<PAGE>
PRESIDENT'S LETTER FEBRUARY 14, 1996
Dear Emerging Growth Portfolio Shareholder:
The surprising returns of this past year underscore the old Wall Street adage
"the Market tends to do what we least expect". While the most optimistic money
managers felt that the returns in 1995 would possibly be in line with historic
average market returns, few guessed that the lowering of interest rates,
combined with the corporate leanness resulting from past restructuring, would
lead to the exceptional stock market gains actually experienced in 1995. This
surprisingly strong market reemphasizes the importance of long term investing
and staying fully invested at all times so as not to miss these big gains when
they occur. After the spectacular 87% gain in 1991, I did not expect to see
another 40+ percent gain in this decade. I certainly don't expect to see yet
another such gain this decade, but who knows? A friend once stated that those
who try to guess the direction of interest rates are former weathermen who
were not accurate enough at forecasting the weather to keep their jobs. Much
the same could be said of those trying to anticipate the direction of the
stock market.
Fortunately, our policy of generally remaining fully invested produced
excellent results in 1995. Not only did we experience a very substantial
increase in Net Asset Value (42.6% including the reinvestment of the $1.42
long term capital gain distribution) compared to 37.6% for the total return
S&P 500, 39.9% for the NASDAQ Composite, and 28.4% for the Russell 2000, a
small-cap stock index, but in addition your trustees voted to reduce the 12b-1
fee by 50% to 25 basis points effective January 1st. This reduction means that
your fund now qualifies as a "no-load" fund. The expense ratio should also
decline this year as a result of that reduction. Your trustees felt that the
fund has now grown to a sufficient size that less incentives are needed to
grow it further. In fact, there is a practical limit as to how large we would
like to see this portfolio become since it can be difficult to purchase large
positions of small-cap stocks. While the Emerging Growth Portfolio can
purchase companies of any market-cap size, it aims to purchase companies with
market-caps of between $100 million and $1 billion, generally considered to be
"small-cap".
We have also added a second portfolio this year, the Micro-Cap Portfolio,
which invests in the smallest companies which meet our "octagon" investment
criteria. The Micro-Cap Portfolio focuses on companies with market-caps below
$100 million, through some small-cap companies of somewhat larger size may be
included. You can switch from one portfolio to the other with a phone call to
our shareholder service center (800-245-7311) though a one quarter of one
percent redemption charge would apply to redemptions of the Micro-Cap
Portfolio only. That redemption charge does not go to the distributor or
investment advisor, but rather accrues to the benefit of the remaining Micro-
Cap shareholders. We suggest that trying to trade between the portfolios is
not a prudent idea, but diversifying your investments between the two
portfolios may be.
As we look forward to 1996, though the year started with some pressure on
NASDAQ stocks, especially "technology" stocks, we believe that smaller,
rapidly growing companies represent the best investment opportunity in the
market today.
Finally, I would like to thank you for investing in our fund. Share prices can
be quite volatile on a day-to-day basis, but over the long run, accepting that
volatility should produce reasonable rewards. If you have any questions about
your account, please call shareholder services at 800-245-7311 during normal
business hours. If you have any questions about the fund's portfolio or
investment policy, please feel free to call me or either of our assistant
portfolio managers, Martin Yokosawa or Chip Roberts, at 800-323-6166. We're
usually in the office from 7:30 A.M. until 6:00 P.M. central time during the
week, and from 10:00 until noon on Saturday. If you're in the Chicago area, we
would be glad to have you visit us. We anticipate an early April move into new
offices at 951 Ice Cream Drive, North Aurora, Illinois, just off the I-88
Tollway.
/s/ James D. Oberweis
James D. Oberweis
President
1
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
The Oberweis Emerging Growth Portfolio is positioned to take advantage of the
long-term price appreciation that occurs when the market places an
appropriately high value on the fastest-growing companies. The market for such
companies (and most other investments) was particularly strong in 1995,
causing the Portfolio to have a return substantially above the NASDAQ
Composite and the Russell 2000 indices. The after-cost return of the Portfolio
was 42.6%, somewhat better than the 39.9% gain in the NASDAQ Composite and far
ahead of the 28.4% gain in the small-cap oriented Russell 2000 Index. The
Portfolio's one year, five-year, and life-of-Portfolio returns are all
substantially above the S&P 500 Index, the Russell 2000 Index, the NASDAQ
Composite, and most other broad stock market averages. We continue to believe
that investing in rapidly growing companies using our "octagon" criteria will
produce above average long term investment results, though, of course, there
are no guarantees. The decline in interest rates in 1995 tended to cause
investors to increase the price they were willing to pay for each $1 of
corporate earnings. At the same time, total corporate earnings were rising
rapidly, helping to push stock prices sharply higher. The relatively strong
performance of the stocks of fast-growing companies in 1995 enabled the
Portfolio to achieve extraordinary returns. The Portfolio's performance was
helped by a continuing reduction in expenses. In 1995, the Portfolio's expense
ratio declined to 1.73% from 1.78% in 1994, and from 1.80% in 1993. The
Portfolio is not specifically committed either to investing in small companies
or to a "Growth" style of investing, where stocks are purchased (regardless of
their price) based on the manager's expectation of growing earnings. Nor is
the Portfolio subject to a "momentum" style of investing where stocks are
purchased solely because they are moving up in price. Typically, the Portfolio
seeks to buy companies whose revenues and earnings are growing at a rate in
excess of 30% per annum, and whose shares sell at a P.E. not greater than one-
half of the company's rate of growth. This strategy combines the best features
of growth and value investing. Historically, most of the companies identified
by this strategy are smaller than the median New York Stock Exchange-listed
company, although there are notable exceptions. A majority of portfolio
companies have generally been traded over-the-counter. Portfolio turnover in
1995 was a moderate 79%, up slightly from 1994's 66%.
2
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
AVERAGE ANNUAL RETURNS (1)
PERIODS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1 5 LIFE OF FUND
YEAR YEAR (1/7/87)
- ------------------------------------------------------------
<S> <C> <C> <C>
Oberweis Emerging Growth Portfolio 42.6% 26.3% 16.3%
S&P 500 37.6% 16.6% 13.8%
Russell 2000 28.4% 21.0% 11.2%
</TABLE>
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM JANUARY 7, 1987 TO DECEMBER 31, 1995
[PERFORMANCE GRAPH APPEARS HERE]
[PLOT POINTS TO COME]
(1) Performance is historical and does not represent future results.
Investment returns and principal value vary, and you may have a gain or loss
when you sell shares. Results include the reinvestment of all dividends and
capital gains distributions. The Standard and Poor's Stock Index is an
unmanaged index generally representative of the U.S. stock market. The Russell
2000 Index is an unmanaged index consisting of 2000 small cap securities with
an average market capitalization of approximately $255 million. A sales load
of 4% was charged until December 31, 1991 and is not reflected in the total
return figures or graph above.
3
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 (Value in thousands)
Equity Securities - 96.7%
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
AIRLINES--2.2%
**120,000 ValuJet Airlines, [email protected] $ 2,970
APPAREL--0.6%
40,000 Kenneth Cole Productions, [email protected] 750
COMMERCIAL SERVICES--4.4%
15,000 Apac Teleservices, [email protected] 501
20,000 Central Sprinkler [email protected] 710
70,000 Employee Solutions, [email protected] 2,380
15,000 ITI Technologies, [email protected] 446
31,000 RTW, [email protected] 814
25,000 Sheridan Healthcare, [email protected] 303
30,000 Sterling Healthcare [email protected] 319
10,000 Sylvan Learning [email protected] 298
15,000 Vista 2000, [email protected] 148
5,919
COMPUTER GRAPHICS--0.6%
**10,000 Diamond Multimedia Systems, [email protected] 359
20,000 Pinnacle Systems, [email protected] 495
854
COMPUTER--INTEGRATED SYSTEMS--3.7%
58,000 Brooktrout Technology, [email protected] 1,653
20,000 Data Research Associates, [email protected] 375
20,000 HCIA, [email protected] 935
20,000 Kronos, [email protected] 950
60,000 PC Docs Group International, Inc. @17.875 1,073
4,986
COMPUTER--LOCAL NETWORKS--3.9%
20,000 Auspex Systems, [email protected] 365
**80,000 Madge Networks [email protected] 3,580
80,000 Microdyne [email protected] 1,360
5,305
COMPUTER--MEMORY DEVICES--2.0%
**58,500 Alliance Semiconductor [email protected] 680
1,000 Network Appliance, [email protected] 40
20,000 Sandisk [email protected] 300
70,000 Silicon Storage Technology, [email protected] 928
20,000 Veritas Software [email protected] 760
2,708
COMPUTER--MINI/MICRO--0.8%
40,000 Micron Electronics, [email protected] 430
52,000 *Scientific Technologies, Inc. @11.500 598
1,028
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
COMPUTER--OPTICAL RECOGNITION--0.5%
30,000 Robotic Vision Systems, [email protected] $ 724
COMPUTER PERIPHERALS--6.1%
110,000 Eltron International, [email protected] 3,905
**132,000 Mylex [email protected] 2,525
**20,000 *U.S. Robotics [email protected] 1,755
8,185
COMPUTER SERVICES--2.7%
11,900 AmeriData Technologies, Inc. [email protected] --
100,000 CIBER, [email protected] 2,337
55,000 Innodata [email protected] 241
25,000 Renaissance Solutions, [email protected] 356
75,000 Techforce [email protected] 656
3,590
COMPUTER SOFTWARE--15.8%
900 Advent Software, [email protected] 16
100,000 Applix, [email protected] 2,725
10,500 Astea International, [email protected] 240
14,000 Citrix Systems, [email protected] 455
10,000 Computron Software, [email protected] 180
50,000 Datastream Systems, [email protected] 950
**50,000 Electronics for Imaging, [email protected] 2,187
30,000 Firefox Communications, [email protected] 705
25,000 Gemstar International Group [email protected] 709
2,000 GT Interactive [email protected] 28
30,000 Hummingbird Communications [email protected] 1,215
20,000 Insignia Solutions, [email protected] 235
20,000 Legato Systems, [email protected] 620
**10,000 Macromedia, [email protected] 523
30,000 MDL Information [email protected] 690
60,000 Natural MicroSystems [email protected] 1,830
**40,000 NetManage, [email protected] 930
41,000 On Technology [email protected] 533
20,000 Periphonics [email protected] 555
100,000 Physician Computer [email protected] 900
30,000 Platinum Technology, [email protected] 551
25,000 Project Software & [email protected] 872
17,500 Remedy [email protected] 1,037
10,000 Seer Technologies, [email protected] 125
22,500 Smith Micro Software, [email protected] 152
20,000 Software Artistry, [email protected] 300
55,000 Systemsoft [email protected] 619
</TABLE>
See notes to Portfolio of Investments.
4
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
70,000 Tecnomatix [email protected] $ 875
50,000 Touchstone Software [email protected] 200
15,600 Unison Software, [email protected] 269
21,226
CONSUMER PRODUCTS--0.2%
10,000 Blyth Industries, [email protected] 295
COSMETICS/PERSONAL CARE--0.4%
64,000 Parlux Fragrances, [email protected] 568
DRUGS--2.5%
40,000 Chantal [email protected] 1,090
20,000 Dura Pharmaceuticals, [email protected] 695
31,000 Watson Pharmaceuticals, [email protected] 1,519
3,304
ELECTRICAL & ELECTRONIC EQUIPMENT--3.4%
35,000 Nu Horizons Electronics [email protected] 621
20,000 Proxim, [email protected] 355
35,000 *Robbins & Meyers, [email protected] 1,050
56,250 Symetrics Industries, [email protected] 436
20,000 Thermospectra [email protected] 313
12,500 Zing Technologies, [email protected] 122
70,000 Zygo [email protected] 1,759
4,656
ELECTRONICS--COMPONENTS/ SEMICONDUCTORS--9.6%
10,000 ADE [email protected] 145
37,000 Advanced Energy [email protected] 333
**60,000 Atmel [email protected] 1,342
20,000 Brooks Automation, [email protected] 265
35,000 C.P. Clare [email protected] 717
60,000 ESS [email protected] 1,380
100,000 Flextronics International [email protected] 3,000
100,000 Genus, [email protected] 750
25,000 Integrated Device Technology, [email protected] 322
20,000 Integrated Silicon [email protected] 335
50,000 Mattson Technology, [email protected] 750
20,000 Micro Linear [email protected] 205
**50,000 Oak Technology, [email protected] 2,113
80,000 Photon Dynamics, [email protected] 640
50,000 Quickturn Design [email protected] 500
20,000 Telcom Semiconductor, [email protected] 145
12,942
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
ELECTRONICS-LASER SYSTEMS/
COMPONENTS--2.3%
126,000 II-VI, [email protected] $ 1,354
20,000 Charter Power [email protected] 575
10,000 Chicago Miniature Lamp, [email protected] 230
30,000 Electro Scientific Industries, [email protected] 877
3,036
FINANCIAL/BUSINESS SERVICES--0.9%
20,000 First Merchants [email protected] 370
40,000 Mercer International, [email protected] 820
1,190
FOOD--MISCELLANEOUS--0.3%
25,000 Odwalla, [email protected] 412
HEALTH MAINTENANCE ORGANIZATION--0.5%
15,000 Compdent [email protected] 622
INSURANCE--0.3%
10,000 HCC Insurance Holdings, [email protected] 370
LEISURE & RECREATION PRODUCTS--3.8%
10,000 Morrow Snowboards, [email protected] 163
67,500 Regal Cinemas, [email protected] 2,008
**70,000 Ride, [email protected] 2,284
20,000 West Marine, [email protected] 625
5,080
MACHINERY--5.4%
15,000 3D Systems [email protected] 356
40,000 Gleason [email protected] 1,300
25,000 Global Industrial Technologies, [email protected] 472
10,000 Greenfield Industries, [email protected] 312
116,000 *JLG Industries, [email protected] 3,451
1,500 PRI Automation, [email protected] 53
80,000 Zoltek Companies, [email protected] 1,340
7,284
MEDICAL EQUIPMENT & SUPPLIES--1.3%
31,500 Chad Therapeutics, [email protected] 492
90,000 FluroScan Imaging Systems, [email protected] 585
50,000 Medicore, [email protected] 238
10,000 Quintiles Transnational [email protected] 410
1,725
MEDICAL--NURSING HOMES, OUTPATIENT HOMECARE--2.3%
10,000 American Homepatient, [email protected] 295
</TABLE>
See notes to Portfolio of Investments.
5
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
10,000 American Medical [email protected] $ 325
35,000 Apogee, [email protected] 324
30,000 Horizon Mental [email protected] 499
5,000 Physician Reliance Network, [email protected] 199
39,066 Retirement Care Associates, [email protected] 396
101,193(a) Retirement Care Associates, [email protected] 684
45,000 Transworld Healthcare, [email protected] 405
3,127
METAL PRODUCTS--0.2%
60,000 Cedar Group, [email protected] 330
PERSONNEL PLACEMENT--0.2%
10,000 Alternative Resources [email protected] 302
POLLUTION CONTROL--0.6%
30,000 U.S. Filter [email protected] 799
RESTAURANTS--5.5%
75,000 Logan's Roadhouse, [email protected] 1,294
100,000 Lone Star Steakhouse & Saloon, [email protected] 3,837
30,000 Outback Steakhouse, [email protected] 1,076
20,000 Papa John's International, [email protected] 824
100,000 Pollo Tropical, [email protected] 412
7,443
RETAIL--APPAREL--2.3%
70,000 Gadzooks, [email protected] 1,767
10,000 Gymboree [email protected] 206
30,000 Just for Feet, [email protected] 1,073
3,046
RETAIL--MISCELLANEOUS--1.4%
10,000 Global Directmail [email protected] 275
35,000 The Maxim Group, [email protected] 473
25,000 Officemax, [email protected] 559
30,000 The Sports Authority, [email protected] 611
1,918
RETAIL/WHOLESALE COMPUTERS--0.4%
40,500 Pomeroy Computer [email protected] 547
SCHOOLS--0.9%
80,000 Youth Services International, [email protected] 1,240
SOAP & CLEANING PREPARATIONS--0.3%
20,000 USA Detergents, [email protected] 470
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
TELECOMMUNICATIONS--6.8%
50,000 Anicom [email protected] $ 531
35,000 Blonder Tongue [email protected] 341
102,500 Brightpoint, [email protected] 1,448
60,000 Coherent Communication Systems [email protected] 1,155
25,000 Gilat Satellite Networks [email protected] 631
30,000 MRV Communications, [email protected] 761
30,000 Satelite Technology Management @19.250 578
50,000 Saville Systems [email protected] 712
**29,000 Pairgain Technologies, [email protected] 1,588
20,000 Stratacom, [email protected] 1,470
9,215
TEXTILE PRODUCTS--1.3%
20,000 *St. John Knits, [email protected] 1,062
39,900 Supreme International [email protected] 638
1,700
TRUCKING--0.3%
25,000 Knight Transportation, [email protected] 344
TOTAL EQUITY SECURITIES
(COST: $87,073,000) 130,210
Convertible Debt Obligations-3.4%
<CAPTION>
Face
Amount Value
<C> <S> <C>
COMPUTER MEMORY DEVICES--0.5%
$ 600,000 *Seagate Technology
6.75% due [email protected] $ 678
MEDICAL--NURSING HOMES--1.6%
1,500,000 *GranCare, Inc.
6.50% due 1-15-03 @86.250 1,294
1,000,000 *Theratx, Inc.
8.00% due [email protected] 918
2,212
OIL & GAS--0.4%
500,000 *Snyder Oil Corp.
7.00% due [email protected] 464
POLLUTION CONTROL--0.0%
580,000(a) *Growth Environmental, Inc.
9.00% due [email protected] 1
RESTAURANTS 0.9%
1,250,000 Hometown Buffet, Inc.
7.00% due 12-1-02 @100.250 1,253
</TABLE>
See notes to Portfolio of Investments.
6
<PAGE>
Convertible Debt Obligations - continued
<TABLE>
<CAPTION>
Face
Amount Value
<C> <S> <C>
RETAIL--0.0%
600,000(a) *Zam's, Inc.
7.50% due [email protected] $ --
TOTAL CONVERTIBLE DEBT
OBLIGATIONS (COST:
$5,754,000) 4,608
TOTAL INVESTMENTS--
100.1% 134,818
--------
(COST: $92,827,000)
Covered Call Options-(0.6%)
<CAPTION>
Contracts Value
<C> <S> <C>
585 Alliance Semiconductor
Corp.,
January $50 $ --
600 Atmel Corp., February
$35 (11)
100 Diamond Multimedia
Systems,
January $40 (13)
500 Electronics for Imaging,
Inc., January $40 (225)
10 Macromedia, Inc.,
January $50 (5)
20 Macromedia, Inc.,
January $55 (5)
20 Macromedia, Inc.,
February $65 (4)
10 Madge Networks NV,
January $50 --
150 Madge Networks NV,
February $40 (86)
100 Madge Networks NV,
February $45 (28)
50 Mylex Corp., February
$22 (4)
200 NetManage, Inc., January
$30 (1)
300 Oak Technology, Inc.,
January $55 (8)
75 Pairgain Technologies,
Inc., January $45 (79)
200 Pairgain Technologies,
Inc., January $55 (60)
150 Ride, Inc., January $30 (51)
200 U.S. Robotics Corp.,
February $100 (85)
400 ValuJet Airlines, Inc.,
March $25 (125)
200 ValuJet Airlines, Inc.,
March $27 (45)
--------
Total Covered Call
Options (835)
(Premium received:
$1,493,000)
OTHER ASSETS LESS
LIABILITIES--0.5% 680
--------
NET ASSETS--100.0% $134,663
========
</TABLE>
Notes to Portfolio of Investments
* Income producing security during the year ended December 31, 1995.
**The aggregate market value of stocks held in escrow at December 31, 1995
covering open covered call options written was $13,057,000.
Based on the cost of investments of $92,827,000 for federal income tax
purposes at December 31, 1995, the aggregate gross unrealized appreciation was
$49,605,000, the aggregate gross unrealized depreciation was $7,614,000 and
the net unrealized appreciation of investments was $41,991,000.
(a) The following securities are subject to legal or contractual restrictions
on sale. They were valued at cost on the dates of acquisition and at fair
value as determined by the board of trustees of the Fund as of December 31,
1995. The aggregate value of restricted securities was $685,000, or 0.5% of
net assets, at December 31, 1995.
Growth Environmental, Inc. $580,000 face amount convertible debt purchased
in May, 1994 at a cost of $580,000.
Retirement Care Associates, Inc. 84,656 shares purchased in July, 1995 at a
cost of $683,000 and 16,537 shares purchased in August, 1995 at a cost of
$133,000.
Zam's, Inc. $600,000 face amount convertible debt purchased in November,
1993 at a cost of $600,000.
7
See accompanying notes to financial statements.
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
(in thousands)
<TABLE>
<S> <C> <C> <C>
ASSETS:
Investment securities at market value (Cost: $92,827) $134,818
Receivables:
Fund shares sold 79
Securities sold 1,176
Dividends and interest 100
-----
Total Receivables 1,355
Prepaid expenses 27
--------
Total Assets 136,200
LIABILITIES:
Cash overdraft 61
Options written, at value (Premiums received: $1,493) 835
Payables:
Fund shares redeemed 181
Securities purchased 260
Payable to adviser 112
Payable to distributor 40
-----
Total Payables 593
Accrued expenses 48
--------
Total Liabilities 1,537
NET ASSETS $134,663
========
ANALYSIS OF NET ASSETS:
Aggregate paid in capital $ 85,853
Accumulated net realized gain from investment transactions 6,161
Net unrealized appreciation of investments 42,649
--------
Net assets $134,663
========
THE PRICING OF SHARES:
Net asset value, offering and redemption price per share
($134,663 divided by 4,630 shares outstanding) $ 29.09
========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
Year ended December 31, 1995
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $114
Interest 448
----
Total Investment Income $ 562
EXPENSES:
Advisory fees 488
Management fees 463
Distribution fees 405
Custodian fees 182
Shareholder servicing fees 174
Transfer agent fees 151
Professional fees 103
Shareholder reports 35
Registration fees 29
Insurance 9
Trustee fees 9
Other 4
----
Total Expenses 2,052
-------
NET INVESTMENT LOSS BEFORE EXPENSE REIMBURSEMENT (1,490)
Expense reimbursement 49
-------
NET INVESTMENT LOSS (1,441)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions 13,550
Net realized loss from covered call options written (1,170)
-------
Total net realized gain on investments 12,380
Increase in unrealized appreciation of investments 27,643
-------
Net realized and unrealized gain on investments 40,023
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $38,582
=======
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (1,441) $ (979)
Net realized gain (loss) from investment transactions 12,380 (17)
Increase (decrease) in unrealized appreciation of
investments 27,643 (3,046)
-------- --------
Net increase (decrease) in net assets resulting from
operations 38,582 (4,042)
-------- --------
FROM DISTRIBUTIONS:
Distributions from net realized gains on investments (6,202) --
-------- --------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 54,110 26,882
Shares issued in reinvestment of distribution 5,983 --
Redemption of shares (47,824) (37,150)
-------- --------
Net increase (decrease) from capital share transactions 12,269 (10,268)
-------- --------
Total increase (decrease) in net assets 44,649 (14,310)
NET ASSETS:
Beginning of year 90,014 104,324
-------- --------
End of year $134,663 $ 90,014
======== ========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business. The Oberweis Funds (the "Trust") is registered under
the Investment Company Act of 1940 as a diversified open-end management
investment company. The Trust is authorized to operate numerous portfolios
under various trading strategies. Effective January 1, 1996, the Trust
consists of two portfolios: the Oberweis Emerging Growth Portfolio (the
"Fund"), which prior to January 1, 1996 was known as the Oberweis Emerging
Growth Fund, and the Oberweis Micro-Cap Portfolio.
Investment valuation. Investments are stated at value. Each listed and
unlisted security for which last sale information is regularly reported is
valued at the last reported sales price on that day. If there has been no sale
on such day, then such security is valued at the current day's bid price. Any
unlisted security for which last sale information is not regularly reported
and any listed debt security which has an inactive listed market for which
over-the-counter market quotations are readily available is valued at the
highest closing bid price determined on the basis of reasonable inquiry.
Restricted securities and any other securities or other assets for which
market quotations are not readily available are valued by appraisal at their
fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Board of Trustees.
Short-term debt obligations, commercial paper and repurchase agreements are
valued on the basis of quoted yields for securities of comparable maturity,
quality and type or on the basis of amortized costs.
Fund share valuation. Fund shares are sold and redeemed on a continuous basis
at net asset value. On each day the New York Stock Exchange is open for
trading, the net asset value per share is determined as of the later of the
close of the New York Stock Exchange or the Chicago Board Options Exchange by
dividing the total value of the Fund's investments and other assets, less
liabilities, by the number of Fund shares outstanding.
Investment transactions and investment income. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis and includes amortization of premium and
discount. Realized gains and losses from investment transactions are reported
on an identified cost basis. Gains and losses on premiums from expired options
are recognized on date of expiration.
Repurchase agreements. Repurchase agreements are fully collateralized by U.S.
Treasury and Government agency securities. All collateral is held through the
Fund's custodian bank and is monitored daily by the Fund so that its market
value exceeds the carrying value of the repurchase agreement.
Federal income taxes and dividends to shareholders. The Fund has complied with
the special provisions of the Internal Revenue Code available to investment
companies and therefore no federal income tax provision is required. Dividends
payable to its shareholders are recorded by the Fund on the ex-dividend date.
A dividend consisting of net long term realized gains from the sale of
securities of $6,202,000 in 1995 was paid to shareholders of record on
November 27, 1995.
11
<PAGE>
2. TRANSACTIONS WITH AFFILIATES
The Fund has written agreements with Oberweis Asset Management, Inc. ("OAM")
as the Fund's investment adviser, manager and primary shareholder service
agent; and The Chicago Corporation ("TCC") as the Fund's principal
distributor.
Advisory agreement. During the year ended December 31, 1995, the Fund paid
monthly investment advisory fees at an annual rate equal to .45% of the first
$50,000,000 of average daily net assets and .40% of average daily net assets
in excess of $50,000,000. For the year ended December 31, 1995, the Fund
incurred an advisory fee totalling $488,000.
Management agreement. During the year ended December 31, 1995, for management
services and facilities furnished, the Fund paid a monthly fee at an annual
rate equal to .40% of average daily net assets. For the year ended December
31, 1995, the Fund incurred a management fee totalling $463,000.
Expense Reimbursement. OAM is obligated to reduce its management fees or
reimburse the Fund to the extent that total ordinary operating expense, as
defined, exceed in any one year the following amounts expressed as a
percentage of the Fund's average daily net assets: 2% of the first
$25,000,000; plus 1.8% of the next $25,000,000; plus 1.6% of average daily net
assets in excess of $50,000,000; or such lower percentage as may be required
by any state where the Fund's shares are registered. For the year ended
December 31, 1995, OAM reimbursed the Fund $49,000.
Officers and trustees. Certain officers or trustees of the Fund are also
officers or directors of OAM. During the year ended December 31, 1995, the
fund made no direct payments to its officers and paid $9,000 to its
unaffiliated trustees. James D. Oberweis, the Fund's portfolio manager, is
employed by OAM and TCC.
Distribution and shareholder service expense. The Fund has a distribution
agreement with TCC. For services under the distribution agreement, the Fund
pays TCC a fee at the annual rate of .35% of the average daily net assets and
reimbursement for certain out-of-pocket expenses. For the year ended December
31, 1995, the Fund incurred a distibution fee totalling $405,000. The Fund has
a shareholder service agreement with OAM. For services under the shareholder
service agreement, the Fund pays OAM a fee at the annual rate of .15% of the
average daily net assets and reimbursement for certain out-of-pocket expenses.
For the year ended December 31, 1995, the Fund incurred a shareholder service
fee totalling $174,000.
Commissions. The Fund pays TCC for executing some of the Fund's agency
security transactions at competitive rates, typically $.03 to $.05 per share.
For the year ended December 31, 1995, the Fund paid commissions of $35,000 to
TCC.
12
<PAGE>
3. INVESTMENT TRANSACTIONS
The cost of securities purchased and proceeds from securities sold during the
year ended December 31, 1995, other than options written and money market
investments, aggregated $92,742,000 and $91,551,000, respectively.
Transactions in options written for the year ended December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Options outstanding at beginning
of year 245 $ 53,000
Options written 27,988 4,908,000
Options expired (13,655) (1,812,000)
Options closed (6,600) (1,112,000)
Options assigned (4,108) (544,000)
------- ----------
Options outstanding at end of
year 3,870 $1,493,000
</TABLE>
The premiums received provide a partial hedge (protection) against declining
prices and enables the Fund to generate a higher return during periods when
OAM does not expect the underlying security to make any major price moves in
the near future but still deems the underlying security to be, over the long
term, an attractive investment for the Fund.
4. CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of the Fund:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1995 1994
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 2,039,000 $54,110,000 1,272,000 $ 26,882,000
Shares issued in
reinvestment of dividends 208,000 5,983,000 -- --
Less shares redeemed (1,820,000) (47,824,000) (1,771,000) (37,150,000)
---------- ----------- ---------- ------------
Net increase (decrease)
from capital share
transactions 427,000 $12,269,000 (499,000) $(10,268,000)
</TABLE>
13
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
year is as follows (c):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of year $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11
Income from investment
operations:
Net investment loss (.33) (.22) (.22) (.21) (.09)
Net realized and
unrealized gain (loss)
on investments 9.43 (.56) 2.25 2.72 10.64
-------- ------- -------- ------- -------
Total from investment
operations 9.10 (.78) 2.03 2.51 10.55
Less Distributions:
Distribution from net
realized gains on
investments (1.42) -- (.74) -- (4.27)
-------- ------- -------- ------- -------
Net asset value at end
of year $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39
======== ======= ======== ======= =======
Total Return (%) (b) 42.6 (3.5) 9.7 13.7 87.1
Ratio/Supplemental Data
Net Assets at end of
year (in thousands) $134,663 $90,014 $104,324 $54,063 $19,730
Ratio of expenses to
average net assets (%) 1.73 (a) 1.78 1.80 (a) 1.99 (a) 2.13 (a)
Ratio of net investment
loss to average net
assets (%) (1.24) (1.06) (1.04) (1.14) (1.27)
Portfolio turnover rate
(%) 79 66 70 63 114
</TABLE>
- --------
Notes:
(a) Net of expense reimbursement from related parties. Expense ratios would
have been 1.77%, 1.82%, 2.41%, and 3.01% for 1995, 1993, 1992, and 1991,
respectively before expense reimbursement.
(b) A sales load of 4% was charged until December 31, 1991 and is not reflected
in the total return figures above.
(c) The per share data was determined using average shares outstanding during
the year.
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders Oberweis Emerging Growth Portfolio
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Oberweis Emerging Growth Portfolio
(formerly known as Oberweis Emerging Growth Fund), a series of The Oberweis
Funds, as of December 31, 1995, the related statements of operations for the
year then ended and changes in net assets and the financial highlights for
each of the two years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the years prior to 1994 were audited by other auditors whose report dated
February 6, 1994 expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Oberweis Emerging Growth Portfolio at December 31, 1995, the results of its
operations for the year then ended, the changes in net assets and the
financial highlights for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 30, 1996
15
<PAGE>
LOGO OBERWEIS
EMERGING GROWTH
PORTFOLIO
- --------------------------------------------------------------------------------
James D. Oberweis Peter H. Wendell
Trustee and President Trustee
Douglas P. Hoffmeyer Thomas J. Burke
Trustee Trustee
Patrick B. Joyce Edward F. Streit
Executive Vice President Trustee
Treasurer
Martin L. Yokosawa
James M. Roberts Vice President
Vice President
Anita I. Mraz
Mary Jane Murphy Secretary
Assistant Secretary
MANAGER AND INVESTMENT ADVISOR
Oberweis Asset Management, Inc.
One Constitution Drive, Aurora,
Illinois 60506
(800) 323-6166
DISTRIBUTOR
The Chicago Corporation
208 South LaSalle, Chicago,
Illinois 60604
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
P.O. Box 419042, Kansas City,
Missouri 64141
(800) 245-7311
COUNSEL
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago,
Illinois 60601
INDEPENDENT AUDITORS
Ernst & Young LLP
233 South Wacker Drive, Chicago,
Illinois 60606
LOGO ANNUAL REPORT
OBERWEIS ---------------------------------------
EMERGING GROWTH DECEMBER 31, 1995
PORTFOLIO
ONE CONSTITUTION DRIVE
AURORA, IL 60506
(800) 323-6166
