<PAGE>
SEC Filing Fees Account #0000803020
AS FILED WITH THE SECURITIES AND EXCHANGE 1933 ACT FILE NO. 33-9093
COMMISSION ON FEBRUARY 28, 1997 1940 ACT FILE NO. 811-4854
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.________ [_]
Post-Effective Amendment No. 15 [X]
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 [X]
THE OBERWEIS FUNDS
(Exact Name of Registrant as Specified in Charter)
c/o Oberweis Asset Management, Inc.
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
(Address of Principal Executive Offices, Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 323-6166
Patrick B. Joyce
Oberweis Asset Management, Inc.
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
(Name and Address of Agent for Service)
Copies to:
Cathy G. O'Kelly
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Suite 2600
Chicago, Illinois 60601
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has declared that an indefinite number or amount of Shares of beneficial
interest in the Fund has been registered under the Securities Act of 1933. The
Rule 24f-2 Notice for the year ended December 31, 1996 was filed with the
Securities and Exchange Commission on or about February 26, 1997. It is
proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[X] on May 1, 1997 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
<PAGE>
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM NUMBER LOCATION IN PROSPECTUS
- --------------------- ----------------------
<S> <C>
Part A--
Item 1. Cover page Cover Page
Item 2. Synopsis Cover Page, Synopsis of Fees
Item 3. Condensed Financial Information Financial Highlights; Performance Comparison
Item 4. General Description of Registrant Investment Objective, Policies and Risks; General Information
Item 5. Management of the Fund Management of the Portfolios; Expenses of the Fund; The
Advisory and Management Agreements
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Distribution of Shares; Dividends, Distributions and Tax
Status; General Information
Item 7. Purchase of Securities Being Offered How to Purchase Shares; Shareholder Services
Item 8. Redemption or Repurchase How to Redeem Shares; Shareholder Services
Item 9. Pending Legal Proceedings Not Applicable
LOCATION IN
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Item B--
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objective, Policies and Restrictions
Item 14. Management of the Fund Management of the Fund
Item 15. Control Persons and Principal Holders of Securities Management of the Fund
Item 16. Investment Advisory and Other Services Oberweis Asset Management, Inc.; The Chicago Corporation;
Distribution Plan and Agreement; Additional Information
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Shareholder Voting Rights [See also Item 6]
Item 19. Purchase, Redemption and Pricing of Securities Redemption of Shares, Determination of Net Asset Value
Being Offered
Item 20. Tax Status Taxes
Item 21. Underwriters See Prospectus - How to Purchase Shares
Item 22. Calculations of Performance Data Calculation of Average Annual Total Return
Item 23. Financial Statements Financial Statements
Part C--
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this
Registration Statement.
</TABLE>
ii
<PAGE>
The Oberweis Funds
The Oberweis Funds (the "Fund") is a managed, diversified, open-end mutual fund
currently
consisting of three portfolios--the Oberweis Emerging Growth Portfolio (the
"Emerging Growth Portfolio"), the Oberweis Micro-Cap Portfolio (the "Micro-Cap
Portfolio") and the Oberweis Mid-Cap Portfolio (the "Mid-Cap Portfolio").
The Micro-Cap Portfolio commenced the public offering of shares on January 1,
1996 at $10 per share. The Fund anticipates ceasing sales of the Micro-Cap
Portfolio to both new shareholders and existing shareholders when the Portfolio
reaches $60 million in net assets but reserves the right to change this limit
in the future.
The Mid-Cap Portfolio commenced the public offering of shares on September 15,
1996 at $10 per share.
The investment objective of each Portfolio is to maximize capital appreciation.
Each Portfolio intends to achieve its objective through an investment program
emphasizing common stocks of companies that the investment adviser, Oberweis
Asset Management, Inc. ("OAM"), believes have the potential for above-average
long-term growth in market value. Each Portfolio's investment program may in-
volve a greater degree of risk than is customarily associated with more
conservative investment programs. The Fund may sell and purchase options which
involve certain risks. (See "Options" on page 9.) This Prospectus, which should
be read and retained for future reference, sets forth concisely the information
an investor should know before investing in the Fund.
A Statement of Additional Information for the Fund dated May 1, 1997 as may be
amended from time to time has been filed with the Securities and Exchange Com-
mission and may be obtained without charge by calling or writing the Fund at
the telephone number or address listed below. The Statement of Additional In-
formation is incorporated by reference into this Prospectus.
- --------------------------------------------------------------------------------
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
(800) 323-6166
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Synopsis of Fees............................................................ 2
Financial Highlights........................................................ 3
Performance Comparison...................................................... 5
Investment Objective, Policies and Risks.................................... 7
Management of the Portfolios................................................ 10
The Advisory and Management
Agreements................................................................. 10
Distribution of Shares...................................................... 11
Expenses of the Fund........................................................ 12
Portfolio Transactions...................................................... 12
How to Purchase Shares...................................................... 12
How to Redeem Shares........................................................ 13
Net Asset Value............................................................. 14
Shareholder Services........................................................ 15
Dividends, Distributions and Tax Status..................................... 16
The Custodian and Transfer Agent............................................ 17
General Information......................................................... 17
</TABLE>
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in a
Portfolio's shares involves risk, including the possible loss of principal.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS ANY SUCH COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is May 1, 1997
<PAGE>
SYNOPSIS OF FEES
<TABLE>
<CAPTION>
PORTFOLIO
---------------------
EMERGING MICRO- MID-
SHAREHOLDER TRANSACTION EXPENSES(1) GROWTH CAP CAP
- ----------------------------------- -------- ------ -----
<S> <C> <C> <C>
Sales Charge Imposed on Purchases (as a percentage of
offering price)...................................... None None None
Sales Charge Imposed on Reinvested Dividends or
Capital Gain Distributions........................... None None None
Redemption Fees....................................... None .25% .25%
Exchange Fees......................................... None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Advisory and Management Fees.......................... .81% 1.00% .80%
12b-1 Fees............................................ .25% .25% .25%
Other Expenses........................................ .42% .69% .95%(3)
Total Fund Operating Expenses(2)...................... 1.48% 1.94% 2.00%(3)
</TABLE>
- --------
(1) Investment dealers and other firms may independently charge additional
fees for shareholder transactions or for advisory services; please see their
materials for details.
(2) The Manager will reimburse each Portfolio for total operating expenses in
excess of 2% of average daily net assets for the first $25,000,000; plus 1.8%
of the next $25,000,000; plus 1.6% of average daily net assets in excess of
$50,000,000. See "Expenses of the Fund," for a discussion of the Fund's annual
expense limitation and reductions of the Management fees.
(3) Net of expense reimbursement. Other expenses would have been 2.37% and
Total Fund Operating Expenses would have been 3.42% without expense reimburse-
ment.
<TABLE>
<CAPTION>
EXAMPLE 1 YR. 3 YRS. 5 YRS. 10 YRS.
- ------- ----- ------ ------ -------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return and
redemption at the end of each time period:
Emerging Growth Portfolio......................... $15 $47 $ 81 $177
Micro-Cap Portfolio............................... $22 $64 $108 $230
Mid-Cap Portfolio................................. $23 $65 $111 $236
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund may bear directly
or indirectly. Long-term shareholders may pay more in total sales charges than
the economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. There is a .25% withdrawal
charge on the Micro-Cap and Mid-Cap Portfolios, which is deducted from the re-
demption proceeds and is used to reimburse the Portfolio for the costs it
incurs in connection with the Shareholder's liquidation of shares. In addition,
for each Portfolio, there is a $6 fee for each wire redemption, which is de-
ducted from a Shareholder's redemption amount. The examples are based on the
expenses in the table and a hypothetical annual rate of return of 5%. THE EXAM-
PLES SHOULD NOT BE CONSIDERED AN INDICATION OF ACTUAL OR EXPECTED PORTFOLIO
PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY BE GREATER OR LESS THAN THOSE SHOWN.
For a more complete explanation of the fees and expenses borne by each Portfo-
lio, please see the discussions under the Prospectus headings "The Advisory and
Management Agreements," "Distribution of Shares," "Expenses of the Fund," and
"Portfolio Transactions," as well as the Statement of Additional Information
incorporated by reference into this Prospectus.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables show important financial information expressed in terms of
one share outstanding throughout the periods. The net investment loss per share
data was determined using average shares outstanding during the period. The
information in the table has been audited by the Fund's independent auditors.
The auditors' unqualified report, along with the complete financial statements,
is included in the Fund's Annual Report, which is incorporated by reference
into the Statement of Additional Information.
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(D)
-------- -------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11 $ 12.06 $ 9.65 $ 9.13 $ 10.04
Income from Investment
Operations:
Net investment loss..... (0.32) (0.33) (0.22) (0.22) (0.21) (0.09) (0.24) (0.35) (0.20) (0.15)
Net realized and
unrealized gain (loss)
on investments......... 6.73 9.43 (0.56) 2.25 2.72 10.64 0.29 2.76 0.72 (0.76)
-------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 6.41 9.10 (0.78) 2.03 2.51 10.55 0.05 2.41 0.52 (0.91)
Less Distributions:
Net realized gain on
investments............ (2.64) (1.42) -- (0.74) -- (4.27) -- -- -- --
-------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 32.86 $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11 $ 12.06 $ 9.65 $ 9.13
======== ======== ======= ======== ======= ======= ======= ======= ======= =======
Total Return (%)(b)..... 22.5 42.6 (3.5) 9.7 13.7 87.1 0.4 25.0 5.7 (9.1)
Ratios/Supplemental
Data:
Net assets, end of
period (in thousands).. $185,595 $134,663 $90,014 $104,324 $54,063 $19,730 $11,604 $12,940 $15,914 $16,856
Ratio of expenses to
average net assets (%). 1.48 1.73(a) 1.78 1.80(a) 1.99(a) 2.13(a) 2.15(a) 2.00(a) 2.46 1.99(c)
Ratio of net investment
loss to average net
assets (%)............. (0.97) (1.24) (1.06) (1.04) (1.14) (1.27) (1.24) (1.19) (1.80) (1.48)(c)
Portfolio turnover rate
(%).................... 64 79 66 70 63 114 62 112 67 55
Average commission rate
paid................... $ .0413 -- -- -- -- -- -- -- -- --
</TABLE>
- -------
(a) Net of expense reimbursement from related parties. Expense ratios would
have been 1.77% for 1995, 1.82% for 1993, 2.41% for 1992, 3.01% for 1991,
and 3.48% for both 1990 and 1989 before expense reimbursement.
(b) A sales load of 4% was charged until December 31, 1991 and is not reflected
in the above total return figures.
(c) Annualized.
(d) From inception of Portfolio, January 7, 1987.
3
<PAGE>
MICRO-CAP PORTFOLIO
<TABLE>
<CAPTION>
JANUARY 1,
1996*-
DECEMBER 31,
1996
-------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $ 10.00
Income from Investment Operations:
Net investment loss.......................................... (0.15)
Net realized and unrealized gain (loss) on investments....... 2.43
-------
Total from investment operations............................. 2.28
Less Distributions:
Net realized gain on investments............................. --
-------
Net Asset Value, End of Period............................... $ 12.28
=======
Total Return (%)............................................. 22.8
Ratios/Supplemental Data:
Net assets, end of period (in thousands)..................... $30,733
Ratio of expenses to average net assets (%).................. 1.94
Ratio of net investment loss to average net assets (%)....... (1.15)
Portfolio turnover rate (%).................................. 70
Average commission rate paid................................. $ .0371
- --------
*Commencement of operations
MID-CAP PORTFOLIO
<CAPTION>
SEPTEMBER 15,
1996*-
DECEMBER 31,
1996
-------------
<S> <C>
Net Asset Value, Beginning of Period.......................... $ 10.00
Income from Investment Operations:
Net investment loss.......................................... (0.05)
Net realized and unrealized gain (loss) on investments....... 0.34
-------
Total from investment operations............................. 0.29
Less Distributions:
Net realized gain on investments............................. --
-------
Net Asset Value, End of Period............................... $ 10.29
=======
Total Return (%)............................................. 2.9 (b)
Ratios/Supplemental Data:
Net assets, end of period (in thousands)..................... $ 7,295
Ratio of expenses to average net assets (%).................. 2.00 (a)(c)
Ratio of net investment loss to average net assets (%)....... (1.62)(c)
Portfolio turnover rate (%).................................. 21 (c)
Average commission rate paid................................. $ .0371
</TABLE>
- --------
(a) Net of expense reimbursement from related parties. The annualized expense
ratio would have been 3.42% in 1996 before expense reimbursement.
(b) Total return has not been annualized.
(c) Annualized.
*Commencement of operations.
4
<PAGE>
PERFORMANCE COMPARISON
The following table compares the Emerging Growth Portfolio's and the Micro-Cap
Portfolio's total return for the one year period ended December 31, 1996 with
the total return of various indexes of unmanaged securities:
<TABLE>
<CAPTION>
ONE YEAR
PERIOD ENDED
DECEMBER 31,
1996
------------
<S> <C>
Oberweis Emerging Growth Portfolio................................. 22.45%
Oberweis Micro-Cap Portfolio....................................... 22.80%
Dow-Jones Industrial Average....................................... 29.11%
S&P 500............................................................ 22.98%
NASDAQ National Composite.......................................... 22.71%
Lipper Small Company Growth Index.................................. 18.12%
Russell 2000 Index................................................. 16.43%
Wilshire 5000 Index................................................ 21.21%
</TABLE>
Total return includes price level changes, dividends and capital gain distribu-
tions. As calculated in accordance with applicable regulations of the
Securities and Exchange Commission, the Portfolios' average annual total re-
turns for the following periods ended December 31, 1996 are:
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAST PAST LIFE OF FUND
1 YEAR 5 YEARS (1/7/87)
------ ------- ------------
<S> <C> <C> <C>
Emerging Growth Portfolio..................... 22.45% 15.99% 16.88%
S&P 500....................................... 22.95% 15.20% 14.69%
Russell 2000 Index............................ 16.43% 15.69% 11.70%
</TABLE>
PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAST
1 YEAR
(SINCE INCEPTION)
-----------------
<S> <C>
Micro-Cap Portfolio..................................... 22.80%
S&P 500................................................. 22.95%
Russell 2000 Index...................................... 16.43%
PERIOD ENDED DECEMBER 31, 1996 (NOT ANNUALIZED)
<CAPTION>
SINCE INCEPTION
(9/15/96)
-----------------
<S> <C>
Mid-Cap Portfolio....................................... 2.90%
S&P Mid-Cap Index....................................... 7.49%
</TABLE>
The Dow-Jones Industrial Average is a widely recognized stock market indicator
that consists of the price movements of 30 major industrial companies in the
United States. The Standard & Poor's indices are unmanaged indices generally
representative of the U.S. stock market. The NASDAQ National Composite, Lipper
Small Company Growth Index, Russell 2000 Index and the Wilshire 5000 Index rep-
resent portfolios that are somewhat more representative of the securities held
by the Emerging Growth and Micro-Cap Portfolios.
In advertising, sales literature and other publications, the Portfolios' per-
formance may be quoted in terms of total return or average annual total return,
which may be compared with various indices and investments, other performance
measures or rankings, or other mutual funds, or indices or averages of other
mutual funds.
5
<PAGE>
EMERGING GROWTH PORTFOLIO
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM JANUARY 7, 1987 TO DECEMBER 31, 1996
LOGO
MICRO-CAP PORTFOLIO
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM JANUARY 1, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
LOGO
MID-CAP PORTFOLIO
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM SEPTEMBER 15, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
LOGO
All data assumes reinvestment of dividends and capital gains. Results repre-
sent past performance and do not indicate future results. The value of an
investment in the Portfolios and the return on the investment both will fluc-
tuate and redemption proceeds may be higher or lower than an investor's
original cost. When first organized in 1987, the Emerging Growth Portfolio ap-
plied a sales charge to each share purchase. The Emerging Growth Portfolio's
sales charge was eliminated on December 31, 1991. The performance graph and
the average annual return figures for the Emerging Growth Portfolio do not re-
flect the load. The Micro-Cap and Mid-Cap Portfolios deduct a withdrawal
charge of .25% of the value of the shares redeemed. The performance graphs and
average annual return figures for these Portfolios do not reflect the deduc-
tion of the withdrawal charge.
Additional information concerning performance results of the Portfolios is
contained in the Annual and Semi-Annual Reports which are available upon re-
quest without cost from the Fund.
6
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVE--The investment objective of each Portfolio is to maximize
capital appreciation. The realization of current income will not be a consider-
ation in the selection of securities for investment, and the Portfolios are not
designed for investors seeking income rather than capital appreciation. The in-
vestment objective of each Portfolio is a fundamental policy and may not be
changed without approval of the shareholders of that Portfolio, which is de-
scribed in the Statement of Additional Information.
INVESTMENT PROGRAM AND PHILOSOPHY--Each of the Portfolios is managed to seek
out companies that the Portfolio's investment adviser, OAM, believes have the
potential for above-average long-term growth in market value.
The Mid-Cap Portfolio will generally invest in companies with market capital-
ization between $500 million and $5 billion at the time of acquisition.
The Emerging Growth Portfolio may invest in companies of all size capitaliza-
tions, however, because it is believed that the potential for such growth may
tend to be found more often in relatively small capitalization companies, which
fall in the lowest 30% capitalization of the companies listed on the New York
Stock Exchange or companies of similar or smaller capitalization which are
listed on the American Stock Exchange or are traded over the counter (typically
with capitalization of less than $1 billion), it is anticipated that approxi-
mately 80% of the Portfolio's assets will be invested in the securities of such
smaller companies with the Portfolio's average market capitalization being $600
million. However, such percentage may vary greatly from time to time based on
OAM's analysis of economic and market conditions
The Micro-Cap Portfolio will generally invest in companies with a market capi-
talization of not more than $250 million at the time of acquisition, with the
Portfolio's average market capitalization being approximately $100 million. It
is anticipated that at least 80% of the companies that the Portfolio will in-
vest in will have a market capitalization of not more than $250 million at the
time of purchase and at least 50% of the companies will have market capitaliza-
tion of $100 million or less at the time of purchase.
Each Portfolio in particular seeks to invest in those companies which OAM con-
siders as having such above-average long-term growth potential based on its
analysis of eight factors, which the portfolio manager calls the "Oberweis Oc-
tagon." These factors are:
1. rapid growth in revenue, preferably generated by internal growth as op-
posed to acquisitions of other businesses, at least 30% in the latest quarter
for companies being considered for investment by the Emerging Growth and Mi-
cro-Cap Portfolios and at least 20% in the latest quarter for companies being
considered for investment by the Mid-Cap Portfolio;
2. rapid growth in pre-tax income (at least 30% in the latest quarter for
companies being considered for investment by the Emerging Growth and Micro-
Cap Portfolios and at least 20% in the latest quarter for companies being
considered for investment by the Mid-Cap Portfolio) and in earnings per
share;
3. reasonable price earnings ratio in relation to the company's underlying
growth rate, generally a price earnings ratio not more than 1/2 of the
company's growth rate for companies being considered for investment by the
Emerging Growth and Micro-Cap Portfolios and generally a price earnings ratio
of not more than the company's growth rate for companies being considered for
investment by the Mid-Cap Portfolio;
4. products or services that offer the opportunity for substantial future
growth;
5. favorable recent trends in revenue and earnings growth;
6. reasonable price-to-sales ratio based on the company's underlying growth
prospects and profit margins;
7. a review of the company's balance sheet, with particular attention to
footnotes, in order to identify unusual items which may indicate future prob-
lems; and
8. high relative strength in the market, in that the company's stock has
outperformed at least 75% of other stocks in the market over the preceding
twelve months.
OAM considers these eight factors as guidelines by which it may evaluate the
many companies it reviews, but such factors and the relative weight given to
each will vary with economic and market conditions and the type of company be-
ing evaluated. No one factor will justify, and any one factor may (but will not
necessarily) preclude, an investment in a particular company. Although securi-
ties of a particular company may be eligible for purchase by more than one
Portfolio, OAM may determine that at any particular time it is appropriate to
purchase a security for one Portfolio but not another. In addition, transac-
tions in a particular security may not be accomplished for all Portfolios at
the same time or the same price.
7
<PAGE>
Generally, at least seventy-five percent (75%) or more of each Portfolio's as-
sets will be invested in common stocks, but each Portfolio may also invest in
convertible securities, preferred stocks, securities of foreign issuers (most
of which are traded on United States stock exchanges or listed on NASDAQ), and
restricted securities. In addition, the Portfolios may establish and maintain
reserves for temporary defensive purposes or to enable it to take advantage of
buying opportunities. Each Portfolio's reserves may be held in cash or invested
in high quality money market instruments, including U.S. government obliga-
tions, certificates of deposit, bankers' acceptances, commercial paper (rated
prime 3 or better by Moody's Investors Service, Inc. or the equivalent), corpo-
rate debt securities (rated A or better by Moody's Investors Service, Inc. or
Standard & Poor's Corporation) and repurchase agreements. The Portfolios may
also lend its portfolio securities, write (sell) options against investment po-
sitions and purchase put and call options. See "Certain Other Investment
Practices and Risks Which You Should Consider," below.
To diversify the Portfolios and reduce investment risk, each Portfolio has
adopted certain fundamental policies, which restrict each from the following:
(1) purchasing the securities of any issuer if, as a result:
(a) it would own more than 10% of the outstanding securities of any class
of any issuer, or
(b) such holdings would amount to more than 5% of the Portfolio's total
assets;
(2) the borrowing of money, except for temporary or emergency purposes or as
necessary for the clearance of purchases and sales of securities, and then
only in amounts not exceeding 5% of the Portfolio's total assets;
(3) in any manner transferring as collateral any securities owned by the
Portfolio, except as may be necessary in connection with permissible borrow-
ings, which in no event will exceed 5% of its net assets valued at market;
(4) purchasing additional securities when money borrowed exceeds 5% of the
Portfolio's total assets; and
(5) purchasing securities of any one issuer if, as a result, 25% or more of
its total assets would be concentrated in any one industry.
Each Portfolio's investment program, discussed above, is subject to further re-
strictions, which are described elsewhere in this Prospectus and in the
Statement of Additional Information.
ARE THE PORTFOLIOS' INVESTMENT OBJECTIVE AND POLICIES APPROPRIATE FOR YOU?--The
Portfolios are designed for investors who can accept the risks involved in
seeking maximum capital appreciation. Although each Portfolio seeks to reduce
risk by investing in a diversified portfolio, investors should realize that the
very nature of investing in small, and often newer, companies involves greater
risk than is customarily associated with more established companies. Smaller
and newer companies often have limited product lines, markets, management per-
sonnel, research and/or financial resources. The securities of small companies,
which may be thinly capitalized, may have limited marketability and be subject
to more abrupt or erratic market movements than securities of larger companies
or the market averages in general. Because the Portfolios'
investment policies will be oriented to capital appreciation, as opposed to
dividend income, each Portfolio may be considered to be an investment of above
average risk. Each Portfolio is not intended to constitute a balanced invest-
ment program. Dividends are expected to be minimal and there can be no
assurance that a Portfolio's objective will be met.
EACH PORTFOLIO IS INTENDED FOR LONG-TERM INVESTORS WHO CAN BEAR THE RISKS IN-
VOLVED IN THE PORTFOLIO'S INVESTMENTS. ACCORDINGLY, EACH PORTFOLIO DISCOURAGES
SHORT-TERM TRADING IN ITS SHARES.
CERTAIN OTHER INVESTMENT PRACTICES AND RISKS WHICH YOU SHOULD CONSIDER--Lending
of Portfolio Securities. For the purpose of realizing some income on its port-
folio securities, each Portfolio may make security loans of its portfolio
securities, of up to 30% of its total assets, to broker-dealers or institu-
tional investors. Any such loan will be continuously secured by collateral at
least equal to 100% of the value of the security loaned. While the securities
are being lent, the Portfolios will continue to receive the equivalent of any
dividends or interest paid by the issuer thereof, as well as interest on the
collateral. Any gain or loss in the market value of the securities loaned that
might occur during the term of the loan would be for the account of the Portfo-
lio. As with any extension of secured credit, portfolio security loans involve
certain risks in the event a borrower should fail financially, including delays
or inability to recover the loaned securities or foreclosure against the col-
lateral. Each Portfolio will consider on an ongoing basis the creditworthiness
of the borrowers to which it makes portfolio security loans.
8
<PAGE>
Restricted Securities. Each Portfolio may not invest more than 5% of its total
assets in securities that are not readily marketable, including repurchase
agreements with maturities of seven days or more, and securities of unseasoned
issuers that have been in continuous operation for less than three years and
may not invest more than 5% of its total assets in securities where resale is
legally or contractually restricted (all of which are collectively referred to
as "restricted securities"). Restricted securities may be resold by the Portfo-
lio to other institutions. Provided that a dealer or institutional trading
market in such securities exists, these restricted securities may be treated as
exempt from the Portfolio's limitation on illiquid securities. Because institu-
tional trading in restricted securities is relatively new, it is not possible
to predict how these institutional markets will develop. If institutional trad-
ing in restricted securities were at limited levels, the liquidity of each
Portfolio's investments could be adversely affected.
Options. Options are derivative securities. A "derivative" is any instrument
that is derived from combining, or splitting apart, other products, securities,
and indices. Each Portfolio may also write (sell) covered call options on its
portfolio securities, the aggregate market value of which underlying securities
is limited to 50% of the Portfolio's net assets. A call option gives the buyer
(holder) the right to purchase the underlying security at a specified price
(the "exercise price") within a certain time period. Where the writer (seller)
of the option, in this case the Portfolio, already owns the underlying securi-
ty, the call option is considered to be "covered." The Portfolio will receive a
premium, which is the market value of the option, when it writes (sells) a call
option. The premium provides a partial hedge (protection) against declining
prices and enables the Portfolio to generate a higher return during periods
when OAM does not expect the underlying security to make any major price moves
in the near future but still deems the underlying security to be, over the long
term, an attractive investment for the Portfolio. In determining whether to
write (sell) a covered call option on one of the Portfolio's securities, OAM
will consider the reasonableness of the anticipated premium in relation to the
anticipated increase in market value of the underlying security over the option
period. Although the writing (selling) of covered call options is believed by
OAM to be a conservative investment technique that involves relatively little
risk, risks involved in writing (selling) a covered call option include the
possible inability to effect closing transactions at favorable prices and the
inability to participate in any appreciation of the underlying security above
the exercise price plus premium. The Portfolio may also be exposed to a possi-
ble price decrease in the underlying security that might otherwise have been
sold while the Portfolio continues to hold such underlying security during the
option period, although any such loss during such period would be reduced by
the amount of the premium received. The Portfolios do not consider a security
covered by a call to be "pledged" as that term is used in each Portfolio's in-
vestment policy limiting the pledging or mortgaging of its assets. In addition,
each Portfolio may invest up to 5% of its assets in the purchase of put and
call options, primarily to minimize principal fluctuation. The risks involved
in purchasing put or call options include the possible loss of the entire pre-
mium. Each Portfolio may also purchase put and call options on stock indices
("stock index options"), for the purpose of partially hedging against the risk
of unfavorable price movements adversely affecting the Portfolio's securities
or securities the Portfolio intends to buy, and may sell stock index options in
related closing transactions.
Foreign Securities. Foreign securities involve currency risks. The U.S. Dollar
value of a foreign security tends to decrease when the value of the U.S. Dollar
rises against the foreign currency in which the security is denominated and
tends to increase when the value of the U.S. Dollar falls against such curren-
cy. Fluctuations in exchange rates may also affect the earning power and asset
value of the foreign entity issuing the security. Dividend and interest pay-
ments may be repatriated based upon the exchange rate at the time of
disbursement or payment, and restrictions on capital flows may be imposed.
Losses and other expenses may be incurred in converting between various curren-
cies.
Foreign securities may be subject to foreign government taxes that reduce their
attractiveness. Other risks of investing in such securities include political
or economic instability in the country involved, the difficulty of predicting
international trade patterns and the possible imposition of exchange controls.
The prices of such securities may be more volatile than those of domestic secu-
rities and the markets for such securities may be less liquid. In addition,
there may be less publicly available information about foreign issuers than
about domestic issuers. Many foreign issuers are not subject to uniform ac-
counting, auditing and financial reporting standards comparable to those
applicable to domestic issuers. There is generally less regulation of stock ex-
changes, brokers, banks and listed companies abroad than in the United States.
With respect to
certain foreign countries, there is a possibility of
9
<PAGE>
expropriation or diplomatic developments that could affect investment in these
countries.
Repurchase Agreements. Repurchase agreements involve the purchase of a security
by a Portfolio and a simultaneous agreement (with a qualified bank or securi-
ties dealer) to repurchase the security from the Portfolio at a certain date at
an agreed upon price, plus an agreed upon market rate of interest that is unre-
lated to the coupon rate or date of maturity of the security. This technique
offers a method of earning income on idle cash. In these transactions, the se-
curities purchased by the Portfolio have, at all times, a total value in excess
of the value of the repurchase agreement and are held by the Fund's custodian
bank until repurchased. The transactions involve the risk that the Seller will
fail to repurchase the securities, as agreed. In that case, a Portfolio will
bear the risk of market value fluctuations until the security can be sold and
may encounter delays and incur costs in liquidating the security.
A more thorough description of certain of these investment practices and a dis-
cussion of their associated risks are contained in the Statement of Additional
Information.
MANAGEMENT OF THE PORTFOLIOS
The business and affairs of the Fund and each of the Portfolios are supervised
by the Fund's Board of Trustees (the "Trustees"). The Statement of Additional
Information contains general background information regarding each of the
Trustees and officers of the Fund. All of the Fund's officers and one of its
four Trustees are employees and/or officers of OAM and/or Oberweis Brokerage,
Inc. ("Oberweis Brokerage"), the Fund's principal distributor and shareholder
service agent. OAM is under common control with Oberweis Brokerage.
Each Portfolio's investment objective and policies were developed by James D.
Oberweis ("Mr. Oberweis"), portfolio manager of both the Emerging Growth and
the Micro-Cap Portfolio since its inception. Mr. Oberweis and James W. Oberweis
are co-portfolio managers of the Mid-Cap Portfolio.
Mr. Oberweis is also a Trustee and President of the Fund, a Director and the
President of OAM, and, together with his family, a controlling shareholder of
OAM, and an Investment Executive and shareholder of Oberweis Brokerage. Mr.
Oberweis and members of his family own the majority of the outstanding shares
of Oberweis Brokerage. Mr. Oberweis has an MBA from the University of Chicago
and has in excess of 25 years of experience in selecting securities for invest-
ment for private clients. In addition to the Fund, Mr. Oberweis manages
segregated accounts for institutional and individual investors. James W.
Oberweis is a Vice President of the Fund and OAM and a Director and the Presi-
dent of Oberweis Brokerage. James W. Oberweis was formerly a registered
representative of The Chicago Corporation ("TCC"), the Fund's prior distributor
and shareholder service agent, from March, 1996 through December, 1996. James
W. Oberweis joined OAM in 1995 as a Portfolio Manager. Prior to joining OAM,
James W. Oberweis was a student at the University of Illinois, where he earned
a Bachelor of Science degree in Engineering.
Since January 1, 1996, OAM provides the Fund with investment advisory and man-
agement services and since January 2, 1997, Oberweis Brokerage is the Fund's
principal distributor and shareholder service agent. During the period January
1, 1996 through December 31, 1996, TCC was the Fund's principal distributor and
shareholder service agent and during the period October 1, 1994 through Decem-
ber 31, 1995, OAM provided the Emerging Growth Portfolio investment advisory,
management and shareholder agent services and TCC was the Portfolio's principal
distributor.
OAM is an investment adviser based in North Aurora, Illinois. OAM was incorpo-
rated in 1989 and has been registered with the Securities and Exchange
Commission ("SEC") since January 4, 1990. OAM had not served as the investment
adviser to a mutual fund prior to October 1994, although Mr. Oberweis and other
officers and employees of OAM have previously been associated with investment
advisers to the Fund and/or other mutual funds. OAM has published an investment
advisory newsletter since 1990 and beginning in October 1994, it has offered
advice to institutions and individual investors regarding a broad range of in-
vestment products.
THE ADVISORY AND MANAGEMENT AGREEMENTS
OAM provides each Portfolio with investment advisory services under a written
agreement with the Fund dated October 1, 1994 (the "Investment Advisory Agree-
ment"). James D. Oberweis personally supervises the management of the Fund's
portfolios.
OAM manages the investment operations of each Portfolio in accordance with the
investment objectives and policies of each of the respective Portfolios, sub-
ject to the general supervision of the Trustees. As compensation for its
investment advisory services, OAM receives an annual fee which is computed and
accrued daily and payable monthly. OAM receives an annual
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<PAGE>
fee of .45% of the average daily net assets of the Emerging Growth Portfolio on
the first $50 million and .40% on amounts over $50 million. For the Portfolio,
the average rate paid to OAM in the aggregate for the year ended December 31,
1996 was .81%. OAM receives an annual fee of .60% of the average daily net as-
sets of the Micro-Cap Portfolio and an annual fee of .40% of the average daily
net assets of the Mid-Cap Portfolio.
OAM also provides the Fund with non-investment advisory management and adminis-
trative services necessary for the conduct of the Fund's business. OAM prepares
and updates SEC and state registration statements and filings, shareholder re-
ports and other similar documents. In addition, OAM provides office space and
facilities for the management of the Fund and provides accounting, record-keep-
ing and data processing facilities and services. OAM also provides information
and certain administrative services for shareholders of the Portfolios. For
managing the business affairs and providing certain administrative services,
pursuant to a Management Agreement dated October 1, 1994, each Portfolio pays
OAM a management fee, payable monthly, at the annual rate of 0.40% of the aver-
age daily net assets of the Portfolio, subject to reduction because of each
Portfolio's annual expense limitation. (See "Expenses of the Fund.") OAM may
subcontract with other entities to provide certain shareholder servicing activ-
ities.
While the combined investment advisory fee and management fee paid to OAM is
higher than the total of such fees paid by most other investment companies, the
Fund's Trustees believe that each Portfolio's investment objective and the
"Oberweis Octagon" analysis require greater than average services from OAM,
which, together with the various management and administrative services pro-
vided by OAM, justifies the higher combined fees.
DISTRIBUTION OF SHARES
The Fund has appointed Oberweis Brokerage to act as the principal distributor
of the Fund's shares and as the primary shareholder service agent. The Fund
will finance certain expenses in connection with the distribution of shares of
each Portfolio under a "compensation type" Rule 12b-1 Plan as amended January
1, 1996 and a Distribution and Shareholder Service Agreement dated January 2,
1997 between the Fund and Oberweis Brokerage (collectively called the "Plan and
Agreement") adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940. As a compensation type plan, Oberweis Brokerage may receive compensation
that is more or less than the actual expenditures made. Oberweis Brokerage is
required to provide the Fund with a quarterly listing of all expenditures under
the Plan and Agreement. Oberweis Brokerage is at risk with respect to a portion
of its expenses and fees not compensated by the Plan and Agreement if the Plan
and Agreement is modified or terminated by the Fund. No interest, carrying or
other finance charges are paid under the Plan and Agreement.
Under the Plan and Agreement, the Fund pays to Oberweis Brokerage a monthly fee
at an annual rate of .25% of each Portfolio's average daily net assets for dis-
tribution and shareholder service provided to each Portfolio ("12b-1 fees") and
will also reimburse certain out-of-pocket expenses of Oberweis Brokerage. The
Plan and Agreement provides that the Fund's asset-based sales charges (as de-
fined in the NASD's Conduct Rules) do not exceed those permitted by Rule 2830
of the NASD's Conduct Rules.
Pursuant to the Plan and Agreement, Oberweis Brokerage, directly or through
other firms, advertises and promotes the Fund and provides information and
services to existing and potential shareholders. These services include, among
other things, processing new shareholder account applications, processing and
transmitting customer transactions to the Fund's transfer agent, and serving as
the primary source of information to customers. The Plan and Agreement provides
that Oberweis Brokerage may appoint various broker-dealer firms to assist in
providing distribution services for the Fund and may appoint broker-dealers and
other firms (including depository institutions such as commercial banks and
savings and loan associations) to provide administrative services for their
clients as shareholders of the Portfolios under related service agreements.
Pursuant to the Plan and Agreement, Oberweis Brokerage may also be reimbursed
monthly by each Portfolio for certain out-of-pocket costs in connection with
its services as shareholder service agent, including such costs as postage,
data entry, modification and printout, stationery, tax forms and all other ex-
ternal forms or printed material, but not including overhead. Although there is
no limitation on the amount of such costs that may be reimbursed under the Plan
and Agreement, such costs must be actual, out-of-pocket costs, and the total
amount of 12b-1 fees, including reimbursement of such costs, is included in the
total expenses of the Portfolio, subject to the expense limitation based on av-
erage daily net assets of each Portfolio. (See "Expenses of the Fund," below.)
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<PAGE>
Oberweis Brokerage will furnish with each monthly statement for such reimburse-
ment a written listing of the expenditures on behalf of each Portfolio and
their purpose.
EXPENSES OF THE FUND
All expenses incurred in the operations of the Fund are borne by the respective
Portfolios, except to the extent specifically assumed by OAM. OAM is obligated
to reduce its management fee or reimburse the Portfolio to the extent that the
total ordinary operating expenses borne by a Portfolio on an accrual basis, in-
cluding all investment advisory, management and administrative fees, but
excluding taxes, brokerage, interest and other extraordinary expenses, exceed
in any one year the following amounts expressed as a percentage of the Portfo-
lio's average daily net assets: 2.0% of the first $25,000,000; plus 1.8% of the
next $25,000,000; plus 1.6% of average daily net assets in excess of
$50,000,000. For the year ended December 31, 1996, total expenses incurred by
the Emerging Growth Portfolio and Micro-Cap Portfolio were $2,672,362 and
$566,510, respectively, and the ratio of such total expenses to the Portfolio's
average daily net assets was 1.48% and 1.94%, respectively.
For the period September 15, 1996 through December 31, 1996, total expenses in-
curred by the Mid-Cap Portfolio were $71,872 and the ratio of such total
expenses to the Portfolio's average daily net assets was 3.42%. Pursuant to the
expense limitation, OAM was required to reimburse the Mid-Cap Portfolio in the
amount of $29,841 resulting in net expenses of $42,031 and a net expense ratio
of 2.00%.
PORTFOLIO TRANSACTIONS
Orders for securities are generally placed by OAM with a view to obtaining the
best combination of price and execution available. OAM attempts to evaluate the
overall quality and reliability of the broker-dealers and the services provid-
ed, including research services, general execution capability, reliability and
integrity, willingness to take a position in securities, general operational
capabilities and financial condition.
OAM is authorized to place orders with various broker-dealers, including
Oberweis Brokerage, subject to all applicable legal requirements. The Fund has
been advised by OAM that it may place agency transactions with Oberweis Broker-
age when it believes that the combination of price and execution are comparable
to that of other broker-dealers. OAM may also place orders with non-affiliated
broker-dealers that sell the Portfolios' shares, provided OAM believes that
price and execution are comparable to other non-affiliated broker-dealers. A
greater spread, discount or commission may be paid to non-affiliated broker-
dealers that provide research services, which may be used by OAM in managing
assets of its clients, including each of the Portfolios. Although it is be-
lieved that research services received directly or indirectly benefit all of
OAM's clients, the degree of benefit varies by account and is not directly re-
lated to the commissions or remuneration paid by the account.
The frequency of portfolio transactions, the Portfolio's turnover rate, will
vary from year to year depending on market conditions. The Emerging Growth
Portfolio's and the Micro-Cap Portfolio's turnover during the year ended Decem-
ber 31, 1996 was 64% and 70%, respectively. It is expected that the annual
portfolio turnover rate for the Mid-Cap Portfolio during its first year of op-
erations will not exceed 75%.
For the period January 1, 1996 through December 31, 1996, the total brokerage
commissions paid by the Emerging Growth Portfolio and the Micro-Cap Portfolio
were $198,976 and $42,065, respectively, of which $11,773 and $1,695, respec-
tively, was paid to TCC, the Fund's distributor during that period. The total
amount of securities transactions in which the Emerging Growth Portfolio and
the Micro-Cap Portfolio paid brokerage commissions during the period January 1,
1996 through December 31, 1996 was $62,507,939 and $12,872,463, respectively.
The total amount of principal transactions of the Emerging Growth Portfolio and
the Micro-Cap Portfolio for such period, for which no commission was incurred
was $187,935,883 and $53,097,245, respectively.
For the period September 15, 1996 through December 31, 1996, the total broker-
age commissions paid by the Mid-Cap Portfolio were $5,958, of which $0 was paid
to TCC. The total amount of securities transactions on which the Portfolio paid
brokerage commissions during the period September 15, 1996 through December 31,
1996 was $5,260,537. The total amount of principal transactions of the Portfo-
lio for such period, for which no commission was incurred, was $2,721,374.
HOW TO PURCHASE SHARES
GENERAL--The minimum initial investment for each Portfolio is $1,000. This min-
imum investment may be reduced pursuant to the Low Minimum Investment Plan.
(See "Shareholder Services.") Subsequent purchases for all accounts must be in
amounts of at least $100, except for reinvestment of dividends and capital
gains distributions. The Fund reserves the right, in its sole discretion, to
change at any time the initial or
12
<PAGE>
subsequent investment minimums, to withdraw the offering or to refuse any pur-
chase in whole or part.
You may purchase or redeem shares of the Portfolios through an investment deal-
er, bank or other institution having a sales agreement with Oberweis Brokerage
or by contacting the Fund's Custodian and Transfer Agent, Investors Fiduciary
Trust Company ("IFTC"). However, any such purchase or redemption will not be
effective until the order or request is received by IFTC. Some investment deal-
ers, banks or other institutions may charge for their services in purchasing or
redeeming shares of the Portfolios.
Purchases may be made by check, wire or, if a subsequent purchase, through the
Automatic Investment Plan. All purchases made by check should be in U.S. dol-
lars. Third-party checks, except those payable to an existing shareholder who
is a natural person (as apposed to e.g. a corporation or partnership), credit
cards and cash will not be accepted. Shares of the Fund are offered on a con-
tinuous basis. The offering price per share will be the Net Asset Value per
share next determined after the purchase order is received in proper form by
IFTC. (See "Net Asset Value" for details on current Net Asset Value computa-
tion.)
PURCHASE BY MAIL--To make an initial purchase by mail, complete and sign the
Account Application and mail it along with a check made payable to The Oberweis
Funds to the following address:
The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
Subsequent investments may be made by submitting to the same address a check
along with either the stub from your Portfolio account confirmation or a note
indicating the amount of the purchase, name of the Portfolio, your account num-
ber, and the name(s) in which your account is registered.
PURCHASE BY WIRE--You may also purchase shares by instructing your financial
institution to wire federal funds to the Fund's custodian bank. If you are
opening a new account by wire transfer, you must first call IFTC at 1-800-245-
7311 to request an account number and furnish the name(s) on the account
registration, address, and social security number or taxpayer identification
number. If you have an Account Application, you will be asked, if possible, to
transmit it via facsimile machine to IFTC (at 1-816-435-3209), or mail it imme-
diately. Otherwise, an Account Application will be mailed to you for you to
complete, sign and return immediately to IFTC. Federal funds shall be wired in
accordance with the following instructions:
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105
ABA #101003621
The name of the Portfolio in which you wish to invest
The Oberweis Funds' Account No. 7500742
Further Credit to: (Your shareholder account number and the name(s) in which
your account is registered).
Subsequent investments may be made by wire by just contacting your financial
institution with the wire instructions. There is no need to contact IFTC first.
Your financial institution may charge you a fee for sending the wire. Neither
the Fund nor IFTC will be responsible for the consequences of delays, including
delays in the bank or Federal Reserve wire systems.
HOW TO REDEEM SHARES
IN GENERAL--You may redeem shares of the Portfolios by mail, by telephone (as
described below), or through your own investment dealer who is recorded for
such account, if any (see "How to Purchase Shares," above). The redemption
price per share is the Net Asset Value per share next determined after the re-
demption becomes effective. (See "Net Asset Value.") Because of fluctuations in
the value of each Portfolio, the Net Asset Value of shares redeemed may be more
or less than your cost.
Checks for redemption proceeds are normally sent on the business day following
the day the redemption request is received with all required documents in
proper form for redemption amounts of $100,000 or less. Payment by check of re-
demption proceeds in amounts greater than $100,000 is made within seven days
after the redemption request is received. However, if you bought your shares by
check, the Fund will delay sending you redemption proceeds until it has deter-
mined that your check has cleared, which may take up to 15 days from the
purchase date. If a broker-dealer other than Oberweis Brokerage is used to re-
deem shares, an additional fee for such services may be imposed by that broker-
dealer.
Each Portfolio reserves the right to redeem the shares in a shareholder's ac-
count if the total value of the shareholder's account falls below $1,000 as a
result of a redemption, subject to allowing such shareholder 60 days to make
additional investments before the redemption is processed. Although it is each
Portfolio's policy to make payment of redemption proceeds in
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<PAGE>
cash, if the Fund's trustees determine it to be appropriate, and subject to
certain limitations, a Portfolio may redeem shares by a distribution in kind of
securities held by the Portfolio. See the Statement of Additional Information
under the heading "Redemption of Shares."
REDEMPTION BY MAIL--Shareholders may redeem shares by mailing a signed request
for redemption that includes the account name and number and the number of
shares or dollar amount to be redeemed, name of Portfolio, with signature(s)
guaranteed (if required as set forth below), to The Oberweis Funds, c/o Invest-
ors Fiduciary Trust Company, P.O. Box 419042, Kansas City, Missouri 64141. The
redemption request must be accompanied by share certificates, if any have been
issued. In the case of joint ownership, all signatures are required on the re-
demption request and on any endorsement of share certificates. Additional
documents may be required for redemption of shares held by estates, trusts,
guardianships, corporations, partnerships and other shareholders who are not
individuals. It is recommended that all mailed share certificates be sent by
registered or certified mail, return receipt requested.
REDEMPTION BY TELEPHONE--All shareholders who have elected the telephone re-
demption option on their account application may redeem their Portfolio shares
by telephoning the Transfer Agent at 1-800-245-7311. Pursuant to the telephone
redemption program, shareholders authorize the Transfer Agent to rely upon tel-
ephone instructions from anyone to redeem the specified number of shares or
dollar amount and to transfer the proceeds according to pre-designated instruc-
tions. The Transfer Agent employs procedures reasonably designed to confirm
that instructions communicated by telephone are genuine, including requiring
certain identifying information prior to acting upon instructions, recording
all telephone instructions and sending written confirmation of telephone in-
structions. Provided such procedures are reasonably followed, neither the Fund
nor the Transfer Agent would be liable for any losses from instructions commu-
nicated by telephone even if unauthorized or fraudulent.
Redemption proceeds will be mailed to the shareholder of record in the form of
a check or transferred to the shareholder's designated bank using electronic
funds transferred via the Automated Clearing House (ACH), or, at the sharehold-
er's request, via wire transfer. Funds transferred via ACH will normally be
transmitted on the business day following the telephone redemption request for
redemption amounts of $100,000 or less. Transfers via ACH of redemption pro-
ceeds in amounts greater than $100,000 will be transmitted within seven days
following the telephone redemption request. There is no charge for transfers
via ACH.
Funds transferred via wire transfer will normally be transmitted on the next
business day following the request. There is a $6 fee for each wire redemption.
Your bank may also charge additional fees for receiving a wire transfer. Checks
issued by mail in response to a telephone redemption request can be issued only
up to $50,000 to the registered owner(s) (who must be individuals) at the ad-
dress of record which must have been on file for 60 days.
SIGNATURE GUARANTEES AND OTHER DOCUMENTATION--If redemption proceeds are
$50,000 or less and are to be paid to an individual shareholder of record at
the address of record, a signature guarantee is not required (unless there has
been an address change within 60 days). All other redemption requests and
changes in account application instructions must be guaranteed by a bank,
broker/dealer, municipal securities broker/
dealer, government securities broker/dealer, credit union, member firm of a na-
tional securities exchange, registered securities association or clearing
agency, and/or savings association. When a signature guarantee is required, the
signature of each shareholder of record must be guaranteed. The Transfer Agent
may reject redemption instructions if the guarantor is neither a member of nor
a participant in a signature guarantee program (currently known as "STAMP"). A
redemption request for shares held by a corporation, trust, partnership, agent
or fiduciary must be signed by an appropriately authorized person and include
additional documents of a customary nature to verify the authority of the per-
son seeking redemption, such as a certified by-law provision or resolution of
the board of directors or trustees of the shareholder and/or a copy of the gov-
erning legal instrument. Any person requiring information on redemption
procedures may call the Transfer Agent at 1-800-245-7311.
NET ASSET VALUE
Net Asset Value per share is computed by dividing the value of the Portfolio's
net assets (i.e., the value of its assets less liabilities) by the total number
of shares then outstanding. Each Portfolio's investments are valued based on
market value or, where quotations are not readily available, on fair value as
determined in good faith by the Board of Trustees. For further information re-
garding the methods employed in valuing the Portfolios' investments, see the
Statement of Additional
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<PAGE>
Information under the heading "Determination of Net Asset Value."
If an order is received by the Transfer Agent or Oberweis Brokerage by the
close of trading on the New York Stock Exchange on a given day (currently 3:00
p.m., Central Time), or by an investment dealer, bank or other institution hav-
ing a sales agreement with Oberweis Brokerage by the close of trading on the
New York Stock Exchange and that order is then received by Oberweis Brokerage
on that same day from the investment dealer, bank, or financial institution by
the end of Oberweis Brokerage's business day, Portfolio shares will be pur-
chased at the next computed Net Asset Value. The Net Asset Value of the shares
of each Portfolio is computed once daily, as of the later of the close of the
New York Stock Exchange or the Chicago Board Options Exchange, on each day the
New York Stock Exchange is open for trading. For purposes of computing the Net
Asset Value, all securities in a Portfolio other than options are priced as of
the close of trading on the New York Stock Exchange. The options in the Portfo-
lios are priced as of the close of trading on the Chicago Board Options
Exchange.
SHAREHOLDER SERVICES
GENERAL INFORMATION--In addition to the purchase and redemption services de-
scribed above, the Fund offers its shareholders the special accounts and
services described below. Applications and information about any shareholder
services may be obtained by calling 1-800-245-7311.
When a shareholder makes an initial investment in a Portfolio, a shareholder
account is opened in accordance with the Portfolio's Account Application in-
structions. After each transaction for the account of a shareholder,
confirmation of all deposits, purchases, reinvestments, redemptions, withdrawal
payments, and other transactions in the shareholder's account will be forwarded
to the shareholder.
The Portfolios will generally not issue certificates for their shares, except
that certificates for full share amounts only will be issued upon a sharehold-
er's written request to the Transfer Agent. In all events fractional shares
will be carried on the books of a Portfolio without the issuance of certifi-
cates. The investor will be the record owner of all shares in his account with
full shareholder rights, irrespective of whether share certificates are issued
to him. Certain of the functions performed by the Fund in connection with the
operation of the accounts described above will be per-formed by the Fund's
Transfer Agent. (See "The Custodian and Transfer Agent.")
EXCHANGE PRIVILEGE--All or part of Portfolio shares owned by a shareholder may
be exchanged for shares of any other Portfolio in The Oberweis Funds offering
shares at that time or money market funds in the Cash Resource Trust--the Cash
Resource Money Market Fund, the Cash Resource U.S. Government Money Market
Fund, and the Cash Resource Tax-Exempt Money Market Fund (collectively the
"Cash Resource Trust"). Shareholders may subsequently exchange such shares pur-
chased and shares purchased with reinvested dividends for shares of the Fund.
Shares will be exchanged for each other based upon their relative net asset
values except that, the Micro-Cap and Mid-Cap Portfolios deduct a withdrawal
charge of .25% of the value of shares redeemed, which deduction also applies to
shares exchanged out of each of those Portfolios.
Cash Resource Trust Funds are described in a separate prospectus. Shareholders
may obtain a copy of the prospectus for any Cash Resource Trust Fund by calling
1-800-245-7311 or writing to 951 Ice Cream Drive, North Aurora, Illinois 60542,
and are advised to read it carefully before authorizing any investment in
shares of such fund. Exchange requests are subject to a $1,000 minimum.
Simply send us a written request that includes your name, your account number,
the name of the Portfolio you currently own, the name of the Portfolio you wish
to exchange into and the dollar amount or number of shares you wish to ex-
change. Please remember that you cannot place any conditions on your request.
If you have any share certificates, you must include them with your request. A
signature guarantee is not required, except in some cases where shares are also
redeemed for cash at the same time. For certificate delivery instructions and
when you need a signature guarantee, please see "Redemption--By Mail."
You may also call us at 1-800-245-7311 unless you have previously notified the
Fund in writing not to effect telephone exchanges. Exchanges made over the
phone may be made by any person, not just the shareholder of record. Please re-
member that during unusual market conditions, we may have difficulty in
accepting telephone requests, in which case you should mail your request to our
address on page 13. In addition, exchanges may also be made through certain se-
curities dealers who may charge you a fee for effecting an exchange.
An exchange of shares is considered a sale for federal income tax purposes. A
shareholder may realize a gain or loss depending upon whether the value of the
shares
15
<PAGE>
being exchanged is more or less than the adjusted cost basis. As noted above,
the Micro-Cap and Mid-Cap Portfolios deduct a withdrawal charge of .25% of the
value of the shares redeemed, including shares exchanged out of each of the
Portfolios.
Exchanging Shares is available only in states where shares of a particular
Portfolio being acquired may legally be sold. The exchange privilege is not a
right and may be suspended, terminated or modified at any time. Except as oth-
erwise permitted by applicable regulations, 60 days' prior written notice of
any termination or material change will be provided.
LOW MINIMUM INITIAL INVESTMENT PLAN/AUTOMATIC INVESTMENT PLAN--By completing
the Automatic Investment Plan section of the Account Application, you may make
subsequent investments by authorizing the Fund and its Custodian to debit your
bank account to buy additional shares of the Portfolios. The minimum initial
investment in each Portfolio is $1,000. However, the Low Minimum Initial In-
vestment Plan allows an account to be opened with an initial investment of $100
and subsequent monthly investments of $100 or more for at least a one-year pe-
riod. Automatic Investments can occur either monthly or quarterly, on or about
the 5th or the 20th of the month, in pre-designated amounts of $100 or more.
Funds will be transferred from your designated bank, using electronic funds
transferred via ACH. Initial investments may not be made by the Automatic In-
vestment Plan. The Plan is subject to the approval of the shareholder's bank.
You can stop investing through the Automatic Investment Plan by sending written
notice to the Fund's Custodian and Transfer Agent. The notice must be received
at least 5 business days prior to the date of your next scheduled automatic
purchase. The Plan is automatically terminated whenever a check is returned
unhonored by the shareholder's bank. The shareholder is responsible for any
charges incurred as a result of an unhonored transaction. If a shareholder can-
cels the Low Minimum Initial Investment Plan before a one-year period, the Fund
reserves the right to redeem the shareholder's account if the balance is below
the minimum investment level, currently $1,000. The Fund reserves the right to
terminate or modify the Automatic Investment Plan at any time. See the Account
Application for additional details.
SYSTEMATIC WITHDRAWAL ACCOUNT--A shareholder who owns a Portfolio's shares with
a current Net Asset Value of at least $10,000 may establish a Systematic With-
drawal Account from which a fixed sum will be paid to him or a pre-designated
third party at regular intervals. A Systematic Withdrawal Account may not be
established for a shareholder who owns Portfolio shares for which certificates
are outstanding until all share certificates have been surrendered. See the Ac-
count Application for additional details.
INDIVIDUAL RETIREMENT ACCOUNTS--A Portfolio's shares may be purchased as in-
vestments in Individual Retirement Accounts ("IRAs") and other retirement
plans. Investment in a Portfolio's shares is subject to the conditions of the
IRA and/or other retirement plan agreements. Investors should contact their IRA
custodians to determine the eligibility of the Portfolio's shares as IRA or re-
tirement plan investments. Individuals wishing to establish IRAs with the
Fund's Custodian Bank may do so and purchase shares of a Portfolio with their
IRA funds. Further details, including fees and charges imposed by the Custodi-
an, are set forth in the IRA information material (account agreement,
application, and disclosure statement) which is available from the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The Portfolios may earn income from dividends and interest on their investments
and may also realize capital gains from the sale of their assets. Each Portfo-
lio intends to distribute substantially all its net investment income and any
net realized taxable capital gains resulting from sales of the Portfolio's as-
sets during the year. Dividends and capital gains distributions are
automatically reinvested in additional shares of the Portfolio, unless the
shareholder elects to receive them in cash. A cash election remains in effect
until the shareholder notifies the Transfer Agent in writing to discontinue
such election.
Each Portfolio has elected to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code and thereby maintain exemption from
Federal income tax to the extent it distributes its earnings. Except for those
shareholders exempt from Federal income taxes, dividends and capital gain dis-
tributions will be taxable to shareholders, whether paid in cash or reinvested
in additional shares of the Portfolio. Shareholders will be notified annually
as to the Federal income tax status of dividends and capital gains distribu-
tions. Such dividends and distributions may also be subject to state and local
taxes. Long-term capital gain distributions are taxable as long-term capital
gain regardless of how long the shareholder has held shares of the Portfolio.
Long-term capital gain distributions are currently taxed at a maximum rate of
28% for individual shareholders. Dividends representing net investment income
and net realized short-term
16
<PAGE>
capital gains are taxed as ordinary income at rates up to a maximum marginal
rate of 39.6% for individuals. Dividends and distributions declared in October,
November or December to shareholders of record as of a date in one of those
months and paid during the following January are treated for federal income tax
purposes as paid on December 31 of the calendar year in which declared.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a re-
turn of capital, will be taxable to the shareholder. If the net asset value of
shares were reduced below the shareholder's cost by dividends representing
gains realized on sales of securities, such dividends would be a return of in-
vestment, though taxable as stated above.
Federal law requires each Portfolio to withhold 31% of dividends and/or redemp-
tion proceeds (including from exchanges) that occur in certain shareholder
accounts if the shareholder has not properly furnished a certified correct tax-
payer identification number (in the case of individuals, a social security
number) or has not certified that back-up withholding does not apply. Amounts
withheld are applied to the shareholder's Federal income tax liability and a
refund may be obtained from the Internal Revenue Service if withholding results
in overpayment of taxes. Federal law also requires the Fund to withhold the ap-
plicable tax treaty rate from dividends that are paid to certain nonresident
alien, foreign partnership and foreign corporation shareholder accounts.
Shareholders are advised to consult their own tax advisers as to the tax conse-
quences of owning shares of each Portfolio with respect to their respective
circumstances.
THE CUSTODIAN AND TRANSFER AGENT
All securities and cash of the Portfolios are held by the Fund's custodian, In-
vestors Fiduciary Trust Company, Kansas City, Missouri (the "Custodian"), and
sub-custodians selected by the Custodian and approved by the Trustees. The Cus-
todian is also the Fund's transfer agent (the "Transfer Agent"), which acts as
a shareholder servicing, dividend disbursing and redemption agent for the Fund.
GENERAL INFORMATION
The Fund is a diversified, open-end management investment company, organized as
a business trust under the laws of Massachusetts on July 7, 1986. Pursuant to
the Fund's Agreement and Declaration of Trust ("Trust Agreement"), the Fund may
issue an unlimited number of shares of beneficial interest in one or more se-
ries of "Portfolios," all having no par value. Shares of each Portfolio have
equal non-cumulative voting rights and equal rights with respect to dividends,
assets and liquidation of such Portfolio. Shares are fully paid and non-assess-
able by the Fund when issued, are transferable without restriction and have no
preemptive or conversion rights. As a Massachusetts business trust, the Fund is
not required to hold annual shareholders' meetings. It will, however, hold spe-
cial meetings as required or deemed desirable for such purposes as the election
of or removal of trustees, changing fundamental policies or approving an in-
vestment advisory contract. Special meetings of shareholders for actions
requiring shareholder vote may be requested in writing by holders of at least
twenty-five percent (25%) (or ten percent (10%) if the purpose of the meeting
is to determine if a Trustee is to be removed from office) of the outstanding
shares of the Fund or as may be required by applicable law.
Shareholders will vote in the aggregate, except when voting by individual Port-
folio is required under the Investment Company Act of 1940 or when the Board of
Trustees determines that voting by series is appropriate.
The Trust Agreement and the By-Laws of the Fund are designed to make the Fund
similar in many respects to a corporation. However, under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held per-
sonally liable for the obligations of the trust, which is not the case in a
corporation. The Trust Agreement provides that shareholders shall not be sub-
ject to any personal liability to any person extending credit to, contracting
with or having any claims against the Fund and that every written agreement,
obligation, instrument or undertaking made by the Fund shall contain a provi-
sion that the same is not binding upon the shareholders personally. Moreover,
the Trust Agreement provides for indemnification out of Fund property for all
losses and expenses of any shareholder held personally liable for the obliga-
tions of the Fund, and the Fund will be covered by insurance which the Trustees
believe to be adequate to cover foreseeable tort claims. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote.
All inquiries regarding shareholder accounts may be directed to The Oberweis
Funds, c/o Investors Fiduciary Trust Company, P.O. Box 419042, Kansas City,
Missouri 64141 or (800) 245-7311. All other inquiries regarding the Fund and/or
either of the Portfolios should be directed to the Fund at 951 Ice Cream Drive,
Suite 200, North Aurora, Illinois 60542 or (800) 323-6166.
17
<PAGE>
- --------------------------------------------------------------------------------
LOGO THE
OBERWEIS
FUNDS
PROSPECTUS
- -------------------------------------
May 1, 1997
INVESTMENT ADVISER/MANAGER
Oberweis Asset Management, Inc.
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
1-800-323-6166
DISTRIBUTOR/SHAREHOLDER SERVICE AGENT
Oberweis Brokerage, Inc.
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
1-630-801-6000
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
1-800-245-7311
COUNSEL
Vedder, Price, Kaufman & Kammholz
INDEPENDENT AUDITORS
Ernst & Young LLP
For more information about this Fund
or any of its Portfolios, simply call
our toll-free number: 1-800-323-6166
For information about an existing account, call Shareholder Services at 1-800-
245-7311
Please read the prospectus carefully before investing or sending money.
LOGO
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE OBERWEIS FUNDS
951 ICE CREAM DRIVE, SUITE 200
NORTH AURORA, ILLINOIS 60542
(800) 323-6166
----------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated May 1, 1997. A copy of the
Fund's Prospectus may be obtained by writing or calling the above address or
phone number.
----------------
The date of this Statement of Additional Information is May 1, 1997.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective, Policies and Restrictions............................. 2
Management of the Fund...................................................... 6
Oberweis Asset Management, Inc.............................................. 7
Distribution Plan and Agreement............................................. 9
Expenses Borne by the Portfolios............................................ 11
Portfolio Transactions...................................................... 12
Shareholder Voting Rights................................................... 15
Redemption of Shares........................................................ 15
Shareholder Services........................................................ 16
Determination of Net Asset Value............................................ 16
Taxes....................................................................... 17
Calculation of Average Annual Total Return.................................. 18
Additional Information...................................................... 18
Independent Auditors' Report
Financial Statements
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of each Portfolio's
investment objective and policies in the Fund's Prospectus under the heading
"Investment Objective, Policies and Risks."
INVESTMENT OBJECTIVE
The investment objective of each Portfolio is to maximize capital
appreciation. Each Portfolio intends to achieve its objective through
investing primarily in common stocks of companies, which in the opinion of its
investment adviser have a potential for above-average long-term growth in
market value. The investment objective of each Portfolio is fundamental and,
like all fundamental policies of a Portfolio, cannot be changed without the
affirmative vote of a majority of the outstanding voting securities of that
Portfolio. As used in this Statement of Additional Information and in the
Fund's Prospectus, "a majority of the outstanding voting securities" of the
Portfolio means the lesser of (1) the holders of more than 50% of the
outstanding shares of the Portfolio, or (2) the holders of more than 67% of
the shares of the Portfolio present if more than 50% of the outstanding shares
of the Portfolio are present at a meeting in person or by proxy.
INVESTMENT RESTRICTIONS
The policies set forth below are fundamental policies of each Portfolio and
may not be changed without approval of a majority of that Portfolio's
outstanding shares. A Portfolio individually may not:
1. purchase more than 10% of any class of securities of any one issuer
other than the United States government and its instrumentalities;
2. invest more than 5% of its total assets, at the time of the investment
in question, in the securities of any one issuer (other than the United
States government and its instrumentalities);
3. invest more than 5% of its total assets in securities that are not
readily marketable and securities of unseasoned issuers that have been in
continuous operation for less than three years, including operating periods
of their predecessors;
4. invest more than 5% of its total assets in securities of issuers which
the Fund is restricted from selling to the public without registration
under the Securities Act of 1933;
5. invest more than 5% of its total assets in warrants, and of this
amount, no more than 2% of total assets may be invested in warrants that
are listed on neither the New York Stock Exchange nor the American Stock
Exchange;
6. purchase or retain the securities of any issuer if (i) one or more
officers or directors of the Fund or the investment adviser individually
own or would own, directly or beneficially, more than 1/2 of 1% of the
securities of such issuer, and (ii) in the aggregate, such persons own or
would own, directly or beneficially, more than 5% of such securities;
7. purchase, sell or invest in the securities of other investment
companies;
8. purchase, sell or invest in interests in oil, gas or other mineral
exploration or development programs;
9. purchase, sell or invest in commodities or commodity contracts;
10. purchase, sell or invest in real estate or interests in real estate,
except that the Portfolio may purchase, sell or invest in marketable
securities of companies holding real estate or interests in real estate,
including real estate investment trusts; provided such investments do not
exceed 10% of the Portfolio's total assets;
11. issue senior securities;
12. invest in companies for the purpose of exercising control or
management;
2
<PAGE>
13. concentrate its investments in any one industry, except that the
Portfolio may invest up to 25% of its total assets in any one industry;
14. purchase securities on margin, except that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities;
15. make short sales of securities unless, at the time of each such sale
and thereafter while a short position exists, the Portfolio owns an equal
amount of securities of the same issue or owns securities which, without
payment by the Portfolio of any consideration, are convertible into, or are
exchangeable for, an equal amount of securities of the same issue;
16. participate on a joint or joint and several basis in any trading
account in any securities;
17. lend its funds to other persons, except through the purchase of a
portion of an issue of debt securities publicly distributed;
18. lend its portfolio securities, unless the borrower is a broker,
dealer or financial institution that pledges and maintains collateral with
the Portfolio consisting of cash or securities issued or guaranteed by the
United States government having a value at all times not less than 100% of
the value of the loaned securities, provided that the aggregate amount of
such loans shall not exceed 30% of the Fund's total assets;
19. borrow money except from banks as a temporary measure for
extraordinary or emergency purposes or as necessary for the clearance of
purchases and sales of securities, provided that the aggregate amount of
such borrowing shall not exceed 5% of the value of its total assets at the
time of any such borrowing, or mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 5% of its total assets taken at cost to
secure such borrowing;
20. engage in the business of underwriting the securities of other
issuers; or
21. invest in puts, calls, straddles or any combination thereof, except
that the Portfolio may write covered call options on its Portfolio
securities, the aggregate market value of which is limited to 50% of the
Portfolio's net assets, and the Portfolio may invest up to 5% of its assets
in the purchase of put and call options including options on stock indices.
The policies set forth below may be changed by the Fund's Board of
Trustees, all such changes being subject to applicable law. A Portfolio
individually may not:
1. purchase, sell or invest in interests in oil, gas or other mineral
leases; or
2. purchase, sell or invest in limited partnership interests in real
estate, except that the Portfolio may purchase, sell or invest in
marketable securities of companies holding real estate or interests in
real estate, including real estate investment trusts; provided such
investments do not exceed 10% of the Portfolio's total assets.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from changes in values or assets will not be
considered a violation of such restriction.
OTHER RESTRICTIONS
Other investment restrictions are set forth in the Fund's Prospectus and
elsewhere in this Statement of Additional Information. In addition, each
Portfolio will not invest more than 10% of its total assets in "restricted
securities" (meaning securities the resale of which is legally or
contractually restricted, including repurchase agreements with maturities of
seven days or more and securities that are not readily marketable).
REPURCHASE AGREEMENTS
Each Portfolio may enter into so-called "repurchase agreements," whereby it
purchases a security and the seller (a qualified bank or securities dealer)
simultaneously commits to repurchase that security at a
3
<PAGE>
certain date at an agreed upon price, plus an agreed upon market rate of
interest that is unrelated to the coupon rate or date of maturity of the
security. In these transactions, the securities purchased by the Portfolio
have, at all times, a total value in excess of the value of the repurchase
agreement and are held by the Fund's custodian bank until repurchased. Certain
costs may be incurred by a Portfolio in connection with the sale of the
securities purchased by it if the seller does not repurchase them in
accordance with the repurchase agreement. The Portfolio will consider on an
ongoing basis the creditworthiness of the institutions with which it enters
into repurchase agreements and will monitor the value of the underlying
securities to ensure that additional securities are deposited by the seller if
the value of the securities purchased decreases below the resale price at any
time. Under the Investment Company Act of 1940, repurchase agreements may be
considered loans by the Portfolio. Each Portfolio is subject to restrictions
on entering into repurchase agreements in excess of 25% of the total assets
and on investing more than 10% of its total assets in restricted securities,
which includes repurchase agreements with maturities of seven days or more.
PURCHASING PUT AND CALL OPTIONS
Each Portfolio will commit no more than 5% of its assets to premiums when
purchasing put and call options. The Portfolios may enter into closing
transactions, exercise their options or permit them to expire.
The Portfolios may purchase put options on an underlying security owned by
them. As the holder of a put option, a Portfolio would have the right to sell
the underlying security at the exercise price at any time during the term of
the option. While a Portfolio will not purchase options for leverage purposes,
it may purchase put options for defensive purposes in order to protect against
an anticipated decline (usually short-term) in the value of its securities.
Such hedge protection is provided only during the life of the put option and
only when the Portfolio, as the holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any additional
decline in the security's market price. For example, a put option may be
purchased in order to protect unrealized appreciation of a security where the
Portfolio deems it desirable to continue to hold the security. The premium
paid for the put option and any transaction costs would reduce any capital
gain otherwise available for distribution when the security is eventually
sold.
Except as discussed below with respect to options on stock indices, each
Portfolio has no current intention of purchasing put options at a time when
the Portfolio does not own the underlying security; however, it reserves the
right to do so. By purchasing put options on a security it does not own, the
Portfolio would seek to benefit from a decline in the market price of the
underlying security. If such a put option is not sold when it has remaining
value, and if the market of the underlying security remains equal to or
greater than the exercise price during the life of the put option, the
Portfolio would lose its entire investment in the put option (i.e., the entire
premium paid by the Portfolio). In order for the purchase of a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale transaction.
The Portfolios may also repurchase call options previously written on
underlying securities they already own in order to preserve unrealized gains.
The Portfolios may also purchase call and put options on stock indices
("stock index options") for the purpose, in part, of partially hedging against
the risk of unfavorable price movements adversely affecting a Portfolio's
securities or securities the Portfolio intends to buy and may sell stock index
options in related closing transactions.
The principal uses of stock index options would be to provide a partial
hedge for a portion of the Portfolios' investment securities, and to offer a
cash management tool. Purchasing stock index options could provide an
efficient way to implement a partial decrease in portfolio market exposure in
response to changing market conditions. Although techniques other than the
purchase of options could be used to hedge the Portfolios' investments, the
Portfolios may be able to hedge their exposure more effectively, and perhaps
at a lower cost, through the use of stock index options.
4
<PAGE>
The Portfolios propose to invest only in stock index options for which the
underlying index is a broad market index such as the Standard & Poor's Index,
the Major Market Index, or the Russell 2000 Index. The Portfolios would
propose to purchase broad stock index options only if they are listed on a
national securities exchange and traded, in the opinion of the Fund's
investment adviser, with some significant volume.
The Portfolios will not enter into a stock index option if, as a result
thereof, more than five percent (5%) of the Fund's total assets (taken at
market value at the time of entering into the contract) would be committed to
options, whether options on individual securities or options on stock indices.
There are several risks in connection with the Portfolios' use of stock
index options as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the stock index options and
movements in the prices of securities held by the Portfolios. Successful use
of stock index options by the Portfolios for hedging purposes is also subject
to the Fund's adviser's ability to correctly predict movements in the
direction of the market. In addition, due to market distortions, the price
movements of the stock index options might not correlate perfectly with price
movements in the underlying stock index. Increased participation by
speculators in the options market might also cause temporary price
distortions.
The ability to establish and close out positions on options will be subject
to the liquidity of the index options market. Absence of a liquid market on an
exchange may be due to: (i) insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions, or both; (iii) trading halts, suspensions or other restrictions
imposed with respect to particular classes or series of options, or underlying
securities; (iv) unusual or unforeseen circumstances, such as severe stock
market fluctuations, interrupting normal exchange operations; (v) inadequacy
of an exchange's or a clearing corporation's facilities to handle increased
trading volume; or (vi) discontinuance of the trading of options (or a
particular class or series of options) by an exchange, for economic or other
reasons. Higher than anticipated trading activity or other unforeseen events
also could cause an exchange or clearing corporation to institute special
procedures which may interfere with the timely execution of customers' orders.
Stock index options may be closed out only on an exchange which provides a
market for such options. For example, OEX stock index options currently can be
purchased or sold only on the CBOE. Although the Portfolios intend to purchase
or sell stock index options only on exchanges where there appear to be active
markets, there is no assurance that a liquid market will exist for any
particular options contract at any particular time. In such event, it might
not be possible to close a stock index option position.
LENDING OF SECURITIES
The Portfolios may lend their investment securities in an amount up to 30%
of its total assets to qualified institutional investors who need to borrow
securities in order to complete certain transactions. By lending its
investments securities, a Portfolio attempts to increase its income through
the receipt of interest on the loan. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be
for the account of the Portfolio. A Portfolio may lend its portfolio
securities to qualified brokers, dealers, domestic and foreign banks or other
financial institutions, so long as the terms and the structure of such loans
are not inconsistent with the Investment Company Act of 1940, or the Rules and
Regulations or interpretations of the Securities and Exchange Commission (the
"Commission") thereunder, which currently require that (a) the borrower pledge
and maintain with the Portfolio collateral consisting of cash, an irrevocable
letter of credit issued by a domestic U.S. bank, or securities issued or
guaranteed by the U.S. government having a value at all times of not less than
100% of the value of the securities loaned, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to the market" on a daily basis), (c) the loan be made subject
to termination by the Portfolio at any time, and (d) the Portfolio receives
reasonable interest on the loan or its collateral (which may include the
Portfolio investing any cash collateral in interest-bearing short-term
investments), any dividends and distributions paid on the loaned securities
and any increase in their market value.
5
<PAGE>
ARBITRAGE
The Portfolios have no current intention to engage in arbitrage (meaning the
simultaneous purchase and sale of the same security in different markets but
not on the purchase of call and put options on stock indices).
MANAGEMENT OF THE FUND
All of the Fund officers and one of its Trustees are employees and/or
officers of Oberweis Asset Management, Inc. ("OAM"), the Fund's investment
adviser and manager, and/or Oberweis Brokerage, Inc. ("Oberweis Brokerage"),
the Fund's distributor and shareholder service agent. OAM is under common
control with Oberweis Brokerage.
James D. Oberweis, a Trustee and President of the Fund, is the President and
a Director of OAM, and with his wife, Elaine M. Oberweis, and his children, is
a controlling shareholder of OAM. Mr. Oberweis and members of his family own
the majority of the outstanding shares of Oberweis Brokerage.
The Trustees and officers of the Fund, their ages and their principal
occupations during the past five (5) years are:
THOMAS J. BURKE, Trustee (65) **
143 South Lincoln Avenue, Aurora, Illinois 60505; President--Burke Medical
Associates, 1968 to present; retired medical physician, practicing medical
physician until November 1, 1995.
DOUGLAS P. HOFFMEYER, Trustee (49) **
620 Stetson, St. Charles, Illinois 60174; Vice President--Finance--Teltrend,
Inc. (manufacturer of telecommunications equipment), October, 1986 to present.
JAMES D. OBERWEIS, Trustee and President (50) *
951 Ice Cream Drive, North Aurora, Illinois 60542; President and Director--
Oberweis Asset Management, Inc., September, 1994 to present; Investment
Executive--Oberweis Brokerage, Inc., January, 1997 to present; Senior Vice
President--The Chicago Corporation, October, 1994 to December, 1996; Senior
Vice President--Alpha Source Asset Management, Inc., February, 1990 to
October, 1994; Director of Fund Investments--Hamilton Investments, Inc.,
December, 1988 to October, 1994; President of the Fund, 1986 to present;
Chairman of the Board of Oberweis Dairy, Inc.
EDWARD F. STREIT, Trustee (61) **
2000 West Galena, Aurora, Illinois 60506; licensed attorney in private
practice, 1962 to present.
PATRICK B. JOYCE, Executive Vice President and Treasurer (37)
951 Ice Cream Drive, North Aurora, Illinois 60542; Executive Vice President,
Secretary and Director--Oberweis Asset Management, Inc., September, 1994 to
present; Executive Vice President and Director--Oberweis Brokerage, Inc.,
September, 1996 to present; Administrator--The Chicago Corporation, October,
1994 to December, 1996; Vice President--Carr Asset Management, Inc./Indosuez
Carr Futures, Inc., August, 1993 to September, 1994; Vice President of
Operations and Assistant Treasurer--Selected Financial Services, Inc.,
September, 1989 to August, 1993.
- --------
* "Interested person" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended.
** Member of audit committee and nominating committee.
NOTE: In some cases a trustee or officer may have held different positions
during the last five years with the employer or employers listed.
6
<PAGE>
MARTIN L. YOKOSAWA, Vice President (36)
951 Ice Cream Drive, North Aurora, Illinois 60542; Vice President--Oberweis
Asset Management, Inc., September, 1994 to present; Vice President--Oberweis
Brokerage, Inc., January, 1997 to present; Vice President--The Chicago
Corporation, October, 1994 to December, 1996; Registered Representative--
Hamilton Investments, Inc., November, 1988 to October, 1994.
JAMES W. OBERWEIS, Vice President (22)
951 Ice Cream Drive, North Aurora, Illinois 60542; Vice President--Oberweis
Asset Management, Inc., May, 1996 to present and Portfolio Manager from
December, 1995 to present; President and Director--Oberweis Brokerage, Inc.,
September, 1996 to present; Registered Representative--The Chicago
Corporation, March, 1996 to December, 1996; Student--University of Illinois at
Champaign-Urbana, August, 1991 to December, 1995.
SALLY A. JORDAN, Secretary (25)
951 Ice Cream Drive, North Aurora, Illinois 60542; Administrative Assistant--
Oberweis Brokerage, Inc., January, 1997 to present; Administrative Assistant--
The Chicago Corporation, June, 1996 to December, 1996; Office-Manager Home Re-
Creations Ltd., January, 1995 to June, 1996; Account Manager--Tek Electronics,
Inc., August, 1994 to January, 1995; Account Manager/Commercial Accounts--
Waste Management-West, November, 1992 to August, 1994.
The Fund pays each Trustee of the Fund who is not also affiliated with OAM
and/or Oberweis Brokerage for such services an annual fee of $1,000, plus $750
for each day or part of a day in attendance at a meeting of the Board of
Trustees or one of its Committees.
The Fund reimburses travel and other expenses incurred by its non-interested
Trustees for each such meeting attended. Trustees and officers of the Fund who
are affiliated with OAM and/or Oberweis Brokerage and officers of the Fund
will receive no compensation or reimbursement from the Fund for acting in
those capacities. However, Trustees and officers of the Fund who are
affiliated with OAM and/or Oberweis Brokerage may directly or indirectly
benefit from fees or other remuneration received from the Fund by OAM and/or
Oberweis Brokerage. Regular meetings of the Board of Trustees are held
quarterly and the audit committee holds at least one meeting during each year.
The following table sets forth the compensation received by all trustees of
the Fund for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED
COMPENSATION ACCRUED AS PART OF ANNUAL BENEFITS TOTAL
TRUSTEE FROM THE FUND FUND EXPENSES UPON RETIREMENT COMPENSATION
------- ------------- ------------------- --------------- ------------
<S> <C> <C> <C> <C>
Thomas J. Burke......... $3,500 0 0 $3,500
Douglas P. Hoffmeyer.... 3,500 0 0 3,500
James D. Oberweis....... 0 0 0 0
Edward F. Streit........ 3,500 0 0 3,500
Peter H. Wendell
(resigned effective
December 31, 1996)..... 0 0 0 0
</TABLE>
As of February 14, 1997, the officers and Trustees of the Fund as a group
owned of record or beneficially 1.2%, 2.9% and 0.3% of the then outstanding
shares of the Emerging Growth Portfolio, the Micro-Cap Portfolio and the Mid-
Cap Portfolio, respectively.
OBERWEIS ASSET MANAGEMENT, INC.
The Fund's investment adviser, since October 1, 1994, is Oberweis Asset
Management, Inc. ("OAM"), an investment adviser based in North Aurora,
Illinois. For additional details concerning OAM, see the Fund's Prospectus
under the heading "Management of the Portfolios." Pursuant to a written
contract between the Fund and OAM (the "Investment Advisory Agreement"), OAM
is responsible for managing the investment and reinvestment of each
Portfolio's assets, determining in its discretion the securities to be
purchased or sold and the portion of the Portfolio's assets to be held
uninvested, providing the Fund with records concerning OAM's activities which
the Fund is required to maintain under applicable law, and rendering regular
reports to the
7
<PAGE>
Fund's Trustees and officers concerning Portfolio responsibilities. OAM's
investment advisory services to the Fund are all subject to the control of the
Trustees, and must be in compliance with the investment objective, policies
and restrictions set forth in the Fund's Prospectus and this Statement of
Additional Information and with applicable laws and regulations. In addition,
OAM is authorized to select broker-dealers, including Oberweis Brokerage, that
may execute purchases and sales of the securities for the Portfolios. (See
"Portfolio Transactions.")
The investment adviser is obligated to pay the salaries and fees of any
officers of the Fund as well as the Trustees of the Fund who are interested
persons (as defined in the Investment Company Act of 1940) of the Fund, who
are employed full time by the investment adviser to perform services for the
Portfolio under the Investment Advisory Agreement.
As compensation for its investment advisory services, the investment adviser
receives from the Emerging Growth Portfolio at the end of each month a fee at
an annual rate equal to .45% of the first $50 million of the average daily net
assets of the Portfolio and .40% of the average daily net assets of the
Portfolio in excess of $50 million, from the Micro-Cap Portfolio at the end of
each month a fee at the annual rate of .60% of the average daily net assets of
the Portfolio, and from the Mid-Cap Portfolio at the end of each month a fee
at the annual rate of .40% of the average daily net assets of the Portfolio.
For the years ended December 31, 1996 and 1995, the advisory fees incurred
by the Emerging Growth Portfolio and payable to OAM were $747,719 and
$487,816, respectively. The advisory fees incurred and payable to OAM were
$96,759 for the period October 1, 1994 through December 31, 1994, and the
advisory fees incurred by the Emerging Growth Portfolio and payable to Alpha
Source were $297,924 for the period January 1, 1994 through September 30,
1994. For the year ended December 31, 1996, the advisory fees incurred by the
Micro-Cap Portfolio and payable to OAM were $175,144. For the period September
15, 1996 through December 31, 1996, the advisory fees incurred by the Mid-Cap
Portfolio and payable to OAM were $8,406. (See also "Expenses Borne by the
Fund.")
OAM also provides the Fund with non-investment advisory, management and
administrative services pursuant to a written contract (the "Management
Agreement"). OAM is responsible under the Management Agreement for providing
the Fund with those management and administrative services which are
reasonably necessary for conducting the business affairs of the Fund, with the
exception of investment advisory services, and distribution of each
Portfolio's shares and shareholder services, which are subject to the Fund's
Rule 12b-1 Plan. (See "Rule 12b-1 Plan and Related Distribution and
Shareholder Service Agreements.") In addition, OAM provides the Fund with
office space and basic facilities for management of the Fund's affairs, and
bookkeeping, accounting, record keeping and data processing facilities and
services. OAM is responsible for preparing and updating the Fund's SEC and
state registration statement and filings, tax reports to shareholders and
similar documents. OAM pays the compensation of all officers and personnel of
the Fund for their services to the Fund as well as the Trustees of the Fund
who are interested persons of the Fund. OAM also provides information and
certain administrative services to shareholders of each Portfolio. These
services include, among other things, transmitting redemption requests to the
Fund's Transfer Agent and transmitting the proceeds of redemption of shares of
the Fund pursuant to a shareholder's instructions when such redemption is
effected through OAM; providing telephone and written communications with
respect to its shareholders' account inquiries; assisting its shareholders in
altering privileges and ownership of their accounts; and serving as a source
of information for its existing shareholders in answering questions concerning
the Fund and their transactions with the Fund.
For its services under the Management Agreement, OAM is paid by the
Portfolios on a monthly basis an annual management fee equal to .40% of the
average daily net assets of each Portfolio. OAM will bear all expenses in
connection with the performance of its services to the Fund and each of the
Portfolios under the Management Agreement. The Fund is responsible for all
other expenses. See the Fund's Prospectus under the heading "Expenses of the
Fund." However, the Management Agreement provides that OAM is obligated to
reimburse the Portfolios for 100% of the amount by which the Portfolio's
ordinary operating expenses during any fiscal year, including the management
and advisory fees, exceed either (i) the most restrictive expense limitation
applicable to the Portfolio imposed by the securities laws or regulations
thereunder of any state in
8
<PAGE>
which the Portfolio's shares are qualified for sale, as such limitations may
be raised or lowered from time to time, or (ii) the following amounts
expressed as a percentage of the Portfolio's average daily net assets:
2.0% of the first $25,000,000; plus
1.8% of the next $25,000,000; plus
1.6% of average daily net assets in excess of $50,000,000.
Excluded from the calculation of ordinary operating expenses are expenses
such as interest, taxes and brokerage commissions and extraordinary items such
as litigation costs. There is no state expense limitation applicable to the
Portfolios which is currently more restrictive than that set forth above. Any
such reimbursement is computed and accrued on a daily and settled on a monthly
basis based upon the expenses and average net assets computed through the last
business day of the month. As of the end of the Fund's fiscal year, the
aggregate amounts of reimbursement, if any, by the Manager to a Portfolio in
excess of the amount necessary to limit the operating expenses on an annual
basis to said expense limitation shall be refunded to the Manager. In no event
will the Manager be required to reimburse a Portfolio in an amount exceeding
its management and investment advisory fees, except to the extent required by
applicable law. For the year ended December 31, 1996, the management fees
incurred by the Emerging Growth Portfolio and paid to OAM were $722,720. For
the year ended December 31, 1995, the management fees incurred by the Emerging
Growth Portfolio and paid to OAM were $462,815 and pursuant to the expense
limitation provisions of the Management Agreement, OAM during 1995 rebated
$48,368 of such amount. For the period October 1, 1994 through December 31,
1994, the management fees incurred by the Emerging Growth Portfolio and paid
to OAM were $90,458. For the period January 1, 1994 through September 30,
1994, the management fees incurred by the Emerging Growth Portfolio and paid
to Hamilton Investments were $279,225. Neither Hamilton Investments nor OAM
was required to reimburse the Emerging Growth Portfolio pursuant to the
expense limitation for the year ended December 31, 1994. (See also "Expenses
Borne by the Fund.")
For the year ended December 31, 1996, the management fees incurred by the
Micro-Cap Portfolio and paid to OAM were $116,763. For the period September
15, 1996 through December 31, 1996, the management fees incurred by the Mid-
Cap Portfolio and paid to OAM were $8,406 and pursuant to the expense
limitation provisions of the Management Agreement, OAM was required to rebate
to the Portfolio $29,841.
DISTRIBUTION PLAN AND AGREEMENT
As discussed in the Fund's Prospectus under the heading "Distribution of
Shares," the Fund has adopted a Plan of Distribution (the "Distribution Plan")
and a Distribution and Shareholder Service Agreement (the "Distribution
Agreement") pursuant to Rule 12b-1 under the Investment Company Act of 1940
(collectively the "Plan and Agreement") under which the Fund compensates
Oberweis Brokerage in connection with the distribution of each Portfolio's
shares. Reference should be made to the Prospectus for details not provided
below. Oberweis Brokerage will act as the primary distributor of each
Portfolio's shares and as the primary shareholder servicing agent for each
Portfolio. The Fund pays Oberweis Brokerage a monthly distribution and
shareholder servicing fee at an annual rate of .25% of each Portfolio's
average daily net assets and may also reimburse certain out of pocket costs
incurred by Oberweis Brokerage for the Fund.
Pursuant to the Plan and Agreement, Oberweis Brokerage has agreed, directly
or through other firms, to advertise and promote the Fund and provide
information and services to existing and potential shareholders. These
services include, among other things, processing new shareholder account
applications; converting funds into or advancing federal funds for the
purchase of shares of the Fund as well as transmitting purchase orders to the
Fund's Transfer Agent; transmitting redemption requests to the Fund's Transfer
Agent and transmitting the proceeds of redemption of shares of the Fund
pursuant to a shareholder's instructions; providing telephone and written
communications with respect to shareholder account inquiries and serving as
the primary source of information for existing and potential shareholders in
answering questions concerning the Fund and their
9
<PAGE>
transactions with the Fund; and providing literature distribution, advertising
and promotion as is necessary or appropriate for providing information and
services to existing and potential shareholders.
Oberweis Brokerage will be reimbursed by the Fund for certain out-of-pocket
costs, if any, of providing certain services contemplated by the Distribution
Agreement, which include the costs of postage, data entry, modification and
printout, stationery, tax forms, and all other external forms or printed
material that may be required for performance by Oberweis Brokerage of the
services contemplated in the Distribution Agreement. Oberweis Brokerage
proposes to compensate its account executives annually for servicing and
administering a shareholder's account.
The Plan and Agreement provides that Oberweis Brokerage may appoint various
broker-dealer firms to assist in providing distribution services for the Fund,
including literature distribution, advertising and promotion, and may appoint
broker-dealers and other firms (including depository institutions such as
commercial banks and savings and loan associations) to provide administrative
services for their clients as shareholders of the Fund under related service
agreements. To provide these services, these firms will furnish, among other
things, office space and equipment, telephone facilities, and personnel as is
necessary or beneficial for providing information and services related to the
distribution of the Portfolios' shares to Oberweis Brokerage in servicing
accounts of such firms' clients who own shares of the Fund.
The Glass-Steagall Act generally prohibits federally chartered or supervised
banks from engaging in the business of underwriting, selling, or distributing
securities. Although the scope of this prohibition under the Glass-Steagall Act
has not been fully defined, in Oberweis Brokerage's opinion it should not
prohibit banks from being paid for shareholder servicing and record-keeping.
If, because of changes in law or regulation, or because of new interpretations
of existing law, a bank or a fund were prevented from continuing these
arrangements, it is expected that other arrangements would be made for these
services and that shareholders would not suffer adverse financial consequences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and other financial
institutions may be required to register as dealers pursuant to state law.
The Plan provides that the Fund's asset-based sales charges (as defined in
the NASD's Conduct Rules) shall not exceed those permitted by Rule 2830 of the
NASD's Conduct Rules. Further, as permitted by the NASD's Rules, the Emerging
Growth Portfolio has elected to calculate its permissible amount of asset-based
sales charges on new gross sales of the Portfolio since the Portfolio's
inception.
The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that the Plan and Agreement will benefit the Portfolios
and their shareholders. If the sizes of the Portfolios are increased rapidly,
fixed expenses will be reduced as a percentage of each shareholder's
investment. The 12b-1 expenses will also provide Oberweis Brokerage and others
an incentive to promote the Portfolios and to offer individual shareholders
prompt and efficient services.
As required by Rule 12b-1, the Plan, as amended, and Agreement was approved
by the Board of Trustees, including a majority of Trustees who are not
interested persons, as defined in the Investment Company Act of 1940, of the
Fund, who are not parties to the Distribution and Shareholder Service Agreement
and who have no direct or indirect financial interest in the operation of the
Plan.
Unless terminated earlier as described below, the Plan and Agreement will
continue in effect from year to year if approved annually by the Board of
Trustees of the Fund, including a majority of the Trustees who are not parties
to the Plan and Agreement (or have a direct or indirect financial interest in
the operation thereof) and who are not interested persons of the Fund. The Plan
may be terminated with respect to the Fund or a Portfolio at any time by (1) a
vote of a majority of the Trustees who are not interested persons of the Fund,
who are not parties to the Distribution and Shareholder Service Agreement and
who have no direct or indirect financial interest therein, or (2) by the vote
of a majority of shareholders of that Portfolio. The Distribution and
Shareholder Service Agreement may be terminated similarly without penalty upon
60 days written notice by either party and will automatically terminate if
assigned, as defined in the 1940 Act.
10
<PAGE>
For the year ended December 31, 1996, total 12b-1 fees paid by the Emerging
Growth Portfolio to TCC, the Fund's Distributor during that period were
$451,700. For the year ended December 31, 1995, total 12b-1 fees paid by the
Emerging Growth Portfolio to TCC and OAM were $404,963 and $173,556,
respectively. For the period October 1, 1994 through December 31, 1994, total
12b-1 fees paid by the Portfolio to TCC and OAM were $78,609 and $34,464,
respectively. During the above noted time periods, TCC was appointed by the
Fund to act as the principal distributor of the Emerging Growth Portfolio's
shares pursuant to a Distribution Agreement dated October 1, 1994 between the
Fund and TCC and OAM was appointed by the Fund to act as the Emerging Growth
Portfolio's primary shareholder service agent pursuant to a Shareholder
Service Agreement dated October 1, 1994 between the Fund and OAM. During that
period, the Fund was authorized to pay an annual fee not to exceed .50% of the
Emerging Growth Portfolio's average daily net assets for distribution and
shareholder services provided to the Portfolio and from the total 12b-1 fees,
TCC was paid fees for distribution services at an annual rate of .35% of the
Portfolio's average daily net assets and OAM was paid fees for shareholder
services at an annual rate of .15% of the Portfolio's average daily net
assets. For the period January 1, 1994 through September 30, 1994 (the day the
Fund ceased 12b-1 payments to Hamilton Investments), total 12b-1 fees paid by
the Portfolio to Hamilton Investments were $349,031.
For the 12 month period ended December 31, 1996, TCC paid the following
amounts under the Rule 12b-1 Plan in the approximate amounts noted: $45,299 in
sales promotion and literature expenses, $322,258 in service fees paid to
brokers, $58,475 in salary expenses and employment services, $4,618 in
telephone expenses, $27,447 in professional fees, and $803 in miscellaneous
operating expenses. There was no reimbursement of out-of-pocket expenses for
such period.
For the year ended December 31, 1996, total 12b-1 fees paid by the Micro-Cap
Portfolio to TCC were $72,977. For that period, TCC paid the following amounts
under the Rule 12b-1 Plan in the approximate amounts noted: $6,467 in sales
promotion and literature expense, $54,745 in service fees paid to brokers,
$7,336 in salary expenses and employment services, $596 in telephone expenses,
$4,006 in professional fees, and $140 in miscellaneous operating expenses.
There was no reimbursement of out-of-pocket expenses for such period.
For the period September 15, 1996 through December 31, 1996, total 12b-1
fees paid by the Mid-Cap Portfolio to TCC were $5,254. For that period, TCC
paid the following amounts under the Rule 12b-1 Plan in the approximate
amounts noted: $1,096 in sales promotion and literature expense, $4,737 in
service fees paid to brokers, $867 in salary expenses and employment services,
$45 in telephone expenses, $1,291 in professional fees, and $14 in
miscellaneous operating expenses. There was no reimbursement of out-of-pocket
expenses for such period.
EXPENSES BORNE BY THE PORTFOLIOS
Other than those expenses payable by OAM and/or Oberweis Brokerage, the
Portfolios will pay all of their expenses, including the following:
(a) Federal, state and local or other governmental agency taxes or fees
levied against the Fund.
(b) Costs, including the interest expense, of borrowing money.
(c) Brokerage fees and commissions and other transaction costs in
connection with the purchase or sale of portfolio securities for the
Portfolios.
(d) Fees and expenses of the Trustees other than those who are
"interested persons" (as defined in the Investment Company Act of 1940) of
the Fund.
(e) Expenses incident to holding meetings of the Fund's Shareholders,
including proxy solicitations of the Fund or its Board of Trustees
therefor, and meetings of the Board of Trustees and committees of the Board
of Trustees.
11
<PAGE>
(f) Fees and expenses in connection with legal services rendered to the
Fund, the Board of Trustees of the Fund and duly appointed committees of
the Board of Trustees of the Fund, including fees and expenses of special
counsel to those Trustees who are not interested persons of the Fund, and
litigation.
(g) Audit and accounting expenses of the independent auditors.
(h) Custodian and transfer and dividend paying agent fees and expenses
and shareholder service expenses.
(i) Fees and expenses related to registering, qualifying and maintaining
registration and qualification of the Fund and its Shares for distribution
under federal, state and other laws.
(j) Fees and expenses incident to the preparation and filing of reports
with regulatory agencies.
(k) Expenses of preparing, printing (including typesetting) and mailing
prospectuses, shareholder reports, proxy materials and notices to
shareholders of the Fund.
(l) Premiums for trustee's and officer's liability insurance and
insurance carried by the Fund pursuant to the requirements of Section 17(g)
of the Investment Company Act of 1940, or otherwise required by law or
deemed desirable by the Board of Trustees.
(m) Fees and expenses incurred in connection with any investment company
organization or trade association of which the Fund may be a member.
(n) Costs and expenses incurred for promotion or advertising of the
Fund's Shares, but only pursuant to a Plan duly adopted in accordance with
Rule 12b-1 under the Investment Company Act of 1940 and to the extent that
such Plan may from time to time provide.
(o) Expenses related to issuance or redemption of the Portfolios' shares.
For the fiscal year ended December 31, 1996, total expenses incurred by the
Emerging Growth Portfolio and the Micro-Cap Portfolio were $2,672,362 and
$566,510, respectively, and the ratio of such total expenses to the
Portfolio's average net asset value was 1.48% and 1.94%, respectively. For the
3 1/2 month period ended December 31, 1996, total expenses incurred by the
Mid-Cap Portfolio were $71,872 and the ratio of and total expenses to the
Portfolio's average net asset value was $3.42%.
PORTFOLIO TRANSACTIONS
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund's Portfolios are made by OAM. Actual portfolio turnover may
vary considerably from year to year. However, in order to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue
Code, less than 30% of the Fund's gross income may be derived from the sale or
other disposition of stock or securities held for less than three months.
OAM is authorized to place orders for securities with various broker-
dealers, including Oberweis Brokerage, subject to the requirements of
applicable laws and regulations. OAM may place a significant portion of the
Portfolios' agency orders with Oberweis Brokerage, as it believes by so doing
a Portfolio is able to achieve more control over and better execution of its
orders. Orders for securities transactions are placed by OAM with a view to
obtaining the best combination of price and execution available. In seeking to
achieve the best combination of price and execution, OAM attempts to evaluate
the overall quality and reliability of the broker-dealers and the services
provided, including research services, general execution capability,
reliability and integrity, willingness to take positions in securities,
general operational capabilities and financial condition. However, the
responsibility of OAM to attempt to obtain the best combination of price and
execution does not obligate it to solicit a competitive bid for each
transaction. Furthermore, under the Advisory Agreement, OAM is not obligated
to seek the lowest available cost to the Portfolio, so long as it determines
in good faith that the broker-dealer's commission, spread or discount is
reasonable in relation to the value of the execution and research services
12
<PAGE>
provided by such a broker-dealer to the Portfolio, or OAM when viewed in terms
of that particular transaction or its overall responsibilities with respect to
all of its clients, including the Portfolio, as to which it offers advice or
exercises investment discretion.
OAM, with the prior consent of the Fund's Trustees, may place orders with
affiliated persons of OAM, Oberweis Brokerage or the Fund subject to (i) the
provisions of Sections 10(f) and 17(e)(2) of the Investment Company Act of
1940 and Rules 10f-3 and 17e-1 thereunder, Rule 206(3)-2 under the Investment
Advisers Act of 1940, Section 11(a) of the Securities Exchange Act of 1934 and
Rule 11a2-2(T)(a)(2) thereunder and any other applicable laws or regulations,
and (ii) procedures properly adopted by the Fund with respect thereto. The
Fund has been advised by OAM that it may place orders for securities with
Oberweis Brokerage, but only when it believes that the combination of price
and execution are comparable to that of other broker-dealers. OAM, with the
prior consent of the Fund's Trustees, may engage in agency cross transactions
subject to (i) the provisions of Section 17(a) of the Investment Company Act
of 1940 and Rule 17a-7 thereunder and other applicable laws or regulations,
(ii) the provisions of Section 206 of the Investment Advisers Act of 1940 and
Rule 206(3)-2 thereunder, and (iii) procedures properly adopted by the Fund
with respect thereto.
OAM has agreed to furnish certain information quarterly to the Fund's
Trustees to enable them to evaluate the quality of execution and cost of all
orders executed by Oberweis Brokerage. The Fund requires that OAM, as
investment adviser, record and furnish to the Fund quarterly the following
information:
(A) Exchange Transactions
A listing showing for each transaction executed by Oberweis Brokerage for
the Portfolios during the month, in time sequence, the date of the
transaction, the price, the commission, the exchange where executed, the
security and the number of shares.
(B) Over-the-Counter Transactions
A listing showing for each transaction executed by Oberweis Brokerage for
the Portfolios during the month, in time sequence, the date of execution, the
price, the best bid and ask at the time, the commission for the transaction,
the security and the number of shares.
(C) Transactions Through Other Brokers
A list of all transactions during each quarter through other brokers,
showing the price and commission for the transaction, and a summary of
commission charges by all other brokers executing transactions for the
Portfolios.
A greater discount, spread or commission may be paid to non-affiliated
broker-dealers that provide research services, which research may be used by
OAM in managing assets of its clients, including the Portfolios. Research
services may include data or recommendations concerning particular securities
as well as a wide variety of information concerning companies, industries,
investment strategy and general economic, financial and political analysis and
forecasting. In some instances, OAM may receive research, statistical and/or
pricing services it might otherwise have had to perform itself. However, OAM
cannot readily determine the extent to which net prices or commission rates
charged by most broker-dealers reflect the value of its research, statistical
and/or pricing services. As OAM is the principal source of information and
advice to the Fund and is responsible for managing the investment and
reinvestment of the Portfolios' assets and determining the securities to be
purchased and sold, it is believed by the Fund's management to be in the
interests of the Fund for OAM, in fulfilling its responsibilities to the Fund,
to be authorized to receive and evaluate the research and information provided
by other securities brokers or dealers, and to compensate such brokers or
dealers for their research and information services. Any such information
received may be utilized by OAM for the benefit of its other accounts as well,
in the same manner that the Fund might also benefit from information obtained
by OAM in performing
13
<PAGE>
services for its other accounts. Although it is believed that research
services received directly or indirectly benefit all of OAM's accounts, the
degree of benefit varies by account and is not directly related to the
commissions or other remuneration paid by such account.
OAM may also enter into written agreements with non-affiliated broker-
dealers that provide it with research services or products whereby OAM agrees
to pay the broker-dealer a fixed dollar amount for such services or products
or, at the option of OAM, all or part of the fee may be offset by commissions
on securities orders placed by OAM for its advisory accounts, including the
Fund, with the broker-dealer at a pre-determined rate of commission dollars in
lieu of cash. To the extent the commissions are insufficient to pay the amount
owed to the broker-dealer, OAM would be obligated at the end of the contract
period to pay the balance owed in cash.
Transactions of the Portfolios in the over-the-counter market and the third
market may be executed for the Portfolios by Oberweis Brokerage as agent with
primary market makers acting as principal, except where OAM believes that
better prices or execution may be obtained otherwise. Transactions with
primary market makers reflect the spread between the bid and the ask prices.
Occasionally, the Portfolios may make purchases of underwritten issues at
prices which include underwriting discount fees.
OAM may place orders with broker-dealers other than Oberweis Brokerage that
sell shares of the Fund, provided the price and execution are reasonably
believed to be comparable with other nonaffiliated broker-dealers. OAM and the
Fund's Board of Trustees review quarterly the Portfolios' brokerage
transactions for execution and services furnished.
For the year ended December 31, 1996, the total brokerage commissions paid
by the Emerging Growth Portfolio was $198,976, of which 5.9% or $11,773, was
paid to TCC, the Fund's Distributor during that period. The total amount of
securities transactions on which the Portfolio paid brokerage commissions
during such period was $62,507,939. Eight percent (8%), or $4,832,694, of the
securities transactions on which the Portfolio paid brokerage commissions were
effected through TCC. The total amount of principal transactions of the
Portfolio for the year ended December 31, 1996, for which no commission was
incurred, was $187,935,883.
For the year ended December 31, 1996, the total brokerage commissions paid
by the Micro-Cap Portfolio was $42,065, of which 4.0% or $1,695, was paid to
TCC. The total amount of securities transactions on which the Portfolio paid
brokerage commissions during such period was $12,872,463. Five percent (5%),
or $668,820, of the securities transactions on which the Portfolio paid
brokerage commissions were effected through TCC. The total amount of principal
transactions of the Portfolio for the year ended December 31, 1996, for which
no commission was incurred, was $53,097,245.
For the period September 15, 1996 through December 31, 1996, the total
brokerage commissions paid by the Mid-Cap Portfolio was $5,958, of which none
was paid to TCC. The total amount of securities transactions on which the
Portfolio paid brokerage commissions during such period was $5,260,537. The
total amount of principal transactions of the Portfolio for the year ended
December 31, 1996, for which no commission was incurred, was $2,721,374.
For the year ended December 31, 1995, the total brokerage commissions paid
by the Emerging Growth Portfolio was $167,622, of which 21% or $35,200, was
paid to TCC. The total amount of securities transactions on which the
Portfolio paid brokerage commissions during such period was $61,677,640.
Thirty-one percent (31%), or $19,217,364, of the securities transactions on
which the Portfolio paid brokerage commissions were effected through TCC. The
total amount of principal transactions of the Portfolio for the year ended
December 31, 1995, for which no commission was incurred, was $134,221,527.
14
<PAGE>
For the period October 1, 1994 through December 31, 1994, the total
brokerage commissions paid by the Emerging Growth Portfolio was $17,248, of
which 49%, or $8,463, was paid to TCC. The total amount of securities
transactions on which the Portfolio paid brokerage commissions during such
period was $10,765,934. Forty-four percent (44%), or $4,718,944, of the
securities transactions on which the Portfolio paid brokerage commissions were
effected through TCC. The total amount of principal transactions of the
Portfolio for the year ended December 31, 1994, for which no commission was
incurred, was $95,896,610. For the period January 1, 1994 through September
30, 1994, the total brokerage commissions paid by the Emerging Growth
Portfolio was $79,554, of which 35%, or $27,659, was paid to Hamilton
Investments. The total amount of securities transactions on which the
Portfolio paid brokerage commission during such period was $27,827,404.
Thirty-six percent (36%), or $10,032,294, of the securities transactions on
which the Portfolio paid brokerage commissions were effected through Hamilton
Investments.
SHAREHOLDER VOTING RIGHTS
Reference should be made to the Prospectus under the heading "General
Information" for a description of certain shareholder rights and information
concerning the shares of the Portfolios. As a general rule, the Fund is not
required to and will not hold annual or other meetings of the shareholders.
Special meetings of shareholders for actions requiring a shareholder vote may
be requested in writing by holders of at least twenty-five percent (25%) (or
ten percent (10%) if the purpose of the meeting is to determine if a Trustee
is to be removed from office) of the outstanding shares of the Fund or as may
be required by applicable law. Under the Declaration of Trust, shareholders
are entitled to vote in connection with following matters: (1) for the
election or removal of Trustees if a meeting is called for such purpose; (2)
with respect to the adoption of any contract for which approval is required by
the Investment Company Act of 1940; (3) with respect to any termination or
reorganization of the Portfolios to the extent and as provided in the
Declaration of the Trust; (4) with respect to any amendment of the Declaration
of Trust (other than amendments changing the name of the Fund or the
Portfolios, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5) as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Fund
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) with respect to such additional matters relating
to the Fund as may be required by law, the Declaration of Trust, the By-Laws
of the Fund, or any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Trustees may consider necessary or
desirable. The Declaration of Trust specifically authorizes the Board of
Trustees to terminate the Fund (or any portfolio of the Fund) without
shareholder approval by notice to the shareholders. Each Trustee serves until
the next meeting of shareholders, if any, called for the purpose of electing
Trustees and until the election and qualification of his successor or until
such Trustee sooner dies, resigns, retires or is removed by the majority vote
of the shareholders or by the Trustees.
REDEMPTION OF SHARES
Reference should be made to the Fund's Prospectus under the heading "How to
Redeem Shares" for other information concerning redemption of the shares of a
Portfolio. The Fund may suspend the right to redeem shares or postpone the
date of payment for more than seven (7) days for any period during which: (a)
the New York Stock Exchange is closed, other than weekend and holiday
closings, or the Securities and Exchange Commission determines that trading on
the New York Stock Exchange is restricted; (b) the Securities and Exchange
Commission determines there is an emergency as a result of which it is not
reasonably practical for a Portfolio to sell the investment securities or to
calculate their Net Asset Value; or (c) the Securities and Exchange Commission
permits such suspension for the protection of Portfolio's shareholders. In the
case of a suspension of the right of redemption, a shareholder may either
withdraw his request for redemption or receive payment at the Net Asset Value
of his shares existing after termination of the suspension.
15
<PAGE>
Although it is the Fund's present policy to make payment of redemption
proceeds in cash, if the Fund's Trustees determine it to be appropriate,
redemption proceeds may be paid in whole or in part by a distribution in kind
of securities held by the Portfolios, subject to the limitation that, pursuant
to an election under Rule 18f-1 under the Investment Company Act of 1940, each
Portfolio is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of a Portfolio during any 90-day period
for any one account. The value of such securities shall be determined as of
the close of trading of the New York Stock Exchange on the business day on
which the redemption is effective. In such circumstances, a shareholder might
be required to bear transaction costs to dispose of such securities.
SHAREHOLDER SERVICES
The Fund's Prospectus under the headings "How to Purchase Shares," "How to
Redeem Shares" and "Shareholder Services" describes information in addition to
that set forth below. When a shareholder makes an initial investment in a
Portfolio, a shareholder account is opened in accordance with the Fund's
Account Application instructions. After each transaction for the account of a
shareholder, confirmation of all deposits, purchases, reinvestments,
redemptions, withdrawal payments, and other transactions in the shareholder's
account will be forwarded to the shareholder.
A Portfolio will generally not issue certificates for its shares, except
that certificates for full amounts will be issued upon a shareholder's written
request to the Transfer Agent. The investor will be the record owner of all
shares in his account with full shareholder rights, irrespective of whether
share certificates are issued. Certain of the functions performed by the Fund
in connection with the operation of the accounts described above have been
delegated by the Fund to its Transfer Agent.
In addition to the purchase and redemption services described above, the
Fund offers its shareholders the special accounts and services described in
the Fund's Prospectus. Applications and information about any shareholder
services may be obtained from OAM.
DETERMINATION OF NET ASSET VALUE
See the Fund's Prospectus under the headings "How to Purchase Shares" and
"Net Asset Value," for descriptions of certain details concerning the
determination of Net Asset Value. The Net Asset Value of the shares of the
Portfolios are computed once daily, as of the later of the close of the New
York Stock Exchange or the Chicago Board Options Exchange, on each day the New
York Stock Exchange is open for trading. All securities in the Portfolios
other than options are priced as of the close of trading on the New York Stock
Exchange. The options in the Portfolios are priced as of the close of trading
on the Chicago Board Options Exchange. The Net Asset Value per share is
computed by dividing the value of the Portfolio's securities plus all other
assets minus all liabilities by the total number of Portfolio shares
outstanding. In valuing the Portfolio's securities, each listed and unlisted
security for which last sale information is regularly reported is valued at
the last reported sale price prior to the close of the New York Stock
Exchange, except for options which are based on the close of the Chicago Board
Options Exchange. If there has been no sale on such day, the last reported bid
price is used. Any unlisted security for which last sale information is not
regularly reported and any listed debt security which has an inactive listed
market for which over-the-counter market quotations are readily available is
valued at the highest bid price as of the close of the New York Stock Exchange
determined on the basis of reasonable inquiry. Restricted securities and any
other securities or other assets for which market quotations are not readily
available are valued by appraisal at their fair values as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Board of Trustees. Short-term debt obligations,
commercial paper and repurchase agreements are valued on the basis of quoted
yields for securities of comparable maturity, quality and type or on the basis
of amortized cost.
16
<PAGE>
TAXES
As stated in the Fund's Prospectus under the heading "Dividends,
Distributions and Tax Status" each of the Portfolios has elected to qualify
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), so that the Portfolio will not be liable for Federal income taxes to
the extent that its net investment income and net realized capital gains are
currently distributed to its shareholders. Each of the Portfolios will qualify
for this status as long as it: (a) derives at least 90% of its gross income
from dividends, interest, gains from the sale or other distribution of
securities or foreign currencies, and certain other investment income
including gain from options, futures or forward contracts; (b) derives less
than 30% of its gross income from the sale or other disposition of securities
it has held for less than three months; (c) invests in securities that satisfy
certain diversification requirements; and (d) distributes at least 90% of its
net investment income and net short-term capital gains to its shareholders
each year. A Portfolio may be limited in its options transactions in order to
comply with these rules.
Except for those shareholders exempt from Federal income taxes, dividends
and capital gains distributions are taxable to shareholders for purposes of
the Federal income tax, whether paid in cash or reinvested in additional
shares of the Portfolio. Dividends from net investment income are taxable to
non-exempt shareholders as ordinary income for Federal income tax purposes.
For corporate shareholders, such income dividends may be eligible for the
deduction for dividends received from domestic corporations. Distribution of
long-term capital gains are taxable to non-exempt shareholders as long-term
capital gains regardless of the length of time that such shareholders have
owned shares in a Portfolio. Short-term capital gain distributions are taxable
to non-exempt shareholders as ordinary income. Losses incurred by such
shareholders on the redemption of shares of a Portfolio held six months or
less will be treated as long-term capital losses to the extent of any capital
gains distributions made by the Portfolio with respect to such shares.
Shareholders will be notified annually as to the Federal income tax status of
dividends and capital gains distributions. Such dividends and distributions
may also be subject to state and local taxes.
Income dividends are taxed as ordinary income at rates up to a maximum of
39.6% for individuals. Long-term capital gain distributions are taxable at a
maximum rate of 28% for individual shareholders and at the same rate as
ordinary income for corporate shareholders.
In order to avoid an excise tax on undistributed amounts, each Portfolio
must declare, by the end of the calendar year, a dividend to shareholders of
record that represents 98% of its net investment income for the calendar year
plus 98% of its capital gain net income for the period from November 1 of the
previous year through October 31 of the current year plus any undistributed
net investment income from the prior calendar year, plus any undistributed
capital gain net income for the one-year period ended October 31 of the prior
calendar year, less any overdistribution in the prior calendar year. Each
Portfolio intends to declare or distribute dividends during the appropriate
periods in an amount sufficient to avoid the 4% excise tax.
Federal law requires the Fund to withhold 31% from dividends and/or
redemption proceeds (including from exchanges) that occur in certain
shareholder accounts if the shareholder has not properly furnished a certified
correct Taxpayer Identification Number (in the case of individuals, a social
security number) or has not certified that withholding does not apply. Amounts
withheld are applied to the shareholder's Federal income tax liability and a
refund may be obtained from the Internal Revenue Service if withholding
results in overpayment of taxes. Federal law also requires the Fund to
withhold the applicable tax treaty rate from dividends that are paid to
certain nonresident alien, foreign partnership and foreign corporation
shareholder accounts.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations in effect on the date of the
Fund's Prospectus and this Statement of Additional Information, which
provisions are subject to change by legislative or administrative action.
Investors are advised to consult their own tax advisers regarding the tax
consequences of an investment in the Portfolios. Shareholders are likewise
advised to consult their own tax advisers regarding specific questions as to
state or local taxes.
17
<PAGE>
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average annual total return measures both the net investment income
generated by, and the effect of any realized and unrealized appreciation or
depreciation of, the underlying investments of a Portfolio. A Portfolio's
average annual total return quotation is computed in accordance with a
standardized method prescribed by the rules of the Securities and Exchange
Commission, as follows:
P(1+T)n=ERV
Where P=a hypothetical initial payment of $1,000
T=average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five-, or 10-year
period at the end of the one-, five-, or 10-year period
(or fractional portion thereof)
ADDITIONAL INFORMATION
CUSTODIAN AND TRANSFER AGENT
The Custodian for the Fund is Investors Fiduciary Trust Company, P.O. Box
419042, Kansas City, Missouri 64141, a national bank organized under the laws
of the United States. The Fund has authorized the Custodian to deposit certain
securities of the Portfolios in central depository systems as permitted by
federal law. The Portfolios may invest in obligations of the Custodian and may
purchase or sell securities from or to the Custodian. The Custodian is also
the Fund's Transfer Agent and acts as dividend disbursing agent.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606, audits
and reports on the Fund's annual financial statements, reviews certain
regulatory reports and prepares the Fund's income tax returns, and performs
other professional accounting, auditing and advisory services when engaged to
do so by the Fund.
Shareholders will receive annual audited financial statements and semi-
annual unaudited financial statements.
COUNSEL
Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago,
Illinois 60601, is legal counsel to the Fund.
OTHER INFORMATION
The Fund's Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement, which the Fund
has filed with the Securities and Exchange Commission under the Securities Act
of 1933, and reference is hereby made to the Registration Statement for
further information with respect to the Fund and the securities offered
hereby. This Registration Statement is available for inspection by the public
at the Securities and Exchange Commission in Washington, D.C.
18
<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,
LOGO
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>
LOGO
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>
LOGO
- --------------------------------------------------------------------------------
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>
LOGO
(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%
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.
<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>
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
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.
<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>
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
/s/ 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 THE OBERWEIS FUNDS ---------------------------------------
AUDITED
EMERGING GROWTH PORTFOLIO
MICRO-CAP PORTFOLIO DECEMBER 31, 1996
MID-CAP PORTFOLIO
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS-INCLUDED IN STATEMENT OF ADDITIONAL INFORMATION (PART
B).
(a) Portfolio of Investments as of December 31, 1996.
(b) Statement of Assets and Liabilities as of December 31, 1996.
(c) Statement of Operations for the Year Ended December 31, 1996.
(d) Statement of Changes in Net Assets for the Years Ended December
31, 1996 and 1995.
(e) Notes to Financial Statements
Schedules II, III, IV, V, VI and VII are omitted and the required
information is not presented.
Schedule I has been omitted and the required information is presented in
the portfolio of investments.
(B) EXHIBITS.
1. Agreement and Declaration of Trust dated July 7, 1986/11/
1.1 First Amendment to Agreement and Declaration of Trust, dated
November 17, 1986/11/
2. By-Laws/11/
3. None
4. Form of Specimen Certificates of Shares of Beneficial Interest/11/
4.1 Specimen Certificates of Shares of Beneficial Interest/2/
5.1 Management Agreement/5/
5.1.1 Amendment to Management Agreement as of February 16, 1994/9/
5.1.2 Management Agreement dated October 1, 1994/11/
5.2 Investment Advisory Agreement/5/
5.2.1 Investment Advisory Agreement dated October 1, 1994/11/
5.2.2 Transfer and Guaranty Agreement/7/
C-1
<PAGE>
5.2.3 Written Notification required under Investment Advisory Agreement dated
October 1, 1994 regarding the rendering of advisory services to the
Micro-Cap Portfolio./12/
5.2.4 Written Notification required under Investment Advisory Agreement dated
October 1, 1994 regarding the rendering of advisory services to the
Mid-Cap Portfolio. /13/
6. None
7. None
8. Custodian Agreement/1/
8.1 Letter Agreements renewing Custodian Agreement dated February 24,
1988,/3/ February 21, 1989,/4/ February 7, 1990,/5/ February 15,
1991,/6/ and February 13, 1992,/7/ respectively
8.2 Letter Agreement dated January 27, 1993, renewing Custodian Agreement/8/
8.3 Custodian Agreement dated August 3, 1993/11/
9. Transfer Agency Agreement/1/
9.1 Letter Agreements renewing Transfer Agency Agreement dated February 24,
1988,/3/ February 21, 1989,/4/ February 7, 1990,/5/ February 15,
1991,/6/ and February 13, 1992,/7/ respectively
9.2 Letter Agreement dated January 27, 1993, renewing Transfer Agency
Agreement/8/
9.3 Transfer Agent Agreement dated August 3, 1993/11/
10.1 Form of Opinion and Consent of Lawrence, Kamin, Saunders & Uhlenhop/1A/
10.1.1 Consent and Opinion of Vedder, Price, Kaufman & Kammholz/12/
10.1.2 Consent and Opinion of Vedder, Price, Kaufman & Kammholz/13/
10.2 Form of Opinion of Ropes & Gray/1A/
10.2.1 Opinion and Consent of Ropes & Gray/12/
10.2.2 Opinion and Consent of Ropes & Gray/13/
*11.1 Consent of Ernst & Young LLP
11.2 Consent of Checkers, Simon & Rosner LLP/13/
12. Not applicable
13. Form of Contribution Agreement with Initial Shareholders/1/
13.1 Contribution Agreement dated December 8, 1986, from James D. Oberweis
with respect to the purchase of an aggregate of 5,500 shares as
custodian for two minor children for $10.00 each (a total of $55,000)/2/
13.2 Contribution Agreement dated December 8, 1986, from Lora J. Oberweis
with respect to the purchase of 2,000 shares for $10.00 each (a total
of $20,000)/2/
13.3 Contribution Agreement dated December 8, 1986, from Helen Cisek with
respect to the purchase of 1,500 shares for $10.00 each (a total of
$15,000)/2/
13.4 Contribution Agreement dated December 8, 1986, from Tedd Determan with
respect to the purchase of an aggregate of 1,000 shares for $10.00 each
(a total of $10,000)/2/
14.1 Individual Retirement Custodial Account Agreement, Disclosure Statement,
Form of Account Application, Request Form/11/ and Transfer
14.2 Individual Retirement Custodial Account Agreement, Individual Retirement
Account Application and IRA Transfer and Invest Rollover Request Form.
/13/
15.1 Plan of Distribution pursuant to Rule 12b-1/4/
15.2 Distribution and Shareholder Service Agreement/5/
15.3 Amendment to Plan of Distribution pursuant to Rule 12b-1 and
Distribution and Shareholder Service Agreement/8/
C-2
<PAGE>
15.4 Plan of Distribution pursuant to Rule 12b-1 as amended October 1, 1994
/11/
15.4.1 Form of Plan of Distribution pursuant to Rule 12b-1 as amended January
1, 1996/11/
15.5 Distribution Agreement dated October 1, 1994/11/
15.5.1 Form of Distribution and Shareholder Service Agreement dated January 1,
1996/11/
*15.5.2 Distribution and Shareholder Service Agreement dated January 2, 1997
15.6 Shareholder Service Agreement dated October 1, 1994/11/
16. Calculation of Performance Data/11/
*27. Financial Data Schedules
_________
/*/ Filed herewith.
/1/ Previously filed with the Registration Statement and incorporated herein by
reference.
/1A/ Previously filed with the Registration Statement.
/2/ Previously filed with Pre-Effective Amendment No. 2 (Amendment No. 2) dated
January 14, 1987 and incorporated herein by reference.
/2A/ Previously filed with Pre-Effective Amendment No. 2.
/3/ Previously filed with Post-Effective Amendment No. 2 (Amendment No. 4)
dated February 28, 1988.
/4/ Previously filed with Post-Effective Amendment No. 3 (Amendment No. 5)
dated March 2, 1989 and incorporated herein by reference.
/5/ Previously filed with Post-Effective Amendment No. 4 (Amendment No. 6)
dated February 28, 1990 and incorporated herein by reference.
/6/ Previously filed with Post-Effective Amendment No. 5 (Amendment No. 7)
dated March 1, 1991 and incorporated herein by reference.
/7/ Previously filed with Post-Effective Amendment No. 6 (Amendment No. 8)
dated March 2, 1992 and incorporated herein by reference.
/8/ Previously filed with Post-Effective Amendment No. 7 (Amendment No. 9)
dated March 1, 1993 and incorporated herein by reference.
/9/ Previously filed with Post-Effective Amendment No. 8 (Amendment No. 10)
dated April 29, 1994 and incorporated herein by reference.
/10/ Previously filed with Post-Effective Amendment No. 9 (Amendment No. 11)
dated February 28, 1995 and incorporated herein by reference.
/11/ Previously filed via EDGAR with Post-Effective Amendment No. 10 (Amendment
No. 12) dated October 18, 1995 and incorporated herein by reference.
/12/ Previously filed with Post-Effective Amendment No. 11 (Amendment No. 13)
dated December 21, 1995 and incorporated herein by reference.
/13/ Previously filed with Post-Effective Amendment No. 14 (Amendment No. 16)
dated September 12, 1996
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1996, the number of record holders of each class of shares of
the Registrant were as follows:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- -------------------- --------------
<S> <C>
Oberweis Emerging
Growth Portfolio 10,787
Oberweis Micro-Cap
Portfolio 3,031
Oberweis Mid-Cap
Portfolio 900
</TABLE>
ITEM 27. INDEMNIFICATION
A response has been previously filed with Pre-Effective Amendment No. 2
(Amendment No. 2) dated January 14, 1987 and is incorporated herein by
reference. The Fund has also purchased a liability policy which indemnifies the
Fund's officers and trustees against loss arising from claims by reason of their
legal liability for acts as officers and trustees, subject to limitations and
conditions as set forth in such policy.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has
C-3
<PAGE>
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, and the Commission remains of the same opinion, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTION OF INVESTMENT ADVISER.
(a) Oberweis Asset Management, Inc.
Oberweis Asset Management, Inc. ("OAM") was organized in 1989. Its
activities are limited to acting as an investment adviser.
(b) Set forth below are the names of the directors and officers of OAM (other
than those officers who are also officers of the Registrant) and any other
business, profession, vocation or employment of a substantial nature in which
such directors and officers have been involved an any time during the past two
fiscal years.
<TABLE>
<CAPTION>
NAME AND
POSITIONS WITH OAM NAME OF COMPANY POSITION
- -------------------- ----------------------------- -----------------------
<S> <C> <C>
Elaine M. Oberweis Oberweis Dairy, Inc. Chief Executive Officer
Director 951 Ice Cream Drive
North Aurora, Illinois 60542
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None.
(b) Set forth below are the names of the directors and officers of Oberweis
Brokerage, Inc.
James W. Oberweis
Director and President
Patrick B. Joyce
Director, Senior Vice President
Treasurer, Secretary and Chief
Financial Officer
Martin L. Yokosawa
Vice President
The principal business address of all such persons is 951 Ice Cream Drive, Suite
200, North Aurora, Illinois 60542.
C-4
<PAGE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and rules
promulgated thereunder are in the possession of Oberweis Asset Management, Inc.
at its offices at 951 Ice Cream Drive, Suite 200, North Aurora, Illinois 60542,
except those books, records and other documents maintained by the custodian,
transfer agent and registrar, Investors Fiduciary Trust Company, which are
located at its offices at 127 West 10th Street, 16th Floor, Kansas City,
Missouri 64105.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest Annual
Report to Shareholders upon request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of North Aurora, and State of Illinois, on the 25th day of February,
1997.
THE OBERWEIS FUNDS
By:/s/James D. Oberweis
- -------------------------------
James D. Oberweis, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James D. Oberweis President (Principal Executive February 25, 1997
- -------------------------- Officer) and Trustee
James D. Oberweis
/S/ Thomas J. Burke Trustee February 25, 1997
- --------------------------
Thomas J. Burke*
/s/ Douglas P. Hoffmeyer Trustee February 25, 1997
- --------------------------
Douglas P. Hoffmeyer*
/s/ Edward F. Streit Trustee February 25, 1997
- --------------------------
Edward F. Streit*
/s/ Patrick B. Joyce Executive Vice President and February 25, 1997
- -------------------------- Treasurer (Principal Financial
Patrick B. Joyce and Accounting Officer)
* By: /s/ Patrick B. Joyce
--------------------
Attorney-in-Fact,
pursuant to Power of
Attorney
Patrick B. Joyce
</TABLE>
C-6
<PAGE>
EXHIBIT 11.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report dated January 29, 1997 in the Registration Statement (Form N-
1A) and related Prospectus of The Oberweis Funds, filed with the Securities and
Exchange Commission in this Post-Effective Amendment No. 15 to the Registration
Statement under Securities Act of 1933 (Registration No. 33-9093) and in this
Amendment No. 17 to the Registration Statement under the Investment Company Act
of 1940 (Registration No. 811-4854).
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 24, 1997
ERNST & YOUNG LLP
<PAGE>
EXHIBIT 15.5.2
DISTRIBUTION AND SHAREHOLDER SERVICE AGREEMENT
THIS AGREEMENT made as of the 2nd day of January, 1997 between The Oberweis
Funds, a Massachusetts business trust (the "Fund"), and Oberweis Brokerage,
Inc., an Illinois corporation ("Oberweis Brokerage");
WITNESSETH:
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"), the units
of beneficial interest ("Units") of which are registered under the Securities
Act of 1933, as amended; and
WHEREAS, the Fund is authorized to issue Units in separate series with each
such series representing the interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund currently issues Units in three portfolios ("Shares"),
the Emerging Growth Portfolio, the Micro-Cap Portfolio and the Mid-Cap Portfolio
(collectively referred to, together with such other series as may hereafter be
designated by the Board of Trustees and adopt the Agreement, as the "Portfolios"
and individually referred to as a "Portfolio"); and
WHEREAS, the Fund has adopted a plan ("Plan") pursuant to Rule 12b-1 of the
1940 Act in order to provide for the payment of certain distribution costs by
the Fund; and
WHEREAS, the Fund, in accordance with the Plan, desires to retain Oberweis
Brokerage as the principal distributor for Shares of the Fund and the primary
shareholder service agent for the Fund and Oberweis Brokerage is willing to act
in such capacities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the parties hereto agree as follows:
ARTICLE I:
DISTRIBUTION
1. Appointment of Distributor. The Fund hereby appoints Oberweis Brokerage
as the principal distributor of the Shares of the Fund upon the terms and for
the periods set forth in this Agreement. Oberweis Brokerage hereby accepts such
appointment and agrees to render the services and perform the duties of
distributor as set forth herein.
2. Duties of Distributor. The following provisions shall apply to the
obligations of Oberweis Brokerage as distributor under this Agreement:
<PAGE>
(a) The Fund agrees to sell Shares through Oberweis Brokerage, as
agent, from time to time during the term of this Agreement upon the terms and at
the current offering price described in the Fund's prospectus. Such sales may,
however, be suspended whenever in the judgment of the Fund it is in the best
interests to do so.
(b) Oberweis Brokerage will hold itself available to receive or will
arrange for the receipt of orders for the purchase of Shares and will (and shall
have the authority to) receive and accept or reject or arrange for the receipt
and acceptance or rejection of such orders on behalf of the Fund in accordance
with the provisions of the Fund's prospectus.
(c) Oberweis Brokerage shall not be obligated to sell any certain
number of Shares.
(d) In performing its duties hereunder, Oberweis Brokerage shall act
in conformity with the Fund's Agreement and Declaration of Trust, By-Laws,
Registration Statement and prospectus, and with the instructions and directions
of the officers and Trustees of the Fund, and shall comply with and conform to
the requirements of the 1940 Act, the Securities Act of 1933, the Securities
Exchange Act of 1934, and all other applicable federal and state laws,
regulations and rulings and Rules of the National Association of Securities
Dealers, Inc.
(e) Oberweis Brokerage shall be free to render to others services
different from or similar to those rendered to the Fund hereunder so long as the
services hereunder are not impaired thereby. It further is understood and agreed
that by separate agreement with the Fund, Oberweis Brokerage may also serve the
Fund in other capacities; that officers or employees of Oberweis Brokerage may
serve as officers or Trustees of the Fund to the extent permitted by law; and
Oberweis Brokerage or its officers or employees are not prohibited from engaging
in any other business activity or from rendering services to any other entity,
or from serving as officers, directors or trustees of any other organizations,
including investment companies.
3. Unreimbursable Distribution Costs. During the term of this Agreement,
Oberweis Brokerage will pay from the fees provided under paragraph 1 of Article
IV of this Agreement without further reimbursement by the Fund the following
costs related to the distribution of the Fund's Shares:
(a) Costs of all sales presentations, mailing, advertising and any
other distribution efforts which may be undertaken by Oberweis Brokerage in its
sole discretion with respect to the Shares. Such costs shall not be deemed to
include the costs of preparing and setting in type prospectuses, statement of
additional information, proxy materials, reports and notices or the costs of
printing and distributing the same to existing shareholders and regulatory
authorities .
(b) Compensation of any personnel of Oberweis Brokerage for activities
in connection with the distribution or sale of the Shares.
2
<PAGE>
4. Representations. Neither Oberweis Brokerage nor any other person is
authorized by the Fund to give any information or to make any representation
relative to the Shares other than those contained in the Fund's Registration
Statement, prospectus or statement of additional information filed with the
Securities and Exchange Commission as either may be amended from time to time,
or in any supplemental information to said prospectus or statement of additional
information approved by the Fund. Oberweis Brokerage agrees that any other
information or representations other than those specified above which it or any
dealer or other person who distributes Shares through Oberweis Brokerage may
make in connection with the offer or sale of Shares shall be made entirely
without liability on the part of the Fund. Oberweis Brokerage agrees that in
offering or selling Shares as agent of the Fund, it will submit to the Fund's
legal counsel or other representative, as may be designated by the Fund's Board
of Trustees, copies of all sales literature and other similar materials before
using the same, and will not use such sales literature if disapproved by the
Fund.
ARTICLE II:
SHAREHOLDER SERVICES
1. Appointment of Shareholder Service Agent. The Fund hereby appoints
Oberweis Brokerage as the primary shareholder service agent for the Fund upon
the terms and for the periods set forth in this Agreement. Oberweis Brokerage
hereby accepts such appointment and agrees to render the services and perform
the duties of shareholder service agent as set forth herein.
2. Services of Shareholder Service Agent. The services to be performed by
Oberweis Brokerage as shareholder service agent are set forth in Exhibit A
hereto which may at any time or from time to time be modified or amended by
agreement of the parties in the form of an amended or supplemental schedule
initialed by their authorized representatives. Oberweis Brokerage also agrees to
perform such additional services within its capacity of shareholder service
agent as may, from time to time, be requested by the Fund, provided that such
additional services are the subject of a supplement to Schedule A hereto.
3. Costs and Expenses of Performance. The Fund will reimburse Oberweis
Brokerage for Oberweis Brokerage's approximate out-of-pocket cost, if any, of
providing certain of the services contemplated by this Agreement as set forth in
Exhibit A, including the costs of postage, data entry, modification and
printout, stationery, tax forms, and all other external forms or printed
material which may be required for performance by Oberweis Brokerage of the
services contemplated by this Agreement ("Reimbursable Expenses"). Oberweis
Brokerage shall submit to the Fund a monthly report setting forth in reasonable
detail and Reimbursable Expenses of Oberweis Brokerage paid or incurred during
such month. The Fund agrees to cause all such reports to be reviewed promptly
(in no event less frequently than quarterly) after receipt. Immediately
thereafter, Oberweis Brokerage will be notified of any discernable errors,
discrepancies or omissions.
3
<PAGE>
4. Record Retention and Confidentiality. Oberweis Brokerage shall keep and
maintain on behalf of the Fund all records which are required to be maintained
pursuant to Rule 12b-1 and Rule 31a-1 under the 1940 Act that pertain to the
activities under this Agreement and to preserve such records for the time
periods prescribed therein; provided, however, Oberweis Brokerage shall not be
required to maintain those records which would duplicate records required to be
maintained pursuant to any other agreement entered into by the Fund. In
addition, Oberweis Brokerage will maintain all records it is required to
maintain pursuant to any applicable statutes, rules and regulations relating to
the maintenance of records in connection with the services to be performed
hereunder. Notwithstanding the foregoing, Oberweis Brokerage shall maintain, for
a period of at least six (6) years, all records and documents which may be
needed or required to support or document the entries made by Oberweis Brokerage
in its performance of services hereunder. Oberweis Brokerage agrees that all
records required to be maintained under this paragraph shall be the property of
the Fund, shall be maintained in such fashion as to preserve the confidentiality
thereof, and to comply with applicable rules and regulations of federal and/or
state securities laws, and shall, in whole or any specified part, be available
for inspection by or surrender to the Fund at any reasonable time after receipt
of an appropriate written request.
ARTICLE III:
APPOINTMENT OF FIRMS
1. Appointment of Firms. It is understood and agreed that Oberweis
Brokerage may in its discretion appoint broker-dealer and other firms to assist
Oberweis Brokerage in providing distribution services to the Fund, including
literature distribution, advertising and promotion. Oberweis Brokerage may also
appoint broker-dealer and other firms (including depository institutions such as
commercial banks and savings and loan associations) to provide administrative
services for their clients as shareholders of the Fund. The agreements between
Oberweis Brokerage and such other firms are collectively referred to as "Service
Agreements" and shall be substantially in the form of the agreement attached
hereto as Exhibit B or Exhibit C or in a form otherwise approved by the Board of
Trustees of the Fund. Such firms shall not be representatives or agents of the
Fund and shall have no direct contractual relationship with the Fund.
2. Services of Firms. The aforementioned broker-dealer and other firms
(collectively "Firms") shall provide, among other things, office space and
equipment, telephone facilities, personnel and assistance to Oberweis Brokerage
in servicing accounts of such Firm's clients who own Fund Shares. Such services
and assistance may include, but not be limited to, establishment and maintenance
of shareholder accounts and records; processing purchase and redemption
transactions; automatic investment in Fund's Shares of client account cash
balances; answering routine client inquiries regarding the Fund; assistance to
clients in changing dividend options, account designations and addresses; and
such other services as the Fund may reasonably request.
4
<PAGE>
ARTICLE IV:
FEES, EXPENSES AND REPORTS
1. Annual Fee. For all the services to be provided by Oberweis
Brokerage hereunder, each Portfolio shall pay Oberweis Brokerage compensation at
the annual rate of .25 of 1% of its average daily net assets, computed and
accrued daily and payable monthly. This compensation shall be in addition to
certain expense reimbursements provided for under Article II, paragraph 3
hereof.
2. Fees to Firms. From the foregoing annual fee, Oberweis Brokerage
may pay compensation to the Firms, if any, who shall be providing services under
the Service Agreements.
3. Expenses. The Fund shall assume and pay all charges and expenses
of its operations not specifically assumed or otherwise to be provided by
Oberweis Brokerage under this Agreement.
4. Reports. Oberweis Brokerage shall prepare reports for the Trustees
of the Fund on a quarterly basis showing amounts expended by Oberweis Brokerage
under this Agreement and the purposes for such expenditures, including amounts
paid to the various Firms, if any, and such other information as from time to
time shall be reasonably requested by the Trustees of the Fund.
ARTICLE V:
GENERAL
1. Limitation of Liability. Neither Oberweis Brokerage nor any of its
agents or employees shall be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except liability to the Fund or its Shareholders to
which Oberweis Brokerage would otherwise be subject by reason of Oberweis
Brokerage's willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement. Any person, even though also an
officer, employee or agent of Oberweis Brokerage who may be or become an
officer, Trustee, employee or agent of the Fund shall be deemed, when rendering
services to the Fund or to any series, or acting on any business of the Fund or
of any series (other than services or business in connection with Oberweis
Brokerage's duties as hereunder) to be rendering such services to or acting
solely for the Fund or series and not as an officer, director, employee or agent
or one under the control or direction of Oberweis Brokerage even though paid by
Oberweis Brokerage.
5
<PAGE>
2. Indemnification.
(a) Subject to the conditions set forth below, the Fund agrees to
indemnify and hold harmless Oberweis Brokerage, its officers and employees, and
each person, if any, who controls Oberweis Brokerage within the meaning of
Section 15 of the Securities Act of 1933 and Section 20 of the Securities
Exchange Act of 1934 against any and all loss, liability, claim, damage and
expense whatsoever, jointly and severally, or otherwise (including, but not
limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever), arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the Fund's
Registration Statement, the prospectus, or statement of additional information
or any amendment or supplement thereof, or any advertisement or sales literature
authorized by the Fund, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information with respect to Oberweis
Brokerage furnished to the Fund by or on behalf of Oberweis Brokerage expressly
for use in the Fund's Registration Statement, prospectus, statement of
additional information or any amendment or supplement thereof or any
advertisement or sales literature. If any action is brought against Oberweis
Brokerage or any controlling person thereof in respect of which indemnity may be
sought against the Fund pursuant to the foregoing, Oberweis Brokerage shall
promptly notify the Fund in writing of the institution of such action and the
Fund shall assume the defense of such action, including the employment of
counsel selected by the Fund and payment of expenses. Oberweis Brokerage, or any
such controlling person thereof, shall have the right to employ separate counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of Oberweis Brokerage or such controlling person unless the employment
of such counsel shall have been authorized in writing by the Fund in connection
with the defense of such action or the Fund shall not have employed counsel to
have charge of the defense of such action, in which event such fees and expenses
shall be borne by the Fund. Anything in this subparagraph to the contrary
notwithstanding, the Fund shall not be liable for any settlement of any such
claim or action effected without its written consent. The Fund agrees promptly
to notify Oberweis Brokerage of the commencement of any litigation or
proceedings against the Fund or any of its officers or directors or controlling
persons in connection with the issue and sale of shares or in connection with
the Fund's Registration Statement, prospectus or statement of additional
information, or any advertisement or sales literature.
(b) Oberweis Brokerage agrees to indemnify and hold harmless the Fund, each
of its Trustees, each of its officers and each other person, if any, who
controls the Fund within the meaning of Section 15 of the Securities Act of
1933, with respect to statements or omissions, if any, made in the Fund's
Registration Statement, prospectus or statement of additional information or any
amendment or supplement thereof or any advertisement or sales literature in
reliance upon and in conformity with information with respect to Oberweis
Brokerage furnished in writing to the Fund by or on behalf of Oberweis
Brokerage expressly for use in the Fund's Registration Statement, prospectus or
statement of additional information or any amendment or supplement thereof or
any advertisement or sales literature. In case any action shall be brought
6
<PAGE>
against the Fund or any other person so indemnified based on the Fund's
Registration Statement, prospectus or statement of additional information or any
amendment or supplement thereof and in respect of which indemnity may be sought
against Oberweis Brokerage, Oberweis Brokerage shall have the rights and duties
given to the Fund and the Fund and each other person so indemnified shall have
the rights and duties given to Oberweis Brokerage by the provisions of
subparagraph (a) above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to the Fund or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the duties of such person or by reason of the
reckless disregard by such person of the obligations and duties of such person
under this Agreement.
3. Duration and Termination. This Agreement shall continue, unless
sooner terminated as provided herein, until one year from the date hereof, and
shall thereafter continue in force from year to year so long as each such
continuance is approved at least annually by the vote of the Board of Trustees
of the Fund, including a majority of the Trustees of the Fund who are not
interested persons (as defined in the 1940 Act) of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or any
agreement related thereto. This Agreement may be terminated by the Fund at any
time, without the payment of any penalty, upon the vote of a majority of the
Trustees of the Fund who are not interested persons (as defined in the 1940 Act)
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related thereto or by the vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) on 60 days written notice to Oberweis Brokerage. This Agreement may be
terminated by Oberweis Brokerage at any time, without the payment of any
penalty, on 60 days written notice to the Fund.
4. Assignment. This Agreement will automatically and immediately
terminate in the event of its "assignment" (as defined in Section 2(a)(4) of the
1940 Act). Oberweis Brokerage shall notify the Fund in writing sufficiently in
advance of any proposed change of control, as defined in Section 2(a)(9) of the
1940 Act, as will enable the Fund to consider whether an "assignment" will
occur, and to take the steps necessary to enter into a new contract with
Oberweis Brokerage.
5. Authority of Oberweis Brokerage. Oberweis Brokerage hereby
represents and warrants to the Fund that no consent or approval of, or other
action by, any United States federal or state regulatory authority or other
person or entity, which has not been obtained or taken, is required for the
execution, delivery or performance by Oberweis Brokerage of this Agreement.
6. Amendment of Agreement. This Agreement may be amended by mutual
consent of the parties hereto, but the consent of the Fund must be by the vote
of the Board of Trustees of the Fund, including a majority of the Trustees who
are not interested persons (as defined in the 1940 Act) of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or any
agreement related thereto.
7
<PAGE>
7. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be construed in accordance with
applicable federal law and (except as to paragraph 8 of this Article below which
shall be construed in accordance with the laws of The Commonwealth of
Massachusetts) the laws of the State of Illinois, and shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, subject to paragraph 3 of this Article.
8. Limitation of Shareholder and Trustee Liability. All parties
hereto are expressly put on notice of The Oberweis Funds Agreement and
Declaration of Trust dated July 7, 1986 and all amendments thereto, all of which
are on file with the Secretary of the Commonwealth of Massachusetts, and the
limitation of shareholder and trustee liability contained therein. This
Agreement has been executed by and on behalf of the Fund by its representative
as such representative and not individually, and the obligations of the Fund
hereunder are not binding upon any of the trustees, officers or shareholders of
the Fund individually, but are binding upon only the assets and property of the
Fund.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
THE OBERWEIS FUNDS
By /s/James D. Oberweis
----------------------
Its President
-------------------------
Attest:
/s/Sally A. Jordan
- --------------------------
Its Secretary
---------------------
OBERWEIS BROKERAGE, INC.
By /s/James W. Oberweis
------------------------
Its President
------------------------
Attest:
/s/Patrick B. Joyce
---------------------
Its Executive Vice President
------------------------
9
<PAGE>
EXHIBIT A
TO DISTRIBUTION AND
SHAREHOLDER SERVICE AGREEMENT
<TABLE>
<CAPTION>
SERVICE TO BE RENDERED CHARGE TO FUND
- ---------------------- --------------
<S> <C>
I. SHAREHOLDER ACCOUNTS
1. Open accounts, as necessary, and assist in
maintaining on the records of the Fund's transfer
agent current records for Fund shareholder
accounts showing as to each shareholder (to the
extent such information is available or obtainable):
A. Name(s) and address(es) with zip code(s)
B. Type of account and taxpayer
identification or social security number
C. Number of Fund Shares currently owned
D. Account transaction history, including
records of initial and additional purchases,
redemptions, dividends and other
distributions, and related tax
information....................................... Annual Fee*
2. Maintain files of account applications, requests
and correspondence from or on behalf of
shareholders in relation to Fund Shares as well as
copies of all written responses thereto................ Annual Fee
3. Process with the Fund's transfer agent account
records to show all changes or corrections to
shareholders' registration and address records
authorized in writing by or on behalf of the
shareholder............................................ Annual Fee
</TABLE>
- --------------------
* Annual Fee as used in this Exhibit A refers to the fee set forth in
Paragraph 2 of Article IV of the Agreement.
** The term "Cost" as used in this Exhibit A refers to approximate out-of-
pocket tangible expenses such as postage and printing of forms.
10
<PAGE>
<TABLE>
<S> <C> <C>
SERVICE TO BE RENDERED CHARGE TO FUND
- ---------------------- --------------
4. Assist the Fund's transfer agent in maintaining
records of shareholders' transactions in Fund
Shares for federal and state tax and securities law
purposes........................................... Annual Fee
II. PURCHASES AND REDEMPTIONS
1. Conversion of monies to Federal funds.............. Annual Fee
2. Prepare and transmit by mail to each shareholder,
confirmations as may be required by law of all
purchases and redemptions of Fund Shares Annual Fee
effected through Oberweis Brokerage ............... plus Cost**
3. Assist the Fund's transfer agent to prepare and
transmit by mail to each shareholder periodic
statements reflecting all purchases, dividends and Annual Fee
redemption of Fund Shares.......................... plus Cost
4. Receive, ascertain the adequacy of, and transmit
to the Fund's transfer agent all purchase orders
or redemption requests received by Oberweis
Brokerage in accordance with the requirements
set forth in the current prospectus of the Fund.... Annual Fee
5. Requisition from the Fund's custodian and remit
the proceeds of redemption as directed by the
individual shareholder in accordance with the
current prospectus of the Fund..................... Annual Fee
III. SHAREHOLDER COMMUNICATIONS & SERVICES
1. Provide, maintain and man telephone
communication systems for shareholder inquiries
concerning the administration of their Fund
account............................................ Annual Fee
2. Receive and answer promptly all correspondence
or similar inquiries from or on behalf of
shareholders concerning the administration of
their Fund accounts................................ Annual Fee
3. Refer to the Fund's investment adviser questions
or matters related to its function................. Annual Fee
</TABLE>
11
<PAGE>
SERVICE TO BE RENDERED CHARGE TO FUND
- ---------------------- --------------
4. Prepare such reports and summaries of
shareholder communications as may be requested
by the Fund's officers for the preparation of
reports to the Fund's trustees and appropriate
regulatory authorities................................. Annual Fee
5. Provide and maintain a terminal with on-line
facilities to provide information regarding Fund Annual Fee
shareholder accounts................................... plus Cost
IV. PROXY MATERIALS, ANNUAL AND OTHER REPORTS
1. Transmit (but not prepare) notices of meetings
and proxy statements, prospectuses, annual, semi-
annual and quarterly reports as shall be requested
by the Fund and coordinate such mailings to
appropriate categories of Fund shareholders............ Cost
2. Assist the Fund's transfer agent to furnish to the
Fund, by series if applicable, a list of Fund
shareholders eligible to vote at shareholder
meetings showing addresses of record and Shares
held together with an affidavit or other
appropriate certificate of the mailing of proxy
materials............................................. Annual Fee
V. TAX MATTERS
1. Assist the Fund's transfer agent to prepare and
transmit federal and state tax informational
returns relating to Share transactions to Annual Fee
shareholders and governmental agencies................. plus Cost
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Oberweis Emerging Growth Portfolio
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 135,137
<INVESTMENTS-AT-VALUE> 191,866
<RECEIVABLES> 700
<ASSETS-OTHER> 27
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192,784
<PAYABLE-FOR-SECURITIES> 1,930
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,259
<TOTAL-LIABILITIES> 7,189
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,305
<SHARES-COMMON-STOCK> 5,649
<SHARES-COMMON-PRIOR> 4,630
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,172
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 57,118
<NET-ASSETS> 185,595
<DIVIDEND-INCOME> 67
<INTEREST-INCOME> 859
<OTHER-INCOME> 0
<EXPENSES-NET> 2,673
<NET-INVESTMENT-INCOME> (1,747)
<REALIZED-GAINS-CURRENT> 13,266
<APPREC-INCREASE-CURRENT> 14,469
<NET-CHANGE-FROM-OPS> 25,988
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (14,255)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,132
<NUMBER-OF-SHARES-REDEEMED> (4,528)
<SHARES-REINVESTED> 415
<NET-CHANGE-IN-ASSETS> 50,932
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,380
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,673
<AVERAGE-NET-ASSETS> 180,513
<PER-SHARE-NAV-BEGIN> 29.09
<PER-SHARE-NII> (.32)
<PER-SHARE-GAIN-APPREC> 6.73
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.86
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Oberweis Micro-Cap Portfolio
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 30,110
<INVESTMENTS-AT-VALUE> 30,545
<RECEIVABLES> 528
<ASSETS-OTHER> 57
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439
<TOTAL-LIABILITIES> 439
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,697
<SHARES-COMMON-STOCK> 2,502
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,403)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 439
<NET-ASSETS> 30,733
<DIVIDEND-INCOME> 4
<INTEREST-INCOME> 225
<OTHER-INCOME> 0
<EXPENSES-NET> 566
<NET-INVESTMENT-INCOME> (337)
<REALIZED-GAINS-CURRENT> (1,403)
<APPREC-INCREASE-CURRENT> 439
<NET-CHANGE-FROM-OPS> (1,301)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,315
<NUMBER-OF-SHARES-REDEEMED> 1,823
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 30,633
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 566
<AVERAGE-NET-ASSETS> 28,237
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.15)
<PER-SHARE-GAIN-APPREC> 2.43
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.28
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Oberweis Mid-Cap Portfolio
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-15-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 7,051
<INVESTMENTS-AT-VALUE> 7,287
<RECEIVABLES> 179
<ASSETS-OTHER> 55
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,521
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 226
<TOTAL-LIABILITIES> 226
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,123
<SHARES-COMMON-STOCK> 709
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (63)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 235
<NET-ASSETS> 7,295
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 7
<OTHER-INCOME> 0
<EXPENSES-NET> 42
<NET-INVESTMENT-INCOME> (64)
<REALIZED-GAINS-CURRENT> (63)
<APPREC-INCREASE-CURRENT> 235
<NET-CHANGE-FROM-OPS> 138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 821
<NUMBER-OF-SHARES-REDEEMED> 113
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,285
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 72
<AVERAGE-NET-ASSETS> 6,419
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
