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AS FILED WITH THE SECURITIES AND EXCHANGE 1933 ACT FILE NO. 33-9093
COMMISSION ON FEBRUARY 25, 1999 1940 ACT FILE NO. 811-4854
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.________ [_]
Post-Effective Amendment No. 17 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 19 [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)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[X] on May 1, 1999 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 CAPTION IN PROSPECTUS
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<S> <C>
Part A--
Item 1. Front and Back Cover Pages Cover Pages
Item 2. Risk/Return Summary: Investments, Risks and Performance Risk/Return Summary
Item 3. Risk/Return Summary: Fee Table Risk/Return Summary
Item 4. Investment Objectives, Principal Investment Strategies, Investment Objectives, Principal Investment Strategies and Risks
and Related Risks
Item 5. Management's Discussion of Fund Performance Not Applicable
Item 6. Management, Organization and Capital Structure Management of the Portfolios
Item 7. Shareholder Information Shareholder's Manual; Other Information; Distributions and Taxes
Item 8. Distribution Arrangements Management of the Portfolios
Item 9. Financial Highlights Information Financial Highlights
CAPTION IN
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Item B--
Item 10. Cover Page and Table of Contents Cover Page; Table of Contents
Item 11. Fund History Fund History
Item 12. Description of the Fund and its Investments and Risks Investment Objectives and Policies
Item 13. Management of the Fund Management of the Fund
Item 14. Control Persons and Principal Holders of Securities Management of the Fund
Item 15. Investment Advisory and Other Services Oberweis Asset Management, Inc., Distribution Plan and Agreement
Item 16. Brokerage Allocation and Other Practices Portfolio Transactions
Item 17. Capital Stock and Other Securities Shares of the Fund, Shareholder Meetings and Voting Rights
Item 18. Purchase, Redemption and Pricing of Shares Purchase of Shares, Redemption of Shares, Determination of Net
Asset Value
Item 19. Taxation of the Fund Taxes
Item 20. Underwriters Distribution Plan and Agreement; See Prospectus - Shareholder
Information/How to Purchase Shares
Item 21. Calculations of Performance Data Calculation of Average Annual Total Return
Item 22. 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>
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THE OBERWEIS FUNDS
[OBERWEIS LOGO]
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Prospectus
May 1, 1999
Oberweis Emerging Growth Portfolio
Oberweis Micro-Cap Portfolio
Oberweis Mid-Cap Portfolio
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The Securities and Exchange Commission has not approved or disapproved of these
securities or passed on the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
<TABLE>
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Page
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RISK/RETURN SUMMARY.............................................. 1
Investment Objective of the Portfolios...................... 1
Main Investment Strategies of the Portfolios................ 1
Main Risks of Investing in the Portfolios................... 1
Performance Information..................................... 2
Fees and Expenses........................................... 4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS.. 5
Investment Objective........................................ 5
Principal Investment Strategies............................. 5
Risks....................................................... 7
Other Investment Policies and Risks......................... 8
MANAGEMENT OF THE PORTFOLIOS..................................... 9
Investment Adviser.......................................... 9
Management Expenses......................................... 10
Distribution of Shares...................................... 11
OTHER INFORMATION................................................ 11
Size of Micro-Cap Portfolio................................. 11
Year 2000 Readiness......................................... 12
SHAREHOLDER INFORMATION.......................................... 12
How to Purchase Shares...................................... 12
How to Redeem Shares........................................ 14
Pricing of Fund Shares...................................... 16
Shareholder Services........................................ 16
Distribution and Taxes...................................... 19
General Information......................................... 20
FINANCIAL HIGHLIGHTS............................................. 21
</TABLE>
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RISK/RETURN SUMMARY
The Oberweis Funds (the "Fund") is a no-load mutual fund that consists of
three different 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
Portfolios are designed for long-term investors who seek growth of capital and
who can tolerate the greater risks associated with seeking maximum capital
appreciation through investing in common stocks.
Investment Objective of the Portfolios
Each Portfolio seeks to maximize capital appreciation by investing
principally in 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.
Main Investment Strategies of the Portfolios
The Emerging Growth Portfolio may invest in companies of any size. OAM,
however, believes that the greatest growth potential may 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 that are listed on the American
Stock Exchange or traded over-the-counter (typically with capitalization of less
than $1 billion). Normally, the Portfolio invests approximately 80% of its
assets in the securities of such smaller companies and OAM estimates that the
average market capitalization of the companies invested in will be $600 million.
This percentage may vary greatly from time to time.
The Micro-Cap Portfolio invests primarily in companies with market
capitalization of $250 million or less, with the average market capitalization
of the companies invested in being approximately $150 million. OAM anticipates
that at least 80% of the companies that the Portfolio invests in will have a
market capitalization of $250 million or less and at least 50% of the companies
will have a market capitalization of $100 million or less.
The Mid-Cap Portfolio invests primarily in companies with market
capitalization between $500 million and $5 billion.
Main Risks of Investing in the Portfolios
The biggest risk is that the Portfolios' returns may vary, and you could
lose money. If you are considering investing in any of the Portfolios, remember
that they are designed for long-term investors who can accept the risks of
investing in a portfolio with significant amounts of common stock. Although
each Portfolio seeks to reduce risk by investing in a diversified portfolio, you
must
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realize that investing in smaller, and often newer, companies involves
greater risk than there usually is with investing in larger, more established
companies.
An investment in these portfolios is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Performance Information
The following information illustrates how each Portfolio's performance has
varied over time. The bar charts depict the change in performance from year to
year during the period indicated. Of course, the Portfolios' past performance
does not necessarily indicate how they will perform in the future.
Emerging Growth Portfolio
Calendar Year Total Returns*
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
24.32% 0.41% 87.14% 13.64% 9.71% -3.51% 42.56% 22.45% -8.55% -3.10%
</TABLE>
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[Bar Graph]
Best Quarter Q1 1991 43.85%
Worst Quarter Q3 1990 -31.91%
<TABLE>
<CAPTION>
Average Annual Total Returns for Life of
the Periods Ended December 31, 1998* 1 Year 5 Years 10 Years Fund
- ------------------------------------------ ------------ ------------ ------------ (1/7/87)
<S> <C> <C> <C> <C>--------
Emerging Growth Portfolio................. -3.10% 8.34% 15.89% 12.73%
Russell 2000 Index**...................... -2.55% 11.89% 12.93% 11.28%
</TABLE>
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* When first organized in 1987, the Emerging Growth Portfolio applied a sales
charge to each share purchased. The sales charge was eliminated on December
31, 1991. The Bar Chart and the average annual total returns for the
Emerging Growth Portfolio do not reflect the load.
** The Russell 2000 Index is an index of 2000 companies with small market
capitalizations and represents a portfolio that is somewhat similar in
average market capitalization to the stocks held by the Emerging Growth
Portfolio.
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Micro-Cap Portfolio
Calendar Year Total Returns*
<TABLE>
<CAPTION>
1996 1997 1998
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<S> <C> <C>
22.80% 10.67% 4.34%
</TABLE>
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[Bar Graph]
Best Quarter Q4 1998 39.25%
Worst Quarter Q3 1998 -25.29%
<TABLE>
<CAPTION>
Average Annual Total Returns for Life of Fund
the Periods Ended December 31, 1998* 1 Year (1/1/96)
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<S> <C> <C>
Micro-Cap Portfolio....................... 4.34% 12.35%
Russell 2000 Index**...................... -2.55% 11.57%
</TABLE>
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* The Micro-Cap Portfolio deducts a withdrawal charge of .25% of the value of
the shares redeemed. That amount is used to reimburse the Portfolio for the
costs it incurs in connection with the Shareholder's liquidation of shares.
The Bar Chart and the average annual total returns do not reflect the
deduction of the withdrawal charge.
** The Russell 2000 Index is an index of 2000 companies with small market
capitalizations and represents a portfolio that is somewhat similar to the
stocks held by the Micro-Cap Portfolio.
Mid-Cap Portfolio
Calendar Year Total Returns*
<TABLE>
<CAPTION>
1997 1998
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<S> <C>
5.40% 22.36%
</TABLE>
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[Bar Graph]
Best Quarter Q4 1998 35.80%
Worst Quarter Q3 1998 -22.31%
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<TABLE>
<CAPTION>
Average Annual Total Returns for Life of Fund
the Periods Ended December 31, 1998* 1 Year (9/15/96)
- ------------------------------------ ------ ------------
<S> <C> <C>
Mid-Cap Portfolio................... 22.36% 13.15%
S&P 400 Mid-Cap Index**............. 19.12% 25.86%
Russell 2000**...................... -2.55% 11.20%
</TABLE>
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* The Mid-Cap Portfolio deducts a withdrawal charge of .25% of the value of the
shares redeemed. That amount is used to reimburse the Portfolio for the costs
it incurs in connection with the Shareholder's liquidation of shares. The Bar
Chart and average annual total returns do not reflect the deduction of the
withdrawal charge.
** The S&P 400 Mid-Cap Index is an unmanaged capitalization-weighted index of
the mid-range sector of the U.S. stock market. The Russell 2000 Index is an
index of 2000 companies with small market capitalizations and represents a
portfolio that is more similar to the stocks held by the Mid-Cap Portfolio.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolios.
<TABLE>
<CAPTION>
Portfolio
--------------------------------------
Shareholder Fees/(1)/ Emerging
(Fees paid directly from your investment) Growth Micro-Cap Mid-Cap
- ----------------------------------------- -------- ------------ ----------
<S> <C> <C> <C>
Sales Charge Imposed on Purchases................... None None None
Sales Charge Imposed on Reinvested Dividends or
Capital Gain Distributions........................ None None None
Redemption Fees (as a percentage of amount
redeemed, if applicable)........................... None .25% .25%
Exchange Fees....................................... None None None
Annual Fund Operating Expenses
(Expenses that are deducted from Fund assets)
- ---------------------------------------------
As a percentage of average net assets (net of
expense reimbursement, if applicable)
Advisory and Management Fees........................ .82% 1.00% .80%
12b-1 Fees.......................................... .25% .25% .25%
Other Expenses...................................... .48% .74%/(3)/ .95%/(3)/
Total Fund Operating Expenses/(2)/.................. 1.55% 1.99%/(3)/ 2.00%/(3)/
</TABLE>
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/(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)/ OAM 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.
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/(3)/ Net of expense reimbursement. Other expenses for the Micro-Cap Portfolio
and Mid-Cap Portfolio would have been .81% and 1.56%, respectively, and
Total Fund Operating Expenses would have been 2.06% and 2.61%,
respectively, without expense reimbursement.
Example
- -------
This example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in each of the Portfolios for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Portfolios' operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Emerging Growth Portfolio.......................... $16 $49 $ 84 $185
Micro-Cap Portfolio................................ $23 $65 $110 $235
Mid-Cap Portfolio.................................. $23 $65 $111 $236
</TABLE>
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
liquidation of shares. In addition, for each Portfolio, there is a $6 fee for
each wire redemption (but not for electronic funds transferred via ACH or
payment by check), which is deducted from a shareholder's redemption amount.
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Objective
Each Portfolio's investment objective is to maximize capital appreciation.
The Portfolios' investment adviser, OAM, will not generally seek the realization
of current income in the selection of securities for investment, and the
Portfolios are not designed for investors seeking income rather than capital
appreciation. Income realized on the Portfolios' investments is incidental to
their objectives. The investment objective of each Portfolio is a fundamental
policy and may not be changed without approval of the shareholders of that
Portfolio.
Principal Investment Strategies
In managing each of the Portfolios, OAM seeks out companies that it
believes have the potential for above-average long-term growth in market value.
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The Emerging Growth Portfolio may invest in companies of all size
capitalizations. OAM, however, believes that the greatest growth potential may
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 market capitalization that are
listed on the American Stock Exchange or are traded over the counter (typically
with capitalization of less than $1 billion). Market capitalization is the most
commonly used measure of the size and value of a company. It is computed by
multiplying the current market price of a share of the company's stock by the
total number of its shares outstanding. Normally, the Portfolio invests at
least 80% of its assets in the securities of such smaller companies and OAM
anticipates that the average market capitalization of the companies invested in
will be approximately $600 million. This percentage may vary from time to time.
The Micro-Cap Portfolio invests primarily in companies with a market
capitalization of $250 million or less at the time of acquisition, with the
average market capitalization being approximately $150 million. OAM anticipates
that at least 80% of the companies that the Portfolio will invest in will have a
market capitalization of $250 million or less at the time of investment and at
least 50% of the companies will have market capitalization of $100 million or
less at the time of investment.
The Mid-Cap Portfolio invests primarily in companies with market
capitalizations between $500 million and $5 billion at the time the Portfolio
invests in shares of a company's stock.
Each Portfolio in particular seeks to invest in those companies which OAM
considers to have above-average long-term growth potential based on its analysis
of eight factors, which the portfolio manager calls the "Oberweis Octagon."
These factors are:
1. Rapid growth in revenue. OAM prefers this to be generated from internal
growth as opposed to acquisitions of other businesses. At least 30% growth
in revenues in the latest quarter for companies being considered for
investment by the Emerging Growth and Micro-Cap Portfolios and at least 20%
growth in revenues 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% growth in pre-tax income in
the latest quarter for companies being considered for investment by the
Emerging Growth and Micro-Cap Portfolios and at least 20% growth in pre-tax
income in the latest quarter for companies being considered for investment
by the Mid-Cap Portfolio. There should also be rapid growth in earnings per
share.
3. There should be a reasonable price earnings ratio in relation to the
company's underlying growth rate. OAM prefers the company being considered
for investment by the Emerging Growth and Micro-Cap Portfolios to have a
price/earnings ratio not more than one-half of the company's growth rate,
and generally a price earnings ratio of not more than the
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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.
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 for evaluating 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 being
evaluated. No one factor will justify, and any one factor could rule out, an
investment in a particular company. Although securities 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, OAM may make transactions in a
particular security at different times and different prices for each Portfolio.
Risks
Because the Portfolios may invest substantially all of their assets in
common stocks, the main risk is that the value of the stocks they hold might
decrease in response to the activities of an individual company or in response
to general market and/or economic conditions. If this occurs, a Portfolio's
share price may also decrease.
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 also
realize that the very nature of investing in small, and often newer, companies
involves greater risk than there usually is with larger, more established
companies. Smaller and newer companies often have limited product lines,
markets, management personnel, research and/or financial resources. The
securities of small companies, which may be thinly capitalized, may not be as
marketable as those of larger companies. Therefore the securities of these
smaller, newer companies may be subject to more abrupt or erratic market
movements than securities of larger companies or the market averages in general.
Because the Portfolios' investment policies emphasize 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
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investment program. Dividends are expected to be minimal and there can be no
assurance that a Portfolio's objective will be met.
Each Portfolio is intended for long-term investors who can accept the risks
involved in the Portfolio's investments. Accordingly, each Portfolio
discourages short-term trading in its shares.
Other Investment Policies and Risks
Although each of the Portfolios may invest substantially all of its assets
in common stocks, 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, each Portfolio may establish and maintain reserves for temporary
defensive purposes or to enable it to take advantage of buying opportunities.
Each Portfolio's reserves may be held in cash or invested in high quality money
market instruments. The Portfolios may also lend their portfolio securities,
write (sell) options against investment positions and purchase put and call
options.
Foreign Securities. While investment in foreign companies is not a current
focus of the Portfolios, each Portfolio may invest in foreign equity and debt
securities. Investments in foreign securities may involve greater risks than
investments in domestic securities. Foreign securities tend to be more volatile
than domestic securities due to a number of factors, including fluctuations in
currency exchange rates; political, social or economic instability; and less
stringent accounting, disclosure and financial reporting requirements in some
countries.
Restricted Securities and Illiquid Securities. Each Portfolio may invest
up to 5% of its total assets in securities that are not readily marketable.
These include 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. Each Portfolio also may invest up to 5% of its total assets
in securities where resale is legally or contractually restricted (all of which
are collectively referred to as "restricted securities"). The sale of
restricted securities often takes more time than more liquid securities and may
result in higher selling expenses. Also, a Portfolio may have to dispose of
restricted securities at less desirable prices or at prices lower than the
Portfolio valued the securities. A Portfolio may resell restricted securities
to other institutions. If there is a dealer or institutional trading market in
such securities, these restricted securities may be treated as exempt from each
Portfolio's limitation on illiquid securities.
Temporary Defensive Investments. When OAM believes that market conditions
are unfavorable for profitable investing, or when it is otherwise unable to
locate attractive investment opportunities, a Portfolio's cash or other similar
investments may increase. OAM may also temporarily increase a Portfolio's cash
position to protect its assets or maintain liquidity.
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When a Portfolio's investments in cash or similar investments increase, it
may not participate in market advances or declines to the same extent that it
would if the Portfolio remained more fully invested in stocks.
Repurchase Agreements. As a means of earning income on idle cash, each
Portfolio may enter into repurchase agreements. This technique involves the
purchase of a security by a Portfolio and a simultaneous agreement by the seller
(generally a bank or dealer) to repurchase the security from the Portfolio at a
specified date or upon demand. These securities involve the risk that the
seller will fail to repurchase the security, 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
Portfolio cannot enter into repurchase agreements in excess of 25% of its total
assets and cannot invest more than 10% of its total assets in restricted
securities, which include repurchase agreements with maturities of seven days or
more.
Lending of Portfolio Securities. To generate additional income, each
Portfolio may lend its portfolio securities to qualified brokers/dealers or
institutional investors. Such loans may not exceed 30% of the Portfolio's total
assets measured at the time of the most recent loan. For each loan, the
borrower must maintain collateral at the Portfolio's custodian with a value at
least equal to 100% of the current market value of the security loaned.
Options. Each Portfolio may buy put and call options on stocks and stock
indices. An option on a security is a contract that gives the buyer of the
option the right to buy or sell a specific security at a stated price during the
option's term. An option on a securities index is a contract that gives the
buyer of the option the right to receive from the seller cash in an amount equal
to the difference between the index's closing price and the option's exercise
price. Options are considered "derivative" securities and are generally used to
hedge a portfolio against certain market risks, but they may also be used to
increase returns. Using options may decrease returns and increase volatility.
A Portfolio may invest up to 5% of its assets in the purchase of put and
call options. Each Portfolio may also write (sell) covered call options on its
Portfolio securities. The total market of the underlying securities of covered
call options is limited to 50% of the Portfolio's net assets.
MANAGEMENT OF THE PORTFOLIOS
Investment Adviser
Oberweis Asset Management, Inc. ("OAM"), 951 Ice Cream Drive, North Aurora,
Illinois 60542, is the investment adviser to each of the Portfolios and is
responsible for the day-to-day management of their investment portfolios and
other business affairs of the Fund and each of the Portfolios.
9
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OAM began providing the Fund with investment advisory and management
services in October, 1994. Although OAM had not served as the investment adviser
to a mutual fund prior to October, 1994, James D. Oberweis, President of the
Fund, and other officers and employees of OAM have previously been associated
with investment advisers for the Fund and/or other mutual funds. OAM has
published an investment advisory newsletter since 1990, and since October, 1994,
it has also offered investment advice to institutions and institutional
investors regarding a broad range of investment products. Certain OAM employees
serve as officers of the Fund and James D. Oberweis serves as both a Trustee and
officer of the Fund.
OAM furnishes continuous advice and recommendations concerning the
Portfolios' investments. OAM also provides the Fund with non-investment advisory
management and administrative services necessary for the conduct of the Fund's
business. OAM furnishes the Fund with certain administrative, compliance and
accounting services and provides information and certain administrative services
for shareholders of the Portfolios. OAM provides these services under a
management agreement, which is separate from the investment advisory agreement.
OAM may subcontract with other entities to provide certain shareholder servicing
activities. OAM also provides office space and facilities for the management of
the Fund and pays the salaries and fees of the Fund officers and the Trustee who
is affiliated with OAM.
Portfolio Managers. Each Portfolio's investment objective and policies were
developed by James D. Oberweis ("Mr. Oberweis"), portfolio manager of the
Emerging Growth and the Micro-Cap Portfolios since their inception. James W.
Oberweis is the portfolio manager of the Mid-Cap Portfolio.
Mr. Oberweis, a Trustee and President of the Fund, is also a Director and
the President of OAM, and, together with his family, a controlling shareholder
of OAM. Mr. Oberweis is also a registered options principal and shareholder of
Oberweis Brokerage, Inc. ("Oberweis Brokerage"), the Fund's principal
distributor and shareholder service agent. Mr. Oberweis has an MBA from the
University of Chicago and has in excess of 25 years of experience in selecting
securities for investment for private clients. In addition to the Fund, Mr.
Oberweis manages segregated accounts for institutional and individual investors.
James W. Oberweis is a Vice President of the Fund and OAM and a Director,
President and an Investment Executive of Oberweis Brokerage. James W. Oberweis
was formerly a registered representative of The Chicago Corporation 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.
Management Expenses
As compensation for its investment advisory services, the Portfolios pay
OAM pursuant to the Investment Advisory Agreement an annual fee which is
computed and accrued daily and paid monthly. OAM receives annual fees 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, .60% of the average daily
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net assets of the Micro-Cap Portfolio, and of .40% of the average daily net
assets of the Mid-Cap Portfolio.
As compensation for managing the business affairs and providing certain
administrative services, the Portfolios pay OAM pursuant to the Management
Agreement. Each Portfolio pays OAM a monthly management fee at the annual rate
of .40% of the average daily net assets of the Portfolio, subject to reduction
because of each Portfolio's annual expense limitation.
Each Portfolio also incurs expenses for services not provided and expenses
not assumed by OAM, such as transfer agent and custodian fees and expenses,
legal and auditing fees, printing and mailing costs of sending prospectuses,
shareholder reports and other information to existing shareholders, and
independent Trustees' fees and expenses. The Annual Fund Operating Expenses
table lists the actual advisory and management fees and total operating expenses
for each Portfolio for the most recent fiscal year.
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 pays certain expenses in connection with the distribution of shares of
each Portfolio under a Rule 12b-1 Plan and a Distribution and Shareholder
Service Agreement 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.
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 services provided to each Portfolio. Because the fee
is continually paid out of the Portfolios' assets, over time it will increase
the cost of your investment and could potentially cost you more than paying
other types of sales charges.
Pursuant to the Plan and Agreement, 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.
OTHER INFORMATION
Size of Micro-Cap Portfolio
The Fund anticipates ceasing sales of the Micro-Cap Portfolio to both new
shareholders and existing shareholders when the Portfolio reaches $60 million in
net assets but reserves the right to
11
<PAGE>
change this limit in the future. If sales of the Micro-Cap Portfolio are
discontinued, it is expected that existing shareholders of the Micro-Cap
Portfolio would be permitted to reinvest any dividends or capital gain
distributions in additional shares of the Portfolio, absent highly unusual
circumstances.
Year 2000 Readiness
Like other organizations around the world, the Fund could be adversely
affected if the computer systems used by the Fund or its service providers do
not properly process and calculate date-related information beginning January 1,
2000, commonly referred to as the "Year 2000 Issue." OAM and Oberweis Brokerage
believe that they have taken steps reasonably designed to address any potential
Year 2000 Issue for computers they use. In addition, management is in the
process of confirming that the third-party service providers used by the Fund,
OAM and Oberweis Brokerage are also taking steps reasonably designed to address
the Year 2000 Issue with respect to their computer systems. At this time, there
can be no assurances that these steps will be sufficient to avoid any adverse
impact to the Fund. In addition, there can be no assurance that the Year 2000
Issue will not affect the companies in which the Portfolios invest or worldwide
markets and economies.
SHAREHOLDER INFORMATION
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). You may reduce this $1,000 minimum initial investment by signing up for
the Low Minimum Investment Plan. (See "Shareholder Services.") Additional
purchases for all existing accounts must be in amounts of at least $100, except
for reinvestment of dividends and capital gains distributions. The Fund reserves
the right to change at any time the initial or subsequent investment minimums,
to withdraw the offering or to reject any purchase in whole or part.
You may purchase shares of the Portfolios through a securities
broker/dealer or its designated agent, through 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
broker/dealers, banks or other institutions may charge for their services in
purchasing shares of the Portfolios.
Your purchase may be made by check or wire or, if it is a subsequent
purchase, through the Automatic Investment Plan. All purchases must be in U.S.
dollars. Third-party checks, except those payable to an existing shareholder who
is an individual (as opposed to, e.g., a corporation or partnership), credit
cards and cash will not be accepted.
12
<PAGE>
Shares of the Fund are offered on a continuous basis. The offering price
per share will be the Net Asset Value ("NAV") per share next determined after
the purchase order is received in proper form by IFTC. (See "Pricing of Fund
Shares" for details on the calculation of the current NAV.)
Purchase by Mail. To make an initial purchase by mail, you must 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
You may make additional investments to an existing account by sending to the
address above 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 to send it by
facsimile machine to IFTC (at 1-816-843-8835), if possible, or mail it
immediately. Otherwise, an Account Application will be mailed to you for you to
complete, sign and return immediately to IFTC. Federal funds are to be wired
according to the following instructions:
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, MO 64105
ABA #101003621
The name of the Portfolio in which you wish to invest
The Oberweis Funds' Account No. 8907500742
Further Credit to: (Your shareholder account number and the name(s)
in which your account is registered).
You may make additional investments to your account by wire by just
contacting your financial institution with the wire instructions. You do not
have to contact IFTC first.
13
<PAGE>
Your financial institution may charge you a fee for sending the wire.
Neither the Fund nor IFTC will be responsible for the consequences of delays,
including delays in the bank or Federal Reserve wire systems.
How to Redeem Shares
In General. You may redeem shares of the Portfolios by mail, by telephone,
or through your own securities broker/dealer or its designated agent, or bank or
other institution that is recorded for such account, if any (see "How to
Purchase Shares"). Because of fluctuations in the value of each Portfolio, the
NAV of shares redeemed may be more or less than your cost. Some broker/dealers,
banks or other institutions may charge you a fee for 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 transfers
of monies and transfers of monies in connection with sales made pursuant to the
Exchange Privilege, is made within seven days after the redemption request is
received. However, if you sell shares you recently purchased with a check, we
may delay sending you the proceeds until your check has cleared, which may take
up to 15 days.
Account Minimums. Each Portfolio reserves the right to redeem the shares in
your account if its total value falls below $1,000 (below $500 for tax-
advantaged retirement plans) as a result of a redemption. Each Portfolio will
allow you 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 redeem shares by a distribution
in kind to you of securities held by the Portfolio.
Redemption by Mail. You 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 and the name of the Portfolio. Your request must be
sent to The Oberweis Funds, c/o Investors Fiduciary Trust Company, P.O. Box
419042, Kansas City, Missouri 64141. Some redemption requests may require
signature guarantees (see "Signature Guarantees and Other Documentation"). Your
redemption request must be accompanied by share certificates, if any have been
issued. In the case of joint ownership, all owners must sign the redemption
request and all owners must sign any endorsement of share certificates.
Additional documents may be required for redemption of shares held by estates,
trusts, guardianships, corporations, partnerships and other shareholders who are
not individuals. The Fund recommends that all mailed share certificates be sent
by registered or certified mail, return receipt requested.
Redemption by Telephone. If you have elected the telephone redemption
option on your account application, you may redeem your Portfolio shares by
telephoning the Transfer Agent at 1-800-245-7311. Pursuant to the telephone
redemption program, you must authorize the Transfer
14
<PAGE>
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 your
pre-designated instructions. The Transfer Agent uses procedures reasonably
designed to confirm that instructions communicated by telephone are genuine. The
Transfer Agent requires certain identifying information prior to acting upon
instructions, records all telephone instructions and then sends written
confirmation of telephone instructions. As long as these procedures are
reasonably followed, neither the Fund nor the Transfer Agent would be liable for
any losses from instructions communicated by telephone even if they are
unauthorized or fraudulent.
Redemption proceeds will be mailed to the shareholder of record in the form
of a check. The proceeds may also be transferred to the shareholder's designated
bank using electronic funds transferred via the Automated Clearing House
("ACH"), or, at the shareholder'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 transfers via ACH.
Funds transferred via wire transfer will normally be transmitted on the
next business day following the request. There is a $6 fee for each wire
redemption. Your bank may also charge additional fees for receiving a wire
transfer. Checks issued by mail in response to a telephone redemption request
can be issued only up to $50,000 to the registered owner(s) (who must be
individuals) at the 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, securities
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. A signature guarantee cannot be provided by a notary public. If you
live outside the United States, a foreign bank properly authorized in your
country of residence or a U.S. consulate may be able to authenticate your
signature.
When a signature guarantee is required, the signature of each shareholder
of record must be guaranteed. A redemption request for shares held by a
corporation, trust, partnership, agent or fiduciary must be signed by an
appropriately authorized person and include additional documents to verify the
authority of the person seeking redemption, such as a certified by-law provision
or resolution of the board of directors or trustees of the shareholder and/or a
copy of the governing legal instrument. Any person requiring information on
redemption procedures may call the Transfer Agent at 1-800-245-7311.
Pricing of Fund Shares
15
<PAGE>
All purchases, redemptions and exchanges will be processed at the NAV next
calculated after your request is received and accepted by the Fund (or the
Fund's agent or authorized designee). NAV per share is computed by dividing the
value of the Portfolio's net assets (i.e., the value of its assets less
liabilities) by the total number of shares then outstanding. Each Portfolio's
investments are valued based on market value or, where quotations are not
readily available, on fair value as determined in good faith by the Board of
Trustees.
If your 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 ("NYSE") on a given day (currently
3:00 p.m., Central Time), or by a securities broker/dealer or its designated
agent, a bank or other institution having a sales agreement with Oberweis
Brokerage by the close of trading on the NYSE, Portfolio shares will be
purchased or sold at the next computed NAV. The NAV of the shares of each
Portfolio is computed once daily, as of the later of the close of the NYSE or
the Chicago Board Options Exchange ("CBOE"), on each day the NYSE is open for
trading. For purposes of computing the NAV, all securities in a Portfolio other
than options are priced as of the close of trading on the NYSE. The options in
the Portfolios are priced as of the close of trading on the CBOE.
Shareholder Services
General Information. In addition to the purchase and redemption services
described above, the Fund offers its shareholders the special accounts and
services described below. You may obtain applications and information about any
shareholder services by calling 1-800-245-7311.
When you make an initial investment in a Portfolio, a shareholder account
is opened for you in accordance with the Portfolio's Account Application
instructions. After each transaction for your account, you will be sent a
confirmation. This includes all deposits, purchases, reinvestments, redemptions,
withdrawal payments, and other transactions in your account.
The Portfolios will generally not issue certificates for their shares.
Certificates for full share amounts only will be issued upon a shareholder'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 certificates. You
will be the record owner of all shares in your account with full shareholder
rights, whether or not share certificates are issued to you. Certain of the
functions performed by the Fund in connection with the operation of the accounts
described above will be performed by the Fund's Transfer Agent, IFTC.
Exchange Privilege. All or part of Portfolio shares owned by you may be
exchanged for shares of any other Portfolio in The Oberweis Funds offering
shares at that time. Your Portfolio shares may also be exchanged for shares of
any of the 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 Funds"). You may later then exchange such shares purchased and shares
purchased with
16
<PAGE>
reinvested dividends for shares of the Fund. Shares will be exchanged for each
other based upon their relative net asset values except that the Micro-Cap and
Mid-Cap Portfolios deduct a withdrawal charge of .25% of the value of shares
redeemed, which deduction also applies to shares exchanged out of each of those
Portfolios.
Cash Resource Trust Funds are described in a separate prospectus. You may
obtain a copy of the prospectus for any Cash Resource Trust Fund by calling 1-
800-245-7311 or writing 951 Ice Cream Drive, North Aurora, Illinois 60542. You
are advised to read the prospectus carefully before authorizing any investment
in shares of such fund. Exchange requests are subject to a $1,000 minimum.
To take advantage of the Exchange Privilege, you must 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 request.
If you have any share certificates, you must include them with your
request. A signature guarantee is not required, except in some cases where
shares are also redeemed for cash at the same time. For certificate delivery
instructions and when you need a signature guarantee, please see "Redemption by
Mail" under "How to Redeem Shares."
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
accepting telephone requests, in which case you should mail your request to our
address. Please see "Purchase by Mail" for our address. In addition, you may
also be able to make exchanges through certain securities broker/dealers that
may charge you a fee for effecting an exchange.
An exchange of shares is considered a sale for federal income tax purposes.
You 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.
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
otherwise permitted by applicable regulations, 60 days' prior written notice of
any termination or material change will be provided.
Low Minimum Initial Investment Plan/Automatic Investment Plan. By
completing the Automatic Investment Plan section of the Account Application, you
may make subsequent investments by authorizing the Fund and its Custodian to
debit your bank account to buy additional
17
<PAGE>
shares of the Portfolios. The minimum initial investment in each Portfolio is
$1,000. However, the Low Minimum Initial Investment Plan allows you to open an
account with an initial investment of $100 and subsequent monthly investments of
$100 or more for at least a one-year period.
You can make Automatic Investments either monthly or quarterly, on or about
the 5th or the 20th of the month, in pre-designated amounts of $100 or more.
Funds will be transferred from your designated bank, using electronic funds
transferred via ACH. Initial investments may not be made by the Automatic
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 whenever a check is returned
unhonored by your bank. You are responsible for any charges incurred as a result
of an unhonored transaction.
If you cancel the Low Minimum Initial Investment Plan before a one-year
period, the Fund reserves the right to redeem your account if the balance is
below the minimum investment level, currently $1,000. The Fund reserves the
right to terminate or modify the Automatic Investment Plan at any time. See the
Account Application for additional details.
Systematic Withdrawal Account. If you own Portfolio shares with a current
NAV of at least $10,000, you may establish a Systematic Withdrawal Account. By
using this plan, you may have withdrawn from your account a fixed sum that will
be paid to you or a pre-designated third party at regular intervals.
A Systematic Withdrawal Account cannot be established for you if you own
Portfolio shares for which certificates are outstanding. All share certificates
must be surrendered before beginning systematic withdrawals. 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) Plans. Investing in a Portfolio's shares must be
done according to the conditions of the IRA and/or other retirement plan
agreements. You should contact your Plan custodians to determine the eligibility
of the Portfolio's shares as IRA or retirement plan investments.
You may use the Fund's Custodian Bank to establish certain types of
retirement plan accounts, including IRAs, Keoghs and 403(b)(7) Plans in order to
purchase shares of a Portfolio with your 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.
18
<PAGE>
Information regarding the establishment of 401(k) Plan accounts, including
administration, plan provisions, and fees, is also available from the Fund.
Distribution and Taxes
Taxation of the Portfolios. As regulated investment companies, the
Portfolios generally pay no federal income tax on the income and gains that they
distribute to you.
Taxation of Shareholders. To avoid taxation, the Internal Revenue Code
requires each Portfolio to distribute net income and any net capital gains
realized on its investments annually. A Portfolio's income from dividends and
interest and any net realized short-term gains are paid to shareholders as
ordinary income dividends. Net realized long-term gains are paid to shareholders
as capital gains distributions. The dividends and capital gain distributions are
normally declared and paid in November.
Dividends and capital gains distributions are automatically reinvested in
additional shares of the Portfolio, unless you elect to receive them in cash. A
cash election remains in effect until you notify the Transfer Agent in writing
to discontinue such election.
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. You will be notified
annually as to the federal income tax status of dividends and capital gains
distributions. Such dividends and distributions may also be subject to state and
local taxes.
Long-term capital gain distributions are taxable as long-term capital gain
regardless of how long you have held shares of the Portfolio. Long-term capital
gain distributions (relating to assets held by the Portfolio for more than 12
months) made to individual shareholders are currently taxed at the maximum rate
of 20%. 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. Any 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 they
are declared.
Distribution to Retirement Plans. Fund distributions received by your
qualified retirement plan, such as a 401(k) Plan or IRA, are generally tax
deferred. This means that you are not required to report Portfolio distributions
on your income tax return, but, rather, when your plan makes payments to you.
Special rules apply to payments from Roth and Education IRAs.
How Distributions Affect a Portfolio's NAV. Distributions are paid to
shareholders as of the record date of a distribution of a Portfolio, regardless
of how long the shares have been held. Dividends and capital gains awaiting
distribution are included in each Portfolio's daily NAV. The share price of a
Portfolio drops by the amount of the distribution, net of any subsequent market
19
<PAGE>
fluctuations. You should be aware that distributions from a taxable mutual fund
are not value-enhancing and may create income tax obligations.
"Buying a Dividend." If you purchase shares of a Portfolio just before the
distribution, you will pay the full price for the shares and receive a portion
of the purchase price back as a taxable distribution. This is referred to as
"buying a dividend." Unless your account is set up as a tax-deferred account,
dividends paid to you will be included in your gross income for tax purposes,
even though you may not have participated in the increase in NAV of the Fund,
whether or not you reinvested the dividends.
Backup Withholding. When you open an account, Internal Revenue Service
("IRS") regulations require that you provide your taxpayer identification number
("TIN"), certify that it is correct, and certify that you are not subject to
backup withholding under IRS rules. If you fail to provide a correct TIN or the
proper tax certifications, each Portfolio is required to withhold 31% of all the
distributions (including dividends and capital distributions) and redemption
proceeds paid to you. Each Portfolio is also required to begin backup
withholding on your account if the IRS instructs it to do so. Amounts withheld
are applied to your federal income tax liability and you may obtain a refund
from the IRS if withholding results in overpayment of taxes.
Foreign Taxes. Dividends, interest, and some capital gains received by the
Portfolios on foreign securities may be subject to tax withholding or other
foreign taxes. The Portfolios may from year to year make the election permitted
under section 853 of the Internal Revenue Code to pass through such taxes to
shareholders as a foreign tax credit. If such an election is not made, any
foreign taxes paid or accrued will represent an expense to the Portfolios.
You are advised to consult your own tax adviser as to the tax consequences
of owning shares of each Portfolio with respect to their respective
circumstances.
General Information
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 any of the Portfolios should be directed to the Fund at 951 Ice Cream
Drive, Suite 200, North Aurora, Illinois 60542 or (800) 323-6166.
20
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolios' financial performance for the past five years (or for Portfolios
with a performance history shorter than five years, from inception through
December 31st of each year shown). Certain information reflects financial
results for a single Portfolio share. The total returns in the tables represent
the rate that an investor would have earned (or lost) on an investment in each
of the Portfolios (assuming reinvestment of all dividends and distributions).
This information has been audited by Ernst & Young LLP, whose report, along with
the Portfolios' financial statements, is included in the Annual Report, which is
available upon request and incorporated by reference into the Statement of
Additional Information.
Emerging Growth Portfolio
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........... $ 25.71 $ 32.86 $ 29.09 $ 21.41 $ 22.19
Income (loss) from investment operations:
Net investment loss (a)........................ (0.33) (0.37) (0.32) (0.33) (0.22)
Net realized and unrealized gain (loss) on (0.63) (2.14) 6.73 9.43 (0.56)
investments.................................. -------- -------- -------- -------- -------
Total from investment operations............... (0.96) (2.51) 6.41 9.10 (0.78)
Less distributions:
Distribution from net realized gain on (1.15) (4.64) (2.64) (1.42) -
investments.................................. -------- -------- -------- -------- -------
Net asset value at end of year................. $ 23.60 $ 25.71 $ 32.86 $ 29.09 $ 21.41
======== ======== ======== ======== =======
Total return (%)............................... (3.1) (8.6) 22.5 42.6 (3.5)
Ratio/supplemental data:
Net assets at year end (in thousands).......... $93,115 $139,983 $185,595 $134,663 $90,014
Ratio of expenses to average net assets (%).... 1.55 1.44 1.48 1.73(b) 1.78
Ratio of net investment loss to average net (1.37) (1.18) (0.97) (1.24) (1.06)
assets (%)...................................
Portfolio turnover rate (%).................... 49 75 64 79 66
Average commission rate paid................... $ .0280 $ .0337 $ .0413 - -
</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 before expense reimbursement.
21
<PAGE>
Micro-Cap Portfolio
<TABLE>
<CAPTION>
Years Ended January 1,
December 31, 1996* -
----------------------------------- December 31,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value at beginning of period....................... $ 13.59 $ 12.28 $ 10.00
Income (loss) from investment operations:
Net investment loss (a)...................................... (0.24) (0.21) (0.15)
Net realized and unrealized gain on investments.............. 0.83 1.52 2.43
------- ------- --------
Total from investment operations............................. 0.59 1.31 2.28
Net asset value at end of period............................. $ 14.18 $ 13.59 $ 12.28
======= ======= ========
Total return (%)............................................. 4.3 10.7 22.8
Ratio/supplemental data:
Net assets at end of period (in thousands)................... $28,290 $36,837 $ 30,733
Ratio of expenses to average net assets (%).................. 1.99(b) 1.81 1.94
Ratio of net investment loss to average net assets (%)....... (1.83) (1.52) (1.15)
Portfolio turnover rate (%).................................. 41 89 70
Average commission rate paid................................. $ .0288 $ .0343 $ .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 expense ratio would
have been 2.06% for 1998 before expense reimbursement.
* Commencement of operations.
Mid-Cap Portfolio
<TABLE>
<CAPTION>
Years Ended September 15,
December 31, 1996* -
------------------------------------ December 31,
1998 1997 1996
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $10.51 $10.29 $10.00
Income (loss) from investment operations:
Net investment loss (a)..................................... (0.21) (0.19) (0.05)
Net realized and unrealized gain on investments............. 2.56 0.76 0.34
------ ------ --------
Total from investment operations............................ 2.35 0.57 0.29
Less distributions:
Distribution from net realized gain on investments.......... - (0.35) -
------ ------ --------
Net asset value at end of period............................ $12.86 $10.51 $10.29
====== ====== ========
Total return (%)............................................ 22.4 5.4 2.9(d)
Ratio/supplemental data:
Net assets at end of period (in thousands).................. $6,916 $6,347 $7,295
Ratio of expenses to average net assets (%)................. 2.00(b) 2.00(b) 2.00(b)(c)
Ratio of net investment loss to average net assets (%)...... (1.94) (1.81) (1.62)(c)
Portfolio turnover rate (%)................................. 72 106 21(c)
Average commission rate paid................................ $.0305 $.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 expense ratios would
have been 2.61%, 2.46% and 3.42% for 1998, 1997 and 1996, respectively,
before expense reimbursement.
(c) Annualized.
(d) Not annualized.
* Commencement of operations.
22
<PAGE>
You can obtain additional information about the Fund and its Portfolios. The
Fund's SAI includes more detailed information about each Portfolio and its
investments. The SAI is incorporated herein by reference (legally forms a part
of the prospectus). The Fund's annual and semi-annual reports include a
discussion of the Portfolios' holdings and recent market conditions and the
Portfolios' investment strategies that affected performance.
For a free copy of any of these documents or to request other information or ask
questions about the Fund on any of its Portfolios, call Oberweis at 1-800-323-
6166 or visit Oberweis's Web site at www.oberweisfunds.com.
- --------------------------------------------------------------------------------
The SAI, the Fund's annual and semi-annual reports and other related materials
are available on the SEC's Internet Web Site (http://www.sec.gov). You can
obtain copies of this information upon paying a duplicating fee, by writing
the Public Reference Section of the SEC, Washington, D.C. 20549-6009. You can
also review and copy information about the Fund, including the Fund's SAI, at
the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
Investment Company Act of 1940, File Number, 811-4854
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE OBERWEIS FUNDS
951 ICE CREAM DRIVE, SUITE 200
NORTH AURORA, ILLINOIS 60542
(800) 323-6166
----------------
Oberweis Emerging Growth Portfolio
Oberweis Micro-Cap Portfolio
Oberweis Mid-Cap Portfolio
----------------
This Statement of Additional Information ("SAI") pertains to the Portfolios
listed above, each of which is a separate series of The Oberweis Funds, a Mas-
sachusetts business trust.
The SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus dated May 1, 1999, which is incorporated by reference into
this SAI and may be obtained from the Fund at the above address or phone num-
ber. This SAI contains additional and more detailed information about the
Portfolio's operations and activities than the Prospectus. The Annual Report,
which contains important financial information about the Portfolios, is incor-
porated by reference into this SAI and is also available, without charge, at
the above address or phone number.
----------------
The date of this Statement of Additional Information is May 1, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Objective and Policies........................................... 3
Management of the Fund...................................................... 8
Principal Holders of Securities............................................. 10
Oberweis Asset Management, Inc.............................................. 11
Distribution Plan and Agreement............................................. 13
Expenses Borne by the Portfolios............................................ 14
Portfolio Transactions...................................................... 15
Shareholder Services........................................................ 18
Determination of Net Asset Value............................................ 18
Purchases of Shares......................................................... 19
Redemption of Shares........................................................ 19
Taxes....................................................................... 19
Shareholder Meetings and Voting Rights...................................... 20
Calculation of Average Annual Total Return.................................. 20
Additional Information...................................................... 21
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of each Portfolio's in-
vestment objective and policies discussed in the Fund's Prospectus.
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 SAI, "a majority of the outstanding voting securities" of the
Portfolio means the lesser of (1) the holders of more than 50% of the out-
standing shares of the Portfolio, or (2) the holders of more than 67% of the
shares of the Portfolio present if more than 50% of the outstanding shares of
the Portfolio are present at a meeting in person or by proxy.
Investment Restrictions
The policies set forth below are fundamental policies of each Portfolio and
may not be changed without approval of a majority of that Portfolio's 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;
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;
3
<PAGE>
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 nor will a disposition of any secu-
rities be required.
Other Restrictions
Other investment restrictions are set forth in the Fund's Prospectus and
elsewhere in this SAI. In addition, each Portfolio will not invest more than
10% of its total assets in "restricted securities" (meaning securities the re-
sale of which is legally or contractually restricted, including repurchase
agreements with maturities of seven days or more and securities that are not
readily marketable).
Investment Strategies and Risks
The following information supplements the discussion of the Portfolios' risk
factors, discussed in the Fund's Prospectus.
4
<PAGE>
Cash Position. As discussed in the Prospectus, when OAM believes that market
conditions are unfavorable for profitable investing, or when it is otherwise
unable to locate attractive investment opportunities, a Portfolio's cash or
other similar investments may increase. Securities that the Portfolios may in-
vest in as a means of receiving a return on idle cash include U.S. government
obligations, certificates of deposit, commercial paper (rated prime 3 or bet-
ter by Moody's Investor Services, Inc., ("Moody's") or the equivalent),
corporate debt securities (rated A or better by Moody's or Standard & Poor's
Corporation) and repurchase agreements.
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
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. This technique offers a method of earning income on idle cash. In
these transactions, the securities purchased by the Portfolio have, at all
times, a total value in excess of the value of the repurchase agreement and
are held by the Fund's custodian bank until repurchased. Certain costs may be
incurred by a Portfolio in connection with the sale of the securities pur-
chased 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 (the "1940 Act"), repurchase agreements may be
considered loans by the Portfolio. Each Portfolio is subject to restrictions
on entering into repurchase agreements in excess of 25% of the total assets
and on investing more than 10% of its total assets in restricted securities,
which includes repurchase agreements with maturities of seven days or more.
Options. Selling (or Writing) Covered Call Options--Each Portfolio may write
(sell) covered call options on its portfolio securities, the aggregate market
value of which underlying securities is limited to 50% of the Portfolio's net
assets. A call option gives the buyer (holder) the right to purchase the un-
derlying security at a specified price (the "exercise price") within a certain
time period. Where the writer (seller) of the option, in this case the Portfo-
lio, 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 par-
tial hedge (protection) against declining prices and enables the Portfolio to
generate a higher return during periods when OAM does not expect the under-
lying security to make any major price moves in the near future but still
deems the underlying security to be, over the long term, an attractive invest-
ment for the Portfolio. In determining whether to write (sell) a covered call
option on one of the Portfolio's securities, OAM will consider the reasonable-
ness of the anticipated premium in relation to the anticipated increase in
market value of the underlying security over the option period. Although the
writing (selling) of covered call options is believed by OAM to be a conserva-
tive investment technique that involves relatively little risk, risks involved
in writing (selling) a covered call option include the possible inability to
effect closing transactions at favorable prices and the inability to partici-
pate 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 underlying security that might otherwise have been sold while the Port-
folio 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 pol-
icy limiting the pledging or mortgaging of its assets.
Buying Put and Call Options--Each Portfolio may also invest up to 5% of its
assets in the purchase of put and call options, primarily to minimize princi-
pal fluctuations. The Portfolios may enter into closing transactions, exercise
their options or permit them to expire. The risks involved in purchasing put
or call options include the possible loss of the premium.
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
5
<PAGE>
Portfolio, as the holder of the put option, is able to sell the underlying se-
curity at the put exercise price regardless of any additional decline in the
security's market price. For example, a put option may be purchased in order
to protect unrealized appreciation of a security where the Portfolio deems it
desirable to continue to hold the security. The premium paid for the put op-
tion 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.
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, inter-
6
<PAGE>
rupting normal exchange operations; (v) inadequacy of an exchange's or a
clearing corporation's facilities to handle increased trading volume; or (vi)
discontinuance of the trading of options (or a particular class or series of
options) by an exchange, for economic or other reasons. Higher than antici-
pated trading activity or other unforeseen events also could cause an exchange
or clearing corporation to institute special procedures which may interfere
with the timely execution of customers' orders.
Stock index options may be closed out only on an exchange which provides a
market for such options. For example, OEX stock index options currently can be
purchased or sold only on the CBOE. Although the Portfolios intend to purchase
or sell stock index options only on exchanges where there appear to be active
markets, there is no assurance that a liquid market will exist for any 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 re-
ceived) to qualified institutional investors who need to borrow securities in
order to complete certain transactions. By lending its investments securities,
a Portfolio attempts to increase its income through the receipt of interest on
the loan. While the securities are being lent, the Portfolios will continue to
receive the equivalent of any dividends or interest paid by the issuer thereof
as well as interest on the collateral. Any gain or loss in the market price of
the securities loaned that might occur during the term of the loan would be
for the account of the Portfolio.
A Portfolio may lend its portfolio securities to qualified brokers, dealers,
domestic and foreign banks or other financial institutions, so long as the
terms and the structure of such loans are not inconsistent with the 1940 Act,
or the Rules and Regulations or interpretations of the Securities and Exchange
Commission (the "Commission") thereunder, which currently require that (a) the
borrower pledge and maintain with the Portfolio collateral consisting of cash,
an irrevocable letter of credit issued by a domestic U.S. bank, or securities
issued or guaranteed by the U.S. government having a value at all times of not
less than 100% of the value of the securities loaned, (b) the borrower add to
such collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to the market" on a daily basis), (c) the loan be made subject
to termination by the Portfolio at any time, and (d) the Portfolio receives
reasonable interest on the loan or its collateral (which may include the Port-
folio 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.
As with any extension of credit, portfolio security loans involve certain
risks in the event a borrower should fail financially, including delays or in-
ability to recover the loaned securities or foreclosure against the
collateral. Each Portfolio will consider on an ongoing basis the creditworthi-
ness of the borrowers to which it makes portfolio security loans.
Foreign Securities. Foreign securities involve currency risks. The U.S. Dol-
lar value of a foreign security tends to decrease when the value of the U.S.
Dollar rises against the foreign currency in which the security is denominated
and tends to increase when the value of the U.S. Dollar falls against such
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 exchange rate at the time of dis-
bursement or payment, and restrictions on capital 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 diplomatic developments that could affect investment in these
countries.
7
<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 warrants 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 (gener-
ally 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 addi-
tion, the value of a warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exer-
cised prior to its expiration date.
Real Estate Investment Trusts. Each Portfolio may invest in real estate in-
vestment trusts ("REITs"). REITs are subject to volatility from risks
associated with investments in real estate and investments dependent on income
from real estate, such as fluctuating demand for real estate and sensitivity
to adverse economic conditions. In addition, 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 investment 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 to-
tal 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 deferring realization of gain or loss for federal in-
come 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 secu-
rities 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 en-
gage in short sales to the extent 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).
Portfolio Turnover. OAM buys and sells securities for each Portfolio to ac-
complish its investment objective. 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,
1998 and 1997 was 49% and 75%, respectively; the Micro-Cap Portfolio's turn-
over during the years ended December 31, 1998 and December 31, 1997 was 41%
and 89%, respectively; and the Mid-Cap Portfolio's turnover for the years
ended December 31, 1998 and December 31, 1997 was 72% and 106%, respectively.
A higher portfolio turnover rate (over 100%) may cause the Portfolio to pay
higher transaction expenses, including more commissions and markups, and also
may result in quicker recognition of capital gains, resulting in more capital
gains distributions that may be taxable to Shareholders.
MANAGEMENT OF THE FUND
The business and affairs of the Fund and each of the Portfolios are super-
vised by the Fund's Board of Trustees.
One of the Fund's trustees and all of its officers are employees and/or of-
ficers 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 con-
trol with Oberweis Brokerage.
8
<PAGE>
James D. Oberweis, a Trustee and President of the Fund, is the President and
a Director of OAM, and with his wife, Elaine M. Oberweis, and his children, is
a controlling shareholder of OAM. Mr. Oberweis and members of his family own
the majority of the outstanding shares of Oberweis Brokerage.
The Trustees and officers of the Fund, their ages and their principal occu-
pations during the past five (5) years are:
THOMAS J. BURKE, Trustee (67) **
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 (51) **
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 (52) *
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 (63) **
2000 West Galena, Aurora, Illinois 60506; licensed attorney in private prac-
tice, 1962 to present.
PATRICK B. JOYCE, Executive Vice President and Treasurer (39)
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.
MARTIN L. YOKOSAWA, Vice President (38)
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 (25)
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.
- --------
* "Interested person" of the Fund as defined in Section 2(a)(19) of the 1940
Act.
** Member of audit committee and nominating committee.
9
<PAGE>
NOTE: In some cases a trustee or officer may have held different positions
during the last five years with the employer or employers listed.
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, 1998.
<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........ 4,000 0 0 4,000
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1999, the officers and Trustees of the Fund as a group owned
of record or beneficially %, % and % of the then outstanding shares
of the Emerging Growth Portfolio, the Micro-Cap Portfolio and the Mid-Cap
Portfolio, respectively.
10
<PAGE>
The Fund is aware of the following person(s) owning of record, as benefi-
cially, more than 5% of the outstanding shares of the respective Portfolios as
of March 31, 1999.
<TABLE>
<CAPTION>
Name & Address of Type of
Owner % Owned Ownership
----------------- ------- ---------
<S> <C> <C>
Emerging Growth Portfolio
[Broker Name/Address] Record(1)
Micro-Cap Portfolio
[Broker Name/Address] Record(1)
Mid-Cap Portfolio
[Broker Name/Address] Record(1)
</TABLE>
- --------
(1) [Broker Name], a securities broker-dealer, has advised the Fund that no
individual Person owns more than 5% of the Portfolio.
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 objectives, policies and restrictions set forth
in the Fund's Prospectus and this SAI and with applicable laws and regula-
tions. In addition, OAM is authorized to select broker-dealers, including
Oberweis Brokerage, that may execute purchases and sales of the securities for
the Portfolios. (See "Portfolio Transactions.")
The investment adviser is obligated to pay the salaries and fees of any 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
Portfolios under the Investment Advisory Agreement.
As compensation for its investment advisory services, the investment adviser
receives from the Emerging Growth Portfolio at the end of each month a fee at
an annual rate equal to .45% of the first $50 million of the average daily net
assets of the Portfolio and .40% of the average daily net assets of the 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, 1998, 1997 and 1996, the advisory fees in-
curred by the Emerging Growth Portfolio and payable to OAM were $467,203,
$707,165 and $747,719, respectively. For the years ended December 31, 1998,
1997 and 1996, the advisory fees incurred by the Micro-Cap Portfolio and pay-
able to OAM were $159,858, $229,152 and $175,144, respectively. For the year
ended December 31 1998 and 1997 and for the period September 15, 1996 through
December 31, 1996, the advisory fees incurred by the Mid-Cap Portfolio
11
<PAGE>
and payable to OAM were $24,468, $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 "Distribution Plan and Agreement.") In addition, OAM provides
the Fund with office space and basic facilities for management of the Fund's
affairs, and bookkeeping, accounting, record keeping and data processing fa-
cilities and services.
OAM is responsible for preparing and updating the Fund's SEC and state reg-
istration 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 in-
terested persons of the Fund. OAM also provides information and certain
administrative services to shareholders of each Portfolio. These services in-
clude, among other things, transmitting redemption requests to the Fund's
Transfer Agent and transmitting the proceeds of redemption of shares of the
Fund pursuant to a shareholder's instructions when such redemption is effected
through OAM; providing telephone and written communications with respect to
its shareholders' account inquiries; assisting its shareholders in altering
privileges and ownership of their accounts; and serving as a source of infor-
mation 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. However, the Management Agreement provides that OAM is obligated to
reimburse the Portfolios for 100% of the amount by which the Portfolio's ordi-
nary operating expenses during any fiscal year, including the management and
advisory fees, exceed 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 OAM be required to reimburse a Portfolio in
an amount exceeding its management and investment advisory fees.
For the years ended December 31, 1998, 1997 and 1996, the management fees
incurred by the Emerging Growth Portfolio and paid to OAM were $442,202,
$682,165 and $722,720, respectively. For the years ended December 31, 1998,
1997 and 1996, the management fees incurred by the Micro-Cap Portfolio and
paid to OAM were $106,572, $152,768 and $116,763, respectively, and pursuant
to the expense limitation provisions of the Management Agreement, OAM was re-
quired to rebate to the Portfolio $19,321 for the fiscal year ended December
31, 1998. For the years ended December 31, 1998 and 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 $24,468, $26,588 and $8,406, re-
spectively, and pursuant to the expense limitation provisions of the
Management Agreement, OAM was required to rebate to the Portfolio $37,171,
$30,892 and $29,841, respectively.
While the combined investment advisory fee and management fee paid to OAM is
higher than the total of such fees paid by many 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.
12
<PAGE>
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 1940 Act (collectively the "Plan and
Agreement") under which the Fund compensates Oberweis Brokerage in connection
with the distribution of each Portfolio's shares. Oberweis Brokerage will act
as the primary distributor of each Portfolio's shares and as the primary
shareholder servicing agent for each Portfolio. The Fund pays Oberweis Broker-
age 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.
The Distribution Plan is a "compensation type" plan, which means that
Oberweis Brokerage may receive compensation that is more or less than the ac-
tual expenditure made. Oberweis Brokerage is, however, required to provide the
Fund with quarterly listings of all expenditures under the Plan and Agreement.
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 may 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 external forms or printed material, but
not including overhead. Although there is no limitation on the amount of such
costs that may be reimbursed under the Plan and Agreement, such costs must be
actual, out-of-pocket costs, and the total amount of 12b-1 fees, including re-
imbursement 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. 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. Oberweis Brokerage compensates its account execu-
tives 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 adverse financial conse-
quences. In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and other financial
institutions may be required to register as dealers pursuant to state law.
The Plan provides that the Fund's asset-based sales charges (as defined in
the NASD's Conduct Rules) shall not exceed those permitted by Rule 2830 of the
NASD's Conduct Rules. Further, as permitted by the NASD's Rules, the Emerging
Growth Portfolio has elected to calculate its permissible amount of asset-
based sales charges on new gross sales of the Portfolio since the Portfolio's
inception.
13
<PAGE>
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 1940 Act, 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, 1998, total 12b-1 fees paid by the Emerging
Growth Portfolio to Oberweis Brokerage were $276,377. For that period ended
December 31, 1998, Oberweis Brokerage paid the following amounts under the
Rule 12b-1 Plan in the approximate amounts noted: $67,242 in sales promotion
and literature expenses, $202,613 in service fees paid to brokers, $10,903 in
salary expenses and employment services, $16,145 in public relations fees, and
$7,423 in registration fees. There was no reimbursement of out-of-pocket ex-
penses for such period.
For the year ended December 31, 1998, total 12b-1 fees paid by the Micro-Cap
Portfolio to Oberweis Brokerage were $66,608. For that period Oberweis Broker-
age paid the following amounts under the Rule 12b-1 Plan in the approximate
amounts noted: $15,772 in sales promotion and literature expense, $54,107 in
service fees paid to brokers, $2,676 in salary expenses and employment servic-
es, $3,732 in public relations fees, and $2,057 in registration fees. There
was no reimbursement of out-of-pocket expenses for such period.
For the year ended December 31, 1998, total 12b-1 fees paid by the Mid-Cap
Portfolio to Oberweis Brokerage were $15,292. For that period Oberweis Broker-
age paid the following amounts under the Rule 12b-1 Plan in the approximate
amounts noted: $3,770 in sales promotion and literature expense, $14,028 in
service fees paid to brokers, $636 in salary expenses and employment services,
$877 in public relation fees, and $511 in registration fees. There was no re-
imbursement of out-of-pocket expenses for such period.
EXPENSES BORNE BY THE PORTFOLIOS
Other than those expenses payable by OAM and/or Oberweis Brokerage, the
Portfolios will pay all of their expenses, including the following:
(a) Federal, state and local or other governmental agency taxes or fees
levied against the Fund.
(b) Costs, including the interest expense, of borrowing money.
(c) Brokerage fees and commissions and other transaction costs in
connection with the purchase or sale of portfolio securities for the
Portfolios.
(d) Fees and expenses of the Trustees other than those who are
"interested persons" (as defined in the 1940 Act) 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.
14
<PAGE>
(f) Fees and expenses in connection with legal services rendered to the
Fund, the Board of Trustees of the Fund and duly appointed committees of
the Board of Trustees of the Fund, including fees and expenses of special
counsel to those Trustees who are not interested persons of the Fund, and
litigation.
(g) Audit and accounting expenses of the independent auditors.
(h) Custodian and transfer and dividend paying agent fees and expenses
and shareholder service expenses.
(i) Fees and expenses related to registering, qualifying and maintaining
registration and qualification of the Fund and its Shares for distribution
under federal, state and other laws.
(j) Fees and expenses incident to the preparation and filing of reports
with regulatory agencies.
(k) Expenses of preparing, printing (including typesetting) and mailing
prospectuses, shareholder reports, proxy materials and notices to
shareholders of the Fund.
(l) Premiums for trustee's and officer's liability insurance and
insurance carried by the Fund pursuant to the requirements of Section 17(g)
of the 1940 Act, 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 1940 Act 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, 1998, total expenses incurred by the
Emerging Growth Portfolio, the Micro-Cap Portfolio and the Mid-Cap Portfolio
were $1,711,164, $548,904 and $159,599, respectively, and the ratio of such
total expenses to the Portfolio's average net asset value was 1.55%, 2.06% and
2.61%, respectively. Pursuant to the expense limitation, OAM was required to
reimburse the Micro-Cap Portfolio in the amount of $19,321, resulting in net
expenses of $529,583 and a net expense ratio of 1.99% and was required to re-
imburse the Mid-Cap Portfolio in the amount of $37,171, resulting in net
expenses of $122,428 and a net expense ratio of 2.00%.
PORTFOLIO TRANSACTIONS
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund's Portfolios are made by OAM. OAM is authorized to place
orders for securities with various broker-dealers, including Oberweis Broker-
age, 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 con-
trol over and better execution of its orders. Orders for securities
transactions are placed by OAM with a view to obtaining the best combination
of price and execution available. In seeking to achieve the best combination
of price and execution, OAM attempts to evaluate the overall quality and reli-
ability of the broker-dealers and the services provided, including research
services, general execution capability, reliability and integrity, willingness
to take positions in securities, general operational capabilities and finan-
cial condition. However, the responsibility of OAM to attempt to obtain the
best combination of price and execution does not obligate it to solicit a com-
petitive bid for each transaction. Furthermore, under the Advisory Agreement,
OAM is not obligated to seek the lowest available cost to the Portfolio, so
long as it determines in good faith that the broker-dealer's commission,
spread or discount is reasonable in relation to the value of the execution and
research services provided by such a broker-dealer to the Portfolio, or OAM
when viewed in terms of that particular transaction or its overall responsi-
bilities 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 1940 Act 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
15
<PAGE>
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 securi-
ties 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 1940 Act
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.
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.
Some brokers and dealers used by OAM provide research and other services de-
scribed above. For the year ended December 31, 1998, the total brokerage
commissions paid by the Portfolios to broker-dealers in transactions identi-
fied hereunder primarily on the basis of research and other services provided
to the Portfolios are as follows: Emerging Growth Portfolio paid $113,550 in
brokerage commissions on securities transactions in the amount of $78,106,374;
the Micro-Cap Portfolio paid $45,011 in brokerage commissions on securities
transactions in the amount of $17,459,934; and the Mid-Cap Portfolio paid
$5,783 in brokerage commissions on securities transactions in the amount of
$5,993,102.
16
<PAGE>
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, 1998, the total brokerage commissions paid
by the Emerging Growth Portfolio was $170,717, of which 4% or $6,996, was paid
to Oberweis Brokerage. The total amount of securities transactions on which
the Portfolio paid brokerage commissions during such period was $87,957,323.
Seven percent (7%), or $6,134,123, of the securities transactions on which the
Portfolio paid brokerage commissions were effected through Oberweis Brokerage.
The total amount of principal transactions of the Portfolio for the year ended
December 31, 1998 for which no commission was incurred was $64,459,102.
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, 1998, the total brokerage commissions paid
by the Micro-Cap Portfolio was $52,563, of which 3% or $1,494, was paid to
Oberweis Brokerage. The total amount of securities transactions on which the
Portfolio paid brokerage commissions during such period was $18,181,906. One
percent (1%), or $179,564, 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, 1998 for which no commission was incurred was $16,131,157.
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.
17
<PAGE>
For the year ended December 31, 1998, the total brokerage commissions paid
by the Mid-Cap Portfolio was $10,661, of which 0% or $0, was paid to Oberweis
Brokerage. The total amount of securities transactions on which the Portfolio
paid brokerage commissions during such period was $6,682,929. Zero percent
(0%), or $0, of the securities transactions on which the Portfolio paid bro-
kerage commissions were effected through Oberweis Brokerage. The total amount
of principal transactions of the Portfolio for the year ended December 31,
1998 for which no commission was incurred was $2,785,147.
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 SERVICES
The Fund's Prospectus under the heading Shareholder Information/How to Pur-
chase Shares, How to Redeem Shares and Shareholder Services describes
information in addition to that set forth below. When a shareholder makes an
initial investment in a Portfolio, a shareholder account is opened in accor-
dance with the Fund's Account Application instructions. After each transaction
for the account of a shareholder, confirmation of all deposits, purchases,
reinvestments, redemptions, withdrawal payments, and other transactions in the
shareholder's account will be forwarded to the shareholder.
A Portfolio will generally not issue certificates for its shares, except
that certificates for full amounts will be issued upon a shareholder's written
request to the Transfer Agent. The investor will be the record owner of all
shares in his account with full shareholder rights, irrespective of whether
share certificates are issued. Certain of the functions performed by the Fund
in connection with the operation of the accounts described above have been
delegated by the Fund to its Transfer Agent.
In addition to the purchase and redemption services described above, the
Fund offers its shareholders the special accounts and services described in
the Fund's Prospectus. Applications and information about any shareholder
services may be obtained from OAM.
DETERMINATION OF NET ASSET VALUE
See the Fund's Prospectus under the heading Shareholder Information/How to
Purchase Shares and Pricing of Fund Shares, for descriptions of certain de-
tails concerning the determination of Net Asset Value ("NAV"). The NAV of the
shares of the Portfolios are computed once daily, as of the later of the close
of the New York Stock Exchange ("NYSE") or the Chicago Board Options Exchange
("CBOE"), on each day the NYSE is open for trading. All securities in the
Portfolios other than options are priced as of the close of trading on the
NYSE. The options in the Portfolios are priced as of the close of trading on
the CBOE. The NAV per share is computed by dividing the value of the Portfo-
lio's securities plus all other assets minus all liabilities by the total
number of Portfolio shares outstanding. In valuing the Portfolio's securities,
each listed and unlisted security, other than options, for which last sale in-
formation is regularly reported is valued at the last reported sale price
prior to the close of the NYSE. If there has been no sale on such day, the
last reported bid price is used. Options are valued at the last reported bid
price on the primary exchange as of the close of trading on the CBOE. Any un-
listed 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 NYSE determined on the basis of reasonable
inquiry. Restricted securities and any other securities or other assets for
which market quotations are not readily available are valued by appraisal at
their fair values as determined in good faith under procedures established by
and under the general supervision and responsibility of the Board of Trustees.
Short-term debt obligations, commercial paper and repurchase agreements are
valued on the basis of quoted yields for securities of comparable maturity,
quality and type or on the basis of amortized cost.
18
<PAGE>
PURCHASE OF SHARES
See the Funds' Prospectus under the heading Shareholder Information/How to
Purchase Shares for detailed information concerning the purchase of shares of
a Portfolio. Shares of the Portfolios are sold at the NAV per share next de-
termined after the purchase order is received in proper form by IFTC.
REDEMPTION OF SHARES
See the Fund's Prospectus under the heading Shareholder Information/How to
Redeem Shares for detailed 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 NYSE is closed, other than weekend and holiday closings, or the Securities
and Exchange Commission determines that trading on the NYSE 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 in-
vestment securities or to calculate their NAV; 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 share-
holder may either withdraw his request for redemption or receive payment at
the NAV 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 1940 Act, each Portfolio is obli-
gated 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 ac-
count. The value of such securities shall be determined as of the close of
trading of the NYSE on the business day on which the redemption is effective.
In such circumstances, a shareholder might be required to bear transaction
costs to dispose of such securities.
TAXES
Each of the Portfolios has elected to qualify under Subchapter M of the In-
ternal 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 invest-
ment income and net realized capital gains are currently distributed to its
shareholders. Each of the Portfolios will qualify for this status as long as
it: (a) derives at least 90% of its gross income from dividends, interest,
gains from the sale or other distribution of securities or foreign currencies,
and certain other investment income including gain from options, futures or
forward contracts; (b) invests in securities that satisfy certain diversifica-
tion requirements; and (c) distributes at least 90% of its net investment
income and net short-term capital gains to its shareholders each year.
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 (relating to as-
sets held by a Portfolio for more than 12 months) made to individual
Shareholders are taxable at a maximum rate of 20%. Long-term capital gain dis-
tributions made to corporate Shareholders are taxed at the same rate as
ordinary income is taxed to corporations.
19
<PAGE>
In order to avoid a 4% 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 (as opposed to the statutory rate of 30%) from div-
idends that are paid to certain nonresident alien, foreign partnership and
foreign corporation shareholder accounts when relevant withholding certifi-
cates are furnished to the Fund.
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 SAI, which provisions are subject to change by legislative
or administrative action. Investors are advised to consult their own tax ad-
visers 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.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
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 ac-
tions 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 out-
standing shares of the Fund or as may be required by applicable law. Under the
Declaration of Trust, shareholders are entitled to vote in connection with
following matters: (1) for the election or removal of Trustees if a meeting is
called for such purpose; (2) with respect to the adoption of any contract for
which approval is required by the 1940 Act; (3) with respect to any termina-
tion or reorganization of the Portfolios to the extent and as provided in the
Declaration of the Trust; (4) with respect to any amendment of the Declaration
of Trust (other than amendments changing the name of the Fund or the Portfo-
lios, supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision thereof); (5) as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Fund
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) with respect to such additional matters relating
to the Fund as may be required by law, the Declaration of Trust, the By-Laws
of the Fund, or any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Trustees may consider necessary or desir-
able. Shareholders will vote in the aggregate, except when voting by
individual Portfolio is required under the 1940 Act or when the Board of
Trustees determines that voting by series is appropriate. The Declaration of
Trust specifically authorizes the Board of Trustees to terminate the Fund (or
any portfolio of the Fund) without shareholder approval by notice to the
shareholders. Each Trustee serves until the next meeting of shareholders, if
any, called for the purpose of electing Trustees and until the election and
qualification of his successor or until such Trustee sooner dies, resigns, re-
tires or is removed by the majority vote of the shareholders or by the
Trustees.
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
20
<PAGE>
average annual total return quotation is computed in accordance with a stan-
dardized 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)
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.
ADDITIONAL INFORMATION
Fund History
The Fund is a diversified, open-end management investment company, organized
as a business trust under the laws of Massachusetts on July 7, 1986. The
Fund's Agreement and Declaration of Trust ("Trust Agreement") and the By-Laws
of the Fund are designed to make the Fund similar in many respects to a corpo-
ration. However, under Massachusetts law, shareholders of a business trust
may, under certain circumstances, be held personally liable for the obliga-
tions of the trust, which is not the case in a corporation. The Trust
Agreement provides that shareholders shall not be subject to any personal lia-
bility to any person extending credit to, contracting with or having any
claims against the Fund and that every written agreement, obligation, instru-
ment or undertaking made by the Fund shall contain a provision 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 obligations of the Fund, and
the Fund will be covered by insurance which the Trustees believe to be ade-
quate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered re-
mote.
Shares of the Fund
Pursuant to the Fund's Trust Agreement, the Fund may issue an unlimited num-
ber 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 liquida-
tion of such Portfolio. Shares are fully paid and non-assessable by the Fund
when issued, are transferable without restriction and have no preemptive or
conversion rights.
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 and redemption agent
for the Fund.
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.
21
<PAGE>
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, 1998,
were filed with the Securities and Exchange Commission on February 18, 1999
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 SAI omit certain information contained in the
Registration Statement, which the Fund has filed with the Securities and Ex-
change 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 avail-
able for inspection by the public at the Securities and Exchange Commission in
Washington, D.C.
22
<PAGE>
PRESIDENT'S LETTER
Dear Oberweis Funds Shareholder:
The Oberweis Funds invest in extraordinarily rapidly growing companies. The
average growth rates for both revenues and earnings for the companies owned by
the Emerging Growth Portfolio and the Micro-Cap Portfolio were in excess of 90%
at the end of 1998. For the Mid-Cap Portfolio, which owns somewhat larger
companies, the growth rates were 60%. These exceptional growth rates should, in
our opinion, command substantially higher PE ratios than the S&P 500, and in the
past, the PE ratios for all three funds have been substantially higher than the
market as a whole (or the S&P 500). But for the last two years investors have
eagerly purchased large, well known stocks, and generally avoided smaller
company stocks. This attitude has produced a very difficult environment for
small company stocks (unless they are connected to the Internet in investors'
minds). For the first time, the average PE ratio of one of our portfolios (the
Micro-Cap portfolio) actually had an average PE 20% below the S&P 500 based on
earnings estimates for the next year. In the past, the portfolios have typically
had average PEs 50% to 100% higher than the S&P 500. In our opinion, this
indicates that small, rapidly growing company stocks represent a better value
than large company stocks.
We have felt for more than a year that small company stocks represented a better
value than large company stocks, yet big company stocks continued to outperform
small company stocks until October 8th. We don't know why, but since last
October 8th, rapidly growing company shares seem to have once again captured
investor interest. All three portfolios gained approximately 60% from the
October 8th close to the end of the year. Unfortunately, for the Emerging
Growth and Micro-Cap portfolios, that gain merely made up for earlier losses.
For the year, the Micro-Cap Portfolio gained 4.3% and the Emerging Growth
Portfolio lost 3.1%. The Russell 2000, a small stock index, lost 2.5% for the
year. The Mid-Cap Portfolio, which invests in medium size companies, did much
better, gaining 22.4% for the year compared to 19.1% for the S&P 400 Mid-Cap.
While there are no guarantees, we are hopeful that a multi-year swing towards
smaller company stocks began on October 8th.
Finally, I would again like to sincerely thank you for investing with me in our
funds. I realize that the short term share volatility can be frustrating; but
over the long run, accepting that volatility--or even taking advantage of it by
buying on dips--may produce reasonable rewards. Just a reminder on our Micro-Cap
portfolio--we do intend to close the portfolio when it hits $60 million in
assets. We believe that we can only invest a very limited sum in such small
companies (the average market cap is only $145 million). We have to limit the
amount of money we manage in this area or limit the performance of the fund. We
choose to limit the amount of money. It is currently about $30 million. If you
have any questions about your account, please call shareholder services at 800-
245-7311. If you have any questions about the fund's investment policies,
please feel free to call us directly. We're normally available from 7:30 AM
until 6:00 PM central time and from 9:30 until noon on Saturday at 800-323-6166
or at 630-801-6000 in the Chicago area.
Sincerely,
/S/ James D. Oberweis
---------------------
James D. Oberweis
President
1
<PAGE>
THE OBERWEIS FUNDS
MANAGEMENT DISCUSSION AND ANALYSIS
The Oberweis Funds are positioned to take advantage of the long-term price
appreciation that occurs when the market places an appropriately high value on
fast growing companies. The market for such stocks was generally weak during the
first nine months of 1998, though the fourth quarter produced a strong rebound.
For the full year, the Mid-Cap Portfolio gained 22.4%, beating the 19.1% for the
S&P 400 Mid-Cap Index. The Micro-Cap Portfolio gained 4.3%, beating the Russell
2000 small cap index which lost 2.5%. The Emerging Growth Portfolio lost 3.1%,
slightly trailing the Russell 2000. The Mid-Cap Portfolio has had a 13.2%
average annual return since inception (9/15/96). The Micro-Cap Portfolio has had
a 12.4% average annual return since inception three years ago. The Emerging
Growth Portfolio has had an 8.3% average annual return for the last five years
and a 15.9% ten year return.
Internet stocks were the story of 1998. Any company connected to the Internet or
with .com in its name seemed to soar ever higher without regard to such normal
concerns as sales and earnings. Since our investment approach is geared towards
profitable companies with rapid growth in both earnings and revenues, Internet
stocks were not generally available to our portfolios. However, a few profitable
Internet related companies such as Mindspring, an ISP, did meet our criteria
early in the year and we still owned it at the end of the year, though it has
increased in price and PE so much that we would no longer be able to buy it
because of its now very high PE. In fact its high PE helped to pull up the
average PE of both the Mid-Cap and Emerging Growth portfolios. (Mindspring was a
small cap stock at the beginning of 1998 but quickly moved up to Mid-Cap size.)
The average PE ratios at the end of 1998 of the Mid-Cap, Emerging Growth, and
Micro-Cap Portfolios, based on estimated earnings, are 34, 35, and 18 compared
to 23 for the S&P 500 and 19 for the Russell 2000, according to William O'Neil &
Co.
The portfolio turnover rates for the Emerging Growth, Micro-Cap, and Mid-Cap
portfolios for 1998 were the lowest ever at 49%, 41%, and 72%. We do not expect
rates to stay quite that low. The expense ratios for the three portfolios were
1.55%, 1.99% and 2.0% (after expense reimbursement). They would have been 1.55%,
2.06% and 2.61% had there been no reimbursement. The average commission rate
paid by each portfolio for agency transactions (generally on the NYSE, Instinet
and Bloomberg Trading System) was approximately three cents per share traded,
also the lowest ever as commission rates continue to decline. We believe this
rate compares favorably to most other mutual funds. The lower spreads now
present in the NASDAQ market also helped lower our total transaction costs in
1998.
2
<PAGE>
THE OBERWEIS FUNDS
MANAGEMENT DISCUSSION AND ANALYSIS
Average Annual Total Returns /(1)/
Periods Ended 12/31/98
<TABLE>
<CAPTION>
Since
One Five Ten Inception
Year Years Years 1/7/87
-----------------------------------------
<S> <C> <C> <C> <C>
OBEGX -3.1% +8.3% +15.9% +12.7%
Russell 2000 -2.5% +11.9% +12.9% +11.3%
</TABLE>
Growth of an Assumed $10,000 Investment
From January 7, 1987 to December 31, 1998
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Em Russell 2000
- -----------------------------------------
<S> <C> <C>
10,000 10,000
- -----------------------------------------
1987 9,094 8,537
- -----------------------------------------
1988 9,612 10,664
- -----------------------------------------
1989 12,012 12,395
- -----------------------------------------
1990 12,062 9,977
- -----------------------------------------
1991 22,573 14,571
- -----------------------------------------
1992 25,653 17,254
- -----------------------------------------
1993 28,147 20,515
- -----------------------------------------
1994 27,157 20,166
- -----------------------------------------
1995 38,716 25,902
- -----------------------------------------
1996 47,413 30,169
- -----------------------------------------
1997 43,340 36,915
- -----------------------------------------
1998 42,009 35,974
- -----------------------------------------
</TABLE>
Average Annual Total Returns /(1)/
Periods Ends 12/31/98
<TABLE>
<CAPTION>
Since
One Inception
Year 1/1/96
------------------
<S> <C> <C>
OBMCX +4.3% +12.4%
Russell 2000 -2.5% +11.6%
</TABLE>
Growth of an Assumed $10,000 Investment
From January 1, 1996 to December 31, 1998
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Micro Russell 2000
- ---------------------------------------------
<S> <C> <C>
1/1/96 10,000 9,999.71
- ---------------------------------------------
12/31/96 12,279 11,647.2
- ---------------------------------------------
12/31/97 13,590 14,252
- ---------------------------------------------
12/31/98 14,190 13,888.66
- ---------------------------------------------
</TABLE>
Average Annual Total Returns /(1)/
Periods Ended 12/31/98
<TABLE>
<CAPTION>
Since
One Inception
Year 9/15/96
- -----------------------------------------
<S> <C> <C>
OBMDX +22.4% +13.2%
Russell 2000 -2.5% +11.2%
S&P 400 Mid-cap +19.1% +25.9%
</TABLE>
Growth of an Assumed $10,000 Investment
From September 15, 1996 to December 31, 1998
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Mid-Cap Standard & Poor Russell 2000
- ------------------------------------------------------------------
<S> <C> <C> <C>
9/15/96 10,000 10,000 10,000
- ------------------------------------------------------------------
12/31/96 10,290 10,749 10,693
- ------------------------------------------------------------------
12/31/97 10,846 14,216 13,084
- ------------------------------------------------------------------
12/31/98 13,271 16,933 12,751
- ------------------------------------------------------------------
</TABLE>
/(1)/Performance is historical and does not represent future results. Investment
returns and principal value vary, and you may have a gain or loss when you sell
shares. Results include the reinvestment of all dividends and capital gains
distributions. The Standard & Poor's 400 Mid-Cap Index is a capitalization-
weighted index that measures the performance of the mid-range sector of the U.S.
stock market. The Russell 2000 Index is an unmanaged index consisting of 2000
Small Cap Securities with an average market capitalization of approximately $547
million. A sales load of 4% was charged on the Oberweis Emerging Growth
Portfolio until December 31, 1991 and is not reflected in the total return
figures or graph above.
3
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments
December 31, 1998 (value in thousands)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 103.3%
Commercial Services -
Business Services - 1.3%
60,000 First Consulting Group, Inc. @ 20.500 $ 1,230
-------
Commercial Services - Misc. - 9.5%
18,500 Abacus Direct Corp. @ 45.500 842
10,200 Factset Research Systems, Inc. @ 61.750 630
*48,000 Inspire Insurance Solutions @ 18.375 882
50,000 International Telecomm Data Systems @ 14.750 737
5,000 Lason, Inc. @ 58.187 291
*40,000 Medquist, Inc. @ 39.500 1,580
*73,800 Metzler Group, Inc. @ 48.687 3,593
50,000 NovaCare Employee Services @ 5.375 269
-------
8,824
-------
Commercial Services -
Security Safety - 0.5%
20,000 Bacou USA, Inc. @ 21.500 430
-------
Commercial Services - Staffing - 1.0%
40,000 Staffmark, Inc. @ 22.375 895
-------
Computer - Integrated Systems - 4.0%
58,000 Apex PC Solutions, Inc. @ 28.875 1,675
140,000 Javelin Systems, Inc. @ 15.000 2,100
-------
3,775
-------
Computer - Local Networks - 1.8%
50,000 Xircom, Inc. @ 34.000 1,700
-------
Computer - Memory Devices - 3.1%
*64,200 Network Appliance, Inc. @ 45.000 2,889
-------
Computer Peripherials - 0.9%
30,000 Cybex Computer Products @ 29.375 881
-------
Computer Services - 3.8%
40,000 Ciber, Inc. @ 27.937 1,117
30,000 CGI Group, Inc. Class A @ 19.812 594
50,000 Crystal Systems Solutions @ 10.312 516
10,000 IMRGlobal Corp. @ 29.437 294
60,000 Tier Technologies, Inc. Class B @ 17.250 1,035
-------
3,556
-------
Computer Software - Desktop - 2.2%
136,000 Made 2 Manage Systems, Inc. @ 14.875 2,023
-------
Computer Software - Enterprise - 11.5%
30,000 Concord Communications, Inc. @ 56.750 1,702
6,000 Engineering Animation, Inc. @ 54.000 324
20,000 New Dimension Software @ 48.125 963
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
*90,000 New Era of Networks, Inc. @ 44.000 $ 3,960
18,680 Platinum Technology, Inc. @ 19.125 357
*12,000 Sapient Corp. @ 56.000 672
20,000 Segue Software, Inc. @ 20.250 405
80,000 Summit Design, Inc. @ 9.312 745
26,400 Veritas Software Corp. @ 59.937 1,582
-------
10,710
-------
Computer Software - Finance - 0.9%
*18,000 Great Plains Software, Inc. @ 48.250 869
-------
Computer Software - Internet - 6.7%
*80,000 Broadvision, Inc. @ 32.000 2,560
*60,000 Mindspring Enterprises, Inc. @ 61.062 3,664
-------
6,224
-------
Computer Software - Security - 1.3%
40,000 Axent Technologies, Inc. @ 30.562 1,223
-------
Cosmetics - Personal Care - 1.3%
25,400 Chattem, Inc. @ 47.875 1,216
-------
Electronics - Components /
Semiconductors - 3.8%
*10,000 Broadcom Corp. Class A @ 120.750 1,207
15,000 Micrel, Inc. @ 55.000 825
10,000 QLogic Corp. @ 130.875 1,309
5,000 RF Micro Devices, Inc. @ 46.375 232
-------
3,573
-------
Food - Miscellaneous 0.9%
30,000 Hain Food Group, Inc. @ 25.000 750
10,000 Jutrzenka @ 3.931 39
-------
789
-------
Household Appliances - 2.8%
100,000 Salton - Maxim Housewares, Inc. @ 25.625 2,563
-------
Leisure & Recreation Products - 2.8%
40,000 Cinar Films, Inc. @ 25.375 1,015
60,000 Family Golf Centers, Inc. @ 19.750 1,185
20,000 Medialink Worldwide, Inc. @ 17.000 340
-------
2,540
-------
Machinery - 0.5%
20,000 Xeikon N.V. @ 23.500 470
-------
Medical - Biomed Genetics - 2.7%
41,000 Qiagen N.A. @ 60.250 2,470
-------
Medical / Dental Services - 8.7%
*125,000 Advance Paradigm, Inc. @ 35.000 4,375
80,000 IMPATH, Inc. @ 26.500 2,120
68,400 Kendle International, Inc. @ 23.375 1,599
-------
8,094
-------
</TABLE>
See notes to Portfolio of Investments.
4
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Medical - Equipment & Supplies - 4.1%
*50,000 Ocular Sciences, Inc. @ 26.750 $ 1,337
36,000 Osteotech, Inc. @ 46.500 1,674
50,000 Sabratek Corp. @ 16.375 819
-------
3,830
-------
Medical - Ethical Drugs - 3.8%
5,200 Andrx Corp. @ 51.250 266
80,000 King Pharmaceuticals, Inc. @ 26.125 2,090
72,000 Theragenics Corp. @ 16.812 1,211
-------
3,567
-------
Medical - Instruments - 0.9%
25,000 Perclose, Inc. @ 33.125 828
-------
Medical - Nursing Homes /
Outpatient Care - 2.1%
70,000 Assisted Living Concepts @ 13.125 919
20,200 Sunrise Assisted Living @ 51.875 1,048
-------
1,967
-------
Medical - Products - 2.0%
*40,000 Resmed, Inc. @ 45.375 1,815
-------
Pollution Control - 0.9%
50,000 Stericycle, Inc. @ 16.125 806
-------
Restaurants - 7.9%
222,000 Logan's Roadhouse, Inc. @ 23.500 5,217
45,000 Papa John's International, Inc. @ 44.125 1,986
10,000 P.F. Chang's China Bistro @ 22.750 227
-------
7,430
-------
Retail - Apparel - 4.1%
*30,000 American Eagle Outfitters @ 66.625 1,999
30,000 Chico's Fas, Inc. @ 23.375 701
46,000 Children's Place @ 25.125 1,156
-------
3,856
-------
Retail - Home Furnishings 0.3%
10,000 Select Comfort Corp. @ 26.437 264
-------
Retail / Misc. - 1.0%
26,300 Sonic Automotive, Inc. @ 34.437 906
-------
Retail / Wholesale - Computers - 2.9%
80,000 Brightpoint, Inc. @ 13.750 1,100
*90,000 CHS Electronics, Inc. @ 16.937 1,524
10,000 Computerland @ 12.250 123
-------
2,747
-------
Telecommunications - Equipment - 0.4%
500 Carrier Access Corp. @ 34.437 17
37,500 DSET Corp. @ 10.375 389
-------
406
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Telecommunications - Services - 0.9%
55,000 IDT Corp. @ 15.375 $ 846
-------
Total Common Stocks
(Cost: $60,340,000) $96,212
-------
</TABLE>
<TABLE>
<CAPTION>
Face Amount Value
- ----------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE DEBT OBLIGATIONS - 0.4%
Medical - Management Services - 0.4%
$1,500,000**Complete Management, Inc.
8.00% due 12-15-03 @ 21.625 325
-------
Total Convertible Debt Obligations
(Cost: $1,500,000) 325
-------
Total Investments - 103.7%
(Cost: $61,840,000) 96,537
-------
</TABLE>
See notes to Portfolio of Investments.
5
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Contracts Value
- ----------------------------------------------------------------
<S> <C> <C>
COVERED CALL OPTIONS - (1.0%)
100 Advance Paradigm, Inc., January $35 $ (16)
20 Advance Paradigm, Inc., March $35 (9)
30 American Eagle Outfitters, February $60 (28)
100 Broadcom Corp. Class A, January $120 (110)
550 Broadvision, Inc., January $40 (28)
100 CHS Electronics, Inc., January $20 (2)
100 CHS Electronics, Inc., January $22.50 --
100 Great Plains Software, Inc., January $40 (85)
100 IMRGlobal, Corp., February $40 (10)
20 Inspire Insurance Solutions, January $40 --
55 Medquist, Inc., February $40 (14)
138 Metzler Group, Inc., January $50 (22)
50 Mindspring Enterprises, Inc., January $50 (59)
300 Mindspring Enterprises, Inc., January $75 (41)
200 Mindspring Enterprises, Inc., January $80 (5)
164 Network Appliance, Inc., January $40 (80)
200 New Era of Networks, Inc., January $32.50 (225)
200 New Era of Networks, Inc., January $50 (16)
500 New Era of Networks, Inc., February $50 (116)
100 Ocular Sciences, Inc., January $30 (4)
100 Resmed, Inc., January $40 (57)
120 Sapient Corp., January $70 (5)
Total Covered Call Options -------
(Premiums received: $716,000) (932)
Other Liabilities less Assets - (2.7%) (2,490)
-------
NET ASSETS - 100% $93,115
=======
</TABLE>
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
* All or a portion of these stocks were held in escrow at December 31, 1998 to
cover call options written. The aggregate market value was $14,784,000.
** Income producing security during the year ended December 31, 1998.
Based on the cost of investments of $61,840,000 for federal income tax purposes
at December 31, 1998, the aggregate gross unrealized appreciation was
$39,532,000, the aggregate gross unrealized depreciation was $4,835,000 and the
net unrealized appreciation of investments was $34,697,000.
6
<PAGE>
OBERWEIS MICRO-CAP PORTFOLIO
Portfolio of Investments
December 31, 1998 (value in thousands)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 98.7%
AEROSPACE - 3.3%
10,000 Integral Systems, Inc. @ 19.437 $ 194
24,000 Kellstrom Industries, Inc. @ 28.750 690
13,000 Kreisler Manufacturing Corp. @ 4.062 53
-------
937
-------
Building - A/C & Heating Products - 0.1%
1,000 AAON, Inc. @ 9.312 9
-------
Chemicals - Plastics - 0.5%
15,000 Summa Industries, Inc. @ 9.062 136
-------
Commercial Services - Advertising - 1.3%
37,000 Display Technologies, Inc. @ 7.437 275
50,000 HMG Worldwide Corp. @ 2.062 103
-------
378
-------
Commercial Services - Misc. - 5.1%
30,000 Analytical Surveys, Inc. @ 30.812 925
15,000 Innotrac Corp. @ 18.125 272
22,100 Interstate National Dealer @ 10.875 240
-------
1,437
-------
Commercial Services - Staffing - 5.1%
*55,000 RCM Technologies, Inc. @ 26.500 1,457
-------
Computer - Integrated Systems - 6.7%
50,000 Javelin Systems, Inc. @ 15.000 750
54,000 Symix Systems, Inc. @ 21.000 1,134
-------
1,884
-------
Computer Services - 2.7%
30,000 Brightstar Information Technology @ 7.875 236
12,000 DA Consulting Group, Inc. @ 21.875 262
15,000 SPR, Inc. @ 17.250 259
-------
757
-------
Computer Software - Desktop - 4.7%
*50,000 Verity, Inc. @ 26.500 1,325
-------
Computer Software - Enterprise - 9.1%
25,000 Catalyst International, Inc. @ 12.000 300
25,000 Cognicase, Inc. @ 22.234 556
20,000 Forsoft Ltd. @ 10.375 207
30,000 Made 2 Manage Systems, Inc. @ 14.875 446
10,066 Peregrine Systems, Inc. @ 46.375 467
*30,000 Quadramed Corp. @ 20.500 615
-------
2,591
-------
Computer Software - Finance - 1.4%
50,000 Clarus Corp. @ 6.000 300
10,000 Interlinq Software Corp. @ 8.750 87
-------
387
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Computer Software - Medical - 1.4%
12,000 Infocure Corp. @ 32.750 $ 393
-------
Electrical - Equipment / Components - 0.4%
8,000 Isomet Corp. @ 3.000 24
20,000 Questron Technology, Inc. @ 4.500 90
-------
114
-------
Electrical - Military Systems - 1.8%
40,000 Advanced Communication Systems
@ 12.500 500
-------
Electronics - Semiconductors / Components - 4.7%
50,000 Genesis Microchip, Inc. @ 24.250 1,213
15,000 Global Payment Tech, Inc. @ 8.125 122
-------
1,335
-------
Food - Misc. Preparation - 0.4%
15,000 Pure World, Inc. @ 8.062 121
-------
Household - Housewares - 0.2%
9,000 Decora Industries, Inc. @ 7.687 69
-------
Leisure - Toys / Games - 5.9%
*20,000 Action Performance COS, Inc. @ 35.375 707
60,000 Creative Master International, Inc. @ 6.000 360
20,000 Four Media Co. @ 8.125 163
40,000 JAKKS Pacific, Inc. @ 10.750 430
-------
1,660
-------
Machinery - 2.8%
39,500 A.S.V., Inc. @ 17.875 706
15,000 Qualmark Corp. @ 5.375 81
-------
787
-------
Medical / Dental Services - 0.2%
5,000 American Healthcorp, Inc. @ 9.812 49
-------
Medical / Ethical Drugs - 1.0%
20,000 Akorn, Inc. @ 4.875 98
35,000 Synthetech, Inc. @ 5.125 179
-------
277
-------
Medical Instruments - 3.0%
60,000 Colorado MEDtech, Inc. @ 13.250 795
20,000 Rehabilicare, Inc. @ 3.250 65
-------
860
-------
Medical - Nursing Home - 1.4%
50,000 Balanced Care Corp. @ 8.000 400
-------
</TABLE>
See notes to Portfolio of Investments.
7
<PAGE>
OBERWEIS MICRO-CAP PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Pollution Control - 0.4%
50,000 Innovative Medical Services @ 2.000 $ 100
-------
Real Estate - Operations - 0.4%
15,000 Kennedy - Wilson, Inc. @ 7.000 105
-------
Restaurants - 4.6%
55,000 Logan's Roadhouse, Inc. @ 23.500 1,293
-------
Retail - Apparel - 1.3%
16,000 Chico's Fas, Inc. @ 23.375 374
-------
Retail - Home Furnishings - 1.3%
15,000 Rent-Way, Inc. @ 24.312 365
-------
Retail - Mail Order - 3.0%
45,000 DM Management Co. @ 19.000 855
-------
Shoes & Related Apparel - 0.7%
25,000 Steven Madden Ltd. @ 8.500 213
-------
Telecommunications - 12.7%
96,300 Gilat Communications Ltd. @ 9.937 957
*40,000 Geotel Communications Co. @ 37.250 1,490
150,000 International FiberCom, Inc. @ 7.312 1,097
115,000 Telecomm Industries, Inc. @ .468 54
-------
3,598
-------
Telecommunications - Equipment - 2.3%
7,000 Comtech Telecommunciations Corp. @ 8.750 61
50,000 Gentner Communications @ 3.875 194
24,500 Spectralink Corp. @ 3.625 89
18,000 Xeta Corp. @ 17.375 313
-------
657
-------
Textile - Manufacturing - 8.2%
8,200 Conso Products Co. @ 5.875 48
50,000 Cutter & Buck, Inc. @ 37.250 1,863
25,000 Frenchtex @ 1.125 28
30,000 Happy Kids, Inc. @ 12.750 382
-------
2,321
-------
Transportation - Rail - 0.6%
20,000 RailAmerica, Inc. @ 8.500 170
-------
Total Common Stocks
(Cost: $17,876,000) $27,914
=======
</TABLE>
<TABLE>
<CAPTION>
Face Amount Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL PAPER - 2.1%
$605,000 Heller Financial, Inc.
4.75% DUE 01-04-99 $ 605
-------
Total Commercial Paper
(Cost: $605,000) 605
-------
Total Investments - 100.8%
(Cost: $18,481,000) 28,519
-------
</TABLE>
<TABLE>
<CAPTION>
Contracts Value
- ----------------------------------------------------------------------
<C> <S> <C>
COVERED CALL OPTIONS - (0.4%)
100 Action Performance COS, Inc., January $40 $ (7)
50 Geotel Communications Co., January $30 (36)
100 Geotel Communications Co., January $35 (36)
40 Quadramed Corp., January $30 --
50 Quadramed Corp., February $30 (3)
20 RCM Technologies, Inc., January $22.50 (8)
100 Verity, Inc., January $25 (30)
-------
Total Covered Call Options
(Premiums received: $69,000) (120)
Other Liabilities less Assets - (0.4%) (109)
-------
NET ASSETS - 100% $28,290
=======
</TABLE>
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
* All or a portion of these stocks were held in escrow at December 31, 1998 to
cover call options written. The aggregate market value was $1,415,000.
Based on the cost of investments of $18,481,000 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation was
$10,751,000, the aggregate gross unrealized depreciation was $713,000 and the
net unrealized appreciation of investments was $10,038,000.
8
<PAGE>
OBERWEIS MID-CAP PORTFOLIO
Portfolio of Investments
December 31, 1998 (value in thousands)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 98.1%
Commercial Services - 3.3%
3,000 Robert Half International, Inc. @ 44.687 $ 134
3,000 Sylvan Learning Systems, Inc. @ 30.500 92
-------
226
-------
Computer Services - 6.8%
2,000 CSG Systems International, Inc. @ 79.000 158
3,000 International Network Services @ 66.500 200
4,000 Mastech Corp. @ 28.625 114
-------
472
-------
Computer Software - Desktop - 2.1%
2,500 Gemstar International Group Ltd. @ 57.250 143
-------
Computer Software - Enterprise - 22.2%
*2,250 Citrix Systems, Inc. @ 97.062 218
4,000 Compuware Corp. @ 78.125 312
2,000 Documentum Inc. @ 53.437 107
2,000 Keane, Inc. @ 39.937 80
1,500 Legato Systems, Inc. @ 65.937 99
2,000 Lernout & Hauspie Speech @ 32.625 65
**2,000 Mercury Interactive Corp. @ 63.250 127
6,000 Siebel Systems, Inc. @ 33.937 204
*3,000 Veritas Software Corp. @ 59.937 180
4,000 Visio Corp. @ 36.562 146
-------
1,538
-------
Computer Software - Internet - 2.7%
*3,000 Mindspring Enterprises, Inc. @ 61.062 183
-------
Computer Software - Security - 4.6%
4,000 Check Point Software Technologies, Ltd. @ 45.812 183
2,000 Network Associates, Inc. @ 66.250 133
-------
316
-------
Electronics - Components /
Semiconductors - 8.8%
1,000 QLogic Corp. @ 130.875 131
2,000 RF Micro Devices, Inc. @ 46.375 93
*1,500 VISX, Inc. @ 87.437 131
*5,500 Vitesse Semiconductor @ 45.625 251
-------
606
-------
Electronics / Measuring Instruments - 1.9%
1,500 Waters Corp. @ 87.250 131
-------
Financial - Consumer Loans - 2.0%
10,000 Americredit Corp. @ 13.812 138
-------
Financial Services - Miscellaneous - 3.7%
6,000 Concord EFS, Inc. @ 42.375 254
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Medical - Biomed Genetics - 7.3%
2,500 Agouron Pharmaceuticals, Inc. @ 58.750 $ 147
2,500 Biogen, Inc. @ 83.000 208
4,000 Incyte Pharmaceuticals @ 37.375 149
-------
504
-------
Medical - Dental Services - 2.2%
2,300 Orthodontic Centers of America @ 19.437 45
2,000 Quintiles Transnational @ 53.375 106
-------
151
-------
Medical - Ethical Drugs - 2.9%
3,000 Biovail Corp. International @ 37.812 114
1,500 Medicis Pharmaceuticals Class A @ 59.625 89
-------
203
-------
Medical - Hospitals - 1.1%
1,500 Universal Health Services @ 51.875 78
-------
Medical - Instruments - 3.0%
4,000 Arterial Vascular Engineering @ 52.500 210
-------
Medical - Outpatient / Homecare - 2.8%
6,666 Total Renal Care Holdings @ 29.562 197
-------
Medical - Products - 2.3%
1,500 Minimed, Inc. @ 104.750 157
-------
Restaurants - 0.9%
**2,200 CKE Restaurant, Inc. @ 29.437 65
-------
Retail - 8.0%
5,000 Abercrombie & Fitch Co. @ 70.750 354
3,000 American Eagle Outfitters @ 66.625 200
-------
554
-------
Retail / Wholesale - Computers - 3.8%
8,000 Brightpoint, Inc. @ 13.750 110
*5,000 CHS Electronics, Inc. @ 16.937 84
2,000 Ingram Micro, Inc. @ 34.875 70
-------
264
-------
Telecommunications -
Equipment - 5.7%
7,000 Excel Switching Corp. @ 38.000 266
1,500 Plantronics, Inc. @ 86.000 129
-------
395
-------
Total Common Stocks
(Cost: $4,638,000 ) $ 6,785
-------
</TABLE>
See notes to Portfolio of Investments.
9
<PAGE>
OBERWEIS MID-CAP PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Face Amount Value
- ----------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT - 0.3%
$20,000 State Street Bank and Trust Co.
Dated 12/31/98, Collateralized by
U.S. Treasury Bonds 8.50%, Due 01/02/99 $ 20
-------
Total Repurchase Agreement
(Cost: $20,000) 20
-------
Total Investments - 98.4%
(Cost: $4,658,000) 6,805
-------
</TABLE>
<TABLE>
<CAPTION>
Contracts Value
- ----------------------------------------------------------------------
<C> <S> <C>
COVERED CALL OPTIONS - (0.6%)
50 CHS Electronics, Inc, January $22.50 $ --
22 Citrix Systems, Inc., January $90 (18)
30 Mindspring Enterprises, Inc., January $80 (1)
20 Veritas Software Corp., February $70 (4)
15 VISX, Inc., February $80 (13)
5 Vitesse Semiconductor, January $40 (3)
-------
Total Covered Call Options
(Premiums received: $28,000) (39)
Other Assets less Liabilities - 2.2% 150
-------
NET ASSETS - 100% $6,916
=======
</TABLE>
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
* All or a portion of these stocks were held in escrow at December 31, 1998 to
cover call options written. The aggregate market value was $755,000.
** Income producing security during the year ended December 31, 1998.
Based on the cost of investments of $4,658,000 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation
was $2,249,000, the aggregate gross unrealized depreciation was $102,000 and
the net unrealized appreciation of investments was $2,147,000.
10
<PAGE>
THE OBERWEIS FUNDS
Statement of Assets and Liabilites
December 31, 1998 (in thousands, except pricing of shares)
<TABLE>
<CAPTION>
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investment securities at market value $ 96,537 $28,519 $6,805
(Cost: $61,840, $18,481 and $4,658, respectively)
Cash -- -- 1
Receivable from fund shares sold 53 232 138
Receivable from securities sold 366 -- --
Dividends and interest receivable 5 -- --
Deferred organizational expense -- 25 31
Prepaid expenses 24 9 5
-------- ------- ------
Total Assets 96,985 28,785 6,980
-------- ------- ------
Liabilities:
Due to custodian bank 1,701 4 --
Options written at value
(Premiums received: $716, $69 and $28, respectively) 932 120 39
Payable for fund shares redeemed 824 141 6
Payable for securities purchased 205 162 --
Payable to advisor 63 30 4
Payable to distributor 19 5 1
Accrued expenses 126 33 14
-------- ------- ------
Total Liabilities 3,870 495 64
-------- ------- ------
Net Assets $ 93,115 $28,290 $6,916
======== ======= ======
Analysis of net assets:
Aggregate paid in capital $ 69,990 $25,238 $5,154
Accumulated net realized loss on investments (11,356) (6,935) (374)
Net unrealized appreciation of investments 34,481 9,987 2,136
-------- ------- ------
Net Assets $ 93,115 $28,290 $6,916
======== ======= ======
The Pricing of Shares:
Net asset value and offering price per share
Emerging Growth Portfolio:
($93,114,804 divided by 3,946,307 shares outstanding) $ 23.60
========
Micro-Cap Portfolio:
($28,289,787 divided by 1,994,730 shares outstanding) $ 14.18
=======
Mid-Cap Portfolio:
($6,916,321 divided by 537,919 shares outstanding) $12.86
======
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
THE OBERWEIS FUNDS
Statement of Operations
Year Ended December 31, 1998 (in thousands)
<TABLE>
<CAPTION>
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest $ 180 $ 8 $ 3
Dividends 21 35 1
-------- ------- ------
Total Investment Income 201 43 4
-------- ------- ------
Expenses:
Investment advisory fees 467 160 25
Management fees 442 107 25
Distribution fees 277 67 15
Custodian fees and expenses 198 80 41
Transfer agent fees and expenses 168 68 21
Professional fees 74 21 5
Shareholder reports 34 14 5
Federal and state registration fees 28 14 10
Insurance 8 2 --
Organizational expenses -- 12 12
Trustees' fees 9 2 1
Miscellaneous 6 2 --
-------- ------- ------
Total Expenses 1,711 549 160
-------- ------- ------
Net Investment Loss Before Expense Reimbursement (1,510) (506) (156)
Expense Reimbursement -- 20 37
-------- ------- ------
Net Investment Loss (1,510) (486) (119)
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (11,121) (2,954) (227)
Net realized gain (loss) from covered call options written (235) (22) 62
-------- ------- ------
Total net realized loss (11,356) (2,976) (165)
Increase in net unrealized appreciation of investments 9,514 4,769 1,554
-------- ------- ------
Net realized and unrealized gain (loss) on investments (1,842) 1,793 1,389
-------- ------- ------
Net increase (decrease) in net assets resulting from operations $ (3,352) $ 1,307 $1,270
======== ======= ======
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Emerging Growth Portfolio
-------------------------
Years ended December 31,
1998 1997
-------------------------
<S> <C> <C>
From Operations:
Net investment loss $ (1,510) $ (2,009)
Net realized gain (loss) on investments (11,356) 22,258
Increase (decrease) in net unrealized appreciation of investments 9,514 (32,151)
-------- ---------
Net decrease in net assets resulting from operations (3,352) (11,902)
-------- ---------
From Distributions:
Distributions from net realized gains on investments (4,764) (22,663)
-------- ---------
From Capital Share Transactions:
Net proceeds from sale of shares 52,192 146,896
Shares issued in reinvestment of distribution 4,426 20,506
Redemption of shares (95,370) (178,449)
-------- ---------
Net decrease from capital share transactions (38,752) (11,047)
-------- ---------
Total decrease in net assets (46,868) (45,612)
Net Assets:
Beginning of year 139,983 185,595
-------- ---------
End of year $ 93,115 $ 139,983
======== =========
Transactions in Shares:
Shares sold 2,120 4,781
Shares issued in reinvestment of dividends 213 746
Less shares redeemed (3,831) (5,732)
-------- ---------
Net decrease from capital share transactions (1,498) (205)
======== =========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Micro-Cap Portfolio
-----------------------
Years ended December 31,
1998 1997
-----------------------
<S> <C> <C>
From Operations:
Net investment loss $ (486) $ (581)
Net realized loss on investments (2,976) (2,556)
Increase in net unrealized appreciation of investments 4,769 4,779
-------- --------
Net increase in net assets resulting from operations 1,307 1,642
-------- --------
From Capital Share Transactions:
Net proceeds from sale of shares 10,556 38,127
Redemption of shares (20,410) (33,665)
-------- --------
Net increase (decrease) from capital share transactions (9,854) 4,462
-------- --------
Total increase (decrease) in net assets (8,547) 6,104
Net Assets:
Beginning of year 36,837 30,733
-------- --------
End of year $ 28,290 $ 36,837
======== ========
Transactions in Shares:
Shares sold 868 2,700
Less shares redeemed (1,583) (2,492)
-------- --------
Net increase (decrease) from capital share transactions (715) 208
======== ========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Mid-Cap Portfolio
------------------------
Years ended December 31,
1998 1997
------------------------
<S> <C> <C>
From Operations:
Net investment loss $ (119) $ (120)
Net realized gain (loss) on investments (165) 49
Increase in net unrealized appreciation of investments 1,554 347
------- -------
Net increase in net assets resulting from operations 1,270 276
------- -------
From Distributions:
Distributions from net realized gains on investments -- (211)
------- -------
From Capital Share Transactions:
Net proceeds from sale of shares 2,053 2,791
Shares issued in reinvestment of distribution -- 196
Redemption of shares (2,754) (4,000)
------- -------
Net decrease from capital share transactions (701) (1,013)
------- -------
Total increase (decrease) in net assets 569 (948)
Net Assets:
Beginning of year 6,347 7,295
------- -------
End of year $ 6,916 $ 6,347
======= =======
Transactions in Shares:
Shares sold 184 264
Shares issued in reinvestment of dividends -- 18
Less shares redeemed (250) (388)
------- -------
Net decrease from capital share transactions (66) (106)
======= =======
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
THE OBERWEIS FUNDS
Notes to Financial Statements
December 31, 1998
1. Significant Accounting Policies
Description of business. The Oberweis Funds (the "Trust") is registered under
the Investment Company Act of 1940 as a diversified open-end management
investment company. The Trust is authorized to operate numerous portfolios under
various trading strategies. The Trust consists of three portfolios: the Oberweis
Emerging Growth Portfolio, the Oberweis Micro-Cap Portfolio, and the Oberweis
Mid-Cap Portfolio (collectively, the Funds).
Investment valuation. Investments are stated at value. Each listed and unlisted
security for which last sale information is regularly reported is valued at the
last reported sales price on that day. If there has been no sale on such day,
then such security is valued at the current day's bid price. Any unlisted
security for which last sale information is not regularly reported and any
listed debt security which has an inactive listed market for which over-the-
counter market quotations are readily available is valued at the closing bid
price determined on the basis of reasonable inquiry. Restricted securities and
any other securities or other assets for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Board of Trustees. Short-term debt obligations, commercial
paper and repurchase agreements are valued on the basis of quoted yields for
securities of comparable maturity, quality and type or on the basis of amortized
costs.
Fund share valuation. Fund shares are sold and redeemed on a continuous basis at
net asset value. On each day the New York Stock Exchange is open for trading,
the net asset value per share is determined as of the later of the close of the
New York Stock Exchange or the Chicago Board Options Exchange by dividing the
total value of each Fund's investments and other assets, less liabilities, by
the number of each Fund's shares outstanding.
Investment transactions and investment income. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis and includes amortization of premium and discount.
Realized gains and losses from investment transactions are reported on an
identified cost basis. Gains and losses on premiums from expired options are
recognized on the date of expiration.
Repurchase agreements. Repurchase agreements are fully collateralized by U.S.
Treasury and Government agency securities. All collateral is held through the
Funds' custodian bank and is monitored daily by each Fund so that its market
value exceeds the carrying value of the repurchase agreement.
Federal income taxes and dividends to shareholders. The Funds have complied with
the special provisions of the Internal Revenue Code available to investment
companies and therefore no federal income tax provision is required. Dividends
payable to its shareholders are recorded by each Fund on the ex-dividend date.
Dividends are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles. The Oberweis Emerging Growth Portfolio paid a dividend consisting
of net long term realized gains from the sale of securities of $4,764,000 in
1998 to shareholders of record on November 11, 1998. The Emerging Growth
Portfolio, Micro-Cap Portfolio and Mid-Cap Portfolio have capital loss
carryforwards of $11,356,000, $6,935,000 and $374,000, respectively, which if
not used to offset future net realized capital gains will expire in 2004, 2005
or 2006.
Organizational costs. Organizational costs of the Micro-Cap Portfolio and Mid-
Cap Portfolio have been capitalized and are being amortized on a daily basis
using the straight line method over five years.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
2. Transactions with affiliates
The Funds have written agreements with Oberweis Asset Management, Inc. ("OAM")
as the Funds' investment adviser and manager. Effective January 1, 1997 Oberweis
Brokerage, Inc. ("OBI"), an affiliate of OAM, became the Funds' principal
distributor.
Investment advisory agreement. For investment advisory services, the Emerging
Growth Portfolio paid monthly investment advisory fees at an annual rate equal
to .45% of the first $50,000,000 of average daily net assets and .40% of average
daily net assets in excess of $50,000,000. The Micro-Cap Portfolio paid monthly
investment advisory fees at an annual rate equal to .60% of average
16
<PAGE>
daily net assets. The Mid-Cap Portfolio paid monthly investment advisory fees at
an annual rate equal to .40% of average daily net assets. For the year ended
December 31, 1998, the Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-
Cap Portfolio incurred investment advisory fees totaling $467,000, $160,000, and
$25,000, respectively.
Management agreement. For management services and facilities furnished, the
Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap Portfolio each paid
a monthly fee at an annual rate equal to .40% of average daily net assets. For
the year ended December 31, 1998, the Emerging Growth Portfolio, Micro-Cap
Portfolio, and Mid-Cap Portfolio incurred management fees totaling $442,000,
$107,000 and $25,000, respectively.
Expense reimbursement. OAM is obligated to reduce its management fees or
reimburse the Funds to the extent that total ordinary operating expenses, as
defined, exceed in any one year the following amounts expressed as a percentage
of each Fund's average daily net assets: 2% of the first $25,000,000; plus 1.8%
of the next $25,000,000; plus 1.6% of average daily net assets in excess of
$50,000,000. OAM reimbursed the Micro-Cap Portfolio and Mid-Cap Portfolio
$20,000 and $37,000, respectively, for the year ended December 31, 1998.
Officers and trustees. Certain officers or trustees of the Funds are also
officers or directors of OAM and OBI. During the year ended December 31, 1998,
the Funds made no direct payments to its officers and paid $12,000 to its
unaffiliated trustees.
Distribution and shareholder service expense. The Funds have a distribution and
shareholder services agreement with OBI. For services under the distribution and
shareholder servicing agreement, the Funds pay OBI a fee at the annual rate of
.25% of the average daily net assets and reimbursement for certain out-of-pocket
expenses. For the year ended December 31, 1998, the Emerging Growth Portfolio,
Micro-Cap Portfolio, and Mid-Cap Portfolio incurred distribution fees totaling
$277,000, $67,000 and $15,000, respectively.
Commissions. The Funds pay OBI for executing some of each Fund's agency security
transactions at competitive rates, typically $.03 per share. For the year ended
December 31, 1998, the Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-
Cap Portfolio paid commissions of $7,000, $1,000 and $0, respectively to OBI.
3. Investment transactions
The cost of securities purchased and proceeds from securities sold during the
year ended December 31, 1998, other than options written and money market
investments, aggregated $55,576,000 and $96,837,000, respectively, for the
Emerging Growth Portfolio, $11,104,000 and $23,209,000, respectively, for the
Micro-Cap Portfolio, and $4,398,000 and $5,070,000, respectively, for the Mid-
Cap Portfolio.
Transactions in options written for the year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
-------------------------- --------------------- ---------------------
Number Number Number
of Premiums of Premiums of Premiums
Contracts Received Contracts Received Contracts Received
-------------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 85 $ 40,000 -- $ -- -- $ --
Options written 13,360 2,500,000 1,380 177,000 1,433 246,000
Options expired (6,601) (1,013,000) (620) (83,000) (780) 108,000)
Options closed (2,731) (650,000) (150) (16,000) (326) 66,000)
Options assigned (766) (161,000) (150) (9,000) (185) 44,000)
-------------------------- --------------------- ---------------------
Options outstanding at end of year 3,347 $ 716,000 460 $ 69,000 142 $ 28,000
</TABLE>
The premiums received provide a partial hedge (protection) against declining
prices and enables each Fund to generate a higher return during periods when OAM
does not expect the underlying security to make any major price moves in the
near future but still deems the underlying security to be, over the long term,
an attractive investment for each Fund.
4. Redemption fee
A .25% redemption fee is charged on redemptions from the Micro-Cap and Mid-Cap
Portfolios. The redemption fee is retained by the Funds and is intended to
reimburse the Funds for the expense they incur in connection with shareholder
redemptions. Redemption fees received by the Micro-Cap and Mid-Cap Portfolios
were $54,000 and $7,000, respectively, for the year ended December 31, 1998, and
were recorded as a reduction of shares redeemed in the statements of changes in
net assets.
17
<PAGE>
5. Due to custodian bank
The Trust as part of the agreement with the Custodian, is allowed to borrow for
temporary purposes. Such borrowings are not to exceed 5% of the value of each
Fund's total assets at the time of any such borrowing. Interest on amounts
borrowed is calculated at the prime rate and is payable monthly. During the year
ended December 31, 1998, the Emerging Growth Portfolio, Micro-Cap Portfolio and
the Mid-Cap Portfolio incurred interest charges of $96,000, $23,000 and $1,700,
respectively, which is included in custodian fees and expenses in the statement
of operations. At December 31, 1998, the Emerging Growth Portfolio had
borrowings of $1,701,000 at an interest rate of 7.75%.
18
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout each
year is as follows :
<TABLE>
<CAPTION>
Emerging Growth Portfolio
Years ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 25.71 $ 32.86 $ 29.09 $ 21.41 $ 22.19
Income (loss) from investment operations:
Net investment loss /(a)/ (.33) (.37) (.32) (.33) (.22)
Net realized and unrealized gain (loss) on investments (.63) (2.14) 6.73 9.43 (.56)
-------- --------- --------- --------- --------
Total from investment operations (.96) (2.51) 6.41 9.10 (.78)
Less distributions:
Distribution from net realized gains on investments (1.15) (4.64) (2.64) (1.42) --
-------- --------- --------- --------- --------
Net asset value at end of year $ 23.60 $ 25.71 $ 32.86 $ 29.09 $ 21.41
======== ======== ======== ======== ========
Total Return (%) (3.1) (8.6) 22.5 42.6 (3.5)
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $93,115 $139,983 $185,595 $134,663 $90,014
Ratio of expenses to average net assets (%) 1.55 1.44 1.48 1.73/(b)/ 1.78
Ratio of net investment loss to average net assets (%) (1.37) (1.18) (0.97) (1.24) (1.06)
Portfolio turnover rate (%) 49 75 64 79 66
Average commission rate paid $ .0280 $ .0337 $ .0413 -- --
Notes:
</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. The expense ratio would
have been 1.77%, for 1995 before expense reimbursement.
19
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period is as follows:
<TABLE>
<CAPTION>
Micro-Cap Portfolio
--------------------------------------------
Years ended December 31, *January 1, 1996-
1998 1997 December 31, 1996
--------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of year $ 13.59 $ 12.28 $ 10.00
Income (loss) from investment operations:
Net investment loss /(a)/ (.24) (.21) (.15)
Net realized and unrealized gain on investments .83 1.52 2.43
------- ------- -------
Total from investment operations .59 1.31 2.28
------- ------- -------
Net asset value at end of year $ 14.18 $ 13.59 $ 12.28
======= ======= =======
Total Return (%) 4.3 10.7 22.8
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $28,290 $36,837 $30,733
Ratio of expenses to average net assets (%) 1.99/(b)/ 1.81 1.94
Ratio of net investment loss to average net assets (%) (1.83) (1.52) (1.15)
Portfolio turnover rate (%) 41 89 70
Average commission rate paid $ .0288 $ .0343 $ .0371
</TABLE>
Notes:
/(a)/ The net investment loss per share data was determined using average
shares outstanding during the year.
/(b)/ Net of expense reimbursement from related parties. The expense ratio would
have been 2.06% for 1998 before expense reimbursement.
* Commencement of operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Mid-Cap Portfolio
-----------------------------------------------
Years ended December 31, *September 15, 1996-
1998 1997 December 31, 1996
-----------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of year $10.51 $10.29 $10.00
Income (loss) from investment operations:
Net investment loss /(a)/ (.21) (.19) (.05)
Net realized and unrealized gain on investments 2.56 .76 .34
------ ------ ------
Total from investment operations 2.35 .57 .29
Less distributions:
Distribution from net realized gains on investments -- (.35) --
------ ------ ------
Net asset value at end of year $12.86 $10.51 $10.29
====== ====== ======
Total Return (%) 22.4 5.4 2.9/(d)/
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $6,916 $6,347 $7,295
Ratio of expenses to average net assets (%) 2.00/(b)/ 2.00/(b)/ 2.00/(b)(c)/
Ratio of net investment loss to average net assets (%) (1.94) (1.81) (1.62)/(c)/
Portfolio turnover rate (%) 72 106 21/(c)/
Average commission rate paid $.0305 $.0318 $.0371
</TABLE>
Notes:
/(a)/ The net investment loss per share data was determined using
average shares outstanding during the year.
/(b)/ Net of expense reimbursement from related parties. The expense ratios
would have been 2.61%, 2.46% and 3.42%, for 1998, 1997 and 1996, respectively
before expense reimbursement.
/(c)/ Annualized.
/(d)/ Not annualized.
* Commencement of operations.
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
The Oberweis Funds--
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of The Oberweis Funds--Emerging Portfolio, Micro-
Cap Portfolio; and Mid-Cap Portfolio as of December 31, 1998, the related
statements of operations, changes in net assets and the financial highlights for
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Oberweis Funds--Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap
Portfolio at December 31, 1998, the results of their operations, the changes in
their net assets and the financial highlights for the periods therein in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 29, 1999
21
<PAGE>
Trustees & Officers
James D. Oberweis Thomas J. Burke
Trustee and President Trustee
Douglas P. Hoffmeyer Edward F. Streit
Trustee Trustee
Patrick B. Joyce Martin L. Yokosawa
Executive Vice President Vice President
Treasurer
James W. Oberweis Steven J. LeMire
Vice President Secretary
Margaret W. Unsworth
Assistant Secretary
Manager and Investment Advisor
Oberweis Asset Management, Inc.
951 Ice Cream Dr., North Aurora, IL 60542
1-800-323-6166
Distributor
Oberweis Brokerage, Inc.
951 Ice Cream Dr., North Aurora, IL 60542
1-630-801-6000
Custodian and Transfer Agent
Investors Fiduciary Trust Company
P.O. Box 419042, Kansas City, MO 64141
1-800-245-7311
Counsel
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago, IL 60601
Independent Auditors
Ernst & Young LLP
233 South Wacker Drive, Chicago, IL 60606
[OBERWEIS LOGO APPEARS HERE]
The Oberweis Funds
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
The
Oberweis
Funds
[OBERWEIS LOGO APPEARS HERE]
Annual Report
- -------------------
Audited
December 31, 1998
505346
<PAGE>
THE OBERWEIS FUNDS
PART C: OTHER INFORMATION
Item 23. EXHIBITS.
(a) (1) Agreement and Declaration of Trust dated July 7, 1986./11/
(2) First Amendment to Agreement and Declaration of Trust, dated
November 17, 1986./11/
(b) By-Laws./11/
(c) Not applicable.
(d) (1) Management Agreement./5/
(2) Amendment to Management Agreement as of February 16, 1994./9/
(3) Management Agreement dated October 1, 1994./11/
(4) Investment Advisory Agreement./5/
(5) Investment Advisory Agreement dated October 1, 1994./11/
(6) Transfer and Guaranty Agreement./7/
(7) Written Notification required under Investment Advisory
Agreement dated October 1, 1994 regarding the rendering of
advisory services to the Micro-Cap Portfolio./12/
(8) Written Notification required under Investment Advisory
Agreement dated October 1, 1994 regarding the rendering of
advisory services to the Mid-Cap Portfolio./13/
(e) Not applicable.
(f) Not applicable.
(g) (1) Custodian Agreement./1/
(2) 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.
(3) Letter Agreement dated January 27, 1993, renewing Custodian
Agreement./8/
(4) Custodian Agreement dated August 3, 1993./11/
(h) (1) Transfer Agency Agreement./1/
C-1
<PAGE>
(2) 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.
(3) Letter Agreement dated January 27, 1993, renewing Transfer
Agency Agreement./8/
(4) Transfer Agent Agreement dated August 3, 1993./11/
(i) (1) Form of Opinion and Consent of Lawrence, Kamin, Saunders &
Uhlenhop./1A/
(2) Consent and Opinion of Vedder, Price, Kaufman & Kammholz./12/
(3) Consent and Opinion of Vedder, Price, Kaufman & Kammholz./13/
(4) Form of Opinion of Ropes & Gray./1A/
(5) Opinion and Consent of Ropes & Gray./12/
(6) Opinion and Consent of Ropes & Gray./13/
*(j) (1) Consent of Ernst & Young LLP.
(2) Consent of Checkers, Simon & Rosner LLP./13/
(k) Not applicable.
(l) (1) Form of Contribution Agreement with Initial Shareholders./1/
(2) 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/
C-2
<PAGE>
(3) 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/
(4) 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/
(5) 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/
(m)(1) Plan of Distribution pursuant to Rule 12b-1./4/
(2) Distribution and Shareholder Service Agreement./5/
(3) Amendment to Plan of Distribution pursuant to Rule 12b-1 and
Distribution and Shareholder Service Agreement./8/
(4) Plan of Distribution pursuant to Rule 12b-1 as amended October
1, 1994./11/
(5) Form of Plan of Distribution pursuant to Rule 12b-1 as amended
January 1, 1996./11/
(6) Distribution Agreement dated October 1, 1994./11/
(7) Form of Distribution and Shareholder Service Agreement dated
January 1, 1996./11/
(8) Distribution and Shareholder Service Agreement dated January 2,
1997./14/
(9) Shareholder Service Agreement dated October 1, 1994./11/
*(n) 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.
C-3
<PAGE>
/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 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Inapplicable.
ITEM 25. 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 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 26. BUSINESS AND OTHER CONNECTION OF INVESTMENT ADVISER.
(a) Oberweis Asset Management, Inc.
C-4
<PAGE>
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 27. PRINCIPAL UNDERWRITERS
(a) None.
(b) Set forth below are the names of the directors and officers of Oberweis
Brokerage, Inc.:
<TABLE>
<S> <C>
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
</TABLE>
The principal business address of all such persons is 951 Ice Cream Drive, Suite
200, North Aurora, Illinois 60542.
(c) None.
ITEM 28. 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 29. MANAGEMENT SERVICES
Not applicable.
C-5
<PAGE>
ITEM 30. 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of North
Aurora, and State of Illinois, on the 24th day of February, 1999.
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>
Name Title
<S> <C> <C>
/s/ James D. Oberweis
- ------------------------ President (Principal Executive February 24, 1999
James D. Oberweis Officer) and Trustee
/s/ Thomas J. Burke
- ------------------------ Trustee February 24, 1999
Thomas J. Burke
/s/ Douglas P. Hoffmeyer Trustee February 24, 1999
- ------------------------
Douglas P. Hoffmeyer
/s/ Edward F. Streit
- ------------------------ Trustee February 24, 1999
Edward F. Streit
/s/ Patrick B. Joyce
- ------------------------ Executive Vice President and February 24, 1999
Patrick B. Joyce Treasurer (Principal Financial
and Accounting Officer)
</TABLE>
C-7
<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 29, 1999 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. 17 to the Registration Statement
under Securities Act of 1933 (Registration No. 33-9093) and in this Amendment
No. 19 to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-4854).
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 22, 1999
ERNST & YOUNG LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
the December 31, 1998 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 61,840
<INVESTMENTS-AT-VALUE> 96,537
<RECEIVABLES> 424
<ASSETS-OTHER> 24
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 96,985
<PAYABLE-FOR-SECURITIES> 205
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,665
<TOTAL-LIABILITIES> 3,870
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,990
<SHARES-COMMON-STOCK> 3,946
<SHARES-COMMON-PRIOR> 5,444
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,356)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,481
<NET-ASSETS> 93,115
<DIVIDEND-INCOME> 21
<INTEREST-INCOME> 180
<OTHER-INCOME> 0
<EXPENSES-NET> 1,711
<NET-INVESTMENT-INCOME> (1,510)
<REALIZED-GAINS-CURRENT> (11,356)
<APPREC-INCREASE-CURRENT> 9,514
<NET-CHANGE-FROM-OPS> (3,352)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (4,764)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,120
<NUMBER-OF-SHARES-REDEEMED> 3,831
<SHARES-REINVESTED> 213
<NET-CHANGE-IN-ASSETS> (46,868)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 22,258
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 467
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,711
<AVERAGE-NET-ASSETS> 110,551
<PER-SHARE-NAV-BEGIN> 25.71
<PER-SHARE-NII> (.33)
<PER-SHARE-GAIN-APPREC> (.63)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.15)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.60
<EXPENSE-RATIO> 1.55
<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
the December 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 18,481
<INVESTMENTS-AT-VALUE> 28,519
<RECEIVABLES> 232
<ASSETS-OTHER> 34
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,785
<PAYABLE-FOR-SECURITIES> 162
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 333
<TOTAL-LIABILITIES> 495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,238
<SHARES-COMMON-STOCK> 1,995
<SHARES-COMMON-PRIOR> 2,710
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,976)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,987
<NET-ASSETS> 28,290
<DIVIDEND-INCOME> 35
<INTEREST-INCOME> 8
<OTHER-INCOME> 0
<EXPENSES-NET> 529
<NET-INVESTMENT-INCOME> (486)
<REALIZED-GAINS-CURRENT> (2,976)
<APPREC-INCREASE-CURRENT> 4,769
<NET-CHANGE-FROM-OPS> 1,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 868
<NUMBER-OF-SHARES-REDEEMED> 1,583
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (8,547)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 549
<AVERAGE-NET-ASSETS> 26,644
<PER-SHARE-NAV-BEGIN> 13.59
<PER-SHARE-NII> (.24)
<PER-SHARE-GAIN-APPREC> .83
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.18
<EXPENSE-RATIO> 1.99
<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
the December 31, 1998 Annual Report 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 4,658
<INVESTMENTS-AT-VALUE> 6,805
<RECEIVABLES> 138
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,980
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64
<TOTAL-LIABILITIES> 64
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,154
<SHARES-COMMON-STOCK> 538
<SHARES-COMMON-PRIOR> 604
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (165)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,136
<NET-ASSETS> 6,916
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 3
<OTHER-INCOME> 0
<EXPENSES-NET> 123
<NET-INVESTMENT-INCOME> (119)
<REALIZED-GAINS-CURRENT> (165)
<APPREC-INCREASE-CURRENT> 1,554
<NET-CHANGE-FROM-OPS> 1,270
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 184
<NUMBER-OF-SHARES-REDEEMED> 250
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 569
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 49
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 160
<AVERAGE-NET-ASSETS> 6,117
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> (.21)
<PER-SHARE-GAIN-APPREC> 2.56
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.86
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
