<PAGE>
KOPP
[LOGO] EMERGING GROWTH FUND
FUNDS SEMI-ANNUAL REPORT
<PAGE>
APRIL 1, 1998
DEAR FELLOW SHAREHOLDERS:
This semi-annual report allows us to address shareholders of the Kopp Emerging
Growth Fund for the first time since the Fund's inception. Our objective is to
provide long-term capital appreciation by investing primarily in growth
companies with small-to-medium market capitalizations. The Fund's prospectus
emphasizes the volatility of our investment style and the importance of being
patient, long-term investors. We typically suggest investing with a
three-to-five year horizon. Nevertheless, the focus of this letter is on the
short six-month period since the Fund's inception.
We often remind investors that we are not market timers. No better evidence of
that exists than commencing Fund operations on October 1, 1997, three weeks
BEFORE the crisis in Asia shocked U.S. stock prices. While we are mindful of
macroeconomic issues, especially as they affect individual stocks, we are
disciplined and focused in our investment philosophy. We intend to be fully
invested in common stocks throughout market turbulence.
For shareholders, including ourselves, the ride can be rocky. In times of
uncertainty, investors tend to flock to established stocks, and that is exactly
what happened last fall. After a brief pullback, we saw the major indices move
to new high ground, driven by large-cap names. Not only have investors shown a
preference for large-caps, but our focus on small technology companies also
continues contrarian. We believe, however, that technology in general, and
smaller companies in particular, offer better long-term growth potential than
most other areas. Valuation should be the key to a market rotation. Small to
mid-cap stocks generally trade at a price/ earnings multiple equal to or greater
than their projected growth rates. Currently, many of these stocks are trading
at a significant discount to that growth rate. In contrast, the established
stocks are typically trading at a significant premium to theirs. We believe that
time and logic will eventually narrow this gap.
While we expect that technology will remain a sector focus for us, we have
included in the Fund's portfolio names in a variety of medical and healthcare
subsectors as well. A March 31st list of the Fund's TOP TEN HOLDINGS and TOP TEN
INDUSTRIES with allocation percentages is included in this report.
We remain optimistic about the U.S. economy and the stock market. In our
opinion, the current environment of moderate economic growth, low inflation and
low interest rates could not be much better. We will pass through the Asian
straits and, in six months, there will be something else to worry about. We will
ALWAYS have something to worry about. We believe the best way to invest in the
market and avoid emotional entrapment is to add
1
<PAGE>
regularly to your mutual fund investment, as our firm and I personally are
doing. Combine patience with dollar-cost averaging, and we believe you have a
formula for success in investing. The information on the facing page details the
benefits of dollar-cost averaging, but remember a program of regular investment
cannot ensure a profit or protect against a loss.
In light of the recent change in capital-gains tax rates, many mutual funds are
promoting their low portfolio turnover rate -- the lesser of the Fund's
securities purchases or sales divided by the average value of the portfolio. The
lower the "turnover" rate, generally the lower the Fund's transaction costs and
the shareholder's capital-gains tax. We expect our Fund, like our managed
accounts, will experience a lower than average turnover rate. We have ALWAYS
believed that individuals tend to over trade, rather than invest in, securities.
As you evaluate your investment in this mutual fund, we encourage you to truly
regard this as a long-term investment. Focus on your overall assets. We will
endeavor to deliver superior results over a market cycle.
Sincerely,
[SIGNATURE]
LEE KOPP
PRESIDENT
TOP TEN HOLDINGS
-----------------------------------------
1. RATIONAL SOFTWARE CORPORATION (RATL)
2. DIGITAL MICROWAVE CORPORATION (DMIC)
3. SDL, INC. (SDLI)
4. COGNOS, INC. (COGNF)
5. APPLIED VOICE TECHNOLOGY, INC. (AVTC)
6. ADC TELECOMMUNICATIONS, INC. (ADCT)
7. CREDENCE SYSTEMS CORPORATION (CMOS)
8. SEROLOGICALS CORPORATION (SERO)
9. BURR-BROWN CORPORATION (BBRC)
10. CYLINK CORPORATION (CYLK)
TOP TEN INDUSTRIES
-----------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Software Applications 9.1%
Research
Reagents/Instrumentation 8.9%
Wireless 8.4%
Voice Processing 8.2%
Networking 7.5%
SemiCap Equipment 6.7%
Telecommunication Equip-
ment 5.9%
Information Technology
Services 5.4%
Semiconductor 5.1%
Application Development
Tools 3.9%
Other Common Stocks 29.4%
Short-term Investments 1.5%
</TABLE>
2
<PAGE>
THERE IS NO TIME LIKE THE PRESENT TO LOOK FOR OPPORTUNITY.
Kopp Emerging Growth Fund invests in small- to mid-sized companies whose vigor
and vision stand at the heart of the American success story.
You can pursue growth in this vital sector the affordable way by investing equal
amounts of money at regular intervals. This strategy, called dollar-cost
averaging, lets you invest through the normal ups and downs of the market by
allowing you to purchase more shares when prices are lower, and fewer shares
when prices are higher.
AT THE HIGH OF THE MARKET -- SUPPOSEDLY THE WORST TIME TO INVEST -- AN
INVESTMENT IN
SMALL COMPANIES COULD HAVE DELIVERED A STRONG 13.88% A YEAR!
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1978 4,122
1979 10,816
1980 19,996
1981 27,276
1982 39,904
1983 60,482
1984 61,130
1985 81,257
1986 91,279
1987 86,349
1988 110,972
1989 126,855
1990 103,367
1991 154,520
1992 195,645
1993 241,627
1994 254,005
1995 346,553
1996 412,317
1997 510,881
</TABLE>
ASSUMPTIONS: A $5,000 lump sum investment made once a year, for 20 years, in
small companies. The chart assumes the investment is made on the last day of
whichever month reflects that year's market high.
TIME PERIOD: 20 years through 12/31/97.
Source: The Ibbotson Small Company Stock Index
above is unmanaged and is computed using data
from Stocks, Bonds, Bills and Inflation 1997
Yearbook, Ibbotson Associates, Chicago (annually
updated work by Roger G. Ibbotson and Rex
Sinquefield). Used with permission. All rights
reserved. Small company stocks are represented
by the fifth smallest quintile of the New York
Stock Exchange (NYSE) through 1981 and the
performance of the Dimensional Fund Advisors
Small Company Fund thereafter. The NYSE does not
deduct charges or expenses, as does the Fund.
Investors cannot invest directly in any index.
The Index represents a larger and more
diversified group of stocks than represented in
the Fund.
KOPP EMERGING GROWTH FUND IS BEST SUITED FOR INVESTORS WHO ARE COMFORTABLE WITH
ASSUMING ADDITIONAL RISK IN THE PURSUIT OF HIGHER RETURNS.
The performance shown is illustrative only and is not intended to represent or
predict the performance of the Kopp Emerging Growth Fund, which returned -18.92
from the Fund's inception (10/1/97) through 3/31/98. This figure is not
annualized and reflects a maximum sales charge of 3.5%. The Fund is currently
waiving fees and such arrangements may be modified or terminated after 9/30/98,
which would reduce returns.
Past performance is no indication of future results. The investment return and
principal value of a Fund investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost.
Dollar-cost averaging cannot assure a profit or protect against a loss. Since
such a plan involves continuous investment in securities regardless of
fluctuating price levels, investors should consider the financial ability
required to continue purchases through periods of low price levels.
Small capitalization funds typically carry more risk than stock funds investing
in well established "blue chip" companies because small companies generally have
a higher risk of failure.
3
<PAGE>
Historically, small companies' stock has experienced a significantly greater
degree of illiquidity and market volatility than the average stock.
In addition, there are special risks associated with investing in emerging and
re-emerging companies, including erratic earnings patterns, competitive
conditions within an industry, limited earnings history, and reliance on one or
a more limited number of products.
4
<PAGE>
KOPP EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
- -----------------------------------------------------------------
ASSETS
Investments in securities, at value:
Investments in securities of unaffiliated
issuers (cost $344,818,276) $ 324,742,996
Investments in securities of affiliated issuers
(cost $18,019,883) 11,825,375
- -----------------------------------------------------------------
Total investments in securities (cost
$362,838,159) 336,568,371
Receivable from capital shares sold 2,496,516
Dividends and interest receivable 17,601
Deferred organization expenses, net of accumulated
amortization 87,534
Prepaid expenses 112,165
- -----------------------------------------------------------------
Total Assets 339,282,187
- -----------------------------------------------------------------
LIABILITIES
Payable for securities purchased 1,454,353
Payable for capital shares redeemed 568,980
Payable to Investment Advisor 127,624
Payable to Affiliated Distributor 9,471
Accrued other expenses 604,178
- -----------------------------------------------------------------
Total Liabilities 2,764,606
- -----------------------------------------------------------------
NET ASSETS $ 336,517,581
- -----------------------------------------------------------------
- -----------------------------------------------------------------
NET ASSETS CONSIST OF
Capital stock $ 400,296
Paid-in-capital in excess of par 363,520,020
Accumulated undistributed net investment loss (1,132,947)
Unrealized net depreciation on investments (26,269,788)
- -----------------------------------------------------------------
Total Net Assets $ 336,517,581
- -----------------------------------------------------------------
CLASS A
Net Assets $ 304,615,264
Shares authorized ($0.01 par value) 5,000,000,000
Shares issued and outstanding 36,243,125
Net asset value and redemption price per share $ 8.40
- -----------------------------------------------------------------
Maximum offering price per share $ 8.70
- -----------------------------------------------------------------
CLASS I
Net Assets $ 31,902,317
Shares authorized ($0.01 par value) 5,000,000,000
Shares issued and outstanding 3,786,462
Net asset value and redemption price per share $ 8.43
- -----------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
4
<PAGE>
KOPP EMERGING GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
- ----------------------------------------------------------------
INVESTMENT INCOME
Interest $ 368,450
Dividends 27,050
- ----------------------------------------------------------------
Total Investment Income 395,500
- ----------------------------------------------------------------
EXPENSES
Investment advisory fee 1,223,147
Transfer agent fees 266,712
Service fees -- Class A 290,571
12b-1 fees -- Class A 116,229
Federal and state registration fees 147,517
Fund administration fees 70,369
Custody fees 45,027
Fund accounting fees 28,422
Professional fees 18,828
Directors' fees and expenses 14,934
Reports to shareholders 10,498
Amortization of deferred organization expenses 9,401
Other expenses 8,333
- ----------------------------------------------------------------
Total expenses before waiver 2,249,988
Less: Waiver of expenses by Investment Advisor (436,569)
- ----------------------------------------------------------------
Net expenses 1,813,419
- ----------------------------------------------------------------
NET INVESTMENT (LOSS) (1,417,919)
- ----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
Net realized gain on investment transactions 284,972
Change in unrealized depreciation on investments (26,269,788)
- ----------------------------------------------------------------
Net loss on investments (25,984,816)
- ----------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(27,402,735)
- ----------------------------------------------------------------
</TABLE>
KOPP EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998
(Unaudited)
<S> <C>
- ---------------------------------------------------------------------
OPERATIONS
Net investment (loss) $ (1,417,919)
Net realized gain on investments 284,972
Change in unrealized depreciation on investments (26,269,788)
- ---------------------------------------------------------------------
Net decrease in net assets resulting from
operations (27,402,735)
- ---------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 377,048,889
Cost of shares redeemed (13,128,573)
- ---------------------------------------------------------------------
Net increase resulting from capital share
transactions 363,920,316
- ---------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS: 336,517,581
- ---------------------------------------------------------------------
NET ASSETS
Beginning of period 0
- ---------------------------------------------------------------------
End of period $336,517,581
- ---------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
5
<PAGE>
KOPP EMERGING GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
October 1, 1997(1)
through
March 31, 1998
----------------------------------------
(For a share outstanding throughout the Class A Class I
period) (Unaudited)
<S> <C> <C>
- ----------------------------------------------------------------------------------
PER SHARE DATA
Net asset value, beginning of period $10.00 $10.00
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment (loss) (0.04) (0.01)
Net realized and unrealized gains on
investments (1.56) (1.56)
- ----------------------------------------------------------------------------------
Total from investment operations (1.60) (1.57)
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 8.40 $ 8.43
Total Return (16.00)%(2),(3) (15.70)%(2)
- ----------------------------------------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period $ 304,615,264 $ 31,902,317
Ratio of expenses to average net assets:
Before expense reimbursement 1.86%(4) 1.51%(4)
After expense reimbursement 1.50%(4) 1.15%(4)
Ratio of net investment (loss) to
average net assets:
Before expense reimbursement (1.54)%(4) (1.19)%(4)
After expense reimbursement (1.18)%(4) (0.83)%(4)
Portfolio turnover rate 6.96%(5) 6.96%(5)
Average commission rate paid $0.0459(5) $0.0459(5)
</TABLE>
- ----------------------------------------------------
(1) Commencement of operations.
(2) Not annualized.
(3) The total return calculation does not reflect the 3.50% front end sales
load.
(4) Annualized.
(5) Calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
6 See Notes to the Financial Statements.
<PAGE>
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
- ------------------------------------------------------------------
COMMON STOCK -- 98.5%
- ------------------------------------------------------------------
APPLICATION DEVELOPMENT TOOLS -- 3.9%
1,000,000 Rational Software Corporation $ 13,000,000
- ------------------------------------------------------------------
CARDIOVASCULAR -- 0.4%
170,000 AVECOR Cardiovascular, Inc. 1,211,250
- ------------------------------------------------------------------
DATA STORAGE -- 1.4%
260,000 Western Digital Corporation 4,566,250
- ------------------------------------------------------------------
DATA WAREHOUSING -- 3.4%
400,000 Cognos, Inc.+ 11,275,000
- ------------------------------------------------------------------
DIAGNOSTICS -- 1.5%
339,000 Cholestech Corporation 5,085,000
- ------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 1.4%
200,000 Computer Products, Inc. 4,662,500
- ------------------------------------------------------------------
ELECTRONIC DATA INTERCHANGE -- 2.2%
180,000 National Data Corporation* 7,481,250
- ------------------------------------------------------------------
ELECTRONIC DESIGN AUTOMATION -- 3.6%
205,000 ANSYS, Inc. 2,050,000
200,000 Applied Microsystems Corporation 1,525,000
25,500 Integrated Measurement Systems, Inc. 306,000
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
- ------------------------------------------------------------------
ELECTRONIC DESIGN AUTOMATION (CONTINUED)
315,000 Quickturn Design System, Inc. $ 3,209,063
154,563 Synopsys, Inc. 5,061,938
- ------------------------------------------------------------------
12,152,001
- ------------------------------------------------------------------
IMAGING -- 1.6%
105,000 ATL Ultrasound, Inc. 5,341,875
- ------------------------------------------------------------------
INDUSTRIAL AUTOMATION -- 1.9%
615,000 Adept Technology, Inc.(#) 6,534,375
- ------------------------------------------------------------------
INFECTION CONTROL EQUIPMENT -- 0.8%
50,000 STERIS Corporation 2,700,000
- ------------------------------------------------------------------
INFORMATION SECURITY -- 3.4%
530,000 Cylink Corporation 7,651,875
202,000 Macrovision Corporation 3,711,750
- ------------------------------------------------------------------
11,363,625
- ------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES -- 5.4%
100,000 Interim Services, Inc. 3,375,000
237,000 Lightbridge, Inc. 4,280,812
160,000 May & Speh, Inc. 2,300,000
100,000 Norstan, Inc. 2,475,000
315,500 ONTRACK Data International, Inc. 5,126,875
102,000 PSW Technologies, Inc. 739,500
- ------------------------------------------------------------------
18,297,187
</TABLE>
See Notes to the Financial Statements. 7
<PAGE>
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
LASER-BASED COMPONENTS & SUBSYSTEMS -- 3.7%
170,000 Laser Power Corporation $ 850,000
492,800 SDL, Inc. 11,704,000
- ------------------------------------------------------------------
12,554,000
- ------------------------------------------------------------------
MACHINE VISION/INSPECTION -- 1.2%
132,000 FEI Company 1,650,000
160,000 Zygo Corporation 2,320,000
- ------------------------------------------------------------------
3,970,000
- ------------------------------------------------------------------
NETWORKING -- 7.5%
80,000 3 Com Corporation 2,875,000
200,000 Bay Networks, Inc. 5,425,000
481,000 Digital Link Corporation(#) 5,291,000
300,000 Larscom Incorporated 2,484,375
180,000 Network Equipment Technologies, Inc. 2,925,000
510,000 VideoServer, Inc. 6,367,031
- ------------------------------------------------------------------
25,367,406
- ------------------------------------------------------------------
ONCOLOGY -- 0.5%
220,000 ImClone Systems Incorporated 1,828,750
- ------------------------------------------------------------------
RESEARCH REAGENTS/INSTRUMENTATION -- 8.9%
225,900 CN Biosciences, Inc. 5,873,400
340,000 Molecular Devices Corporation 6,545,000
395,000 Molecular Dynamics, Inc. 5,702,813
280,000 Serologicals Corporation 7,910,000
209,700 Techne Corporation 4,062,938
- ------------------------------------------------------------------
30,094,151
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
SEMICAP EQUIPMENT -- 6.7%
260,000 Aetrium Incorporated $ 3,770,000
165,000 Applied Science and Technology, Inc. 2,598,750
120,000 Asyst Technologies, Inc. 2,790,000
100,000 Brooks Automation, Inc. 1,575,000
320,000 Credence Systems Corporation 9,260,000
70,000 Lam Research Corporation 1,968,750
170,000 Photon Dynamics, Inc. 573,750
- ------------------------------------------------------------------
22,536,250
- ------------------------------------------------------------------
SEMICONDUCTOR -- 5.1%
186,000 ANADIGIC, Inc. 2,429,625
307,950 Burr-Brown Corporation 7,698,750
120,000 PMC-Sierra, Inc. 4,560,000
167,000 RF Monolithics, Inc. 2,525,875
- ------------------------------------------------------------------
17,214,250
- ------------------------------------------------------------------
SOFTWARE APPLICATIONS -- 9.1%
135,000 Aspen Technology, Inc. 5,568,750
250,000 Gensym Corporation 2,015,625
130,700 Hyperion Software Corporation 5,783,475
270,000 Infinium Software, Inc. 5,383,125
80,000 Information Management Associates, Inc. 1,070,000
210,000 Platinum Software Corporation 4,882,500
247,000 Project Software & Development, Inc. 5,928,000
- ------------------------------------------------------------------
30,631,475
- ------------------------------------------------------------------
SYSTEM SOFTWARE -- 0.3%
75,000 Phoenix Technologies Ltd. 900,000
</TABLE>
8 See Notes to the Financial Statements.
<PAGE>
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 5.9%
350,000 ADC Telecommunications, Inc. $ 9,646,875
280,000 Applied Digital Access, Inc. 2,240,000
320,000 DSC Communications Corporation 5,820,000
200,000 Summa Four, Inc. 2,150,000
- ------------------------------------------------------------------
19,856,875
- ------------------------------------------------------------------
TEST AND MEASUREMENT -- 2.1%
330,000 LeCroy Corporation 7,012,500
- ------------------------------------------------------------------
VOICE PROCESSING -- 8.2%
280,000 Applied Voice Technology, Inc. 10,920,000
280,000 Aspect Telecommunications Corporation 7,507,500
315,000 Centigram Communications Corporation 4,173,750
82,500 Dialogic Corporation 3,521,719
59,000 Inter-Tel Incorporated* 1,589,312
- ------------------------------------------------------------------
27,712,281
- ------------------------------------------------------------------
WIRELESS -- 8.4%
178,000 Celeritek, Inc. 2,013,625
800,000 Digital Microwave Corporation 11,800,000
139,000 Electromagnetic Sciences, Inc. 3,127,500
188,000 Itron, Inc. 3,654,250
454,000 Spectrian Corporation 7,547,750
- ------------------------------------------------------------------
28,143,125
- ------------------------------------------------------------------
Total Common Stock (cost $357,761,164) 331,491,376
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
<C> <S> <C>
- ------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 1.5%
- ------------------------------------------------------------------
INVESTMENT COMPANIES -- 1.2%
$4,058,173 Firstar Institutional Money Market Fund* $ 4,058,173
- ------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES -- 0.3%
700,044 American Family Financial
Services, Inc.* 5.27% 700,044
82,778 Johnson Controls, Inc.*, 5.29% 82,778
236,000 Pitney Bowes, Inc.*, 5.29% 236,000
- ------------------------------------------------------------------
1,018,822
- ------------------------------------------------------------------
Total Short-Term Investments (cost $5,076,995) 5,076,995
- ------------------------------------------------------------------
Total Investments -- 100.0% (cost $362,838,159) 336,568,371
Liabilities, less Other Assets -- 0.0% (50,790)
- ------------------------------------------------------------------
NET ASSETS -- 100.0% $336,517,581
</TABLE>
- ----------------------------------------------------
All securities unless otherwise noted are non-income producing securities.
+ Foreign security.
* Income-producing security.
# Affiliated company; the Fund owns 5% or more of the outstanding voting
securities of the issuer.
See Notes to the Financial Statements.
9
<PAGE>
KOPP EMERGING GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED)
1. ORGANIZATION
Kopp Funds, Inc. (the "Company") was incorporated on June 12, 1997 as a
Minnesota company. The Kopp Emerging Growth Fund (the "Fund") is a series of the
Company and is registered as an open-end, non-diversified management investment
company under the Investment Company Act of 1940 (the "1940 Act"). The Fund's
investment objective is to seek long-term capital appreciation by investing
primarily in common stocks of companies Kopp Investment Advisors, Inc. (the
"Advisor") believes to have the potential for superior growth. The Company's
registration statement was declared effective on September 16, 1997. The Fund
commenced operations on October 1, 1997.
The costs incurred in connection with the organization, initial registration and
public offering of shares aggregated $96,935. These costs are being amortized
over the period of benefit, but not to exceed sixty months from the Fund's
commencement of operations.
The Fund has issued two classes of shares: Class A and Class I. Each class of
shares has identical rights and privileges except that each class bears its own
expenses and exclusive voting rights on matters pertaining to the distribution
plan for that class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATION
Common stocks and other equity-type securities are valued at the last sales
price on the national securities exchange or NASDAQ on which such securities are
primarily traded; however, securities traded on a national securities exchange
or NASDAQ for which there were no transactions on a given day, and securities
not listed on a national securities exchange or NASDAQ, are valued at the
average of the most recent bid and asked prices. Any securities or other assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by the Board of Directors of the Company or its
delegate. The Board of Directors may approve the use of pricing services to
assist the Fund in the determination of net asset value. Instruments with a
remaining maturity of 60 days or less are valued on an amortized cost basis.
FEDERAL INCOME TAXES
The Fund intends to qualify for treatment as a "Regulated Investment Company"
under Subchapter M of the Internal Revenue Code, and the Fund intends to
distribute investment company net taxable income and net capital gains to
shareholders. Therefore, no federal tax provision is required.
INCOME AND EXPENSES
The Fund is charged for those expenses that are directly attributable to the
portfolio, such as advisory, administration and certain shareholder service
fees. Net investment income, other than class specific expenses, and realized
and unrealized gains and losses are allocated daily to each class of shares
based upon the relative net asset value of outstanding shares of each class of
shares at the beginning of the day (after adjusting for the current day's
capital share activity of the respective class).
10
<PAGE>
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and distributions of net realized gains, if
any, will be declared and paid at least annually.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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 amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments involves
special risks and considerations not typically associated with investing in U.S.
companies and the U.S. government. These risks include revaluation of currencies
and future adverse political and economic developments. Moreover, securities of
many foreign companies and foreign governments and their markets may be less
liquid and their prices more volatile than those of securities of comparable
U.S. companies and the U.S. government.
OTHER
Investment and shareholder transactions are recorded on the trade date. The Fund
determines the gain or loss realized from the investment transactions by
comparing the original cost of the security lot sold with the net sales
proceeds. Dividend income is recognized on the ex-dividend date or as soon as
this information is available to the Fund, and interest income is recognized on
an accrual basis. Generally accepted accounting principles require that
permanent financial reporting and tax differences be reclassified to capital
stock.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Class A
Six Months Ended
March 31, 1998
-------------------------
Amount Shares
------------ -----------
<S> <C> <C>
Shares sold $346,299,659 37,859,661
Shares redeemed (13,098,907) (1,616,536)
- -------------------------------------------------------------------
Net increase $333,200,752 36,243,125
</TABLE>
<TABLE>
<CAPTION>
Class I
Six Months Ended
March 31, 1998
----------------------
Amount Shares
----------- ---------
<S> <C> <C>
Shares sold $30,749,230 3,790,039
Shares redeemed (29,666) (3,577)
- ----------------------------------------------------------------
Net increase $30,719,564 3,786,462
</TABLE>
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended March 31, 1998, were
$372,794,512 and $15,318,321 respectively. There were no purchases or sales of
long-term U.S. Government securities.
At March 31, 1998, gross unrealized appreciation and depreciation of investments
for federal income tax purposes were as follows:
<TABLE>
<S> <C>
Appreciation $ 31,470,440
(Depreciation) (57,740,228)
- ----------------------------------------------------------------
Net unrealized depreciation on investments $(26,269,788)
</TABLE>
At March 31, 1998, the cost of investments for federal income tax purposes was
$362,838,159.
11
<PAGE>
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
Pursuant to its investment advisory agreement with the Fund, the Advisor is
entitled to receive a fee, calculated daily and payable monthly, at an annual
rate of 1.00% applied to the daily net assets of the Fund.
Through September 30, 1998, the Advisor voluntarily agreed to waive its
management fee to the extent necessary to ensure that (i) the total operating
expenses for Class A shares do not exceed 1.50% and (ii) the total operating
expenses for the Class I shares do not exceed 1.15%.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held bank
holding company, serves as accounting services agent, administrator, custodian
and transfer agent for the Fund.
The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan") with respect to each class of shares pursuant to which certain
distribution and shareholder servicing fees may be paid to Centennial Lakes
Capital, Inc. (the "Distributor"). Under the terms of the Plan, each class of
shares may be required to pay the Distributor (i) a distribution fee for the
promotion and distribution of shares of up to 0.25% of the average daily net
assets of the Fund attributable to each class (computed on an annual basis) and
(ii) a shareholder servicing fee for personal service provided to shareholders
of up to 0.25% of the average daily net assets of the Fund attributable to each
class (computed on an annual basis). Payments under the Plan with respect to
Class A shares are currently limited to 0.35%, which represents a 0.10%
distribution fee and a 0.25% shareholder servicing fee; the Fund currently has
no intention of paying any Rule 12b-1 fees in connection with Class I shares.
The Distributor is authorized to, in turn, pay all or a portion of these fees to
any registered securities dealer, financial institution, or other person (the
"Recipient") who renders assistance in distributing or promoting the sale of
Fund shares, or who provides certain shareholder services to Fund shareholders,
pursuant to a written agreement ("Rule 12b-1 Related Agreement"). To the extent
such fee is not paid to such persons, the Distributor may use the fee for its
own distribution expenses incurred in connection with the sale of Fund shares,
or for any of its shareholder servicing expenses. The Plan is a "reimbursement"
plan, which means that the fees paid by the Fund under the Plan are intended to
reimburse the Distributor for services rendered and commission fees borne up to
the maximum allowable distribution and shareholder servicing fees. If the
Distributor is due more money for its services rendered and commission fees
borne than are immediately payable because of the expense limitation under the
Plan, the unpaid amount is carried forward from period to period while the Plan
is in effect until such time as it may be paid. As of March 31, 1998, there were
$464,797 of unreimbursed distribution expenses to be carried forward to future
plan years. Distribution fees and shareholder servicing fees incurred by Class A
shares for the six months ended March 31, 1998 were $116,229 and $290,571
respectively. The distribution fees and shareholder servicing fees earned by the
Distributor for the six months ended March 31, 1998 were $4,223 and $10,563
respectively.
The Fund was advised that the Distributor received front-end sales charges on
Class A shares of $1,842,436 for the six months ended March 31, 1998.
12
<PAGE>
6. OTHER AFFILIATES
Investments representing 5% or more of the outstanding voting securities of the
issuer are considered investments in an affiliated company, as defined in the
Investment Company Act of 1940. The aggregate market value of all securities of
affiliated companies as of March 31, 1998 amounted to $11,825,375. Transactions
during the six months ended March 31, 1998 in which the issuer was an affiliate
are as follows:
<TABLE>
<CAPTION>
Adept Digital
Technology, Link
Inc. Corporation Total
------------ ------------ ------------
<S> <C> <C> <C>
October 1, 1997 Balance
Shares 0 0 0
Cost $0 $0 $0
Gross Additions
Shares 615,000 481,000 1,096,000
Cost $ 8,533,551 $ 9,486,332 $ 18,019,883
March 31, 1998 Balance
Shares 615,000 481,000 1,096,000
Cost $ 8,533,551 $ 9,486,332 $ 18,019,883
</TABLE>
13
<PAGE>
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS. FOR MORE INFORMATION ON THE KOPP EMERGING GROWTH FUND,
INCLUDING CHARGES AND EXPENSES, CALL 1-888-533-KOPP FOR A FREE
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
<PAGE>
DIRECTORS
LeRoy C. Kopp
Robert L. Stehlik
Thomas R. Stuart
OFFICERS
LeRoy C. Kopp, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND PRESIDENT
Kathleen S. Tillotson, EXECUTIVE VICE PRESIDENT AND SECRETARY
INVESTMENT ADVISER
KOPP INVESTMENT ADVISORS, INC.
7701 France Avenue South, Suite 500
Edina, MN 55435
CUSTODIAN, ADMINISTRATOR and TRANSFER AGENT
FIRSTAR TRUST COMPANY
For Overnight deliveries, use: For regular mail deliveries, use:
Kopp Funds, Inc. Kopp Funds, Inc.
c/o Firstar Trust Company c/o Firstar Trust Company
Mutual Fund Services P.O. Box 701
Third Floor Milwaukee, WI 53201-0701
615 E. Michigan Street
Milwaukee, WI 53202
DISTRIBUTOR
CENTENNIAL LAKES CAPITAL, INC.
7701 France Avenue South, Suite 500
Edina, MN 55435
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
LEGAL COUNSEL
GODFREY & KAHN, S.C.
780 N. Water Street
Milwaukee, WI 53202
* Kopp Funds is distributed by Centennial Lakes Capital, Inc., a member
of the NASD and an affiliate of Kopp Investment Advisors, Inc. and the
Fund.
