UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-8267
Kopp Funds, Inc.
(Exact name of registrant as specified in charter)
7701 France Avenue South
Suite 500
Edina, Minnesota 55435
(Address of principal executive offices) (Zip code)
Kathleen S. Tillotson
Kopp Funds, Inc.
7701 France Avenue South, Suite 500
Edina, Minnesota 55435
(Name and address of agent for service)
(952) 841-0400
Registrant's telephone number, including area code
Date of fiscal year end: September 30, 2003
Date of reporting period: September 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
1
November 15, 2003
DEAR FELLOW SHAREHOLDERS:
At the writing of this letter, the mutual fund industry is front page news. Law
makers and regulators are appealing for more disclosure by mutual fund
companies. Investors would like to know more about their investments and the
people who manage those investments. At Kopp Funds, our disclosure efforts are
guided by the premise that investors deserve procedures and information aimed to
enhance shareholder value.
We are pleased to provide information to you on certain topics of shareholder
concern. In our 2002 Annual Report to Shareholders, we said that "we are not
market timers." Our two driving philosophies of long-term and full investment
are incompatible with market timing. We actively discourage market timing to the
extent we can identify it.
We monitor daily trading in the Fund. To the best of our ability, we restrict
future purchases by persons who have exhibited a history of frequent trading. A
list of restricted persons is maintained by the Fund and updated as necessary.
Market timing is different from late trading. Late trading is illegal and, to
the best of our ability, will not occur with this Fund.
Kopp Funds employs a "low turnover" philosophy. The prospectus states that the
Fund expects turnover of "less than 50% annually." Indeed, the annual turnover
of the Fund (since inception) has averaged less than 35%, well below industry
average within the category of emerging growth. This discipline may help reduce
transaction costs. In some cases, certain tax benefits can be attributed to
lower turnover.
Since the inception of the Fund, I have maintained the position of being the
largest single shareholder of the Fund. In addition, our employees and their
families are the largest group of shareholders. As of October 31, 2003, that
group has accumulated more than 10% of outstanding shares. As I have said, "We
eat our own cooking."
A comprehensive recap of the Fund's investments, including the Top Ten Holdings
and Top Ten Industries in which the Fund is invested, is provided monthly on our
website at www.koppfunds.com. In addition, the website provides insights into
our view of the current investment climate in the section titled "Market
Commentary."
The past year has been fruitful for our shareholders. Our commitment to the
healthcare and technology industries has held us in good stead by most measures.
The rebound over the past 12 months ending on September 30, 2003 (the fiscal
year of the Fund), allows for favorable comparisons against all relevant
indices. We expect to continue our focus on these sectors for the next 12
months.
Our goal at Kopp Funds is to be able to assist our shareholders in achieving
their investment goals. Thank you for your confidence.
Sincerely,
/s/ L.C. KOPP
LEE KOPP
President
Of course, past performance does not guarantee future results. Principal value
and investment returns will fluctuate so that
shares when sold 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, may have limited financial resources and may trade in narrow
markets. Current performance may be lower or
higher than the performance described. For information about the Fund, including
current performance and a prospectus,
call us today. Before investing, please read the prospectus and consider the
Fund's investment objectives, risks, charges, and
expenses carefully. You can reach us at 1-888-533-5677.
2
(This page intentionally left blank)
3
TOP ten HOLDINGS
- ------------------------------------------------------
<Table>
<Caption>
TICKER
------
1. EPICOR SOFTWARE CORPORATION EPIC
2. VENTANA MEDICAL SYSTEMS, INC. VMSI
3. VITESSE SEMICONDUCTOR CORPORATION VTSS
4. ENTERASYS NETWORKS, INC. ETS
5. DOCUMENTUM, INC. DCTM
6. DIGIMARC CORPORATION DMRC
7. BRIO SOFTWARE, INC.* BRIO
8. STRATEX NETWORKS, INC. STXN
9. ADC TELECOMMUNICATIONS, INC. ADCT
10. ZYGO CORPORATION ZIGO
</Table>
* Acquired by Hyperion Solutions Corporation on October 16, 2003, for cash and
stock in Hyperion.
TOP ten INDUSTRIES
------------------------------------------------------
[PIE CHART]
<Table>
<Caption>
TOP TEN
INDUSTRIES
------------------
Semiconductor 14.6%
Software Applications 12.2%
Wireless 9.3%
Diagnostics 7.7%
Telecommunication Equipment 5.5%
Therapeutics/Specialty
Compounds 4.9%
Laser-Based Components &
Subsystems 4.8%
Information Security 4.2%
Cardiovascular 4%
Networking 3.8%
Other Common Stocks 27.9%
Cash & Equivalents 1.1%
</Table>
Percentages represent market value as a percentage of total investments on
9/30/03.
- --------------------------------------------------------------------------------
It should not be assumed that our stock selections or
investment philosophy will be profitable or will equal 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 a 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.
The opinions in this letter are those of Kopp Investment
Advisors, are subject to change without notice, and may not
come to pass. The Fund should be used in a program of
diversified investing and not as a complete investment
program.
4
KOPP EMERGING GROWTH FUND
$10,000 INITIAL INVESTMENT MADE 10/01/97 THROUGH 09/30/03
[LINE GRAPH]
<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 (NO LOAD) I
------------------- ------------------- ------------------- -------------------
10/1/1997 10000.00 9653.00 10000.00
3/31/1998 8400.00 8108.00 8430.00
9/30/1998 5810.00 5608.00 5840.00
3/31/1999 8550.00 8252.00 10569.00 8610.00
9/30/1999 11889.00 11476.00 14649.00 12001.00
3/31/2000 28437.00 27448.00 34948.00 28753.00
9/30/2000 30778.00 29708.00 37649.00 31170.00
3/31/2001 12366.00 11936.00 15087.00 12549.00
9/30/2001 9364.00 9039.00 11386.00 9518.00
3/31/2002 11294.00 10901.00 13691.00 11498.00
9/30/2002 5083.00 4906.00 6141.00 5186.00
3/31/2003 5766.00 5566.00 6933.00 5890.00
9/30/2003 9863.00 9520.00 11840.00 10102.00
<Caption>
RUSSELL 2000(R)
INDEX
---------------
10/1/1997 10000.00
3/31/1998 10554.00
9/30/1998 8098.00
3/31/1999 8908.00
9/30/1999 9643.00
3/31/2000 12230.00
9/30/2000 11898.00
3/31/2001 10355.00
9/30/2001 9384.00
3/31/2002 11804.00
9/30/2002 8503.00
3/31/2003 8621.00
9/30/2003 11606.00
</Table>
AVERAGE ANNUAL RATE OF RETURN*
FOR THE PERIOD ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
SINCE
1 YEAR 5 YEARS INCEPTION*
------ ------- ----------
Kopp Emerging Growth Fund -- Class A (load) 87.24% 10.38% -0.82%
Kopp Emerging Growth Fund -- Class A (no load) 94.03% 11.16% -0.23%
Kopp Emerging Growth Fund -- Class C (no load) 92.80% -- 3.73%
Kopp Emerging Growth Fund -- Class C (load) 91.80% -- 3.73%
Kopp Emerging Growth Fund -- Class I 94.78% 11.58% 0.17%
Russell 2000(R) Index 36.50% 7.46% 2.51%
</Table>
* 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. For Class C Shares, a
maximum contingent deferred sales charge of 1.00% is in effect
for redemptions less than one year from the purchase date.
Class A Shares are sold with a 0.35% 12b-1 fee. Class C Shares
are sold with a 1.00% 12b-1 fee. Performance reflects expense
reimbursements, fee waivers and Advisor recovery of fees
waived. Absent expense reimbursements and fee waivers for the
years ended September 30, 1999 and September 30, 1998, total
returns would be reduced. Absent Advisor fee-waiver recovery
for the year ended September 30, 2000, total returns would be
increased.
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. The $10,000 table and the Fund's returns do not
reflect the deduction of taxes that a shareholder would pay on
distributions or the redemption of Fund shares.
Russell 2000(R) Index -- A stock market index comprising the
2,000 smallest U.S. domiciled publicly traded common stocks
that are included in the Russell 3000(R) Index. The Russell
2000(R) Index represents approximately 11% of the U.S.
publicly traded equity market. The Russell 3000(R) 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.
5
KOPP EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2003
<Table>
- -------------------------------------------------------
ASSETS
Investments in securities, at value:
Investments in securities of
unaffiliated issuers (cost
$604,310,887) $ 429,939,232
Investments in securities of
affiliated issuers (cost
$122,241,369) 99,766,858
- -------------------------------------------------------
Total investments in securities (cost
$726,552,256) 529,706,090
Receivable for securities sold 1,242,764
Receivable from capital shares sold 764,452
Income receivable 3,722
Prepaid expenses 38,819
- -------------------------------------------------------
Total Assets 531,755,847
- -------------------------------------------------------
LIABILITIES
Payable for securities purchased 877,598
Payable for capital shares redeemed 713,821
Payable to investment advisor 466,706
Payable for service fees 270,345
Payable for distribution fees 100,838
Payable to transfer agent 112,632
Payable to affiliated distributor 21,298
Accrued other expenses 150,572
- -------------------------------------------------------
Total Liabilities 2,713,810
- -------------------------------------------------------
NET ASSETS $ 529,042,037
- -------------------------------------------------------
- -------------------------------------------------------
NET ASSETS CONSIST OF
Capital stock $ 580,076
Paid-in-capital in excess of par 759,428,920
Accumulated net realized losses on
investments (34,120,793)
Unrealized net depreciation on
investments (196,846,166)
- -------------------------------------------------------
Total Net Assets $ 529,042,037
- -------------------------------------------------------
CLASS A
Net Assets $ 423,165,459
Shares authorized ($0.01 par value) 3,000,000,000
Shares issued and outstanding 46,485,871
Net asset value per share (note 1) $ 9.10
- -------------------------------------------------------
Maximum offering price per share (note
1) $ 9.43
- -------------------------------------------------------
CLASS I
Net Assets $ 76,500,515
Shares authorized ($0.01 par value) 3,000,000,000
Shares issued and outstanding 8,196,671
Net asset value, offering price and
redemption price per share $ 9.33
- -------------------------------------------------------
CLASS C
Net Assets $ 29,376,063
Shares authorized ($0.01 par value) 3,000,000,000
Shares issued and outstanding 3,325,063
Net asset value and offering price per
share (note 1) $ 8.83
- -------------------------------------------------------
</Table>
See Notes to the Financial Statements.
6
KOPP EMERGING GROWTH FUND
STATEMENT OF OPERATIONS
For the year ended September 30, 2003
<Table>
- -------------------------------------------------------
INVESTMENT INCOME
Dividends $ 44,484
- -------------------------------------------------------
Total investment income 44,484
- -------------------------------------------------------
EXPENSES
Investment advisory fee 3,791,309
Service fees -- Class A 772,556
Service fees -- Class C 47,886
12b-1 fees -- Class A 309,023
12b-1 fees -- Class C 143,658
Transfer agent fees and expenses 710,062
Fund administration fees 220,668
Fund accounting fees 86,289
Reports to shareholders 75,289
Custody fees 69,668
Federal and state registration fees 54,036
Professional fees 51,642
Directors' fees and expenses 30,026
Other expenses 103,157
- -------------------------------------------------------
Total expenses 6,465,269
- -------------------------------------------------------
NET INVESTMENT LOSS (6,420,785)
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN
Net realized loss on investment
transactions:
Net realized gain on investment
transactions of unaffiliated
issuers 9,535,200
Net realized loss on investment
transactions of affiliated issuers (30,385,804)
Change in unrealized appreciation on
investments 275,472,871
- -------------------------------------------------------
Net gain on investments 254,622,267
- -------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $248,201,482
- -------------------------------------------------------
</Table>
See Notes to the Financial Statements.
7
KOPP EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
Year Ended Year Ended
September 30, September 30,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (6,420,785) $ (8,537,070)
Net realized loss on investments (20,850,604) (10,812,633)
Change in unrealized appreciation (depreciation) on
investments 275,472,871 (208,367,851)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 248,201,482 (227,717,554)
- ------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Class A:
Proceeds from shares sold 95,433,954 109,793,196
Cost of shares redeemed (91,089,573) (116,268,658)
Class I:
Proceeds from shares sold 11,970,804 3,539,306
Cost of shares redeemed (1,741,847) (3,134,668)
Class C:
Proceeds from shares sold 7,626,720 8,779,223
Cost of shares redeemed (2,820,110) (6,505,426)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital
share transactions 19,379,948 (3,797,027)
- ------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 267,581,430 (231,514,581)
- ------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of year 261,460,607 492,975,188
- ------------------------------------------------------------------------------------------------
End of year $529,042,037 $ 261,460,607
- ------------------------------------------------------------------------------------------------
</Table>
See Notes to the Financial Statements.
8
KOPP EMERGING GROWTH FUND
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
Year Ended Year Ended Year Ended Year Ended Year Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Class A Class A Class A Class A Class A
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net asset value, beginning of period $ 4.69 $ 8.64 $30.78 $11.89 $ 5.81
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment loss (0.11)(3) (0.15)(3) (0.22)(3) (0.38)(2) (0.14)(3)
Net realized and unrealized gain
(loss) on investments 4.52 (3.80) (19.83) 19.27 6.22
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.41 (3.95) (20.05) 18.89 6.08
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net realized gain -- -- (2.09) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.10 $ 4.69 $ 8.64 $30.78 $11.89
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's) $423,165 $217,177 $412,503 $1,201,524 $404,630
Ratio of expenses to average net
assets 1.72% 1.69% 1.60% 1.68%(9) 1.50%(4)
Ratio of net investment loss to
average net assets (1.71)% (1.67)% (1.43)% (1.55)%(9) (1.44)%(6)
Portfolio turnover rate(10) 26.9% 17.4% 6.6% 21.9% 41.3%
Total return(11) 94.03% (45.72)% (69.58)% 158.87% 104.65%
- ----------------------------------------------------------------------------------------------------------------------
</Table>
(1) Commencement of operations for Class C.
(2) Net investment loss per share represents net investment loss divided by the
average shares outstanding throughout the year.
(3) 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.
(4) Absent voluntary fee waivers for the year ended September 30, 1999, the
ratio of expenses to average net assets would have been 1.70% for Class A
and 1.35% for Class I.
(5) Absent voluntary fee waivers for the period February 19, 1999 through
September 30, 1999, the annualized ratio of expenses to average net assets
would have been 2.31% for Class C.
(6) Absent voluntary fee waivers for the year ended September 30, 1999, the
ratio of net investment loss to average net assets would have been (1.64)%
for Class A and (1.29)% for Class I.
9
<Table>
<Caption>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2001 2000 1999 2003 2002 2001 2000
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Class I Class I Class I Class I Class I Class C Class C Class C Class C
- ---------------------------------------------------------------------------------------------------------------------------
$ 4.79 $ 8.79 $31.17 $12.00 $ 5.84 $ 4.58 $ 8.49 $30.49 $11.85
- ---------------------------------------------------------------------------------------------------------------------------
(0.08)(3) (0.12)(3) (0.18)(3) (0.30)(2) (0.09)(3) (0.14)(3) (0.21)(3) (0.29)(3) (0.60)(2)
4.62 (3.88) (20.11) 19.47 6.25 4.39 (3.70) (19.62) 19.24
- ---------------------------------------------------------------------------------------------------------------------------
4.54 (4.00) (20.29) 19.17 6.16 4.25 (3.91) (19.91) 18.64
- ---------------------------------------------------------------------------------------------------------------------------
-- -- (2.09) -- -- -- -- (2.09) --
- ---------------------------------------------------------------------------------------------------------------------------
$ 9.33 $ 4.79 $ 8.79 $31.17 $12.00 $ 8.83 $ 4.58 $ 8.49 $30.49
- ---------------------------------------------------------------------------------------------------------------------------
$76,501 $31,920 $58,767 $200,347 $64,653 $29,376 $12,364 $21,705 $44,111
1.27% 1.34% 1.25% 1.33%(9) 1.15%(4) 2.37% 2.34% 2.25% 2.33%(9)
(1.36)% (1.32)% (1.08)% (1.20)%(9) (1.09)%(6) (2.36)% (2.32)% (2.08)% (2.20)%(9)
26.9% 17.4% 6.6% 21.9% 41.3% 26.9% 17.4% 6.6% 21.9%
94.70% (45.51)% (69.47)% 159.75% 105.48% 92.80% (46.05)% (69.79)% 157.30%
- ---------------------------------------------------------------------------------------------------------------------------
<Caption>
Feb. 19,
1999(1)
through
Sept. 30,
1999
- ---------
Class C
- ---------
$ 8.09
- ---------
(0.07)(3)
3.83
- ---------
3.76
- ---------
--
- ---------
$11.85
- ---------
$1,891
2.15%(5)(8)
(2.09)%(7)(8)
41.3%
46.48%(12)
- ---------
</Table>
(7) Absent voluntary fee waivers for the period February 19, 1999 through
September 30, 1999, the annualized ratio of net investment loss to average
net assets would have been (2.25)% for Class C.
(8) Annualized.
(9) For the year ended September 30, 2000, the ratio includes Advisor
fee-waiver recovery (net) of 0.15% for Class A, Class I and Class C.
(10) Calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
(11) Total return excludes sales charges.
(12) Not annualized.
See Notes to the Financial Statements.
10
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
September 30, 2003
<Table>
<Caption>
Number of
Shares Value
- ---------------------------------------------------------------
COMMON STOCK -- 99.0%
- ---------------------------------------------------------------
APPLICATION DEVELOPMENT TOOLS -- 0.9%
250,000 SERENA Software, Inc. $ 4,650,000
- ---------------------------------------------------------------
ARTHROSCOPY -- 1.2%
350,000 ArthroCare Corporation 6,237,000
- ---------------------------------------------------------------
CARDIOVASCULAR -- 4.0%
1,000,000 CardioDynamics International
Corporation 4,490,000
2,135,703 Endocardial Solutions, Inc.(#) 10,678,515
185,000 Zoll Medical Corporation 5,929,250
- ---------------------------------------------------------------
21,097,765
- ---------------------------------------------------------------
DATABASE & DATA WAREHOUSING -- 2.5%
3,729,286 Brio Software, Inc.(#) 13,425,430
- ---------------------------------------------------------------
DIAGNOSTICS -- 7.7%
200,000 Biosite Diagnostics, Inc. 5,676,000
270,000 Cholestech Corporation 2,052,000
150,000 Gen-Probe Incorporated 8,125,500
865,300 Quidel Corporation 5,806,163
470,000 Ventana Medical Systems, Inc. 18,941,000
- ---------------------------------------------------------------
40,600,663
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MANUFACTURING -- 1.5%
300,000 Artesyn Technologies, Inc. 2,274,000
200,000 Plexus Corp. 3,108,000
250,000 Sanmina-SCI Corporation 2,425,000
- ---------------------------------------------------------------
7,807,000
- ---------------------------------------------------------------
ELECTRONIC DESIGN AUTOMATION -- 0.8%
250,000 Artisan Components, Inc. 4,202,500
</Table>
<Table>
<Caption>
Number of
Shares Value
- ---------------------------------------------------------------
GENOMICS -- 2.0%
750,000 CuraGen Corporation $ 3,772,500
800,000 Sangamo BioSciences, Inc. 3,200,000
750,000 Transgenomic, Inc.(#) 1,177,500
1,780,000 Transgenomic, Inc. -- Restricted(#+) 2,652,200
- ---------------------------------------------------------------
10,802,200
- ---------------------------------------------------------------
IMAGING -- 2.6%
300,000 SonoSite, Inc. 6,003,000
400,000 Vital Images, Inc. 7,487,600
- ---------------------------------------------------------------
13,490,600
- ---------------------------------------------------------------
INDUSTRIAL AUTOMATION -- 0.1%
580,000 Adept Technology, Inc. 533,600
- ---------------------------------------------------------------
INFORMATION SECURITY -- 4.2%
950,000 Digimarc Corporation(#) 13,974,500
200,000 Macrovision Corporation 3,694,000
130,000 SafeNet, Inc. 4,696,900
- ---------------------------------------------------------------
22,365,400
- ---------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES -- 1.1%
640,000 Lightbridge, Inc. 6,035,200
- ---------------------------------------------------------------
LASER-BASED COMPONENTS & SUBSYSTEMS -- 4.8%
3,000,000 Finisar Corporation 6,750,000
2,400,000 JDS Uniphase Corporation 8,640,000
4,025,000 Oplink Communications, Inc. 10,183,250
- ---------------------------------------------------------------
25,573,250
- ---------------------------------------------------------------
MACHINE VISION/INSPECTION -- 2.6%
260,000 CyberOptics Corporation 2,431,000
702,500 Zygo Corporation 11,521,000
- ---------------------------------------------------------------
13,952,000
</Table>
See Notes to the Financial Statements.
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2003
11
<Table>
<Caption>
Number of
Shares Value
- ---------------------------------------------------------------
NETWORKING -- 3.8%
400,000 Computer Network Technology
Corporation $ 3,472,000
4,000,000 Enterasys Networks, Inc. 16,000,000
83,470 Larscom Incorporated -- Class A 343,896
- ---------------------------------------------------------------
19,815,896
- ---------------------------------------------------------------
ORTHOPEDICS -- 1.2%
400,000 Interpore International, Inc. 6,144,000
- ---------------------------------------------------------------
RESEARCH REAGENTS/INSTRUMENTATION -- 2.5%
1,070,000 Array BioPharma Inc. 5,864,670
440,000 Caliper Technologies Corp. 2,750,000
170,000 Harvard Bioscience, Inc. 1,261,400
200,000 Molecular Devices Corporation 3,484,000
- ---------------------------------------------------------------
13,360,070
- ---------------------------------------------------------------
RESPIRATORY/PATIENT MONITORING -- 0.3%
120,000 Therasense, Inc. 1,498,800
- ---------------------------------------------------------------
SEMICAP EQUIPMENT -- 2.8%
200,000 Brooks Automation, Inc. 4,180,000
200,000 MKS Instruments, Inc. 4,332,000
450,500 Trikon Technologies, Inc. 2,743,545
180,000 Veeco Instruments Inc. 3,592,800
- ---------------------------------------------------------------
14,848,345
</Table>
<Table>
<Caption>
Number of
Shares Value
- ---------------------------------------------------------------
SEMICONDUCTOR -- 14.6%
800,000 ANADIGICS, Inc. $ 3,800,000
500,000 Applied Micro Circuits Corporation 2,435,000
600,000 Centillium Communications, Inc. 4,242,000
2,000,000 Conexant Systems, Inc. 11,320,000
1,000,000 Mindspeed Technologies Inc. 5,390,000
500,000 PMC-Sierra, Inc. 6,595,500
1,440,000 QuickLogic Corporation(#) 9,576,000
700,000 Skyworks Solution, Inc. 6,370,000
335,000 Synaptics Incorporated 3,604,600
2,600,000 Vitesse Semiconductor Corporation 16,640,000
1,800,000 WJ Communications, Inc. 7,452,000
- ---------------------------------------------------------------
77,425,100
- ---------------------------------------------------------------
SOFTWARE APPLICATIONS -- 12.2%
675,000 Documentum, Inc. 14,384,250
2,220,000 Epicor Software Corporation(#) 19,846,800
750,000 MapInfo Corporation 7,192,500
650,000 MRO Software, Inc. 8,872,500
600,000 PLATO Learning, Inc. 4,626,000
750,000 Retek Inc. 5,062,500
925,000 Vastera, Inc. 4,754,500
- ---------------------------------------------------------------
64,739,050
- ---------------------------------------------------------------
SPECIALTY PHARMACEUTICALS -- 2.4%
250,000 CIMA Labs Inc. 6,987,500
1,482,500 InKine Pharmaceutical Company, Inc. 5,870,700
- ---------------------------------------------------------------
12,858,200
- ---------------------------------------------------------------
SURGICAL PRODUCTS -- 0.6%
125,000 Closure Medical Corporation 3,048,750
</Table>
See Notes to the Financial Statements.
KOPP EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
September 30, 2003
12
<Table>
<Caption>
Number of
Shares Value
- ---------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 5.5%
5,000,000 ADC Telecommunications, Inc. $ 11,650,000
200,000 Advanced Fibre Communications, Inc. 4,194,000
650,000 Network Equipment Technologies, Inc. 5,947,500
1,610,000 Tut Systems, Inc.(#) 7,486,500
- ---------------------------------------------------------------
29,278,000
- ---------------------------------------------------------------
TEST AND MEASUREMENT -- 2.1%
675,000 LeCroy Corporation(#) 10,820,250
- ---------------------------------------------------------------
THERAPEUTICS/SPECIALTY COMPOUNDS -- 4.9%
400,000 Cell Genesys, Inc. 5,032,000
1,083,333 Neose Technologies, Inc.(#) 10,129,163
500,000 Symyx Technologies, Inc. 10,770,000
- ---------------------------------------------------------------
25,931,163
- ---------------------------------------------------------------
VOICE PROCESSING -- 0.8%
800,000 Captaris Inc. 4,232,000
- ---------------------------------------------------------------
WIRELESS -- 9.3%
500,000 EMS Technologies, Inc. 8,490,000
500,000 Itron, Inc. 10,035,000
5,000,000 Proxim Corporation -- Class A 7,450,000
900,000 REMEC, Inc. 9,180,000
300,000 RF Monolithics, Inc. 1,968,000
3,150,000 Stratex Networks, Inc. 12,127,500
- ---------------------------------------------------------------
49,250,500
- ---------------------------------------------------------------
Total Common Stock (cost $720,868,898) 524,022,732
</Table>
<Table>
<Caption>
Number of
Shares Value
- ---------------------------------------------------------------
SHORT-TERM INVESTMENT -- 1.1%
- ---------------------------------------------------------------
INVESTMENT COMPANY -- 1.1%
5,683,358 First American Prime Obligations
Fund, Class I*(*) $ 5,683,358
- ---------------------------------------------------------------
Total Short-Term Investment (cost $5,683,358) 5,683,358
- ---------------------------------------------------------------
Total Investments -- 100.1% (cost $726,552,256) 529,706,090
- ---------------------------------------------------------------
Liabilities, less Other Assets -- (0.1)% (664,053)
- ---------------------------------------------------------------
NET ASSETS -- 100.0% $529,042,037
- ---------------------------------------------------------------
</Table>
# Affiliated company; the Fund owns 5% or more of the outstanding voting
securities of the issuer. See note 7.
+ Fair valued and unregistered security.
* Income producing security. All other securities are non-income producing.
See Notes to the Financial Statements.
13
KOPP EMERGING GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2003
1. ORGANIZATION
Kopp Funds, Inc. (the "Company") was incorporated on June 12, 1997, as a
Minnesota corporation, and is registered as an open-end, investment management
company under the Investment Company Act of 1940, as amended (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 that Kopp
Investment Advisors, LLC (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 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. Class A shares are subject to an initial sales
charge imposed at the time of purchase, in accordance with the Fund's
prospectus. The maximum sales charge on Class A shares is 3.50% of the offering
price or 3.63% of the net asset value. Investments in Class A shares above $1
million are subject to a contingent deferred sales charge at the time of
redemption, in accordance with the Fund's prospectus. The maximum sales charge
is 1% for redemptions within the first 24 months and 0% thereafter. The Class C
shares are subject to a contingent deferred sales charge at the time of
redemption, in accordance with the Fund's prospectus. The maximum sales charge
is 1% for redemptions in the first year and 0% thereafter.
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 traded primarily on a national
securities exchange are valued at the last sales price. For securities traded on
NASDAQ, the Fund utilizes the NASDAQ Official Closing Price which compares the
last trade to the bid/ask price of a security. If the last trade is below the
bid, the bid will be the closing price. 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 under supervision of the Board of
Directors of the Company. 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 recorded.
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
14
each class of shares at the beginning of the day (after adjusting for the
current day's capital share activity of the respective class).
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and distributions of net realized gains, if
any, will be declared and paid at least annually.
Distributions are determined in accordance with income tax regulations which may
differ from accounting principles generally accepted in the United States. These
differences are primarily due to differing treatments for amounts related to the
deferral of post-October and wash sale losses.
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.
ILLIQUID OR RESTRICTED SECURITIES
As of September 30, 2003, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Directors as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 15% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid securities. Certain restricted securities, eligible
for resale to qualified institutional investors, are not subject to that
limitation. The aggregate market value of illiquid or restricted securities
subject to this limitation as of September 30, 2003 was $2,652,200, which
represents 0.5% of the Fund's net assets. Information concerning illiquid or
restricted securities is as follows:
<Table>
<Caption>
Date
Security Shares Acquired Cost Basis
- -----------------------------------------------------------
Transgenomic, Inc. 1,780,000 9/9/2003 $1,780,000
</Table>
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.
3. INCOME TAX INFORMATION
At September 30, 2003, the Fund had net realized capital loss carryovers of
$187,528, $208,436, and $12,647,345 expiring in 2009, 2010, and 2011,
respectively. To the extent that the Fund realizes future net capital gains,
taxable distributions to its respective shareholders will be offset by any
unused capital loss carryover. During the fiscal year ended September 30, 2003,
the Fund utilized post-October
15
capital losses of $11,974,762. The Fund incurred losses in the amount of
$20,143,957 from November 1, 2002 to September 30, 2003. As permitted by tax
regulations, the Fund intends to elect to defer and treat these losses as
arising in the fiscal year ending September 30, 2004.
Generally accepted accounting principles require that permanent financial
reporting and tax differences be reclassified. 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 $6,420,785 and decrease paid-in-capital in excess of par by $6,420,785.
At September 30, 2003, the components of accumulated earnings/(losses) on a tax
basis were as follows:
<Table>
Cost of investments(a) $ 727,485,783
-------------
Gross unrealized appreciation $ 129,109,369
Gross unrealized depreciation (326,889,062)
-------------
Net unrealized depreciation on
investments $(197,779,693)
=============
Undistributed ordinary income $ --
Undistributed long-term capital gain --
-------------
Total distributable earnings $ --
=============
Other accumulated losses $ (33,187,266)
-------------
Total accumulated losses $(230,966,959)
=============
</Table>
(a) Represents cost for federal income tax purposes and differs from the cost
for financial reporting purposes due to the deferral of losses on wash
sales.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
<Table>
<Caption>
Class A Class A
Year Ended Year Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Shares sold 13,976,915 11,684,326
Shares redeemed (13,776,096) (13,133,833)
- ----------------------------------------------------------------
Net increase (decrease) 200,819 (1,449,507)
</Table>
<Table>
<Caption>
Class I Class I
Year Ended Year Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Shares sold 1,792,092 359,131
Shares redeemed (256,302) (381,610)
- ----------------------------------------------------------------
Net increase (decrease) 1,535,790 (22,479)
</Table>
<Table>
<Caption>
Class C Class C
Year Ended Year Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Shares sold 1,067,894 1,058,087
Shares redeemed (440,817) (915,341)
- ----------------------------------------------------------------
Net increase 627,077 142,746
</Table>
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the year ended September 30, 2003, were
$115,326,246 and $100,790,038, respectively. There were no purchases or sales of
long-term U.S. government securities.
6. 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.
U.S. Bancorp Fund Services, LLC, serves as accounting services agent,
administrator, and transfer agent for the Fund. U.S. Bank, N.A. serves as
custodian for the Fund.
16
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, LLC (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 Distributor currently has no intention of
charging 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, 2003, there were $738,284 of unreimbursed distribution
and shareholder servicing related expenses to be carried forward to future plan
years. Upon termination of the 12b-1 Plan, the Fund is not contractually
obligated to continuing paying these excess costs. As such, this amount has not
been recorded as a liability in the Fund's records.
Distribution and shareholder servicing fees incurred by Class A shares for the
year ended September 30, 2003 were $309,023 and $772,556, respectively. The
distribution and shareholder servicing fees retained by the Distributor, related
to Class A, for the year ended September 30, 2003 were $24,267 and $60,666,
respectively. The Fund was advised that the Distributor advanced $76,321 of
distribution and shareholder servicing fees related to Class C shares for the
year ended September 30, 2003. Distribution and shareholder servicing fees
incurred by Class C shares for the year ended September 30, 2003 were $143,658
and $47,886, respectively. The distribution and shareholder servicing fees
retained by the Distributor, related to Class C, for the year ended September
30, 2003 were $36,694 and $12,232, respectively.
The Fund was advised that the Distributor retained front-end sales charges on
Class A shares of $172,123 and contingent deferred sales charges on Class C
shares of $8,191 for the year ended September 30, 2003.
17
7. OTHER AFFILIATES *
Investments representing 5% or more of the outstanding voting securities of a
portfolio company result in that company being considered an affiliated company,
as defined in the 1940 Act. The aggregate market value of all securities of
affiliated companies as of September 30, 2003 amounted to $99,766,858
representing 18.9% of net assets. Transactions during the year ended September
30, 2003 in which the issuer was an "affiliated person" are as follows:
<Table>
<Caption>
Computer
Applied Brio Network Endocardial Epicor Larscom
Microsystems Software, Technology Digimarc Solutions, Software Incorporated
Corporation** Inc. Corporation** Corporation Inc. Corporation Class A**(1)
------------- --------- ------------- ----------- ----------- ----------- ------------
September 30, 2002
Balance
Shares 500,000 2,211,986 1,370,000 930,700 762,500 2,105,000 85,714
Cost $ 2,851,806 $5,264,527 $ 27,954,910 $20,894,760 $4,575,000 $4,897,628 $6,333,903
Gross Additions
Shares -- 1,517,300 130,000 19,300 1,373,203 395,000 --
Cost $ -- $2,617,000 $ 1,245,960 $ 273,079 $4,036,113 $ 788,757 $ --
Gross Deductions
Shares 500,000 -- 1,100,000 -- -- 280,000 2,244
Cost $ 2,851,806 $ -- $ 24,055,175 $ -- $ -- $1,686,946 $ 190,963
September 30, 2003
Balance
Shares -- 3,729,286 400,000 950,000 2,135,703 2,220,000 83,470
Cost $ -- $7,881,527 $ 5,145,695 $21,167,839 $8,611,113 $3,999,439 $6,142,940
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) $(2,747,510) $ 0 $(14,836,217) $ 0 $ 0 $ 538,276 $ (180,725)
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
Neose Trans-
LeCroy Technologies, QuickLogic REMEC, SafeNet, genomic, Tut Systems,
Corporation Inc. Corporation Inc.**(2) Inc.**(3) Inc. Inc.
----------- ------------- ----------- --------- --------- -------- ------------
September 30, 2002
Balance
Shares 720,000 640,000 1,315,000 830,000 162,500 670,000 1,620,000
Cost $17,212,755 $22,976,916 $19,651,549 $17,185,250 $ 30,878,569 $7,231,075 $12,214,058
Gross Additions
Shares -- 443,333 183,000 70,000 -- 1,860,000 --
Cost $ -- $ 2,974,095 $ 306,308 $ 384,788 $ -- $1,897,259 $ --
Gross Deductions
Shares 45,000 -- 58,000 -- 32,500 -- 10,000
Cost $ 1,701,336 $ -- $ 1,480,915 $ -- $ 11,313,805 $ -- $ 700,313
September 30, 2003
Balance
Shares 675,000 1,083,333 1,440,000 900,000 130,000 2,530,000 1,610,000
Cost $15,511,419 $25,951,011 $18,476,942 $17,570,038 $ 19,564,764 $9,128,334 $11,513,745
- ---------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) $(1,223,187) $ 0 $(1,046,645) $ 0 $(10,202,783) $ 0 $ (687,013)
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
Total
-----
September 30, 2002
Balance
Shares
Cost $200,122,706
Gross Additions
Shares
Cost $ 14,523,359
Gross Deductions
Shares
Cost $ 43,981,259
September 30, 2003
Balance
Shares
Cost $170,664,806
- --------------------------------------------
Realized gain (loss) $(30,385,804)
- --------------------------------------------
Investment income $ 0
- --------------------------------------------
</Table>
* As a result of the Fund's beneficial ownership of the common stock of these
companies, regulators require that the Fund state that it may be deemed an
affiliate of the respective issuer. The Fund disclaims 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, 2003, but
not at September 30, 2003.
(1) September 30, 2002 shares adjusted for 1.00/7.00 stock split on June 6,
2003.
(2) Formerly known as Spectrian Corporation (acquired by REMEC, Inc. on December
24, 2002 in a 1.00/1.00 share ratio).
(3) Formerly known as Cylink Corporation (acquired by SafeNet, Inc. on February
7, 2003 in a 0.05/1.00 share ratio).
8. LINE OF CREDIT
The Fund has a $50,000,000 line of credit with U.S. Bank, N.A expiring July 31,
2004. 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 0.12% per annum. During the year ended
September 30, 2003, the Fund did not draw upon the line of credit.
9. RELATED PARTY TRANSACTIONS
As of September 30, 2003, officers and directors of the Fund beneficially owned
6,378,871 shares or 11.00% of the Fund's outstanding shares (1.39% of which was
owned through the Advisor's profit sharing plan).
18
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Kopp Funds, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Kopp Emerging Growth Fund (a series
of Kopp Funds, Inc., hereafter referred to as the "Fund") at September 30, 2003,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and its financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
[PRICEWATERHOUSECOOPERS LLP SIGNATURE]
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 24, 2003
19
DIRECTORS AND OFFICERS OF THE FUND
<Table>
<Caption>
Positions(s) Term of Office
Held with and Length of Principal Occupation(s)
Name, Address, and Age the Fund Time Served During Past 5 Years
---------------------- ------------ -------------- -----------------------
INDEPENDENT DIRECTORS
Robert L. Stehlik Director Term expiring earlier of death, Retired; Senior Vice President,
10313 Normandy Crest resignation, removal, Peoples Bank of Commerce
Eden Prairie, MN 55347 disqualification, or successor (1998-2003); Senior Vice
Age: 65 duly elected and qualified. President, Richfield Bank &
Director of the Fund since 1997. Trust Co., (1994-1998)
Thomas R. Stuart Director Term expiring earlier of death, Chairman and Chief Executive
3400 Technology Drive resignation, removal, Officer, Bureau of Engraving,
Minneapolis, MN 55418 disqualification, or successor Inc., a private manufacturer
Age: 59 duly elected and qualified. (1988-present)
Director of the Fund since 1997.
INTERESTED DIRECTOR
LeRoy C. Kopp* Director, Term expiring earlier of death, President and Chief Investment
7701 France Avenue South, President, resignation, removal, Officer, Kopp Investment
Suite 500 Chief Executive disqualification, or successor Advisors, LLC (1990- present)
Edina, MN 55435 Officer duly elected and qualified.
Age: 69 Director of the Fund since 1997.
* Mr. Kopp is considered an "interested" Director because he controls Kopp Holding Company, LLC which owns 100%
of Kopp Investment Advisors, LLC, Advisor of the Fund.
OFFICERS
John P. Flakne Chief Financial Re-elected by the Board Executive Vice President, Kopp
7701 France Avenue South, Officer, annually; Chief Financial Investment Advisors, LLC (2003-
Suite 500 Treasurer Officer and Treasurer of the present); Chief Financial
Edina, MN 55435 Fund since 1998. Officer, Kopp Investment
Age: 38 Advisors, LLC and Chief
Executive Officer and Chief
Financial Officer of the
Distributor (2000-present);
Controller, Kopp Investment
Advisors, LLC (1998-2000);
Caterpillar Paving Products,
Inc. (1998); Bertram, Vallez,
Kaplan & Talbot, Ltd. (1997-
1998)
Kathleen S. Tillotson Executive Vice Re-elected by the Board Executive Vice President, Kopp
7701 France Avenue South, President, annually; Executive Vice Investment Advisors, LLC (2003-
Suite 500 Secretary President and Secretary of the present); Vice President, Kopp
Edina, MN 55435 Fund since 1997. Investment Advisors, LLC (1996-
Age: 47 2003); General Counsel, Kopp
Investment Advisors, LLC (1996-
present); Secretary, Kopp
Investment Advisors, LLC
(2000-present); Vice President,
Secretary, and General Counsel
of Centennial Lakes Capital,
LLC, the Fund's Distributor
("Distributor") (1997-present);
Assistant Secretary of the
Distributor (1998-1999)
Gregory S. Kulka First Vice Re-elected by the Board Executive Vice President, Kopp
7701 France Avenue South, President annually; First Vice President Investment Advisors, LLC (2003-
Suite 500 of the Fund since 1997. present); First Vice President,
Edina, MN 55435 Kopp Investment Advisors, LLC
Age: 48 (1991- 2003); Vice President of
the Distributor (1997-present)
<Caption>
Other Public
Number of Portfolios in Directorships
Fund Complex Overseen Held by
Name, Address, and Age by Director Director
---------------------- ----------------------- -------------
INDEPENDENT DIRECTORS
Robert L. Stehlik 1 None
10313 Normandy Crest
Eden Prairie, MN 55347
Age: 65
Thomas R. Stuart 1 None
3400 Technology Drive
Minneapolis, MN 55418
Age: 59
INTERESTED DIRECTOR
LeRoy C. Kopp* 1 None
7701 France Avenue South,
Suite 500
Edina, MN 55435
Age: 69
* Mr. Kopp is considered
of Kopp Investment Advi
OFFICERS
John P. Flakne NA NA
7701 France Avenue South,
Suite 500
Edina, MN 55435
Age: 38
Kathleen S. Tillotson NA NA
7701 France Avenue South,
Suite 500
Edina, MN 55435
Age: 47
Gregory S. Kulka NA NA
7701 France Avenue South,
Suite 500
Edina, MN 55435
Age: 48
</Table>
The Statement of Additional Information (SAI) includes additional information
about fund directors and officers and is available upon request without charge
by calling 1-888-533-5677, or writing Kopp Funds, Inc., 7701 France Avenue
South, Suite 500, Edina, MN 55435.
[KOPP FUND LOGO]
DIRECTORS
LeRoy C. Kopp
Robert L. Stehlik
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, LLC
7701 France Avenue South, Suite 500
Edina, MN 55435
EMERGING GROWTH FUND
ADMINISTRATOR AND TRANSFER AGENT ANNUAL REPORT 2003
U.S. BANCORP FUND SERVICES, LLC
<Table>
For overnight deliveries, For regular mail deliveries,
use: use:
Kopp Funds, Inc. Kopp Funds, Inc.
c/o U.S. Bancorp Fund c/o U.S. Bancorp Fund
Services, LLC Services, LLC
Third Floor P.O. Box 701
615 E. Michigan Street Milwaukee, WI 53201-0701
Milwaukee, WI 53202
</Table>
CUSTODIAN
U.S. BANK, N.A.
425 Walnut Street
Cincinnati, OH 45202
DISTRIBUTOR
CENTENNIAL LAKES CAPITAL, LLC
7701 France Avenue South, Suite 500
Edina, MN 55435
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, WI 53202
LEGAL COUNSEL
GODFREY & KAHN, S.C.
780 N. Water Street
Milwaukee, WI 53202
Kopp Funds is distributed by Centennial Lakes Capital, LLC, a member of
the NASD and an affiliate of Kopp Investment Advisors, LLC and the Fund.
(C)2003 Kopp Investment Advisors, LLC
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer. The registrant has
not made any amendments to its code of ethics during the covered period. The
registrant has not granted any waivers from any provisions of the code of ethics
during the covered period. A copy of this code of ethics is filed as an exhibit
to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that there are two audit
committee financial experts serving on its audit committee. Mr. Thomas R. Stuart
and Mr. Robert L. Stehlik are the audit committee financial experts and are
considered to be independent.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required for annual reports filed for periods ending before December 15,
2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to open-end investment companies.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Registrant's President/Chief Executive Officer and Treasurer/Chief
Financial Officer have concluded that the Registrant's disclosure controls
and procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940 (the "Act")) are effective as of a date within 90 days of the
filing date of the report that includes the disclosure required by this
paragraph, based on the evaluation of these controls and procedures
required by Rule 30a-3(b) under the Act.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the Registrant's last fiscal half-year that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 10. EXHIBITS.
(a) Any code of ethics or amendment thereto. Filed herewith.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Kopp Funds, Inc.
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By (Signature and Title) /s/ LeRoy C. Kopp
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LeRoy C. Kopp, Chief Executive Officer, President
Date 12/1/03
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Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ LeRoy C. Kopp
-------------------------------------------------
LeRoy C. Kopp, Chief Executive Officer, President
Date 12/1/03
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By (Signature and Title) /s/ John P. Flakne
--------------------------------------------------
John P. Flakne, Chief Financial Officer, Treasurer
Date 12/1/03
----------------------------------------------