STATEMENT OF ADDITIONAL INFORMATION
Kopp Funds, Inc.
Kopp Emerging Growth Fund
7701 France Avenue South, Suite 500
Edina, Minnesota 55435
Telephone: 1-888-533-KOPP
Facsimile: 1-612-841-0411
Website: www.koppfunds.com
This Statement of Additional Information ("SAI")
is not a prospectus and should be read together with
the Prospectus of the Kopp Emerging Growth Fund
("Fund") dated January 25, 2000. The Fund is a series
of Kopp Funds, Inc. ("Corporation").
The Fund's audited financial statements for the
year ended September 30, 1999, are incorporated herein
by reference to the Fund's 1999 Annual Report.
A copy of the Fund's 1999 Annual Report and/or its
Prospectus is available without charge upon request to
the above-noted address, toll-free telephone number, or
website.
This Statement of Additional Information is dated January 25, 2000,
as supplemented on February 17, 2000 and October 6, 2000.
<PAGE>
TABLE OF CONTENTS
FUND ORGANIZATION 3
FUND POLICIES: FUNDAMENTAL AND NON-FUNDAMENTAL 3
IMPLEMENTATION OF INVESTMENT OBJECTIVE 5
DIRECTORS AND OFFICERS 7
PRINCIPAL SHAREHOLDERS 9
INVESTMENT ADVISOR 10
FUND TRANSACTIONS AND BROKERAGE 11
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND-DISBURSING AGENT 12
ADMINISTRATOR AND FUND ACCOUNTANT 12
DISTRIBUTOR 13
ARRANGEMENTS WITH BROKER-DEALERS AND OTHER FINANCIAL
INTERMEDIARIES 14
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN 14
PURCHASE, EXCHANGE, AND PRICING OF SHARES 16
REDEMPTIONS IN KIND 19
TAXATION OF THE FUND 19
PERFORMANCE INFORMATION 19
INDEPENDENT ACCOUNTANTS 21
FINANCIAL STATEMENTS 21
You should rely only on the information contained
in this document and the Fund's Prospectus. We have
not authorized anyone to provide you with information
that is different. This SAI is not an offer to sell
securities in any state or jurisdiction in which an
offering may not lawfully be made.
<PAGE>
FUND ORGANIZATION
The Corporation is an open-end management
investment company, commonly referred to as a mutual
fund. The Corporation is organized as a Minnesota
company and was incorporated on June 12, 1997.
The Corporation is authorized to issue shares of
common stock in series and classes. The Corporation
currently offers one series of shares: the Kopp
Emerging Growth Fund. The shares of common stock of
the Fund are further divided into three classes: Class
A, Class C and Class I. Each share of common stock of
each class of shares of the Fund is entitled to one
vote, and each share is entitled to participate equally
in dividends and capital gains distributions by the
respective class of shares and in the residual assets
of the respective class in the event of liquidation.
However, each class of shares bears its own expenses,
is subject to its own sales and redemption charges, if
any, and has exclusive voting rights on matters
pertaining to the Rule 12b-1 distribution and
shareholder servicing plan as it relates to that class.
No certificates will be issued for shares held in
your account. You will, however, have full shareholder
rights.
Generally, the Fund will not hold annual
shareholders' meetings unless required by the
Investment Company Act of 1940, as amended ("1940
Act"), or Minnesota law.
FUND POLICIES: FUNDAMENTAL AND NON-FUNDAMENTAL
The following are the Fund's fundamental
investment policies which cannot be changed without the
approval of a majority of the Fund's outstanding voting
securities. As used herein, a "majority of the Fund's
outstanding voting securities" means the lesser of (i)
67% of the shares of common stock of the Fund
represented at a meeting at which more than 50% of the
outstanding shares are present, or (ii) more than 50%
of the outstanding shares of common stock of the Fund.
The Fund:
1. May not issue senior securities, except as
permitted under the 1940 Act;
2. May (i) borrow money from banks and (ii) make
other investments or engage in other
transactions permissible under the 1940 Act
which may involve a borrowing, provided that
the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Fund's
assets (including the amount borrowed), less
the Fund's liabilities (other than
borrowings), except that the Fund may borrow
up to an additional 5% of its assets (not
including the amount borrowed) from a bank
for temporary or emergency purposes (but not
for leverage or the purchase of investments).
The Fund may also borrow money from other
persons to the extent permitted by applicable
law;
3. May not act as an underwriter of another
company's securities, except to the extent
that the Fund may be deemed to be an
underwriter within the meaning of the
Securities Act of 1933, as amended ("1933
Act"), in connection with the purchase and
sale of portfolio securities;
4. May not invest more than 25% of its assets in
securities of companies in any one industry.
This restriction does not apply to
obligations issued or guaranteed by the U.S.
government, its agencies, or
instrumentalities;
5. May not purchase or sell real estate unless
acquired as a result of ownership of
securities or other instruments (but this
shall not prohibit the Fund from purchasing
or selling securities or other instruments
backed by real estate or of issuers engaged
in real estate activities);
<PAGE>
6. May not make loans if, as a result, more than
33 1/3% of the Fund's assets would be lent to
other persons, except through purchases of
debt securities or other debt instruments or
engaging in repurchase agreements;
7. May not purchase or sell physical commodities
unless acquired as a result of ownership of
securities or other instruments (but this
shall not prevent the Fund from purchasing or
selling options, futures contracts, or other
derivative instruments, or from investing in
securities or other instruments backed by
physical commodities); and
8. Notwithstanding any other fundamental
investment policy or restriction, may invest
all of its assets in the securities of a
single open-end management investment company
with substantially the same fundamental
investment objective, policies, and
restrictions as the Fund.
The Fund's investment objective, which is to seek
long-term capital appreciation, is also a fundamental
investment policy which cannot be changed without the
approval of a majority of the Fund's outstanding voting
securities.
The following are the Fund's non-fundamental
investment policies which may be changed by the Board
of Directors of the Fund without shareholder approval.
The Fund may not:
1. Sell securities short, unless the Fund owns
or has the right to obtain securities
equivalent in kind and amount to the
securities sold short, or unless it covers
such short sale as required by the current
rules and positions of the Securities and
Exchange Commission ("SEC") or its staff, and
provided that transactions in options,
futures contracts, options on futures
contracts, or other derivative instruments
are not deemed to constitute selling
securities short.
2. Purchase securities on margin, except that
the Fund may obtain such short-term credits
as are necessary for the clearance of
transactions; and provided that margin
deposits in connection with futures
contracts, options on futures contracts, or
other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result
of such investment, more than 15% of its net
assets would be invested in illiquid
securities, or such other amounts as may be
permitted under the 1940 Act.
4. Purchase securities of other investment
companies except in compliance with the 1940
Act.
5. Engage in futures or options on futures
transactions which are impermissible pursuant
to Rule 4.5 under the Commodity Exchange Act
("CEA") and, in accordance with Rule 4.5,
will use futures or options on futures
transactions solely for bona fide hedging
transactions (within the meaning of the CEA);
provided, however, that the Fund may, in
addition to bona fide hedging transactions,
use futures and options on futures
transactions if the aggregate initial margin
and premiums required to establish such
positions, less the amount by which any such
options positions are in the money (within
the meaning of the CEA), do not exceed 5% of
the Fund's net assets.
6. Make any loans other than loans of portfolio
securities, except through purchases of debt
securities or other debt instruments or
engaging in repurchase agreements with
respect to portfolio securities.
7. Borrow money except from banks or through
reverse repurchase agreements or mortgage
dollar rolls, and will not purchase
securities when bank borrowings exceed 5% of
its assets.
<PAGE>
Unless noted otherwise, if a percentage
restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from
a change in the Fund's assets or in the market value of
the investment will not constitute a violation of that
restriction.
IMPLEMENTATION OF INVESTMENT OBJECTIVE
The following information supplements the
discussion of the Fund's investment objective and
strategy described in the Prospectus under the headings
"Investment Objective" and "Investment Strategy."
Depositary Receipts
The Fund may invest in the equity securities of
foreign companies by purchasing depositary receipts,
including American Depositary Receipts ("ADRs") and
European Depositary Receipts ("EDRs"). These
securities may not necessarily be denominated in the
same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in
the U.S. securities markets, while EDRs, in bearer
form, may be denominated in other currencies and are
designed for use in European securities markets. ADRs
are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a
similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have
the same classification as the underlying securities
they represent. Thus, an ADR or EDR representing
ownership of common stock will be treated as common
stock.
Investments in securities of foreign companies
involve risks which are in addition to the usual risks
inherent in domestic investments. In many countries
there is less publicly available information about
companies than is available in the reports and ratings
published about companies in the U.S. Additionally,
foreign companies are not subject to uniform
accounting, auditing, and financial reporting
standards. Other risks that may be present in foreign
investment include expropriation; confiscatory
taxation; withholding taxes on dividends and interest;
less extensive regulation of foreign brokers,
securities markets, and companies; costs incurred in
conversions between currencies; the illiquidity and
volatility of foreign securities markets; the
possibility of delays in settlement in foreign
securities markets; limitations on the use or transfer
of assets (including suspension of the ability to
transfer currency from a given country); the difficulty
of enforcing obligations in other countries; diplomatic
developments; and political or social instability.
Foreign economies may differ from the U.S. economy in
various respects, and many foreign securities are less
liquid and their prices are more volatile than
comparable U.S. securities. From time to time, foreign
securities may be difficult to liquidate rapidly
without adverse price effects. Certain costs
attributable to foreign investing, such as custody
charges and brokerage costs, are higher than those
attributable to domestic investing.
Convertible Securities
The Fund may invest in convertible securities,
which are bonds, debentures, notes, preferred stocks,
or other securities that may be converted into or
exchanged for a specified amount of common stock or
warrants of the same or a different company within a
particular period of time at a specified price or
formula. A convertible security entitles the holder to
receive interest normally paid or accrued on debt or
the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted,
or exchanged. Convertible securities have unique
investment characteristics in that they generally (i)
have higher yields than common stocks, but lower yields
than comparable non-convertible securities; (ii) are
less subject to fluctuation in value than the
underlying stock (or warrant) since they have fixed
income characteristics; and (iii) provide the potential
for capital appreciation if the market price of the
underlying common stock (or warrant) increases. A
convertible security may be subject to redemption at
the option of the issuer at a price established in the
convertible security's governing instrument. If a
convertible security held by the Fund is called for
redemption, the Fund will be required to permit the
issuer to redeem the security, convert it into the
underlying common stock (or warrant), or sell it to a
third party.
<PAGE>
Borrowing
The Fund is authorized to borrow money from banks
and make other investments or engage in other
transactions permissible under the 1940 Act which may
be considered a borrowing (such as mortgage dollar
rolls and reverse repurchase agreements), provided that
the amount borrowed cannot exceed 33 1/3% of the value
of the Fund's net assets. The Fund's borrowings create
an opportunity for greater return to the Fund and,
ultimately, the Fund's shareholders, but at the same
time increase exposure to losses. In addition,
interest payments and fees paid by the Fund on any
borrowings may offset or exceed the return earned on
borrowed funds. The Fund currently intends to borrow
money only for temporary, extraordinary, or emergency
purposes.
Lending Portfolio Securities
The Fund may lend portfolio securities with a
value not exceeding 33 1/3% of the Fund's total assets
to brokers or dealers, banks or other institutional
borrowers of securities as a means of earning income.
In return, the Fund will receive collateral in cash or
money market instruments. Such collateral will be
maintained at all times in an amount equal to at least
100% of the current market value of the loaned
securities. The purpose of such securities lending is
to permit the borrower to use such securities for
delivery to purchasers when such borrower has sold
short. The Fund will continue to receive the
equivalent of the interest or dividends paid by the
issuer of the securities lent, and the Fund may also
receive interest on the investment of collateral, or a
fee from the borrower as compensation for the loan.
The Fund may pay reasonable custodial and
administrative fees in connection with the loan. The
Fund will retain the right to call, upon notice,
securities loaned. While there may be delays in
recovery or even a risk of loss of collateral should
the borrower fail financially, the Fund's investment
advisor will review the credit worthiness of the
entities to which such loans are made to evaluate those
risks. Although the Fund is authorized to lend, the
Fund does not presently intend to engage in lending.
Non-Diversification
While the Fund is "non-diversified," which means
that it is permitted to invest its assets in a more
limited number of companies than "diversified" mutual
funds, the Fund intends to diversify its assets to
qualify for tax treatment as a regulated investment
company under the Internal Revenue Code of 1986, as
amended ("Code"). To qualify (i) not more than 25% of
the total value of the Fund's assets may be invested in
securities of any one issuer or of any two or more
issuers controlled by the Fund, which, pursuant to the
regulations under the Code, may be deemed to be engaged
in the same, similar, or related trades or businesses,
and (ii) with respect to 50% of the total value of the
Fund's assets (a) not more than 5% of its total assets
may be invested in the securities of any one issuer and
(b) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer. These
percentage limitations do not apply to investments in
U.S. government securities or the securities of other
regulated investment companies. To the extent that a
relatively high percentage of the Fund's assets are
invested in the securities of a limited number of
companies, the Fund's portfolio may be more susceptible
to a single economic, political, or regulatory
occurrence than the portfolio of a diversified mutual
fund.
Concentration
The Fund has adopted a fundamental investment
policy which prohibits the Fund from investing more
than 25% of its assets in the securities of companies
in any one industry. An industry is defined as a
business-line subsector of a stock-market sector.
While the Fund may be heavily invested in a single
market sector like technology or health care, for
example, it will not invest more than 25% of its assets
in securities of companies in any one industry or
subsector. Technology industries or subsectors include
networking; data storage; software applications;
semiconductors; voice-processing; telecommunications
equipment; laser-based components and subsystems; and
wireless business lines. Health-care services
industries or subsectors include managed-care
organizations and home health-care/sub-acute care.
Industries in the sector of medical devices/hospital
supplies include research reagents/ histrumentations,
ophthalmology, and imaging.
<PAGE>
Temporary Strategies
As described in the Prospectus under the heading
"Implementation of Investment Objective," prior to
investing proceeds from sales of Fund shares, to meet
ordinary daily cash needs, and to retain the
flexibility to respond promptly to changes in market
and economic conditions, the Fund may hold cash and/or
invest all or a portion of its assets in money market
instruments. The money market instruments which the
Fund may purchase are limited to:
U.S. Government Securities. Obligations issued or
guaranteed as to principal and interest by the United
States or its agencies (such as the Export-Import Bank
of the United States, Federal Housing Administration,
and Government National Mortgage Association) or its
instrumentalities (such as the Federal Home Loan Bank),
including Treasury bills, notes, and bonds;
Bank Obligations. Obligations (including
certificates of deposit, bankers' acceptances,
commercial paper (see below), and other debt
obligations) of banks subject to regulation by the U.S.
government and having total assets of $1 billion or
more, and instruments secured by such obligations, not
including obligations of foreign branches of domestic
banks;
Obligations of Savings Institutions. Certificates
of deposit of savings banks and savings and loan
associations, having total assets of $1 billion or
more;
Fully Insured Certificates of Deposit.
Certificates of deposit of banks and savings
institutions, having total assets of less than $1
billion, if the principal amount of the obligation is
insured by the Bank Insurance Fund or the Savings
Association Insurance Fund (each of which is
administered by the Federal Deposit Insurance
Corporation), limited to $100,000 principal amount per
certificate and to 15% or less of the Fund's total
assets in all such obligations and in all illiquid
assets, in the aggregate;
Commercial Paper. Commercial paper rated within
the two highest grades by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Corporation
("S&P") or, if not rated, issued by a company having an
outstanding debt issue rated at least Aaa by Moody's or
AAA by S&P; and
Money Market Funds. Securities issued by
registered investment companies holding themselves out
as money market funds which attempt to maintain a
stable net asset value of $1.00 per share.
DIRECTORS AND OFFICERS
Under the laws of the State of Minnesota, the
Board of Directors of the Fund is responsible for
managing the Fund's business and affairs.
The directors and officers of the Fund, together
with information as to their principal business
occupations during the last five years, and other
information, are shown below. Each director who is
deemed an "interested person" of the Fund, as defined
in the 1940 Act, is indicated by an asterisk. The
directors and officers listed below have served as such
since inception of the Fund on June 12, 1997, except as
otherwise noted.
*LeRoy C. Kopp, Chief Executive Officer, President
and a Director of the Fund.
Mr. Kopp, 65 years old, is the founder, President
and Chief Investment Officer of Kopp Investment
Advisors, Inc. ("Advisor"). Prior to founding Advisor
in 1990, Mr. Kopp spent 30 years with Dain Bosworth
Inc., where he was the Manager of the Edina, Minnesota,
branch and a Senior Vice President. Mr. Kopp has
received a number of business and community honors and
awards, including Upper Midwest Entrepreneur of the
Year for Emerging Companies. Mr. Kopp graduated with
distinction with a B.B.A. degree from the University of
Minnesota
<PAGE>
in 1956. Mr. Kopp served as Chief Financial Officer and
Treasurer of the Fund from February 1998 to December
1998.
Kathleen S. Tillotson, Executive Vice President
and Secretary of the Fund.
Ms. Tillotson, 43 years old, joined Advisor in
March 1996 as Vice President and General Counsel.
Since January 1, 2000, she has also been the Secretary
of Advisor and of Centennial Lakes Capital, Inc., the
Fund's distributor ("Distributor"). From June 1998
through December 1999, she served as the Assistant
Secretary of the Distributor. In 1981, Ms. Tillotson
graduated from Tulane University School of Law magna
cum laude. Before joining Advisor in 1996, Ms.
Tillotson practiced law as an associate and principal
with law firms in Boston and Minneapolis.
John P. Flakne, Chief Financial Officer and
Treasurer of the Fund.
Mr. Flakne, 34 years old, joined Advisor in
December 1998 as Controller. On January 1, 2000, he
became Advisor's Chief Financial Officer and Treasurer
and the Chief Executive Officer and Chief Financial
Officer of the Distributor. In 1989, Mr. Flakne
graduated from the University of Minnesota with a
B.S.B. in Accounting and a Computer Science minor.
Before joining Advisor in December 1998, Mr. Flakne
held various accounting-related positions as follows:
From August 1989 until December 1994, Mr. Flakne worked
for Coopers & Lybrand L.L.P., Minneapolis, Minnesota,
first as an Associate and eventually as a Manager; from
January 1995 until June 1997, Mr. Flakne worked for
Carlson Companies, Inc., Minnetonka, Minnesota, first
as a Manager and then as Interim Director of the
Corporate Audit function; from July 1997 until January
1998, Mr. Flakne worked for Bertram, Vallez, Kaplan &
Talbot, Ltd., New Hope, Minnesota, a CPA and business
consulting firm, as a Senior Manager; and from February
1998 until November 1998, Mr. Flakne worked for
Caterpillar Paving Products Inc., Brooklyn Park,
Minnesota, a division of Caterpillar Inc., as
Controller. Mr. Flakne is a CPA. Mr. Flakne has
served as Chief Financial Officer and Treasurer of the
Fund since December 1998.
Robert L. Stehlik, a Director of the Fund.
Mr. Stehlik, 61 years old, has been a Director of
the Fund since September 8, 1997. Mr. Stehlik is
currently the Senior Vice President of People's Bank of
Commerce, which is based in Minneapolis, Minnesota.
Mr. Stehlik has held this position since September
1998. For four years prior to that, he served as the
Senior Vice President of Richfield Bank & Trust Co.,
based in Richfield, Minnesota. Prior to that, he
served in various capacities at First Bank (now U.S.
Bank), based in Minneapolis, Minnesota, including
Senior Vice President.
Thomas R. Stuart, a Director of the Fund.
Mr. Stuart, 54 years old, has been a Director of
the Fund since September 8, 1997. Since May 1988, Mr.
Stuart has served as Chairman and Chief Executive
Officer of the Bureau of Engraving, Inc., a
manufacturer of interconnect devices and a provider of
commercial printing and home education services based
in Minneapolis, Minnesota.
The address of Mr. Kopp, Ms. Tillotson, and Mr.
Flakne is 7701 France Avenue South, Suite 500, Edina,
Minnesota 55435. Mr. Stehlik's address is 9330
Sheffield Circle, Bloomington, Minnesota 55437. Mr.
Stuart's address is 3400 Technology Drive, Minneapolis,
Minnesota 55418.
As of December 31, 1999, officers and directors of
the Fund beneficially owned none of the shares of the
Fund's then outstanding Class A or Class C shares and
83.26% of the Fund's then outstanding Class I shares.
<PAGE>
Directors and officers of the Fund who are also
officers, directors, or employees of Advisor do not
receive any remuneration from the Fund for serving as
directors or officers. Accordingly, neither Mr. Kopp,
Ms. Tillotson nor Mr. Flakne receive any remuneration
from the Fund for their services as directors and/or
officers. However, Messrs. Stehlik and Stuart receive
the following fees for their services as directors of
the Fund:
Cash Other
Name Compensation(1) Compensation Total
Robert L. Stehlik $15,000 $0 $15,000
Thomas R. Stuart $15,000 $0 $15,000
__________
(1)Each director who is not deemed an "interested
person" of the Fund, as defined in the 1940 Act,
receives $3,500 for each Board of Directors meeting
attended by such person, a $1,000 per fiscal year
stipend if all such meetings are attended, and
reimbursement of reasonable expenses incurred in
connection therewith. The Board held four meetings
during fiscal 1999 and both of the disinterested
directors attended all four meetings. Thus, each
disinterested director received $15,000 during such
time period from the Fund. Disinterested directors
may elect to receive their compensation in the form
of cash, shares of the Fund, or both.
PRINCIPAL SHAREHOLDERS
As of December 31, 1999, the following persons
owned of record or are known by the Fund to own
beneficially 5% or more of a class of the Fund's
outstanding shares:
<TABLE>
Percentage
Name and Address Number of Shares Percentage of Fund
Class A ClassC Class I Class A Class C Class I
<S> <C> <C> <C> <C> <C> <C> <C>
Kopp Investment Advisors, Inc. N/A 2,376,286.879 N/A 41.82% 5.84%
7701 France Avenue South,
Ste 500
Edina, MN 55435
LeRoy C. Kopp(1) N/A 1,587,964.471 N/A 27.94% 3.90%
7701 France Avenue South,
Ste 500
Edina, MN 55435
Kopp Family Foundation N/A 722,281.831 N/A 12.71% 1.78%
7701 France Avenue South,
Ste 500
Edina, MN 55435
Lake Region Healthcare N/A 25,562 N/A N/A 7.92% N/A 0.06%
Corporation
712 South Cascade Street
Fergus Falls, MN 56537
Robert E. Murphy and N/A 17,652 N/A N/A 5.47% N/A 0.04%
Judith P. Murphy,
Trustees Robert E. Murphy
Revocable Trust
1470 West 35th Street
Minneapolis, MN 55408
____________
</TABLE>
(1) Includes 607,708.865 shares held in an IRA account
for the benefit of Mr. Kopp.
Based on the foregoing, as of December 31, 1999,
LeRoy C. Kopp owned a controlling interest in the
Fund's Class I shares (82.47%); however no person owned
a controlling interest in the Fund. Shareholders with
a controlling interest could affect the outcome of
proxy voting or the direction of management of the
Fund.
<PAGE>
INVESTMENT ADVISOR
Kopp Investment Advisors ("Advisor") is the
investment advisor to the Fund. Advisor and Centennial
Lakes Capital, Inc. ("Distributor") are wholly-owned
subsidiaries of Kopp Holding Company ("KHC") which is
controlled by LeRoy C. Kopp, the President and Chief
Investment Officer of Advisor and sole shareholder of
KHC. Kathleen S. Tillotson is the Vice President,
Secretary and General Counsel of Advisor, and John P.
Flakne is the Chief Financial Officer and Treasurer of
the Advisor. Ms. Tillotson is also the Secretary of
the Distributor and Mr. Flakne is the Chief Executive
Officer and Chief Financial Officer of the Distributor.
The investment advisory agreement between the Fund
and Advisor dated as of October 1, 1997 ("Advisory
Agreement") had an initial term of two years and is now
required to be approved annually by the Board of
Directors of the Fund or by vote of a majority of the
Fund's outstanding voting securities. Each annual
renewal must also be approved by the vote of a majority
of the Fund's directors who are not parties to the
Advisory Agreement or interested persons of any such
party, cast in person at a meeting called for the
purpose of voting on such approval. The Advisory
Agreement was most recently approved on August 9, 1999
by the full Board of Directors, including a majority of
the disinterested directors. The Advisory Agreement is
terminable without penalty on 60 days' written notice
by the Board of Directors, by vote of a majority of the
Fund's outstanding voting securities, or by Advisor,
and will terminate automatically in the event of its
assignment.
Under the terms of the Advisory Agreement, Advisor
manages the Fund's investments and business affairs,
subject to the supervision of the Board of Directors.
At its expense, Advisor provides office space and all
necessary office facilities, equipment, and personnel
for managing the investments of the Fund. As
compensation for its services, the Fund pays Advisor an
annual management fee of 1.00% of the Fund's average
daily net assets attributable to each class of shares.
The advisory fee is accrued daily and paid monthly.
Advisor voluntarily agreed that for the fiscal
year ended September 30, 1999, Advisor would waive its
management fees to the extent necessary to ensure that
(i) the total annual operating expenses for the Class A
shares of the Fund would not exceed 1.50% of average
daily net assets, (ii) the total annual operating
expenses for the Class I shares would not exceed 1.15%
of average daily net assets, and (iii) the total annual
operating expenses for the Class C shares would not
exceed 2.15%. Advisor may from time to time
voluntarily (but is not required or obligated to) waive
all or a portion of its fee and/or reimburse all or a
portion of class operating expenses. Beginning
January 31, 2000, Advisor has voluntarily agreed to
waive its management fee and/or reimburse the Fund's
operating expenses to the extent necessary to ensure
that the Fund's total annual operating expenses for the
(i) Class A shares do not exceed 1.75% of average daily
net assets, (ii) Class C shares do not exceed 2.40% of
average daily net assets, and (iii) Class I shares do
not exceed 1.40% of average daily net assets. Any
waiver of fees or reimbursement of expenses will be
made on a monthly basis and, with respect to the
latter, will be paid to the Fund by reduction of
Advisor's fee. Any such waiver/reimbursement is
subject to later adjustment during the term of the
Advisory Agreement to allow Advisor to recoup amounts
waived/reimbursed to the extent actual fees and
expenses for a specific month are less than the expense
limitation caps. As of September 30, 1999, cumulative
management fees waived totaled $1,594,775.
For the fiscal years ended September 30, 1998 and
1999, the Advisor waived 0.31% and 0.20%, respectively,
of its annual management fee so that the Fund operating
expenses would not exceed the limits described above.
For the fiscal year ended September 30, 1998, Advisor
received $1,772,722 attributable to Class A shares and
$159,542 attributable to Class I shares. For the
fiscal year ended September 30, 1999, Advisor received
$2,578,525 attributable to Class A shares, $366,047
attributable to Class I shares and $4,153 attributable
to Class C shares.
<PAGE>
FUND TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, Advisor is
responsible for decisions to buy and sell securities
for the Fund and for the placement of the Fund's
securities business, the negotiation of the commissions
to be paid on such transactions, and the allocation of
portfolio brokerage and principal business. Trades may
be done with brokers, dealers and, on occasion,
issuers. Remuneration for trades may include
commissions, dealer spreads, mark-ups, and mark-downs.
In executing transactions on behalf of the Fund,
Advisor has no obligation to deal with any particular
broker or dealer. Rather, Advisor seeks to obtain the
best qualitative execution. The best net price is an
important factor, but Advisor also considers the full
range and quality of a broker's services, as described
below. Recognizing the value of the range of services,
the Fund may not pay the lowest commission or spread
available on any particular transaction. Brokerage may
be allocated based on the sale of the Fund's shares
where best execution and price may be obtained from
more than one broker.
Section 28(e) of the Securities Exchange Act of
1934, as amended ("Section 28(e)"), permits an
investment advisor, under certain circumstances, to
cause an account to pay a broker who supplies brokerage
and research services a commission for effecting a
transaction in excess of the amount of commission
another broker would have charged for effecting the
transaction. Brokerage and research services include
(i) furnishing advice as to the value of securities,
the advisability of investing, purchasing, or selling
securities, and the availability of securities or
purchasers or sellers of securities; (ii) furnishing
analyses and reports concerning issuers, industries,
sectors, securities, economic factors and trends,
portfolio strategy, and the performance of accounts;
and (iii) effecting securities transactions and
performing functions incidental thereto (such as
clearance, settlement, and custody).
In selecting brokers, Advisor considers investment
and market information and other research, such as
economic, securities, and market research provided by
such brokers and the quality and reliability of
brokerage services, including execution capability and
financial responsibility. Accordingly, the commissions
charged by any such broker may be greater than the
amount another firm might charge if Advisor determines
in good faith that the amount of such commissions is
reasonable in relation to the value of the research
information and brokerage services provided by such
broker. Advisor believes that the research information
received in this manner provides the Fund with benefits
by supplementing the research otherwise available to
the Fund. Any such higher commissions will not,
however, be paid by the Fund unless (i) Advisor
determines in good faith that the amount is reasonable
in relation to the services in terms of the particular
transaction or in terms of Advisor's overall
responsibilities with respect to the accounts,
including the Fund, as to which it exercises investment
discretion; (ii) such payment is made in compliance
with applicable state and federal laws; and (iii) in
the opinion of Advisor, the total commissions paid by
the Fund are reasonable in relation to the benefits to
the Fund over the long term.
Advisor places portfolio transactions for other
advisory accounts in addition to the Fund. Research
services furnished by firms through which the Fund
effects its securities transactions may be used by
Advisor in servicing all of its accounts; that is, not
all of such services may be used by Advisor in
connection with the Fund. Advisor believes it is not
possible to measure separately the benefits from
research services received by each of the accounts
(including the Fund) managed by it. Because the volume
and nature of the trading activities of the accounts
are not uniform, the amount of commissions in excess of
those charged by another broker (if any) paid by each
account for brokerage and research services will vary.
However, Advisor believes any such costs to the Fund
will not be disproportionate to the benefits received
by the Fund on a continuing basis.
As of January 1, 2000, Advisor will allocate to
the Fund all securities purchased in initial public
offerings in which Advisor's clients have the
opportunity to participate. Advisor believes that
through this policy, the greatest number of its
clients, direct and indirect, will benefit. Of course,
no assurance can be made that any such allocations to
the Fund will be profitable to Fund shareholders.
Advisor expects that, at the present rate of such
allocations, such allocations will not have a material
effect on the Fund's performance. Advisor generally
seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or
sell securities by the Fund and another advisory
account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities
<PAGE>
available to the Fund. Other than as described above,
there can be no assurance that a particular purchase or
sale opportunity will be allocated to the Fund. In
making allocations between the Fund and other advisory
accounts, certain factors considered by Advisor are the
respective investment objectives, the relative size of
portfolio holdings of the same or comparable
securities, the availability of cash for investment,
and the size of investment commitments generally held.
The aggregate amount of brokerage commissions paid
by the Fund for the fiscal years ended September 30,
1998 and 1999 was $150,375 and $66,454, respectively.
During fiscal 1999, the Fund did not pay brokerage
commissions with respect to transactions for which
research services were provided; however, neither the
Fund nor Advisor had any agreement or understanding
with any broker or dealer to direct brokerage to such
broker or dealer because of research services provided.
The Fund, Advisor and Distributor have,
collectively, adopted a Code of Ethics, as required by
Rule 17j-1 of the 1940 Act. The Code of Ethics permits
personnel of Advisor and Distributor to invest in
securities for their own accounts, subject to various
conditions and certain restrictions. The Code of
Ethics is on public file with, and available from, the
Securities and Exchange Commission.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND-DISBURSING AGENT
As custodian of the Fund's assets, Firstar Bank,
N.A., 615 East Michigan Street, Milwaukee, Wisconsin
53202, has custody of all securities and cash of the
Fund, delivers and receives payment for portfolio
securities sold, receives and pays for portfolio
securities purchased, collects income from investments,
if any, and performs other duties, all as directed by
the officers of the Fund. Firstar Bank has also agreed
to extend a redemption line-of-credit to the Fund
through July 31, 2000. Firstar Mutual Fund Services,
L.L.C., an affiliate of Firstar Bank, N.A., acts as
transfer agent and dividend-disbursing agent for the
Fund ("Transfer Agent").
ADMINISTRATOR AND FUND ACCOUNTANT
The Transfer Agent also provides administrative
and fund accounting services to the Fund pursuant to
separate administration and fund accounting agreements
dated as of October 1, 1997, as amended
("Administrative Agreement" and "Fund Accounting
Agreement," respectively). Under these Agreements, the
Transfer Agent calculates the daily net asset value of
each class of shares; prepares and files all federal
and state tax returns; oversees the Fund's insurance
relationships; participates in the preparation of
registration statements, proxy statements and reports;
prepares compliance filings relating to the
registration of the Fund's shares pursuant to state
securities laws; compiles data for and prepares notices
to the SEC; prepares financial statements for annual
and semi-annual reports; monitors the Fund's expense
accruals and performs securities valuations; monitors
compliance with the Fund's investment policies; and
generally assists in the Fund's administrative
operations. For the foregoing services, the Transfer
Agent receives from the Fund the following fees,
computed daily and payable monthly based on the average
net assets per class of shares: (i) pursuant to the
Administration Agreement, the Transfer Agent receives a
fee at the annual rate of 0.07 of 1% on the first $200
million, 0.05 of 1% on the next $400 million, and 0.03
of 1% on average net assets in excess of $600 million,
subject to an annual minimum of $70,000 (for all
classes of shares), plus out-of-pocket expenses; and
(ii) pursuant to the Fund Accounting Agreement, the
Transfer Agent receives a fee of $45,000 on the first
$100 million, 1.875 of 1% on the next $200 million, and
1.125 of 1% on average net assets in excess of $300
million, plus out-of-pocket expenses. For the fiscal
years ended September 30, 1998 and 1999, the Transfer
Agent received $150,195 and $231,702, respectively, for
its services under the Administration Agreement and
$57,693 and $71,076, respectively, for its services
under the Fund Accounting Agreement.
<PAGE>
DISTRIBUTOR
Under a distribution agreement dated as of October
1, 1997, as amended and restated ("Distribution
Agreement"), Centennial Lakes Capital, Inc.
("Distributor") acts as principal distributor of the
Fund's shares. The Distributor's principal business
address is 7701 France Avenue South, Suite 500, Edina,
Minnesota 55435. The Distributor is controlled by
KHC, which in turn is controlled by LeRoy C. Kopp. Mr.
Kopp also controls Advisor. Accordingly, the
Distributor and Advisor are affiliated entities.
The Distribution Agreement provides that the
Distributor will use its best efforts to distribute the
Fund's shares, which shares are offered for sale
continuously at (i) net asset value per share plus a
maximum initial sales charge of 3.50% of the offering
price, in the case of Class A shares, and (ii) net
asset value per share without the imposition of a front-
end sales charge, in the case of Class C and Class I
shares. Investments in Class A shares above $1 million
are not assessed an initial sales charge. However, the
Distributor may impose a 1% contingent deferred sales
charge ("CDSC") on such shares redeemed within 24
months of purchase. The Distributor may also impose a
1% CDSC on Class C shares redeemed within 12 months of
purchase. In addition, redemptions of Class I shares
within 24 months of purchase may be charged a 1%
redemption fee. The Fund does not currently have any
arrangements that result in breakpoints in, or the
elimination of, sales charges or redemption fees for
directors and/or other affiliated persons of the Fund,
although the Fund has historically waived the initial
minimum investment requirements for such persons with
respect to their purchases of Class I shares. Certain
waivers and/or reductions of sales charges and
redemption fees are, however, available to other
persons and institutions, as described in the
Prospectus under the heading "Your Account." Any sales
charges assessed become the property of the
Distributor; redemption fees are the property of the
Fund.
With respect to Class A shares, the Distributor
may pay a portion of the applicable initial sales
charge due upon the purchase of such shares to the
broker-dealer, if any, involved in the trade, as
follows:
Dollar Amount of Initial Sales Portion of Initial Sales Charge
Shares Purchased Charge(1) Paid to Broker-Dealer(1)(2)
Up to $99,999 3.50% 3.00%
$100,000 - $249,999 3.00% 2.55%
$250,000 - $499,999 2.00% 1.70%
$500,000 - $999,999 1.00% 0.85%
$1,000,000 - $4,999,999 None None(3)
_____________________
(1) Reflected as a percentage of the offering price
of Class A shares. The offering price is the sum of
the net asset value per share plus the initial sales
charge indicated in the table ("Offering Price").
(2) At the discretion of the Distributor, all sales
charges may at times be paid to the broker-dealer,
if any, involved in the trade. A broker-dealer paid
all or substantially all of the sales charge may be
deemed an "underwriter" under the 1933 Act.
(3) The Distributor may, in its discretion and out
of its own assets, pay a 1% commission to broker-
dealers who initiate and are responsible for
purchases of Class A shares between $1,000,000 -
$4,999,999. The Distributor may also pay a 1%
commission to broker-dealers who initiate and are
responsible for purchases of Class C shares.
Pursuant to the terms of the Distribution
Agreement, the Distributor bears the costs of printing
prospectuses and shareholder reports which are used for
selling purposes, as well as advertising and any other
costs attributable to the distribution of Fund shares.
Certain of these expenses may be reimbursed pursuant to
the terms of the Rule 12b-1 distribution and
shareholder servicing plan discussed below. As of
September 30, 1999, there was $733,440 of unreimbursed
distribution and shareholder servicing fees accrued.
As compensation for its services under the
Distribution Agreement, the Distributor may retain all
or a portion of (i) the initial sales charge from
purchases of Class A shares; (ii) the CDSC from
redemptions of Class A and Class C shares, if
applicable; and (iii) the Rule 12b-1 fees payable with
respect to the Class A and Class C shares (as described
under "Distribution and Shareholder Servicing Plan,"
below). For the fiscal years ended September 30, 1998
and 1999, the aggregate dollar amount of initial sales
charges imposed on purchases of Class A shares was
<PAGE>
$10,604,987 and $923,997; the aggregate dollar amount
of CDSCs imposed on redemptions of Class A or Class C
shares was $0 and $0; and the aggregate dollar amount
of Rule 12b-1 fees payable with respect to Class A or
Class C shares was $897,166 and $1,131,965,
respectively. Of these amounts, the Distributor
retained $1,992,628 and $181,831 from Class A sales
charges; $0 and $0 from Class A and Class C CDSCs; and
$55,083 and $129,086 from Class A and Class C 12b-1
fees.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The Distributor has entered into agreements with
registered broker-dealers pursuant to which such broker-
dealers have agreed to sell the Fund's shares to the
public. Certain of these broker-dealers have also
agreed to perform, with respect to shareholders who
purchase Fund shares through the broker-dealer, certain
shareholder servicing functions which would ordinarily
be performed by the Transfer Agent. The Fund has
agreed to compensate certain of these broker-dealers
for the shareholder services they provide and the
Transfer Agent, in turn, has agreed to reduce its
transfer agency and servicing fee by a like amount for
those shareholder accounts which are serviced by such
broker-dealers. Under these arrangements, the Fund
will not pay more in transfer agency and shareholder
servicing fees than it would otherwise pay under the
Transfer Agency Agreement.
The Fund may also pay, directly or indirectly
through arrangements with Advisor and/or the
Distributor, amounts to financial intermediaries that
purchase shares of the Fund through an omnibus-type
account and provide administrative and/or transfer
agent-type services relating to the Fund to their
customers. These services may include, among other
things, sub-accounting services, transfer agent-type
services, answering inquiries relating to the Fund,
transmitting, on behalf of the Fund, proxy statements,
annual reports, updated prospectuses and other
communications regarding the Fund. In such cases, to
the extent paid by the Fund, the Fund will not pay more
for these services through intermediary relationships
than it would if the intermediaries' customers were
direct shareholders of the Fund. The Distributor has
authorized such intermediaries or their agents to
receive purchase and redemption orders on the Fund's
behalf. The Fund will be deemed to have received a
purchase or redemption order when such intermediary
receives the order and the orders will be priced at the
Fund's net asset value next computed after the time the
orders were received by the intermediary.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
Description of Plan
With respect to each class of shares, the Fund has
adopted a Rule 12b-1 plan under the 1940 Act ("Plan")
pursuant to which certain distribution and shareholder
servicing fees may be paid to the Distributor. Under
the terms of the Plan, the Class A and Class I 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 the Class I shares. The Plan also provides that
the Class C shares may be required to pay the
Distributor (i) a distribution fee of up to 0.75% of
the average daily net assets of the Fund attributable
to such class (computed on an annualized basis) and
(ii) a shareholder servicing fee of up to 0.25% of the
average daily net assets of the Fund attributable to
such class (computed on an annual basis). The Fund
currently intends to make payments under the Plan with
respect to the Class C shares to the maximum extent
allowable under such Plan. The Distributor is
authorized, in turn, to pay all or a portion of these
fees to any registered securities dealer, financial
institution or other person ("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
<PAGE>
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. No interest, carrying, or other
finance charges will be borne by the Fund with respect
to unpaid amounts carried forward.
Payment of the distribution and servicing fees is
to be made quarterly, within 30 days after the close of
the quarter for which the fee is payable, after the
Distributor forwards to the Board of Directors of the
Fund a written report of all amounts expensed pursuant
to the Plan; provided, however, that the aggregate
payments by the Fund under the Plan to the Distributor
and all Recipients currently may not exceed 0.35% (on
an annualized basis) with respect to the Class A and
Class I shares, and 1.00% (on an annualized basis) with
respect to the Class C shares, of the average daily net
assets of the Fund attributable to each such class of
shares for that quarter.
From time to time, the Distributor may engage in
activities that jointly promote the sale of shares of
one or more classes of shares, the cost of which may
not be readily identifiable as related to any one
class. Generally, the distribution expenses
attributable to such joint distribution activities will
be allocated among each class of shares on the basis of
its respective net assets, although the Board of
Directors may allocate such expenses in any other
manner it deems fair and equitable.
The Plan, including a form of the Rule 12b-1
Related Agreement, has been unanimously approved by the
Board of Directors, including all of the members of the
Board who are not "interested persons" of the Fund as
defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the
Plan or any Rule 12b-1 Related Agreements
("Disinterested Directors") voting separately.
The Plan, and any Rule 12b-1 Related Agreement
which is entered into, will continue in effect for a
period of more than one year only so long as its
continuance is specifically approved at least annually
by a vote of a majority of the Fund's Board of
Directors, and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on
the Plan, or the Rule 12b-1 Related Agreement, as
applicable. In addition, the Plan, and any Rule 12b-1
Related Agreement, may be terminated with respect to
any class at any time, without penalty, by vote of a
majority of the outstanding voting securities of the
applicable class, or by vote of a majority of
Disinterested Directors (on not more than 60 days'
written notice in the case of the Rule 12b-1 Related
Agreement only).
Amounts Expensed Under the Plan
For the fiscal year ended September 30, 1999, the
Fund paid out $1,131,965 under the Plan. Of this
amount, $64,156 was spent on advertising, $33,278 was
spent on printing and mailing prospectuses to other
than current shareholders, and $1,034,531 was spent on
compensation to broker-dealers. The Distributor
retained $129,086 of the amounts expensed under the
Plan.
As of September 30, 1999, unreimbursed expenses
which were incurred by the Distributor under the Plan
and which have been carried forward to fiscal 2000
amount to $733,440 (or 0.18% of the net assets
attributable to the Fund's Class A and Class C shares
as of September 30, 1999).
Interests of Certain Persons
With the exception of Advisor, in its capacity as
the Fund's investment advisor, and the Distributor, in
its capacity as principal distributor of Fund shares,
no "interested person" of the Fund, as defined in the
1940 Act, and no director of the Fund who is an
"interested person" has or had a direct or indirect
financial interest in the Plan or any Rule 12b-1
Related Agreement.
<PAGE>
Anticipated Benefits to the Fund
The Board of Directors considered various factors
in connection with its decision to approve and continue
the Plan, including: (i) the nature and causes of the
circumstances which make implementation and
continuation of the Plan necessary and appropriate;
(ii) the way in which the Plan addresses those
circumstances, including the nature and amount of
expenditures; (iii) the nature of the anticipated
benefits; (iv) the merits of possible alternative plans
or pricing structures; (v) the relationship of the Plan
to other distribution efforts of the Fund, including
the sales charge on Class A shares; and (vi) the
possible benefits of the Plan to any other person
relative to those of the Fund.
Based upon its review of the foregoing factors and
the material presented to it, and in light of its
fiduciary duties under relevant state law and the 1940
Act, the Board of Directors determined, in the exercise
of its business judgment, that the Plan was reasonably
likely to benefit the Fund and its shareholders in at
least one or several potential ways. Specifically, the
Board concluded that the Distributor and any Recipients
operating under Rule 12b-1 Related Agreements would
have little or no incentive to incur promotional
expenses on behalf of the Fund if a Rule 12b-1 plan
were not in place to reimburse them, thus making the
adoption of the Plan important to the initial success
and thereafter, continued viability of the Fund. In
addition, the Board determined that the payment of Rule
12b-1 fees to these persons should motivate them to
provide an enhanced level of service to Fund
shareholders, which would, of course, benefit such
shareholders. Finally, the Plan would help to increase
net assets under management in a relatively short
amount of time, given the marketing efforts on the part
of the Distributor and Recipients to sell Fund shares,
which should result in certain economies of scale.
While there is no assurance that the expenditure
of Fund assets to finance distribution of Fund shares
will have the anticipated results, the Board of
Directors believes there is a reasonable likelihood
that one or more of such benefits will result, and
since the Board will monitor the distribution and
shareholder servicing expenses of the Fund, it will be
able to evaluate the benefit of such expenditures in
deciding annually whether to continue the Plan.
PURCHASE, EXCHANGE, AND PRICING OF SHARES
Purchase of Shares
The Fund offers three classes of shares: Class A,
Class C and Class I. As discussed above under the
heading "Distributor," the Class A shares are offered
and sold subject to an initial sales charge (with
certain exceptions), while the Class C and Class I
shares are offered and sold without being subject to an
initial sales charge. In addition, a CDSC may be
charged on certain redemptions of Class A and Class C
shares and a redemption fee may be charged on certain
redemptions of Class I shares. Please see "Your
Account" in the Prospectus for more information.
As noted above, Class A shares may be purchased
without the imposition of an initial sales charge under
certain circumstances. In addition, the initial sales
charge may be reduced if multiple purchases of Class A
shares are combined. You may combine purchases of
Class A shares to take advantage of the breakpoints in
the sales charge schedule by participating in either
the Fund's Right of Accumulation ("ROA") program or by
executing a Letter of Intent ("LOI").
* Right of Accumulation. The ROA allows you to
purchase Class A shares at the sales charge applicable
to the sum of (i) the dollar amount then being
purchased, plus (ii) the higher of either (a) the
current market value (calculated at the applicable
Offering Price) or (b) the actual purchase price of all
Fund shares already held by you, your spouse, and your
minor children or you and members of a "qualified
group." A "qualified group" is one that was formed at
least one year prior to the ROA purchase, has a purpose
other than buying Fund shares at a discount, has more
than ten members, can arrange meetings between the
Distributor and group members, agrees to include Fund
literature in mailings to its members, agrees to
arrange for payroll deductions or other bulk
<PAGE>
transmissions of investments to the Fund, and meets
other uniform criteria that allow the Distributor to
achieve cost savings in distributing shares of the
Fund. To receive the ROA, at the time of purchase, you
must give your investment professional, the
Distributor, or the Transfer Agent sufficient
information to determine whether the purchase will
qualify for a reduced sales charge.
* Letter of Intent. You may also qualify for a
reduced sales charge on the purchase of Class A shares
by completing the LOI section of the account
application. By completing the LOI, you express an
intention to invest during the next 13-month period a
specified amount (minimum of at least $100,000) which,
if made at one time, would qualify for a reduced sales
charge. Any shares you own on the date you execute the
LOI may be used as a credit toward the completion of
the LOI. However, the reduced sales charge will only
apply to new purchases. Any redemptions made during
the 13-month period will be subtracted from the amount
of the purchases for purposes of determining whether
the terms of the LOI have been satisfied. If, at the
end of the 13-month period covered by the LOI, the
total amount of purchases (less redemptions) does not
equal the amount indicated, you will be required to pay
the difference between the sales charge paid at the
reduced rate and the sales charge applicable to the
purchases actually made. Shares equal to 5% of the
amount specified in the LOI will be held in escrow
during the 13-month period and are subject to
involuntary redemption to assure any payment of a
higher applicable sales charge. By signing the
purchase application and checking the box labeled
"Letter of Intent," you grant to the Distributor a
security interest in the reserved shares and appoint
the Distributor as attorney-in-fact to sell any or all
of the reserved shares to cover any additional sales
charges if you do not fulfill your undertaking.
Signing an LOI does not bind you to purchase the full
amount indicated, but you must complete the intended
purchase in accordance with the terms of the LOI to
obtain the reduced sales charge. For more information
on the LOI, please contact your investment
professional, the Distributor, or the Transfer Agent.
You may reach the Distributor or the Transfer Agent by
calling 1-888-533-KOPP.
The Fund also offers an Automatic Investment Plan
("AIP"), which is a method of using dollar cost
averaging. Dollar cost averaging is an investment
strategy that involves investing a fixed amount of
money at a regular time interval. By always investing
the same amount, you will be purchasing more shares
when the price is low and fewer shares when the price
is high. Since such a program involves continuous
investment regardless of fluctuating share values, you
should consider your financial ability to continue the
program through periods of low share price levels. A
program of regular investment cannot ensure a profit or
protect against a loss from declining markets.
The AIP allows you to make regular, systematic
investments in Class A or Class C shares of the Fund
from your bank checking account. The minimum initial
investment for investors using the AIP is $3,000. If
you elect this option, all dividends and capital gains
distributions will be automatically reinvested in Fund
shares. With respect to Class A shares, the sales
charge on future purchases may be reduced by using the
Fund's ROA or LOI. To establish the AIP, complete the
appropriate section in the account application. Under
certain circumstances (such as discontinuation of the
AIP before the minimum initial investment is reached),
the Fund reserves the right to close your account.
Prior to closing any account for failure to reach the
minimum initial investment, the Fund will give you
written notice and 60 days in which to reinstate the
AIP or otherwise reach the minimum initial investment.
Your account may be closed in periods of declining
share prices.
Under the AIP, you may choose to make investments
on certain days of each month (at least seven days
apart) in amounts of $50 or more. There is no service
fee charged by the Fund for participating in the AIP.
However, a service fee of $20 will be deducted from
your Fund account for any AIP purchase that does not
clear due to insufficient funds or, if prior to
notifying the Fund in writing or by telephone of your
intention to terminate the plan, you close your bank
account or in any manner prevent withdrawal of funds
from the designated checking account. You can set up
the AIP with most financial institutions.
<PAGE>
If you purchase (or redeem) shares of the Fund
through a financial intermediary, certain features of
the Fund relating to such transactions may not be
available or may be modified. In addition, certain
operational policies of the Fund, including those
related to settlement and dividend accrual, may vary
from those applicable to direct shareholders of the
Fund and may vary among intermediaries. We urge you to
consult your financial intermediary for more
information regarding these matters. In addition, the
Fund may pay, directly or indirectly through
arrangements with Advisor and/or the Distributor,
amounts to financial intermediaries that provide
transfer agent type and/or other administrative
services to their customers provided, however, that the
Fund will not pay more for these services through
intermediary relationships than it would if the
intermediaries' customers were direct shareholders in
the Fund. See "Arrangements with Broker-Dealers and
Other Financial Intermediaries." Certain financial
intermediaries may charge an advisory, transaction, or
other fee for their services. You will not be charged
for such fees if you purchase (or redeem) your Fund
shares directly from the Fund without the intervention
of a financial intermediary.
Exchange of Shares
You may exchange Class A or Class C shares for
Class I shares at any time so long as the Class I
minimum initial investment requirement is met. The
value of the shares to be exchanged will be the net
asset value (less the CDSC, if applicable) next
determined after receipt of instructions for exchange;
the price of the shares being purchased will be the net
asset value next determined after receipt of
instructions for exchange.
You may also exchange shares of the Fund for
shares of the Firstar Money Market Fund, a no-load
money market fund managed by an affiliate of the
Transfer Agent. The Firstar Money Market Fund is
unrelated to the Fund. This exchange privilege is a
convenient way to buy shares in a money market fund in
order to respond to changes in your goals or market
conditions. The value of the shares to be exchanged
will be the net asset value (less the CDSC, if
applicable, with respect to Class A or Class C shares
or the redemption fee, if applicable, with respect to
Class I shares) next determined after receipt of
instructions for exchange; the price of the shares
being purchased will be at net asset value. Before
exchanging into the Firstar Money Market Fund, please
read the applicable prospectus, which may be obtained
by calling 1-888-533-KOPP, and open an account in the
Firstar Money Market Fund.
The Fund reserves the right to modify or terminate
the exchange privilege at any time. Call the Transfer
Agent at 1-888-533-KOPP to request instructions for an
exchange. An exchange is not a tax-free transaction.
Pricing of Shares
The Class A shares of the Fund are offered to the
public at the Offering Price, which is the sum of the
net asset value per share (next computed after the time
the purchase application and funds are received in
proper order by the Transfer Agent) and the applicable
initial sales charge. The Class C and Class I shares
of the Fund are offered to the public at their net
asset value (next computed after the time the purchase
application and funds are received in proper order by
the Transfer Agent) without any initial sales charge.
As previously noted, the initial sales charge may
be waived for certain individuals and institutions due
to anticipated economies of scale in sales efforts and
expense. For more information, please see "Your
Account-Class A Front-End Sales Charge Waivers and
Reductions" in the Prospectus.
The net asset value per share for each class is
determined as of the close of trading (generally 4:00
p.m. Eastern Time) on each day the New York Stock
Exchange ("NYSE") is open for business. Purchase
orders and redemption requests received on a day the
NYSE is open for trading, prior to the close of trading
on that day, will be valued as of the close of trading
on that day. Applications for the purchase of shares
and requests for the redemption of shares received
after the close of trading on the NYSE will be valued
as of the close of trading on the next day the NYSE is
open. The Fund is not required to calculate its net
asset value on days during which the Fund receives no
orders to purchase or redeem shares. Net asset value
per share for each class of shares is calculated by
taking the market value of the total assets per class,
including interest or dividends accrued, but not yet
collected, less all liabilities, and dividing by the
total number of shares outstanding in that class. The
result, rounded to the nearest cent, is the net asset
value per share.
<PAGE>
In determining net asset value, expenses are
accrued and applied daily and securities and other
assets for which market quotations are available are
valued at market value. 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 Fund 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. All money
market instruments held by the Fund will be valued on
an amortized cost basis.
REDEMPTIONS IN KIND
The Fund has filed a Notification under Rule 18f-1
of the 1940 Act, pursuant to which it has agreed to pay
in cash all requests for redemption by any shareholder
of record, limited in amount with respect to each
shareholder during any 90-day period to the lesser
amount of (i) $250,000, or (ii) 1% of the net asset
value of the class of shares of the Fund being
redeemed, valued at the beginning of the election
period. The Fund intends to also pay redemption
proceeds in excess of such lesser amount in cash, but
reserves the right to pay such excess amount in kind,
if it is deemed to be in the best interest of the Fund
to do so. If you receive an in kind distribution, you
will likely incur a brokerage charge on the disposition
of such securities through a securities dealer.
TAXATION OF THE FUND
The Fund intends to qualify annually for treatment
as a "regulated investment company" under Subchapter M
of the Code and, if so qualified, will not be liable
for federal income taxes to the extent earnings are
distributed to shareholders on a timely basis. In the
event the Fund fails to qualify as a "regulated
investment company," it will be treated as a regular
corporation for federal income tax purposes.
Accordingly, the Fund would be subject to federal
income taxes and any distributions that it makes would
be taxable and non-deductible by the Fund. What this
means for shareholders of the Fund is that the cost of
investing in the Fund would increase. Under these
circumstances, it would be more economical for
shareholders to invest directly in securities held by
the Fund, rather than invest indirectly in such
securities through the Fund.
PERFORMANCE INFORMATION
The Fund's historical performance or return may be
shown in the form of various performance figures,
including average annual total return, total return,
and cumulative total return. The Fund's performance
figures are based upon historical results and are not
necessarily representative of future performance.
Factors affecting the Fund's performance include
general market conditions, operating expenses,
investment management, and the imposition of sales
charges. Any additional fees charged by a dealer or
other financial services firm would reduce the returns
described in this section.
Total Return
Average annual total return and total return
figures measure both the net investment income
generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the
underlying investments in a class of shares over a
specified period of time, assuming the reinvestment of
all dividends and distributions. Average annual total
return figures are annualized and therefore represent
the average annual percentage change over the specified
period. Total return figures are not annualized and
therefore represent the aggregate percentage or dollar
value change over the period.
<PAGE>
The average annual total return of each class of
shares is computed by finding the average annual
compounded rates of return over the periods that would
equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the stated periods at
the end of the stated periods.
Performance for a specific period is calculated by
first taking an investment (assumed to be $1,000)
("initial investment") in a class of shares on the
first day of the period and computing the "ending
value" of that investment at the end of the period.
The total return percentage is then determined by
subtracting the initial investment from the ending
value and dividing the remainder by the initial
investment and expressing the result as a percentage.
With respect to the Class A shares, this calculation
reflects the deduction of the maximum 3.50% initial
sales charge. In addition, the calculation assumes
that all income and capital gains dividends paid by the
Fund have been reinvested at the net asset value of the
applicable class of shares on the reinvestment dates
during the period. Total return may also be shown as
the increased dollar value of the hypothetical
investment over the period.
Cumulative total return represents the simple
change in value of an investment over a stated period
and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their
components of income and capital (including capital
gains and changes in share price) in order to
illustrate the relationship between these factors and
their contributions to total return.
The average annual total returns for the one year
period ended September 30, 1999 and since inception
(10/1/97) are as follows: Class A shares: 97.51% and
7.13%; Class I shares: 105.48% and 9.54%. The Class C
shares total return since inception on February 19,
1999 through September 30, 1999 was 46.48%.
Comparisons
From time to time, in marketing and other Fund
literature, the performance of one or more classes of
shares may be compared to the performance of other
mutual funds in general or to the performance of
particular types of mutual funds with similar
investment goals, as tracked by independent
organizations. Among these organizations, Lipper
Analytical Services, Inc. ("Lipper"), a widely used
independent research firm which ranks mutual funds by
overall performance, investment objectives, and assets,
may be cited. Lipper performance figures are based on
changes in net asset value, with all income and capital
gains dividends reinvested. Such calculations do not
include the effect of any sales charges. Each class of
shares of the Fund will be compared to Lipper's
appropriate fund category; that is, by fund objective
and portfolio holdings.
The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc.
("Morningstar"), which ranks funds on the basis of
historical risk and total return. Morningstar's
rankings range from five stars (highest) to one star
(lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a
weighted average for 3, 5, and 10 year periods.
Rankings are not absolute or necessarily predictive of
future performance.
Evaluations of the Fund's performance made by
independent sources may also be used in advertisements
concerning the Fund, including reprints of or
selections from editorials or articles about the Fund.
Sources for Fund performance and articles about the
Fund may include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News
and World Report, The Wall Street Journal, Barron's,
and a variety of investment newsletters.
<PAGE>
The Fund may compare the performance of one or
more classes of shares to a wide variety of indices and
measures of inflation, including the Russell 2000
Index. There are differences and similarities between
the investments that the Fund may purchase and the
investments measured by these indices.
The Fund's performance may also be discussed
during television interviews of Advisor personnel
conducted by news organizations to be broadcast in the
United States and elsewhere.
INDEPENDENT ACCOUNTANTS
KPMG LLP, 4200 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402, have been
selected as the independent accountants for the Fund.
FINANCIAL STATEMENTS
The following audited financial statements of the
Fund are incorporated herein by reference to the Fund's
1999 Annual Report as filed with the SEC on November
30, 1999:
(a) Independent Auditors' Report.
(b) Schedule of Investments as of September 30, 1999.
(c) Statement of Assets and Liabilities as
of September 30, 1999.
(d) Statement of Operations for the year
ended September 30, 1999.
(e) Statements of Changes in Net Assets for
the years ended September 30, 1998 and 1999.
(f) Financial Highlights for the years ended
September 30, 1998 and 1999 for Class A
and Class I, and for the period from
February 19, 1999 through September 30,
1999 for Class C.
(g) Notes to Financial Statements.
