 6,900 Mercury Interactive Corp. (3) 343,827 9,000 Microsoft Corp. 257,040 7,800 SAP, A.D.R. 326,118 9,200 Symantec Corp. (3) 402,776 10,800 Veritas Software Corp. (3) 299,160 12,000 Yahoo!, Inc. (3) 435,960 7,400 Zix Corp. 58,756 ---------------- 4,548,935 ---------------- Total common stocks 18,723,904 ---------------- (cost: $15,816,223) SHORT-TERM SECURITIES (0.5%) (2) 93,000 Sit Money Market Fund, 0.65% (4) 93,000 (cost: $93,000) ---------------- Total investments in securities (cost: $15,909,223) $18,816,904 ================ 36 See accompanying notes to portfolios of investments on page 42. This page has been left blank intentionally. 37 SIT DEVELOPING MARKETS GROWTH FUND ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- SENIOR PORTFOLIO MANAGERS EUGENE C. SIT, CFA AND ROGER J. SIT The Sit Developing Markets Growth Fund returned +22.48% for the fiscal year end compared with +29.91% for the MSCI Emerging Markets Index. The Fund's holdings in Korea, China and India contributed positively to the relative performance while the Latin American holdings (Brazil and Mexico) along with Israel and South Africa more than offset this positive contribution. In Asia, the Fund had a weighting of 66.5% versus 53.6% for the Index. After the robust China growth in 2003, 2004 will likely be more modest. Despite our view of a soft landing scenario, we are adopting a more conservative stance in the short term due to anticipated headline news about a Chinese hard economic landing and anticipated higher interest rates. To capitalize on the consumer we added two banks in Taiwan, Cathay Financial Holding and Chinatrust Financial Holding. We also added two media plays, Astro All Asia Networks in Malaysia and Cheil Communications in Korea. The Fund had a weighting of 19.5% in Latin America versus the Index weight of 17.5%. We are maintaining an overweight in Latin America due to our belief in an economic recovery. Mexico is benefiting from the U.S. economic recovery, while we are seeing signs of a recovery in Brazil. We have added two new holdings in Mexico, Homex (home builder) and NII Holdings ("Nextel" provider) as the companies have superior fundamentals. In Brazil we added Tele Norte Leste (fixed and wireless operator) to capture the demand of consumers. We remain materially underweight in the Middle East, Emerging Europe and Africa (13.2% versus 28.9% for the Index). The bulk of the underweight comes from South Africa where we have limited exposure through Anglo American (gold). In Eastern Europe we purchased Central European Media Enterprises (leading television operator) based on strong fundamentals and growth prospects. In Israel we added Given Imaging (wireless medical imaging devices) and Reliance Industries (oil refining). - -------------------------------------------------------------------------------- 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 6/30/04: $9.89 Per Share 6/30/03: $8.12 Per Share Total Net Assets: $8.0 Million Weighted Average Market Cap: $39.3 Billion - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY REGION (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- [BAR CHART] Sit Developing Markets MSCI Emerging Markets Growth Fund Free Index Asia 66.5 53.6 Latin America 19.5 17.5 Africa/ 9.7 19.5 Middle East Europe 3.5 9.4 Cash & Other 0.8 0.0 Net Assets 38 - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND INDEX INDEX ----------- ----- ----- 3 Month** -9.10% -10.34% -9.21% 6 Month** -4.17 -2.39 -1.12 1 Year 22.48 29.91 33.83 3 Year 2.75 10.21 13.00 5 Year -0.07 0.87 4.30 Inception 0.02 -1.03 1.58 (7/1/94) - -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS* - -------------------------------------------------------------------------------- SIT MSCI LIPPER DEVELOPING EMERGING EMERGING MARKETS MARKETS MARKETS GROWTH FUND INDEX INDEX ----------- ----- ----- 1 Year 22.48% 29.91% 33.83% 3 Year 8.47 33.85 44.30 5 Year -0.33 4.44 23.43 Inception 0.20 -9.80 17.04 (7/1/94) *AS OF 6/30/04 **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 - -------------------------------------------------------------------------------- [FLOW CHART] The sum of $10,000 invested at inception (7/1/94) and held until 6/30/04 would have increased to $10,020 in the Fund, or declined to $9,020 in the Morgan Stanley Capital Int l Emerging Markets Index assuming reinvestment of all dividends and capital gains. - -------------------------------------------------------------------------------- PORTFOLIO STRUCTURE - BY SECTOR (% OF TOTAL NET ASSETS) - -------------------------------------------------------------------------------- Finance 18.9 Communications 18.6 Electronic Technology 13.0 Non-Energy Minerals 10.8 Consumer Services 10.0 Energy Minerals 9.4 Retail Trade 6.5 Sectors less than 5.0% 12.0 Cash & Other Net Assets 0.8 39 SIT DEVELOPING MARKETS GROWTH FUND - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS - June 30, 2004 - -------------------------------------------------------------------------------- 10 LARGEST HOLDINGS - -------------------------------------------------------------------------------- * Samsung Electronics * India Fund * BHP Billiton Limited, A.D.R. * Taiwan Semiconductor * Anglo American p.l.c. * Petrochina Co. * Advanced Info Service Public Co., Ltd. * Wal-Mart de Mexico * American Movil, A.D.R. * Grupo Televisa S.A., A.D.R. Total Number of Holdings: 63 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - --------------------------------------------------------------------------------------------------- COMMON STOCKS (93.9%) (2) AFRICA/ MIDDLE EAST (9.7%) ISRAEL (6.6%) 6,000 Amdocs, Ltd. (Technology Services) (3) 140,580 2,500 Given Imaging, Ltd. (Health Technology) (3) 88,525 1,000 Taro Pharmaceutical Industries, Ltd. (Health Technology) (3) 43,500 2,600 Teva Pharmaceutical, A.D.R. (Health Technology) 174,954 4,500 Zoran Corp. (Electronic Technology) (3) 82,575 ------------------- 530,134 ------------------- SOUTH AFRICA (3.1%) 12,100 Anglo American p.l.c. (Non-Energy Minerals) 247,521 ------------------- ASIA (61.2%) AUSTRALIA (4.7%) 21,410 BHP Billiton, Ltd., A.D.R. (Non-Energy Minerals) 375,103 ------------------- CHINA / HONG KONG (15.9%) 44,500 China Mobile (Hong Kong), Ltd. (Communications) 134,645 109,000 Hongkong Land Holdings, Ltd. (Finance) 170,040 9,400 HSBC Holdings p.l.c. (Finance) 141,606 42,000 Li & Fung, Ltd. (Retail Trade) 61,386 140,000 Nam Tai Electronic, Ltd. (Electronic Tech.) (3) 53,399 512,000 PetroChina Co. (Energy Minerals) 236,314 276,000 PICC Property & Casualty Co., Ltd. (Finance) (3) 106,157 55,627 Ports Design, Ltd. (Retail Trade) 108,404 13,000 Sun Hung Kai Properties, Ltd. (Finance) 106,669 58,000 Tsingtao Brewery Co., Ltd. (Consumer Non- Durables) 51,309 15,100 Wing Lung Bank, Ltd. (Finance) 103,573 ------------------- 1,273,502 ------------------- - --------------------------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - --------------------------------------------------------------------------------------------------- INDIA (1.9%) 6,500 ICICI Bank, A.D.R. (Finance) 78,650 3,500 Reliance Industries, Ltd., G.D.R. (Energy Minerals) 70,630 ------------------- 149,280 ------------------- MALAYSIA (2.4%) 71,100 Astro All Asia Networks, p.l.c. (Consumer Services) (3) 85,694 47,000 Maxis Berhad (Communications) 108,842 ------------------- 194,536 ------------------- RUSSIA (5.6%) 1,500 LUKOIL, A.D.R. (Energy Minerals) 157,800 600 Mobile Telesystems, A.D.R. (Communications) 73,200 1,500 Vimpel Communications, A.D.R. (Communications) (3) 144,675 2,200 Yukos, A.D.R. (Energy Minerals) 69,960 ------------------- 445,635 ------------------- SINGAPORE (3.7%) 12,097 DBS Group Holdings, Ltd. (Finance) 101,133 54,000 Neptune Orient Lines, Ltd. (Transportation) 73,988 12,000 Venture Corp., Ltd. (Electronic Tech.) 125,403 ------------------- 300,524 ------------------- SOUTH KOREA (16.6%) 700 Cheil Communications, Inc. (Commercial Services) 95,110 16,007 Industrial Bank of Koea (Finance) 100,844 2,200 Kookmin Bank (Finance) 68,351 600 Kookmin Bank, A.D.R. (Finance) 18,828 5,000 POSCO, A.D.R. (Non-Energy Minerals) 167,550 1,269 Samsung Electronics (Electronic Technology) 523,854 8,100 Shinhan Financial Group (Finance) 117,767 570 Shinsegae Co., Ltd. (Retail Trade) 137,135 5,100 SK Telecom Co., A.D.R. (Communications) 107,049 ------------------- 1,336,488 ------------------- TAIWAN (5.5%) 52,000 Cathay Financial Holding Co., Ltd. (Finance) 93,520 82,000 Chinatrust Financial Holding Co., Ltd. (Finance) 91,409 179,460 Taiwan Semiconductor Co. (Electronic Technology) 258,200 ------------------- 443,129 ------------------- 40 - --------------------------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - --------------------------------------------------------------------------------------------------- THAILAND (4.9%) 94,600 Advanced Info Service Public Co., Ltd. 205,929 (Communications) 50,600 Bangkok Bank Public Co., Ltd. (Finance) (3) 121,905 278,800 Land & Houses Public Co., Ltd. (Consumer Durables) 66,487 ------------------- 394,321 ------------------- EUROPE (3.5%) GREECE (0.6%) 1,500 Tsakos Energy Navigation, Ltd., A.D.R. (Transportation) 50,940 ------------------- ROMANIA (1.4%) 5,000 Central European Media Enterprises, Ltd. (Consumer Services) (3) 113,600 ------------------- SPAIN (1.5%) 2,592 Telefonica, A.D.R. (Communications) 115,681 ------------------- LATIN AMERICA (19.5%) BRAZIL (8.8%) 1,993 Banco Bradesco S.A. (Finance) 91,586 1,500 Brasil Telecom, A.D.R. (Communications) 46,050 1,700 Companhia Vale do Rio Doce, A.D.R. (Non-Energy Minerals) 80,835 3,883 Embraer de Aeronautica, A.D.R. (Transportation) 111,015 4,900 Pao de Acucar, A.D.R. (Retail Trade) 84,770 5,860 Petrobras (Energy Minerals) 145,507 2,800 Petrobras, A.D.R. (Energy Minerals) 78,596 5,600 Tele Norte Leste Participacoes, A.D.R. (Communications) 71,288 ------------------- 709,647 ------------------- MEXICO (10.7%) 5,200 America Movil, A.D.R. (Communications) 189,124 4,100 Grupo Televisa S.A., A.D.R. (Consumer Services) 185,607 500 Homex, A.D.R. (Consumer Durables) (3) 8,655 4,500 NII Holdings, Inc. (Communications) (3) 151,605 3,900 Telefonos de Mexico, A.D.R. (Communications) 129,753 64,770 Wal-Mart de Mexico (Retail Trade) 192,069 ------------------- 856,813 ------------------- Total common stocks 7,536,854 (cost: $6,585,068) ------------------- - --------------------------------------------------------------------------------------------------- QUANTITY NAME OF ISSUER MARKET VALUE($)(1) - --------------------------------------------------------------------------------------------------- CLOSED-END MUTUAL FUND (5.3%) (2) 19,640 India Fund (Consumer Services) 421,867 ------------------- (cost: $336,404) SHORT-TERM SECURITIES (0.5%) (2) 38,000 Sit Money Market Fund, 0.65% (4) 38,000 ------------------- (cost: $38,000) Total investments in securities (cost: $6,959,472) (5) $7,996,721 =================== See accompanying notes to portfolios of investments on page 42. 41 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, 2004, the cost of securities for federal income tax purposes and the aggregate gross unrealized appreciation and depreciation based on that cost were as follows: DIVIDEND LARGE CAP MID CAP BALANCED GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------- ------------- ------------- ------------- Cost for federal income tax purposes $ 11,591,961 $ 6,921,406 $ 55,515,411 $ 159,241,847 ============= ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 1,292,605 $ 309,139 $ 12,008,192 $ 51,335,120 Gross unrealized depreciation (511,057) (191,543) (3,993,312) (5,365,983) ------------- ------------- ------------- ------------- Net unrealized appreciation (depreciation) $ 781,548 $ 117,596 $ 8,014,880 $ 45,969,137 ============= ============= ============= ============= SCIENCE AND DEVELOPING INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH FUND FUND FUND FUND ------------- ------------- ------------- ------------- Cost for federal income tax purposes $ 31,576,035 $ 172,558,770 $ 16,053,010 $ 6,959,472 ============= ============= ============= ============= Unrealized appreciation (depreciation) on investments: Gross unrealized appreciation $ 4,536,027 $ 41,277,888 $ 4,765,556 $ 1,630,143 Gross unrealized depreciation (1,903,973) (14,422,252) (2,001,662) (592,894) ------------- ------------- ------------- ------------- Net unrealized appreciation (depreciation) $ 2,632,054 $ 26,855,636 $ 2,763,894 $ 1,037,249 ============= ============= ============= ============= 42 This page has been left blank intentionally. 43 SIT MUTUAL FUNDS JUNE 30, 2004 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES DIVIDEND LARGE CAP MID CAP BALANCED GROWTH GROWTH GROWTH ASSETS FUND FUND FUND FUND --------------- --------------- --------------- --------------- Investments in securities, at identified cost $ 11,500,061 $ 6,916,818 $ 55,394,308 $ 158,924,361 =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 12,373,509 $ 7,039,002 $ 63,530,291 $ 205,210,984 Cash in bank on demand deposit 284 987 566 1,084 Receivables: Dividends and accrued interest 45,004 12,941 39,506 38,172 Fund shares sold 893 268 2,028 6,945 Investment securities sold 38,056 -- 250,384 1,790,457 Other receivables 97 -- 10,623 -- --------------- --------------- --------------- --------------- Total assets 12,457,843 7,053,198 63,833,398 207,047,642 --------------- --------------- --------------- --------------- LIABILITIES Payables: Disbursements in excess of cash balances -- -- -- -- Investment securities purchased -- 175,815 -- 1,762,478 Fund shares redeemed -- -- 5,979 -- Accrued investment management and advisory services fee 10,461 5,526 53,105 190,420 Other payables 6,115 84 -- 148,948 --------------- --------------- --------------- --------------- Total liabilities 16,576 181,425 59,084 2,101,846 --------------- --------------- --------------- --------------- Net assets applicable to outstanding capital stock 12,441,267 6,871,773 63,774,314 204,945,796 =============== =============== =============== =============== 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 901,619 677,743 1,995,414 20,035,258 =============== =============== =============== =============== Net asset value per share of outstanding capital stock $ 13.80 $ 10.14 $ 31.96 $ 10.23 =============== =============== =============== =============== 44 SCIENCE AND DEVELOPING INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH ASSETS FUND FUND FUND FUND --------------- --------------- --------------- --------------- Investments in securities, at identified cost $ 31,573,199 $ 172,514,412 $ 15,909,223 $ 6,959,472 =============== =============== =============== =============== Investments in securities, at market value - see accompanying schedule for detail $ 34,208,089 $ 199,414,406 $ 18,816,904 $ 7,996,721 Cash in bank on demand deposit -- 1,438 80 6 Receivables: Dividends and accrued interest 58,077 37,956 1,589 16,899 Fund shares sold 698 24,418 722 538 Investment securities sold 206,004 1,466,531 847,734 33,885 Other receivables -- 49,671 -- 4,534 --------------- --------------- --------------- --------------- Total assets 34,472,868 200,994,420 19,667,029 8,052,583 --------------- --------------- --------------- --------------- LIABILITIES Payables: Disbursements in excess of cash balances 16,465 -- -- -- Investment securities purchased 97,320 916,354 578,538 7,900 Fund shares redeemed -- 27,250 523 678 Accrued investment management and advisory services fee 46,839 240,454 20,588 13,587 Other payables 30,911 -- 13,856 -- --------------- --------------- --------------- --------------- Total liabilities 191,535 1,184,058 613,505 22,165 --------------- --------------- --------------- --------------- Net assets applicable to outstanding capital stock 34,281,333 199,810,362 19,053,524 8,030,418 =============== =============== =============== =============== 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 3,048,686 7,899,375 1,901,124 812,028 =============== =============== =============== =============== Net asset value per share of outstanding capital stock $ 11.24 $ 25.29 $ 10.02 $ 9.89 =============== =============== =============== =============== See accompanying notes to financial statements 45 SIT MUTUAL FUNDS ONE YEAR ENDED JUNE 30, 2004 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS DIVIDEND LARGE CAP BALANCED GROWTH GROWTH FUND FUND(1) FUND ----------- ----------- ----------- Investment income: INCOME: Dividends * $ 145,267 $ 72,161 $ 626,008 Interest 262,469 1,417 4,985 ----------- ----------- ----------- Total income 407,736 73,578 630,993 ----------- ----------- ----------- EXPENSES (NOTE 3): Investment management and advisory services fee 158,200 26,384 619,904 Less fees and expenses absorbed by investment adviser -- -- -- ----------- ----------- ----------- Total net expenses 158,200 26,384 619,904 ----------- ----------- ----------- Net investment income (loss) 249,536 47,194 11,089 ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS : Net realized gain (loss) (328,461) (52,229) 35,909 Net change in unrealized appreciation (depreciation) on investments 1,977,363 122,183 10,525,661 Realized gain (loss) on foreign currency transactions -- -- -- Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- -- ----------- ----------- ----------- Net gain (loss) on investments 1,648,902 69,954 10,561,570 ----------- ----------- ----------- Net increase (decrease) in net assets resulting from operations $ 1,898,438 $ 117,148 $10,572,659 =========== =========== =========== - ---------------------- * Dividends are net of foreign withholding tax of $71,907 and $21,168 in the International Growth Fund and Developing Markets Growth Fund, respectively. (1) Sit Dividend Growth Fund's inception date was December 31, 2003. 46 SCIENCE AND DEVELOPING MID CAP INTERNATIONAL SMALL CAP TECHNOLOGY MARKETS GROWTH GROWTH GROWTH GROWTH GROWTH FUND FUND FUND FUND FUND ------------ ------------ ------------ ------------ ------------ $ 805,123 $ 784,704 $ 783,380 $ 24,667 $ 217,112 25,327 4,464 46,013 2,130 1,581 ------------ ------------ ------------ ------------ ------------ 830,450 789,168 829,393 26,797 218,693 ------------ ------------ ------------ ------------ ------------ 2,374,046 892,289 3,144,929 266,261 184,656 (189,924) (168,811) -- (26,626) -- ------------ ------------ ------------ ------------ ------------ 2,184,122 723,478 3,144,929 239,635 184,656 ------------ ------------ ------------ ------------ ------------ (1,353,672) 65,690 (2,315,536) (212,838) 34,037 ------------ ------------ ------------ ------------ ------------ 5,815,043 (1,775,854) 14,565,264 (1,707,683) 719,270 39,458,539 12,560,072 18,475,012 5,578,478 1,166,461 -- 1,398 -- -- 63 -- (907) -- -- (12) ------------ ------------ ------------ ------------ ------------ 45,273,582 10,784,709 33,040,276 3,870,795 1,885,782 ------------ ------------ ------------ ------------ ------------ $ 43,919,910 $ 10,850,399 $ 30,724,740 $ 3,657,957 $ 1,919,819 ============ ============ ============ ============ ============ See accompanying notes to financial statements. 47 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS BALANCED DIVIDEND FUND GROWTH FUND ----------------------------- ---------------------------- SIX MONTHS YEAR ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Operations: Net investment income (loss) $ 249,536 $ 402,738 $ 47,194 -- Net realized gain (loss) on investments (328,461) (1,647,606) (52,229) -- Net change in unrealized appreciation (depreciation) on investments 1,977,363 1,829,489 122,183 -- Net realized gain (loss) on foreign currency transactions -- -- -- -- Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- -- -- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 1,898,438 584,621 117,148 -- ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (273,000) (455,000) (20,000) -- Net realized gains on investments -- -- -- -- ------------ ------------ ------------ ------------ Total distributions (273,000) (455,000) (20,000) -- ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 2,328,446 4,198,470 6,831,427 -- Reinvested distributions 270,870 450,934 16,785 -- Payments for shares redeemed (7,848,359) (6,539,306) (73,587) -- ------------ ------------ ------------ ------------ Increase (decrease) in net assets from capital share transactions (5,249,043) (1,889,902) 6,774,625 -- ------------ ------------ ------------ ------------ Total increase (decrease) in net assets (3,623,605) (1,760,281) 6,871,773 -- NET ASSETS Beginning of period 16,064,872 17,825,153 -- -- ------------ ------------ ------------ ------------ End of period $ 12,441,267 $ 16,064,872 $ 6,871,773 -- ============ ============ ============ ============ NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 17,228,390 $ 22,477,433 $ 6,774,625 -- Undistributed (distributions in excess of) net investment income 57,274 80,738 27,194 -- Accumulated net realized gain (loss) from security transactions and foreign currency transactions (5,717,845) (5,389,384) (52,229) -- Unrealized appreciation (depreciation) on investments 873,448 (1,103,915) 122,183 -- Unrealized appreciation (depreciation) on foreign currency transactions -- -- -- -- ------------ ------------ ------------ ------------ $ 12,441,267 $ 16,064,872 $ 6,871,773 -- ============ ============ ============ ============ CAPITAL TRANSACTIONS IN SHARES: Sold 176,186 359,102 683,421 -- Reinvested distributions 20,770 39,140 1,659 -- Redeemed (584,099) (559,312) (7,337) -- ------------ ------------ ------------ ------------ Net increase (decrease) (387,143) (161,070) 677,743 -- ============ ============ ============ ============ 48 LARGE CAP MID CAP INTERNATIONAL SMALL CAP GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND - ----------------------------- ------------------------------- ------------------------------ ------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2004 2003 2004 2003 2004 2003 2004 2003 - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 11,089 $ 43,757 ($ 1,353,672) ($ 1,124,324) $ 65,690 $ 420,128 ($ 2,315,536) ($ 1,567,958) 35,909 (6,536,986) 5,815,043 (29,541,134) (1,775,854) (11,557,686) 14,565,264 (24,258,198) 10,525,661 7,056,934 39,458,539 31,743,942 12,560,072 4,260,724 18,475,012 29,931,512 -- -- -- -- 1,398 4,027 -- -- -- -- -- -- (907) (2,822) -- -- - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- 10,572,659 563,705 43,919,910 1,078,484 10,850,399 (6,875,629) 30,724,740 4,105,356 - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- (43,757) -- -- -- (424,155) -- -- -- -- -- -- -- -- -- -- -- - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- (43,757) -- -- -- (424,155) -- -- -- - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- 6,125,777 10,694,474 20,601,327 36,506,428 41,670,314 232,337,183 47,306,303 59,140,518 42,592 -- -- -- 372,107 -- -- -- (12,246,650) (15,773,839) (29,747,977) (48,759,036) (66,720,583) (246,748,641) (61,132,401) (61,017,722) - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- (6,078,281) (5,079,365) (9,146,650) (12,252,608) (24,678,162) (14,411,458) (13,826,098) (1,877,204) - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- 4,450,621 (4,515,660) 34,773,260 (11,174,124) (14,251,918) (21,287,087) 16,898,642 2,228,152 59,323,693 63,839,353 170,172,536 181,346,660 48,533,251 69,820,338 182,911,720 180,683,568 - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 63,774,314 $ 59,323,693 $ 204,945,796 $ 170,172,536 $ 34,281,333 $ 48,533,251 $ 199,810,362 $ 182,911,720 ============ ============= ============= ============= ============= ============= ============= ============= $ 79,197,308 $ 85,275,589 $ 218,524,080 $ 229,024,402 $ 67,697,453 $ 92,375,615 $ 238,475,932 $ 254,617,566 11,089 43,757 -- -- 67,088 424,155 -- -- (23,570,065) (23,605,974) (59,864,906) (65,679,949) (36,118,048) (34,342,194) (65,565,565) (80,130,829) 8,135,982 (2,389,679) 46,286,622 6,828,083 2,634,891 (9,925,181) 26,899,995 8,424,983 -- -- -- -- (51) 856 -- -- - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 63,774,314 $ 59,323,693 $ 204,945,796 $ 170,172,536 $ 34,281,333 $ 48,533,251 $ 199,810,362 $ 182,911,720 ============ ============= ============= ============= ============= ============= ============= ============= 206,906 436,179 2,202,389 5,098,620 4,305,121 26,277,940 1,954,480 3,132,916 1,477 -- -- -- 34,907 -- -- -- (416,723) (650,676) (3,270,060) (6,920,288) (6,461,642) (27,581,341) (2,506,823) (3,260,004) - ------------ ------------- ------------- ------------- ------------- ------------- ------------- ------------- (208,340) (214,497) (1,067,671) (1,821,668) (2,121,614) (1,303,401) (552,343) (127,088) ============ ============= ============= ============= ============= ============= ============= ============= See accompanying notes to financial statements on page 52. 49 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, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss) ($ 212,838) ($ 133,456) $ 34,037 $ 28,009 Net realized gain (loss) on investments (1,707,683) (5,718,058) 719,270 (692,664) Net change in unrealized appreciation (depreciation) on investments 5,578,478 6,706,666 1,166,461 684,551 Net realized gain (loss) on foreign currency transactions -- -- 63 (65) Net change in unrealized appreciation (depreciation) on foreign currency transactions -- -- (12) 12 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 3,657,957 855,152 1,919,819 19,843 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- (49,000) -- Net realized gains on investments -- -- -- -- ------------- ------------- ------------- ------------- Total distributions -- -- (49,000) -- ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 4,677,690 5,517,587 11,204,371 37,920,464 Reinvested distributions -- -- 47,680 -- Payments for shares redeemed (4,481,796) (5,190,596) (13,669,722) (40,613,325) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions 195,894 326,991 (2,417,671) (2,692,861) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 3,853,851 1,182,143 (546,852) (2,673,018) NET ASSETS Beginning of period 15,199,673 14,017,530 8,577,270 11,250,288 ------------- ------------- ------------- ------------- End of period $ 19,053,524 $ 15,199,673 $ 8,030,418 $ 8,577,270 ============= ============= ============= ============= NET ASSETS CONSIST OF: Capital (par value and paid-in surplus) $ 38,270,535 $ 38,287,479 $ 9,827,445 $ 12,245,116 Undistributed (distributions in excess of) net investment income -- -- 13,044 27,944 Accumulated net realized gain (loss) from security transactions and foreign currency transactions (22,124,692) (20,417,009) (2,847,313) (3,566,583) Unrealized appreciation (depreciation) on investments 2,907,681 (2,670,797) 1,037,249 (129,212) Unrealized appreciation (depreciation) on foreign currency transactions -- -- (7) 5 ------------- ------------- ------------- ------------- $ 19,053,524 $ 15,199,673 $ 8,030,418 $ 8,577,270 ============= ============= ============= ============= CAPITAL TRANSACTIONS IN SHARES: Sold 513,364 772,939 1,243,812 5,153,943 Reinvested distributions -- -- 4,895 -- Redeemed (500,435) (749,462) (1,493,266) (5,486,325) ------------- ------------- ------------- ------------- Net increase (decrease) 12,929 23,477 (244,559) (332,382) ============= ============= ============= ============= 50 See accompanying notes to financial statements on page 52. This page has been left blank intentionally. 51 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- 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 Dividend 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 growth consistent with the preservation of principal and to provide regular income. - --------------------------------------------------------------------------------------------------------------------- Dividend Growth Provide regular income and maximize long-term capital appreciation. - --------------------------------------------------------------------------------------------------------------------- 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: SHORT-TERM (REDEMPTION) FEES The Funds (except Balanced) charge a redemption fee equal to 2.00% of the proceeds on shares held for less than 30 calendar days. The fee is retained by the Fund for the benefit of its long-term shareholders and accounted for as an addition to paid in capital. 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 52 are valued at fair value as determined in good faith using procedures established by the Board of Directors, which may include dealer supplied valuations. Debt securities maturing in less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued at amortized cost. Security transactions are accounted for on the date the securities are purchased or sold. Securities gains and losses are calculated on the identified-cost basis. Dividend income is recorded on the ex-dividend date or upon the receipt of ex-dividend notification in the case of certain foreign securities. Interest, including level-yield amortization of long-term bond premium and discount, is recorded on the accrual basis. ILLIQUID SECURITIES Each Fund currently limits investments in illiquid securities to 15% of net assets. At June 30, 2004, 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: 53 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) YEAR ENDED JUNE 30, 2004: Ordinary Long Term Income Capital Gain Total ------ ------------ ----- Balanced $273,000 ----- $273,000 Dividend Growth 20,000 ----- 20,000 Large Cap Growth 43,757 ----- 43,757 Mid Cap Growth ----- ----- ----- International Growth 424,155 ----- 424,155 Small Cap Growth ----- ----- ----- Science & Technology Growth ----- ----- ----- Developing Markets Growth 49,000 ----- 49,000 YEAR ENDED JUNE 30, 2003: Ordinary Long Term Income Capital Gain Total ------ ------------ ----- Balanced $455,000 ----- $455,000 Dividend Growth ----- ----- ----- Large Cap Growth ----- ---- ----- Mid Cap Growth ----- ----- ----- International Growth ----- ----- ----- Small Cap Growth ----- ----- ----- Science & Technology Growth ----- ----- ----- Developing Markets Growth ----- ----- ----- As of June 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed Accumulated Unrealized Ordinary Capital Appreciation Income Gain (Loss) (Depreciation) ------ ----------- -------------- Balanced $57,274 ($5,625,945) $781,548 Dividend Growth 27,194 (47,641) 117,596 Large Cap Growth 11,089 (23,448,962) 8,014,880 Mid Cap Growth ----- (59,547,420) 45,969,137 International Growth 68,061 (36,116,184) 2,632,003 Small Cap Growth ----- (65,521,207) 26,855,636 Science & Technology Growth ----- (21,980,905) 2,763,894 Developing Markets Growth 13,236 (2,847,504) 1,037,242 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: 54 Undistributed Accumulated Additional Net Investment Net Realized Paid-in Income Gain (Loss) Capital ------ ----------- ------- Mid Cap Growth 1,353,672 ----- (1,353,672) International Growth 1,398 (1,398) ----- Small Cap Growth 2,315,536 ----- (2,315,536) Science & Technology Growth 212,838 ----- (212,838) Developing Markets Growth 63 (63) ----- As of June 30, 2004, for federal income tax purposes, some Funds have capital loss carryovers that, if not offset by subsequent capital gains, will begin to expire as follows: Loss Carryover Expiration Years -------------- ---------------- Balanced $5,625,945 2010 - 2013 Dividend Growth 47,641 2013 Large Cap Growth 23,448,962 2010 - 2013 Mid Cap Growth 59,547,420 2010 - 2012 International Growth 36,116,184 2009 - 2013 Small Cap Growth 65,521,207 2010 - 2012 Science & Technology Growth 21,980,905 2010 - 2013 Developing Markets Growth 2,847,504 2008 - 2013 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 and Dividend Growth Funds 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. 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. 55 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (continued) (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, 2004, were as follow: Purchases ($) Proceeds ($) ------------- ------------ Balanced Fund 6,957,762 12,412,652 Dividend Growth 7,168,303 745,255 Large Cap Growth Fund 18,035,034 24,017,521 Mid Cap Growth Fund 120,601,003 128,706,772 International Growth Fund 20,717,857 45,783,975 Small Cap Growth Fund 131,127,662 141,251,937 Science and Technology Growth Fund 9,613,601 9,740,266 Developing Markets Growth Fund 2,973,057 4,883,927 (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: Contractual Net of Adviser's Management Voluntary Fee Fee Waiver --- ------ Balanced Fund 1.00% 1.00% Dividend Growth 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. 56 The Funds invest 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. The Funds owned the following shares as of June 30, 2004: Fund Shares ---- ------ Balanced Fund 283,000 Dividend Growth Fund 546,000 Large Cap Growth Fund 803,000 Mid Cap Growth Fund 5,662,000 International Growth Fund 736,000 Small Cap Growth Fund 4,730,000 Science and Technology Growth Fund 93,000 Developing Markets Growth Fund 38,000 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 $382,674 were paid or payable to SKI for the year ended June 30, 2004. 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, 2004: % Shares Shares Outstanding ------ ----------- Balanced Fund 233,567 25.9 Dividend Growth Fund 222,969 32.9 Large Cap Growth Fund 466,714 23.4 Mid Cap Growth Fund 3,087,559 15.4 International Growth Fund 728,245 23.9 Small Cap Growth Fund 965,971 12.2 Science and Technology Growth Fund 677,410 35.6 Developing Markets Growth Fund 161,880 19.9 57 SIT BALANCED FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Years Ended June 30, ---------------------------------------------------------------------- 2004 2003 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 12.47 $ 12.29 $ 15.33 $ 19.18 $ 17.38 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (2) .21 .29 .36 .46 .40 Net realized and unrealized gains (losses) on investments 1.34 .22 (3.01) (3.51) 2.51 - ---------------------------------------------------------------------------------------------------------------------------------- Total from operations 1.55 .51 (2.65) (3.05) 2.91 - ---------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.22) (.33) (.38) (.48) (.37) From realized gains -- -- (.01) (.32) (.74) - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.22) (.33) (.39) (.80) (1.11) - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 13.80 $ 12.47 $ 12.29 $ 15.33 $ 19.18 - ---------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 12.53% 4.43% (17.62%) (16.39%) 17.28% - ---------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 12,441 $ 16,065 $ 17,825 $ 24,947 $ 19,304 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 1.58% 2.54% 2.52% 2.89% 2.34% Portfolio turnover rate (excluding short-term securities) 44.82% 48.86% 53.53% 63.32% 68.22% - ----------- (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 DIVIDEND GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Six months ended June 30, 2004(*) - ------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $10.00 - ------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) (2) .08 Net realized and unrealized gains (losses) on investments .10 - ------------------------------------------------------------------------------ Total from operations .18 - ------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.04) From realized gains ---- - ------------------------------------------------------------------------------ Total distributions (.04) - ------------------------------------------------------------------------------ NET ASSET VALUE: End of period $10.14 - ------------------------------------------------------------------------------ Total investment return (1) 1.75% - ------------------------------------------------------------------------------ Net assets at end of period (000's omitted) $6,872 RATIOS: Expenses to average daily net assets 1.00% (3) Net investment income (loss) to average daily net assets 1.79% (3) Portfolio turnover rate (excluding short-term securities) 13.67% - ----------- (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. (3) Percentages for the period June 30, 2004 are adjusted to an annual rate. (*) Fund's inception date was December 31, 2003. See accompanying notes to financial statements on page 52. 59 SIT LARGE CAP GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Years Ended June 30, ------------------------------------------------------------------ 2004 2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 26.92 $ 26.40 $ 38.99 $ 63.66 $ 52.84 ---------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (2) .01 .02 (.08) (.16) (.18) Net realized and unrealized gains (losses) on investments 5.05 .50 (12.17) (19.48) 14.41 ---------------------------------------------------------------------------------------------------------------------------- Total from operations 5.06 .52 (12.25) (19.64) 14.23 ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.02) -- -- -- -- From realized gains -- -- (.34) (5.03) (3.41) ---------------------------------------------------------------------------------------------------------------------------- Total distributions (.02) -- (.34) (5.03) (3.41) ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 31.96 $ 26.92 $ 26.40 $ 38.99 $ 63.66 ---------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 18.81% 1.97% (31.63%) (32.92%) 27.75% ---------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 63,774 $ 59,324 $ 63,839 $ 122,829 $ 172,400 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 0.02% 0.08% (0.25%) (0.33%) (0.31%) Portfolio turnover rate (excluding short-term securities) 29.71% 33.40% 34.74% 45.26% 48.95% - ----------- (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 SIT MID CAP GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Years Ended June 30, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 8.06 $ 7.91 $ 12.37 $ 23.57 $ 14.54 - ------------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) (3) (.07) (.05) (.07) (.08) (.12) Net realized and unrealized gains (losses) on investments 2.24 .20 (4.16) (7.05) 10.38 - ------------------------------------------------------------------------------------------------------------------------------ Total from operations 2.17 .15 (4.23) (7.13) 10.26 - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- -- From realized gains -- -- (.23) (4.07) (1.23) - ------------------------------------------------------------------------------------------------------------------------------ Total distributions -- -- (.23) (4.07) (1.23) - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: End of period $ 10.23 $ 8.06 $ 7.91 $ 12.37 $ 23.57 - ------------------------------------------------------------------------------------------------------------------------------ Total investment return (1) 26.92% 1.90% (34.66%) (35.21%) 73.01% - ------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period (000's omitted) $204,946 $170,173 $181,347 $360,037 $566,639 RATIOS: Expenses to average daily net assets 1.15% (2) 1.15% (2) 1.15% (2) 1.06% (2) 1.00% (2) Net investment income (loss) to average daily net assets (0.71%)(2) (0.73%)(2) (0.79%)(2) (0.49%)(2) (0.58%)(2) Portfolio turnover rate (excluding short-term securities) 65.14% 53.19% 60.88% 56.21% 62.21% - ----------- (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, 2004, 2003, 2002, 2001, and 2000, 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 (0.81%), (0.83%), (0.89%), (0.68%), and (0.83%), 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 52. 61 SIT INTERNATIONAL GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Years Ended June 30, ----------------------------------------------------------------- 2004 2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $ 9.39 $ 10.79 $ 14.61 $ 23.58 $ 18.77 - ------------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) (3) .01 .07 (.03) (.03) (.04) Net realized and unrealized gains (losses) on investments 1.92 (1.47) (3.79) (8.42) 6.36 - ------------------------------------------------------------------------------------------------------------------------------ Total from operations 1.93 (1.40) (3.82) (8.45) 6.32 - ------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.08) -- -- -- (.23) From realized gains -- -- -- (.52) (1.28) - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.08) -- -- (.52) (1.51) - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: End of period $ 11.24 $ 9.39 $ 10.79 $ 14.61 $ 23.58 - ------------------------------------------------------------------------------------------------------------------------------ Total investment return (1) 20.63% (12.97%) (26.15%) (36.43%) 33.38% - ------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period (000's omitted) $34,281 $48,533 $ 69,820 $123,085 $167,909 RATIOS: Expenses to average daily net assets 1.50%(2) 1.50%(2) 1.50% (2) 1.50% (2) 1.50% (2) Net investment income (loss) to average daily net assets 0.14%(2) 0.81%(2) (0.22%)(2) (0.20%)(2) (0.40%)(2) Portfolio turnover rate (excluding short-term securities) 44.37% 21.02% 25.78% 25.22% 30.61% - ----------- (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, 2004, 2003, 2002, 2001, and 2000, 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 (.21%), 0.46%, (0.57%), (0.55%), and (0.75%), respectively. (3) The net investment income (loss) per share is based on average shares outstanding for the period. 62 SIT SMALL CAP GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Years Ended June 30, --------------------------------------------------------------- 2004 2003 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 21.64 $ 21.06 $ 28.99 $ 41.35 $ 18.28 - --------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (2) (.27) (.18) (.24) (.13) (.18) Net realized and unrealized gains (losses) on investments 3.92 .76 (7.65) (11.65) 23.25 - --------------------------------------------------------------------------------------------------------------------------- Total from operations 3.65 .58 (7.89) (11.78) 23.07 - --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From realized gains -- -- (.04) (.58) -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions -- -- (.04) (.58) -- - --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 25.29 $ 21.64 $ 21.06 $ 28.99 $ 41.35 - --------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 16.87% 2.75% (27.24%) (28.79%) 126.20% - --------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 199,810 $ 182,912 $ 180,684 $ 227,888 $ 190,630 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 (1.10%) (1.00%) (0.99%) (0.41%) (0.83%) Portfolio turnover rate (excluding short-term securities) 65.79% 59.98% 65.25% 39.91% 39.31% - ----------- (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 52. 63 SIT SCIENCE AND TECHNOLOGY GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Years Ended June 30, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: Beginning of period $ 8.05 $ 7.52 $ 15.23 $ 33.38 $ 15.23 - ------------------------------------------------------------------------------------------------------------------------------- Operations: Net investment income (loss) (3) (.11) (.07) (.12) (.19) (.17) Net realized and unrealized gains (losses) on investments 2.08 .60 (7.58) (17.10) 18.32 - ------------------------------------------------------------------------------------------------------------------------------- Total from operations 1.97 .53 (7.70) (17.29) 18.15 - ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- -- From realized gains -- -- (.01) (.86) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions -- -- (.01) (.86) -- - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 10.02 $ 8.05 $ 7.52 $ 15.23 $ 33.38 - ------------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 24.47% 7.05% (50.57%) (52.96%) 119.17% - ------------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 19,054 $ 15,200 $ 14,018 $ 30,453 $ 46,173 RATIOS: Expenses to average daily net assets 1.35% (2) 1.35% (2) 1.35% (2) 1.29% (2) 1.25% (2) Net investment income (loss) to average net assets (1.20%)(2) (1.05%)(2) (1.06%)(2) (0.94%)(2) (0.86%)(2) Portfolio turnover rate (excluding short-term securities) 55.54% 49.67% 76.78% 34.59% 29.60% - ----------- (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, 2004, 2003, 2002, 2001, and 2000, 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 (1.35%), (1.20%), (1.21%), (1.15%), and (1.11%), respectively. (3) The net investment income (loss) per share is based on average shares outstanding for the period. 64 SIT DEVELOPING MARKETS GROWTH FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Years Ended June 30, ------------------------------------------------------------------ 2004 2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE: Beginning of period $ 8.12 $ 8.10 $ 9.17 $ 13.43 $ 9.98 - ----------------------------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) (2) .04 .02 (.02) -- (.06) Net realized and unrealized gains (losses) on investments 1.78 -- (1.05) (4.26) 3.51 - ----------------------------------------------------------------------------------------------------------------------------- Total from operations 1.82 .02 (1.07) (4.26) 3.45 - ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (.05) -- -- -- -- From realized gains -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.05) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: End of period $ 9.89 $ 8.12 $ 8.10 $ 9.17 $ 13.43 - ----------------------------------------------------------------------------------------------------------------------------- Total investment return (1) 22.48% 0.25% (11.66%) (31.72%) 34.57% - ----------------------------------------------------------------------------------------------------------------------------- Net assets at end of period (000's omitted) $ 8,030 $ 8,577 $ 11,250 $ 13,877 $ 14,676 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 0.37% 0.31% (0.20%) 0.02% (0.55%) Portfolio turnover rate (excluding short-term securities) 33.72% 6.61% 25.40% 21.87% 48.39% - ----------- (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 52. 65 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- 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 Dividend Growth 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, 2004, 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 years in the five-year 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004, 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 Dividend Growth 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, 2004 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 6, 2004 66 INFORMATION ABOUT DIRECTORS AND OFFICERS - -------------------------------------------------------------------------------- The Sit Mutual Funds are a family of 14 no-load mutual funds. The eight 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, Sit Dividend Growth Fund, and the Sit Science and Technology Growth Fund (the "Funds" or individually, a "Fund"). The six 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, Sit Dividend 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. - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF FUNDS IN FUND OTHER TERM OF OFFICE(1) COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR(4) - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED DIRECTORS: - ------------------------------------------------------------------------------------------------------------------------------------ Eugene C. Sit (2) Director and Director since Chairman, CEO and CIO of Sit 14 None Age: 65 Chairman inception. Investment Associates, Inc. (the "Adviser"); and Sit/Kim Interna- tional Investment Associates, Inc., ("Sit/Kim"); Director of SIA Securities Corp. (the "Distributor"); and Chairman and CEO of Sit Investment Fixed Income Advisors, Inc. ("SF") - ------------------------------------------------------------------------------------------------------------------------------------ William E. Frenzel (2) Director Director since 1991 Guest Scholar at the Brookings 14 None Age: 75 or the Fund's Institution and member of inception if later. several government policy committees, foundations and organizations. Advisory Director of the Adviser; Director of Sit/Kim and SF. - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT DIRECTORS: - ------------------------------------------------------------------------------------------------------------------------------------ John E. Hulse Director Director since 1995. Trustee, Pacific Gas & Electric 14 None Age: 71 Nuclear Decommissioning Trust. - ------------------------------------------------------------------------------------------------------------------------------------ Sidney L. Jones Director Director from 1988 Lecturer, Washington Campus 14 None Age: 70 to 1989 and from Consortium of 17 Universities; 1993 or the Fund's Senior Advisor to Lawrence and inception if later. Company, Toronto, Canada. 67 INFORMATION ABOUT DIRECTORS AND OFFICERS (CONTINUED) - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF FUNDS IN FUND OTHER TERM OF OFFICE(1) COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR(4) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT DIRECTORS: (CONTINUED) - ------------------------------------------------------------------------------------------------------------------------------------ Bruce C. Lueck Director Director since President & CIO, Okabena 14 None Age: 63 2004. Investment Services, Inc. from 1985 to 2003; Board Member, Okabena Company from 1985 to 2003; Board Member, Zephyr Management, L.P. from 1995 to present. - ------------------------------------------------------------------------------------------------------------------------------------ Donald Phillips Director Director of the CEO and CIO of WestLB Asset 14 None Age: 56 International Fund Management (USA) LLC, 4/00 since 1993 and since to present; President of 1990 or the Fund s Forstmann-Leff International, inception if later for Inc. (an investment adviser) all other Funds. from 1997 to 4/00. - ------------------------------------------------------------------------------------------------------------------------------------ Melvin C. Bahle Director Director Emeritus Director and/or officer of 14 None Age: 84 Emeritus since 1995. several foundations and charitable organizations. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS: - ------------------------------------------------------------------------------------------------------------------------------------ Peter L. Mitchelson Vice Chairman Re-Elected by the Director and President of the N/A N/A Age: 63 Boards annually; Adviser; Director and Officer since Executive Vice President of inception. Sit/Kim; Director of the Distributor; and Vice Chairman of SF. Director of the Sit Funds through 4/30/02. - ------------------------------------------------------------------------------------------------------------------------------------ Roger J. Sit (3) Executive Vice Re-Elected by the Present: Executive Vice N/A N/A Age: 42 President Boards annually; President - Research and Officer since 1998. Investment Management of the Adviser; Director, President, COO and Deputy CIO of Sit/ Kim. - ------------------------------------------------------------------------------------------------------------------------------------ Erik S. Anderson Vice President - Re-Elected by the Vice President - Research and N/A N/A Age: 60 Investments Boards annually; Investment Management of the Officer since 1991. Adviser. - ------------------------------------------------------------------------------------------------------------------------------------ Ronald D. Sit (3) Vice President - Re-Elected by the Vice President - Research and N/A N/A Age: 44 Investments Boards annually; Investment Management of Officer since 1985. the Adviser. 68 - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF FUNDS IN FUND OTHER TERM OF OFFICE(1) COMPLEX DIRECTORSHIPS NAME, ADDRESS POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND AGE HELD WITH FUND TIME SERVED DURING PAST FIVE YEARS DIRECTOR DIRECTOR(4) - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS: (CONTINUED) - ------------------------------------------------------------------------------------------------------------------------------------ Robert W. Sit (3) Vice President - Re-Elected by the Vice President - Research and N/A N/A Age: 35 Investments Boards annually; Investment Management of Officer since 1997. the Adviser. - ------------------------------------------------------------------------------------------------------------------------------------ Bryce A. Doty Vice President - Re-Elected by the Vice President and Fixed N/A N/A Age: 37 Investments. Boards annually; Income Portfolio Manager of Balanced Fund only. Officer since 1996. SF. - ------------------------------------------------------------------------------------------------------------------------------------ Michael P. Eckert Vice President - Re-Elected by the Mutual Fund Institutional N/A N/A Age: 48 Institutional Client Boards annually; Client Group of Adviser. Group Officer since 1989. - ------------------------------------------------------------------------------------------------------------------------------------ Paul E. Rasmussen Vice President and Re-Elected by the Vice President, Secretary, N/A N/A Age: 43 Treasurer Boards annually; Controller and Chief Compli- Officer since 1994. ance Officer of the Adviser; Vice President, Secretary, and Chief Compliance Officer of Sit/Kim and SF; President of the Distributor. - ------------------------------------------------------------------------------------------------------------------------------------ Michael J. Radmer Secretary Re-Elected by the Partner of the Funds general N/A N/A Suite 1500 Boards annually; counsel, Dorsey & Whitney, 50 South Sixth Street Officer since 1984. LLP. Minneapolis, MN 55402 Age: 59 - ------------------------------------------------------------------------------------------------------------------------------------ Carla J. Rose Vice President, Re-Elected by the Vice President, Administra- N/A N/A Age: 38 Assistant Secretary Boards annually; tion & Deputy Controller of & Assistant Officer since 2000. the Adviser; Vice President, Treasurer Administration and Controller of Sit/Kim; Controller and Treasurer of SF. - ------------------------------------------------------------------------------------------------------------------------------------ Kelly K. Boston Assistant Secretary Re-Elected by the Staff Attorney of the Adviser. N/A N/A Age: 35 & Assistant Boards annually; Treasurer Officer since 2000. - ------------------------------------------------------------------------------------------------------------------------------------ (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. 69 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 7, 2003 $0.05325 December 9, 2003 0.05460 April 8, 2004 0.04736 July 8, 2004 0.06316 -------- $0.21837 (b) ======== Dividend Growth Fund April 8, 2004 $0.03511 July 8, 2004 0.03983 -------- $0.07493 (c) ======== Large Cap Growth Fund December 9, 2003 $0.02117 (d) ======== Developing Markets Growth Fund December 9, 2003 $0.05472 (e) ======== International Growth Fund December 9, 2003 $0.08249 (e) ======== (a) Includes distributions of short-term gains, if any, which are taxable as ordinary income. (b) Taxable as ordinary income, 49.48% qualifying for reduced dividend income tax rate for individuals. Taxable as ordinary income, 48.97% qualifying for dividends-received deduction by corporations. (c) Taxable as ordinary income, 100.00% qualifying for reduced dividend income tax rate for individuals. Taxable as ordinary income, 100.00% qualifying for dividends-received deduction by corporations. (d) Taxable as ordinary income, 100.00% qualifying for reduced dividend income tax rate for individuals. Taxable as ordinary income, 100.00% qualifying for dividends-received deduction by corporations. (e) Taxable as ordinary income, 100.00% qualifying for reduced dividend income tax rate for individuals. 70 PROXY VOTING POLICIES AND PROCEDURES, VOTING RECORD - -------------------------------------------------------------------------------- Each Fund follows certain policies and procedures for voting proxies for securities held in each portfolio. A description of the Funds proxy voting polices and procedures is available without charge upon request by calling the Funds at 1-800-332-5580. Information regarding how each Fund voted proxies relating to its portfolio securities during the most recent twelve-month period ended June 30 is available 1) without charge upon request by calling the Funds at 1-800-332-5580; and 2) on the U.S. Securities and Exchange Commission s website at http://www.sec.gov. 71 SIT MUTUAL FUNDS - -------------------------------------------------------------------------------- A Look at 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 $6.2 Billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds are comprised of fourteen 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 [FLOW CHART] - -------------------------------------------------------------------------------- SIT FAMILY OF FUNDS - -------------------------------------------------------------------------------- STABILITY: SAFETY OF PRINCIPAL AND CURRENT INCOME - ------------------------------------------------- Money Market INCOME: INCREASED INCOME - ------------------------ U.S. Government Securities Tax-Free Income Minnesota Tax-Free Income Florida Tax-Free Income Fund Bond GROWTH: LONG-TERM CAPITAL APPRECIATION AND INCOME - ------------------------------------------------- Balanced Dividend Growth Fund Large Cap Growth HIGH GROWTH: LONG-TERM CAPITAL APPRECIATION - ------------------------------------------- Mid Cap Growth International Growth Small Cap Growth Science and Technology Growth Developing Markets Growth Principal Stability & Current Income Growth Potential A N N U A L R E P O R T S T O C K F U N D S Year Ended June 30, 2004 INVESTMENT ADVISER AUDITORS Sit Investment Associates, Inc. KPMG LLP 80 South Eighth Street, Suite 3300 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 50 South Sixth Street, Suite 1500 SIA Securities Corp. Minneapolis, MN 55402 80 South Eighth Street, Suite 3300 Minneapolis, MN 55402 INVESTMENT SUB-ADVISER 612-334-5888 (Metro Area) 800-332-5580 (Developing Markets Growth Fund and International Growth Fund) CUSTODIAN Sit/Kim International Associates, Inc. 80 South Eighth Street, Suite 3300 The Northern Trust Company Minneapolis, MN 55402 50 South LaSalle Street 612-334-5888 (Metro Area) Chicago, IL 60675 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. The registrant's Board of Directors adopted an amendment to the Code of Ethics which requires the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, to report transactions in the registrant's shares quarterly. The amendment also prohibits such persons from purchasing or selling shares of the registrant's common stock for the purpose of arbitrage or market timing. 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, 3300 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402. Item 3: Audit Committee Financial Expert. The registrant's Board of Directors has determined that Mr. John E. Hulse, Mr. Sidney L. Jones, Mr. Bruce C. Lueck and Mr. Donald W. Phillips are audit committee financial experts serving on its audit committee. Mr. Hulse, Mr. Jones, Mr. Lueck and Mr. Phillips are independent for purposes of this item. Item 4: Principal Accountant Fees and Services (a) - (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant's principal accountant were as follows: 2004 2003 ----------------------------------------- --------------------------------------- Audit Audit Tax Other Audit Audit Tax Other Fees Related Fees Fees Fees Related Fees Fees ----- -------- ----- ---- ---- -------- ----- ---- FISCAL YEAR ENDED JUNE 30 Sit Mutual Funds, Inc. Sit International Growth Fund (series A) 19,500 0 3,600 1,786 19,500 0 3,480 0 Sit Balanced Fund (series B) 12,500 0 3,600 1,786 11,500 0 3,480 0 Sit Developing Markets Growth Fund (series C) 12,000 0 3,600 1,786 11,000 0 3,480 0 Sit Small Cap Growth Fund (series D) 15,500 0 3,600 1,786 15,000 0 3,480 0 Sit Science and Technology Growth Fund (series E) 12,500 0 3,600 1,786 11,500 0 3,480 0 Sit Dividend Growth Fund (series G) 12,000 0 3,600 1,786 0 0 0 0 ------ - ----- ----- - - - - Total Sit Mutual Funds, Inc. 84,000 0 21,600 10,716 68,500 0 17,400 0 Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, and/or are traditionally performed by the auditor. Tax fees include amounts related to tax compliance, tax planning, and tax advice. (e) (1) The Audit Committee is required to pre-approve audit and non-audit services performed for the registrant by the independent auditor in order to assure that the provision of such services does not impair the auditor's independence. The audit committee also is required to pre-approve certain non-audit services performed by the registrant's independent auditor for the registrant's investment adviser and certain of the adviser's affiliates if the services relate directly to the operations and financial reporting of the registrant. Services to be provided by the auditor must receive general pre-approval or specific pre-approval by the audit committee. Any proposed services exceeding pre-approved cost levels will require separate pre-approval by the audit committee. The audit committee may delegate pre-approval authority to the audit committee chairman. The chairman shall report any pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee does not delegate its responsibility to pre-approve services performed by the independent auditor to management. (2) Services included in (b) - (d) for which the auditors were engaged prior to the effective date of SEC rules relating to the pre-approval of non-audit services (May 6, 2003) were not approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Services included in (b) - (d) for which the auditors were engaged after the effective date of SEC rules relating to the pre-approval of non-audit services were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $108,200.00 and $121,300.00, respectively. (h) The registrant's audit committee has determined that the provision of non-audit services rendered to the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is considered compatible with maintaining the principal accountant's independence. Item 5: Audit Committee of Listed Registrants. Not applicable to open-end investment companies. Item 6: Schedule of Investments. The schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form. Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable to open-end investment companies. Item 8: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable to open-end investment companies. Item 9: Submission of Matters to a Vote of Security Holders. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors. Item 10: 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 11: Exhibits: (a) The following exhibits are attached to this Form N-CSR: (2) A separate certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2) (certification required by Section 302 of the Sarbanes-Oxley Act of 2002). (b) Certification required by Rule 30a-2(b) under the Act (certification required by Section 906 of the Sarbanes-Oxley Act of 2002). 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 30, 2004 --------------------------- 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 30, 2004 --------------------------- 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. The registrant's Board of Directors adopted an amendment to the Code of Ethics which requires the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, to report transactions in the registrant's shares quarterly. The amendment also prohibits such persons from purchasing or selling shares of the registrant's common stock for the purpose of arbitrage or market timing. 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, 3300 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402. Item 3: Audit Committee Financial Expert. The registrant's Board of Directors has determined that Mr. John E. Hulse, Mr. Sidney L. Jones, Mr. Bruce C. Lueck and Mr. Donald W. Phillips are audit committee financial experts serving on its audit committee. Mr. Hulse, Mr. Jones, Mr. Lueck and Mr. Phillips are independent for purposes of this item. Item 4: Principal Accountant Fees and Services - (a) - (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant's principal accountant were as follows: Audit Audit Related Tax Other Fees Fees Fees Fees ---- ------- ---- ---- Fiscal year ended June 30, 2004 18,000 0 3,600 1,786 Fiscal year ended June 30, 2003 17,500 0 3,480 0 Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, and/or are traditionally performed by the auditor. Tax fees include amounts related to tax compliance, tax planning, and tax advice. (e) (1) The Audit Committee is required to pre-approve audit and non-audit services performed for the registrant by the independent auditor in order to assure that the provision of such services does not impair the auditor's independence. The audit committee also is required to pre-approve certain non-audit services performed by the registrant's independent auditor for the registrant's investment adviser and certain of the adviser's affiliates if the services relate directly to the operations and financial reporting of the registrant. Services to be provided by the auditor must receive general pre-approval or specific pre-approval by the audit committee. Any proposed services exceeding pre-approved cost levels will require separate pre-approval by the audit committee. The audit committee may delegate pre-approval authority to the audit committee chairman. The chairman shall report any pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee does not delegate its responsibility to pre-approve services performed by the independent auditor to management. (2) Services included in (b) - (d) for which the auditors were engaged prior to the effective date of SEC rules relating to the pre-approval of non-audit services (May 6, 2003) were not approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Services included in (b) - (d) for which the auditors were engaged after the effective date of SEC rules relating to the pre-approval of non-audit services were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $108,200.00 and $121,300.00, respectively. (h) The registrant's audit committee has determined that the provision of non-audit services rendered to the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is considered compatible with maintaining the principal accountant's independence. Item 5: Audit Committee of Listed Registrants. Not applicable to open-end investment companies. Item 6: Schedule of Investments. The schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form. Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable to open-end investment companies. Item 8: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable to open-end investment companies. Item 9: Submission of Matters to a Vote of Security Holders. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors. Item 10: 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 11: Exhibits: (a) The following exhibits are attached to this Form N-CSR: (2) A separate certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2) (certification required by Section 302 of the Sarbanes-Oxley Act of 2002). (b) Certification required by Rule 30a-2(b) under the Act (certification required by Section 906 of the Sarbanes-Oxley Act of 2002). 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 LARGE CAP GROWTH FUND, INC. - ------------------------------- By (Signature and Title)* /s/ Paul E. Rasmussen --------------------------------------- Paul E. Rasmussen Vice President Treasurer Date August 30, 2004 --------------------------- 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 LARGE CAP GROWTH FUND, INC. - ------------------------------- By (Signature and Title)* /s/ Eugene C. Sit --------------------------------------- Eugene C. Sit Chairman Date August 30, 2004 --------------------------- 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. The registrant's Board of Directors adopted an amendment to the Code of Ethics which requires the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions, to report transactions in the registrant's shares quarterly. The amendment also prohibits such persons from purchasing or selling shares of the registrant's common stock for the purpose of arbitrage or market timing. 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, 3300 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402. Item 3: Audit Committee Financial Expert. The registrant's Board of Directors has determined that Mr. John E. Hulse, Mr. Sidney L. Jones, Mr. Bruce C. Lueck and Mr. Donald W. Phillips are audit committee financial experts serving on its audit committee. Mr. Hulse, Mr. Jones, Mr. Lueck and Mr. Phillips are independent for purposes of this item. Item 4: Principal Accountant Fees and Services (a) - (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant's principal accountant were as follows: Audit Audit Related Tax Other Fees Fees Fees Fees ----- ------- ----- ----- Fiscal year ended June 30, 2004 21,000 0 3,600 1,786 Fiscal year ended June 30, 2003 21,000 0 3,480 0 Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, and/or are traditionally performed by the auditor. Tax fees include amounts related to tax compliance, tax planning, and tax advice. (e) (1) The Audit Committee is required to pre-approve audit and non-audit services performed for the registrant by the independent auditor in order to assure that the provision of such services does not impair the auditor's independence. The audit committee also is required to pre-approve certain non-audit services performed by the registrant's independent auditor for the registrant's investment adviser and certain of the adviser's affiliates if the services relate directly to the operations and financial reporting of the registrant. Services to be provided by the auditor must receive general pre-approval or specific pre-approval by the audit committee. Any proposed services exceeding pre-approved cost levels will require separate pre-approval by the audit committee. The audit committee may delegate pre-approval authority to the audit committee chairman. The chairman shall report any pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee does not delegate its responsibility to pre-approve services performed by the independent auditor to management. (2) Services included in (b) - (d) for which the auditors were engaged prior to the effective date of SEC rules relating to the pre-approval of non-audit services (May 6, 2003) were not approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. Services included in (b) - (d) for which the auditors were engaged after the effective date of SEC rules relating to the pre-approval of non-audit services were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not applicable. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $108,200.00 and $121,300.00, respectively. (h) The registrant's audit committee has determined that the provision of non-audit services rendered to the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is considered compatible with maintaining the principal accountant's independence. Item 5: Audit Committee of Listed Registrants. Not applicable to open-end investment companies. Item 6: Schedule of Investment. The schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form. Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable to open-end investment companies. Item 8: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable to open-end investment companies. Item 9: Submission of Matters to a Vote of Security Holders. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors. Item 10: 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 11: Exhibits: (a) The following exhibits are attached to this Form N-CSR: (2) A separate certification for each principal executive and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2) (certification required by Section 302 of the Sarbanes-Oxley Act of 2002). (b) Certification required by Rule 30a-2(b) under the Act (certification required by Section 906 of the Sarbanes-Oxley Act of 2002). 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 MID CAP GROWTH FUND, INC. - ----------------------------- By (Signature and Title)* /s/ Paul E. Rasmussen --------------------------------------- Paul E. Rasmussen Vice President Treasurer Date August 30, 2004 --------------------------- 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 MID CAP GROWTH FUND, INC. - ----------------------------- By (Signature and Title)* /s/ Eugene C. Sit --------------------------------------- Eugene C. Sit Chairman Date August 30, 2004 ---------------------------