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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4854
The Oberweis Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
951 Ice Cream Drive, Suite 200, North Aurora, IL 60542
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(Address of principal executive offices) (Zip code)
James D. Oberweis James A. Arpaia
The Oberweis Funds Vedder, Price, Kaufman, & Kammholtz
951 Ice Cream Drive, Suite 200 222 North LaSalle Street, Suite 2600
North Aurora, IL 60542 Chicago, IL 60601
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 323-6166
-----------------------------
Date of fiscal year end: December 31
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Date of reporting period: December 31, 2002
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. SS. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Annual Report to Stockholders Follows.
PRESIDENT'S LETTER
Dear Oberweis Funds Shareholder:
2002 was another tough year for stock market investors, registering the third
consecutive year of losses for the U.S. stock market. All major indices lost
ground in 2002, with the S&P 500, the NASDAQ Composite, and the Russell 2000
Growth Index losing 22.1%, 31.3%, and 30.3% respectively. To put this in
perspective, the last time the S&P 500 lost money for three consecutive years
was from 1939 to 1941. The drums of war were beating back then as well. Similar
to the present, 1942 was a point of uncertainty for many investors. In
retrospect, those who were able to overcome their fears and invest in equities
profited handsomely in the years to come. We feel comfortable that the
fundamentals of the economy, coupled with the end of the irrational valuations
of three years ago, provide an opportunity for higher equity valuations this
year. In our opinion, the fact that profitable small-cap stocks did not
experience the run to excessive valuations in the late 1990's but have sold off
the last three years, indicates that small-caps are likely to outperform the
larger blue chip stocks in 2003 and for several years in the future.
Although a challenging environment for the market overall in 2002, the year
proved to be a favorable one, on a relative basis, for small-company stocks.
Smaller companies again outperformed larger companies, with the smaller-company
oriented Russell 2000 Index declining 20.48% during a period in which the S&P
500 Index declined 21.97%. The Oberweis Micro-Cap Portfolio and the Oberweis
Emerging Growth Portfolio, which both focus on small company stocks, finished
the year with negative returns, decreasing 17.35% and 24.24%, respectively. Five
year returns are positive for both the Emerging Growth Portfolio and the
Micro-Cap Portfolio compared to negative five year returns for both the Russell
2000 and the Russell 2000 Growth Indices. Mid-cap growth stocks trailed the
market in 2002, with the Russell 2000 Mid-Cap Growth Index falling 27.41%. The
Oberweis Mid-Cap Portfolio, which increased 112.72% in 1999, declined 32.69%
last year. We continue to believe that we are in the middle of a multi-year
period favoring small-cap stocks over large-caps.
The average growth rate in both revenues and earnings for the companies included
in all three portfolios was in excess of 50% at year-end. The average PE ratio
based on this year's estimated earnings was 14.7 for the Micro-Cap Portfolio,
16.8 for the Emerging Growth Portfolio, and 18.2 for the Mid-Cap Portfolio. Each
of these ratios compares favorably to the 24.6 PE for the Russell 2000 Growth
Index and the 19 PE for the S&P 500. Smaller, growth-oriented companies have
often traded with PEs higher than large companies, probably due to their ability
to grow at a faster rate than large companies. The Micro-Cap Portfolio was
selling at a PE to Growth rate of 0.5, the Emerging Growth Portfolio 0.6, and
the Mid-Cap Portfolio of 0.7. The weighted average market cap in the Micro was
$142 million, in the Emerging Growth $483 million, and in the Mid-Cap $2.253
billion. The median market caps are even smaller at $96 million, $371 million,
and $1.533 billion. The average price-to-sales ratios for the three Portfolios
are 0.9, 1.8, and 1.5, respectively. Average return on equity for the companies
in the three portfolios was 9.7%, 13.7%, and 15.7%.
We would like to sincerely thank you for investing with us in the Oberweis
Funds. If you have any questions on your account, please contact your investment
counselor or call shareholder services at (800) 245-7311. If you have questions
about the fund's investment policies, please feel free to call our portfolio
management team at (800) 323-6166.
Sincerely,
/s/ James D. Oberweis /s/ James W. Oberweis
James D. Oberweis James W. Oberweis
James D. Oberweis James W. Oberweis
President Senior Vice President
Portfolio Manager Portfolio Manager
1
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, profitable companies. The market prices for such companies were
hurt by the overall negative market environment, though the Micro-Cap Portfolio
and the Emerging Growth Portfolio declined significantly less than the benchmark
Russell 2000 Growth Index (-17.35% and -24.24% vs. -30.26% for the index) while
the Mid-Cap Portfolio declined 32.69%.
The Micro-Cap Portfolio particularly benefited from investments in Central
European Distribution, J 2 Global, Lannett, Neoware, and SafeNet. The Emerging
Growth Portfolio once again benefited from investments in Panera Bread Company
and P.F. Chang's China Bistro, both of which were recognized in last year's
commentary for their strong performance. Also contributing strong gains were
Biosite, Central European Distribution and Royal Gold. The Mid-Cap Portfolio had
gains in Chicos, Cognizant Technology, Expedia, SanDisk, and University of
Phoenix Online.
The Portfolio turnover rate for the Micro-Cap Portfolio was 81%. For both the
Emerging Growth and Mid-Cap Portfolios it was a comparatively low 66%. The
expense ratios for the three portfolios were 1.93% for Micro-Cap, 1.57% for
Emerging Growth and 2.00% for Mid-Cap. The average commission rate paid by each
portfolio for agency transactions (generally on the NYSE, Instinet, and
Bloomberg Tradebook) was less than three cents per share traded. This rate
compares quite favorably to most other mutual funds. Decimalization has further
reduced spreads and thus transaction costs.
2
THE OBERWEIS FUNDS
MANAGEMENT DISCUSSION AND ANALYSIS
Average Annual Total Returns /(1)/
Periods ended 12/31/02
Since
One Five Ten Inception
Year Years Years 1/7/87
----------------------------------------
OBEGX -24.24% +0.18% +5.48% +9.67%
Russell 2000 -20.48% -1.36% +7.15% +8.05%
Russell 2000 Growth -30.26% -6.59% +2.62% +5.23%
Growth of an Assumed $10,000 Investment
from January 7, 1987 to December 31, 2002
Oberweis Emerging Growth Portfolio(OBEGX) Russell 2000 Russell 2000 Growth
12/31/86 $10,000 $10,000 $10,000
12/31/87 $ 9,094 $ 8,535 $ 8,953
12/31/88 $ 9,612 $10,670 $10,776
12/31/89 $12,012 $12,406 $12,950
12/31/90 $12,062 $ 9,989 $10,695
12/31/91 $22,573 $14,589 $16,170
12/31/92 $25,653 $17,275 $17,426
12/31/93 $28,147 $20,536 $19,757
12/31/94 $27,157 $20,161 $19,276
12/31/95 $38,716 $25,897 $25,260
12/31/96 $47,413 $30,169 $28,105
12/31/97 $43,340 $36,916 $31,744
12/31/98 $42,009 $35,976 $32,134
12/31/99 $64,348 $43,623 $45,981
12/31/2000 $57,469 $42,305 $35,668
12/31/2001 $57,740 $43,357 $32,300
12/31/2002 $43,746 $34,500 $22,579
Average Annual Total Returns /(1)/
Periods ended 12/31/02
Since
One Five Inception
Year Years 1/1/96
---------------------------------
OBMCX -17.35% +3.26% +6.90%
Russell 2000 -20.48% -1.36% +4.17%
Russell 2000 Growth -30.26% -6.59% -1.59%
Growth of an Assumed $10,000 Investment
from January 1, 1996 to December 31, 2002
Oberweis Micro-Cap
Russell 2000 Portfolio (OBMCX) Russell 2000 Growth
1/1/96 $10,000.42 $10,000.00 $ 9,999.75
12/31/96 $11,649.91 $12,280.00 $11,126.00
12/31/97 $14,255.19 $13,590.00 $12,566.28
12/31/98 $13,892.36 $14,180.00 $12,270.76
12/31/99 $16,845.33 $16,940.00 $18,202.44
12/31/2000 $16,336.43 $15,585.47 $14,119.76
12/31/2001 $16,742.57 $19,303.43 $12,816.75
12/31/2002 $13,313.09 $15,953.82 $ 8,938.16
Average Annual Total Returns /(1)/
Periods ended 12/31/02
Since
One Five Inception
Year Years 9/15/96
------------------------------------
OBMDX -32.69% -0.74% +0.71%
Russell Midcap Growth -27.41% -1.82% +2.70%
Russell 2000 Growth -30.26% -6.59% -2.96%
Growth of an Assumed $10,000 Investment
from September 15, 1996 to December 31, 2002
Oberweis Mid-Cap
Portfolio (OBMDX) Russell 2000 Growth Russell Midcap Growth
9/15/96 $10,000 $10,000 $10,000
12/31/96 $10,290 $10,299 $10,581
12/31/97 $10,846 $11,632 $12,966
12/31/98 $13,271 $11,775 $15,282
12/31/99 $28,230 $16,849 $23,121
12/31/2000 $24,548 $13,070 $20,404
12/31/2001 $15,529 $11,864 $16,292
12/31/2002 $10,453 $ 8,274 $11,828
/(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 Russell 2000 Growth Index measures the performance of those
Russell 2000 companies with higher price-to-book ratios and higher forecasted
earnings growth rates. The Russell 2000 Index measures the performance of 2000
companies with small-market capitalizations. The Russell Midcap Growth Index
measures those Russell Midcap companies with higher price-to-book ratios and
higher forecasted growth values. The Russell indices are unmanaged and are not
available for investment. 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
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments
December 31, 2002 (value in thousands)
Shares Company (Closing Price) Value
- -------------------------------------------------------------------
COMMON STOCKS - 102.6%
Beverages - 2.4%
80,000 Central European Distribution Corp.
@ 18.510 $ 1,481
---------
Chemicals - Specialty - 1.8%
**70,000 Aceto Corp. @ 15.970 1,118
---------
Commercial Service / Healthcare - 1.8%
20,000 Pediatrix Medical Group, Inc. @ 40.060 801
52,000 TriZetto Group, Inc. @ 6.140 319
---------
1,120
---------
Commercial Service - Misc. - 0.9%
20,000 StarTek, Inc. @ 27.600 552
---------
Commercial Service - Security - 1.3%
*30,000 InVision Technologies, Inc. @ 26.360 791
---------
Commercial Service - Staffing - 1.4%
30,000 Cross Country, Inc. @ 13.950 419
33,750 Right Management Consultants, Inc.
@ 13.250 447
---------
866
---------
Computer - Graphics - 0.8%
40,000 Nassda Corp. @ 11.220 449
---------
Computer - Integrated Systems - 1.1%
100,000 Merge Technologies, Inc. @ 6.880 688
---------
Computer - Manufacturing - 2.5%
200,000 Cray, Inc. @ 7.670 1,534
---------
Computer - Networking - 0.8%
41,800 Echelon Corp. @ 11.210 468
---------
Computer - Peripheral Equipment - 2.9%
120,000 Neoware Systems, Inc. @ 14.910 1,789
---------
Computer - Services - 3.1%
17,000 MTC Technologies, Inc. @ 25.300 430
50,000 PEC Solutions, Inc. @ 29.900 1,495
---------
1,925
---------
Computer Software - Desktop - 1.7%
200,000 ScanSoft, Inc. @ 5.200 1,040
---------
Computer Software - Enterprise - 4.0%
80,000 Altiris, Inc. @ 15.920 1,274
60,000 Verisity, Ltd. @ 19.060 1,143
---------
2,417
---------
Computer Software - Finance - 1.1%
40,000 Intercept Group, Inc. @ 16.931 677
---------
Computer Software - Medical - 3.6%
130,500 eResearch Technology, Inc. @ 16.750 2,186
---------
Electronics - Components /
Semiconductors - 4.5%
60,000 Artisan Components, Inc. @ 15.430 926
60,000 02Micro International, Ltd. @ 9.749 585
60,000 Virage Logic Corp. @ 10.030 602
45,000 Zoran Corp. @ 14.070 633
---------
2,746
---------
Electronics - Military Systems - 1.6%
83,100 Sensytech, Inc. @ 12.020 999
---------
Electronics - Scientific Instruments - 1.2%
15,000 FLIR Systems, Inc. @ 48.800 732
---------
Internet - E Commerce - 1.6%
25,400 FTD.COM, Inc. @ 15.930 405
50,000 Neoforma Systems, Inc. @ 11.950 597
---------
1,002
---------
Internet - ISP / Content - 4.5%
60,000 Alloy, Inc. @ 10.950 657
100,000 Netease.com, Inc. @ 11.450 1,145
60,000 United Online, Inc. @ 15.941 956
---------
2,758
---------
Internet - Security - 3.6%
80,000 Digital River, Inc. @ 11.950 956
80,000 Secure Computing Corp. @ 6.410 513
*50,000 WebEx Communications, Inc. @ 15.000 750
---------
2,219
---------
Internet Software - 1.0%
30,000 Websense, Inc. @ 21.361 641
---------
Leisure - Gaming / Equipment - 0.9%
*20,000 Multimedia Games, Inc. @ 27.460 549
---------
Leisure - Photo Equipment - 1.3%
130,000 Lexar Media, Inc. @ 6.270 815
---------
Leisure - Services - 1.0%
55,900 Idine Rewards Network, Inc. @ 10.620 594
---------
Medical / Dental Services - 3.9%
30,000 aaiPharma, Inc. @ 14.020 420
30,000 American Healthways, Inc. @ 17.500 525
15,000 ICON Plc. @ 26.910 404
30,000 LabOne, Inc. @ 17.720 532
40,000 SFBC International, Inc. @ 12.980 519
---------
2,400
---------
See notes to Portfolio of Investments.
4
OBERWEIS EMERGING GROWTH PORTFOLIO
Portfolio of Investments (cont'd.)
Shares Company (Closing Price) Value
- --------------------------------------------------------------------------------
Medical / Ethical Drugs - 3.5%
40,000 Axcan Pharma, Inc. @ 11.770 $ 471
100,000 Bradley Pharmaceuticals, Inc. @ 13.030 1,303
15,000 CIMA Labs, Inc. @ 24.191 363
-----------
2,137
-----------
Medical / Generic Drugs - 9.4%
150,000 Able Laboratories, Inc. @ 11.600 1,740
70,000 American Pharmaceutical Partners, Inc.
@ 17.800 1,246
50,000 Eon Labs, Inc. @ 18.910 946
4,300 Hi-Tech Pharmacal Company @ 25.650 110
60,000 SICOR, Inc. @ 15.850 951
20,000 Taro Pharmaceutical Industries Ltd.
@ 37.600 752
-----------
5,745
-----------
Medical - Health Maintenance - 1.6%
30,000 Centene Corp. @ 33.590 1,008
-----------
Medical - Nursing Homes /
Outpatient Care - 3.9%
50,000 Dynacq International, Inc. @ 14.368 718
20,000 Odyssey Healthcare, Inc. @ 34.700 694
40,000 Sunrise Assisted Living, Inc. @ 24.890 996
-----------
2,408
-----------
Medical - Products - 2.2%
*30,000 Biosite, Inc. @ 34.020 1,021
30,000 Closure Medical Corp. @ 10.480 314
-----------
1,335
-----------
Metal Ores - Gold / Silver - 1.2%
*30,000** Royal Gold, Inc. @ 24.921 748
-----------
Pollution Control - Services - 1.3%
20,000 Waste Connections, Inc. @ 38.610 772
-----------
Restaurants - 7.3%
*26,500 P.F. Chang's China Bistro @ 36.300 962
100,000 Panera Bread Company @ 34.810 3,481
-----------
4,443
-----------
Retail - Apparel - 6.8%
220,000 Chico's FAS, Inc. @ 18.910 4,160
-----------
Retail - Consumer Electronics - 0.5%
20,000 Electronics Boutique Holdings @ 15.810 316
-----------
Retail / Wholesale - Building - 0.6%
10,000 Tractor Supply Company @ 37.600 376
-----------
Retail / Wholesale - Computers - 2.9%
35,600 Scansource, Inc. @ 49.300 1,755
-----------
Telecommunications - Cellular - 1.6%
*30,000 Vimpel Communications @ 32.010 960
-----------
Telecommunications - Equipment - 1.4%
60,000 Ectel Ltd. @ 8.000 480
25,000 Wavecom SA @ 14.150 354
-----------
834
-----------
Telecommunications - Services - 2.1%
33,000 Intrado, Inc. @ 9.929 328
**20,000 Shenandoah Telecommunications Company
@ 48.920 978
-----------
1,306
-----------
Total Common Stocks
(Cost: $55,532,000) $ 62,859
-----------
Total Investments - 102.6%
(Cost : $55,532,000) $ 62,859
-----------
Contracts Value
- --------------------------------------------------------------------------------
COVERED CALL OPTIONS - (0.0%)
200 Biosite, Inc., January 2003 $40 $ -
100 InVision Technology, Inc., January 2003 $60 -
40 Multimedia Games, Inc., January 2003 $35 -
65 PF Chang's China Bistro, Inc.,
January 2003 $45 -
20 Royal Gold, Inc., January 2003 $25 (2)
100 Vimpel Communication, January 2003 $40 -
100 Vimpel Communication, January 2003 $35 (3)
100 Webex Communications, Inc.,
January 2003 $25 -
-----------
Total Covered Call Options
(Premiums received : $48,000) (5)
Other Liabilities less Assets - (2.6%) (1,562)
-----------
NET ASSETS - 100% $ 61,292
===========
Notes to Portfolio of Investments
* All or a portion of these stocks were segregated as collateral on the
Fund's books and records at December 31, 2002 to cover call options
written. The aggregate market value was $2,130,000.
** Income producing security during the year ended December 31, 2002.
Securities not indicated as income producing did not pay dividends for the
year ended December 31, 2002.
Based on the cost of investments of $55,532,000 for federal income tax purposes
at December 31, 2002, the aggregate gross unrealized appreciation was
$15,033,000, the aggregate gross unrealized depreciation was $7,663,000 and the
net unrealized appreciation of investments, and covered call options written was
$7,370,000.
5
OBERWEIS MICRO-CAP PORTFOLIO
Portfolio of Investments
December 31, 2002 (value in thousands)
Shares Company (Closing Price) Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 98.8%
Aerospace / Defense Equipment - 1.8%
11,800 Aero Systems Engineering, Inc. @ 5.100 $ 60
25,000 Aviall, Inc. @ 8.050 201
30,000 CPI Aerostructures, Inc. @ 4.400 132
-----------
393
-----------
Agricultural - Operations - 1.1%
80,000 Stake Technology, Ltd. @ 3.150 252
-----------
Banks - Midwest - 1.0%
**6,000 PrivateBancorp, Inc. @ 37.850 227
-----------
Banks - Southeast- 0.8%
20,000 Florida Banks, Inc. @ 8.750 175
-----------
Beverages - 3.6%
43,000 Central European Distribution Corp.
@ 18.510 796
-----------
Chemicals - Specialty - 4.3%
**40,000 Aceto Corp. @ 15.970 639
**13,000 Balchem Corp. @ 24.300 316
-----------
955
-----------
Commercial Services - Advertising - 1.1%
18,500 Equity Marketing, Inc. @ 13.370 247
-----------
Commercial Services - Security - 0.7%
50,000 DHB Industries, Inc. @ 1.660 83
17,000 Taser International, Inc. @ 4.040 69
-----------
152
-----------
Computer - Graphics - 0.7%
30,000 Sonic Solutions @ 5.000 150
-----------
Computer - Integrated Systems - 1.3%
40,000 Merge Technologies, Inc. @ 6.880 275
-----------
Computer - Peripheral Equipment - 5.4%
*80,000 Neoware Systems, Inc. @ 14.910 1,193
-----------
Computer Software - Enterprise - 5.2%
35,000 Firstwave Technologies, Inc. @ 15.920 557
60,000 On Technology Corp. @ 3.850 231
25,000 PDF Solutions, Inc. @ 6.930 174
20,000 Retalix Ltd. @ 9.010 180
-----------
1,142
-----------
Computer Software - Medical - 4.8%
70,000 Netsmart Technologies, Inc. @ 4.669 327
80,000 Vital Images, Inc. @ 8.970 717
-----------
1,044
-----------
Consumer Products - Misc. - 0.7%
23,810 CTI Industries Corp. @ 6.260 149
-----------
Cosmetics / Personal Care - 0.8%
60,000 Innovative Companies, Inc. @ 0.770 46
30,000 Natural Alternatives International, Inc.
@ 3.985 120
-----------
166
-----------
Electrical - Misc. Components - 0.0%
**1,800 Water Instruments, Inc. @ 4.499 8
-----------
Electronics - Semiconductors /
Components - 1.9%
*30,000 OmniVision Technologies, Inc. @ 13.570 407
-----------
Finance - Mortgage - 0.6%
**20,000 Vestin Group, Inc. @ 6.910 138
-----------
Household - Appliances - 1.0%
20,000 Middleby Corp. @ 10.600 212
-----------
Household - Audio / Video - 0.8%
20,000 The Singing Machine Company, Inc.
@ 9.000 180
-----------
Insurance - Health - 1.5%
80,000 HealthExtras, Inc. @ 4.050 324
-----------
Internet - Content - 5.6%
60,000 eUniverse, Inc. @ 5.680 341
30,000 FindWhat.com @ 7.990 240
100,000 Sohu.com, Inc. @ 6.400 640
-----------
1,221
-----------
Internet - E Commerce - 2.3%
120,000 E-LOAN, Inc. @ 1.849 222
30,000 NetBank, Inc. @ 9.680 290
-----------
512
-----------
Internet - ISP - 6.1%
70,000 j2 Global Communications, Inc. @ 19.040 1,333
-----------
Internet - Security / Solutions - 4.5%
60,000 CyberGuard Corp. @ 5.790 347
25,000 SafeNet, Inc. @ 25.350 634
-----------
981
-----------
Leisure - Services - 0.5%
20,000 Precis, Inc. @ 5.521 110
-----------
See notes to Portfolio of Investments.
6
OBERWEIS MICRO-CAP PORTFOLIO
Portfolio of Investments (cont'd.)
Shares Company (Closing Price) Value
- --------------------------------------------------------------------------------
Medical / Dental Services - 4.7%
50,000 Covalent Group, Inc. @ 2.960 $ 148
30,000 Kendle International, Inc. @ 8.801 264
50,000 National Medical Health Card Systems, Inc.
@ 8.670 433
40,000 Women First HealthCare, Inc. @ 4.561 182
-----------
1,027
-----------
Medical / Dental Supplies - 2.4%
15,000 Advanced Neuromodulation Systems, Inc.
@ 35.100 526
-----------
Medical / Ethical Drugs - 5.7%
70,000 Bradley Pharmaceuticals, Inc. @ 13.030 912
80,000 Flamel Technologies S.A. @ 4.350 348
-----------
1,260
-----------
Medical / Generic Drugs - 5.4%
60,000 Able Laboratories, Inc. @ 11.600 696
30,000 Lannett Company, Inc. @ 16.380 491
-----------
1,187
-----------
Medical - Instruments - 2.5%
40,000 Biolase Technology, Inc. @ 5.490 220
40,000 HealthTronics Surgical Services, Inc.
@ 8.011 320
-----------
540
-----------
Medical - Labs & Testing Services - 0.4%
35,300 Bio-Imaging Technologies, Inc. @ 2.200 78
-----------
Medical - Outpatient / Home Care - 1.8%
50,000 Allied Healthcare International, Inc @ 4.390 219
10,000 Curative Health Services, Inc. @ 17.250 173
-----------
392
-----------
Medical - Products - 6.4%
100,000 American Bio Medica Corp. @ 1.211 121
30,000 Inverness Medical Innovation, Inc.
@ 13.150 395
30,000 Possis Medical, Inc. @ 18.000 540
40,000 Synovis Life Technologies, Inc. @ 8.990 360
-----------
1,416
-----------
Medical - Systems / Equipment - 0.6%
10,000 Cantel Medical Corp. @ 12.660 127
-----------
Oil & Gas - U.S. Exploration &
Production - 0.8%
60,000 The Exploration Company of Delaware, Inc.
@ 2.980 179
-----------
Pollution Control - Equipment - 1.0%
26,000 Gundle/SLT Environmental, Inc. @ 8.840 230
-----------
Restaurants - 1.1%
30,000 Total Entertainment Restaurant Corp.
@ 8.450 254
-----------
Retail - Drug Stores - 0.0%
4,800 Nyer Medical Group, Inc. @ 1.250 6
-----------
Retail - Mail Order & Direct - 0.7%
**26,000 Collegiate Pacific, Inc. @ 5.800 151
-----------
Retail - Misc.- 1.4%
30,000 Gaiam, Inc. @ 10.370 311
-----------
Retail / Wholesale - Computer / Cell - 1.8%
30,000 GTSI Corp. @ 13.450 404
-----------
Retail / Wholesale Jewelry - 1.2%
50,000 Charles & Colvard, Ltd. @ 5.400 270
-----------
Shoes & Related Apparel - 0.2%
14,200 Jaclyn, Inc. @ 2.990 42
-----------
Telecommunications - Equipment - 1.4%
50,000 Micronetics, Inc. @ 3.250 162
120,000 Verilink Corp. @ 1.200 144
-----------
306
-----------
Telecommunications - Services - 1.2%
19,100 C2, Inc. @ 13.730 262
-----------
Total Common Stocks
(Cost: $17,845,000) $ 21,710
-----------
Total Investments - 98.8%
(Cost: $17,845,000) $ 21,710
-----------
See notes to Portfolio of Investments.
7
OBERWEIS MICRO-CAP PORTFOLIO
Portfolio of Investments (cont'd.)
Contracts Value
- --------------------------------------------------------------------------------
COVERED CALL OPTIONS - (0.0%)
30 Neoware Systems, Inc., January 2003 $25 $ --
40 Neoware Systems, Inc., March 2003 $25 --
200 OmniVision Technologies,Inc.,
January 2003 $20 --
----------
Total Covered Call Options
(Premiums received: $17,000) --
Other Assets less Liabilities - 1.2% 268
----------
NET ASSETS - 100% $ 21,978
==========
Notes to Portfolio of Investments
* All or a portion of these stocks were segregated as collateral on the
Fund's books and records at December 31, 2002 to cover call options
written. The aggregate market value was $376,000.
** Income producing security during the year ended December 31, 2002.
Securities not indicated as income producing did not pay dividends for the
year ended December 31, 2002.
Based on the cost of investments of $17,845,000 for federal income tax purposes
at December 31, 2002, the aggregate gross unrealized appreciation was
$6,115,000, the aggregate gross unrealized depreciation was $2,233,000 and the
net unrealized appreciation of investments, and covered call options written was
$3,882,000.
8
OBERWEIS MID-CAP PORTFOLIO
Portfolio of Investments
December 31, 2002 (value in thousands)
Shares Company (Closing Price) Value
- ------------------------------------------------------------------------------
COMMON STOCKS - 100.3%
Aerospace - Defense Equipment - 4.3%
3,000 Alliant Techsystems, Inc. @ 62.350 $ 187
-----------
Building - Mobile / Manufacturing
& RV - 0.9%
**1,200 Thor Industries, Inc. @ 34.430 41
-----------
Commercial Services - Misc. - 2.0%
4,500 Copart, Inc. @ 11.840 53
4,000 PRG-Schultz International, Inc. @ 8.900 36
-----------
89
-----------
Commercial Services - Schools - 2.7%
3,000 Career Education Corp. @ 40.000 120
-----------
Computer - Graphics - 2.1%
2,000 Synopsys, Inc. @ 46.150 92
-----------
Computer - Memory Devices - 2.0%
4,000 Advanced PCS @ 22.210 89
-----------
Computer - Networking - 0.6%
6,000 Brocade Communication Systems, Inc.
@ 4.140 25
-----------
Computer Services - 8.4%
2,000 Affiliated Computer Services, Inc. @ 52.650 105
2,000 Cognizant Technology Solutions Corp.
@ 72.230 145
5,000 SunGard Data Systems, Inc. @ 23.560 118
-----------
368
-----------
Computer Software - Enterprise - 1.4%
5,000 NetIQ Corp. @ 12.350 62
-----------
Electronics - Components /
Semiconductors - 8.4%
1,000 Cabot Microelectronics Corp. @ 47.200 47
2,500 Integrated Circuit Systems, Inc. @ 18.250 46
4,000 Marvell Technology Group, Ltd. @ 18.860 75
5,000 RF Micro Devices, Inc. @ 7.330 37
*8,000 Sandisk Corp. @ 20.300 162
-----------
367
-----------
Electronics - Military Systems - 4.1%
4,000 L-3 Communications Holdings, Inc.
@ 44.910 180
-----------
Finance - Savings & Loan - 0.4%
**1,000 W Holding Company, Inc. @ 16.410 16
-----------
Financial Services - Misc. - 1.3%
**2,000 Investors Financial Services Corp.
@ 27.390 55
-----------
Insurance - Brokers - 2.2%
**3,000 Brown & Brown, Inc. @ 32.320 97
-----------
Internet - E Commerce - 6.0%
2,666 University of Phoenix Online @ 35.840 96
2,500 Expedia, Inc. @ 66.930 167
-----------
263
-----------
Internet - Security / Solutions - 3.4%
5,000 NetScreen Technologies, Inc. @ 16.840 84
4,050 Network Associates, Inc. @ 16.090 65
-----------
149
-----------
Leisure - Products - 1.5%
5,000 Nautilus Group, Inc. @ 13.360 67
-----------
Leisure - Toys / Games - 1.1%
2,000 Leapfrog Enterprises, Inc. @ 25.150 50
-----------
Medical - Biomed / Genetics - 2.1%
1,200 Cephalon, Inc. @ 48.668 58
2,000 Enzon Pharmaceutical, Inc. @ 16.720 34
-----------
92
-----------
Medical - Dental Services - 9.1%
2,250 Accredo Health, Inc. @ 35.250 79
10,000 Caremark Rx, Inc. @ 16.250 163
**1,000 Dentsply International, Inc. @ 37.200 37
4,000 Pharmaceutical Product Development, Inc.
@ 29.270 117
-----------
396
-----------
Medical - Generic Drugs - 11.3%
4,000 American Pharmaceutical Partners, Inc.
@ 17.800 71
2,000 Barr Laboratories, Inc. @ 65.090 130
6,000 Biovail Corp @ 26.410 159
3,000 Eon Labs, Inc. @ 18.910 57
2,000 Taro Pharmaceutical Industries, Ltd.
@ 37.600 75
-----------
492
-----------
Medical - Products - 2.5%
2,000 Charles River Labs International, Inc.
@ 38.480 77
1,000 ResMed, Inc. @ 30.570 31
-----------
108
-----------
Medical - Systems / Equipment - 2.2%
3,900 CTI Molecular Imaging @ 24.660 96
-----------
Metal Fabrication - 1.9%
5,000 Shaw Group, Inc. @ 16.450 82
-----------
See notes to Portfolio of Investments.
9
OBERWEIS MID-CAP PORTFOLIO
Portfolio of Investments (cont'd.)
Shares Company (Closing Price) Value
- --------------------------------------------------------------------
Oil & Gas - U.S. Exploration &
Production - 1.7%
2,000 Pogo Producing Company @ 37.250 $ 74
---------
Retail - Apparel / Shoe - 6.6%
3,000 Aeropostale, Inc. @ 10.570 32
10,000 Chico's FAS, Inc. @ 18.910 189
2,000 Coach, Inc. @ 32.920 66
---------
287
---------
Retail - Restaurants - 1.8%
4,000 Sonic Corp. @ 20.490 82
---------
Retail - Wholesale / Food - 1.6%
2,000 Performance Food Group Company
@ 33.860 68
---------
Telecommunications - Cellular - 4.4%
6,000 Vimpel Communications @ 32.010 192
---------
Telecommunications - Equipment - 2.3%
5,000 UTStarcom, Inc. @ 19.830 99
---------
Total Common Stocks
(Cost: $4,750,000) $ 4,385
---------
WARRANTS - 0.4%
Internet - E Commerce - 0.4%
480 Expedia, Inc. Expiration 2/4/2009 @ 35.820 $ 17
---------
Total Warrants
(Cost: $9,000) 17
---------
Total Investments - 100.6%
(Cost: $4,759,000) $ 4,402
---------
Contracts Value
- --------------------------------------------------------------------
COVERED CALL OPTIONS -(0.0%)
80 Sandisk Corp., January 2003 $35 $ --
---------
Total Covered Call Options
(Premiums received: $5,000) --
Other Liabilities less Assets - (0.7%) (32)
---------
NET ASSETS - 100% $ 4,370
=========
Notes to Portfolio of Investments
* All or a portion of these stocks were segregated as collateral on the Fund's
books and records at December 31, 2002 to cover call options written. The
aggregate market value was $162,000.
** Income producing security during the year ended December 31, 2002. Securities
not indicated as income producing did not pay dividends for the year ended
December 31, 2002.
Based on the cost of investments of $4,759,000 for federal income tax
purposes at December 31, 2002, the aggregate gross unrealized appreciation
was $592,000, the aggregate gross unrealized depreciation was $944,000 and
the net unrealized depreciation of investments was $352,000.
10
THE OBERWEIS FUNDS
Statement of Assets and Liabilities
December 31, 2002 (in thousands, except pricing of shares)
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------------------
Assets:
Investment securities at value $ 62,859 $ 21,710 $ 4,402
(Cost: $55,532, $17,845 and $4,759, respectively)
Cash - 97 -
Receivable from securities sold 501 198 -
Dividends and interest receivable 9 9 -
Prepaid expenses 27 15 10
-------- -------- --------
Total Assets 63,396 22,029 4,412
-------- -------- --------
Liabilities:
Payable to custodian bank 703 - 33
Options written at value
(Premiums received: $48, $17 and $5, respectively) 5 - -
Payable for fund shares redeemed 1,037 - -
Payable for securities purchased 261 - -
Payable to advisor 46 19 3
Payable to distributor 14 5 1
Accrued expenses 38 27 5
-------- -------- --------
Total Liabilities 2,104 51 42
-------- -------- --------
Net Assets $ 61,292 $ 21,978 $ 4,370
-------- -------- --------
Analysis of net assets:
Aggregate paid in capital $ 62,965 $ 18,684 $ 8,025
Accumulated net realized loss on investments (9,043) (588) (3,303)
Net unrealized appreciation (depreciation) of investments 7,370 3,882 (352)
-------- -------- --------
Net Assets $ 61,292 $ 21,978 $ 4,370
======== ======== ========
The Pricing of Shares:
Net asset value and offering price per share
Emerging Growth Portfolio:
($61,291,962 divided by 3,799,529 shares outstanding) $ 16.13
========
Micro-Cap Portfolio:
($21,977,933 divided by 1,586,099 shares outstanding) $ 13.86
========
Mid-Cap Portfolio:
($4,369,753 divided by 599,480 shares outstanding) $ 7.29
========
See accompanying notes to financial statements.
11
THE OBERWEIS FUNDS
Statement of Operations
Year Ended December 31, 2002 (in thousands)
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest $ 7 $ 12 $ --
Dividends 36 55 5
---------- --------- ---------
Total Investment Income 43 67 5
---------- --------- ---------
Expenses:
Investment advisory fees 275 147 21
Management fees 250 98 21
Distribution fees 156 61 13
Transfer agent fees and expenses 112 59 28
Professional fees 61 31 6
Custodian fees and expenses 51 42 26
Federal and state registration fees 25 20 17
Shareholder reports 23 5 4
Trustees' fees 11 3 1
Insurance 10 3 1
Miscellaneous 3 2 --
---------- --------- ---------
Total Expenses 977 471 138
---------- --------- ---------
Net Investment Loss Before Expense Reimbursement (934) (404) (133)
Expense Reimbursement and Earnings Credits 7 5 34
---------- --------- ---------
Net Investment Loss (927) (399) (99)
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments (875) 1,745 (993)
Net realized gain from covered call options written 414 83 8
---------- --------- ---------
Total net realized gain (loss) (461) 1,828 (985)
Decrease in net unrealized appreciation (depreciation) of investments (17,586) (6,781) (1,108)
---------- --------- ---------
Net realized and unrealized loss on investments (18,047) (4,953) (2,093)
---------- --------- ---------
Net decrease in net assets resulting from operations $ (18,974) $ (5,352) $ (2,192)
========== ========= =========
See accompanying notes to financial statements.
12
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
Emerging Growth Portfolio
------------------------------
Years ended December 31,
2002 2001
------------------------------
From Operations:
Net investment loss $ (927) $ (1,193)
Net realized loss on investments (461) (8,576)
Increase (decrease) in net unrealized appreciation of investments (17,586) 9,511
---------- ----------
Net decrease in net assets resulting from operations (18,974) (258)
---------- ----------
From Capital Share Transactions:
Net proceeds from sale of shares 33,257 31,810
Redemption of shares (32,005) (36,181)
---------- ----------
Net increase (decrease) from capital share transactions 1,252 (4,371)
---------- ----------
Total decrease in net assets (17,722) (4,629)
---------- ----------
Net Assets:
Beginning of year 79,014 83,643
---------- ----------
End of year $ 61,292 $ 79,014
========== ==========
Transactions in Shares:
Shares sold 1,918 1,488
Less shares redeemed (1,830) (1,724)
---------- ----------
Net increase (decrease) from capital share transactions 88 (236)
========== ==========
See accompanying notes to financial statements.
13
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
Micro-Cap Portfolio
----------------------------
Years ended December 31,
2002 2001
----------------------------
From Operations:
Net investment loss $ (399) $ (426)
Net realized gain (loss) on investments 1,828 (1,801)
Increase (decrease) in net unrealized appreciation of investments (6,781) 8,492
---------- ----------
Net increase (decrease) in net assets resulting from operations (5,352) 6,265
---------- ----------
From Capital Share Transactions:
Net proceeds from sale of shares 25,626 54,301
Redemption of shares (46,113) (33,240)
---------- ----------
Net increase (decrease) from capital share transactions (20,487) 21,061
---------- ----------
Total increase (decrease) in net assets (25,839) 27,326
Net Assets:
Beginning of year 47,817 20,491
---------- ----------
End of year $ 21,978 $ 47,817
========== ==========
Transactions in Shares:
Shares sold 1,766 3,538
Less shares redeemed (3,032) (2,199)
---------- ----------
Net increase (decrease) from capital share transactions (1,266) 1,339
========== ==========
See accompanying notes to financial statements.
14
THE OBERWEIS FUNDS
Statements of Changes in Net Assets (in thousands)
Micro-Cap Portfolio
----------------------------
Years ended December 31,
2002 2001
----------------------------
From Operations:
Net investment loss $ (99) $ (147)
Net realized loss on investments (985) (2,234)
Decrease in net unrealized appreciation (depreciation) of investments (1,108) (2,169)
---------- ----------
Net decrease in net assets resulting from operations (2,192) (4,550)
---------- ----------
From Capital Share Transactions:
Net proceeds from sale of shares 759 3,315
Redemption of shares (646) (4,624)
---------- ----------
Net increase (decrease) from capital share transactions 113 (1,309)
---------- ----------
Total decrease in net assets (2,079) (5,859)
Net Assets:
Beginning of year 6,449 12,308
---------- ----------
End of year $ 4,370 $ 6,449
========== ==========
Transactions in Shares:
Shares sold 84 235
Less shares redeemed (80) (358)
---------- ----------
Net increase (decrease) from capital share transactions 4 (123)
========== ==========
See accompanying notes to financial statements.
15
THE OBERWEIS FUNDS
Notes to Financial Statements
December 31, 2002
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 in securities are stated at value as of the
close of the regular trading session on the New York Stock Exchange (generally 3
p.m., Central Standard Time). 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. Options are valued at the last reported bid price on the
primary exchange as of the close of the regular trading session of the Chicago
Board Options Exchange (CBOE). 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 CBOE 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.
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. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are considered permanent in
nature, such amounts are reclassified within the composition of net assets based
on their federal tax basis treatment; temporary differences do not require a
reclassification. As of December 31, 2002, the Emerging Growth, Micro-Cap, and
Mid-Cap Portfolios had federal income tax capital loss carryforwards of
$6,668,291, $280,897 and $2,042,858, respectively, expiring in 2009 and
$1,086,764, expiring in 2010 for the Mid-Cap Portfolio. The difference between
the book basis and tax basis of accumulated net realized loss on investments is
attributable to $2,374,709, $306,952 and $173,823 of post October 2002 capital
losses from the Emerging Growth, Micro-Cap, and Mid-Cap Portfolios,
respectively. The Emerging Growth Portfolio, Micro-Cap Portfolio and Mid-Cap
Portfolio made no tax based distributions and had no undistributed tax ordinary
income as of December 31, 2002.
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. Oberweis Securities, Inc.
("Oberweis Securities"), is an affiliate of OAM, the Funds' principal
distributor.
16
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 million. The Micro-Cap Portfolio paid monthly
investment advisory fees at an annual rate equal to .60% of average 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,
2002, the Emerging Growth Portfolio, Micro-Cap Portfolio, and Mid-Cap Portfolio
incurred investment advisory fees totaling $275,000, $147,000, and $21,000,
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, 2002, the Emerging Growth Portfolio, Micro-Cap
Portfolio, and Mid-Cap Portfolio incurred management fees totaling $250,000,
$98,000 and $21,000, respectively.
Expense reimbursement. OAM is contractually 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 Mid-Cap Portfolio $33,000
for the year ended December 31, 2002.
Officers and trustees. Certain officers or trustees of the Funds are also
officers or directors of OAM and Oberweis Securities. During the year ended
December 31, 2002, the Funds made no direct payments to its officers and paid
$15,000 to its unaffiliated trustees.
Distribution and shareholder service expense. The Funds have a distribution and
shareholder services agreement with Oberweis Securities. For services under the
distribution and shareholder servicing agreement, the Funds pay Oberweis
Securities a fee at the annual rate of .25% of the average daily net assets for
compensation of services. For the year ended December 31, 2002, the Emerging
Growth Portfolio, Micro-Cap Portfolio and Mid-Cap Portfolio incurred
distribution fees totaling $156,000, $61,000 and $13,000, respectively.
Commissions. The Funds pay Oberweis Securities for executing some of each Fund's
agency security transactions at competitive rates, typically $.03 per share. For
the year ended December 31, 2002, the Emerging Growth Portfolio, Micro-Cap
Portfolio and Mid-Cap Portfolio paid commissions of $10,000, $4,000 and $1,000,
respectively to Oberweis Securities.
3. Investment transactions
The cost of securities purchased and proceeds from securities sold during the
year ended December 31, 2002, other than options written and money market
investments, aggregated $48,650,000 and $42,060,000, respectively, for the
Emerging Growth Portfolio, $20,135,000 and $32,921,000, respectively, for the
Micro-Cap Portfolio, and $3,410,000 and $3,536,000, respectively, for the
Mid-Cap Portfolio.
Transactions in options written for the year ended December 31, 2002 were as
follows:
Emerging Growth Micro-Cap Mid-Cap
Portfolio Portfolio Portfolio
----------------------- ----------------------- -----------------------
Number Number Number
of Premiums of Premiums of Premiums
Contracts Received Contracts Received Contracts Received
----------------------- ----------------------- -----------------------
Options outstanding at beginning of year 1,890 $ 203,000 225 $ 26,000 -- $ --
Options written 4,074 291,000 1,210 88,000 168 13,000
Options expired (4,234) (348,000) (845) (69,000) (88) (8,000)
Options closed (170) (26,000) (220) (20,000) -- --
Options assigned (835) (72,000) (100) (8,000) -- --
----------------------- ----------------------- -----------------------
Options outstanding at end of year 725 $ 48,000 270 $ 17,000 80 $ 5,000
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. The Funds write covered call options for
which premiums received are recorded as liabilities and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options that expire are treated as realized gains. Premiums received
from writing options, which are either exercised or closed, are offset against
the proceeds received or amount paid on the transaction to determine realized
gains or losses.
17
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 $118,000 and $2,000, respectively, for the year ended December 31, 2002,
and were recorded as a reduction of the cost of shares redeemed in the
statements of changes in net assets.
5. Earnings credits and interest charges
The Trust, as part of the agreement with the Custodian, receives credits against
its custodian fees on its uninvested cash balances and is allowed to borrow for
temporary purposes. Borrowings are not to exceed 5% of the value of each Funds
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, 2002, the Emerging Growth Portfolio, Micro-Cap Portfolio and the
Mid-Cap Portfolio received credits of $7,000, $5,000 and $1,000, respectively.
During the year ended December 31, 2002, the Emerging Growth Portfolio,
Micro-Cap Portfolio and the Mid-Cap Portfolio incurred interest charges of
$4,000, $6,000 and $0, respectively, which is included in custodian fees and
expenses in the statement of operations.
18
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout each
year is as follows:
Emerging Growth Portfolio
Years ended December 31,
-------------------------------------------------------
2002 2001 2000 1999 1998
-------------------------------------------------------
Net asset value at beginning of year $ 21.29 $ 21.19 $ 36.15 $ 23.60 $ 25.71
Income (loss) from investment operations:
Net investment loss /(a)/ (.26) (.31) (.48) (.41) (.33)
Net realized and unrealized gain (loss) on investments (4.90) .41 (1.37) 12.96 (.63)
-------- -------- -------- -------- --------
Total from investment operations (5.16) .10 (1.85) 12.55 (.96)
Less distributions:
Distribution from net realized gains on investments -- -- (13.11) -- (1.15)
-------- -------- -------- -------- --------
Net asset value at end of year $ 16.13 $ 21.29 $ 21.19 $ 36.15 $ 23.60
======== ======== ======== ======== ========
Total Return (%) (24.2) 0.5 (10.7) 53.2 (3.1)
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $ 61,292 $ 79,014 $ 83,643 $105,128 $ 93,115
Ratio of expenses to average net assets (%) 1.57 1.65 1.42 1.59 1.55
Ratio of net investment loss to average net assets (%) (1.48) (1.51) (1.27) (1.56) (1.37)
Portfolio turnover rate (%) 66 66 73 63 49
Average commission rate paid $ .0265 $ .0336 $ .0342 $ .0305 $ .0280
_________
Notes:
/(a)/ The net investment loss per share data was determined using average shares
outstanding during the year.
19
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period is as follows:
Micro-Cap Portfolio
Years ended December 31,
---------------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------------
Net asset value at beginning of year $ 16.77 $ 13.54 $ 16.94 $ 14.18 $ 13.59
Income (loss) from investment operations:
Net investment loss /(a)/ (.24) (.24) (.33) (.28) (.24)
Net realized and unrealized gain (loss) on investments (2.67) 3.47 (.74) 3.04 .83
-------- -------- -------- -------- --------
Total from investment operations (2.91) 3.23 (1.07) 2.76 .59
Less distributions:
Distributions from net realized gains on investments -- -- (2.33) -- --
-------- -------- -------- -------- --------
Net asset value at end of year $ 13.86 $ 16.77 $ 13.54 $ 16.94 $ 14.18
======== ======== ======== ======== ========
Total Return (%) (17.3) 23.9 (8.0) 19.5 4.3
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $ 21,978 $ 47,817 $ 20,491 $ 21,301 $ 28,290
Ratio of expenses to average net assets (%) 1.93 1.98 1.96 2.00/(b)/ 1.99/(b)/
Ratio of net investment loss to average net assets (%) (1.64) (1.59) (1.79) (1.98) (1.83)
Portfolio turnover rate (%) 81 82 79 46 41
Average commission rate paid $ .0256 $ .0307 $ .0271 $ .0328 $ .0288
_________
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 2.17% and 2.06%, for 1999 and 1998, respectively, before expense
reimbursement.
20
FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period is as follows:
Mid-Cap Portfolio
Years ended December 31,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------------------
Net asset value at beginning of year $ 10.83 $ 17.12 $ 24.29 $ 12.86 $ 10.51
Income (loss) from investment operations:
Net investment loss /(a)/ (.17) (.21) (.46) (.31) (.21)
Net realized and unrealized gain (loss) on investments (3.37) (6.08) (2.27) 14.22 2.56
-------- --------- -------- -------- --------
Total from investment operations (3.54) (6.29) (2.73) 13.91 2.35
Less distributions:
Distributions from net realized gains on investments -- -- (4.44) (2.48) --
-------- --------- -------- -------- --------
Net asset value at end of year $ 7.29 $ 10.83 $ 17.12 $ 24.29 $ 12.86
======== ========= ======== ======== ========
Total Return (%) (32.7) (36.7) (13.1) 112.7 22.4
Ratio/Supplemental Data
Net Assets at end of year (in thousands) $ 4,370 $ 6,449 $ 12,308 $ 14,085 $ 6,916
Ratio of expenses to average net assets (%) 2.00/(b)/ 2.00/(b)/ 1.86 2.00/(b)/ 2.00/(b)/
Ratio of net investment loss to average net assets (%) (1.91) (1.75) (1.78) (1.93) (1.94)
Portfolio turnover rate (%) 66 115 97 153 72
Average commission rate paid $ .0256 $ .0312 $ .0269 $ .0345 $ .0305
_________
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 2.66%, 2.60%, 2.43%, and 2.61%, for 2002, 2001, 1999, and 1998,
respectively, before expense reimbursement and earnings credits.
21
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
The Oberweis Funds
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Emerging Growth Portfolio,
Micro-Cap Portfolio and Mid-Cap Portfolio (three portfolios constituting The
Oberweis Funds, hereafter referred to as the "Funds") at December 31, 2002, the
results of their operations, the changes in their net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2002 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion. The Funds' statements of changes in net assets
for the year ended December 31, 2001 and the financial highlights for each of
the four years in the period ended December 31, 2001 were audited by other
auditors, whose report dated February 5, 2002, expressed an unqualified opinion
on those statements and financial highlights.
PricewaterhouseCoopers LLP
January 27, 2003
Chicago, Illinois
22
Trustees and Officers of The Oberweis Funds
NUMBER OF
TERM OF OFFICE PORTFOLIOS
NAME, ADDRESS POSITION HELD AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN OTHER
AND AGE WITH FUND TIME SERVED LAST FIVE YEARS BY TRUSTEE DIRECTORSHIPS
Thomas J. Burke (71) Trustee Trustee since President - Burke Medical 3 None
951 Ice Cream Dr. May, 1991 /(1)/ Associates, 1968 to present;
North Aurora, IL 60542 retired medical physician,
practicing medical physician
until November 1, 1995.
Douglas P. Hoffmeyer (55) Trustee Trustee since Retired; Chief Financial 3 None
951 Ice Cream Dr. May, 1991 /(1)/ Officer-Eziaz (provider of
North Aurora, IL 60542 broadband services to
multi-tenant office buildings),
April, 2000 to June 2000. Vice
President- Finance- Teltrend,
Inc. (manufacturer of
telecommunications equipment),
October, 1986 to April, 2000.
James D. Oberweis (56) Trustee/ Trustee and Officer Chairman and Director- Oberweis 3 None
951 Ice Cream Dr. President /(2)/ since Asset Management, Inc. September,
North Aurora, IL 60542 July, 1986 /(1)(3)/ 2001 to present. President -
September, 1989 to August, 2001.
Edward F. Streit (67) Trustee Trustee since Licensed attorney in private 3 None
951 Ice Cream Dr. February, 1991 /(1)/ practice, 1962 to present.
North Aurora, IL 60542
Patrick B. Joyce (43) Executive Vice Officer since Executive Vice President, Not Applicable None
951 Ice Cream Dr. President and October, 1994 /(3)/ Secretary and Director -
North Aurora, IL 60542 Treasurer Oberweis Asset Management, Inc.,
September, 1994 to present;
Executive Vice President and
Director - Oberweis Securities,
Inc. September, 1996 to present.
Martin L. Yokosawa (42) Senior Vice Officer since Senior Vice President - Not Applicable None
951 Ice Cream Dr. President October, 1994 /(3)/ Oberweis Asset Management, Inc.,
North Aurora, IL 60542 September, 1994 to Present;
Senior Vice President - Oberweis
Securities, Inc., January, 1997
to present.
James W. Oberweis (28) Senior Vice Officer since President - Oberweis Asset Not Applicable None
951 Ice Cream Dr. President August, 1996 /(3)/ Management, Inc., September,
North Aurora, IL 60542 2001 to present; Senior Vice
President May, 1996 to August,
2001; Portfolio Manager from
December, 1995 to present;
President and Director -
Oberweis Securities, Inc.,
September, 1996 to present.
Steven J. LeMire (33) Vice President Officer since Vice President, Administration - Not Applicable None
951 Ice Cream Dr. and Secretary August, 1998 /(3)/ Oberweis Asset Management, Inc.,
North Aurora, IL 60542 June, 2000 to present; Compliance
Manager - Oberweis Securities,
Inc., March 1997 to June, 2000.
(1) - Unless otherwise noted, each trustee shall serve as a trustee of the Fund
until the next meeting of shareholders, if any, called for the purpose of
considering the election or re-election of such trustee or of a successor
to such trustee, and until the election and qualification of his
successor, if any, elected at such meeting, or until such trustee sooner
dies, resigns, retires or is removed.
(2) - James D. Oberweis is an interested trustee of the Fund by reasons of his
positions as the President of the Fund and the Chairman and a portfolio
manager of Oberweis Asset Management, Inc., the Fund's investment advisor.
(3) - Elected annually by board of trustees.
The Statement of Additional Information includes additional information about
Fund officers and trustees and is available upon request without charge, by
calling the Fund at 1-800-323-6166.
23
Trustees and 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 Senior Vice President
Treasurer
James W. Oberweis Steven J. LeMire
Senior Vice President Vice President
Secretary
Manager and Investment Advisor
Oberweis Asset Management, Inc.
951 Ice Cream Dr., North Aurora, IL 60542
1-800-323-6166
www.oberweis.net
Distributor
Oberweis Securities, Inc.
951 Ice Cream Dr., North Aurora, IL 60542
1-630-801-6000
www.oberweis.net
Custodian
UMB Bank, n.a.
928 Grand Blvd., Kansas City, MO 64106
Transfer Agent
UMB Fund Services, Inc.
P.O. Box 711 Milwaukee, WI 53201-0711
1-800-245-7311
Counsel
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Chicago, IL 60601
Independent Auditors
PricewaterhouseCoopers LLP
One North Wacker Drive, Chicago, IL 60606
[LOGO]
The Oberweis Funds
Emerging Growth Portfolio
Micro-Cap Portfolio
Mid-Cap Portfolio
[LOGO] The
Oberweis
Funds
Annual Report
Audited
December 31, 2002
ITEM 2. CODE OF ETHICS.
Not applicable to annual reports for
the period ended December 31, 2002.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable to annual reports for
the period ended December 31, 2002.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to annual reports for
the period ended December 31, 2002.
ITEMS 5-6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES
AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to annual reports for
the period ended December 31, 2002.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
Not applicable to annual reports for
the period ended December 31, 2002.
ITEM 10. EXHIBITS.
Exhibit 99.CERT Certifications pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.1 Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Oberweis Funds
-----------------------------------------------------
/s/ James D. Oberweis
By (Signature and Title*) -----------------------------------------
James D. Oberweis
President, The Oberweis Funds
Date 03/07/2003
-------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title*) /s/ James D. Oberweis
-----------------------------------------
James D. Oberweis
President, The Oberweis Funds
[GRAPHIC REMOVED HERE]Date 03/07/2003
By (Signature and Title*) /s/ Patrick B. Joyce
------------------------------------------
Patrick B. Joyce
Executive Vice President and Treasurer, The
Oberweis Funds
Date 03/07/2003
-------------------------------------------------------------
/*/ Print the name and title of each signing officer under his or her signature.