<PAGE>
PRESIDENT'S LETTER
Dear Oberweis Funds Shareholder:
The Oberweis Funds invest in extraordinarily rapidly growing companies. The
average growth rates for both revenues and earnings for the companies owned by
the Emerging Growth Portfolio and the Micro-Cap Portfolio were in excess of 90%
at the end of 1998. For the Mid-Cap Portfolio, which owns somewhat larger
companies, the growth rates were 60%. These exceptional growth rates should, in
our opinion, command substantially higher PE ratios than the S&P 500, and in the
past, the PE ratios for all three funds have been substantially higher than the
market as a whole (or the S&P 500). But for the last two years investors have
eagerly purchased large, well known stocks, and generally avoided smaller
company stocks. This attitude has produced a very difficult environment for
small company stocks (unless they are connected to the Internet in investors'
minds). For the first time, the average PE ratio of one of our portfolios (the
Micro-Cap portfolio) actually had an average PE 20% below the S&P 500 based on
earnings estimates for the next year. In the past, the portfolios have typically
had average PEs 50% to 100% higher than the S&P 500. In our opinion, this
indicates that small, rapidly growing company stocks represent a better value
than large company stocks.
We have felt for more than a year that small company stocks represented a better
value than large company stocks, yet big company stocks continued to outperform
small company stocks until October 8th. We don't know why, but since last
October 8th, rapidly growing company shares seem to have once again captured
investor interest. All three portfolios gained approximately 60% from the
October 8th close to the end of the year. Unfortunately, for the Emerging
Growth and Micro-Cap portfolios, that gain merely made up for earlier losses.
For the year, the Micro-Cap Portfolio gained 4.3% and the Emerging Growth
Portfolio lost 3.1%. The Russell 2000, a small stock index, lost 2.5% for the
year. The Mid-Cap Portfolio, which invests in medium size companies, did much
better, gaining 22.4% for the year compared to 19.1% for the S&P 400 Mid-Cap.
While there are no guarantees, we are hopeful that a multi-year swing towards
smaller company stocks began on October 8th.
Finally, I would again like to sincerely thank you for investing with me in our
funds. I realize that the short term share volatility can be frustrating; but
over the long run, accepting that volatility--or even taking advantage of it by
buying on dips--may produce reasonable rewards. Just a reminder on our Micro-Cap
portfolio--we do intend to close the portfolio when it hits $60 million in
assets. We believe that we can only invest a very limited sum in such small
companies (the average market cap is only $145 million). We have to limit the
amount of money we manage in this area or limit the performance of the fund. We
choose to limit the amount of money. It is currently about $30 million. If you
have any questions about your account, please call shareholder services at 800-
245-7311. If you have any questions about the fund's investment policies,
please feel free to call us directly. We're normally available from 7:30 AM
until 6:00 PM central time and from 9:30 until noon on Saturday at 800-323-6166
or at 630-801-6000 in the Chicago area.
Sincerely,
/S/ James D. Oberweis
---------------------
James D. Oberweis
President
1
<PAGE>
THE OBERWEIS FUNDS
MANAGEMENT DISCUSSION AND ANALYSIS
The Oberweis Funds are positioned to take advantage of the long-term price
appreciation that occurs when the market places an appropriately high value on
fast growing companies. The market for such stocks was generally weak during the
first nine months of 1998, though the fourth quarter produced a strong rebound.
For the full year, the Mid-Cap Portfolio gained 22.4%, beating the 19.1% for the
S&P 400 Mid-Cap Index. The Micro-Cap Portfolio gained 4.3%, beating the Russell
2000 small cap index which lost 2.5%. The Emerging Growth Portfolio lost 3.1%,
slightly trailing the Russell 2000. The Mid-Cap Portfolio has had a 13.2%
average annual return since inception (9/15/96). The Micro-Cap Portfolio has had
a 12.4% average annual return since inception three years ago. The Emerging
Growth Portfolio has had an 8.3% average annual return for the last five years
and a 15.9% ten year return.
Internet stocks were the story of 1998. Any company connected to the Internet or
with .com in its name seemed to soar ever higher without regard to such normal
concerns as sales and earnings. Since our investment approach is geared towards
profitable companies with rapid growth in both earnings and revenues, Internet
stocks were not generally available to our portfolios. However, a few profitable
Internet related companies such as Mindspring, an ISP, did meet our criteria
early in the year and we still owned it at the end of the year, though it has
increased in price and PE so much that we would no longer be able to buy it
because of its now very high PE. In fact its high PE helped to pull up the
average PE of both the Mid-Cap and Emerging Growth portfolios. (Mindspring was a
small cap stock at the beginning of 1998 but quickly moved up to Mid-Cap size.)
The average PE ratios at the end of 1998 of the Mid-Cap, Emerging Growth, and
Micro-Cap Portfolios, based on estimated earnings, are 34, 35, and 18 compared
to 23 for the S&P 500 and 19 for the Russell 2000, according to William O'Neil &
Co.
The portfolio turnover rates for the Emerging Growth, Micro-Cap, and Mid-Cap
portfolios for 1998 were the lowest ever at 49%, 41%, and 72%. We do not expect
rates to stay quite that low. The expense ratios for the three portfolios were
1.55%, 1.99% and 2.0% (after expense reimbursement). They would have been 1.55%,
2.06% and 2.61% had there been no reimbursement. The average commission rate
paid by each portfolio for agency transactions (generally on the NYSE, Instinet
and Bloomberg Trading System) was approximately three cents per share traded,
also the lowest ever as commission rates continue to decline. We believe this
rate compares favorably to most other mutual funds. The lower spreads now
present in the NASDAQ market also helped lower our total transaction costs in
1998.
2
<PAGE>
THE OBERWEIS FUNDS
MANAGEMENT DISCUSSION AND ANALYSIS
Average Annual Total Returns /(1)/
Periods Ended 12/31/98
<TABLE>
<CAPTION>
Since
One Five Ten Inception
Year Years Years 1/7/87
-----------------------------------------
<S> <C> <C> <C> <C>
OBEGX -3.1% +8.3% +15.9% +12.7%
Russell 2000 -2.5% +11.9% +12.9% +11.3%
</TABLE>
Growth of an Assumed $10,000 Investment
From January 7, 1987 to December 31, 1998
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Em Russell 2000
- -----------------------------------------
<S> <C> <C>
10,000 10,000
- -----------------------------------------
1987 9,094 8,537
- -----------------------------------------
1988 9,612 10,664
- -----------------------------------------
1989 12,012 12,395
- -----------------------------------------
1990 12,062 9,977
- -----------------------------------------
1991 22,573 14,571
- -----------------------------------------
1992 25,653 17,254
- -----------------------------------------
1993 28,147 20,515
- -----------------------------------------
1994 27,157 20,166
- -----------------------------------------
1995 38,716 25,902
- -----------------------------------------
1996 47,413 30,169
- -----------------------------------------
1997 43,340 36,915
- -----------------------------------------
1998 42,009 35,974
- -----------------------------------------
</TABLE>
Average Annual Total Returns /(1)/
Periods Ends 12/31/98
<TABLE>
<CAPTION>
Since
One Inception
Year 1/1/96
------------------
<S> <C> <C>
OBMCX +4.3% +12.4%
Russell 2000 -2.5% +11.6%
</TABLE>
Growth of an Assumed $10,000 Investment
From January 1, 1996 to December 31, 1998
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Micro Russell 2000
- ---------------------------------------------
<S> <C> <C>
1/1/96 10,000 9,999.71
- ---------------------------------------------
12/31/96 12,279 11,647.2
- ---------------------------------------------
12/31/97 13,590 14,252
- ---------------------------------------------
12/31/98 14,190 13,888.66
- ---------------------------------------------
</TABLE>
Average Annual Total Returns /(1)/
Periods Ended 12/31/98
<TABLE>
<CAPTION>
Since
One Inception
Year 9/15/96
- -----------------------------------------
<S> <C> <C>
OBMDX +22.4% +13.2%
Russell 2000 -2.5% +11.2%
S&P 400 Mid-cap +19.1% +25.9%
</TABLE>
Growth of an Assumed $10,000 Investment
From September 15, 1996 to December 31, 1998
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Oberweis Mid-Cap Standard & Poor Russell 2000
- ------------------------------------------------------------------
<S> <C> <C> <C>
9/15/96 10,000 10,000 10,000
- ------------------------------------------------------------------
12/31/96 10,290 10,749 10,693
- ------------------------------------------------------------------
12/31/97 10,846 14,216 13,084
- ------------------------------------------------------------------
12/31/98 13,271 16,933 12,751
- ------------------------------------------------------------------
</TABLE>
/(1)/Performance is historical and does not represent future results. Investment
returns and principal value vary, and you may have a gain or loss when you sell
shares. Results include the reinvestment of all dividends and capital gains
distributions. The Standard & Poor's 400 Mid-Cap Index is a capitalization-
weighted index that measures the performance of the mid-range sector of the U.S.
stock market. The Russell 2000 Index is an unmanaged index consisting of 2000
Small Cap Securities with an average market capitalization of approximately $547
million. A sales load of 4% was charged on the Oberweis Emerging Growth
Portfolio until December 31, 1991 and is not reflected in the total return
figures or graph above.
3
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments
December 31, 1998 (value in thousands)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 103.3%
Commercial Services -
Business Services - 1.3%
60,000 First Consulting Group, Inc. @ 20.500 $ 1,230
-------
Commercial Services - Misc. - 9.5%
18,500 Abacus Direct Corp. @ 45.500 842
10,200 Factset Research Systems, Inc. @ 61.750 630
*48,000 Inspire Insurance Solutions @ 18.375 882
50,000 International Telecomm Data Systems @ 14.750 737
5,000 Lason, Inc. @ 58.187 291
*40,000 Medquist, Inc. @ 39.500 1,580
*73,800 Metzler Group, Inc. @ 48.687 3,593
50,000 NovaCare Employee Services @ 5.375 269
-------
8,824
-------
Commercial Services -
Security Safety - 0.5%
20,000 Bacou USA, Inc. @ 21.500 430
-------
Commercial Services - Staffing - 1.0%
40,000 Staffmark, Inc. @ 22.375 895
-------
Computer - Integrated Systems - 4.0%
58,000 Apex PC Solutions, Inc. @ 28.875 1,675
140,000 Javelin Systems, Inc. @ 15.000 2,100
-------
3,775
-------
Computer - Local Networks - 1.8%
50,000 Xircom, Inc. @ 34.000 1,700
-------
Computer - Memory Devices - 3.1%
*64,200 Network Appliance, Inc. @ 45.000 2,889
-------
Computer Peripherials - 0.9%
30,000 Cybex Computer Products @ 29.375 881
-------
Computer Services - 3.8%
40,000 Ciber, Inc. @ 27.937 1,117
30,000 CGI Group, Inc. Class A @ 19.812 594
50,000 Crystal Systems Solutions @ 10.312 516
10,000 IMRGlobal Corp. @ 29.437 294
60,000 Tier Technologies, Inc. Class B @ 17.250 1,035
-------
3,556
-------
Computer Software - Desktop - 2.2%
136,000 Made 2 Manage Systems, Inc. @ 14.875 2,023
-------
Computer Software - Enterprise - 11.5%
30,000 Concord Communications, Inc. @ 56.750 1,702
6,000 Engineering Animation, Inc. @ 54.000 324
20,000 New Dimension Software @ 48.125 963
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
*90,000 New Era of Networks, Inc. @ 44.000 $ 3,960
18,680 Platinum Technology, Inc. @ 19.125 357
*12,000 Sapient Corp. @ 56.000 672
20,000 Segue Software, Inc. @ 20.250 405
80,000 Summit Design, Inc. @ 9.312 745
26,400 Veritas Software Corp. @ 59.937 1,582
-------
10,710
-------
Computer Software - Finance - 0.9%
*18,000 Great Plains Software, Inc. @ 48.250 869
-------
Computer Software - Internet - 6.7%
*80,000 Broadvision, Inc. @ 32.000 2,560
*60,000 Mindspring Enterprises, Inc. @ 61.062 3,664
-------
6,224
-------
Computer Software - Security - 1.3%
40,000 Axent Technologies, Inc. @ 30.562 1,223
-------
Cosmetics - Personal Care - 1.3%
25,400 Chattem, Inc. @ 47.875 1,216
-------
Electronics - Components /
Semiconductors - 3.8%
*10,000 Broadcom Corp. Class A @ 120.750 1,207
15,000 Micrel, Inc. @ 55.000 825
10,000 QLogic Corp. @ 130.875 1,309
5,000 RF Micro Devices, Inc. @ 46.375 232
-------
3,573
-------
Food - Miscellaneous 0.9%
30,000 Hain Food Group, Inc. @ 25.000 750
10,000 Jutrzenka @ 3.931 39
-------
789
-------
Household Appliances - 2.8%
100,000 Salton - Maxim Housewares, Inc. @ 25.625 2,563
-------
Leisure & Recreation Products - 2.8%
40,000 Cinar Films, Inc. @ 25.375 1,015
60,000 Family Golf Centers, Inc. @ 19.750 1,185
20,000 Medialink Worldwide, Inc. @ 17.000 340
-------
2,540
-------
Machinery - 0.5%
20,000 Xeikon N.V. @ 23.500 470
-------
Medical - Biomed Genetics - 2.7%
41,000 Qiagen N.A. @ 60.250 2,470
-------
Medical / Dental Services - 8.7%
*125,000 Advance Paradigm, Inc. @ 35.000 4,375
80,000 IMPATH, Inc. @ 26.500 2,120
68,400 Kendle International, Inc. @ 23.375 1,599
-------
8,094
-------
</TABLE>
See notes to Portfolio of Investments.
4
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Medical - Equipment & Supplies - 4.1%
*50,000 Ocular Sciences, Inc. @ 26.750 $ 1,337
36,000 Osteotech, Inc. @ 46.500 1,674
50,000 Sabratek Corp. @ 16.375 819
-------
3,830
-------
Medical - Ethical Drugs - 3.8%
5,200 Andrx Corp. @ 51.250 266
80,000 King Pharmaceuticals, Inc. @ 26.125 2,090
72,000 Theragenics Corp. @ 16.812 1,211
-------
3,567
-------
Medical - Instruments - 0.9%
25,000 Perclose, Inc. @ 33.125 828
-------
Medical - Nursing Homes /
Outpatient Care - 2.1%
70,000 Assisted Living Concepts @ 13.125 919
20,200 Sunrise Assisted Living @ 51.875 1,048
-------
1,967
-------
Medical - Products - 2.0%
*40,000 Resmed, Inc. @ 45.375 1,815
-------
Pollution Control - 0.9%
50,000 Stericycle, Inc. @ 16.125 806
-------
Restaurants - 7.9%
222,000 Logan's Roadhouse, Inc. @ 23.500 5,217
45,000 Papa John's International, Inc. @ 44.125 1,986
10,000 P.F. Chang's China Bistro @ 22.750 227
-------
7,430
-------
Retail - Apparel - 4.1%
*30,000 American Eagle Outfitters @ 66.625 1,999
30,000 Chico's Fas, Inc. @ 23.375 701
46,000 Children's Place @ 25.125 1,156
-------
3,856
-------
Retail - Home Furnishings 0.3%
10,000 Select Comfort Corp. @ 26.437 264
-------
Retail / Misc. - 1.0%
26,300 Sonic Automotive, Inc. @ 34.437 906
-------
Retail / Wholesale - Computers - 2.9%
80,000 Brightpoint, Inc. @ 13.750 1,100
*90,000 CHS Electronics, Inc. @ 16.937 1,524
10,000 Computerland @ 12.250 123
-------
2,747
-------
Telecommunications - Equipment - 0.4%
500 Carrier Access Corp. @ 34.437 17
37,500 DSET Corp. @ 10.375 389
-------
406
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Telecommunications - Services - 0.9%
55,000 IDT Corp. @ 15.375 $ 846
-------
Total Common Stocks
(Cost: $60,340,000) $96,212
-------
</TABLE>
<TABLE>
<CAPTION>
Face Amount Value
- ----------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE DEBT OBLIGATIONS - 0.4%
Medical - Management Services - 0.4%
$1,500,000**Complete Management, Inc.
8.00% due 12-15-03 @ 21.625 325
-------
Total Convertible Debt Obligations
(Cost: $1,500,000) 325
-------
Total Investments - 103.7%
(Cost: $61,840,000) 96,537
-------
</TABLE>
See notes to Portfolio of Investments.
5
<PAGE>
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Contracts Value
- ----------------------------------------------------------------
<S> <C> <C>
COVERED CALL OPTIONS - (1.0%)
100 Advance Paradigm, Inc., January $35 $ (16)
20 Advance Paradigm, Inc., March $35 (9)
30 American Eagle Outfitters, February $60 (28)
100 Broadcom Corp. Class A, January $120 (110)
550 Broadvision, Inc., January $40 (28)
100 CHS Electronics, Inc., January $20 (2)
100 CHS Electronics, Inc., January $22.50 --
100 Great Plains Software, Inc., January $40 (85)
100 IMRGlobal, Corp., February $40 (10)
20 Inspire Insurance Solutions, January $40 --
55 Medquist, Inc., February $40 (14)
138 Metzler Group, Inc., January $50 (22)
50 Mindspring Enterprises, Inc., January $50 (59)
300 Mindspring Enterprises, Inc., January $75 (41)
200 Mindspring Enterprises, Inc., January $80 (5)
164 Network Appliance, Inc., January $40 (80)
200 New Era of Networks, Inc., January $32.50 (225)
200 New Era of Networks, Inc., January $50 (16)
500 New Era of Networks, Inc., February $50 (116)
100 Ocular Sciences, Inc., January $30 (4)
100 Resmed, Inc., January $40 (57)
120 Sapient Corp., January $70 (5)
Total Covered Call Options -------
(Premiums received: $716,000) (932)
Other Liabilities less Assets - (2.7%) (2,490)
-------
NET ASSETS - 100% $93,115
=======
</TABLE>
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
* All or a portion of these stocks were held in escrow at December 31, 1998 to
cover call options written. The aggregate market value was $14,784,000.
** Income producing security during the year ended December 31, 1998.
Based on the cost of investments of $61,840,000 for federal income tax purposes
at December 31, 1998, the aggregate gross unrealized appreciation was
$39,532,000, the aggregate gross unrealized depreciation was $4,835,000 and the
net unrealized appreciation of investments was $34,697,000.
6
<PAGE>
OBERWEIS MICRO-CAP PORTFOLIO
Portfolio of Investments
December 31, 1998 (value in thousands)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 98.7%
AEROSPACE - 3.3%
10,000 Integral Systems, Inc. @ 19.437 $ 194
24,000 Kellstrom Industries, Inc. @ 28.750 690
13,000 Kreisler Manufacturing Corp. @ 4.062 53
-------
937
-------
Building - A/C & Heating Products - 0.1%
1,000 AAON, Inc. @ 9.312 9
-------
Chemicals - Plastics - 0.5%
15,000 Summa Industries, Inc. @ 9.062 136
-------
Commercial Services - Advertising - 1.3%
37,000 Display Technologies, Inc. @ 7.437 275
50,000 HMG Worldwide Corp. @ 2.062 103
-------
378
-------
Commercial Services - Misc. - 5.1%
30,000 Analytical Surveys, Inc. @ 30.812 925
15,000 Innotrac Corp. @ 18.125 272
22,100 Interstate National Dealer @ 10.875 240
-------
1,437
-------
Commercial Services - Staffing - 5.1%
*55,000 RCM Technologies, Inc. @ 26.500 1,457
-------
Computer - Integrated Systems - 6.7%
50,000 Javelin Systems, Inc. @ 15.000 750
54,000 Symix Systems, Inc. @ 21.000 1,134
-------
1,884
-------
Computer Services - 2.7%
30,000 Brightstar Information Technology @ 7.875 236
12,000 DA Consulting Group, Inc. @ 21.875 262
15,000 SPR, Inc. @ 17.250 259
-------
757
-------
Computer Software - Desktop - 4.7%
*50,000 Verity, Inc. @ 26.500 1,325
-------
Computer Software - Enterprise - 9.1%
25,000 Catalyst International, Inc. @ 12.000 300
25,000 Cognicase, Inc. @ 22.234 556
20,000 Forsoft Ltd. @ 10.375 207
30,000 Made 2 Manage Systems, Inc. @ 14.875 446
10,066 Peregrine Systems, Inc. @ 46.375 467
*30,000 Quadramed Corp. @ 20.500 615
-------
2,591
-------
Computer Software - Finance - 1.4%
50,000 Clarus Corp. @ 6.000 300
10,000 Interlinq Software Corp. @ 8.750 87
-------
387
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Computer Software - Medical - 1.4%
12,000 Infocure Corp. @ 32.750 $ 393
-------
Electrical - Equipment / Components - 0.4%
8,000 Isomet Corp. @ 3.000 24
20,000 Questron Technology, Inc. @ 4.500 90
-------
114
-------
Electrical - Military Systems - 1.8%
40,000 Advanced Communication Systems
@ 12.500 500
-------
Electronics - Semiconductors / Components - 4.7%
50,000 Genesis Microchip, Inc. @ 24.250 1,213
15,000 Global Payment Tech, Inc. @ 8.125 122
-------
1,335
-------
Food - Misc. Preparation - 0.4%
15,000 Pure World, Inc. @ 8.062 121
-------
Household - Housewares - 0.2%
9,000 Decora Industries, Inc. @ 7.687 69
-------
Leisure - Toys / Games - 5.9%
*20,000 Action Performance COS, Inc. @ 35.375 707
60,000 Creative Master International, Inc. @ 6.000 360
20,000 Four Media Co. @ 8.125 163
40,000 JAKKS Pacific, Inc. @ 10.750 430
-------
1,660
-------
Machinery - 2.8%
39,500 A.S.V., Inc. @ 17.875 706
15,000 Qualmark Corp. @ 5.375 81
-------
787
-------
Medical / Dental Services - 0.2%
5,000 American Healthcorp, Inc. @ 9.812 49
-------
Medical / Ethical Drugs - 1.0%
20,000 Akorn, Inc. @ 4.875 98
35,000 Synthetech, Inc. @ 5.125 179
-------
277
-------
Medical Instruments - 3.0%
60,000 Colorado MEDtech, Inc. @ 13.250 795
20,000 Rehabilicare, Inc. @ 3.250 65
-------
860
-------
Medical - Nursing Home - 1.4%
50,000 Balanced Care Corp. @ 8.000 400
-------
</TABLE>
See notes to Portfolio of Investments.
7
<PAGE>
OBERWEIS MICRO-CAP PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Pollution Control - 0.4%
50,000 Innovative Medical Services @ 2.000 $ 100
-------
Real Estate - Operations - 0.4%
15,000 Kennedy - Wilson, Inc. @ 7.000 105
-------
Restaurants - 4.6%
55,000 Logan's Roadhouse, Inc. @ 23.500 1,293
-------
Retail - Apparel - 1.3%
16,000 Chico's Fas, Inc. @ 23.375 374
-------
Retail - Home Furnishings - 1.3%
15,000 Rent-Way, Inc. @ 24.312 365
-------
Retail - Mail Order - 3.0%
45,000 DM Management Co. @ 19.000 855
-------
Shoes & Related Apparel - 0.7%
25,000 Steven Madden Ltd. @ 8.500 213
-------
Telecommunications - 12.7%
96,300 Gilat Communications Ltd. @ 9.937 957
*40,000 Geotel Communications Co. @ 37.250 1,490
150,000 International FiberCom, Inc. @ 7.312 1,097
115,000 Telecomm Industries, Inc. @ .468 54
-------
3,598
-------
Telecommunications - Equipment - 2.3%
7,000 Comtech Telecommunciations Corp. @ 8.750 61
50,000 Gentner Communications @ 3.875 194
24,500 Spectralink Corp. @ 3.625 89
18,000 Xeta Corp. @ 17.375 313
-------
657
-------
Textile - Manufacturing - 8.2%
8,200 Conso Products Co. @ 5.875 48
50,000 Cutter & Buck, Inc. @ 37.250 1,863
25,000 Frenchtex @ 1.125 28
30,000 Happy Kids, Inc. @ 12.750 382
-------
2,321
-------
Transportation - Rail - 0.6%
20,000 RailAmerica, Inc. @ 8.500 170
-------
Total Common Stocks
(Cost: $17,876,000) $27,914
=======
</TABLE>
<TABLE>
<CAPTION>
Face Amount Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL PAPER - 2.1%
$605,000 Heller Financial, Inc.
4.75% DUE 01-04-99 $ 605
-------
Total Commercial Paper
(Cost: $605,000) 605
-------
Total Investments - 100.8%
(Cost: $18,481,000) 28,519
-------
</TABLE>
<TABLE>
<CAPTION>
Contracts Value
- ----------------------------------------------------------------------
<C> <S> <C>
COVERED CALL OPTIONS - (0.4%)
100 Action Performance COS, Inc., January $40 $ (7)
50 Geotel Communications Co., January $30 (36)
100 Geotel Communications Co., January $35 (36)
40 Quadramed Corp., January $30 --
50 Quadramed Corp., February $30 (3)
20 RCM Technologies, Inc., January $22.50 (8)
100 Verity, Inc., January $25 (30)
-------
Total Covered Call Options
(Premiums received: $69,000) (120)
Other Liabilities less Assets - (0.4%) (109)
-------
NET ASSETS - 100% $28,290
=======
</TABLE>
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
* All or a portion of these stocks were held in escrow at December 31, 1998 to
cover call options written. The aggregate market value was $1,415,000.
Based on the cost of investments of $18,481,000 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation was
$10,751,000, the aggregate gross unrealized depreciation was $713,000 and the
net unrealized appreciation of investments was $10,038,000.
8
<PAGE>
OBERWEIS MID-CAP PORTFOLIO
Portfolio of Investments
December 31, 1998 (value in thousands)
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 98.1%
Commercial Services - 3.3%
3,000 Robert Half International, Inc. @ 44.687 $ 134
3,000 Sylvan Learning Systems, Inc. @ 30.500 92
-------
226
-------
Computer Services - 6.8%
2,000 CSG Systems International, Inc. @ 79.000 158
3,000 International Network Services @ 66.500 200
4,000 Mastech Corp. @ 28.625 114
-------
472
-------
Computer Software - Desktop - 2.1%
2,500 Gemstar International Group Ltd. @ 57.250 143
-------
Computer Software - Enterprise - 22.2%
*2,250 Citrix Systems, Inc. @ 97.062 218
4,000 Compuware Corp. @ 78.125 312
2,000 Documentum Inc. @ 53.437 107
2,000 Keane, Inc. @ 39.937 80
1,500 Legato Systems, Inc. @ 65.937 99
2,000 Lernout & Hauspie Speech @ 32.625 65
**2,000 Mercury Interactive Corp. @ 63.250 127
6,000 Siebel Systems, Inc. @ 33.937 204
*3,000 Veritas Software Corp. @ 59.937 180
4,000 Visio Corp. @ 36.562 146
-------
1,538
-------
Computer Software - Internet - 2.7%
*3,000 Mindspring Enterprises, Inc. @ 61.062 183
-------
Computer Software - Security - 4.6%
4,000 Check Point Software Technologies, Ltd. @ 45.812 183
2,000 Network Associates, Inc. @ 66.250 133
-------
316
-------
Electronics - Components /
Semiconductors - 8.8%
1,000 QLogic Corp. @ 130.875 131
2,000 RF Micro Devices, Inc. @ 46.375 93
*1,500 VISX, Inc. @ 87.437 131
*5,500 Vitesse Semiconductor @ 45.625 251
-------
606
-------
Electronics / Measuring Instruments - 1.9%
1,500 Waters Corp. @ 87.250 131
-------
Financial - Consumer Loans - 2.0%
10,000 Americredit Corp. @ 13.812 138
-------
Financial Services - Miscellaneous - 3.7%
6,000 Concord EFS, Inc. @ 42.375 254
-------
</TABLE>
<TABLE>
<CAPTION>
Shares Company (Closing Price) Value
- ----------------------------------------------------------------------
<C> <S> <C>
Medical - Biomed Genetics - 7.3%
2,500 Agouron Pharmaceuticals, Inc. @ 58.750 $ 147
2,500 Biogen, Inc. @ 83.000 208
4,000 Incyte Pharmaceuticals @ 37.375 149
-------
504
-------
Medical - Dental Services - 2.2%
2,300 Orthodontic Centers of America @ 19.437 45
2,000 Quintiles Transnational @ 53.375 106
-------
151
-------
Medical - Ethical Drugs - 2.9%
3,000 Biovail Corp. International @ 37.812 114
1,500 Medicis Pharmaceuticals Class A @ 59.625 89
-------
203
-------
Medical - Hospitals - 1.1%
1,500 Universal Health Services @ 51.875 78
-------
Medical - Instruments - 3.0%
4,000 Arterial Vascular Engineering @ 52.500 210
-------
Medical - Outpatient / Homecare - 2.8%
6,666 Total Renal Care Holdings @ 29.562 197
-------
Medical - Products - 2.3%
1,500 Minimed, Inc. @ 104.750 157
-------
Restaurants - 0.9%
**2,200 CKE Restaurant, Inc. @ 29.437 65
-------
Retail - 8.0%
5,000 Abercrombie & Fitch Co. @ 70.750 354
3,000 American Eagle Outfitters @ 66.625 200
-------
554
-------
Retail / Wholesale - Computers - 3.8%
8,000 Brightpoint, Inc. @ 13.750 110
*5,000 CHS Electronics, Inc. @ 16.937 84
2,000 Ingram Micro, Inc. @ 34.875 70
-------
264
-------
Telecommunications -
Equipment - 5.7%
7,000 Excel Switching Corp. @ 38.000 266
1,500 Plantronics, Inc. @ 86.000 129
-------
395
-------
Total Common Stocks
(Cost: $4,638,000 ) $ 6,785
-------
</TABLE>
See notes to Portfolio of Investments.
9
<PAGE>
OBERWEIS MID-CAP PORTFOLIO
Portfolio of Investments (cont'd.)
<TABLE>
<CAPTION>
Face Amount Value
- ----------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT - 0.3%
$20,000 State Street Bank and Trust Co.
Dated 12/31/98, Collateralized by
U.S. Treasury Bonds 8.50%, Due 01/02/99 $ 20
-------
Total Repurchase Agreement
(Cost: $20,000) 20
-------
Total Investments - 98.4%
(Cost: $4,658,000) 6,805
-------
</TABLE>
<TABLE>
<CAPTION>
Contracts Value
- ----------------------------------------------------------------------
<C> <S> <C>
COVERED CALL OPTIONS - (0.6%)
50 CHS Electronics, Inc, January $22.50 $ --
22 Citrix Systems, Inc., January $90 (18)
30 Mindspring Enterprises, Inc., January $80 (1)
20 Veritas Software Corp., February $70 (4)
15 VISX, Inc., February $80 (13)
5 Vitesse Semiconductor, January $40 (3)
-------
Total Covered Call Options
(Premiums received: $28,000) (39)
Other Assets less Liabilities - 2.2% 150
-------
NET ASSETS - 100% $6,916
=======
</TABLE>
Notes to Portfolio of Investments
- --------------------------------------------------------------------------------
* All or a portion of these stocks were held in escrow at December 31, 1998 to
cover call options written. The aggregate market value was $755,000.
** Income producing security during the year ended December 31, 1998.
Based on the cost of investments of $4,658,000 for federal income tax
purposes at December 31, 1998, the aggregate gross unrealized appreciation
was $2,249,000, the aggregate gross unrealized depreciation was $102,000 and
the net unrealized appreciation of investments was $2,147,000.
10
<PAGE>
THE OBERWEIS FUNDS
Statement of Assets and Liabilites
December 31, 1998 (in thousands, except pricing of shares)
<TABLE>
<CAPTION>
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investment securities at market value $ 96,537 $28,519 $6,805
(Cost: $61,840, $18,481 and $4,658, respectively)
Cash -- -- 1
Receivable from fund shares sold 53 232 138
Receivable from securities sold 366 -- --
Dividends and interest receivable 5 -- --
Deferred organizational expense -- 25 31
Prepaid expenses 24 9 5
-------- ------- ------
Total Assets 96,985 28,785 6,980
-------- ------- ------
Liabilities:
Due to custodian bank 1,701 4 --
Options written at value
(Premiums received: $716, $69 and $28, respectively) 932 120 39
Payable for fund shares redeemed 824 141 6
Payable for securities purchased 205 162 --
Payable to advisor 63 30 4
Payable to distributor 19 5 1
Accrued expenses 126 33 14
-------- ------- ------
Total Liabilities 3,870 495 64
-------- ------- ------
Net Assets $ 93,115 $28,290 $6,916
======== ======= ======
Analysis of net assets:
Aggregate paid in capital $ 69,990 $25,238 $5,154
Accumulated net realized loss on investments (11,356) (6,935) (374)
Net unrealized appreciation of investments 34,481 9,987 2,136
-------- ------- ------
Net Assets $ 93,115 $28,290 $6,916
======== ======= ======
The Pricing of Shares:
Net asset value and offering price per share
Emerging Growth Portfolio:
($93,114,804 divided by 3,946,307 shares outstanding) $ 23.60
========
Micro-Cap Portfolio:
($28,289,787 divided by 1,994,730 shares outstanding) $ 14.18
=======
Mid-Cap Portfolio:
($6,916,321 divided by 537,919 shares outstanding) $12.86
======
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
THE OBERWEIS FUNDS
Statement of Operations
Year Ended December 31, 1998 (in thousands)
<TABLE>
<CAPTION>
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest $ 180 $ 8 $ 3
Dividends 21 35 1
-------- ------- ------
Total Investment Income 201 43 4
-------- ------- ------
Expenses:
Investment advisory fees 467 160 25
Management fees 442 107 25
Distribution fees 277 67 15
Custodian fees and expenses 198 80 41
Transfer agent fees and expenses 168 68 21
Professional fees 74 21 5
Shareholder reports 34 14 5
Federal and state registration fees 28 14 10
Insurance 8 2 --
Organizational expenses -- 12 12
Trustees' fees 9 2 1
Miscellaneous 6 2 --
-------- ------- ------
Total Expenses 1,711 549 160
-------- ------- ------
Net Investment Loss Before Expense Reimbursement (1,510) (506) (156)
Expense Reimbursement -- 20 37
-------- ------- ------
Net Investment Loss (1,510) (486) (119)
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (11,121) (2,954) (227)
Net realized gain (loss) from covered call options written (235) (22) 62
-------- ------- ------
Total net realized loss (11,356) (2,976) (165)
Increase in net unrealized appreciation of investments 9,514 4,769 1,554
-------- ------- ------
Net realized and unrealized gain (loss) on investments (1,842) 1,793 1,389
-------- ------- ------
Net increase (decrease) in net assets resulting from operations $ (3,352) $ 1,307 $1,270
======== ======= ======
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Emerging Growth Portfolio
-------------------------
Years ended December 31,
1998 1997
-------------------------
<S> <C> <C>
From Operations:
Net investment loss $ (1,510) $ (2,009)
Net realized gain (loss) on investments (11,356) 22,258
Increase (decrease) in net unrealized appreciation of investments 9,514 (32,151)
-------- ---------
Net decrease in net assets resulting from operations (3,352) (11,902)
-------- ---------
From Distributions:
Distributions from net realized gains on investments (4,764) (22,663)
-------- ---------
From Capital Share Transactions:
Net proceeds from sale of shares 52,192 146,896
Shares issued in reinvestment of distribution 4,426 20,506
Redemption of shares (95,370) (178,449)
-------- ---------
Net decrease from capital share transactions (38,752) (11,047)
-------- ---------
Total decrease in net assets (46,868) (45,612)
Net Assets:
Beginning of year 139,983 185,595
-------- ---------
End of year $ 93,115 $ 139,983
======== =========
Transactions in Shares:
Shares sold 2,120 4,781
Shares issued in reinvestment of dividends 213 746
Less shares redeemed (3,831) (5,732)
-------- ---------
Net decrease from capital share transactions (1,498) (205)
======== =========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Micro-Cap Portfolio
-----------------------
Years ended December 31,
1998 1997
-----------------------
<S> <C> <C>
From Operations:
Net investment loss $ (486) $ (581)
Net realized loss on investments (2,976) (2,556)
Increase in net unrealized appreciation of investments 4,769 4,779
-------- --------
Net increase in net assets resulting from operations 1,307 1,642
-------- --------
From Capital Share Transactions:
Net proceeds from sale of shares 10,556 38,127
Redemption of shares (20,410) (33,665)
-------- --------
Net increase (decrease) from capital share transactions (9,854) 4,462
-------- --------
Total increase (decrease) in net assets (8,547) 6,104
Net Assets:
Beginning of year 36,837 30,733
-------- --------
End of year $ 28,290 $ 36,837
======== ========
Transactions in Shares:
Shares sold 868 2,700
Less shares redeemed (1,583) (2,492)
-------- --------
Net increase (decrease) from capital share transactions (715) 208
======== ========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Mid-Cap Portfolio
------------------------
Years ended December 31,
1998 1997
------------------------
<S> <C> <C>
From Operations:
Net investment loss $ (119) $ (120)
Net realized gain (loss) on investments (165) 49
Increase in net unrealized appreciation of investments 1,554 347
------- -------
Net increase in net assets resulting from operations 1,270 276
------- -------
From Distributions:
Distributions from net realized gains on investments -- (211)
------- -------
From Capital Share Transactions:
Net proceeds from sale of shares 2,053 2,791
Shares issued in reinvestment of distribution -- 196
Redemption of shares (2,754) (4,000)
------- -------
Net decrease from capital share transactions (701) (1,013)
------- -------
Total increase (decrease) in net assets 569 (948)
Net Assets:
Beginning of year 6,347 7,295
------- -------
End of year $ 6,916 $ 6,347
======= =======
Transactions in Shares:
Shares sold 184 264
Shares issued in reinvestment of dividends -- 18
Less shares redeemed (250) (388)
------- -------
Net decrease from capital share transactions (66) (106)
======= =======
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
THE OBERWEIS FUNDS
Notes to Financial Statements
December 31, 1998
1. Significant Accounting Policies
Description of business. The Oberweis Funds (the "Trust") is registered under
the Investment Company Act of 1940 as a diversified open-end management
investment company. The Trust is authorized to operate numerous portfolios under
various trading strategies. The Trust consists of three portfolios: the Oberweis
Emerging Growth Portfolio, the Oberweis Micro-Cap Portfolio, and the Oberweis
Mid-Cap Portfolio (collectively, the Funds).
Investment valuation. Investments are stated at value. Each listed and unlisted
security for which last sale information is regularly reported is valued at the
last reported sales price on that day. If there has been no sale on such day,
then such security is valued at the current day's bid price. Any unlisted
security for which last sale information is not regularly reported and any
listed debt security which has an inactive listed market for which over-the-
counter market quotations are readily available is valued at the closing bid
price determined on the basis of reasonable inquiry. Restricted securities and
any other securities or other assets for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Board of Trustees. Short-term debt obligations, commercial
paper and repurchase agreements are valued on the basis of quoted yields for
securities of comparable maturity, quality and type or on the basis of amortized
costs.
Fund share valuation. Fund shares are sold and redeemed on a continuous basis at
net asset value. On each day the New York Stock Exchange is open for trading,
the net asset value per share is determined as of the later of the close of the
New York Stock Exchange or the Chicago Board Options Exchange by dividing the
total value of each Fund's investments and other assets, less liabilities, by
the number of each Fund's shares outstanding.
Investment transactions and investment income. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis and includes amortization of premium and discount.
Realized gains and losses from investment transactions are reported on an
identified cost basis. Gains and losses on premiums from expired options are
recognized on the date of expiration.
Repurchase agreements. Repurchase agreements are fully collateralized by U.S.
Treasury and Government agency securities. All collateral is held through the
Funds' custodian bank and is monitored daily by each Fund so that its market
value exceeds the carrying value of the repurchase agreement.
Federal income taxes and dividends to shareholders. The Funds have complied with
the special provisions of the Internal Revenue Code available to investment
companies and therefore no federal income tax provision is required. Dividends
payable to its shareholders are recorded by each Fund on the ex-dividend date.
Dividends are determined in accordance with income tax principles which may
treat certain transactions differently from generally accepted accounting
principles. The Oberweis Emerging Growth Portfolio paid a dividend consisting
of net long term realized gains from the sale of securities of $4,764,000 in
1998 to shareholders of record on November 11, 1998. The Emerging Growth
Portfolio, Micro-Cap Portfolio and Mid-Cap Portfolio have capital loss
carryforwards of $11,356,000, $6,935,000 and $374,000, respectively, which if
not used to offset future net realized capital gains will expire in 2004, 2005
or 2006.
Organizational costs. Organizational costs of the Micro-Cap Portfolio and Mid-
Cap Portfolio have been capitalized and are being amortized on a daily basis
using the straight line method over five years.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
2. Transactions with affiliates
The Funds have written agreements with Oberweis Asset Management, Inc. ("OAM")
as the Funds' investment adviser and manager. Effective January 1, 1997 Oberweis
Brokerage, Inc. ("OBI"), an affiliate of OAM, became the Funds' principal
distributor.
Investment advisory agreement. For investment advisory services, the Emerging
Growth Portfolio paid monthly investment advisory fees at an annual rate equal
to .45% of the first $50,000,000 of average daily net assets and .40% of average
daily net assets in excess of $50,000,000. The Micro-Cap Portfolio paid monthly
investment advisory fees at an annual rate equal to .60% of average
16
<PAGE>
daily net assets. The Mid-Cap Portfolio paid monthly investment advisory fees at
an annual rate equal to .40% of average daily net assets. For the year ended
December 31, 1998, the Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-
Cap Portfolio incurred investment advisory fees totaling $467,000, $160,000, and
$25,000, respectively.
Management agreement. For management services and facilities furnished, the
Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap Portfolio each paid
a monthly fee at an annual rate equal to .40% of average daily net assets. For
the year ended December 31, 1998, the Emerging Growth Portfolio, Micro-Cap
Portfolio, and Mid-Cap Portfolio incurred management fees totaling $442,000,
$107,000 and $25,000, respectively.
Expense reimbursement. OAM is obligated to reduce its management fees or
reimburse the Funds to the extent that total ordinary operating expenses, as
defined, exceed in any one year the following amounts expressed as a percentage
of each Fund's average daily net assets: 2% of the first $25,000,000; plus 1.8%
of the next $25,000,000; plus 1.6% of average daily net assets in excess of
$50,000,000. OAM reimbursed the Micro-Cap Portfolio and Mid-Cap Portfolio
$20,000 and $37,000, respectively, for the year ended December 31, 1998.
Officers and trustees. Certain officers or trustees of the Funds are also
officers or directors of OAM and OBI. During the year ended December 31, 1998,
the Funds made no direct payments to its officers and paid $12,000 to its
unaffiliated trustees.
Distribution and shareholder service expense. The Funds have a distribution and
shareholder services agreement with OBI. For services under the distribution and
shareholder servicing agreement, the Funds pay OBI a fee at the annual rate of
.25% of the average daily net assets and reimbursement for certain out-of-pocket
expenses. For the year ended December 31, 1998, the Emerging Growth Portfolio,
Micro-Cap Portfolio, and Mid-Cap Portfolio incurred distribution fees totaling
$277,000, $67,000 and $15,000, respectively.
Commissions. The Funds pay OBI for executing some of each Fund's agency security
transactions at competitive rates, typically $.03 per share. For the year ended
December 31, 1998, the Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-
Cap Portfolio paid commissions of $7,000, $1,000 and $0, respectively to OBI.
3. Investment transactions
The cost of securities purchased and proceeds from securities sold during the
year ended December 31, 1998, other than options written and money market
investments, aggregated $55,576,000 and $96,837,000, respectively, for the
Emerging Growth Portfolio, $11,104,000 and $23,209,000, respectively, for the
Micro-Cap Portfolio, and $4,398,000 and $5,070,000, respectively, for the Mid-
Cap Portfolio.
Transactions in options written for the year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
-------------------------- --------------------- ---------------------
Number Number Number
of Premiums of Premiums of Premiums
Contracts Received Contracts Received Contracts Received
-------------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 85 $ 40,000 -- $ -- -- $ --
Options written 13,360 2,500,000 1,380 177,000 1,433 246,000
Options expired (6,601) (1,013,000) (620) (83,000) (780) 108,000)
Options closed (2,731) (650,000) (150) (16,000) (326) 66,000)
Options assigned (766) (161,000) (150) (9,000) (185) 44,000)
-------------------------- --------------------- ---------------------
Options outstanding at end of year 3,347 $ 716,000 460 $ 69,000 142 $ 28,000
</TABLE>
The premiums received provide a partial hedge (protection) against declining
prices and enables each Fund to generate a higher return during periods when OAM
does not expect the underlying security to make any major price moves in the
near future but still deems the underlying security to be, over the long term,
an attractive investment for each Fund.
4. Redemption fee
A .25% redemption fee is charged on redemptions from the Micro-Cap and Mid-Cap
Portfolios. The redemption fee is retained by the Funds and is intended to
reimburse the Funds for the expense they incur in connection with shareholder
redemptions. Redemption fees received by the Micro-Cap and Mid-Cap Portfolios
were $54,000 and $7,000, respectively, for the year ended December 31, 1998, and
were recorded as a reduction of shares redeemed in the statements of changes in
net assets.
17
<PAGE>
5. Due to custodian bank
The Trust as part of the agreement with the Custodian, is allowed to borrow for
temporary purposes. Such borrowings are not to exceed 5% of the value of each
Fund's total assets at the time of any such borrowing. Interest on amounts
borrowed is calculated at the prime rate and is payable monthly. During the year
ended December 31, 1998, the Emerging Growth Portfolio, Micro-Cap Portfolio and
the Mid-Cap Portfolio incurred interest charges of $96,000, $23,000 and $1,700,
respectively, which is included in custodian fees and expenses in the statement
of operations. At December 31, 1998, the Emerging Growth Portfolio had
borrowings of $1,701,000 at an interest rate of 7.75%.
18
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout each
year is as follows :
<TABLE>
<CAPTION>
Emerging Growth Portfolio
Years ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 25.71 $ 32.86 $ 29.09 $ 21.41 $ 22.19
Income (loss) from investment operations:
Net investment loss /(a)/ (.33) (.37) (.32) (.33) (.22)
Net realized and unrealized gain (loss) on investments (.63) (2.14) 6.73 9.43 (.56)
-------- --------- --------- --------- --------
Total from investment operations (.96) (2.51) 6.41 9.10 (.78)
Less distributions:
Distribution from net realized gains on investments (1.15) (4.64) (2.64) (1.42) --
-------- --------- --------- --------- --------
Net asset value at end of year $ 23.60 $ 25.71 $ 32.86 $ 29.09 $ 21.41
======== ======== ======== ======== ========
Total Return (%) (3.1) (8.6) 22.5 42.6 (3.5)
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $93,115 $139,983 $185,595 $134,663 $90,014
Ratio of expenses to average net assets (%) 1.55 1.44 1.48 1.73/(b)/ 1.78
Ratio of net investment loss to average net assets (%) (1.37) (1.18) (0.97) (1.24) (1.06)
Portfolio turnover rate (%) 49 75 64 79 66
Average commission rate paid $ .0280 $ .0337 $ .0413 -- --
Notes:
</TABLE>
/(a)/ The net investment loss per share data was determined using average shares
outstanding during the year.
/(b)/ Net of expense reimbursement from related parties. The expense ratio would
have been 1.77%, for 1995 before expense reimbursement.
19
<PAGE>
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period is as follows:
<TABLE>
<CAPTION>
Micro-Cap Portfolio
--------------------------------------------
Years ended December 31, *January 1, 1996-
1998 1997 December 31, 1996
--------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of year $ 13.59 $ 12.28 $ 10.00
Income (loss) from investment operations:
Net investment loss /(a)/ (.24) (.21) (.15)
Net realized and unrealized gain on investments .83 1.52 2.43
------- ------- -------
Total from investment operations .59 1.31 2.28
------- ------- -------
Net asset value at end of year $ 14.18 $ 13.59 $ 12.28
======= ======= =======
Total Return (%) 4.3 10.7 22.8
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $28,290 $36,837 $30,733
Ratio of expenses to average net assets (%) 1.99/(b)/ 1.81 1.94
Ratio of net investment loss to average net assets (%) (1.83) (1.52) (1.15)
Portfolio turnover rate (%) 41 89 70
Average commission rate paid $ .0288 $ .0343 $ .0371
</TABLE>
Notes:
/(a)/ The net investment loss per share data was determined using average
shares outstanding during the year.
/(b)/ Net of expense reimbursement from related parties. The expense ratio would
have been 2.06% for 1998 before expense reimbursement.
* Commencement of operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Mid-Cap Portfolio
-----------------------------------------------
Years ended December 31, *September 15, 1996-
1998 1997 December 31, 1996
-----------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of year $10.51 $10.29 $10.00
Income (loss) from investment operations:
Net investment loss /(a)/ (.21) (.19) (.05)
Net realized and unrealized gain on investments 2.56 .76 .34
------ ------ ------
Total from investment operations 2.35 .57 .29
Less distributions:
Distribution from net realized gains on investments -- (.35) --
------ ------ ------
Net asset value at end of year $12.86 $10.51 $10.29
====== ====== ======
Total Return (%) 22.4 5.4 2.9/(d)/
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $6,916 $6,347 $7,295
Ratio of expenses to average net assets (%) 2.00/(b)/ 2.00/(b)/ 2.00/(b)(c)/
Ratio of net investment loss to average net assets (%) (1.94) (1.81) (1.62)/(c)/
Portfolio turnover rate (%) 72 106 21/(c)/
Average commission rate paid $.0305 $.0318 $.0371
</TABLE>
Notes:
/(a)/ The net investment loss per share data was determined using
average shares outstanding during the year.
/(b)/ Net of expense reimbursement from related parties. The expense ratios
would have been 2.61%, 2.46% and 3.42%, for 1998, 1997 and 1996, respectively
before expense reimbursement.
/(c)/ Annualized.
/(d)/ Not annualized.
* Commencement of operations.
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
The Oberweis Funds--
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of The Oberweis Funds--Emerging Portfolio, Micro-
Cap Portfolio; and Mid-Cap Portfolio as of December 31, 1998, the related
statements of operations, changes in net assets and the financial highlights for
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Oberweis Funds--Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap
Portfolio at December 31, 1998, the results of their operations, the changes in
their net assets and the financial highlights for the periods therein in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 29, 1999
21
<PAGE>
Trustees & Officers
James D. Oberweis Thomas J. Burke
Trustee and President Trustee
Douglas P. Hoffmeyer Edward F. Streit
Trustee Trustee
Patrick B. Joyce Martin L. Yokosawa
Executive Vice President Vice President
Treasurer
James W. Oberweis Steven J. LeMire
Vice President Secretary
Margaret W. Unsworth
Assistant Secretary
Manager and Investment Advisor
Oberweis Asset Management, Inc.
951 Ice Cream Dr., North Aurora, IL 60542
1-800-323-6166
Distributor
Oberweis Brokerage, Inc.
951 Ice Cream Dr., North Aurora, IL 60542
1-630-801-6000
Custodian and Transfer Agent
Investors Fiduciary Trust Company
P.O. Box 419042, Kansas City, MO 64141
1-800-245-7311
Counsel
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago, IL 60601
Independent Auditors
Ernst & Young LLP
233 South Wacker Drive, Chicago, IL 60606
[OBERWEIS LOGO APPEARS HERE]
The Oberweis Funds
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
The
Oberweis
Funds
[OBERWEIS LOGO APPEARS HERE]
Annual Report
- -------------------
Audited
December 31, 1998
505346
