<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE 1933 ACT FILE NO. 33-9093
COMMISSION ON APRIL 29, 1998 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. 16 [X]
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 [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
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) 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>
LOGO THE
OBERWEIS
FUNDS
PROSPECTUS
----------------------------------------------------
May 1, 1998
<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 Portfo-
lio 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 apprecia-
tion. 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 involve a greater degree of risk than is customarily associated
with more conservative investment programs. The Fund may sell and purchase op-
tions which involve certain risks. (See "Options" on page 13.) 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, 1998 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 noted on the table of contents page. The
Statement of Additional Information is incorporated by reference into this
Prospectus.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVEST-
MENT 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, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION 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, 1998
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Synopsis of Fees............................................................ 3
Financial Highlights........................................................ 4
Performance Comparison...................................................... 7
Investment Objective, Policies and Risks.................................... 10
Management of the Portfolios................................................ 15
The Advisory and Management Agreements...................................... 16
Distribution of Shares...................................................... 17
Expenses of the Fund........................................................ 18
Portfolio Transactions...................................................... 19
How to Purchase Shares...................................................... 20
How to Redeem Shares........................................................ 21
Net Asset Value............................................................. 23
Shareholder Services........................................................ 24
Dividends, Distributions and Tax Status..................................... 27
The Custodian and Transfer Agent............................................ 28
General Information......................................................... 28
</TABLE>
- --------------------------------------------------------------------------------
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
(800) 323-6166
<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 (net of expense
reimbursement, if applicable)
Advisory and Management Fees......................... .81% 1.00% .80%
12b-1 Fees........................................... .25% .25% .25%
Other Expenses....................................... .38% .56% .95%(3)
Total Fund Operating Expenses(2)..................... 1.44% 1.81% 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 an-
nual expense limitation and reductions of the Management fees.
(3) Net of expense reimbursement. Other expenses would have been 1.41% and
Total Fund Operating Expenses would have been 2.46% 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 $46 $ 79 $172
Micro-Cap Portfolio............................... $21 $60 $101 $216
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.
3
<PAGE>
There is a .25% withdrawal charge on the Micro-Cap and Mid-Cap Portfolios,
which is deducted from the redemption proceeds and is used to reimburse the
Portfolio for the costs it incurs in connection with the Shareholder's liqui-
dation of shares. In addition, for each Portfolio, there is a $6 fee for each
wire redemption, which is deducted from a Shareholder's redemption amount. The
examples are based on the expenses in the table and a hypothetical annual rate
of return of 5%. THE EXAMPLES SHOULD NOT BE CONSIDERED AN INDICATION OF ACTUAL
OR EXPECTED PORTFOLIO PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY BE GREATER OR
LESS THAN THOSE SHOWN. For a more complete explanation of the fees and ex-
penses borne by each Portfolio, 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 Pro-
spectus.
FINANCIAL HIGHLIGHTS
The following tables show important condensed 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 indepen-
dent auditors. The auditors' unqualified report, along with the complete
financial statements, is included in the Fund's Annual Report, which is incor-
porated by reference into the Statement of Additional Information.
4
<PAGE>
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Year....... $ 32.86 $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11 $ 12.06 $ 9.65
Income (loss) from
Investment Operations:
Net investment loss (a). (0.37) (0.32) (0.33) (0.22) (0.22) (0.21) (0.09) (0.24) (0.35)
Net realized and
unrealized gain (loss)
on investments......... (2.14) 6.73 9.43 (0.56) 2.25 2.72 10.64 0.29 2.76
-------- -------- -------- ------- -------- ------- ------- ------- -------
Total from investment
operations............. (2.51) 6.41 9.10 (0.78) 2.03 2.51 10.55 0.05 2.41
Less Distributions:
Distribution from net
realized gain on
investments............ (4.64) (2.64) (1.42) -- (0.74) -- (4.27) -- --
-------- -------- -------- ------- -------- ------- ------- ------- -------
Net Asset Value at End
of Year................ $ 25.71 $ 32.86 $ 29.09 $ 21.41 $ 22.19 $ 20.90 $ 18.39 $ 12.11 $ 12.06
======== ======== ======== ======= ======== ======= ======= ======= =======
Total Return (%)(c)..... (8.6) 22.5 42.6 (3.5) 9.7 13.7 87.1 0.4 25.0
Ratio/Supplemental Data:
Net assets at year end
(in thousands)......... $139,983 $185,595 $134,663 $90,014 $104,324 $54,063 $19,730 $11,604 $12,940
Ratio of expenses to
average net assets (%). 1.44 1.48 1.73(b) 1.78 1.80(b) 1.99(b) 2.13(b) 2.15(b) 2.00(b)
Ratio of net investment
loss to average net
assets (%)............. (1.18) (0.97) (1.24) (1.06) (1.04) (1.14) (1.27) (1.24) (1.19)
Portfolio turnover rate
(%).................... 75 64 79 66 70 63 114 62 112
Average commission rate
paid................... $ .0337 $ .0413 -- -- -- -- -- -- --
<CAPTION>
1988
--------
<S> <C>
Net Asset Value at
Beginning of Year....... $ 9.13
Income (loss) from
Investment Operations:
Net investment loss (a). (0.20)
Net realized and
unrealized gain (loss)
on investments......... 0.72
--------
Total from investment
operations............. 0.52
Less Distributions:
Distribution from net
realized gain on
investments............ --
--------
Net Asset Value at End
of Year................ $ 9.65
========
Total Return (%)(c)..... 5.7
Ratio/Supplemental Data:
Net assets at year end
(in thousands)......... $15,914
Ratio of expenses to
average net assets (%). 2.46
Ratio of net investment
loss to average net
assets (%)............. (1.80)
Portfolio turnover rate
(%).................... 67
Average commission rate
paid................... --
</TABLE>
- ---------
(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% 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.
(c) A sales load of 4% was charged until December 31, 1991 and is not
reflected in the above total return figures.
5
<PAGE>
<TABLE>
<CAPTION>
MICRO-CAP PORTFOLIO MID-CAP PORTFOLIO
------------------------- ---------------------------
JANUARY 1, SEPTEMBER 15,
YEAR ENDED 1996*- YEAR ENDED 1996*-
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Asset Value at
Beginning
of Period............. $ 12.28 $ 10.00 $10.29 $10.00
Income (loss) from
Investment
Operations:
Net investment loss
(a).................. (0.21) (0.15) (0.19) (0.05)
Net realized and
unrealized gain
on investments....... 1.52 2.43 0.76 0.34
------- ------- ------ ------
Total from investment
operations........... 1.31 2.28 0.57 0.29
Less Distributions:
Distribution from net
realized gain on
investments.......... -- -- (0.35) --
------- ------- ------ ------
Net Asset Value at End
of Period............ $ 13.59 $ 12.28 $10.51 $10.29
======= ======= ====== ======
Total Return (%)....... 10.7 22.8 5.4 2.9 (c)
Ratios/Supplemental
Data:
Net assets at end of
period
(in thousands)....... $36,837 $30,733 $6,347 $7,295
Ratio of expenses to
average net assets
(%).................. 1.81 1.94 2.00 (b) 2.00 (b)(d)
Ratio of net investment
loss to average net
assets (%)........... (1.52) (1.15) (1.81) (1.62)(d)
Portfolio turnover rate
(%).................. 89 70 106 21 (d)
Average commission rate
paid................. $ .0343 $ .0371 $.0318 $.0371
</TABLE>
- -----------
(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
ratios would have been 2.46% and 3.42% for 1997 and 1996, respectively,
before expense reimbursement.
(c) Total return has not been annualized.
(d) Annualized.
*Commencement of operations.
6
<PAGE>
PERFORMANCE COMPARISON
The following table compares the Emerging Growth Portfolio's, the Micro-Cap
Portfolio's and the Mid-Cap Portfolio's total return for the year ended
December 31, 1997 with the total return of various indexes of unmanaged
securities:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Oberweis Emerging Growth Portfolio................................. (8.55)%
Oberweis Micro-Cap Portfolio....................................... 10.67%
Oberweis Mid-Cap Portfolio......................................... 5.40%
Dow-Jones Industrial Average....................................... 24.87%
S&P 500............................................................ 33.34%
NASDAQ National Composite.......................................... 22.39%
Lipper Small Company Growth Index.................................. 15.05%
Russell 2000 Index................................................. 22.36%
Wilshire 5000 Index................................................ 31.28%
</TABLE>
Total return includes price level changes, dividends and capital gain distri-
butions. 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, 1997 are:
AVERAGE ANNUAL TOTAL RETURNS
YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFE OF
FUND
1 YEAR 5 YEARS 10 YEARS (1//7/87)
------ ------- -------- ---------
<S> <C> <C> <C> <C>
Emerging Growth Portfolio................... (8.55)% 11.03% 16.89% 14.29%
S&P 500..................................... 33.34 % 20.25% 18.06% 16.27%
Russell 2000 Index.......................... 22.36 % 16.43% 15.77% 12.63%
</TABLE>
PERIODS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFE OF
FUND
1 YEAR (1/1/96)
------ ---------
<S> <C> <C>
Micro-Cap Portfolio............................................ 10.67% 16.58%
S&P 500........................................................ 33.34% 28.04%
Russell 2000 Index............................................. 22.36% 19.38%
PERIODS ENDED DECEMBER 31, 1997
<CAPTION>
LIFE OF
FUND
1 YEAR (9/15/96)
------ ---------
<S> <C> <C>
Mid-Cap Portfolio.............................................. 5.40% 6.50%
S&P Mid-Cap Index.............................................. 32.25% 31.35%
</TABLE>
7
<PAGE>
The Dow-Jones Industrial Average, an unmanaged index, is a widely recognized
stock market indicator that consists of the price movements of 30 major indus-
trial 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 In-
dex and the Wilshire 5000 Index represent 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'
performance may be quoted in terms of total return or average annual total re-
turn, which may be compared with various indices and investments, other
performance measures or rankings, or other mutual funds, or indices or aver-
ages of other mutual funds.
8
<PAGE>
EMERGING GROWTH PORTFOLIO
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM JANUARY 7, 1987 TO DECEMBER 31, 1997
LOGO
MICRO-CAP PORTFOLIO
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM JANUARY 1, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1997
LOGO
MID-CAP PORTFOLIO
GROWTH OF AN ASSUMED $10,000 INVESTMENT
FROM SEPTEMBER 15, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1997
LOGO
All data assumes reinvestment of dividends and capital gains. Results represent
past performance and do not indicate future results. The value of an investment
in the Portfolios and the return on the investment both will fluctuate and re-
demption proceeds may be higher or lower than an investor's original cost. When
first organized in 1987, the Emerging Growth Portfolio applied a sales charge
to each share purchase. The Emerging Growth Portfolio's sales charge was elimi-
nated on December 31, 1991. The performance graph and the average annual return
figures for the Emerging Growth Portfolio do not reflect the load. The Micro-
Cap and Mid-Cap Portfolios deduct a withdrawal charge of .25% of the value of
the shares redeemed. The average annual total return figures for these Portfo-
lios do not reflect the deduction of the withdrawal charge.
Additional information concerning performance results of the Portfolios is con-
tained in the Annual and Semi-Annual Reports which are available upon request
without cost from the Fund.
9
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVE--The investment objective of each Portfolio is to maxi-
mize capital appreciation. The realization of current income will not be a
consideration in the selection of securities for investment, and the Portfo-
lios are not designed for investors seeking income rather than capital
appreciation. The investment objective of each Portfolio is a fundamental pol-
icy and may not be changed without approval of the shareholders of that
Portfolio, which is described 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 (typ-
ically with capitalization of less than $1 billion), it is anticipated that
approximately 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 capital-
ization 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
10
<PAGE>
Growth and Micro-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 ra-
tio 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
problems; 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 se-
curities 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.
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
11
<PAGE>
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, in-
cluding U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper (rated prime 3 or better by Moody's Investors
Service, Inc. or the equivalent), corporate debt securities (rated A or better
by Moody's Investors Service, Inc. or Standard & Poor's Corporation) and re-
purchase agreements. The Portfolios may also lend their portfolio securities,
write (sell) options against investment positions 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
restrictions, 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, manage-
ment personnel, research and/or financial resources. The securities of small
companies, which may be thinly capi-
12
<PAGE>
talized, may have limited marketability and be subject to more abrupt or er-
ratic market movements than securities of larger companies or the market
averages in general. Because the Portfolios' investment policies will be ori-
ented to capital appreciation, as opposed to dividend income, each Portfolio
may be considered to be an investment of above average risk. Each Portfolio is
not intended to constitute a balanced investment program. Dividends are ex-
pected 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--Lend-
ing of Portfolio Securities. For the purpose of realizing some income on its
portfolio securities, each Portfolio may make security loans of its portfolio
securities, of up to 30% of its total assets (including value of collateral
received), to broker-dealers or institutional 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 con-
tinue 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 Portfolio. As with any extension of se-
cured 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 collateral. Each Portfolio will
consider on an ongoing basis the creditworthiness of the borrowers to which it
makes portfolio security loans.
Restricted Securities. Each Portfolio may not invest more than 5% of its total
assets in securities that are not readily marketable, including repurchase
agreements with maturities of seven days or more, and securities of unseasoned
issuers that have been in continuous operation for less than three years and
may not invest more than 5% of its total assets in securities where resale is
legally or contractually restricted (all of which are collectively referred to
as "restricted securities"). Restricted securities may be resold by the Port-
folio 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 in-
stitutional trading in restricted securities is relatively new, it is not
possible to predict how these institutional markets will develop. If institu-
tional trading 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,
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<PAGE>
securities, and indices. Each Portfolio may also write (sell) covered call op-
tions 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 security, 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 under-
lying 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 an-
ticipated 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 clos-
ing 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 possible price decrease in the under-
lying 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 investment policy limiting
the pledging or mortgaging of its assets. In addition, each Portfolio may in-
vest 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 premium. Each Portfolio
may also purchase put and call options on stock indices ("stock index op-
tions"), 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. Dol-
lar 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
currency. Fluctuations in exchange rates may also affect the earning power and
asset value of the foreign entity issuing the security. Dividend and interest
payments may be repatriated based upon the ex-
14
<PAGE>
change rate at the time of disbursement or payment, and restrictions on capi-
tal flows may be imposed. Losses and other expenses may be incurred in
converting between various currencies.
Foreign securities may be subject to foreign government taxes that reduce
their attractiveness. Other risks of investing in such securities include po-
litical or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possible imposition of ex-
change controls. The prices of such securities may be more volatile than those
of domestic securities 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 accounting, auditing and financial reporting standards comparable to
those applicable to domestic issuers. There is generally less regulation of
stock exchanges, brokers, banks and listed companies abroad than in the United
States. With respect to
certain foreign countries, there is a possibility of expropriation or diplo-
matic developments that could affect investment in these countries.
Repurchase Agreements. Repurchase agreements involve the purchase of a secu-
rity by a Portfolio and a simultaneous agreement (with a qualified bank or
securities 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 unrelated to the coupon rate or date of maturity of the security. This
technique offers a method of earning income on idle cash. In these transac-
tions, 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. 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
discussion of their associated risks are contained in the Statement of Addi-
tional 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.
15
<PAGE>
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 their 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 in-
vestment 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 distribu-
tor 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 October 1, 1994, OAM has provided the Fund with investment advisory and
management services and since January 2, 1997, Oberweis Brokerage has been the
Fund's principal distributor and shareholder service agent.
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 in-
vestment advisers to the Fund and/or other mutual funds. OAM has published an
investment advisory newsletter since 1990 and beginning in October 1994, it
has offered advice to institutions and individual investors regarding a broad
range of investment products.
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 Port-
16
<PAGE>
folios, subject to the general supervision of the Trustees. As compensation
for its investment advisory services, OAM receives an annual fee which is com-
puted and accrued daily and payable monthly. OAM receives an annual fee of
.45% of the average daily net assets of the Emerging Growth Portfolio on the
first $50 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, 1997
was .41%. OAM receives an annual fee of .60% of the average daily net assets
of the Micro-Cap Portfolio and an annual fee of .40% of the average daily net
assets of the Mid-Cap Portfolio.
OAM also provides the Fund with non-investment advisory management and admin-
istrative services necessary for the conduct of the Fund's business. OAM
prepares and updates SEC registration statement filings and state filings,
shareholder reports and other similar documents. In addition, OAM provides of-
fice space and facilities for the management of the Fund and provides
accounting, record-keeping 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 ad-
ministrative 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 average daily net assets of the Portfolio, subject to re-
duction because of each Portfolio's annual expense limitation. (See "Expenses
of the Fund.") OAM may subcontract with other entities to provide certain
shareholder servicing activities.
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 com-
pensation that is more or less than the actual expenditures made. Oberweis
Brokerage is required to provide the Fund with a quarterly listing of all ex-
penditures
17
<PAGE>
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
distribution and will also reimburse certain out-of-pocket expenses of
Oberweis Brokerage for shareholder service provided to each Portfolio ("12b-1
fees"). The Plan and Agreement provides that the Fund's asset-based sales
charges (as defined 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 pro-
vides 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 average daily net assets of each Portfolio. (See "Expenses of the
Fund," below.) Oberweis Brokerage will furnish with each monthly statement for
such reimbursement 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 respec-
tive Portfolios, except to the extent specifically assumed by OAM. OAM is
obligated to reduce its management fee or reimburse the Portfolio
18
<PAGE>
to the extent that the total ordinary operating expenses borne by a Portfolio
on an accrual basis, including all investment advisory, management and admin-
istrative fees, but excluding taxes, brokerage, interest and other
extraordinary expenses, exceed in any one year the following amounts expressed
as a percentage of the Portfolio's average daily net assets: 2.0% of the first
$25,000,000; plus 1.8% of the next $25,000,000; plus 1.6% of average daily net
assets in excess of $50,000,000. For the year ended December 31, 1997, total
expenses incurred by the Emerging Growth Portfolio, Micro-Cap Portfolio and
Mid-Cap Portfolio were $2,463,162, $692,665 and $163,830, respectively, and
the ratio of such total expenses to the Portfolio's average daily net assets
was 1.44%, 1.81%, and 2.46%, respectively. Pursuant to the expense limitation,
OAM was required to reimburse the Mid-Cap Portfolio in the amount of $30,892
resulting in net expenses of $132,938 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
provided, including research services, general execution capability, reliabil-
ity 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 Bro-
kerage 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 bro-
ker-dealers. A greater spread, discount or commission may be paid to non-
affiliated broker-dealers that provide research services, which may be used by
OAM in managing assets of its clients, including each of the Portfolios. Al-
though it is believed that research services received directly or indirectly
benefit all of OAM's clients, the degree of benefit varies by account and is
not directly related to the commissions or remuneration paid by the account.
The frequency of portfolio transactions, the Portfolio's turnover rate, will
vary from year to year depending on market conditions. The Emerging Growth
Portfolio's turnover during the years ended December 31, 1997 and 1996 was 75%
and 64%, respectively; the Micro-Cap Portfolio's turnover during the years
ended December 31, 1997 and December 31, 1996 was 89% and 70%, respectively;
and the Mid-Cap Portfolio's turnover for the year ended December 31, 1997 and
during the period September 15, 1996 through December 31, 1996 was 106% and
21% (annualized), respectively. A higher portfolio turnover rate (over 100%)
involves greater
19
<PAGE>
brokerage transaction expenses to the Portfolio and may result in the realiza-
tion of net capital gains.
For the period January 1, 1997 through December 31, 1997, the total brokerage
commissions paid by the Emerging Growth Portfolio, the Micro-Cap Portfolio and
the Mid-Cap Portfolio were $324,335, $104,095, and $17,339, respectively, of
which $22,932, $2,187, and $300, respectively, was paid to Oberweis Brokerage,
the Fund's distributor during that period. The total amount of securities
transactions in which the Emerging Growth Portfolio, the Micro-Cap Portfolio
and the Mid-Cap Portfolio, paid brokerage commissions during the period Janu-
ary 1, 1997 through December 31, 1997 was $175,019,521, $37,585,593, and
$10,738,002, respectively. The total amount of principal transactions of the
Emerging Growth Portfolio, the Micro-Cap Portfolio and the Mid-Cap Portfolio
for such period, for which no commission was incurred was $114,629,111,
$33,518,813, and $4,594,860, respectively.
HOW TO PURCHASE SHARES
IN GENERAL--The minimum initial investment for each Portfolio is $1,000 ($500
minimum initial investment per Portfolio for tax-advantaged retirement plans).
This minimum investment may be reduced pursuant to the Low Minimum Investment
Plan. (See "Shareholder Services.") Subsequent purchases for all accounts must
be in amounts of at least $100, except for reinvestment of dividends and capi-
tal gains distributions. The Fund reserves the right, in its sole discretion,
to change at any time the initial or subsequent investment minimums, to with-
draw the offering or to refuse any purchase in whole or part.
You may purchase shares of the Portfolios through an investment dealer or its
designated agent, a 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"). Some investment dealers, banks or
other institutions may charge for their services in purchasing 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.)
20
<PAGE>
PURCHASE BY MAIL--To make an initial purchase by mail, complete and sign the
Account Application and mail it along with a check made payable to The
Oberweis Funds to the following address:
The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
Subsequent investments may be made by submitting to the same address a check
along with either the stub from your Portfolio account confirmation or a note
indicating the amount of the purchase, name of the Portfolio, your account
number, and the name(s) in which your account is registered.
PURCHASE BY WIRE--You may also purchase shares by instructing your financial
institution to wire federal funds to the Fund's custodian bank. If you are
opening a new account by wire transfer, you must first call IFTC at 1-800-245-
7311 to request an account number and furnish the name(s) on the account
registration, address, and social security number or taxpayer identification
number. If you have an Account Application, you will be asked, if possible, to
transmit it via facsimile machine to IFTC (at 1-816-435-3209), or mail it im-
mediately. Otherwise, an Account Application will be mailed to you for you to
complete, sign and return immediately to IFTC. Federal funds shall be wired in
accordance with the following instructions:
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105
ABA #101003621
The name of the Portfolio in which you wish to invest
The Oberweis Funds' Account No. 7500742
Further Credit to: (Your shareholder account number and the name(s) in which
your account is registered).
Subsequent investments may be made by wire by just contacting your financial
institution with the wire instructions. There is no need to contact IFTC
first.
Your financial institution may charge you a fee for sending the wire. Neither
the Fund nor IFTC will be responsible for the consequences of delays, includ-
ing delays in the bank or Federal Reserve wire systems.
HOW TO REDEEM SHARES
IN GENERAL--You may redeem shares of the Portfolios by mail, by telephone (as
described below), or through your own investment dealer or its designated
agent, or bank or other institution who is recorded for such account, if any
(see "How to Purchase Shares," above). Because of fluctuations in the value of
each Portfolio, the Net Asset Value of shares
21
<PAGE>
redeemed may be more or less than your cost. Some investment dealers, banks or
other institutions may charge for their services in redeeming shares of the
Portfolios.
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 or the transfer
of redemption proceeds in amounts greater than $100,000, including wire trans-
fers of monies and transfers of monies in connection with sales made pursuant
to the Exchange Privilege, is made within seven days after the redemption re-
quest is received. However, if you bought your shares by check, the Fund will
delay sending you redemption proceeds until it has determined 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 redeem shares, an additional
fee for such services may be imposed by that broker-dealer.
Each Portfolio reserves the right to redeem the shares in a shareholder's ac-
count if the total value of the shareholder's account falls below $1,000
(below $500 for tax-advantaged retirement plans) as a result of a redemption,
subject to allowing such shareholder 60 days to make additional investments
before the redemption is processed. Although it is each Portfolio's policy to
make payment of redemption proceeds in cash, if the Fund's trustees determine
it to be appropriate, and subject to certain limitations, a Portfolio may re-
deem 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 In-
vestors 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 redemption request and on any endorsement of share certificates. Addi-
tional 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
telephone instructions from anyone to redeem the specified number of shares or
dollar amount and to transfer the proceeds according to pre-designated in-
structions. The Transfer Agent employs procedures reasonably designed to
confirm that instructions communicated by telephone are genuine, including re-
quiring certain
22
<PAGE>
identifying information prior to acting upon instructions, recording all tele-
phone instructions and sending written confirmation of telephone instructions.
Provided such procedures are reasonably followed, neither the Fund nor the
Transfer Agent would be liable for any losses from instructions communicated
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 share-
holder'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
proceeds in amounts greater than $100,000 will be transmitted within seven
days following the telephone redemption request. There is no charge for trans-
fers 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 redemp-
tion. 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 is-
sued only up to $50,000 to the registered owner(s) (who must be individuals)
at the address of record which must have been on file for 60 days.
SIGNATURE GUARANTEES AND OTHER DOCUMENTATION--If redemption proceeds are
$50,000 or less and are to be paid to an individual shareholder of record at
the address of record, a signature guarantee is not required (unless there has
been an address change within 60 days). All other redemption requests and
changes in account application instructions must be guaranteed by a bank,
broker/dealer, municipal securities broker/
dealer, government securities broker/dealer, credit union, member firm of a
national securities exchange, registered securities association or clearing
agency, and/or savings 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, part-
nership, 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 person seeking redemption, such as a certified by-law provi-
sion or resolution of the board of directors or trustees of the shareholder
and/or a copy of the governing legal instrument. Any person requiring informa-
tion 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
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<PAGE>
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 infor-
mation regarding the methods employed in valuing the Portfolios' investments,
see the Statement of Additional Information under the heading "Determination
of Net Asset Value."
If an order in proper form is received (see "How to Purchase Shares" and "How
to Redeem Shares") 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 or its designated agent, a bank or
other institution having a sales agreement with Oberweis Brokerage by the
close of trading on the New York Stock Exchange, 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 Port-
folios 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, with-
drawal 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.")
24
<PAGE>
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
purchased 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 with-
drawal 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 call-
ing 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
exchange. Please remember that you cannot place any conditions on your re-
quest.
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
remember that during unusual market conditions, we may have difficulty in ac-
cepting telephone requests, in which case you should mail your request to our
address on page 21. In addition, exchanges may also be made through certain
securities dealers who may charge you a fee for effecting an exchange.
An exchange of shares is considered a sale for federal income tax purposes. A
shareholder may realize a gain or loss depending upon whether the value of the
shares being exchanged is more or less than the adjusted cost basis. As noted
above, the Micro-Cap 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.
25
<PAGE>
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 period. 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 Auto-
matic Investment 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 when-
ever a check is returned unhonored by the shareholder's bank. The shareholder
is responsible for any charges incurred as a result of an unhonored transac-
tion. If a shareholder cancels the Low Minimum Initial Investment Plan before
a one-year period, the Fund reserves the right to redeem the shareholder's ac-
count 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
Withdrawal Account from which a fixed sum will be paid to him or a pre-desig-
nated third party at regular intervals. A Systematic Withdrawal Account may
not be established for a shareholder who owns Portfolio shares for which cer-
tificates are outstanding until all share certificates have been surrendered.
See the Account Application for additional details.
TAX-ADVANTAGED RETIREMENT PLAN ACCOUNTS--A Portfolio's shares may be purchased
as investments in Individual Retirement Accounts ("IRAs") such as Traditional
IRAs, Roth IRAs, Roth Conversion IRAs, Rollover IRAs and Simplified Employee
Pension Plans (known as SEP-IRAs), and other tax advantaged retirement plans,
such as Profit Sharing or Money Purchase Pension Plans (known as Keoghs),
401(k) Plans, and 403(b)(7)
26
<PAGE>
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
Plan custodians to determine the eligibility of the Portfolio's shares as IRA
or retirement plan investments. Individuals wishing to establish certain types
of retirement plan accounts, including IRAs, Keoghs and 403(b)(7) Plans, with
the Fund's Custodian Bank may do so and purchase shares of a Portfolio with
their retirement funds. Further details, including fees and charges imposed by
the Custodian, are set forth in the Custodian's information material (account
agreement, application, and disclosure statement) which is available from the
Fund.
Information regarding the establishment of 401(k) Plan accounts, including ad-
ministration, plan provisions, and fees, is also available from the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
The Portfolios may earn income from dividends and interest on their invest-
ments and may also realize capital gains from the sale of their assets. Each
Portfolio intends to distribute substantially all its net investment income
and any net realized taxable capital gains resulting from sales of the Portfo-
lio's assets 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" un-
der 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 distributions will be taxable to shareholders, whether paid in cash or
reinvested in additional shares of the Portfolio. Shareholders will be noti-
fied 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. 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 made to individual
shareholders are currently taxed at a maximum rate of 20% (for assets held by
the Portfolio for more than 18 months) and 28% (for assets held by the Portfo-
lio for more than one year, but not more than 18 months). Dividends
representing net investment income and net realized short-term capital gains
are taxed as ordinary income at rates up to a maximum marginal rate of 39.6%
for individuals. Dividends and 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.
27
<PAGE>
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
return 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 re-
demption 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 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 re-
sults in overpayment of taxes. Federal law also requires the Fund to withhold
the applicable tax treaty rate from dividends that are paid to certain nonres-
ident alien, foreign partnership and foreign corporation shareholder accounts.
Shareholders are advised to consult their own tax advisers as to the tax con-
sequences 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,
Investors Fiduciary Trust Company, Kansas City, Missouri (the "Custodian"),
and sub-custodians selected by the Custodian and approved by the Trustees. The
Custodian 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
series 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-as-
sessable 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, how-
ever, hold special meetings as required or deemed desirable for such purposes
as the election of or removal of trustees, changing fundamental policies or
approving an investment advisory contract. Special meetings of shareholders
for actions requiring shareholder vote may be requested in writing by holders
of at
28
<PAGE>
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 out-
standing shares of the Fund or as may be required by applicable law.
Shareholders will vote in the aggregate, except when voting by individual
Portfolio 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
personally liable for the obligations of the trust, which is not the case in a
corporation. The Trust Agreement provides that shareholders shall not be 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 lia-
bility is considered remote.
Year 2000 Compliance. Many computers currently are unable to correctly process
date-related information which spans the 21st century. The inability to suc-
cessfully address this issue could result in interruptions in the Fund's
business and have a material adverse effect on the Fund's operations. OAM and
Oberweis Brokerage have commenced a review of their computer-based systems, as
well as those of third party service providers, with a view toward assessing
whether or not the transition to the 21st century will have any material im-
pact on the Fund. The process involves identifying the systems affected,
monitoring the process system upgrades, as appropriate, against planned time
lines, and developing contingency plans in order to meet identified material
risks.
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.
29
<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, 1998. 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, 1998.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective, Policies and Restrictions............................. 2
Management of the Fund...................................................... 6
Oberweis Asset Management, Inc.............................................. 8
Distribution Plan and Agreement............................................. 10
Expenses Borne by the Portfolios............................................ 12
Portfolio Transactions...................................................... 13
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
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of each Portfolio's in-
vestment 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 apprecia-
tion. Each Portfolio intends to achieve its objective through investing
primarily in common stocks of companies, which in the opinion of its invest-
ment 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 pres-
ent 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 out-
standing 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 (including value
of collateral received);
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 Port-
folio will not invest more than 10% of its total assets in "restricted
securities" (meaning securities the resale of which is legally or contractu-
ally 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 in-
terest 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 secu-
rities 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 se-
curities 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 re-
purchase 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 trans-
actions, 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 de-
cline 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 un-
derlying 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 Portfo-
lio 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 suffi-
ciently 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 under-
lying 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 se-
curities or securities the Portfolio intends to buy and each Portfolio 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 effi-
cient 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 pro-
pose 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 invest-
ment 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 mar-
ket 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 in-
dex 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 direc-
tion 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 specula-
tors 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 partic-
ular 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 pro-
cedures 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 partic-
ular 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 (including value of collateral received) to qualified in-
stitutional investors who need to borrow securities in order to complete
certain transactions. By lending its investments securities, a Portfolio at-
tempts 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 Port-
folio 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 cur-
rently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, an irrevocable letter of credit issued by a do-
mestic 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 securi-
ties 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>
WARRANTS
Each Portfolio may invest no more than 5% of its total assets in warrants,
and of that amount, no more than 2% of total assets may be invested in war-
rants that are listed on neither the New York Stock Exchange nor the American
Stock Exchange. Warrants are securities giving the holder the right, but not
the obligation, to buy the stock of an issuer at a given price (generally
higher than the value of the stock at the time of issuance) during a specified
period or perpetually. Warrants may be acquired separately or in connection
with the acquisition of securities. Warrants do not carry with them the right
to dividends or voting rights with respect to the securities that they entitle
their holder to purchase and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered to have more speculative
characteristics than certain other types of investments. In addition, the
value of a warrant does not necessarily change with the value of the under-
lying securities and a warrant ceases to have value if it is not exercised
prior to its expiration date.
REAL ESTATE INVESTMENT TRUSTS
Each Portfolio may invest in real estate investment trusts ("REITs"). REITs
are subject to volatility from risks associated with investments in real es-
tate and investments dependent on income from real estate, such as fluctuating
demand for real estate and sensitivity to adverse economic conditions. In ad-
dition, the failure of a REIT to continue to qualify as a REIT for tax
purposes would have an adverse effect upon the value of a Portfolio's invest-
ment in that REIT. Each Portfolio may invest no more than 10% of its total
assets in REITs. Each Portfolio does not currently intend, however, to invest
in REITs to the extent that more than 5% of its total assets will be invested
in REITs during the current year.
SHORT SALES AGAINST THE BOX
Each Portfolio may make short sales against the box for the purpose of de-
ferring realization of gain or loss for federal income tax purposes. A short
sale "against the box" is a short sale in which a Portfolio owns at least an
equal amount of the securities sold short or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and at least equal in amount to, the securities sold short.
Each Portfolio does not currently intend to engage in short sales to the ex-
tent that more than 5% of its net assets will be held as collateral therefor
during the current year.
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 offi-
cers 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.
6
<PAGE>
The Trustees and officers of the Fund, their ages and their principal occu-
pations during the past five (5) years are:
THOMAS J. BURKE, Trustee (66) **
143 South Lincoln Avenue, Aurora, Illinois 60505; President--Burke Medical As-
sociates, 1968 to present; retired medical physician, practicing medical
physician until November 1, 1995.
DOUGLAS P. HOFFMEYER, Trustee (50) **
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 (51) *
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 Octo-
ber, 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 (62) **
2000 West Galena, Aurora, Illinois 60506; licensed attorney in private prac-
tice, 1962 to present.
PATRICK B. JOYCE, Executive Vice President and Treasurer (38)
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., Sep-
tember, 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.
MARTIN L. YOKOSAWA, Vice President (37)
951 Ice Cream Drive, North Aurora, Illinois 60542; Vice President--Oberweis
Asset Management, Inc., September, 1994 to present; Senior Vice President--
Oberweis Brokerage, Inc., January, 1997 to present; Vice President--The
Chicago Corporation, October, 1994 to December, 1996; Registered Representa-
tive--Hamilton Investments, Inc., November, 1988 to October, 1994.
JAMES W. OBERWEIS, Vice President (24)
951 Ice Cream Drive, North Aurora, Illinois 60542; Vice President--Oberweis
Asset Management, Inc., May, 1996 to present and Portfolio Manager from Decem-
ber, 1995 to present; President and Director--Oberweis Brokerage, Inc.,
September, 1996 to present; Registered Representative--The Chicago Corpora-
tion, March, 1996 to December, 1996; Student--University of Illinois at
Champaign-Urbana, August, 1991 to December, 1995.
STEVEN J. LE MIRE, Secretary (28)
951 Ice Cream Drive, North Aurora, Illinois 60542; Compliance Manager--
Oberweis Brokerage, Inc., March, 1997 to present; Manager, Shareholder
Accounting--Carr Asset Management, Inc./Indosuez Carr Futures, Inc., March
1994 to March 1997; Loan Operations Specialist--PNC Mortgage Corp., March,
1992 to March, 1994.
- --------
* "Interested person" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended.
** Member of audit committee and nominating committee.
NOTE: In some cases a trustee or officer may have held different positions
during the last five years with the employer or employers listed.
7
<PAGE>
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 affili-
ated 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, 1997.
<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......... $4,000 0 0 $4,000
Douglas P. Hoffmeyer.... 4,000 0 0 4,000
James D. Oberweis....... 0 0 0 0
Edward F. Streit........ 2,500 0 0 2,500
</TABLE>
As of March 31, 1998, the officers and Trustees of the Fund as a group owned
of record or beneficially 1.4%, 3.3% and 2.7% 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 Man-
agement, 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, determin-
ing 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 rec-
ords concerning OAM's activities which the Fund is required to maintain under
applicable law, and rendering regular reports to the Fund's Trustees and offi-
cers 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 bro-
ker-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 of-
ficers 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.
8
<PAGE>
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 Port-
folio 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, 1997, 1996 and 1995, the advisory fees in-
curred by the Emerging Growth Portfolio and payable to OAM were $707,165,
$747,719 and $487,816, respectively. For the years ended December 31, 1997 and
1996, the advisory fees incurred by the Micro-Cap Portfolio and payable to OAM
were $229,152 and $175,144, respectively. For the year ended December 31, 1997
and for the period September 15, 1996 through December 31, 1996, the advisory
fees incurred by the Mid-Cap Portfolio and payable to OAM were $26,588 and
$8,406, respectively. (See also "Expenses Borne by the Fund.")
OAM also provides the Fund with non-investment advisory, management and ad-
ministrative 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 reasona-
bly necessary for conducting the business affairs of the Fund, with the
exception of investment advisory services, and distribution of each Portfo-
lio'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, ac-
counting, 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 sharehold-
ers' 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 Portfo-
lios 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 ex-
penses. 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 oper-
ating expenses during any fiscal year, including the management and advisory
fees, exceed either (i) the most restrictive expense limitation applicable to
the Portfolio imposed by the securities laws or regulations thereunder of any
state in which the Portfolio's shares are qualified for sale, as such limita-
tions 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. 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 operat-
ing 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 Port-
folio in an amount exceeding its management and investment advisory fees. For
the years ended December 31, 1997 and 1996, the management fees incurred by
the Emerging Growth Portfolio and paid to OAM were $682,165 and $722,720, re-
spectively. For the year ended December 31, 1995,
9
<PAGE>
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 Manage-
ment Agreement, OAM during 1995 rebated $48,368 of such amount. (See also
"Expenses Borne by the Fund.")
For the years ended December 31, 1997 and 1996, the management fees incurred
by the Micro-Cap Portfolio and paid to OAM were $152,768 and $116,763, respec-
tively. For the year ended December 31, 1997 and for the period September 15,
1996 through December 31, 1996, the management fees incurred by the Mid-Cap
Portfolio and paid to OAM were $26,588 and $8,406, respectively, and pursuant
to the expense limitation provisions of the Management Agreement, OAM was re-
quired to rebate to the Portfolio $30,892 and $29,841, respectively.
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 Agree-
ment") 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 Portfo-
lio's shares and as the primary shareholder servicing agent for each
Portfolio. The Fund pays Oberweis Brokerage a monthly distribution 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
shareholder services provided to 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 informa-
tion 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 transactions with the Fund; and providing literature distribu-
tion, 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 mate-
rial that may be required for performance by Oberweis Brokerage of the
services contemplated in the Distribution Agreement. Oberweis Brokerage pro-
poses 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 com-
mercial 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 ac-
counts 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 ar-
rangements, it is expected that other arrangements would be made for these
services and that shareholders would not suffer
10
<PAGE>
adverse financial consequences. In addition, state securities laws on this is-
sue 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 rea-
sonable 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 invest-
ment. 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 inter-
ested 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 Agree-
ment 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 as-
signed, as defined in the 1940 Act.
For the year ended December 31, 1997, total 12b-1 fees paid by the Emerging
Growth Portfolio to Oberweis Brokerage were $426,353. For that period ended
December 31, 1997, Oberweis Brokerage paid the following amounts under the
Rule 12b-1 Plan in the approximate amounts noted: $61,036 in sales promotion
and literature expenses, $306,893 in service fees paid to brokers, $16,288 in
salary expenses and employment services, $7,264 in telephone expenses, and
$20,191 in professional fees. There was no reimbursement of out-of-pocket ex-
penses for such period. 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. During 1995, 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 pri-
mary 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 year ended December 31, 1997, total 12b-1 fees paid by the Micro-Cap
Portfolio to Oberweis Brokerage were $95,480. For that period Oberweis Broker-
age paid the following amounts under the Rule 12b-1 Plan in the approximate
amounts noted: $14,935 in sales promotion and literature expense, $73,728 in
service fees paid to brokers, $3,921 in salary expenses and employment servic-
es, $1,704 in telephone expenses, and $4,381 in professional fees. 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.
11
<PAGE>
For the year ended December 31, 1997, total 12b-1 fees paid by the Mid-Cap
Portfolio to Oberweis Brokerage were $16,617. For that period Oberweis Broker-
age paid the following amounts under the Rule 12b-1 Plan in the approximate
amounts noted: $2,401 in sales promotion and literature expense, $14,535 in
service fees paid to brokers, $644 in salary expenses and employment services,
$283 in telephone expenses, and $785 in professional fees. There was no reim-
bursement 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 Port-
folio to TCC were $5,254.
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.
(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, 1997, total expenses incurred by the
Emerging Growth Portfolio, the Micro-Cap Portfolio and the Mid-Cap Portfolio
were $2,463,162, $692,665 and $163,830, respectively, and the ratio of such
total expenses to the Portfolio's average net asset value was 1.44%, 1.81% and
2.46%, respectively. Pursuant to the expense limitation, OAM was required to
reimburse the Mid-Cap Portfolio in the amount of $30,892, resulting in net ex-
penses of $132,938 and a net expense ratio of 2.00%.
12
<PAGE>
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 "regu-
lated 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-deal-
ers, 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. Or-
ders 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 provid-
ed, 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 obli-
gate 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-deal-
er's commission, spread or discount is reasonable in relation to the value of
the execution and research services provided by such a broker-dealer to the
Portfolio, or OAM when viewed in terms of that particular transaction or its
overall responsibilities with respect to all of its clients, including the
Portfolio, as to which it offers advice or exercises investment discretion.
OAM, with the prior consent of the Fund's Trustees, may place orders with
affiliated persons of OAM, 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 Trust-
ees 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 ad-
viser, 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 transac-
tion, 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, show-
ing the price and commission for the transaction, and a summary of commission
charges by all other brokers executing transactions for the Portfolios.
13
<PAGE>
A greater discount, spread or commission may be paid to non-affiliated bro-
ker-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 forecast-
ing. 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 securi-
ties brokers or dealers, and to compensate such brokers or dealers for their
research and information services. Any such information received may be uti-
lized 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 perform-
ing 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 commis-
sions or other remuneration paid by such account.
OAM may also enter into written agreements with non-affiliated broker-deal-
ers 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 bet-
ter prices or execution may be obtained otherwise. Transactions with primary
market makers reflect the spread between the bid and the ask prices. Occasion-
ally, 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 be-
lieved to be comparable with other nonaffiliated broker-dealers. OAM and the
Fund's Board of Trustees review quarterly the Portfolios' brokerage transac-
tions for execution and services furnished.
For the year ended December 31, 1997, the total brokerage commissions paid
by the Emerging Growth Portfolio was $324,335, of which 7% or $22,932, was
paid to Oberweis Brokerage. The total amount of securities transactions on
which the Portfolio paid brokerage commissions during such period was
$175,019,521. Eight percent (8%), or $14,706,078, of the securities transac-
tions on which the Portfolio paid brokerage commissions were effected through
Oberweis Brokerage. The total amount of principal transactions of the Portfo-
lio for the year ended December 31, 1997 for which no commission was incurred
was $114,629,111.
For the year ended December 31, 1996, the total brokerage commissions paid
by the Emerging Growth Portfolio was $198,976, of which 6% 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 dur-
ing 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 Port-
folio for the year ended December 31, 1996, for which no commission was
incurred, was $187,935,883. 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 transac-
tions 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 year ended December 31, 1997, the total brokerage commissions paid
by the Micro-Cap Portfolio was $104,095, of which 2% or $2,187, was paid to
Oberweis Brokerage. The total amount of securities transactions on which the
Portfolio paid brokerage commissions during such period was $37,585,593. Three
percent (3%), or $922,165, of the securities transactions on which the Portfo-
lio paid brokerage commissions were effected through Oberweis Brokerage. The
total amount of principal transactions of the Portfolio for the year ended De-
cember 31, 1997 for which no commission was incurred was $33,518,813. For the
year ended December 31, 1996, the total brokerage commissions paid by the Mi-
cro-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 transac-
tions of the Portfolio for the year ended December 31, 1996, for which no
commission was incurred, was $53,097,245.
For the year ended December 31, 1997, the total brokerage commissions paid
by the Mid-Cap Portfolio was $17,339, of which 2% or $300, was paid to
Oberweis Brokerage. The total amount of securities transactions on which the
Portfolio paid brokerage commissions during such period was $10,738,002. Three
percent (3%), or $288,744, of the securities transactions on which the Portfo-
lio paid brokerage commissions were effected through Oberweis Brokerage. The
total amount of principal transactions of the Portfolio for the year ended De-
cember 31, 1997 for which no commission was incurred was $4,594,860. For the
period September 15, 1996 through December 31, 1996, the total brokerage com-
missions 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.
SHAREHOLDER VOTING RIGHTS
Reference should be made to the Prospectus under the heading "General Infor-
mation" 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 elec-
tion 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 reorga-
nization 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, sup-
plying 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 desir-
able. The Declaration of Trust specifically authorizes the Board of Trustees
to terminate the Fund (or any portfolio of the Fund) without shareholder ap-
proval 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
15
<PAGE>
Stock Exchange is closed, other than weekend and holiday closings, or the Secu-
rities 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 re-
demption or receive payment at the Net Asset Value of his shares existing after
termination of the suspension.
Although it is the Fund's present policy to make payment of redemption pro-
ceeds 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 re-
quired 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 Port-
folio, a shareholder account is opened in accordance with the Fund's Account
Application instructions. After each transaction for the account of a share-
holder, 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 re-
quest 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 del-
egated 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 determi-
nation 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 Ex-
change 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 op-
tions 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 liabil-
ities 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 in-
quiry. 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
16
<PAGE>
established by and under the general supervision and responsibility of the
Board of Trustees. Short-term debt obligations, commercial paper and repur-
chase agreements are valued on the basis of quoted yields for securities of
comparable maturity, quality and type or on the basis of amortized cost.
TAXES
As stated in the Fund's Prospectus under the heading "Dividends, Distribu-
tions 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 divi-
dends, 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) invests in securities that satisfy
certain diversification requirements; and (c) 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 de-
duction 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 share-
holders 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 sub-
ject 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 made to individual
Shareholders are taxable at a maximum rate of 20% (for assets held by the
Portfolio for more than 18 months) and 28% (for assets held by the Portfolio
for more than one year but not more than 18 months). Long-term capital gain
distributions made to corporate Shareholders are taxed at the same rate as or-
dinary income.
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.
Options, short sales, financial futures contracts and foreign currency
transactions entered into by a Portfolio are subject to special tax rules that
may accelerate income, defer losses, cause adjustments to the holding period
of securities, convert capital gain into ordinary income, and convert short-
term capital loss into long-term capital loss. As a result, these rules could
affect the amount, timing, and character of Portfolio distributions.
Federal law requires the Fund to withhold 31% from 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
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 over-
payment 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 provi-
sions 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 ad-
vised 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 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 gener-
ated by, and the effect of any realized and unrealized appreciation or
depreciation of, the underlying investments of a Portfolio. A Portfolio's av-
erage 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
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606, audits
and reports on the Fund's annual financial statements, reviews certain regula-
tory 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.
FINANCIAL STATEMENTS
The audited statements of the Fund, including the notes thereto, contained
in the Annual Report of the Fund for the fiscal year ended December 31, 1997,
were filed with the Securities and Exchange Commission on February 23, 1998
and are incorporated herein by reference.
Shareholders will receive the Fund's audited annual report and the unaudited
semiannual report.
COUNSEL
Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago, Illi-
nois 60601, is legal counsel to the Fund.
OTHER INFORMATION
The Fund's Prospectus and this Statement of Additional Information omit cer-
tain 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 Secu-
rities and Exchange Commission in Washington, D.C.
18
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
1. Financial Statements included in Part A of Registration Statement:
Condensed Financial Information at December 31, 1997.
2. Financial Statements incorporated by reference in Part B of
Registration Statement:
Portfolio of Investments as of December 31, 1997.
Statement of Assets and Liabilities as of December 31, 1997.
Statement of Operations for the Year Ended December 31, 1997.
Statement of Changes in Net Assets for the Years Ended December
31, 1997 and 1996.
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/
*14.3 Individual Retirement Account, Disclosure Statement, Custodial Account
Agreement, and Account Application/Adoption Agreement.
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, 1997/14/
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 and incorporated herein by reference.
/14/ Previously filed with Post-Effective No. 15 (Amendment No. 17) dated
February 28, 1997 and incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of March 31, 1998, 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 7,857
Oberweis Micro-Cap
Portfolio 2,477
Oberweis Mid-Cap
Portfolio 677
</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, Executive Vice President
Treasurer, Secretary and Chief
Financial Officer
Martin L. Yokosawa
Senior 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 certifies that it meets all of the
requirements for effectiveness of this registration statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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 27th day
of April, 1998.
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 April 27, 1998
- -------------------------- Officer) and Trustee
James D. Oberweis
/S/ Thomas J. Burke Trustee April 27, 1998
- --------------------------
Thomas J. Burke
/s/ Douglas P. Hoffmeyer Trustee April 27, 1998
- --------------------------
Douglas P. Hoffmeyer
/s/ Edward F. Streit Trustee April 27, 1998
- --------------------------
Edward F. Streit
/s/ Patrick B. Joyce Executive Vice President and April 27, 1998
- -------------------------- Treasurer (Principal Financial
Patrick B. Joyce and Accounting Officer)
</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 to the use of our report dated
January 26, 1998 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. 16 to the Registration Statement
under Securities Act of 1933 (Registration No. 33-9093) and in this Amendment
No. 18 to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-4854).
/s/ ERNST & YOUNG LLP
Chicago, Illinois
April 27, 1998
ERNST & YOUNG LLP
<PAGE>
Exhibit 14.3
[LOGO OF THE OBERWEIS FUNDS] The
Oberweis
Funds
======================================------------------------------------------
Investment Advisor/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 OF THE OBERWEIS FUNDS] The Oberweis Funds
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
Universal IRA
Information Kit
---------------
Effective January 1, 1998
<PAGE>
THE OBERWEIS FUNDS UNIVERSAL IRA INFORMATION KIT
INTRODUCTION
What's New In The World Of IRAs?
An Individual Retirement Account ("IRA") has always provided an attractive means
to save money for the future on a tax-advantaged basis. Recent changes to
Federal tax law have now made the IRA an even more flexible investment and
savings vehicle. Among the new changes is the creation of the Roth Individual
Retirement Account ("Roth IRA"), which will be available for use after January
1, 1998. Under a Roth IRA, the earnings and interest on an individual's
nondeductible contributions grow without being taxed, and distributions may be
tax-free under certain circumstances. Most taxpayers (except for those with very
high income levels) will be eligible to contribute to a Roth IRA. A Roth IRA can
be used instead of a Regular IRA, to replace an existing Regular IRA, or
complement a Regular IRA you wish to continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to convert
existing IRAs into Roth IRAs. The details on conversion are found in the
description of Roth IRAs in this booklet.
Congress has also made significant changes to Regular IRAs. First, Congress
increased the income levels at which IRA holders who participate in employer-
sponsored retirement plans can make deductible Regular IRA contributions. Also
the rules for deductible contributions by an IRA holder whose spouse is a
participant in an employer-sponsored retirement plan have been liberalized.
Second, the 10% penalty tax for premature withdrawals (before age 59 1/2) will
no longer apply in the case of withdrawals to pay certain higher education
expenses or certain first-time homebuyer expenses.
What's in This Kit?
In this Kit you will find detailed information about Roth IRAs and about the
changes that have been made to Regular IRAs. You will also find everything you
need to establish and maintain either a Regular or Roth IRA, or to convert all
or part of an existing Regular IRA to a Roth IRA.
The first section of this Kit contains the instructions and forms you will need
to open a new Regular or Roth IRA, to transfer from another IRA to an Oberweis
Funds IRA, or to convert a Regular IRA to a Roth IRA.
The second section of this Kit contains our Universal IRA Disclosure Statement.
The Disclosure Statement is divided into three parts:
. Part One describes the basic rules and benefits which are specifically
applicable to your Regular IRA.
. Part Two describes the basic rules and benefits which are specifically
applicable to your Roth IRA.
. Part Three describes important rules and information applicable to all
IRAs.
The third section of this Kit contains the Universal IRA Custodial Agreement.
The Custodial Agreement is also divided into three parts:
. Part One contains provisions specifically applicable to Regular IRAs.
. Part Two contains provisions specifically applicable to Roth IRAs.
. Part Three contains provisions applicable to all IRAs (Regular and
Roth).
This Universal Individual Retirement Custodial Account Kit contains information
and forms for both Regular IRAs and Roth IRAs. However, you may use the Adoption
Agreement in this Kit to establish only one Regular IRA or one Roth IRA;
separate Adoption Agreements must be completed if you want to establish multiple
(Roth or Regular) IRA accounts.
What's the Difference Between a Regular IRA and a Roth IRA?
With a Regular IRA, an individual can contribute up to $2,000 per year and may
be able to deduct the contribution from taxable income, reducing income taxes.
Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59 1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies.
With a Roth IRA, the contribution limits are essentially the same as Regular
IRAs, but there is no tax deduction for contributions. All dividends and
investment growth in the account are tax-free. Most important with a Roth IRA:
there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Regular IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70 1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
2
<PAGE>
The following chart highlights some of the major differences between a Regular
IRA and a Roth IRA:
<TABLE>
<CAPTION>
============================================================================================================================
Characteristics Regular Roth
IRA IRA
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligibility . Individuals (and their spouses) . Individuals (and their spouses) who
who receive compensation receive compensation
. Individuals age 70 1/2 and over . Individuals age 70 1/2 and over may
may not contribute contribute
- ----------------------------------------------------------------------------------------------------------------------------
Tax Treatment of Contributions . Subject to limitations, contributions . No deduction permitted for amounts
are deductible contributed
- ----------------------------------------------------------------------------------------------------------------------------
Contribution Limits . Individuals may contribute up to $2,000 . Individuals may generally contribute up
annually (or 100% of compensation, to $2,000 (or 100% of compensation, if
if less) less)
. Deductibility depends on income level . Ability to contribute phases out at income
for individuals who are active levels of $95,000 to $110,000 (individual
participants in an employer-sponsored taxpayer) and $150,000 to $160,000
retirement plan (married taxpayers)
. Overall limit for contributions to all
IRAs (Regular and Roth combined) is
$2,000 annually (or 100% of compensation,
if less)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings . Earnings and interest are not taxed . Earnings and interest are not taxed when
when received by your IRA received by your IRA
- ----------------------------------------------------------------------------------------------------------------------------
Rollover/Conversions . Individual may rollover amounts held . Rollovers from other Roth IRAs or
in employer-sponsored retirement Regular IRAs only
arrangements (401(k), SEP IRA, etc.) . Amounts rolled over (or converted) from
tax free to Regular IRA another Regular IRA are subject to income
tax in the year rolled over or converted
. Tax on amounts rolled over or converted in
1998 is spread over four year period
(1998-2001)
- ----------------------------------------------------------------------------------------------------------------------------
Withdrawals . Total (principal + earnings) taxable . Not taxable as long as a qualified
as income in year withdrawn (except distribution-generally, account open
for any prior non-deductible for 5 years, and age 59 1/2
contributions) . Minimum withdrawals not required after
. Minimum withdrawals must begin after age 70 1/2
age 70 1/2
============================================================================================================================
</TABLE>
Is a Roth or a Regular IRA Right For Me?
We cannot act as your legal or tax advisor and so we cannot tell you which kind
of IRA is right for you. The information contained in this Kit is intended to
provide you with the basic information and material you will need if you decide
whether a Regular or Roth IRA is better for you, or if you want to convert an
existing Regular IRA to a Roth IRA. We suggest that you consult with your
accountant, lawyer or other tax advisor, or with a qualified financial planner,
to determine whether you should open a Regular or Roth IRA or convert any or all
of an existing Regular IRA to a Roth IRA. Your tax advisor can also advise you
as to the state tax consequences that may affect whether a Regular or Roth IRA
is right for you.
SEPs and SIMPLEs.
The Oberweis Funds IRA may be used in connection with a simplified employee
pension (SEP) plan maintained by your employer. To establish a Regular IRA as
part of your Employer's SEP plan, complete the Adoption Agreement for a Regular
IRA, indicating in the proper box that the IRA is part of a SEP plan. A Roth IRA
should not be used in connection with a SEP plan.
3
<PAGE>
A Roth IRA may not be used as part of an employer SIMPLE IRA plan. A Regular IRA
may be used, but only after an individual has been participating for two or more
years (for the first two years, only a special SIMPLE IRA may be used). SIMPLE
IRA plans were added by the 1996 tax law to provide an easy and inexpensive way
for small employers to provide retirement benefits for their employees. If you
are interested in a SIMPLE IRA plan at your place of employment, call or write
to the number or address given at the end of the Disclosure Statement portion of
this Kit.
Other Points to Note.
The Disclosure Statement in this Kit provides you with the basic information
that you should know about Regular IRAs and Roth IRAs. The Disclosure Statement
provides general information about the governing rules for these IRAs and the
benefits and features offered through each type of IRA. However, the Investors
Fiduciary Trust Company Adoption Agreement and the Custodial Agreement, are the
primary documents controlling the terms and conditions of your personal
Investors Fiduciary Trust Company Regular or Roth IRA, and these shall govern in
the case of any difference with the Disclosure Statement.
You or your when used throughout this Kit refer to the person for whom the
Regular or Roth IRA is established. A Roth IRA is either an Investors Fiduciary
Trust Company Roth IRA or any Roth IRA established by any other financial
institution. A Regular IRA is any non-Roth IRA offered by Investors Fiduciary
Trust Company or any other financial institution.
INVESTORS FIDUCIARY TRUST COMPANY UNIVERSAL INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
Part One: Description of Regular IRAs
SPECIAL NOTE
Part One of the Disclosure Statement describes the rules applicable to Regular
IRAs beginning January 1, 1998. IRAs described in these pages are called
"Regular IRAs" to distinguish them from the new "Roth IRAs" first available
starting in 1998. Roth IRAs are described in Part Two of this Disclosure
Statement.
For Regular IRA contributions for 1997 (including contributions made up to April
15, 1998 but designated as contributions for 1997), there are different rules
for determining the deductibility of your contribution on your federal tax
return. For contributions for 1997, the "active participant" limits on
deductibility (described below) apply if either spouse is an active participant
in an employer-sponsored plan. Also, the adjusted gross income ("AGI") levels
for partially deductible or nondeductible Regular IRA contributions (described
below) are lower for 1997 ($25,000 for single taxpayers, with no deduction if
your AGI is above $35,000; and $40,000 for married taxpayers filing jointly,
with no deduction if your AGI is above $50,000). Also, the exceptions to the 10%
early withdrawal penalty for withdrawals to pay certain higher education or
first-time homebuyer expenses do not apply to withdrawals in 1997.
This Part One of the Disclosure Statement describes Regular IRAs. It does not
describe Roth IRAs, a new type of IRA available starting in 1998. Contributions
to a Roth IRA are not deductible (regardless of your AGI), but withdrawals that
meet certain requirements are not subject to federal income tax, so that
dividends and investment growth on amounts held in the Roth IRA can escape
federal income tax. Please see Part Two of this Disclosure Statement if you are
interested in learning more about Roth IRAs.
Regular IRAs described in this Disclosure Statement may be used as part of a
simplified employee pension (SEP) plan maintained by your employer. Under a SEP
your employer may make contributions to your Regular IRA, and these
contributions may exceed the normal limits on Regular IRA contributions. This
Disclosure Statement does not describe IRAs established in connection with a
SIMPLE IRA program maintained by your employer. Employers provide special
explanatory materials for accounts established as part of a SIMPLE IRA program.
Regular IRAs may be used in connection with a SIMPLE IRA program, but for the
first two years of participation a special SIMPLE IRA (not a Regular IRA) is
required.
YOUR REGULAR IRA
This Part One contains information about your Regular Individual Retirement
Custodial Account with Investors Fiduciary Trust Company as Custodian. A Regular
IRA gives you several tax benefits. Earnings on the assets held in your Regular
IRA are not subject to federal income tax until withdrawn by you. You may be
able to deduct all or part of your Regular IRA contribution on your federal
income tax return. State income tax treatment of your Regular IRA may differ
from federal treatment; ask your state tax department or your personal tax
advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Regular IRA,
investments and prohibited transactions, fees and expenses, and certain tax
requirements.
4
<PAGE>
ELIGIBILITY
What are the eligibility requirements for a Regular IRA?
You are eligible to establish and contribute to a Regular IRA for a year if:
- You received compensation (or earned income if you are self employed)
during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
- You did not reach age 70 1/2 during the year.
Can I Contribute to a Regular IRA for my Spouse?
For each year before the year when your spouse attains age 70 1/2, you can
contribute to a separate Regular IRA for your spouse, regardless of whether your
spouse had any compensation or earned income in that year. This is called a
"spousal IRA." To make a contribution to a Regular IRA for your spouse, you must
file a joint tax return for the year with your spouse. For a spousal IRA, your
spouse must set up a different Regular IRA, separate from yours, to which you
contribute.
CONTRIBUTIONS
When Can I Make Contributions to a Regular IRA?
You may make a contribution to your existing Regular IRA or establish a new
Regular IRA for a taxable year by the due date (not including any extensions)
for your federal income tax return for the year. Usually this is April 15 of the
following year.
How Much Can I Contribute to my Regular IRA?
For each year when you are eligible (see above), you can contribute up to the
lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
If you and your spouse have spousal Regular IRAs, each spouse may contribute up
to $2,000 to his or her IRA for a year as long as the combined compensation of
both spouses for the year (as shown on your joint income tax return) is at least
$4,000. If the combined compensation of both spouses is less than $4,000, the
spouse with the higher amount of compensation may contribute up to that spouse's
compensation amount, or $2,000 if less. The spouse with the lower compensation
amount may contribute any amount up to that spouse's compensation plus any
excess of the other spouse's compensation over the other spouse's IRA
contribution. However, the maximum contribution to either spouse's Regular IRA
is $2,000 for the year.
If you (or your spouse) establish a new Roth IRA and make contributions to both
your Regular IRA and a Roth IRA, the combined limit on contributions to both
your (or your spouse's) Regular IRA and Roth IRA for a single calendar year is
$2,000.
How Do I Know if my Contribution is Tax Deductible?
The deductibility of your contribution depends upon whether you are an active
participant in any employer-sponsored retirement plan. If you are not an active
participant, the entire contribution to your Regular IRA is deductible.
If you are an active participant in an employer-sponsored plan, your Regular IRA
contribution may still be completely or partly deductible on your tax return.
This depends on the amount of your income (see below).
Similarly, the deductibility of a contribution to a Regular IRA for your spouse
depends upon whether your spouse is an active participant in any employer-
sponsored retirement plan. If your spouse is not an active participant, the
contribution to your spouse's Regular IRA will be deductible. If your spouse is
an active participant, the Regular IRA contribution will be completely, partly
or not deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married taxpayers,
where one spouse is an active participant in an employer-sponsored retirement
plan and the other spouse is not. A contribution to the non-active participant
spouse's Regular IRA will be only partly deductible at an adjusted gross income
level on the joint tax return of $150,000, and the deductibility will be phased
out as described below over the next $10,000 so that there will be no deduction
at all with an adjusted gross income level of $160,000 or higher.
How do I Determine My or My Spouse's "Active Participant" status?
Your (or your spouse's) Form W-2 should indicate if you (or your spouse) were an
active participant in an employer-sponsored retirement plan for a year. If you
have a question, you should ask your employer or the plan administrator.
In addition, regardless of income level, your spouse's "active participant"
status will not affect the deductibility of your contributions to your Regular
IRA if you and your spouse file separate tax returns for the taxable year and
you lived apart at all times during the taxable year.
5
<PAGE>
What are the Deduction Restrictions for Active Participants?
If you (or your spouse) are an active participant in an employer plan during a
year, the contribution to your Regular IRA (or your spouse's Regular IRA) may be
completely, partly or not deductible depending upon your filing status and your
amount of adjusted gross income ("AGI"). If AGI is any amount up to the lower
limit, the contribution is deductible. If your AGI falls between the lower limit
and the upper limit, the contribution is partly deductible. If your AGI falls
above the upper limit, the contribution is not deductible.
FOR ACTIVE PARTICIPANTS - 1998
If You Are
Single
Up to
Lower Limit
($30,000 for 1998)
More than Lower Limit
but less than
Upper Limit
($40,000 for 1998)
Upper Limit or more
If You Are
Married Filing Jointly
Up to
Lower Limit
($50,000 for 1998)
More than Lower Limit
but less than
Upper Limit
($60,000 for 1998)
Upper Limit or more
Then Your Regular
IRA Contribution Is
Fully
Deductible
Partly
Deductible
Not
Deductible
Adjusted
Gross
Income (AGI) Level
The Lower Limit and the Upper Limit will change for 1999 and later years. The
Lower Limit and Upper Limit for these years are shown in the following table.
Substitute the correct Lower Limit and Upper Limit in the table above to
determine deductibility in any particular year. (Note: if you are married but
filing separate returns, your Lower Limit is always zero and your Upper Limit is
always $10,000).
TABLE OF LOWER AND UPPER LIMITS
<TABLE>
<CAPTION>
Year Single Married
Filing Jointly
- ----------------------------------------------------------------------
Lower Limit Upper Limit Lower Limit Upper Limit
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $31,000 $41,000 $51,000 $ 61,000
2000 $32,000 $42,000 $52,000 $ 62,000
2001 $33,000 $43,000 $53,000 $ 63,000
2002 $34,000 $44,000 $54,000 $ 64,000
2003 $40,000 $50,000 $60,000 $ 70,000
2004 $45,000 $55,000 $65,000 $ 75,000
2005 $50,000 $60,000 $70,000 $ 80,000
2006 $50,000 $60,000 $75,000 $ 85,000
2007 and $50,000 $60,000 $80,000 $100,000
Later
- ----------------------------------------------------------------------
</TABLE>
6
<PAGE>
How do I Calculate my Deduction if I Fall in the "Partly Deductible" Range?
If your AGI falls in the partly deductible range, you must calculate the portion
of your contribution that is deductible. To do this, multiply your contribution
by a fraction. The numerator is the amount by which your AGI exceeds the lower
limit (for 1998: $30,000 if single, or $50,000 if married filing jointly). The
denominator is $10,000 (note that the denominator for married joint filers is
$20,000 starting in 2007). Subtract this from your contribution and then round
down to the nearest $10. The deductible amount is the greater of the amount
calculated or $200 (provided you contributed at least $200). If your
contribution was less than $200, then the entire contribution is deductible.
For example, assume that you make a $2,000 contribution to your Regular IRA in
1998, a year in which you are an active participant in your employer's
retirement plan. Also assume that your AGI is $57,555 and you are married,
filing jointly. You would calculate the deductible portion of your contribution
this way:
1. The amount by which your AGI exceeds the lower limit of the partly-
deductible range: ($57,555-$50,000) = $7,555
2. Divide this by $10,000: $7,555 / $10,000 = 0.7555
3. Multiply this by your contribution limit:
0.7555 x $2,000 = $1,511
4. Subtract this from your contribution:
($2,000 - $1,551) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this amount or $200.
Even though part or all of your contribution is not deductible, you may still
contribute to your Regular IRA (and your spouse may contribute to your spouse's
Regular IRA) up to the limit on contributions. When you file your tax return for
the year, you must designate the amount of non-deductible contributions to your
Regular IRA for the year. See IRS Form 8606.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
What Happens if I Contribute more than Allowed to my Regular IRA?
The maximum contribution you can make to a Regular IRA generally is $2,000 or
100% of compensation or earned income, whichever is less. Any amount
contributed to the IRA above the maximum is considered an "excess contribution."
The excess is calculated using your contribution limit, not the deductible
limit. An excess contribution is subject to excise tax of 6% for each year it
remains in the IRA.
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To do so, you
must withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your federal income tax return for the year
for which you made the excess contribution. A deduction should not be taken for
any excess contribution. Earnings on the amount withdrawn must also be
withdrawn. The earnings must be included in your income for the tax year for
which the contribution was made and may be subject to a 10% premature withdrawal
tax if you have not reached age 59 1/2.
What Happens if I Don't Correct the Excess Contribution by the Tax Return Due
Date?
Any excess contribution withdrawn after the tax return due date (including any
extensions) for the year for which the contribution was made will be subject to
the 6% excise tax. There will be an additional 6% excise tax for each year the
excess remains in your account.
Under limited circumstances, you may correct an excess contribution after tax
filing time by withdrawing the excess contribution (leaving the earnings in the
account). This withdrawal will not be includable in income nor will it be
subject to any premature withdrawal penalty if (1) your contributions to all
Regular IRAs do not exceed $2,000 and (2) you did not take a deduction for the
excess amount (or you file an amended return (Form 1040X) which removes the
excess deduction).
How are Excess Contributions Treated if None of the Preceding Rules Apply?
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income and may be subject to a 10% premature
withdrawal penalty. No deduction will be allowed for the excess contribution for
the year in which it is made.
7
<PAGE>
Excess contributions may be corrected in a subsequent year to the extent that
you contribute less than your maximum amount. As the prior excess contribution
is reduced or eliminated, the 6% excise tax will become correspondingly reduced
or eliminated for subsequent tax years. Also, you may be able to take an income
tax deduction for the amount of excess that was reduced or eliminated, depending
on whether you would be able to take a deduction if you had instead contributed
the same amount.
Are the Earnings on My Regular IRA Funds Taxed?
Any dividends on or growth of the investments held in your Regular IRA are
generally exempt from federal income taxes and will not be taxed until withdrawn
by you, unless the tax exempt status of your Regular IRA is revoked (this is
described in Part Three of this Disclosure Statement).
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's
Retirement Plan into a Regular IRA?
Almost all distributions from employer plans or 403(b) arrangements (for
employees of tax-exempt employers) are eligible for rollover to a Regular IRA.
The main exceptions are
. payments over the lifetime or life expectancy of the participant (or
participant and a designated beneficiary),
. installment payments for a period of 10 years or more,
. required distributions (generally the rules require distributions a
starting at age 70 1/2 or for certain employees starting at
retirement, if later), and
. payments of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified retirement
plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your Regular IRA. This is a called a "direct
rollover." Or, you may receive the distribution and make a regular rollover to
your Regular IRA within 60 days. By making a direct rollover or a regular
rollover, you can defer income taxes on the amount rolled over until you
subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer contributions and
earnings distributed. You may not roll over any after-tax employee contributions
you made to the employer retirement plan. If you are over age 70 1/2 and are
required to take minimum distributions under the tax laws, you may not roll over
any amount required to be distributed to you under the minimum distribution
rules. Also, if you are receiving periodic payments over your or your and your
designated beneficiary's life expectancy or for a period of at least 10 years,
you may not roll over these payments. A rollover to a regular IRA must be
completed within 60 days after the distribution from the employer retirement
plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF
YOUR DISTRIBUTION for federal income taxes UNLESS you elect a direct rollover.
Your plan or 403(b) sponsor is required to provide you with information about
direct and traditional rollovers and withholding taxes before you receive your
distribution and must comply with your directions to make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult your tax
advisor or the IRS if you have a question about rollovers.
Once I Have Rolled Over a Plan Distribution into a Regular IRA, Can I
Subsequently Roll Over into another Employer's Qualified Retirement Plan?
Yes. Part or all of an eligible distribution received from a qualified plan may
be transferred from the Regular IRA holding it to another qualified plan.
However, the IRA must have no assets other than those which were previously
distributed to you from the qualified plan. Specifically, the IRA cannot contain
any contributions by you (or your spouse). Also, the new qualified plan must
accept rollovers. Similar rules apply to Regular IRAs established with rollovers
from 403(b) arrangements.
Can I Make a Traditional Rollover from my Regular IRA to another Regular IRA?
You may make a rollover from one Regular IRA to another Regular IRA you have or
you establish to receive the rollover. Such a rollover must be completed within
60 days after the withdrawal from your first Regular IRA. After making a
traditional rollover from one Regular IRA to another, you must wait a full year
(365 days) before you can make another such rollover. (However, you can instruct
a Regular IRA custodian to transfer amounts directly to another Regular IRA
custodian; such a direct transfer does not count as a rollover.)
What Happens If I Combine Rollover Contributions With My Normal Contributions In
One IRA?
If you wish to make both a normal annual contribution and a rollover
contribution, you may wish to open two separate Regular IRAs by completing two
Adoption Agreements and two sets of forms. You should consult a tax advisor
before making your annual contribution to the IRA you established with rollover
contributions (or make a rollover contribution to the IRA to which you make your
annual contributions). This is because combining your
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<PAGE>
annual contributions and rollover contributions originating from an employer
plan distribution would prohibit the future rollover out of the IRA into another
qualified plan. If despite this, you still wish to combine a rollover
contribution and the IRA holding your annual contributions, you should establish
the account as a Regular IRA on the Adoption Agreement (not a Rollover IRA or
Direct Rollover IRA) and make the contributions to that account.
How Do Rollovers Affect my Contribution or Deduction Limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers are not deductible and they do not affect your
deduction limits as described above.
What About Converting My Regular IRA to a Roth IRA?
The rules for converting a Regular IRA to a new Roth IRA, or making a rollover
from a Regular IRA to a new Roth IRA, are described in Part Two below.
WITHDRAWALS
When can I make withdrawals from my Regular IRA?
You may withdraw from your Regular IRA at any time. However, withdrawals before
age 59 1/2 may be subject to a 10% penalty tax in addition to regular income
taxes (see below).
When must I start making withdrawals?
If you have not withdrawn your entire IRA by the April 1 following the year in
which you reach 70 1/2, you must make minimum withdrawals in order to avoid
penalty taxes. The rule allowing certain employees to postpone distributions
from an employer qualified plan until actual retirement (even if this is after
age 70 1/2) does not apply to Regular IRAs.
The minimum withdrawal amount is determined by dividing the balance in your
Regular IRA (or IRAs) by your life expectancy or the combined life expectancy of
you and your designated beneficiary. The minimum withdrawal rules are complex.
Consult your tax advisor for assistance.
The penalty tax is 50% of the difference between the minimum withdrawal amount
and your actual withdrawals during a year. The IRS may waive or reduce the
penalty tax if you can show that your failure to make the required minimum
withdrawals was due to reasonable cause and you are taking reasonable steps to
remedy the problem.
How Are Withdrawals From My Regular IRA Taxed?
Amounts withdrawn by you are includable in your gross income in the taxable year
that you receive them, and are taxable as ordinary income. Lump sum withdrawals
from a Regular IRA are not eligible for averaging treatment currently available
to certain lump sum distributions from qualified employer retirement plans.
Since the purpose of a Regular IRA is to accumulate funds for retirement, your
receipt or use of any portion of your Regular IRA before you attain age 59 1/2
generally will be considered as an early withdrawal and subject to a 10% penalty
tax.
The 10% penalty tax for early withdrawal will not apply if:
- The distribution was a result of your death or disability.
- The purpose of the withdrawal is to pay certain higher education expenses
for yourself or your spouse, child, or grandchild. Qualifying expenses
include tuition, fees, books, supplies and equipment required for
attendance at a post-secondary educational institution. Room and board
expenses may qualify if the student is attending at least half-time.
- The withdrawal is used to pay eligible first-time homebuyer expenses. These
are the costs of purchasing, building or rebuilding a principal residence
(including customary settlement, financing or closing costs). The purchaser
may be you, your spouse, or a child, grandchild, parent or grandparent of
you or your spouse. An individual is considered a "first-time homebuyer" if
the individual (or the individual's spouse, if married) did not have an
ownership interest in a principal residence during the two-year period
immediately preceding the acquisition in question. The withdrawal must be
used for eligible expenses within 120 days after the withdrawal. (If there
is an unexpected delay, or cancellation of the home acquisition, a
withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
- The distribution is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives or
life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10% penalty
tax may apply. The 10% penalty will not apply if you make no change in the
series of payments until the end of five years or until you reach age 59 1/2,
whichever is later. If you make a change before then,
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<PAGE>
the penalty will apply. For example, if you begin receiving payments at age
50 under a withdrawal program providing for substantially equal payments over
your life expectancy, and at age 58 you elect to receive the remaining amount
in your Regular IRA in a lump-sum, the 10% penalty tax will apply to the lump
sum and to the amounts previously paid to you before age 59 1/2.
- The distribution does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during a
year are deductible if they are greater than 7 1/2% of your adjusted gross
income for that year).
- The distribution does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies
only if you have been unemployed and received federal or state unemployment
compensation payments for at least 12 weeks; this exception applies to
distributions during the year in which you received the unemployment
compensation and during the following year, but not to any distributions
received after you have been reemployed for at least 60 days.
How are Nondeductible Contributions Taxed When They are Withdrawn?
A withdrawal of nondeductible contributions (not including earnings) will be
tax-free. However, if you made both deductible and nondeductible contributions
to your Regular IRA, then each distribution will be treated as partly a return
of your nondeductible contributions (not taxable) and partly a distribution of
deductible contributions and earnings (taxable). The nontaxable amount is the
portion of the amount withdrawn which bears the same ratio as your total
nondeductible Regular IRA contributions bear to the total balance of all your
Regular IRAs (including rollover IRAs and SEPs, but not including Roth IRAs).
For example, assume that you made the following Regular IRA contributions:
<TABLE>
<CAPTION>
Year Deductible Nondeductible
---- ---------- -------------
<S> <C> <C>
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
------ ------
$5,000 $2,000
</TABLE>
In addition assume that your Regular IRA has total investment earnings through
1998 of $1,000. During 1998 you withdraw $500. Your total account balance as of
12-31-98 is $7,500 as shown below.
<TABLE>
<S> <C>
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings On IRA $1,000
Less 1998 Withdrawal $ 500
- -------------------- ------
Total Account Balance as of 12/31/98 $7,500
</TABLE>
To determine the nontaxable portion of your 1998 withdrawal, the total 1998
withdrawal ($500) must be multiplied by a fraction. The numerator of the
fraction is the total of all nondeductible contributions remaining in the
account before the 1998 withdrawal ($2,000). The denominator is the total
account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or
$8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000 x $500 = $ 125
- --------------------------- -------------
Total Account Balance $8,000
Thus, $125 of the $500 withdrawal in 1998 will not be included in your taxable
income. The remaining $375 will be taxable for 1998. In addition, for future
calculations the remaining nondeductible contribution total will be $2,000 minus
$125, or $1,875.
A loss in your Regular IRA investment may be deductible. You should consult your
tax advisor for further details on the appropriate calculation for this
deduction if applicable.
Is there a penalty tax on certain large withdrawals or accumulations in my IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals from
all retirement accounts (including IRAs, 401(k) or other employer retirement
plans, 403(b) arrangements and others) in a year exceeding a specified amount
(initially $150,000 per year). Also, there was a 15% estate tax penalty on
excess accumulations remaining in IRAs and other tax-favored arrangements upon
your death. These 15% penalty taxes have been repealed.
Important: Please see Part Three below which contains important information
applicable to all Oberweis Funds IRAs.
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Part Two: Description of Roth IRAs
SPECIAL NOTE
Part Two of the Disclosure Statement describes the rules generally applicable to
Roth IRAs beginning January 1, 1998.
Roth IRAs are a new kind of IRA available for the first time in 1998.
Contributions to a Roth IRA for 1997 are not permitted. Contributions to a Roth
IRA are not tax-deductible, but withdrawals that meet certain requirements are
not subject to federal income taxes. This makes the dividends on and growth of
the investments held in your Roth IRA tax-free for federal income tax purposes
if the requirements are met.
Regular IRAs, which have existed since 1975, are still available. Contributions
to a Regular IRA may be tax-deductible. Earnings and gains on amounts while
held in a Regular IRA are tax-deferred. Withdrawals are subject to federal
income tax (except for prior after-tax contributions which may be recovered
without additional federal income tax).
This Part Two does not describe Regular IRAs. If you wish to review information
about Regular IRAs, please see Part One of this Disclosure Statement.
This Disclosure Statement also does not describe IRAs established in connection
with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan maintained
by your employer. Roth IRAs may not be used in connection with a SIMPLE IRA
program or a SEP plan.
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to a Roth IRA
are not deductible, dividends on and growth of the assets held in your Roth IRA
are not subject to federal income tax. Withdrawals by you from your Roth IRA are
excluded from your income for federal income tax purposes if certain
requirements (described below) are met. State income tax treatment of your Roth
IRA may differ from federal treatment; ask your state tax department or your
personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional
information, including information on how to revoke your Roth IRA, investments
and prohibited transactions, fees and expenses and certain tax requirements.
ELIGIBILITY
What are the eligibility requirements for a Roth IRA?
Starting with 1998, you are eligible to establish and contribute to a Roth IRA
for a year if you received compensation (or earned income if you are self
employed) during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
In contrast to a Regular IRA, with a Roth IRA you may continue making
contributions after you reach age 70 1/2.
Can I Contribute to a Roth IRA for my Spouse?
Starting with 1998, if you meet the eligibility requirements you can not only
contribute to your own Roth IRA, but also to a separate Roth IRA for your spouse
out of your compensation or earned income, regardless of whether your spouse had
any compensation or earned income in that year. This is called a "spousal Roth
IRA." To make a contribution to a Roth IRA for your spouse, you must file a
joint tax return for the year with your spouse. For a spousal Roth IRA, your
spouse must set up a different Roth IRA, separate from yours, to which you
contribute.
Of course, if your spouse has compensation or earned income, your spouse can
establish his or her own Roth IRA and make contributions to it in accordance
with the rules and limits described in this Part Two of the Disclosure
Statement.
CONTRIBUTIONS
When Can I Make Contributions to a Roth IRA?
You may make a contribution to your Roth IRA or establish a new Roth IRA for a
taxable year by the due date (not including any extensions) for your federal
income tax return for the year. Usually this is April 15 of the following year.
For example, you will have until April 15, 1999 to establish and make a
contribution to a Roth IRA for 1998.
Caution: Since Roth IRAs are available starting January 1, 1998, you may not
make a contribution by April 15, 1998 to a Roth IRA for 1997.
How Much Can I Contribute to my Roth IRA?
For each year when you are eligible (see above), you can contribute up to the
lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). Annual contributions may be made only to a Roth IRA annual
contribution account which does not contain converted or transferred funds from
a Regular IRA.
Your Roth IRA limit is reduced by any contributions for the same year to a
Regular IRA. For example, assuming you have at least $2,000 in compensation or
earned income, if you contribute $500 to your Regular IRA for 1998, your
maximum Roth IRA contribution for 1998 will be $1,500.
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<PAGE>
If you and your spouse have spousal Roth IRAs, each spouse may contribute up to
$2,000 to his or her Roth IRA for a year as long as the combined compensation of
both spouses for the year (as shown on your joint income tax return) is at least
$4,000. If the combined compensation of both spouses is less than $4,000, the
spouse with the higher amount of compensation may contribute up to that spouse's
compensation amount, or $2,000 if less. The spouse with the lower compensation
amount may contribute any amount up to that spouse's compensation plus any
excess of the other spouse's compensation over the other spouse's Roth IRA
contribution. However, the maximum contribution to either spouse's Roth IRA is
$2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any contributions for
the same calendar year to a Regular IRA maintained by you or your spouse.
For taxpayers with high income levels, the contribution limits may be reduced
(see below).
Are Contributions to a Roth IRA Tax Deductible?
Contributions to a Roth IRA are not deductible. This is a major difference
between Roth IRAs and Regular IRAs. Contributions to a Regular IRA may be
deductible on your federal income tax return depending on whether or not you are
an active participant in an employer-sponsored plan and on your income level.
Are the Earnings on my Roth IRA Funds Taxed?
Any dividends on or growth of investments held in your Roth IRA are generally
exempt from federal income taxes and will not be taxed until withdrawn by you,
unless the tax exempt status of your Roth IRA is revoked. If the withdrawal
qualifies as a tax-free withdrawal (see below), amounts reflecting earnings or
growth of assets in your Roth IRA will not be subject to federal income tax.
Which is Better, a Roth IRA or a Regular IRA?
This will depend upon your individual situation. A Roth IRA may be better if you
are an active participant in an employer-sponsored plan and your adjusted gross
income is too high to make a deductible IRA contribution (but not too high to
make a Roth IRA contribution). Also, the benefits of a Roth IRA vs. a Regular
IRA may depend upon a number of other factors including: your current income tax
bracket vs. your expected income tax bracket when you make withdrawals from your
IRA, whether you expect to be able to make nontaxable withdrawals from your Roth
IRA (see below), how long you expect to leave your contributions in the IRA, how
much you expect the IRA to earn in the meantime, and possible future tax law
changes.
Consult a qualified tax or financial advisor for assistance on this question.
Are there Any Restrictions on Contributions to my Roth IRA?
Taxpayers with very high income levels may not be able to contribute to a Roth
IRA at all, or their contribution may be limited to an amount less than $2,000.
This depends upon your filing status and the amount of your adjusted gross
income (AGI). The following table shows how the contribution limits are
restricted:
<TABLE>
<CAPTION>
ROTH IRA CONTRIBUTION LIMITS
-----------------------------------------------------------------------------------
If You Are If You Are Then You May Make
Single Taxpayer Married Filing Jointly
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to Up to Full
$95,000 $150,000 Contribution
-----------------------------------------------------------------------------------
Adjusted More than $95,000 More than $150,000 Reduced Contribution
Gross but less than but less than
Income (AGI) Level $110,000 $160,000 (see explanation below)
-----------------------------------------------------------------------------------
$110,000 $160,000 Zero (No Contribution)
and up and up
-----------------------------------------------------------------------------------
</TABLE>
Note: If you are a married taxpayer filing separately, your maximum Roth IRA
contribution limit phases out over the first $15,000 of adjusted gross income.
If your AGI is $15,000 or more not contribute to a Roth IRA for the year.
(Note: Pending legislation in Congress may reduce this number from $15,000 to
$10,000. Consult your tax advisor or the IRS for the latest developments.)
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<PAGE>
How do I Calculate my Limit if I Fall in the "Reduced Contribution" Range?
If your AGI falls in the reduced contribution range, you must calculate your
contribution limit. To do this, multiply your normal contribution limit ($2,000
or your compensation if less) by a fraction. The numerator is the amount by
which your AGI exceeds the lower limit of the reduced contribution range
($95,000 if single, or $150,000 if married filing jointly). The denominator is
$15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this
from your normal limit and then round down to the nearest $10. The contribution
limit is the greater of the amount calculated or $200.
For example, assume that your AGI for the year is $157,555 and you are married,
filing jointly. You would calculate your Roth IRA contribution limit this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range:
($157,555-$150,000) = $7,555
2. Divide this by $10,000: $7,555 / $10,000 = 0.7555
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit:
($2,000 - $1,551) = $489
5. Round this down to the nearest $10: = $480
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Regular IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Regular IRA.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of Roth IRA
contribution limits. First, if you are making a deductible contribution for the
year to a Regular IRA, your AGI is reduced by the amount of the deduction.
Second, if you are converting a Regular IRA to a Roth IRA in a year (see below),
the amount includable in your income as a result of the conversion is not
considered AGI when computing your Roth IRA contribution limit for the year.
(Note: a bill pending in Congress might affect the first rule--consult your tax
advisor or the IRS for the latest developments.)
What Happens if I Contribute more than Allowed to my Roth IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000 or 100%
of compensation or earned income, whichever is less. As noted above, your
maximum is reduced by the amount of any contribution to a Regular IRA for the
same year and may be further reduced if you have high AGI. Any amount
contributed to the Roth IRA above the maximum is considered an "excess
contribution."
An excess contribution is subject to excise tax of 6% for each year it remains
in the Roth IRA.
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To do so, you
must withdraw the excess and any earnings on the excess before the due date
(including extensions) for filing your federal income tax return for the year
for which you made the excess contribution. Earnings on the amount withdrawn
must also be withdrawn. The earnings must be included in your income for the tax
year for which the contribution was made and may be subject to a 10% premature
withdrawal tax if you have not reached age 59 1/2 (unless an exception to the
10% penalty tax applies).
What Happens if I Don't Correct the Excess Contribution by the Tax Return Due
Date?
Any excess contribution withdrawn after the tax return due date (including any
extensions) for the year for which the contribution was made will be subject to
the 6% excise tax. There will be an additional 6% excise tax for each year the
excess remains in your account.
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includable in taxable income and may be subject to a 10% premature
withdrawal penalty.
You may reduce the excess contributions by making a withdrawal equal to the
excess. Earnings need not be withdrawn. To the extent that no earnings are
withdrawn, the withdrawal will not be subject to income taxes or possible
penalties for premature withdrawals before age 59 1/2. Excess contributions may
also be corrected in a subsequent year to the extent that you contribute less
than your Roth IRA contribution limit for the subsequent year. As the prior
excess contribution is reduced or eliminated, the 6%
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<PAGE>
excise tax will become correspondingly reduced or eliminated for subsequent tax
years.
CONVERSION OF EXISTING REGULAR IRA
Can I convert an Existing Regular IRA into a Roth IRA?
Yes, starting in 1998 you can convert an existing Regular IRA into a Roth IRA if
you meet the adjusted gross income (AGI) limits described below. Conversion may
be accomplished either by establishing a Roth IRA and then transferring the
amount in your Regular IRA you wish to convert to the new Roth IRA. Or, if you
want to convert an existing Regular IRA with Investors Fiduciary Trust as
custodian to a Roth IRA, you may give us directions to convert.
You are eligible to convert a Regular IRA to a Roth IRA if, for the year of the
conversion, your AGI is $100,000 or less. The same limit applies to married and
single taxpayers, and the limit is not indexed to cost-of-living increases.
Married taxpayers are eligible to convert a Regular IRA to a Roth IRA only if
they file a joint income tax return; married taxpayers filing separately are not
eligible to convert.
Note: No contributions other than Roth IRA conversion contributions made during
the same tax year may be deposited in a single Roth IRA conversion account.
Caution: You should be extremely cautious in converting an existing IRA into a
Roth IRA early in a year if there is any possibility that your AGI for the year
will exceed $100,000. Although a bill pending in Congress would permit you to
transfer amounts back to your Regular IRA if your AGI exceeds $100,000, under
the current rules, if you have already converted during a year and you turn out
to have more than $100,000 of AGI, there may be adverse tax results for you.
Consult your tax advisor or the IRS for the latest developments.
What are the Tax Results from Converting?
The taxable amount in your Regular IRA you convert to a Roth IRA will be
considered taxable income on your federal income tax return for the year of the
conversion. All amounts in a Regular IRA are taxable except for your prior non-
deductible contributions to the Regular IRA.
If you make the conversion during 1998, the taxable income is spread over four
years. In other words, you would include one quarter of the taxable amount on
your federal income tax return for 1998, 1999, 2000 and 2001.
Should I convert my Regular IRA to a Roth IRA?
Only you can answer this question, in consultation with your tax or financial
advisors. A number of factors, including the following, may be relevant.
Conversion may be advantageous if you expect to leave the converted funds on
deposit in your Roth IRA for at least five years and to be able to withdraw the
funds under circumstances that will not be taxable (see below). The benefits of
converting will also depend on whether you expect to be in the same tax bracket
when you withdraw from your Roth IRA as you are now. Also, conversion is based
upon an assumption that Congress will not change the tax rules for withdrawals
from Roth IRAs in the future, but this cannot be guaranteed.
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's
Retirement Plan into a Roth IRA?
Distributions from qualified employer-sponsored retirement plans or 403(b)
arrangements (for employees of tax-exempt employers) are not eligible for
rollover or direct transfer to a Roth IRA. However, in certain circumstances it
may be possible to make a direct rollover of an eligible distribution to a
Regular IRA and then to convert the Regular IRA to a Roth IRA (see above).
Consult your tax or financial advisor for further information on this
possibility.
Can I Make a Rollover from my Roth IRA to another Roth IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have or you
establish to receive the rollover. Such a rollover must be completed within 60
days after the withdrawal from your first Roth IRA. After making a rollover from
one Roth IRA to another, you must wait a full year (365 days) before you can
make another such rollover. (However, you can instruct a Roth IRA custodian to
transfer amounts directly to another Roth IRA custodian; such a direct transfer
does not count as a rollover.)
How Do Rollovers Affect my Roth IRA Contribution Limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, you may make a rollover from one Roth IRA to another even
during a year when you are not eligible to contribute to a Roth IRA (for
example, because your AGI for that year is too high).
WITHDRAWALS
When can I make withdrawals from my Roth IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal meets the
requirements discussed below, it is tax-free. This means that you pay no federal
income tax even though the with-
14
<PAGE>
drawal includes earnings or gains on your contributions while they were held in
your Roth IRA.
When must I start making withdrawals?
There are no rules on when you must start making withdrawals from your Roth IRA
or on minimum required withdrawal amounts for any particular year during your
lifetime. Unlike Regular IRAs, you are not required to start making withdrawals
from a Roth IRA by the April 1 following the year in which you reach age 70 1/2.
After your death, there are IRS rules on the timing and amount of distributions.
In general, the amount in your Roth IRA must be distributed by the end of the
fifth year after your death. However, distributions to a designated beneficiary
that begin by the end of the year following the year of your death and that are
paid over the life expectancy of the beneficiary satisfy the rules. Also, if
your surviving spouse is your designated beneficiary, the spouse may defer the
start of distributions until you would have reached age 70 1/2 had you lived.
What are the requirements for a tax-free withdrawal?
To be tax-free, a withdrawal from your Roth IRA must meet two requirements.
First, the Roth IRA must have been open for 5 or more years before the
withdrawal. Second, at least one of the following conditions must be satisfied:
. You are age 59 1/2 or older when you make the withdrawal.
. The withdrawal is made by your beneficiary after you die.
. You are disabled (as defined in IRS rules) when you make the
withdrawal.
. You are using the withdrawal to cover eligible first time homebuyer
expenses. These are the costs of purchasing, building or rebuilding a
principal residence (including customary settlement, financing or
closing costs). The purchaser may be you, your spouse or a child,
grandchild, parent or grandparent of you or your spouse. An individual
is considered a "first-time homebuyer" if the individual (or the
individual's spouse, if married) did not have an ownership interest in
a principal residence during the two-year period immediately preceding
the acquisition in question. The withdrawal must be used for eligible
expenses within 120 days after the withdrawal (if there is an
unexpected delay, or cancellation of the home acquisition, a
withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of
$10,000 per individual.
For a Roth IRA that you set up with amounts rolled over or converted from a
Regular IRA, the 5 year period begins with the year in which the conversion or
rollover was made. (Note: a bill pending in Congress might affect this rule --
consult your tax advisor or the IRS for the latest developments).
For a Roth IRA that you started with a normal contribution, the 5 year period
starts with the year for which you make the initial normal contribution.
How Are Withdrawals From My Roth IRA Taxed if the Tax-Free Requirements are not
Met?
If the qualified withdrawal requirements are not met, a withdrawal consisting of
your own prior contribution amounts to your Roth IRA will not be considered
taxable income in the year you receive it, nor will the 10% penalty apply. To
the extent that the nonqualified withdrawal consists of dividends or gains while
your contributions were held in your Roth IRA, the withdrawal is includable in
your gross income in the taxable year you receive it, and may be subject to the
10% withdrawal penalty. All amounts withdrawn from your Roth IRA are considered
withdrawals of your contributions until you have withdrawn the entire amount you
have contributed. After that, all amounts withdrawn are considered taxable
withdrawals of dividends and gains.
Note that, for purposes of determining what portion of any distribution is
includable in income, all of your Roth IRA accounts are considered as one single
account. Amounts withdrawn from any one Roth IRA account are deemed to be
withdrawn from contributions first. Since all your Roth IRAs are considered to
be one account for this purpose, withdrawals from Roth IRA accounts are not
considered to be from earnings or interest until an amount equal to all
contributions made to all of an individual's Roth IRA accounts is withdrawn.
The following example illustrates this:
A single individual contributes $1,000 a year to his Oberweis Funds Roth IRA
account and $1,000 a year to the Brand X Roth IRA account over a period of ten
years. At the end of 10 years his account balances are as follows:
<TABLE>
<CAPTION>
Principal Earnings
Contributions
<S> <C> <C>
Oberweis Funds Roth IRA $10,000 $10,000
Brand X Roth IRA $10,000 $10,000
------- -------
Total $20,000 $20,000
</TABLE>
At the end of 10 years, this person has $40,000 in both Roth IRA accounts, of
which $20,000 represents his contributions (aggregated) and $20,000 represents
his earnings (aggregated). This indi-
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vidual, who is 40, withdraws $15,000 from his Brand X Roth IRA (not a qualified
withdrawal). We look to the aggregate amount of all principal contributions - in
this case $20,000 - to determine if the withdrawal is from contributions, and
thus non-taxable. In this example, there is no ($0) taxable income as a result
of this withdrawal because the $15,000 withdrawal is less than the total amount
of aggregated contributions ($20,000). If this individual then withdrew $15,000
from his Oberweis Funds Roth IRA, $5,000 would not be taxable (the remaining
aggregate contributions) and $10,000 would be treated as taxable income for the
year of the withdrawal, subject to regular income taxes and the 10% premature
withdrawal penalty (unless an exception applies).
Note: If passed, a bill currently pending in Congress will change the rules and
the results discussed above. Under the proposed legislation, in general,
separate Roth IRAs established for annual contributions and conversions for
separate years are not aggregated as explained above to determine the tax on
withdrawals. See your tax advisor for more information and the latest
developments.
Taxable withdrawals of dividends and gains from a Roth IRA are treated as
ordinary income. Withdrawals of taxable amounts from a Roth IRA are not
eligible for averaging treatment currently available to certain lump sum
distributions from qualified employer-sponsored retirement plans, nor are such
withdrawals eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you attain age
59 1/2 generally will be considered as an early withdrawal and subject to a 10%
penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the following
exceptions applies:
- The withdrawal was a result of your death or disability.
- The withdrawal is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives
or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10%
penalty tax will apply. For example, if you begin receiving payments
at age 50 under a withdrawal program providing for substantially equal
payments over your life expectancy, and at age 58 you elect to
withdraw the remaining amount in your Roth IRA in a lump-sum, the 10%
penalty tax will apply to the lump sum and to the amounts previously
paid to you before age 59 1/2 to the extent they were includable in
your taxable income.
- The withdrawal is used to pay eligible higher education expenses.
These are expenses for tuition, fees, books, and supplies required to
attend an institution for post-secondary education. Room and board
expenses are also eligible for a student attending at least half-time.
The student may be you, your spouse, or your child or grandchild.
However, expenses that are paid for with a scholarship or other
educational assistance payment are not eligible expenses.
- The withdrawal is used to cover eligible first time homebuyer expenses
(as described above in the discussion of tax-free withdrawals).
- The withdrawal does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid
during a year are deductible if they are greater than 7% of your
adjusted gross income for that year).
- The withdrawal does not exceed the amount you paid for health
insurance coverage for yourself, your spouse and dependents. This
exception applies only if you have been unemployed and received
federal or state unemployment compensation payments for at least 12
weeks; this exception applies to distributions during the year in
which you received the unemployment compensation and during the
following year, but not to any distributions received after you have
been reemployed for at least 60 days.
What About the 15 percent Penalty Tax?
The rule imposing a 15% penalty tax on very large withdrawals from tax-
favored arrangements (including IRAs, 403(b) arrangements and qualified
employer-sponsored plans), or on excess amounts remaining in such tax-favored
arrangements at your death, has been repealed. This 15% tax no longer applies.
Important: The discussion of the tax rules for Roth IRAs in this Disclosure
Statement is based upon the best available information. However, Roth IRAs are
new under the tax laws, and the IRS has not issued regulations or rulings on the
operation and tax treatment of Roth IRA accounts. Also, if enacted, legislation
now pending in Congress will change some of the rules. Therefore, you should
consult your tax advisor for the latest developments or for advice about how
maintaining a Roth IRA will affect your personal tax or financial situation.
Also, please see Part Three below which contains important information
applicable to all Oberweis Funds IRAs.
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Part Three: Rules for All IRAs (Regular and Roth)
GENERAL INFORMATION
IRA Requirements
All IRAs must meet certain requirements. Contributions generally must be made in
cash. The IRA trustee or custodian must be a bank or other person who has been
approved by the Secretary of the Treasury. Your contributions may not be
invested in life insurance or collectibles or be commingled with other property
except in a common trust or investment fund. Your interest in the account must
be nonforfeitable at all times. You may obtain further information on IRAs from
any district office of the Internal Revenue Service.
May I Revoke My IRA?
You may revoke a newly established Regular or Roth IRA at any time within seven
days after the date on which you receive this Disclosure Statement. A Regular or
Roth IRA established more than seven days after the date of your receipt of this
Disclosure Statement may not be revoked.
To revoke your Regular or Roth IRA, mail or deliver a written notice of
revocation to the Custodian at the address which appears at the end of this
Disclosure Statement. Mailed notice will be deemed given on the date that it is
postmarked (or, if sent by certified or registered mail, on the date of
certification or registration). If you revoke your Regular or Roth IRA within
the seven-day period, you are entitled to a return of the entire amount you
originally contributed into your Regular or Roth IRA, without adjustment for
such items as sales charges, administrative expenses or fluctuations in market
value.
INVESTMENTS
How Are My IRA Contributions Invested?
You control the investment and reinvestment of contributions to your Regular or
Roth IRA. Investments must be in one or more of the Fund(s) available from time
to time as listed in the Adoption Agreement for your Regular or Roth IRA or in
an investment selection form provided with your Adoption Agreement or from the
Fund Distributor or Service Company. You direct the investment of your IRA by
giving your investment instructions to the Distributor or Service Company for
the Fund(s). Since you control the investment of your Regular or Roth IRA, you
are responsible for any losses; neither the Custodian, the Distributor nor the
Service Company has any responsibility for any loss or diminution in value
occasioned by your exercise of investment control. Transactions for your Regular
or Roth IRA will generally be at the applicable public offering price or net
asset value for shares of the Fund(s) involved next established after the
Distributor or the Service Company (whichever may apply) receives proper invest-
ment instructions from you; consult the current prospectus for the Fund(s)
involved for additional information.
Before making any investment, read carefully the current prospectus for any Fund
you are considering as an investment for your Regular IRA or Roth IRA. The
prospectus will contain information about the Fund's investment objectives and
policies, as well as any minimum initial investment or minimum balance
requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Regular or Roth IRA
and because mutual fund shares fluctuate in value, the growth in value of your
Regular or Roth IRA cannot be guaranteed or projected.
Are There Any Restrictions on the Use of my IRA Assets?
The tax-exempt status of your Regular or Roth IRA will be revoked if you engage
in any of the prohibited transactions listed in Section 4975 of the tax code.
Upon such revocation, your Regular or Roth IRA is treated as distributing its
assets to you. The taxable portion of the amount in your IRA will be subject to
income tax (unless, in the case of a Roth IRA, the requirements for a tax-free
withdrawal are satisfied). Also, you may be subject to a 10% penalty tax on the
taxable amount as a premature withdrawal if you have not yet reached the age of
59 1/2.
Any investment in a collectible (for example, rare stamps) by your Regular or
Roth IRA is treated as a withdrawal; the only exception involves certain types
of government-sponsored coins or certain types of precious metal bullion.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets in your
Regular or Roth IRA. Some examples of prohibited transactions are:
- Direct or indirect sale or exchange of property between you and your
Regular or Roth IRA.
- Transfer of any property from your Regular or Roth IRA to yourself or
from yourself to your Regular or Roth IRA.
Your Regular or Roth IRA could lose its tax exempt status if you use all or part
of your interest in your Regular or Roth IRA as security for a loan or borrow
any money from your Regular or Roth IRA. Any portion of your Regular or Roth IRA
used as security for a loan will be treated as a distribution in the year in
which the money is borrowed. This amount may be taxable and you may
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<PAGE>
also be subject to the 10% premature withdrawal penalty on the taxable amount.
FEES AND EXPENSES
Custodian's Fees
The fees charged by the Custodian for maintaining either a Regular IRA or a Roth
IRA are listed in the Adoption Agreement.
General Fee Policies
. Fees may be paid by you directly, or the Custodian may deduct them
from your Regular or Roth IRA.
. Fees may be changed upon 30 days written notice to you.
. The full annual maintenance fee will be charged for any calendar year
during which you have a Regular or Roth IRA with us. This fee is not
prorated for periods of less than one full year.
. If provided for in this Disclosure Statement or the Adoption Agreement,
termination fees are charged when your account is closed whether the funds
are distributed to you or transferred to a successor custodian or trustee.
. The Custodian may charge you for its reasonable expenses for services not
covered by its fee schedule.
Other Charges
. There may be sales or other charges associated with the purchase or
redemption of shares of a Fund in which your Regular IRA or Roth IRA is
invested. Before investing, be sure to read carefully the current
prospectus of any Fund you are considering as an investment for your
Regular IRA or Roth IRA for a description of applicable charges.
TAX MATTERS
What IRA Reports does the Custodian Issue?
The Custodian will report all withdrawals to the IRS and the recipient on the
appropriate form. For reporting purposes, a direct transfer of assets to a
successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account and the
amount of any rollover (including conversions of a Regular IRA to a Roth IRA) or
regular contribution made during a calendar year, as well as the tax year for
which a contribution is made. Unless the Custodian receives an indication from
you to the contrary, it will treat any amount as a contribution for the tax year
in which it is received. It is most important that a contribution between
January and April 15th for the prior year be clearly designated as such.
What Tax Information Must I Report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which you made an
excess contribution or you take a premature withdrawal that is subject to the
10% penalty tax, or you withdraw less than the minimum amount required from your
Regular IRA. If your beneficiary fails to make required minimum withdrawals from
your Regular or Roth IRA after your death, your beneficiary may be subject to an
excise tax and be required to file Form 5329.
For Regular IRAs, you must also report each nondeductible contribution to the
IRS by designating it a nondeductible contribution on your tax return. Use Form
8606. In addition, for any year in which you make a nondeductible contribution
or take a withdrawal, you must include additional information on your tax
return. The information required includes: (1) the amount of your nondeductible
contributions for that year; (2) the amount of withdrawals from Regular IRAs in
that year; (3) the amount by which your total nondeductible contributions for
all the years exceed the total amount of your distributions previously excluded
from gross income; and (4) the total value of all your Regular IRAs as of the
end of the year. If you fail to report any of this information, the IRS will
assume that all your contributions were deductible. This will result in the
taxation of the portion of your withdrawals that should be treated as a
nontaxable return of your nondeductible contributions.
Which Withdrawals Are Subject to Withholding?
Roth IRA: Federal income tax will be withheld at a flat rate of 10% of any
taxable withdrawal from your Roth IRA, unless you elect not to have tax
withheld. Withdrawals from a Roth IRA are not subject to the mandatory 20%
income tax withholding that applies to most distributions from qualified plans
or 403(b) accounts that are not directly rolled over to another plan or IRA.
Regular IRA: Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your Regular IRA, unless you elect not to have tax withheld.
Withdrawals from a Regular IRA are not subject to the mandatory 20% income tax
withholding that applies to most distributions from qualified plans or 403(b)
accounts that are not directly rolled over to another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Regular IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form, or a transfer
authorization form, to:
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Oberweis Funds
c/o Investors Fiduciary Trust Co.
P.O. Box 419042
Kansas City, MO 64141
Your Regular IRA or Roth IRA with Investors Fiduciary Trust will terminate upon
the first to occur of the following:
- The date your properly executed withdrawal form (as described above)
withdrawing your total Regular IRA or Roth IRA balance is received and
accepted by the Custodian or, if later, the termination date specified
in the withdrawal form.
- The date the Regular IRA or Roth IRA ceases to qualify under the tax
code. This will be deemed a termination.
- The transfer of the Regular IRA or Roth IRA to another
custodian/trustee.
- The rollover of the amounts in the Regular IRA or Roth IRA to another
custodian/trustee.
Any outstanding fees must be received prior to such a termination of your
account.
The amount you receive from your IRA upon termination of the account will be
treated as a withdrawal, and thus the rules relating to Regular IRA or Roth IRA
withdrawals will apply. For example, if the IRA is terminated before you reach
age 59-1/2, the 10% early withdrawal penalty may apply to the taxable amount you
receive.
IRA DOCUMENTS
Regular IRA: The terms contained in Articles I to VII of Part One of the
Oberweis Funds Universal Individual Retirement Custodial Account document have
been promulgated by the IRS in Form 5305-A for use in establishing a Regular IRA
Custodial Account that meets the requirements of Code Section 408(a) for a valid
Regular IRA. This IRS approval relates only to the form of Articles I to VII
and is not an approval of the merits of the Regular IRA or of any investment
permitted by the Regular IRA.
Roth IRA: The terms contained in Articles I through VII of Part Two of the
Universal Individual Retirement Account Custodial Agreement have been
promulgated by the IRS in Form 5305-RA for use in establishing a Roth IRA
Custodial Account that meets the requirements of Code Section 408A for a valid
Roth IRA. This IRS approval relates only to the form of Articles I to VII and
is not an approval of the merits of the Roth IRA or of any investment permitted
by the Roth IRA.
Based on our legal advice relating to current tax laws and IRS meetings, the
Custodian believes that the use of a Universal Individual Retirement Account
Information Kit such as this, containing information and documents for both a
Regular IRA or a Roth IRA, will be acceptable to the IRS. However, if the IRS
makes a ruling, or if Congress enacts legislation, regarding the use of
different documentation, the Custodian will forward to you new documentation for
your Regular IRA or a Roth IRA (as appropriate) for you to read and, if
necessary, an appropriate new Adoption Agreement to sign. By adopting a Regular
IRA or a Roth IRA using these materials, you acknowledge this possibility and
agree to this procedure if necessary. In all cases, to the extent permitted,
Investors Fiduciary Trust will treat your IRA as being opened on the date your
account was opened using the Adoption Agreement in this Kit.
ADDITIONAL INFORMATION
For additional information you may write to the following address or call the
following telephone number.
Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
[800-245-7311]
INVESTORS FIDUCIARY TRUST COMPANY UNIVERSAL INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL AGREEMENT
Part One: Provisions Applicable to Regular IRAs
The following provisions of Articles I to VII are in the form promulgated by the
Internal Revenue Service in Form 5305-A for use in establishing an individual
retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c)(but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k).
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<PAGE>
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within
the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold, silver and platinum
coins; coins issued under the laws of any state and certain bullion.
Article IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise
comply with section 408(a)(6) and Proposed Regulations section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
section 1.401(a)(9)-2, the provisions of which are incorporated by
reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph
4, other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years.
The life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin
to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70-1/2.
By that date, the Depositor may elect, in a manner acceptable to the
Custodian, to have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the
year of the Depositor's death. If, however, the beneficiary is
the Depositor's surviving spouse, then this distribution is not
required to begin before December 31 of the year in which the
Depositor would have turned age 70-1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse,
no additional cash contributions or rollover contributions may be
accepted in the account.
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5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each
year, divide the Depositor's entire interest in the custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy
of the Depositor and the Depositor's designated beneficiary, or the life
expectancy of the designated beneficiary, whichever applies.) In the case
of distributions under paragraph 3, determine the initial life expectancy
(or joint life and last survivor expectancy) using the attained ages of the
Depositor and designated beneficiary as of their birthdays in the year the
Depositor reaches age 70-1/2. In the case of a distribution in accordance
with paragraph 4(b)(ii), determine life expectancy using the attained age
of the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy
the minimum distribution requirements described above. This method permits
an individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for
another.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the Adoption Agreement.
Part Two: Provisions applicable to Roth IRAs
The following provisions of Articles I to VII are in the form promulgated by the
Internal Revenue Service in Form 5305-RA for use in establishing a Roth
Individual Retirement Custodial Account.
Article I.
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except in
the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum amount
of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will be
accepted.
Article IA.
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single Depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married Depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married Depositor who files separately, between $0 and $10,000. In
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning
of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and platinum
coins, coins issued under the laws of any state, and certain bullion.
Article IV.
1. If the Depositor dies before his or her entire interest is distributed to him
or her and the Depositor's surviving spouse is not the sole beneficiary, the
entire remaining interest will, at
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the election of the Depositor or, if the Depositor has not so elected, at
the election of the beneficiary or beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of
the Depositor's death.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. In the case of distribution method 1(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the year
preceding the year by the life expectancy of the designated beneficiary
using the attained age of the designated beneficiary as of the
beneficiary's birthday in the year distributions are required to commence
and subtract 1 for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date
of death, such spouse will then be treated as the Depositor.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) and
section 408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and
under guidance published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the provisions
of the Code, related regulations, and other published guidance. Other amendments
may be made with the consent of the persons whose signatures appear below.
Part Three: Provisions applicable to both Regular IRAs and Roth IRAs
Article VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Account" or "Custodial Account" means the individual retirement account
established using the terms of either Part One or Part Two and, in either
event, Part Three of this Investors Fiduciary Trust Company Universal
Individual Retirement Account Custodial Agreement and the Adoption
Agreement signed by the Depositor. The Account may be a Regular Individual
Retirement Account or a Roth Individual Retirement Account, as specified by
the Depositor. See Section 24 below.
"Custodian" means Investors Fiduciary Trust Company.
"Fund" means any registered investment company which is advised, sponsored
or distributed by Sponsor; provided, however, that such a mutual fund or
registered investment company must be legally offered for sale in the state
of the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to
serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder to
the Distributor may be performed by the Fund(s) or by an entity that has a
contract to perform management or investment advisory services for the
Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform
various administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if
any) or by an entity specified in the second preceding paragraph.
"Sponsor" means the Oberweis Funds.
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2. The Depositor may revoke the Custodial Account established hereunder by
mailing or delivering a written notice of revocation to the Custodian
within seven days after the Depositor receives the Disclosure Statement
related to the Custodial Account. Mailed notice is treated as given to the
Custodian on date of the postmark (or on the date of Post Office
certification or registration in the case of notice sent by certified or
registered mail). Upon timely revocation, the Depositor's initial
contribution will be returned, without adjustment for administrative
expenses, commissions or sales charges, fluctuations in market value or
other changes.
The Depositor may certify in the Adoption Agreement that the Depositor
received the Disclosure Statement related to the Custodial Account at least
seven days before the Depositor signed the Adoption Agreement to establish
the Custodial Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be invested and reinvested
in full and fractional shares of one or more Funds. Such investments shall
be made in such proportions and/or in such amounts as Depositor from time
to time in the Adoption Agreement or by other written notice to the Service
Company (in such form as may be acceptable to the Service Company) may
direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares
of one or more Funds hereunder to the Funds' transfer agent for execution.
However, if investment directions with respect to the investment of any
contribution hereunder are not received from the Depositor as required or,
if received, are unclear or incomplete in the opinion of the Service
Company, the contribution will be returned to the Depositor, or will be
held uninvested (or invested in a money market fund if available) pending
clarification or completion by the Depositor, in either case without
liability for interest or for loss of income or appreciation. If any other
directions or other orders by the Depositor with respect to the sale or
purchase of shares of one or more Funds for the Custodial Account are
unclear or incomplete in the opinion of the Service Company, the Service
Company will refrain from carrying out such investment directions or from
executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum
initial or additional investment or minimum balance rules applicable to a
Fund as described in its prospectus.
All dividends and capital gains or other distributions received on the
shares of any Fund held in the Depositor's Account shall be (unless
received in additional shares) reinvested in full and fractional shares of
such Fund (or of any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Depositor may at any
time direct the Service Company to exchange all or a specified portion of
the shares of a Fund in the Depositor's Account for shares and fractional
shares of one or more other Funds. The Depositor shall give such directions
by written notice acceptable to the Service Company, and the Service
Company will process such directions as soon as practicable after receipt
thereof (subject to the second paragraph of Section 3 of this Article
VIII).
5. Any purchase or redemption of shares of a Fund for or from the Depositor's
Account will be effected at the public offering price or net asset value of
such Fund (as described in the then effective prospectus for such Fund)
next established after the Service Company has transmitted the Depositor's
investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or
from the Depositor's Account will be subject to any applicable sales,
redemption or other charge as described in the then effective prospectus
for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Depositor's Custodial Account.
Any account maintained in connection herewith shall be in the name of the
Custodian for the benefit of the Depositor. All assets of the Custodial
Account shall be registered in the name of the Custodian or of a suitable
nominee. The books and records of the Custodian shall show that all such
investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the
Account hereunder will be deemed to satisfy the Custodian's recordkeeping
responsibilities therefor. The Service Company agrees to furnish the
Custodian with any information the Custodian requires to carry out the
Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with
respect to the investment and reinvestment of Depositor's Custodial
Account, nor shall such parties be liable for any loss or diminution in
value which results from Depositor's exercise of investment control over
his Custodial
23
<PAGE>
Account. Depositor shall have and exercise exclusive responsibility for and
control over the investment of the assets of his Custodial Account, and
neither Custodian nor any other such party shall have any duty to question
his directions in that regard or to advise him regarding the purchase,
retention or sale of shares of one or more Funds for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with respect to
the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment advisor's appointment will be in effect until
written notice to the contrary is received by the Custodian and the Service
Company. While an investment advisor's appointment is in effect, the
investment advisor may issue investment directions or may issue orders for
the sale or purchase of shares of one or more Funds to the Service Company,
and the Service Company will be fully protected in carrying out such
investment directions or orders to the same extent as if they had been
given by the Depositor.
The Depositor's appointment of any investment advisor will also be deemed
to be instructions to the Custodian and the Service Company to pay such
investment advisor's fees to the investment advisor from the Custodial
Account hereunder without additional authorization by the Depositor or the
Custodian.
9. Distribution of the assets of the Custodial Account shall be made at such
time and in such form as Depositor (or the Beneficiary if Depositor is
deceased) shall elect by written order to the Custodian. Depositor
acknowledges that any distribution of a taxable amount from the Custodial
Account (except for distribution on account of Depositor's disability or
death, return of an "excess contribution" referred to in Code Section 4973,
or a "rollover" from this Custodial Account) made earlier than age 59 1/2
may subject Depositor to an "additional tax on early distributions" under
Code Section 72(t) unless an exception to such additional tax is
applicable. For that purpose, Depositor will be considered disabled if
Depositor can prove, as provided in Code Section 72(m)(7), that Depositor
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected
to result in death or be of long-continued and indefinite duration. It is
the responsibility of the Depositor (or the Beneficiary) by appropriate
distribution instructions to the Custodian to insure that any applicable
distribution requirements of Code Section 401(a)(9) and Article IV above
are met. If the Depositor (or Beneficiary) does not direct the Custodian to
make distributions from the Custodial Account by the time that such
distributions are required to commence in accordance with such distribution
requirements, the Custodian (and Service Company) shall assume that the
Depositor (or Beneficiary) is meeting the minimum distribution requirements
from another individual retirement arrangement maintained by the Depositor
(or Beneficiary) and the Custodian and Service Company shall be fully
protected in so doing. The Depositor (or the Depositor's surviving spouse)
may elect to comply with the distribution requirements in Article IV using
the recalculation of life expectancy method, or may elect that the life
expectancy of the Depositor and/or the Depositor's surviving spouse, as
applicable, will not be recalculated; any such election may be in such form
as the Depositor (or surviving spouse) provides (including the calculation
of minimum distribution amounts in accordance with a method that does not
provide for recalculation of the life expectancy of one or both of the
Depositor and surviving spouse and instructions for withdrawals to the
Custodian in accordance with such method). Notwithstanding paragraph 2 of
Article IV, unless an election to have life expectancies recalculated
annually is made by the time distributions are required to begin, life
expectancies shall not be recalculated. Neither the Custodian nor any other
party providing services to the Custodial Account assumes any
responsibility for the tax treatment of any distribution from the Custodial
Account; such responsibility rests solely with the person ordering the
distribution.
10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the Custodial Account, Custodian shall be furnished with any
and all applications, certificates, tax waivers, signature guarantees and
other documents (including proof of any legal representative's authority)
deemed necessary or advisable by Custodian, but Custodian shall not be
responsible for complying with any order or instruction which appears on
its face to be genuine, or for refusing to comply if not satisfied it is
genuine, and Custodian has no duty of further inquiry. Any distributions
from the Account may be mailed, first-class postage prepaid, to the last
known address of the person who is to receive such distribution, as shown
on the Custodian's records, and such distribution shall to the extent
thereof completely discharge the Custodian's liability for such payment.
11. (a) The term "Beneficiary" means the person or persons designated as such
by the "designating person" (as defined below) on a form acceptable to
the Custodian for use in connection with the Custodial Account, signed
by the designating person, and filed with the Custodian. The form may
name individuals, trusts, estates, or other entities as either primary
or contingent beneficiaries.
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<PAGE>
However, if the designation does not effectively dispose of the entire
Custodial Account as of the time distribution is to commence, the term
"Beneficiary" shall then mean the designating person's estate with
respect to the assets of the Custodial Account not disposed of by the
designation form. The form last accepted by the Custodian before such
distribution is to commence, provided it was received by the Custodian
(or deposited in the U.S. Mail or with a reputable delivery service)
during the designating person's lifetime, shall be controlling and,
whether or not fully dispositive of the Custodial Account, thereupon
shall revoke all such forms previously filed by that person. The term
"designating person" means Depositor during his/her lifetime; after
Depositor's death, it also means Depositor's spouse, but only if the
spouse elects to treat the Custodial Account as the spouse's own
Custodial Account in accordance with applicable provisions of the
Code.
(b) When and after distributions from the Custodial Account to Depositor's
Beneficiary commence, all rights and obligations assigned to Depositor
hereunder shall inure to, and be enjoyed and exercised by, Beneficiary
instead of Depositor.
12. (a) The Depositor agrees to provide information to the Custodian at such
time and in such manner as may be necessary for the Custodian to
prepare any reports required under Section 408(i) or Section
408A(d)(3)(E) of the Code and the regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Depositor at such time and manner and
containing such information as is prescribed by the Internal Revenue
Service.
(c) The Depositor, Custodian and Service Company shall furnish to each
other such information relevant to the Custodial Account as may be
required under the Code and any regulations issued or forms adopted by
the Treasury Department thereunder or as may otherwise be necessary
for the administration of the Custodial Account.
(d) The Depositor shall file any reports to the Internal Revenue Service
which are required of him by law (including Form 5329), and neither
the Custodian nor Service Company shall have any duty to advise
Depositor concerning or monitor Depositor's compliance with such
requirement.
13. (a) Depositor retains the right to amend this Custodial Account document
in any respect at any time, effective on a stated date which shall be
at least 60 days after giving written notice of the amendment
(including its exact terms) to Custodian by registered or certified
mail, unless Custodian waives notice as to such amendment. If the
Custodian does not wish to continue serving as such under this
Custodial Account document as so amended, it may resign in accordance
with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right so to
amend, provided (i) the Custodian does not change the investments
available under this Custodial Agreement and (ii) the Custodian amends
in the same manner all agreements comparable to this one, having the
same Custodian, permitting comparable investments, and under which
such power has been delegated to it; this includes the power to amend
retroactively if necessary or appropriate in the opinion of the
Custodian in order to conform this Custodial Account to pertinent
provisions of the Code and other laws or successor provisions of law,
or to obtain a governmental ruling that such requirements are met, to
adopt a prototype or master form of agreement in substitution for this
Agreement, or as otherwise may be advisable in the opinion of the
Custodian. Such an amendment by the Custodian shall be communicated in
writing to Depositor, and Depositor shall be deemed to have consented
thereto unless, within 30 days after such communication to Depositor
is mailed, Depositor either (i) gives Custodian a written order for a
complete distribution or transfer of the Custodial Account, or (ii)
removes the Custodian and appoints a successor under Section 17 below.
Pending the adoption of any amendment necessary or desirable to
conform this Custodial Account document to the requirements of any
amendment to any applicable provision of the Internal Revenue Code or
regulations or rulings thereunder, the Custodian and the Service
Company may operate the Depositor's Custodial Account in accordance
with such requirements to the extent that the Custodian and/or the
Service Company deem necessary to preserve the tax benefits of the
Account.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of Custodian
without its prior written consent.
(d) This Section 13 shall not be construed to restrict the Custodian's
right to substitute fee schedules in the man-
25
<PAGE>
ner provided by Section 16 below, and no such substitution shall be
deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement is
terminated or if, within 30 days (or such longer time as Custodian may
agree) after resignation or removal of Custodian under Section 17,
Depositor or Sponsor, as the case may be, has not appointed a
successor which has accepted such appointment. Termination of the
Custodial Account shall be effected by distributing all assets thereof
in a single payment in cash or in kind to Depositor, subject to
Custodian's right to reserve funds as provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial account
document shall have no further force and effect (except for Sections
15(f), 17(b) and (c) hereof which shall survive the termination of the
Custodial Account and this document), and Custodian shall be relieved
from all further liability hereunder or with respect to the Custodial
Account and all assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more contractors
or service providers to carry out any of its functions and may
compensate them from the Custodial Account for expenses attendant to
those functions. In the event of such appointment, all rights and
privileges of the Custodian under this Agreement shall pass through to
such contractors or service providers who shall be entitled to enforce
them as if a named party.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor and for
dealing with or forwarding the same to the transfer agent for the
Fund(s).
(c) The parties do not intend to confer any fiduciary duties on Custodian
or Service Company (or any other party providing services to the
Custodial Account), and none shall be implied. Neither shall be liable
(or assumes any responsibility) for the collection of contributions,
the proper amount, time or tax treatment of any contribution to the
Custodial Account or the propriety of any contributions under this
Agreement, or the purpose, time, amount (including any minimum
distribution amounts), tax treatment or propriety of any distribution
hereunder, which matters are the sole responsibility of Depositor and
Depositor's Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or after
the Custodian's resignation or removal), the Custodian or Service
Company shall file with Depositor a written report or reports
reflecting the transactions effected by it during such period and the
assets of the Custodial Account at its close. Upon the expiration of
60 days after such a report is sent to Depositor (or Beneficiary), the
Custodian or Service Company shall be forever released and discharged
from all liability and accountability to anyone with respect to
transactions shown in or reflected by such report except with respect
to any such acts or transactions as to which Depositor shall have
filed written objections with the Custodian or Service Company within
such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to
Depositor all notices, prospectuses, financial statements and other
reports to shareholders, proxies and proxy soliciting materials
relating to the shares of the Funds(s) credited to the Custodial
Account. No shares shall be voted, and no other action shall be taken
pursuant to such documents, except upon receipt of adequate written
instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company, Distributor,
the Fund(s), Sponsor and Custodian and save them harmless from any and
all liability whatsoever which may arise either (i) in connection with
this Agreement and the matters which it contemplates, except that
which arises directly out of the Service Company's, Distributor's,
Fund's, Sponsor's or Custodian's bad faith, gross negligence or
willful misconduct, (ii) with respect to making or failing to make any
distribution, other than for failure to make distribution in
accordance with an order therefor which is in full compliance with
Section 10, or (iii) actions taken or omitted in good faith by such
parties. Neither Service Company nor Custodian shall be obligated or
expected to commence or defend any legal action or proceeding in
connection with this Agreement or such matters unless agreed upon by
that party and Depositor, and unless fully indemnified for so doing to
that party's satisfaction.
(g) The Custodian and Service Company shall each be responsible solely for
performance of those duties expressly assigned to it in this
Agreement, and neither assumes any responsibility as to duties
assigned to anyone else hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively rely upon and
shall be protected in acting upon any written order from Depositor or
Beneficiary, or any investment advisor appointed under Section 8, or
any other notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have
26
<PAGE>
been properly executed, and so long as it acts in good faith, in
taking or omitting to take any other action in reliance thereon. In
addition, Custodian will carry out the requirements of any apparently
valid court order relating to the Custodial Account and will incur no
liability or responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this Agreement,
shall receive the fees specified on the applicable fee schedule. The
fee schedule originally applicable shall be the one specified in the
Adoption Agreement or Disclosure Statement, as applicable. The
Custodian may substitute a different fee schedule at any time upon 30
days' written notice to Depositor. The Custodian shall also receive
reasonable fees for any services not contemplated by any applicable
fee schedule and either deemed by it to be necessary or desirable or
requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of any
kind whatsoever, including transfer taxes incurred in connection with
the investment or reinvestment of the assets of the Custodial Account,
that may be levied or assessed in respect to such assets, and all
other administrative expenses incurred by the Custodian in the
performance of its duties (including fees for legal services rendered
to it in connection with the Custodial Account) shall be charged to
the Custodial Account. If the Custodian is required to pay any such
amount, the Depositor (or Beneficiary) shall promptly upon notice
thereof reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses charged to
the Custodial Account shall be collected either from the amount of any
contribution or distribution to or from the Account, or (at the option
of the person entitled to collect such amounts) to the extent possible
under the circumstances by the conversion into cash of sufficient
shares of one or more Funds held in the Custodial Account (without
liability for any loss incurred thereby). Notwithstanding the
foregoing, the Custodian or Service Company may make demand upon the
Depositor for payment of the amount of such fees, taxes and other
administrative expenses. Fees which remain outstanding after 60 days
may be subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor or
Sponsor, as the case may be, may remove it from its office hereunder.
Such notice, to be effective, shall designate a successor custodian
and shall be accompanied by the successor's written acceptance. The
Custodian also may at any time resign upon 30 days' prior written
notice to Sponsor, whereupon the Sponsor shall notify the Depositor
(or Beneficiary) and shall appoint a successor to the Custodian. In
connection with its resignation hereunder, the Custodian may, but is
not required to, designate a successor custodian by written notice to
the Sponsor or Depositor (or Beneficiary), and the Sponsor or
Depositor (or Beneficiary) will be deemed to have consented to such
successor unless the Sponsor or Depositor (or Beneficiary) designates
a different successor custodian and provides written notice thereof
together with such a different successor's written acceptance by such
date as the Custodian specifies in its original notice to the Sponsor
or Depositor (or Beneficiary) (provided that the Sponsor or Depositor
(or Beneficiary) will have a minimum of 30 days to designate a
different successor).
(b) The successor custodian shall be a bank, insured credit union, or
other person satisfactory to the Secretary of the Treasury under Code
Section 408(a)(2). Upon receipt by Custodian of written acceptance by
its successor of such successor's appointment, Custodian shall
transfer and pay over to such successor the assets of the Custodial
Account and all records (or copies thereof) of Custodian pertaining
thereto, provided that the successor custodian agrees not to dispose
of any such records without the Custodian's consent. Custodian is
authorized, however, to reserve such sum of money or property as it
may deem advisable for payment of all its fees, compensation, costs,
and expenses, or for payment of any other liabilities constituting a
charge on or against the assets of the Custodial Account or on or
against the Custodian, with any balance of such reserve remaining
after the payment of all such items to be paid over to the successor
custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and sections
thereof shall mean the same as amended from time to time, including
successors to such sections.
19. Except where otherwise specifically required in this Agreement, any notice
from Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power to
anticipate any part of the Custodial Account or to sell, assign, transfer,
pledge or hypothecate any part thereof. The Custodial Account shall not be
liable for the debts of
27
<PAGE>
Depositor or Depositor's Beneficiary or subject to any seizure, attachment,
execution or other legal process in respect thereof except to the extent
required by law. At no time shall it be possible for any part of the assets
of the Custodial Account to be used for or diverted to purposes other than
for the exclusive benefit of the Depositor or his/her Beneficiary except to
the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall be
construed and administered in accordance with the laws of the state where
the principal offices of the Custodian are located. Any action involving
the Custodian brought by any other party must be brought in a state or
federal court in such state.
If in the Adoption Agreement, Depositor designates that the Custodial
Account is a Regular IRA, this Agreement is intended to qualify under Code
Section 408(a) as an individual retirement Custodial Account and to entitle
Depositor to the retirement savings deduction under Code Section 219 if
available. If in the Adoption Agreement Depositor designates that the
Custodial Account is a Roth IRA, this Agreement is intended to qualify
under Code Section 408A as a Roth individual retirement Custodial Account
and to entitle Depositor to the tax-free withdrawal of amounts from the
Custodial Account to the extent permitted in such Code section.
If any provision hereof is subject to more than one interpretation or any
term used herein is subject to more than one construction, such ambiguity
shall be resolved in favor of that interpretation or construction which is
consistent with the intent expressed in whichever of the two preceding
sentences is applicable.
However, the Custodian shall not be responsible for whether or not such
intentions are achieved through use of this Agreement, and Depositor is
referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the legal
consequences (including but not limited to federal and state tax matters)
of entering into this Agreement, contributing to the Custodial Account, and
ordering Custodian to make distributions from the Account. Depositor
acknowledges that Custodian and Service Company (and any company associated
therewith) are prohibited by law from rendering such advice.
23. If any provision of any document governing the Custodial Account provides
for notice, instructions or other communications from one party to another
in writing, to the extent provided for in the procedures of the Custodian,
Service Company or another party, any such notice, instructions or other
communications may be given by telephonic, computer, other electronic or
other means, and the requirement for written notice will be deemed
satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) If in the Adoption Agreement the Depositor designated the Custodial
Account as a Regular IRA under Code Section 408(a), the provisions of
Part One and Part Three of this Agreement and the provisions of the
Adoption Agreement are the legal documents governing the Depositor's
Custodial Account.
(b) If in the Adoption Agreement the Depositor designated the Custodial
Account as a Roth IRA under Code Section 408A, the provisions of Part
Two and Part Three of this Agreement and the provisions of the
Adoption Agreement are the legal documents governing the Depositor's
Custodial Account.
(c) In the Adoption Agreement the Depositor must designate the Custodian
Account as either a Roth IRA or a Regular IRA, and a separate account
will be established for such IRA. One Custodial Account may not serve
as a Roth IRA and a Regular IRA (through the use of subaccounts or
otherwise.)
25. Articles I through VII of Part One of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-A. It is
anticipated that, if and when the Internal Revenue Service promulgates
changes to Form 5305-A, the Custodian will amend this Agreement
correspondingly.
Articles I through VII of Part Two of this Agreement are in the form
promulgated by the Internal Revenue Service as Form 5305-RA. It is
anticipated that, if and when the Internal Revenue Service promulgates
changes to Form 5305-RA, the Custodian will amend this Agreement
correspondingly.
The Internal Revenue Service has endorsed the use of documentation
permitting a Depositor to establish either a Regular IRA or Roth IRA (but
not both using a single Adoption Agreement), and this Kit complies with the
requirements of the IRS guidance for such use. If the Internal Revenue
Service subsequently determines that such an approach is not permissible,
or that the use of a "combined" Adoption Agreement does not establish a
valid Regular IRA or a Roth IRA (as the case may be), the Custodian will
furnish the Depositor with replacement documents and the Depositor will if
necessary sign such replacement documents. Depositor acknowledge and agrees
to such procedures and to cooperate with Custodian to preserve the intended
tax treat-
28
<PAGE>
ment of the Account.
26. If the Depositor maintains an Individual Retirement Account under Code
section 408(a), Depositor may convert or transfer such other IRA to a Roth
IRA under Code section 408A using the terms of this Agreement and the
Adoption Agreement by completing and executing the Adoption Agreement and
giving suitable directions to the Custodian and the custodian or trustee of
such other IRA. Alternatively, the Depositor may convert or transfer such
other IRA to a Roth IRA by use of a reply card or by telephonic, computer
or electronic means in accordance with procedures adopted by the Custodian
or Service Company intended to meet the requirements of Code section 408A,
and the Depositor will be deemed to have executed the Adoption Agreement
and adopted the provisions of this Agreement and the Adoption Agreement in
accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the current
prospectus for each Fund in which his or her Account is invested and the
Individual Retirement Account Disclosure Statement related to the Account.
The Depositor represents under penalties of perjury that his or her Social
Security number (or other Taxpayer Identification Number) as stated in the
Adoption Agreement is correct.
29
<PAGE>
The Oberweis Funds Mailing Address:
Emerging Growth Portfolio The Oberweis Funds
Micro-Cap Portfolio P.O. Box 419042
Mid-Cap Portfolio Kansas City, MO 64141
INDIVIDUAL RETIREMENT ACCOUNT ADOPTION AGREEMENT (APPLICATION)
Use this form to open a new IRA, IRA R/O (Conduit), Roth IRA, Roth Conversion
IRA, SEP IRA, and/or SAR SEP.
If you have an existing IRA of one of the types listed above invested in The
Oberweis Funds, you may open an additional IRA of a different type by only
completing sections B,C and G below. (Do not use this application to open a
SIMPLE IRA or Educational IRA.) You may use this form to establish only one type
of IRA. For Roth IRA's, only annual contributions may be accepted in a non-
deductible Contribution Roth IRA account. If a conversion, rollover or transfer
from a Regular IRA to a Roth IRA is being made, only amounts converted, rolled
over or transferred during the same year (not annual contributions) will be
accepted in the Roth IRA account.
For assistance in completing this application or to request forms, please call
1-800-245-7311.
A. ACCOUNT REGISTRATION:
- -------------------------------- ------------------------------------
Name Social Security Number
- -------------------------------- ------------------------------------
Address Daytime phone number & Home phone #
- -------------------------------- ------------------------------------
City State Zip Representative's phone number
- -------------------------------- ---------------------------------
Name and firm of representative Date of Birth
B. EXISTING ACCOUNT INFORMATION
Existing IRA Account Number __________________ Fund ________________________
If converting a regular IRA to a Roth IRA, I elect out of federal income tax
withholding unless this line is checked:____
Withhold at 10% or______% (insert percentage)
Name ________________ Social Security # ______________ Telephone #_____________
C. NEW ACCOUNT INFORMATION
Please check-mark IRA type, check-mark investment type, and complete requested
investment information.
You may open more than one type of IRA on this application and use the
Reference # shown before the IRA Type in this section to write in the INVESTMENT
INSTRUCTIONS section to clearly show your selection.
<TABLE>
<CAPTION>
. IRA TYPE
-------- DOLLARS CONTRIBUTION SPECIAL
. INVESTMENT TYPE INVESTED TAX YEAR FORM
--------------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
. 1) Regular IRA
. IRA deductible or non-deductible
Contribution $_______ ____ *
. Direct Transfer from existing IRA $_______ *
. Rollover within 60 days of receipt
from a regular IRA $_______
. 2) Rollover IRA (Conduit)
. Direct Rollover payable to IFTC
from 403(b) or employer qualified $_______
plan
. Direct Transfer from existing
Conduit IRA $_______ *
. Rollover within 60 days of receipt
from 403(b) or $_______
employer qualified plan
. 3) Roth IRA
. Roth IRA non-deductible Contribution $_______ ____
. Direct Transfer from existing Roth
IRA with original start date _____ $_______ *
. Rollover within 60 days from Roth
IRA with original start date _____ $_______
. 4) Roth Conversion IRA
. Convert my existing regular IRA to
a Roth Conversion IRA $_______ *
. Direct Transfer from existing Roth
Conversion IRA $_______ *
with original start date of _____
. Rollover within 60 days from Roth
Conversion IRA $_______
with an original start date of _____
. 5) SEP IRA
. SEP Employer (or self employed)
Contribution $_______ ____
. Direct Transfer from existing SEP
IRA $_______ *
. Rollover within 60 days of receipt
from a SEP IRA $_______
. 6) SAR SEP IRA plan established before
1997
. SEP Employee Salary Reduction $_______ ____
. Direct Transfer from existing SAR
SEP IRA $_______ *
. Rollover within 60 days of receipt
from a SAR SEP IRA $_______
</TABLE>
* Complete and enclose "Authorization for IRA Transfer, Direct Rollover &
Conversion".
Please call 1-800-245-7311 to request Special forms.
---------------------------------------------------
An annual administrative fee of $12.00 per account, in each portfolio, will be
automatically deducted from your account if not submitted separately. The
custodian may change this fee from time to time.
D. INVESTMENT INSTRUCTIONS Please allocate my purchase as follows:
Name of Fund Amount
------------ ------
__ Oberweis Emerging Growth $____________
__ Oberweis Micro-Cap $____________
__ Oberweis Mid-Cap $____________
__ Cash Resource Money Market Fund $____________
__ Cash Resource U.S. Government
Money Market Fund $____________
__ Cash Resource Tax-Exempt
Money Market Fund $____________
E. Designation of Beneficiary(ies):
designate the individual(s) named below the Beneficiary(ies) of this IRA. I
evoke all prior IRA Beneficiary designations, if any, made by me for these
assets. I understand that I may change or add Beneficiaries at any time by
written notice to the Custodian. If I am not survived by any Beneficiary, my
Beneficiary shall be my estate. (If no percentage is specified, primary
beneficiaries will share the account balance equally.)
Primary Name________________________________ % of Acct.____% SS#_________
- -------
Beneficiary(ies) Birthdate __________ Relationship: ______________________
Address____________________________________
Name________________________________ % of Acct.____% SS#_________
Birthdate __________ Relationship: ______________________
Address____________________________________
Contingent Name________________________________ % of Acct.____% SS#_________
- ----------
Beneficiary(ies) Birthdate __________ Relationship: ______________________
Address____________________________________
<PAGE>
Name________________________________ % of Acct.____% SS#________
Birthdate __________ Relationship: ______________________
Address____________________________________
F. Spousal Consent:
(This section should be reviewed if the accountholder is married, is a resident
of a community property or marital property state, and designates a beneficiary
other than the spouse. It is the accountholder's responsibility to determine if
this section applies. The accountholder may need to consult with legal counsel.
Neither the Custodian nor the Sponsor are liable for any consequences resulting
from a failure of the accountholder to provide proper spousal consent.)
I am the spouse of the above named accountholder. I acknowledge that I have
received a full and reasonable disclosure of my spouse's property and
financial obligations. Due to any possible consequences of giving up my
community property interest in this IRA, I have been advised to see a tax
professional or legal advisor.
I hereby consent to the beneficiary designation(s) indicated above. I
assume full responsibility for any adverse consequence that may result. No
tax or legal advice was given to me by the Custodian or Sponsor.
_______________________________ ___________
SIGNATURE OF SPOUSE DATE
_______________________________ ___________
SIGNATURE OF WITNESS FOR SPOUSE DATE
G. CERTIFICATION AND SIGNATURES
If the Depositor has indicated a Regular IRA Rollover or Direct Rollover
above, Depositor certifies that the contribution does not include any employee
contributions to any qualified plan (other than accumulated deductible
employee contributions) or 403(b) arrangement; that any assets transferred in
kind by Depositor are the same assets received by the Depositor in the
distribution being rolled over; if the distribution is from another Regular
IRA, that Depositor has not made another rollover within the one-year period
immediately preceding this rollover; that such distribution was received
within the time period prescribed by the IRS for making the rollover to this
Account; and that no portion of the amount rolled over is a required minimum
distribution under the required distribution rules.
If Depositor has indicated a Conversion or a Rollover of an existing Regular
IRA to a Roth IRA, Depositor acknowledges that the amount converted will be
treated as taxable income (except for prior nondeductible contributions) for
federal income tax purposes. If Depositor has indicated a Rollover from
another Roth IRA, Depositor certifies that the information given above is
correct and acknowledges that adverse tax consequences or penalties could
result from giving incorrect information.
Depositor has received and read the applicable sections of the "The Oberweis
Funds Universal Individual Retirement Account Disclosure Statement" relating
to this Account (including the Custodian's fee schedule), the Custodial
Account document, and the "Instructions" pertaining to this Adoption
Agreement.
Depositor acknowledges and understands that the beneficiaries named herein may
be changed or revoked at any time by filing a new designation in writing with
the Custodian. All forms must be acceptable to the Custodian and dated and
signed by the Depositor.
<TABLE>
<S> <C>
*___________________________________________________ Custodian Acceptance. Investors Fiduciary Trust
Company will accept appointment as Custodian of the
Depositor's Account. However, this Agreement is not
Signature of Depositor binding upon the Custodian until the Depositor has
received a statement of the transaction. Receipt by
the Depositor of a confirmation of the purchase of
Date ______________________________________ the Fund shares indicated above will serve as
notification of Investors Fiduciary Trust Company's
acceptance of appointment as Custodian of the
Depositor's Account.
INVESTORS FIDUCIARY TRUST COMPANY, CUSTODIAN
------------------------------------------------------
Signature of Custodian
</TABLE>
*If the Depositor is a minor under the laws of the Depositor's state of
residence, a parent or guardian must sign the Adoption Agreement. Until the
Depositor reaches the age of majority, the parent or guardian will exercise the
powers and duties of the Depositor. (If Guardian, provide a copy of letters of
appointment.)
_______Parent ________Guardian
RETAIN A PHOTOCOPY OF THE COMPLETED ADOPTION AGREEMENT FOR YOUR RECORDS
<PAGE>
The Oberweis Funds
Education Individual Retirement Custodial Account
Transfer of Education IRA Assets Form
1. NAME, ADDRESS AND CONSENT OF PERSON WHO CONTROLS THE CURRENT Sending Account
Name_____________________ Mother_________Father_________Guardian*__________
*If "guardian," submit proof of guardianship.
Address_____________________________________________________________________
Street City State Zip
Day Telephone No. (____)____________ Social Security No.__________________
By signing below, I authorize and direct the current custodian or trustee to
make the transfer specified in this form.
______________________________________
Signature Date
SIGNATURE GUARANTEE (only if required by current custodian or trustee)
Signature guaranteed by:
____________________________________________________
Name of Bank or Dealer Firm
____________________________________________________
Signature of Officer and Title
2. NAME OF STUDENT BENEFITING UNDER THE OBERWEIS FUNDS Education IRA,
(Identified in Section 1 of The Oberweis Funds Education IRA Adoption
Agreement.)
Name _____________________________________________
Address____________________________________________
Street City State Zip
Day Telephone No. (___)______________
Social Security No._______/________/_______
3. INSTRUCTIONS TO CURRENT EDUCATION IRA CUSTODIAN OR TRUSTEE
Current Account No._________________________________________________________
Name of Custodian/Trustee___________________________________________________
Attn: Mr./Ms._______________________________________________________________
Address_____________________________________________________________________
Street City State Zip
<PAGE>
Please transfer assets from the above account to Investors Fiduciary Trust
Company (IFTC). Transfer should be in cash according to the following
instructions:
(_) Transfer the total amount in this or (_) Transfer $______ and retain
Account. the balance.
(_) Transfer-in-kind shares of (_) The Oberweis Emerging Growth
Portfolio
(_) The Oberweis Micro-Cap Portfolio
(_) The Oberweis Mid-Cap Portfolio
ALL CHECKS SHOULD BE PAYABLE AND MAILED TO:
The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
INVESTMENT INSTRUCTIONS TO IFTC (Check one box and complete if necessary)
(_) Invest the transferred amount in accordance with the investment
instructions in the Adoption Agreement (section 5) for The Oberweis
Funds Education Individual Retirement Custodial Account.
If such an IRA is already open, give account
number:______________________
(_) Invest the transferred amount as follows:
The Oberweis Emerging Growth Portfolio __________%
The Oberweis Micro-Cap Portfolio __________%
The Oberweis Mid-Cap Portfolio __________%
MUST TOTAL 100%
The undersigned acknowledges having sole responsibility for the foregoing
investment choices and having received a current prospectus for each Fund
selected. Please read the prospectus(es) of the Fund(s) selected before
investing.
The undersigned understands that the requirements for a valid transfer between
Education IRAs are complex and acknowledges having responsibility for complying
with all requirements and for the tax results of any such transfer.
4. SIGNATURE OF STUDENT, PARENT OR Guardian (See Special Note Below).
- --------------------------------------- -----------------------
Student/Parent Date
(Please circle one of the above)
Special Note: If Student is a minor under the law of Student's state of
residence, the parent or guardian must execute this transfer of Education IRA
Assets Form.
5. ACCEPTANCE BY NEW CUSTODIAN (Completed by IFTC)
Investors Fiduciary Trust Company agrees to accept transfer of the above amount
for deposit to the Student's Oberweis Funds Education Individual Retirement
Custodial Account, and requests the liquidation and transfer of assets as
indicated above.
Investors Fiduciary Trust Company, Custodian
<PAGE>
Invest contributions to my Account as follows:
The Oberweis Emerging Growth Portfolio _________%
The Oberweis Micro-Cap Portfolio _________%
The Oberweis Mid-Cap Portfolio _________%
MUST TOTAL 100%
An annual administrative fee of $12.00 per account, in each portfolio, will be
automatically deducted from your account if not submitted separately. The
custodian may change this fee from time to time.
The undersigned acknowledges having sole responsibility for the foregoing
investment choices and having received a current prospectus for each Fund
selected. Please read the prospectus(es) of the Fund(s) selected before
investing.
6. Certifications and Signatures
If this is a Rollover Education IRA, the undersigned certifies that any assets
transferred in kind are the same assets received in the distribution being
rolled over; that no rollover into an Education IRA has been made within the
one-year period immediately preceding this rollover; that such distribution was
received within 60 days of making the rollover to the Account; and that the
Student identified in Item 1 above is either the person for whose benefit the
prior Education IRA was maintained or a member of such person's family (within
the meaning of Internal Revenue Code Section 529(e)(2)).
If this is an Annual Contribution Education IRA, the undersigned certifies that
the Student is less than 18 years old and that all Contributions made on
Student's behalf to this or any other Education IRAs do not exceed $500 in a
single tax year. If this is a Transfer or Rollover of an existing Education IRA,
the undersigned certifies that the Student is less than 30 years old and that
the relationship indicated in Section 4 is correct.
The undersigned acknowledges having received and read the "Education IRA
Disclosure Statement" relating to this Account (including the Custodian's fee
schedule), the Education Individual Retirement Custodial Account Agreement, and
the "Instructions" pertaining to this Adoption Agreement.
The undersigned acknowledges receipt of the Custodial Account Agreement and
Education IRA Disclosure Statement at least 7 days before the date of signature
(as indicated below) and acknowledges that there is no further right of
revocation.
Custodian Acceptance. Investors Fiduciary
Trust Company will accept appointment as
Custodian of the Account. However, this
Agreement is not binding upon the Custodian
until the Student has received a statement
of the transaction. Receipt by the Student
of a confirmation of the purchase of the
Fund shares indicated above will serve as
notification of IFTC's acceptance of
appointment as Custodian of the Account.
- --------------------------------- INVESTORS FIDUCIARY TRUST COMPANY, CUSTODIAN
Signature of Student Date
(If Student has obtained the age --------------------------------------------
of majority in his/her state By
of residence.)
--------------------------------------------
Date
- ---------------------------------
Signature of Donor Date
(If Student has not obtained the
age of majority in his/her state
of residence.)
If Student is a minor under the laws of Student's state of residence, acceptance
by the Custodian of the contribution to this Account is expressly conditioned
upon the Parent's (identified above in Section 2) agreement to be responsible
for all requirements of the Student, and to exercise the powers and duties of
the Student, with respect to the operation of the Account. Upon reaching the age
of majority in the state in which the Student then resides, the Student may
advise the Custodian in writing (accompanied by such supporting documentation as
the Custodian may require) that he or she is assuming sole responsibility to
exercise all powers and duties associated with the administration of the
Account. Absent such written notice by Student, Custodian shall have no
responsibility to acknowledge Student's exercise of such powers and duties of
administration.
RETAIN A PHOTOCOPY OF THE COMPLETED ADOPTION AGREEMENT FOR YOUR RECORDS
ALL CHECKS SHOULD BE PAYABLE AND MAILED TO:
The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
<PAGE>
The Oberweis Funds
Education Individual Retirement Custodial Account
Adoption Agreement
The undersigned, by signing this Adoption Agreement, hereby establishes an
Education Individual Retirement Account (the "Account") for the benefit of the
Student with Investors Fiduciary Trust Company as Custodian ("IFTC"). The terms
of the Account are contained in the document entitled "The Oberweis Funds
Education Individual Retirement Custodial Account Agreement" (which is
incorporated by reference) and this Adoption Agreement. The Account will be
effective upon acceptance by IFTC.
1. Student Information (See Instructions)
<TABLE>
<S> <C>
__________________________________________ ___________/_______/____________
Print Full Name of Student Student's Social Security Number
__________________________________________ (_____)_________________________
Address Student's Daytime Telephone Number
__________________________________________ Student's Date of Birth: _____/_____/_____
City State Zip
2. Parent Information (See Instructions - Only one Parent should be listed)
Mother_______Father_______Guardian_______
*If "guardian," submit proof of guardianship
__________________________________________
Print Full Name (_____)_________________________________
__________________________________________ Parent's Daytime Telephone Number
Address
__________________________________________ _________/_________/______________
City State Zip Parent's Social Security Number
Note: The "Parent" is the same individual described as the "Responsible
Individual" (RI) or a Parent, in Articles 1 - XI of the Custodian Account
Agreement and the Disclosure Statement, and in the account registration
materials.
3. Donor Information (See Instructions)
__________________________________________ (_____)___________________________
Print Full Name Donor's Daytime Telephone Number
__________________________________________
Address
__________________________________________ __________________________________
City State Zip Donor's Social Security Number
</TABLE>
4. Type of Education IRA
A. Annual Contribution
_____ Contribution for the current year. Check enclosed for $_____________.
. This contribution does not exceed the maximum permitted amount as
described in the Education IRA Disclosure Statement.
B. Rollover or Transfer of Existing Education IRA
_____ Transfer of existing Education IRA. Complete the separate Transfer of
Education IRA Assets Form and return it with this form.
_____ Rollover of distribution from existing Education IRA to me within 60
days after distribution. The requirements for a valid rollover are
complex. See the Education IRA Disclosure Statement for additional
information and consult your tax advisor for help if needed.
Check enclosed for $_____________.
If you are transferring or rolling over an existing Education IRA, check the
appropriate line below for the relationship of the Student in Item 1 above to
the person who is the student in the existing Education IRA. The person in Item
1 is the:
[_] same person [_] child or step-child [_] sibling
[_] child of sibling [_] step-parent [_] grandparent
[_] spouse of one of foregoing [_] other ____________
5. Investments and Custodian's Fee Schedule
<PAGE>
Invest contributions to my Account as follows:
The Oberweis Emerging Growth Portfolio _________%
The Oberweis Micro-Cap Portfolio _________%
The Oberweis Mid-Cap Portfolio _________%
MUST TOTAL 100%
An annual administrative fee of $12.00 per account, in each portfolio, will be
automatically deducted from your account if not submitted separately. The
custodian may change this fee from time to time.
The undersigned acknowledges having sole responsibility for the foregoing
investment choices and having received a current prospectus for each Fund
selected. Please read the prospectus(es) of the Fund(s) selected before
investing.
6. Certifications and Signatures
If this is a Rollover Education IRA, the undersigned certifies that any assets
transferred in kind are the same assets received in the distribution being
rolled over; that no rollover into an Education IRA has been made within the
one-year period immediately preceding this rollover; that such distribution was
received within 60 days of making the rollover to the Account; and that the
Student identified in Item 1 above is either the person for whose benefit the
prior Education IRA was maintained or a member of such person's family (within
the meaning of Internal Revenue Code Section 529(e)(2)).
If this is an Annual Contribution Education IRA, the undersigned certifies that
the Student is less than 18 years old and that all Contributions made on
Student's behalf to this or any other Education IRAs do not exceed $500 in a
single tax year. If this is a Transfer or Rollover of an existing Education
IRA, the undersigned certifies that the Student is less than 30 years old and
that the relationship indicated in Section 4 is correct.
The undersigned acknowledges having received and read the "Education IRA
Disclosure Statement" relating to this Account (including the Custodian's fee
schedule), the Education Individual Retirement Custodial Account Agreement, and
the "Instructions" pertaining to this Adoption Agreement.
The undersigned acknowledges receipt of the Custodial Account Agreement and
Education IRA Disclosure Statement at least 7 days before the date of signature
(as indicated below) and acknowledges that there is no further right of
revocation.
________________________________________________________________________________
Signature of Student Date
(If Student has obtained the age of majority in his/her state of residence.)
---
________________________________________________________________________________
Signature of Donor Date
(If Student has not obtained the age of majority in his/her state of residence.)
-------
Custodian Acceptance. Investors Fiduciary Trust Company will accept appointment
as Custodian of the Account. However, this Agreement is not binding upon the
Custodian until the Student has received a statement of the transaction. Receipt
by the Student of a confirmation of the purchase of the Fund shares indicated
above will serve as notification of IFTC's acceptance of appointment as
Custodian of the Account.
INVESTORS FIDUCIARY TRUST COMPANY, CUSTODIAN
____________________________________________________________________
By
____________________________________________________________________
Date
If Student is a minor under the laws of Student's state of residence, acceptance
by the Custodian of the contribution to this Account is expressly conditioned
upon the Parent's (identified above in Section 2) agreement to be responsible
for all requirements of the Student, and to exercise the powers and duties of
the Student, with respect to the operation of the Account. Upon reaching the
age of majority in the state in which the Student then resides, the Student may
advise the Custodian in writing (accompanied by such supporting documentation as
the Custodian may require) that he or she is assuming sole responsibility to
exercise all powers and duties associated with the administration of the
Account. Absent such written notice by Student, Custodian shall have no
responsibility to acknowledge Student's exercise of such powers and duties of
administration.
RETAIN A PHOTOCOPY OF THE COMPLETED ADOPTION AGREEMENT FOR YOUR RECORDS
ALL CHECKS SHOULD BE PAYABLE AND MAILED TO:
The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
<PAGE>
[OBERWEIS LOGO]
The
Oberweis
Funds
- --------------------------------------------------------------------------------
Investment Advisor/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
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.
EDUCATION IRA
PACKAGE
--------------------------
EFFECTIVE JANUARY 20, 1998
[OBERWEIS LOGO]
The Oberweis Funds
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
<PAGE>
THE OBERWEIS FUNDS EDUCATION IRA INFORMATION KIT
INTRODUCTION
What's New In The World Of IRAs?
An Individual Retirement Account ("IRA") has always provided an attractive means
to save money for the future on a tax-advantaged basis. A new law now makes IRAs
an excellent vehicle to save for the expense of higher education. This new
Education IRA allows taxpayers to make annual nondeductible contributions, which
are not subject to any gift tax, of up to $500 on behalf of any beneficiary who
is 18 years old or younger. Earnings and interest grow tax free, and qualified
withdrawals from the Education IRA to pay for eligible higher education expenses
are tax- and penalty-free. The Education IRA contribution limit phases out at
modified adjusted gross income levels between $95,000 and $110,000 for single
filers, and between $150,000 and $160,000 for married, joint return filers.
Education IRAs are first available starting January 1, 1998.
This Kit provides information on Education IRAs only. To learn more about the
benefits and features of our Regular IRA or our new Roth IRA, call or write us
at the phone number or address appearing on page 17.
What's in This Kit?
In this Kit you will find detailed information about Education IRAs and
everything needed to establish an Education IRA.
The first section of this Kit contains the instructions for completing the
Education IRA ADOPTION Agreement (enclosed) to establish a new Education IRA, or
to transfer from another Education IRA to an Oberweis Funds Education IRA.
The second section of this Kit contains the Education IRA Custodial Account
Agreement, which provides the legal provisions governing your Education IRA.
The third section of this Kit contains our Education IRA Disclosure Statement,
which describes the basic rules applicable to your Education IRA.
Other Points to Note.
The Disclosure Statement in this Kit provides you with the basic information
that you should know about The Oberweis Funds Education IRAs. The Disclosure
Statement provides general information about the rules and features of Education
IRAs. However, the Adoption Agreement and Custodial Agreement, are the primary
documents governing your Education IRA, and these shall govern in the case of
any difference with the Disclosure Statement.
Please note that Education IRAs are new under the tax laws and many legal issues
concerning their operation have not yet been resolved. Also, since the
information in this Kit is only a summary, it may not cover all the details that
could affect your personal situation. Finally, this Kit does not address the tax
treatment of Education IRAs under state laws, which may vary. Therefore, you
should consult your own tax advisor or the IRS if you have any questions about
Education IRAs, or about latest developments or state tax treatment of Education
IRAs.
When used in this Kit you or your refers to the person for whom the Education
IRA is established. This individual is also called the Student. Where the use of
you, your or Student refers to an obligation, responsibility or duty of the
Student related to the Student's Education IRA, and the Student has not attained
the age of majority in the state of residence ("age of majority"), the parent or
guardian identified in the Adoption Agreement (the "Parent") must carry out the
obligation, responsibility or duty on the Student's behalf. Acceptance by the
Custodian of the contributions to the Account is expressly conditioned on the
Parent's assumption of such duties and responsibilities.
Information For Donors.
If you are a Donor other than a Student or Parent, read this information
carefully. As a Donor, you must complete and sign the enclosed Adoption
Agreement, designate the Student for whom the Education IRA is to be maintained,
and complete the other required sections of the Agreement - including the
initial investment elections - and submit the signed form to the Custodian,
along with your contribution. Once you submit the Agreement with the
contribution, you will have no further control over the account or the amount
contributed (unless you revoke the account). The Student (or Parent) will
control investment choices and can withdraw amounts at any time without your
consent. No amounts will revert to you.
1
<PAGE>
THE OBERWEIS FUNDS EDUCATION INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
INSTRUCTIONS FOR OPENING AN EDUCATION IRA
1. Read carefully the Education IRA Disclosure Statement, the Education
Individual Retirement Custodial Account Agreement document, the Education
IRA Adoption Agreement, and the prospectus(es) for any Fund(s) you are
considering. Consult your lawyer or other tax adviser if you have any
questions about how opening this Education IRA will affect your financial
and tax situation or about the rules for contributions to or withdrawals
from an Education IRA.
2. Complete the Education IRA Adoption Agreement
. In Part 1, provide all of the requested information about the Student
for whose benefit the Education IRA is being opened. The Student must be
under age 18 for an Annual Contribution Education IRA, or under age 30
for a Rollover or Transfer from another Education IRA.
. In Part 2, provide the requested information about the Parent or
Guardian who will control the Account on behalf of any Student who has
not yet reached the age of majority in his state of residence. (Leave
blank if inapplicable.) Indicate status (mother, father, guardian). If
"guardian," written proof of guardianship must accompany this form. The
Parent's Social Security Number is optional.
Only one person may be listed as the "Parent" in Part 2, even though the
Student lives with both parents, or even if such person is actually the
Student's guardian. In these materials, the term "Parent" refers to a
parent or guardian who is listed in Part 2. Note: Contributions
benefiting a particular Student are limited to $500 per year. If
necessary, the Parent should check with any other parent or guardian of
the Student to ensure that contributions for a year on that Student's
behalf (from all other sources) do not exceed the maximum limit.
. In Part 3, provide the requested information about the Donor.
The Donor is the individual making a contribution to the Account and
must sign this Agreement where indicated. The Student or Parent can be
the Donor. Once the Donor has made the contribution and selected the
initial investments, the Donor has no further rights or responsibilities
related to the Account, unless the Donor is the Student or Parent.
If no Donor is making a contribution to the Account (in other words, if
the only contribution is a rollover or transfer from an existing
Education IRA), leave Part 3 blank.
. In Part 4, check the box (or boxes) that shows the type of Education IRA
you are opening.
. If this is an Annual Contribution Education IRA (one to which
contributions may be made each year), check box A and enclose a check in
the amount of the first contribution. Unlike Regular IRAs, contributions
to an Education IRA must be made by December 31 of a year. Contributions
for a particular year may not be made by April 15 of the following year.
(Note: Although a Student may have more than one Annual Contribution
Education IRA, the maximum annual contribution limit for all Annual
Contribution Education IRAs benefiting that particular Student is $500
per year.)
. If this is a rollover or transfer of funds from an existing Education
IRA, check box B. Check the appropriate box to indicate whether the
transaction is a rollover or direct transfer from another Education IRA
custodian. (Note: You can only transfer or rollover amounts from another
Education IRA; transfers or rollovers from Regular IRAs, Roth IRAs, an
employer-sponsored plan, or any other similar arrangement are not
permitted under federal law.) If this is a transfer directly from
another custodian, complete the Transfer of Education IRA Assets Form.
. Check the box to indicate the relationship between the Student for whom
this account is being opened and the person for whose benefit the
transferring account was maintained. This can be the same Student or a
family member. (Note: Under federal law, transfers or rollovers are
permissible only if they are made to an Education IRA for the same
Student or another person who is under age 30 and a member of the
original Student's family. "Family members" for this purpose are: child,
step-child, child's or step-child's descendant, sibling, sibling's
child, parent, step-parent, grandparent or the spouse of any of the
foregoing.)
. In Part 5, indicate your investment choices.
. Sign and date the Adoption Agreement at the end.
3. If you are transferring assets directly from an existing Education IRA,
complete the Transfer of Education IRA Assets Form.
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4. The Custodian fees for maintaining your Education IRA are listed in the
"Fees and Expenses" section of the Disclosure Statement or in the Adoption
Agreement. If you are paying by check, enclose a check for the correct
amount payable as specified below. If you do not pay by check, the correct
amount will be taken from the Account.
5. Check to be sure you have properly completed all necessary forms and
enclosed a check for the Custodian's fees and a check for the first
contribution to your Education IRA (if applicable). Your Education IRA
cannot be accepted without the properly completed documents or the
custodian fees.
All checks should be payable to: The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
Special Note: If the Student for whose benefit this Education IRA is being
opened is a minor under the laws of the Student's state of residence, acceptance
by the Custodian of the contribution is expressly conditioned on the Parent's
(as identified in Section 2 above) agreement to be responsible for all
requirements of the Student, and to exercise the powers and duties of the
Student, with respect to the operation of the Account, until Student reaches the
age of majority. Upon reaching the age of majority in the state in which the
Student then resides, the Student may advise the Custodian in writing
(accompanied by any supporting documentation the Custodian may require) that he
or she is assuming sole responsibility to exercise all powers and duties
associated with the administration of the Account. Absent such written notice by
Student, Custodian shall have no responsibility to acknowledge Student's
exercise of such powers and duties of administration.
Send the completed forms and checks to: The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
THE OBERWEIS FUNDS EDUCATION INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT AGREEMENT
Articles I - X are in the form promulgated by the Internal Revenue Service in
form 5305-EA.
Article I.
The Custodian may accept additional cash contributions. These contributions may
be from the Depositor, or from any other individual, for the benefit of the
Designated Beneficiary, provided the Designated Beneficiary has not attained the
age of 18 as of the date such contributions are made. Total contributions that
are not rollover contributions described in section 530(d)(5) are limited to a
maximum amount of $500 for the taxable year.
Article II.
The maximum aggregate contribution that an individual may make to the Custodial
Account in any year may not exceed the $500 in total contributions that the
Custodial Account can receive. In addition, the maximum aggregate contribution
that an individual may make to the Custodial Account in any year is phased out
for unmarried individuals who have modified adjusted gross income (AGI) between
$95,000 and $110,000 for the year of the contribution and for married
individuals who file joint returns with modified AGI between $150,000 and
$160,000 for the year for the contribution. Unmarried individuals with modified
AGI above $110,000 for the year and married individuals who file joint returns
and have modified AGI above $160,000 for the year may not make a contribution
for that year. Modified AGI is defined in section 530(c)(2).
Article III.
No part of the Custodial Account funds may be invested in life insurance
contracts, nor may the assets of the Custodial Account be commingled with other
property except in a common investment fund (within the meaning of section
530(b)(1)(D).
Article IV.
1. Any balance to the credit of the Designated Beneficiary on the date on
which such Designated Beneficiary attains age 30 shall be distributed to
the Designated Beneficiary within 30 days of such date.
2. Any balance to the credit of the Designated Beneficiary shall be
distributed to the estate of the Designated Beneficiary within 30 days of
the date of such Designated Beneficiary's death.
Article V.
The Depositor shall have the power to direct the Custodian regarding the
investment of the above-listed amount assigned to the Custodial Account
(including earnings thereon) in the investment choices offered by the Custodian.
The Responsible Individual, however, shall have the power to redirect the
Custodian regarding
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the investment of such amounts, as well as the power to direct the Custodian
regarding the investment of all additional contributions (including earnings
thereon) to the Custodial Account. In the event that the Responsible Individual
does not direct the Custodian regarding the investment of additional
contributions (including earnings thereon), the initial investment direction of
the Depositor also will govern all additional contributions made to the
Custodial Account until such time as the Responsible Individual otherwise
directs the Custodian. Unless otherwise provided in this agreement, the
Responsible Individual also shall have the power to direct the Custodian
regarding the administration, management, and distribution of the Account.
Article VI.
The "Responsible Individual" named by the Depositor shall be a parent or
guardian of the designated beneficiary. The Custodial Account shall have only
one Responsible Individual at any time. If the Responsible Individual becomes
incapacitated or dies while the Designated Beneficiary is a minor under state
law, the successor Responsible Individual shall be the person named to succeed
in that capacity by the preceding Responsible Individual in a witnessed writing
or, if no successor is so named, the successor Responsible Individual shall be
the Designated Beneficiary's other parent or successor guardian. At the time
that the Designated Beneficiary attains the age of majority under state law, the
Designated Beneficiary becomes the Responsible Individual.
Article VII.
The Responsible Individual may change the Beneficiary designated under this
agreement to another member of the Designated Beneficiary's family described in
section 529(e)(2) in accordance with the Custodian's procedures.
Article VIII.
1. The Depositor agrees to provide the Custodian with the information
necessary for the Custodian to prepare any reports required under section
530(h).
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Responsible Individual as prescribed by the Internal Revenue Service.
Article IX.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV will be controlling. Any additional articles
that are not consistent with section 530 and related regulations will be
invalid.
Article X.
This Agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the Depositor and the Custodian whose signatures appear on the
Adoption Agreement.
Article XI.
1. As used in this Custodial Agreement the following terms have the following
meanings:
"Account" or "Custodial Account" means the Education Individual Retirement
Account established using the terms of this Agreement and the Adoption
Agreement signed by or on behalf of the Student.
The term "Student" means the person designated as such in the Adoption
Agreement (or on a form acceptable to the Custodian for use in connection
with the Custodial Account, and filed with the Custodian). The individual
who is the "Student" (as used in this Article XI) and the individual who is
the "Designated Beneficiary" (as used in Articles I through XI) are the
same.
The Student may, in writing on such form as may be acceptable to the
Custodian designate another person, who is a "family member" of the Student
(with in the meaning of section 529(e)(2) of the Code) who is under the age
of 30 as the successor Designated Beneficiary and Student with respect to
the Custodial Account hereunder, and thereafter such individual will be the
Designated Beneficiary and the Student for purposes of Articles I through X
and Article XI respectively.
The term "Donor" means the person designated as such in the Adoption
Agreement (or on a form acceptable to the Custodian for use in connection
with the Custodial Account, and filed with the Custodian.) The individual
who is the "Donor" (as used in this Article XI) and the individual who is
the "Depositor" (as used in Articles I through XI) are the same.
"Custodian" means Investors Fiduciary Trust Company.
The term "Parent" means the person designated as such in the Adoption
Agreement (or a form acceptable to the Custodian for use in connection with
the Custodial Account). The individual who is the "Parent" (as used in this
Article XI) and the individual who is the "Responsible Individual" (as used
in Articles I through XI) are the same.
"Fund" means any registered investment company which is specified in the
Adoption Agreement, or which is advised, sponsored or distributed by
Sponsor; provided, however, that such a mutual fund or registered
investment company must be legally offered for sale in the state of the
Student's residence.
"Distributor" means the entity which has a contract with the Fund(s) to
serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned
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hereunder to the Distributor may be performed by the Fund(s) or by an
entity that has a contract to perform management or investment advisory
services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform
various administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if
any) or by an entity specified in the second preceding paragraph.
"Sponsor" means The Oberweis Funds.
2. (a) Subject to the last paragraph of this Section 2(a), the Donor may
revoke the Custodial Account established hereunder by mailing or
delivering a written notice of revocation to the Custodian within seven
days after the Donor first receives the Disclosure Statement related to
the Custodial Account. Mailed notice is treated as given to the
Custodian on date of the postmark (or on the date of Post Office
certification or registration in the case of notice sent by certified
or registered mail). Upon timely revocation, the Donor will receive a
payment equal to the initial contribution, without adjustment for
administrative expenses, commissions or sales charges, fluctuations in
market value or other changes.
The Donor may certify in the Adoption Agreement that the Donor received
the Disclosure Statement related to the Custodial Account at least
seven days before signing the Adoption Agreement to establish the
Custodial Account, and the Custodian may rely on such certification.
(b) After making a contribution to the Custodial Account for the benefit of
the Student, and specifying the initial investment elections, all
rights and obligations to, in and for the Account shall irrevocably
inure to, and be enjoyed and exercised by, Student, and Donor shall
have no such rights or obligations (unless Donor and Student or Parent
are the same person or unless Donor revokes the Account in accordance
with subsection (a) above).
The Donor must sign the Adoption Agreement, and, for purposes of
maintaining the Account, the Parent (identified in the Adoption
Agreement) must execute all forms, applications, certifications and
other documents on behalf of any Student who has not yet attained the
age of majority as recognized by the laws of the Student's state of
residence ("age of majority"). Any right, power, responsibility,
authority or requirement given to the Student under this Agreement or
any related document shall be exercised or carried out by such Parent
on behalf of any Student who has not yet attained the age of majority.
The Custodian's acceptance of the Account on behalf of a minor Student
is expressly conditioned upon the Parent's acceptance of the rights and
responsibilities accorded hereunder. Upon attainment of the age of
majority under the laws of the Student's state of residence at such
time, the Student may advise the Custodian in writing (accompanied by
such documentation as the Custodian may require) that he or she is
assuming sole responsibility to exercise all rights, powers,
obligations, responsibilities, authorities or requirements associated
with the Account. Upon such notice to the Custodian, the Student shall
have and shall be responsible for all of the foregoing, the Custodian
will deal solely with the Student as the person controlling the
administration of the Account, and Parent shall thereafter have or
exercise none of the foregoing. (Absent such written notice by Student,
Custodian shall be under no obligation to acknowledge Student's right
to exercise such powers and authority.)
3. All contributions to the Custodial Account shall be invested and reinvested
in full and fractional shares of one or more Funds. Such investments shall
initially be made in such proportions and/or in such amounts as are
specified in the Adoption Agreement or by other written notice to the
Service Company (in such form as may be acceptable to the Service Company)
may direct.
Subsequent exchanges among Funds shall be made in accordance with written
instructions from the Student. The Service Company shall be responsible for
promptly transmitting all investment directions by the Student for the
purchase or sale of shares of one or more Funds hereunder to the Funds'
transfer agent for execution. However, if investment directions with
respect to the investment of any contribution hereunder are not received
initially from the Donor or thereafter from the Student as required or, if
received, are unclear or incomplete in the opinion of the Service Company,
the contribution may be paid to the Student, or may be held uninvested (or
invested in a money market fund if available) pending clarification or
completion by the Donor or the Student, as the case may be, in either case
without liability for interest or for loss of income or appreciation. If
any other directions or other orders by the Student with respect to the
sale or purchase of shares of one or more Funds for the Custodial Account
are unclear or incomplete in the opinion of the Service Company, the
Service Company will refrain from carrying out such investment directions
or from executing any such sale or purchase, without liability for loss of
income or for appreciation
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or for depreciation of any asset, pending receipt of clarification or
completion from the Student.
All initial investment directions by the Donor or subsequent investment
directions by the Student will be subject to any minimum initial or
additional investment or minimum balance rules applicable to a Fund as
described in its prospectus.
All dividends and capital gains or other distributions received on the
shares of any Fund held in the Account shall be (unless received in
additional shares) reinvested in full and fractional shares of such Fund
(or any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Student may at any time
direct the Service Company to exchange all or a specified portion of the
shares of a Fund in the Account for shares and fractional shares of one or
more other Funds. The Student shall give such directions by written notice
acceptable to the Service Company, and the Service Company will process
such directions as soon as practicable after receipt thereof (subject to
the second paragraph of Section 3 of this Article XI.)
5. Any purchase or redemption of shares of a Fund for or from the Account will
be effected at the public offering price or net asset value of such Fund
(as described in the then effective prospectus for such Fund) next
established after the Service Company has transmitted the Student's
investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or
from the Account will be subject to any applicable sales, redemption or
other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Student's Custodial Account.
Any Account maintained in connection herewith shall be in the name of the
Custodian for the benefit of the Student. All assets of the Custodial
Account shall be registered in the name of the Custodian or of a suitable
nominee. The books and records of the Custodian shall show that all such
investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the Custodial Account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the
Account hereunder will be deemed to satisfy the Custodian's recordkeeping
responsibilities therefor. The Service Company agrees to furnish the
Custodian with any information the Custodian requires to carry out the
Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
Custodial Account will have any responsibility for rendering advice with
respect to the investment and reinvestment of the Custodial Account, nor
shall such parties be liable for any loss or diminution in value which
results from Student's exercise of investment control over the Account.
Student shall have and exercise exclusive responsibility for and control
over the investment of the assets of the Account, and neither Custodian nor
any other such party shall have any duty to question his directions in that
regard or to advise him regarding the purchase, retention or sale of shares
of one or more Funds for the Custodial Account.
8. The Student may in writing appoint an investment advisor with respect to
the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment advisor's appointment will be in effect until
written notice to the contrary is received by the Custodian and the Service
Company. While an investment advisor's appointment is in effect, the
investment advisor may issue investment directions or may issue orders for
the sale or purchase of shares of one or more Funds to the Service Company,
and the Service Company will be fully protected in carrying out such
investment directions or orders to the same extent as if they had been
given by the Student.
The Student's appointment of any investment advisor will also be deemed to
be instructions to the Custodian and the Service Company to pay such
investment advisor's fees to the investment advisor from the Custodial
Account hereunder without additional authorization by the Student or the
Custodian.
9. (a) Distribution of the assets of the Custodial Account shall be made at
such time and to such person or entity as the Student shall elect by
written order to the Custodian. The Student will be responsible for
(and the Custodian will have no responsibility for) including and
reporting any distribution from the Account in the gross income of the
Student in a manner consistent with Code section 72 and Code section
530 (which sections provide that distributions shall be considered to
consist of principal (not subject to tax) and earnings (which may or
may not be subject to tax), unless such distribution is used to pay
the qualified education expenses of the Student (as defined in Code
Section 530) and such qualified education expenses for the tax year
are not less than the aggregate distributions from the Account during
the tax year; and provide further that, if the aggregate distributions
exceed
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the qualified education expenses for the Student for that year, the
amount that must be included as income for tax purposes is determined
by first determining the ratio that the qualified higher education
expenses bear to the actual withdrawal. The portion of the withdrawal
that is potentially subject to taxation - the amount of gains or
dividends - is then multiplied by that percentage amount. The
resultant sum is the amount excludable from income; and additionally
provide further that the Student may waive application of the
foregoing sentence and elect tax treatment in accordance with Code
Section 72.
(b) Student acknowledges that any distribution of a taxable amount from
the Custodial Account (except for distributions specified in Code
Section 530, including distribution on account of Student's disability
or death, return of an "excess contribution" referred to in Code
section 530(d)(4)(C), a "rollover" from this Custodial Account, or
distributions made on account of a qualified scholarship, allowance or
payment described in Code section 25A(g)(2)), may subject Student to
an additional tax on distributions under Code section 530(d)(4). For
these purposes, Student will be considered disabled if Student can
prove, as provided in Code Section 72(m)(7), that Student is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or be of long-continued and indefinite duration.
Neither the Custodian nor any other party providing services to the
Custodial Account assumes any responsibility for monitoring or
approving the purposes for which such distributions are used, nor for
the tax treatment accorded any distribution from the Custodial
Account; such responsibility rests solely with the person ordering the
distribution.
(c) Any balance remaining in the Account when the Student attains age 30
is, pursuant to Code section 530, to be distributed to the Student.
The Student has the responsibility to notify the Custodian to make
such distribution and the Student will be responsible for any tax
consequences of not so directing the Custodian. However, the Custodian
may, based upon its records, make a distribution to the Student upon
the Student's attaining age 30 to the extent required by law, and/or
the Custodian will report the balance in the Account at such time as a
"deemed distribution" to the extent required by law, and the Custodian
will have no responsibility for so doing.
(d) Upon the death of the Student, any balance remaining in the Account
will be distributed to the Student's estate in the manner required by
Code section 530, and the Custodian will have no responsibility for
making such a distribution, or for not making such distribution in the
absence of instructions to do so from the legal representative of the
Student's estate.
10. The Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Student containing such
information as the Custodian may reasonably request (provided that the
Custodian may make distributions on its own initiative to the extent
specifically provided for in Section 9 of this Article XI). Also, before
making any distribution or honoring any assignment of the Custodial
Account, Custodian shall be furnished with any and all applications,
certificates, tax waivers, signature guarantees and other documents
(including proof of any legal representative's authority) deemed necessary
or advisable by Custodian, but Custodian shall not be responsible for
complying with any order or instruction which appears on its face to be
genuine, or for refusing to comply if not satisfied it is genuine, and
Custodian has no duty of further inquiry. Any distributions from the
Account may be mailed, first-class postage prepaid, to the last known
address of the person or entity who is to receive such distribution, as
shown on the Custodian's records, and such distribution shall to the extent
thereof completely discharge the Custodian's liability for such payment.
11. (a) The Student agrees to provide information to the Custodian at such
time and in such manner as may be necessary for the Custodian to
prepare any reports required under Section 530(h) of the Code.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Student at such time and manner and
containing such information as is prescribed by the Internal Revenue
Service.
(c) The Student, Custodian and Service Company shall furnish to each other
such information relevant to the Custodial Account as may be required
under the Code and any regulations issued or forms adopted by the
Internal Revenue Service thereunder or as may otherwise be necessary
for the administration of the Custodial Account.
(d) The Student and/or the Donor shall file any reports to the Internal
Revenue Service which are required of either of them by law, and
neither the Custodian nor Service Company shall have any duty to
advise either concerning or monitor either's compliance with such
requirement.
12. (a) Student retains the right to amend this Custodial Account document in
any respect at any time, effective
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on a stated date which shall be at least 60 days after giving written
notice of the amendment (including its exact terms) to Custodian by
registered or certified mail, unless Custodian waives notice as to
such amendment. If the Custodian does not wish to continue serving as
such under this Custodial Account document as so amended, it may
resign in accordance with Section 16 below.
(b) Student delegates to the Custodian the Student's right so to amend,
provided (i) the Custodian does not change the investments available
under the Custodial Agreement and (ii) the Custodian amends in the
same manner all agreements comparable to this one, having the same
Custodian, permitting comparable investments, and under which such
power has been delegated to it; this includes the power to amend
retroactively if necessary or appropriate in the opinion of the
Custodian in order to conform this Custodial Account to pertinent
provisions of the Code and other laws or successor provisions of law,
or to obtain a governmental ruling that such requirements are met, to
adopt a prototype or master form of agreement in substitution for this
Agreement, or as otherwise may be advisable in the opinion of the
Custodian. Such an amendment by the Custodian shall be communicated in
writing to Student, and Student shall be deemed to have consented
thereto unless, within 30 days after such communication to Student is
mailed, Student either (i) gives Custodian a written order for a
complete distribution or transfer of the Custodial Account, or (ii)
removes the Custodian and appoints a successor under Section 16 below.
Pending the adoption of any amendment necessary or desirable to
conform this Custodial Account document to the requirements of the
Code, or any amendment thereto or to any applicable provision of the
regulations or rulings thereunder, the Custodian and the Service
Company may operate the Student's Custodial Account in accordance with
such requirements to the extent that the Custodian and/or the Service
Company deem necessary to preserve the tax benefits of the Account or
otherwise necessary to meet all legal requirements.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of Custodian
without its prior written consent.
(d) This Section 12 shall not be construed to restrict the Custodian's
right to substitute fee schedules in the manner provided by Section 15
below, and no such substitution shall be deemed to be an amendment of
this Agreement.
13. (a) Custodian shall terminate the Custodial Account if this Agreement is
terminated or if, within 30 days (or such longer time as Custodian may
agree) after resignation or removal of Custodian under Section 16,
Student or Sponsor, as the case may be, has not appointed a successor
which has accepted such appointment. Termination of the Custodial
Account shall be effected by distributing all assets thereof in a
single payment in cash or in kind to Student, subject to Custodian's
right to reserve funds as provided in Section 16.
(b) Upon termination of the Custodial Account, this Custodial Account
document shall have no further force and effect (except for Sections
14(f), 16(b) and 16(c) hereof which shall survive the termination of
the Custodial Account and this document), and Custodian shall be
relieved from all further liability hereunder or with respect to the
Custodial Account and all assets thereof so distributed.
14. (a) In its discretion, the Custodian may appoint one or more contractors
or service providers to carry out any of its functions and may
compensate them from the Custodial Account for expenses attendant to
those functions.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Student and for
dealing with or forwarding the same to the transfer agent for the
Fund(s).
(c) The parties do not intend to confer any fiduciary duties on Custodian
or Service Company (or any other party providing services to the
Custodial Account), and none shall be implied. Neither shall be liable
(or assumes any responsibility) for the collection of contributions,
the proper amount, time or tax treatment of any contribution to the
Custodial Account or the propriety of any contributions under this
Agreement, or the purpose, time, amount (including any required
distribution amounts), tax treatment or propriety of any distribution
hereunder, which matters are the sole responsibility of Student.
(d) Not later than 60 days after the close of each calendar year (or after
the Custodian's resignation or removal), the Custodian or Service
Company shall file with Student a written report or reports reflecting
the transactions effected by it during such period and the assets of
the Custodial Account at its close. Upon the expiration of 60 days
after such a report is sent to Student, the Custodian or Service
Company shall be forever released
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and discharged from all liability and accountability to anyone with
respect to transactions shown in or reflected by such report except
with respect to any such acts or transactions as to which Student
shall have filed written objections with the Custodian or Service
Company within such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to
Student all notices, prospectuses, financial statements and other
reports to shareholders, proxies and proxy soliciting materials
relating to the shares of the Funds(s) credited to the Custodial
Account. No shares shall be voted, and no other action shall be taken
pursuant to such documents, except upon receipt of adequate written
instructions from Student.
(f) Student and Parent shall always fully indemnify Service Company,
Sponsor, Distributor, the Fund(s) and Custodian and save them harmless
from any and all liability whatsoever which may arise either (i) in
connection with this Agreement and the matters which it contemplates,
except that which arises directly out of the Service Company's,
Distributor's, Fund's, Sponsor's or Custodian's bad faith, gross
negligence or willful misconduct, (ii) with respect to making or
failing to make any distribution, other than for failure to make
distribution in accordance with an order therefor which is in full
compliance with Section 9, or (iii) actions taken or omitted in good
faith by such parties. Neither Service Company nor Custodian shall be
obligated or expected to commence or defend any legal action or
proceeding in connection with this Agreement or such matters unless
agreed upon by that party and Student, and unless fully indemnified
for so doing to that party's satisfaction. The Custodian's acceptance
of the contributions to this Account is expressly conditioned upon
Parent's and Student's agreement with the foregoing, and with all
other provisions of this Agreement. Exercise of any right, duty or
responsibility by Parent (or Student, as the case may be) in
connection with the Student's account shall be deemed to constitute
acceptance of this condition.
(g) The Custodian and Service Company shall each be responsible solely for
performance of those duties expressly assigned to it in this
Agreement, and neither assumes any responsibility as to duties
assigned to anyone else hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively rely upon and
shall be protected in acting upon any written order from Student, or
any investment advisor appointed under Section 8, or any other notice,
request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed, and so long as it
acts in good faith, in taking or omitting to take any other action in
reliance thereon. In addition, Custodian will carry out the
requirements of any apparently valid court order relating to the
Custodial Account and will incur no liability or responsibility for so
doing.
15. (a) The Custodian, in consideration of its services under this Agreement,
shall receive the fees specified on the applicable fee schedule,
located on the Custodial Account Adoption Agreement. The fee schedule
originally applicable shall be the one specified in the Adoption
Agreement or Disclosure Statement, as applicable. The Custodian may
substitute a different fee schedule at any time upon 30 days' written
notice to Student. The Custodian shall also receive reasonable fees
for any services not contemplated by any applicable fee schedule and
either deemed by it to be necessary or desirable or requested by
Student.
(b) Any income, gift, estate and inheritance taxes and other taxes of any
kind whatsoever, including transfer taxes incurred in connection with
the investment or reinvestment of the assets of the Custodial Account,
that may be levied or assessed in respect to such assets, and all
other administrative expenses incurred by the Custodian in the
performance of its duties (including fees for legal services rendered
to it in connection with the Custodial Account) shall be charged to
the Custodial Account. If the Custodian is required to pay any such
amount, the Student shall promptly upon notice thereof reimburse the
Custodian.
(c) All such fees and taxes and other administrative expenses charged to
the Custodial Account shall be collected either from the amount of any
contribution or distribution to or from the Account, or (at the option
of the person entitled to collect such amounts) to the extent possible
under the circumstances by the conversion into cash of sufficient
shares of one or more Funds held in the Custodial Account (without
liability for any loss incurred thereby). Notwithstanding the
foregoing, the Custodian or Service Company may make demand upon the
Student for payment of the amount of such fees, taxes and other
administrative expenses. Fees which remain outstanding after 60 days
may be subject to a collection charge.
16. (a) Upon 30 days' prior written notice to the Custodian, Student or
Sponsor, as the case may be, may remove it from its office hereunder.
Such notice, to be effective,
9
<PAGE>
shall designate a successor custodian and shall be accompanied by the
successor's written acceptance. The Custodian also may, but is not
required to, at any time resign upon 30 days' prior written notice to
Sponsor, whereupon Sponsor shall notify the Student, and shall appoint
a successor to the Custodian. In connection with its resignation
hereunder, the Custodian may, but is not required to, designate a
successor custodian by written notice to the Student, or Sponsor and
the Student or Sponsor will be deemed to have consented to such
successor unless the Student or Sponsor designates a different
successor custodian and provides written notice thereof together with
such different successor's written acceptance by such date as the
Custodian specifies in its original notice to the Student or Sponsor
(provided that the Student will have a minimum 30 days to designated a
different successor).
(b) The successor custodian shall be a bank, insured credit union, or
other person satisfactory to the Secretary of the Treasury under Code
section 530(b)(1)(B). Upon receipt by Custodian of written acceptance
by its successor of such successor's appointment, Custodian shall
transfer and pay over to such successor the assets of the Custodial
Account and all records (or copies thereof) of Custodian pertaining
thereto, provided that the successor custodian agrees not to dispose
of any such records without the Custodian's consent. Custodian is
authorized, however, to reserve such sum of money or property as it
may deem advisable for payment of all its fees, compensation, costs,
and expenses, or for payment of any other liabilities constituting a
charge on or against the assets of the Custodial Account or on or
against the Custodian, with any balance of such reserve remaining
after the payment of all such items to be paid over to the successor
custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
17. References herein to the "Internal Revenue Code" or "Code" and sections
thereof shall mean the same as amended from time to time, including
successors to such sections.
18. Except where otherwise specifically required in this Agreement, any notice
from Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
19. Student shall not have the right or power to anticipate any part of the
Custodial Account or to sell, assign, transfer, pledge or hypothecate any
part thereof. The Custodial Account shall not be liable for the debts of
Student or subject to any seizure, attachment, execution or other legal
process in respect thereof except to the extent required by law. At no time
shall it be possible for any part of the assets of the Custodial Account to
be used for or diverted to purposes other than for the exclusive benefit of
the Student except to the extent required by law.
20. When accepted by the Custodian, this Agreement is accepted in and shall be
construed and administered in accordance with the laws of the state where
the principal office of the Custodian is located. Any action involving the
Custodian brought by any other party must be brought in such state.
This Agreement is intended to qualify under Code section 530 as an
Education IRA and to entitle Student to the tax benefits thereof, and if
any provision hereof is subject to more than one interpretation or any term
used herein is subject to more than one construction, such ambiguity shall
be resolved in favor of that interpretation or construction which is
consistent with that intent.
However, the Custodian shall not be responsible for whether or not such
intentions are achieved through use of this Agreement, and Student is
referred to Student's attorney for any such assurances.
21. Student (or Donor) should seek advice from Student's (or Donor's) attorney
regarding the legal consequences (including but not limited to federal and
state tax matters) of entering into this Agreement, making contributions to
the Custodial Account, and ordering Custodian to make distributions from
the Account. Student (and Donor) acknowledges that Custodian and Service
Company (and any company associated therewith) are prohibited by law from
rendering such advice.
22. If any provision of any document governing the Custodial Account provides
for notice, instructions or other communication from one party to another
in writing, to the extent provided for in the procedures of the Custodian,
Service Company or another party, any such notice, instructions or other
communications may be given by telephonic, computer, other electronic or
other means, and the requirement for written notice will be deemed
satisfied.
23. This Agreement and the Adoption Agreement signed by Student or Donor (as
either may be amended) are the documents governing the Student's Custodial
Account. Articles I through X are in the form promulgated by the Internal
Revenue Service in Form 5305-EA for use in establishing and maintaining an
Education IRA under Code section 530. If the Internal Revenue Service
amends such form, the Custodian
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will amend this Agreement accordingly, and the Student specifically consents
to such amendment in accordance with Section 12(b) hereof.
24. The Donor and/or Student acknowledges that he or she has received and read
the current prospectus for each Fund in which the Account is invested and
the Individual Retirement Account Disclosure Statement related to the
Account. The Donor and Student each represent under penalties of perjury
that his or her Social Security number (or other Taxpayer Identification
Number) as stated in the Adoption Agreement is correct.
EDUCATION IRA DISCLOSURE STATEMENT
SPECIAL NOTE
This Disclosure Statement describes the rules applicable to Education IRAs
beginning January 1, 1998. Education IRAs are a new kind of IRA available for
the first time in 1998. Contributions to an Education IRA for 1997 are not
permitted. Contributions to an Education IRA are not tax-deductible to the
person making the contribution, but withdrawals that meet certain requirements
are not subject to federal income taxes when received. This makes the dividends
on and growth of the investments held in an Education IRA tax-free for federal
income tax purposes if the requirements are met.
Regular IRAs, which have existed since 1975, are still available. New Roth IRAs
are also available after January 1, 1998. Both Regular IRAs and Roth IRAs
provide a tax-advantaged savings vehicle that can be used to save for higher
education expenses as well as other needs, including retirement. This Disclosure
Statement does not describe either Roth or Regular IRAs. This Disclosure
Statement also does not describe IRAs established in connection with a SIMPLE
IRA program or a Simplified Employee Pension (SEP) plan maintained by your
employer. If you wish to receive information about these IRA products, including
forms and explanatory materials, call the 800 number or write the address listed
at the end of this Disclosure Statement.
ESTABLISHING AN EDUCATION IRA
This Disclosure Statement contains information about an Education Individual
Retirement Custodial Account with Investors Fiduciary Trust Company as
Custodian. An Education IRA provides several tax benefits. While contributions
to an Education IRA are not deductible to the contributor, dividends on and
growth of the assets held in the Education IRA are not subject to federal income
tax. Withdrawals from an Education IRA are excluded from income for federal
income tax purposes if used for qualifying higher education expenses (described
below). State income tax treatment of your Education IRA may differ from federal
treatment; ask your state tax department or your personal tax advisor for
details.
Regular annual contributions to Education IRAs must be made in cash, on behalf
of a designated individual (the "Student") who is less than 18 years old at the
time of the contribution, and rollover contributions must be made on behalf of a
Student who is less than age 30 at the time of the rollover. The IRA trustee or
custodian must be a bank or other person who has been approved by the Secretary
of the Treasury. Contributions may not be invested in life insurance or be
commingled with other property except in a common trust or investment fund. The
Student's interest in the account must be nonforfeitable at all times. Upon the
death of the Student, any balance undistributed in the account shall be
distributed to the Student's estate within 30 days of the date of death. You may
obtain further information on Education IRAs from any district office of the
Internal Revenue Service.
The Donor may revoke a newly established Education IRA at any time within seven
days after the date on which he or she receives this Disclosure Statement. An
Education IRA established more than seven days after the date of receipt of this
Disclosure Statement may not be revoked. To revoke the Education IRA, mail or
deliver a written notice of revocation to the Custodian at the address, on page
16, which appears at the end of this Disclosure Statement. Mailed notice will be
deemed given on the date that it is postmarked (or, if sent by certified or
registered mail, on the date of certification or registration). If the Education
IRA is revoked within the seven-day period, the Donor will receive payment of
the entire amount originally contributed into the Education IRA, without
adjustment for such items as sales charges, administrative expenses or
fluctuations in market value.
An Education IRA is established on behalf of the Student and is controlled by
the Student (or Parent). The Donor making a contribution, if not the Student or
Parent, may designate the initial investments in the Education IRA Account, but
shall have no further rights, interests or obligations related to the Education
IRA, except that he or she can make additional contributions, subject to the
limits described below.
The Adoption Agreement must be signed by the Donor, and any and all forms,
applications, certifications and other documents must be signed by the Parent,
if the Student has not yet reached the age of majority recognized by the laws of
the state of Student's residence ("age of majority").
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While the Student remains a minor, the Parent identified in the Adoption
Agreement, will exercise all of the rights and responsibilities of the Student,
including the selection and exchange of Fund shares in which the Education IRA
is invested. The Custodian's acceptance of the contribution to this Education
IRA account is conditioned on agreement by the Parent of a minor Student to be
bound by all of the terms and conditions of this Disclosure Agreement and the
provisions set out in Articles I-XI of the Custodial Account Agreement. The
Student may notify the Custodian in writing that he or she has reached the age
of majority in the state where the Student then resides (and provide any
documentation the Custodian may request verifying the fact that he or she has
attained such age). Upon receiving such request (and documentation, if
requested), the Custodian will recognize the Student as the individual
controlling the account with power to exercise all rights and responsibilities
related to the Education IRA, and the Parent will thereafter have no control or
power over the account.
Note: The Custodian is under no obligation to determine whether any Parent
actually holds the legal right and capacity to direct or control a Student's
Education IRA account.
FEES AND EXPENSES
Custodian's Fees
The fees charged by the Custodian for maintaining your Education IRA are listed
in the Adoption Agreement.
General Fee Policies
. Fees may be paid by you directly or the Custodian may deduct them from your
Education IRA.
. Fees may be changed upon 30 days written notice to you.
. The full annual maintenance fee will be charged for any calendar year during
which you have an Education IRA with us. This fee is not prorated for periods
of less than one full year.
. If provided for in the Disclosure Statement or Adoption Agreement,
termination fees are charged when your account is closed whether the funds
are distributed to you or transferred to a successor custodian or trustee.
. The Custodian may charge you for its reasonable expenses for services not
covered by its fee schedule.
Other Charges
There may be sales or other charges associated with the purchase or redemption
of shares of a Fund in which your Education IRA is invested. Before investing,
be sure to read carefully the current prospectus of any Fund you are considering
as an investment for your Education IRA for a description of applicable charges.
CONTRIBUTIONS
Who May Contribute to an Education IRA?
Starting in 1998, anyone, including the Student, may open and contribute to an
Education IRA established on the Student's behalf, as long as the Student is
less than 18 at the time of the contribution. The person making the
contribution--the "Donor"--can be anyone, even the Student; the Donor does not
have to be related to the Student.
Are Contributions to an Education IRA Tax Deductible?
Contributions to an Education IRA are not deductible. This is a major difference
between Education IRAs and Regular IRAs.
When Can Contributions be made to an Education IRA?
A Donor may make a contribution to an Education IRA for a particular calendar
year by the end of that year (December 31). (Note: Unlike Regular IRAs or Roth
IRAs, contributions for a particular year may not be made by the due date of the
Donor's federal income tax return for that year.)
How Much May Be Contributed to an Education IRA?
Donors may contribute up to $500 in a calendar year for the benefit of any one
Student. For example, if Uncle Joe contributes $300 to The Oberweis Funds
Education IRA on behalf of Bobby, his nephew, all other contributions made on
behalf of Bobby by Uncle Joe or any other potential Donor (such as parents or
grandparents) to this or any other Education IRA, are limited to $200 for that
tax year.
Note: The Custodian is under no obligation, nor can it be, to determine whether
the maximum limit for any Student has been reached. It is the Parent's
responsibility to consult with the other parent or guardian to determine whether
the maximum limits will be exceeded.
For Donors with high income levels, the contribution limits may be reduced below
$500. This depends upon the Donor's filing status and the amount of his or her
modified adjusted gross income (MAGI). The following table shows how the
contribution limits are restricted.
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EDUCATION IRA CONTRIBUTION LIMITS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Single Taxpayer or Married Filing Jointly Then Donor May Make
Married Filing Separately
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Up to Up to Full
$95,000 $150,000 Contribution
--------------------------------------------------------------------------------
Modified More than $95,000 More than $150,000 Reduced Contribution
Adjusted but less than but less than (see explanation below)
Gross $110,000 $160,000
Income (MAGI) --------------------------------------------------------------------------------
$110,000 and up $160,000 and up Zero
(No Contribution)
--------------------------------------------------------------------------------
</TABLE>
How are the Limits Calculated for MAGI in the "Reduced Contribution" Range?
If the Donor's MAGI falls in the reduced contribution range, that Donor's
contribution limit must be calculated. To do this, multiply the normal
contribution limit ($500) by a fraction. The numerator is the amount by which
MAGI exceeds the lower limit of the reduced contribution range ($95,000 if
single, or $150,000 if married filing jointly). The denominator is $15,000
(single taxpayers) or $10,000 (married filing jointly). Subtract this from the
normal limit.
For example, assume that a Donor's MAGI for the year is $157,555 and she is
married, filing jointly. The Education IRA contribution limit would be
calculated as follows:
1. The amount by which MAGI exceeds the lower limit of the reduced contribution
deductible range:
($157,555-$150,000) = $7,555
2. Is divided by $10,000: $ 7,555
-------
$10,000 = 0.7555
3. Multiply this by $500:
0.7555 x $500 = $377.75
4. Subtract this from the $500 contribution limit:
($500 - $377.75) = $122.25
This is the contribution limit.
Of course, if one Donor is prevented by these rules from making a full $500
contribution on behalf of a Student, another person (who is not the Donor's
spouse) may be willing to contribute so that the full $500 per year that the law
allows will be added to the Student's Education IRA.
Note: Any amount contributed to the Education IRA above the maximum is
considered an "excess contribution," which is subject to excise tax of 6% for
each year it remains in the Education IRA.
How Do I Determine MAGI?
For most taxpayers MAGI is the same as adjusted gross income, which is their
gross income minus those deductions which are available to all taxpayers even if
they don't itemize. (Instructions to calculate AGI are provided with income tax
Form 1040 or 1040A.) Modified AGI is simply regular AGI adjusted to include
certain amounts earned abroad. If a Donor has not earned income in any foreign
country, Guam, American Samoa, the Northern Mariana Islands or Puerto Rico,
normal AGI should be used in the calculations above.
Are there any other limits on the amount that may be contributed to an Education
IRA?
A Donor cannot contribute to an Education IRA in any year in which a
contribution is made to a state prepaid tuition plan for the same Student. (A
state tuition plan allows taxpayers to pay their child's tuition in advance.)
Any amount contributed to an Education IRA in the same year that a contribution
is made to a state prepaid tuition plan on behalf of the Student is an excess
contribution, subjecting the Student (or the Parent, if the Student is under 14)
to the 6% penalty tax.
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How are Excess Contributions Corrected?
Excess contributions may be corrected without paying a 6% penalty. To do so, the
excess and any earnings on the excess must, in accordance with directions from
the Student (or Parent) to the Custodian, be paid to the Student before the due
date (including extensions) for filing his or her federal income tax return for
the year for which the excess contribution was made. The earnings must be
included in the Student's income for the tax year for which the contribution was
made.
One other way to eliminate excess contributions (and possibly avoid the 6%
excess contribution penalty tax) is to contribute an amount out of the Education
IRA to a qualified state tuition program, if there is one available to receive
the contribution from the Education IRA. This must be done in the same year
that the excess contribution was made.
What Happens if the Excess Contribution is Not Corrected by the Tax Return Due
Date?
Any excess contribution withdrawn after the tax return due date (including any
extensions) for the year for which the contribution was made will subject the
Student to the 6% excise tax.
Unless an exception applies, the excess contribution and any earnings on it
withdrawn after tax filing time will be includible in the Student's (or the
Parent's, if the Student is under 14) taxable income and may be subject to a 10%
withdrawal penalty.
INVESTMENTS
How Are Education IRA Contributions Invested?
The Donor indicates the initial investment elections on the Adoption Agreement.
Thereafter, the Student controls the investment by making choices among the
available Fund(s) in accordance with the Fund rules. Investments must be in one
or more of the Fund(s) available from time to time as listed in the Adoption
Agreement for the Education IRA or in an investment selection form provided with
the Education IRA Adoption Agreement or from the Fund Distributor or Service
Company. The investments of your Education IRA are directed by giving the
investment instructions to the Distributor or Service Company for the Fund(s).
Since the Student controls the investment of the Education IRA, he or she is
responsible for the investment results achieved; neither the Custodian, the
Distributor nor the Service Company has any responsibility for any loss or
diminution in value occasioned by your exercise of investment control.
Transactions for the Education IRA will generally be at the applicable public
offering price or net asset value for shares of the Fund(s) involved next
established after the Distributor or the Service Company (whichever may apply)
receives proper investment instructions from you; consult the current prospectus
for the Fund(s) involved for additional information.
Before making any investment, read carefully the current prospectus for any Fund
under consideration as an investment for the Education IRA. The prospectus will
contain information about the Fund's investment objectives and policies, as well
as any minimum initial investment or minimum balance requirements and any sales,
redemption or other charges.
Because you control the selection of investments your Education IRA and because
mutual fund shares fluctuate in value, the growth in value of the Education IRA
cannot be guaranteed or projected.
Are There Any Restrictions on the Use of the Education IRA Assets?
The tax-exempt status of the Education IRA will be revoked if you engage in any
of the prohibited transactions listed in Section 4975 of the tax code. Upon such
revocation, the Education IRA is treated as distributing its assets to the
Student. The taxable portion of the amount in the Education IRA will be subject
to income tax unless the requirements for a tax-free withdrawal are satisfied
(see below). Also, you may be subject to a 10% penalty tax on the taxable
amount.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets in your
Education IRA. Some examples of prohibited transactions are:
. Direct or indirect sale or exchange of property between you and your
Education IRA.
. Transfer of any property from your Education IRA to yourself or from
yourself to your Education IRA.
The Education IRA could lose its tax exempt status if you use all or part of
your interest in your Education IRA as security for a loan or borrow any money
from your Education IRA. Any portion of your Education IRA used as security for
a loan will be treated as a distribution in the year in which the money is
borrowed. This amount may be taxable and you may also be subject to the 10%
premature withdrawal penalty on the taxable amount.
WITHDRAWALS
When can I make withdrawals from my Education IRA?
You may make a withdrawal from the Education IRA at any time. If the withdrawal
meets the requirements discussed below, it is tax-free. This means that no
federal income tax is due, even though the withdrawal includes dividends or
gains on the Fund shares while held in the Education IRA.
When are distributions mandatory?
Any amount remaining in the account as of your 30th birthday must be distributed
to you, and any dividends or gains will be then subject to income tax and
penalty (unless an exception applies.)
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You can avoid these tax implications if, before you reach age 30, you roll-over
or transfer your account balance, or change the designated beneficiary of your
Education IRA, to another member of your family. (See Transfers/Rollovers
below.)
If you die before withdrawing your entire account balance, your Education IRA
must be distributed to your estate within 30 days after your death.
What are the requirements for a tax-free withdrawal?
To be tax-free, a withdrawal from your Education IRA must meet two requirements.
First, the amounts withdrawn must be made to cover the cost of "qualified higher
education expenses" incurred by you while attending an "eligible educational
institution."
These two important terms are defined as follows:
. Qualified Higher Education Expenses for all students include expenses for
tuition, books, supplies, and equipment required for enrollment or attendance
at an eligible educational institution. For students attending an eligible
educational institution at least half time, qualified higher education
expenses also include room and board. (Note: These costs will generally be
the school's posted room and board charge, or $2,500 per year if the Student
lives off-campus and not at home.) Also, qualified expenses include amounts
contributed to a qualified state tuition program.
. An Eligible Educational Institution includes most colleges, universities,
vocational schools, or other postsecondary educational institutions. The
Student should check with his or her school to verify that it is an eligible
educational institute as described in section 481 of the Higher Education Act
of 1965.
Second, the amount of the withdrawal in a year must not exceed your qualified
higher education expenses for that year.
How Are Withdrawals From An Education IRA Taxed if the Tax-Free Requirements are
not Met?
If the withdrawal does not meet the tax-free requirements discussed above, the
general rule is that the amount equal to the principal contributions will not be
taxed, nor will the 10% withdrawal penalty apply to principal. However, that
portion of the account attributable to dividends or gains is includible in the
Student's (or the Parent's) gross income in the taxable year it is received, and
may be subject to the 10% withdrawal penalty.
A special rule may apply if the amount withdrawn exceeds the Student's qualified
higher education expenses in a year. In this case, the amount that must be
included as income for tax purposes is determined by first determining the ratio
that the qualified higher education expenses bear to the actual withdrawal. The
portion of the withdrawal that is potentially subject to taxation--the amount of
gains or dividends--is then multiplied by that percentage amount. The resultant
sum is the amount excludable from income. The following example explains this
formula:
In 2010, John withdraws $9,000 from his Education IRA, of which $4,000 is
attributable to dividends or gains. John's qualified education expenses total
only $7,000 for that year. Therefore, 77% ($7,000/$9,000) of the withdrawal is
attributable to educational expenses. So, $3,080 (77% of $4,000) is excludible
as income and the difference, $920, is includible as income and possibly subject
to the 10% penalty tax.
Taxable withdrawals of dividends and gains from an Education IRA are treated as
ordinary income. Withdrawals of taxable amounts from an Education IRA are not
eligible for averaging treatment currently available to certain lump sum
distributions from qualified employer-sponsored retirement plans, nor are such
withdrawals eligible for taxable gains tax treatment.
The receipt of any taxable withdrawal from an Education IRA may also be subject
to a 10% penalty tax, unless:
. The withdrawal is paid to your estate within thirty days of your death;
. The withdrawal is paid to you on account of your disability; or
. The withdrawal is equal to or less than the amount of a scholarship or other
tax-free educational assistance you receive.
Note: The Custodian is not responsible for monitoring withdrawals or determining
whether any withdrawal is being made by any individual for education expenses,
nor is the Custodian responsible for determining what taxes or penalties, if
any, may apply.
How Does Receipt of a Tax-Free, Qualified Withdrawal Affect Available Education
Tax Credits?
If the Student receives a tax-free distribution from an Education IRA in a
particular tax year, none of the Student's education expenses for that year may
be claimed as the basis for a Hope Scholarship Credit or Lifetime Learning
Credit for that year.
However, the tax-free treatment of the Education IRA withdrawal may be waived
(thus subjecting the withdrawal to the imposition of tax, as discussed above),
and the Student or Student's Parents, as the case may be, may elect instead to
claim a Hope Scholarship Credit or Lifetime Learning Credit for the education
expenses.
<PAGE>
You should consult with your tax advisor to determine whether you qualify for
either credit and whether waiving the tax-free withdrawal of the Education IRA
is right for you.
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<PAGE>
TRANSFERS/ROLLOVERS
Can a Distribution be Transferred or Rolled Over From an Employer's Retirement
Plan into an Education IRA?
Distributions from qualified employer-sponsored retirement plans or 403(b)
arrangements (for employees of tax-exempt employers) are not eligible for
rollover or direct transfer to an Education IRA. Nor are withdrawals from other
types of IRAs.
Can Rollovers be Made From One Education IRA to Another Education IRA?
Amounts rolled over from one Education IRA to another Education IRA are
permitted only if the receiving Education IRA is for your benefit or for the
benefit of a member of your family. Such a rollover must be completed with 60
days after the withdrawal from the first Education IRA. Only one rollover from
an Education IRA to another is permitted in a full year (365 days).
Can the Beneficiary of an Education IRA be Changed?
Instead of rolling over an Education IRA account to another Education IRA
account, the Student may simply change the designated beneficiary of his account
to another member of his family who is under the age of 30. This can be done at
any time. (Note: This approach can be used up to the day before your 30th
birthday to avoid the tax and penalty that may otherwise apply if a distribution
is required because you reach age 30.) (See When are distributions mandatory?
above.)
Who is a Member of the Student's Family?
Family members include the Student and any of the following who are under age
30: the Student's children and their descendants, stepchildren and their
descendants, siblings and their children, parents and grandparents, stepparents,
and spouses of all of the foregoing.
How Do Rollovers Affect Education IRA Contribution Limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers from one Education IRA to another can be made even
during a year when the Donor is not eligible to contribute to an Education IRA
(for example, because MAGI for that year is too high).
TAX MATTERS
What IRA Reports does the Custodian Issue?
The Custodian will report all withdrawals to the IRS and the recipient on the
appropriate form.
The Custodian will report to the IRS the year-end value of the Account and the
amount of any rollovers or regular contribution made during a calendar year.
What Tax Information Must the Student Report to the IRS?
The appropriate tax reporting form must be filed with the IRS for each taxable
year for which there is made an excess contribution or in which there is a
premature withdrawal that is subject to the 10% penalty tax.
Are Education IRA Withdrawals subject to Withholding?
Federal income tax withholding requirements have not been established by the law
or by IRS regulations or rulings. Consult your tax advisor or the IRS for the
latest information on withholding requirements on taxable withdrawals from and
Education IRA.
Are the Earnings on Education IRA Funds Taxed?
Any dividends on or growth of investments held in an Education IRA are generally
exempt from federal income taxes and will not be taxed until withdrawn, unless
the tax exempt status of the Education IRA is revoked. If a withdrawal
qualifies as a tax-free withdrawal (see above), amounts reflecting earnings or
growth of assets in the Education IRA will not be subject to federal income tax.
ACCOUNT TERMINATION
The Student may terminate the Education IRA at any time after its establishment
by sending a completed withdrawal form (or other instructions in a form
acceptable to the Custodian), or a transfer authorization form, to:
The Oberweis Funds
c/o Investors Fiduciary Trust Company
P.O. Box 419042
Kansas City, MO 64141
An Education IRA with The Oberweis Funds will terminate upon the first to occur
of the following:
. The date the Student's properly executed withdrawal form or instructions (as
described above) withdrawing the total Education IRA balance is received and
accepted by the Custodian.
. The date the Education IRA ceases to qualify under the tax code. This will be
deemed a termination.
. The transfer of the Education IRA to another custodian/trustee.
. The rollover of the amounts in the Education IRA to another
custodian/trustee.
Any outstanding fees must be received prior to such a termination of an
Education IRA account.
<PAGE>
The amount received from an Education IRA upon termination of the account will
be treated as a withdrawal, and thus the rules relating to Education IRA
withdrawals will apply. For example, if the Education IRA is terminated and
distributions are not made for
16
<PAGE>
qualified education expenses, the 10% early withdrawal penalty may apply to the
taxable amount received.
Important: The discussion of the tax rules for Education IRAs in this Disclosure
Statement is based upon the best available information. However, Education IRAs
are new under the tax laws, and not all issues pertaining to the operation and
tax treatment of Education IRA accounts have been addressed by the IRS.
Therefore, the Student should consult his or her tax advisor for the latest
developments or for advice on how maintaining an Education IRA will affect his
or her (or Parent's) personal tax or financial situation.
EDUCATION IRA DOCUMENTS
The terms contained in Articles I to X of the Education Individual Retirement
Custodial Account document are in the form promulgated by the IRS in Form
5305-EA for use in establishing an Education IRA under Code section 530. If the
IRS issues an amendment to Form 5305-EA, the Custodian will adopt the provisions
of such model form as an amendment, accordingly. IRS approval relates only to
the form of Articles I to X and will not be an approval of the merits of the
Education IRA or of any investment permitted by the Education IRA.
ADDITIONAL INFORMATION
For additional information you may write to the following address or call the
following telephone number:
Oberweis Asset Management
951 Ice Cream Drive, Suite 200
North Aurora, IL 60542
800-323-6166
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
December 31, 1997 Annual Report and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> Oberweis Emerging Growth Portfolio
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 116,208
<INVESTMENTS-AT-VALUE> 141,175
<RECEIVABLES> 3,830
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 145,037
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,054
<TOTAL-LIABILITIES> 5,054
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110,249
<SHARES-COMMON-STOCK> 5,444
<SHARES-COMMON-PRIOR> 5,796
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,767
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,967
<NET-ASSETS> 139,983
<DIVIDEND-INCOME> 59
<INTEREST-INCOME> 395
<OTHER-INCOME> 0
<EXPENSES-NET> 2,463
<NET-INVESTMENT-INCOME> (2,009)
<REALIZED-GAINS-CURRENT> 22,258
<APPREC-INCREASE-CURRENT> (32,151)
<NET-CHANGE-FROM-OPS> (11,902)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (22,663)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,781
<NUMBER-OF-SHARES-REDEEMED> (5,732)
<SHARES-REINVESTED> 746
<NET-CHANGE-IN-ASSETS> (45,612)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 13,266
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 707
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,463
<AVERAGE-NET-ASSETS> 170,544
<PER-SHARE-NAV-BEGIN> 32.86
<PER-SHARE-NII> (.37)
<PER-SHARE-GAIN-APPREC> (2.14)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (4.64)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.71
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
December 31, 1997 Annual Report and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> Oberweis Micro-Cap Portfolio
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 32,944
<INVESTMENTS-AT-VALUE> 38,162
<RECEIVABLES> 1,314
<ASSETS-OTHER> 49
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,525
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,688
<TOTAL-LIABILITIES> 2,688
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,578
<SHARES-COMMON-STOCK> 2,710
<SHARES-COMMON-PRIOR> 2,506
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,959)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,218
<NET-ASSETS> 36,837
<DIVIDEND-INCOME> 29
<INTEREST-INCOME> 83
<OTHER-INCOME> 0
<EXPENSES-NET> 693
<NET-INVESTMENT-INCOME> (581)
<REALIZED-GAINS-CURRENT> (2,556)
<APPREC-INCREASE-CURRENT> 4,779
<NET-CHANGE-FROM-OPS> 1,642
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,700
<NUMBER-OF-SHARES-REDEEMED> (2,492)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,104
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,403)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 229
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 693
<AVERAGE-NET-ASSETS> 38,192
<PER-SHARE-NAV-BEGIN> 12.28
<PER-SHARE-NII> (.21)
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.59
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
December 31, 1997 Annual RBT and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> Oberweis Mid-Cap Portfolio
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5,623
<INVESTMENTS-AT-VALUE> 6,205
<RECEIVABLES> 129
<ASSETS-OTHER> 48
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,382
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35
<TOTAL-LIABILITIES> 35
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,990
<SHARES-COMMON-STOCK> 604
<SHARES-COMMON-PRIOR> 608
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (225)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 582
<NET-ASSETS> 6,347
<DIVIDEND-INCOME> 8
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> 133
<NET-INVESTMENT-INCOME> (120)
<REALIZED-GAINS-CURRENT> 49
<APPREC-INCREASE-CURRENT> 347
<NET-CHANGE-FROM-OPS> 276
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (211)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 264
<NUMBER-OF-SHARES-REDEEMED> (388)
<SHARES-REINVESTED> 18
<NET-CHANGE-IN-ASSETS> (948)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (63)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 164
<AVERAGE-NET-ASSETS> 6,647
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> (.19)
<PER-SHARE-GAIN-APPREC> .76
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
