January 22, 2018
Dear Fellow Oberweis Funds Shareholder:
I am pleased to report an exceptional year for The Oberweis Funds, both in absolute terms and
relative to benchmark indices. While each of the funds had excellent results, our best performing
fund was the China Opportunities Fund, which returned 55.05% compared to 14.25% for the MSCI Zhong
Hua Small-Cap Growth Index. Our International Opportunities Fund returned 40.77% versus 34.27% for
the MSCI World ex-US Small Cap Growth Index. The Micro-Cap and Small-Cap Opportunities Funds
returned 27.90% and 25.54%, respectively, compared to 16.65% for the Russell Microcap Growth Index
and 22.17% for the Russell 2000 Growth Index.* The Small-Cap Value Institutional Fund returned
9.64% compared to 7.84% for the Russell 2000 Value Index.** Our global fund, the Emerging Growth
Fund, returned 33.30% versus 23.81% for the MSCI ACWI Small-Cap Index.
2017 IN REVIEW
Equity markets rallied in 2017 amid surprisingly strong corporate earnings growth and unusually low
market volatility. Growth stocks beat value stocks by a wide margin. Strong equity returns were
not limited to the United States, as European markets such as France, Germany, and the United
Kingdom also posted strong returns. Emerging markets were particularly robust, led by rebounds in
China and India and continued strength in Brazil. Japanese equities also performed well. Recent
economic data seems to support a continued favorable profit growth environment into 2018.
The fiscal policy environment in 2017 was remarkably investor-friendly. The recently passed Tax
Cuts and Jobs Act will reposition the United States as a more competitive corporate tax
jurisdiction. The reduction of the U.S. corporate tax rate to 21% will yield a cash flow boon for
companies – cash that will likely lead to increased capital investment and/or greater return of
capital to shareholders. Furthermore, repatriation of cash held abroad under more favorable terms
will increase marginal spending by businesses on property, plant, equipment, and ultimately, jobs.
The bill also allows for the immediate expensing of short-lived capital investments for the next
five years to further encourage such expenditures. In 2018, we expect to see the Trump
administration work toward a significant infrastructure spending package that would likely sustain
or even accelerate GDP growth.
That’s the good news, and there’s a lot of it. So much so that some have brought back the
“Goldilocks Economy” moniker. Remember, however, that the Goldilocks story does not have a happy
ending. Goldilocks’ ebullient discovery of “just right” shortly preceded an unfortunate return of
the bears. Shall it be here too? It’s hard to tell. What concerns us most are high valuations
and the unusual degree of investor complacency. In terms of valuations, today’s S&P 500 average
P/E of 18.5 is higher than any other period in last 25 years except for the dot.com mania of the
late 1990’s, where the S&P’s average P/E peaked at 25.2 times in 1999.*** Since 2011, we’ve seen a
steady rise in the average P/E of the S&P 500. That makes some sense in an exceptionally low
interest rate environment, but that environment may change in the years to come. The Federal
Reserve has clearly moved to a tightening stance, raising interest rates three times in 2017 and
embarking on a balance sheet tightening strategy that will become increasingly impactful in 2018.
Plus, there’s always the unknown geopolitical event – a missile from North Korea, a trade war with
China, an indictment of Trump, or, more likely, something we haven’t even considered. The risk of
loss from an adverse event becomes considerably higher when the market seems to be anticipating
good times ahead than when it is already expecting the apocalypse, as seemed to be the case back in
While headlines and investor risk appetites can change on a whim in the short-term, our bottom-up
strategy has always been focused on investing in businesses with idiosyncratic attributes that
afford the potential for earnings growth to surprise to the upside. For all of our funds except
the Small-Cap Value Fund, we seek to invest in companies undergoing a transformational change or an
event that we believe is potentially misunderstood or underestimated by the consensus. In the
Small-Cap Value Fund, the portfolio companies include out-of-favor companies where behavioral
signaling such as insider buying and corporate repurchases imply that business may turn out to be
better than expectations. For all of our strategies, we seek investments where we believe
consensus expectations are misunderstood. While the earnings multiples afforded such companies can
oscillate from quarter to quarter, we believe that prudent stock selection of a diversified
portfolio of companies with prospects for better-than-expected earnings growth or better-than-
expected value realization is likely to outperform the broader market over the long-term.
With respect to our growth-oriented funds, the average forward P/E ratio as of December 31, 2017
was 17.3 times for the Emerging Growth Fund (versus 17.4 last quarter), 18.6 times for the Small-
Cap Opportunities Fund (versus 19.6 last quarter), 17.2 times for the Micro-Cap Fund (versus 19.6
last quarter), 12.1 times for the International Opportunities Fund (versus 15.1 last quarter), and
19.3 times for the China Opportunities Fund (versus 16.1 last quarter). Each of these funds
invests in companies with expected earnings growth rates that are higher than that of the broader
market, and in companies expected to grow faster than current market expectations. For the Small-
Cap Value Fund, the average P/E ratio was 15.8 times. As of December 31, 2017, the weighted average
market capitalization was $4.1 billion for the Emerging Growth Fund, $2.6 billion for the Small-Cap
Opportunities Fund, $953 million for the Micro-Cap Fund, $2.6 billion for the Small-Cap Value Fund,
$3.8 billion for the International Opportunities Fund, and $77.2 billion for the China
Opportunities Fund. Note the China Opportunities Fund’s market cap is skewed upward due to two
mega-cap holdings, even though the majority of holdings are small/mid-cap firms (the median market
cap for China was $7.0 billion).
We appreciate your investment in The Oberweis Funds and are grateful for the trust you have shown
us with your valuable investments. If you have any questions about your account, please contact
shareholder services at (800) 245-7311. Thank you for investing with us in The Oberweis Funds.
*All performance comparisons in this paragraph reflect returns of the Investor Class shares, except
for the Small-Cap Value Fund (OBVLX), which only offers Institutional Class shares.
**On October 2, 2017, the Cozad Small-Cap Value Fund was reorganized into OBVLX, and OBVLX adopted
the performance history of the Cozad Small Cap Value Fund’s Class I Shares. Performance shown
before October 2, 2017 is for the Cozad Small Cap Value Fund’s Class I Shares.
***Source: Bloomberg BEst P/E, based on forward 12-month estimates.
MANAGEMENT DISCUSSION ON FUND PERFORMANCE
Global equities returned 22.40% in 2017, as measured by the MSCI World Index. Global small-caps,
as measured by the MSCI World Small-Cap Index, returned 22.66%. International small-caps
outperformed U.S. small-caps, as evidenced by the 31.04% return on the MSCI World ex-USA Small-Cap
Index. Within the United States, large-cap growth stocks outperformed small-cap growth stocks by
804 basis points, as measured by the respective returns of the Russell 1000 Growth (+30.21%) and
Russell 2000 Growth (+22.17%) indices. Within domestic small-cap, growth significantly
outperformed value, with the Russell 2000 Growth Index outperforming the Russell 2000 Value Index
(+7.84%) by 1,433 basis points for the year.
DISCUSSION OF THE OBERWEIS FUNDS****
The Oberweis Funds (with the exception of the Small-Cap Value Fund) tend to fare well in periods in
which growth stocks beat value stocks, which occurred in 2017.
The International Opportunities Fund returned 40.77% versus 34.27% for the MSCI World ex-US Small
Cap Growth Index. The portfolio benefitted from stock selection in Japan, the United Kingdom, and
Australia offset by adverse stock selection and an underweight allocation in Germany. An
underweight allocation in Finland also detracted from performance. On a sector level, the
portfolio benefitted from stock selection in Technology, Consumer Discretionary, and Industrials.
At the stock level, Sunny Optical Technology (2382 HK), Open House (3288 JP), and AMS (AMS SW) were
among the top contributors to performance; Takeuchi Mfg (6432 JP), Outokumpu (OUT1V FH), and Japan
Lifeline (7575 JP) were among the top detractors. OBIOX Holdings
The Emerging Growth Fund returned 33.30% versus 23.81% for the MSCI AWCI Small-Cap Index. At the
country level, stock selection was particularly favorable for the Fund’s holdings in the USA and
China. At the sector level, the Fund benefitted from strong stock selection in Consumer
Discretionary and Technology offset by adverse stock selection in Materials. At the stock level,
Applied Optoelectronics (AAOI), Tal Education (TAL), and Rogers (ROG) were among the top
contributors to performance; Inphi (IPHI), Gigamon (GIMO), and Bitauto Holdings (BITA) were among
the top detractors. OBEGX Holdings
The China Opportunities Fund returned 55.05% versus 14.25% for the MSCI Zhong Hua Small Cap Growth
Index. The portfolio benefitted from favorable stock selection in Consumer Discretionary,
Technology, and Real Estate. At the stock level, Tencent Holdings (700 HK), Geely Automobile (175
HK), and Tal Education (TAL) were among the top contributors; iKang Healthcare (KANG), Pou Sheng
International (3813 HK), and RYB Education (RYB) were among the top detractors. OBCHX Holdings
The Oberweis Micro-Cap Fund returned 27.90% versus 22.17% for the Russell Small-Cap Growth Index
and 16.65% for the Russell Micro-Cap Growth Index. The portfolio benefitted from favorable stock
selection in Technology and Producer Durables, partially offset by adverse stock selection in
Financial Services. At the stock level, Applied Optoelectronics (AAOI), Extreme Networks (EXTR),
and Cutera (CUTR) were among the top contributors to performance. Gigamon (GIMO), DXP Enterprises
(DXPE), and Customers Bancorp (CUBI) were among the top detractors. OBMCX Holdings
The Small-Cap Opportunities Fund returned 25.54% versus 22.17% for the Russell 2000 Growth Index.
The fund benefitted from stock selection in Technology and Consumer Discretionary, while stock
selection in Healthcare detracted from performance. Applied Optoelectronics (AAOI), Extreme
Networks (EXTR), and Coherent (COHR) were among the top contributors to performance; Gigamon
(GIMO), Callon Petroleum (CPE), and Earthstone Energy (ESTE) were among the top detractors. OBSOX
The Small-Cap Value Fund returned 9.64% versus 7.84% for the Russell 2000 Value Index. The fund
benefitted from stock selection in Financial Services partially offset by adverse stock selection
in Producer Durables and Consumer Discretionary. Progress Software (PRGS), Bruker (BRKR), and
DuPont Fabros Technology (DFT) were among the top contributors to performance; Superior Energy
Services (SUP), TiVo (TIVO), and Matrix Service (MTRX) were among the top detractors. OBVLX
The portfolio turnover rates were 91% for the Micro-Cap Fund, 137% for the Emerging Growth Fund,
142% for the Small-Cap Opportunities Fund, 18% for the Small-Cap Value Fund, 97% for the China
Opportunities Fund, and 153% for the International Opportunities Fund. The net expense ratios of
the Funds were 1.54% for Micro-Cap, 1.50% for Emerging Growth, 1.30% for Small-Cap Value, 1.72% for
Small-Cap Opportunities, 1.91% for China Opportunities, and 1.60% for International Opportunities.
For current performance information, please visit www.oberweisfunds.com.
****For funds with multiple share classes, this discussion is based upon the Investor Class shares.
1Institutional Class shares OBGIX, OMCIX, OBSIX and OCHIX performance information was calculated
using the historical performance of Investor Class shares for periods prior to May 1, 2017
2Life of Fund returns are from commencement of operations on 01/07/87 for the Emerging Growth Fund,
01/01/96 for the Micro-Cap Fund, 09/15/96 for the Small-Cap Opportunities Fund, 10/01/05 for the
China Opportunities Fund, 02/01/07 for the International Opportunities Fund and 05/01/17 for the
Institutional Share Class.
3December 31, 2017 unaudited data. Expense ratio is the total net annualized fund operating
expense ratio. The expense ratio gross of expense offset arrangements and expense reimbursements
was 1.50%, 1.18%, 1.54%, 1.28%, 2.23%, 1.91%, 1.35%, 1.91%, 1.59%, and 1.77% for OBEGX, OBGIX,
OBMCX, OMCIX, OBSOX, OBSIX, OBVLX, OBCHX, OCHIX and OBIOX, respectively. Oberweis Asset
Management, Inc. (OAM), the Fund’s investment advisor is contractually obligated through April 30,
2018 to reduce its management fees or reimburse OBEGX and OBMCX 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: 1.8% of the first $50 million; plus 1.6% of
average daily net assets in excess of $50 million and for OBGIX and OMCIX 1.55% of the first $50
million; plus 1.35% of average daily net assets in excess of $50 million. OAM is also contractually
obligated through April 30, 2018 to reduce its management fees or reimburse OBSOX, OBVLX, OBCHX,
OBIOX and OBIIX to the extent that total ordinary operating expenses exceed in any one year 1.55%,
1.3%, 2.24%, 1.6% and 1.1% expressed as a percentage of each Fund’s average daily net assets,
respectively, and for OBSIX and OCHIX 1.3% and 1.99%, respectively. The annual expense ratio will
reflect a blend of both the old and new expense reimbursement arrangements in effect for 2017.
4On October 2, 2017, the Cozad Small Cap Value Fund was reorganized into OBVLX, and adopted the
performance history of the Cozad Small Cap Value Fund’s Class I shares. Performance shown before
October 2, 2017 is for the Cozad Small Cap Value Fund’s Class I shares. The Cozad Small Cap Value
Fund acquired all of the assets and liabilities of the Cozad Small Cap Value Fund I, L.P., from its
inception on September 30, 2010, in a tax free reorganization on July 1, 2014.
Performance data shown represents past performance and is no guarantee of future results.
Investment return and principal value will fluctuate, so that you may have gain or loss when shares
are sold. Current performance may be higher or lower than quoted. Visit us online at
oberweisfunds.com for most recent month-end performance. The Oberweis Funds invest in rapidly
growing smaller and medium sized companies which may offer greater return potential. However, these
investments often involve greater risks and volatility. Foreign investments involve greater risks
than U.S investments, including political and economic risks and the risk of currency fluctuations.
There is no guarantee that the funds can achieve their objectives. Holdings in the Funds are
subject to change. Before investing, consider the fund’s investment objectives, risks, charges, and
expenses. To obtain a copy of the prospectus or summary prospectus containing this and other
information please visit our website at oberweisfunds.com or call 800-323-6166. Read it carefully
before investing. The Oberweis Funds are distributed by Oberweis Securities, Inc. Member: FINRA &
The MSCI Zhong Hua Small Cap Growth Index (Net) is a free float-adjusted, market capitalization
weighted index that is designed to measure the performance of small cap stocks in the developed
markets and emerging markets of China and Hong Kong excluding A share classes, with minimum
dividends reinvested net of withholding tax. The MSCI AC Asia Pacific Ex-Japan Small-Cap Growth
Index (Net) is a free float adjusted market capitalization index that is designed to measure the
equity market performance of small cap growth developed and emerging markets in the Pacific region
excluding Japan, with minimum dividends reinvested net of withholding tax. The MSCI World ex-US
Small Cap Growth Index (Net) is a free float-adjusted market capitalization weighted index that is
designed to measure the equity market performance of small cap growth developed markets excluding
the US, with minimum dividends reinvested net of withholding tax. The MSCI ACWI Small Cap Index
(Net) is a free float-adjusted market capitalization weighted index that is designed to measure the
equity market performance of small cap developed and emerging markets with dividends reinvested net
of withholding tax. The MSCI World Index (Net) is a free float‐adjusted market capitalization
weighted index that is designed to measure the equity market performance of developed markets.
The Russell 2000 Index measures the performance of approximately 2,000 companies with small-market
capitalizations. 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
Microcap Growth Index measures the performance of those Russell Micro Cap companies with higher
price-to-book ratios and higher forecasted growth values. The performance data includes reinvested
dividends. The Russell Microcap Index is represented by the smallest 1,000 securities in the small
cap Russell 2000 Index plus the next 1,000 securities. Each index is an unmanaged group of stocks,
whose performance does not reflect the deduction of fees, expenses or taxes. The Russell 1000
Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe.
It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted