KZIA Kazia Therapeutics Ltd

Dear Fellow Shareholders:

Stock prices have been quite volatile in recent months, as investors have been forced to contend with a variety of issues, including a U.S. presidential election, “fiscal cliff” concerns, decelerating corporate earnings and Hurricane Sandy. However, despite these concerns, the U.S. economy generally has remained resilient, with the final estimate of third quarter 2012 real Gross Domestic Product (GDP) growth recently revised upward to +3.1%. While swings in net exports and inventories can generate volatility in the data from quarter to quarter, it has been encouraging that consumer spending, by far the most important component of the GDP calculation, has remained a relatively steady contributor to growth. The recovery in the labor market has been subpar, but stable, averaging 153,000 new jobs per month over the course of 2012. In addition, the residential housing market appears to have bottomed and is now likely to contribute to economic growth more positively with each passing quarter.

In terms of fiscal policy, Congress rang in the New Year by passing legislation to temporarily patch most of the tax and spending items that were set to change materially on January 1 ^st , 2013, commonly known as the fiscal cliff. While this brought some near term clarity on certain issues, particularly related to tax rates, it is disappointing that many of the most important decisions were simply pushed out for a few months. This will put politicians in the more complicated position of having to negotiate a more permanent solution to the fiscal cliff. While policy risks are still in place, we expect the “subpar” economic recovery to continue. Our forecasts call for 2013 GDP growth of 2.0%, representing a slight deceleration from 2012, as higher tax rates (payroll taxes, in particular) will likely have some negative impact on growth in the year ahead.

Outside the U.S., Europe continues to be a key focal point for investors as it appears that the region slipped into recession during the second half of 2012. With the health of the region’s banking system posing a significant downside risk, a key positive development was the European Central Bank’s (ECB) steps to backstop peripheral Europe’s bond markets and its desire, although highly complex to construct, to develop a regional banking union. This is a key factor supporting our belief in some economic stabilization in 2013. In addition, recent data points from emerging economies point to better prospects in the year ahead. The Chinese economy, for example appears to be reaccelerating modestly, with recent data points on manufacturing, power consumption and retail sales all showing encouraging trends.

Equity Strategy

Global equities have generally performed quite well in recent months, as aggressive monetary policy by the world’s central banks has, to this point, been enough to overcome political and policy uncertainty occurring in many key regions.

While investors will remain on guard, given the multitude of challenges to overcome, we believe there are still many factors

supportive of higher equity prices in the year ahead. First, valuations for stocks are not excessive, with the current price/earnings multiple for the S&P 500 at 14 times 2012 earnings, slightly below the 50-year average of 15 times. Second, the rate of inflation remains subdued and interest rates linger at very low levels, two factors that often pave the way for higher price to earnings multiples. Third, corporations continue to be flush with cash - over $2 trillion rests on corporate balance sheets - and companies are generating near-record levels of free cash flow. This “excess capital” can be put to work for shareholders in the form of higher dividends, share repurchases and accretive acquisitions. And finally, while the deceleration in virtually all economies outside the U.S. has pressured corporate earnings forecasts in recent quarters, this should be coming to an end, as data support a bottoming in the European region and a reacceleration in emerging economies (particularly China).

Particularly, given the relatively strong performance of stocks in recent quarters, one cannot discount the numerous risks related to policy (e.g., U.S. debt ceiling negotiations) and the fragility of the economic conditions (particularly in Europe) that could threaten markets in the year ahead. In light of this potential for higher volatility, we believe it is prudent to remain diversified among sectors, with a bias towards those benefiting from the slow, but steady, improvement in economic conditions. Throughout the Sit Equity Funds, some favored sectors include technology, energy and capital goods. These are all areas that should benefit from a step-up in growth in emerging markets and a cyclical improvement in capital spending in many regions of the world. Regardless of sector, however, our focus remains on firms that have strong balance sheets, free cash flow generation, and businesses that offer sustainable growth in a continued slow-growth macroeconomic backdrop.

In global portfolios, we have recently added to the allocation in Europe (although still an underweight to benchmarks), as valuations are attractive and economic conditions, as discussed, appear to have reached a bottom. Similarly, we have added to Japanese positions, as the government’s new aggressive quantitative monetary easing policies along with another round of fiscal stimulus are likely to improve investor sentiment. Finally, we remain overweighted in key emerging economies, such as China and India, as these nations are rapidly becoming growth engines for the world and recent economic data has been encouraging, after a soft patch in 2012.

With best wishes,

Roger J. Sit

Chairman, President, CEO and Global CIO

The Sit Balanced Fund’s six-month return was +3.38% while the S&P 500® Index gained +5.95% and the Barclays Aggregate Bond Index increased +1.80% over the period.

Despite some choppiness in the fourth quarter, U.S. stocks posted solid returns during the second half of 2012. These gains were particularly impressive, given the government policy uncertainty amid U.S. elections and contentious negotiations around the U.S. “fiscal cliff.” Despite the fact that a last minute agreement in Washington brought some clarity on taxes for businesses, consumers and investors, we suspect that the political environment and uncertainty around policy decisions will continue to be a key focus for financial markets. The good news, however, is that valuations for equities remain attractive, particularly given the low levels of interest rates and inflation, and corporations continue to post solid profits. Our research focus remains on both sectors and individual companies that have strong underlying financial characteristics (e.g., balance sheets, cash flow generation) that can manage to grow earnings even if we remain in a slow growth economic environment. In terms of equity performance over the past six months, the Fund trailed the S&P 500® Index, as weakness in the electronic technology sector and underweighting of the strong-performing finance sector detracted from relative returns. This was partially offset by strong performance of holdings within the health technology sector.

We estimate that the fixed income portion of the portfolio outperformed the Barclays Aggregate Bond Index during the second half of the year, primarily due to the income advantage of the Fund’s fixed income securities relative to the benchmark. The Fund also benefitted from its shorter duration relative to the benchmark, as Treasury interest rates rose during the period. For 2013, we expect an extension of low short-term rates and slow economic growth as the debt-ceiling debate, regulatory hurdles and global budgetary concerns continue to hamper economic activity. We believe, however, that the massive amounts of monetary stimulus will eventually put upward pressure on bond yields, and we continue to position the portfolio for an eventual rise in rates. Additionally, we anticipate another downgrade of the U.S. government debt rating and, therefore, are focusing on high-quality, liquid bonds, which will benefit

HYPOTHETICAL GROWTH OF $10,000

The chart above illustrates the total value of a hypothetical $10,000 investment in the Fund over the past 10 years as compared to the performance of the S&P 500® Index and the Barclays Capital Aggregate Bond Index. Past performance does not guarantee future results. Returns include the reinvestment of distributions. The chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

1 S&P 500® Index is an unmanaged capitalization-weighted index that measures the performance of 500 widely held common stocks of large-cap companies. It is not possible to invest directly in an index. This is the primary index for the equity portion of the Fund.

2 Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index which measures the performance of investment grade debt securities with maturities of at least one year. This is the primary index for the fixed income portion of the Fund.

from heightened demand as investors assess the ramifications of a downgrade.

The stock/fixed income allocation is currently 61.6% equities, 34.3% fixed income, and 4.1% cash and equivalents. Our research staff remains focused on high-quality securities in each asset class within the Fund, and we appreciate shareholders’ continued interest in the Fund.

Roger J. Sit

Bryce A. Doty

John M. Bernstein

Portfolio Managers

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. Current performance may be lower or higher than the performance data quoted. Contact the Fund for performance data current to the most recent month-end. Returns include changes in share price as well as reinvestment of all dividends and capital gains. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Management fees and administrative expenses are included in the Fund’s performance. Returns for periods greater than one year are compounded average annual rates of return.

1 S&P 500® Index is an unmanaged capitalization-weighted index that measures the performance of 500 widely held common stocks of large-cap companies. It is not possible to invest directly in an index.

2 Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index which measures the performance of investment grade debt securities with maturities of at least one year.

TOP HOLDINGS

Top Equity Holdings:

Top Fixed Income Holdings:

Based on total net assets as of December 31, 2012. Subject to change.

FUND DIVERSIFICATION

Based on total net assets as of December 31, 2012. Subject to change.