<PAGE>
The Oberweis Funds
The Oberweis Funds (the "Fund") is a fully-managed, diversified, open-end mu-
tual fund currently consisting of two portfolios--the Oberweis Emerging Growth
Portfolio, which prior to January 1, 1996, was known as the Oberweis Emerging
Growth Fund (the "Emerging Growth Portfolio"), and the Oberweis Micro-Cap Port-
folio (the "Micro-Cap Portfolio"). Shares of the Micro-Cap Portfolio were first
offered to the public on January 1, 1996 at $10 per share. The Fund anticipates
ceasing sales of the Micro-Cap Portfolio to both new shareholders and existing
shareholders when that Portfolio reaches $50 million in net assets. Prior to
January 1, 1996, the Fund was named the Oberweis Emerging Growth Fund and con-
sisted of the one portfolio, which was known by the same name.
The investment objective of each Portfolio is to maximize capital appreciation.
Each Portfolio intends to achieve its objective through an investment program
emphasizing common stocks of companies that the investment adviser, Oberweis
Asset Management, Inc. ("OAM"), believes have the potential for above-average
long-term growth in market value. Each Portfolio's investment program may in-
volve a greater degree of risk than is customarily associated with more
conservative investment programs. This Prospectus, which should be read and re-
tained for future reference, sets forth concisely the information an investor
should know before investing in the Fund.
THE FUND MAY SELL AND PURCHASE OPTIONS WHICH ARE DERIVATIVE SECURITIES AND MAY
BE CONSIDERED SPECULATIVE. (SEE "OPTIONS" ON PAGE 8.)
A Statement of Additional Information for the Fund dated January 1, 1996 has
been filed with the Securities and Exchange Commission and may be obtained
without charge by calling or writing the Fund at the telephone number or ad-
dress listed below. The Statement of Additional Information is incorporated by
reference into this Prospectus.
- --------------------------------------------------------------------------------
One Constitution Drive
Aurora, Illinois 60506
(800) 323-6166
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Synopsis of Fees............................................................ 2
Financial Highlights........................................................ 3
Performance Comparison...................................................... 4
Investment Objective, Policies and Risks.................................... 6
Management of the Portfolios................................................ 8
The Advisory and Management
Agreements................................................................. 9
Distribution of Shares...................................................... 10
Expenses of the Fund........................................................ 10
Portfolio Transactions...................................................... 11
How to Purchase Shares...................................................... 11
How to Redeem Shares........................................................ 12
Net Asset Value............................................................. 13
Shareholder Services........................................................ 13
Dividends, Distributions and Tax Status..................................... 14
The Custodian and Transfer Agent............................................ 15
General Information......................................................... 15
</TABLE>
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in a
Portfolio's shares involves risk, including the possible loss of principal.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is January 1, 1996.
<PAGE>
SYNOPSIS OF FEES
<TABLE>
<CAPTION>
PORTFOLIO
---------------
EMERGING MICRO-
SHAREHOLDER TRANSACTION EXPENSES GROWTH CAP
- -------------------------------- -------- ------
<S> <C> <C>
Sales Charge Imposed on Purchases (as a percentage of offering
price)........................................................ None None
Sales Charge Imposed on Reinvested Dividends or Capital Gain
Distributions................................................. None None
Redemption Fees................................................ None .25%
Exchange Fees.................................................. None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
<S> <C> <C>
(as a percentage of average net assets)
Advisory and Management Fees................................... .75%(1) 1.00%
12b-1 Fees..................................................... .25% .25%
Other Expenses................................................. .58% .75%
Total Fund Operating Expenses.................................. 1.58%(1) 2.00%*
</TABLE>
- --------
(1) Net of expense reimbursement. The Emerging Growth Portfolio's actual
Advisory and Management Fees and Total Fund Operating Expenses as a
percentage of average net assets for the period ended June 30, 1995, before
reimbursement, were .82% and 1.83%, respectively, except that the figures
have been restated for the reduction in 12b-1 Fees to .25% effective
January 1, 1996. See "Expenses of the Fund," for a discussion of the Fund's
annual expense limitation and reductions of the Management fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YR. 3 YRS. 5 YRS. 10 YRS.
- ------- ----- ------ ------ -------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
Emerging Growth Portfolio......................... $16 $50 $86 $188
Micro-Cap Portfolio............................... $23 $65 -- --
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund may bear directly
or indirectly. Long-term shareholders may pay more in total sales charges than
the economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. There is a .25% withdrawal
charge on the Micro-Cap Portfolio, which is deducted from the redemption pro-
ceeds and is used to reimburse the Portfolio for the expenses it incurs in
connection with the Shareholder's liquidation of shares. In addition, for each
Portfolio, there is a $6 fee for each wire redemption, which is deducted from a
Shareholder's redemption amount. Other Expenses for the Micro-Cap Portfolio are
based on estimates of expenses for the current fiscal year. The examples are
based on the expenses in the table and a hypothetical annual rate of return of
5%. The Micro-Cap Portfolio commenced the public offering of shares on January
1, 1996, thus estimates of expenses in the example are shown for only the one
and three year periods. THE EXAMPLES SHOULD NOT BE CONSIDERED AN INDICATION OF
ACTUAL OR EXPECTED PORTFOLIO PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY BE
GREATER OR LESS THAN THOSE SHOWN. For a more complete explanation of the fees
and expenses borne by each Portfolio, please see the discussions under the Pro-
spectus headings "The Advisory and Management Agreements," "Distribution of
Shares," "Expenses of the Fund," and "Portfolio Transactions," as well as the
Statement of Additional Information incorporated by reference into this Pro-
spectus.
*The Manager will reimburse the Micro-Cap Portfolio for total operating ex-
penses in excess of 2% of average net assets for the first 12 months of
operations.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table shows important financial information for the Emerging
Growth Portfolio expressed in terms of one share outstanding throughout the pe-
riods. The per share data was determined using average shares outstanding
during the period. The information in the table has been audited by the Fund's
independent auditors except for the financial information as of June 30, 1995,
which is unaudited. The auditors' unqualified report, along with the complete
financial statements for the Emerging Growth Portfolio, is included in the
Emerging Growth Portfolio's Annual Report, which is incorporated by reference
into the Statement of Additional Information.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, 1995
(UNAUDITED)
-----------
<S> <C>
Net Asset Value,
Beginning of Period..... $ 21.41
Income from Investment
Operations:
Net investment loss..... (0.13)
Net realized and
unrealized gain (loss)
on investments......... 5.59
--------
Total from investment
operations............. 5.46
Less Distributions:
Net realized gain on
investments............ --
--------
Net Asset Value, End of
Period................. $ 26.87
========
Total Return (%)(b)..... 25.5
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $116,924
Ratio of expenses to
average net assets (%). 1.75(a,c)
Ratio of net investment
loss to average net
assets (%)............. (1.26)(a,c)
Portfolio turnover rate
(%).................... 75
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987(D)
-------- ------------ ----------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 22.19 $ 20.90 $ 18.39 $ 12.11 $ 12.06 $ 9.65 $ 9.13 $ 10.04
Income from Investment
Operations:
Net investment loss..... (0.22) (0.22) (0.21) (0.09) (0.24) (0.35) (0.20) (0.15)
Net realized and
unrealized gain (loss)
on investments......... (0.56) 2.25 2.72 10.64 0.29 2.76 0.72 (0.76)
-------- ------------ ----------- ----------- ----------- ----------- -------- -----------
Total from investment
operations............. (0.78) 2.03 2.51 10.55 0.05 2.41 0.52 (0.91)
Less Distributions:
Net realized gain on
investments............ -- (0.74) -- (4.27) -- -- -- --
-------- ------------ ----------- ----------- ----------- ----------- -------- -----------
Net Asset Value, End of
Period................. $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11 $ 12.06 $ 9.65 $ 9.13
======== ============ =========== =========== =========== =========== ======== ===========
Total Return (%)(b)..... (3.5) 9.7 13.7 87.1 0.4 25.0 5.7 (9.1)
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $90,014 $104,324 $54,063 $19,730 $11,604 $12,940 $15,914 $16,856
Ratio of expenses to
average net assets (%). 1.78 1.80(a) 1.99(a) 2.13(a) 2.15(a) 2.00(a) 2.46 1.99(c)
Ratio of net investment
loss to average net
assets (%)............. (1.06) (1.04)(a) (1.14)(a) (1.27)(a) (1.24)(a) (1.19)(a) (1.80) (1.48)(c)
Portfolio turnover rate
(%).................... 66 70 63 114 62 112 67 55
</TABLE>
- -------
(a) Net of expense reimbursement from related parties. Expense ratios would
have been 1.83% for 1995, 1.82% for 1993, 2.41% for 1992, 3.01% for 1991,
and 3.48% for both 1990 and 1989 before expense reimbursement.
(b) A sales load of 4% was charged until December 31, 1991 and is not reflected
in the above total return figures.
(c) Annualized.
(d) From inception of Fund, January 7, 1987.
3
<PAGE>
PERFORMANCE COMPARISON
The following table compares the Emerging Growth Portfolio's total return for
the nine-month period ended September 30, 1995 and the one year period ended
June 30, 1995 with the total return of various indexes of unmanaged securities:
<TABLE>
<CAPTION>
NINE MONTHS ONE YEAR
ENDED PERIOD ENDED
SEPTEMBER 30, 1995 JUNE 30, 1995
------------------ -------------
<S> <C> <C>
Oberweis Emerging Growth Portfolio...... 39.6% 48.0%
Dow-Jones Industrial Average............ 24.9% 25.7%
S&P 500................................. 29.8% 26.1%
NASDAQ National Composite............... 38.8% 32.2%
Lipper Small Company Growth Index....... 28.4% 26.0%
Russell 2000 Index...................... 25.7% 20.1%
Wilshire 5000 Index..................... 30.1% 24.7%
</TABLE>
The Dow-Jones Industrial Average is a widely recognized stock market indicator
that consists of the price movements of 30 major industrial companies in the
United States. The Standard & Poor's 500 Stock Composite is widely regarded as
representative of general stock market activity. The NASDAQ National Composite,
Lipper Small Company Growth Index, Russell 2000 Index and the Wilshire 5000 In-
dex represent portfolios that are somewhat more representative of the
securities held by the Emerging Growth Portfolio.
Total return includes price level changes, dividends and capital gain distribu-
tions. As calculated in accordance with applicable regulations of the
Securities and Exchange Commission, the Emerging Growth Portfolio's average an-
nual total returns for the following periods ended June 30, 1995 are:
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PAST PAST LIFE OF FUND
1 YEAR 5 YEARS (1/7/87)
------ ------- ------------
<S> <C> <C> <C>
Emerging Growth Portfolio..................... 48.0% 17.6% 15.6%
S&P 500....................................... 26.1% 12.1% 11.9%
Russell 2000 Index............................ 20.1% 12.9% 10.2%
</TABLE>
4
<PAGE>
ASSUMED $10,000 INVESTMENT IN THE EMERGING GROWTH PORTFOLIO
FROM 1/07/87 THROUGH 9/30/95
<TABLE>
<CAPTION> Russell
Oberweis S&P 500 2000
<S> <C> <C> <C>
$10,000 $10,000 $10,000
1987 $ 9,094 $ 9,948 $ 8,537
1988 $ 9,612 $11,598 $10,664
1989 $12,012 $15,267 $12,395
1990 $12,062 $14,822 $ 9,977
1991 $22,573 $19,345 $14,571
1992 $25,653 $20,822 $17,254
1993 $28,147 $22,909 $20,515
1994 $27,157 $23,206 $20,166
1995 $37,911 $30,115 $25,351
</TABLE>
All data assumes reinvestment of dividends and capital gains. Results represent
past performance and do not indicate future results. The value of an investment
in the Emerging Growth Portfolio and the return on the investment both will
fluctuate and redemption proceeds may be higher or lower than an investor's
original cost. When first organized in 1987, the Emerging Growth Portfolio ap-
plied a sales charge to each share purchase. The Portfolio's sales charge was
eliminated on December 31, 1991. The performance graph and the average annual
return figures do not reflect the load.
Additional information concerning performance results of the Emerging Growth
Portfolio is contained in the Annual and Semi-Annual Reports which are avail-
able upon request without cost from the Fund.
5
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVE--The investment objective of each Portfolio is to maximize
capital appreciation. The realization of current income will not be a consider-
ation in the selection of securities for investment, and the Portfolios are not
designed for investors seeking income rather than capital appreciation. The in-
vestment objective of each Portfolio is a fundamental policy and may not be
changed without approval of the shareholders of that Portfolio, which is de-
scribed in the Statement of Additional Information.
INVESTMENT PROGRAM AND PHILOSOPHY--The Emerging Growth Portfolio is managed to
seek out companies that the Portfolio's investment adviser, OAM, believes have
the potential for above-average long-term growth in market value. The Portfolio
may invest in companies of all size capitalizations, however, because it is be-
lieved that the potential for such growth may tend to be found more often in
relatively small capitalization companies, which fall in the lowest 20% capi-
talization of the companies listed on the New York Stock Exchange or companies
of similar or smaller capitalization which are listed on the American Stock Ex-
change or are traded over the counter (typically with capitalization of less
than $600,000,000), it is anticipated that approximately 80% of the Portfolio's
assets will be invested in the securities of such smaller companies with the
Portfo-
lio's average market capitalization being approximately $500,000,000. However,
such percentage may vary greatly from time to time based on OAM's analysis of
economic and market conditions
The Micro-Cap Portfolio is managed to seek out companies that OAM believes have
the potential for above-average long-term growth in market value. The Portfolio
will generally invest in companies with a market capitalization of not more
than $250,000,000 at the time of acquisition, with the Portfolio's average mar-
ket capitalization being approximately $100,000,000. It is anticipated that at
least 80% of the companies that the Portfolio will invest in will have a market
capitalization of not more than $250,000,000 at time of purchase and at least
50% of the companies will have market capitalization of $100,000,000 or less at
the time of purchase.
Each Portfolio in particular seeks to invest in those companies which OAM con-
siders as having such above-average long-term growth potential based on its
analysis of eight factors, which the portfolio manager calls the "Oberweis Oc-
tagon." These factors are:
1. rapid growth in revenue, preferably generated by internal growth as op-
posed to acquisitions of other businesses, at least 30% in the latest
quarter;
2. rapid growth in pre-tax income (at least 30% in the latest quarter) and in
earnings per share;
3. reasonable price earnings ratio in relation to the company's underlying
growth rate, generally a price earnings ratio not more than 1/2 of the
company's growth rate;
4. products or services that offer the opportunity for substantial future
growth;
5. favorable recent trends in revenue and earnings growth;
6. reasonable price-to-sales ratio based on the company's underlying growth
prospects and profit margins;
7. a review of the company's balance sheet, with particular attention to
footnotes, in order to identify unusual items which may indicate future prob-
lems; and
8. high relative strength in the market, in that the company's stock has
outperformed at least 75% of other stocks in the market over the preceding
twelve months.
OAM considers these eight factors as guidelines by which it may evaluate the
many companies it reviews, but such factors and the relative weight given to
each will vary with economic and market conditions and the type of company be-
ing evaluated. No one factor will justify, and any one factor may (but will not
necessarily) preclude, an investment in a particular company.
Generally, at least seventy-five percent (75%) or more of each Portfolio's as-
sets will be invested in common stocks, but each Portfolio may also invest in
convertible securities, preferred stocks, securities of foreign issuers (most
of which are traded on United States stock exchanges or listed on NASDAQ), and
restricted securities. In addition, the Portfolios may establish and maintain
reserves for temporary defensive purposes or to enable it to take advantage of
buying opportunities. Each Portfolio's reserves may be held in cash or invested
in high quality money market instruments, including U.S. government obliga-
6
<PAGE>
tions, certificates of deposit, bankers' acceptances, commercial paper (rated
prime 3 or better by Moody's Investors Service, Inc. or the equivalent), corpo-
rate debt securities (rated A or better by Moody's Investors Service, Inc. or
Standard & Poor's Corporation) and repurchase agreements. The Portfolios may
also lend its portfolio securities, write (sell) options against investment po-
sitions and purchase put and call options. See "Certain Other Investment
Practices and Risks Which You Should Consider," below.
To diversify the Portfolios and reduce investment risk, each Portfolio has
adopted certain fundamental policies, which restrict each from the following:
(1) purchasing the securities of any issuer if, as a result:
(a) it would own more than 10% of the outstanding securities of any class
of any issuer, or
(b) such holdings would amount to more than 5% of the Portfolio's total
assets;
(2) the borrowing of money, except for temporary or emergency purposes or as
necessary for the clearance of purchases and sales of securities, and then
only in amounts not exceeding 5% of the Portfolio's total assets;
(3) in any manner transferring as collateral any securities owned by the
Portfolio, except as may be necessary in connection with permissible borrow-
ings, which in no event will exceed 5% of its net assets valued at market;
and
(4) purchasing additional securities when money borrowed exceeds 5% of the
Portfolio's total assets.
In addition, with regard to the policy on concentration, the Portfolios have
adopted fundamental policies which restrict the following:
The Emerging Growth Portfolio
(1) purchasing securities of any issuer if, as a result, more than 25% of its
total assets would be concentrated in any one industry. As an operating poli-
cy, however, the Emerging Growth Portfolio will not purchase the securities
of any one issuer, if as a result, 25% or more of its total assets would be
concentrated in any one industry.
The Micro-Cap Portfolio
(1) purchasing securities of any one issuer if, as a result, 25% or more of
its total assets would be concentrated in any one industry.
Each Portfolio's investment program, discussed above, is subject to further re-
strictions, which are described elsewhere in this Prospectus and in the
Statement of Additional Information.
ARE THE PORTFOLIOS' INVESTMENT OBJECTIVE AND POLICIES APPROPRIATE FOR YOU?--The
Portfolios are designed for investors who can accept the risks involved in
seeking maximum capital appreciation. Although each Portfolio seeks to reduce
risk by investing in a diversified portfolio, investors should realize that the
very nature of investing in small, and often newer, companies involves greater
risk than is customarily associated with more established companies. Smaller
and newer companies often have limited product lines, markets, management per-
sonnel, research and/or financial resources. The securities of small companies,
which may be thinly capitalized, may have limited marketability and be subject
to more abrupt or erratic market movements than securities of larger companies
or the market averages in general. Because the Portfolios' investment policies
will be oriented to capital appreciation, as opposed to dividend income, each
Portfolio may be considered to be an investment of above average risk. Each
Portfolio is not intended to constitute a balanced investment program. Divi-
dends are expected to be minimal and there can be no assurance that a
Portfolio's objective will be met.
EACH PORTFOLIO IS INTENDED FOR LONG-TERM INVESTORS WHO CAN BEAR THE RISKS IN-
VOLVED IN THE PORTFOLIO'S INVESTMENTS. ACCORDINGLY, EACH PORTFOLIO DISCOURAGES
SHORT-TERM TRADING IN ITS SHARES.
CERTAIN OTHER INVESTMENT PRACTICES AND RISKS WHICH YOU SHOULD CONSIDER--Lending
of Portfolio Securities. For the purpose of realizing some income on its port-
folio securities, each Portfolio may make security loans of its portfolio
securities, of up to 30% of its total assets, to broker-dealers or institu-
tional investors. Any such loan will be continuously secured by collateral at
least equal to 100% of the value of the security loaned. While the securities
are being lent, the Portfolios will continue to receive the equivalent of any
dividends or interest paid by the issuer thereof, as well as interest on the
collateral. Any gain or loss in the market value of the securities loaned that
might occur during the term of the loan would be for the account of the Portfo-
lio. As with any extension of secured credit, portfolio security loans involve
certain risks in the event a borrower should fail financially, including delays
or inability to recover the loaned securities or foreclosure against the col-
lateral. Each Portfolio will consider on an ongoing basis the credit-
7
<PAGE>
worthiness of the borrowers to which it makes portfolio security loans.
Restricted Securities. Each Portfolio may not invest more than 5% of its total
assets in securities that are not readily marketable, including repurchase
agreements with maturities of seven days or more, and securities of unseasoned
issuers that have been in continuous operation for less than three years and
may not invest more than 5% of its total assets in securities where resale is
legally or contractually restricted (all of which are collectively referred to
as "restricted securities"). Restricted securities may be resold by the Portfo-
lio to other institutions. Provided that a dealer or institutional trading
market in such securities exists, these restricted securities may be treated as
exempt from the Portfolio's limitation on illiquid securities. Because institu-
tional trading in restricted securities is relatively new, it is not possible
to predict how these institutional markets will develop. If institutional trad-
ing in restricted securities were at limited levels, the liquidity of each
Portfolio's investments could be adversely affected.
Options. Options are derivative securities. A "derivative" is any instrument
that is derived from combining, or splitting apart, other products, securities,
and indices. Each Portfolio may also write (sell) covered call options on its
portfolio securities, the aggregate market value of which underlying securities
is limited to 50% of the Portfolio's net assets. A call option gives the buyer
(holder) the right to purchase the underlying security at a specified price
(the "exercise price") within a certain time period. Where the writer (seller)
of the option, in this case the Portfolio, already owns the underlying securi-
ty, the call option is considered to be "covered." The Portfolio will receive a
premium, which is the market value of the option, when it writes (sells) a call
option. The premium provides a partial hedge (protection) against declining
prices and enables the Portfolio to generate a higher return during periods
when OAM does not expect the underlying security to make any major price moves
in the near future but still deems the underlying security to be, over the long
term, an attractive investment for the Portfolio. In determining whether to
write (sell) a covered call option on one of the Portfolio's securities, OAM
will consider the reasonableness of the anticipated premium in relation to the
anticipated increase in market value of the underlying security over the option
period. Although the writing (selling) of covered call options is believed by
OAM to be a conservative investment technique that involves relatively little
risk, risks involved in writing (selling) a covered call option include the
possible inability to effect closing transactions at favorable prices and the
inability to participate in any appreciation of the underlying security above
the exercise price plus premium. The Portfolio may also be exposed to a possi-
ble price decrease in the underlying security that might otherwise have been
sold while the Portfolio continues to hold such underlying security during the
option period, although any such loss during such period would be reduced by
the amount of the premium received. The Portfolios do not consider a security
covered by a call to be "pledged" as that term is used in each Portfolio's in-
vestment policy limiting the pledging or mortgaging of its assets. In addition,
each Portfolio may invest up to 5% of its assets in the purchase of put and
call options, primarily to minimize principal fluctuation. The risks involved
in purchasing put or call options include the possible loss of the entire pre-
mium. Each Portfolio may also purchase put and call options on stock indices
("stock index options"), for the purpose of partially hedging against the risk
of unfavorable price movements adversely affecting the Portfolio's securities
or securities the Portfolio intends to buy, and may sell stock index options in
related closing transactions.
Foreign Securities. Foreign securities involve currency risks. The U.S. Dollar
value of a foreign security tends to decrease when the value of the U.S. Dollar
rises against the foreign currency in which the security is denominated and
tends to increase when the value of the U.S. Dollar falls against such curren-
cy. Fluctuations in exchange rates may also affect the earning power and asset
value of the foreign entity issuing the security. Dividend and interest pay-
ments may be repatriated based upon the exchange rate at the time of
disbursement or payment, and restrictions on capital flows may be imposed.
Losses and other expenses may be incurred in converting between various curren-
cies.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political
or economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic secu-
rities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform ac-
counting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock ex-
changes, brokers, banks and listed companies abroad than in the United
8
<PAGE>
States. With respect to certain foreign countries, there is a possibility of
expropriation or diplomatic developments that could affect investment in these
countries.
A more thorough description of certain of these investment practices and a dis-
cussion of their associated risks are contained in the Statement of Additional
Information.
MANAGEMENT OF THE PORTFOLIOS
The business and affairs of the Fund and each of the Portfolios are supervised
by the Fund's Board of Trustees (the "Trustees"). The Statement of Additional
Information contains general background information regarding each of the
Trustees and officers of the Fund. All of the Fund's officers and two of its
five Trustees are employees and/or officers of OAM and/or The Chicago Corpora-
tion ("TCC"). Each Portfolio's investment objective and policies were developed
by James D. Oberweis, the portfolio manager of each Portfolio since its incep-
tion. Mr. Oberweis is also a Trustee and President of the Fund, a Director and
the President of OAM, and, together with his family, the controlling share-
holder of OAM, and a Senior Vice President and shareholder of TCC. Mr. Oberweis
has an MBA from the University of Chicago and has in excess of 25 years of ex-
perience in selecting securities for investment for private clients. In
addition to the Fund, Mr. Oberweis manages segregated accounts for institu-
tional and individual investors.
Beginning January 1, 1996, OAM provides each Portfolio investment advisory and
management services and TCC is the Fund's principal distributor and shareholder
service agent. During the period October 1, 1994 through December 31, 1995, OAM
provided the Emerging Growth Portfolio investment advisory, management and
shareholder agent services and TCC was the Portfolio's principal distributor.
Prior to October 1, 1994, Hamilton Investments, Inc. acted as the Emerging
Growth Portfolio's manager, distributor and shareholder service agent; and Al-
pha Source Asset Management ("Alpha Source"), a subsidiary of Hamilton
Investments, Inc., served as the Emerging Growth Portfolio's investment advis-
er.
OAM is an investment adviser based in Aurora, Illinois. OAM was incorporated in
1989 and has been registered with the Securities and Exchange Commission
("SEC") since January 4, 1990. OAM had not served as the investment adviser to
a mutual fund prior to October 1994, although Mr. Oberweis and other officers
and employees of OAM have previously been associated with investment advisers
to the Fund and/or other mutual funds. OAM has published an investment advisory
newsletter since 1990 and beginning in October 1994, it has offered advice to
institutions and individual investors regarding a broad range of investment
products.
Mr. Oberweis was formerly the principal executive officer of Oberweis Securi-
ties, Inc. ("OSI"), a former manager and distributor of the Emerging Growth
Portfolio, and of a former investment adviser to the Emerging Growth Portfolio,
from the Portfolio's inception in 1987 to 1988 when such entities ceased opera-
tions. OSI ceased executing securities transactions in November, 1988, because
it was no longer meeting regulatory capital requirements.
In a matter not involving his position with the Fund, Mr. Oberweis, without ad-
mitting or denying the allegations of the SEC, consented to a censure and a
one- year suspension ending July, 1993 from acting in a proprietary or supervi-
sory capacity for a broker-dealer. The SEC alleged that from February, 1988,
through October, 1988, Mr. Oberweis failed to adequately supervise or institute
adequate supervisory procedures with respect to an account executive of a firm
acquired in early 1988 by OSI, a former broker-dealer. The consent order did
not limit Mr. Oberweis' activities with, or responsibilities to, the Fund in
any manner.
THE ADVISORY AND MANAGEMENT AGREEMENTS
OAM provides each Portfolio with investment advisory services under a written
agreement with the Fund dated October 1, 1994 and as amended January, 1996 (the
"Investment Advisory Agreement"). James D. Oberweis personally supervises the
management of the Fund's portfolios.
OAM manages the investment operations of each Portfolio in accordance with the
investment objectives and policies of each of the respective Portfolios, sub-
ject to the general supervision of the Trustees. As compensation for its
investment advisory services, OAM receives an annual fee which is computed and
accrued daily and payable monthly. OAM receives an annual fee of .45% of the
average daily net assets of the Emerging Growth Portfolio on the first $50 mil-
lion and .40% on amounts over $50 million and receives an annual fee of .60% of
the average daily net assets of the Micro-Cap Portfolio. For the Emerging
Growth Portfolio, the average rate paid to OAM for the period October 1, 1994
through December 31, 1994 was .42%, and the average rate paid to Alpha Source
for the period January 1, 1994 through Septem-
9
<PAGE>
ber 30, 1994 was .43%. The average rate paid in the aggregate for the year
ended December 31, 1994 was .43%.
OAM also provides the Fund with non-investment advisory management and adminis-
trative services necessary for the conduct of the Fund's business. OAM prepares
and updates SEC and state registration statements and filings, shareholder re-
ports and other similar documents. In addition, OAM provides office space and
facilities for the management of the Fund and provides accounting, record-keep-
ing and data processing facilities and services. OAM also provides information
and certain administrative services for shareholders of the Portfolios. For
managing the business affairs and providing certain administrative services,
pursuant to a Management Agreement dated October 1, 1994, each Portfolio pays
OAM a management fee, payable monthly, at the annual rate of 0.40% of the aver-
age daily net assets of the Portfolio, subject to reduction because of each
Portfolio's annual expense limitation. (See "Expenses of the Fund.") OAM may
subcontract with other entities to provide certain shareholder servicing activ-
ities.
While the combined investment advisory fee and management fee paid to OAM is
higher than the total of such fees paid by most other investment companies, the
Fund's Trustees believe that each Portfolio's investment objective and the
"Oberweis Octagon" analysis require greater than average services from OAM,
which, together with the various management and administrative services pro-
vided by OAM, justifies the higher combined fees.
DISTRIBUTION OF SHARES
The Fund has appointed TCC to act as the principal distributor of the Fund's
shares and as the primary shareholder service agent. The Fund will finance cer-
tain expenses in connection with the distribution of shares of each Portfolio
under a "compensation type" Rule 12b-1 Plan as amended January 1, 1996 and a
Distribution and Shareholder Service Agreement dated January 1, 1996 (collec-
tively called the "Plan and Agreement") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940. As a compensation type plan, TCC may re-
ceive compensation that is more or less than the actual expenditures made. TCC
is required to provide the Fund with a quarterly listing of all expenditures
under the Plan and Agreement. TCC is at risk with respect to a portion of its
expenses and fees not compensated by the Plan and Agreement if the Plan and
Agreement is modified or terminated by the Fund. No interest, carrying or other
finance charges are paid under the Plan and Agreement.
Under the Plan and Agreement, the Fund pays to TCC a monthly fee at an annual
rate of .25% of each Portfolio's average daily net assets for distribution and
shareholder service provided to each Portfolio ("12b-1 fees") and will also re-
imburse certain out-of-pocket expenses of TCC. The Plan and Agreement provides
that the Fund's asset-based sales charges (as defined in the NASD's Rules of
Fair Practice) do not exceed those permitted by Article III, Section 26 of the
NASD's Rules of Fair Practice. As permitted by NASD's Rules, the Emerging
Growth Portfolio has elected to calculate its permissible amount of asset-
based sales charges on new gross sales of the Portfolio since the Portfolio's
inception.
Pursuant to the Plan and Agreement, TCC, directly or through other firms, ad-
vertises and promotes the Fund and provides information and services to exist-
ing and potential shareholders. These services include, among other things,
processing new shareholder account applications, processing and transmitting
customer transactions to the Fund's transfer agent, and serving as the primary
source of information to customers. The Plan and Agreement provides that TCC
may appoint various broker-dealer firms to assist in providing distribution
services for the Fund and may appoint broker-dealers and other firms (including
depository institutions such as commercial banks and savings and loan associa-
tions) to provide administrative services for their clients as shareholders of
the Portfolios under related service agreements.
Pursuant to the Plan and Agreement, TCC may also be reimbursed monthly by each
Portfolio for certain out-of-pocket costs in connection with its services as
shareholder service agent, including such costs as postage, data entry, modifi-
cation and printout, stationery, tax forms and all other external forms or
printed material, but not including overhead. Although there is no limitation
on the amount of such costs that may be reimbursed under the Plan and Agree-
ment, such costs must be actual, out-of-pocket costs, and the total amount of
12b-1 fees, including reimbursement of such costs, is included in the total ex-
penses of the Portfolio, subject to the expense limitation based on average
daily net assets of each Portfolio. (See "Expenses of the Fund," below.) TCC
will furnish with each monthly statement for such reimbursement a written list-
ing of the expenditures on behalf of each Portfolio and their purpose.
10
<PAGE>
On September 27, 1995, it was announced that ABN AMRO North America, Inc., a
subsidiary of ABN AMRO Bank, N.V. of the Netherlands, signed a letter of intent
to acquire Chi Corp., Inc., parent company of TCC, which is the Funds' Distrib-
utor and Shareholders Service Agent. The acquisition will result in the merger
of TCC with ABN AMRO Securities (USA) Inc., a registered securities broker that
is a wholly-owned subsidiary of ABN AMRO North America, Inc. and ABN AMRO Bank,
N.V. The acquisition is expected to close in the second quarter of 1996.
EXPENSES OF THE FUND
All expenses incurred in the operations of the Fund are borne by the respective
Portfolios, except to the extent specifically assumed by OAM. OAM is obligated
to reduce its management fee or reimburse the Portfolio to the extent that the
total ordinary operating expenses borne by a Portfolio on an accrual basis, in-
cluding all investment advisory, management and administrative fees, but
excluding taxes, brokerage, interest and other extraordinary expenses, exceed
in any one year either (i) the most restrictive expense limitation applicable
to the Portfolio imposed by the securities laws or regulations thereunder of
any state in which the Portfolio's shares are qualified for sale, as such limi-
tations may be raised or lowered from time to time, or (ii) the following
amounts expressed as a percentage of the Portfolio's average daily net assets:
2.0% of the first $25,000,000; plus 1.8% of the next $25,000,000; plus 1.6% of
average daily net assets in excess of $50,000,000. For the year ended December
31, 1994, total expenses incurred by the Emerging Growth Portfolio were
$1,647,254, and the ratio of such total expenses to the Portfolio's average
daily net assets was 1.78%.
PORTFOLIO TRANSACTIONS
Orders for securities are generally placed by OAM with a view to obtaining the
best combination of price and execution available. OAM attempts to evaluate the
overall quality and reliability of the broker-dealers and the services provid-
ed, including research services, general execution capability, reliability and
integrity, willingness to take a position in securities, general operational
capabilities and financial condition.
OAM is authorized to place orders with various broker-dealers, including TCC,
subject to all applicable legal requirements. The Fund has been advised by OAM
that it may place a significant portion of the Portfolios' agency transactions
with TCC when it believes that the combination of price and execution are com-
parable to that of other broker-dealers. OAM may also place orders with non-
affiliated broker-dealers that sell the Portfolios' shares, provided OAM
believes that price and execution are comparable to other non-affiliated bro-
ker-dealers. A greater spread, discount or commission may be paid to non-
affiliated broker-dealers that provide research services, which may be used by
OAM in managing assets of its clients, including each of the Portfolios. Al-
though it is believed that research services received directly or indirectly
benefit all of OAM's clients, the degree of benefit varies by account and is
not directly related to the commissions or remuneration paid by the account.
The frequency of portfolio transactions, the Portfolio's turnover rate, will
vary from year to year depending on market conditions. The Emerging Growth
Portfolio's turnover during the year ended December 31, 1994 was 66%. It is ex-
pected that the annual portfolio turnover rate for the Micro-Cap Portfolio
during its first year of operations will not exceed 75%.
For the period January 1, 1994 through December 31, 1994, the total brokerage
commissions paid by the Emerging Growth Portfolio were $96,802, of which
$27,659 was paid to Hamilton Investments, the Fund's distributor and manager
through September 30, 1994, and $8,463 to TCC, the Fund's current distributor,
for the period October 1, 1994 through December 31, 1994. The total amount of
securities transactions on which the Portfolio paid brokerage commissions dur-
ing the period January 1, 1994 through December 31, 1994 was $38,593,338. The
total amount of principal transactions of the Portfolio for such periods, for
which no commission was incurred, was $95,896,610.
HOW TO PURCHASE SHARES
GENERAL--The minimum initial investment for each Portfolio is $1,000. This min-
imum investment may be reduced pursuant to the Low Minimum Investment Plan.
(See "Shareholder Services.") Subsequent purchases for all accounts must be in
amounts of at least $100, except for reinvestment of dividends and capital
gains distributions. The Fund reserves the right, in its sole discretion, to
change at any time the initial or subsequent investment minimums, to withdraw
the offering or to refuse any purchase in whole or part.
You may purchase or redeem shares of the Portfolios through an investment deal-
er, bank or other institution having a sales agreement with TCC or by
11
<PAGE>
contacting the Fund's Custodian and Transfer Agent, Investors Fiduciary Trust
Company ("IFTC"). However, any such purchase or redemption will not be effec-
tive until the order or request is received by IFTC. Some investment dealers,
banks or other institutions may charge for their services in purchasing or re-
deeming shares of the Portfolios.
Purchases may be made by check, wire or, if a subsequent purchase, through the
Automatic Investment Plan. All purchases made by check should be in U.S. dol-
lars. Third-party checks, except those payable to an existing shareholder who
is a natural person (as apposed to e.g. a corporation or partnership), credit
cards and cash will not be accepted. Shares of the Fund are offered on a con-
tinuous basis. The offering price per share will be the Net Asset Value per
share next determined after the purchase order is received in proper form by
IFTC. (See "Net Asset Value" for details on current Net Asset Value computa-
tion.)
PURCHASE BY MAIL--To make an initial purchase by mail, complete and sign the
Account Application and mail it along with a check made payable to The Oberweis
Funds to the following address:
The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
Subsequent investments may be made by submitting to the same address a check
along with either the stub from your Portfolio account confirmation or a note
indicating the amount of the purchase, name of the Portfolio, your account num-
ber, and the name(s) in which your account is registered.
PURCHASE BY WIRE--You may also purchase shares by instructing your financial
institution to wire federal funds to the Fund's custodian bank. If you are
opening a new account by wire transfer, you must first call IFTC at 1-800-245-
7311 to request an account number and furnish the name(s) on the account
registration, address, and social security number or taxpayer identification
number. If you have an Account Application, you will be asked, if possible, to
transmit it via facsimile machine to IFTC (at 1-816-435-3209), or mail it imme-
diately. Otherwise, an Account Application will be mailed to you for you to
complete, sign and return immediately to IFTC. Federal funds shall be wired in
accordance with the following instructions:
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105
ABA #101003621
The name of the Portfolio in which you wish to invest
The Oberweis Funds' Account No. 7500742
Further Credit to: (Your shareholder account number and the name(s) in which
your account is registered).
Subsequent investments may be made by wire by just contacting your financial
institution with the wire instructions. There is no need to contact IFTC first.
Your financial institution may charge you a fee for sending the wire. Neither
the Fund nor IFTC will be responsible for the consequences of delays, including
delays in the bank or Federal Reserve wire systems.
HOW TO REDEEM SHARES
IN GENERAL--You may redeem shares of the Portfolios by mail, by telephone (as
described below), or through your own investment dealer who is recorded for
such account, if any (see "How to Purchase Shares," above). The redemption
price per share is the Net Asset Value per share next determined after the re-
demption becomes effective. (See "Net Asset Value.") Because of fluctuations in
the value of each Portfolio, the Net Asset Value of shares redeemed may be more
or less than your cost.
Checks for redemption proceeds are normally sent on the business day following
the day the redemption request is received with all required documents in
proper form for redemption amounts of $100,000 or less. Payment by check of re-
demption proceeds in amounts greater than $100,000 is made within seven days
after the redemption request is received. However, if you bought your shares by
check, the Fund will delay sending you redemption proceeds until it has deter-
mined that your check has cleared, which may take up to 15 days from the
purchase date. If a broker-dealer other than TCC is used to redeem shares, an
additional fee for such services may be imposed by that broker-dealer.
Each Portfolio reserves the right to redeem the shares in a shareholder's ac-
count if the total value of the shareholder's account falls below $1,000 as a
result of a redemption, subject to allowing such shareholder 60 days to make
additional investments before the redemption is processed. Although it is each
Portfolio's policy to make payment of redemption proceeds in cash, if the
Fund's trustees determine it to be appro-
12
<PAGE>
priate, and subject to certain limitations, a Portfolio may redeem shares by a
distribution in kind of securities held by the Portfolio. See the Statement of
Additional Information under the heading "Redemption of Shares."
REDEMPTION BY MAIL--Shareholders may redeem shares by mailing a signed request
for redemption that includes the account name and number and the number of
shares or dollar amount to be redeemed, name of Portfolio, with signature(s)
guaranteed (if required as set forth below), to The Oberweis Funds, c/o Invest-
ors Fiduciary Trust Company, P.O. Box 419042, Kansas City, Missouri 64141. The
redemption request must be accompanied by share certificates, if any have been
issued. In the case of joint ownership, all signatures are required on the re-
demption request and on any endorsement of share certificates. Additional
documents may be required for redemption of shares held by estates, trusts,
guardianships, corporations, partnerships and other shareholders who are not
individuals. It is recommended that all mailed share certificates be sent by
registered or certified mail, return receipt requested.
REDEMPTION BY TELEPHONE--All shareholders who have elected the telephone re-
demption option on their account application may redeem their Portfolio shares
by telephoning the Transfer Agent at 1-800-245-7311. Pursuant to the telephone
redemption program, shareholders authorize the Transfer Agent to rely upon tel-
ephone instructions from anyone to redeem the specified number of shares or
dollar amount and to transfer the proceeds according to pre-designated instruc-
tions.
Redemption proceeds will be mailed to the shareholder of record in the form of
a check or transferred to the shareholder's designated bank using electronic
funds transferred via the Automated Clearing House (ACH), or, at the sharehold-
er's request, via wire transfer. Funds transferred via ACH will normally be
transmitted on the business day following the telephone redemption request for
redemption amounts of $100,000 or less. Transfers via ACH of redemption pro-
ceeds in amounts greater than $100,000 will be transmitted within seven days
following the telephone redemption request. There is no charge for transfers
via ACH.
Funds transferred via wire transfer will normally be transmitted on the next
business day following the request. There is a $6 fee for each wire redemption.
Your bank may also charge additional fees for receiving a wire transfer. Checks
issued by mail in response to a telephone redemption request can be issued only
up to $50,000 to the registered owner(s) (who must be individuals) at the ad-
dress of record which must have been on file for 60 days.
SIGNATURE GUARANTEES AND OTHER DOCUMENTATION--If redemption proceeds are
$50,000 or less and are to be paid to an individual shareholder of record at
the address of record, a signature guarantee is not required (unless there has
been an address change within 60 days). All other redemption requests and
changes in account application instructions must be guaranteed by a bank,
broker/dealer, municipal securities broker/dealer, government securities
broker/dealer, credit union, member firm of a national securities exchange,
registered securities association or clearing agency, and/or savings associa-
tion. The Transfer Agent may reject redemption instructions if the guarantor is
neither a member of nor a participant in a signature guarantee program (cur-
rently known as "STAMP"). A redemption request for shares held by a
corporation, trust, partnership, agent or fiduciary must be signed by an appro-
priately authorized person and include additional documents of a customary
nature to verify the authority of the person seeking redemption, such as a cer-
tified by-law provision or resolution of the board of directors or trustees of
the shareholder and/or a copy of the governing legal instrument. Any person re-
quiring information on redemption procedures may call the Transfer Agent at 1-
800-245-7311.
NET ASSET VALUE
Net Asset Value per share is computed by dividing the value of the Portfolio's
net assets (i.e., the value of its assets less liabilities) by the total number
of shares then outstanding. Each Portfolio's investments are valued based on
market value or, where quotations are not readily available, on fair value as
determined in good faith by the Board of Trustees. For further information re-
garding the methods employed in valuing the Portfolios' investments, see the
Statement of Additional Information under the heading "Determination of Net As-
set Value."
If an order is received by the Transfer Agent or TCC by the close of trading on
the New York Stock Exchange on a given day (currently 3:00 p.m., Central Time),
or by an investment dealer, bank or other institution having a sales agreement
with TCC by the close of trading on the New York Stock Exchange and that order
is then received by TCC on that same day from the investment dealer, bank, or
financial institution by the end of TCC's business day, Portfolio
13
<PAGE>
shares will be purchased at the next computed Net Asset Value. The Net Asset
Value of the shares of each Portfolio is computed once daily, as of the later
of the close of the New York Stock Exchange or the Chicago Board Options Ex-
change, on each day the New York Stock Exchange is open for trading (except the
Net Asset Value for the Micro-Cap Portfolio was computed on January 1, 1996,
the New Year's Day Holiday, which was the first day shares of the Portfolio
were offered to the public). For purposes of computing the Net Asset Value, all
securities in a Portfolio other than options are priced as of the close of
trading on the New York Stock Exchange. The options in the Portfolios are
priced as of the close of trading on the Chicago Board Options Exchange.
SHAREHOLDER SERVICES
GENERAL INFORMATION--In addition to the purchase and redemption services de-
scribed above, the Fund offers its shareholders the special accounts and
services described below. Applications and information about any shareholder
services may be obtained by calling 1-800-245-7311.
When a shareholder makes an initial investment in a Portfolio, a shareholder
account is opened in accordance with the Portfolio's Account Application in-
structions. After each transaction for the account of a shareholder,
confirmation of all deposits, purchases, reinvestments, redemptions, withdrawal
payments, and other transactions in the shareholder's account will be forwarded
to the shareholder.
The Portfolios will generally not issue certificates for their shares, except
that certificates for full share amounts only will be issued upon a sharehold-
er's written request to the Transfer Agent. In all events fractional shares
will be carried on the books of a Portfolio without the issuance of certifi-
cates. The investor will be the record owner of all shares in his account with
full shareholder rights, irrespective of whether share certificates are issued
to him. Certain of the functions performed by the Fund in connection with the
operation of the accounts described above will be performed by the Fund's
Transfer Agent. (See "The Custodian and Transfer Agent.")
EXCHANGING SHARES--Simply send us a written request that includes your name,
your account number, the name of the Portfolio you currently own, the name of
the Portfolio you wish to exchange into and the dollar amount or number of
shares you wish to exchange. Please remember that you cannot place any condi-
tions on your request.
If you have any share certificates, you must include them with your request. A
signature guarantee is not required, except in some cases where shares are also
redeemed for cash at the same time. For certificate delivery instructions and
when you need a signature guarantee, please see "Redemption--By Mail."
You may also call us at 1-800-245-7311 unless you have previously notified the
Fund in writing not to effect telephone exchanges. Exchanges made over the
phone may be made by any person, not just the shareholder of record. Please re-
member that during unusual market conditions, we may have difficulty in
accepting telephone requests, in which case you should mail your request to our
address on page 13. In addition, exchanges may also be made through certain se-
curities dealers who may charge you a fee for effecting an exchange.
An exchange of shares is considered a sale for federal income tax purposes. A
shareholder may realize a gain or loss depending upon whether the value of the
shares being exchanged is more or less than the adjusted cost basis. As noted
above, the Micro-Cap Portfolio deducts a withdrawal charge of .25% of the value
of the shares redeemed, including shares exchanged out of that Portfolio.
Exchanging Shares is available only in states where shares of a particular
Portfolio being acquired may legally be sold. The Fund reserves the right to
suspend, terminate or modify the exchange privilege at any time, but will nor-
mally give you advance notice.
LOW MINIMUM INITIAL INVESTMENT PLAN/AUTOMATIC INVESTMENT PLAN--By completing
the Automatic Investment Plan section of the Account Application, you may make
subsequent investments by authorizing the Fund and its Custodian to debit your
bank account to buy additional shares of the Portfolios. The minimum initial
investment in each Portfolio is $1,000. However, the Low Minimum Initial In-
vestment Plan allows an account to be opened with an initial investment of $100
and subsequent monthly investments of $100 or more for at least a one-year pe-
riod. Automatic Investments can occur either monthly or quarterly, on or about
the 5th or the 20th of the month, in pre-designated amounts of $100 or more.
Funds will be transferred from your designated bank, using electronic funds
transferred via ACH. Initial investments may not be made by the Automatic In-
vestment Plan. The Plan is subject to the approval of the shareholder's bank.
You can stop investing through the Automatic Investment Plan by sending written
notice to the Fund's Custodian and Transfer
14
<PAGE>
Agent. The notice must be received at least 5 business days prior to the date
of your next scheduled automatic purchase. The Plan is automatically terminated
whenever a check is returned unhonored by the shareholder's bank. The share-
holder is responsible for any charges incurred as a result of an unhonored
transaction. If a shareholder cancels the Low Minimum Initial Investment Plan
before a one-year period, the Fund reserves the right to redeem the sharehold-
er's account if the balance is below the minimum investment level, currently
$1,000. The Fund reserves the right to terminate or modify the Automatic In-
vestment Plan at any time. See the Account Application for additional details.
The Fund anticipates ceasing sales of the Micro-Cap Portfolio when that Portfo-
lio reaches $50 million in net assets, and as a result, the ability of
shareholders to make investments in the Micro-Cap Portfolio through the Auto-
matic Investment Plan would terminate at that time.
SYSTEMATIC WITHDRAWAL ACCOUNT--A shareholder who owns a Portfolio's shares with
a current Net Asset Value of at least $10,000 may establish a Systematic With-
drawal Account from which a fixed sum will be paid to him or a pre-designated
third party at regular intervals. A Systematic Withdrawal Account may not be
established for a shareholder who owns Portfolio shares for which certificates
are outstanding until all share certificates have been surrendered. See the Ac-
count Application for additional details.
INDIVIDUAL RETIREMENT ACCOUNTS--A Portfolio's shares may be purchased as in-
vestments in Individual Retirement Accounts ("IRAs") and other retirement
plans. Investment in a Portfolio's shares is subject to the conditions of the
IRA and/or other retirement plan agreements. Investors should contact their IRA
custodians to determine the eligibility of the Portfolio's shares as IRA or re-
tirement plan investments. Individuals wishing to establish IRAs with the
Fund's Custodian Bank may do so and purchase shares of a Portfolio with their
IRA funds. Further details, including fees and charges imposed by the Custodi-
an, are set forth in the IRA information material (account agreement,
application, and disclosure statement) which is available from the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The Portfolios may earn income from dividends and interest on their investments
and may also realize capital gains from the sale of their assets. Each Portfo-
lio's policy is to distribute annually within ninety (90) days following the
close of each fiscal year substantially all its net investment income and any
net realized taxable capital gains resulting from sales of the Portfolio's as-
sets during the year. Dividends and capital gains distributions are
automatically reinvested in additional shares of the Portfolio, unless the
shareholder elects to receive them in cash. A cash election remains in effect
until the shareholder notifies the Transfer Agent in writing to discontinue
such election.
Each Portfolio has elected to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code and thereby maintain exemption from
Federal income tax to the extent it distributes its earnings. Except for those
shareholders exempt from Federal income taxes, dividends and capital gain dis-
tributions will be taxable to shareholders, whether paid in cash or reinvested
in additional shares of the Portfolio. Shareholders will be notified annually
as to the Federal income tax status of dividends and capital gains distribu-
tions. Such dividends and distributions may also be subject to state and local
taxes. Long-term capital gain distributions are taxable as long-term capital
gain regardless of how long the shareholder has held shares of the Portfolio.
Long-term capital gain distributions are currently taxed at a maximum rate of
28% for individual shareholders. Dividends representing net investment income
and net realized short-term capital gains are taxed as ordinary income at rates
up to a maximum marginal rate of 39.6% for individuals. Dividends and distribu-
tions declared in October, November or December to shareholders of record as of
a date in one of those months and paid during the following January are treated
for federal income tax purposes as paid on December 31 of the calendar year in
which declared.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a re-
turn of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing
gains realized on sales of securities, such dividends would be a return of in-
vestment, though taxable as stated above.
Federal law requires each Portfolio to withhold 31% of dividends and/or redemp-
tion proceeds (including from exchanges) that occur in certain shareholder
accounts if the shareholder has not properly furnished a certified correct tax-
payer identification number (in the case of individuals, a social security
number) or has not certified that back-up withholding does not
15
<PAGE>
apply. Amounts withheld are applied to the shareholder's Federal income tax li-
ability and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold the applicable tax treaty rate from dividends that are paid to cer-
tain nonresident alien, foreign partnership and foreign corporation shareholder
accounts.
Shareholders are advised to consult their own tax advisers as to the tax conse-
quences of owning shares of each Portfolio with respect to their respective
circumstances.
THE CUSTODIAN AND TRANSFER AGENT
All securities and cash of the Portfolios are held by the Fund's custodian, In-
vestors Fiduciary Trust Company, Kansas City, Missouri (the "Custodian"), and
sub-custodians selected by the Custodian and approved by the Trustees. The Cus-
todian is also the Fund's transfer agent (the "Transfer Agent"), which acts as
a shareholder servicing, dividend disbursing and redemption agent for the Fund.
GENERAL INFORMATION
The Fund is a diversified, open-end management investment company, organized as
a business trust under the laws of Massachusetts on July 7, 1986. Pursuant to
the Fund's Agreement and Declaration of Trust ("Trust Agreement"), the Fund may
issue an unlimited number of shares of beneficial interest in one or more se-
ries of "Portfolios," all having no par value. Shares of each Portfolio have
equal non-cumulative voting rights and equal rights with respect to dividends,
assets and liquidation of such Portfolio. Shares are fully paid and non-assess-
able by the Fund when issued, are transferable without restriction and have no
preemptive or conversion rights. As a Massachusetts business trust, the Fund is
not required to hold annual shareholders' meetings. It will, however, hold spe-
cial meetings as required or deemed desirable for such purposes as the election
of or removal of trustees, changing fundamental policies or approving an in-
vestment advisory contract. Special meetings of shareholders for actions
requiring shareholder vote may be requested in writing by holders of at least
twenty-five percent (25%) (or ten percent (10%) if the purpose of the meeting
is to determine if a Trustee is to be removed from office) of the outstanding
shares of the Fund or as may be required by applicable law.
Shareholders will vote in the aggregate, except when voting by individual Port-
folio is required under the Investment Company Act of 1940 or when the Board of
Trustees determines that voting by series is appropriate.
The Trust Agreement and the By-Laws of the Fund are designed to make the Fund
similar in many respects to a corporation. However, under Massachu-
setts law, shareholders of a business trust may, under certain circumstances,
be held personally liable for the obligations of the trust, which is not the
case in a corporation. The Trust Agreement provides that shareholders shall not
be subject to any personal liability to any person extending credit to, con-
tracting with or having any claims against the Fund and that every written
agreement, obligation, instrument or undertaking made by the Fund shall contain
a provision that the same is not binding upon the shareholders personally.
Moreover, the Trust Agreement provides for indemnification out of Fund property
for all losses and expenses of any shareholder held personally liable for the
obligations of the Fund, and the Fund will be covered by insurance which the
Trustees believe to be adequate to cover foreseeable tort claims. Thus, the
risk of a shareholder incurring financial loss on account of shareholder lia-
bility is considered remote.
OAM, the Fund's investment adviser, deposited the initial $100,000 seed capital
in the Micro-Cap Portfolio on October 2, 1995. As of that date, OAM owned more
than 25% of the Micro-Cap Portfolio, which constitutes "control" under the 1940
Act.
All inquiries regarding shareholder accounts may be directed to The Oberweis
Funds, c/o Investors Fiduciary Trust Company, P.O. Box 419042, Kansas City,
Missouri 64141 or (800) 245-7311. All other inquiries regarding the Fund and/or
either of the Portfolios should be directed to the Fund at One Constitution
Drive, Aurora, Illinois 60506 or (800) 323-6166.
16
<PAGE>
[LOGO] THE
OBERWEIS
FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER/MANAGER
Oberweis Asset Management, Inc.
One Constitution Drive
Aurora, Illinois 60506
1-800-323-6166
DISTRIBUTOR
The Chicago Corporation
208 South LaSalle Street
Chicago, Illinois 60604
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
1-800-245-7311
COUNSEL
Vedder, Price, Kaufman & Kammholz
INDEPENDENT AUDITORS
Ernst & Young LLP
For more information about this Fund
or either of its Portfolios, simply call
our toll-free number: 1-800-323-6166
Please read the prospectus carefully before investing or sending money.
PROSPECTUS
-------------------------------------
January 1, 1996
THE OBERWEIS FUNDS
[LOGO] EMERGING GROWTH PORTFOLIO
MICRO-CAP PORTFOLIO
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE OBERWEIS FUNDS
ONE CONSTITUTION DRIVE
AURORA, ILLINOIS 60506
(800) 323-6166
___________________________________
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Fund's Prospectus dated January 1, 1996. A copy of the
Fund's Prospectus may be obtained by writing or calling the above address or
phone number.
____________________________________
The date of this Statement of Additional Information is January 1, 1996.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.. 2
MANAGEMENT OF THE FUND........................... 5
OBERWEIS ASSET MANAGEMENT, INC................... 7
DISTRIBUTION PLAN AND AGREEMENT.................. 8
EXPENSES BORNE BY THE PORTFOLIOS................. 9
PORTFOLIO TRANSACTIONS........................... 10
SHAREHOLDER VOTING RIGHTS........................ 12
REDEMPTION OF SHARES............................. 12
<PAGE>
SHAREHOLDER SERVICES............................. 13
DETERMINATION OF NET ASSET VALUE................. 13
TAXES............................................ 13
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN....... 14
ADDITIONAL INFORMATION........................... 14
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS
2
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of each Portfolio's
investment objective and policies in the Fund's Prospectus under the heading
"Investment Objective, Policies and Risks."
Investment Objective
- --------------------
The investment objective of each Portfolio is to maximize capital appreciation.
Each Portfolio intends to achieve its objective through investing primarily in
common stocks of companies, which in the opinion of its investment adviser have
a potential for above-average long-term growth in market value. The investment
objective of each Portfolio is fundamental and, like all fundamental policies of
a Portfolio, cannot be changed without the affirmative vote of a majority of the
outstanding voting securities of that Portfolio. As used in this Statement of
Additional Information and in the Fund's Prospectus, "a majority of the
outstanding voting securities" of the Portfolio means the lesser of (1) the
holders of more than 50% of the outstanding shares of the Portfolio, or (2) the
holders of more than 67% of the shares of the Portfolio present if more than 50%
of the outstanding shares of the Portfolio are present at a meeting in person or
by proxy.
Investment Restrictions
- -----------------------
The policies set forth below are fundamental policies of each Portfolio and may
not be changed without approval of a majority of that Portfolio's outstanding
shares. A Portfolio individually may not:
1. purchase more than 10% of any class of securities of any one issuer
other than the United States government and its instrumentalities;
2. invest more than 5% of its total assets, at the time of the investment
in question, in the securities of any one issuer (other than the United States
government and its instrumentalities);
3. invest more than 5% of its total assets in securities that are not
readily marketable and securities of unseasoned issuers that have been in
continuous operation for less than three years,
3
<PAGE>
including operating periods of their predecessors;
4. invest more than 5% of its total assets in securities of issuers which
the Fund is restricted from selling to the public without registration under the
Securities Act of 1933;
5. invest more than 5% of its total assets in warrants, and of this
amount, no more than 2% of total assets may be invested in warrants that are
listed on neither the New York Stock Exchange nor the American Stock Exchange;
6. purchase or retain the securities of any issuer if (i) one or more
officers or directors of the Fund or the investment adviser individually own or
would own, directly or beneficially, more than 1/2 of 1% of the securities of
such issuer, and (ii) in the aggregate, such persons own or would own, directly
or beneficially, more than 5% of such securities;
7. purchase, sell or invest in the securities of other investment
companies;
8. purchase, sell or invest in interests in oil, gas or other mineral
exploration or development programs;
9. purchase, sell or invest in commodities or commodity contracts;
10. purchase, sell or invest in real estate or interests in real estate,
except that the Portfolio may purchase, sell or invest in marketable securities
of companies holding real estate or interests in real estate, including real
estate investment trusts; provided such investments do not exceed 10% of the
Portfolio's total assets;
11. issue senior securities;
12. invest in companies for the purpose of exercising control or
management;
13. concentrate its investments in any one industry, except that the
Portfolio may invest up to 25% of its total assets in any one industry;
4
<PAGE>
14. purchase securities on margin, except that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;
15. make short sales of securities unless, at the time of each such sale
and thereafter while a short position exists, the Portfolio owns an equal amount
of securities of the same issue or owns securities which, without payment by the
Portfolio of any consideration, are convertible into, or are exchangeable for,
an equal amount of securities of the same issue;
16. participate on a joint or joint and several basis in any trading
account in any securities;
17. lend its funds to other persons, except through the purchase of a
portion of an issue of debt securities publicly distributed;
18. lend its portfolio securities, unless the borrower is a broker, dealer
or financial institution that pledges and maintains collateral with the
Portfolio consisting of cash or securities issued or guaranteed by the United
States government having a value at all times not less than 100% of the value of
the loaned securities, provided that the aggregate amount of such loans shall
not exceed 30% of the Fund's total assets;
19. borrow money except from banks as a temporary measure for
extraordinary or emergency purposes or as necessary for the clearance of
purchases and sales of securities, provided that the aggregate amount of such
borrowing shall not exceed 5% of the value of its total assets at the time of
any such borrowing, or mortgage, pledge or hypothecate its assets, except in an
amount not exceeding 5% of its total assets taken at cost to secure such
borrowing;
20. engage in the business of underwriting the securities of other
issuers; or
21. invest in puts, calls, straddles or any combination thereof, except
that the Portfolio may write covered call options on its Portfolio securities,
the aggregate market value of which is limited to 50% of the Portfolio's net
assets, and the Portfolio may invest up to 5% of its assets in the purchase of
put and call options including options on stock indices.
5
<PAGE>
The policies set forth below may be changed by the Fund's Board of Trustees, all
such changes being subject to applicable law. A Portfolio individually may not:
1. purchase, sell or invest in interests in oil, gas or other mineral
leases; or
2. purchase, sell or invest in limited partnership interests in real estate,
except that the Portfolio may purchase, sell or invest in marketable
securities of companies holding real estate or interests in real estate,
including real estate investment trusts; provided such investments do not
exceed 10% of the Portfolio's total assets.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from changes in values or assets will not be
considered a violation of such restriction.
Other Restrictions
- ------------------
Other investment restrictions are set forth in the Fund's Prospectus and
elsewhere in this Statement of Additional Information. In addition, each
Portfolio will not invest more than 10% of its total assets in "restricted
securities" (meaning securities the resale of which is legally or contractually
restricted, including repurchase agreements with maturities of seven days or
more and securities that are not readily marketable).
Repurchase Agreements
- ---------------------
Each Portfolio may enter into so-called "repurchase agreements," whereby it
purchases a security and the seller (a qualified bank or securities dealer)
simultaneously commits to repurchase that security at a certain date at an
agreed upon price, plus an agreed upon market rate of interest that is unrelated
to the coupon rate or date of maturity of the security. In these transactions,
the securities purchased by the Portfolio have, at all times, a total value in
excess of the value of the repurchase agreement and are held by the Fund's
custodian bank until repurchased. Certain costs may be incurred by a Portfolio
in connection with the sale of the securities purchased by it if the seller does
not repurchase them in accordance with the repurchase agreement. The Portfolio
will consider on an ongoing basis the creditworthiness of the institutions with
which it enters into repurchase agreements and will monitor the value of the
underlying securities to ensure that additional securities are deposited by the
seller if the value of the
6
<PAGE>
securities purchased decreases below the resale price at any time. Under the
Investment Company Act of 1940, repurchase agreements may be considered loans by
the Portfolio. Each Portfolio is subject to restrictions on entering into
repurchase agreements in excess of 25% of the total assets and on investing more
than 10% of its total assets in restricted securities, which includes repurchase
agreements with maturities of seven days or more.
Purchasing Put and Call Options
- -------------------------------
Each Portfolio will commit no more than 5% of its assets to premiums when
purchasing put and call options. The Portfolios may enter into closing
transactions, exercise their options or permit them to expire.
The Portfolios may purchase put options on an underlying security owned by them.
As the holder of a put option, a Portfolio would have the right to sell the
underlying security at the exercise price at any time during the term of the
option. While a Portfolio will not purchase options for leverage purposes, it
may purchase put options for defensive purposes in order to protect against an
anticipated decline (usually short-term) in the value of its securities. Such
hedge protection is provided only during the life of the put option and only
when the Portfolio, as the holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any additional
decline in the security's market price. For example, a put option may be
purchased in order to protect unrealized appreciation of a security where the
Portfolio deems it desirable to continue to hold the security. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security is eventually sold.
Except as discussed below with respect to options on stock indices, each
Portfolio has no current intention of purchasing put options at a time when the
Portfolio does not own the underlying security; however, it reserves the right
to do so. By purchasing put options on a security it does not own, the
Portfolio would seek to benefit from a decline in the market price of the
underlying security. If such a put option is not sold when it has remaining
value, and if the market of the underlying security remains equal to or greater
than the exercise price during the life of the put option, the Portfolio would
lose its entire investment in the put option (i.e., the entire premium paid by
the Portfolio). In order for the purchase of a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
7
<PAGE>
The Portfolios may also repurchase call options previously written on underlying
securities they already own in order to preserve unrealized gains.
The Portfolios may also purchase call and put options on stock indices ("stock
index options") for the purpose, in part, of partially hedging against the risk
of unfavorable price movements adversely affecting a Portfolio's securities or
securities the Portfolio intends to buy and may sell stock index options in
related closing transactions.
The principal uses of stock index options would be to provide a partial hedge
for a portion of the Portfolios' investment securities, and to offer a cash
management tool. Purchasing stock index options could provide an efficient way
to implement a partial decrease in portfolio market exposure in response to
changing market conditions. Although techniques other than the purchase of
options could be used to hedge the Portfolios' investments, the Portfolios may
be able to hedge their exposure more effectively, and perhaps at a lower cost,
through the use of stock index options.
The Portfolios propose to invest only in stock index options for which the
underlying index is a broad market index such as the Standard & Poor's Index,
the Major Market Index, or the Russell 2000 Index. The Portfolios would propose
to purchase broad stock index options only if they are listed on a national
securities exchange and traded, in the opinion of the Fund's investment adviser,
with some significant volume.
The Portfolios will not enter into a stock index option if, as a result thereof,
more than five percent (5%) of the Fund's total assets (taken at market value at
the time of entering into the contract) would be committed to options, whether
options on individual securities or options on stock indices.
There are several risks in connection with the Portfolios' use of stock index
options as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the stock index options and
movements in the prices of securities held by the Portfolios. Successful use of
stock index options by the Portfolios for hedging purposes is also subject to
the Fund's adviser's ability to correctly predict movements in the direction of
the market. In addition, due to market distortions, the price movements of the
stock index options might not correlate perfectly with price movements in the
underlying stock index. Increased participation by speculators in the options
market might also cause temporary price distortions.
8
<PAGE>
The ability to establish and close out positions on options will be subject to
the liquidity of the index options market. Absence of a liquid market on an
exchange may be due to: (i) insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions, or both; (iii) trading halts, suspensions or other restrictions
imposed with respect to particular classes or series of options, or underlying
securities; (iv) unusual or unforeseen circumstances, such as severe stock
market fluctuations, interrupting normal exchange operations; (v) inadequacy of
an exchange's or a clearing corporation's facilities to handle increased trading
volume; or (vi) discontinuance of the trading of options (or a particular class
or series of options) by an exchange, for economic or other reasons. Higher
than anticipated trading activity or other unforeseen events also could cause an
exchange or clearing corporation to institute special procedures which may
interfere with the timely execution of customers' orders.
Stock index options may be closed out only on an exchange which provides a
market for such options. For example, OEX stock index options currently can be
purchased or sold only on the CBOE. Although the Portfolios intend to purchase
or sell stock index options only on exchanges where there appear to be active
markets, there is no assurance that a liquid market will exist for any
particular options contract at any particular time. In such event, it might not
be possible to close a stock index option position.
Lending of Securities
- ---------------------
The Portfolios may lend their investment securities in an amount up to 30% of
its total assets to qualified institutional investors who need to borrow
securities in order to complete certain transactions. By lending its
investments securities, a Portfolio attempts to increase its income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Portfolio. A Portfolio may lend its portfolio securities to
qualified brokers, dealers, domestic and foreign banks or other financial
institutions, so long as the terms and the structure of such loans are not
inconsistent with the Investment Company Act of 1940, or the Rules and
Regulations or interpretations of the Securities and Exchange Commission (the
"Commission") thereunder, which currently require that (a) the borrower pledge
and maintain with the Portfolio collateral consisting of cash, an irrevocable
letter of credit issued by a domestic U.S. bank, or securities issued or
guaranteed by the U.S. government having a value at all times of not less than
100% of the value of the securities loaned, (b) the borrower add to such
collateral whenever the price of the securities loaned rises
9
<PAGE>
(i.e., the borrower "marks to the market" on a daily basis), (c) the loan be
made subject to termination by the Portfolio at any time, and (d) the Portfolio
receives reasonable interest on the loan or its collateral (which may include
the Portfolio investing any cash collateral in interest-bearing short-term
investments), any dividends and distributions paid on the loaned securities and
any increase in their market value.
Arbitrage
- ---------
The Portfolios have no current intention to engage in arbitrage (meaning the
simultaneous purchase and sale of the same security in different markets but not
on the purchase of call and put options on stock indices).
MANAGEMENT OF THE FUND
All of the Fund officers and two of its Trustees are employees and/or officers
of Oberweis Asset Management, Inc. ("OAM"), the Fund's investment adviser,
manager and shareholder service agent, and/or The Chicago Corporation ("TCC"),
the Fund's distributor.
James D. Oberweis, a Trustee and President of the Fund, is the President and a
Director of OAM, and with his wife, Elaine M. Oberweis, and his children, is the
controlling shareholder of OAM. Mr. Oberweis is also a Senior Vice President of
TCC. Peter H. Wendell, a Trustee of the Fund, is an Executive Vice President
and a Director of TCC.
The Trustees and officers of the Fund, their ages and their principal
occupations during the past five (5) years are:
THOMAS J. BURKE, Trustee (64) **
143 South Lincoln Avenue, Aurora, Illinois 60505; President - Burke Medical
Associates, 1968 to present; retired medical physician, practicing medical
physician until November 1, 1995.
DOUGLAS P. HOFFMEYER, Trustee (48) **
620 Stetson, St. Charles, Illinois 60174; Vice President-Finance - Teltrend,
Inc. (manufacturer of telecommunications equipment), October, 1986 to present.
10
<PAGE>
JAMES D. OBERWEIS, Trustee and President (49) *
One Constitution Drive, Aurora, Illinois 60506; President and Director -Oberweis
Asset Management, Inc., September, 1994 to present; Senior Vice President - The
Chicago Corporation, October, 1994 to present; Senior Vice President - Alpha
Source Asset Management, Inc., February, 1990 to October, 1994; Director of Fund
Investments - Hamilton Investments, Inc., December, 1988 to October, 1994;
President of the Fund, 1986 to present; Chairman of the Board of Oberweis Dairy,
Inc.
EDWARD F. STREIT, Trustee (60) **
2000 West Galena, Aurora, Illinois 60506; licensed attorney in private practice,
1962 - present.
PETER H. WENDELL, Trustee (54) *
208 South LaSalle Street, Chicago, Illinois 60604; Executive Vice President and
Director - The Chicago Corporation, January 1988 to present.
PATRICK B. JOYCE, Executive Vice President and Treasurer (36)
One Constitution Drive, Aurora, Illinois 60506; Executive Vice President,
Secretary and Director - Oberweis Asset Management, Inc., September, 1994 to
present; Administrator - The Chicago Corporation, October, 1994 to present; Vice
President - Carr Asset Management, Inc./Indosuez Carr Futures, Inc., August,
1993 to September, 1994; Vice President of Operations and Assistant Treasurer -
Selected Financial Services, Inc., September, 1989 to August, 1993.
MARTIN L. YOKOSAWA, Vice President (35)
One Constitution Drive, Aurora, Illinois 60506; Vice President - The Chicago
Corporation - October, 1994 to present; Vice President - Oberweis Asset
Management, Inc., September, 1994 to present; Registered Representative -
Hamilton Investments, Inc., November, 1988 to October, 1994.
JAMES M. ROBERTS, Vice President (35)
One Constitution Drive, Aurora, Illinois 60506; Vice President - The Chicago
Corporation, October, 1994 to present; Vice President - Oberweis Asset
Management, Inc., September, 1995 to present; Registered Representative -
Hamilton Investments, Inc., January, 1990 to October, 1994.
11
<PAGE>
ANITA I. MRAZ, Secretary (29)
One Constitution Drive, Aurora, Illinois 60506; Administrative Assistant -The
Chicago Corporation, October, 1994 to present; Administrative Assistant -Alpha
Source Asset Management, Inc., April, 1991 to October, 1994; Manager -Glenn's
Steak House, January, 1990 to April, 1991.
MARY JANE MURPHY, Assistant Secretary (36)
One Constitution Drive, Aurora, Illinois 60506; Fund Administrator - Oberweis
Asset Management, Inc., October 1994 to Present; Fund Administrator - Alpha
Source Asset Management, Inc., November, 1990 to October, 1994.
__________________
* "Interested person" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended.
** Member of audit committee and nominating committee.
NOTE: In some cases a trustee or officer may have held different positions
during the last five years with the employer or employers listed.
The Fund pays each Trustee of the Fund who is not also affiliated with OAM
and/or TCC for such services an annual fee of $1,000, plus $500 for each day or
part of a day in attendance at a meeting of the Board of Trustees or one of its
Committees.
The Fund reimburses travel and other expenses incurred by its non-interested
Trustees for each such meeting attended. Trustees and officers of the Fund who
are affiliated with OAM and/or TCC and officers of the Fund will receive no
compensation or reimbursement from the Fund for acting in those capacities.
However, Trustees and officers of the Fund who are affiliated with OAM and/or
TCC may directly or indirectly benefit from fees or other remuneration received
from the Fund by OAM and/or TCC. Regular meetings of the Board of Trustees are
held quarterly and the audit committee usually holds two regular meetings during
each year.
The following table sets forth the compensation received by all trustees of the
Fund for the fiscal year ended December 31, 1994.
12
<PAGE>
<TABLE>
<CAPTION>
PENSION
OR
RETIREMENT
BENEFITS
ACCRUED ESTIMATED
AGGREGATE AS PART ANNUAL
COMPENSATION OF BENEFITS
FROM FUND UPON TOTAL
TRUSTEE THE FUND EXPENSES RETIREMENT COMPENSATION
------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Robert A.
Ebersole(1)......... $ 0 0 0 $ 0
Thomas J. Burke...... 3,500 0 0 3,500
Douglas P.
Hoffmeyer........... 3,000 0 0 3,000
James D. Oberweis.... 0 0 0 0
Edward F. Streit..... 3,500 0 0 3,500
Laurence B.
Siegel(1)........... 1,750 0 0 1,750
Peter H. Wendell(2).. 0 0 0 0
</TABLE>
(1) Served on the Board through September 1994.
(2) Elected to serve on the Board in January 1995.
As of November 30, 1995, the officers and Trustees of the Fund as a group owned
of record or beneficially 1.3% of the outstanding shares of the Emerging Growth
Portfolio.
OBERWEIS ASSET MANAGEMENT, INC.
The Fund's investment adviser, since October 1, 1994, is Oberweis Asset
Management, Inc. ("OAM"), an investment adviser based in Aurora, Illinois. For
additional details concerning OAM, see the Fund's Prospectus under the heading
"Management of the Portfolios." Pursuant to a written contract between the Fund
and OAM (the "Investment Advisory Agreement"), OAM is responsible for managing
the investment and reinvestment of each Portfolio's assets, determining in its
discretion the securities to be purchased or sold and the portion of the
Portfolio's assets to be held uninvested, providing the Fund with records
concerning OAM's activities
13
<PAGE>
which the Fund is required to maintain under applicable law, and rendering
regular reports to the Fund's Trustees and officers concerning Portfolio
responsibilities. OAM's investment advisory services to the Fund are all subject
to the control of the Trustees, and must be in compliance with the investment
objective, policies and restrictions set forth in the Fund's Prospectus and this
Statement of Additional Information and with applicable laws and regulations. In
addition, OAM is authorized to select broker-dealers, including TCC, that may
execute purchases and sales of the securities for the Portfolios. (See
"Portfolio Transactions.")
The investment adviser is obligated to pay the salaries and fees of any officers
of the Fund as well as the Trustees of the Fund who are interested persons (as
defined in the Investment Company Act of 1940) of the Fund, who are employed
full time by the investment adviser to perform services for the Portfolio under
the Investment Advisory Agreement.
As compensation for its investment advisory services, the investment adviser
receives from the Emerging Growth Portfolio at the end of each month a fee at an
annual rate equal to .45% of the first $50 million of the average daily net
assets of the Portfolio and .40% of the average daily net assets of the
Portfolio in excess of $50 million, and from the Micro-Cap Portfolio at the end
of each month a fee at the annual rate of .60% of the average daily net assets
of the Portfolio.
For the year ended December 31, 1994, the advisory fees incurred by the Emerging
Growth Portfolio and payable to Alpha Source were $297,924 for the period
January 1, 1994 through September 30, 1994, and advisory fees incurred and
payable to OAM were $96,759 for the period October 1, 1994 through December 31,
1994. For the year ended December 31, 1993, the advisory fees incurred by the
Emerging Growth Portfolio and paid to Alpha Source were $381,178. However,
pursuant to the expense limitation provisions of the Investment Advisory
Agreement, Alpha Source was required to rebate $10,228 to the Portfolio. (See
also "Expenses Borne by the Fund.") For the year ended December 31, 1992, the
advisory fees incurred by the Emerging Growth Portfolio and payable to Hamilton
Investments (the Fund's investment adviser through April 30, 1992) were $44,113
and those payable to Alpha Source were $115,208. Pursuant to the expense
limitations of the Investment Advisory Agreement, Hamilton Investments and Alpha
Source were required to rebate $96,497 and $50,661, respectively, to the
Emerging Growth Portfolio.
OAM also provides the Fund with non-investment advisory, management and
administrative services pursuant to a written contract (the "Management
Agreement"). OAM is responsible under the Management Agreement for providing
14
<PAGE>
the Fund with those management and administrative services which are reasonably
necessary for conducting the business affairs of the Fund, with the exception of
investment advisory services, and distribution of each Portfolio's shares and
shareholder services, which are subject to the Fund's Rule 12b-1 Plan. (See
"Rule 12b-1 Plan and Related Distribution and Shareholder Service Agreements.")
In addition, OAM provides the Fund with office space and basic facilities for
management of the Fund's affairs, and bookkeeping, accounting, record keeping
and data processing facilities and services. OAM is responsible for preparing
and updating the Fund's SEC and state registration statement and filings, tax
reports to shareholders and similar documents. OAM pays the compensation of all
officers and personnel of the Fund for their services to the Fund as well as the
Trustees of the Fund who are interested persons of the Fund. OAM also provides
information and certain administrative services to shareholders of each
Portfolio. These services include, among other things, transmitting redemption
requests to the Fund's Transfer Agent and transmitting the proceeds of
redemption of shares of the Fund pursuant to a shareholder's instructions when
such redemption is effected through OAM; providing telephone and written
communications with respect to its shareholders' account inquiries; assisting
its shareholders in altering privileges and ownership of their accounts; and
serving as a source of information for its existing shareholders in answering
questions concerning the Fund and their transactions with the Fund.
For its services under the Management Agreement, OAM is paid by the Portfolios
on a monthly basis an annual management fee equal to .40% of the average daily
net assets of each Portfolio. OAM will bear all expenses in connection with the
performance of its services to the Fund and each of the Portfolios under the
Management Agreement. The Fund is responsible for all other expenses. See the
Fund's Prospectus under the heading "Expenses of the Fund." However, the
Management Agreement provides that OAM is obligated to reimburse the Portfolios
for 100% of the amount by which the Portfolio's ordinary operating expenses
during any fiscal year, including the management and advisory fees, exceed
either (i) the most restrictive expense limitation applicable to the Portfolio
imposed by the securities laws or regulations thereunder of any state in which
the Portfolio's shares are qualified for sale, as such limitations may be raised
or lowered from time to time, or (ii) the following amounts expressed as a
percentage of the Portfolio's average daily net assets:
2.0% of the first $25,000,000; plus
1.8% of the next $25,000,000; plus
1.6% of average daily net assets in excess of $50,000,000.
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<PAGE>
Excluded from the calculation of ordinary operating expenses are expenses such
as interest, taxes and brokerage commissions and extraordinary items such as
litigation costs. There is no state expense limitation applicable to the
Portfolios which is currently more restrictive than that set forth above. Any
such reimbursement is computed and accrued on a daily and settled on a monthly
basis based upon the expenses and average net assets computed through the last
business day of the month. As of the end of the Fund's fiscal year, the
aggregate amounts of reimbursement, if any, by the Manager to a Portfolio in
excess of the amount necessary to limit the operating expenses on an annual
basis to said expense limitation shall be refunded to the Manager. In no event
will the Manager be required to reimburse a Portfolio in an amount exceeding its
management and investment advisory fees, except to the extent required by
applicable law. For the period January 1, 1994 through September 30, 1994, the
management fees incurred by the Emerging Growth Portfolio and paid to Hamilton
Investments were $279,225. For the periods October 1, 1994 through December 31,
1994, the management fees incurred by the Emerging Growth Portfolio and paid to
OAM were $90,458. Neither Hamilton Investments nor OAM was required to reimburse
the Emerging Growth Portfolio pursuant to the expense limitation for the year
ended December 31, 1994. (See also "Expenses Borne by the Fund.") For the years
ended December 31, 1993 and 1992, management fees incurred by the Emerging
Growth Portfolio and paid to Hamilton Investments were $356,178 and $141,760,
respectively, and pursuant to the expense limitation provisions of the then
existing management agreement, Hamilton Investments was required to rebate to
the Portfolio $10,228 and $73,579, respectively, of such amounts.
DISTRIBUTION PLAN AND AGREEMENT
As discussed in the Fund's Prospectus under the heading "Distribution of
Shares," the Fund has adopted a Plan of Distribution (the "Distribution Plan")
and a Distribution and Shareholder Service Agreement (the "Distribution
Agreement") pursuant to Rule 12b-1 under the Investment Company Act of 1940
(collectively the "Plan and Agreement") under which the Fund compensates TCC in
connection with the distribution of each Portfolio's shares. Reference should
be made to the Prospectus for details not provided below. TCC will act as the
primary distributor of each Portfolio's shares and as the primary shareholder
servicing agent for each Portfolio. The Fund pays TCC a monthly distribution
and shareholder servicing fee at an annual rate of .25% of each Portfolio's
average daily net assets and may also reimburse certain out of pocket costs
incurred by TCC for the Fund.
Pursuant to the Plan and Agreement, TCC has agreed, directly or through other
firms, to advertise and promote the Fund and provide information and services
16
<PAGE>
to existing and potential shareholders. These services include, among other
things, processing new shareholder account applications; converting funds into
or advancing federal funds for the purchase of shares of the Fund as well as
transmitting purchase orders to the Fund's Transfer Agent; transmitting
redemption requests to the Fund's Transfer Agent and transmitting the proceeds
of redemption of shares of the Fund pursuant to a shareholder's instructions;
providing telephone and written communications with respect to shareholder
account inquiries and serving as the primary source of information for existing
and potential shareholders in answering questions concerning the Fund and their
transactions with the Fund; and providing literature distribution, advertising
and promotion as is necessary or appropriate for providing information and
services to existing and potential shareholders.
TCC will be reimbursed by the Fund for certain out-of-pocket costs, if any, of
providing certain services contemplated by the Distribution Agreement, which
include the costs of postage, data entry, modification and printout, stationery,
tax forms, and all other external forms or printed material that may be required
for performance by TCC of the services contemplated in the Distribution
Agreement. TCC proposes to compensate its account executives annually for
servicing and administering a shareholder's account.
The Plan and Agreement provides that TCC may appoint various broker-dealer firms
to assist in providing distribution services for the Fund, including literature
distribution, advertising and promotion, and may appoint broker-dealers and
other firms (including depository institutions such as commercial banks and
savings and loan associations) to provide administrative services for their
clients as shareholders of the Fund under related service agreements. To
provide these services, these firms will furnish, among other things, office
space and equipment, telephone facilities, and personnel as is necessary or
beneficial for providing information and services related to the distribution of
the Portfolios' shares to TCC in servicing accounts of such firms' clients who
own shares of the Fund.
The Glass-Steagall Act generally prohibits federally chartered or supervised
banks from engaging in the business of underwriting, selling, or distributing
securities. Although the scope of this prohibition under the Glass-Steagall Act
has not been fully defined, in TCC's opinion it should not prohibit banks from
being paid for shareholder servicing and record-keeping. If, because of changes
in law or regulation, or because of new interpretations of existing law, a bank
or a fund were prevented from continuing these arrangements, it is expected that
other arrangements would be made for these services and that shareholders would
not suffer adverse financial consequences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein,
and banks and other financial institutions may
17
<PAGE>
be required to register as dealers pursuant to state law.
The Plan provides that the Fund's asset-based sales charges (as defined in the
NASD's Rules of Fair Practice) shall not exceed those permitted by Article III,
Section 26 of the NASD's Rules of Fair Practice. Further, as permitted by the
NASD's Rules, the Emerging Growth Portfolio has elected to calculate its
permissible amount of asset-based sales charges on new gross sales of the
Portfolio since the Portfolio's inception.
The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that the Plan and Agreement will benefit the Portfolios
and their shareholders. If the sizes of the Portfolios are increased rapidly,
fixed expenses will be reduced as a percentage of each shareholder's investment.
The 12b-1 expenses will also provide TCC and others an incentive to promote the
Portfolios and to offer individual shareholders prompt and efficient services.
As required by Rule 12b-1, the Plan, as amended, and Agreement was approved by
the Board of Trustees, including a majority of Trustees who are not interested
persons, as defined in the Investment Company Act of 1940, of the Fund, who are
not parties to the Distribution Agreement or Shareholder Service Agreement and
who have no direct or indirect financial interest in the operation of the Plan.
Unless terminated earlier as described below, the Plan and Agreement will
continue in effect from year to year if approved annually by the Board of
Trustees of the Fund, including a majority of the Trustees who are not parties
to the Plan and Agreement (or have a direct or indirect financial interest in
the operation thereof) and who are not interested persons of the Fund. The Plan
may be terminated with respect to the Fund or a Portfolio at any time by (1) a
vote of a majority of the Trustees who are not interested persons of the Fund,
who are not parties to the Distribution Agreement and who have no direct or
indirect financial interest therein, or (2) by the vote of a majority of
shareholders of that Portfolio. The Distribution Agreement may be terminated
similarly without penalty upon 60 days written notice by either party and will
automatically terminate if assigned, as defined in the 1940 Act.
For the period January 1, 1994 through September 30, 1994 (the day the Fund
ceased 12b-1 payments to Hamilton Investments), total 12b-1 fees paid by the
Emerging Growth Portfolio to Hamilton Investments were $349,031. For the period
October 1, 1994 through December 31, 1994, total 12b-1 fees paid by the
Portfolio to TCC and OAM were $78,609 and $34,464, respectively. During
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<PAGE>
that time period, TCC was appointed by the Fund to act as the principal
distributor of the Emerging Growth Portfolio's shares pursuant to a Distribution
Agreement dated October 1, 1994 between the Fund and TCC and OAM was appointed
by the Fund to act as the Emerging Growth Portfolio's primary shareholder
service agent pursuant to a Shareholder Service Agreement dated October 1, 1994
between the Fund and OAM. During that period, the Fund was authorized to pay an
annual fee not to exceed .50% the Emerging Growth Portfolio's average daily net
assets for distribution and shareholder services provided to the Portfolio and
from the total 12b-1 fees, TCC was paid fees for distribution services at an
annual rate of .35% of the Portfolio's average daily net assets and OAM was paid
fees for shareholder services at an annual rate of .15% of the Portfolio's
average daily net assets.
For the 12 month period ended December 31, 1994, the Emerging Growth Portfolio
paid the following amounts under the Rule 12b-1 Plan in the approximate amounts
noted: $27,120 in sales promotion and literature expenses, $247,389 in service
fees paid to brokers, $90,476 in salary expenses and employment services,
$12,132 in telephone expenses, $41,280 in professional fees, and $529 in
miscellaneous operating expenses. There was no reimbursement of out-of-pocket
expenses for such period.
EXPENSES BORNE BY THE PORTFOLIOS
Other than those expenses payable by OAM and/or TCC, the Portfolios will pay all
of their expenses, including the following:
(a) Federal, state and local or other governmental agency taxes or fees
levied against the Fund.
(b) Costs, including the interest expense, of borrowing money.
(c) Brokerage fees and commissions and other transaction costs in
connection with the purchase or sale of portfolio securities for the Portfolios.
(d) Fees and expenses of the Trustees other than those who are "interested
persons" (as defined in the Investment Company Act of 1940) of the Fund.
(e) Expenses incident to holding meetings of the Fund's Shareholders,
including proxy solicitations of the Fund or its Board of Trustees therefor, and
meetings of the Board of Trustees and committees of the Board of
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<PAGE>
Trustees.
(f) Fees and expenses in connection with legal services rendered to the
Fund, the Board of Trustees of the Fund and duly appointed committees of the
Board of Trustees of the Fund, including fees and expenses of special counsel to
those Trustees who are not interested persons of the Fund, and litigation.
(g) Audit and accounting expenses of the independent auditors.
(h) Custodian and transfer and dividend paying agent fees and expenses and
shareholder service expenses.
(i) Fees and expenses related to registering, qualifying and maintaining
registration and qualification of the Fund and its Shares for distribution under
federal, state and other laws.
(j) Fees and expenses incident to the preparation and filing of reports
with regulatory agencies.
(k) Expenses of preparing, printing (including typesetting) and mailing
prospectuses, shareholder reports, proxy materials and notices to shareholders
of the Fund.
(l) Premiums for trustee's and officer's liability insurance and insurance
carried by the Fund pursuant to the requirements of Section 17(g) of the
Investment Company Act of 1940, or otherwise required by law or deemed desirable
by the Board of Trustees.
(m) Fees and expenses incurred in connection with any investment company
organization or trade association of which the Fund may be a member.
(n) Costs and expenses incurred for promotion or advertising of the Fund's
Shares, but only pursuant to a Plan duly adopted in accordance with Rule 12b-1
under the Investment Company Act of 1940 and to the extent that such Plan may
from time to time provide.
(o) Expenses related to issuance or redemption of the Portfolios' shares.
For the fiscal year ended December 31, 1994, total expenses incurred by the
Emerging Growth Portfolio were $1,647,254 and the ratio of such total expenses
to the Portfolio's average net asset value was 1.78%.
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<PAGE>
PORTFOLIO TRANSACTIONS
Effective October 1, 1994, decisions with respect to the purchase and sale of
portfolio securities on behalf of the Fund's Portfolios are made by OAM. Prior
to October 1, 1994, decisions with respect to the purchase and sale of portfolio
securities on behalf of the Emerging Growth Portfolio were made by Alpha Source.
Actual portfolio turnover may vary considerably from year to year. However, in
order to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code, less than 30% of the Fund's gross income may be derived
from the sale or other disposition of stock or securities held for less than
three months.
OAM is authorized to place orders for securities with various broker-dealers,
including TCC, subject to the requirements of applicable laws and regulations.
OAM may place a significant portion of the Portfolios' agency orders with TCC,
as it believes by so doing a Portfolio is able to achieve more control over and
better execution of its orders. Orders for securities transactions are placed
by OAM with a view to obtaining the best combination of price and execution
available. In seeking to achieve the best combination of price and execution,
OAM attempts to evaluate the overall quality and reliability of the broker-
dealers and the services provided, including research services, general
execution capability, reliability and integrity, willingness to take positions
in securities, general operational capabilities and financial condition.
However, the responsibility of OAM to attempt to obtain the best combination of
price and execution does not obligate it to solicit a competitive bid for each
transaction. Furthermore, under the Advisory Agreement, OAM is not obligated to
seek the lowest available cost to the Portfolio, so long as it determines in
good faith that the broker-dealer's commission, spread or discount is reasonable
in relation to the value of the execution and research services provided by such
a broker-dealer to the Portfolio, or OAM when viewed in terms of that particular
transaction or its overall responsibilities with respect to all of its clients,
including the Portfolio, as to which it offers advice or exercises investment
discretion.
OAM, with the prior consent of the Fund's Trustees, may place orders with
affiliated persons of OAM, TCC or the Fund subject to (i) the provisions of
Sections 10(f) and 17(e)(2) of the Investment Company Act of 1940 and Rules 10f-
3 and 17e-1 thereunder, Rule 206(3)-2 under the Investment Advisers Act of 1940,
Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)(a)(2)
thereunder and any other applicable laws or regulations, and (ii) procedures
properly adopted by the Fund with respect thereto. The Fund has been advised by
OAM that it may place a significant portion of the
21
<PAGE>
Portfolios' orders for securities with TCC, but only when it believes that the
combination of price and execution are comparable to that of other broker-
dealers. OAM, with the prior consent of the Fund's Trustees, may engage in
agency cross transactions subject to (i) the provisions of Section 17(a) of the
Investment Company Act of 1940 and Rule 17a-7 thereunder and other applicable
laws or regulations, (ii) the provisions of Section 206 of the Investment
Advisers Act of 1940 and Rule 206(3)-2 thereunder, and (iii) procedures properly
adopted by the Fund with respect thereto.
OAM has agreed to furnish certain information quarterly to the Fund's Trustees
to enable them to evaluate the quality of execution and cost of all orders
executed by TCC. The Fund requires that OAM, as investment adviser, record and
furnish to the Fund quarterly the following information:
(A) Exchange Transactions
A listing showing for each transaction executed by TCC for the Portfolios
during the month, in time sequence, the date of the transaction, the price, the
commission, the exchange where executed, the security and the number of shares.
(B) Over-the-Counter Transactions
A listing showing for each transaction executed by TCC for the Portfolios
during the month, in time sequence, the date of execution, the price, the best
bid and ask at the time, the commission for the transaction, the security and
the number of shares.
(C) Transactions Through Other Brokers
A list of all transactions during each quarter through other brokers,
showing the price and commission for the transaction, and a summary of
commission charges by all other brokers executing transactions for the
Portfolios.
A greater discount, spread or commission may be paid to non-affiliated broker-
dealers that provide research services, which research may be used by OAM in
managing assets of its clients, including the Portfolios. Research services may
include data or recommendations concerning particular securities as well as a
wide variety of information concerning companies, industries, investment
strategy and general economic, financial and political analysis and forecasting.
In some instances, OAM may receive research, statistical and/or pricing services
it might otherwise have had to perform itself.
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<PAGE>
However, OAM cannot readily determine the extent to which net prices or
commission rates charged by most broker-dealers reflect the value of its
research, statistical and/or pricing services. As OAM is the principal source of
information and advice to the Fund and is responsible for managing the
investment and reinvestment of the Portfolios' assets and determining the
securities to be purchased and sold, it is believed by the Fund's management to
be in the interests of the Fund for OAM, in fulfilling its responsibilities to
the Fund, to be authorized to receive and evaluate the research and information
provided by other securities brokers or dealers, and to compensate such brokers
or dealers for their research and information services. Any such information
received may be utilized by OAM for the benefit of its other accounts as well,
in the same manner that the Fund might also benefit from information obtained by
OAM in performing services for its other accounts. Although it is believed that
research services received directly or indirectly benefit all of OAM's accounts,
the degree of benefit varies by account and is not directly related to the
commissions or other remuneration paid by such account.
Transactions of the Portfolios in the over-the-counter market and the third
market may be executed for the Portfolios by TCC as agent with primary market
makers acting as principal, except where OAM believes that better prices or
execution may be obtained otherwise. Transactions with primary market makers
reflect the spread between the bid and the ask prices. Occasionally, the
Portfolios may make purchases of underwritten issues at prices which include
underwriting discount fees.
OAM may place orders with broker-dealers other than TCC that sell shares of the
Fund, provided the price and execution are reasonably believed to be comparable
with other nonaffiliated broker dealers.
OAM and the Fund's Board of Trustees review quarterly the Portfolios' brokerage
transactions for execution and services furnished. Such quarterly review may
from time to time result in changes of brokers being utilized to execute
transactions because of services furnished or to be furnished to OAM or the
Fund.
For the period January 1, 1994 through September 30, 1994, the total brokerage
commissions paid by the Emerging Growth Portfolio was $79,554, of which 35%, or
$27,659, was paid to Hamilton Investments. The total amount of securities
transactions on which the Portfolio paid brokerage commission during such period
was $27,827,404. Thirty-six percent (36%), or $10,032,294, of the securities
transactions on which the Portfolio paid brokerage commissions were effected
through Hamilton Investments. For the
23
<PAGE>
period October 1, 1994 through December 31, 1994, the total brokerage
commissions paid by the Emerging Growth Portfolio was $17,248, of which 49%, or
$8,463, was paid to TCC. The total amount of securities transactions on which
the Portfolio paid brokerage commissions during such period was $10,765,934.
Forty-four percent (44%), or $4,718,944, of the securities transactions on which
the Portfolio paid brokerage commissions were effected through TCC. The total
amount of principal transactions of the Portfolio for the year ended December
31, 1994, for which no commission was incurred, was $95,896,610.
For the years ended December 31, 1993 and 1992, the total brokerage commissions
paid by the Emerging Growth Portfolio were $153,239 and $127,450, respectively,
of which $130,033 and $120,370, respectively, was paid to Hamilton Investments.
The total amount of securities transactions on which the Portfolio paid
brokerage commissions during such periods was $65,833,808 and $34,900,116,
respectively. The total amount of principal transactions of the Portfolio for
such period, for which no commission was incurred, was $99,743,039 and
36,146,491, respectively.
SHAREHOLDER VOTING RIGHTS
Reference should be made to the Prospectus under the heading "General
Information" for a description of certain shareholder rights and information
concerning the shares of the Portfolios. As a general rule, the Fund is not
required to and will not hold annual or other meetings of the shareholders.
Special meetings of shareholders for actions requiring a shareholder vote may be
requested in writing by holders of at least twenty-five percent (25%) (or ten
percent (10%) if the purpose of the meeting is to determine if a Trustee is to
be removed from office) of the outstanding shares of the Fund or as may be
required by applicable law. Under the Declaration of Trust, shareholders are
entitled to vote in connection with following matters: (1) for the election or
removal of Trustees if a meeting is called for such purpose; (2) with respect to
the adoption of any contract for which approval is required by the Investment
Company Act of 1940; (3) with respect to any termination or reorganization of
the Portfolios to the extent and as provided in the Declaration of the Trust;
(4) with respect to any amendment of the Declaration of Trust (other than
amendments changing the name of the Fund or the Portfolios, supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision thereof); (5) as to whether or not a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Fund or the shareholders, to
the same extent as the stockholders of a Massachusetts
24
<PAGE>
business corporation; and (6) with respect to such additional matters relating
to the Fund as may be required by law, the Declaration of Trust, the By-Laws of
the Fund, or any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Trustees may consider necessary or desirable.
The Declaration of Trust specifically authorizes the Board of Trustees to
terminate the Fund (or any portfolio of the Fund) without shareholder approval
by notice to the shareholders. Each Trustee serves until the next meeting of
shareholders, if any, called for the purpose of electing Trustees and until the
election and qualification of his successor or until such Trustee sooner dies,
resigns, retires or is removed by the majority vote of the shareholders or by
the Trustees.
REDEMPTION OF SHARES
Reference should be made to the Fund's Prospectus under the heading "How to
Redeem Shares" for other information concerning redemption of the shares of a
Portfolio. The Fund may suspend the right to redeem shares or postpone the date
of payment for more than seven (7) days for any period during which: (a) the New
York Stock Exchange is closed, other than weekend and holiday closings, or the
Securities and Exchange Commission determines that trading on the New York Stock
Exchange is restricted; (b) the Securities and Exchange Commission determines
there is an emergency as a result of which it is not reasonably practical for a
Portfolio to sell the investment securities or to calculate their Net Asset
Value; or (c) the Securities and Exchange Commission permits such suspension for
the protection of Portfolio's shareholders. In the case of a suspension of the
right of redemption, a shareholder may either withdraw his request for
redemption or receive payment at the Net Asset Value of his shares existing
after termination of the suspension.
Although it is the Fund's present policy to make payment of redemption proceeds
in cash, if the Fund's Trustees determine it to be appropriate, redemption
proceeds may be paid in whole or in part by a distribution in kind of securities
held by the Portfolios, subject to the limitation that, pursuant to an election
under Rule 18f-1 under the Investment Company Act of 1940, each Portfolio is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of a Portfolio during any 90-day period for any one account.
The value of such securities shall be determined as of the close of trading of
the New York Stock Exchange on the business day on which the redemption is
effective. In such circumstances, a shareholder might be required to bear
transaction costs to dispose of such securities.
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<PAGE>
SHAREHOLDER SERVICES
The Fund's Prospectus under the headings "How to Purchase Shares," "How to
Redeem Shares" and "Shareholder Services" describes information in addition to
that set forth below. When a shareholder makes an initial investment in a
Portfolio, a shareholder account is opened in accordance with the Fund's Account
Application instructions. After each transaction for the account of a
shareholder, confirmation of all deposits, purchases, reinvestments,
redemptions, withdrawal payments, and other transactions in the shareholder's
account will be forwarded to the shareholder.
A Portfolio will generally not issue certificates for its shares, except that
certificates for full amounts will be issued upon a shareholder's written
request to the Transfer Agent. The investor will be the record owner of all
shares in his account with full shareholder rights, irrespective of whether
share certificates are issued. Certain of the functions performed by the Fund
in connection with the operation of the accounts described above have been
delegated by the Fund to its Transfer Agent.
In addition to the purchase and redemption services described above, the Fund
offers its shareholders the special accounts and services described in the
Fund's Prospectus. Applications and information about any shareholder services
may be obtained from OAM.
DETERMINATION OF NET ASSET VALUE
See the Fund's Prospectus under the headings "How to Purchase Shares" and "Net
Asset Value," for descriptions of certain details concerning the determination
of Net Asset Value. The Net Asset Value of the shares of the Portfolios are
computed once daily, as of the later of the close of the New York Stock Exchange
or the Chicago Board Options Exchange, on each day the New York Stock Exchange
is open for trading (except the Net Asset Value for the Micro-Cap Portfolio was
computed on January 1, 1996, the New Year's Day Holiday, which was the first day
shares of the Portfolio were offered to the public). All securities in the
Portfolios other than options are priced as of the close of trading on the New
York Stock Exchange. The options in the Portfolios are priced as of the close
of trading on the Chicago Board Options Exchange. The Net Asset Value per share
is computed by dividing the value of the Portfolio's securities plus all other
assets minus all liabilities by the total number of Portfolio shares
outstanding. In valuing the Portfolio's securities, each listed and unlisted
security for which last sale information is regularly reported is valued at the
last
26
<PAGE>
reported sale price prior to the close of the New York Stock Exchange, except
for options which are based on the close of the Chicago Board Options Exchange.
If there has been no sale on such day, the last reported bid price is used. Any
unlisted security for which last sale information is not regularly reported and
any listed debt security which has an inactive listed market for which over-the-
counter market quotations are readily available is valued at the highest bid
price as of the close of the New York Stock Exchange determined on the basis of
reasonable inquiry. Restricted securities and any other securities or other
assets for which market quotations are not readily available are valued by
appraisal at their fair values as determined in good faith under procedures
established by and under the general supervision and responsibility of the Board
of Trustees. Short-term debt obligations, commercial paper and repurchase
agreements are valued on the basis of quoted yields for securities of comparable
maturity, quality and type or on the basis of amortized cost.
TAXES
As stated in the Fund's Prospectus under the heading "Dividends, Distributions
and Tax Status" each of the Portfolios has elected to qualify under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), so that the
Portfolio will not be liable for Federal income taxes to the extent that its net
investment income and net realized capital gains are currently distributed to
its shareholders. Each of the Portfolios will qualify for this status as long
as it: (a) derives at least 90% of its gross income from dividends, interest,
gains from the sale or other distribution of securities or foreign currencies,
and certain other investment income including gain from options, futures or
forward contracts; (b) derives less than 30% of its gross income from the sale
or other disposition of securities it has held for less than three months; (c)
invests in securities that satisfy certain diversification requirements; and (d)
distributes at least 90% of its net investment income and net short-term capital
gains to its shareholders each year. A Portfolio may be limited in its options
transactions in order to comply with these rules.
Except for those shareholders exempt from Federal income taxes, dividends and
capital gains distributions are taxable to shareholders for purposes of the
Federal income tax, whether paid in cash or reinvested in additional shares of
the Portfolio. Dividends from net investment income are taxable to non-exempt
shareholders as ordinary income for Federal income tax purposes. For corporate
shareholders, such income dividends may be eligible for the deduction for
dividends received from domestic corporations. Distribution of long-term
capital gains are taxable to non-
27
<PAGE>
exempt shareholders as long-term capital gains regardless of the length of time
that such shareholders have owned shares in a Portfolio. Short-term capital gain
distributions are taxable to non-exempt shareholders as ordinary income. Losses
incurred by such shareholders on the redemption of shares of a Portfolio held
six months or less will be treated as long-term capital losses to the extent of
any capital gains distributions made by the Portfolio with respect to such
shares. Shareholders will be notified annually as to the Federal income tax
status of dividends and capital gains distributions. Such dividends and
distributions may also be subject to state and local taxes.
Income dividends are taxed as ordinary income at rates up to a maximum of 39.6%
for individuals. Long-term capital gain distributions are taxable at a maximum
rate of 28% for individual shareholders and at the same rate as ordinary income
for corporate shareholders.
In order to avoid an excise tax on undistributed amounts, each Portfolio must
declare, by the end of the calendar year, a dividend to shareholders of record
that represents 98% of its net investment income for the calendar year plus 98%
of its capital gain net income for the period from November 1 of the previous
year through October 31 of the current year plus any undistributed net
investment income from the prior calendar year, plus any undistributed capital
gain net income for the one-year period ended October 31 of the prior calendar
year, less any overdistribution in the prior calendar year. Each Portfolio
intends to declare or distribute dividends during the appropriate periods in an
amount sufficient to avoid the 4% excise tax.
Federal law requires the Fund to withhold 31% from dividends and/or redemption
proceeds (including from exchanges) that occur in certain shareholder accounts
if the shareholder has not properly furnished a certified correct Taxpayer
Identification Number (in the case of individuals, a social security number) or
has not certified that withholding does not apply. Amounts withheld are applied
to the shareholder's Federal income tax liability and a refund may be obtained
from the Internal Revenue Service if withholding results in overpayment of
taxes. Federal law also requires the Fund to withhold the applicable tax treaty
rate from dividends that are paid to certain nonresident alien, foreign
partnership and foreign corporation shareholder accounts.
The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations in effect on the date of the Fund's
Prospectus and this Statement of Additional Information, which provisions are
subject to change by legislative or administrative action.
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<PAGE>
Investors are advised to consult their own tax advisers regarding the tax
consequences of an investment in the Portfolios. Shareholders are likewise
advised to consult their own tax advisers regarding specific questions as to
state or local taxes.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average annual total return measures both the net investment income generated
by, and the effect of any realized and unrealized appreciation or depreciation
of, the underlying investments of a Portfolio. A Portfolio's average annual
total return quotation is computed in accordance with a standardized method
prescribed by the rules of the Securities and Exchange Commission. The Emerging
Growth Portfolio's average annual total return figures for the one-year and
five-year periods ended June 30, 1995 were 48.0% and 17.8 %, respectively, and
for the period from the commencement of operations on January 7, 1987 through
June 30, 1995 was 15.6%, as calculated in accordance with the following formula
pursuant to applicable regulations of the Securities and Exchange Commission:
P(1+T)/n/ =ERV
Where P =a hypothetical initial payment of $1,000
T =average annual total return
n =time period the Fund's registration statement has been
in effect expressed in years or portion thereof
ERV =the ending redeemable value of a hypothetical $1,000
payment made at January 7, 1987 (the date the Fund
commenced operations)
A sales load of 4% was charged until December 31, 1991 which is not reflected in
these total return numbers.
ADDITIONAL INFORMATION
Custodian and Transfer Agent
- ----------------------------
The Custodian for the Fund is Investors Fiduciary Trust Company, P.O. Box
419042, Kansas City, Missouri 64141, a national bank organized under the laws of
the United States. The Fund has authorized the Custodian to deposit certain
securities of the Portfolios in central depository systems
29
<PAGE>
as permitted by federal law. The Portfolios may invest in obligations of the
Custodian and may purchase or sell securities from or to the Custodian. The
Custodian is also the Fund's Transfer Agent and acts as dividend disbursing
agent.
Independent Auditors and Reports to Shareholders
- ------------------------------------------------
The Fund's Independent Auditors audit and report on the Fund's annual financial
statements, review certain regulatory reports and prepare the Fund's federal
income tax return, and perform other professional accounting, auditing and
advisory services when engaged to do so by the Fund. Beginning with the 1994
fiscal year, Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606,
serves as the Fund's independent auditors. For the 1993 fiscal year and prior
years, Checkers, Simon & Rosner LLP, One South Wacker Drive, Chicago, Illinois
60606, served as the Fund's independent auditors.
Shareholders will receive annual audited financial statements and semi-annual
unaudited financial statements.
Counsel
- -------
Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago, Illinois
60601, is legal counsel to the Fund.
Other Information
- -----------------
The Fund's Prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement, which the Fund has filed
with the Securities and Exchange Commission under the Securities Act of 1933,
and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. This
Registration Statement is available for inspection by the public at the
Securities and Exchange Commission in Washington, D.C.
30
<PAGE>
OBERWEIS MICRO-CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 2, 1995
ASSETS: Cash $100,000
Deferred organizational costs 55,000
--------
$155,000
LIABILITIES: Organizational costs accrued 55,000
--------
NET ASSETS $100,000
========
Shares outstanding (unlimited number of
shares authorized, no par value) 10,000
========
Net asset value, offering price and
redemption price per share $ 10.00
========
NOTES:
===========
1. Organization. The Oberweis Funds (the "Fund") offers two portfolios,
currently consisting of the Oberweis Emerging Growth and Oberweis Micro-Cap
Portfolios. The Fund is registered under the Investment Company Act of 1940 as a
diversified open-end management investment company. The Fund is authorized to
operate numerous portfolios under various trading strategies. The Fund commenced
operations of the Oberweis Emerging Growth Portfolio on January 7, 1987. The
Oberweis Micro-Cap Portfolio has had no operations, other than those relating to
organizational matters, including the sale and issuance of 10,000 shares to
Oberweis Asset Management, Inc. ("OAM") on October 2, 1995 for $100,000.
2. Organization Costs. Costs incurred by the Oberweis Micro-Cap Portfolio
in connection with their organization, registration and the initial public
offering of shares have been deferred and will be amortized on a straight-line
basis over a period of five years from the date upon which the Portfolio
commences their investment activities. If any of the original shares of the
Portfolio are redeemed by any holder prior to the end of the amortization
period, the redemption proceeds will be reduced by the pro rata share of the
unamortized organization costs as of the date of redemption.
OAM has advanced all of the organizational costs of the Oberweis Micro-Cap
Portfolio. The Portfolio will reimburse OAM for those costs upon the
commencement of operations.
<PAGE>
3. The Advisory, Management, and Distribution Agreements. The Fund has
agreements with OAM to provide investment advisory and management services for
each Portfolio. Under the terms of these agreements, the Micro-Cap Portfolio
will pay OAM .60% and .40% of the average daily net assets for investment
advisory and management services, respectively. The Fund also has a rule 12b-1
Plan and a Distribution and Shareholder Service Agreement (collectively, the
"Plan and Agreement") with The Chicago Corporation ("TCC"). Under the Plan and
Agreement, the Fund is to pay TCC a monthly fee at an annual rate of .25% of
each Portfolio's average daily net assets for distribution and shareholder
services and will reimburse TCC for certain out-of-pocket expenses.
4. Federal Income Taxes. The Micro-Cap Portfolio intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of the income to its
shareholders which will be sufficient to relieve it from all or substantially
all Federal income taxes.
<PAGE>
PRESIDENT'S LETTER FEBRUARY 9, 1995
Dear Emerging Growth Fund Shareholder:
For the first time in the history of your fund I must report to you that we
experienced a loss for a full calendar year. Even in 1990, a year during which
the NASDAQ Composite and Russell 2000 indices were each down by double digit
amounts, we were able to achieve a small positive return. Unfortunately, in
1994 fund shares declined by 3.5%, similar to the 3.2% decline in the NASDAQ
Composite and the 1.7% decline in the Russell 2000 index. At the beginning of
last year, price/earnings ratios were quite high by historical standards. The
entire year seemed to be a battle to lower those P.E. ratios through higher
earnings before they would be reduced by a significant stock market decline.
The battle ended in a draw. Higher earnings did reduce P.E. ratios, but not
fast enough to allow stocks to gain ground.
The outlook for this year appears more favorable since P.E.s are significantly
lower than a year ago and earnings continue to expand. However, since interest
rates are considerably higher than last year, fixed income investments offer
more attractive alternatives than they did a year ago. Thus investors have much
more attractive alternatives than they did a year ago. Unless interest rates
rise another 200 basis points this year, I believe that the opportunities for
stock market investors are significantly better than a year ago. While no
investment strategy works perfectly every year, we believe our method of
identifying some of the fastest growing companies in the world, selling at
reasonable prices in relation to their growth rates and prospects, will produce
above average investment results over longer periods of time. As you can see
from the graph on the next page, this has generally been true over the eight-
year life of the fund. A $10,000 investment in the fund at its January 7, 1987
inception would have grown to $27,157 at the end of last year, assuming
reinvestment of capital gains distributions and no tax liability, for a 13.3%
average annual return. Our latest five-year average annual return is an even
higher 17.7%.
We believe that the long term growth prospects for the type of stocks owned by
the fund are excellent. We expect average gains in the S&P 500 this year, and
we hope that emerging growth stocks will do even better. In my opinion, small
company stocks, especially emerging growth companies, represent better value
today than large company shares. Any significant reduction in capital gains
taxes should benefit growth stocks more than larger, dividend paying company
shares.
Finally, I would like to thank all of you for investing in our fund. Share
prices can be quite volatile on a day-to-day basis but over the long run,
accepting that volatility should produce reasonable rewards. I would like to
remind you that that very volatility makes this fund a good candidate for
periodic additional investments (dollar-cost averaging), which is a recommended
strategy for long term investors. I realize it's hard to invest more in a fund
after it had a loss for the year, but that may in fact be an excellent time to
do so. Fund shareholders with 2000 shares or more held at our custodian bank
should be receiving complimentary copies of The Oberweis Report, our monthly
investment advisory letter.
If you have any questions about your account, please call shareholder services
at 1-800-245-7311 during normal business hours. If you have any questions about
the fund's portfolio or investment policy, please feel free to call me or
either of our assistant portfolio managers, Martin Yokosawa and Chip Roberts,
at 1-800-323-6166. We're usually in the office from 7:30 A.M. until 6:00 P.M.
central time during the week, and from 9:00 until noon on Saturday. We would
like to hear from you!
Sincerely,
Jim Oberweis
1
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
The Oberweis Emerging Growth Fund is positioned to take advantage of the long-
term price appreciation that occurs when the market places an appropriately
high value on the fastest-growing companies. The market for such companies (and
most other investments) was not particularly strong in 1994, causing the fund
to have a return similar to the NASDAQ Composite and the Russell 2000 indices.
(The before-cost return of the Fund was -1.7%, the same as the Russell 2000,
and somewhat better than the 3.2% decline in the NASDAQ Composite; after
deducting costs, the Fund lost 3.5%.) The steep rise in interest rates in 1994
tended to cause investors to lower the price they were willing to pay for each
$1 of corporate earnings. At the same time, total corporate earnings were
rising rapidly, helping to hold stock prices up. The relatively weak
performance of the stocks of fast-growing companies in 1994 enabled the Fund to
accumulate such stocks at reasonable prices, laying the groundwork for higher
returns in the future. The Fund's performance was helped by a continuing
reduction in expenses. In 1994, the Fund's expense ratio declined to 1.78% from
1.80% in 1993, and from almost 2% in 1992.
The fund is not specifically committed either to investing in small companies
or to a "growth" style of investing, where stocks are purchased (regardless of
their price) based on the manager's expectation of growing earnings. Nor is the
fund subject to a "momentum" style of investing where stocks are purchased
solely because they are moving up in price. Rather, the Fund identifies and
purchases the stocks of fast-growing companies that are attractively priced.
Typically, the Fund seeks to buy companies whose revenues and earnings are
growing at a rate in excess of 30% per annum, and whose shares sell at a P.E.
not greater than one-half of the company's rate of growth. This strategy
combines the best features of growth and value investing. Historically, most of
the companies identified by this strategy are smaller than the median New York
Stock Exchange-listed company, although there are notable exceptions. A
majority of portfolio companies have generally been traded over-the-counter.
Portfolio turnover in 1994 was a moderate 66%, down slightly from 1993's 70%.
2
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
AVERAGE ANNUAL RETURNS (1)
PERIODS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
5 LIFE OF FUND
1 YEAR YEAR (1/7/87)
- --------------------------------------------------------
<S> <C> <C> <C>
Oberweis Emerging Growth Fund (3.5)% 17.7% 13.3%
S&P 500 1.3 % 8.7% 11.1%
Russell 2000 (1.7)% 10.2% 9.2%
</TABLE>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM 1/7/87 TO 12/31/94
<TABLE>
[GRAPH APPEARS HERE]
<CAPTION>
Measurement Period
(Fiscal Year Covered) OBERWEIS S&P 500 RUSSELL 2000
- ------------------- -------- ------- ------------
<S> <C> <C> <C>
Measurement Pt- $10,000 $10,000 $10,000
1987 $ 9,094 $ 9,948 $ 8,537
1988 $ 9,612 $11,598 $10,664
1989 $12,012 $15,267 $12,395
1990 $12,062 $14,822 $ 9,977
1991 $22,573 $19,345 $14,571
1992 $25,653 $20,822 $17,254
1993 $28,147 $22,909 $20,515
1994 $27,157 $23,206 $20,166
</TABLE>
(1) Performance is historical and does not represent future results. Investment
returns and principal value vary, and you may have a gain or loss when you sell
shares. Results include the reinvestment of all dividends and capital gains
distributions. The Standard & Poor's Stock Index is an unmanaged index
generally representative of the U.S. stock market. The Russell 2000 Index is an
unmanaged index consisting of 2000 small cap securities with an average market
capitalization of approximately $255 million. A sales load of 4% was charged
until December 31, 1991 and is not reflected in the total return figures or
graph above.
3
<PAGE>
OBERWEIS EMERGING GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994 (Market Value in thousands)
Equity Securities - 92.5%
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
AIRLINES--2.1%
90,000 ValuJet Airlines, [email protected] $ 1,913
APPAREL--0.5%
20,000 Kenneth Cole [email protected] 420
AUDIO/VIDEO HOME PRODUCTS--0.9%
90,000 HTP International, [email protected] 414
65,000 Curtis Mathes Holding [email protected] 142
15,000 Recoton [email protected] 281
SUBTOTAL 837
AUTO/TRUCK EQUIPMENT--1.0%
11,500 *ABS Industries, [email protected] 135
**12,000 *Breed Technologies, [email protected] 341
120,000 Williams Controls, [email protected] 420
SUBTOTAL 896
BUILDING AND BUILDING PRODUCTS--0.3%
20,000 *Slocan Forest Products, [email protected] 228
BUILDING--MOBILE HOMES & RV--2.5%
52,400 *Cavalier Homes, [email protected] 570
69,200 *Decorator Industries, [email protected] 502
105,000 *Shelter Components [email protected] 1,194
SUBTOTAL 2,266
CHEMICALS--0.4%
30,000 Methanex [email protected] 390
COMPUTER GRAPHICS--0.3%
15,000 Pinnacle Systems, [email protected] 225
COMPUTER--LOCAL NETWORKS--8.3%
10,000 Alantec [email protected] 323
105,000 Apertus Technologies, [email protected] 1,050
20,500 Ascend Communications, [email protected] 835
15,000 Chipcom [email protected] 750
175,000 Madge [email protected] 2,067
30,000 Network Peripherals, [email protected] 818
20,000 Standard Microsystems [email protected] 600
57,500 Xircom, [email protected] 1,021
SUBTOTAL 7,464
COMPUTER--MEMORY DEVICES--0.9%
26,000 Alliance Semiconductor [email protected] 813
COMPUTER--MINI/MICRO--1.2%
10,000 Compaq Computer [email protected] 395
22,000 Pyxis [email protected] 418
26,000 *Scientific Technologies, [email protected] 221
SUBTOTAL 1,034
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
COMPUTER PERIPHERALS--14.3%
40,000 Cornerstone Imaging, [email protected] $ 610
60,000 Eltron International, [email protected] 1,185
100,000 Encad, [email protected] 1,237
60,000 Microtouch Systems, [email protected] 2,700
112,000 Mylex [email protected] 1,253
75,000 PC Service Source, [email protected] 675
40,000 Proxima [email protected] 1,155
12,000 Sonic Solutions, [email protected] 189
90,000 U.S. Robotics, [email protected] 3,892
SUBTOTAL 12,896
COMPUTER SERVICES--4.4%
50,000 AmeriData Technologies, [email protected] 500
119,000(a) AmeriData Technologies, Inc.
Common Stock and [email protected] 1,190
100,000 CIBER, [email protected] 1,000
10,000 *Keane, [email protected] 238
25,000 Network Six, [email protected] 262
100,000 Quality Systems, [email protected] 325
10,000 Quick Response Services, [email protected] 126
50,000 Wave Technologies [email protected] 319
SUBTOTAL 3,960
COMPUTER SOFTWARE--5.7%
40,000 BTG, [email protected] 330
5,000 Cambridge Technology [email protected] 111
25,500 Hummingbird Communications [email protected] 520
10,000 Infosoft International, [email protected] 351
10,000 MapInfo [email protected] 257
4,000 Mercury Interactive [email protected] 53
27,000 Natural MicroSystems [email protected] 358
20,000 NetManage, [email protected] 810
21,000 Platinum Technology, [email protected] 475
15,000 Softdesk, [email protected] 291
55,000 Systemsoft [email protected] 495
60,000 VMark Software, [email protected] 1,065
SUBTOTAL 5,116
CONSUMER PRODUCTS--1.1%
39,060 Celex Group, [email protected] 713
57,000 Creative Technology [email protected] 278
SUBTOTAL 991
DRUGS--4.8%
35,000 Barr Laboratories, [email protected] 884
100,000 Future HealthCare, [email protected] 2,063
**10,000 Roberts Pharmaceuticals, [email protected] 318
41,000 Watson Pharmaceuticals, [email protected] 1,076
SUBTOTAL 4,341
</TABLE>
4
See accompanying notes to financial statements.
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
ELECTRICAL & ELECTRONIC EQUIPMENT--0.7%
15,000 Datamarine International, [email protected] $ 176
37,500 Symetrics Industries, [email protected] 478
SUBTOTAL 654
ELECTRONICS--COMPONENTS/
SEMICONDUCTORS--5.8%
34,400 Atmel [email protected] 1,152
27,500 *Cerprobe [email protected] 151
45,000 Flextronics International [email protected] 686
10,000 Fusion Systems [email protected] 255
30,000 Integrated Device Technology, [email protected] 885
30,000 Level One Communications, [email protected] 465
20,000 Mattson Technology, [email protected] 385
15,000 Micrel Semiconductor, [email protected] 217
60,000 Micrion [email protected] 705
10,000 Quality Semiconductor, [email protected] 125
40,000 Submicron System [email protected] 198
SUBTOTAL 5,224
ELECTRONICS--PARTS DISTRIBUTOR--0.9%
150,000 All American Semiconductor, [email protected] 281
50,000 Bell Microproducts, [email protected] 537
SUBTOTAL 818
FARM MACHINERY--1.4%
22,500 *AGCO [email protected] 684
10,000 *AGCO Corp. Convertible [email protected] 595
SUBTOTAL 1,279
FINANCIAL/BUSINESS SERVICES--2.2%
20,000 Express Scripts, Inc. Class [email protected] 735
100,000 Leasing Solutions, [email protected] 688
15,000 *The Money Store, [email protected] 278
58,000 Sherwood Group, [email protected] 312
SUBTOTAL 2,013
HEALTH MAINTENANCE ORGANIZATION--4.0%
30,600 Coventry [email protected] 750
**28,000 PacifiCare Health Systems, [email protected] 1,848
40,000 Wellcare Management Group, [email protected] 980
SUBTOTAL 3,578
HOUSEHOLD APPLIANCES--0.4%
10,000 Duracraft [email protected] 319
LEISURE & RECREATION PRODUCTS--1.5%
45,000 Regal Cinemas, [email protected] 1,148
20,000 Ride Snowboard [email protected] 208
SUBTOTAL 1,356
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
MACHINERY--0.3%
8,000 *JLG Industries, [email protected] $ 292
MEDIA--RADIO/TV--2.3%
85,000 United Video Satellite Group, [email protected] 2,040
MEDICAL EQUIPMENT & SUPPLIES--2.7%
21,000 Chad Therapeutics, [email protected] 165
105,000 FluoroScan Imaging Systems, [email protected] 643
32,000 Medplus, [email protected] 248
7,000 *Omnicare, [email protected] 306
65,000 Safeskin [email protected] 926
5,000 Ventritex, [email protected] 135
SUBTOTAL 2,423
MEDICAL--HOSPITALS--0.7%
35,000 Quorum Health Group, [email protected] 665
MEDICAL--NURSING HOMES,
OUTPATIENT HOMECARE--1.3%
20,000 Lincare Holdings, [email protected] 580
40,000 *Retirement Care Associates, [email protected] 293
12,800 Sun Healthcare Group, [email protected] 323
SUBTOTAL 1,196
METAL ORES--GOLD--0.3%
20,000 *Santa Fe Pacific Gold [email protected] 260
OIL & GAS--1.1%
40,000 *International Colin Energy [email protected] 275
40,000 *Smith International, [email protected] 494
10,000 *Snyder Oil Corp. Convertible
Preferred @20.125 201
SUBTOTAL 970
PERSONNEL PLACEMENT--0.9%
5,000 Alternative Resources [email protected] 157
22,000 On Assignment, [email protected] 352
15,000 Right Management Consultants, [email protected] 304
SUBTOTAL 813
POLLUTION CONTROL--1.5%
20,000 *Peerless Manufacturing [email protected] 220
43,000 United Waste Systems, [email protected] 1,075
SUBTOTAL 1,295
RESTAURANTS--5.0%
135,000 Checkers Drive-In [email protected] 308
20,000 Landry's Seafood Restaurants, [email protected] 570
100,000 Lone Star Steakhouse & [email protected] 2,000
</TABLE>
5
See accompanying notes to financial statements.
<PAGE>
Equity Securities - continued
Convertible Debt Obligations-6.5%
<TABLE>
<CAPTION>
Face
Amount Value
<S> <C> <C>
COMPUTER MEMORY DEVICES--0.5%
$ 600,000 *Seagate Technology
6.75% due 5-01-12 @83.00 $ 498
COMPUTER PERIPHERALS--2.6%
600,000 *SCI Systems, Inc.
5.625% due 3-01-12 @96.50 579
1,500,000 *Western Digital Corp.
9.00% due 6-01-14 @120.25 1,804
SUBTOTAL 2,383
EYECARE SERVICES--0.6%
500,000 *Benson Eyecare Corp.
8.00% due 5-15-01 @101.25 506
FERTILIZERS--0.3%
300,000 *Freeport-McMoran
6.55% due 1-15-01 @90.75 272
MEDICAL EQUIPMENT & SUPPLIES--0.2%
100,000 *Omnicare, Inc.
5.75% due 10-01-03 @143.00 143
MEDICAL-NURSING HOMES--1.4%
1,500,000 *GranCare, Inc.
6.50% due 1-15-03 @84.00 1,260
POLLUTION CONTROL--0.7%
580,000(a) *Growth Environmental, Inc.
9.00% due 4-30-97 @102.767 596
RETAIL--0.2%
200,000 *Proffitts, Inc.
4.75% due 11-01-03 @75.25 151
600,000(a) *Zam's, Inc.
7.50% due 10-31-00 @6.875 41
SUBTOTAL 192
TOTAL CONVERTIBLE DEBT OBLIGATIONS
(COST: $6,141,000) 5,850
Short-Term Investments-0.9%
812,294 United Missouri Bank
4.7182% due [email protected] $ 812
TOTAL INVESTMENT--99.9%
(COST: $74,948,000) 89,911
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
30,000 Outback Steakhouse, [email protected] $ 705
20,000 Papa John's International, [email protected] 575
35,000 Pollo Tropical, [email protected] 337
SUBTOTAL 4,495
RETAIL--CONSUMER ELECTRONICS--0.1%
10,000 Campo Electronics, Appliances and Computers [email protected] 108
RETAIL/WHOLESALE COMPUTERS--1.0%
7,000 Micro Warehouse, [email protected] 245
40,000 Tech Data [email protected] 680
SUBTOTAL 925
RUBBER--0.2%
40,000 American United Global, [email protected] 138
SCHOOLS--0.5%
80,000 Youth Services International, [email protected] 480
SECURITY/SAFETY EQUIPMENT--0.5%
20,000 First Alert, [email protected] 292
5,000 Safety 1st, [email protected] 146
SUBTOTAL 438
TELECOMMUNICATIONS--7.4%
20,000 Applied Digital Access, [email protected] 507
22,000 Cidco, [email protected] 638
25,000 Gilat Satellite Networks [email protected] 300
8,000 Glenayre Technologies, [email protected] 462
80,000 Incomnet, [email protected] 1,065
2,000 IPC Information Systems, [email protected] 22
20,000 Qualcomm, [email protected] 480
40,000 Spectrian [email protected] 1,125
55,000 Transaction Network Services, [email protected] 798
80,000 Wholesale Cellular USA, [email protected] 1,240
SUBTOTAL 6,637
TEXTILE PRODUCTS--0.6%
20,000 *St. John Knits, [email protected] 573
TOYS & SPORTING GOODS--0.1%
10,000 Lewis Galoob Toys, Inc. Convertible Preferred @11.375 114
TRUCKING--0.4%
25,000 Knight Transportation, [email protected] 356
TOTAL EQUITY SECURITIES
(COST: $67,995,000) 83,249
</TABLE>
6
See accompanying notes to financial statements.
<PAGE>
Covered Call Options-(0.0%)
<TABLE>
<CAPTION>
Contracts Value
<C> <S> <C>
120 Breed Technologies, Inc., January $40 $ (1)
25 PacifiCare Health Systems, Inc. February $75 (2)
100 Roberts Pharmaceutical, January $35 (7)
-------
Total Covered Call Options
(Premiums received: $53,000) (10)
OTHER ASSETS LESS LIABILITIES--0.1% 113
-------
NET ASSETS--100.0% $90,014
=======
</TABLE>
Notes to Portfolio of Investments
* Income producing security during the year ended December 31, 1994.
**The aggregate market value of stocks held in escrow at December 31, 1994
covering open covered call options written was $2,507,000.
Based on the cost of investments of $74,948,000 for federal income tax purposes
at December 31, 1994, the aggregate gross unrealized appreciation was
$23,123,000, the aggregate gross unrealized depreciation was $8,160,000, and
the net unrealized appreciation of investments was $14,963,000.
(a) The following securities are subject to legal or contractual restrictions
on sale. They were valued at cost on the dates of acquisition and at fair value
as determined by the board of trustees of the Fund as of December 31, 1994. The
aggregate value of restricted securities was $1,827,000, or 2.0% of net assets,
at year end.
AmeriData Technologies, Inc. 119,000 common stock and warrants purchased in
March, 1994 at a cost of $1,309,000.
Growth Environmental, Inc. $580,000 face amount convertible debt purchased
in May, 1994 at a cost of $580,000.
Zam's, Inc. $600,000 face amount convertible debt purchased in November,
1993 at a cost of $600,000.
7
See accompanying notes to financial statements.
<PAGE>
OBERWEIS EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
(in thousands)
<TABLE>
<S> <C> <C>
ASSETS:
Investment securities at market value (Cost: $74,948,000) $89,911
Cash 9
Receivables:
Fund shares sold 59
Securities sold 239
Dividends and interest 114
----
Total receivables 412
Prepaid expenses 26
-------
Total Assets 90,358
LIABILITIES:
Options written, at value (Premiums received: $53,000) 10
Payables:
Fund shares repurchased $142
Securities purchased 88
Payable to adviser 72
Payable to distributor 26
----
Total Payables 328
Accrued expenses 6
-------
Total Liabilities 344
NET ASSETS $90,014
=======
ANALYSIS OF NET ASSETS:
Aggregate paid in capital $75,025
Accumulated net realized loss from investment transactions (17)
Net unrealized appreciation of investments 15,006
-------
Net assets $90,014
=======
THE PRICING OF SHARES:
Net asset value, offering and redemption price per share
($90,014,406 divided by 4,203,507 shares outstanding) $ 21.41
=======
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
OBERWEIS EMERGING GROWTH FUND
STATEMENT OF OPERATIONS
Year ended December 31, 1994
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $142
Interest 526
----
Total Investment Income $ 668
EXPENSES:
Distribution fees 428
Advisory fees 395
Management fees 370
Custodian fees 149
Transfer agent fees 130
Professional fees 81
Shareholder servicing fees 34
Shareholder reports 19
Insurance 14
Trustee fees 13
Registration fees 12
Other 2
----
Total Expenses 1,647
-------
NET INVESTMENT LOSS (979)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investment transactions (783)
Net realized gain from covered call options written 766
-------
Total net realized loss (17)
Decrease in unrealized appreciation of investments (3,046)
-------
Net realized and unrealized loss on investments (3,063)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(4,042)
-------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
OBERWEIS EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (979) $ (931)
Net realized gain (loss) from investment transactions (17) 5,623
Increase (decrease) in unrealized appreciation of
investments (3,046) 5,625
-------- --------
Net increase (decrease) in net assets resulting from
operations (4,042) 10,317
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains on investments -- (3,381)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 26,882 83,936
Redemption of shares (37,150) (43,816)
Shares issued in reinvestment of distribution -- 3,205
-------- --------
Net increase (decrease) from capital share transactions (10,268) 43,325
-------- --------
Total increase (decrease) in net assets (14,310) 50,261
NET ASSETS:
Beginning of year 104,324 54,063
-------- --------
End of year $ 90,014 $104,324
======== ========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Oberweis Emerging Growth Fund (the "Fund") is
registered under the Investment Company Act of 1940 as a diversified open-end
management investment company. The Fund is authorized to operate numerous
portfolios under various trading strategies. The Fund commenced operations of
one portfolio on January 7, 1987.
Investment valuation. Investments are stated at value. Each listed and unlisted
security for which last sale information is regularly reported is valued at the
last reported sales price on that day. If there has been no sale on such day,
then such security is valued at the current day's bid price. Any unlisted
security for which last sale information is not regularly reported and any
listed debt security which has an inactive listed market for which over-the-
counter market quotations are readily available is valued at the highest
closing bid price determined on the basis of reasonable inquiry. Restricted
securities and any other securities or other assets for which market quotations
are not readily available are valued by appraisal at their fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Board of Trustees. Short-term debt
obligations, commercial paper and repurchase agreements are valued on the basis
of quoted yields for securities of comparable maturity, quality and type or on
the basis of amortized costs.
Fund share valuation. Fund shares are sold and redeemed on a continuous basis
at net asset value. On each day the New York Stock Exchange is open for
trading, the net asset value per share is determined as of the later of the
close of the New York Stock Exchange or the Chicago Board Options Exchange by
dividing the total value of the Fund's investments and other assets, less
liabilities, by the number of Fund shares outstanding.
Investment transactions and investment income. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis and includes amortization of money market
instrument premium and discount. Realized gains and losses from investment
transactions are reported on an identified cost basis. Gains and losses on
premiums from expired options are recognized on date of expiration.
Change in Accounting for Distributions to Shareholders. During the year ended
December 31, 1994, the Fund adopted AICPA Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
statement requires that the classification of distributions to shareholders be
changed in the financial statements to better disclose the differences between
financial statement amounts and distributions determined in accordance with
income tax regulations. Accordingly, the Fund reclassified $3,408,000 of net
operating losses incurred by the Fund since 1987 and which cannot be utilized
to paid in capital.
Federal income taxes and dividends to shareholders. The Fund has complied with
the special provisions of the Internal Revenue Code available to investment
companies and therefore no federal income tax provision is required. Dividends
payable to its shareholders are recorded by the Fund on the ex-dividend date.
The accumulated net realized loss from investment transactions for federal
income tax purposes at December 31, 1994, amounting to approximately $17,000,
is available to offset future taxable gains. If not applied, the loss
carryforward expires during the year in 2002.
11
<PAGE>
2. TRANSACTIONS WITH AFFILIATES
Effective October 1, 1994 Oberweis Asset Management, Inc. ("OAM") became the
Fund's investment adviser, manager and primary shareholder service agent; and
The Chicago Corporation ("TCC") became the Fund's principal distributor. Prior
to October 1, 1994, Hamilton Investments, Inc. acted as the fund's manager,
distributor and shareholder service agent; and Alpha Source Asset Management, a
subsidiary of Hamilton Investments, Inc., served as the Fund's investment
adviser.
Advisory agreement. During 1994, pursuant to written agreements, the Fund paid
monthly investment advisory fees at an annual rate equal to .45% of the first
$50,000,000 of average daily net assets and .40% of average daily net assets in
excess of $50,000,000.
Management agreement. During 1994, for management services and facilities
furnished, the Fund paid a monthly fee at an annual rate equal to .40% of
average daily net assets.
Expense Reimbursement. The manager and investment adviser are obligated to
reduce their investment advisory and management fees or reimburse the Fund to
the extent that total ordinary operating expense, as defined, exceed in any one
year the following amounts expressed as a percentage of the Fund's average
daily net assets: 2% of the first $25,000,000; plus 1.8% of the next
$25,000,000; plus 1.6% of average daily net assets in excess of $50,000,000; or
such lower percentage as may be required by any state where the Fund's shares
are registered. For the year ended December 31, 1994, Hamilton Investments,
Inc., Alpha Source Asset Management, Inc. and OAM were not required to rebate
any of the investment adviser or management fees to the Fund.
Officers and trustees. Certain officers or trustees of the Fund are also
officers or directors of OAM. During the year ended December 31, 1994, the fund
made no direct payments to its officers and paid $12,560 to its unaffiliated
trustees. James D. Oberweis, the Fund's portfolio manager, is employed by OAM
and TCC.
Distribution and shareholder service expense. Effective October 1, 1994, the
Fund pays The Chicago Corporation a monthly distribution fee at the annual rate
of .35% of the average daily net assets and reimbursement for certain out-of-
pocket expenses. The Fund also pays OAM a monthly shareholder service expense
equal to .15% of average daily net assets and reimbursement for out-of-pocket
expenses. Prior to this agreement, the Fund paid Hamilton Investments, Inc. a
monthly fee at an annual rate equal to .50% of average daily net assets for its
distribution service.
Commissions. During 1994, the Fund paid Hamilton Investments, Inc. and TCC for
executing some of the Fund's agency security transactions at competitive rates,
typically $.03 to $.05 per share.
12
<PAGE>
The following summarizes fees incurred by the Fund for the services provided by
Hamilton Investments, Inc. and Alpha Source Asset Management, Inc. for the nine
months ended September 30, 1994, and OAM and TCC for the three months ended
December 31, 1994:
<TABLE>
<CAPTION>
ALPHA
HAMILTON SOURCE OAM TCC
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Advisory fees -- $298,000 $97,000 --
Management fees $279,000 -- $91,000 --
Distribution
fees $349,000 -- -- $79,000
Shareholder
service fees -- -- $34,000 --
Commissions $ 28,000 -- -- $ 9,000
</TABLE>
3. INVESTMENT TRANSACTIONS
The cost of securities purchased and proceeds from securities sold during 1994,
other than options written and money market investments, aggregated $61,146,000
and $71,457,000, respectively.
Transactions in options written for the year ended December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Options outstanding at
beginning of year 700 $ 104,000
Options written 12,938 1,681,000
Options expired (9,356) (1,034,000)
Options closed (1,543) (206,000)
Options assigned (2,494) (492,000)
------ -----------
Options outstanding at end of
year 245 $ 53,000
</TABLE>
The premiums received provide a partial hedge (protection) against declining
prices and enables the Fund to generate a higher return during periods when OAM
does not expect the underlying security to make any major price moves in the
near future but still deems the underlying security to be, over the long term,
an attractive investment for the Fund.
4. CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1994 1993
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 1,272,000 $ 26,882,000 4,069,000 $83,936,000
Shares issued in
reinvestment of dividends -- -- 144,000 3,205,000
Less shares redeemed (1,771,000) (37,150,000) (2,098,000) (43,816,000)
---------- ------------ ---------- -----------
Net increase (decrease)
from capital share
transactions (499,000) $(10,268,000) 2,115,000 $43,325,000
</TABLE>
13
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
year is as follows (c):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1994 1993 1992 1991 1990
------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning
of year $ 22.19 $ 20.90 $ 18.39 $ 12.11 $ 12.06
Income from investment
operations:
Net investment loss (.22) (.22) (.21) (.09) (.24)
Net realized and unrealized
gain (loss) on investments (.56) 2.25 2.72 10.64 .29
------- ---------- ---------- -------- ----------
Total from investment
operations (.78) 2.03 2.51 10.55 .05
Less Distributions:
Distribution from net
realized gains on
investments -- (.74) -- (4.27) --
------- ---------- ---------- -------- ----------
Net asset value at end of
year $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11
======= ========== ========== ======== ==========
Total Return(b) (3.5%) 9.7% 13.7% 87.1% 0.4%
Ratio/Supplemental Data
Net Assets at end of year
(in thousands) $90,014 $104,324 $54,063 $19,730 $11,604
Ratio of expenses to average
daily net assets 1.78% 1.80%(a) 1.99%(a) 2.13%(a) 2.15%(a)
Ratio of net investment loss
to average net assets (1.06%) (1.04%)(a) (1.14%)(a) (1.27%) (1.24%)(a)
Portfolio turnover rate 66% 70% 63% 114% 62%
</TABLE>
- --------
Notes:
(a) Net of expense reimbursement from related parties. Expense ratios would
have been 1.82%, 2.41%, 3.01%, and 3.48% for 1993, 1992, 1991 and 1990,
respectively before expense reimbursement.
(b) A sales load of 4% was charged until December 31, 1991 and is not reflected
in the total return figures above.
(c) The per share data was determined using average shares outstanding during
the year.
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders Oberweis Emerging Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Oberweis Emerging Growth Fund as of December
31, 1994, the related statements of operations and changes in net assets and
the financial highlights for the year then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statement of changes in net
assets for the year ended December 31, 1993 and the financial highlights for
each of the years prior to 1994 were audited by other auditors whose report
dated February 6, 1994 expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Oberweis Emerging Growth Fund at December 31, 1994, the results of its
operations, the changes in its net assets and the financial highlights for the
year ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
January 27, 1995
15
<PAGE>
[LOGO] Oberweis Emerging Growth Fund
- --------------------------------------------------------------------------------
James D. Oberweis Thomas J. Burke
Trustee and President Trustee
Douglas P. Hoffmeyer Edward F. Streit
Trustee Trustee
Patrick B. Joyce Martin L. Yokosawa
Executive Vice President Vice President
Treasurer
Anita I. Mraz
James M. Roberts Secretary
Vice President
Mary Jane Murphy
Assistant Secretary
MANAGER AND INVESTMENT ADVISOR
Oberweis Asset Management, Inc.
One Constitution Drive, Aurora, Illinois 60506
DISTRIBUTOR
The Chicago Corporation
208 South LaSalle, Chicago, Illinois 60604
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
P.O. Box 419042, Kansas City, Missouri 64141
COUNSEL
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago, Illinois 60601
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP
233 South Wacker Drive, Chicago, Illinois 60606
ANNUAL REPORT
---------------------------------------
DECEMBER 31, 1994
[LOGO] Oberweis
Emerging Growth
Fund
One Constitution Drive
Aurora, IL 60506
(800) 323-6166
<PAGE>
PRESIDENT'S LETTER JULY 24, 1995
Dear Emerging Growth Fund Shareholder:
What a difference a year makes! I'm pleased to report that your fund had an
exceptionally strong first half with the net asset value rising 25.5%. That
performance is better than almost all broad market averages and significantly
better than the average mutual fund, which underperformed the S&P 500 for the
first half of this year. For the first six months of 1995, the S&P 500 total
return index gained 20.1%, the NASDAQ Composite gained 24.1%, and the smaller
company oriented Russell 2000 gained 14.4%. Our first half performance looks
particularly favorable when compared to the Russell 2000. The Russell 2000 is
an unmanaged index consisting of 2,000 small cap securities with an average
market capitalization of approximately $255 million.
This year has been an excellent reminder of the pitfalls of market timing.
After a very difficult 1994, it was not easy to be bullish. After a strong
first quarter this year, many market timers locked in their profits by selling
stocks and mutual fund shares. It is very difficult emotionally for an investor
who sold shares at the end of the first quarter at $23.52, up 10% in just three
months, to now buy them back at $26.87 at the end of June. Unfortunately, I
have seen some of our shareholders sell shares after a rise, believing they are
catching a temporary top. Sometimes they are lucky enough to buy them back 5%
cheaper, feeling quite proud of their success. But if the market keeps going
up, they refuse to buy them back, so as to not have to admit a mistake. As a
result, they may miss a 100% or greater profit over a period of time.
Shares of this fund can be quite volatile over the short run. However, for
investors with a longer term time horizon, those ups and downs tend to get
averaged out, and we hope the performance will continue to provide investors
with above market returns. For the last five years, the fund has provided an
average annual return of almost 18%, compared to 15% for the NASDAQ Composite
and 13% for the Russell 2000. Since the fund's inception on January 7, 1987 the
average annual return has been almost 16%.
Technology stocks have been particularly strong during the first half of the
year. We attempt to diversify the fund's investments over as many different
industries as possible. We don't try to buy technology stocks when we think
they're attractive or medical stocks when we think they're attractive. Like
market timing, industry timing can also be a very dangerous game. Many
professional and individual investors were selling their technology stocks in
May after nice gains because they "knew" that technology stocks are "always"
weak during the summer months. We follow a much simpler approach of just trying
to identify the companies that are most successful in the real world and invest
in them. If you and I are buying 50% or 100% more each year of whatever a
company produces and the company's profits are rising at a similar rate, and if
we can buy those companies at a P.E. ratio of less than half their growth rate,
I believe we should be able to achieve above average returns over a long period
of time.
Thanks for having the confidence to invest your money with us. If you have any
questions about your account, please call shareholder services at 1-800-245-
7311 during normal business hours. If you have any questions about the fund's
portfolio or investment policy, please feel free to call me or either of our
assistant portfolio managers, Martin Yokosawa and Chip Roberts, at 1-800-323-
6166. We're usually in the office from 7:30 A.M. until 6:00 P.M. central time
during the week, and from 9:30 until noon on Saturday. We would like to hear
from you!
Sincerely,
Jim Oberweis
1
<PAGE>
OBERWEIS EMERGING GROWTH FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1995 (Market Value in thousands)
Equity Securities - 93.9%
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
AIRLINES--5.1%
**180,000 ValuJet Airlines, [email protected] $ 5,917
APPAREL--0.6%
20,000 Kenneth Cole Productions, [email protected] 667
AUTO/TRUCK EQUIPMENT--0.6%
12,000 *Breed Technologies, [email protected] 288
120,000 Williams Controls, [email protected] 390
678
BUILDING AND BUILDING PRODUCTS--0.1%
15,056 *Slocan Forest Products, [email protected] 134
BUILDING--MOBILE HOMES & RV--1.2%
24,900 *Cavalier Homes, [email protected] 293
92,800 *Shelter Components [email protected] 1,090
1,383
CHEMICALS--1.1%
60,000 Applied Extrusion [email protected] 893
10,000 *Borden Chemical & Plastic [email protected] 183
30,000 Methanex [email protected] 251
1,327
COMMERCIAL SERVICES--1.2%
10,000 American Oncology [email protected] 278
14,000 Central Sprinkler [email protected] 343
25,000 Luminart, [email protected] 82
31,000 RTW, [email protected] 566
12,100 Sterling Healthcare [email protected] 182
1,451
COMPUTER GRAPHICS--0.5%
10,000 Diamond Multimedia Systems, [email protected] 205
15,000 Pinnacle Systems, [email protected] 338
543
COMPUTER--INTEGRATED SYSTEMS--0.9%
20,000 Data Research Associates, [email protected] 260
20,000 Kronos, [email protected] 742
1,002
COMPUTER--LOCAL NETWORKS--4.6%
10,000 Alantec [email protected] 342
180,000 Apertus Technologies, [email protected] 1,575
**100,000 Madge [email protected] 2,800
30,000 Network Peripherals, [email protected] 654
5,371
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
COMPUTER--MEMORY DEVICES--3.8%
**39,000 Alliance Semiconductor [email protected] $ 1,911
**25,000 C-Cube Microsystems, [email protected] 681
103,806 Western Digital [email protected] 1,804
4,396
COMPUTER--MINI/MICRO--1.6%
20,000 Compaq Computer [email protected] 908
26,000 *Scientific Technologies, [email protected] 936
1,844
COMPUTER--OPTICAL RECOGNITION--0.4%
30,000 Robotic Vision Systems, [email protected] 435
COMPUTER PERIPHERALS--11.0%
1,000 Discreet Logic, [email protected] 33
120,000 Eltron International, [email protected] 2,430
100,000 Encad, [email protected] 2,700
**40,000 Microtouch Systems, [email protected] 822
132,000 Mylex [email protected] 1,749
30,000 Proxima [email protected] 716
10,000 Scansource, [email protected] 95
**40,000 U.S. Robotics [email protected] 4,360
12,905
COMPUTER SERVICES--3.1%
100,000 AmeriData Technologies, [email protected] 925
11,900 AmeriData Technologies, Inc. [email protected] 0
20,000 AmeriData Technoligies, Inc.
Convertible Preferred @29.25 585
100,000 CIBER, [email protected] 1,775
25,000 Renaissance Solutions, [email protected] 344
3,629
COMPUTER SOFTWARE--10.4%
40,000 BTG, [email protected] 365
30,000 Firefox Communications, [email protected] 772
25,000 Datastream Systems, [email protected] 594
25,000 Electronics For Imaging, [email protected] 1,306
10,000 Epic Design Technology, [email protected] 355
1,000 HNC [email protected] 21
35,000 Hummingbird Communications [email protected] 1,024
10,000 MapInfo [email protected] 355
60,000 Natural MicroSystems [email protected] 1,110
40,000 NetManage, [email protected] 680
100,000 Number Nine Visual [email protected] 2,075
21,000 Platinum Technology, [email protected] 381
15,000 Remedy [email protected] 544
</TABLE>
See notes to Portfolio of Investments.
2
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
10,000 Seer Technologies, [email protected] $ 208
500 Software Artistry, [email protected] 11
10,000 Spyglass, [email protected] 286
55,000 Systemsoft [email protected] 797
30,000 Tecnomatix [email protected] 221
60,000 VMark Software, [email protected] 1,065
12,170
COSMETICS/PERSONAL CARE--0.4%
32,000 Parlux Frangrances, [email protected] 468
DIVERSIFIED OPERATIONS--0.1%
4,000 ACX Technologies, [email protected] 167
DRUGS--3.0%
40,000 Barr Laboratories, [email protected] 865
21,800 K V Pharmaceutical Co. Class [email protected] 180
30,000 *Mylan Laboratories, [email protected] 923
**40,000 Watson Pharmaceuticals, [email protected] 1,560
3,528
ELECTRICAL & ELECTRONIC EQUIPMENT--2.3%
30,000 Datamarine International, [email protected] 270
5,000 Itron, [email protected] 156
15,000 *Robbins & Meyers, [email protected] 413
56,250 Symetrics Industries, [email protected] 605
35,000 Zygo [email protected] 1,181
2,625
ELECTRONICS--COMPONENTS/ SEMICONDUCTORS--8.4%
25,000 AG Associates, [email protected] 438
**34,400 Atmel [email protected] 1,905
60,000 Flextronics International [email protected] 1,312
10,000 Fusion Systems [email protected] 343
143,061 Genus, [email protected] 1,940
20,000 Information Storage Devices, [email protected] 500
12,500 Integrated Device Technology, [email protected] 578
**5,000 Integrated Silicon [email protected] 261
25,000 Mattson Technology, [email protected] 1,175
**35,500 Oak Technology, [email protected] 1,305
9,757
ELECTRONICS--LASER SYSTEMS/ COMPONENTS--2.6%
63,000 II-VI, [email protected] 1,748
10,000 Cyberoptics [email protected] 254
**30,000 Electro Scientific Industries, [email protected] 998
3,000
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
FARM MACHINERY--0.7%
22,500 *AGCO [email protected] $ 844
FINANCIAL/BUSINESS SERVICES--1.7%
20,000 Express Scripts, Inc. Class [email protected] 705
15,000 Mercer International, [email protected] 315
**15,000 *The Money Store, [email protected] 537
58,000 Sherwood Group, [email protected] 479
2,036
FOOD--MISCELLANEOUS--0.4%
25,000 Odwalla, [email protected] 506
HEALTH MAINTENANCE ORGANIZATION--1.5%
23,000 Coventry [email protected] 325
**28,000 PacifiCare Health Systems, [email protected] 1,428
1,753
INSURANCE--0.2%
10,000 HCC Insurance Holdings, [email protected] 260
LEISURE & RECREATION PRODUCTS--2.6%
45,000 Regal Cinemas, [email protected] 1,440
40,000 Ride Snowboard [email protected] 1,090
20,000 West Marine, [email protected] 512
3,042
MACHINERY--1.7%
5,000 3D Systems [email protected] 92
10,000 Gleason [email protected] 221
10,000 Indresco, [email protected] 155
58,000 *JLG Industries, [email protected] 1,537
2,005
MEDIA--RADIO/TV--2.1%
85,000 United Video Satellite Group, [email protected] 2,486
MEDICAL EQUIPMENT & SUPPLIES--0.9%
21,000 Chad Therapeutics, [email protected] 312
100,000 FluoroScan Imaging Systems, [email protected] 775
1,087
MEDICAL--NURSING HOMES, OUTPATIENT HOMECARE--2.6%
10,000 American Homepatient, [email protected] 298
10,000 American Medical [email protected] 280
10,000 Medpartners, [email protected] 193
5,000 Physician Reliance Network, [email protected] 97
127,816(a) Retirement Care Associates, [email protected] 1,528
35,000 Transworld Healthcare, [email protected] 586
2,982
</TABLE>
See notes to Portfolio of Investments.
3
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
TRUCKING--0.3%
25,000 Knight Transportation, [email protected] $ 338
TOTAL EQUITY SECURITIES
(COST: $70,762,549) 109,824
Convertible Debt Obligations-5.0%
<CAPTION>
Face
Amount Value
<C> <S> <C>
COMPUTER MEMORY DEVICES--0.5%
$600,000 *Seagate Technology
6.75% due 5-01-12 @105.00 $ 630
COMPUTER PERIPHERALS--0.6%
600,000 *SCI Systems, Inc.
5.625% due 3-01-12 @118.50 711
EYECARE SERVICES--0.5%
500,000 *Benson Eyecare Corp.
8.00% due 5-15-01 @125.50 627
FARM MACHINERY--0.6%
250,000 *Agco Corp.
6.50% due [email protected] 740
MEDICAL--NURSING HOMES--1.9%
1,500,000 *GranCare, Inc.
6.50% due 1-15-03 @86.00 1,290
1,000,000 *Theratx, Inc.
8.00% due [email protected] 925
2,215
OIL & GAS--0.4%
500,000 *Snyder Oil Corp.
7.00% due [email protected] 445
POLLUTION CONTROL--0.3%
580,000(a) *Growth Environmental, Inc.
9.00% due 4-30-97 @58.049 337
RETAIL--0.2%
200,000 *Proffitts, Inc.
4.75% due 11-01-03 @89.00 178
600,000(a) *Zam's, Inc.
7.50% due 10-31-00 @1.146 7
185
TOTAL CONVERTIBLE DEBT OBLIGATIONS
(COST: $6,155,260) 5,890
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
OIL & GAS--0.8%
40,000 International Colin Energy [email protected] $ 210
40,000 Smith International, [email protected] 670
880
PERSONNEL PLACEMENT--0.7%
10,000 Alternative Resources [email protected] 265
30,000 On Assignment, [email protected] 570
835
RESTAURANTS--4.6%
100,000 Lone Star Steakhouse & Saloon, [email protected] 3,031
30,000 Outback Steakhouse, [email protected] 866
20,000 Papa John's International, [email protected] 700
100,000 Pollo Tropical, [email protected] 800
5,397
RETAIL/WHOLESALE COMPUTERS--0.6%
40,500 Pomeroy Computer [email protected] 739
SCHOOLS--0.7%
80,000 Youth Services International, [email protected] 850
TELECOMMUNICATIONS--7.8%
20,000 ACT Networks, [email protected] 345
20,000 Applied Innovation, [email protected] 955
**16,300 Cidco, [email protected] 511
60,000 Coherent Communication Systems [email protected] 1,005
25,000 Gilat Satellite Networks [email protected] 569
20,000 Pairgain Technologies, [email protected] 383
**20,000 Qualcomm, [email protected] 691
39,000 Spectrian [email protected] 1,550
5,000 STM Wireless, [email protected] 64
**20,000 Stratacom, [email protected] 975
29,500 Unitech Industries, [email protected] 317
82,000 Wholesale Cellular USA, [email protected] 1,763
9,128
TEXTILE PRODUCTS--0.9%
20,000 *St. John Knits, [email protected] 897
11,000 Supreme International [email protected] 187
1,084
TOYS & SPORTING GOODS--0.1%
10,000 Lewis Galoob Toys, Inc.
Convertible Preferred @17.5 175
</TABLE>
See notes to Portfolio of Investments
4
<PAGE>
Long Put Options-1.3%
<TABLE>
<CAPTION>
Contracts Value
<S> <C> <C>
1,000 S&P 100 Stock Index Sep $520 $ 938
1,000 S&P 100 Stock Index Aug $510 512
1,000 S&P 100 Stock Index Jul $500 100
Total Put Options 1,550
(Cost: $2,318,500)
Repurchase Agreement--1.8%
2,095,716 State Street Bank and Trust Co.
Dated 6/30/95, collateralized by
U.S. Treasury Notes
4.90%, 7/03/95 $ 2,096
TOTAL INVESTMENT - 102.0% 119,360
(COST: $81,332,025)
Covered Call Options-(1.8%)
Contracts Value
390 Alliance Semiconductor Corp. Jul $55 $ (39)
344 Atmel Corp. Aug $55 (133)
100 C-Cube Microsystems, Inc. Aug $22 (58)
150 C-Cube Microsystems, Inc. Nov $30 (47)
60 Cidco, Inc. Jul $35 (2)
90 Electro Scientific Inds. Jul $35 (8)
50 Electro Scientific Inds. Aug $35 (10)
160 Electro Scientific Inds. Sep $35 (45)
50 Integrated Silicon Solution Jul $55 (8)
200 Madge N.V. Aug $25 (85)
750 Madge N.V. Aug $30 (122)
270 Microtouch Systems, Inc. Sep $40 (3)
150 The Money Store, Inc. Jul $35 (30)
150 Oak Technology, Inc. Jul $35 (40)
100 Oak Technology, Inc. Sep $35 (48)
50 PacifiCare Health Systems, Inc. Aug $75 (0)
100 PacifiCare Health Systems, Inc. Aug $80 (0)
100 Qualcomm, Inc. Jul $40 (5)
100 Qualcomm, Inc. Oct $40 (25)
5 Stratacom, Inc. Aug $50 (2)
300 U.S. Robotics Corp. Aug $75 (1,035)
100 U.S. Robotics Corp. Aug $80 (298)
100 ValuJet Airlines, Inc. Jul $35 (10)
100 ValuJet Airlines, Inc. Aug $40 (5)
600 ValuJet Airlines, Inc. Sep $40 (56)
100 Watson Pharmaceuticals, Inc. Jul $40 (6)
</TABLE>
<TABLE>
<CAPTION>
Contracts Value
<S> <C> <C>
90 Watson Pharmaceuticals, Inc. Aug $35 $ (33)
Total Covered Call Options (2,153)
(Premium received: $899,000)
OTHER ASSETS LESS LIABILITIES--(0.2%) (283)
NET ASSETS--100.0% $116,924
</TABLE>
Notes to Portfolio of Investments
* Income producing security during the period ended June 30, 1995.
**The aggregate market value of stocks held in escrow at June 30, 1995
covering open covered call options written was $19,862,869.
Based on the cost of investments of $81,332,025 for federal income tax
purposes at June 30, 1995, the aggregate gross unrealized appreciation was
$41,786,382, the aggregate gross unrealized depreciation was $3,758,120, and
the net unrealized appreciation of investments was $38,028,262.
(a) The following securities are subject to legal or contractual restrictions
on sale. They were valued at cost on the dates of acquisition and at fair
value as determined by the board of trustees of the Fund as of June 30, 1995.
The aggregate value of restricted securities was $926,223 or 0.8% of net
assets, at June 30, 1995.
Growth Environmental, Inc. $580,000 face amount convertible debt purchased
in May, 1994 at a cost of $580,000.
Retirement Care Associates, Inc. 23,625 shares purchased in February, 1995
at a cost of $168,328 and 25,441 shares purchased in June, 1995 at a cost of
$225,789.
Zam's, Inc. $600,000 face amount convertible debt purchased in November,
1993 at a cost of $600,000.
See notes to Portfolio of Investments.
5
<PAGE>
OBERWEIS EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
(in thousands)
<TABLE>
<S> <C> <C>
ASSETS:
Investment securities at market value (Cost: $76,917,809) $115,714
Options purchased, at value (Cost: $2,318,500) 1,550
Repurchase agreement 2,096
Cash 395
Receivables:
Fund shares sold $892
Securities sold 258
Dividends and interest 126
----
Total receivables 1,276
Prepaid expenses 20
--------
Total Assets 121,051
LIABILITIES:
Options written, at value (Premiums received: $899,000) 2,153
Payables:
Fund shares repurchased $874
Securities purchased 978
Payable to adviser 80
Payable to distributor 31
----
Total Payables 1,963
Accrued expenses 11
--------
Total Liabilities 4,127
NET ASSETS $116,924
========
ANALYSIS OF NET ASSETS:
Aggregate paid in capital $ 78,213
Accumulated net realized gain from investment transactions 1,937
Net unrealized appreciation of investments 36,774
--------
Net assets $116,924
========
THE PRICING OF SHARES:
Net asset value, offering and redemption price per share
($116,923,548 divided by 4,350,806 shares outstanding) $ 26.87
========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
OBERWEIS EMERGING GROWTH FUND
STATEMENT OF OPERATIONS
Six months ended June 30, 1995
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 61
Interest 257
----
Total Investment Income $ 318
EXPENSES:
Advisory fees 212
Management fees 200
Distribution fees 175
Shareholder servicing fees 75
Custodian fees 80
Transfer agent fees 71
Professional fees 57
Registration fees 16
Shareholder reports 15
Insurance 6
Trustee fees 5
Other 3
----
Total Expenses 915
-------
NET INVESTMENT LOSS BEFORE EXPENSE REIMBURSEMENT (597)
Expense reimbursement 39
-------
NET INVESTMENT LOSS (558)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 2,932
Net realized loss from covered call options written (979)
-------
Total net realized gain 1,953
Increase in unrealized appreciation of investments 21,769
-------
Net realized and unrealized gain on investments 23,722
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $23,164
=======
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended June 30, 1995 and the year ended December 31, 1994
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (558) $ (979)
Net realized gain (loss) from investment transactions 1,953 (17)
Increase (decrease) in unrealized appreciation of
investments 21,769 (3,046)
-------- --------
Net increase (decrease) in net assets resulting from
operations 23,164 (4,042)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 24,701 26,882
Redemption of shares (20,955) (37,150)
-------- --------
Net increase (decrease) from capital share
transactions 3,746 (10,268)
-------- --------
Total increase (decrease) in net assets 26,910 (14,310)
NET ASSETS:
Beginning of year 90,014 104,324
-------- --------
End of year $116,924 $ 90,014
======== ========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business. Oberweis Emerging Growth Fund (the "Fund") is
registered under the Investment Company Act of 1940 as a diversified open-end
management investment company. The Fund is authorized to operate numerous
portfolios under various trading strategies. The Fund commenced operations of
one portfolio on January 7, 1987.
Investment valuation. Investments are stated at value. Each listed and unlisted
security for which last sale information is regularly reported is valued at the
last reported sales price on that day. If there has been no sale on such day,
then such security is valued at the current day's bid price. Any unlisted
security for which last sale information is not regularly reported and any
listed debt security which has an inactive listed market for which over-the-
counter market quotations are readily available is valued at the highest
closing bid price determined on the basis of reasonable inquiry. Restricted
securities and any other securities or other assets for which market quotations
are not readily available are valued by appraisal at their fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Board of Trustees. Short-term debt
obligations, commercial paper and repurchase agreements are valued on the basis
of quoted yields for securities of comparable maturity, quality and type or on
the basis of amortized costs.
Fund share valuation. Fund shares are sold and redeemed on a continuous basis
at net asset value. On each day the New York Stock Exchange is open for
trading, the net asset value per share is determined as of the later of the
close of the New York Stock Exchange or the Chicago Board Options Exchange by
dividing the total value of the Fund's investments and other assets, less
liabilities, by the number of Fund shares outstanding.
Investment transactions and investment income. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis and includes amortization of money market
instrument premium and discount. Realized gains and losses from investment
transactions are reported on an identified cost basis. Gains and losses on
premiums from expired options are recognized on date of expiration.
Repurchase agreements. Repurchase agreements are fully collateralized by U.S.
Treasury and Government agency securities. All collateral is held through the
Fund's custodian bank and is monitored daily by the Fund so that its market
value exceeds the carrying value of the repurchase agreement.
Federal income taxes and dividends to shareholders. The Fund has complied with
the special provisions of the Internal Revenue Code available to investment
companies and therefore no federal income tax provision is required. Dividends
payable to its shareholders are recorded by the Fund on the ex-dividend date.
The accumulated net realized loss from investment transactions for federal
income tax purposes at December 31, 1994, amounting to approximately $17,000,
is available to offset future taxable gains. If not applied, the loss
carryforward expires during the year in 2002.
8
<PAGE>
2. TRANSACTIONS WITH AFFILIATES
The Fund has written agreements with Oberweis Asset Management, Inc. ("OAM") as
the Fund's investment adviser, manager and primary shareholder service agent;
and The Chicago Corporation ("TCC") as the Fund's principal distributor.
Advisory agreement. During the six months ended June 30, 1995, the Fund paid
monthly investment advisory fees at an annual rate equal to .45% of the first
$50,000,000 of average daily net assets and .40% of average daily net assets in
excess of $50,000,000. For the six months ended June 30, 1995, the Fund
incurred an advisory fee totalling $212,000.
Management agreement. During the six months ended June 30, 1995, for management
services and facilities furnished, the Fund paid a monthly fee at an annual
rate equal to .40% of average daily net assets. For the six months ended June
30, 1995, the Fund incurred a management fee totalling $200,000.
Expense Reimbursement. The manager and investment adviser are obligated to
reduce their investment advisory and management fees or reimburse the Fund to
the extent that total ordinary operating expense, as defined, exceed in any one
year the following amounts expressed as a percentage of the Fund's average
daily net assets: 2% of the first $25,000,000; plus 1.8% of the next
$25,000,000; plus 1.6% of average daily net assets in excess of $50,000,000; or
such lower percentage as may be required by any state where the Fund's shares
are registered. For the six months ended June 30, 1995, OAM reimbursed the Fund
$38,510.
Officers and trustees. Certain officers or trustees of the Fund are also
officers or directors of OAM. During the six months ended June 30, 1995, the
fund made no direct payments to its officers and paid $4,818 to its
unaffiliated trustees. James D. Oberweis, the Fund's portfolio manager, is
employed by OAM and TCC.
Distribution and shareholder service expense. The Fund has a distribution
agreement with The Chicago Corporation (TCC). For services under the
distribution agreement, the Fund pays TCC a fee at the annual rate of .35% of
the average daily net assets and reimbursement for certain out-of-pocket
expenses. For the six months ended June 30, 1995, the Fund incurred a
distribution fee totalling $175,000. The Fund has a shareholder service
agreement with OAM. For services under the shareholder service agreement, the
Fund pays OAM a fee at the annual fate of .15% of the average daily net assets
and reimbursement for certain out-of-pocket expenses. For the six months ended
June 30, 1995, the Fund incurred a shareholder service fee totalling $75,000.
Commissions. The Fund pays TCC for executing some of the Fund's agency security
transactions at competitive rates, typically $.03 to $.05 per share. For the
six months ended June 30, 1995, the Fund paid commissions of $13,000 to TCC.
9
<PAGE>
3. INVESTMENT TRANSACTIONS
The cost of securities purchased and proceeds from securities sold during the
six months ended June 30, 1995, other than options written and money market
investments, aggregated $37,653,902 and $37,802,561, respectively.
Transactions in options written for the six months ended June 30, 1995, were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Options outstanding at beginning
of period 245 $ 53,000
Options written 12,604 1,752,000
Options expired (4,495) (482,000)
Options closed (2,065) (253,000)
Options assigned (1,530) (171,000)
------ ----------
Options outstanding at end of
period 4,759 $ 899,000
</TABLE>
The premiums received provide a partial hedge (protection) against declining
prices and enables the Fund to generate a higher return during periods when OAM
does not expect the underlying security to make any major price moves in the
near future but still deems the underlying security to be, over the long term,
an attractive investment for the Fund.
4. CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE YEAR ENDED DECEMBER 31,
30, 1995 1994
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,031,000 $24,701,000 1,272,000 $26,882,000
Less shares redeemed (884,000) (20,955,000) (1,771,000) (37,150,000)
--------- ----------- ---------- ------------
Net increase (decrease) from
capital share transactions 147,000 $3,746,000 (499,000) $(10,268,000)
</TABLE>
10
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period is as follows (c):
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED ---------------------------------------
JUNE 30, 1995 1994 1993 1992 1991
------------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11
Income from investment
operations:
Net investment loss (.13) (.22) (.22) (.21) (.09)
Net realized and
unrealized gain (loss)
on investments 5.59 (.56) 2.25 2.72 10.64
----------- -------- --------- --------- -------
Total from investment
operations 5.46 (.78) 2.03 2.51 10.55
Less Distributions:
Distribution from net
realized gains on
investments -- -- (.74) -- (4.27)
----------- -------- --------- --------- -------
Net asset value at end
of period $ 26.87 $ 21.41 $ 22.19 $ 20.90 $ 18.39
=========== ======== ========= ========= =======
Total Return(%)(b) 25.5 (3.5) 9.7 13.7 87.1
Ratio/Supplemental Data
Net Assets at end of
period (in thousands) $116,924 $ 90,014 $104,324 $54,063 $19,730
Ratio of expenses to
average daily net
assets(%) 1.75(a,d) 1.78 1.80(a) 1.99(a) 2.13(a)
Ratio of net investment
loss to average net
assets(%) (1.26)(a,d) (1.06) (1.04)(a) (1.14)(a) (1.27)
Portfolio turnover
rate(%) 75 66 70 63 114
</TABLE>
- --------
Notes:
(a) Net of expense reimbursement from related parties. Expense ratios would
have been 1.83%, 1.82%, 2.41%, and 3.01% for 1995, 1993, 1992 and 1991,
respectively before expense reimbursement.
(b) A sales load of 4% was charged until December 31, 1991 and is not reflected
in the total return figures above.
(c) The per share data was determined using average shares outstanding during
the year.
(d) Annualized.
11
<PAGE>
[LOGO] Oberweis Emerging Growth Fund
- --------------------------------------------------------------------------------
James D. Oberweis Peter H. Wendell
Trustee and President Trustee
Douglas P. Hoffmeyer Thomas J. Burke
Trustee Trustee
Patrick B. Joyce Edward F. Streit
Executive Vice President Trustee
Treasurer
Martin L. Yokosawa
James M. Roberts Vice President
Vice President
Anita I. Mraz
Mary Jane Murphy Secretary
Assistant Secretary
MANAGER AND INVESTMENT ADVISOR
Oberweis Asset Management, Inc.
One Constitution Drive, Aurora, Illinois 60506
DISTRIBUTOR
The Chicago Corporation
208 South LaSalle, Chicago, Illinois 60604
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
P.O. Box 419042, Kansas City, Missouri 64141
COUNSEL
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago, Illinois 60601
[LOGO] Oberweis
Emerging Growth
Fund
One Constitution Drive
Aurora, IL 60506
(800) 323-6166
SEMI-ANNUAL REPORT
---------------------------------------
UNAUDITED
JUNE 30, 1995
