<PAGE>
PRESIDENT'S LETTER
Dear Oberweis Funds Shareholder:
The surprisingly strong returns of this past year once again underscore the
old Wall Street adage "the Market tends to do what we least expect." After an
exceptionally strong 1995 (Emerging Growth up 42.6%, S&P 500 up 37.6%, and the
Russell 2000 up 28.4%) I expected only single digit gains (or worse) in 1996.
Instead, we Emerging Growth Portfolio shareholders were treated to a 22.5%
return in 1996. Micro-Cap Portfolio shareholders who bought at the beginning
of the year, when Micro-Cap began operations, were treated to a 22.8% return,
though if you bought later in the year, returns were not as good. In fact,
demand for the Micro-Cap Portfolio shares was so strong that we had to close
the fund in May to new shareholders which, in hindsight, may have been good
since small growth stocks generally did not do well during the second half of
the year. It was reopened in November, but will close again when assets reach
$60 million. The Mid-Cap Portfolio started operations on September 15 and
generally outperformed Micro-Cap and Emerging Growth during the last three and
a half months of the year, gaining 2.9%. Last year's 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.
As you know, our funds invest only in rapidly growing companies, generally
companies growing both in revenues and earnings at a rate in excess of 30%. In
fact, at the end of the year, the average growth rate for earnings in the most
recently reported quarter was nearly 70% for Emerging Growth, nearly 60% for
Micro-Cap, and nearly 90% for Mid-Cap. Revenue growth rates for the same
period were 110% for Emerging Growth, 72% for Micro-Cap, and 84% for Mid-Cap.
Thus these are very unusual companies that we are buying for all three
portfolios. We also try to buy them as cheaply as we possibly can, based on a
ratio of their PE to growth rate. We try never to pay a PE greater than half
the growth rate, though for the larger Mid-Cap companies, we sometimes have to
pay a little higher PE. This means that if a company is growing at 60% a year,
we are willing to pay a PE of up to 30, based on our earnings estimate for the
next year. But if a company is growing at only 40%, we don't want to pay a PE
greater than 20. At times (like the first five months of last year) that
strategy works wonderfully well. At other times such as the last seven months
of last year, it doesn't work as well. But over five to ten year periods, the
ups and downs of the strategy tend to even out and produce above average
market returns, as they have for the last ten years of the Emerging Growth
Portfolio, though obviously there are no guarantees that it will continue to
work as well in the future.
The Emerging Growth Portfolio generally invests in relatively small companies,
typically companies with a market cap between $100 million and $1 billion. The
Micro-Cap portfolio generally invests in companies with even smaller market
caps at the time of purchase, while the Mid-Cap generally invests in companies
with larger market caps, usually between $1 and $5 billion, though those
ranges are somewhat flexible, depending on overall market levels and which
portfolio has cash available at any given time.
A money market fund is now available for your convenience should you choose to
temporarily switch out of our funds, but I must emphasize that I believe that
attempting to switch in or out of our funds in an attempt to time the market
is an unwise investment choice. I suggest diversifying your investment dollars
among our three funds and other investments which you deem appropriate for
your risk tolerance, and then staying with those investments for at least a
five to ten year period or until your investment needs change.
Finally, I would again like to sincerely thank you for investing with me in
our funds. 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 between 8:00 AM and 5:00 PM central time, Monday through Friday.
If you have any questions about the fund's portfolios or investment policies,
please feel free to call me or any of our three portfolio managers, Martin
Yokosawa, my son Jim Oberweis, or Jane Snorek, C.F.A., our new director of
research. We're usually available from 7:30 AM until 6:00 PM during the week
and from 9:30 until noon on Saturday. If you are in the Chicago area, we would
be glad to have you visit our new office at 951 Ice Cream Drive in North
Aurora, Illinois. We're located on the East-West Tollway (I-88) at Randall
Road (take the Route 31 exit). You might even get to try some of the world's
best ice cream.
Sincerely,
/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 fast growing companies. The market for such
companies was particularly strong during the first five months of 1996 but
relatively weak during the last seven months of the year. Nevertheless, both
the Micro-Cap Portfolio and the Emerging Growth Portfolio had strong years
with gains of 22.8% and 22.5% respectively. These results were well ahead of
the 16.4% increase achieved by the small-cap oriented Russell 2000 Index and
comfortably ahead of the 22.3% return of the S&P 500 indexed funds and the
19.5% average return of all equity funds. Most of the gains, however, occurred
during the first half of the year. In fact, the Micro-Cap Portfolio showed a
decline during the second half of the year. The Emerging Growth Portfolio's
one-year, five-year and life-of-Portfolio returns are all substantially above
the Russell 2000 Index, the NASDAQ Composite, and most other broad stock
market averages. The Mid-Cap Portfolio began operations on September 15, 1996,
and gained 2.9% during the last 3 1/2 months of the year, a relatively
difficult period for small growth stocks. 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. Continued strong earning growth in 1996 tended to cause
investors to increase the price they were willing to pay for each $1 of
corporate earnings, pushing stock prices sharply higher. The relatively strong
performance of the stocks of large blue-chip companies in 1996 was a result of
large sums of money moving quickly into equity mutual funds. Portfolio
Managers tended to move these funds into large, liquid stocks, driving those
stocks even higher.
The Portfolio's performance was helped by a continuing reduction in expenses.
In 1996 the Emerging Growth Portfolio's expense ratio declined to 1.48% from
1.73% in 1995, and from 1.78% in 1994. The Micro-Cap Portfolio had a 1.94%
expense ratio for its first year and the Mid-Cap Portfolio had a 2% expense
ratio after reimbursement. Those ratios should decline if the fund sizes
increase significantly in 1997. The Portfolios are not specifically committed
to a "Growth" style of investing, where stocks are purchased (regardless of
their price) based on the manager's expectation of growing earnings. Nor are
the Portfolios subject to "momentum" style of investing where the stock are
purchased solely because they are moving up in price. Typically, the
Portfolios seek to buy companies whose revenues and earnings are growing at a
rate in excess of 30% per annum, and whose shares sell at a PE 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 1996 was a relatively low 64%, down slightly from 1995's 79% for
the Emerging Growth and 70% and 21% respectively for Micro-Cap and Mid-Cap.
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS (1)
PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1 5 SINCE INCEPTION
YEAR YEAR (1/7/87)
- ---------------------------------------------------------------
<S> <C> <C> <C>
Oberweis Emerging Growth Portfolio 22.5% 16.0% 16.9%
Standard & Poor's 500 23.0% 15.2% 14.7%
Russell 2000 Index 16.4% 15.7% 11.7%
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Emerging
Growth Portfolio Standard & Poor's 500 Russell 2000 Index
----------------- --------------------- ------------------
<S> <C> <C> <C>
$10,000 $10,000 $10,000
1987 $9,094 $9,948 $8,537
1988 $9,612 $11,598 $10,664
1989 $12,012 $15,267 $12,395
1990 $12,062 $14,822 $9,977
1991 $22,573 $19,345 $14,571
1992 $25,653 $20,822 $17,254
1993 $28,147 $22,909 $20,515
1994 $27,157 $23,206 $20,166
1995 $38,716 $31,927 $25,902
1996 $47,413 $39,254 $30,169
</TABLE>
2
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
AVERAGE ANNUAL RETURNS (1)
PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SINCE INCEPTION
(1/1/96)
- ---------------------------------------------
<S> <C>
Oberweis Micro-Cap Portfolio 22.8%
Standard & Poor's 500 23.0%
Russell 2000 Index 16.4%
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Micro-Cap
Portfolio Standard & Poor's 500 Russell 2000 Index
------------------ --------------------- ------------------
<S> <C> <C> <C>
1/1/96 $10,000 $10,000 $10,000
3/30/96 $12,270 $10,538 $10,510
6/30/96 $13,920 $11,005 $11,035
9/30/96 $13,710 $11,350 $11,068
12/31/96 $12,280 $12,295 $11,647
</TABLE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS (1)
PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SINCE INCEPTION
(9/15/96)
- ------------------------------------------------
<S> <C>
Oberweis Mid-Cap Portfolio 2.9%
Standard & Poor's Mid-Cap Index 7.5%
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Mid-Cap Standard & Poor's
Portfolio Mid-Cap Index
---------------- -----------------
<S> <C> <C>
9/15/96 $10,000 $10,000
9/30/96 $10,260 $10,175
10/31/96 $10,230 $10,192
11/30/96 $10,730 $10,750
12/31/96 $10,290 $10,749
</TABLE>
(1) Performance is historical and does not represent future results.
Investment returns and principal value vary, and you may have a gain or loss
when you sell shares. Results include the reinvestment of all dividends and
capital gains distributions. The Standard & Poor's Indicies are unmanaged
indicies 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 on the Oberweis Emerging Growth Portfolio 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, 1996 (value in thousands)
Equity Securities - 98.7%
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
AEROSPACE--0.2%
36,900 UNC, Inc. @12.000 $ 443
CHEMICALS--SPECIALTY--2.2%
15,000 *MacDermid, Inc. @27.500 412
**100,000 Zoltek Companies, Inc. @36.375 3,637
4,049
COMMERCIAL SERVICES--4.1%
18,500 Abacus Direct Corp. @18.750 347
**30,000 Apac Teleservices, Inc. @38.375 1,151
30,000 Donnelly Enterprise Sol @24.500 735
**60,000 Employee Solutions, Inc. @20.500 1,230
30,000 Investment Technology Group @19.250 577
5,000 Lason, Inc. @20.500 103
50,000 NCO Group, Inc. @16.875 844
28,000 Precision Response Corp. @35.125 983
46,500 RTW, Inc. @18.375 854
49,100 Visage Technologies, Inc. @14.500 712
7,536
COMPUTER--GRAPHICS--1.2%
100,000 3D Labs, Inc. Ltd. @23.000 2,300
COMPUTER--INTEGRATED SYSTEMS--2.2%
**130,500 Brooktrout Technology, Inc. @28.000 3,654
10,000 *Jack Henry & Associates @35.750 358
4,012
COMPUTER--LOCAL NETWORKS--2.3%
6,000 Ascend Communications, Inc. @62.125 373
120,000 Ace Comm Corp. @15.000 1,800
70,000 Larscom, Inc. CL A @11.375 796
27,000 Wandel & Golterman
Technology @29.250 790
15,000 Xlconnect Solutions, Inc. @28.750 431
4,190
COMPUTER--MEMORY DEVICES--2.7%
**20,000 Network Appliance, Inc. @50.875 1,017
160,000 Silicon Storage Technologies, Inc. @4.875 780
130,000 Smart Modular Technologies,
Inc. @25.125 3,266
5,063
COMPUTER--PERIPHERALS--4.6%
110,000 Eltron International, Inc. @20.125 2,214
132,000 Mylex Corp. @12.500 1,650
50,000 Splash Tech Holdings, Inc. @21.500 1,075
**50,000 *U.S. Robotics Corporation @72.000 3,600
8,539
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
COMPUTER--SERVICES--1.3%
20,000 Cotelligent Group, Inc. @24.125 $ 482
20,000 E-Trade Group, Inc. @11.500 230
70,000 Ozemail LTD--ADR @8.500 595
25,000 Renaissance Solutions, Inc. @44.750 1,119
2,426
COMPUTER--SOFTWARE--15.5%
**100,000 Applix, Inc. @21.875 2,187
**30,000 Aspen Technology, Inc. @80.250 2,408
**20,500 Citrix Sysytems, Inc. @39.062 801
50,000 Elcom International, Inc. @7.875 394
**40,000 Electronics for Imaging @82.250 3,290
5,000 Enterprise Systems, Inc. @23.500 117
30,000 Hummingbird Communication @28.375 851
80,000 I A Corporations @5.875 470
30,000 Legato Systems, Inc. @32.625 979
20,000 Lightnridge, Inc. @8.562 171
**16,800 Mcafee Associates, Inc. @44.000 739
20,000 Memco Software, Ltd. @17.625 352
17,000 Natural Microsystems Corp. @31.500 535
40,000 Periphonics Corporation @29.250 1,170
100,000 Physician Computer Network @8.500 850
25,000 Project Software & Development @42.375 1,059
30,000 Raptor Sysytems, Inc. @20.125 604
52,500 Remedy Corp. @53.750 2,822
40,000 SQA, Inc. @33.250 1,330
25,500 Scopus Technology, Inc. @46.500 1,186
60,000 Simulation Sciences, Inc. @14.875 893
30,000 Structural Dynamic Research @20.000 600
30,000 Summit Design, Inc. @10.250 307
10,000 Systemsoft Corp. @14.875 149
85,000 Technomatix Technologies, Inc. @26.500 2,252
25,600 Unison Software, Inc. @26.750 685
**30,000 Veritas Software Corp. @49.750 1,493
28,694
DIVERSIFIED OPERATIONS--0.3%
50,000 Griffon Corporation @12.250 612
DRUGS--1.3%
20,000 Biovail Corp. International @25.625 512
**40,000 Dura Pharmaceuticals, Inc. @47.750 1,910
2,422
ELECTRICAL & ELECTRONIC EQUIPMENT--0.6%
47,500 Proxim, Inc. @23.000 1,093
</TABLE>
See notes to Portfolio of Investments.
4
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
ELECTRONICS--COMPONENTS/
SEMICONDUCTORS--9.5%
**60,000 Atmel Corp. @33.125 $ 1,988
**60,000 DSP Communications, Inc. @19.375 1,162
15,000 DuPont Photomask, Inc. @45.375 681
**72,000 ESS Technology @28.125 2,025
**53,000 ETEC Systems, Inc. @38.250 2,027
70,000 Flextronics International, Ltd. @27.750 1,942
112,000 IKOS Systems @20.000 2,240
50,000 Quickturn Design Systems @20.500 1,025
50,000 Speedfam International, Inc. @28.500 1,425
110,000 Supertex, Inc. @13.125 1,444
**20,000 Uniphase Corp. @52.500 1,050
36,500 Zoran Corp. @18.000 657
17,666
ELECTRONICS--LASER SYSTEMS/
COMPONENTS--1.9%
40,000 *American Precision Industry @20.000 800
15,000 Chicago Miniature Lamp,Inc. @41.500 623
10,000 Coherent, Inc. @42.250 422
35,000 Cymer, Inc. @48.125 1,684
3,529
ELECTRONICS--MEASURING EQUIPMENT--0.5%
50,000 Integrated Measurement, Inc. @17.375 869
ELECTRONICS--MISCELLANEOUS
COMPONENTS--3.7%
10,000 Peerles Systems Corp. @17.000 170
50,000 Powerwave Technologies, Inc. @14.625 731
25,000 Radisys Corp. @48.750 1,219
50,000 Sawtech, Inc. @39.625 1,981
20,000 *Technitrol, Inc. @38.375 768
260,000 WPI Group, Inc. @7.625 1,982
6,851
FINANCIAL--BUSINESS SERVICES--1.9%
125,000 Advance Paradigm, Inc. @20.750 2,594
16,500 Claremont Technology Group @26.250 433
7,500 Intelligroup, Inc. @11.000 83
20,000 Nova Corp. @22.125 443
3,553
FINANCIAL--CONSUMER LOANS--0.8%
44,000 Olympic Financial, Ltd. @14.375 632
10,000 Southern Pacific Funding @31.125 311
15,000 Texas Regional Bancshare @34.000 510
1,453
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
FOOD--MISCELLANEOUS--0.8%
10,000 Jutrzenka @18.825 $ 188
165,000 Unimark Group, Inc. @7.750 1,279
1,467
HEALTH MAINTENANCE ORGANIZATION--0.3%
15,000 Compdent Corp. @35.250 529
LEISURE & RECREATION PRODUCTS--3.0%
50,000 IMAX Corp. @31.000 1,550
101,250 Regal Cinemas, Inc. @30.750 3,113
50,000 Suburban Lodges of America @16.000 800
5,463
MACHINERY--3.7%
26,000 *Chart Industries, Inc. @17.125 445
20,000 *D.T. Industries, Inc. @35.000 700
300,000 *JLG Industries @16.000 4,800
20,000 PRI Automation, Inc. @45.500 910
6,855
MEDICAL EQUIPMENT & SUPPLIES--2.5%
60,000 ESC Medical Systems, Ltd. @25.500 1,530
22,500 Parexel International Corp. @51.625 1,162
52,500 Qiagen NA @25.750 1,352
10,000 Quintiles Transnational @66.250 663
4,707
MEDICAL--NURSING HOMES/
OUTPATIENT CARE--4.0%
37,500 American Homepatient, Inc. @27.250 1,022
10,000 American Medical Response @32.500 325
125,630 FPA Medical Management, Inc. @22.375 2,811
30,000 National Surgery Centers @38.000 1,140
120,000 Prime Medical Services, Inc. @10.875 1,305
5,060 Retirement Care Associates,
Inc. PH @8.250 42
101,194(a) Retirement Care Associates,
Inc. RS @7.260 735
7,380
MEDICAL--RESEARCH--0.7%
100,000 Bio-Technology General @13.125 1,312
METAL PRODUCTS/FABRICATION--2.2%
20,000 *Kaydon Corp. @47.125 943
99,900 Oregon Metallurgical, Inc. @32.250 3,222
4,165
</TABLE>
See notes to Portfolio of Investments.
5
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
MISCELLANEOUS--0.5%
20,000 MPP Certificates @49.679 $ 994
OIL & GAS--4.0%
70,000 Basic Petroleum International, Ltd. @33.000 2,310
30,000 Belco Oil & Gas Corp. @27.375 821
**15,000 Chesapeake Energy Corp. @55.625 834
100,000 Marine Drilling Company, Inc. @19.687 1,969
30,000 *Noble Affiliates, Inc. @47.875 1,436
7,370
REAL ESTATE OPERATIONS--0.2%
16,900 Fairfield Communities @24.750 418
RESTAURANTS--7.8%
15,000 Dave & Buster's, Inc. @20.125 302
30,000 Einstein/Noah Bagel Corp. @29.750 892
280,000 Logan's Roadhouse, Inc. @23.500 6,580
120,000 Lone Star Steakhouse &
Saloon, Inc. @26.750 3,210
30,000 Outback Steakhouse, Inc. @26.750 803
45,000 Papa John's International,
Inc. @33.750 1,519
29,400 Quality Dining, Inc. @17.875 526
30,000 Rainforest Cafe, Inc. @23.500 705
14,537
RETAIL--APPAREL--2.6%
32,000 Delia's, Inc. @19.875 636
100,000 Gadzooks, Inc. @18.250 1,825
45,000 Just for Feet, Inc. @26.250 1,181
20,000 Pacific Sunwear of CA,
Inc. @25.750 515
30,000 The Finish Line @21.125 634
4,791
RETAIL MISCELLANEOUS--0.2%
10,000 Global Direct Mail Corp. @43.625 436
RETAIL/WHOLESALE--COMPUTERS--1.9%
10,000 Computerland @24.752 248
91,100 En Pointe Technologies, Inc. @9.750 888
50,000 Pomeroy Computer
Resources @36.750 1,838
20,000 Insight Enterprises, Inc. @28.000 560
3,534
SOAP & CLEANING PREPARATIONS--0.7%
30,000 USA Detergents, Inc. @41.625 1,249
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
TELECOMMUNICATIONS--6.5%
100,000 Anicom, Inc. @9.250 $ 925
20,000 International Telecomm Data
Systems @24.250 485
**90,000 MRV Communications, Inc. @21.750 1,957
100,000 Mastec, Inc. @53.000 5,300
**35,000 P-Com, Inc. @29.625 1,037
30,000 Polycom, Inc. @4.875 146
17,000 Premiere Technologies, Inc. @25.000 425
**16,500 Premisys Communications, Ltd. @33.750 557
40,000 Teledata Communications, Ltd. @23.000 920
10,000 Tessco Technologies, Inc. @36.750 368
12,120
TRUCKING--0.3%
25,000 Knight Transportation, Inc. @19.000 475
TOTAL EQUITY SECURITIES
(COST: $124,279,000) 183,102
Convertible Debt Obligations - 3.3%
<CAPTION>
Face Amount Value
<C> <S> <C>
FINANCE--CONSUMER LOANS--0.5%
$ 800,000 *Cityscape Financial, Inc.
6.00% due 12-15-03 @104.000 $ 832
MEDICAL--MANAGEMENT SERVICES--0.8%
1,500,000 *Complete Management, Inc.
8.00% due 12-15-03 @100.000 1,500
MEDICAL--NURSING HOMES--0.5%
1,000,000 *Theratx, Inc.
8.00% due 2-1-02 @91.500 915
POLLUTION CONTROL--0.0%
580,000(a) Growth Environmental, Inc.
9.00% due 4-30-97 @0.000 --
RESTAURANTS--0.7%
1,250,000 *Hometown Buffet, Inc.
7.00% due 12-1-02 @103.000 1,288
RETAIL--0.0%
600,000(a) Zam's, Inc.
7.50% due 10-31-00 @0.000 --
SCHOOLS--0.8%
1,250,000 *Youth Services International, Inc.
7.00% due 2-01-06 @124.500 1,556
TOTAL CONVERTIBLE DEBT OBLIGATIONS
(COST: $8,185,000) 6,091
</TABLE>
See notes to Portfolio of Investments.
6
<PAGE>
Commercial Paper - 1.4%
<TABLE>
<CAPTION>
Face Amount Value
<S> <C> <C>
$1,674,000 General Motors Acceptance Corporation
6.03% due 01-02-97 $ 1,674
1,000,000 Heller Financial, Inc.
6.75 due 01-06-97 999
TOTAL COMMERCIAL PAPER
(COST: $2,673,000) 2,673
--------
TOTAL INVESTMENTS--103.4%
(COST: $135,137,000) 191,866
</TABLE>
Covered Call Options - (0.3%)
<TABLE>
<CAPTION>
Contracts
<C> <S> <C>
50 APAC Teleservices, Inc., January $60 $ --
150 Applix, Inc., January $30 (1)
100 Applix, Inc., January $40 --
100 Aspen Technology, Inc., January $80 (33)
100 Atmel Corp., February $37 (14)
300 Brooktrout Technology, January $40 --
150 Chesapeake Energy Company, January $65 (12)
180 Citrix Systems, Inc., January $60 --
400 DSP Communications, Inc., February $32 --
100 Dura Pharmaceuticals, January $40 (75)
200 Dura Pharmaceuticals, January $45 (75)
100 ESS Technology, February $35 (10)
300 ETEC Systems, Inc., January $40 (34)
250 Electronic For Imaging, January $80 (140)
100 Electronic For Imaging, January $90 (8)
250 Employee Solutions, Inc., February $25 (31)
220 MRV Communications, Inc., January $30 (3)
100 Mcafee Associates, Inc., January $55 (1)
15 Network Appliances, Inc., January $55 (1)
100 P-Com, Inc., January $35 (1)
100 Premisys Communications, January $60 --
100 U.S. Robotics, January $85 (1)
100 U.S. Robotics, February $85 (20)
100 U.S. Robotics, February $110 (3)
50 Uniphase Corporation, January $60 (4)
50 Uniphase Corporation, January $65 (1)
200 Veritas Software Corporation, January $55 (15)
100 Zoltek Companies, Inc., January $45 --
35 Zoltek Companies, Inc., January $50 --
--------
Total Covered Call Options
(Premium received: $872,000) (483)
LIABILITIES LESS OTHER ASSETS--(3.1%) (5,788)
--------
NET ASSETS--100% $185,595
========
</TABLE>
Notes to Portfolio of Investments
* Income producing security during the year ended December 31, 1996.
** All or a portion of these stocks were held in escrow at December 31, 1996
to cover call options written. The aggregate market value was $17,465,000.
Based on the cost of investments of $135,137,000 for federal income tax
purposes at December 31, 1996, the aggregate gross unrealized appreciation was
$68,705,000, the aggregate gross unrealized depreciation was $11,976,000 and
the net unrealized appreciation of investments was $56,729,000.
(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,
1996. The aggregate value of restricted securities was $735,000 or 0.4% of net
assets, at December 31, 1996.
Retirement Care Associates, Inc. 84,656 shares purchased in July, 1995 at a
cost of $683,000 and 16,538 shares purchased in August, 1995 at a cost of
$133,000.
Growth Environmental, Inc. $580,000 face amount convertible debt purchased
in May, 1994 at a cost of $580,000.
Zam's, Inc. $600,000 face amount convertible debt purchased in November,
1993 at a cost of $600,000.
7
<PAGE>
OBERWEIS MICRO-CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (Value in thousands)
Equity Securities - 98.1%
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
AIRLINES--0.6%
<C> <S> <C>
60,000 Frontier Airlines @3.250 $ 195
<CAPTION>
APPAREL--3.9%
<C> <S> <C>
60,000 Hot Topic, Inc. @19.750 1,185
<CAPTION>
BUILDING MATERIALS & COMPONENTS--0.8%
<C> <S> <C>
20,000 Tower Technology, Inc. @11.500 230
<CAPTION>
COMMERCIAL--SERVICES--4.9%
<C> <S> <C>
28,000 ATC Communications @13.250 371
22,500 Analytical Surveys, Inc. @9.875 222
20,000 Automobile Protection Corporation @4.281 86
100,000 Interstate Natl Dealer SVCS @5.500 550
30,000 RCM Technologies, Inc. @8.750 262
1,491
<CAPTION>
COMPUTER--INTEGRATED SYSTEMS--0.8%
<C> <S> <C>
9,000 Brooktrout Technology, Inc. @28.000 252
<CAPTION>
COMPUTER--MEMORY DEVICES--6.5%
<C> <S> <C>
70,000 Advanced Digital Information Corporation @16.250 1,138
35,000 Intevac, Inc. @17.000 595
29,500 Silicon Storage Technology @4.875 144
**5,000 Smart Modular Technologies @25.125 126
2,003
<CAPTION>
COMPUTER--OPTICAL RECOGNITION--0.2%
<C> <S> <C>
30,000 Mitek Systems, Inc. @1.562 47
<CAPTION>
COMPUTER--PERIPHERAL--1.1%
<C> <S> <C>
17,500 Altris Software, Inc. @6.500 114
30,000 Loronix Information System @3.562 107
7,000 Trident International, Inc. @16.250 113
334
<CAPTION>
COMPUTER--SOFTWARE--5.0%
<C> <S> <C>
20,000 Computer Research, Inc. @2.125 43
40,000 Datawatch Research, Inc. @5.750 230
40,000 Premis Corporation @5.625 225
5,000 Project Software & Development @42.375 211
13,200 Research Engineers, Inc. @3.375 44
45,000 Restrac, Inc. @4.875 219
20,000 Rogue Wave Software @15.750 315
20,000 Tripos, Inc. @11.750 235
1,522
<CAPTION>
CONSUMER--PRODUCTS--0.6%
<C> <S> <C>
23,000 Platinum Entertainment, Inc. @8.000 184
<CAPTION>
COSMETICS/PERSONAL CARE--2.4%
<C> <S> <C>
32,000 Amrion, Inc. @22.625 724
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
ELECTRICAL--EQUIPMENT/COMPONENTS--8.0%
<C> <S> <C>
30,000 JPM Company @17.500 $ 525
40,000 KVH Industries, Inc. @7.750 310
25,000 Nice Systems LTD @18.000 450
**6,000 Proxim, Inc. @23.000 138
110,800 RF Power Products, Inc. @2.500 277
100,000 WPI Group, Inc. @7.625 762
2,462
<CAPTION>
ELECTRICAL--INSTRUMENTS--1.1%
<C> <S> <C>
15,000 Amer Science & Engine, Inc. @13.500 203
15,000 Thermo Voltek Corporation @9.875 148
351
<CAPTION>
ELECTRICAL--LASER SYSTEMS--1.6%
<C> <S> <C>
60,000 Excel Technology, Inc. @8.125 488
<CAPTION>
ELECTRONICS--MILITARY SYSTEMS--1.6%
<C> <S> <C>
40,000 Diagnostic/Retrieval Systems @12.500 500
<CAPTION>
ELECTRONICS--SEMI-CONDUCTORS/
COMPONENTS--4.0%
<C> <S> <C>
50,000 CFM Technologies @20.750 1,037
25,000 Hytek Microsystems, Inc. @2.500 63
50,000 Oryx Technology Corporation @2.875 144
1,244
<CAPTION>
ENERGY DEVELOPMENT--1.6%
<C> <S> <C>
50,000 York Research @9.500 475
<CAPTION>
FINANCIAL SERVICES--MISC.--1.9%
<C> <S> <C>
25,000 Healthcare Financial Partners @12.750 318
22,000 Rockford Industries, Inc. @12.500 275
593
<CAPTION>
FOOD--MISCELLANEOUS--1.5%
<C> <S> <C>
60,000 Unimark Group, Inc. @7.750 465
<CAPTION>
HEALTH CARE--MANAGEMENT--0.2%
<C> <S> <C>
12,000 Medical Asset Management, Inc. @4.687 56
<CAPTION>
HOUSEHOLD--APPLIANCES--1.9%
<C> <S> <C>
87,500 Iona Appliances, Inc. @6.750 591
<CAPTION>
LEISURE--1.2%
<C> <S> <C>
20,000 Action Performance COS, Inc. @18.000 360
<CAPTION>
MACHINERY--4.4%
<C> <S> <C>
25,000 ASV, Inc @27.875 697
40,000 Raster Graphics, Inc. @11.875 475
20,000 Schmitt Industries, Inc. @9.500 190
1,362
<CAPTION>
MEDIA--PERIODICALS--1.1%
<C> <S> <C>
45,000 Individual Investor Group @7.250 326
<CAPTION>
MEDICAL/DENTAL SUPPLIES--5.0%
<C> <S> <C>
50,000 Cohr, Inc. @27.000 1,350
20,000 Urocor, Inc. @9.562 191
1,541
</TABLE>
See notes to Portfolio of Investments.
8
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
MEDICAL PRODUCTS--3.0%
<C> <S> <C>
52,500 Biosource International, Inc. @6.875 $ 361
7,500 Clintrials Research, Inc. @22.750 171
85,000 Contour Medical, Inc. @4.625 393
925
<CAPTION>
MEDICAL INSTRUMENTS--2.4%
<C> <S> <C>
70,000 Exatech, Inc. @9.000 630
10,000 Seamed Corporation @10.875 109
739
<CAPTION>
MEDICAL--OUTPATIENT/HOMECARE--3.5%
<C> <S> <C>
135,000 Diagnostic Health Services, Inc. @8.000 1,080
<CAPTION>
METAL--FABRICATION/PRODUCTION--1.8%
<C> <S> <C>
60,000 Dynamic Material Corporation @9.375 563
<CAPTION>
METAL--STEEL--1.2%
<C> <S> <C>
30,000 Maverick Tube Corporation @12.750 382
<CAPTION>
OIL & GAS SERVICES--0.3%
<C> <S> <C>
10,000 3D Geophysical, Inc. @9.000 90
<CAPTION>
POLLUTION CONTROL--1.1%
<C> <S> <C>
40,000 American Eco Corporation @6.875 275
35,000 Waste Technology Corporation @1.437 50
325
<CAPTION>
RESTAURANTS--5.6%
<C> <S> <C>
40,000 *Blimpie International, Inc. @10.375 415
55,000 Logan's Roadhouse, Inc. @23.500 1,292
1,707
<CAPTION>
RETAIL--HOME FURNISHINGS--0.9%
<C> <S> <C>
30,000 Rent-Way, Inc. @9.625 289
<CAPTION>
RETAIL/WHOLESALE--COMPUTERS--4.1%
<C> <S> <C>
70,000 En Pointe Technologies, Inc. @9.750 682
58,000 Multiple Zones Intl, Inc. @9.750 566
1,248
<CAPTION>
SEMI-CONDUCTORS/COMPONENTS--0.3%
<C> <S> <C>
10,000 Semiconductor Pkg. Material @10.875 109
<CAPTION>
TELECOMMUNICATIONS--0.9%
<C> <S> <C>
40,000 Tech Service WT @.625 25
30,000 World Access, Inc. @8.000 240
265
<CAPTION>
TELECOMMUNICATIONS--EQUIPMENT--6.6%
<C> <S> <C>
60,000 AML Commnications, Inc. @13.375 803
10,000 Geotel Communications Corporation @13.000 130
40,000 Technology Services Group @7.750 310
8,000 Tollgrade Communications, Inc. @31.000 248
60,000 Viasat, Inc. @9.000 540
2,031
<CAPTION>
TELECOMMUNICATIONS--SERVICES--0.3%
<C> <S> <C>
5,000 Total Tel USA @18.750 94
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
TEXTILE--MANUFACTURING--3.2%
<C> <S> <C>
20,000 Cutter & Buck, Inc. @11.625 $ 233
60,000 Sport-Haley, Inc. @12.562 754
987
<CAPTION>
TOYS & SPORTING GOODS--0.1%
<C> <S> <C>
2,500 Equity Marketing, Inc. @18.500 46
<CAPTION>
TRANSPORTATION SERVICES--0.9%
<C> <S> <C>
100,000 Golden Eagle Group, Inc. @2.750 275
<CAPTION>
TOTAL EQUITY SECUITIES
<C> <S> <C>
(COST: $29,701,000) 30,136
Repurchase Agreements--1.3%
<CAPTION>
Face
Amount Value
<C> <S> <C>
$409,000 State Street Bank & Trust Company
Dated 12/31/96, Collateralized by $ 409
U.S. Treasury Bills
4.00%, 1/02/97
TOTAL REPURCHASE AGREEMENTS
(COST: $409,000) 409
-------
TOTAL INVESTMENTS--99.4%
(COST: $30,110,000) 30,545
Covered Call Options--0.0%
<CAPTION>
Contracts Value
<C> <S> <C>
25 Proxim, Inc. January [email protected] $ (1)
25 Smart Modular Technology January [email protected] --
-------
Total Covered Call Options (1)
(Premium received: $5,000)
OTHER ASSETS LESS LIABILITIES--0.6% 189
-------
NET ASSETS--100% $30,733
=======
</TABLE>
Notes to Portfolio of Investments
* Income producing security during the year ended December 31, 1996.
** All or a portion of these stocks were held in escrow at December 31, 1996
to cover call options written. The aggregate market value was $120,000.
Based on the cost of investments of $30,110,000 for federal income tax
purposes at December 31, 1996 the aggregate gross unrealized appreciation was
$4,728,000, the aggregate gross unrealized depreciation was $4,293,000 and the
net unrealized appreciation of investments was $435,000.
9
<PAGE>
OBERWEIS MID-CAP PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (Value in thousands)
Equity Securities - 99.9%
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
APPAREL--13.0%
2,000 Fila Holdings @58.125 $ 116
3,000 Gucci Group @63.875 192
5,000 Nautica Enterprises, Inc. @25.250 126
2,000 *St. John Knits, Inc. @43.500 87
6,000 *TJX Companies, Inc. @47.375 284
3,000 Tommy Hilfiger Corporation @48.000 144
949
AUTO PARTS--2.9%
2,000 Gentex Corporation @20.125 40
5,000 Lear Corporation @34.125 171
211
COMMERCIAL SERVICES--1.0%
2,000 Robert Half Intl, Inc. @34.375 69
COMPUTER--MEMORY DEVICES--5.0%
2,000 C-Cube Microsystems, Inc. @36.937 74
7,000 Iomega Corporation @17.375 122
3,000 Western Digital Corporation @56.875 171
367
COMPUTER PERIPHERALS--1.7%
1,000 Gateway 2000, Inc. @53.562 53
1,000 U.S. Robotics Corporation @ 72.000 72
125
COMPUTER SERVICES--2.3%
4,000 Technology Solutions Co. @41.500 166
COMPUTER SOFTWARE--10.6%
3,000 Cognos, Inc. @28.125 84
3,000 Cadence Design Systems @39.750 119
3,000 McAfee Associates, Inc. @44.000 132
5,000 Rational Software Corporation @39.562 198
2,000 Videoserver, Inc. @42.500 85
3,100 Visio Corporation @49.500 154
772
ELECTRONICS--LASER SYSTEMS/
COMPONENTS--1.1%
1,700 Cymer, Inc. @48.125 82
ELECTRONICS--MISCELLANEOUS
COMPONENTS--1.2%
2,000 SCI Systems, Inc. @44.625 89
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
ELECTRONICS--SEMI-CONDUCTORS/
COMPONENTS--5.8%
12,000 DSP Communications, Inc. @19.375 $ 232
**5,000 ETEC Systems, Inc. @38.250 191
423
FINANCIAL--CONSUMER LOANS--5.1%
10,000 Americredit Corporation @20.500 205
8,000 Imperial Credit Industries @21.000 168
373
FINANCIAL SERVICES--MISC.--1.6%
5,000 Metris Companies, Inc. @24.000 120
HEALTH MAINTENANCE ORGANIZATION--2.4%
3,000 Oxford Health Plans Corp. @58.562 176
HOME FURNISHINGS--1.9%
10,000 Furniture Brands Intl, Inc. @14.000 140
MEDICAL--ETHICAL DRUGS--1.0%
2,000 *Jones Medical @36.625 73
MEDICAL--OUTPATIENT/HOMECARE--2.0%
4,000 Total Renal Care Holdings @36.250 145
OIL & GAS EXPLORATION--1.5%
2,000 Chesapeake Energy Corporation @55.625 111
OIL & GAS--MACHINERY/EQUIPMENT--4.9%
3,000 Energy Ventures, Inc. @50.875 153
10,000 Global Marine, Inc. @20.625 206
359
POLLUTION CONTROL--1.0%
2,000 United Waste Systems, Inc. @34.375 69
RESTAURANTS--3.4%
7,000 Boston Chicken, Inc. @35.875 251
RETAIL--2.6%
5,000 Abercrombie & Fitch Co. @16.500 82
5,000 Eagle Hardware & Garden @20.750 104
186
RETAIL/WHOLESALE--COMPUTERS--7.9%
2,000 CompUSA, Inc. @20.625 41
6,000 Ingram Micro, Inc. @23.000 138
5,000 Tech Data Corporation @27.375 137
5,000 Vanstar 6.75% Convertible Preferred @52.375 262
578
</TABLE>
See notes to Portfolio of Investments.
10
<PAGE>
Equity Securities - continued
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
<C> <S> <C>
STEEL--4.7%
8,000 Titanium Metals Corporation @32.875 $ 263
5,000 Tubos De Acero @15.875 79
342
TELECOMMUNICATIONS--12.0%
2,000 Asia Satellite Telecommunications, Inc. @23.375 47
1,500 Aspect Telecommunications @63.500 95
4,000 LCI International, Inc. @21.500 86
7,000 Mastec, Inc. @53.000 371
2,000 *National Data Corporation @43.500 87
**5,500 Premisys Communications @33.750 186
872
TRANSPORTATION--MISC.--3.3%
5,000 Atlas Air, Inc. @47.750 239
TOTAL EQUITY SECURITIES
(COST: $7,051,000) 7,287
Covered Call Options--(0.1%)
<CAPTION>
Contracts Value
<C> <S> <C>
20 ETEC Systems, Inc. January $35 $ (7)
10 Premisys Communications January $60 --
--------
Total Covered Call Options
(Premium received: $6,000) (7)
OTHER ASSETS LESS LIABILITIES--0.2% 15
--------
NET ASSETS--100% $ 7,295
========
</TABLE>
Notes to Portfolio of Investments
* Income producing security during the year ended December 31, 1996.
** All or a portion of these stocks were held in escrow at December 31, 1996
to cover call options written. The aggregate market value was $110,000.
Based on the cost of investments of $7,051,000 for federal income tax purposes
at December 31, 1996, the aggregate gross unrealized appreciation was $742,000
the aggregate gross unrealized depreciation was $506,000 and the net
unrealized appreciation of investments was $236,000.
11
<PAGE>
THE OBERWEIS FUNDS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(in thousands, except pricing of shares)
<TABLE>
<CAPTION>
EMERGING GROWTH MICRO-CAP MID-CAP
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Investment securities at market value
(Cost: $135,137, $30,110 and $7,051,
respectively) $191,866 $30,545 $7,287
Cash 191 42 --
Receivable from fund shares sold 127 79 49
Receivable from securities sold 474 449 130
Dividends and interest receivable 99 -- --
Deferred organizational costs -- 49 54
Prepaid expenses 27 8 1
-------- ------- ------
Total Assets 192,784 31,172 7,521
LIABILITIES:
Cash overdraft -- -- 129
Options written at value (Premiums
received: $872
$5 and $6, respectively) 483 1 7
Payable for fund shares redeemed 4,488 362 70
Payable for securities purchased 1,930 -- --
Payable to advisor 128 34 2
Payable to distributor 39 7 1
Accrued expenses 121 35 17
-------- ------- ------
Total Liabilities 7,189 439 226
-------- ------- ------
NET ASSETS $185,595 $30,733 $7,295
======== ======= ======
ANALYSIS OF NET ASSETS:
Aggregate paid in capital $123,305 $31,697 $7,123
Accumulated net realized gain (loss)
from investment transactions 5,172 (1,403) (63)
Net unrealized appreciation of
investments 57,118 439 235
-------- ------- ------
Net Assets $185,595 $30,733 $7,295
======== ======= ======
THE PRICING OF SHARES:
Net asset value and offering price per
share
EMERGING GROWTH PORTFOLIO:
($185,595,219 divided by 5,648,608
shares outstanding) $ 32.86
========
MICRO-CAP PORTFOLIO:
($30,732,858 divided by 2,502,168 shares
outstanding) $ 12.28
=======
MID-CAP PORTFOLIO:
($7,294,755 divided by 709,216 shares
outstanding) $10.29
======
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE OBERWEIS FUNDS
STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
EMERGING GROWTH MICRO-CAP MID-CAP
PORTFOLIO PORTFOLIO PORTFOLIO
YEAR ENDED JANUARY 1, 1996*- SEPTEMBER 15, 1996*-
DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- ----------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 67 $ 4 $ 1
Interest 859 225 7
------- ------- ----
Total Investment
Income 926 229 8
------- ------- ----
EXPENSES:
Advisory fees 748 175 8
Management fees 723 117 8
Distribution fees 452 73 5
Transfer agent fees 324 103 19
Custodian fees 167 52 14
Professional fees 117 19 12
Shareholder reports 87 9 1
Registration fees 27 3 --
Insurance 15 1 --
Organizational costs -- 12 4
Trustees fees 8 2 1
Other 5 -- --
------- ------- ----
Total Expenses 2,673 566 72
------- ------- ----
NET INVESTMENT LOSS
BEFORE EXPENSE
REIMBURSEMENT (1,747) (337) (64)
Expense Reimbursement -- -- 30
------- ------- ----
NET INVESTMENT LOSS (1,747) (337) (34)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) from
investment
transactions 11,328 (1,472) (64)
Net realized gain
from covered call
options written 1,938 69 1
------- ------- ----
Total net realized
gain (loss) 13,266 (1,403) (63)
Increase in net
unrealized
appreciation of
investments 14,469 439 235
------- ------- ----
Net realized and
unrealized gain
(loss) on
investments 27,735 (964) 172
------- ------- ----
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS $25,988 $(1,301) $138
======= ======= ====
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
13
<PAGE>
THE OBERWEIS FUNDS
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
EMERGING GROWTH PORTFOLIO
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995
------------------- --------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (1,747) $ (1,441)
Net realized gain from investment
transactions 13,266 12,380
Increase in net unrealized
appreciation of investments 14,469 27,643
-------- --------
Net increase in net assets resulting
from operations 25,988 38,582
-------- --------
FROM DISTRIBUTIONS:
Distributions from net realized
gains on investments (14,255) (6,202)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 178,552 54,110
Shares issued in reinvestment of
distribution 13,043 5,983
Redemption of shares (152,396) (47,824)
-------- --------
Net increase from capital share
transactions 39,199 12,269
-------- --------
Total increase in net assets 50,932 44,649
NET ASSETS:
Beginning of year 134,663 90,014
-------- --------
End of year $185,595 $134,663
======== ========
- -------------------------------------------------------------------------------
<CAPTION>
MICRO-CAP PORTFOLIO MID-CAP PORTFOLIO
JANUARY 1, 1996*- SEPTEMBER 15, 1996*-
DECEMBER 31, 1996 DECEMBER 31, 1996
------------------- --------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (337) $ (34)
Net realized loss from investment
transactions (1,403) (63)
Increase in net unrealized
appreciation of investments 439 235
-------- --------
Net increase (decrease) in net
assets resulting from operations (1,301) 138
-------- --------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 55,859 8,325
Redemption of shares (23,925) (1,178)
-------- --------
Net increase from capital share
transactions 31,934 7,147
-------- --------
Total increase in net assets 30,633 7,285
NET ASSETS:
Beginning of period 100 10
-------- --------
End of period $ 30,733 $ 7,295
======== ========
</TABLE>
*Commencement of operations.
See accompanying notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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. The Trust consists of three portfolios: the
Oberweis Emerging Growth Portfolio, which prior to January 1, 1996 was known
as the Oberweis Emerging Growth Fund, the Oberweis Micro-Cap Portfolio, and
the Oberweis Mid-Cap Portfolio (collectively, the Funds).
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates.
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 each Fund's investments and other assets, less
liabilities, by the number of each Fund's 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
Funds' custodian bank and is monitored daily by each Fund so that its market
value exceeds the carrying value of the repurchase agreement.
Federal income taxes and dividends to shareholders. The Funds have complied
with the special provisions of the Internal Revenue Code available to
investment companies and therefore no federal income tax provision is
required.
15
<PAGE>
Dividends payable to its shareholders are recorded by each Fund on the ex-
dividend date. The Oberweis Emerging Growth Portfolio paid a dividend
consisting of net long term realized gains from the sale of securities of
$14,255,000 in 1996 to shareholders of record on November 13, 1996. The Micro-
Cap Portfolio and Mid-Cap Portfolio have capital loss carryforwards of
$1,403,000 and $63,000, respectively, which if not used to offset future net
realized capital gains will expire in 2004.
Organizational Costs. Organizational costs of the Micro-Cap Portfolio and Mid-
Cap Portfolio have been capitalized and are being amortized on a daily basis
using the straight line method over five years.
2. TRANSACTIONS WITH AFFILIATES
The Funds have written agreements with Oberweis Asset Management, Inc. ("OAM")
as the Fund's investment adviser and manager. Effective January 1, 1997,
Oberweis Brokerage, Inc., an affiliate of OAM, became the Funds' principal
distributor. Prior to 1997, The Chicago Corporation ("TCC") acted as the
Funds' distributor and shareholder service agent.
Advisory agreement. For investment advisory services the Emerging Growth
Portfolio 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. The Micro-Cap Portfolio paid
monthly investment advisory fees at an annual rate equal to .60% of average
daily net assets on all assets. The Mid-Cap Portfolio paid monthly investment
advisory fees at an annual rate equal to .40% of average daily net assets on
all assets. For the period ended December 31, 1996, the Emerging Growth
Portfolio, Micro-Cap Portfolio, and Mid-Cap Portfolio incurred advisory fees
totaling $748,000, $175,000, and $8,000 respectively.
Management agreement. During the period ended December 31, 1996, for
management services and facilities furnished, the Emerging Growth Portfolio,
Micro-Cap Portfolio, and Mid-Cap Portfolio each paid a monthly fee at an
annual rate equal to .40% of their average daily net assets. For the period
ended December 31, 1996, the Emerging Growth Portfolio, Micro-Cap Portfolio,
and Mid-Cap Portfolio incurred management fees totaling $723,000, $117,000,
and $8,000 respectively.
Expense Reimbursement. OAM is obligated to reduce its management fees or
reimburse the Funds to the extent that total ordinary operating expense, as
defined, exceed in any one year the following amounts expressed as a
percentage of each 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. OAM reimbursed the Mid-
Cap Portfolio $30,000 for the year.
Officers and trustees. Certain officers or trustees of the Funds are also
employees, officers or directors of OAM and until January 1, 1997, TCC. During
the year ended December 31, 1996, the Funds made no direct payments to its
officers and paid $11,000 to their unaffiliated trustees.
Distribution and shareholder service expense. The Funds had a distribution and
shareholder services agreement with TCC. For services under the distribution
and shareholder servicing agreement, the Funds paid TCC a fee at the annual
16
<PAGE>
rate of .25% of the average daily net assets. For the period ended December
31, 1996, the Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap
Portfolio incurred distribution fees totaling $452,000, $73,000, and $5,000
respectively.
Commissions. The Funds pay TCC for executing some of the Funds' agency
security transactions at competitive rates, typically $.03 per share. For the
period ended December 31, 1996, the Emerging Growth Portfolio, Micro-Cap
Portfolio, and Mid-Cap Portfolio paid commissions of $12,000, $2,000 and $0,
respectively to TCC.
3. INVESTMENT TRANSACTIONS
The cost of securities purchased and proceeds from securities sold during the
period ended December 31, 1996, other than options written and money market
investments, aggregated $139,484,000 and $111,087,000, respectively for the
Emerging Growth Portfolio, $48,571,000 and $17,399,000 respectively for the
Micro-Cap Portfolio, and $7,548,000 and $434,000 respectively for the Mid-Cap
Portfolio.
Transactions in options written for the period ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
EMERGING GROWTH MICRO-CAP MID-CAP
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------- ------------------ ------------------
NUMBER NUMBER NUMBER
OF PREMIUMS OF PREMIUMS OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED CONTRACTS RECEIVED
--------- ----------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period 3,870 $ 1,493,000 -- $ -- -- $ --
Options written 24,032 5,192,000 500 80,000 33 6,000
Options expired (17,364) (4,093,000) (350) (50,000) (3) --
Options closed (5,285) (1,499,000) (100) (25,000) -- --
Options assigned (1,153) (221,000) -- -- -- --
------- ----------- ---- -------- --- ------
Options outstanding at
end of period 4,100 $ 872,000 50 $ 5,000 30 $6,000
</TABLE>
The premiums received provide a partial hedge (protection) against declining
prices and enables each 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 each Fund.
17
<PAGE>
4. CAPITAL SHARE TRANSACTIONS
The following table summarizes the activity in capital shares of each Fund:
<TABLE>
<CAPTION>
EMERGING GROWTH EMERGING GROWTH
PORTFOLIO YEAR ENDED PORTFOLIO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 5,132,000 $ 178,552,000 2,039,000 $ 54,110,000
Shares issued in
reinvestment of
dividends 415,000 13,043,000 208,000 5,983,000
Less shares redeemed (4,528,000) (152,396,000) (1,820,000) (47,824,000)
---------- ------------- ---------- ------------
Net increase from capital
share transactions 1,019,000 $ 39,199,000 427,000 $ 12,269,000
<CAPTION>
MICRO-CAP PORTFOLIO MID-CAP PORTFOLIO
JANUARY 1, 1996- SEPTEMBER 15, 1996-
DECEMBER 31, 1996 DECEMBER 31, 1996
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 4,315,000 $ 55,859,000 821,000 $ 8,325,000
Shares issued in
reinvestment of
dividends -- -- -- --
Less shares redeemed (1,823,000) (23,925,000) (113,000) (1,178,000)
---------- ------------- ---------- ------------
Net increase from capital
share transactions 2,492,000 $ 31,934,000 708,000 $ 7,147,000
</TABLE>
5. REDEMPTION FEE
A .25% redemption fee is charged on redemptions from the Micro-Cap and Mid-Cap
Portfolios. The redemption fee is retained by the Funds and is intended to
reimburse the Funds for the expense they incur in connection with shareholder
redemptions. Redemption fees received by the Micro-Cap and Mid-Cap Portfolios
were $59,000 and $3,000, respectively, for the period ended December 31, 1996,
and were recorded as a reduction of shares redeemed in the statement of
changes in net assets.
18
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
year is as follows:
<TABLE>
<CAPTION>
EMERGING GROWTH PORTFOLIO
----------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of year $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39
Income from investment
operations:
Net investment loss (a) (.32) (.33) (.22) (.22) (.21)
Net realized and
unrealized gain (loss)
on investments 6.73 9.43 (.56) 2.25 2.72
-------- -------- ------- -------- -------
Total from investment
operations 6.41 9.10 (.78) 2.03 2.51
Less Distributions:
Distribution from net
realized gains on
investments (2.64) (1.42) -- (.74) --
-------- -------- ------- -------- -------
Net asset value at end
of year $ 32.86 $ 29.09 $ 21.41 $ 22.19 $ 20.90
======== ======== ======= ======== =======
Total Return (%) 22.5 42.6 (3.5) 9.7 13.7
Ratio/Supplemental Data
Net Assets at end of
period (in thousands) $185,595 $134,663 $90,014 $104,324 $54,063
Ratio of expenses to
average net assets (%) 1.48 1.73 (b) 1.78 1.80 (b) 1.99 (b)
Ratio of net investment
loss to average net
assets (%) (0.97) (1.24) (1.06) (1.04) (1.14)
Portfolio turnover rate
(%) 64 79 66 70 63
Average commission rate
paid $ .0413 -- -- -- --
</TABLE>
- --------
Notes:
(a) The net investment loss per share data was determined using average shares
outstanding during the year.
(b) Net of expense reimbursement from related parties. Expense ratios would
have been 1.77%, 1.82%, and 2.41%, for 1995, 1993, and 1992, respectively
before expense reimbursement.
19
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period is as follows:
<TABLE>
<CAPTION>
MICRO-CAP MID-CAP
PORTFOLIO PORTFOLIO
JANUARY 1, 1996*- SEPTEMBER 15, 1996*-
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- --------------------
<S> <C> <C> <C>
Net asset value at beginning of
period $ 10.00 $10.00
Income from investment operations:
Net investment loss (a) (.15) (.05)
Net realized and unrealized gain
(loss) on investments 2.43 .34
------- ------
Total from investment operations 2.28 .29
------- ------
Net asset value at end of period $ 12.28 $10.29
======= ======
Total Return (%) 22.8 2.9 (d)
Ratio/Supplemental Data
Net Assets at end of period (in
thousands) $30,733 $7,295
Ratio of expenses to average net
assets (%) 1.94 2.00 (b)(c)
Ratio of net investment loss to
average net assets (%) (1.15) (1.62)(c)
Portfolio turnover rate (%) 70 21 (c)
Average commission rate paid $ .0371 $.0371
</TABLE>
- --------
Notes:
(a) The net investment loss per share data was determined using average shares
outstanding during the period.
(b) Net of expense reimbursement from related parties. The annualized expense
ratio would have been 3.42% in 1996 before expense reimbursement.
(c) Annualized.
(d) Not annualized.
* Commencement of operations.
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
The Oberweis Funds--
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
We have audited the accompanying statement of assets and liabilities,
including the portfolios of investments, of The Oberweis Funds--Emerging
Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap Portfolio as of December
31, 1996, the related statements of operations, changes in net assets and the
financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits 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 from 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, 1996, 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 audits provide 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 The
Oberweis Funds--Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap
Portfolio at December 31, 1996, the result of its operations, the changes in
net assets and the financial highlights for the periods indicated therein in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 29, 1997
21
<PAGE>
LOGO THE
OBERWEIS FUNDS
- --------------------------------------------------------------------------------
James D. Thomas J. Burke
Oberweis Trustee
Trustee and
President Edward F.
Streit
Douglas P. Trustee
Hoffmeyer
Trustee
Martin L.
Patrick B. Yokosawa
Joyce Vice President
Executive Vice President
Treasurer
Sally A. Jordan
James W. Secretary
Oberweis
Vice President
Margaret W.
Unsworth
Assistant
Secretary
MANAGER AND INVESTMENT ADVISOR
Oberweis Asset Management, Inc.
951 Ice Cream Dr., North Aurora, IL
60542
1-800-323-6166
DISTRIBUTOR
Oberweis Brokerage, Inc.
951 Ice Cream Dr., North Aurora, IL
60542
1-630-801-6000
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
P.O. Box 419042, Kansas City,
Missouri 64141
1-800-245-7311
COUNSEL
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago, Illinois 60601
INDEPENDENT AUDITORS
Ernst & Young LLP
233 South Wacker Drive, Chicago, Illinois 60606 ANNUAL REPORT
LOGO ---------------------------------------
AUDITED
THE OBERWEIS FUNDS
EMERGING GROWTH PORTFOLIO DECEMBER 31, 1996
MICRO-CAP PORTFOLIO
MID-CAP PORTFOLIO
