<PAGE> 1
1
November 1, 1999
DEAR FELLOW SHAREHOLDERS:
As we wrote last year at this time, we believed that the second year of the Fund
would be much improved over the first. Last May we were encouraged by the
strength and momentum of the increase in stock prices in many of our companies.
This fall we are pleased to report that for fiscal 1999 the Fund returned almost
100%(1). We continue to be encouraged by this market.
TECHNOLOGY AND VALUATIONS
We are gratified that the performance of the Fund has been well above average
this year. The better performance has been driven by our current over-exposure
in various subsectors of technology. In a selective market such as we have
experienced this year, it is important to make the right decisions about which
industry segments to focus on and which stocks within these industries to
target. We believe that potential earnings growth will be the main factor
driving up stock prices and that the best earnings growth potential continues to
be in the technology sector. Technology has posted the strongest earnings growth
of any sector this year and has provided the biggest upside surprise relative to
expectations.
Given the strength witnessed in technology stocks, one might question whether
the valuations have reached such extremes that they cannot be maintained.
Recently, the president of Microsoft commented publicly that technology stocks,
including Microsoft, are overvalued. This comment not only caused Microsoft
stock to drop, but the NASDAQ Index to take a short-term pounding as well. We
would argue with his generalization. True, there is overvaluation in technology.
We believe, however, that much of the overvaluation lies in the large-cap
"marquee" technology names that have shown amazing returns over the past
two-to-three years. We do not believe, however, that the majority of our stocks
in the small-to mid-cap category of technology are overvalued relative to either
their expected growth rates or to the large-caps' valuations.
The fact that buyouts and mergers in the technology space remain on a fast pace
this year is an indication that the valuations in general are not out of line.
In the global technology sector, the value of mergers nearly doubled to a record
$545 billion in the first half of 1999. It took only six months to break the
total for last year's record deal value of $488 billion. We see buyout activity
in the Fund's stocks. Obviously, the purchasing companies are seeing some of the
same attractive attributes that we are, even though the market may have ignored
these companies for some time because of their size or lack of analyst coverage.
Y2K -- HERE AT LAST
When was the last time you survived a day without hearing about Y2K, Year 2000,
or the Millennium Bug? Thankfully, the year 2000 is just two months away. We
believe that on January 1, 2000, the sun will rise and the concerns about this
issue will generally prove to be unwarranted.
----------------------------------------------------
(1) Kopp Emerging Growth Fund Class A Average Annual Total Return: Since
Inception (10/1/97 -- 9/30/99): 7.13%
1 year as of quarter end (9/30/98 --
9/30/99): 97.51%
Figures include reinvested dividends and are not annualized. Net performance of
the Fund reflects a maximum sales charge of 3.5%. Absent
expense reimbursements and fee waivers, returns of the Fund would be reduced.
Past performance is not predictive of future performance.
Investment return and principal value will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than their original
cost. Small-cap investing carries more risk than investing in larger, more
well-established companies because small companies have a higher risk of
failure, experience greater price volatility, have more limited financial
resources, and trade in lower volumes.
<PAGE> 2
2
From the perspective of the investor and the market, we think the Y2K issue will
turn out to be a long-term non-event. A number of investors and a fair amount of
cash may remain on the sidelines for the rest of the year. However, once the
clocks turn and the anxiety lessens, we believe both institutional and
individual investors will return to the market. In our opinion, this infusion of
cash may drive the market higher.
From the perspective of several areas of technology, we think the passing of Y2K
will signal a more positive environment. We generally subscribe to the "Y2K
dividend" theory advocated by Soundview Technology Group, which states that the
costs associated with the Y2K spending emergency can be viewed as an unwanted
tax burden that has been assessed since early 1997 and has now started to abate.
The removal of this "tax" leaves more dollars available to fund the next
spending emergencies, namely e-commerce and customer interaction initiatives
that have a direct impact on generating revenues or cutting costs. This may bode
well for the Fund, given its significant holdings of wireless, telecom, and
semiconductor stocks.
Finally, from the Fund's perspective, mission critical systems will be ready for
Y2K. No assurance can be made that the new millennium will arrive without
incident -- especially in view of the interdependent world in which we
live -- but we are confident that preparations on behalf of the Fund will enable
it to meet your needs on and after the New Year. We believe that of all
industries in the United States, the securities industry may be the best
prepared for the Year 2000 challenge.
STAYING THE COURSE & STAYING FULLY INVESTED
When things look best and superior results are being achieved, investors are
eager to add cash to their investment accounts. When we look back a year,
however, to the market bottom reached on October 8, 1998, people thought the sky
was falling and their investments were going to zero. Cash deposits dried up
during a period when the bargains were the greatest.
So how can you protect yourself from your own emotions? In our opinion, two key
guidelines to achieving long-term investment success are avoiding the temptation
to time the market and making regular deposits to investment accounts.
Over the years, there have been various studies that have shown the importance
of being in the market. Missing just a few of the best trading days in a year
can cause returns to fall markedly. This is especially true of small-cap
investing. According to the "small-cap effect" theory, the price of a small-cap
stock will appreciate during just 40-45 trading days each year. Keep in mind
there are 253 trading days in a year. Small-caps tend to make bigger moves (in
either direction) on news events -- an earnings report, a new product
introduction, a partnership announcement, etc. To capture small-cap run-ups when
they occur, investors generally need to be in the market at all times because
timing these moves is nearly impossible.
The benefits of compounding are well known, but sometimes worth reviewing. It is
difficult to make the decision to buy shares of a mutual fund. The issue of
timing the market or timing a large cash deposit is a tricky one, compounded by
emotions. The easiest way for most investors to invest is by making regular
deposits to their accounts. A person who invests $500 a month and assumes a 10%
annual return will have $103,300 in ten years, $382,800 in twenty years, or
$1,139,700 in thirty years.(2)
----------------------------------------------------
(2) The dollar gains are based on a hypothetical growth rate and are not
intended to forecast future price appreciation of any particular
investment.
<PAGE> 3
3
In their new book, "Dow 36,000," James Glassman and Kevin Hasset contend that
the Dow could reach 36,000 in three to five years. Futurist Harry Dent is
projecting Dow 40,000 by 2009. Roger Ibbotson, President of Ibbotson Associates,
forecasts a Dow of 120,000 within 25 years. These targets look to be
unbelievable on the surface, but we wouldn't count any one of them out.
Twenty-five years ago, Mr. Ibbotson predicted the Dow would hit 10,000 in
November 1999 (in fact, the Dow hit 10,000 in March 1999, a few months ahead of
his prediction). Regardless of the specific numbers, the long-term trend for the
market has been up, and investors should benefit from that trend by taking a
long-term view of investing and remaining fully invested rather than trying to
time the advances and declines.
L.C. Kopp
LEE KOPP
President
TOP ten HOLDINGS
------------------------------------------------------
<TABLE>
<C> <S>
1. SDL, INC. (SDLI)
2. DIGITAL MICROWAVE CORPORATION (DMIC)
3. RATIONAL SOFTWARE CORPORATION (RATL)
4. ADC TELECOMMUNICATIONS, INC. (ADCT)
5. MACROVISION CORPORATION (MVSN)
6. SPECTRIAN CORPORATION (SPCT)
7. PROJECT SOFTWARE & DEVELOPMENT, INC.
(PSDI)
8. LECROY CORPORATION (LCRY)
9. TECHNE CORPORATION (TECH)
10. AVT CORPORATION (AVTC)
</TABLE>
TOP ten INDUSTRIES
------------------------------------------------------
[PIE CHART]
<TABLE>
<CAPTION>
LASER-
BASED
COMPONENTS APPLICATION OTHER
& TELECOMMUNICATION DEVELOPMENT COMMON SOFTWARE CASH &
WIRELESS SUBSYSTEMS EQUIPMENT TOOLS STOCKS APPLICATIONS EQUIVALENTS
-------- ---------- ----------------- ----------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Top ten Industries 15.8% 11.5% 8.7% 7.8% 20.4% 6.7% 0.8%
<CAPTION>
INFORMATION RESEARCH SEMICAP VOICE
SECURITY SEMICONDUCTOR REAGENTS/INSTRUMENTATION EQUIPMENT PROCESSING
----------- ------------- ------------------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Top ten Industries 6.4% 6.3% 6% 5.3% 4.3%
</TABLE>
Percentages represent market value as a percentage of total investments.
<PAGE> 4
4
$10,000 INITIAL INVESTMENT MADE 10/01/97 AT NAV THROUGH 9/30/99
[LINE GRAPH]
-----------------------------------------------------------------------
Average Annual Rate of Return*
For the Period Ended September 30, 1999
Since
1 Year Inception**
Kopp Emerging Growth Fund - Class A (no load) 104.65% 9.04%
Kopp Emerging Growth Fund - Class A (load) 97.51% 7.13%
Kopp Emerging Growth Fund - Class C NA 46.48%
Kopp Emerging Growth Fund - Class I 105.48% 9.54%
Russell 2000 Index 19.07% -1.80%
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
KOPP EMERGING KOPP EMERGING KOPP EMERGING KOPP EMERGING
GROWTH FUND - CLASS GROWTH FUND - CLASS GROWTH FUND - CLASS GROWTH FUND - CLASS
A (NO LOAD) A (LOAD) C I
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
10/01/1997 10000.00 10000.00 10000.00
09/30/1998 5810.00 5608.00 5840.00
12/31/1998 8050.00 7770.00 8100.00
03/31/1999 8550.00 8252.00 6610.00
06/30/1999 10950.00 10569.00 11040.00
09/30/1999 11889.00 11476.00 12001.00
<CAPTION>
RUSSELL 2000 INDEX
------------------
<S> <C>
10/01/1997 10000.00
09/30/1998 8098.00
12/31/1998 9419.00
03/31/1999 8908.00
06/30/1999 10294.00
09/30/1999 9643.00
</TABLE>
* Periods less than a year are not annualized.
** Class A and Class I, October 1, 1997; Class C, February 19, 1999.
This chart assumes an initial gross investment of $10,000 made on October 1,
1997 (commencement of operations). Returns shown include the reinvestment of
dividends. For Class A Shares, a maximum 3.50% sales load is in effect. Class A
Shares are sold with a .35% 12b-1 fee. Class C Shares are sold with a 1.00%
12b-1 fee. Performance reflects expense reimbursements and fee waivers. Absent
expense reimbursements and fee waivers, total returns would be reduced. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than the original cost.
Russell 2000 Index -- A stock market index comprising the 2,000 smallest U.S.
domiciled publicly traded common stocks that are included in the Russell 3000
Index. The Russell 2000 represents approximately 11% of the U.S. publicly traded
equity market. The Russell 3000 Index comprises the 3,000 largest U.S. domiciled
publicly traded common stocks by market capitalization representing
approximately 98% of the U.S. equity market.
--------------------------------------------------------------------------------
It should not be assumed that our stock selections or investment
philosophy will be profitable or will equal any past performance.
Small-cap stocks involve greater risks and volatility than those
of larger, more established companies. Potential for profit
involves possibility of loss. The President's letter is for
general information only and is not intended to provide specific
advice or stock recommendations to any individual. Future
investment decisions and commentary may be made under different
economic, market, and industry conditions from those existing at
the time these comments were prepared.
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> 5
5
KOPP EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
<TABLE>
<S> <C>
-------------------------------------------------------
ASSETS
Investments in securities, at value:
Investments in securities of
unaffiliated issuers (cost
$300,704,884) $ 431,904,497
Investments in securities of
affiliated issuers (cost
$52,253,816) 38,242,063
-------------------------------------------------------
Total investments in securities (cost
$352,958,700) 470,146,560
Receivable from securities sold 17,025,002
Receivable from capital shares sold 1,510,359
Interest receivable 24,010
Deferred organization expenses, net
of accumulated amortization 58,179
Prepaid expenses 45,804
-------------------------------------------------------
Total Assets 488,809,914
-------------------------------------------------------
LIABILITIES
Payable for securities purchased 15,310,338
Payable for capital shares redeemed 1,357,031
Payable to Investment Advisor 318,158
Payable for service fees 215,014
Payable for distribution fees 88,310
Payable to Affiliated Distributor 41,654
Accrued other expenses 305,505
-------------------------------------------------------
Total Liabilities 17,636,010
-------------------------------------------------------
NET ASSETS $ 471,173,904
-------------------------------------------------------
-------------------------------------------------------
NET ASSETS CONSIST OF
Capital stock $ 395,658
Paid-in-capital in excess of par 353,695,390
Accumulated net realized loss on
securities (105,004)
Unrealized net appreciation on
securities 117,187,860
-------------------------------------------------------
Total Net Assets $ 471,173,904
-------------------------------------------------------
CLASS A
Net Assets $ 404,630,111
Shares authorized ($0.01 par value) 3,000,000,000
Shares issued and outstanding 34,019,552
Net asset value and redemption price
per share $ 11.89
-------------------------------------------------------
Maximum offering price per share $ 12.32
-------------------------------------------------------
CLASS C
Net Assets $ 1,890,549
Shares authorized ($0.01 par value) 3,000,000,000
Shares issued and outstanding 159,478
Net asset value and redemption price
per share $ 11.85
-------------------------------------------------------
CLASS I
Net Assets $ 64,653,244
Shares authorized ($0.01 par value) 3,000,000,000
Shares issued and outstanding 5,386,740
Net asset value, redemption price and
offering price per share $ 12.00
-------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
<PAGE> 6
6
KOPP EMERGING GROWTH FUND
STATEMENT OF OPERATIONS
For the year ended September 30, 1999
<TABLE>
<S> <C>
-------------------------------------------------------
INVESTMENT INCOME
Interest $ 172,649
Dividends 61,500
-------------------------------------------------------
Total investment income 234,149
-------------------------------------------------------
EXPENSES
Investment advisory fee 3,680,314
Transfer agent fees 647,929
Service fees -- Class A 805,005
Service fees -- Class C 1,239
12b-1 fees -- Class A 322,002
12b-1 fees -- Class C 3,719
Federal and state registration fees 40,030
Fund administration fees 231,702
Custody fees 85,934
Fund accounting fees 71,076
Professional fees 52,965
Directors' fees and expenses 30,005
Reports to shareholders 66,857
Amortization of deferred organization
expenses 19,639
Other expenses 37,494
-------------------------------------------------------
Total expenses before waivers 6,095,910
Less: Waiver of expenses by Investment
Advisor (731,590)
-------------------------------------------------------
Net expenses 5,364,320
-------------------------------------------------------
NET INVESTMENT LOSS (5,130,171)
-------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investment
transactions:
Net realized gain on investment
transactions of unaffiliated
issuers 16,995,446
Net realized loss on investment
transactions of affiliated issuers (5,280,160)
Change in unrealized appreciation on
investments 244,501,309
-------------------------------------------------------
Net gain on investments 256,216,595
-------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $251,086,424
-------------------------------------------------------
</TABLE>
KOPP EMERGING GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
----------------------------------------------------------------
OPERATIONS
Net investment loss $ (5,130,171) $ (3,559,559)
Net realized gain
(loss) on
investments 11,715,286 (6,701,095)
Change in unrealized
appreciation
(depreciation) on
investments 244,501,309 (127,313,448)
----------------------------------------------------------------
Net increase
(decrease) in net
assets resulting
from operations 251,086,424 (137,574,102)
----------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Class A:
Proceeds from
shares sold 102,526,599 394,592,927
Cost of shares
redeemed (134,797,837) (51,519,044)
Class C:
Proceeds from
shares sold 1,633,971 --
Cost of shares
redeemed (5,713) --
Class I:
Proceeds from
shares sold 6,747,721 38,670,416
Cost of shares
redeemed (127,518) (59,940)
----------------------------------------------------------------
Net increase
(decrease)
resulting from
capital share
transactions (24,022,777) 381,684,359
----------------------------------------------------------------
TOTAL INCREASE IN NET
ASSETS 227,063,647 244,110,257
----------------------------------------------------------------
NET ASSETS
Beginning of period 244,110,257 --
----------------------------------------------------------------
End of period $ 471,173,904 $ 244,110,257
----------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
<PAGE> 7
7
KOPP EMERGING GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
February 19, 1999(1)
Year Ended through Year Ended Year Ended
September 30, 1999 September 30, 1999 September 30, 1999 September 30, 1998
------------------ -------------------- ------------------ ------------------
Class A Class C Class I Class A
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net asset value, beginning of period $5.81 $8.09 $5.84 $10.00
-----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(2) (0.14) (0.07) (0.09) (0.09)
Net realized and unrealized gains
(losses) on investments 6.22 3.83 6.25 (4.10)
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 6.08 3.76 6.16 (4.19)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.89 $11.85 $12.00 $5.81
-----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's) $404,630 $1,891 $64,653 $216,533
Ratio of expenses to average net assets: 1.50%(3) 2.15%(4),(5) 1.15%(3) 1.50%(3)
Ratio of net investment loss to average
net assets: (1.44)%(6) (2.09)%(7) (1.09)%(6) (1.30)%(6)
Portfolio turnover rate(8) 41.3% 41.3% 41.3% 19.7%
Total return 104.65%(9) 46.48%(10) 105.48% (41.90)%(9)
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended
September 30, 1998
------------------
Class I
<S> <C>
------------------------------------------------------------
PER SHARE DATA
Net asset value, beginning of period $10.00
------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(2) (0.06)
Net realized and unrealized gains
(losses) on investments (4.10)
------------------------------------------------------------
Total from investment operations (4.16)
------------------------------------------------------------
Net asset value, end of period $5.84
------------------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's) $27,577
Ratio of expenses to average net assets: 1.15%(3)
Ratio of net investment loss to average
net assets: (0.95)%(6)
Portfolio turnover rate(8) 19.7%
Total return (41.60)%
------------------------------------------------------------
</TABLE>
(1) Commencement of operations for Class C.
(2) Net investment loss per share is calculated using the ending balance of
undistributed net investment loss prior to consideration of adjustments for
permanent book and tax differences.
(3) Absent voluntary fee waivers for the year ended September 30, 1999 and the
year ended September 30, 1998, respectively, the ratio of expenses to
average net assets would have been 1.79% and 1.96% for Class A and 1.40%
and 1.65% for Class I. Included in these fee waivers, for the year ended
September 30, 1999 and the year ended September 30, 1998, respectively were
12b-1 fee waivers of 0.09% and 0.15% for Class A and 0.05% and 0.19% for
Class I.
(4) Absent voluntary fee waivers for the period February 19, 1999 through
September 30, 1999, the ratio of expenses to average net assets would have
been 2.31% for Class C. No 12b-1 fee waivers are included in these fee
waivers since Class C had already incurred its maximum 12b-1 and
shareholder servicing fees.
(5) Annualized.
(6) Absent voluntary fee waivers for the year ended September 30, 1999 and the
year ended September 30, 1998, respectively, the ratio of net investment
(loss) to average net assets would have been (1.73%) and (1.76%) for Class
A and (1.34%) and (1.45%) for Class I.
(7) Absent voluntary fee waivers for the period February 19, 1999 through
September 30, 1999, the ratio of net investment (loss) to average net
assets would have been (2.25%) for Class C.
(8) Calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
(9) Total return excludes sales charges.
(10) Not annualized.
See Notes to the Financial Statements.
<PAGE> 8
8
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
September 30, 1999
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
--------------------------------------------------------
COMMON STOCK -- 99.0%
--------------------------------------------------------
APPLICATION DEVELOPMENT TOOLS -- 7.8%
1,250,000 Rational Software
Corporation $ 36,601,563
--------------------------------------------------------
CARDIOVASCULAR -- 0.8%
230,000 Eclipse Surgical
Technologies, Inc. 3,795,000
--------------------------------------------------------
DATA WAREHOUSING -- 0.5%
100,000 Cognos, Inc.(f) 2,606,250
--------------------------------------------------------
DIAGNOSTICS -- 0.5%
400,000 Cholestech Corporation 2,550,000
--------------------------------------------------------
ELECTRONIC COMPONENTS -- 1.2%
300,000 Artesyn Technologies, Inc. 5,690,625
--------------------------------------------------------
ELECTRONIC DATA INTERCHANGE -- 0.5%
100,000 National Data Corporation(*) 2,600,000
--------------------------------------------------------
ELECTRONIC DESIGN AUTOMATION -- 2.7%
400,000 ANSYS, Inc. 3,950,000
430,000 Applied Microsystems
Corporation(#) 1,558,750
200,000 Artisan Components, Inc. 1,725,000
100,000 Synopsys, Inc. 5,615,625
--------------------------------------------------------
12,849,375
--------------------------------------------------------
INDUSTRIAL AUTOMATION -- 1.0%
637,000 Adept Technology, Inc.(#) 4,618,250
--------------------------------------------------------
INFORMATION SECURITY -- 6.4%
1,238,498 Cylink Corporation 8,979,111
480,000 Macrovision Corporation 21,300,000
--------------------------------------------------------
30,279,111
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
--------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES -- 3.3%
500,000 Lightbridge, Inc. 9,843,750
193,000 Norstan, Inc. 1,544,000
280,000 Technology Solutions Company 3,955,000
--------------------------------------------------------
15,342,750
--------------------------------------------------------
LASER-BASED COMPONENTS & SUBSYSTEMS -- 11.5%
710,000 SDL, Inc. 54,181,875
--------------------------------------------------------
MACHINE VISION/INSPECTION -- 2.0%
135,000 CyberOptics Corporation 2,168,437
500,000 Zygo Corporation 7,062,500
--------------------------------------------------------
9,230,937
--------------------------------------------------------
NETWORKING -- 3.0%
50,000 Cisco Systems, Inc. 3,428,125
200,000 Computer Network Technology
Corporation 1,862,500
209,000 Digital Link Corporation 2,090,000
240,000 Larscom Incorporated 525,000
100,000 MMC Networks, Inc. 3,118,750
400,000 VideoServer, Inc. 2,900,000
--------------------------------------------------------
13,924,375
--------------------------------------------------------
ONCOLOGY -- 1.4%
200,000 ImClone Systems Incorporated 6,650,000
--------------------------------------------------------
OPTHAMOLOGY -- 0.5%
200,000 KeraVision, Inc. 2,600,000
</TABLE>
See Notes to the Financial Statements.
<PAGE> 9
9
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1999
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
--------------------------------------------------------
RESEARCH REAGENTS/INSTRUMENTATION -- 6.0%
400,000 Molecular Devices
Corporation 11,000,000
53,750 Serologicals Corporation 228,437
400,000 Techne Corporation 12,550,000
260,000 Ventana Medical Systems,
Inc. 4,420,000
--------------------------------------------------------
28,198,437
--------------------------------------------------------
SEMICAP EQUIPMENT -- 5.3%
350,000 Aetrium Incorporated 2,439,062
356,500 Applied Science and
Technology, Inc. 7,352,813
130,000 Asyst Technologies, Inc. 4,290,000
100,000 Brooks Automation, Inc. 1,756,250
200,000 Credence Systems Corporation 8,975,000
--------------------------------------------------------
24,813,125
--------------------------------------------------------
SEMICONDUCTOR -- 6.3%
300,000 ANADIGIC, Inc. 8,437,500
40,000 Conexant Systems, Inc. 2,906,250
115,000 PMC-Sierra, Inc. 10,637,500
90,000 Vitesse Semiconductor
Corporation 7,683,750
--------------------------------------------------------
29,665,000
--------------------------------------------------------
SOFTWARE APPLICATIONS -- 6.7%
100,000 Documentum, Inc. 2,162,500
200,000 Epicor Software Corporation 1,150,000
100,000 Gensym Corporation 362,500
200,000 Hyperion Software
Corporation 4,400,000
225,000 Infinium Software, Inc. 1,125,000
180,000 National Computer Systems,
Inc.(*) 6,901,875
270,000 Project Software &
Development, Inc. 14,445,000
100,000 The Vantive Corporation 868,750
--------------------------------------------------------
31,415,625
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
--------------------------------------------------------
SPECIALTY PHARMACEUTICALS -- 0.2%
100,000 Warner Chilcott
Laboratories -- SP ADR 737,500
--------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 8.6%
600,000 ADC Telecommunications, Inc. 25,162,500
320,000 Advanced Fibre
Communications, Inc. 7,120,000
200,000 Tekelec 2,762,500
100,000 Tellabs, Inc. 5,693,750
--------------------------------------------------------
40,738,750
--------------------------------------------------------
TEST AND MEASUREMENT -- 2.8%
732,000 LeCroy Corporation(#) 13,176,000
--------------------------------------------------------
VOICE PROCESSING -- 4.3%
400,000 AVT Corporation 12,250,000
335,000 Centigram Communications
Corporation(#) 3,664,063
325,000 Davox Corporation 4,245,312
--------------------------------------------------------
20,159,375
--------------------------------------------------------
WIRELESS -- 15.7%
3,000,000 Digital Microwave
Corporation 47,062,500
200,000 EMS Technologies, Inc. 2,400,000
540,000 Itron, Inc. 3,172,500
100,000 Proxim, Inc. 4,600,000
165,000 RF Monolithics, Inc. 1,691,250
700,000 Spectrian Corporation # 15,225,000
--------------------------------------------------------
74,151,250
--------------------------------------------------------
Total Common Stock (cost $349,387,313) $466,575,173
</TABLE>
See Notes to the Financial Statements.
<PAGE> 10
10
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 1999
<TABLE>
<CAPTION>
Number of Market
Shares Value
<C> <S> <C>
--------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.8%
--------------------------------------------------------
INVESTMENT COMPANIES -- 0.8%
3,571,387 Firstar Institutional Money
Market Fund* $ 3,571,387
--------------------------------------------------------
Total Short-Term Investments (cost
$3,571,387) 3,571,387
--------------------------------------------------------
Total Investments -- 99.8% (cost
$352,958,700) 470,146,560
Other Assets less Liabilities -- 0.2% 1,027,344
--------------------------------------------------------
NET ASSETS -- 100.0% $471,173,904
--------------------------------------------------------
</TABLE>
* Income producing security.
f Foreign security.
# Affiliated company; the Fund owns 5% or more of the outstanding voting
securities of the issuer.
See Notes to the Financial Statements.
<PAGE> 11
11
KOPP EMERGING GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
1. ORGANIZATION
Kopp Funds, Inc. (the "Company") was incorporated on June 12, 1997 as a
Minnesota company, and is registered as an open-end, management investment
company under the Investment Company Act of 1940 (the "1940 Act"). The Kopp
Emerging Growth Fund (the "Fund") is a non-diversified series of the Company.
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 proceeds of any redemption of the initial shares
by the original shareholders or any transferee will be reduced by a pro rata
portion of any then unamortized organizational expenses in the same proportion
as the number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of such redemption.
The Fund has issued three classes of shares: Class A, Class C, 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 has approved 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
Net investment income (loss), 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).
<PAGE> 12
12
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 investment transactions by comparing
the original cost of the security lot sold with the net sales proceeds (specific
identification). 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 more
closely present capital balances on a tax basis. On the Statement of Assets and
Liabilities, as a result of permanent book to tax differences, a
reclassification adjustment has been made to decrease accumulated net investment
loss by $5,130,171, decrease accumulated net realized gain on securities by
$5,119,195, and decrease paid-in-capital in excess of par by $10,976.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Class A
Year Ended
September 30, 1999
------------------
<S> <C>
Shares sold 11,629,693
Shares redeemed (14,905,059)
----------------------------------------------------------
Net decrease (3,275,366)
</TABLE>
<TABLE>
<CAPTION>
Class C
February 19, 1999*
through
September 30, 1999
------------------
<S> <C>
Shares sold 159,988
Shares redeemed (510)
----------------------------------------------------------
Net increase 159,478
</TABLE>
<TABLE>
<CAPTION>
Class I
Year Ended
September 30, 1999
------------------
<S> <C>
Shares sold 681,046
Shares redeemed (18,120)
----------------------------------------------------------
Net increase 662,926
</TABLE>
* Commencement of operations for Class C.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the year ended September 30, 1999, were
$151,140,398 and $181,636,699 respectively. There were no purchases or sales of
long-term U.S. Government securities.
<PAGE> 13
13
At September 30, 1999, gross unrealized appreciation and depreciation of
investments for federal income tax purposes were as follows:
<TABLE>
<S> <C>
Appreciation $175,893,915
(Depreciation) (58,811,059)
----------------------------------------------------------
Net unrealized appreciation on
investments $117,082,856
</TABLE>
At September 30, 1999, the cost of investments for federal income tax purposes
was $353,063,704.
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.
For the fiscal year ended September 30, 1999, the Advisor voluntarily agreed to
waive its management fee to the extent necessary to ensure that (i) the total
annual operating expenses for Class A shares would not exceed 1.50%, (ii) the
total annual operating expenses for Class C shares would not exceed 2.15%, and
(iii) the total annual operating expenses for Class I shares would not exceed
1.15%. The Advisor may recoup previously waived management fees. Cummulative
management fees waived as of September 30, 1999 totaled $1,594,775.
Firstar Mutual Fund Services LLC, serves as accounting services agent,
administrator and transfer agent for the Fund. Firstar Bank Milwaukee, N.A.
serves as custodian 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"). The Distributor is an affiliate of the
Advisor. 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 Class A and Class I and up to 0.75% of the average daily net assets of the
Fund attributable to Class C (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 all three
classes (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. Class C shares are
currently incurring 1.00%, which represents a 0.75% 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 the 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 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. 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
September 30, 1999, there were $733,440 of unreimbursed distribution and
shareholder servicing related expenses to be carried forward to future plan
years. Distribution and shareholder servicing fees incurred by Class A shares
<PAGE> 14
14
for the year ended September 30, 1999 were $322,002 and $805,005, respectively
(net of voluntary waiver). The distribution and shareholder servicing fees
retained by the Distributor, related to Class A, for the year ended September
30, 1999 were $35,465 and $88,663, respectively. The Fund was advised that the
Distributor advanced $13,790 of distribution and shareholder servicing fees
related to Class C shares for the period ended September 30, 1999. The
distribution and shareholder servicing fees retained by the Distributor, related
to Class C, for the period ended September 30, 1999 were $3,719 and $1,239,
respectively.
The Fund was advised that the Distributor retained front-end sales charges on
Class A shares of $181,831 for the year ended September 30, 1999.
6. OTHER AFFILIATES*
Investments representing 5% or more of the outstanding voting securities of a
portfolio company results in that company being considered an affiliated
company, as defined in the Investment Company Act of 1940. The aggregate market
value of all securities of affiliated companies as of September 30, 1999
amounted to $38,242,063, representing 8.12% of net assets. Transactions during
the year ended September 30, 1999 in which the issuer was an "affiliated person"
are as follows:
<TABLE>
<CAPTION>
Adept Applied Centigram Digital
Technology, Microsystems Communications Link LeCroy Spectrian
Inc. Corporation Corporation Corporation** Corporation Corporation
----------- ------------ -------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1998
Balance
Shares 615,000 200,000 150,000 471,000 364,900 460,000
Cost $8,533,551 $2,128,180 $2,597,109 $ 9,226,332 $12,018,276 $13,174,625
Gross Additions
Shares 52,000 250,000 185,000 -- 367,100 240,000
Cost $ 476,295 $ 967,110 $1,852,289 $ -- $ 7,412,202 $ 3,813,007
Gross Deductions
Shares 30,000 20,000 -- 262,000 -- --
Cost $ 474,375 $ 244,453 $ -- $ 6,228,504 $ -- $ --
September 30, 1999
Balance
Shares 637,000 430,000 335,000 209,000 732,000 700,000
Cost $8,535,471 $2,850,837 $4,449,398 $ 2,997,828 $19,430,478 $16,987,632
------------------------------------------------------------------------------------------------------------------------
Realized loss ($ 253,757) ($ 197,892) $ 0 ($4,828,511) $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------
Investment income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total
-----
<S> <C>
September 30, 1998
Balance
Shares 2,260,900
Cost $47,678,073
Gross Additions
Shares 1,094,100
Cost $14,520,903
Gross Deductions
Shares 312,000
Cost $ 6,947,332
September 30, 1999
Balance
Shares 3,043,000
Cost $55,251,644
-------------------------------------
Realized loss ($5,280,160)
-------------------------------------
Investment income $ 0
-------------------------------------
</TABLE>
* The listing of these companies is not an admission that the "affiliated
persons" are affiliates of the Distributor, Advisor, Fund, Company, or any
other client of the Advisor.
** Security that was affiliated during the year ended September 30, 1999, but
not at September 30, 1999.
7. BANK BORROWING
The Fund has secured a $10,000,000 line of credit with Firstar Bank Milwaukee,
N.A. The interest rate on any borrowings is the Bank's announced prime rate and
borrowings would be for liquidity purposes. The Fund pays a commitment fee equal
to the amount of the line at a rate of 0.10% per annum. During the year ended
September 30, 1999, the Fund did not draw upon the line of credit.
<PAGE> 15
15
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Kopp Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Kopp Emerging Growth Fund (a portfolio within
Kopp Funds, Inc.) as of September 30, 1999, and the related statement of
operations for the year then ended and the statements of changes in net assets
and the financial highlights for each of the years in the two-year period then
ended. These financial statements and the financial highlights are the
responsibility of the fund's 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the 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
September 30, 1999, by correspondence with the custodian and brokers. 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 the financial highlights referred
to above present fairly, in all material respects, the financial position of
Kopp Emerging Growth Fund as of September 30, 1999, and the results of its
operations for the year then ended and the changes in its net assets and the
financial highlights for each of the years in the two-year period then ended, in
conformity with generally accepted accounting principles.
KPMG LLP
Minneapolis, Minnesota
October 18, 1999
<PAGE> 16
16
[KOPP LOGO]
(C)1999 Kopp Investment Advisors, Inc.
DIRECTORS
LeRoy C. Kopp
Robert L. Steblik
Thomas R. Stuart
OFFICERS
LeRoy C. Kopp, Chief Executive Officer and President
John P. Flakne, Chief Financial Officer and Treasurer
Kathleen S. Tillotson, Executive Vice President and Secretary
Gregory S. Kulka, First Vice President
INVESTMENT ADVISER
KOPP INVESTMENT ADVISORS, INC.
7701 France Avenue South, Suite 500
Edina, MN 55435
EMERGING GROWTH FUND
ADMINISTRATOR AND TRANSFER AGENT ANNUAL REPORT 1999
FIRSTAR MUTUAL FUND SERVICES, LLC
<TABLE>
<S> <C>
For Overnight deliveries, For regular mail deliveries,
use: use:
Kopp Funds, Inc. Kopp Funds, Inc.
c/o Firstar Mutual Fund c/o Firstar Mutual Fund
Services, LLC Services, LLC
Third Floor P.O. Box 701
615 E. Michigan Street Milwaukee, WI 53201-0701
Milwaukee, WI 53202
</TABLE>
CUSTODIAN
FIRSTSTAR BANK MILWAUKEE, N.A.
777 E. Wisconsin Avenue
Milwaukee, WI 53202
DISTRIBUTOR
CENTENNIAL LAKES CAPITAL, INC.
7701 France Avenue South, Suite 500
Edina, MN 55435
INDEPENDENT AUDITORS
KPMG 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.
