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The Oberweis Funds
Prospectus
May 1, 1999
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.
www.oberweisfunds.com
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Table of Contents
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<TABLE>
<S> <C>
RISK/RETURN SUMMARY......................................................... 1
Investment Objective of the Portfolios.................................... 1
Main Investment Strategies of the Portfolios.............................. 1
Main Risks of Investing in the Portfolios................................. 2
Performance Information................................................... 4
Fees and Expenses......................................................... 7
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS............. 8
Investment Objective...................................................... 8
Principal Investment Strategies........................................... 8
Risks..................................................................... 10
Other Investment Policies and Risks....................................... 11
MANAGEMENT OF THE PORTFOLIOS................................................ 13
Investment Adviser........................................................ 13
Management Expenses....................................................... 14
Distribution of Shares.................................................... 14
OTHER INFORMATION........................................................... 15
Size of Micro-Cap Portfolio............................................... 15
Year 2000 Readiness....................................................... 15
SHAREHOLDER INFORMATION..................................................... 15
How to Purchase Shares.................................................... 15
How to Redeem Shares...................................................... 17
Pricing of Fund Shares.................................................... 19
Shareholder Services...................................................... 20
DISTRIBUTION AND TAXES...................................................... 22
GENERAL INFORMATION......................................................... 24
FINANCIAL HIGHLIGHTS........................................................ 25
</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 Mid-Cap Portfolio (the "Mid-Cap Port-
folio"), the Oberweis Emerging Growth Portfolio (the "Emerging Growth
Portfolio"), and the Oberweis Micro-Cap Portfolio (the "Micro-Cap Portfolio").
Investment Objective of the Portfolios
Each Portfolio seeks to maximize capital appreciation.
Main Investment Strategies of the Portfolios
Each Portfolio invests principally in the common stocks of companies that the
investment adviser, Oberweis Asset Management, Inc. ("OAM"), believes have the
potential for significant long-term growth in market value.
Each Portfolio in particular seeks to invest in those companies which OAM con-
siders 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. Extraordinarily 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 smaller companies and
at least 20% growth in revenues in the latest quarter for medium size
companies.
2. Extraordinarily rapid growth in pre-tax income. At least 30% growth in
pre-tax income in the latest quarter for smaller companies and at least 20%
growth in pre-tax income in the latest quarter for medium size companies.
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. In order to be considered for investment,
smaller companies must generally have a price/earnings ratio not more than
one-half of the company's growth rate, and medium size companies must
generally have a price/earnings ratio of not more than the company's growth
rate.
4. Products or services that offer the opportunity for substantial future
growth.
5. Favorable recent trends in revenue and earnings growth, ideally showing
acceleration.
6. Reasonable price-to-sales ratio based on the company's underlying growth
prospects and profit margins.
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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 compa-
nies it reviews to identify those companies that have the potential for above-
average long-term growth. 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. OAM generally considers companies with a
market capitalization of less than $1 billion as smaller companies and those
companies with a market capitalization between $1 billion and $5 billion as
medium size companies.
For companies that meet the "Oberweis Octagon" investment criteria, each Port-
folio will then consider investment in the securities of those companies as
follows:
The Mid-Cap Portfolio generally invests at least 90% of its assets in the se-
curities of companies with a market capitalization between $500 million and $5
billion at the time of investment.
The Emerging Growth Portfolio generally invests at least 90% of its assets in
the securities of relatively small companies with a market capitalization of
less than $1 billion at the time of investment.
The Micro-Cap Portfolio generally invests at least 90% of its assets in the
securities of very small companies with a market capitalization of $250 mil-
lion or less at the time of investment.
Although securities of a particular company may be eligible for purchase by
more than one Portfolio, OAM may determine at any particular time to purchase
a security for one Portfolio but not another.
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 seek growth of capital and who can
tolerate the greater risks associated with seeking maximum capital apprecia-
tion through investing in common stocks. There is no guarantee that a
Portfolio will achieve its investment objective.
2
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Equity securities, including common stocks, tend to be more volatile than
other investment choices such as bonds and money market instruments. The value
of the Portfolios' shares will go up and down due to movement of the overall
stock market or of the value of the individual securities held by the Portfo-
lios.
An investment in the Portfolios is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other govern-
ment agency.
Small- and Medium-sized Company Risk--Although each Portfolio seeks to reduce
risk by investing in a diversified portfolio, you must realize that investing
in smaller, and often newer, companies involves greater risk than there usu-
ally is with investing in larger, more established companies. The stocks of
small- and medium-sized companies often fluctuate in price to a greater degree
than stocks of larger, more mature companies. Smaller companies may have more
limited financial resources, fewer product lines and less liquid trading mar-
kets for their stocks.
The Emerging Growth Portfolio is subject to small company risk, and this risk
is intensified for the Micro-Cap Portfolio. Small company risk is also a fac-
tor for the Mid-Cap Portfolio, because although its investments are generally
in larger companies than the other Portfolios, its investments are neverthe-
less in small to medium capitalization companies.
Investment Style Risk--There is no assurance that the common stocks of compa-
nies selected using the "Oberweis Octagon" investment criteria will achieve
long-term growth in market value.
3
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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.
MID-CAP PORTFOLIO
Calendar Year Total Returns*
[Bar Chart appears here]
Year Percent
---- -------
1997 5.40%
1998 22.36%
Best Quarter: Fourth Quarter 1998 35.80%
Worst Quarter: Third Quarter 1998 -22.31%
<TABLE>
<CAPTION>
Average Annual Total Life of
Returns for the Periods Ended Fund
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.
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EMERGING GROWTH PORTFOLIO
Calendar Year Total Returns*
[Bar Chart appears here]
Year Percent
---- -------
1989 24.32%
1990 0.41%
1991 87.14%
1992 13.64%
1993 9.71%
1994 -3.51%
1995 42.56%
1996 22.45%
1997 -8.55%
1998 -3.10%
<TABLE>
<S> <C> <C> <C>
Best Quarter: First Quarter 1991 43.85%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Worst Quarter: Third Quarter 1990 -31.91%
</TABLE>
<TABLE>
<CAPTION>
Life of
Average Annual Total 5 10 Fund
Returns for the Periods Ended December 31, 1998* 1 Year Years Years (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*
[Bar Chart appears here]
Year Percent
---- -------
1996 22.80%
1997 10.67%
1998 4.34%
Best Quarter: Fourth Quarter 1998 39.16%
Worst Quarter: Third Quarter 1998 -25.29%
<TABLE>
<CAPTION>
Average Annual Total Life of
Returns for the Periods Ended Fund
December 31, 1998* 1 Year (1/1/96)
<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.
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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) (Fees paid directly Mid- Emerging Micro-
from your investments) Cap Growth 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)........................................... .25% None .25%
Exchange Fees........................................... None None None
<CAPTION>
Annual Fund Operating Expenses (Expenses
that are deducted from Fund assets)
- ----------------------------------------
<S> <C> <C> <C>
As a percentage of average net assets (net of expense
reimbursement, if applicable)
Advisory and Management Fees............................ .80% .82% 1.00%
12b-1 Fees.............................................. .25% .25% .25%
Other Expenses.......................................... 1.56% .48% .81%
----- ----- -----
Total Fund Operating Expenses(2)........................ 2.61% 1.55% 2.06%
Less: Expense Reimbursement............................. .61% -- .07%
----- ----- -----
Net Fund Operating Expenses(2).......................... 2.00% 1.55% 1.99%
===== ===== =====
</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 has a contractual arrangement with each Portfolio to 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. The contractual arrange-
ment continues in force from year to year provided such arrangement is
approved at least annually by the Board of Trustees.
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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 as-
sumes 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>
Mid-Cap Portfolio................................... $229 $655 $1107 $2361
Emerging Growth Portfolio........................... $158 $490 $ 845 $1845
Micro-Cap Portfolio................................. $228 $652 $1102 $2350
</TABLE>
There is a .25% withdrawal charge on the Mid-Cap and Micro-Cap Portfolios,
which is deducted from the redemption proceeds and is used to reimburse the
Portfolio for the costs it incurs in connection with the shareholder's liqui-
dation of shares. In addition, for each Portfolio, there is a $6 fee for each
wire redemption (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 realiza-
tion 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 significant long-term growth in market value.
Each Portfolio in particular seeks to invest in those companies which OAM con-
siders 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. Extraordinarily rapid growth in revenue. OAM prefers this to be generated
from internal growth as opposed to acquisitions of other
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businesses. At least 30% growth in revenues in the latest quarter for
smaller companies and at least 20% growth in revenues in the latest quarter
for medium size companies.
2. Extraordinarily rapid growth in pre-tax income. At least 30% growth in
pre-tax income in the latest quarter for smaller companies and at least 20%
growth in pre-tax income in the latest quarter for medium size companies.
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. In order to be considered for investment,
smaller companies must generally have a price/earnings ratio not more than
one-half of the company's growth rate, and medium size companies must gener-
ally have a price/earnings ratio of not more than the company's growth rate.
4. Products or services that offer the opportunity for substantial future
growth.
5. Favorable recent trends in revenue and earnings growth, ideally showing
acceleration.
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 compa-
nies it reviews to identify those companies that have the potential for above-
average long-term growth. 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. OAM generally considers companies with a
market capitalization of less than $1 billion as smaller companies and those
companies with a market capitalization between $1 billion and $5 billion as
medium size companies.
For companies that meet the "Oberweis Octagon" investment criteria, each Port-
folio will then consider investment in the securities of those companies as
follows:
The Mid-Cap Portfolio generally invests at least 90% of its assets in the se-
curities of companies with a market capitalization between $500 million and $5
billion at the time of investment.
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The Emerging Growth Portfolio generally invests at least 90% of its assets in
the securities of relatively small companies with a market capitalization of
less than $1 billion at the time of investment.
The Micro-Cap Portfolio generally invests at least 90% of its assets in the
securities of very small companies with a market capitalization of $250 mil-
lion or less at the time of investment.
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 addi-
tion, OAM may make transactions in a particular security at different times
and different prices for each Portfolio.
Risks
The biggest risk is that the Portfolios' returns may vary, and you could lose
money by investing in the Portfolios.
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 gen-
eral market and/or economic conditions. If this occurs, a Portfolio's share
price may also decrease.
The Portfolios are designed for long-term investors who can accept the risks
involved in seeking maximum capital appreciation through investing in common
stocks. Accordingly, each Portfolio discourages short-term trading in its
shares. Because the Portfolio's investment policies emphasize capital appreci-
ation, as opposed to dividend income, each Portfolio may be considered to be
an investment of above average risk. Each Portfolio is not intended to consti-
tute a balanced investment program. Dividends are expected to be minimal and
there can be no assurance that a Portfolio's objective will be met.
An investment in the Portfolios is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other govern-
ment agency.
Small- and Medium-sized Company Risk--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 in-
volves greater risk than there usually is with larger, more established
companies. Smaller and newer companies often have limited product lines, mar-
kets, 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 move-
ments than the securities of larger companies or the market averages in
general.
10
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The Emerging Growth Portfolio is subject to small company risk, and this risk
is intensified for the Micro-Cap Portfolio. Small company risk is also a fac-
tor for the Mid-Cap Portfolio, because although its investments are generally
in larger companies than the other Portfolios, its investments are neverthe-
less in small to medium capitalization companies.
Investment Style Risk--There is no assurance that the common stocks of compa-
nies selected using the "Oberweis Octagon" investment criteria will achieve
long-term growth in market value.
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, pre-
ferred 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 securi-
ties, write (sell) call options against investment positions and purchase put
and call options.
Foreign Securities--While investment in foreign companies is not a current fo-
cus of the Portfolios, each Portfolio may invest to a limited extent in
foreign equity and debt securities. Investments in foreign securities may in-
volve 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, so-
cial 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 secu-
rities 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
11
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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.
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 Portfo-
lio may enter into repurchase agreements. This technique involves the purchase
of a security by a Portfolio and a simultaneous agreement by the seller (gen-
erally 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 Port-
folio 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 institu-
tional 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 bor-
rower 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 indi-
ces. 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 op-
tion'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 ex-
ercise 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 vol-
atility.
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.
12
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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 re-
sponsible for the day-to-day management of their investment portfolios and
other business affairs of the Fund and each of the Portfolios.
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 individual investors re-
garding 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 offi-
cer of the Fund.
OAM furnishes continuous advice and recommendations concerning the Portfolios'
investments. OAM also provides the Fund with non-investment advisory manage-
ment 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 serv-
ices for shareholders of the Portfolios. OAM provides these services under a
management agreement, which is separate from the investment advisory agree-
ment. 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 distrib-
utor 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 in-
13
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stitutional 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 .40% of the
average daily net assets of the Mid-Cap Portfolio, .45% of the average daily
net assets of the Emerging Growth Portfolio on the first $50 million and .40%
on amounts over $50 million, and .60% of the average daily net assets of the
Micro-Cap Portfolio.
As compensation for managing the business affairs and providing certain admin-
istrative 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, share-
holder 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 Com-
pany 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. Be-
cause the fee is continually paid out of the Portfolios' assets,
14
<PAGE>
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 institu-
tions such as commercial banks and savings banks) 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 change this limit in the future. If
sales of the Micro-Cap Portfolio are discontinued, it is expected that exist-
ing 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 af-
fected 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 Bro-
kerage 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 in-
vest 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 pur-
chases for all existing accounts must be in amounts of at least $100, except
for reinvestment of dividends and capital
15
<PAGE>
gains distributions. The Fund reserves the right to change at any time the
initial or subsequent investment minimums, to withdraw the offering or to re-
ject 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 not exceeding $10,000 and payable to an ex-
isting shareholder who is an individual (as opposed to, e.g., a corporation or
partnership), credit cards and cash will not be accepted.
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 reg-
istered.
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 immedi-
ately. Otherwise, an Account Application will be mailed to you for you to
complete, sign and return immediately to
16
<PAGE>
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 con-
tact IFTC first.
Your financial institution may charge you a fee for sending the wire. Neither
the Fund nor IFTC will be responsible for the consequences of delays, includ-
ing delays in the bank or Federal Reserve wire systems.
How to Redeem Shares
In General--You may redeem shares of the Portfolios by mail, by telephone, 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 Pur-
chase 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 trans-
fers of monies and transfers of monies in connection with sales made pursuant
to the Exchange Privilege, is made within seven days after the redemption re-
quest is received. However, if you 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 redemp-
tion 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 distri-
bution in kind to you of securities held by the Portfolio.
17
<PAGE>
Redemption by Mail--You may redeem shares by mailing a signed request for re-
demption 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 sig-
nature 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. Addi-
tional 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 telephon-
ing the Transfer Agent at 1-800-245-7311. Pursuant to the telephone redemption
program, you must authorize the Transfer Agent to rely upon telephone instruc-
tions 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 in-
structions 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 in-
structions. 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 trans-
ferred 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 redemp-
tion. Your bank may also charge additional fees for receiving a wire transfer.
Checks issued by mail in response to a telephone redemption request can be is-
sued only up to $50,000 to the registered owner(s) (who
18
<PAGE>
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, se-
curities 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 sig-
nature.
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 ap-
propriately authorized person and include additional documents to verify the
authority of the person seeking redemption, such as a certified by-law provi-
sion or resolution of the board of directors or trustees of the shareholder
and/or a copy of the governing legal instrument. Any person requiring informa-
tion on redemption procedures may call the Transfer Agent at 1-800-245-7311.
Pricing of Fund Shares
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 (cur-
rently 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
19
<PAGE>
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 de-
scribed 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 instruc-
tions. After each transaction for your account, you will be sent a
confirmation. This includes all deposits, purchases, reinvestments, redemp-
tions, withdrawal payments, and other transactions in your account.
The Portfolios will generally not issue certificates for their shares. Certif-
icates 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 de-
scribed above will be performed by the Fund's Transfer Agent, IFTC.
Exchange Privilege--All or part of Portfolio shares owned by you may be ex-
changed 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 Re-
source Trust Funds"). You may later then exchange such shares purchased and
shares purchased with reinvested dividends for shares of the Fund. Shares will
be exchanged for each other based upon their relative net asset values except
that the Micro-Cap and Mid-Cap Portfolios deduct a withdrawal charge of .25%
of the value of shares redeemed, which deduction also applies to shares ex-
changed out of each of those Portfolios.
Cash Resource Trust Funds are described in a separate prospectus. You may ob-
tain a copy of the prospectus for any Cash Resource Trust Fund by calling 1-
800-245-7311 or writing to 951 Ice Cream Drive, North Aurora, Illinois 60542.
You are advised to read the prospectus carefully before authorizing any in-
vestment 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 re-
quest that includes your name, your account number, the name of the
20
<PAGE>
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 ac-
cepting 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 oth-
erwise permitted by applicable regulations, 60 days' prior written notice of
any termination or material change will be provided.
Low Minimum Initial Investment Plan/Automatic Investment Plan--By completing
the Automatic Investment Plan section of the Account Application, you may make
subsequent investments by authorizing the Fund and its Custodian to debit your
bank account to buy additional shares of the Portfolios. The minimum initial
investment in each Portfolio is $1,000. However, the Low Minimum Initial In-
vestment Plan allows 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 pe-
riod.
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 In-
vestment Plan. The Plan is subject to the approval of the shareholder's bank.
You can stop investing through the Automatic Investment Plan by sending writ-
ten notice to the Fund's Custodian and Transfer
21
<PAGE>
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 termi-
nated 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 peri-
od, 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 us-
ing 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 Port-
folio 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 eligibil-
ity 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 state-
ment) which is available from the Fund.
Information regarding the establishment of 401(k) Plan accounts, including ad-
ministration, plan provisions, and fees, is also available from the Fund.
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 distrib-
ute to you.
22
<PAGE>
Taxation of Shareholders--To avoid taxation, the Internal Revenue Code re-
quires 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 or-
dinary 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 ad-
ditional 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 re-
gardless 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 de-
clared 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 quali-
fied retirement plan, such as a 401(k) Plan or IRA, are generally tax
deferred. This means that you are not required to report Portfolio distribu-
tions 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 share-
holders 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 dis-
tribution 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 mar-
ket 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
23
<PAGE>
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 ac-
count, 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 re-
demption 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 permit-
ted 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 circumstanc-
es.
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.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Port-
folios' 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.
MID-CAP PORTFOLIO
<TABLE>
<CAPTION>
September
Years Ended 15,
December 31, 1996* -
----------------- December
1998 1997 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)................... (0.21) (0.19) (0.05)
Net realized and unrealized gain on in-
vestments............................... 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 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>
- ------------
(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.
25
<PAGE>
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 investments. (0.63) (2.14) 6.73 9.43 (0.56)
------- -------- -------- -------- -------
Total from investment opera-
tions...................... (0.96) (2.51) 6.41 9.10 (0.78)
Less distributions:
Distribution from net real-
ized gain 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 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 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 -- --
</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.
26
<PAGE>
MICRO-CAP PORTFOLIO
<TABLE>
<CAPTION>
January
Years Ended 1, 1996*
December 31, -
------------------- December
1998 1997 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).......................... (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 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>
- ------------
(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.
27
<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, 811-04854
- -------------------------------------------------------------------------------
Investment Adviser/Manager
Oberweis Asset Management, Inc.
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
1-800-323-6166
Distributor/Shareholder Service Agent
Oberweis Brokerage, Inc.
951 Ice Cream Drive, Suite 200
North Aurora, Illinois 60542
1-630-801-6000
Custodian and Transfer Agent
Investors Fiduciary Trust Company
1-800-245-7311
Counsel
Vedder, Price, Kaufman & Kammholz
Independent Auditors
Ernst & Young LLP
<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
Massachusetts 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
number. 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
incorporated 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............................................ 12
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................................. 21
Additional Information..................................................... 21
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of each Portfolio's
investment objective and policies discussed in the Fund's Prospectus.
Investment Objective
The investment objective of each Portfolio is to maximize capital
appreciation. Each Portfolio intends to achieve its objective through
investing primarily in common stocks of companies, which in the opinion of its
investment adviser have a potential for above-average long-term growth in
market value. The investment objective of each Portfolio is fundamental and,
like all fundamental policies of a Portfolio, cannot be changed without the
affirmative vote of a majority of the outstanding voting securities of that
Portfolio. As used in this SAI, "a majority of the outstanding voting
securities" of the Portfolio means the lesser of (1) the holders of more than
50% of the outstanding shares of the Portfolio, or (2) the holders of more
than 67% of the shares of the Portfolio present if more than 50% of the
outstanding shares of the Portfolio are present at a meeting in person or by
proxy.
Investment Restrictions
The policies set forth below are fundamental policies of each Portfolio and
may not be changed without approval of a majority of that Portfolio's
outstanding shares. A Portfolio individually may not:
1. purchase more than 10% of any class of securities of any one issuer
other than the United States government and its instrumentalities;
2. invest more than 5% of its total assets, at the time of the investment
in question, in the securities of any one issuer (other than the United
States government and its instrumentalities);
3. invest more than 5% of its total assets in securities that are not
readily marketable and securities of unseasoned issuers that have been in
continuous operation for less than three years, including operating periods
of their predecessors;
4. invest more than 5% of its total assets in securities of issuers which
the Fund is restricted from selling to the public without registration un-
der 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 of-
ficers 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 securi-
ties 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 compa-
nies;
8. purchase, sell or invest in interests in oil, gas or other mineral ex-
ploration 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 secu-
rities of companies holding real estate or interests in real estate, in-
cluding real estate investment trusts; provided such investments do not ex-
ceed 10% of the Portfolio's total assets;
11. issue senior securities;
12. invest in companies for the purpose of exercising control or manage-
ment;
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 ac-
count 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 extraordi-
nary or emergency purposes or as necessary for the clearance of purchases
and sales of securities, provided that the aggregate amount of such borrow-
ing 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 is-
suers; or
21. invest in puts, calls, straddles or any combination thereof, except
that the Portfolio may write covered call options on its Portfolio securi-
ties, the aggregate market value of which is limited to 50% of the Portfo-
lio'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 mar-
ketable securities of companies holding real estate or interests in
real estate, including real estate investment trusts; provided such in-
vestments 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
securities 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
resale of which is legally or contractually restricted, including repurchase
agreements with maturities of seven days or more and securities that are not
readily marketable).
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
invest 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 better 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
interest that is unrelated to the coupon rate or date of maturity of the
security. This technique offers a method of earning income on idle cash. In
these transactions, the securities purchased by the Portfolio have, at all
times, a total value in excess of the value of the repurchase agreement and
are held by the Fund's custodian bank until repurchased. Certain costs may be
incurred by a Portfolio in connection with the sale of the securities
purchased by it if the seller does not repurchase them in accordance with the
repurchase agreement. The Portfolio will consider on an ongoing basis the
creditworthiness of the institutions with which it enters into repurchase
agreements and will monitor the value of the underlying securities to ensure
that additional securities are deposited by the seller if the value of the
securities purchased decreases below the resale price at any time. Under the
Investment Company Act of 1940 (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
underlying security at a specified price (the "exercise price") within a
certain time period. Where the writer (seller) of the option, in this case the
Portfolio, already owns the underlying security, the call option is considered
to be "covered." The Portfolio will receive a premium, which is the market
value of the option, when it writes (sells) a call option. The premium
provides a partial hedge (protection) against declining prices and enables the
Portfolio to generate a higher return during periods when OAM does not expect
the underlying security to make any major price moves in the near future but
still deems the underlying security to be, over the long term, an attractive
investment for the Portfolio. In determining whether to write (sell) a covered
call option on one of the Portfolio's securities, OAM will consider the
reasonableness of the anticipated premium in relation to the anticipated
increase in market value of the underlying security over the option period.
Although the writing (selling) of covered call options is believed by OAM to
be a conservative investment technique that involves relatively little risk,
risks involved in writing (selling) a covered call option include the possible
inability to effect closing transactions at favorable prices and the inability
to participate in any appreciation of the underlying security above the
exercise price plus premium. The Portfolio may also be exposed to a possible
price decrease in the underlying security that might otherwise have been sold
while the Portfolio continues to hold such underlying security during the
option period, although any such loss during such period would be reduced by
the amount of the premium received. The Portfolios do not consider a security
covered by a call to be "pledged" as that term is used in each Portfolio's
investment policy 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
principal 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
5
<PAGE>
value of its securities. Such hedge protection is provided only during the
life of the put option and only when the Portfolio, as the holder of the put
option, is able to sell the underlying security at the put exercise price
regardless of any additional decline in the security's market price. For
example, a put option may be purchased in order to protect unrealized
appreciation of a security where the Portfolio deems it desirable to continue
to hold the security. The premium paid for the put option and any transaction
costs would reduce any capital gain otherwise available for distribution when
the security is eventually sold.
Except as discussed below with respect to options on stock indices, each
Portfolio has no current intention of purchasing put options at a time when
the Portfolio does not own the underlying security; however, it reserves the
right to do so. By purchasing put options on a security it does not own, the
Portfolio would seek to benefit from a decline in the market price of the
underlying security. If such a put option is not sold when it has remaining
value, and if the market of the underlying security remains equal to or
greater than the exercise price during the life of the put option, the
Portfolio would lose its entire investment in the put option (i.e., the entire
premium paid by the Portfolio). In order for the purchase of a put option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs, unless the put option is sold in a closing sale transaction.
The Portfolios may also repurchase call options previously written on
underlying securities they already own in order to preserve unrealized gains.
The Portfolios may also purchase call and put options on stock indices
("stock index options") for the purpose, in part, of partially hedging against
the risk of unfavorable price movements adversely affecting a Portfolio's
securities or securities the Portfolio intends to buy and 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
efficient way to implement a partial decrease in portfolio market exposure in
response to changing market conditions. Although techniques other than the
purchase of options could be used to hedge the Portfolios' investments, the
Portfolios may be able to hedge their exposure more effectively, and perhaps
at a lower cost, through the use of stock index options.
The Portfolios propose to invest only in stock index options for which the
underlying index is a broad market index such as the Standard & Poor's Index,
the Major Market Index, or the Russell 2000 Index. The Portfolios would
propose to purchase broad stock index options only if they are listed on a
national securities exchange and traded, in the opinion of the Fund's
investment adviser, with some significant volume.
The Portfolios will not enter into a stock index option if, as a result
thereof, more than five percent (5%) of the Fund's total assets (taken at
market value at the time of entering into the contract) would be committed to
options, whether options on individual securities or options on stock indices.
There are several risks in connection with the Portfolios' use of stock
index options as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the stock index options and
movements in the prices of securities held by the Portfolios. Successful use
of stock index options by the Portfolios for hedging purposes is also subject
to the Fund's adviser's ability to correctly predict movements in the
direction of the market. In addition, due to market distortions, the price
movements of the stock index options might not correlate perfectly with price
movements in the underlying stock index. Increased participation by
speculators in the options market might also cause temporary price
distortions.
The ability to establish and close out positions on options will be subject
to the liquidity of the index options market. Absence of a liquid market on an
exchange may be due to: (i) insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions, or both; (iii)
6
<PAGE>
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options, or underlying securities; (iv)
unusual or unforeseen circumstances, such as severe stock market fluctuations,
interrupting normal exchange operations; (v) inadequacy of an exchange's or a
clearing corporation's facilities to handle increased trading volume; or (vi)
discontinuance of the trading of options (or a particular class or series of
options) by an exchange, for economic or other reasons. Higher than
anticipated trading activity or other unforeseen events also could cause an
exchange or clearing corporation to institute special procedures which may
interfere with the timely execution of customers' orders.
Stock index options may be closed out only on an exchange which provides a
market for such options. For example, OEX stock index options currently can be
purchased or sold only on the CBOE. Although the Portfolios intend to purchase
or sell stock index options only on exchanges where there appear to be active
markets, there is no assurance that a liquid market will exist for any
particular options contract at any particular time. In such event, it might
not be possible to close a stock index option position.
Lending of Securities. The Portfolios may lend their investment securities
in an amount up to 30% of its total assets (including value of collateral
received) 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
Portfolio investing any cash collateral in interest-bearing short-term
investments), any dividends and distributions paid on the loaned securities
and any increase in their market value.
As with any extension of credit, portfolio security loans involve certain
risks in the event a borrower should fail financially, including delays or
inability to recover the loaned securities or foreclosure against the
collateral. Each Portfolio will consider on an ongoing basis the
creditworthiness of the borrowers to which it makes portfolio security loans.
Foreign Securities. Foreign securities involve currency risks. The U.S.
Dollar value of a foreign security tends to decrease when the value of the
U.S. Dollar rises against the foreign currency in which the security is
denominated and tends to increase when the value of the U.S. Dollar falls
against such 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 disbursement 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
political or economic instability in the country involved, the difficulty of
predicting international trade patterns and the possible imposition of
exchange controls. The prices of such securities may be more volatile than
those of domestic 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
7
<PAGE>
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.
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
(generally higher than the value of the stock at the time of issuance) during
a specified period or perpetually. Warrants may be acquired separately or in
connection with the acquisition of securities. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that
they entitle their holder to purchase and they do not represent any rights in
the assets of the issuer. As a result, warrants may be considered to have more
speculative characteristics than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date.
Real Estate Investment Trusts. Each Portfolio may invest in real estate
investment trusts ("REITs"). REITs are subject to volatility from risks
associated with investments in real 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
total assets will be invested in REITs during the current year.
Short Sales Against the Box. Each Portfolio may make short sales against the
box for the purpose of deferring realization of gain or loss for federal
income tax purposes. A short sale "against the box" is a short sale in which a
Portfolio owns at least an equal amount of the securities sold short or
securities convertible into or exchangeable for, without payment of any
further consideration, securities of the same issue as, and at least equal in
amount to, the securities sold short. Each Portfolio does not currently intend
to engage in short sales to the 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
accomplish 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
turnover 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
supervised by the Fund's Board of Trustees.
One of the Fund's trustees and all of its officers are employees and/or
officers of Oberweis Asset Management, Inc. ("OAM"), the Fund's investment
adviser and manager, and/or Oberweis Brokerage, Inc. ("Oberweis Brokerage"),
the Fund's distributor and shareholder service agent. OAM is under common
control with Oberweis Brokerage.
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
occupations during the past five (5) years are:
THOMAS J. BURKE, Trustee (67) **
143 South Lincoln Avenue, Aurora, Illinois 60505; President--Burke Medical
Associates, 1968 to present; retired medical physician, practicing medical
physician until November 1, 1995.
DOUGLAS P. HOFFMEYER, Trustee (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
October, 1994; Director of Fund Investments--Hamilton Investments, Inc.,
December, 1988 to October, 1994; President of the Fund, 1986 to present;
Chairman of the Board of Oberweis Dairy, Inc.
EDWARD F. STREIT, Trustee (63) **
2000 West Galena, Aurora, Illinois 60506; licensed attorney in private
practice, 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.,
September, 1996 to present; Administrator--The Chicago Corporation, October,
1994 to December, 1996; Vice President--Carr Asset Management, Inc./Indosuez
Carr Futures, Inc., August, 1993 to September, 1994.
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
Representative--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
December, 1995 to present; President and Director--Oberweis Brokerage, Inc.,
September, 1996 to present; Registered Representative--The Chicago
Corporation, March, 1996 to December, 1996; Student--University of Illinois at
Champaign-Urbana, August, 1991 to December, 1995.
STEVEN J. LE MIRE, Secretary (29)
951 Ice Cream Drive, North Aurora, Illinois 60542; Compliance Manager--
Oberweis Brokerage, Inc., March, 1997 to present; Manager, Shareholder
Accounting--Carr Asset Management, Inc./Indosuez Carr Futures, Inc., March
1994 to March 1997.
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
affiliated with OAM and/or Oberweis Brokerage may directly or indirectly
benefit from fees or other remuneration received from the Fund by OAM and/or
Oberweis Brokerage. Regular meetings of the Board of Trustees are held
quarterly and the audit committee holds at least one meeting during each year.
- --------
* "Interested person" of the Fund as defined in Section 2(a)(19) of the 1940
Act.
** Member of audit committee and nominating committee.
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
Retirement
Benefits Estimated
Aggregate Accrued as Annual
Compensation Part of Benefits
From the Fund Upon Total
Trustee Fund Expenses 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 1.6%, 5.6% and 4.6% of the then outstanding shares
of the Emerging Growth Portfolio, the Micro-Cap Portfolio and the Mid-Cap
Portfolio, respectively.
The Fund is aware of the following person(s) owning of record or
beneficially more than 5% of the outstanding shares of the respective
Portfolios as of March 31, 1999.
<TABLE>
<CAPTION>
Type of
Name & Address of Owner % Owned Ownership
- ---------------------------------------------------------- ------- ------------
<S> <C> <C>
Emerging Growth Portfolio
Charles Schwab & Co., Inc. 7% Record(1)
Special Custody Account for Exclusive Benefit of
Customers
101 Montgomery Street
San Francisco, CA 94104
Mid-Cap Portfolio
R. Bruce Duchossois 6% Beneficially
845 N. Larch Avenue
Elmhurst, IL 60126
</TABLE>
- --------
(1) Charles Schwab & Company, Inc., a securities broker-dealer, has advised
the Fund that no individual Person owns more than 5% of the Portfolio.
10
<PAGE>
OBERWEIS ASSET MANAGEMENT, INC.
The Fund's investment adviser, since October 1, 1994, is Oberweis Asset
Management, Inc. ("OAM"), an investment adviser based in North Aurora,
Illinois. For additional details concerning OAM, see the Fund's Prospectus
under the heading "Management of the Portfolios." Pursuant to a written
contract between the Fund and OAM (the "Investment Advisory Agreement"), OAM
is responsible for managing the investment and reinvestment of each
Portfolio's assets, determining in its discretion the securities to be
purchased or sold and the portion of the Portfolio's assets to be held
uninvested, providing the Fund with records concerning OAM's activities which
the Fund is required to maintain under applicable law, and rendering regular
reports to the Fund's Trustees and officers concerning Portfolio
responsibilities. OAM's investment advisory services to the Fund are all
subject to the control of the Trustees, and must be in compliance with the
investment objectives, policies and restrictions set forth in the Fund's
Prospectus and this SAI and with applicable laws and regulations. In addition,
OAM is authorized to select broker-dealers, including Oberweis Brokerage, that
may execute purchases and sales of the securities for the Portfolios. (See
"Portfolio Transactions.")
The investment adviser is obligated to pay the salaries and fees of any
officers of the Fund as well as the Trustees of the Fund who are interested
persons (as defined in the Investment Company Act of 1940) of the Fund, who
are employed full time by the investment adviser to perform services for the
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
Portfolio in excess of $50 million, from the Micro-Cap Portfolio at the end of
each month a fee at the annual rate of .60% of the average daily net assets of
the Portfolio, and from the Mid-Cap Portfolio at the end of each month a fee
at the annual rate of .40% of the average daily net assets of the Portfolio.
For the years ended December 31, 1998, 1997 and 1996, the advisory fees
incurred 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
payable 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
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
administrative services pursuant to a written contract (the "Management
Agreement"). OAM is responsible under the Management Agreement for providing
the Fund with those management and administrative services which are
reasonably necessary for conducting the business affairs of the Fund, with the
exception of investment advisory services, and distribution of each
Portfolio's shares and shareholder services, which are subject to the Fund's
Rule 12b-1 Plan. (See "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 facilities and services.
OAM is responsible for preparing and updating the Fund's SEC and state
registration statement and filings, tax reports to shareholders and similar
documents. OAM pays the compensation of all officers and personnel of the Fund
for their services to the Fund as well as the Trustees of the Fund who are
interested persons of the Fund. OAM also provides information and certain
administrative services to shareholders of each Portfolio. These services
include, among other things, transmitting redemption requests to the Fund's
Transfer Agent and transmitting the proceeds of redemption of shares of the
Fund pursuant to a shareholder's instructions when such redemption is effected
through OAM; providing telephone and written communications with respect to
its shareholders' account inquiries; assisting its shareholders in altering
privileges and ownership of their accounts; and serving as a source of
information for its existing shareholders in answering questions concerning
the Fund and their transactions with the Fund.
11
<PAGE>
For its services under the Management Agreement, OAM is paid by the
Portfolios on a monthly basis an annual management fee equal to .40% of the
average daily net assets of each Portfolio. OAM will bear all expenses in
connection with the performance of its services to the Fund and each of the
Portfolios under the Management Agreement. The Fund is responsible for all
other expenses. However, the Management Agreement provides that OAM is
obligated to reimburse the Portfolios for 100% of the amount by which the
Portfolio's ordinary operating expenses during any fiscal year, including the
management and advisory fees, exceed 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
operating 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
required 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,
respectively, 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
provided by OAM, justifies the higher combined fees.
DISTRIBUTION PLAN AND AGREEMENT
As discussed in the Fund's Prospectus under the heading "Distribution of
Shares," the Fund has adopted a Plan of Distribution (the "Distribution Plan")
and a Distribution and Shareholder Service Agreement (the "Distribution
Agreement") pursuant to Rule 12b-1 under the 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 Brokerage a monthly distribution fee at an annual rate of .25% of
each Portfolio's average daily net assets and may also reimburse certain out
of pocket costs incurred by Oberweis Brokerage for shareholder services
provided to the Fund.
The Distribution Plan is a "compensation type" plan, which means that
Oberweis Brokerage may receive compensation that is more or less than the
actual 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
information and services to existing and potential shareholders.
12
<PAGE>
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 distribution, 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
reimbursement of such costs, is included in the total expenses of the
Portfolio, subject to the expense limitation based on average daily net assets
of each Portfolio. 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
executives for servicing and administering a shareholder's account.
The Plan and Agreement provides that Oberweis Brokerage may appoint various
broker-dealer firms to assist in providing distribution services for the Fund,
including literature distribution, advertising and promotion, and may appoint
broker-dealers and other firms (including depository institutions such as
commercial banks and savings and loan associations) to provide administrative
services for their clients as shareholders of the Fund under related service
agreements. To provide these services, these firms will furnish, among other
things, office space and equipment, telephone facilities, and personnel as is
necessary or beneficial for providing information and services related to the
distribution of the Portfolios' shares to Oberweis Brokerage in servicing
accounts of such firms' clients who own shares of the Fund.
The Glass-Steagall Act generally prohibits federally chartered or supervised
banks from engaging in the business of underwriting, selling, or distributing
securities. Although the scope of this prohibition under the Glass-Steagall
Act has not been fully defined, in Oberweis Brokerage's opinion it should not
prohibit banks from being paid for shareholder servicing and record-keeping.
If, because of changes in law or regulation, or because of new interpretations
of existing law, a bank or a fund were prevented from continuing these
arrangements, it is expected that other arrangements would be made for these
services and that shareholders would not suffer adverse financial
consequences. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
state law.
The Plan provides that the Fund's asset-based sales charges (as defined in
the NASD's Conduct Rules) shall not exceed those permitted by Rule 2830 of the
NASD's Conduct Rules. Further, as permitted by the NASD's Rules, the Emerging
Growth Portfolio has elected to calculate its permissible amount of asset-
based sales charges on new gross sales of the Portfolio since the Portfolio's
inception.
The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that the Plan and Agreement will benefit the Portfolios
and their shareholders. If the sizes of the Portfolios are increased rapidly,
fixed expenses will be reduced as a percentage of each shareholder's
investment. The 12b-1 expenses will also provide Oberweis Brokerage and others
an incentive to promote the Portfolios and to offer individual shareholders
prompt and efficient services.
As required by Rule 12b-1, the Plan, as amended, and Agreement was approved
by the Board of Trustees, including a majority of Trustees who are not
interested persons, as defined in the 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.
13
<PAGE>
Unless terminated earlier as described below, the Plan and Agreement will
continue in effect from year to year if approved annually by the Board of
Trustees of the Fund, including a majority of the Trustees who are not parties
to the Plan and Agreement (or have a direct or indirect financial interest in
the operation thereof) and who are not interested persons of the Fund. The
Plan may be terminated with respect to the Fund or a Portfolio at any time by
(1) a vote of a majority of the Trustees who are not interested persons of the
Fund, who are not parties to the Distribution and Shareholder Service
Agreement and who have no direct or indirect financial interest therein, or
(2) by the vote of a majority of shareholders of that Portfolio. The
Distribution and Shareholder Service Agreement may be terminated similarly
without penalty upon 60 days written notice by either party and will
automatically terminate if assigned, as defined in the 1940 Act.
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
expenses 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
Brokerage 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 services, $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
Brokerage 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 reimbursement of out-of-pocket expenses for such period.
EXPENSES BORNE BY THE PORTFOLIOS
Other than those expenses payable by OAM and/or Oberweis Brokerage, the
Portfolios will pay all of their expenses, including the following:
(a) Federal, state and local or other governmental agency taxes or fees
levied against the Fund.
(b) Costs, including the interest expense, of borrowing money.
(c) Brokerage fees and commissions and other transaction costs in
connection with the purchase or sale of portfolio securities for the
Portfolios.
(d) Fees and expenses of the Trustees other than those who are
"interested persons" (as defined in the 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.
(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.
14
<PAGE>
(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
reimburse 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
Brokerage, subject to the requirements of applicable laws and regulations. OAM
may place a significant portion of the Portfolios' agency orders with Oberweis
Brokerage, as it believes by so doing a Portfolio is able to achieve more
control over and better execution of its orders. Orders for securities
transactions are placed by OAM with a view to obtaining the best combination
of price and execution available. In seeking to achieve the best combination
of price and execution, OAM attempts to evaluate the overall quality and
reliability of the broker-dealers and the services provided, including
research services, general execution capability, reliability and integrity,
willingness to take positions in securities, general operational capabilities
and financial condition. However, the responsibility of OAM to attempt to
obtain the best combination of price and execution does not obligate it to
solicit a competitive bid for each transaction. Furthermore, under the
Advisory Agreement, OAM is not obligated to seek the lowest available cost to
the Portfolio, so long as it determines in good faith that the broker-dealer's
commission, spread or discount is reasonable in relation to the value of the
execution and research services provided by such a broker-dealer to the
Portfolio, or OAM when viewed in terms of that particular transaction or its
overall responsibilities with respect to all of its clients, including the
Portfolio, as to which it offers advice or exercises investment discretion.
OAM, with the prior consent of the Fund's Trustees, may place orders with
affiliated persons of OAM, Oberweis Brokerage or the Fund subject to (i) the
provisions of Sections 10(f) and 17(e)(2) of the 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 regulations, and (ii) procedures
properly adopted by the Fund with respect thereto. The Fund has been advised
by OAM that it may place orders for securities with Oberweis Brokerage, but
only when it believes that the combination of price and execution are
comparable to that of other broker-dealers. OAM, with the prior consent of the
Fund's Trustees, may engage in agency cross transactions subject to (i) the
provisions of Section 17(a) of the 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.
15
<PAGE>
OAM has agreed to furnish certain information quarterly to the Fund's
Trustees to enable them to evaluate the quality of execution and cost of all
orders executed by Oberweis Brokerage. The Fund requires that OAM, as
investment adviser, record and furnish to the Fund quarterly the following
information:
(A) Exchange Transactions
A listing showing for each transaction executed by Oberweis Brokerage for
the Portfolios during the month, in time sequence, the date of the
transaction, the price, the commission, the exchange where executed, the
security and the number of shares.
(B) Over-the-Counter Transactions
A listing showing for each transaction executed by Oberweis Brokerage for
the Portfolios during the month, in time sequence, the date of execution, the
price, the best bid and ask at the time, the commission for the transaction,
the security and the number of shares.
(C) Transactions Through Other Brokers
A list of all transactions during each quarter through other brokers,
showing the price and commission for the transaction, and a summary of
commission charges by all other brokers executing transactions for the
Portfolios.
A greater discount, spread or commission may be paid to non-affiliated
broker-dealers that provide research services, which research may be used by
OAM in managing assets of its clients, including the Portfolios. Research
services may include data or recommendations concerning particular securities
as well as a wide variety of information concerning companies, industries,
investment strategy and general economic, financial and political analysis and
forecasting. In some instances, OAM may receive research, statistical and/or
pricing services it might otherwise have had to perform itself. However, OAM
cannot readily determine the extent to which net prices or commission rates
charged by most broker-dealers reflect the value of its research, statistical
and/or pricing services. As OAM is the principal source of information and
advice to the Fund and is responsible for managing the investment and
reinvestment of the Portfolios' assets and determining the securities to be
purchased and sold, it is believed by the Fund's management to be in the
interests of the Fund for OAM, in fulfilling its responsibilities to the Fund,
to be authorized to receive and evaluate the research and information provided
by other securities brokers or dealers, and to compensate such brokers or
dealers for their research and information services. Any such information
received may be utilized by OAM for the benefit of its other accounts as well,
in the same manner that the Fund might also benefit from information obtained
by OAM in performing services for its other accounts. Although it is believed
that research services received directly or indirectly benefit all of OAM's
accounts, the degree of benefit varies by account and is not directly related
to the commissions or other remuneration paid by such account.
Some brokers and dealers used by OAM provide research and other services
described above. For the year ended December 31, 1998, the total brokerage
commissions paid by the Portfolios to broker-dealers in transactions
identified 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.
Transactions of the Portfolios in the over-the-counter market and the third
market may be executed for the Portfolios by Oberweis Brokerage as agent with
primary market makers acting as principal, except where OAM believes that
better prices or execution may be obtained otherwise. Transactions with
primary market makers reflect the spread between the bid and the ask prices.
Occasionally, the Portfolios may make purchases of underwritten issues at
prices which include underwriting discount fees.
16
<PAGE>
OAM may place orders with broker-dealers other than Oberweis Brokerage that
sell shares of the Fund, provided the price and execution are reasonably
believed to be comparable with other nonaffiliated broker-dealers. OAM and the
Fund's Board of Trustees review quarterly the Portfolios' brokerage
transactions for execution and services furnished.
For the year ended December 31, 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
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, 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
during such period was $62,507,939. Eight percent (8%), or $4,832,694, of the
securities transactions on which the Portfolio paid brokerage commissions were
effected through TCC. The total amount of principal transactions of the
Portfolio for the year ended December 31, 1996, for which no commission was
incurred, was $187,935,883.
For the year ended December 31, 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
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 $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
Portfolio paid brokerage commissions were effected through Oberweis Brokerage.
The total amount of principal transactions of the Portfolio for the year ended
December 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
Micro-Cap Portfolio was $42,065, of which 4.0% or $1,695, was paid to TCC. The
total amount of securities transactions on which the Portfolio paid brokerage
commissions during such period was $12,872,463. Five percent (5%), or
$668,820, of the securities transactions on which the Portfolio paid brokerage
commissions were effected through TCC. The total amount of principal
transactions of the Portfolio for the year ended December 31, 1996, for which
no commission was incurred, was $53,097,245.
For the 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
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 $2,785,147.
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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
Portfolio paid brokerage commissions were effected through Oberweis Brokerage.
The total amount of principal transactions of the Portfolio for the year ended
December 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
commissions paid by the Mid-Cap Portfolio was $5,958, of which none was paid
to TCC. The total amount of securities transactions on which the Portfolio
paid brokerage commissions during such period was $5,260,537. The total amount
of principal transactions of the Portfolio for the year ended December 31,
1996, for which no commission was incurred, was $2,721,374.
SHAREHOLDER SERVICES
The Fund's Prospectus under the heading Shareholder Information/How to
Purchase Shares, How to Redeem Shares and Shareholder Services describes
information in addition to that set forth below. When a shareholder makes an
initial investment in a Portfolio, a shareholder account is opened in
accordance with the Fund's Account Application instructions. After each
transaction for the account of a shareholder, confirmation of all deposits,
purchases, reinvestments, redemptions, withdrawal payments, and other
transactions in the shareholder's account will be forwarded to the
shareholder.
A Portfolio will generally not issue certificates for its shares, except
that certificates for full amounts will be issued upon a shareholder's written
request to the Transfer Agent. The investor will be the record owner of all
shares in his account with full shareholder rights, irrespective of whether
share certificates are issued. Certain of the functions performed by the Fund
in connection with the operation of the accounts described above have been
delegated by the Fund to its Transfer Agent.
In addition to the purchase and redemption services described above, the
Fund offers its shareholders the special accounts and services described in
the Fund's Prospectus. Applications and information about any shareholder
services may be obtained from OAM.
DETERMINATION OF NET ASSET VALUE
See the Fund's Prospectus under the heading Shareholder Information/How to
Purchase Shares and Pricing of Fund Shares, for descriptions of certain
details 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
Portfolio's securities plus all other assets minus all liabilities by the
total number of Portfolio shares outstanding. In valuing the Portfolio's
securities, each listed and unlisted security, other than options, for which
last sale information 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.
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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
determined 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
investment 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
shareholder 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
proceeds in cash, if the Fund's Trustees determine it to be appropriate,
redemption proceeds may be paid in whole or in part by a distribution in kind
of securities held by the Portfolios, subject to the limitation that, pursuant
to an election under Rule 18f-1 under the 1940 Act, each Portfolio is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of a Portfolio during any 90-day period for any one
account. The value of such securities shall be determined as of the close of
trading of the 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
Internal Revenue Code of 1986, as amended (the "Code"), so that the Portfolio
will not be liable for federal income taxes to the extent that its net
investment income and net realized capital gains are currently distributed to
its shareholders. Each of the Portfolios will qualify for this status as long
as it: (a) derives at least 90% of its gross income from dividends, interest,
gains from the sale or other distribution of securities or foreign currencies,
and certain other investment income including gain from options, futures or
forward contracts; (b) invests in securities that satisfy certain
diversification requirements; and (c) distributes at least 90% of its net
investment income and net short-term capital gains to its shareholders each
year.
Except for those shareholders exempt from federal income taxes, dividends
and capital gains distributions are taxable to shareholders for purposes of
the federal income tax, whether paid in cash or reinvested in additional
shares of the Portfolio. Dividends from net investment income are taxable to
non-exempt shareholders as ordinary income for federal income tax purposes.
For corporate shareholders, such income dividends may be eligible for the
deduction for dividends received from domestic corporations. Distribution of
long-term capital gains are taxable to non-exempt shareholders as long-term
capital gains regardless of the length of time that such shareholders have
owned shares in a Portfolio. Short-term capital gain distributions are taxable
to non-exempt shareholders as ordinary income. Losses incurred by such
shareholders on the redemption of shares of a Portfolio held six months or
less will be treated as long-term capital losses to the extent of any capital
gains distributions made by the Portfolio with respect to such shares.
Shareholders will be notified annually as to the federal income tax status of
dividends and capital gains distributions. Such dividends and distributions
may also be subject to state and local taxes.
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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
assets 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
distributions made to corporate Shareholders are taxed at the same rate as
ordinary income is taxed to corporations.
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
redemption proceeds (including from exchanges) that occur in certain
shareholder accounts if the shareholder has not properly furnished a certified
correct Taxpayer Identification Number (in the case of individuals, a social
security number) or has not certified that withholding does not apply. Amounts
withheld are applied to the shareholder's federal income tax liability and a
refund may be obtained from the Internal Revenue Service if withholding
results in overpayment of taxes. Federal law also requires the Fund to
withhold the applicable tax treaty rate (as opposed to the statutory rate of
30%) from dividends that are paid to certain nonresident alien, foreign
partnership and foreign corporation shareholder accounts when relevant
withholding certificates are furnished to the Fund.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations in effect on the date of the
Fund's Prospectus and this SAI, which provisions are subject to change by
legislative or administrative action. Investors are advised to consult their
own tax advisers regarding the tax consequences of an investment in the
Portfolios. Shareholders are likewise advised to consult their own tax
advisers regarding 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
actions requiring a shareholder vote may be requested in writing by holders of
at least twenty-five percent (25%) (or ten percent (10%) if the purpose of the
meeting is to determine if a Trustee is to be removed from office) of the
outstanding shares of the Fund or as may be required by applicable law. Under
the Declaration of Trust, shareholders are entitled to vote in connection with
following matters: (1) for the election or removal of Trustees if a meeting is
called for such purpose; (2) with respect to the adoption of any contract for
which approval is required by the 1940 Act; (3) with respect to any
termination or reorganization of the Portfolios to the extent and as provided
in the Declaration of the Trust; (4) with respect to any amendment of the
Declaration of Trust (other than amendments changing the name of the Fund or
the Portfolios, supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision thereof);
(5) as to whether or not a court action, proceeding or claim should or should
not be brought or maintained derivatively or as a class action on behalf of
the Fund or the shareholders, to the same extent as the stockholders of a
Massachusetts business corporation; and (6) with respect to such additional
matters relating to the Fund as may be required by law, the Declaration of
Trust, the By-Laws of the Fund, or any registration of the Fund with the
Securities and Exchange Commission or any state, or as the Trustees may
consider necessary or desirable. 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, retires or is removed by the majority vote of the shareholders
or by the Trustees.
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CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average annual total return measures both the net investment income
generated by, and the effect of any realized and unrealized appreciation or
depreciation of, the underlying investments of a Portfolio. A Portfolio's
average annual total return quotation is computed in accordance with a
standardized method prescribed by the rules of the Securities and Exchange
Commission, as follows:
P(1+T)n=ERV
Where P=a hypothetical initial payment of $1,000
T=average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five-, or 10-year
period at the end of the one-, five-, or 10-year period
(or fractional portion thereof)
In advertising, sales literature and other publications, the Portfolios'
performance may be quoted in terms of total return or average annual total
return, which may be compared with various indices and investments, other
performance measures or rankings, or other mutual funds, or indices or
averages of other mutual funds.
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
corporation. However, under Massachusetts law, shareholders of a business
trust may, under certain circumstances, be held personally liable for the
obligations of the trust, which is not the case in a corporation. The Trust
Agreement provides that shareholders shall not be subject to any personal
liability to any person extending credit to, contracting with or having any
claims against the Fund and that every written agreement, obligation,
instrument or undertaking made by the Fund shall contain a 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 adequate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote.
Shares of the Fund
Pursuant to the Fund's Trust Agreement, the Fund may issue an unlimited
number of shares of beneficial interest in one or more series of "Portfolios,"
all having no par value. Shares of each Portfolio have equal non-cumulative
voting rights and equal rights with respect to dividends, assets and
liquidation of such Portfolio. Shares are fully paid and non-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.
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Independent Auditors
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606, audits
and reports on the Fund's annual financial statements, reviews certain
regulatory reports and prepares the Fund's income tax returns, and performs
other professional accounting, auditing and advisory services when engaged to
do so by the Fund.
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,
Illinois 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
Exchange Commission under the Securities Act of 1933, and reference is hereby
made to the Registration Statement for further information with respect to the
Fund and the securities offered hereby. This Registration Statement is
available for inspection by the public at the Securities and Exchange
Commission in Washington, D.C.
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