<PAGE>
The Oberweis Funds
The Oberweis Funds (the "Fund") is a managed, diversified, open-end mutual fund
currently
consisting of three portfolios--the Oberweis Emerging Growth Portfolio (the
"Emerging Growth Portfolio"), the Oberweis Micro-Cap Portfolio (the "Micro-Cap
Portfolio") and the Oberweis Mid-Cap Portfolio (the "Mid-Cap Portfolio").
The Micro-Cap Portfolio commenced the public offering of shares on January 1,
1996 at $10 per share. Effective as of May 22, 1996, the Micro-Cap Portfolio
had net assets in excess of $50 million and in connection with the Fund's in-
tention to cap the Micro-Cap Portfolio's assets at $50 million, the Fund ceased
sales of shares of the Micro-Cap Portfolio to both new shareholders and exist-
ing shareholders. The Fund reserves the right to again offer shares of the
Micro-Cap Portfolio at a future date.
The Mid-Cap Portfolio commenced the public offering of shares on September 15,
1996 at $10 per share.
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 9.)
A Statement of Additional Information for the Fund dated September 15, 1996 as
may be amended from time to time has been filed with the Securities and Ex-
change Commission and may be obtained without charge by calling or writing the
Fund at the telephone number or address listed below. The Statement of Addi-
tional Information is incorporated by reference into this Prospectus.
- --------------------------------------------------------------------------------
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
(800) 323-6166
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Synopsis of Fees............................................................ 2
Financial Highlights........................................................ 3
Performance Comparison...................................................... 5
Investment Objective, Policies and Risks.................................... 7
Management of the Portfolios................................................ 10
The Advisory and Management
Agreements................................................................. 11
Distribution of Shares...................................................... 11
Expenses of the Fund........................................................ 12
Portfolio Transactions...................................................... 12
How to Purchase Shares...................................................... 13
How to Redeem Shares........................................................ 13
Net Asset Value............................................................. 14
Shareholder Services........................................................ 15
Dividends, Distributions and Tax Status..................................... 16
The Custodian and Transfer Agent............................................ 17
General Information......................................................... 17
</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 September 15, 1996
<PAGE>
SYNOPSIS OF FEES
<TABLE>
<CAPTION>
PORTFOLIO
---------------------
EMERGING MICRO- MID-
SHAREHOLDER TRANSACTION EXPENSES(1) GROWTH CAP CAP
- ----------------------------------- -------- ------ -----
<S> <C> <C> <C>
Sales Charge Imposed on Purchases (as a percentage of
offering price)......................................... None None None
Sales Charge Imposed on Reinvested Dividends or Capital
Gain Distributions...................................... None None None
Redemption Fees.......................................... None .25% .25%
Exchange Fees............................................ None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Advisory and Management Fees............................. .82% 1.00% .80%
12b-1 Fees............................................... .25% .25% .25%
Other Expenses........................................... .34% .50% .95%
Total Fund Operating Expenses(2)......................... 1.41% 1.75% 2.00%
</TABLE>
- --------
(1) Investment dealers and other firms may independently charge additional
fees for shareholder transactions or for advisory services; please see their
materials for details.
(2) The Manager will reimburse each Portfolio for total operating expenses in
excess of 2% of average daily net assets for 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. 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......................... $14 $45 $77 $169
Micro-Cap Portfolio............................... $20 $58 $98 $210
Mid-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 and Mid-Cap Portfolios, which is deducted from the re-
demption proceeds 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 de-
ducted from a Shareholder's redemption amount. Other Expenses for the Mid-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 Mid-Cap Portfolio commenced the public offering of shares
on September 15, 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 Prospectus headings "The Advisory and Management Agreements," "Dis-
tribution of Shares," "Expenses of the Fund," and "Portfolio Transactions," as
well as the Statement of Additional Information incorporated by reference into
this Prospectus.
2
<PAGE>
FINANCIAL HIGHLIGHTS FOR THE EMERGING GROWTH PORTFOLIO
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, 1996,
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,
1996 YEARS ENDED DECEMBER 31,
----------- -------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ----------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11
Income from Investment
Operations:
Net investment loss..... (0.11) (0.33) (0.22) (0.22) (0.21) (0.09)
Net realized and
unrealized gain (loss)
on investments......... 6.28 9.43 (0.56) 2.25 2.72 10.64
-------- ----------- -------- ----------- ---------- ----------
Total from investment
operations............. 6.17 9.10 (0.78) 2.03 2.51 10.55
Less Distributions:
Net realized gain on
investments............ -- (1.42) -- (0.74) -- (4.27)
-------- ----------- -------- ----------- ---------- ----------
Net Asset Value, End of
Period................. $ 35.26 $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39
======== =========== ======== =========== ========== ==========
Total Return (%)(b)..... 21.2(e) 42.6 (3.5) 9.7 13.7 87.1
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $207,450 $134,663 $90,014 $104,324 $54,063 $19,730
Ratio of expenses to
average net assets (%). 1.41(c) 1.73(a) 1.78 1.80(a) 1.99(a) 2.13(a)
Ratio of net investment
loss to average net
assets (%)............. 0.65(c) (1.24) (1.06) (1.04) (1.14) (1.27)
Portfolio turnover rate
(%).................... 61 79 66 70 63 114
Average commission rate
paid................... 0.0311 -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1990 1989 1988 1987(D)
---------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 12.06 $ 9.65 $ 9.13 $ 10.04
Income from Investment
Operations:
Net investment loss..... (0.24) (0.35) (0.20) (0.15)
Net realized and
unrealized gain (loss)
on investments......... 0.29 2.76 0.72 (0.76)
---------- ---------- -------- -----------
Total from investment
operations............. 0.05 2.41 0.52 (0.91)
Less Distributions:
Net realized gain on
investments............ -- -- -- --
---------- ---------- -------- -----------
Net Asset Value, End of
Period................. $ 12.11 $ 12.06 $ 9.65 $ 9.13
========== ========== ======== ===========
Total Return (%)(b)..... 0.4 25.0 5.7 (9.1)
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $11,604 $12,940 $15,914 $16,856
Ratio of expenses to
average net assets (%). 2.15(a) 2.00(a) 2.46 1.99(c)
Ratio of net investment
loss to average net
assets (%)............. (1.24) (1.19) (1.80) (1.48)(c)
Portfolio turnover rate
(%).................... 62 112 67 55
Average commission rate
paid................... -- -- -- --
</TABLE>
- -------
(a) Net of expense reimbursement from related parties. Expense ratios would
have been 1.77% 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 Portfolio, January 7, 1987.
(e) Total return has not been annualized.
3
<PAGE>
FINANCIAL HIGHLIGHTS FOR THE MICRO-CAP PORTFOLIO
The following table shows important unaudited financial information for the
Micro-Cap Portfolio expressed in terms of one share outstanding, throughout the
period January 1, 1996 through June 30, 1996. The per share date was determined
using average shares outstanding during the period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, 1996(B)
-----------
(UNAUDITED)
<S> <C>
Net Asset Value, Beginning of Period............................... $10.00
Income from Investment Operations:
Net investment loss............................................... --
Net realized and unrealized gain (loss) on investments............ 3.92
-------
Total from investment operations.................................. 3.92
Less Distributions:
Net realized gain on investments.................................. --
-------
Net Asset Value, End of Period.................................... $ 13.92
=======
Total Return (%) 39.2(c)
Ratios/Supplemental Data:
Net assets, end of period (in thousands).......................... $45,352
Ratio of expenses to average net assets (%)....................... 1.75(a)
Ratio of net investment loss to average net assets (%)............ (0.01)
Portfolio turnover rate (%)....................................... 40
Average commission rate paid...................................... 0.0300
</TABLE>
- --------
(a) Annualized.
(b) From inception of Portfolio, January 1, 1996.
(c) Total return has not been annualized.
4
<PAGE>
PERFORMANCE COMPARISON
The following table compares the Emerging Growth Portfolio's total return for
the one year periods ended December 31, 1995 and June 30, 1996 with the total
return of various indexes of unmanaged securities:
<TABLE>
<CAPTION>
ONE YEAR ONE YEAR
PERIOD ENDED PERIOD ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Oberweis Emerging Growth Portfolio.................... 42.6% 37.7%
Dow-Jones Industrial Average.......................... 33.5% 27.1%
S&P 500............................................... 37.6% 26.0%
NASDAQ National Composite............................. 39.9% 27.0%
Lipper Small Company Growth Index..................... 31.4% 30.3%
Russell 2000 Index.................................... 28.4% 23.9%
Wilshire 5000 Index................................... 36.4% 26.2%
</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, 1996 are:
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PAST PAST LIFE OF FUND
1 YEAR 5 YEARS (1/7/87)
------ ------- ------------
<S> <C> <C> <C>
Emerging Growth Portfolio..................... 37.7% 23.4% 17.7%
S&P 500....................................... 26.0% 13.7% 14.2%
Russell 2000 Index............................ 23.9% 17.5% 11.7%
</TABLE>
In advertising, sales literature and other publications, the Portfolios' per-
formance may be quoted in terms of total return or average annual total return,
which may be compared with various indices and investments, other performance
measures or rankings, or other mutual funds, or indices or averages of other
mutual funds.
5
<PAGE>
ASSUMED $10,000 INVESTMENT IN THE EMERGING GROWTH PORTFOLIO
FROM 1/07/87 THROUGH 6/30/96
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM JANUARY 7, 1987 TO JUNE 30, 1996
LOGO
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.
6
<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--Each of the Portfolios 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 Mid-Cap Portfolio will generally invest in companies with market capital-
ization between $500 million and $5 billion at the time of acquisition.
The Emerging Growth Portfolio may invest in companies of all size capitaliza-
tions, however, because it is believed that the potential for such growth may
tend to be found more often in relatively small capitalization companies, which
fall in the lowest 30% capitalization of the companies listed on the New York
Stock Exchange or companies of similar or smaller capitalization which are
listed on the American Stock Exchange or are traded over the counter (typically
with capitalization of less than $1 billion), it is anticipated that approxi-
mately 80% of the Portfolio's assets will be invested in the securities of such
smaller companies with the Portfolio's average market capitalization being $600
million. However, such percentage may vary greatly from time to time based on
OAM's analysis of economic and market conditions
The Micro-Cap Portfolio will generally invest in companies with a market capi-
talization of not more than $250 million at the time of acquisition, with the
Portfolio's average market capitalization being approximately $100 million. It
is anticipated that at least 80% of the companies that the Portfolio will in-
vest in will have a market capitalization of not more than $250 million at the
time of purchase and at least 50% of the companies will have market capitaliza-
tion of $100 million 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
for companies being considered for investment by the Emerging Growth and Mi-
cro-Cap Portfolios and at least 20% in the latest quarter for companies being
considered for investment by the Mid-Cap Portfolio;
2. rapid growth in pre-tax income (at least 30% in the latest quarter for
companies being considered for investment by the Emerging Growth and Micro-
Cap Portfolios and at least 20% in the latest quarter for companies being
considered for investment by the Mid-Cap Portfolio) 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 for companies being considered for investment by the
Emerging Growth and Micro-Cap Portfolios and generally a price earnings ratio
of not more than the company's growth rate for companies being considered for
investment by the Mid-Cap Portfolio;
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. Although securi-
ties of a particular company may be eligible for purchase by more than one
Portfolio, OAM may determine that at any particular time it is appropriate to
purchase a security for one Portfolio but not another. In addition, transac-
tions in a particular security may not be accomplished for all Portfolios at
the same time or the same price.
7
<PAGE>
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-
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;
(4) purchasing additional securities when money borrowed exceeds 5% of the
Portfolio's total assets; and
(5) 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 invest-
ment program. Dividends 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 creditworthiness
of the borrowers to which it makes portfolio security loans.
8
<PAGE>
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 States.
With respect to
certain foreign countries, there is a possibility of
9
<PAGE>
expropriation or diplomatic developments that could affect investment in these
countries.
Repurchase Agreements. Repurchase agreements involve the purchase of a security
by a Portfolio and a simultaneous agreement (with a qualified bank or securi-
ties dealer) to repurchase the security from the Portfolio at a certain date at
an agreed upon price, plus an agreed upon market rate of interest that is unre-
lated to the coupon rate or date of maturity of the security. This technique
offers a method of earning income on idle cash. In these transactions, the se-
curities 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. The transactions involve the risk that the Seller will
fail to repurchase the securities, as agreed. In that case, a Portfolio will
bear the risk of market value fluctuations until the security can be sold and
may encounter delays and incur costs in liquidating the security.
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 ("Mr. Oberweis"), portfolio manager of both the Emerging
Growth and the Micro-Cap Portfolio since its inception. Mr. Oberweis and James
W. Oberweis are co-portfolio managers of the Mid-Cap Portfolio.
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 shareholder 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 experience
in selecting securities for investment for private clients. In addition to the
Fund, Mr. Oberweis manages segregated accounts for institutional and individual
investors. James W. Oberweis is a Vice President of the Fund and OAM and a reg-
istered representative of TCC. James W. Oberweis joined OAM in 1995 as a
Portfolio Manager. Prior to joining OAM, James W.
Oberweis was a student at the University of Illinois, where he earned a Bache-
lor of Science degree in Engineering.
Since January 1, 1996, OAM provides the Fund with investment advisory and man-
agement 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 North Aurora, Illinois. OAM was incorpo-
rated 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 in-
vestment 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.
10
<PAGE>
THE ADVISORY AND MANAGEMENT AGREEMENTS
OAM provides each Portfolio with investment advisory services under a written
agreement with the Fund dated October 1, 1994 (the "Investment Advisory Agree-
ment"). 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. For the Portfolio, the average rate
paid to OAM in the aggregate for the year ended December 31, 1995 was .42%. OAM
receives an annual fee of .60% of the average daily net assets of the Micro-Cap
Portfolio and an annual fee of .40% of the average daily net assets of the Mid-
Cap Portfolio.
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 but as noted below it is
anticipated that this arrangement will be terminated at some future date. The
Fund will finance certain 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 Jan-
uary 1, 1996 (collectively 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 receive compensation that is more or less than the actual expen-
ditures 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, car-
rying 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.
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 post-
11
<PAGE>
age, data entry, modification 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 Agreement, such costs must be actual, out-of-pocket costs, and the to-
tal amount of 12b-1 fees, including reimbursement of such costs, is included in
the total expenses of the Portfolio, subject to the expense limitation based on
average daily net assets of each Portfolio. (See "Expenses of the Fund," be-
low.) TCC will furnish with each monthly statement for such reimbursement a
written listing of the expenditures on behalf of each Portfolio and their pur-
pose.
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 ChiCorp, Inc., parent company of TCC, which is the Fund's Distribu-
tor and Shareholders' Service Agent. The acquisition will result in the merger
of ChiCorp, Inc. with a wholly-owned subsidiary of ABN-AMRO Bank, N.V. The ac-
quisition is contingent upon approval by the Federal Reserve Board. Upon
completion of the acquisition, it is anticipated that TCC will cease to be the
Fund's Distributor and Shareholders' Service Agent and that the Fund will need
to enter into agreements with a new Distributor and Shareholders' Service
Agent. It is also anticipated that certain officers and/or trustees of the
Fund, who are also officers and/or directors of TCC, may have to alter their
affiliation with the Fund or TCC to satisfy regulatory requirements related to
such acquisition.
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, 1995, total expenses incurred by the Emerging Growth Portfolio were
$2,051,585, and the ratio of such total expenses to the Portfolio's average
daily net assets was 1.77%. Pursuant to the expense limitation, OAM reimbursed
the Emerging Growth Portfolio during 1995 in the amount of $48,368, resulting
in net expenses of $2,003,217 and a net expense ratio of 1.73%.
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, 1995 was 79%. It is ex-
pected that the annual portfolio turnover rate for the Micro-Cap Portfolio and
the Mid-Cap Portfolio during each Portfolio's first year of operations will not
exceed 75%.
For the period January 1, 1995 through December 31, 1995, the total brokerage
commissions paid by the Emerging Growth Portfolio were $167,622, of which
$35,200 was paid to TCC, the Fund's distributor. The total amount of securities
transactions on which the Portfolio paid brokerage commissions during the pe-
riod January 1, 1995 through December 31, 1995 was $61,677,640. The total
amount of principal transactions of the Portfolio for such period, for which no
commission was incurred, was $134,221,527.
12
<PAGE>
HOW TO PURCHASE SHARES
GENERAL--The minimum initial investment for each Portfolio is $1,000. This
minimum 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
dealer, bank or other institution having a sales agreement with TCC or by con-
tacting 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
number, 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 im-
mediately. 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, includ-
ing 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
redemption 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 de-
termined 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.
13
<PAGE>
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 appropriate, and subject to certain limita-
tions, 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. The Transfer Agent employs procedures reasonably designed to confirm
that instructions communicated by telephone are genuine, including requiring
certain identifying information prior to acting upon instructions, recording
all telephone instructions and sending written confirmation of telephone in-
structions. Provided such procedures are reasonably followed, neither the Fund
nor the Transfer Agent would be liable for any losses from instructions commu-
nicated by telephone even if unauthorized or fraudulent.
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 na-
tional securities exchange, registered securities association or clearing
agency, and/or savings association. The Transfer Agent may reject redemption
instructions if the guarantor is neither a member of nor a participant in a
signature guarantee program (currently known as "STAMP"). A redemption request
for shares held by a corporation, trust, partnership, agent or fiduciary must
be signed by an appropriately authorized person and include additional docu-
ments of a customary nature to verify the authority of the person seeking
redemption, such as a certified 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 requiring 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
14
<PAGE>
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 regarding the methods
employed in valuing the Portfolios' investments, see the Statement of Addi-
tional Information under the heading "Determination of Net Asset 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 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 Exchange, on each
day the New York Stock Exchange is open for trading. 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 per-formed by the Fund's
Transfer Agent. (See "The Custodian and Transfer Agent.")
EXCHANGE PRIVILEGE--All or part of Portfolio shares owned by a shareholder may
be exchanged for shares of any other Portfolio in The Oberweis Funds offering
shares at that time or money market funds in the Cash Resource Trust--the Cash
Resource Money Market Fund, the Cash Resource U.S. Government Money Market
Fund, and the Cash Resource Tax-Exempt Money Market Fund (collectively the
"Cash Resource Trust"). Shareholders may subsequently exchange such shares pur-
chased and shares purchased with reinvested dividends for shares of the Fund.
Shares will be exchanged for each other based upon their relative net asset
values except that, the Micro-Cap and Mid-Cap Portfolios deduct a withdrawal
charge of .25% of the value of shares redeemed, which deduction also applies to
shares exchanged out of each of those Portfolios.
Cash Resource Trust Funds are described in a separate prospectus. Shareholders
may obtain a copy of the prospectus for any Cash Resource Trust Fund by calling
1-800-245-7311 or writing to 951 Ice Cream Drive, North Aurora, Illinois 60542,
and are advised to read it carefully before authorizing any investment in
shares of such fund. Exchange requests are subject to a $1,000 minimum.
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 ex-
change. Please remember that you cannot place any conditions 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.
Exchanging Shares is available only in states where shares of a particular
Portfolio being acquired may
15
<PAGE>
legally be sold. The exchange privilege is not a right and may be suspended,
terminated or modified at any time. Except as otherwise permitted by applicable
regulations, 60 days' prior written notice of any termination or material
change will be provided.
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 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 shareholder is responsible for any
charges incurred as a result of an unhonored transaction. If a shareholder can-
cels the Low Minimum Initial Investment Plan before a one-year period, the Fund
reserves the right to redeem the shareholder'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 Investment Plan at any time. See the Account
Application for additional details. As stated on the Cover Page, the Fund
ceased sales of shares of the Micro-Cap Portfolio to both new shareholders and
existing Shareholders on May 22, 1996. As a result, the ability of shareholders
to make investments in the Micro-Cap Portfolio through the Automatic Investment
Plan was terminated 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 intends to distribute 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
16
<PAGE>
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 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 ap-
plicable tax treaty rate from dividends that are paid to certain 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 Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held per-
sonally liable for the obligations of the trust, which is not the case in a
corporation. The Trust Agreement provides that shareholders shall not be sub-
ject to any personal liability to any person extending credit to, contracting
with or having any claims against the Fund and that every written agreement,
obligation, instrument or undertaking made by the Fund shall contain a provi-
sion 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 obliga-
tions 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 liability is
considered remote.
OAM, the Fund's investment adviser, deposited the initial $10,000 seed capital
in the Mid-Cap Portfolio on June 18, 1996. As of that date, OAM owned more than
25% of the Mid-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 951 Ice Cream Drive,
Suite 200, North Aurora, Illinois 60542 or (800) 323-6166.
17
<PAGE>
- --------------------------------------------------------------------------------
LOGO THE
OBERWEIS
FUNDS
PROSPECTUS
- -------------------------------------
September 15, 1996
INVESTMENT ADVISER/MANAGER
Oberweis Asset Management, Inc.
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
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 any of its Portfolios, simply call
our toll-free number: 1-800-323-6166
For information about an existing account, call Shareholder Services at 1-800-
245-7311
Please read the prospectus carefully before investing or sending money.
LOGO
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE OBERWEIS FUNDS
951 ICE CREAM DRIVE, SUITE 200
NORTH AURORA, ILLINOIS 60542
(800) 323-6166
----------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated September 15, 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 September 15, 1996.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective, Policies and Restrictions............................. 2
Management of the Fund...................................................... 6
Oberweis Asset Management, Inc.............................................. 7
Distribution Plan and Agreement............................................. 9
Expenses Borne by the Portfolios............................................ 11
Portfolio Transactions...................................................... 12
Shareholder Voting Rights................................................... 14
Redemption of Shares........................................................ 15
Shareholder Services........................................................ 15
Determination of Net Asset Value............................................ 15
Taxes....................................................................... 16
Calculation of Average Annual Total Return.................................. 17
Additional Information...................................................... 17
Independent Auditors' Report
Financial Statements
</TABLE>
<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, 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;
2
<PAGE>
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;
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.
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
3
<PAGE>
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 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.
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.
4
<PAGE>
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.
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 (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.
5
<PAGE>
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 and manager, and/or The Chicago Corporation ("TCC"), the Fund's
distributor and shareholder service agent.
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.
JAMES D. OBERWEIS, Trustee and President (50) *
951 Ice Cream Drive, North Aurora, Illinois 60542; 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 to 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)
951 Ice Cream Drive, North Aurora, Illinois 60542; 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.
- --------
* "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.
6
<PAGE>
MARTIN L. YOKOSAWA, Vice President (36)
951 Ice Cream Drive, North Aurora, Illinois 60542; 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)
951 Ice Cream Drive, North Aurora, Illinois 60542; 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.
JAMES W. OBERWEIS, Vice President (22)
951 Ice Cream Drive, North Aurora, Illinois 60542; Vice President--Oberweis
Asset Management, Inc., May, 1996 to present and Portfolio Manager from
December, 1995 to present; Registered Representative--The Chicago Corporation,
March, 1996 to present; Student--University of Illinois at Champaign-Urbana,
August, 1991 to December, 1995.
SALLY A. REEVES, Secretary (25)
951 Ice Cream Drive, North Aurora, Illinois 60542; Administrative Assistant--
The Chicago Corporation, June, 1996 to present; Office-Manager Home Re-
Creations Ltd., January, 1995 to June, 1996; Account Manager--Tek Electronics,
Inc., August, 1994 to January, 1995; Account Manager/Commercial Accounts--
Waste Management-West, November 1992 to August, 1994;
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 $750 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 holds at least one meeting
during each year.
The following table sets forth the compensation received by all trustees of
the Fund for the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED
COMPENSATION ACCRUED AS PART OF ANNUAL BENEFITS TOTAL
TRUSTEE FROM THE FUND FUND EXPENSES UPON RETIREMENT COMPENSATION
------- ------------- ------------------- --------------- ------------
<S> <C> <C> <C> <C>
Thomas J. Burke......... $3,000 0 0 $3,000
Douglas P. Hoffmeyer.... 2,500 0 0 2,500
James D. Oberweis....... 0 0 0 0
Edward F. Streit........ 3,000 0 0 3,000
Peter H. Wendell........ 0 0 0 0
</TABLE>
As of August 30, 1996, the officers and Trustees of the Fund as a group
owned of record or beneficially 1.1% and 2.8% of the then outstanding shares
of the Emerging Growth Portfolio and the Micro-Cap Portfolio, respectively.
OBERWEIS ASSET MANAGEMENT, INC.
The Fund's investment adviser, since October 1, 1994, is Oberweis Asset
Management, Inc. ("OAM"), an investment adviser based in North 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 which
the Fund is required to maintain under applicable law, and rendering regular
reports to the
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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, 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, and from the Mid-Cap Portfolio at the end of each month a fee
at the annual rate of .40% of the average daily net assets of the Portfolio.
For the year ended December 31, 1995, the advisory fees incurred by the
Emerging Growth Portfolio and payable to OAM were $487,816. The advisory fees
incurred and payable to OAM were $96,759 for the period October 1, 1994
through December 31, 1994, and 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. 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.")
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
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
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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.
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 year ended December 31, 1995, the management fees
incurred by the Emerging Growth Portfolio and paid to OAM were $462,815 and
pursuant to the expense limitation provisions of the Management Agreement, OAM
during 1995 rebated $48,368 of such amount. For the period October 1, 1994
through December 31, 1994, the management fees incurred by the Emerging Growth
Portfolio and paid to OAM were $90,458. 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. 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 year ended December 31, 1993,
management fees incurred by the Emerging Growth Portfolio and paid to Hamilton
Investments were $356,178 and pursuant to the expense limitation provisions of
the then existing management agreement, Hamilton Investments was required to
rebate to the Portfolio $10,228 of such amount.
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 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
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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
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.
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<PAGE>
For the year ended December 31, 1995, total 12b-1 fees paid by the Emerging
Growth Portfolio to TCC and OAM were $404,963 and $173,556, respectively. 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
the above noted time periods, 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% of 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 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 Portfolio to
Hamilton Investments were $349,031.
For the 12 month period ended December 31, 1995, the Emerging Growth
Portfolio paid the following amounts under the Rule 12b-1 Plan in the
approximate amounts noted: $33,470 in sales promotion and literature expenses,
$215,031 in service fees paid to brokers, $77,814 in salary expenses and
employment services, $7,414 in telephone expenses, $24,773 in professional
fees, and $733 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 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.
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(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, 1995, total expenses incurred by the
Emerging Growth Portfolio were $2,051,585 and the ratio of such total expenses
to the Portfolio's average net asset value was 1.77%. Pursuant to the expense
limitation, OAM was required to reimburse the Emerging Growth Portfolio in the
amount of $48,368, resulting in net expenses of $2,003,217 and a net expense
ratio of 1.73%.
PORTFOLIO TRANSACTIONS
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund's Portfolios are made by OAM. 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 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.
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<PAGE>
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. 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.
OAM may also enter into written agreements with non-affiliated broker-
dealers that provide it with research services or products whereby OAM agrees
to pay the broker-dealer a fixed dollar amount for such services or products
or, at the option of OAM, all or part of the fee may be offset by commissions
on securities orders placed by OAM for its advisory accounts, including the
Fund, with the broker-dealer at a pre-determined rate of commission dollars in
lieu of cash. To the extent the commissions are insufficient to pay the amount
owed to the broker-dealer, OAM would be obligated at the end of the contract
period to pay the balance owed in cash.
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.
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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 year ended December 31, 1995, the total brokerage commissions paid
by the Emerging Growth Portfolio was $167,622, of which 21% or $35,200, was
paid to TCC. The total amount of securities transactions on which the
Portfolio paid brokerage commissions during such period was $61,677,640.
Thirty-one percent (31%), or $19,217,364, 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, 1995, for which no commission was incurred, was $134,221,527.
For the 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 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 year ended December 31, 1993 the total brokerage commissions paid by
the Emerging Growth Portfolio was $153,239, of which $130,033 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. The
total amount of principal transactions of the Portfolio for such period, for
which no commission was incurred, was $99,743,039.
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
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.
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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.
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. 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
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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 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-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.
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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.
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, 1996 were 37.7%
and 23.4%, respectively, and for the period from the commencement of
operations on January 7, 1987 through June 30, 1996 was 17.7%, 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 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
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606, audits
and reports on the Fund's annual financial statements, reviews certain
regulatory reports and prepares the Fund's income tax returns,
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and performs other professional accounting, auditing and advisory services
when engaged to do so by the Fund. 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.
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