As filed with the Securities and Exchange Commission on December 14, 1998
File No. 333-47207
811-8683
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 2 [ X ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 2 [ X ]
TANAKA FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
230 Park Avenue, Suite 960, New York, NY 10169
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 490-3380
Graham Y. Tanaka
Tanaka Funds, Inc.
230 Park Avenue, Suite 960, New York, NY 10169
(Name and address of agent for service of process)
Copies to: Margaret A. Bancroft, Esq.
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
----
on ______________, 1998 pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)
----
on (date) pursuant to paragraph (a) of Rule 485
----
75 days after filing pursuant to paragraph (a)(2) of Rule 485
----
on (date) pursuant to paragraph (a)(2) of Rule 485.
----
Title of Securities Being Registered:
Tanaka Growth Fund - Common Stock divided into three classes designated Class A
common stock, Class B common stock and Class R common stock.
<PAGE>
TANAKA FUNDS, INC.
CROSS REFERENCE SHEET
(as required by 495(a))
N-1A Item Caption in Prospectus
- --------- ---------------------
PART A: INFORMATION REQUIRED IN A PROSPECTUS
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary; Fund Expenses
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of Registrant Prospectus Summary; Cover Page; Investment Objective; Investment
Policies; Fundamental Investment Restrictions; Investment
Techniques
Item 5 Management of the Fund Prospectus Summary; The Fund's Management; To Obtain More
Information
Item 5A. Management's Discussion of Fund Not Included
Performance
Item 6. Capital Stock and Other Prospectus Summary; Choosing a Class of Shares; Taxes; Income
Securities and Capital Gain Distributions; Organization and Description of
Common Stock; To Obtain More Information
Item 7. Purchase of Securities Being Prospectus Summary; How to Invest; How Net Asset Value is
Offered Determined; Special Shareholder Services; Purchases and
Redemptions of Shares; Purchase and Redemption Procedures
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares; Purchase and Redemption
Procedures; Special Shareholder Services
Item 9. Pending Legal Proceedings Not Applicable
PART B: INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information and History
Item 13. Investment Objectives and Policies Additional Information on Investment Techniques; Investment
Restrictions
Item 14. Management of the Fund Directors and Officers
Item 15. Control Persons and Principal Directors and Officers
Holders of Securities
Item 16. Investment Advisory and Other Investment Adviser; Transfer Agent; Administrator; Distribution
Services
<PAGE>
Item 17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices
Item 18. Capital Stock and Other Securities General Information and History; Dividends and Distributions
Item 19. Purchase, Redemption and Pricing Special Shareholder Services; Net Asset Value
of Securities Being Offered
Item 20. Tax Status Taxes
Item 21. Underwriters Distribution
Item 22. Calculation of Performance Data Performance
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE>
TANAKA Growth Fund
A "series" of TANAKA Funds, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
877-4-TANAKA (Toll-free)
PROSPECTUS
December ___, 1998
This Prospectus offers no-load shares of the TANAKA Growth Fund (the
"Fund"), a non-diversified series of TANAKA Funds, Inc. (the "Company"), an
open-end, management investment company commonly known as a "mutual fund." The
Company is currently composed of one series, the Fund.
This Prospectus relates only to the Class R shares of the Fund and sets
forth concisely information about the Fund which a prospective investor should
know before investing. It should be read and retained for future reference. A
Statement of Additional Information ("SAI") dated December ___, 1998, as may be
amended from time to time, containing additional and more detailed information
about the Fund, has been filed with the Securities and Exchange Commission (the
"SEC") and is hereby incorporated by reference into this Prospectus. It is
available without charge and can be obtained by writing to TANAKA Funds, Inc.,
P.O. Box 6110, Indianapolis, Indiana 46206 or calling the telephone number
printed above.
The Fund may also offer other classes of shares. Shares of these
classes may be subject to sales charges and other expenses, which may affect
their performance. If they are offered, a prospectus for these classes of shares
can be obtained by writing to TANAKA Funds, Inc., P.O. Box 6110, Indianapolis,
Indiana 46206 or calling the telephone number printed above.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary.............................................................
Fund Expenses..................................................................
Investment Objective...........................................................
Investment Policies............................................................
Fundamental Investment Restrictions............................................
Investment Techniques..........................................................
The Fund's Management..........................................................
Distribution and Service Plan..................................................
Purchases and Redemptions of Shares............................................
Purchase and Redemption Procedures.............................................
Special Shareholder Services...................................................
Fund Performance...............................................................
How Net Asset Value is Determined..............................................
Income and Capital Gain Distributions..........................................
Taxes..........................................................................
Organization and Description of Capital Stock..................................
To Obtain More Information.....................................................
<PAGE>
TANAKA Growth Fund
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus.
Investment Objective: The investment objective of the TANAKA Growth
Fund (the "Fund") is growth of capital. As with any mutual fund, there is no
assurance that the Fund will achieve its objective.
Investment Policies: In furtherance of its investment objective, the
Fund invests primarily in common stocks and other equity securities of companies
with large, medium and small market capitalizations. The Fund will normally
invest at least 75% of its net assets, measured at the time of investment, in
domestic securities, but may also invest up to 25% of its net assets, measured
at the time of investment, in foreign securities, including multinational and
emerging market securities. See "Investment Policies" on page __.
Investment Adviser: Tanaka Capital Management, Inc. (the "Investment
Adviser") is the investment adviser of the Fund. See "The Fund's Management" on
page __.
Distributions: Distributions are declared and paid annually from
available capital gains and income. See "Income and Capital Gain Distributions"
on page __.
Reinvestment: Unless you elect otherwise, distributions are reinvested
automatically without a sales charge. See "Income and Capital Gain
Distributions" on page __.
Initial Purchase: $1,000 minimum. See "Purchases and Redemptions of
Shares" on page __.
Subsequent Purchases: $500 minimum. See "Purchases and Redemptions of
Shares" on page __.
Net Asset Value: The net asset value per share of the Fund is
calculated on each day that the New York Stock Exchange is open for trading. You
may obtain the current net asset value per share of the Fund by calling
toll-free at 877-4-TANAKA. See "How Net Asset Value is Determined" on page __.
Principal Risk Factors: Investment in any mutual fund has inherent
risks. There can be no assurance that the investment objective of the Fund will
be realized or that the Fund's portfolio will not decline in value. Economic
conditions change and stock markets are volatile. If the Investment Adviser
judges market conditions incorrectly, the Fund's portfolio may decline in value.
Moreover, investors should be aware that certain investment policies of the
Fund, such as investing in illiquid and foreign securities, can entail greater
than average risk to the extent such policies and techniques are implemented.
These policies and techniques are described under the headings "Investment
Policies" and "Investment Techniques" on pages __ through __.
<PAGE>
FUND EXPENSES
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Annual Fund Operating Expenses (as % of average net assets)
Management Fee 1.00%
12b-1 Fees* 0.25%
Other Operating Expenses** 0.50%
-----
Total Fund Operating Expenses** 1.75%
- ------------------
* Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
** After reimbursement of expenses. The Investment Adviser has voluntarily
agreed to limit the total expenses of the Fund (excluding interest, taxes,
brokerage, and extraordinary expenses) to an annual rate of 1.75% of the
average net assets of the Fund attributable to the Class R shares until
November 30, 1999. After November 30, 1999, the expense limitation on the
class R shares may be terminated or revised at any time.
Example
The following example illustrates the expenses that an investor would pay on a
$1,000 investment over various time periods assuming a 5% annual rate of return
and redemption at the end of each time period.
One Year Three Years
$18 $55
These examples should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or lesser than
those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses associated with the Fund's Class R shares that they
will bear directly or indirectly. The assumption in the Example of a 5% annual
return is required by regulations of the SEC applicable to all mutual funds. The
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of the Fund's shares. "Other Expenses" are based
on estimated amounts for the Fund's current fiscal year.
The Investment Adviser has voluntarily agreed to limit the total
expenses of the Fund (excluding interest, taxes, brokerage and extraordinary
expenses) to an annual rate of 1.75% of the average net assets of the Fund
attributable to the Class R shares until November 30, 1999. As long as this
temporary expense limitation continues, it may lower the expenses and increase
the total return attributable to the Class R shares. After November 30, 1999,
the expense limitation on the Class R shares may be terminated or revised at any
time, at which time the expenses of such class may increase and its total return
may be reduced depending on the total assets of the Fund attributable to such
class. Without the expense reimbursement, it is estimated that the total
operating expenses for the current fiscal year for the Class R
2
<PAGE>
shares of the Fund would have amounted to 2.75% of the Fund's average net assets
attributable to such class for the period.
INVESTMENT OBJECTIVE
The investment objective of the Fund is growth of capital. Given the
Fund's objective to achieve growth of capital, investment in the Fund may be
best suited to investors who are not concerned with current income. The Fund is
not intended by itself to constitute a balanced investment program.
The Fund is designed for investors seeking long-term total return
through a professionally managed portfolio that normally represents a mix of
large, medium and small capitalization equity securities. The purpose of an
investment in the Fund should be to participate in a portfolio selected by an
experienced portfolio management organization with an emphasis on research of
growth potential for companies and markets. The Fund provides an easy and
efficient way of investing in a carefully selected, continuously managed
portfolio of equity securities.
There is no assurance that the investment objective can be achieved.
INVESTMENT POLICIES
General
In furtherance of its investment objective, the Fund invests primarily
in common stocks and other equity securities. Equity securities consist of
common stocks as well as warrants, rights and securities which are convertible
into common stocks, such as convertible preferred stock and convertible bonds.
The Fund will normally invest at least 75% of its net assets, measured at the
time of investment, in domestic securities, but may also invest up to 25% of its
net assets, measured at the time of investment, in foreign securities, including
multinational and emerging market securities. Depending upon the Investment
Adviser's, assessment of the prospects, the Fund's assets may be invested
temporarily, and without limitation, in high grade money market instruments and
U.S. Government obligations for defensive purposes or to accommodate inflows of
cash awaiting more permanent investment.
Generally, the Fund invests in equity securities of companies that are
diversified across a variety of industries and may be expected to have large,
medium and small market capitalizations. The Fund's investments in equity
securities will generally consist of issues which the Investment Adviser
believes have capital growth potential due to factors such as rapid growth in
demand in existing markets, expansion into new markets, new product
introductions, reduced competitive pressures, cost reduction programs, changes
in management, and other fundamental changes which may result in improved
earnings growth or increased asset values.
The Investment Adviser relies on research, management meetings and
industry contacts to identify companies with above-average long-term earnings
growth potential that could exceed market expectations. The Investment Adviser
also identifies industries that are positioned to participate in strong
demographic, societal or economic trends and looks for companies within those
industries that have a particular competitive advantage or niche. Stocks and
other equity securities are subject to the risk that specific stocks, industry
groups, or the prices of equity securities in general, will decline in value
over short or even extended periods of time.
3
<PAGE>
Foreign Securities
The Fund expects to invest primarily in the securities of companies
domiciled in the United States, although the Fund may also invest up to 25% of
its net assets, measured at the time of investment, in securities of foreign
issuers which meet the same criteria for investment as domestic companies. See
"Investment Policies-General." Such investments may be made directly in such
issuers or indirectly through American Depositary Receipts ("ADRs"), American
Depositary Shares ("ADSs") or open and closed-end investment companies. See
"Investment Policies-Other Investment Companies." It is possible that some
material information about unsponsored ADRs and ADSs will not be available.
Foreign securities involve certain inherent risks that are different
from those of domestic issuers, including political or economic instability of
the issuer or the country of issue, diplomatic developments which could affect
U.S. investments in those countries, changes in foreign currency and exchange
rates and the possibility of adverse changes in investment or exchange control
regulations. Currency fluctuations will affect the net asset value of the Fund
irrespective of the performance of the underlying investments in foreign
issuers. In addition, there may be less publicly available information about a
foreign issuer than about a domestic issuer, and foreign issuers may not be
subject to the same accounting, auditing and financial recordkeeping standards
and requirements as domestic issuers. Most foreign stock markets are not as
large or liquid as in the United States; fixed commissions on foreign stock
exchanges are generally higher than the negotiated commissions on U.S.
exchanges; and there is generally less government supervision and regulation of
foreign stock exchanges, brokers and companies than in the United States.
Foreign governments can also levy confiscatory taxes, expropriate assets, and
limit repatriations of assets. As a result of these and other factors, foreign
securities purchased by the Fund may be subject to greater price fluctuation
than securities of U.S. companies.
Convertible Securities
The Fund may invest in convertible securities. A convertible security
is a fixed-income security (a bond or preferred stock) that may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Through their conversion
feature, convertible securities provide an opportunity to participate in capital
appreciation resulting from an increase in the value of a convertible security's
underlying common stock. The value of a convertible security is influenced by
the market value of the underlying common stock and tends to increase as the
market value of the underlying stock rises, and tends to decrease as the market
value of the underlying stock declines. For purposes of considering convertible
securities for purchase by the Fund, the Investment Adviser evaluates
convertible securities by standards applicable to equity securities and not by
debt securities ratings.
Other Investment Companies
Subject to investment limitations stated in the SAI, the Fund may
invest in shares of open- and closed-end investment companies that acquire
equity securities of issuers in emerging markets countries. By investing in
shares of such investment companies, the Fund would indirectly pay a portion of
the operating expenses, management expenses, and brokerage costs of such
companies, as well as those of the Fund. Federal securities laws impose limits
on such investments with which the Fund will comply, and may affect the ability
of the Fund to acquire or dispose of such shares.
4
<PAGE>
Warrants and Rights
The Fund may invest up to 5% of its net assets, measured at the time of
investment, in warrants or rights, valued at the lower of cost or market, which
entitle the holder to buy equity securities during a specific period of time.
The Fund will make such investments only if the underlying equity securities are
deemed appropriate by the Investment Adviser for inclusion in the Fund's
portfolio.
Illiquid or Restricted Securities
The Fund may invest up to 15% of its net assets, measured at the time
of investment, in illiquid securities, for which there is a limited trading
market and for which a low trading volume of a particular security may result in
abrupt and erratic price movements. The Fund may be unable to dispose of its
holdings in illiquid securities at acceptable prices and may have to dispose of
such securities over extended periods of time. The Fund may invest in (i)
securities that are sold in private placement transactions between their issuers
and their purchasers and that are neither listed on an exchange nor traded
over-the-counter, and (ii) securities that are sold in transactions between
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933, as amended. Such securities are subject to contractual or legal
restrictions on subsequent transfer. As a result of the absence of a public
trading market, such restricted securities may in turn be less liquid and more
difficult to value than publicly traded securities. Although these securities
may be resold in privately negotiated transactions, the prices realized from the
sales could, due to illiquidity, be less than those originally paid by the Fund
or less than their fair value and in some instances, it may be difficult to
locate any purchaser. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements that may be applicable if their securities were publicly traded. If
any privately placed or Rule 144A securities held by the Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration.
Securities which are freely tradable under Rule 144A may be treated as liquid if
the Board of Directors of the Company is satisfied that there is sufficient
trading activity and reliable price information. Investing in Rule 144A
securities could have the effect of increasing the level of illiquidity of the
Fund's portfolio to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such 144A securities.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions that are
characterized as fundamental policies which cannot be changed without the
affirmative vote of the lesser of (1) 67% or more of the voting securities
present at a shareholders meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy at
such meeting; or (2) more than 50% of the outstanding voting securities of the
Fund. A complete statement of the Fund's investment restrictions, both
fundamental and non-fundamental, is set forth in the SAI.
In order to provide a degree of flexibility, the Fund's investment
objective, as well as its investment policies, may be modified by the Board of
Directors without shareholder approval. Any change in the Fund's investment
objective and investment policies may result in the Fund having an investment
objective and investment policies different from those which the shareholder
considered appropriate at the time of investment in the Fund. However, the Fund
will not change any of its investment objective, policies or non-fundamental
investment restrictions without written notice to shareholders sent at least 30
days in advance of any such change.
5
<PAGE>
INVESTMENT TECHNIQUES
Repurchase Agreements
Although not normally anticipated to be widely employed, repurchase
agreements may be entered into by the Fund for incremental income purposes.
The Fund may enter into repurchase agreements with any foreign or
domestic bank or broker/dealer if the bank or broker/dealer has been rated
within the two highest grades assigned by Standard & Poor's Corporation or
Moody's Investors Service, Inc. or has been determined by the Investment Adviser
to be of equivalent quality. The Investment Adviser is responsible for
monitoring compliance with this rating standard during the term of any
repurchase agreement. The Fund will not enter into repurchase agreements with
entities other than banks or broker/dealers or invest over 5% of its assets,
measured at the time of investment, in repurchase agreements with maturities of
more than seven days.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Fund acquires a security and the seller agrees, at the time of sale, to
repurchase the security at a specified time and price. Securities subject to a
repurchase agreement are held in a segregated account and the value of such
securities is kept at least equal to the repurchase price on a daily basis. The
repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase price may be the same, with
interest at a stated rate. In either case, the income to the Fund is unrelated
to the interest rate on the security itself.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), which means the
Fund is not limited by the 1940 Act in the proportion of its assets that may be
invested in the securities of a single issuer. However, the Fund intends to
conduct its operations so as to qualify as a regulated investment company for
purposes of the Internal Revenue Code of 1986, as amended, which generally will
relieve the Fund of any liability for Federal income tax to the extent its
earnings are distributed to shareholders. See "Taxes." To so qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of an single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer.
To the extent that the Fund is less diversified, it may be more
susceptible to adverse economic, political, or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified.
Concentration
To reduce investment risk, as a matter of fundamental policy, the Fund
may not invest 25% or more of its net assets, measured at the time of
investment, in issuers conducting their principal business in the same industry.
THE FUND'S MANAGEMENT
Board of Directors
The Company's Board of Directors is responsible for the supervision of
the general business of the Company and the Fund. The Board of Directors
approves all significant agreements between the Fund and
6
<PAGE>
persons or companies furnishing services to it, including the Fund's agreements
with its investment adviser, administrator, fund accountant, transfer agent and
custodian. The management of the Fund's day-to-day operations is delegated to
its officers, the Investment Adviser and the administrator, subject always to
the investment objective and policies of the Fund and to general supervision by
the Board of Directors. Biographical information for each of the Directors of
the Company is set forth below.
Graham Y. Tanaka, Chairman, Chief Executive Officer and President of the Company
Mr. Tanaka is currently the President of Tanaka Capital Management,
Inc. ("Tanaka Capital"), the Fund's investment adviser, having founded the firm
in December 1986. From 1973 until 1978, Mr. Tanaka was a research analyst at
Morgan Guaranty Trust. He then worked at Fiduciary Trust Company of New York as
Vice President from 1978-1980. Prior to launching Tanaka Capital, Mr. Tanaka
served as Chairman at Milbank Tanaka & Associates from 1980 to 1986. He is a
member of The Electronic Analyst Group and also a member of the Healthcare
Analyst Association. Mr. Tanaka currently serves on the boards of TransAct
Technologies, Inc. and Tridex Corporation. He is a 1971 graduate of Brown
University (BS, BA), a 1973 graduate of Stanford University (MBA) and a
Chartered Financial Analyst (CFA).
Charles A. Dill, Director
Mr. Dill is a General Partner of Gateway Associates, a St. Louis-based
venture capital firm. From 1991 until 1995, Mr. Dill served as President, Chief
Executive Officer and Director of Bridge Information Systems. From 1988 to 1991,
Mr. Dill was President, Chief Operating Officer and Director of AVX Corporation.
Prior to 1988, Mr. Dill was Senior Vice President and a member of the Office of
the Chief Executive of Emerson Electric. Mr. Dill serves on the boards of Stifel
Financial Corp., Zoltek, TransAct Technologies, Inc., Pinnacle Automation and DT
Industries, as well as the boards of several private companies. He is a 1961
graduate of Yale University (BSME) and a 1963 graduate of Harvard University
(MBA).
David M. Fox, Director
Mr. Fox has been Unapix Entertainment's President, Chief Executive
Officer and a Director since March 1992. From June 1991 until joining Unapix
Entertainment, he was the Chief Executive Officer of David Fox and Associates, a
company which he founded and which provided international programming consulting
services and acted as United States sales agent for producers worldwide. From
1981 until June 1991, Mr. Fox served as Chief Executive Officer and head of
Domestic Syndication and Cable Television for Fox/Lorber Associates, Inc.
("Fox/Lorber"), a corporation which he co-founded and which engaged in the
worldwide distribution of feature films, home video and television programs.
From March 1990 to June 1991, Mr. Fox also served as Director of GAGA
Communications, a Japanese company engaged in home video and theatrical
distribution. Prior to founding Fox/Lorber, Mr. Fox was Eastern and Midwest
Sales Manager for D.L. Taffner Ltd., syndicator of Three's Company and The Benny
Hill Show. He is a 1970 graduate of Brown University (BA) and a 1974 graduate of
Harvard (MBA).
Thomas R. Schwarz, Director
Mr. Schwarz was President and Chief Operating Officer of Dunkin Donuts
Inc. (1966-1989); Chairman of the Board and Chief Executive Officer of Grossmans
Inc. (1989-1994) and retired in 1994. Mr. Schwarz currently sits on the
following boards: TransAct Technologies, Inc., Tridex Corporation,
7
<PAGE>
A&W Restaurants, Lebhar-Friedman Publishing and Foilmark Inc. He is a 1958
graduate of Williams College (BA) and a 1964 graduate of Harvard University
(MBA).
Scott D. Stooker, Director
Mr. Stooker has been the owner and President of 1st Team Communications
Inc. since 1990. He has served as a member on the board of directors of The
Advertising Club of Delaware, Big Brothers/Little Sisters of Delaware, and
currently serves on the board of Saint Anthony's Community Center. He is a 1976
graduate of University of Kansas (BSJ, BFA).
Investment Adviser
Tanaka Capital Management, Inc. (the "Investment Adviser"), a
registered investment adviser, located at 230 Park Avenue, Suite 960, New York,
New York 10169, manages the investments of the Fund pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"), dated December __, 1998. The
Advisory Agreement is effective for an initial term of two years and thereafter
may be renewed annually by the Board of Directors of the Fund.
The Investment Adviser is a Delaware corporation organized in 1986. In
addition to the assets of the Fund, the Investment Adviser and its affiliates
manage other assets of approximately $170 million. In addition to the Fund, the
Investment Adviser's advisory clients include pension plans, endowments,
foundations and individuals. Many of the accounts which are managed or advised
by the Investment Adviser for these clients have investment objectives which may
vary only slightly from those of each other and those of the Fund. The
Investment Adviser expects to invest assets from those accounts in investments
substantially similar to those which constitute the principal investments of the
Fund. Those accounts are supervised by officers and employees of the Investment
Adviser who may also be acting in similar capacities for the Fund. It is the
policy of the Investment Adviser to allocate advisory recommendations and the
placing of orders in a manner which is deemed equitable by the Investment
Adviser to the accounts involved, including the Fund. Graham Y. Tanaka is the
portfolio manager and President of the Fund, and owns 100% of the common stock
in the Investment Adviser. Mr. Tanaka has approximately 12 years of experience
managing a mutual fund portfolio, and has approximately 18 years of experience
managing investment portfolios for private clients.
Pursuant to the Advisory Agreement, the Investment Adviser executes the
purchase and sale orders for the portfolio transactions of the Fund and
generally manages the investment and reinvestment of the Fund's assets in
accordance with the stated policies of the Fund, subject to the general
supervision of the Company's Board of Directors. For its services under the
Advisory Agreement, the Investment Adviser is paid a fee to be accrued daily at
an annual rate of 1.00% of the average daily net assets of the Fund.
Administrator
AmeriPrime Financial Services, Inc. (the "Administrator"), 1793
Kingswood Drive, Suite 200, Southlake, Texas 76092, serves as administrator to
the Fund pursuant to an Administrative Services Agreement, dated December __,
1998 (the "Administration Agreement"). The Administrator provides certain
recordkeeping, administrative and shareholder servicing functions required of
registered investment companies. The Administrator may furnish personnel to act
as the Fund's officers to conduct the Fund's business subject to the supervision
and instructions of the Board of Directors of the Company.
8
<PAGE>
The Administration Agreement provides that the Fund will pay the
Administrator at an annual rate of 0.10% of the average daily net assets of the
Fund up to $50 million, 0.075% of the average daily net assets of the Fund in
excess of $50 million and up to $100 million and 0.050% of the average daily net
assets of the Fund in excess of $100 million, subject to a minimum fee of $2,500
per month.
Custodian
Star Bank, N.A. (the "Custodian"), 425 Walnut Street, Cincinnati, Ohio
45202, is the custodian for the Fund. The Custodian collects income when due and
holds all of the Fund's portfolio securities and cash. The Custodian is
authorized to appoint other entities to act as sub-custodians to provide for the
custody of foreign securities which may be acquired and held by the Fund outside
the United States.
Fund Accountant and Transfer and Dividend Disbursing Agent
Unified Fund Services, Inc. (the "Transfer Agent" or "Unified"), 431
North Pennsylvania Street, Indianapolis, Indiana 46204, is the Fund's fund
accountant and transfer and dividend disbursing agent. In addition to providing
fund accounting services to the Fund, the Transfer Agent provides all the
necessary facilities, equipment and personnel to perform the usual and ordinary
services of transfer and dividend disbursing agent, including: receiving and
processing orders and payments for purchases of the Fund's shares, opening
shareholder accounts, preparing shareholder meeting lists, mailing proxy
material, receiving and tabulating proxies, mailing shareholder reports and
prospectuses, withholding certain taxes on non-resident alien accounts,
disbursing income dividends and capital distributions, preparing and filing U.S.
Treasury Department Form 1099 (or equivalent) for all shareholders, preparing
and mailing confirmation forms to shareholders for all purchases and redemptions
of shares and all other confirmable transactions in shareholders' accounts, and
recording reinvestment of dividends and distributions of the Company's shares.
Under a Mutual Fund Services Agreement between the Company and Unified, dated
December __, 1998, Unified is compensated pursuant to a schedule of fees for its
services, and by reimbursement for out-of-pocket expenses. The schedule calls
for a minimum payment by the Fund of $15,000 per year plus $7,500 per year per
additional class.
Distributor
AmeriPrime Financial Securities, Inc. (the "Distributor" or
"AmeriPrime"), 1793 Kingswood Drive, Suite 200, Southlake, Texas 76092, acts as
a distributor of the Fund's shares pursuant to a Distribution Agreement dated
December __, 1998.
Year 2000 and Conversion to the Euro
The Fund could be adversely affected if the computer systems used by
the Investment Adviser and other service providers (and in particular, foreign
service providers) to the Fund do not properly process and calculate
date-related information and data from and after January 1, 2000 (the "Year 2000
Problem") or information regarding the new common currency of the European
Union. The Year 2000 Problem and Euro conversion issues also may adversely
affect the Fund's investments. The Investment Adviser and the Administrator are
taking steps to address the Year 2000 Problem and issues surrounding the
conversion to the Euro for their computer systems and to obtain reasonable
assurances that comparable steps are being taken by the Fund's other major
service providers. While the Fund does not anticipate any adverse effect on its
computer systems from the Year 2000 and Euro conversion issues, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Fund.
9
<PAGE>
The Year 2000 Problem is expected to impact corporations, which may
include issuers of portfolios securities held by the Fund, to varying degrees
based upon various factors, including, but not limited to, the corporation's
industry sector and degree of technological sophistication. In this regard, the
Fund is permitted to invest in issuers located in foreign countries or emerging
markets. Such issuers may not be applying the same diligence to the Year 2000
Problem as are issuers in countries such as the United States. Although the
Investment Adviser considers publicly available information regarding an
issuer's Year 2000 compliance status when selecting portfolio securities, such
information may not be available, particularly with respect to foreign issuers.
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a Distribution and Service Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the
Fund in connection with the distribution of its Class R shares at an annual
rate, as determined from time-to-time by the Board of Directors, of up to 0.25%
of the Fund's average daily net assets attributable to the Class R shares.
Payments may be made by the Fund under the Plan for the purpose of
financing any activity primarily intended to result in the sales of Class R
shares of the Fund as determined by the Board of Directors. Such activities
typically include advertising; compensation for sales and sales marketing
activities of financial service agents and others, such as dealers or
distributors; shareholder account servicing; production and dissemination of
prospectuses and sales and marketing materials; and capital or other expenses of
associated equipment, rent, salaries, bonuses, interest and other overhead. To
the extent any activity is one which the Fund may finance without a Plan, the
Fund may also make payments to finance such activity outside of the Plan and not
subject to its limitations. Payments under the Plan are not tied exclusively to
actual distribution and service expenses, and the payments may exceed
distribution and service expenses actually incurred.
Administration of the Plan is regulated by Rule 12b-1 under the 1940
Act, which includes requirements that the Board of Directors receive and review
at least quarterly reports concerning the nature and qualification of expenses
which are made, that the Board of Directors approve all agreements implementing
the Plan and that the Plan may be continued from year-to-year only if the Board
of Directors concludes at least annually that continuation of the Plan is likely
to benefit shareholders.
In approving the Plan, the Directors determined, in the exercise of
their business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
PURCHASES AND REDEMPTIONS OF SHARES
General
The Class R shares can be purchased at net asset value. There is no
front-end or contingent deferred sales charge.
The minimum initial investment to open a Class R shareholder account is
$1,000. The minimum amount for subsequent Class R investments is $500. The Fund
reserves the right to waive the minimum under certain circumstances. The Fund's
Class R shares may be purchased through authorized dealers or directly through
AmeriPrime, the Fund's Distributor. An Account Application should accompany this
Prospectus. For accounts opened directly through AmeriPrime, a completed and
signed Account Application is required for the initial account opened with the
Fund.
10
<PAGE>
In addition to offering Class R shares, the Fund may also offer other
classes of shares which are described in one or more separate prospectuses. To
obtain a prospectus relating to such classes, if and when they are offered,
contact the Fund by writing to TANAKA Funds, Inc., P.O. Box 6110, Indianapolis,
Indiana 46206 or calling the phone number listed on the front cover of this
Prospectus.
You may purchase or redeem shares of the Fund without a sales charge at
their net asset value on any weekday except days when the New York Stock
Exchange is closed, normally, New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day ("Fund Business Day"). The net asset value of
the Fund is calculated at 4:00 p.m., Eastern Time on each Fund Business Day. See
"How Net Asset Value is Determined."
Purchases
Fund shares are issued at a price equal to the net asset value per
share next determined after an order in proper form is accepted by the Transfer
Agent. The Company reserves the right to reject any subscription for the
purchase of its shares and may, in the Investment Adviser's discretion, accept
portfolio securities in lieu of cash as payment for Fund shares. Shares may not
be available for purchase in every state.
Redemptions
There is no redemption charge, no minimum period of investment, and no
restriction on frequency of redemptions. Shares are redeemed at a price equal to
the net asset value per share next determined following acceptance by the
Transfer Agent of the redemption order in proper form (and any supporting
documentation which the Transfer Agent may require).
The date of payment of redemption proceeds may not be postponed for
more than seven days after shares are tendered to the Transfer Agent for
redemption by a shareholder of record. The right of redemption may not be
suspended except in accordance with the provisions of the 1940 Act.
Account Statements
Shareholders will receive from the Company at least semi-annual
statements listing account activity during the statement period.
Share Certificates
The Transfer Agent maintains a shareholder account for each
shareholder. The Company does not issue share certificates.
PURCHASE AND REDEMPTION PROCEDURES
You may obtain the Account Application necessary to open an account by
calling toll-free at 877-4-TANAKA or by writing TANAKA Funds, Inc., at P.O. Box
6110, Indianapolis, Indiana 46206-6110.
11
<PAGE>
Initial Purchase of Shares
Mail
Investors may send a check made payable to "TANAKA Funds, Inc." with a
completed Account Application to:
U.S. Mail: Overnight:
TANAKA Funds, Inc. TANAKA Funds, Inc.
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
Checks are accepted at full value subject to collection. All checks
must be drawn on a United States bank and payable in U.S. dollars. If a check is
returned unpaid, the purchase will be canceled, and the investor will be liable
for any resulting losses or fees incurred by the Fund, the Investment Adviser or
the Transfer Agent.
For individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of the Fund must be made payable to "TANAKA
Funds, Inc." or to one or more owners of that account and endorsed to TANAKA
Funds, Inc. For corporation, partnership, trust, 401(k) plan or other
non-individual type accounts, the check used to purchase shares of the Fund must
be made payable on its face to "TANAKA Funds, Inc." No other method of payment
by check will be accepted. Payment by Traveler's Checks is prohibited.
Bank Wire
To make an initial investment in the Fund using the fedwire system for
transmittal of money between banks, you should first telephone the Transfer
Agent toll-free at 877-4-TANAKA to obtain an account number. You should then
instruct a member commercial bank to wire your money immediately to:
Star Bank N.A. Cinti/Trust
ABA # 0420-0001-3
Attn: TANAKA Funds, Inc.: Tanaka Growth Fund Class R Shares
D.D.A. # 488922451
Account Name_______________(write in account name)
For Account_________________(write in account number)
If you plan to wire funds, you should instruct your bank early in the
day so the wire transfer can be accomplished the same day. Your bank may assess
charges for transmitting the money by bank wire and for use of Federal Funds.
The Company does not charge investors for the receipt of wire transfers. Payment
in the form of a bank wire received prior to 4:00 p.m., Eastern Time, on a Fund
Business Day will be treated as a Federal Funds payment received before that
time.
Through Financial Institutions
You may purchase and redeem shares of the Fund through brokers and
other financial institutions that have entered into sales agreements with
AmeriPrime. These institutions may charge a fee for their
12
<PAGE>
services and are responsible for promptly transmitting purchase, redemption and
other requests to the Company. The Company is not responsible for the failure of
any institution to promptly forward these requests.
If you purchase shares through a broker-dealer or financial
institution, your purchase will be subject to its procedures, which may include
charges, limitations, investment minimums, cutoff times and restrictions in
addition to, or different from, those applicable to shareholders who invest in
the Fund directly. You should acquaint yourself with the institution's
procedures and read this Prospectus in conjunction with any materials and
information provided by your institution. If you purchase Fund shares in this
manner, you may or may not be the shareholder of record and, subject to your
institution's and the Fund's procedures, may have Fund shares transferred into
your name. There is typically a one to five day settlement period for purchases
and redemptions through broker-dealers.
Subsequent Purchases of Shares
You may purchase additional shares of the Fund by mailing a check or
sending a bank wire as indicated above. Shareholders using the wire system for
subsequent purchases should first telephone the Transfer Agent toll-free at
877-4-TANAKA to notify it of the wire transfer. All payments should clearly
indicate the shareholder's name and account number.
Automatic Investment Plan
Shareholders may also purchase additional Fund shares at regular,
pre-selected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an Automated Clearing House member. Under the program, existing
shareholders may authorize amounts to be debited from their bank account and
invested in the Fund monthly or quarterly. Shareholders wishing to participate
in this program may obtain the applicable forms from the Transfer Agent.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to the Transfer Agent.
Redemption of Shares
Redemption requests will not be effected unless any check used for
investment has been cleared by the shareholder's bank, which may take up to 15
calendar days. This delay may be avoided by investing in the Fund through wire
transfers. If the Transfer Agent receives a redemption request by 4:00 p.m.,
Eastern Time, the redemption proceeds normally are paid on the next business
day, but in no event later than seven days after redemption, by check mailed to
the shareholder of record at his or her record address. Shareholders that wish
to redeem shares by telephone or by bank wire must elect these options by
properly completing the appropriate sections of their Account Application. These
privileges may be modified or terminated by the Company at any time.
Due to the cost to the Company of maintaining smaller accounts, the
Company reserves the right to redeem, upon not less than 60 days' written
notice, all shares in any Fund account with an aggregate net asset value of less
than $1,000. The Fund will not redeem accounts that fall below this amount
solely as a result of a reduction in net asset value of the Fund's shares.
13
<PAGE>
Redemption by Mail
You may redeem all or any number of your shares by sending a written
request to the Transfer Agent at the address above. You must sign all written
requests for redemption and provide a signature guarantee. See "Purchase and
Redemption Procedures--Other Redemption Matters."
Telephone Redemptions
A shareholder that has elected telephone redemption privileges may make
a telephone redemption request by calling the Transfer Agent toll-free at
877-4-TANAKA. In response to the telephone redemption instruction, the Fund will
mail a check to the shareholder's record address. If the shareholder has elected
wire redemption privileges, the Transfer Agent may wire the proceeds as set
forth below under "Purchase and Redemption Procedures--Bank Wire Redemptions."
In an effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Company and the Transfer Agent will employ reasonable
procedures to confirm that such instructions are genuine. Shareholders must
provide the Transfer Agent with the shareholder's account number, the exact name
in which the shares are registered and some additional form of identification.
The Company or the Transfer Agent may employ other procedures such as recording
certain transactions. If such procedures are followed, neither the Transfer
Agent nor the Company will be liable for any losses due to unauthorized or
fraudulent redemption requests. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, it may be difficult
to make a redemption by telephone. If you cannot reach the Transfer Agent by
telephone, you may mail or hand-deliver your request to Unified Fund Services,
Inc. at 431 North Pennsylvania Street, Indianapolis, Indiana 46204.
Other Redemption Matters
A signature guarantee is required for any written redemption. In
addition, a signature guarantee also is required for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions or automatic investment or redemption, dividend election or
telephone redemption or any other option election in connection with the
shareholder's account. Signature guarantees may be provided by any eligible
institution, including a bank, a broker, a dealer, a national securities
exchange, a credit union, or a savings association that is authorized to
guarantee signatures, acceptable to the Transfer Agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed. Such guarantee must have "Signature Guaranteed"
stamped under each signature and must be signed by the eligible institution.
The Transfer Agent will deem a shareholder's account "lost" if
correspondence to the shareholder's address of record is returned as
undeliverable, unless the Transfer Agent determines the shareholder's new
address. When an account is deemed lost, all distributions on the account will
be reinvested in additional shares of the Fund. In addition, the amount of any
outstanding (unpaid for six months or more) checks for distributions that have
been returned to the Transfer Agent will be reinvested and the checks will be
canceled.
Bank Wire Redemptions
If you have elected wire redemption privileges, the Fund will, upon
request, transmit the proceeds of any redemption greater than $10,000 by Federal
Funds wire to a bank account designated on your
14
<PAGE>
Account Application. Presently there is no charge for wire redemptions; however,
the Fund reserves the right to charge for this service. Any charge for wire
redemptions will be deducted from the shareholder's Fund account by redemption
of shares. If you wish to request bank wire redemptions by telephone, you must
also elect telephone redemption privileges.
Exchange Privilege
Shareholders of the Fund may exchange their shares for shares of the
Unified Taxable Money Market Fund, a money market fund managed by Unified
Investment Advisers, Inc. and a separate series of the Unified Funds. You may
receive a copy of the prospectus for the Unified Taxable Money Market Fund by
writing Unified or calling toll-free at 877-4-TANAKA. No sales charges are
imposed on exchange between a Fund and the Unified Taxable Money Market Fund.
Exchanges into the Unified Taxable Money Market Fund are subject to the fees
charged by that fund as set forth in the Unified Taxable Money Market Fund
prospectus.
Exchange Procedure
You may request an exchange by writing to Unified at 431 North
Pennsylvania Street, Indianapolis, Indiana 46204. The minimum amount for an
exchange to open an account in the Unified Taxable Money Market Fund is $1,000.
Exchanges may only be made between identically registered accounts. You do not
need to complete a new account application, unless you are requesting different
shareholder privileges for the new account. The Company reserves the right to
reject any exchange request and may modify or terminate the exchange privilege
at any time. There is no charge for the exchange privilege or limitation as to
frequency of exchanges.
An exchange of shares in a Fund pursuant to the exchange privilege is,
in effect, a redemption of Fund shares (at net asset value) followed by the
purchase of shares of the investment company into which the exchange is made (at
net asset value) and may result in a shareholder realizing a taxable gain or
loss for Federal income tax purposes. The exchange privilege is available to
shareholders residing in any state in which shares of Unified Taxable Money
Market Fund, as applicable, may legally be sold.
Telephone Exchanges
If you have elected telephone exchange privileges, you may request an
exchange by calling Unified toll-free at 877-4-TANAKA. Neither the Fund nor
Unified is responsible for the authenticity of telephone instructions or losses,
if any, resulting from unauthorized telephone exchange requests. Unified employs
reasonable procedures to insure that telephone orders are genuine and, if it
does not, it may be liable for any losses due to unauthorized transactions.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements.
Retirement Accounts
The Fund may be a suitable investment vehicle for part or all of the
assets held in Traditional or Roth individual retirement accounts (collectively
"IRAs"). An IRA account application form may be obtained by contacting the Fund
toll-free at 877-4-TANAKA. Generally, all contributions and investment earnings
in an IRA will be tax-deferred until withdrawn. In the case of a Roth IRA, if
certain requirements are met, investment earnings will not be taxed even when
withdrawn. Individuals may make IRA contributions of up to a maximum of $2,000
annually. Only contributions to Traditional IRAs may be tax-deductible. However,
the deduction will be reduced if the individual or, in the case of a married
individual,
15
<PAGE>
either the individual or the individual's spouse is an active participant in an
employer-sponsored retirement plan and has adjusted gross income above certain
levels. The ability of an individual to make contributions to a Roth IRA is
restricted if the individual (or, the individual and spouse, if married) has
adjusted gross income above certain levels.
The foregoing discussion regarding IRAs is based on regulations in
effect as of January 1, 1998 and summarizes only some of the important Federal
tax considerations generally affecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for tax planning. Investors
should consult their tax advisors with respect to their specific tax situations
as well as with respect to state and local taxes.
FUND PERFORMANCE
From time-to-time, the Fund may advertise its "average annual total
return" over various periods of time. This total return figure shows the average
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the ending date of the measuring period. The figure
reflects changes in the price of the Fund's shares and assumes that any income
dividends and/or capital gains distributions made by the Fund during the period
are reinvested in shares of the Fund. Figures will be given for recent one-,
five- and ten-year periods (when applicable), and may be given for other periods
as well (such as from commencement of the Fund's operations, or on a
year-by-year basis). When considering "average" total return figures for periods
longer than one year, investors should note that the Fund's annual total return
for any one year in the period might have been greater or less than the average
for the entire period. The Fund also may use "aggregate" total return figures
for various periods, representing the cumulative change in value of an
investment in the Fund for the specific period (again reflecting changes in the
Fund's share price and assuming reinvestment of dividends and distributions).
Aggregate total returns may be shown by means of schedules, charts or graphs,
and may indicate subtotals of the various components of total return (that is,
the change in value of initial investment, income dividends and capital gains
distributions).
The Fund may quote the Fund's average annual total and/or aggregate
total return for various time periods in advertisements or communications to
shareholders. The Fund may also compare its performance to that of other mutual
funds with similar investment objectives and to stock and other relevant indices
or to rankings prepared by independent services or industry publications. For
example, the Fund's total return may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Value Line Mutual Fund Survey and CDA
Investment Technologies, Inc. Total return data as reported in such national
financial publications as The Wall Street Journal, The New York Times,
Investor's Business Daily, USA Today, Barron's, Money and Forbes as well as in
publications of a local or regional nature, may be used in comparing Fund
performance.
The Fund's total return may also be compared to such indices as the:
(1) Dow Jones Industrial Average,
(2) Standard & Poor's 500 Composite Stock Total Return Index,
(3) Nasdaq Composite OTC Index or Nasdaq Industries Index,
(4) Consumer Price Index, and
(5) Russell 2000 Index.
Further information on performance measurement may be found in the SAI.
16
<PAGE>
HOW NET ASSET VALUE IS DETERMINED
Shares are purchased at their net asset value per share. The Fund
calculates its net asset value (NAV) as follows:
(Value of Fund Assets) - (Fund Liabilities)
NAV = -------------------------------------------
Number of Outstanding Shares
Net asset value is determined as of the end of regular trading hours on
the New York Stock Exchange (currently 4:00 p.m. New York City time) on days
that the New York Stock Exchange is open.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the SAI.
INCOME AND CAPITAL GAIN DISTRIBUTIONS
Dividends from net investment income, if any, are declared annually.
The Fund intends to distribute annually realized net capital gains, after
utilization of capital loss carry-forwards, if any, to prevent application of a
federal excise tax. However, it may make an additional distribution any time
prior to the due date, including extensions, of filing its tax return, if
necessary to accomplish this result. Any dividends or net capital gain
distributed pursuant to a dividend declaration declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. Unless you elect
otherwise, dividends and capital gains distributions will be reinvested in
additional shares of the Fund at no charge. Changes in your election regarding
receipt of dividends and distributions must be sent to the Transfer Agent. The
election will be effective for distributions with a dividened record date on or
after the date that the Transfer Agent receives notice of the election.
Shareholders will be subject to tax on all dividends and distributions whether
paid to them or reinvested in shares of the Fund. If an investment in Fund
shares is made by a retirement plan, all dividends and capital gains
distributions must be reinvested into an account of such plan.
TAXES
Generally, dividends from net investment income are taxable to
investors as ordinary income. If a portion of the Fund's income consists of
dividends from U.S. corporations, a portion of the dividends paid by the Fund
may qualify for the corporate dividends-received deduction.
Long-term capital gains distributions, if any, are taxable as net
long-term capital gains when distributed regardless of the length of time
shareholders have owned their shares. Net short-term capital gains and any other
taxable income distributions are taxable as ordinary income.
The Fund sends detailed tax information about the amount and type of
its distributions to its shareholders by January 31 of the year following the
distributions.
Upon a sale or exchange of Fund shares, shareholders generally will
realize a capital gain or loss which will be long-term or short-term, generally
depending on how long they held their shares.
If shares are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
17
<PAGE>
The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the value of its assets
at the close of its taxable year consists of stock or securities in foreign
corporations, it may elect to pass through to its shareholders the ability to
claim a deduction or credit for the amount of foreign withholding tax paid by
the Fund.
On the Account Application, the shareholder must provide the
shareholder's taxpayer identification number ("TIN"), certify that it is correct
and certify that the shareholder is not subject to backup withholding under
Internal Revenue Service ("IRS") rules. If the shareholder fails to provide a
correct TIN or the proper certifications, the Fund will withhold 31% of all
distributions and redemption proceeds payable to the shareholder. The Fund will
also begin backup withholding on a shareholder's Fund account if the IRS
instructs the Fund to do so. The Fund reserves the right not to open a
shareholder's account or, if an account is already opened, to redeem a
shareholder's shares at the current NAV, less any taxes withheld, if the
shareholder fails to provide a correct TIN, fails to provide the proper
certifications, or the IRS advises the Fund to begin backup withholding on the
shareholder's Fund account.
Fund distributions may also be subject to state, local or foreign
taxes. You should consult your tax adviser before investing in the Fund.
ORGANIZATION AND DESCRIPTION OF COMMON STOCK
The Company was incorporated on November 5, 1997 as a Maryland
corporation and is authorized to issue up to 250,000,000 shares of common stock,
par value $0.01 per share. The authorized shares of the Fund are currently
divided into three classes designated Class A common stock, Class B common stock
and Class R common stock. The Company's Board of Directors may also, without
shareholder approval, increase or decrease the number of authorized but unissued
shares of common stock. Each class of shares represents an interest in the same
assets of the Fund and is identical in all respects except that (i) each class
is subject to different sales charges and distribution and service fees, which
may affect performance, and (ii) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class. With the
exceptions noted above, each of the Fund's shares has equal dividend,
distribution, liquidation and voting rights. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares of the
Company when duly issued will be fully paid and nonassessable. The rights of the
holders of shares of common stock may not be modified except by the vote of a
majority of the shares outstanding. The Company is empowered to establish,
without shareholder approval, additional portfolios, which may have different
investment objectives, or additional classes of shares.
Each outstanding share of the Company is entitled to one vote for each
full share of stock and a fractional vote for fractional shares of stock. All
shareholders vote on matters that concern the Company as a whole. The Company is
not required to hold a meeting of shareholders each year, and may elect not to
hold a meeting in years when no meeting is necessary. The shareholders of the
Fund vote separately on matters that affect only the interests of the Fund and
the shareholders of a class vote separately on matters that affect only the
interests of the class. The Company's shares do not have cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect all of the Directors if they choose to do
so.
18
<PAGE>
TO OBTAIN MORE INFORMATION
For further information on the TANAKA Growth Fund, please contact
TANAKA Funds, Inc. toll-free at 877-4-TANAKA. Additional information may also be
obtained by requesting a copy of the Fund's SAI.
Investment Adviser: Tanaka Capital Management, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
Distributor: AmeriPrime Financial Securities, Inc.
1793 Kingswood Drive, Suite 200
Southlake, Texas 76092
Counsel: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Independent Auditors: McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
Transfer Agent: For account information, wire purchases or
redemptions, call 877-4-TANAKA (toll-free)
or write to the
Fund's Transfer Agent:
Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204
More Information: For general information on the Fund, call toll-free at
877-4-TANAKA.
No dealer, sales representative or any other person has been authorized
to give any information or to make any representations, other than those
contained in this Prospectus, in connection with the offer made by this
Prospectus and, if given or made, such other information or representations must
not be relied upon as having been authorized by the Fund or any distributor.
This Prospectus does not constitute an offer by the Fund or any distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
This Prospectus, including the Statement of Additional Information
which has been incorporated by reference herein, does not contain all the
information set forth in the Registration Statement filed by the Fund with the
SEC under the Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge at the offices of the SEC in Washington, DC
(http://www.sec.gov).
19
<PAGE>
TANAKA Growth Fund
A "Series" of TANAKA Funds, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
877-4-TANAKA (Toll-Free)
PROSPECTUS
December ___, 1998
This Prospectus offers shares of the TANAKA Growth Fund (the "Fund"), a
non-diversified series of TANAKA Funds, Inc. (the "Company"), an open-end
management investment company commonly known as a "mutual fund." The Company is
currently composed of one series, the Fund.
This Prospectus relates only to the Class A and Class B shares of the
Fund and sets forth concisely information about the Fund which a prospective
investor should know before investing. It should be read and retained for future
reference. A Statement of Additional Information ("SAI") dated December __,
1998, as may be amended from time to time, containing additional and more
detailed information about the Fund, has been filed with the Securities and
Exchange Commission (the "SEC") and is hereby incorporated by reference into
this Prospectus. It is available without charge and can be obtained by writing
to TANAKA Funds, Inc., P.O. Box 6110, Indianapolis, Indiana 46206 or calling the
telephone number printed above.
The Fund also offers Class R shares which are subject to expenses
different from those of the Class A and Class B shares. A prospectus for the
Class R shares can be obtained by writing to TANAKA Funds, Inc., P.O. Box 6110,
Indianapolis, Indiana 46206 or calling the telephone number printed above.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary.............................................................
Fund Expenses..................................................................
Investment Objective...........................................................
Investment Policies............................................................
Fundamental Investment Restrictions............................................
Investment Techniques..........................................................
The Fund's Management..........................................................
Distribution and Service Plans.................................................
Choosing a Class of Shares.....................................................
Purchases and Redemptions of Shares............................................
Purchase and Redemption Procedures.............................................
Special Shareholder Services...................................................
Fund Performance...............................................................
How Net Asset Value Is Determined..............................................
Income and Capital Gain Distributions..........................................
Taxes..........................................................................
Organization and Description of Common Stock...................................
To Obtain More Information.....................................................
<PAGE>
TANAKA Growth Fund
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus.
Investment Objective: The investment objective of the TANAKA Growth
Fund (the "Fund") is growth of capital. As with any mutual fund, there is no
assurance that the Fund will achieve its objective.
Investment Policies: In furtherance of its investment objective, the
Fund invests primarily in common stocks and other equity securities of companies
with large, medium and small market capitalizations. The Fund will normally
invest at least 75% of its net assets, measured at the time of investment, in
domestic securities, but may also invest up to 25% of its net assets, measured
at the time of investment, in foreign securities, including multinational and
emerging market securities. See "Investment Policies" on page __.
Investment Adviser: Tanaka Capital Management, Inc. (the "Investment
Adviser") is the investment adviser of the Fund. See "The Fund's Management" on
page __.
Distributions: Distributions are declared and paid annually from
available capital gains and income. See "Income and Capital Gain Distributions"
on page __.
Reinvestment: Unless you elect otherwise, distributions are reinvested
automatically without a sales charge. See "Income and Capital Gain
Distributions" on page __.
Initial Purchase: $1,000 minimum. See "Purchases and Redemptions of
Shares" on page __.
Subsequent Purchases: $500 minimum. See "Purchases and Redemptions of
Shares" on page __.
Net Asset Value: The net asset value per share of the Fund is
calculated on each day that the New York Stock Exchange is open for trading. You
may obtain the current net asset value per share of the Fund by calling
toll-free at 877-4-TANAKA. See "How Net Asset Value is Determined" on page __.
Sales Charge or Redemption Fees: Class A shares are subject to an
initial sales charge of up to 4.50% of the offering price of the shares
depending on the amount invested. Class B shares are offered at net asset value
without an initial sales charge. The Fund imposes a contingent deferred sales
charge ("CDSC") on Class B shares of 5% on shares redeemed during the first year
after purchase, 4% on shares redeemed during the second or third year after
purchase, 2% on shares redeemed during the fourth or fifth year after purchase
and 1% on shares redeemed during the sixth year after purchase. Class B shares
may be redeemed without a sales charge during or after the seventh year
following the purchase. Class B shares of the Fund automatically convert to
Class A shares at the end of the month which precedes the 8th anniversary of the
purchase date. See "Choosing a Class of Shares" on page __.
Principal Risk Factors: Investment in any mutual fund has inherent
risks. There can be no assurance that the investment objective of the Fund will
be realized or that the Fund's portfolio will not decline in value. Economic
conditions change and stock markets are volatile. If the Investment Adviser
judges market conditions incorrectly, the Fund's portfolio may decline in value.
Moreover, investors should be aware that certain investment policies of the
Fund, such as investing in illiquid and foreign
<PAGE>
securities, can entail greater than average risk to the extent such policies and
techniques are implemented. These policies and techniques are described under
the headings "Investment Policies" and "Investment Techniques" on pages __
through __.
<TABLE>
<CAPTION>
FUND EXPENSES
Shareholder Transaction Expenses Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.5%(1) None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
(and other distributions)
Maximum Contingent Deferred Sales Charge 0%(2) 5%(3)
(as a percentage of the lesser of the net asset
value of shares redeemed or their original purchase price)
Redemption Fees None None
</TABLE>
- ------------------
(1) Sales charges are reduced for large purchases.
(2) A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following purchases without a
sales charge.
(3) The contingent deferred sales charge is 5% on shares redeemed during the
first year after purchase, 4% on shares redeemed during the second and
third years after purchase, 2% on shares redeemed during the fourth and
fifth years after purchase, 1% on shares redeemed during the sixth year
after purchase and 0% thereafter. Class B shares of the Fund
automatically convert to Class A shares at the end of the month which
precedes the 8th anniversary of the purchase date.
Annual Fund Operating Expenses (as % of average net assets)
Class A Class B
------- -------
Management Fee 1.00% 1.00%
12b-1 Fees* 0.00% 0.75%
Service Fees 0.25% 0.25%
Other Operating Expenses 0.50% 0.50%
----- -----
Total Fund Operating Expenses 1.75% 2.50%
- ------------------
* Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
For expense information about the Class R shares of the Fund, see the
separate prospectus relating to that class.
2
<PAGE>
Example
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods assuming a 5% annual rate
of return.
<TABLE>
<CAPTION>
Year 1 Year 3
------ ------
<S> <C> <C>
Class A $62 $ 98
Class B
Assuming redemption at the end of each period $77 $121
Assuming no redemption at the end of each period $25 $ 78
</TABLE>
These examples should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or lesser than
those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses associated with the Fund's Class A and Class B shares
that they will bear directly or indirectly. The assumption in the Example of a
5% annual return is required by regulations of the SEC applicable to all mutual
funds. The assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of the Fund's shares. "Other
Expenses" are based on estimated amount for the Fund's current fiscal year.
INVESTMENT OBJECTIVE
The investment objective of the Fund is growth of capital. Given the
Fund's objective to achieve growth of capital, investment in the Fund may be
best suited to investors who are not concerned with current income. The Fund is
not intended by itself to constitute a balanced investment program.
The Fund is designed for investors seeking long-term total return
through a professionally managed portfolio that normally represents a mix of
large, medium and small capitalization equity securities. The purpose of an
investment in the Fund should be to participate in a portfolio selected by an
experienced portfolio management organization with an emphasis on research of
growth potential for companies and markets. The Fund provides an easy and
efficient way of investing in a carefully selected, continuously managed
portfolio of equity securities.
There is no assurance that the investment objective can be achieved.
INVESTMENT POLICIES
General
In furtherance of its investment objective, the Fund invests primarily in
common stocks and other equity securities. Equity securities consist of common
stocks as well as warrants, rights and securities which are convertible into
common stocks, such as convertible preferred stock and convertible bonds. The
Fund will normally invest at least 75% of its net assets, measured at the time
of investment, in domestic securities, but may also invest up to 25% of its net
assets, measured at the time of investment, in foreign securities, including
multinational and emerging market securities. Depending upon the Investment
Adviser's assessment of the prospects, the Fund's assets, measured at the time
of investment, may be invested temporarily, and without limitation, in high
grade money market instruments and U.S. Government obligations for defensive
purposes or to accommodate inflows of cash awaiting more permanent investment.
3
<PAGE>
Generally, the Fund invests in equity securities of companies that are
diversified across a variety of industries and may be expected to have large,
medium and small market capitalizations. The Fund's investments in equity
securities will generally consist of issues which the Investment Adviser
believes have capital growth potential due to factors such as rapid growth in
demand in existing markets, expansion into new markets, new product
introductions, reduced competitive pressures, cost reduction programs, changes
in management, and other fundamental changes which may result in improved
earnings growth or increased asset values.
The Investment Adviser relies on research, management meetings and
industry contacts to identify companies with above-average long-term earnings
growth potential that could exceed market expectations. The Investment Adviser
also identifies industries that are positioned to participate in strong
demographic, societal or economic trends and looks for companies within those
industries that have a particular competitive advantage or niche. Stocks and
other equity securities are subject to the risk that specific stocks, industry
groups, or the prices of equity securities in general, will decline in value
over short or even extended periods of time.
Foreign Securities
The Fund expects to invest primarily in the securities of companies
domiciled in the United States, although the Fund may also invest up to 25% of
its net assets, measured at the time of investment, in securities of foreign
issuers which meet the same criteria for investment as domestic companies. See
"Investment Policies--General." Such investments may be made directly in such
issuers or indirectly through American Depositary Receipts ("ADRs"), American
Depositary Shares ("ADSs") or open and closed-end investment companies. See
"Investment Policies--Other Investment Companies." It is possible that some
material information about unsponsored ADRs and ADSs will not be available.
Foreign securities involve certain inherent risks that are different
from those of domestic issuers, including political or economic instability of
the issuer or the country of issue, diplomatic developments which could affect
U.S. investments in those countries, changes in foreign currency and exchange
rates and the possibility of adverse changes in investment or exchange control
regulations. Currency fluctuations will affect the net asset value of the Fund
irrespective of the performance of the underlying investments in foreign
issuers. In addition, there may be less publicly available information about a
foreign issuer than about a domestic issuer, and foreign issuers may not be
subject to the same accounting, auditing and financial recordkeeping standards
and requirements as domestic issuers. Most foreign stock markets are not as
large or liquid as in the United States; fixed commissions on foreign stock
exchanges are generally higher than the negotiated commissions on U.S.
exchanges; and there is generally less government supervision and regulation of
foreign stock exchanges, brokers and companies than in the United States.
Foreign governments can also levy confiscatory taxes, expropriate assets, and
limit repatriations of assets. As a result of these and other factors, foreign
securities purchased by the Fund may be subject to greater price fluctuation
than securities of U.S. companies.
Convertible Securities
The Fund may invest in convertible securities. A convertible security
is a fixed-income security (a bond or preferred stock) that may be converted at
a stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Through their conversion
feature, convertible securities provide an opportunity to participate in capital
appreciation resulting from an increase in the value of a convertible security's
underlying common stock. The value of a convertible security is influenced by
the market value of the underlying common stock and tends to increase as the
4
<PAGE>
market value of the underlying stock rises, and tends to decrease as the market
value of the underlying stock declines. For purposes of considering convertible
securities for purchase by the Fund, the Investment Adviser evaluates
convertible securities by standards applicable to equity securities and not by
debt securities ratings.
Other Investment Companies
Subject to investment limitations stated in the SAI, the Fund may
invest in shares of open- and closed-end investment companies that acquire
equity securities of issuers in emerging markets countries. By investing in
shares of such investment companies, the Fund would indirectly pay a portion of
the operating expenses, management expenses, and brokerage costs of such
companies, as well as those of the Fund. Federal securities laws impose limits
on such investments with which the Fund will comply, and may affect the ability
of the Fund to acquire or dispose of such shares.
Warrants and Rights
The Fund may invest up to 5% of its net assets, measured at the time of
investment, in warrants or rights, valued at the lower of cost or market, which
entitle the holder to buy equity securities during a specific period of time.
The Fund will make such investments only if the underlying equity securities are
deemed appropriate by the Investment Adviser for inclusion in the Fund's
portfolio.
Illiquid or Restricted Securities
The Fund may invest up to 15% of its net assets, measured at the time
of investment, in illiquid securities, for which there is a limited trading
market and for which a low trading volume of a particular security may result in
abrupt and erratic price movements. The Fund may be unable to dispose of its
holdings in illiquid securities at acceptable prices and may have to dispose of
such securities over extended periods of time. The Fund may invest in (i)
securities that are sold in private placement transactions between their issuers
and their purchasers and that are neither listed on an exchange nor traded
over-the-counter, and (ii) securities that are sold in transactions between
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933, as amended. Such securities are subject to contractual or legal
restrictions on subsequent transfer. As a result of the absence of a public
trading market, such restricted securities may in turn be less liquid and more
difficult to value than publicly traded securities. Although these securities
may be resold in privately negotiated transactions, the prices realized from the
sales could, due to illiquidity, be less than those originally paid by the Fund
or less than their fair value and in some instances, it may be difficult to
locate any purchaser. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements that may be applicable if their securities were publicly traded. If
any privately placed or Rule 144A securities held by the Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration.
Securities which are freely tradable under Rule 144A may be treated as liquid if
the Board of Directors of the Company is satisfied that there is sufficient
trading activity and reliable price information. Investing in Rule 144A
securities could have the effect of increasing the level of illiquidity of the
Fund's portfolio to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such 144A securities.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions that are
characterized as fundamental policies which cannot be changed without the
affirmative vote of the lesser of (1) 67% or more of the voting
5
<PAGE>
securities present at a shareholders meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy at such meeting; or (2) more than 50% of the outstanding voting securities
of the Fund. A complete statement of the Fund's investment restrictions, both
fundamental and non-fundamental, is set forth in the SAI.
In order to provide a degree of flexibility, the Fund's investment
objective, as well as its investment policies, may be modified by the Board of
Directors without shareholder approval. Any change in the Fund's investment
objective and investment policies may result in the Fund having an investment
objective and investment policies different from those which the shareholder
considered appropriate at the time of investment in the Fund. However, the Fund
will not change any of its investment objective, policies or non-fundamental
investment restrictions without written notice to shareholders sent at least 30
days in advance of any such change.
INVESTMENT TECHNIQUES
Repurchase Agreements
Although not normally anticipated to be widely employed, repurchase
agreements may be entered into by the Fund for incremental income purposes.
The Fund may enter into repurchase agreements with any foreign or
domestic bank or broker/dealer if the bank or broker/dealer has been rated
within the two highest grades assigned by Standard & Poor's Corporation or
Moody's Investors Service, Inc. or has been determined by the Investment Adviser
to be of equivalent quality. The Investment Adviser is responsible for
monitoring compliance with this rating standard during the term of any
repurchase agreement. The Fund will not enter into repurchase agreements with
entities other than banks or broker/dealers or invest over 5% of its assets,
measured at the time of investment, in repurchase agreements with maturities of
more than seven days.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Fund acquires a security and the seller agrees, at the time of sale, to
repurchase the security at a specified time and price. Securities subject to a
repurchase agreement are held in a segregated account and the value of such
securities is kept at least equal to the repurchase price on a daily basis. The
repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase price may be the same, with
interest at a stated rate. In either case, the income to the Fund is unrelated
to the interest rate on the security itself.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), which means the
Fund is not limited by the 1940 Act in the proportion of its assets that may be
invested in the securities of a single issuer. However, the Fund intends to
conduct its operations so as to qualify as a regulated investment company for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), which
generally will relieve the Fund of any liability for Federal income tax to the
extent its earnings are distributed to shareholders. See "Taxes." To so qualify,
among other requirements, the Fund will limit its investments so that, at the
close of each quarter of the taxable year, (i) not more than 25% of the market
value of the Fund's total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its total assets,
not more than 5% of the market value of its total assets will be invested in the
securities of an single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer.
6
<PAGE>
To the extent that the Fund is less diversified, it may be more
susceptible to adverse economic, political, or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified.
Concentration
To reduce investment risk, as a matter of fundamental policy, the Fund
may not invest 25% or more of its net assets, measured at the time of
investment, in issuers conducting their principal business in the same industry.
THE FUND'S MANAGEMENT
Board of Directors
The Company's Board of Directors is responsible for the supervision of
the general business of the Company and the Fund. The Board of Directors
approves all significant agreements between the Fund and persons or companies
furnishing services to it, including the Fund's agreements with its investment
adviser, administrator, fund accountant, transfer agent and custodian. The
management of the Fund's day-to-day operations is delegated to its officers, the
Investment Adviser and the administrator, subject always to the investment
objective and policies of the Fund and to general supervision by the Board of
Directors. Biographical information for each of the Directors of the Company is
set forth below.
Graham Y. Tanaka, Chairman, Chief Executive Officer and President of the Company
Mr. Tanaka is currently the President of Tanaka Capital Management,
Inc. ("Tanaka Capital"), the Fund's investment adviser, having founded the firm
in December 1986. From 1973 until 1978, Mr. Tanaka was a research analyst at
Morgan Guaranty Trust. He then worked at Fiduciary Trust Company of New York as
Vice President from 1978-1980. Prior to launching Tanaka Capital, Mr. Tanaka
served as Chairman at Milbank Tanaka & Associates from 1980 to 1986. He is a
member of The Electronic Analyst Group and also a member of the Healthcare
Analyst Association. Mr. Tanaka currently serves on the boards of TransAct
Technologies, Inc. and Tridex Corporation. He is a 1971 graduate of Brown
University (BS, BA), a 1973 graduate of Stanford University (MBA) and a
Chartered Financial Analyst (CFA).
Charles A. Dill, Director
Mr. Dill is a General Partner of Gateway Associates, a St. Louis-based
venture capital firm. From 1991 until 1995, Mr. Dill served as President, Chief
Executive Officer and Director of Bridge Information Systems. From 1988 to 1991,
Mr. Dill was President, Chief Operating Officer and Director of AVX Corporation.
Prior to 1988, Mr. Dill was Senior Vice President and a member of the Office of
the Chief Executive of Emerson Electric. Mr. Dill serves on the boards of Stifel
Financial Corp., Zoltek, TransAct Technologies, Inc., Pinnacle Automation and DT
Industries, as well as the boards of several private companies. He is a 1961
graduate of Yale University (BSME) and a 1963 graduate of Harvard University
(MBA).
David M. Fox, Director
Mr. Fox has been Unapix Entertainment's President, Chief Executive
Officer and a Director since March 1992. From June 1991 until joining Unapix
Entertainment, he was the Chief Executive Officer of David Fox and Associates, a
company which he founded and which provided international programming consulting
services and acted as United States sales agent for producers worldwide. From
1981 until June 1991, Mr. Fox served as Chief Executive Officer and head of
Domestic Syndication and Cable Television for Fox/Lorber Associates, Inc.
("Fox/Lorber"), a corporation which he co-founded and which engaged in
7
<PAGE>
the worldwide distribution of feature films, home video and television programs.
From March 1990 to June 1991, Mr. Fox also served as Director of GAGA
Communications, a Japanese company engaged in home video and theatrical
distribution. Prior to founding Fox/Lorber, Mr. Fox was Eastern and Midwest
Sales Manager for D.L. Taffner Ltd., syndicator of Three's Company and The Benny
Hill Show. He is a 1970 graduate of Brown University (BA) and a 1974 graduate of
Harvard (MBA).
Thomas R. Schwarz, Director
Mr. Schwarz was President and Chief Operating Officer of Dunkin Donuts
Inc. (1966-1989); Chairman of the Board and Chief Executive Officer of Grossmans
Inc. (1989-1994) and retired in 1994. Mr. Schwarz currently sits on the
following boards: TransAct Technologies, Inc., Tridex Corporation, A&W
Restaurants, Lebhar-Friedman Publishing and Foilmark Inc. He is a 1958 graduate
of Williams College (BA) and a 1964 graduate of Harvard University (MBA).
Scott D. Stooker, Director
Mr. Stooker has been the owner and President of 1st Team Communications
Inc. since 1990. He has served as a member on the board of directors of The
Advertising Club of Delaware, Big Brothers/Little Sisters of Delaware, and
currently serves on the board of Saint Anthony's Community Center. He is a 1976
graduate of University of Kansas (BSJ, BFA).
Investment Adviser
Tanaka Capital Management, Inc. (the "Investment Adviser"), a
registered investment adviser, located at 230 Park Avenue, Suite 960, New York,
New York 10169, manages the investments of the Fund pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"), dated December __, 1998. The
Advisory Agreement is effective for an initial term of two years and thereafter
may be renewed annually by the Board of Directors of the Fund.
The Investment Adviser is a Delaware corporation organized in 1986. In
addition to the assets of the Fund, the Investment Adviser and its affiliates
manage other assets of approximately $170 million. In addition to the Fund, the
Investment Adviser's advisory clients include pension plans, endowments,
foundations and individuals. Many of the accounts which are managed or advised
by the Investment Adviser for these clients have investment objectives which may
vary only slightly from those of each other and those of the Fund. The
Investment Adviser expects to invest assets from those accounts in investments
substantially similar to those which constitute the principal investments of the
Fund. Those accounts are supervised by officers and employees of the Investment
Adviser who may also be acting in similar capacities for the Fund. It is the
policy of the Investment Adviser to allocate advisory recommendations and the
placing of orders in a manner which is deemed equitable by the Investment
Adviser to the accounts involved, including the Fund. Graham Y. Tanaka is the
portfolio manager and President of the Fund, and owns 100% of the common stock
of the Investment Adviser. Mr. Tanaka has approximately 12 years of experience
managing a mutual fund portfolio, and has approximately 18 years of experience
managing investment portfolios for private clients.
Pursuant to the Advisory Agreement, the Investment Adviser executes the
purchase and sale orders for the portfolio transactions of the Fund and
generally manages the investment and reinvestment of the Fund's assets in
accordance with the stated policies of the Fund, subject to the general
supervision of the Company's Board of Directors. For its services under the
Advisory Agreement, the Investment Adviser is paid a fee to be accrued daily at
an annual rate of 1.00% of the average daily net assets of the Fund.
8
<PAGE>
Administrator
AmeriPrime Financial Services, Inc. (the "Administrator"), 1793
Kingswood Drive, Suite 200, Southlake, Texas 76092, serves as administrator to
the Fund pursuant to an Administrative Services Agreement, dated December __,
1998 (the "Administration Agreement"). The Administrator provides certain
recordkeeping, administrative and shareholder servicing functions required of
registered investment companies. The Administrator may furnish personnel to act
as the Fund's officers to conduct the Fund's business subject to the supervision
and instructions of the Board of Directors of the Company.
The Administration Agreement provides that the Fund will pay the
Administrator at an annual rate of 0.10% of the average daily net assets of the
Fund up to $50 million, 0.075% of the average daily net assets of the Fund in
excess of $50 million and up to $100 million and 0.050% of the average daily net
assets of the Fund in excess of $100 million, subject to a minimum fee of $2,500
per month.
Custodian
Star Bank, N.A. (the "Custodian"), 425 Walnut Street, Cincinnati, Ohio
45202, is the custodian for the Fund. The Custodian collects income when due and
holds all of the Fund's portfolio securities and cash. The Custodian is
authorized to appoint other entities to act as sub-custodians to provide for the
custody of foreign securities which may be acquired and held by the Fund outside
the United States.
Fund Accountant and Transfer and Dividend Disbursing Agent
Unified Fund Services, Inc. (the "Transfer Agent" or "Unified"), 431
North Pennsylvania Street, Indianapolis, Indiana 46204, is the Fund's fund
accountant and transfer and dividend disbursing agent. In addition to providing
fund accounting services to the Fund, the Transfer Agent provides all the
necessary facilities, equipment and personnel to perform the usual and ordinary
services of transfer and dividend disbursing agent, including: receiving and
processing orders and payments for purchases of the Fund's shares, opening
shareholder accounts, preparing shareholder meeting lists, mailing proxy
material, receiving and tabulating proxies, mailing shareholder reports and
prospectuses, withholding certain taxes on non-resident alien accounts,
disbursing income dividends and capital distributions, preparing and filing U.S.
Treasury Department Form 1099 (or equivalent) for all shareholders, preparing
and mailing confirmation forms to shareholders for all purchases and redemptions
of shares and all other confirmable transactions in shareholders' accounts, and
recording reinvestment of dividends and distributions of the Company's shares.
Under a Mutual Fund Services Agreement between the Company and the Transfer
Agent, dated December __, 1998, the Transfer Agent is compensated pursuant to a
schedule of fees for its services, and by reimbursement for out-of-pocket
expenses. The schedule calls for a minimum payment by the Fund of $15,000 per
year plus $7,500 per year per additional class.
Distributor
AmeriPrime Financial Securities, Inc. (the "Distributor" or
"AmeriPrime"), 1793 Kingswood Drive, Suite 200, Southlake, Texas 76092, acts as
a distributor of the Fund's shares pursuant to a Distribution Agreement dated
December __, 1998.
Year 2000 and Conversion to the Euro
The Fund could be adversely affected if the computer systems used by
the Investment Adviser and other service providers (and in particular, foreign
service providers) to the Fund do not properly process and calculate
date-related information and data from and after January 1, 2000 (the "Year 2000
Problem")
9
<PAGE>
or information regarding the new common currency of the European Union. The Year
2000 Problem and Euro conversion issues also may adversely affect the Fund's
investments. The Investment Adviser and the Administrator are taking steps to
address the Year 2000 Problem and issues surrounding the conversion to the Euro
for their computer systems and to obtain reasonable assurances that comparable
steps are being taken by the Fund's other major service providers. While the
Fund does not anticipate any adverse effect on its computer systems from the
Year 2000 and Euro conversion issues, there can be no assurance that these steps
will be sufficient to avoid any adverse impact on the Fund.
The Year 2000 Problem is expected to impact corporations, which may
include issuers of portfolios securities held by the Fund, to varying degrees
based upon various factors, including, but not limited to, the corporation's
industry sector and degree of technological sophistication. In this regard, the
Fund is permitted to invest in issuers located in foreign countries or emerging
markets. Such issuers may not be applying the same diligence to the Year 2000
Problem as are issuers in countries such as the United States. Although the
Investment Adviser considers publicly available information regarding an
issuer's Year 2000 compliance when selecting portfolio securities, such
information may not be available, particularly with respect to foreign issuers.
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a Service Plan pursuant to Rule 12b-1 under the
1940 Act for the Class A shares of the Fund and a Distribution and Service Plan
pursuant to Rule 12b-1 under the 1940 Act for the Class B shares of the Fund
(each a "Plan"). Under the Plans, the Fund may pay a service fee at an annual
rate not to exceed 0.25% of the average daily value of the Fund's net assets
attributable to the Class A shares and Class B shares.
The services for which service fees may be paid include, among other
things, advising clients or customers regarding the purchase, sale or retention
of shares of the Fund, answering routine inquiries concerning the Fund,
assisting shareholders in changing options or enrolling in specific plans and
providing shareholders with information regarding the Fund and related
developments. Pursuant to each Plan, service fee payments made out of or charged
against the assets attributable to the Fund's Class A or Class B shares must be
in reimbursement for services rendered for or on behalf of the affected class.
The expenses not reimbursed in any one month may be reimbursed in a subsequent
month.
Under the Fund's Class B Plan, the Fund may also pay a distribution
fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average
daily net assets attributable to its Class B shares. The distribution fee
compensates a distributor for expenses incurred in connection with activities
primarily intended to result in the sale of the Fund's Class B shares,
including, but not limited to, compensation to broker-dealers that have entered
into a Dealer Agreement with the distributor; compensation to and expenses of
employees of the distributor who engage in or support distribution of the Fund's
Class B shares; telephone expenses; interest expense; printing of prospectuses
and reports for other than existing shareholders; and preparation, printing and
distribution of sales literature and advertising materials.
Administration of each Plan is regulated by Rule 12b-1 under the 1940
Act, which includes requirements that the Directors receive and review at least
quarterly reports concerning the nature and qualification of expenses which are
made, that the Directors approve all agreements implementing each Plan and that
each Plan may be continued from year-to-year only if the Directors conclude at
least annually that continuation of the Plan is likely to benefit shareholders.
10
<PAGE>
In approving each Plan, the Directors determined, in the exercise of
their business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
CHOOSING A CLASS OF SHARES
This Prospectus offers two classes of shares: Class A and Class B. Each
class has its own cost structure.
Although not currently being offered for sale, Class A shares are sold
to investors who prefer to pay an initial sales load and have the benefit of
lower continuing fees. Class B shares are sold to investors choosing to pay no
initial load, a higher distribution fee and a contingent deferred sales charge
with respect to redemptions within six years of purchase and who desire shares
to convert automatically to Class A shares after eight years.
Investors who expect to maintain their investment for an extended
period of time might choose to purchase Class A shares because over time the
accumulated continuing distribution fees of Class B shares may exceed the
initial sales load and lower on-going fee of Class A shares. This consideration
must be weighed against the fact that the amount invested in the Fund will be
reduced by the initial sales load on Class A shares deducted at the time of
purchase. Furthermore, the distribution fees on Class B shares will be offset to
the extent any return is realized on the additional funds initially invested in
Class B shares that would have been equal to the amount of the initial sales
load on Class A shares.
Investors who qualify for reduced initial sales loads might also choose
to purchase Class A shares because the sales load deducted at the time of
purchase would be waived. However, investors should consider the effect of the
1% contingent deferred sales charge imposed on shares on which the initial sales
load was waived because the amount of Class A shares purchased was $1 million or
more. In addition, Class B shares will be converted automatically to Class A
shares after a period of approximately eight years, and thereafter investors
will be subject to lower ongoing fees. Shares purchased through reinvestment of
dividends and distributions on Class B shares also will convert automatically to
Class A shares along with the underlying shares on which they were earned.
Investors should bear in mind that total asset based sales charges
(i.e., the higher continuing distribution fee plus the contingent deferred sales
charge) on Class B shares that are redeemed may exceed the total asset based
sales charges that would be payable on the same amount of Class A shares,
particularly if the Class B shares are redeemed shortly after purchase or if the
investor qualifies for a reduced sales load on the Class A shares.
Investors should understand that the purpose and function of the
initial sales loads (and deferred sales charges, when applicable) with respect
to Class A shares is the same as those of the deferred sales charges and higher
distribution fees with respect to Class B shares in that the sales charges and
distribution fees applicable to each class provide for the financing of the
distribution of the shares of the Fund.
The two classes of shares represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears its separate distribution and, potentially, certain
other class expenses and has exclusive voting rights with respect to any matter
to which a separate vote of any class is required by the 1940 Act or Maryland
law. The net income attributable to each class and dividends payable on the
shares of each class will be reduced by the amount of distribution
11
<PAGE>
and other expenses of each class. Class B shares bear higher distribution fees,
which will cause the Class B shares to pay lower dividends than the Class A
shares.
Each class has advantages and disadvantages for different investors,
and investors should choose the class that best suits their circumstances and
their objectives. Dealers and agents may receive different compensation for
selling Class A or Class B shares.
Class A Shares -- Initial Sales Charge
An initial sales charge may apply, as described below, when purchasing
Class A shares of the Fund. Sales charges may be reduced for large purchases as
indicated below.
<TABLE>
<CAPTION>
Sales Charge Dealer
A Percentage Concession
Net as Percentage of
Offering Amount Offering
Investment Amount Price Invested Price
----- -------- -----
<S> <C> <C> <C>
Less than $100,000 ............................................ 4.50% 4.71% 4.00%
$100,000 but less than $250,000 ............................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000................................ 2.75% 2.83% 2.50%
$500,000 but less than $1 million.............................. 2.25% 2.30% 2.00%
$1 million or more and certain other see below see below see below
investments described below .................................
</TABLE>
Investments of $1 million or more are sold with no initial sales
charge. A 1% contingent deferred sales charge may be imposed on certain
redemptions made within one year of purchase by Class A accounts of $1 million
or more. A dealer concession of up to 1% may be paid by a distributor on these
investments. Investments by certain individuals and entities including employees
and other associated persons of dealers authorized to sell shares of the Fund
and the Investment Adviser are not subject to a sales charge (see "Sales at Net
Asset Value" below).
Reducing the Sales Charge. As shown in the table above, the size of the
total investment in the Class A shares of the Fund will affect the sales charge.
Described below are several methods to reduce the applicable sales charge. In
order to obtain a reduction in the sales charge, an investor must notify, at the
time of purchase, his dealer, the Transfer Agent or the Investment Adviser of
the applicability of one of the following:
Rights of Aggregation. The investment schedule above applies to the
total amount being invested by any "person," which term includes an individual,
his spouse and children under the age of 21, a trustee or other fiduciary
purchasing for a single trust, estate or single fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under the Code) although more than one beneficiary is involved,
or any United States bank or investment adviser purchasing shares for its
investment advisory clients or customers. Any such person purchasing for several
accounts at the same time may combine these investments into a single
transaction in order to reduce the applicable sales charge.
Rights of Accumulation. The Class A shares of the Fund may be purchased
at a reduced sales charge by a "person" (as defined above) who is already a
shareholder by taking into account not only the
12
<PAGE>
amount then being invested, but also the current net asset value of the shares
of the Fund already held by such person. If the current net asset value of the
qualifying shares already held plus the net asset value of the current purchase
exceeds a point in the schedule of sales charges at which the charge is reduced
to a lower percentage, the entire current purchase is eligible for the reduced
charge. To be entitled to a reduced sales charge pursuant to the Rights of
Accumulation, the investor must notify his dealer, the Transfer Agent or the
distributor at the time of purchase that he wishes to take advantage of such
entitlement, and give the numbers of his account, and those accounts held in the
name of his spouse or for a minor child, and the specific relationship of each
such other person to the investor.
Letter of Intention. An investor may also qualify for a reduced sales
charge by completing a Letter of Intention (the "Letter") set forth on a
separate form for this purpose which is available from the Fund. This enables
the investor to aggregate purchases of shares of the Fund during a 12-month
period for purposes of calculating the applicable sales charge. All shares of
the Fund currently owned by the investor will be credited as purchases toward
the completion of the Letter at the greater of their net asset value on the date
the Letter is executed or their cost. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter. For each investment made,
the investor must notify his dealer, the Transfer Agent or the distributor that
a Letter is on file along with all account numbers associated with the Letter.
The Letter is not a binding obligation on the investor. However, 5% of
the amount specified in the Letter will be held in escrow, and if the investor's
purchases are less than the amount specified, the investor will be requested to
remit to the Fund an amount equal to the difference between the sales charge
paid and the sales charge applicable to the aggregate purchases actually made.
If not remitted within 20 days after written request, an appropriate number of
escrowed shares will be redeemed in order to realize the difference. However,
the sales charge applicable to the investment will in no event be higher than if
the shareholder had not submitted a Letter.
Sales at Net Asset Value. Class A shares of the Fund may be sold at net
asset value (i.e., without a sales charge) (i) to registered representatives or
employees (and their immediate families) of authorized dealers, or to any trust,
pension, profit-sharing or other benefit plan for only such persons, (ii) to
banks or trust companies or their affiliates when the bank, trust company, or
affiliate is authorized to make investment decisions on behalf of a client,
(iii) to investment advisers and financial planners who place trades for their
own accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services, (iv) to clients of such investment
advisers and financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker, agent, investment
adviser or financial institution, and (v) to retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to those defined in Section 401(a), 403(b) or 457 of the Code and "rabbi
trusts." Investors may be charged a fee if they effect transactions in Fund
shares through a broker or agent. Class A shares of the Fund may also be sold at
net asset value to current officers, directors and employees (and their
immediate families) of the Fund, the Investment Adviser, the distributor,
employees (and their immediate families) of certain firms providing services to
the Fund (such as the Custodian and the Administrator), and to any trust,
pension, profit-sharing or other benefit plan for only such persons. The Fund
may also issue Class A shares at net asset value in connection with the
acquisition of, or merger or consolidation with, another investment company.
The sales of Class A shares at net asset value described in this
section are made upon the written assurance of the purchaser that the purchase
is made for investment purposes and that the Class A shares will not be resold
except through redemption. Such notice must be given to the Transfer Agent or
the distributor at the time of purchase on a form for this purpose as available
from the Fund.
13
<PAGE>
Class B Shares -- Deferred Sales Charge Alternative
The Class B shares can be purchased at net asset value without an
initial sales charge. However, if the Class B shares are redeemed within six
years after purchase, they are subject to a contingent deferred sales charge
(expressed as a percentage of the lesser of the current net asset value or
original cost) which will vary according to the number of years from the
purchase of Class B shares until the redemption of those shares. The amount of
the contingent deferred sales charge on Class B shares is set forth below.
Year Since Purchase CDSC
Less than 1 year..................................... 5.0%
1 to 3 years........................................ 4.0%
3 to 5 years......................................... 2.0%
5 to 6 years......................................... 1.0%
6 years or more...................................... None
Class B shares are subject to higher distribution fees than Class A
shares for a period of eight years (after which they convert to Class A shares).
Shares purchased through reinvestment of dividends on Class B shares also will
convert automatically to Class A shares along with the underlying shares on
which they were earned. Conversion occurs at the end of the month which precedes
the eighth anniversary of the purchase date.
The higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Application of the Contingent Deferred Sales Charge
Shares obtained from dividend or distribution reinvestment are not
subject to the contingent deferred sales charge. The contingent deferred sales
charge, if applicable, is deducted from the amount of the redemption. The
contingent deferred sales charge will be waived on redemptions of shares
following the death or disability of a shareholder or to meet the requirements
of certain qualified retirement plans. See the SAI for more information.
General
In addition to the discount or commission paid to dealers, a
distributor may from time to time pay additional cash or other incentives to
dealers in connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, in some cases together with other
revenues of such dealers, to provide additional compensation to registered
representatives who sell shares of the Fund.
Reinstatement Privilege
If a shareholder redeems Class A shares and then decides to reinvest
them, the shareholder may, within 120 calendar days of the date of redemption,
use all or any part of the proceeds of the redemption to reinstate, free of an
initial sales charge, all or any part of the investment in Class A shares of the
Fund. If a shareholder redeems Class A shares and the redemption was subject to
a contingent deferred sales charge, the shareholder may reinstate all or any
part of the investment in shares of the same class of the Fund within 120
calendar days of the date of redemption and receive a credit for the applicable
contingent deferred sales charge paid. Such investment will be reinstated at the
net asset value per share established as of the close of trading on the New York
Stock Exchange on the day the request is received. The transfer agent must be
informed that the purchase represents a reinstated investment. Reinstated shares
must be registered exactly and be of the same class as the shares previously
redeemed; and the Fund's minimum initial investment amount must be met at the
time of reinstatement.
14
<PAGE>
Additional Class
In addition to offering Class A and Class B shares, the Fund offers
Class R shares, which are described in a separate prospectus. The Class R shares
are generally distributed directly by the Distributor and do not have a
front-end sales charge or a CDSC. To obtain the prospectus that describes the
Fund's Class R shares, contact the Fund by writing to TANAKA Funds, Inc., P.O.
Box 6110, Indianapolis, Indiana 46206 or calling the telephone number listed on
the front cover of this Prospectus.
PURCHASES AND REDEMPTIONS OF SHARES
General
The minimum initial investment to open a shareholder account of any
class is $1,000. The minimum amount for subsequent investments in any class is
$500. The Fund reserves the right to waive the minimums under certain
circumstances. The Fund's shares may be purchased through authorized dealers or
directly through a distributor such as AmeriPrime. An Account Application should
accompany this Prospectus. For accounts opened directly through AmeriPrime, a
completed and signed Account Application is required for the initial account
opened with the Fund.
You may purchase or redeem shares of the Fund at their net asset value,
less any applicable sales charges, on any weekday except days when the New York
Stock Exchange is closed, normally, New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day ("Fund Business Day"). The net asset value of
each class of the Fund's shares is calculated at 4:00 p.m., Eastern Time on each
Fund Business Day. See "How Net Asset Value is Determined."
Purchases
Fund shares are issued at a price equal to the net asset value per
share next determined after an order in proper form is accepted by the Transfer
Agent, less any applicable sales charges. The Company reserves the right to
reject any subscription for the purchase of its shares and may, in the
Investment Adviser's discretion, accept portfolio securities in lieu of cash as
payment for Fund shares. Shares may not be available for purchase in every
state.
Redemptions
Shares are redeemed at a price equal to the net asset value per share
next determined following acceptance by the Transfer Agent of the redemption
order in proper form (and any supporting documentation which the Transfer Agent
may require), less any applicable contingent deferred sales charges.
The date of payment of redemption proceeds may not be postponed for
more than seven days after shares are tendered to the Transfer Agent for
redemption by a shareholder of record. The right of redemption may not be
suspended except in accordance with the provisions of the 1940 Act.
Account Statements
Shareholders will receive from the Company at least semi-annual
statements listing account activity during the statement period.
15
<PAGE>
Share Certificates
The Transfer Agent maintains a shareholder account for each
shareholder. The Company does not issue share certificates.
PURCHASE AND REDEMPTION PROCEDURES
You may obtain the Account Application necessary to open an account by
calling toll-free at 877-4-TANAKA or by writing TANAKA Funds, Inc., at P.O. Box
6110, Indianapolis, Indiana 46206-6110.
Initial Purchase of Shares
Mail
Investors may send a check made payable to "TANAKA Funds, Inc." with a
completed Account Application to:
U.S. Mail: Overnight:
TANAKA Funds, Inc. TANAKA Funds, Inc.
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
Checks are accepted at full value subject to collection. All checks
must be drawn on a United States bank and payable in U.S. dollars. If a check is
returned unpaid, the purchase will be canceled, and the investor will be liable
for any resulting losses or fees incurred by the Fund, the Investment Adviser or
the Transfer Agent.
For individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of the Fund must be made payable to "TANAKA
Funds, Inc." or to one or more owners of that account and endorsed to TANAKA
Funds, Inc. For corporation, partnership, trust, 401(k) plan or other
non-individual type accounts, the check used to purchase shares of the Fund must
be made payable on its face to "TANAKA Funds, Inc." No other method of payment
by check will be accepted. Payment by Traveler's Checks is prohibited.
Bank Wire
To make an initial investment in the Fund using the fedwire system for
transmittal of money between banks, you should first telephone the Transfer
Agent toll-free at 877-4-TANAKA to obtain an account number. You should then
instruct a member commercial bank to wire your money immediately to:
Star Bank N.A. Cinti/Trust
ABA # 0420-0001-3
Attn: TANAKA Funds, Inc.: Tanaka Growth Fund Class __ Shares
D.D.A. # 488922451
Account Name________________ (write in account name)
For Account_________________ (write in account number)
16
<PAGE>
If you plan to wire funds, you should instruct your bank early in the
day so the wire transfer can be accomplished the same day. Your bank may assess
charges for transmitting the money by bank wire and for use of Federal Funds.
The Company does not charge investors for the receipt of wire transfers. Payment
in the form of a bank wire received prior to 4:00 p.m., Eastern Time, on a Fund
Business Day will be treated as a Federal Funds payment received before that
time.
Through Financial Institutions
You may purchase and redeem shares of the Fund through brokers and
other financial institutions that have entered into Dealer Agreements with
AmeriPrime or another distributor of the Fund's shares. These institutions may
charge a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Company. The Company is not
responsible for the failure of any institution to promptly forward these
requests.
If you purchase shares through a broker-dealer or financial
institution, your purchase will be subject to its procedures, which may include
charges, limitations, investment minimums, cutoff times and restrictions in
addition to, or different from, those applicable to shareholders who invest in
the Fund directly. You should acquaint yourself with the institution's
procedures and read this Prospectus in conjunction with any materials and
information provided by your institution. If you purchase Fund shares in this
manner, you may or may not be the shareholder of record and, subject to your
institution's and the Fund's procedures, may have Fund shares transferred into
your name. There is typically a one to five day settlement period for purchases
and redemptions through broker-dealers.
Subsequent Purchases of Shares
You may purchase additional shares of the Fund by mailing a check or
sending a bank wire as indicated above. Shareholders using the wire system for
subsequent purchases should first telephone the Transfer Agent toll-free at
877-4-TANAKA to notify it of the wire transfer. All payments should clearly
indicate the shareholder's name and account number.
Automatic Investment Plan
Shareholders may also purchase additional Fund shares at regular,
pre-selected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an Automated Clearing House member. Under the program, existing
shareholders may authorize amounts to be debited from their bank account and
invested in the Fund monthly or quarterly. Shareholders wishing to participate
in this program may obtain the applicable forms from the Transfer Agent.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to the Transfer Agent.
Redemption of Shares
Redemption requests will not be effected unless any check used for
investment has been cleared by the shareholder's bank, which may take up to 15
calendar days. This delay may be avoided by investing in the Fund through wire
transfers. If the Transfer Agent receives a redemption request by 4:00 p.m.,
Eastern Time, the redemption proceeds normally are paid on the next business
day, but in no event later than seven days after redemption, by check mailed to
the shareholder of record at his or her record address. Shareholders that wish
to redeem shares by telephone or by bank wire must elect these options by
17
<PAGE>
properly completing the appropriate sections of their Account Application. These
privileges may be modified or terminated by the Company at any time.
Due to the cost to the Company of maintaining smaller accounts, the
Company reserves the right to redeem, upon not less than 60 days' written
notice, all shares in any Fund account with an aggregate net asset value of less
than $1,000. The Fund will not redeem accounts that fall below this amount
solely as a result of a reduction in net asset value of the Fund's shares.
Redemption by Mail
You may redeem all or any number of your shares by sending a written
request to the Transfer Agent at the address above. You must sign all written
requests for redemption and provide a signature guarantee. See "Purchase and
Redemption Procedures--Other Redemption Matters."
Telephone Redemptions
A shareholder that has elected telephone redemption privileges may make
a telephone redemption request by calling the Transfer Agent toll-free at
877-4-TANAKA. In response to the telephone redemption instruction, the Fund will
mail a check to the shareholder's record address. If the shareholder has elected
wire redemption privileges, the Transfer Agent may wire the proceeds as set
forth below under "Purchase and Redemption Procedures--Bank Wire Redemptions."
In an effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Company and the Transfer Agent will employ reasonable
procedures to confirm that such instructions are genuine. Shareholders must
provide the Transfer Agent with the shareholder's account number, the exact name
in which the shares are registered and some additional form of identification.
The Company or the Transfer Agent may employ other procedures such as recording
certain transactions. If such procedures are followed, neither the Transfer
Agent nor the Company will be liable for any losses due to unauthorized or
fraudulent redemption requests. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, it may be difficult
to make a redemption by telephone. If you cannot reach the Transfer Agent by
telephone, you may mail or hand-deliver your request to the Unified Fund
Services, Inc. at 431 North Pennsylvania Street, Indianapolis, Indiana 46204.
Other Redemption Matters
A signature guarantee is required for any written redemption. In
addition, a signature guarantee also is required for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions or automatic investment or redemption, dividend election or
telephone redemption or any other option election in connection with the
shareholder's account. Signature guarantees may be provided by any eligible
institution, including a bank, a broker, a dealer, a national securities
exchange, a credit union, or a savings association that is authorized to
guarantee signatures, acceptable to the Transfer Agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed. Such guarantee must have "Signature Guaranteed"
stamped under each signature and must be signed by the eligible institution.
The Transfer Agent will deem a shareholder's account "lost" if
correspondence to the shareholder's address of record is returned as
undeliverable, unless the Transfer Agent determines the shareholder's new
18
<PAGE>
address. When an account is deemed lost, all distributions on the account will
be reinvested in additional shares of the Fund. In addition, the amount of any
outstanding (unpaid for six months or more) checks for distributions that have
been returned to the Transfer Agent will be reinvested and the checks will be
canceled.
Bank Wire Redemptions
If you have elected wire redemption privileges, the Fund will, upon
request, transmit the proceeds of any redemption greater than $10,000 by Federal
Funds wire to a bank account designated on your Account Application. Presently
there is no charge for wire redemptions; however, the Fund reserves the right to
charge for this service. Any charge for wire redemptions will be deducted from
the shareholder's Fund account by redemption of shares. If you wish to request
bank wire redemptions by telephone, you must also elect telephone redemption
privileges.
Exchange Privilege
Shareholders of the Fund may exchange their shares for shares of the
Unified Taxable Money Market Fund, a money market fund managed by Unified
Investment Advisers, Inc. and a separate series of the Unified Funds. You may
receive a copy of the prospectus for the Unified Taxable Money Market Fund by
writing Unified or calling toll-free at 877-4-TANAKA. No sales charges are
imposed on exchange between a Fund and the Unified Taxable Money Market Fund.
However, Class B shares are subject to a CDSC as described above under "Choosing
a Class of Shares--Class B Shares--Deferred Sales Charge Alternative." Exchanges
into the Unified Taxable Money Market Fund are subject to the fees charged by
that fund as set forth in the Unified Taxable Money Market Fund prospectus.
Exchange Procedure
You may request an exchange by writing to Unified at 431 North
Pennsylvania Street, Indianapolis, Indiana 46204. The minimum amount for an
exchange to open an account in the Unified Taxable Money Market Fund is $1,000.
Exchanges may only be made between identically registered accounts. You do not
need to complete a new account application, unless you are requesting different
shareholder privileges for the new account. The Company reserves the right to
reject any exchange request and may modify or terminate the exchange privilege
at any time. There is no charge for the exchange privilege or limitation as to
frequency of exchanges.
An exchange of shares in a Fund pursuant to the exchange privilege is,
in effect, a redemption of Fund shares (at net asset value) followed by the
purchase of shares of the investment company into which the exchange is made (at
net asset value) and may result in a shareholder realizing a taxable gain or
loss for Federal income tax purposes. The exchange privilege is available to
shareholders residing in any state in which shares of Unified Taxable Money
Market Fund, as applicable, may legally be sold.
Telephone Exchanges
If you have elected telephone exchange privileges, you may request an
exchange by calling Unified toll-free at 877-4-TANAKA. Neither the Fund nor
Unified is responsible for the authenticity of telephone instructions or losses,
if any, resulting from unauthorized telephone exchange requests. Unified employs
reasonable procedures to insure that telephone orders are genuine and, if it
does not, it may be liable for any losses due to unauthorized transactions.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements.
19
<PAGE>
Retirement Accounts
The Fund may be a suitable investment vehicle for part or all of the
assets held in Traditional or Roth individual retirement accounts (collectively
"IRAs"). An IRA account application form may be obtained by contacting the Fund
toll-free at 877-4-TANAKA. Generally, all contributions and investment earnings
in an IRA will be tax-deferred until withdrawn. In the case of a Roth IRA, if
certain requirements are met, investment earnings will not be taxed even when
withdrawn. Individuals may make IRA contributions of up to a maximum of $2,000
annually. Only contributions to Traditional IRAs may be tax-deductible. However,
the deduction will be reduced if the individual or, in the case of a married
individual, either the individual or the individual's spouse is an active
participant in an employer-sponsored retirement plan and has adjusted gross
income above certain levels. The ability of an individual to make contributions
to a Roth IRA is restricted if the individual (or, the individual and spouse, if
married) has adjusted gross income above certain levels.
The foregoing discussion regarding IRAs is based on regulations in
effect as of January 1, 1998 and summarizes only some of the important Federal
tax considerations generally affecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for tax planning. Investors
should consult their tax advisors with respect to their specific tax situations
as well as with respect to state and local taxes.
FUND PERFORMANCE
From time-to-time, the Fund may advertise its "average annual total
return" over various periods of time. This total return figure shows the average
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the ending date of the measuring period. The figure
reflects changes in the price of the Fund's shares and assumes that any income
dividends and/or capital gains distributions made by the Fund during the period
are reinvested in shares of the Fund. Figures will be given for recent one-,
five- and ten-year periods (when applicable), and may be given for other periods
as well (such as from commencement of the Fund's operations, or on a
year-by-year basis). When considering "average" total return figures for periods
longer than one year, investors should note that the Fund's annual total return
for any one year in the period might have been greater or less than the average
for the entire period. The Fund also may use "aggregate" total return figures
for various periods, representing the cumulative change in value of an
investment in the Fund for the specific period (again reflecting changes in the
Fund's share price and assuming reinvestment of dividends and distributions).
Aggregate total returns may be shown by means of schedules, charts or graphs,
and may indicate subtotals of the various components of total return (that is,
the change in value of initial investment, income dividends and capital gains
distributions).
The Fund may quote the Fund's average annual total and/or aggregate
total return for various time periods in advertisements or communications to
shareholders. The Fund may also compare its performance to that of other mutual
funds with similar investment objectives and to stock and other relevant indices
or to rankings prepared by independent services or industry publications. For
example, the Fund's total return may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Value Line Mutual Fund Survey and CDA
Investment Technologies, Inc. Total return data as reported in such national
financial publications as The Wall Street Journal, The New York Times,
Investor's Business Daily, USA Today, Barron's, Money and Forbes as well as in
publications of a local or regional nature, may be used in comparing Fund
performance.
The Fund's total return may also be compared to such indices as the:
20
<PAGE>
(1) Dow Jones Industrial Average,
(2) Standard & Poor's 500 Composite Stock Total Return Index,
(3) Nasdaq Composite OTC Index or Nasdaq Industries Index,
(4) Consumer Price Index, and
(5) Russell 2000 Index.
Further information on performance measurement may be found in the SAI.
HOW NET ASSET VALUE IS DETERMINED
Shares of each class are purchased at their net asset value, less any
applicable sales charges. The Fund calculates its net asset value (NAV) as
follows:
(Value of Fund Assets) - (Fund Liabilities)
NAV = -------------------------------------------
Number of Outstanding Shares
Net asset value is determined as of the end of regular trading hours on
the New York Stock Exchange (currently 4:00 p.m. New York City time) on days
that the New York Stock Exchange is open.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the SAI.
INCOME AND CAPITAL GAIN DISTRIBUTIONS
Dividends from net investment income, if any, are declared annually.
The Fund intends to distribute annually realized net capital gains, after
utilization of capital loss carry-forwards, if any, to prevent application of a
federal excise tax. However, it may make an additional distribution any time
prior to the due date, including extensions, of filing its tax return, if
necessary to accomplish this result. Any dividends or net capital gain
distributed pursuant to a dividend declaration declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. Unless you elect
otherwise, dividends and capital gains distributions will be reinvested in
additional shares of the Fund at no charge. Changes in your election regarding
receipt of dividends and distributions must be sent to the Transfer Agent. The
election will be effective for distributions with a dividend record date on or
after the date that the Transfer Agent receives notice of the election.
Shareholders will be subject to tax on all dividends and distributions whether
paid to them or reinvested in shares of the Fund. If an investment in Fund
shares is made by a retirement plan, all dividends and capital gains
distributions must be reinvested into an account of such plan.
TAXES
Generally, dividends from net investment income are taxable to
investors as ordinary income. If a portion of the Fund's income consists of
dividends from U.S. corporations, a portion of the dividends paid by the Fund
may qualify for the corporate dividends-received deduction.
Long-term capital gains distributions, if any, are taxable as net
long-term capital gains when distributed regardless of the length of time
shareholders have owned their shares. Net short-term capital gains and any other
taxable income distributions are taxable as ordinary income.
21
<PAGE>
The Fund sends detailed tax information about the amount and type of
its distributions to its shareholders by January 31 of the year following the
distributions.
Upon a sale or exchange of Fund shares, shareholders generally will
realize a capital gain or loss which will be long-term or short-term, generally
depending on how long they held their shares.
If shares are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the value of its assets
at the close of its taxable year consists of stock or securities in foreign
corporations, it may elect to pass through to its shareholders the ability to
claim a deduction or credit for the amount of foreign withholding tax paid by
the Fund.
On the Account Application, the shareholder must provide the
shareholder's taxpayer identification number ("TIN"), certify that it is correct
and certify that the shareholder is not subject to backup withholding under
Internal Revenue Service ("IRS") rules. If the shareholder fails to provide a
correct TIN or the proper certifications, the Fund will withhold 31% of all
distributions and redemption proceeds payable to the shareholder. The Fund will
also begin backup withholding on a shareholder's Fund account if the IRS
instructs the Fund to do so. The Fund reserves the right not to open a
shareholder's account or, if an account is already opened, to redeem a
shareholder's shares at the current NAV, less any taxes withheld, if the
shareholder fails to provide a correct TIN, fails to provide the proper
certifications, or the IRS advises the Fund to begin backup withholding on the
shareholder's Fund account.
Fund distributions may also be subject to state, local or foreign
taxes. You should consult your tax adviser before investing in the Fund.
ORGANIZATION AND DESCRIPTION OF COMMON STOCK
The Company was incorporated on November 5, 1997 as a Maryland
corporation and is authorized to issue up to 250,000,000 shares of common stock,
par value $0.01 per share. The authorized shares of the Fund are currently
divided into three classes designated Class A common stock, Class B common stock
and Class R common stock. The Company's Board of Directors may also, without
shareholder approval, increase or decrease the number of authorized but unissued
shares of common stock. Each class of shares represents an interest in the same
assets of the Fund and is identical in all respects except that (i) each class
is subject to different sales charges and distribution and service fees, which
may affect performance, and (ii) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class. With the
exceptions noted above, each of the Fund's shares has equal dividend,
distribution, liquidation and voting rights. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares of the
Company when duly issued will be fully paid and nonassessable. The rights of the
holders of shares of common stock may not be modified except by the vote of a
majority of the shares outstanding. The Company is empowered to establish,
without shareholder approval, additional portfolios, which may have different
investment objectives, or additional classes of shares.
Each outstanding share of the Company is entitled to one vote for each
full share of stock and a fractional vote for fractional shares of stock. All
shareholders vote on matters that concern the Company
22
<PAGE>
as a whole. The Company is not required to hold a meeting of shareholders each
year, and may elect not to hold a meeting in years when no meeting is necessary.
The shareholders of the Fund vote separately on matters that affect only the
interests of the Fund and the shareholders of a class vote separately on matters
that affect only the interests of the class. The Company's shares do not have
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of Directors can elect all of the Directors if
they choose to do so.
TO OBTAIN MORE INFORMATION
For further information on the TANAKA Growth Fund, please contact
TANAKA Funds, Inc. toll-free at 877-4-TANAKA. Additional information may also be
obtained by requesting a copy of the Fund's SAI.
Investment Adviser: Tanaka Capital Management, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
Distributor: AmeriPrime Financial Securities, Inc.
1793 Kingswood Drive, Suite 200
Southlake, Texas 76092
Counsel: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Independent Auditors: McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
Transfer Agent: For account information, wire
purchases or redemptions, call
877-4-TANAKA (toll-free) or
write to the Fund's Transfer Agent:
Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204
More Information: For general information on the Fund,
call toll-free at 877-4-TANAKA
No dealer, sales representative or any other person has been authorized
to give any information or to make any representations, other than those
contained in this Prospectus, in connection with the offer made by this
Prospectus and, if given or made, such other information or representations must
not be relied upon as having been authorized by the Fund or any distributor.
This Prospectus does not constitute an offer by the Fund or any distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
This Prospectus, including the Statement of Additional Information
which has been incorporated by reference herein, does not contain all the
information set forth in the Registration Statement filed by the
23
<PAGE>
Fund with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge at the offices of the SEC in
Washington, DC (http://www.sec.gov).
24
<PAGE>
TANAKA FUNDS, INC.
TANAKA GROWTH FUND
230 Park Avenue, Suite 960
New York, New York 10169
877-4-TANAKA (Toll-Free)
Statement of Additional Information
December ___, 1998
TANAKA Funds, Inc. (the "Company"), the sole series of which is TANAKA
Growth Fund (the "Fund"), is an open-end, management investment company,
commonly known as a "mutual fund." This Statement of Additional Information is
not a prospectus and is authorized for distribution only when preceded or
accompanied by the Fund's prospectus dated _________, 1998 (the "Prospectus").
This Statement of Additional Information contains additional and more detailed
information than that set forth in the Prospectus and should be read in
conjunction with the Prospectus, additional copies of which may be obtained
without charge by writing to TANAKA Funds, Inc., P.O. Box 6110, Indianapolis,
Indiana 46204 or calling the telephone number given above.
TABLE OF CONTENTS
Additional Information on Investment Techniques................................
Investment Restrictions........................................................
Taxes..........................................................................
Dividends and Distributions....................................................
Portfolio Transactions and Brokerage...........................................
Portfolio Turnover.............................................................
Net Asset Value................................................................
Contingent Deferred Sales Charge...............................................
Directors and Officers.........................................................
Investment Adviser.............................................................
Transfer Agent.................................................................
Administrator..................................................................
Distribution...................................................................
Expenses of the Fund...........................................................
Special Shareholder Services...................................................
General Information and History................................................
Performance....................................................................
Statement of Assets and Liabilities............................................
Report of Independent Accountants..............................................
<PAGE>
TANAKA FUNDS, INC.
TANAKA GROWTH FUND
Statement of Additional Information
The Fund is a non-diversified series of the Company, a Maryland
corporation which is an open-end, management investment company, commonly known
as a "mutual fund."
The Fund's investment objective is growth of capital.
The investment policies of the Fund are described in the Fund's
Prospectus. The following discussion supplements the information in the Fund's
Prospectus with respect to the types of securities in which the Fund may invest
and the investment techniques it may use in pursuit of its investment objective.
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES
Convertible Securities
The Fund may invest in convertible securities--that is, bonds, notes,
debentures, preferred stocks and other securities which are convertible into
common stocks--that the investment adviser deems suitable. Investments in
convertible securities may provide incidental income through interest and
dividend payments and/or an opportunity for capital appreciation by virtue of
their conversion or exchange features.
Convertible debt securities and convertible preferred stocks, until
converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stocks changes, and, therefore, also tends to follow movements in the
general market for equity securities. As the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
Convertible securities are generally subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
1
<PAGE>
Foreign Securities
Most foreign stock markets are not as large or liquid as in the United
States, fixed commissions on foreign stock exchanges are generally higher than
the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign stock exchanges, brokers and
companies than in the United States. Investors should recognize that foreign
markets have different clearance and settlement procedures and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund are uninvested and no return is earned thereon. The inability of the
Fund to make intended security purchases due to settlement problems could cause
the Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems either could result in losses to
the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in a
possible liability to the purchaser. Payment for securities without delivery may
be required in certain foreign markets. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. Foreign governments can also levy confiscatory taxes,
expropriate assets, and limit repatriations of assets. Typically, there is less
publicly available information about a foreign company than about a U.S.
company, and foreign companies may be subject to less stringent reserve,
auditing and reporting requirements. It may be more difficult for the Fund's
agents to keep currently informed about corporate actions such as stock
dividends or other matters which may affect the prices of portfolio securities.
Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Because investments in foreign securities will usually involve
currencies of foreign countries, and because the Fund may hold foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. Although the Fund values
its assets daily in terms of U.S. dollars, it does not convert its holdings of
foreign currencies into U.S. dollars on a daily basis. It will do so from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to resell that currency to the dealer. The
Fund will conduct its foreign currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market.
Depositary Receipts
The Fund may utilize depositary receipts, as described in the
Prospectus. For purposes of determining the country of origin, depositary
receipts and investment companies which invest primarily in foreign securities
will be deemed to be foreign securities.
Warrants
The Fund may invest up to 5% of its net assets, measured at the time of
investment, in warrants. A warrant is a long-term option issued by a corporation
that generally gives the investor the right to buy a specified number of shares
of the
2
<PAGE>
underlying common stock of the issuer at a specified exercise price at any time
on or before an expiration date. If the Fund does not exercise or dispose of a
warrant prior to its expiration, it will expire worthless.
Repurchase Agreements
The Fund may enter into repurchase agreements (which enables the Fund
to employ its assets pending investment) during short periods of time.
Ordinarily, these agreements permit the Fund to maintain liquidity and earn
higher rates of return than would normally be available from other short-term
money-market instruments.
Under a repurchase agreement, the Fund buys an instrument and obtains a
simultaneous commitment from the seller to repurchase the investment at a
specified time and at an agreed upon yield to the Fund. The seller is required
to pledge cash and/or collateral which is equal to at least 100% of the value of
the commitment to repurchase. The collateral is held by the Fund's custodian.
The Fund will enter into only repurchase agreements involving U.S. Government
securities in which the Fund may otherwise invest. Repurchase agreements are
considered securities issued by the seller for purposes of the diversification
test under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and not cash, a cash item or a U.S. Government security.
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the United States Treasury, by various
agencies of the United States Government, and by various instrumentalities which
have been established or sponsored by the United States Government. U.S.
Treasury securities are backed by the "full faith and credit" of the United
States. Securities issued or guaranteed by Federal agencies and U.S. Government
sponsored instrumentalities may or may not be backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitment.
An instrumentality of the U.S. Government is a government agency organized under
Federal charter with government supervision.
The Fund will always seek to perfect its security interest in the
collateral. If the seller of a repurchase agreement defaults, the Fund may incur
a loss if the value of the collateral securing the repurchase agreement
declines. The Investment Adviser monitors the value of the collateral to ensure
that its value equals or exceeds the repurchase price and also monitors the
financial condition of the issuer of the repurchase agreement. If the seller
defaults, the Fund may incur disposition costs in connection with liquidating
the collateral of that seller. If bankruptcy proceedings are commenced with
respect to the seller, realization upon the collateral by the Fund may be
delayed or limited.
INVESTMENT RESTRICTIONS
The policies set forth below are fundamental policies of the Fund and
may not be changed without approval of a majority of the outstanding voting
securities of the Fund. As used in this Statement of Additional Information, a
"majority of the outstanding voting securities of the Fund" means the lesser of
(1) 67% or more of the voting securities present at a shareholders meeting, if
the holders of more than 50% of the outstanding voting securities of the Fund
are present or represented by proxy at such meeting; or (2) more than 50% of the
outstanding voting securities of the Fund.
3
<PAGE>
As a matter of fundamental policy, the Fund may not:
1. borrow money, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by a regulatory
authority having jurisdiction, from time to time;
2. concentrate its investments in a particular industry, as that term is
used in the Investment Company Act of 1940, as amended, and as
interpreted or modified by a regulatory authority having jurisdiction,
from time to time;
3. act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund;
4. make loans to other persons, except (a) loans of portfolio securities,
and (b) to the extent that the entry into repurchase agreements and the
purchase of debt securities in accordance with its investment objective
and investment policies may be deemed to be loans;
5. issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by a
regulatory authority having jurisdiction, from time to time; provided
that the segregation of assets or other collateral arrangements with
respect to currency-related contracts, futures contracts, options or
other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of senior
securities for purposes of this restriction, and obligations for which
the Fund segregates assets in accordance with securities regulatory
requirements will not be deemed to be senior securities;
6. purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate, or mortgages, and
(ii) securities secured by real estate or interests therein, and that
the Fund reserves freedom of action to hold and to sell real estate
acquired as a result of the Fund's ownership of securities); or
7. purchase or sell physical commodities or contracts relating to physical
commodities.
The Fund has voluntarily adopted certain policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Board of Directors based upon current circumstances. They differ from
fundamental investment policies in that they may be changed or amended by action
of the Board of Directors without prior notice to or approval of shareholders.
The following policies are non-fundamental policies and may be changed
without shareholder approval. The Fund currently may not:
(a) purchase or sell futures contracts or options thereon;
(b) make short sales;
(c) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(d) purchase securities on margin, except that the Fund may obtain
such short-term credits as are necessary for the clearance of
transactions;
4
<PAGE>
(e) invest more than 15% of its net assets in securities which are
illiquid or not readily marketable; and
(f) write put or call options.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" above is adhered to at the time an
investment is made, a later change in percentage resulting from changes in the
value or the total cost of the Fund's assets will not be considered a violation
of the restriction.
TAXES
The Fund will seek to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including net short-term capital gain) and generally is
not subject to federal income tax (assuming the Fund meets the 90% gross income
test and the tax diversification test of Subchapter M, described below) to the
extent that it distributes annually its investment company taxable income and
net realized capital gains in the manner required under the Code. The Fund
intends to distribute at least annually all of its investment company taxable
income and net realized capital gains and therefore generally does not expect to
pay federal income taxes.
In order to meet the tax diversification test, at the close of each
quarter of its fiscal year, (i) at least 50% of the value of the Fund's total
assets must be represented by cash and cash items including receivables, U.S.
Government securities, and securities of other regulated investment companies,
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the value of its total assets, and to not more than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets may be invested in the securities of any one
issuer (other than U.S.
Government securities and the securities of other regulated investment
companies.)
The Fund will meet the 90% of gross income test if 90% of its annual
gross income is derived from dividends, interest, payments with respect to
certain securities loans, and gain from the sale or disposition of stock or
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures, or forward contracts) derived with respect to
its business of investing in such stock, securities, or currencies.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but which are not distributed under a prescribed formula. The
formula requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses prescribed by the Code) realized during the one-year
period ending October 31 during such year, and all ordinary income and capital
gains for prior years that were not previously distributed.
Investment company taxable income generally includes dividends,
interest, net short-term capital gains in excess of net long-term capital
losses, and net foreign currency gains, if any, less expenses. Realized net
capital gains for a fiscal year are computed by taking into account any capital
loss carryforward of the Fund.
5
<PAGE>
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim his/her share of federal income taxes paid by the
Fund on such gains as a credit against his/her own federal income tax liability,
and will be entitled to increase the adjusted tax basis of his/her Fund shares
by the difference between his/her pro rata share of such gains and his/her tax
credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income. If a portion of the Fund's income consists of
dividends from U.S. corporations, a portion of the dividends paid by the Fund
may qualify for the corporate dividends-received deduction.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Fund have been held by such
shareholders. Such distributions are not eligible for a dividends-received
deduction for corporate investors.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
If shares are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
All distributions of investment company taxable income and realized net
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another fund
(to the extent such exchanges may be available), may result in tax consequences
(gain or loss) to the shareholder and are also subject to information reporting
requirements. Any loss recognized on a sale or exchange will be disallowed to
the extent shares disposed of are replaced within a period of 61 days beginning
30 days before and ending 30 days after the disposition. In such a case, the
basis of the acquired shares will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less may be treated as a long-term capital loss to
the extent of any distributions of net capital gains received by the shareholder
with respect to such shares.
In some cases, shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their Fund shares. This prohibition generally applies where
(1) the shareholder incurs a sales charge in acquiring the shares, (2) the
shares are disposed of before the 91st day after the date on which they were
acquired, and (3) the shareholder subsequently acquires shares of the same or
another fund and the otherwise applicable sales charge is reduced under a
"reinvestment right" received upon the initial purchase of shares. The term
"reinvestment right" means any right to acquire stock of one or more funds
(including the Fund) without the payment of a sales charge or with the payment
of a reduced sales charge. Sales charges affected by this rule are treated
6
<PAGE>
as if they were incurred with respect to the shares acquired under the
reinvestment right. This provision may be applied to successive acquisitions of
Fund shares.
Distributions by the Fund result in a reduction in the net asset value
of its shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though
it may constitute a partial return of capital. In particular, investors should
consider the tax implications of buying shares just prior to a distribution. The
price of shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive a
partial return of their invested capital upon the distribution, which will
nevertheless be taxable to them.
If the Fund has a large enough percentage of its assets invested in
foreign securities, the Fund intends to qualify for and may make the election
permitted under Section 853 of the Code so that shareholders may (subject to
limitations) be able to claim a credit or deduction on their federal income tax
returns for, and may be required to treat as part of the amounts distributed to
them, their pro rata portion of qualified taxes paid by the Fund to foreign
countries (which taxes relate primarily to investment income). The Fund may make
an election under Section 853 of the Code, provided that more than 50% of the
value of the total assets of the Fund at the close of the taxable year consists
of securities in foreign corporations. The foreign tax credit available to
shareholders is subject to certain limitations imposed by the Code.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Alternatively, the Fund may elect to mark to market its foreign
investment company stock, resulting in the stock being treated as sold at fair
market value on the last business day of each taxable year. Any resulting gain
would be reported as ordinary income; any resulting loss and any loss from an
actual disposition of the stock would be reported as ordinary loss to the extent
of any net mark-to-market gains previously included in income. The Fund also may
elect, in lieu of being taxable in the manner described above, to include
annually in income its pro rata share of the ordinary earnings and net capital
gain of the foreign investment company.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains
7
<PAGE>
or losses, may increase or decrease the amount of the Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
The Fund will be required to report to the U.S. Internal Revenue
Service ("IRS") all distributions of investment company taxable income and
capital gains as well as gross proceeds from the redemption or exchange of Fund
shares, except in the case of certain exempt shareholders. Under the backup
withholding provisions of Section 3406 of the Code, distributions of investment
company taxable income and capital gains and proceeds from the redemption or
exchange of the shares of a regulated investment company may be subject to
withholding of federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish the investment company with their Taxpayer
Identification Numbers and with required certifications regarding their status
under the federal income tax law. Withholding may also be required if the Fund
is notified by the IRS or a broker that the Taxpayer Identification Number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Amounts withheld are applied against the shareholder's tax liability
and a refund may be obtained from the IRS, if withholding results in overpayment
of taxes. A shareholder should contact the Fund or the Transfer Agent (as
defined in "Transfer Agent" below) if the shareholder is uncertain whether a
proper Taxpayer Identification Number is on file with the series.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions or exchanges of the
Fund's shares. Each investor should consult his or her own tax adviser as to the
applicability of these taxes.
In January of each year the Company's Transfer Agent issues to each
shareholder a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of Fund shares. Each shareholder who is not a U.S.
person should also consider the U.S. estate tax implications of holding Fund
shares at death. The U.S. estate tax may apply to such holdings if an investor
dies while holding shares of the Fund. Each investor should consult his or her
own tax adviser about the applicability of these taxes. A distribution of net
investment income to nonresident aliens and foreign corporations that are not
engaged in a trade or business in the U.S. to which the distribution is
effectively connected, will be subject to a withholding tax imposed at the rate
of 30% upon the gross amount of the distribution in the absence of a Tax Treaty
providing for a reduced rate or exemption from U.S. taxation. A distribution of
net long-term capital gains realized by the Fund is not subject to tax unless
the distribution is effectively connected with the conduct of the shareholder's
trade or business within the United States, or the foreign shareholder is a
non-resident alien individual who was physically present in the U.S. during the
tax year for more than 182 days.
The foregoing is a general abbreviated summary of present Federal
income taxes on dividends and distributions. Shareholders should consult their
tax advisers about the application of the provisions of the tax law described in
this Statement of Additional Information in light of their particular tax
situations and about any state and local taxes applicable to dividends and
distributions.
8
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
As stated previously, it is the policy of the Fund to distribute
substantially all of its net investment income and net realized capital gains,
if any, shortly before the close of the fiscal year (November 30th).
All dividend and capital gains distributions, if any, will be
reinvested in full and fractional shares based on net asset value (without a
sales charge) as determined on the ex-dividend date for such distributions.
Shareholders may, however, elect to receive all such payments, or the dividend
or distribution portion thereof, in cash, by sending written notice to this
effect to the Transfer Agent. This written notice will be effective as to any
subsequent payment if received by the Transfer Agent prior to the record date
used for determining the shareholders' entitlement to such payment. Such an
election will remain in effect unless or until the Transfer Agent is notified by
the shareholder in writing to the contrary.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Directors, decisions to buy and sell
securities for the Fund and negotiation of their brokerage commission rates are
made by the Investment Adviser. Transactions on U.S. stock exchanges involve the
payment by the Fund of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market but the price paid by the Fund usually includes an undisclosed dealer
commission or mark-up. In certain instances, the Fund may make purchases of
underwritten issues at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, the
Investment Adviser takes the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of the Fund on a
continuing basis. Accordingly, the cost of the brokerage commissions to the Fund
in any transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. For example, the Investment Adviser will consider the research
and investment services provided by brokers or dealers who effect or are parties
to portfolio transactions of the Fund or the Investment Adviser's other clients.
Such research and investment services include statistical and economic data and
research reports on particular companies and industries as well as research
software. Subject to such policies and procedures as the Directors may
determine, the Investment Adviser shall not be deemed to have acted unlawfully
or to have breached any duty solely by reason of its having caused the Fund to
pay a broker that provides research services to the Investment Adviser an amount
of commission for effecting a portfolio investment transaction in excess of the
amount another broker would have charged for effecting that transaction, if the
Investment Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the research service provided by such
broker viewed in terms of either that particular transaction or the Investment
Adviser's ongoing responsibilities with respect to the Fund.
Research and investment information is provided by these and other
brokers at no cost to the Investment Adviser and is available for the benefit of
other accounts advised by the investment adviser and its affiliates, and not all
of the information will be used in connection with the Fund. While this
information may be useful in varying degrees and may tend to reduce the
Investment Adviser's expenses, it is not possible to estimate its value and in
the opinion of the Investment Adviser it does not reduce the Investment
Adviser's expenses in a determinable amount. The extent to which the Investment
Adviser makes use of statistical, research and other services furnished by
brokers is considered by the Investment Adviser in the allocation of brokerage
business but there is no formula by which such business is allocated. The
9
<PAGE>
Investment Adviser does so in accordance with its judgment of the best interests
of the Fund and its shareholders.
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. A
higher rate involves greater transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in the Investment Adviser's opinion, to meet the Fund's objective.
The Investment Adviser anticipates that the Fund's average annual portfolio
turnover rate will be less than 100%.
NET ASSET VALUE
The Fund's net asset value ("NAV") per share is calculated daily from
Monday through Friday on each business day on which the New York Stock Exchange
(the "Exchange") is open. The Exchange is currently closed on weekends and on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and the preceding Friday or subsequent Monday when any of
these holidays falls on a Saturday or Sunday, respectively.
The Board of Directors has determined that the Fund's NAV be calculated
as of the close of trading of the Exchange (generally 4:00 p.m., Eastern Time)
on each business day from Monday to Friday or on each day (other than a day
during which no security was tendered for redemption and no order to purchase or
sell such security was received by the Fund) in which there is a sufficient
degree of trading in the Fund's portfolio securities that the current NAV of the
Fund's shares might be materially affected by changes in the value of such
portfolio security. The Fund may compute its NAV per share more frequently if
necessary to protect shareholders' interests.
NAV per share is determined by dividing the total value of the Fund's
securities and other assets, less liabilities (including proper accruals of
taxes and other expenses), by the total number of shares then outstanding, and
rounding the result to the nearer cent.
Generally, securities owned by the Fund are valued at market value. In
valuing the Fund's assets, portfolio securities, including American Depositary
Receipts ("ADRs") and American Depositary Shares ("ADSs"), which are traded on
the Exchange, will be valued at the last sale price prior to the close of
regular trading on the Exchange. Lacking any sales, the security will be valued
at the last bid price prior to the close of regular trading on the Exchange,
unless there are indications of substantially different valuations. ADRs and
ADSs for which such a value cannot be readily determined on any day will be
valued at the closing price of the underlying security adjusted for the exchange
rate. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated in accordance with procedures
approved by the Board of Directors of the Fund as the primary market. Securities
will be valued using quotations on the exchange and lacking any sales,
securities will be valued at the last reported bid price prior to the Fund's
valuation time, unless the Fund is aware of a material change in the value prior
to the time it values its securities.
Unlisted securities which are quoted on the National Market System of
the National Association of Securities Dealers, Inc. (the "NASD"), for which
there have been sales of such securities, shall be valued at
10
<PAGE>
the last sale price reported on such system. If there are no such sales, the
value shall be the high or "inside" bid, which is the bid supplied by the NASD
on its NASDAQ Screen for such securities in the over-the-counter market. The
value of such securities quoted on the NASDAQ System, but not listed on the
NASD's National Market System, shall be valued at the high or "inside" bid.
Unlisted securities which are not quoted on the NASDAQ System and for which the
over-the-counter market quotations are readily available will be valued at the
current bid prices for such securities in the over-the-counter market. Other
unlisted securities (and listed securities subject to restriction on sale) may
be valued at their fair value as determined in good faith by the Board of
Directors.
The value of a security traded or dealt in upon an exchange may be
valued at what the Company's pricing agent determines is fair market value on
the basis of all available information, including the last determined value, if
there was no sale on a given day and the pricing agent determines that the last
bid does not represent the value of the security, or if such information is not
available. For example, the pricing agent may determine that the price of a
security listed on a foreign stock exchange that was fixed by reason of a limit
on the daily price change does not represent the fair market value of the
security. Similarly, the value of a security not traded or dealt in upon an
exchange may be valued at what the pricing agent determines is fair market value
if the pricing agent determines that the last sale does not represent the value
of the security, provided that such amount is not higher than the current bid
price.
Notwithstanding the foregoing, money market investments with a
remaining maturity of less than 60 days shall be valued by the amortized cost
method described below; debt securities are valued by appraising them at prices
supplied by a pricing agent approved by the Fund, which prices may reflect
broker-dealer supplied valuations and electronic data processing techniques and
are representative of market values at the close of the Exchange.
The value of an illiquid security which is subject to legal or
contractual delays in or restrictions on resale by the Fund shall be the fair
value thereof as determined in accordance with procedures established by the
Fund's Board, on the basis of such relevant factors as the following: the cost
of such security to the Fund, the market price of unrestricted securities of the
same class at the time of purchase and subsequent changes in such market price,
potential expiration or release of the restrictions affecting such security, the
existence of any registration rights, the fact that the Fund may have to bear
part or all of the expense of registering such security, and any potential sale
of such security to another investor. The value of other property owned by the
Fund shall be determined in a manner which, in the discretion of the pricing
agent of the Fund, most fairly reflects fair market value of the property on
such date.
Following the calculation of security values in terms of the currency
in which the market quotation used is expressed ("local currency"), the pricing
agent shall, prior to the next determination of the NAV of the Fund's shares,
calculate these values in terms of U.S. dollars on the basis of the conversion
of the local currencies (if other than U.S. dollars) into U.S. dollars at the
rates of exchange prevailing at the valuation time as determined by the pricing
agent.
U.S. Treasury bills, and other short-term obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, with
original or remaining maturities in excess of 60 days are valued at the mean of
representative quoted bid and asked prices for such securities or, if such
prices are not available, are valued at the mean of representative quoted bid
and asked prices for securities of comparable maturity, quality and type.
Short-term securities, with 60 days or less to maturity, are amortized to
maturity based on their cost if acquired within 60 days of maturity or, if
already held, on the 60th day prior to maturity, based on the value determined
on the 61st day prior to maturity.
11
<PAGE>
Any purchase order may be rejected by a distributor or by the Fund.
The Company has reserved the right to redeem its shares by payment of
its portfolio securities in-kind but does not intend to do so under normal
circumstances.
CONTINGENT DEFERRED SALES CHARGES
Class A Shares
With respect to purchases of $1 million or more, Class A shares
redeemed within one year of purchase will be subject to a contingent deferred
sales charge equal to 1% of the lesser of the cost of the shares being redeemed
or their net asset value at the time of redemption. Accordingly, no sales charge
will be imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. In determining, the
contingent deferred sales charge applicable to a redemption of Class A shares,
it will be assumed that the redemption is, first, of any shares that are not
subject to a contingent deferred sales charge (for example, because an initial
sales charge was paid with respect to the shares, or they have been held beyond
the period during which the charge applies or were acquired upon the
reinvestment of dividends and distributions) and, second, of shares held longest
during the time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to the distributors
of the Fund's Class A shares, and are used by the distributor to defray the
expenses related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment of compensation
to selected dealers or financial intermediaries for selling Class A shares.
Class B Shares
Class B shares that are redeemed within six years of purchase will be
subject to a contingent deferred sales charge at the rates set forth in the
Prospectus charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no sales charge will be imposed on increases in net asset value
above the initial purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains distributions.
Proceeds from the contingent deferred sales charge on the Class B
shares are paid to distributors and are used to defray the expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, including payments to dealers and other financial
intermediaries for selling Class B shares and interest and other financing costs
associated with the Class B shares.
In determining the contingent deferred sales charge applicable to a
redemption of Class B shares, it will be assumed that the redemption is, first,
of any shares that were acquired upon the reinvestment of dividends or
distributions and, second, of any shares held longest during the time they are
subject to the sales charge.
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70 1/2, or (iii) that had been purchased
by present or former directors of the Fund, by the relative of any such person,
by any trust, individual retirement account or
12
<PAGE>
retirement plan account for the benefit of any such person or relative, or by
the estate of any such person or relative.
Conversion Feature
At the end of the month which precedes the eighth anniversary of the
purchase date of a shareholder's Class B shares, the Class B shares will
automatically convert to Class A shares and will no longer be subject to higher
distribution and service fees. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The purpose of the conversion feature is to
reduce the distribution and service fees paid by holders of Class B shares that
have been outstanding long enough for the distributor to have been compensated
for distribution expenses incurred in the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
Class R Shares
Class R shares are not subject to a contingent deferred sales charge.
DIRECTORS AND OFFICERS
A list of the Company's Directors and Officers and their principal
occupations during the past five years are set forth below. The address of each
Director and Officer is c/o Tanaka Capital Management, Inc., 230 Park Avenue,
Suite 960, New York, New York 10169.
*Graham Y. Tanaka, Chairman, Chief Executive Officer and President of the
Company (02/23/48)
Mr. Tanaka is currently the President of Tanaka Capital Management,
Inc. ("Tanaka Capital"), having founded the firm in December 1986. From 1973
until 1978, Mr. Tanaka was a research analyst at Morgan Guaranty Trust. He then
worked at Fiduciary Trust Company of New York as Vice President from 1978-1980.
Prior to launching Tanaka Capital, Mr. Tanaka served as Chairman at Milbank
Tanaka & Associates from 1980 to 1986. He is a member of The Electronic Analyst
Group and also a member of the Healthcare Analyst Association. Mr. Tanaka
currently serves on the boards of TransAct Technologies, Inc. and Tridex
Corporation. He is a 1971 graduate of Brown University (BS, BA), a 1973 graduate
of Stanford University (MBA) and a Chartered Financial Analyst (CFA).
* Charles A. Dill, Director (11/29/39)
Mr. Dill is a General Partner of Gateway Associates, a St. Louis-based
venture capital firm. From 1991 until 1995, Mr. Dill served as President, Chief
Executive Officer and Director of Bridge Information Systems. From 1988 to 1991,
Mr. Dill was President, Chief Operating Officer and Director of AVX Corporation.
Prior to 1988, Mr. Dill was Senior Vice President and a member of the Office of
the Chief Executive of Emerson Electric. Mr. Dill serves on the boards of Stifel
Financial Corp., Zoltek, TransAct Technologies, Inc., Pinnacle Automation and DT
Industries, as well as the boards of several private companies. He is a 1961
graduate of Yale University (BSME) and a 1963 graduate of Harvard University
(MBA).
13
<PAGE>
David M. Fox, Director (8/31/48)
Mr. Fox has been Unapix Entertainment's President, Chief Executive
Officer and a Director since March 1992. From June 1991 until joining Unapix
Entertainment, he was the Chief Executive Officer of David Fox and Associates, a
company which he founded and which provided international programming consulting
services and acted as United States sales agent for producers worldwide. From
1981 until June 1991, Mr. Fox served as Chief Executive Officer and head of
Domestic Syndication and Cable Television for Fox/Lorber Associates, Inc.
("Fox/Lorber"), a corporation which he co-founded and which engaged in the
worldwide distribution of feature films, home video and television programs.
From March 1990 to June 1991, Mr. Fox also served as Director of GAGA
Communications, a Japanese company engaged in home video and theatrical
distribution. Prior to founding Fox/Lorber, Mr. Fox was Eastern and Midwest
Sales Manager for D.L. Taffner Ltd., syndicator of Three's Company and The Benny
Hill Show. He is a 1970 graduate of Brown University (BA) and a 1974 graduate of
Harvard (MBA).
Thomas R. Schwarz, Director (6/1/36)
Mr. Schwarz was President and Chief Operating Officer of Dunkin Donuts
Inc. (1966-1989); Chairman of the Board and Chief Executive Officer of Grossmans
Inc. (1989-1994) and retired in 1994. Mr. Schwarz currently sits on the
following boards: TransAct Technologies, Inc., Tridex Corporation, A&W
Restaurants, Lebhar-Friedman Publishing and Foilmark Inc. He is a 1958 graduate
of Williams College (BA) and a 1964 graduate of Harvard University (MBA).
Scott D. Stooker, Director (6/16/54)
Mr. Stooker has been the owner and President of 1st Team Communications
Inc. since 1990. He has served as a member on the board of directors of The
Advertising Club of Delaware, Big Brothers/Little Sisters of Delaware, and
currently serves on the board of Saint Anthony's Community Center. He is a 1976
graduate of University of Kansas (BSJ, BFA).
*Victoria M. McCann, Vice President, Secretary and Treasurer (6/8/67)
Ms. McCann has been Head of Operations and the Head Trader at Tanaka
Capital since 1991.
- ---------------
* Persons deemed to be "interested" persons of the Company under the
Investment Company Act of 1940.
With the exception of Fund shares owned by Graham Y. Tanaka in the
amount of the $100,000 initial capital he paid to the Fund, as of the date of
this Statement of Additional Information, the Directors and Officers of the
Company own less than 1% of the Fund.
Compensation of Directors and Certain Officers
The Directors of the Fund who are employees of the Investment Adviser
or officers or employees of any of its affiliates receive no remuneration from
the Fund. Each of the other Directors is paid up to $2,500 per year, which is
divided into a number of payments equal to the number of in person meetings.
Each Director is also reimbursed for the expenses of attendance at such
meetings. Directors will be paid only that portion of the $2,500 total which is
proportionate to the number of meetings which the Director actually attended
during the year. The fees paid to Directors will be deferred until such time as
the Fund has net assets of $15 million.
14
<PAGE>
The following table sets forth information regarding compensation of
Directors by the Fund for the fiscal year ended November 30, 1998. Officers of
the Fund and Directors who are interested persons of the Fund do not receive any
compensation from the Fund. The Fund does not provide compensation in the form
of pension or retirement benefits to any of its Directors.
<TABLE>
<CAPTION>
Compensation Table
Fiscal Year Ended November 30, 1998
Total
Aggregate Compensation
Compensation from Registrant
Name of Person, Position from Registrant Paid to Directors
- ------------------------ --------------- -----------------
<S> <C> <C>
Graham Y. Tanaka, Chairman, CEO and President+ $0 $0
Charles A. Dill, Director+ $0 $0
David M. Fox, Director*
Thomas R. Schwarz, Director* $0 $0
Scott D. Stooker, Director* $0 $0
- -------------------------
* Member of the Audit Committee.
+ "Interested person," as defined in the 1940 Act, of the Fund because of the
affiliation with Tanaka Capital Management, Inc..
</TABLE>
INVESTMENT ADVISER
Tanaka Capital Management, Inc. (the "Investment Adviser"), 230 Park
Avenue, Suite 960, New York, New York 10169, manages the investment of the
assets of the Fund pursuant to an Investment Advisory Agreement (the "Advisory
Agreement"). The Advisory Agreement will be effective for a period of two years
from December __, 1998 and may be renewed thereafter only so long as such
renewal and continuance is specifically approved at least annually by the
Company's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund, provided the continuance is also approved by a majority
of the Directors who are not "interested persons" of the Company or the
Investment Adviser by vote cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement is terminable without penalty on
60 days' notice by the Company's Board of Directors or by the Investment
Adviser. The Advisory Agreement provides that it will terminate automatically in
the event of its assignment.
The Company has designated Graham Y. Tanaka, President and a Director
of the Investment Adviser, as the Chairman, President and Chief Executive
Officer of the Company.
The Investment Adviser is paid a fee to be accrued daily at an annual
rate of 1.00% of the average daily net assets of the Fund. All expenses not
specifically assumed by the Investment Adviser are assumed by the Fund.
TRANSFER AGENT
Unified Fund Services, Inc. ("Unified"), 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, is the Fund's transfer agent and dividend
disbursing agent, pursuant to a Mutual Fund Services Agreement dated December
__, 1998. Unified also provides fund accounting services to the Fund under this
agreement. Unified is compensated pursuant to a schedule of fees for its
services, and by
15
<PAGE>
reimbursement for out-of-pocket expenses. The schedule calls for a minimum
payment by the Fund of $15,000 per year plus $7,500 per year per additional
class.
ADMINISTRATOR
AmeriPrime Financial Services, Inc. (the "Administrator"), 1793
Kingswood Drive, Suite 200, Southlake, Texas 76092, is the Fund's administrator
pursuant to an Administrative Services Agreement, which is dated December __,
1998 (the "Administration Agreement"). The Administration Agreement is described
in the Fund's Prospectus. The Administration Agreement continues in effect from
year to year for a period of one year only if the Board of Directors, including
a majority of the Directors who are not interested persons of the Company or the
Administrator, approve the extension at least annually.
DISTRIBUTION
Distributor
AmeriPrime Financial Securities, Inc. (the "Distributor" or
"AmeriPrime"), 1793 Kingswood Drive, Suite 200, Southlake, Texas 76092, acts as
a distributor of the Fund's shares pursuant to a Distribution Agreement between
the Fund and the Distributor.
Distribution and Service Plans
The Company has adopted, in accordance with Rule 12b-1 under the 1940
Act, separate Rule 12b-1 distribution and/or service plans pertaining to the
Fund's Class A, Class B and Class R shares (each, a "Plan"). In adopting each
Plan, a majority of the Independent Directors have concluded in accordance with
the requirements of Rule 12b-1 that there is a reasonable likelihood that each
Plan will benefit the Fund and its shareholders. The Directors of the Company
believe that the Plans should result in greater sales and/or fewer redemptions
of the Fund's shares, although it is impossible to know for certain the level of
sales and redemptions of the Fund's shares in the absence of a Plan or under an
alternative distribution arrangement.
Under the Plan applicable to the Class R shares of the Fund, payments
may be made by the Fund for the purpose of financing any activity primarily
intended to result in the sales of Class R shares of the Fund as determined by
the Board of Directors. Such activities typically include advertising;
compensation for sales and sales marketing activities of financial service
agents and others, such as dealers or distributors; shareholder account
servicing; production and dissemination of prospectuses and sales and marketing
materials; and capital or other expenses of associated equipment, rent,
salaries, bonuses, interest and other overhead. To the extent any activity on
behalf of the Class R shares is one which the Fund may finance without a Plan,
the Fund may also make payments to finance such activity outside of the Plan and
not subject to its limitations. Payments under the Class R Plan are not tied
exclusively to actual distribution and service expenses, and the payments may
exceed distribution and service expenses actually incurred on behalf of the
Class R shares.
Under the Plans for the Class A and Class B shares, the Fund may pay a
service fee, accrued daily and paid monthly, at the annual rate of up to 0.25%
of the average daily net assets attributable to its Class A or Class B shares,
as the case may be. The services for which service fees may be paid include,
among other things, advising clients or customers regarding the purchase, sale
or retention of shares of the Fund, answering routine inquiries concerning the
Fund, assisting shareholders in changing options or enrolling in specific plans
and providing shareholders with information regarding the Fund and related
developments. Pursuant to each Plan, service fee payments made out of or charged
against the assets attributable to the
16
<PAGE>
Fund's Class A or Class B shares must be in reimbursement for services rendered
for or on behalf of the affected class. The expenses not reimbursed in any one
month may be reimbursed in a subsequent month.
Under the Fund's Class B Plan, the Fund may also pay a distribution
fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average
daily net assets attributable to its Class B shares. The distribution fee
compensates a distributor for expenses incurred in connection with activities
primarily intended to result in the sale of the Fund's Class B shares,
including, but not limited to, compensation to broker-dealers that have entered
into a Dealer Agreement with the distributor; compensation to and expenses of
employees of the distributor who engage in or support distribution of the Fund's
Class B shares; telephone expenses; interest expense; printing of prospectuses
and reports for other than existing shareholders; preparation, printing and
distribution of sales literature and advertising materials; and profit on the
foregoing.
Among other things, each Plan provides that (1) the distributor or the
Investment Adviser, as the case may be, will submit to the Board at least
quarterly, and the Directors will review, written reports regarding all amounts
expended under the Plan and the purposes for which such expenditures were made;
(2) each Plan will continue in effect only so long as such continuance is
approved at least annually, and any material amendment thereto is approved, by
the votes of a majority of the Board, including the Independent Directors, cast
in person at a meeting called for that purpose; (3) payments by the Fund under
each Plan shall not be materially increased without the affirmative vote of the
holders of a majority of the outstanding shares of the relevant class; and (4)
while each Plan is in effect, the selection and nomination of Directors who are
not "interested persons" (as defined in the 1940 Act) of the Fund shall be
committed to the discretion of the Directors who are not "interested persons" of
the Company.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
As of the date of this SAI, no payments had been made under the Plans
with respect to the Fund.
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Directors, including
a majority of the Independent Directors, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Directors, or by vote of a majority of the outstanding voting securities of that
class.
EXPENSES OF THE FUND
The Fund will pay its expenses not assumed by the Investment Adviser,
including, but not limited to, the following: distribution expenses; custodian
fees and expenses; stock transfer and dividend disbursing fees and expenses;
taxes; expenses of the issuance and redemption of Fund shares (including
registration and qualification fees and expenses); legal and auditing expenses;
and the cost of stationery and forms prepared exclusively for the Fund.
The allocation of the general expenses of the Company among the Fund
and any other series of the Company that may be created in the future will be
made on a basis that the Company's Board of Directors deems fair and equitable,
which may be based on the relative net assets of the series of the Company or
the nature of the services performed and relative applicability to each series
of the Company.
17
<PAGE>
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account: The regular account allows for voluntary investments
to be made at any time and is available to individuals, custodians,
corporations, trusts, estates, corporate retirement plans and others. Investors
are free to make additions and withdrawals to or from their regular account as
often as they wish. Simply use the Account Application provided with the
Prospectus to open your regular account.
Telephone Transactions: You may redeem shares by telephone if you
request this service at the time you complete the initial Account Application.
If you do not elect this service at that time, you may do so at a later date by
putting your request in writing to the Transfer Agent and having your signature
guaranteed.
The Fund and the Transfer Agent employ reasonable procedures designed
to confirm the authenticity of your instructions communicated by telephone and,
if the Fund or Transfer Agent does not, they may be liable for any losses due to
unauthorized or fraudulent transactions. As a result of this policy, a
shareholder authorizing a telephone redemption bears the risk of loss which may
result from unauthorized or fraudulent transactions which the Fund or Transfer
Agent believes to be genuine. When you request a telephone redemption, or
exchange, if available, you will be asked to respond to certain questions
designed to confirm your identity as a shareholder of record. Your cooperation
with these procedures will protect your account and the Fund from unauthorized
transactions.
Automatic Investment Plan: Shareholders may also purchase additional
Fund shares at regular, pre-selected intervals by authorizing the automatic
transfer of funds from a designated bank account maintained with a United States
banking institution which is an Automated Clearing House member. Under the
program, existing shareholders may authorize amounts to be debited from their
bank account and invested in the Fund monthly or quarterly. Shareholders wishing
to participate in this program may obtain the applicable forms from the Transfer
Agent. Shareholders may terminate their automatic investments or change the
amount to be invested at any time by written notification to the Transfer Agent.
Individual Retirement Account (IRA):
Traditional IRA: An individual may make a deductible contribution to a
traditional individual retirement account ("IRA") of up to $2,000 or, if less,
the amount of the individual's earned income for any taxable year prior to the
year the individual reaches age 70 1/2 if neither the individual nor his or her
spouse is an active participant in an employer's retirement plan. An individual
who is (or who has a spouse who is) an active participant in an employer
retirement plan also may be eligible to make deductible IRA contributions; the
amount, if any, of IRA contributions that are deductible by such an individual
is determined by the individual's (and spouse's, if applicable) adjusted gross
income for the year. Even if an individual is not permitted to make a deductible
contribution to an IRA for a taxable year, however, the individual nonetheless
may make nondeductible contributions up to $2,000, or 100% of earned income if
less, for that year. One spouse also may contribute up to $2,000 per year to the
other spouse's own IRA, even if the other spouse has earned income of less than
$2,000, as long as the spouses' joint earned income is at least $4,000. There
are special rules for determining how withdrawals are to be taxed if an IRA
contains both deductible and nondeductible amounts. In general, a proportionate
amount of each withdrawal will be deemed to be made from nondeductible
contributions; amounts treated as a return of nondeductible contributions will
not be taxable. If you receive a lump sum distribution from another qualified
retirement plan, you may roll over all or part of that distribution into a
traditional IRA. Such a
18
<PAGE>
rollover contribution is not subject to the limits on annual IRA contributions.
By complying with applicable rollover rules, you can continue to defer federal
income taxes on your rollover contribution and on any income that is earned on
that contribution.
Roth IRA: An individual also may make nondeductible contributions to a
Roth IRA of up to $2,000 or, if less, the amount of the individual's earned
income for any taxable year if the individual's (and spouse's, if applicable)
adjusted gross income for the year is less than $95,000 for single individuals
or $150,000 for married individuals. The maximum contribution amount phases out
and falls to zero between $95,000 and $110,000 for single persons and between
$150,000 and $160,000 for married persons. Contributions to a Roth IRA may be
made even after the individual attains age 70 1/2. Distributions from a Roth IRA
that satisfy certain requirements will not be taxable when taken; other
distributions of earnings will be taxable. An individual with adjusted gross
income of $100,000 or less generally may elect to roll over amounts from a
traditional IRA to a Roth IRA. The full taxable amount held in the traditional
IRA that is rolled over to a Roth IRA will be taxable in the year of the
rollover, except rollovers made for 1998, which may be included in taxable
income over a four year period.
SEP and SIMPLE Plans: There are special IRA programs available for
corporate employers under which the employers may establish IRA accounts for
their employees in lieu of establishing corporate retirement plans. Known as
SEP-IRAs (Simplified Employee Pension-IRA) and SIMPLE IRAs, they free the
corporate employer of a number of the recordkeeping requirements of establishing
and maintaining a qualified corporate pension or profit sharing plan.
How to Establish IRAs: Please call the Fund to obtain information
regarding the establishment of IRAs. The IRA plan custodian charges your IRA
nominal fees in connection with establishing and maintaining the IRA. These fees
are detailed in the IRA plan documents.
You should consult with a competent adviser for specific advice
concerning your tax status and the possible benefits to you of establishing one
or more IRAs. The description above is only very general, there are numerous
other rules applicable to these plans and considerations of which you should be
aware before establishing one.
GENERAL INFORMATION AND HISTORY
The Company is authorized to issue up to 250,000,000 shares of common
stock, par value $0.01 per share, of which it has currently allocated
150,000,000 shares to the Fund. The Board of Directors can allocate the
remaining authorized but unissued shares to the Fund, or may create additional
series or classes and allocate shares to such series or classes. Each series is
required to have a suitable investment objective, policies and restrictions, to
maintain a separate portfolio of securities suitable to its purposes, and
generally to operate in the manner of a separate investment company as required
by the 1940 Act.
If additional series were to be formed, the rights of existing series
shareholders would not change, and the objective, policies and investments of
each series would not necessarily be changed. A share of any series would
continue to have a priority in the assets of that series in the event of a
liquidation.
The shares of each series when issued will be fully paid and
nonassessable, will have no preference over other shares of the same series as
to conversion, dividends, or retirement, and will have no preemptive rights. The
shares of any series will be redeemable from the assets of that series at any
time at a shareholder's request at the current net asset value of that series
determined in accordance with the provisions of the 1940 Act and the rules
thereunder. The Company's general corporate expenses (including
19
<PAGE>
administrative expenses) will be allocated among the series in proportion to net
assets or as determined in good faith by the Board.
Each outstanding share of the Company is entitled to one vote for each
full share of stock and a fractional vote for each fractional share of stock.
All shareholders vote on matters that concern the Company as a whole. Election
of Directors or ratification of the independent accountants are examples of
matters to be voted upon by all shareholders. The Company is not required to
hold a meeting of shareholders each year. The Company intends to hold meetings
of shareholders when it is required to do so by the General Corporation Law of
Maryland or the 1940 Act. Each series will vote separately on matters (1) when
required by the General Corporation Law of Maryland, (2) when required by the
1940 Act, and (3) when matters affect only the interest of the particular
series. An example of a matter affecting only one series is a proposed change in
an investment restriction of that series. The Fund shares will not have
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of Directors can elect all of the Directors if
they choose to do so.
PERFORMANCE
Total return and current yield are the two primary methods of measuring
investment performance. Occasionally, however, the Fund may include its
distribution rate in sales literature. Yield, in its simplest form, is the ratio
of income per share derived from the Fund's portfolio investments to the current
maximum offering price expressed in terms of percent. The yield is quoted on the
basis of earnings after expenses have been deducted. Total return, on the other
hand, is the total of all income and capital gains paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the change in the
value of the original investment, expressed as a percentage of the purchase
price. The distribution rate is the amount of distributions per share made by
the Fund over a twelve-month period divided by the current maximum offering
price.
Performance quotations by investment companies are subject to certain
rules adopted by the Securities and Exchange Commission (the "Commission").
These rules require the use of standardized performance quotations, or
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information computed
as required by the Commission. Current yield and total return quotations used by
the Fund are based on the standardized methods of computing performance mandated
by the Commission.
Current Yield. As indicated below, current yield is determined by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period and annualizing
the result. Expenses accrued for the period include any fees charged to all
shareholders during the 30-day (or one-month) base period ended on the date for
which the yield is quoted. According to the Commission formula:
Yield = 2 [(a-b + 1)6 -1]
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
20
<PAGE>
Total Return. As the following formula indicates, the average annual
total return is determined by multiplying a hypothetical initial purchase order
of $1,000 by the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period, less any fees charged to all shareholder accounts, and
annualizing the result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one-, five- and ten-year period or the period since
inception if shorter than the one-, five- or ten-year period and the deduction
of all applicable charges and fees.
According to the Commission formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one-, five-, or ten-year
period at the end of the one-, five-, or ten-year periods (or
fractional portion thereof).
Sales literature pertaining to the Fund may quote a distribution rate
in addition to the yield or total return. The distribution rate is the amount of
distributions per share made by the Fund over a twelve-month period divided by
the current maximum offering price. The distribution rate differs from the yield
because it measures what the Fund paid to shareholders rather than what the Fund
earned from investments. It also differs from the yield because it may include
dividends paid from premium income from option writing, if applicable, and
short-term capital gains in addition to dividends from investment income. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout, or a fundamental change in investment policies, it might be
appropriate to annualize the distributions paid over the period such policies
were in effect, rather than using the distributions paid during the past twelve
months.
Occasionally, statistics may be used to specify the Fund's volatility
or risk. Measures of volatility or risk are generally used to compare the Fund's
changes in net asset value, or its performance, relative to a market index. One
measure of volatility is beta. Beta is the volatility of the Fund relative to
the total market as represented by the Standard & Poor's 500 Stock Index. A beta
of more than 1.00 indicates volatility greater than the market, and a beta of
less than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the yield or return to
shareholders only for the limited historical period used.
Comparison of Portfolio Performance
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when
21
<PAGE>
comparing performance of the Fund with performance quoted with respect to other
investment companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Total Return Index ("S&P 500"), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, and the Russell 2000 Index.
From time to time, in advertising, marketing and other Fund literature,
the performance of the Fund may be compared to the performance of broad groups
of mutual funds with similar investment goals, as tracked by independent
organizations such as Investment Company Data, Inc., Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc., Morningstar, Inc., Value Line Mutual
Fund Survey and other independent organizations. When these organizations'
tracking results are used, the Fund will be compared to the appropriate fund
category, that is, by fund objective and portfolio holdings or the appropriate
volatility grouping, where volatility is a measure of a fund's risk. From time
to time, the average price-earnings ratio and other attributes of the Fund's or
the model portfolio's securities, may be compared to the average price-earnings
ratio and other attributes of the securities that comprise the S&P 500.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Tanaka funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
22
<PAGE>
TANAKA FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 10, 1998
Tanaka
Growth Fund
ASSETS:
Cash in Bank $100,000
Total Assets $100,000
LIABILITIES: $ 0
--------
Total Liabilities $ 0
--------
NET ASSETS $100,000
-------
NET ASSETS CONSIST OF:
Capital Paid In $100,000
-------
OUTSTANDING SHARES
50 Million Shares
Authorized at $0.01 Par Value
Class R 10,000
NET ASSET VALUE PER SHARE $10
OFFERING PRICE PER SHARE $10
The accompanying notes are an integral
part of these financial statements
23
<PAGE>
THE TANAKA FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
December 10, 1998
1. ORGANIZATION
The TANAKA Funds, Inc., (the "Company") is an open-end management investment
company organized under the laws of Maryland on November 5, 1997. The
amended and restated Articles of Incorporation dated November 20, 1998
provide for 250 million shares at $0.01 par value. There presently is one
series within the Company, the Tanaka Growth Fund (the "Fund"), representing
a separate non-diversified portfolio of securities. Only Class R shares of
this series are outstanding at the present time. The investment objective of
the Fund is growth of capital.
Shares represent a proportionate interest in the Fund. The Directors of the
Company have authorized that Shares of the Fund may be offered in three
classes:
(1) an A Class wherein the Shares of the Fund are subject to a maximum
initial sales charge of 4.50%,
(2) a B Class wherein the Shares of the Fund are sold subject to a
Contingent Deferred Sales Charge, and an additional 0.75% 12b-1
fee, and
(3) an R Class wherein the Shares of the Fund are sold subject to an
ongoing 0.25% 12b-1 fee.
The Directors have adopted a multiple class plan pursuant to Rule 18f-3 of
the Investment Company Act of 1940 (the "1940 Act") designating expenses
specifically attributable to a particular class of shares ("Class
Expenses"). Subject to such an allocation of class expenses, all shares are
entitled to such dividends and distributions out of the income belonging to
the Fund, as are declared by the Directors. Upon liquidation of the Company,
shareholders of the Fund are entitled to share pro rata, adjusted for class
expenses, in the net assets belonging to the Fund available for
distribution.
The Fund uses an independent custodian and transfer agent. No transactions
other than those relating to organizational matters and the sale of 10,000
Class R Shares of the Tanaka Growth Fund have taken place to date.
2. RELATED PARTY TRANSACTIONS
As of December 10, 1998, all of the outstanding shares of the Fund and the
Company were owned by Graham Y. Tanaka. A shareholder who beneficially owns,
directly or indirectly, more than 25% of the voting securities of an
investment company may be deemed a "control person" (as defined in the 1940
Act) of the investment company. Graham Y. Tanaka is the owner and an officer
of Tanaka Capital Management, Inc. and a director of the Company.
Tanaka Capital Management, Inc., the Fund's investment adviser (the
"Adviser"), is registered as an investment adviser under the Investment
Advisers Act of 1940.
24
<PAGE>
2. RELATED PARTY TRANSACTIONS
The Adviser has entered into an Investment Advisory Agreement (the "Advisory
Agreement") with the Company to provide investment management services to
the Fund. Under the terms of the Advisory Agreement, the Adviser, subject to
the supervision of the Board of Directors, will manage the investment
operations of the Fund in accordance with the Fund's investment policies. In
consideration of the Adviser's investment advisory services, the Company
will pay to the Adviser a fee at an annual rate equal to 1.00% of average
net asset value of the Fund, such fee to be computed daily based upon the
net asset value of the Fund.
3. CAPITAL STOCK AND DISTRIBUTION
At December 10, 1998, 50 million Class R shares of the Company were
authorized and paid in capital amounted to $100,000 for the Tanaka Growth
Fund. Transactions in capital stock were as follows:
Shares Sold:
Tanaka Growth Fund (Class R) 10,000
Shares Redeemed:
Tanaka Growth Fund 0
------
Net Increase:
Tanaka Growth Fund (Class R) 10,000
------
Shares Outstanding:
Tanaka Growth Fund (Class R) 10,000
------
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Directors
The TANAKA Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of the
TANAKA Funds, Inc. (comprised of the Tanaka Growth Fund) as of December 10,
1998. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstate- ment. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of December 10, 1998, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Tanaka
Growth Fund as of December 10, 1998, in conformity with generally accepted
accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
December 10, 1998
26
<PAGE>
Investment Adviser: Tanaka Capital Management, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
Distributor: AmeriPrime Financial Services, Inc.
1793 Kingswood Drive, Suite 200
Southlake, Texas 76092
Counsel: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Independent Auditors: McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, Ohio 44145
Transfer Agent: For account information, wire purchases
or redemptions, call 877-4-TANAKA
(toll-free) or write to the
Fund's Transfer Agent:
Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204
More Information: For information on the Fund, investment
plans, or other shareholder services,
call the Fund toll-free at 877-4-TANAKA
during normal business hours, or write
to TANAKA Funds, Inc., P.O. Box 6110,
Indianapolis, Indiana 46206.
27
<PAGE>
TANAKA FUNDS, INC.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Part A - None.
Part B - Statement of Assets and Liabilities,
Notes to Financial Statements, Report
of Independent Accountants.
Part C - None.
(b) Exhibits.
(1) Amended and Restated Articles of Incorporation of Registrant.
(2) By-Laws of Registrant.*
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Investment Advisory Agreement between Tanaka Capital
Management, Inc. and the Registrant on behalf of the TANAKA GROWTH
FUND.
(6) Form of Distribution Agreement between AmeriPrime Financial
Securities, Inc. and the Registrant on behalf of the TANAKA GROWTH
FUND.
(7) Not Applicable.
(8) Form of Custodian Agreement between Star Bank, N.A. and the
Registrant on behalf of the TANAKA GROWTH FUND.
(9) (a) Form of Mutual Fund Services Agreement between Unified Fund
Services, Inc. and the Registrant on behalf of the
TANAKA GROWTH FUND.
(b) Form of Administrative Services Agreement between AmeriPrime
Financial Services, Inc. and the Registrant on behalf of the
TANAKA GROWTH FUND.
(10) Opinion of Counsel.
(11) Consent of Independent Accountants (Report included in SAI).
C-1
<PAGE>
(12) Not applicable.
(13) Investment Representations Letter.
(14) Not Applicable.
(15) (a) Service Plan (Class A shares only)
(b) Distribution and Service Plan (Class B shares only)
(c) Distribution and Service Plan (Class R shares only)
(16) Not Applicable.
(17) Not Applicable.
(18) Multiple Class Plan pursuant to Rule 18f-3.
(19) Powers-of-Attorney.*
- ------------------
* Filed as exhibits to Pre-Effective Amendment No. 1
dated November 13, 1998.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES: As of December 14, 1998:
Number of
Title of Class Record Holders
-------------- --------------
TANAKA GROWTH FUND 1*
* Graham Y. Tanaka holds 100% of the outstanding shares representing the
initial capital of the Registrant.
ITEM 27. INDEMNIFICATION.
The Registrant is incorporated under the General Corporation Law (the
"GCL") of the State of Maryland. The Registrant's Articles of
Incorporation provide for indemnification of directors, officers and
other agents of the corporation to the fullest extent permitted under
the GCL. The Articles limit such indemnification so as to comply with
the prohibition against indemnifying such persons under Section 17 of
the 1940 Act for certain conduct set forth in that section ("Disabling
Conduct"). Contracts between the Fund and various service providers
include provisions for indemnification, but also forbid the Registrant
to indemnify affiliates for Disabling Conduct.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
TANAKA Capital Management, Inc., the investment advisor to the TANAKA
GROWTH FUND series, provides investment advisory services consisting of
portfolio management for a variety of individuals and institutions and
as of December, 1998, had approximately $170 million in assets under
management.
For information as to any other business, profession, vocation or
employment of a substantial nature in which each director, officer or
partner of Tanaka
C-2
<PAGE>
Capital Management, Inc. (the "Adviser") is or has been, at any time
during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee, reference
is made to the Adviser's Form ADV (File #801-28990), currently on file
with the Commission as required by the Investment Advisors Act of 1940,
as amended.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) ICON Funds, AmeriPrime Funds, Kenwood Funds, Rockland Growth Fund,
Grand Prix Funds.
(b) AmeriPrime Financial Securities, Inc., 1793 Kingswood Drive,
Suite 200, Southlake, Texas 76092.
President.
None.
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the Registrant required to be
maintained by ss.31(a) of the Investment Company Act of 1940, as
amended, and the rules promulgated thereunder are kept in several
locations:
(a) Shareholder account records (including share ledgers, duplicate
confirmations, duplicate account statements, and applications
forms) of the TANAKA GROWTH FUND series of the Registrant are
maintained by its transfer agent, Unified Fund Services, Inc., 431
North Pennsylvania Street, Indianapolis, Indiana 46204.
(b) Investment records including research information, records
relating to the placement of brokerage transactions, memorandums
regarding investment recommendations for supporting and/or
authorizing the purchase or sale of assets, information relating
to the placement of securities transactions, and certain records
concerning investment recommendations of the TANAKA GROWTH FUND
series are maintained at the series' investment advisor, Tanaka
Capital Management, Inc., at 230 Park Avenue, Suite 960, New
York, New York 10169.
(c) Accounts and records for portfolio securities and other investment
assets, including cash of the Tanaka Fund series are maintained in
the custody of the Registrant's custodian bank, Star Bank, N.A.,
425 Walnut Street, Cincinnati, Ohio 45202.
(d) Accounting records, including general ledgers, supporting ledgers,
pricing computations, etc. of the Tanaka Fund series are
maintained by the Registrant's fund accounting agent, Tanaka
Capital Management, Inc., at 230 Park Avenue, Suite 960, New
York, New York 10169.
(e) Administrative records, including copies of the charter, by-laws,
minute books, agreements, compliance records and reports, certain
shareholder communications, etc., are kept
C-3
<PAGE>
by the Registrant's Administrator, AmeriPrime Financial
Services, Inc., 1793 Kingswood Drive, Suite 200, Southlake, Texas
76092.
(f) Records relating to distribution of shares of the Registrant are
maintained by the Registrant's distributor, AmeriPrime Financial
Securities, Inc., 1793 Kingswood Drive, Suite 200, Southlake,
Texas 76092.
ITEM 31. MANAGEMENT SERVICES. There are no management-related service
contracts not discussed in Parts A or B of this Form.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 2 to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of New York, and
the State of New York on the 14th day of December, 1998.
TANAKA FUNDS, INC.
By: *
------------------------
Graham Y. Tanaka
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 has been signed below by the following person in
the capacities and on the date indicated below.
(Signature) (Title) (Date)
* Director December 14, 1998
- ------------------------
Graham Y. Tanaka
* Director December 14, 1998
- ------------------------
Charles A. Dill
* Director December 14, 1998
- ------------------------
David M. Fox
* Director December 14, 1998
- ------------------------
Scott D. Stooker
* Director December 14, 1998
- ------------------------
Thomas R. Schwarz
/s/ Margaret A. Bancroft
- ------------------------
Margaret A. Bancroft
Attorney-In-Fact
* Pursuant to Powers-of-Attorney
C-5
<PAGE>
Exhibits
99.1 Amended and Restated Articles of Incorporation
99.5 Form of Investment Advisory Agreement
99.6 Form of Distribution Agreement
99.8 Form of Custodian Agreement
99.9(a) Form of Mutual Fund Services Agreement
99.9(b) Form of Administrative Services Agreement
99.10 Opinion of Counsel
99.11 Consent of Independent Accountants
99.13 Investment Representations Letter
99.15(a) Form of Service Plan (Class A shares only)
99.15(b) Form of Distribution and Service Plan (Class B shares
only)
99.15(c) Form of Distribution and Service Plan (Class R shares
only)
99.18 Form of Multiple Class Plan
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TANAKA FUNDS, INC.
TANAKA Funds, Inc., a Maryland corporation (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as follows:
(1) to add the phrase "(herein after called the "Corporation")"
directly after the word "Inc." in ARTICLE SECOND;
(2) to replace the text of ARTICLES THIRD, FOURTH and FIFTH in their
entirety with the following:
"THIRD: The purpose for which the Corporation is formed is to conduct,
operate and carry on the business of an investment company registered under
the Investment Company Act of 1940 and to exercise all of the powers and to
do any and all of the things as fully and to the same extent as any other
corporation incorporated under the laws of the State of Maryland, now or
hereinafter in force.
"FOURTH: The post office address of the principal office of the Corporation
in the State of Maryland is:
c/o The Corporation Trust, Incorporated
32 South Street
Baltimore, Maryland 21202
The name and post office address of the resident agent of the Corporation
in the State of Maryland is:
"The Corporation Trust, Incorporated
32 South Street
Baltimore, Maryland 21202
"FIFTH: (a) The total number of shares of stock which the Corporation shall
have authority to issue is two hundred and fifty million (250,000,000)
shares of stock, with a par value of one cent ($.01) per share, to be known
and designated as Common Stock, such shares of Common Stock having an
aggregate par value of two million five hundred thousand dollars
($2,500,000). Such shares and the holders thereof shall be subject to the
following provisions:
<PAGE>
"(1) Each holder of Common Stock may require the Corporation
to redeem all or any part of the Common Stock owned by that
holder, upon request to the Corporation or its designated agent,
at the net asset value of the shares of Common Stock next
determined following receipt of the request in a form approved by
the Corporation and accompanied by surrender of the certificate
or certificates for the shares, if any. The Board of Directors
may establish procedures for redemption of Common Stock. The
right of a holder of Common Stock redeemed by the Corporation to
receive dividends thereon and all other rights with respect to
the shares shall terminate at the time as of which the redemption
price has been determined, except the right to receive the
redemption price and any dividend or distribution to which that
holder had become entitled as the record stockholder on the
record date for that dividend.
"(2) (i) The term "Minimum Amount" when used herein
shall mean one thousand dollars ($1,000) unless otherwise
fixed by the Board of Directors from time to time, provided
that the Minimum Amount may not in any event exceed one
hundred thousand dollars ($100,000). The Board of Directors
may establish differing Minimum Amounts for categories of
holders of Common Stock based on such criteria as the Board
of Directors may deem appropriate.
"(ii) If the net asset value of the shares of Common
Stock held by a stockholder shall be less than the Minimum
Amount then in effect with respect to the category of holders
in which the stockholder is included, the Corporation may
redeem all of those shares, upon notice given to the holder
in accordance with paragraph (iii) of this subsection (2), to
the extent that the Corporation may lawfully effect such
redemption under the laws of the State of Maryland.
"(iii) The notice referred to in paragraph (ii) of this
subsection (2) shall be in writing personally delivered or
deposited in the mail, at least thirty days (or such other
number of days as may be specified from time to time by the
Board of Directors) prior to such redemption. If mailed, the
notice shall be addressed to the stockholder at his post
office address as shown on the books of the Corporation, and
sent by first class mail, postage prepaid. The price for
shares acquired by the Corporation pursuant to this
subsection (2) shall be an amount equal to the net asset
value of such shares.
"(3) Payment for shares of Common Stock redeemed by the
Corporation shall be made by the Corporation within seven
business days of such surrender out of the funds legally
available therefor,
2
<PAGE>
provided that the Corporation may suspend the right of the
stockholders to redeem shares of Common Stock and may postpone
the right of those holders to receive payment for any shares when
permitted or required to do so by applicable statutes or
regulations. Payment of the aggregate price of shares surrendered
for redemption may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities of the
Corporation as the Corporation shall select.
"(4) Shares of Common Stock shall be entitled to dividends or
distributions, in cash, in property or in shares of Common Stock,
as may be declared from time to time by the Board of Directors,
acting in its sole discretion, out of the assets lawfully
available therefor. The Board of Directors may provide that
dividends shall be payable only with respect to those shares of
Common Stock that have been held of record continuously by the
stockholder for a specified period, not to exceed 72 hours, prior
to the record date of the dividend.
"(5) On each matter submitted to a vote of the stockholders,
each holder of Common Stock shall be entitled to one vote for
each share standing in his name on the books of the Corporation.
All holders of shares of stock shall vote as a single class
except with respect to any matter which affects only one or more
classes of stock, in which case only the holders of shares of the
class or classes affected shall be entitled to vote.
"(6) The Board of Directors is authorized to classify or to
reclassify, from time to time, any unissued shares of stock of
the Corporation, whether now or hereafter authorized, by setting,
changing or eliminating the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms and conditions of or rights to require
redemption of the stock.
"(7) The Corporation may issue shares of Common Stock in
fractional denominations to the same extent as its whole shares,
and shares in fractional denominations shall be shares of stock
having proportionately, to the respective fractions represented
thereby, all the rights of whole shares, including without
limitation, the right to vote, the right to receive dividends and
distributions, and the right to participate upon the liquidation
of the Corporation, but excluding the right to receive a stock
certificate representing fractional shares.
"(b) No stockholder shall be entitled to any preemptive right
other than as the Board of Directors may establish.
"(c) Subject to the aforesaid power of the Board of Directors,
one series of shares is hereby designated and classified as
TANAKA
3
<PAGE>
Growth Fund and one hundred fifty million (150,000,000) shares of
Common Stock (par value $.01 per share) are hereby initially
classified and allocated to such series. TANAKA Growth Fund shall
have three classes designated and classified as TANAKA Growth
Fund Class A, TANAKA Growth Fund Class B and TANAKA Growth Fund
Class R. Fifty million (50,000,000) shares of the Common Stock
designated and classified as TANAKA Growth Fund are classified
and allocated as TANAKA Growth Fund Class A Common Stock, fifty
million (50,000,000) shares of the Common Stock designated and
classified as TANAKA Growth Fund are classified and allocated as
TANAKA Growth Fund Class B Common Stock, and fifty million
(50,000,000) shares of the Common Stock designated and classified
as TANAKA Growth Fund are classified and allocated as TANAKA
Growth Fund Class R Common Stock.
"(d) At any time when there are no shares outstanding or
subscribed for a particular series or class previously
established and designated herein or by the Board of Directors,
the series or class may be eliminated by the Board of Directors."
(3) to capitalize the word "Corporation" in each place it appears in
ARTICLE SIXTH;
(4) to replace the text of ARTICLES SEVENTH, EIGHTH and NINTH in their
entirety with the following:
"SEVENTH: The following provisions are inserted for the purpose
of defining, limiting and regulating the powers of the
Corporation and of the Board of directors and stockholders.
"(a) In addition to its other powers explicitly or implicitly
granted under these Articles of Incorporation, by law or
otherwise, the Board of Directors of the Corporation:
"(1) is expressly and exclusively authorized to make, alter,
amend or repeal the By-Laws of the Corporation;
"(2) may from time to time determine whether, to what extent
at what times and places, and under what conditions and
regulations the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account, book or
document of the Corporation except as conferred by statute or as
authorized by the Board of Directors of the Corporation;
4
<PAGE>
"(3) is empowered to authorize, without stockholder approval,
the issuance and sale from time to time of shares of stock of the
Corporation whether now or hereafter authorized;
"(4) is authorized to adopt procedures for determination of
the net asset value of shares of any class of the Corporation's
stock; and
"(5) is authorized to declare dividends out of funds legally
available therefor on shares of each class of stock of the
Corporation payable in such amounts and at such times as it
determines, including declaration by means of a formula or
similar method and including dividends declared or payable more
frequently than meetings of the Board of Directors.
"(b) Notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of
the votes of the Corporation's stock entitled to be cast in order
to take or authorize any action, any such action may be taken or
authorized upon the concurrence of a majority of the aggregate
number of votes entitled to be cast thereon.
"(c) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall
constitute a quorum at any meeting of the stockholders, except
with respect to any matter which, under applicable statutes or
regulatory requirements, requires approval by a separate vote of
one or more classes of stock, in which case the presence in
person or by proxy of the holders of shares entitled to cast
one-third of the votes entitled to be cast on the matter shall
constitute a quorum.
"(d) Any determination made in good faith by or pursuant to the
direction of the Board of Directors, as to the amount of the
assets, debts, obligations, or liabilities of the Corporation, as
to the amount of any reserves or charges set up and the propriety
thereof, as to the time of or purpose for creating such reserves
or charges, as to the use, alteration or cancellation of any
reserves or charges (whether or not any debt, obligation, or
liability for which such reserves or charges shall have been
created shall be then or thereafter required to be paid or
discharged), as to the value of or the method of valuing any
investment owned or held by the Corporation, as to market value
or fair value of any investment or fair value of any other asset
of the Corporation, as to the allocation of any asset of the
Corporation to a particular class or classes of the Corporation's
stock, as to the charging of any liability of the Corporation to
a particular class or classes of the Corporation's stock, as to
the number of shares of the Corporation outstanding, as
5
<PAGE>
to the estimated expense to the Corporation in connection with
purchases of its shares, as to the ability to liquidate
investments in orderly fashion, or as to any other matters
relating to the issue, sale, redemption or other acquisition or
disposition of investments or shares of the Corporation, shall be
final and conclusive and shall be binding upon the Corporation
and all holders of its shares, past, present and future, and
shares of the Corporation are issued and sold on the condition
and understanding that any and all such determinations shall be
binding as aforesaid.
"(e) The Corporation is not required to hold an annual meeting in
any year in which the election of directors is not required to be
acted upon under the Investment Company Act of 1940.
"EIGHTH: (a) To the fullest extent that limitations on the
liability of directors and officers are permitted by the Maryland
General Corporation Law, no director or officer of the
corporation shall have any liability to the corporation or its
stockholders for damages. This limitation on liability applies to
events occurring at the time a person serves as a director or
officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which
liability is asserted.
"(b) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the full extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance
expenses to it officers to the same extent as its directors and
may do so to such further extent as is consistent with law. The
Board of Directors may by By-Law, resolution or agreement make
further provision for indemnification of directors, officers,
employees and agents to the full extent permitted by the Maryland
Corporation Law.
"(c) No provision of this Article shall be effective to protect
or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders
to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
"(d) Reference to the Maryland General Corporation Law in this
Article are to the law as from time to time amended. No amendment
to the Articles of Incorporation of the Corporation shall affect
any right of any person under this Article based on any event,
omission or proceeding prior to such amendment.
6
<PAGE>
"NINTH: The Corporation expressly reserves the right to amend,
alter, change or repeal any provision contained in these Articles
of Incorporation or in any amendment thereto in the manner now or
hereafter prescribed by the laws of the State of Maryland,
including any amendment which alters the contract rights, as
expressly set forth in these Articles of Incorporation, of any
outstanding stock, and all rights conferred herein are granted
subject to such reservation;" and
(5) to capitalize the word "Corporation" in each place it appears in
ARTICLE TENTH.
SECOND: The foregoing amendments were approved by a majority of the entire
Board of Directors.
THIRD: Immediately prior to the filing of these Articles of Amendment and
Restatement and as amended, the total number of shares of all series and classes
which the Corporation had the authority to issue was two-hundred fifty million
(250,000,000) shares of stock, with a par value of one cent ($.01) per share, to
be known as Common Stock, such shares of Common Stock having an aggregate par
value of two million five hundred thousand dollars ($2,500,000).
FOURTH: Immediately prior to the filing of these Articles of Amendment and
Restatement, one series of shares had been designated and classified as TANAKA
Growth Fund and fifty million (50,000,000) shares of Common Stock had been
initially classified and allocated to such series.
FIFTH: As amended hereby, until such time as the Board of Directors shall
provide otherwise in accordance with paragraph (a)(6) of Article FIFTH of the
Corporation's Articles of Incorporation, one hundred fifty million (150,000,000)
of such shares of Common Stock shall be designated and classified as TANAKA
Growth Fund shares. The TANAKA Growth Fund series will consist of three classes:
TANAKA Growth Fund Class A, TANAKA Growth Fund Class B and TANAKA Growth Fund
Class R. Fifty million (50,000,000) shares of the Common Stock designated and
classified as TANAKA Growth Fund are classified and allocated as TANAKA Growth
Fund Class A Common Stock, fifty million (50,000,000) shares of the Common Stock
designated and classified as TANAKA Growth Fund are classified and allocated as
TANAKA Growth Fund Class B Common Stock, and fifty million (50,000,000) shares
of the Common Stock designated and classified as TANAKA Growth Fund are
classified and allocated as TANAKA Growth Fund Class R Common Stock.
SIXTH: The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption for each class of shares is set forth in ARTICLE FIFTH
if the Corporation's charter as amended and restated herein.
SEVENTH: The restatement of the Charter as so amended has been approved by
a majority of the entire Board of Directors. The Corporation has five directors
currently in office. These directors are Graham Y. Tanaka, Charles A. Dill,
David M. Fox, Thomas R. Schwarz and Scott D. Stooker.
7
<PAGE>
EIGHTH: There was no stock outstanding and entitled to be voted on this
matter at the time of approval.
NINTH: The current address of the principal office of the Corporation and
the name and address of the resident agent of the Corporation are set forth in
the Charter as amended.
TENTH: The Articles of Incorporated of the Corporation, as amended herein,
are hereby restated as follows. The provisions set forth in this Restatement
include all provisions of the Charter that are currently in effect, including
the provisions set forth in ARTICLE FIRST above.
* * * * * * * *
TANAKA FUNDS, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: The undersigned, Steven M. Felsenstein, whose post office address is
One Commerce Square, Philadelphia, Pennsylvania 19103, and being at least
eighteen years of age, does hereby cause to be filed these Articles of
Incorporation for the purpose of forming a corporation under the General
Corporation Law of the State of Maryland.
SECOND: The name of the corporation is TANAKA Funds, Inc. (herein after
called the "Corporation").
THIRD: The purpose for which the Corporation is formed is to conduct,
operate and carry on the business of an investment company registered under the
Investment Company Act of 1940 and to exercise all of the powers and to do any
and all of the things as fully and to the same extent as any other corporation
incorporated under the laws of the State of Maryland, now or hereinafter in
force.
FOURTH: The post office address of the principal office of the Corporation
in the State of Maryland is:
c/o The Corporation Trust, Incorporated
32 South Street
Baltimore, Maryland 21202
The name and post office address of the resident agent of the
Corporation in the State of Maryland is:
The Corporation Trust, Incorporated
32 South Street
Baltimore, Maryland 21202
FIFTH: (a) The total number of shares of stock which the Corporation shall
have authority to issue is two hundred and fifty million (250,000,000) shares of
stock, with a par value of
8
<PAGE>
one cent ($.01) per share, to be known and designated as Common Stock, such
shares of Common Stock having an aggregate par value of two million five hundred
thousand dollars ($2,500,000). Such shares and the holders thereof shall be
subject to the following provisions:
(1) Each holder of Common Stock may require the Corporation to redeem
all or any part of the Common Stock owned by that holder, upon request to
the Corporation or its designated agent, at the net asset value of the
shares of Common Stock next determined following receipt of the request in
a form approved by the Corporation and accompanied by surrender of the
certificate or certificates for the shares, if any. The Board of Directors
may establish procedures for redemption of Common Stock. The right of a
holder of Common Stock redeemed by the Corporation to receive dividends
thereon and all other rights with respect to the shares shall terminate at
the time as of which the redemption price has been determined, except the
right to receive the redemption price and any dividend or distribution to
which that holder had become entitled as the record stockholder on the
record date for that dividend.
(2) (i) The term "Minimum Amount" when used herein shall mean one
thousand dollars ($1,000) unless otherwise fixed by the Board of Directors
from time to time, provided that the Minimum Amount may not in any event
exceed one hundred thousand dollars ($100,000). The Board of Directors may
establish differing Minimum Amounts for categories of holders of Common
Stock based on such criteria as the Board of Directors may deem
appropriate.
(ii) If the net asset value of the shares of Common Stock held by
a stockholder shall be less than the Minimum Amount then in effect with
respect to the category of holders in which the stockholder is included,
the Corporation may redeem all of those shares, upon notice given to the
holder in accordance with paragraph (iii) of this subsection (2), to the
extent that the Corporation may lawfully effect such redemption under the
laws of the State of Maryland.
(iii) The notice referred to in paragraph (ii) of this subsection
(2) shall be in writing personally delivered or deposited in the mail, at
least thirty days (or such other number of days as may be specified from
time to time by the Board of Directors) prior to such redemption. If
mailed, the notice shall be addressed to the stockholder at his post office
address as shown on the books of the Corporation, and sent by first class
mail, postage prepaid. The price for shares acquired by the Corporation
pursuant to this subsection (2) shall be an amount equal to the net asset
value of such shares.
(3) Payment for shares of Common Stock redeemed by the Corporation
shall be made by the Corporation within seven business days of such
surrender out of the funds legally available therefor, provided that the
Corporation may suspend the right of the stockholders to redeem shares of
Common Stock and may postpone the right of those holders to receive payment
for any shares when permitted or required to do so by applicable statutes
or regulations. Payment of the aggregate price of shares surrendered for
redemption may be made in cash or, at the option of the Corporation, wholly
or partly in such portfolio securities of the Corporation as the
Corporation shall select.
9
<PAGE>
(4) Shares of Common Stock shall be entitled to dividends or
distributions, in cash, in property or in shares of Common Stock, as may be
declared from time to time by the Board of Directors, acting in its sole
discretion, out of the assets lawfully available therefor. The Board of
Directors may provide that dividends shall be payable only with respect to
those shares of Common Stock that have been held of record continuously by
the stockholder for a specified period, not to exceed 72 hours, prior to
the record date of the dividend.
(5) On each matter submitted to a vote of the stockholders, each holder
of Common Stock shall be entitled to one vote for each share standing in
his name on the books of the Corporation. All holders of shares of stock
shall vote as a single class except with respect to any matter which
affects only one or more classes of stock, in which case only the holders
of shares of the class or classes affected shall be entitled to vote.
(6) The Board of Directors is authorized to classify or to reclassify,
from time to time, any unissued shares of stock of the Corporation, whether
now or hereafter authorized, by setting, changing or eliminating the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms and conditions of or
rights to require redemption of the stock.
(7) The Corporation may issue shares of Common Stock in fractional
denominations to the same extent as its whole shares, and shares in
fractional denominations shall be shares of stock having proportionately,
to the respective fractions represented thereby, all the rights of whole
shares, including without limitation, the right to vote, the right to
receive dividends and distributions, and the right to participate upon the
liquidation of the Corporation, but excluding the right to receive a stock
certificate representing fractional shares.
(b) No stockholder shall be entitled to any preemptive right other than as
the Board of Directors may establish.
(c) Subject to the aforesaid power of the Board of Directors, one series of
shares is hereby designated and classified as TANAKA Growth Fund and one hundred
fifty million (150,000,000) shares of Common Stock (par value $.01 per share)
are hereby initially classified and allocated to such series. TANAKA Growth Fund
shall have three classes designated and classified as TANAKA Growth Fund Class
A, TANAKA Growth Fund Class B and TANAKA Growth Fund Class R. Fifty million
(50,000,000) shares of the Common Stock designated and classified as TANAKA
Growth Fund are classified and allocated as TANAKA Growth Fund Class A Common
Stock, fifty million (50,000,000) shares of the Common Stock designated and
classified as TANAKA Growth Fund are classified and allocated as TANAKA Growth
Fund Class B Common Stock, and fifty million (50,000,000) shares of the Common
Stock designated and classified as TANAKA Growth Fund are classified and
allocated as TANAKA Growth Fund Class R Common Stock.
(d) At any time when there are no shares outstanding or subscribed for a
particular series or class previously established and designated herein or by
the Board of Directors, the series or class may be eliminated by the Board of
Directors.
10
<PAGE>
SIXTH: The number of directors of the Corporation shall be such number as
may from time to time be fixed by the By-Laws of the Corporation or pursuant to
authorization contained in such By-Laws; provided, notwithstanding anything
herein to the contrary, the Board of Directors shall consist initially of three
directors until such time as the number of directors is fixed as stated above.
The names of the directors who shall act as such until successors are duly
chosen and qualified are: Graham Tanaka, Thomas R. Schwarz and Michael Seeley.
SEVENTH: The following provisions are inserted for the purpose of defining,
limiting and regulating the powers of the Corporation and of the Board of
directors and stockholders.
(a) In addition to its other powers explicitly or implicitly granted under
these Articles of Incorporation, by law or otherwise, the Board of Directors of
the Corporation:
(1) is expressly and exclusively authorized to make, alter, amend or
repeal the By-Laws of the Corporation;
(2) may from time to time determine whether, to what extent at what
times and places, and under what conditions and regulations the accounts
and books of the Corporation, or any of them, shall be open to the
inspection of the stockholders, and no stockholder shall have any right to
inspect any account, book or document of the Corporation except as
conferred by statute or as authorized by the Board of Directors of the
Corporation;
(3) is empowered to authorize, without stockholder approval, the
issuance and sale from time to time of shares of stock of the Corporation
whether now or hereafter authorized;
(4) is authorized to adopt procedures for determination of the net
asset value of shares of any class of the Corporation's stock; and
(5) is authorized to declare dividends out of funds legally available
therefor on shares of each class of stock of the Corporation payable in
such amounts and at such times as it determines, including declaration by
means of a formula or similar method and including dividends declared or
payable more frequently than meetings of the Board of Directors.
(b) Notwithstanding any provision of the Maryland General Corporation Law
requiring a greater proportion than a majority of the votes of the Corporation's
stock entitled to be cast in order to take or authorize any action, any such
action may be taken or authorized upon the concurrence of a majority of the
aggregate number of votes entitled to be cast thereon.
(c) The presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast shall constitute a quorum at any
meeting of the stockholders, except with respect to any matter which, under
applicable statutes or regulatory requirements, requires approval by a separate
vote of one or more classes of stock, in which case the presence in person or by
proxy of the holders of shares entitled to cast one-third of the votes entitled
to be cast on the matter shall constitute a quorum.
11
<PAGE>
(d) Any determination made in good faith by or pursuant to the direction of
the Board of Directors, as to the amount of the assets, debts, obligations, or
liabilities of the Corporation, as to the amount of any reserves or charges set
up and the propriety thereof, as to the time of or purpose for creating such
reserves or charges, as to the use, alteration or cancellation of any reserves
or charges (whether or not any debt, obligation, or liability for which such
reserves or charges shall have been created shall be then or thereafter required
to be paid or discharged), as to the value of or the method of valuing any
investment owned or held by the Corporation, as to market value or fair value of
any investment or fair value of any other asset of the Corporation, as to the
allocation of any asset of the Corporation to a particular class or classes of
the Corporation's stock, as to the charging of any liability of the Corporation
to a particular class or classes of the Corporation's stock, as to the number of
shares of the Corporation outstanding, as to the estimated expense to the
Corporation in connection with purchases of its shares, as to the ability to
liquidate investments in orderly fashion, or as to any other matters relating to
the issue, sale, redemption or other acquisition or disposition of investments
or shares of the Corporation, shall be final and conclusive and shall be binding
upon the Corporation and all holders of its shares, past, present and future,
and shares of the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be binding as
aforesaid.
(e) The Corporation is not required to hold an annual meeting in any year
in which the election of directors is not required to be acted upon under the
Investment Company Act of 1940.
EIGHTH: (a) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the corporation shall have any liability to the
corporation or its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
(b) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the full extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to it officers to the same extent as its
directors and may do so to such further extent as is consistent with law. The
Board of Directors may by By-Law, resolution or agreement make further provision
for indemnification of directors, officers, employees and agents to the full
extent permitted by the Maryland Corporation Law.
(c) No provision of this Article shall be effective to protect or purport
to protect any director or officer of the Corporation against any liability to
the Corporation or its security holders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(d) Reference to the Maryland General Corporation Law in this Article are
to the law as from time to time amended. No amendment to the Articles of
Incorporation of the Corporation shall affect any right of any person under this
Article based on any event, omission or proceeding prior to such amendment.
12
<PAGE>
NINTH: The Corporation expressly reserves the right to amend, alter, change
or repeal any provision contained in these Articles of Incorporation or in any
amendment thereto in the manner now or hereafter prescribed by the laws of the
State of Maryland, including any amendment which alters the contract rights, as
expressly set forth in these Articles of Incorporation, of any outstanding
stock, and all rights conferred herein are granted subject to such reservation.
TENTH: The Corporation expressly agrees and acknowledges that the name
"TANAKA Funds, Inc." is the sole property of Tanaka Fund Advisers, LLC ("TFA"),
that similar names may be used by funds in the investment business which are
affiliated with TFA, and that the Corporation's use of such name is with
permission of TFA. The Corporation further expressly agrees and acknowledges
that its use of such name may be terminated by TFA if the Corporation ceases to
use TFA as its Advisor (or to use affiliates of TFA for such purposes). The
Corporation further expressly agrees and acknowledges that in such event TFA may
require the Corporation to present to its shareholders, at the next annual or
special meeting of the Corporation held after such request, a proposal to change
the name of the Corporation to delete reference to the name "TANAKA Funds." The
Corporation further expressly agrees and acknowledges in such event to use its
best efforts to comply promptly with such request to change its name and that
the Board of Directors of the Corporation shall recommend such a proposal to its
shareholders. The Corporation further expressly acknowledges and agrees, upon
shareholder approval of such a proposal, to make and cause to be made such
filings to effect the change of name as may be necessary with the State of
Maryland, the United States Securities and Exchanger Commission, or other
regulatory authorities.
* * * * * * * *
IN WITNESS WHEREOF, TANAKA Funds, Inc. has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its duly
authorized officers who acknowledge that these Articles are the act of the
Corporation, that to the best of their knowledge, information and belief all
matters and facts set forth herein relating to the authorization and approval of
the Articles of Amendment and Restatement are true in all material respects and
that this statement is made under penalties of perjury.
TANAKA FUNDS, INC.
By:/s/ Graham Y. Tanaka
-----------------------------
Name: Graham Y. Tanaka
Title: President
ATTEST:
By:/s/ Victoria McCann
---------------------------------
Name: Victoria McCann
Title: Secretary
Dated the 18th day of November, 1998
13
FORM OF
TANAKA FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998, by and between
TANAKA Funds, Inc., a Maryland corporation, (the "Corporation"), and Tanaka
Capital Management, Inc., a Delaware corporation ("Adviser").
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end, management investment
company and may issue its shares of common stock, par value $0.01 per share (the
"Shares"), in separate series; and
WHEREAS, the Corporation desires that the Adviser perform investment
advisory services for each series of the Corporation listed in Appendix A hereto
(each, a "Fund" and collectively, the "Funds"), and the Adviser is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and the Adviser hereby agree as
follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Corporation hereby employs Adviser, subject to the direction
and control of the Board, to manage the investment and reinvestment of the
assets in each Fund and, without limiting the generality of the foregoing, to
provide other services as specified herein. The Adviser accepts this employment
and agrees to render its services for the compensation set forth herein.
(b) In connection therewith, the Corporation has delivered to the
Adviser copies of (i) the Corporation's Articles of Incorporation and Bylaws
(collectively, as amended from time to time, "Organic Documents"), (ii) the
Corporation's Registration Statement and all amendments thereto filed with the
U.S. Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the 1940 Act (the "Registration
Statement"), (iii) the Corporation's current Prospectuses and Statements of
Additional Information of each Fund (collectively, as currently in effect and as
amended or supplemented, the "Prospectus"), and (iv) all procedures adopted by
the Corporation with respect to the Funds (i.e., repurchase agreement
procedures), and shall promptly furnish the Adviser with all amendments of or
supplements to the foregoing. The Corporation shall deliver to the Adviser (x) a
certified copy of the resolution of the Board of Directors of the Corporation
(the "Board") appointing the Adviser and authorizing the execution and delivery
of this Agreement, (y) a copy of all proxy statements and related materials
relating to the Funds, and (z) any other documents, materials or information
that the Adviser shall reasonably request to enable it to perform its duties
pursuant to this Agreement.
<PAGE>
(c) The Adviser has delivered to the Corporation (i) a copy of its Form
ADV as most recently filed with the SEC and (ii) a copy of its code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act (the "Code").
The Adviser shall promptly furnish the Corporation with all amendments of or
supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE CORPORATION
In order for the Adviser to perform the services required by this
Agreement, the Corporation (i) shall cause all service providers to the
Corporation to furnish information to the Adviser, and assist the Adviser as may
be required and (ii) shall ensure that the Adviser has reasonable access to all
records and documents maintained by the Corporation or any service provider to
the Corporation.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser will make decisions with respect to all purchases and
sales of securities and other investment assets in each Fund. To carry out such
decisions, the Adviser is hereby authorized, as agent and attorney-in-fact for
the Corporation, for the account of, at the risk of and in the name of the
Corporation, to place orders and issue instructions with respect to those
transactions of the Funds. In all purchases, sales and other transactions in
securities and other investments for the Funds, the Adviser is authorized to
exercise full discretion and act for the Corporation in the same manner and with
the same force and effect as the Corporation might or could do with respect to
such purchases, sales or other transactions, as well as with respect to all
other things necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions.
Consistent with Section 28(e) of the Securities and Exchange Act of
1934, as amended, the Adviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Adviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Adviser or its affiliates.
Whenever the Adviser simultaneously places orders to purchase or sell the same
asset on behalf of a Fund and one or more other accounts advised by the Adviser,
the orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable over time to each account.
(b) The Adviser will report to the Board at each meeting thereof as
requested by the Board all material changes in each Fund since the prior report,
and will also keep the Board informed of important developments affecting the
Corporation, the Funds and the Adviser, and on its own initiative, will furnish
the Board from time to time with such information as the Adviser may believe
appropriate for this purpose, whether concerning the individual companies whose
securities are included in the Funds' holdings, the industries in which they
engage, the economic, social or political conditions prevailing in each country
in which the Funds maintain investments, or otherwise. The Adviser will also
furnish the Board with such statistical and analytical information with respect
to investments of the Funds as the Adviser may believe appropriate or as
2
<PAGE>
the Board reasonably may request. In making purchases and sales of securities
and other investment assets for the Funds, the Adviser will bear in mind the
policies set from time to time by the Board as well as the limitations imposed
by the Organic Documents and Registration Statement, the limitations in the 1940
Act, the Securities Act, the Internal Revenue Code of 1986, as amended, and
other applicable laws and the investment objectives, policies and restrictions
of the Funds.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Corporation's behalf in any such respect.
(d) The Adviser will report to the Board all material matters related
to the Adviser. On an annual basis, the Adviser shall report on its compliance
with its Code to the Board and upon the written request of the Corporation, the
Adviser shall permit the Corporation, or its representatives to examine the
reports required to be made to the Adviser under the Code. The Adviser will
notify the Corporation of any change of control of the Adviser and any changes
in the key personnel who are either the portfolio manager(s) of the Fund or
senior management of the Adviser, in each case prior to or promptly after such
change.
(e) The Adviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Corporation under the 1940 Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable law, all
documents and records relating to the services provided by the Adviser pursuant
to this Agreement required to be prepared and maintained by the Adviser or the
Corporation pursuant to applicable law. To the extent required by law, the books
and records pertaining to the Corporation which are in possession of the Adviser
shall be the property of the Corporation. The Corporation, or its
representatives, shall have access to such books and records at all times during
the Adviser's normal business hours. Upon the reasonable request of the
Corporation, copies of any such books and records shall be provided promptly by
the Adviser to the Corporation or its representatives.
(f) The Adviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Adviser will provide the Funds' custodian and fund accountant
on each business day with such information relating to all transactions
concerning the Funds' assets as the custodian and fund accountant may reasonably
require. In accordance with procedures adopted by the Board, the Adviser is
responsible for assisting in the fair valuation of all Fund assets and will use
its reasonable efforts to arrange for the provision of prices from a parties who
are not affiliated persons of the Adviser for each asset for which the Funds'
fund accountant does not obtain prices in the ordinary course of business.
3
<PAGE>
(h) The Adviser shall authorize and permit any of its directors,
officers and employees who may be elected as Directors or officers of the
Corporation to serve in the capacities in which they are elected.
(i) The Adviser shall have no duties or obligations pursuant to this
Agreement (other than the continuation of its preexisting duties and
obligations) during any period in which the Fund invests all (or substantially
all) of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Corporation shall pay the
Adviser, with respect to each of Fund, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Corporation daily and shall
be payable monthly in arrears on the first day of each calendar month for
services performed hereunder during the prior calendar month. If fees begin to
accrue in the middle of a month or if this Agreement terminates before the end
of any month, all fees for the period from that date to the end of that month or
from the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Corporation shall pay to the Adviser
such compensation as shall be payable prior to the effective date of
termination.
(b) The Adviser may reimburse expenses of each Fund or waive its fees
expense ratio agreements.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
(d) The Corporation shall be responsible for and assumes the obligation
for payment of all of its expenses, including: (a) the fee payable under this
Agreement; (b) the fees payable to each administrator under an agreement between
the administrator and the Corporation; (c) expenses of issue, repurchase and
redemption of Shares; (d) interest charges, taxes and brokerage fees and
commissions; (e) premiums of insurance for the Corporation, its directors and
officers and fidelity bond premiums; (f) fees and expenses of third parties,
including the Corporation's independent accountant, custodian, transfer agent,
dividend disbursing agent and fund accountant; (g) fees of pricing, interest,
dividend, credit and other reporting services; (h) costs of membership in trade
associations; (i) telecommunications expenses; (j) funds transmission expenses;
(k) auditing, legal and compliance expenses; (l) costs of forming the
Corporation and maintaining its existence; (m) costs of preparing, filing and
printing the Corporation's Prospectuses, subscription application forms and
shareholder reports and other communications and delivering them to existing
shareholders, whether of record or beneficial; (n) expenses of meetings of
shareholders and proxy solicitations therefor; (o) costs of maintaining books of
original entry for portfolio and fund
4
<PAGE>
accounting and other required books and accounts, of calculating the net asset
value of Shares and of preparing tax returns; (p) costs of reproduction,
stationery, supplies and postage; (q) fees and expenses of the Corporation's
directors and officers; (r) the costs of personnel (who may be employees of the
Adviser, an administrator or their respective affiliated persons) performing
services for the Corporation; (s) costs of Board, Board committee, shareholder
and other corporate meetings; (t) SEC registration fees and related expenses;
(u) state, territory or foreign securities laws registration fees and related
expenses; and (v) all fees and expenses paid by the Corporation in accordance
with any distribution or service plan or agreement related to similar manners.
SECTION 5. STANDARD OF CARE
(a) The Corporation shall expect of the Adviser, and the Adviser will
give the Corporation the benefit of, the Adviser's best judgment and efforts in
rendering its services to the Corporation. The Adviser shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to protect, or
purport to protect, the Adviser against any liability to the Corporation or to
the Corporation's security holders to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties hereunder, or by reason of the Adviser's
reckless disregard of its obligations and duties hereunder.
(b) The Adviser shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties (other than those related to the Adviser's
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon approval by a majority of the outstanding voting securities of
that Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by the vote of a majority of the Corporation's directors
who are not parties to this Agreement or interested persons of any such party
(other than as directors of the Corporation) cast in person at a meeting called
for the purpose of voting on such approval; provided further, however, that if
the continuation of this Agreement is not approved as to a Fund, the Adviser may
continue to render to that Fund the services described herein in the manner and
to the extent permitted by the 1940 Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting
5
<PAGE>
securities of the Fund on 60 days' written notice to the Adviser or (ii) by the
Adviser on 60 days' written notice to the Corporation. This Agreement shall
terminate immediately upon its assignment.
SECTION 7. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's directors, officers or employees to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 8. REPRESENTATIONS OF ADVISER.
The Adviser represents and warrants that (i) it is either registered as
an investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act") (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act,
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement, (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, and (iv) will promptly notify the Corporation of
the occurrence of any event that would disqualify the Adviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise.
SECTION 9. SUBADVISERS
At its own expense, the Adviser may carry out any of its obligations
under this Agreement by employing, subject to the direction and control of the
Board, one or more persons who are registered as investment advisers pursuant to
the Advisers Act or who are exempt from registration thereunder ("Subadvisers").
Each Subadviser's employment will be evidenced by a separate written agreement
approved by the Board and, if required, by the shareholders of the applicable
Fund. The Adviser shall not be liable hereunder for any act or omission of any
Subadviser, except to exercise good faith in the employment of the Subadviser
and except with respect to matters as to which the Adviser assumes
responsibility in writing.
SECTION 10. LIMITATION OF SHAREHOLDER AND DIRECTOR LIABILITY
The Directors of the Corporation and the shareholders of each Fund
shall not be liable for any obligations of the Corporation or of the Funds under
this Agreement, and the Adviser agrees that, in asserting any rights or claims
under this Agreement, it shall look only to the assets and property of the
Corporation or the Fund to which the Adviser's rights or claims relate in
settlement of such rights or claims, and not to the Directors of the Corporation
or the shareholders of the Funds.
6
<PAGE>
SECTION 11. RIGHTS TO NAME
If the Adviser ceases to act as investment adviser to the Corporation
or any Fund whose name includes the word "TANAKA" (the "Mark") or if the Adviser
requests in writing, the Corporation shall take prompt action to change the name
of the Corporation any such Fund to a name that does not include the Mark. The
Adviser may from time to time make available without charge to the Corporation
for the Corporation's use any marks or symbols owned by the Adviser, including
marks or symbols containing the Mark or any variation thereof, as the Adviser
deems appropriate. Upon the Adviser's request in writing, the Corporation shall
cease to use any such mark or symbol at any time. The Corporation acknowledges
that any rights in or to the Mark and any such marks or symbols which may exist
on the date of this Agreement or arise hereafter are, and under any and all
circumstances shall continue to be, the sole property of the Adviser. The
Adviser may permit other parties, including other investment companies, to use
the Mark in their names without the consent of the Corporation. The Corporation
shall not use the Mark in conducting any business other than that of an
investment company registered under the 1940 Act without the permission of the
Adviser.
SECTION 12. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the 1940 Act, by a vote of a majority of the
outstanding voting securities of any Fund thereby affected.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced
7
<PAGE>
as if the Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Corporation are
separate and distinct from the assets and liabilities of each other Fund and
that no Fund shall be liable or shall be charged for any debt, obligation or
liability of any other Fund, whether arising under this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Adviser shall be liable at law or in equity for the Adviser's obligations
under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
TANAKA FUNDS, INC.
-------------------------------
Name:
Title:
TANAKA CAPITAL MANAGEMENT, INC.
-------------------------------
Name:
Title:
9
<PAGE>
TANAKA FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
Appendix A
Fee as a % of the Annual
Fund of the Corporation Average Daily Net Assets of the Fund
- ----------------------- ------------------------------------
TANAKA Growth Fund 1.00
A1
FORM OF
TANAKA FUNDS, INC.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Agreement") is made as of the ___ day of
December, 1998 by and among TANAKA Funds, Inc. (the "Corporation"), a Maryland
corporation, Tanaka Capital Management, Inc. (the "Adviser"), a Delaware
corporation, and AmeriPrime Financial Securities, Inc. (the "Distributor"), a
Texas corporation.
WITNESSETH THAT:
WHEREAS, the Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and has registered its shares of common stock (the "Shares") under the
Securities Act of 1933, as amended (the "1933 Act") in one or more distinct
series of Shares (the "Fund" or "Funds");
WHEREAS, the Adviser has been appointed investment adviser to the
Corporation;
WHEREAS, the Distributor is a broker-dealer registered with the Securities
and Exchange Commission (the "SEC") and a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, the Corporation, the Adviser and the Distributor desire to enter
into this Agreement pursuant to which the Distributor will provide distribution
services to the Funds of the Corporation identified on Schedule A, as may be
amended from time to time, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Corporation, the Adviser and the Distributor,
intending to be legally bound hereby, agree as follows:
1. APPOINTMENT OF DISTRIBUTOR. The Corporation hereby appoints the
Distributor as an agent for the distribution of the Shares, and the Distributor
hereby accepts such appointment under the terms of this Agreement.
Notwithstanding any other provision hereof, the Corporation may terminate,
suspend, or withdraw the offering of the Shares whenever, in its sole
discretion, it deems such action to be desirable, and the Distributor shall
process no further orders for Shares after it receives notice of such
termination, suspension or withdrawal.
2. REPRESENTATIONS AND WARRANTIES OF AMERIPRIME.
(a) no legal or administrative proceedings have been instituted or
threatened against AmeriPrime that would impair its ability to perform its
duties and obligations under this Agreement; and
(b) AmeriPrime's entrance into this Agreement will not cause a material
breach or be in material conflict with any other agreement or obligation of
AmeriPrime or any law or regulation applicable to AmeriPrime.
3. FUND DOCUMENTS. The Corporation has provided the Administrator with
properly certified or authenticated copies of the following Corporation related
documents in effect on the date hereof: the Corporation's organizational
documents, including its Articles of Incorporation and By-Laws; the
Corporation's Registration Statement on Form N-1A, including all exhibits
thereto; the Corporation's most current relevant Prospectus and Statement of
Additional Information; and resolutions of the Corporation's Board of Directors
authorizing the appointment of the Distributor and approving this Agreement. The
Corporation shall promptly provide to the Distributor copies, properly certified
or authenticated, of all amendments or supplements to the foregoing. The
Corporation shall provide to the Distributor copies of all other information
which the Distributor may reasonably request for use in connection with the
distribution of Shares, including, but not limited to, a certified copy of all
financial statements prepared for the Corporation by its independent public
accountants. The Corporation shall also supply the Distributor with such number
of copies of the current relevant Prospectus, Statement of Additional
Information and shareholder reports as the Distributor shall reasonably request.
<PAGE>
4. DISTRIBUTION SERVICES. The Distributor shall sell and repurchase Shares
as set forth below, subject to the registration requirements of the 1933 Act and
the rules and regulations thereunder, and the laws governing the sale of
securities in the various states ("Blue Sky Laws"):
a. The Distributor, as agent for the Corporation, shall sell Shares to
the public against orders therefor at the public offering price, which shall be
the net asset value of the Shares then in effect, less any applicable sales
charges.
b. The net asset value of the Shares shall be determined in the manner
provided in the then-current relevant Prospectus and Statement of Additional
Information. The net asset value of the Shares shall be calculated by the
Corporation or by another entity on behalf of the Corporation. The Distributor
shall have no duty to inquire into or liability for the accuracy of the net
asset value per Share as calculated.
c. Upon receipt of purchase instructions, the Distributor shall
transmit such instructions to the Corporation or its transfer agent for
registration of the Shares purchased.
d. The Distributor, in light of Corporation policies, procedures and
disclosure documents, shall also have the right to take, as agent for the
Corporation, all actions which, in the Distributor's judgment, are necessary to
effect the distribution of Shares.
e. Nothing in this Agreement shall prevent the Distributor or any
"affiliated person" from buying, selling or trading any securities for its or
their own account or for the accounts of others for whom it or they may be
acting; provided, however, that the Distributor expressly agrees that it shall
not for its own account purchase any Shares of the Corporation except for
investment purposes and that it shall not for its own account sell any such
Shares except for redemption of such Shares by the Corporation, and that it
shall not undertake activities which, in its judgment, would adversely affect
the performance of its obligations to the Corporation under this Agreement.
f. The Distributor, as agent for the Corporation, shall repurchase
Shares at such prices and upon such terms and conditions as shall be specified
in the Prospectus.
5. DISTRIBUTION SUPPORT SERVICES. In addition to the sale and repurchase of
Shares, the Distributor shall perform the distribution support services set
forth on Schedule B attached hereto, as may be amended from time to time. Such
distribution support services shall include: review of sales and marketing
literature and submission to the NASD; NASD record keeping; and quarterly
reports to the Corporation's Board of Directors. Such distribution support
services may also include: fulfillment services, including telemarketing,
printing, mailing and follow-up tracking of sales leads; and licensing Adviser
or Corporation personnel as registered representatives of the Distributor and
related supervisory activities.
6. REASONABLE EFFORTS. The Distributor shall use all reasonable efforts in
connection with the distribution of Shares. The Distributor shall have no
obligation to sell any specific number of Shares and shall only sell Shares
against orders received therefor. The Corporation shall retain the right to
refuse at any time to sell any of its Shares for any reason deemed adequate by
it.
7. COMPLIANCE. In furtherance of the distribution services being provided
hereunder, the Distributor and the Corporation agree as follows:
a. The Distributor shall comply with the Conduct Rules of the NASD and the
securities laws of any jurisdiction in which it sells, directly or indirectly,
Shares.
2
<PAGE>
b. The Distributor shall require each dealer with whom the Distributor has a
selling agreement to conform to the applicable provisions of the Corporation's
most current relevant Prospectus and Statement of Additional Information, with
respect to the public offering price of the Shares.
c. The Corporation agrees to furnish to the Distributor sufficient copies of
any agreements, plans, communications with the public or other materials it
intends to use in connection with any sales of Shares in a timely manner in
order to allow the Distributor to review, approve and file such materials with
the appropriate regulatory authorities and obtain clearance for use. The
Corporation agrees not to use any such materials until so filed and cleared for
use by appropriate authorities and the Distributor.
d. The Distributor, at its own expense, shall qualify as a broker or dealer,
or otherwise, under all applicable Federal or state laws required to permit the
sale of Shares in such states as shall be mutually agreed upon by the parties;
provided, however that the Distributor shall have no obligation to register as a
broker or dealer under the Blue Sky Laws of any jurisdiction if it determines
that registering or maintaining registration in such jurisdiction would be
uneconomical.
e. The Distributor shall not, in connection with any sale or solicitation of
a sale of the Shares, make or authorize any representative, service
organization, broker or dealer to make, any representations concerning the
Shares except those contained in the Corporation's most current relevant
Prospectus covering the Shares and in communications with the public or sales
materials approved by the Distributor as information supplemental to such
Prospectus.
8. EXPENSES. Expenses shall be allocated as follows:
a. The Corporation shall bear the following expenses: preparation,
setting in type, and printing of sufficient copies of the Prospectus and
Statement of Additional Information for distribution to existing shareholders;
preparation and printing of reports and other communications to existing
shareholders; distribution of copies of the Prospectus, Statement of Additional
Information and all other communications to existing shareholders; registration
of the Shares under the Federal securities laws; qualification of the Shares for
sale in the jurisdictions mutually agreed upon by the Corporation and the
Distributor; transfer agent/shareholder servicing agent services; supplying
information, prices and other data to be furnished by the Corporation under this
Agreement; any original issue taxes or transfer taxes applicable to the sale or
delivery of the Shares or certificates therefor; and items covered by the 12b-1
distribution plan adopted with regard to each class of Shares of a Fund (each a
"12b-1 Plan").
b. The Adviser shall pay all other expenses incident to the sale and
distribution of the Shares sold hereunder to the extent not covered by the
applicable 12b-1 Plan, including, without limitation: printing and distributing
copies of the Prospectus, Statement of Additional Information and reports
prepared for use in connection with the offering of Shares for sale to the
public; advertising in connection with such offering, including public relations
services, sales presentations, media charges, preparation, printing and mailing
of advertising and sales literature; data processing necessary to support a
distribution effort; distribution and shareholder servicing activities of
broker-dealers and other financial institutions; filing fees required by
regulatory authorities for sales literature and advertising materials; any
additional out-of-pocket expenses incurred in connection with the foregoing and
any other costs of distribution.
9. COMPENSATION. For the distribution and distribution support services
provided by the Distributor pursuant to the terms of the Agreement, the
Corporation shall reimburse the Distributor for its out-of-pocket expenses
related to the performance of its duties hereunder, including, without
limitation, telecommunications charges, postage and delivery charges, record
retention costs, reproduction charges and traveling and lodging expenses
incurred by officers and employees of the Distributor. If this Agreement becomes
effective subsequent to the first day of the month or terminates before the last
day of the month, the Corporation shall pay to the Distributor a distribution
fee that is prorated for that part of the month in which this Agreement is in
effect. All rights of compensation and reimbursement under this
3
<PAGE>
Agreement for services performed by the Distributor as of the termination date
shall survive the termination of this Agreement.
10. USE OF DISTRIBUTOR'S NAME. The Corporation shall not use the name of
the Distributor or any of its affiliates in the Prospectus, Statement of
Additional Information, sales literature or other material relating to the
Corporation in a manner not approved prior thereto in writing by the
Distributor; provided, however, that the Distributor shall approve all uses of
its and its affiliates' names that merely refer in accurate terms to their
appointments or that are required by the SEC or any state securities commission;
and further provided, that in no event shall such approval be unreasonably
withheld.
11. USE OF FUND'S NAME. Neither the Distributor nor any of its affiliates
shall use the name of the Corporation or material relating to the Corporation on
any forms (including any checks, bank drafts or bank statements) for other than
internal use in a manner not approved prior thereto in writing by the
Corporation; provided, however, that the Corporation shall approve all uses of
its name that merely refer in accurate terms to the appointment of the
Distributor hereunder or that are required by the SEC or any state securities
commission; and further provided, that in no event shall such approval be
unreasonably withheld.
12. LIABILITY OF DISTRIBUTOR. The duties of the Distributor shall be
limited to those expressly set forth herein, and no implied duties are assumed
by or may be asserted against the Distributor hereunder. The Distributor may, in
connection with this Agreement employ agents or attorneys in fact, and shall not
be liable for any loss arising out of or in connection with its actions under
this Agreement, so long as it acts in good faith and with due diligence, and is
not negligent or guilty of any willful misfeasance, bad faith or gross
negligence, or reckless disregard of its obligations and duties under this
Agreement. As used in this Section 11 and in Section 13 (except the second
paragraph of Section 13), the term "Distributor" shall include directors,
officers, employees and other agents of the Distributor.
13. INDEMNIFICATION OF DISTRIBUTOR. Any director, officer, employee,
shareholder or agent of the Distributor who may be or become an officer,
Director, employee or agent of the Corporation, shall be deemed, when rendering
services to the Corporation or acting on any business of the Corporation (other
than services or business in connection with the Distributor's duties
hereunder), to be rendering such services to or acting solely for the
Corporation and not as a director, officer, employee, shareholder or agent, or
one under the control or direction of the Distributor, even though receiving a
salary from the Distributor.
The Corporation agrees to indemnify and hold harmless the Distributor, and
each person, who controls the Distributor within the meaning of Section 15 of
the 1933 Act, or Section 20 of the Securities Exchange Act of 1934, as amended
("1934 Act"), against any and all liabilities, losses, damages, claims and
expenses, joint or several (including, without limitation, reasonable attorneys'
fees and disbursements and investigation expenses incident thereto) to which
they, or any of them, may become subject under the 1933 Act, the 1934 Act, the
1940 Act or other Federal or state laws or regulations, at common law or
otherwise, insofar as such liabilities, losses, damages, claims and expenses (or
actions, suits or proceedings in respect thereof) arise out of or relate to any
untrue statement or alleged untrue statement of a material fact contained in a
Prospectus, Statement of Additional Information, supplement thereto, sales
literature or other written information prepared by the Corporation and provided
by the Corporation to the Distributor for the Distributor's use hereunder, or
arise out of or relate to any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Distributor (or any person controlling the
Distributor) shall not be entitled to indemnity hereunder for any liabilities,
losses, damages, claims or expenses (or actions, suits or proceedings in respect
thereof) resulting from (i) an untrue statement or omission or alleged untrue
statement or omission made in the Prospectus, Statement of Additional
Information, or supplement, sales or other literature, in reliance upon and in
conformity with information furnished in writing to the Corporation by the
Distributor specifically for use therein or (ii) the Distributor's own willful
misfeasance,
4
<PAGE>
bad faith, gross negligence or reckless disregard of its duties and obligations
in the performance of this Agreement.
The Distributor agrees to indemnify and hold harmless the Corporation, and
each person who controls the Corporation within the meaning of Section 15 of the
1933 Act, or Section 20 of the 1934 Act, against any and all liabilities,
losses, damages, claims and expenses, joint or several (including, without
limitation reasonable attorneys' fees and disbursements and investigation
expenses incident thereto) to which they, or any of them, may become subject
under the 1933 Act, the 1934 Act, the 1940 Act or other Federal or state laws,
at common law or otherwise, insofar as such liabilities, losses, damages, claims
or expenses arise out of or relate to any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus or Statement of
Additional Information or any supplement thereto, sales literature or other
written material, or arise out of or relate to actions or oral representations
of Distributor's associated persons and to any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if based upon information furnished in
writing to the Corporation by the Distributor specifically for use therein.
A party seeking indemnification hereunder (the "Indemnitee") shall give
prompt written notice to the party from whom indemnification is sought
("Indemnitor") of a written assertion or claim of any threatened or pending
legal proceeding which may be subject to indemnity under this Section; provided,
however, that failure to notify the Indemnitor of such written assertion or
claim shall not relieve the Indemnitor of any liability arising from this
Section. The Indemnitor shall be entitled, if it so elects, to assume the
defense of any suit brought to enforce a claim subject to this Agreement and
such defense shall be conducted by counsel chosen by the Indemnitor and
satisfactory to the Indemnitee; provided, however, that if the defendants
include both the Indemnitee and the Indemnitor, and the Indemnitee shall have
reasonably concluded that there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnitor
("conflict of interest"), the Indemnitor shall not have the right to elect to
defend such claim on behalf of the Indemnitee, and the Indemnitee shall have the
right to select separate counsel to defend such claim on behalf of the
Indemnitee. In the event that the Indemnitor elects to assume the defense of any
suit pursuant to the preceding sentence and retains counsel satisfactory to the
Indemnitee, the Indemnitee shall bear the fees and expenses of additional
counsel retained by it except for reasonable investigation costs which shall be
borne by the Indemnitor. If the Indemnitor (i) does not elect to assume the
defense of a claim, (ii) elects to assume the defense of a claim but chooses
counsel that is not satisfactory to the Indemnitee or (iii) has no right to
assume the defense of a claim because of a conflict of interest, the Indemnitor
shall advance or reimburse the Indemnitee, at the election of the Indemnitee,
reasonable fees and disbursements of any counsel retained by Indemnitee,
including reasonable investigation costs.
14. ADVISER PERSONNEL. The Adviser agrees that only its employees who are
registered representatives of the Distributor ("dual employees") or registered
representatives of another NASD member firm shall offer or sell Shares of the
Funds. The Adviser further agrees that the activities of any such employees as
registered representatives of the Distributor shall be limited to offering and
selling Shares. If there are dual employees, one employee of the Adviser shall
register as a principal of the Distributor and assist the Distributor in
monitoring the marketing and sales activities of the dual employees. The Adviser
shall maintain errors and omissions and fidelity bond insurance policies
providing reasonable coverage for its employees activities and shall provide
copies of such policies to the Distributor. The Adviser shall indemnify and hold
harmless the Distributor against any and all liabilities, losses, damages,
claims and expenses (including reasonable attorneys' fees and disbursements and
investigation costs incident thereto) arising from or related to the Adviser's
employees' activities as registered representatives, including, without
limitation, any and all such liabilities, losses, damages, claims and expenses
arising from or related to the breach by such employees of any rules or
regulations of the NASD or SEC.
15. FORCE MAJEURE. The Distributor shall not be liable for any delays or
errors occurring by reason of circumstances not reasonably foreseeable and
beyond its control, including, but not limited, to
5
<PAGE>
acts of civil or military authority, national emergencies, work stoppages, fire,
flood, catastrophe, acts of God, insurrection, war, riot or failure of
communication or power supply. In the event of equipment breakdowns which are
beyond the reasonable control of the Distributor and not primarily attributable
to the failure of the Distributor to reasonably maintain or provide for the
maintenance of such equipment, the Distributor shall, at no additional expense
to the Corporation, take reasonable steps in good faith to minimize service
interruptions, but shall have no liability with respect thereto.
16. SCOPE OF DUTIES. The Distributor and the Corporation shall regularly
consult with each other regarding the Distributor's performance of its
obligations and its compensation under the foregoing provisions. In connection
therewith, the Corporation shall submit to the Distributor at a reasonable time
in advance of filing with the SEC copies of any amended or supplemented
Registration Statement of the Corporation (including exhibits) under the 1940
Act and the 1933 Act, and at a reasonable time in advance of their proposed use,
copies of any amended or supplemented forms relating to any plan, program or
service offered by the Corporation. Any change in such materials that would
require any change in the Distributor's obligations under the foregoing
provisions shall be subject to the Distributor's approval. In the event that a
change in such documents or in the procedures contained therein increases the
cost or burden to the Distributor of performing its obligations hereunder, the
Distributor shall be entitled to receive reasonable compensation therefore.
17. DURATION. This Agreement shall become effective as of the date first
above written, and shall continue in force for two years from that date and
thereafter from year to year, provided continuance is approved at least annually
by (i) either the vote of a majority of the Directors of the Corporation, or by
the vote of a majority of the outstanding voting securities of each Fund, and
(ii) the vote of a majority of those Directors of the Corporation who are not
interested persons of the Corporation, and who are not parties to this Agreement
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on the approval.
18. TERMINATION. This Agreement shall terminate as follows:
a. This Agreement shall terminate automatically in the event of its
assignment.
b. This Agreement shall terminate upon the failure to approve the
continuance of the Agreement after the initial two year term as set forth in
Section 16 above.
c. This Agreement shall terminate at any time upon a vote of the
majority of the Directors who are not interested persons of the Corporation or
by a vote of the majority of the outstanding voting securities of each Fund,
upon not less than 60 days prior written notice to the Distributor.
d. The Distributor may terminate this Agreement upon not less than 60
days prior written notice to the Corporation.
Upon the termination of this Agreement, the Corporation shall pay to the
Distributor such compensation and out-of-pocket expenses as may be payable for
the period prior to the effective date of such termination. In the event that
the Corporation designates a successor to any of the Distributor's obligations
hereunder, the Distributor shall, at the expense and direction of the
Corporation, transfer to such successor all relevant books, records and other
data established or maintained by the Distributor pursuant to the foregoing
provisions.
Sections 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18, 21, 22, 23, 24, 25, 26
and 27 shall survive any termination of this Agreement.
19. AMENDMENT. The terms of this Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever except by a written
instrument signed by the Distributor and the Corporation and shall not become
effective unless its terms have been approved by the
6
<PAGE>
majority of the Directors of the Corporation or by a "vote of majority of the
outstanding voting securities" of each Fund and by a majority of those Directors
who are not "interested persons" of the Corporation or any party to this
Agreement.
20. NON-EXCLUSIVE SERVICES. The services of the Distributor rendered to the
Corporation are not exclusive. The Distributor may render such services to any
other investment company.
21. DEFINITIONS. As used in this Agreement, the terms "vote of a majority
of the outstanding voting securities," "assignment," "interested person" and
"affiliated person" shall have the respective meanings specified in the 1940 Act
and the rules enacted thereunder as now in effect or hereafter amended.
22. CONFIDENTIALITY. The Distributor shall treat confidentially and as
proprietary information of the Corporation all records and other information
relating to the Corporation and prior, present or potential shareholders and
shall not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except as may be
required by administrative or judicial tribunals or as requested by the
Corporation.
23. NOTICE. Any notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon delivery by hand or
upon receipt if sent by certified or registered mail (postage prepaid and return
receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon transmission if sent by
telex or facsimile (with request for immediate confirmation of receipt in a
manner customary for communications of such respective type and with physical
delivery of the communication being made by one or the other means specified in
this Section 23 as promptly as practicable thereafter). Notices shall be
addressed as follows:
(a) if to the Corporation:
TANAKA Funds, Inc.
230 Park Avenue, Suite 960
New York, NY 10169
Attn: Graham Y. Tanaka, President
(b) if to the Adviser:
Tanaka Capital Management, Inc.
230 Park Avenue, Suite 960
New York, NY 10169
Attn: Graham Y. Tanaka, President
(c) if to the Distributor:
AmeriPrime Financial Securities, Inc.
1793 Kingswood Drive, Suite 200
Southlake, TX 76092
Attn: Kenneth D. Trumpfheller, President
or to such other respective addresses as the parties shall designate by like
notice, provided that notice of a change of address shall be effective only upon
receipt thereof.
24. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
25. GOVERNING LAW. This Agreement shall be administered, construed and
enforced in accordance with the laws of the State of Texas to the extent that
such laws are not preempted by the
7
<PAGE>
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time.
26. ENTIRE AGREEMENT. This Agreement (including the Exhibits attached
hereto) contains the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersedes all prior written or oral
agreements and understandings with respect thereto.
27. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction. This Agreement may be executed in three counterparts,
each of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day
and year first above written.
TANAKA FUNDS, INC.
By:
----------------------------------
President & Director
AMERIPRIME FINANCIAL SECURITIES, INC.
By:
----------------------------------
President
TANAKA CAPITAL MANAGEMENT
By:
----------------------------------
President
8
<PAGE>
SCHEDULE A
TANAKA FUNDS
Funds covered by Distribution Agreement:
TANAKA Growth Fund
9
<PAGE>
SCHEDULE B
TANAKA FUNDS, INC.
Distribution Support Services
1. Review and submit for approval all advertising and promotional materials.
2. Maintain all books and records required by the NASD.
3. Monitor Distribution Plan(s) and report to Board of Directors.
4. Prepare quarterly reports to Board of Directors relating to distribution
activities.
5. Subject to approval of Distributor, license personnel as registered
representatives of the Distributor.
6. Telemarketing services (additional fees to be negotiated).
7. Corporation fulfillment services, including sampling prospective
shareholders inquiries and related mailings (additional fees to be
negotiated).
10
FORM OF
TANAKA FUNDS, INC.
CUSTODIAN AGREEMENT
This AGREEMENT, dated as of _______________, 1998, by and between the
TANAKA Funds, Inc. (the "Corporation"), a corporation organized under the laws
of Maryland, acting with respect to the Tanaka Growth Fund and subsequently
formed series of TANAKA Funds, Inc. (individually, a "Fund" and, collectively,
the "Funds"), each of them a series of the Corporation and each of them operated
and administered by the Corporation, and STAR BANK, N.A., a national banking
association (the "Custodian").
W I T N E S S E T H:
-------------------
WHEREAS, the Corporation desires that the Fund's Securities and cash be
held and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Corporation is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Corporation and the Custodian hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1
<PAGE>
1.1 "Authorized Person" means any Officer or other person duly authorized
by resolution of the Board of Directors to give Oral Instructions and Written
Instructions on behalf of the Fund and named in Exhibit A hereto or in such
resolutions of the Board of Directors, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Directors" shall mean the Directors from time to time serving
under the Corporation's Articles of Incorporation, as from time to time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as provided
in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR
Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a settlement day by the
New York Stock Exchange, Inc. and any other day for which the Corporation
computes the net asset value of Shares of a Fund.
1.5 "Fund Custody Account" shall mean any of the accounts in the name of
the Corporation, which is provided for in Section 3.2 below.
1.6 "NASD" shall mean the National Association of Securities Dealers, Inc.
1.7 "Officer" shall mean the Chairman, President, any Vice President, any
Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer,
or any Assistant Treasurer of the Corporation.
1.8 "Oral Instructions" shall mean instructions orally transmitted to and
accepted by the Custodian because such instructions are: (i) reasonably believed
by the Custodian to have been given by an Authorized Person, (ii) recorded and
kept among the records of the Custodian made in the ordinary course of business
and (iii) orally confirmed by the Custodian. The
2
<PAGE>
Corporation shall cause all Oral Instructions to be confirmed by Written
Instructions prior to the end of the next Business Day. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Corporation. If Oral
Instructions vary from the Written Instructions which purport to confirm them,
the Custodian shall notify the Corporation of such variance but such Oral
Instructions will govern unless the Custodian has not yet acted.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
1.10 "Securities Depository" shall mean The Depository Trust Company and
(provided that Custodian shall have received a copy of a resolution of the Board
of Directors, certified by an Officer, specifically approving the use of such
clearing agency as a depository for the Fund) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and preferred
stocks, bonds, call options, put options, debentures, notes, bank certificates
of deposit, bankers' acceptances, mortgage-backed securities or other
obligations, and any certificates, receipts, warrants or other instruments or
documents representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or any similar
property or assets that the Custodian has the facilities to clear and to
service.
3
<PAGE>
1.12 "Shares" shall mean, with respect to a Fund, the shares of common
stock issued by the Corporation on account of the Fund.
1.13 "Sub-Custodian" shall mean and include (i) any branch of a "U.S.
Bank," as that term is defined in Rule 17f-5 under the 1940 Act of (ii) any
"Eligible Foreign Custodian," as that term is defined in Rule 17f-5 under the
1940 Act, having a contract with the Custodian which the Custodian has
determined will provide reasonable care of assets of the Funds based on the
standards specified in Section 3.3 below. Such contract shall include provisions
that provide: (i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Funds will be adequately protected
against the risk of loss of assets held in accordance with such contract; (ii)
that the Funds' assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the Sub-Custodian or its
creditors except a claim of payment for their safe custody or administration or,
in the case of cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under bankruptcy, insolvency, or similar laws; (iii) that
beneficial ownership for the Funds' assets will be freely transferable without
the payment of money or value other than for safe custody or administration;
(iv) that adequate records will be maintained identifying the assets as
belonging to the funds or as being held by a third party for the benefit of the
Funds; (v) that the Funds' independent public accountants will be given access
to those records or confirmation of the contents of those records; and (vi) that
the Funds will receive periodic reports with respect to the safekeeping of the
Funds' assets, including, but not limited to, notification of any transfer to or
from a Fund's account or a third party account containing assets held for the
benefit of the Fund. Such contract may contain, in lieu of any or all of the
provisions specified above, such other provisions that the Custodian determines
will provide, in their entirety,
4
<PAGE>
the same or a greater level of care and protection for Fund assets as the
specified provisions, in their entirety.
1.14 "Written Instructions" shall mean (i) written communications actually
received by the Custodian and signed by an Authorized Person, or (ii)
communications by telex or any other such system from one or more persons
reasonably believed by the Custodian to be Authorized Persons, or (iii)
communications between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof shall have been
approved by resolutions of the Board of Directors, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
ARTICLE II
----------
APPOINTMENT OF CUSTODIAN
------------------------
2.1 Appointment. The Corporation hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Fund at any time during the period of this Agreement.
2.2 Acceptance. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
2.3 Documents to be Furnished. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement to the Custodian by the Corporation:
a. A copy of the Article of Incorporation of the Corporation
certified by the Secretary;
5
<PAGE>
b. A copy of the Bylaws of the Corporation certified by the
Secretary;
c. A copy of the resolution of the Board of Directors of the
Corporation appointing the Custodian, certified by the Secretary;
d. A copy of the then current Prospectus of the Fund; and
e. A certification of the Chairman and Secretary of the Corporation
setting forth the names and signatures of the current Officers of
the Corporation and other Authorized Persons.
2.4 Notice of Appointment of Dividend and Transfer Agent. The Corporation
agrees to notify the Custodian in writing of the appointment, termination or
change in appointment of any Dividend and Transfer Agent of the Fund.
ARTICLE III
-----------
CUSTODY OF CASH AND SECURITIES
-------------------------------
3.1 Segregation. All Securities and non-cash property held by the Custodian
for the account of each Fund (other than Securities maintained in a Securities
Depository or Book-Entry System) shall be physically segregated from other
Securities and non-cash property in the possession of the Custodian (including
the Securities and non-cash property of the other Funds) and shall be identified
as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open and
maintain in its trust department a custody account in the name of the Fund
coupled with the name of the Corporation, subject only to draft or order of the
Custodian, in which the Custodian shall enter and carry all Securities, cash and
other assets of such Fund which are delivered to it.
6
<PAGE>
3.3 Appointment of Agents. (a) In its discretion, the Custodian may appoint
one or more Sub-Custodians to act as Securities Depositories or as
sub-custodians to hold Securities and cash of the Funds and to carry out such
other provisions of this Agreement as it may determine, provided, however, that
the appointment of any such agents and maintenance of any Securities and cash of
the Funds shall be at the Custodian's expense and shall not relieve the
Custodian of any of its obligations or liabilities under this Agreement.
(b) If, after the initial approval of Sub-Custodians by the Board of
Directors in connection with this Agreement, the Custodian wishes to appoint
other Sub-Custodians to hold property of the Funds, it will so notify the
Corporation.
(c) The Agreement between the Custodian and each Sub-Custodian acting
hereunder shall contain the required provisions set forth in Rule
17f-5(a)(1)(iii).
(d) At the end of each calendar quarter, the Custodian shall provide
written reports notifying the Board of Directors of the placement of the
Securities and cash of the Funds with a particular Sub-Custodian and of any
material change in the Funds' arrangements. The Custodian shall promptly take
such steps as may be required to withdraw assets of the Funds from any
Sub-Custodian that has ceased to meet the requirements of Rule 17f-5 under the
1940 Act.
(e) With respect to its responsibilities under this Section 3.3, the
Custodian hereby warrants to the Fund that it agrees to exercise reasonable
care, prudence and diligence such as a person having responsibility for the
safekeeping of property of the Funds. The Custodian further warrants that a
Fund's assets will be subject to reasonable care, based on the standards
applicable to custodians in the relevant market, if maintained with each
Sub-Custodian, after considering all factors relevant to the safekeeping of such
assets, including, without limitation: (i) the Sub-
7
<PAGE>
Custodian's practices, procedures, and internal controls, including, but not
limited to, the physical protections available for certificated securities (if
applicable), the method of keeping custodial records, and the security and data
protection practices; (ii) whether the Sub-Custodian has the requisite financial
strength to provide reasonable care for Fund assets; (iii) the Sub-Custodian's
general reputation and standing and, in the case of a Securities Depository, the
Securities Depository's operating history and number of participants; and (iv)
whether the Fund will have jurisdiction over and be able to enforce judgments
against the Sub-Custodian, such as by virtue of the existence of any offices of
the Sub-Custodian in the United States or the Sub-Custodian's consent to service
of process in the United States.
(f) The Custodian shall establish a system to monitor the appropriateness
of maintaining the Funds' assets with a particular Sub-Custodian and the
contract governing the Funds' arrangements with such Sub-Custodian.
3.4 Delivery of Assets to Custodian. The Fund shall deliver, or cause to be
delivered, to the Custodian all of the Funds' Securities, cash and other assets,
including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The Custodian may
deposit and/or maintain Securities of a Fund in a Securities Depository or in a
Book-Entry System, subject to the following provisions:
8
<PAGE>
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Fund shall deliver to the Custodian a
resolution of the Board of Directors, certified by an Officer, authorizing and
instructing the Custodian on an on-going basis to deposit in such Securities
Depository or Book-Entry System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance hereunder, including,
without limitation, in connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of collateral
consisting of Securities.
(b) Securities of the Fund kept in a Book-Entry System or Securities
Depository shall be kept in an account ("Depository Account") of the Custodian
in such Book-Entry System or Securities Depository which includes only assets
held by the Custodian as a fiduciary, custodian or otherwise for customers.
(c) The records of the Custodian with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository shall, by book-entry,
identify such Securities as belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a Book-Entry
System or Securities Depository, the Custodian shall pay for such Securities
upon (i) receipt of advice from the Book-Entry System or Securities Depository
that such Securities have been transferred to the Depository Account, and (ii)
the making of an entry on the records of the Custodian to reflect such payment
and transfer for the account of the Fund. If Securities sold by a Fund are held
in a Book-Entry System or Securities Depository, the Custodian shall transfer
such Securities upon (i) receipt of advice from the Book-Entry System or
Securities Depository that payment for such
9
<PAGE>
Securities has been transferred to the Depository Account, and (ii) the making
of an entry on the records of the Custodian to reflect such transfer and payment
for the account of the Fund.
(e) The Custodian shall provide the Corporation with copies of any report
(obtained by the Custodian from a Book-Entry System or Securities Depository in
which Securities of the Fund are kept) on the internal accounting controls and
procedures for safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Corporation for any loss or damage to the Fund
resulting (i) from the use of a Book-Entry System or Securities Depository by
reason of any negligence or willful misconduct on the part of Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above or any of its or their
employees, or (ii) from failure of Custodian or any such Sub-Custodian to
enforce effectively such rights as it may have against a Book-Entry System or
Securities Depository. At its election, the Corporation shall be subrogated to
the rights of the Custodian with respect to any claim against a Book-Entry
System or Securities Depository or any other person from any loss or damage to
the Fund arising from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has not been made whole for any
such loss or damage.
3.6 Disbursement of Moneys from Fund Custody Account. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from a Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only in accordance with
Section 4.1 of this Agreement and only (i) in the case of Securities (other than
options on Securities, futures contracts and options on futures contracts),
against the delivery to the Custodian (or any
10
<PAGE>
Sub-Custodian appointed pursuant to Section 3.3 above) of such Securities
registered as provided in Section 3.9 below or in proper form for transfer, or
if the purchase of such Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section
3.5 above; (ii) in the case of options on Securities, against delivery to the
Custodian (or such Sub-Custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii) in the case of futures
contracts and options on futures contracts, against delivery to the Custodian
(or such Sub-Custodian) of evidence of title thereto in favor of the Fund or any
nominee referred to in Section 3.9 below; and (iv) in the case of repurchase or
reverse repurchase agreements entered into between the Corporation and a bank
which is a member of the Federal Reserve System or between the Corporation and a
primary dealer in U.S. Government securities, against delivery of the purchased
Securities either in certificate form or through an entry crediting the
Custodian's account at a Book-Entry System or Securities Depository with such
Securities;
(b) In connection with the conversion, exchange or surrender, as set forth
in Section 3.7(f) below, of Securities owned by the Fund;
(c) For the payment of any dividends or capital gain distributions declared
by the Fund;
(d) In payment of the redemption price of Shares as provided in Section 5.1
below;
(e) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of the Fund:
interest; taxes; administration, investment advisory, accounting, auditing,
transfer agent, custodian, director and legal fees; and
11
<PAGE>
other operating expenses of the Fund; in all cases, whether or not such expenses
are to be in whole or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any agreement among
the Corporation, the Custodian and a broker-dealer registered under the 1934 Act
and a member of the NASD, relating to compliance with rules of The Options
Clearing Corporation and of any registered national securities exchange (or of
any similar organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(g) For transfer in accordance with the provision of any agreement among
the Corporation, the Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in connection with
transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution (including the Custodian),
which deposit or account has a term of one year or less; and
(i) For any other proper purpose, but only upon receipt, in addition to
Proper Instructions, of a copy of a resolution of the Board of Directors,
certified by an Officer, specifying the amount and purpose of such payment,
declaring such purpose to be a proper corporate purpose, and naming the person
or persons to whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Account. Upon receipt of
Proper Instructions from the Adviser, the Custodian shall release and deliver
Securities from a Fund Custody Account but only in the following cases:
12
<PAGE>
(a) Upon the sale of Securities for the account of the Fund but only
against receipt of payment therefor in cash, by certified or cashiers check or
bank credit;
(b) In the case of a sale effected through a Book-Entry System or
Securities Depository, in accordance with the provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or other
similar offers for Securities of the Fund; provided that, in any such case, the
cash or other consideration is to be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer into the name of
the Fund, the Custodian or any Sub-Custodian appointed pursuant to Section 3.3
above, or of any nominee or nominees of any of the foregoing, or (ii) for
exchange for a different number of certificates or other evidence representing
the same aggregate face amount or number of units; provided that, in any such
case, the new Securities are to be delivered to the Custodian;
(e) To the broker selling Securities, for examination in accordance with
the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan or merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such Securities, or pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying Securities in connection with the issuance or cancellation of
depository receipts; provided that, in any such case, the new Securities and
cash, if any, are to be delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any repurchase or reverse
repurchase agreement entered into by the Fund;
13
<PAGE>
(h) In the case of warrants, rights or similar Securities, upon the
exercise thereof, provided that, in any such case, the new Securities and cash,
if any, are to be delivered to the Custodian;
(i) For delivery in connection with any loans of Securities of the Fund,
but only against receipt of such collateral as the Corporation shall have
specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by the Fund
requiring a pledge of assets by the Corporation, but only against receipt by the
Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Corporation;
(l) For delivery in accordance with the provisions of any agreement among
the Corporation, the Custodian and a broker-dealer registered under the 1934 Act
and a member of the NASD, relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange (or of
any similar organization or organizations) regarding escrow or other
arrangements in connection with transactions by the Fund;
(m) For delivery in accordance with the provisions of any agreement among
the Corporation, the Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market (or any similar
organization or organizations) regarding account deposits in connection with
transactions by the Fund; or
14
<PAGE>
(n) For any other proper corporate purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of the Board of
Directors, certified by an Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless otherwise instructed
by the Corporation, the Custodian shall with respect to all Securities held for
a Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all income and
other payments to which the Fund is entitled either by law or pursuant to custom
in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect on a
timely basis the amount payable upon all Securities which may mature or be
called, redeemed, or retired, or otherwise become payable;
(c) Endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary form for
Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect, and prepare and submit
reports to the Internal Revenue Service ("IRS") and to the Corporation at such
time, in such manner and containing such information as is prescribed by the
IRS;
15
<PAGE>
(f) Hold for the Fund, either directly or, with respect to Securities held
therein, through a Book-Entry System or Securities Depository, all rights and
similar securities issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper Instructions,
attend to all non-discretionary details in connection with the sale, exchange,
substitution, purchase, transfer and other dealings with Securities and assets
of the Fund.
3.9 Registration and Transfer of Securities. All Securities held for a Fund
that are issued or issuable only in bearer form shall be held by the Custodian
in that form, provided that any such Securities shall be held in a Book-Entry
System if eligible therefor. All other Securities held for the Fund may be
registered in the name of the Fund, the Custodian, or any Sub-Custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Corporation shall furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in proper
form for transfer, or to register in the name of any of the nominees hereinabove
referred to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of the Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other property held for the
Funds, including (i) journals or other records of original entry containing an
itemized daily record in detail of all receipts and deliveries of Securities and
all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral
16
<PAGE>
therefor and substitutions of such collateral), (D) dividends and interest
received, and (E) dividends receivable and interest receivable; and (iii)
canceled checks and bank records related thereto. The Custodian shall keep such
other books and records of the Funds as the Corporation shall reasonably
request, or as may be required by the 1940 Act, including, but not limited to,
Section 31 of the 1940 Act and Rule 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Corporation and in compliance with rules
and regulations of the Securities and Exchange Commission, (ii) be the property
of the Corporation and at all times during the regular business hours of the
Custodian be made available upon request for inspection by duly authorized
officers, employees or agents of the Corporation and employees or agents of the
Securities and Exchange Commission, and (iii) if required to be maintained by
Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rule
31a-2 under the 1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish the Corporation
with a daily activity statement and a summary of all transfers to or from each
Fund Custody Account on the day following such transfers. At least monthly and
from time to time, the Custodian shall furnish the Corporation with a detailed
statement of the Securities and moneys held by the Custodian and the
Sub-Custodians for each Fund under this Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the
Corporation with such reports, as the Corporation may reasonably request from
time to time, on the internal accounting controls and procedures for
safeguarding Securities, which are employed by the Custodian or any
Sub-Custodian appointed pursuant to Section 3.3 above.
17
<PAGE>
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of the Funds, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Corporation such proxies, all proxy soliciting materials
and all notices relating to such Securities.
3.14 Information on Corporate Actions. The Custodian shall promptly deliver
to the Corporation all information received by the Custodian and pertaining to
Securities being held by the Funds with respect to optional tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Exhibit B. If the Corporation
desires to take action with respect to any tender offer, exchange offer or other
similar transaction, the Corporation shall notify the Custodian at least five
Business Days prior to the date on which the Custodian is to take such action.
The Corporation will provide or cause to be provided to the Custodian all
relevant information for any Security which has unique put/option provisions at
least five Business Days prior to the beginning date of the tender period.
ARTICLE IV
----------
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
---------------------------------------------
4.1 Purchase of Securities. Promptly upon each purchase of Securities for a
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any) or other units purchased, (c) the date of purchase and
settlement, (d) the purchase price per unit, (e) the total amount payable upon
such purchase, and (f) the name of the person to whom such amount is payable.
The Custodian shall upon
18
<PAGE>
receipt of such Securities purchased by such Fund pay out of the moneys held for
the account of a Fund the total amount specified in such Written Instructions to
the person named therein. The Custodian shall not be under any obligation to pay
out moneys to cover the cost of a purchase of Securities for the Fund, if in the
Fund Custody Account there is insufficient cash available to the Fund for which
such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for the purchase of Securities for a Fund is
made by the Custodian in advance of receipt of the Securities purchased but in
the absence of specified Written Instructions to so pay in advance, the
Custodian shall be liable to the Fund for such Securities to the same extent as
if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by the Fund,
Written Instructions shall be delivered to the Custodian, specifying (a) the
name of the issuer or writer of such Securities, and the title or other
description thereof, (b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the date of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or any
other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment,
19
<PAGE>
shall be entitled, if in accordance with generally accepted market practice, to
deliver such Securities prior to actual receipt of final payment therefor. In
any such case, the applicable Fund shall bear the risk that final payment for
such Securities may not be made or that such Securities may be returned or
otherwise held or disposed of by or through the person to whom they were
delivered, and the Custodian shall have no liability for any for the foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from time
to time, the Custodian may credit a Fund Custody Account, prior to actual
receipt of final payment thereof, with (i) proceeds from the sale of Securities
which it has been instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Fund, and (iii) income from
cash, Securities or other assets of the Fund. Any such credit shall be
conditional upon actual receipt by Custodian of final payment and may be
reversed if final payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit the Fund to use funds so
credited to the Fund Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
anticipation of which funds were credited to the Fund Custody Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its sole
discretion and from time to time, advance funds to the Corporation to facilitate
the settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
20
<PAGE>
ARTICLE V
---------
REDEMPTION OF FUND SHARES
-------------------------
5.1 Transfer of Funds. From such funds as may be available for the purpose
in the relevant Fund Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares of the Fund, the
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Corporation may designate with respect to such amount
in such Proper Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under any
obligation to effect payment or distribution by any bank designated in Proper
Instructions given pursuant to Section 5.1 above of any amount paid by the
Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
----------
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the
Corporation, the Custodian and a broker-dealer registered under the 1934 Act and
a member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing Fund and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or
21
<PAGE>
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in connection with
securities options purchased or written by the Fund or in connection with
financial futures contracts (or options thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities made by the Fund,
(d) for purposes of compliance by the Fund with requirements under the 1940
Act for the maintenance of segregated accounts by registered investment
companies in connection with reverse repurchase agreements and when-issued,
delayed delivery and firm commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the Board
of Directors, certified by an Officer, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
ARTICLE VII
-----------
CONCERNING THE CUSTODIAN
------------------------
7.1 Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Corporation or any Fund for any loss, damage, cost,
expense (including attorneys' fees and disbursements),
22
<PAGE>
liability or claim unless such loss, damage, cost, expense, liability or claim
arises from negligence, bad faith or willful misconduct on its part or on the
part of any Sub-Custodian appointed pursuant to Section 3.3 above. The Custodian
shall be entitled to rely on and may act upon advice of counsel on all matters,
and shall be without liability for any action reasonably taken or omitted
pursuant to such advice. The Custodian shall promptly notify the Corporation of
any action taken or omitted by the Custodian pursuant to advice of counsel. The
Custodian shall not be under any obligation at any time to ascertain whether the
Corporation or the Fund is in compliance with the 1940 Act, the regulations
thereunder, the provisions of the Corporation's charter documents or by-laws, or
its investment objectives and policies as then in effect.
7.2 Actual Collection Required. The Custodian shall not be liable for, or
considered to be the custodian of, any cash belonging to a Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 No Responsibility for Title, etc. So long as and to the extent that it
is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for a Fund if such Securities are in
default or payment is not made after due demand or presentation.
23
<PAGE>
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and any Written Instructions
actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or obligations
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
7.7 Cooperation. The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Corporation to keep the
books of account of the Funds and/or compute the value of the assets of the
Funds. The Custodian shall take all such reasonable actions as the Corporation
may from time to time request to enable the Corporation to obtain, from year to
year, favorable opinions from the Corporation's independent accountants with
respect to the Custodian's activities hereunder in connection with (a) the
preparation of the Corporation's reports on Form N-1A and Form N-SAR and any
other reports required by the Securities and Exchange Commission, and (b) the
fulfillment by the Corporation of any other requirements of the Securities and
Exchange Commission.
ARTICLE VIII
------------
INDEMNIFICATION
---------------
8.1 Indemnification by Corporation. The Corporation shall indemnify and
hold harmless the Custodian and any Sub-Custodian appointed pursuant to Section
3.3 above, and any nominee of the Custodian or of such Sub-Custodian, from and
against any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation,
24
<PAGE>
liability arising under the Securities Act of 1933, the 1934 Act, the 1940 Act,
and any state or foreign securities and/or banking laws) or claim arising
directly or indirectly (a) from the fact that Securities are registered in the
name of any such nominee, or (b) from any action or inaction by the Custodian or
such Sub-Custodian (i) at the request or direction of or in reliance on the
advice of the Corporation, or (ii) upon Proper Instructions, or (c) generally,
from the performance of its obligations under this Agreement or any sub-custody
agreement with a Sub-Custodian appointed pursuant to Section 3.3 above, provided
that neither the Custodian nor any such Sub-Custodian shall be indemnified and
held harmless from and against any such loss, damage, cost, expense, liability
or claim arising from the Custodian's or such Sub-Custodian's negligence, bad
faith or willful misconduct.
8.2 Indemnification by Custodian. The Custodian shall indemnify and hold
harmless the Corporation from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability (including without
limitation, liability arising under the Securities Act of 1933, the 1934 Act,
the 1940 Act, and any state or foreign securities and/or banking laws) or claim
arising from the negligence, bad faith or willful misconduct of the Custodian or
any Sub-Custodian appointed pursuant to Section 3.3 above, or any nominee of the
Custodian or of such Sub-Custodian.
8.3 Indemnity to be Provided. If the Corporation requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Corporation shall
25
<PAGE>
have provided indemnity therefor to the Custodian in an amount and form
satisfactory to the Custodian.
8.4 Security. If the Custodian advances cash or Securities to a Fund for
any purpose, either at the Corporation's request or as otherwise contemplated in
this Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim
(except such as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should the Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of the Fund and to dispose of other assets of the Fund to
the extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
----------
FORCE MAJEURE
-------------
Neither the Custodian nor the Corporation shall be liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate
26
<PAGE>
against the Funds in favor of any other customer of the Custodian in making
computer time and personnel available to input or process the transactions
contemplated by this Agreement and (ii) shall use its best efforts to ameliorate
the effects of any such failure or delay.
ARTICLE X
---------
EFFECTIVE PERIOD; TERMINATION
-----------------------------
10.1 Effective Period. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
10.2 Termination. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Directors, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the
Funds and held by the Custodian as custodian, and (b) transfer any Securities
held in a Book-Entry System or Securities Depository to an account of or for the
benefit of the Funds at the successor custodian, provided that the Corporation
shall have paid to the Custodian all fees, expenses and other amounts to the
payment or reimbursement of which it shall then be entitled. Upon such delivery
and transfer, the Custodian shall be relieved of all obligations under this
Agreement. The Corporation may at any time immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for the Custodian
by regulatory authorities or upon the happening of a like event at the direction
of an appropriate regulatory agency or court of competent jurisdiction.
27
<PAGE>
10.3 Failure to Appoint Successor Custodian. If a successor custodian is
not designated by the Corporation on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or corporation company of its own selection, which (a) is a
"bank" as defined in the 1940 Act and (b) has aggregate capital, surplus and
undivided profits as shown on its then most recent published report of not less
than $25 million, all Securities, cash and other property held by Custodian
under this Agreement and to transfer to an account of or for each Fund at such
bank or trust company all Securities of the Funds held in a Book-Entry System or
Securities Depository. Upon such delivery and transfer, such bank or trust
company shall be the successor custodian under this Agreement and the Custodian
shall be relieved of all obligations under this Agreement.
ARTICLE XI
----------
COMPENSATION OF CUSTODIAN
-------------------------
The Custodian shall be entitled to compensation as agreed upon from time to
time by the Corporation and the Custodian. The fees and other charges in effect
on the date hereof and applicable to the Fund are set forth in Exhibit C
attached hereto.
28
<PAGE>
ARTICLE XII
------------
NOTICES
-------
Unless otherwise specified herein, all demands, notices, instructions, and
other communications to be given hereunder shall be in writing and shall be sent
or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Corporation:
------------------
TANAKA Funds, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
Telephone (212) 490-3380
Facsimile (212) 687-2852
To Custodian:
------------
Star Bank, N.A.
425 Walnut Street, M.L. 6118
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (513) 632-4432
Facsimile: (513) 632-4448
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
29
<PAGE>
ARTICLE XIII
------------
MISCELLANEOUS
--------------
13.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
13.2 References to Custodian. The Corporation shall not circulate any
printed matter which contains any reference to Custodian without the prior
written approval of Custodian, excepting printed matter contained in the
prospectus or statement of additional information for the Funds and such other
printed matter as merely identifies Custodian as custodian for the Funds. The
Corporation shall submit printed matter requiring approval to Custodian in draft
form, allowing sufficient time for review by Custodian and its counsel prior to
any deadline for printing.
13.3 No Waiver. No failure by either party hereto to exercise, and no delay
by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
13.4 Amendments. This Agreement cannot be changed orally and no amendment
to this Agreement shall be effective unless evidenced by an instrument in
writing executed by the parties hereto.
13.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
13.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of
30
<PAGE>
the remaining provisions shall not be affected or impaired thereby.
13.7 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
13.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered in its name and on its behalf by its representatives
thereunto duly authorized, all as of the day and year first above written.
ATTEST:
TANAKA FUNDS, INC.
By:
- ---------------------------- ---------------------------
Secretary President
ATTEST: STAR BANK, N.A.
By:
- ---------------------------- ---------------------------
31
<PAGE>
EXHIBIT A
---------
AUTHORIZED PERSONS
------------------
Set forth below are the names and specimen signatures of the persons
authorized by the Fund to administer the Fund Custody Accounts.
Name Signature
- ---- ---------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
32
<PAGE>
APPENDIX B
----------
Star Bank, N.A.
Standards of Service Guide
33
<PAGE>
APPENDIX C
----------
Star Bank, N.A.
Domestic Custody Fee Schedule
34
FORM OF
TANAKA FUNDS, INC.
MUTUAL FUND SERVICES AGREEMENT
Fund Accounting Services
and
Transfer Agency Services
and
Dividend Disbursing Services
between
TANAKA Funds, Inc.
and
Unified Fund Services, Inc.
__________, 1998
Exhibit A - Fund Listing
Exhibit B - Fund Accounting Services Description
Exhibit C - Transfer Agency Services Description
Exhibit D - Fees and Expenses
1
<PAGE>
MUTUAL FUND SERVICES AGREEMENT
AGREEMENT (this "Agreement"), dated as of __________, 1998, between the
TANAKA Funds, Inc., a Maryland corporation (the "Corporation"), and Unified Fund
Services, Inc., an Indiana corporation ("Unified").
WITNESSETH:
WHEREAS, the Corporation is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Corporation wishes to retain Unified to provide certain transfer
agent, fund accounting and dividend disbursing services with respect to the
Corporation, and Unified is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
Section 1. Appointment. The Corporation hereby appoints Unified to provide
transfer agent and fund accounting services for the Corporation, subject to the
supervision of the Board of Directors of the Corporation (the "Board"), for the
period and on the terms set forth in this Agreement. Unified accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Section 6 and Exhibit D to this Agreement. The
Corporation will initially consist of the series of shares (each a "Fund";
collectively the "Funds") listed on Exhibit A. The Corporation shall notify
Unified in writing of each additional Fund established by the Corporation. Each
new Fund shall be subject to the provisions of this Agreement, except to the
extent that the provisions (including those relating to the compensation and
expenses payable by the Corporation and its Funds) may be modified with respect
to each new Fund in writing by the Corporation and Unified at the time of the
addition of the new Fund.
Section 2. Representations and Warranties of Unified. Unified represents
and warrants to the Corporation that:
(a) Unified is a corporation duly organized and existing under the laws of
the State of Indiana;
(b) Unified is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement, and all
requisite corporate proceedings have been taken by Unified to authorize Unified
to enter into and perform this Agreement;
(c) Unified has, and will continue to have, access to the facilities,
personnel and equipment required to fully perform its duties and obligations
hereunder;
(d) no legal or administrative proceedings have been instituted or
threatened against Unified that would impair its ability to perform its duties
and obligations under this Agreement; and
(e) Unified's entrance into this Agreement will not cause a material breach
or be in material conflict with any other agreement or obligation of Unified or
any law or regulation applicable to Unified.
2
<PAGE>
Section 3. Representations and Warranties of the Corporation. The
Corporation represents and warrants to Unified that:
(a) the Corporation is a corporation duly organized and existing under the
laws of the State of Maryland;
(b) the Corporation is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement, and the
Corporation has taken all requisite proceedings to authorize the Corporation to
enter into and perform this Agreement;
(c) the Corporation is an investment company properly registered under the
1940 Act; a registration statement under the Securities Act of 1933, as amended
("1933 Act") and the 1940 Act on Form N-lA has been filed and will be effective
and will remain effective during the term of this Agreement, and all necessary
filings under the laws of the states will have been made and will be current
during the term of this Agreement;
(d) no legal or administrative proceedings have been instituted or
threatened against the Corporation that would impair its ability to perform its
duties and obligations under this Agreement; and
(e) the Corporation's entrance into this Agreement will not cause a
material breach or be in material conflict with any other agreement or
obligation of the Corporation or any law or regulation applicable to it.
Section 4. Delivery of Documents. The Corporation will promptly furnish to
Unified such copies, properly certified or authenticated, of contracts,
documents and other related information that Unified may request or requires to
properly discharge its duties. Such documents may include but are not limited to
the following:
(a) Resolutions of the Board authorizing the appointment of Unified to
provide certain transfer agency and fund accounting services to the Corporation
and approving this Agreement;
(b) The Corporation's Articles of Incorporation;
(c) The Corporation's By-Laws;
(d) The Corporation's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Corporation's registration statement including exhibits, as
amended, on Form N-1A (the "Registration Statement") under the 1933 Act and the
1940 Act, as filed with the SEC;
(f) Copies of the Investment Advisory Agreement between the Corporation and
its investment adviser (the "Advisory Agreement");
(g) Opinions of counsel and auditors reports;
(h) The Corporation's Prospectus and Statement of Additional Information
relating to all Funds and all amendments and supplements thereto (such
Prospectus and Statement of Additional Information and supplements thereto, as
presently in effect and as from time to time hereafter amended and supplemented,
herein called the "Prospectuses"); and
3
<PAGE>
(i) Such other agreements as the Corporation may enter into from time to
time including securities lending agreements, futures and commodities account
agreements, brokerage agreements, and options agreements.
Section 5. Services Provided by Unified.
(a) Unified will provide the following services subject to the control,
direction and supervision of the Board and in compliance with the objectives,
policies and limitations set forth in the Corporation's Registration Statement,
Articles of Incorporation and By-Laws; applicable laws and regulations; and all
resolutions and policies implemented by the Board:
(i) Fund Accounting, as described on Exhibit B to this Agreement.
(ii) Transfer Agency, as described on Exhibit C to this Agreement.
(iii) Dividend Disbursing. Unified will serve as the Corporation's dividend
disbursing agent. Unified will prepare and mail checks, place wire transfers of
credit income and capital gain payments to shareholders. The Corporation will
advise Unified in advance of the declaration of any dividend or distribution and
the record and payable date thereof. Unified will, on or before the payment date
of any such dividend or distribution, notify the Corporation's Custodian of the
estimated amount required to pay any portion of such dividend or distribution
payable in cash, and on or before the payment date of such distribution, the
Corporation will instruct its Custodian to make available to Unified sufficient
funds for the cash amount to be paid out. If a shareholder is entitled to
receive additional shares by virtue of any such distribution or dividend,
appropriate credits will be made to each shareholder's account. A shareholder
not receiving a cash distribution will receive a confirmation from Unified
indicating the number of shares credited to his/her account.
(b) Unified will also:
(i) provide office facilities with respect to the provision of the services
contemplated herein (which may be in the offices of Unified or a corporate
affiliate of Unified);
(ii) provide or otherwise obtain personnel sufficient, in Unified's sole
discretion, for provision of the services contemplated herein;
(iii) furnish equipment and other materials, which Unified, in its sole
discretion, believes are necessary or desirable for provision of the services
contemplated herein; and
(iv) keep records relating to the services provided hereunder in such form
and manner as set forth on Exhibits B and C and as Unified may otherwise deem
appropriate or advisable, all in accordance with the 1940 Act. To the extent
required by Section 31 of the 1940 Act and the rules thereunder, Unified agrees
that all such records prepared or maintained by Unified relating to the services
provided hereunder are the property of the Corporation and will be preserved for
the periods prescribed under Rule 31a-2 under the 1940 Act, maintained at the
Corporation's expense, and made available in accordance with such Section and
rules. Unified further agrees to surrender promptly to the Corporation upon its
request and cease to retain in its records and files those records and documents
created and maintained by Unified pursuant to this Agreement.
Section 6. Fees: Expenses: Expense Reimbursement.
(a) As compensation for the services rendered to the Corporation pursuant
to this Agreement the Corporation shall pay Unified monthly fees determined as
set forth on Exhibit D to this Agreement. Such fees
4
<PAGE>
are to be billed monthly and shall be due and payable upon receipt of the
invoice. If fees begin to accrue in the middle of a month or if this Agreement
terminates before the end of any month, all fees for the period from that date
to the end of the month or from the beginning of that month to the date of
termination, as the case may be, shall be prorated according to the proportion
that the period bears to the full month in which the effectiveness or
termination occurs. Upon the termination of this Agreement with respect to a
Fund, the Corporation shall pay to Unified such compensation as shall be payable
prior to the effective date of termination.
(b) For the purpose of determining fees calculated as a function of a
Fund's net assets, the value of the Fund's net assets shall be computed as
required by the Prospectus, generally accepted accounting principles, and
resolutions of the Board.
(c) Unified will from time to time employ or associate with such person or
persons as may be appropriate to assist Unified in the performance of this
Agreement. Such person or persons may be officers and employees who are employed
or designated as officers by both Unified and the Corporation. The compensation
of such person or persons for such employment shall be paid by Unified and no
obligation will be incurred by or on behalf of the Corporation in such respect.
(d) Unified will bear all of its own expenses in connection with the
performance of the services under this Agreement except as otherwise expressly
provided herein. The Corporation agrees to promptly reimburse Unified for any
equipment and supplies specially ordered by or for the Corporation through
Unified and for any other expenses not contemplated by this Agreement that
Unified may incur on the Corporation's behalf at the Corporation's request or as
consented to by the Corporation. Such other expenses to be incurred in the
operation of the Corporation and to be borne by the Corporation, include, but
are not limited to: taxes; interest; brokerage fees and commissions; salaries
and fees of officers and directors who are not officers, directors, shareholders
or employees of Unified, or the Corporation's investment adviser or distributor;
SEC and state Blue Sky registration and qualification fees, levies, fines and
other charges; advisory fees; charges and expenses of custodians; insurance
premiums including fidelity bond premiums; auditing and legal expenses; costs of
maintenance of corporate existence; expenses of typesetting and printing of
prospectuses and for distribution to current shareholders of the Corporation;
expenses of printing and production cost of shareholders' reports and proxy
statements and materials; costs and expense of Corporation stationery and forms;
costs and expenses of special telephone and data lines and devices; costs
associated with corporate, shareholder, and Board meetings; and any
extraordinary expenses and other customary Corporation expenses. In addition,
Unified may utilize one or more independent pricing services, approved from time
to time by the Board, to obtain securities prices and to act as backup to the
primary pricing services, in connection with determining the net asset values of
the Corporation, and the Corporation will reimburse Unified for the
Corporation's share of the cost of such services based upon the actual usage, or
a pro-rata estimate of the use, of the services for the benefit of the
Corporation.
(e) The Corporation may request additional services, additional processing,
or special reports. Such requests may be provided by Unified at additional
charges. In this event, the Corporation shall submit such requests in writing
together with such specifications as may be reasonably required by Unified, and
Unified shall respond to such requests in the form of a price quotation. The
Corporation's written acceptance of the quotation must be received prior to
implementation of such request. Additional services will be charged at Unified's
standard rates.
(f) All fees, out-of-pocket expenses, or additional charges of Unified
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.
Unified will render, after the close of each month in which services have
been furnished, a statement reflecting all of the charges for such month.
Charges remaining unpaid after thirty (30) days shall bear interest in finance
charges equivalent to, in the aggregate, the Prime Rate (as publicly announced
by Star
5
<PAGE>
Bank, N.A., from time to time) plus 2.00% per year and all costs and expenses of
effecting collection of any such sums, including reasonable attorney's fees,
shall be paid by the Corporation to Unified.
In the event that the Corporation is more than sixty (60) days delinquent
in its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the
Corporation), this Agreement may be terminated upon thirty (30) days' written
notice to the Corporation by Unified. The Corporation must notify Unified in
writing of any contested amounts within thirty (30) days of receipt of a billing
for such amounts. Disputed amounts are not due and payable while they are being
investigated.
Section 7. Proprietary and Confidential Information. Unified agrees on
behalf of itself and its employees to treat confidentially and as proprietary
information of the Corporation, all records and other information relative to
the Corporation's prior, present or potential shareholders, and to not use such
records and information for any purpose other than performance of Unified's
responsibilities and duties hereunder. Unified may seek a waiver of such
confidentiality provisions by furnishing reasonable prior notice to the
Corporation and obtaining approval in writing from the Corporation, which
approval shall not be unreasonably withheld and may not be withheld where the
service agent may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities. Waivers of confidentiality are automatically effective
without further action by Unified with respect to Internal Revenue Service
levies, subpoenas and similar actions, or with respect to any request by the
Corporation.
Section 8. Duties, Responsibilities and Limitations of Liability.
(a) In the performance of its duties hereunder, Unified shall be obligated
to exercise due care and diligence, and to act in good faith in performing the
services provided for under this Agreement. In performing its services
hereunder, Unified shall be entitled to rely on any oral or written
instructions, notices or other communications from the Corporation and its
Custodian, officers and Directors, investors, agents and other service providers
which Unified reasonably believes to be genuine, valid and authorized. Unified
shall also be entitled to consult with upon prior approval from the Corporation
and rely on the advice and opinions of outside legal counsel retained by the
Corporation, as necessary or appropriate.
(b) Unified shall not be liable for any error of judgment or mistake of law
or for any loss or expense suffered by the Corporation, in connection with the
matters to which this Agreement relates, except for a loss or expense solely
caused by or resulting from willful misfeasance, bad faith or negligence on
Unified's part in the performance of its duties or from reckless disregard by
Unified of its obligations and duties under this Agreement. Any person, even
though also an officer, director, partner, employee or agent of Unified, who may
be or become an officer, director, partner, employee or agent of the
Corporation, shall be deemed when rendering services to the Corporation or
acting on any business of the Corporation (other than services or business in
connection with Unified's duties hereunder) to be rendering such services to or
acting solely for the Corporation and not as an officer, director, partner,
employee or agent or person under the control or direction of Unified even
though paid by Unified.
(c) Except for a loss or expense solely caused by or resulting from willful
misfeasance, bad faith or negligence on Unified's part in the performance of its
duties or from reckless disregard by Unified of its obligations and duties under
this Agreement, Unified shall not be responsible for, and the Corporation shall
indemnify and hold Unified harmless from and against, any and all losses,
damages, costs, reasonable attorneys' fees and expenses, payments, expenses and
liabilities arising out of or attributable to:
(i) all actions of Unified or its officers or agents required to be
taken pursuant to this Agreement;
6
<PAGE>
(ii) the reliance on or use by Unified or its officers or agents of
information, records, or documents which are received by Unified or its officers
or agents and furnished to it or them by or on behalf of the Corporation, and
which have been prepared or maintained by the Corporation or any third party on
behalf of the Corporation;
(iii) the Corporation's refusal or failure to comply with the terms of
this Agreement or the Corporation's lack of good faith, or its actions, or lack
thereof involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the Corporation
hereunder;
(v) the taping or other form of recording of telephone conversations or
other forms of electronic communications with investors and shareholders, or
reliance by Unified on telephone or other electronic instructions of any person
acting on behalf of a shareholder or shareholder account for which telephone or
other electronic services have been authorized;
(vi) the reliance on or the carrying out by Unified or its officers or
agents of any proper instructions reasonably believed to be duly authorized, or
requests of the Corporation or recognition by Unified of any share certificates
which are reasonably believed to bear the proper signatures of the officers of
the Corporation and the proper countersignature of any transfer agent or
registrar of the Corporation;
(vii) any delays, inaccuracies, errors in or omissions from data
provided to Unified by data and pricing services;
(viii) the offer or sale of shares by the Corporation in violation of
any requirement under the federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Corporation or its other service
providers and agents, or (2) existing or arising out of activities, actions or
omissions by or on behalf of the Corporation prior to the effective date of this
Agreement; and
(ix) the compliance by the Corporation, its investment adviser, and its
distributor with applicable securities, tax, commodities and other laws, rules
and regulations.
Section 9. Terms. This Agreement shall become effective on the date first
herein above written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated, without penalty, by either party on at
least sixty (60) days' prior written notice. Upon termination of this Agreement,
the Corporation shall pay to Unified such compensation and any reimbursable
expenses as may be due under the terms hereof as of the date of termination or
the date that the provision of services ceases, whichever is sooner.
Unified shall be entitled to reimbursement for the reasonable expenses
incurred in connection with the retrieval, compilation and movement of books,
records and materials relative to the deconversion or conversion of Corporation
records to the successor mutual fund service provider as directed by the
Corporation. Notwithstanding the foregoing, any amount owed by the Corporation
to Unified prior to the termination/conversion shall still be due and payable
under the terms of this Agreement. No such compensation shall be due to Unified
if Unified terminates this Agreement for reasons other than a default by the
Corporation.
Upon the termination of the Agreement for any reason, Unified agrees to
provide the Corporation with complete and accurate transfer agency, fund
accounting and administration records and to assist the Corporation in the
orderly transfer of accounts and records. Without limiting the generality of the
foregoing, Unified agrees upon termination of this Agreement:
7
<PAGE>
(a) to deliver to the successor mutual fund service provider(s), computer
tapes containing the Corporation's accounts and records together with such
record layouts and additional information as may be necessary to enable the
successor mutual fund service provider(s) to utilize the information therein;
(b) to cooperate with the successor mutual fund service provider(s) in the
interpretation of the Corporation's account and records;
(c) to forward all shareholder calls, mail and correspondence to the new
mutual fund service provider(s) upon de-conversion; and
(d) to act in good faith, to make the conversion as smooth as possible for
the successor mutual fund service provider(s) and the Corporation.
Section 10. Notices. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
(a) If to the Corporation, to:
TANAKA Funds, Inc.
230 Park Avenue, Suite 960
New York, NY 10169
Attention: President
(b) If to Unified, to:
Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, Indiana 46204
Attention: President
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
Section 11. Assignability. This Agreement shall not be assigned by either
party hereto without the prior written consent of the other party.
Section 12. Waiver. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
nor shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
Section 13. Force Majeure. Unified shall not be responsible or liable for
any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including without limitations, acts of God, earthquake, fires, floods,
wars, acts of civil or military authorities, or governmental actions, nor shall
any such failure or delay give the Corporation the right to terminate this
Agreement.
8
<PAGE>
Section 14. Use or Name. The Corporation and Unified agree not to use the
other's name nor the names of such other's affiliates, designees, or assignees
in any prospectus, sales literature, or other printed material written in a
manner not previously, expressly approved in writing by the other or such
other's affiliates, designees, or assignees except where required by the SEC or
any state agency responsible for securities regulation.
Section 15. Amendments. This Agreement may be modified or amended from time
to time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought
Section 16. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
Section 17. Governing Law. This Agreement shall be governed by the laws of
the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this Mutual Fund
Services Agreement to be signed by their respective duly authorized officers as
of the day and year first above written.
TANAKA FUNDS, INC.
By Date
---------------------------- ---------------
Print Name:
-------------------
Title
------------------------
Attest
------------------------
UNIFIED FUND SERVICES, INC.
By Date
----------------------------- -------------
Print Name:
-------------------
Title
------------------------
Attest
------------------------
By Date
---------------------------- --------------
Print Name:
-------------------
Title
------------------------
Attest
------------------------
9
<PAGE>
EXHIBIT A
to
Mutual Fund Services Agreement
List of Funds
TANAKA Growth Fund
10
<PAGE>
EXHIBIT B
to
Mutual Fund Services Agreement
Description of Fund Accounting Services
I. General Description
-------------------
Unified shall provide the following accounting services to the
Corporation:
A. Calculate dividend and capital gain distributions in accordance with
distribution policies detailed in the Corporation's Prospectus. Assist
Corporation management in making final determinations of distribution
amounts.
B. Estimate and recommend year-end dividend and capital gain distributions
necessary to establish Corporation's status as a regulated investment
company ("RIC") under Section 4982 of the Internal revenue Code of
1986, as amended (the "Code") regarding minimum distribution
requirements.
C. Working with the Corporation's public accountants or other
professionals, prepare and file Corporation's Federal tax return on
Form 1120-RIC along with all state and local tax returns where
applicable. Prepare and file Federal Excise Tax Return (Form 8613).
D. Maintain the books and records and accounting controls for the
Corporation's assets, including records of all securities transactions.
E. Calculate each Fund's net asset value in accordance with the Prospectus
and (once the Fund meets eligibility requirements) transmit to NASDAQ
and to such other entities as directed by the Corporation.
F. Account for dividends and interest received and distributions made by
the Corporation.
G. Prepare Corporation or Fund expense projections, establish accruals and
review on a periodic basis, including expenses based on a percentage of
Corporation's average daily net assets (advisory and administrative
fees) and expenses based on actual charges annualized and accrued daily
(audit fees, registration fees, directors' fees, etc.).
H. Produce transaction data, financial reports and such other periodic and
special reports as the Board may reasonably request.
I. Liaison with the Corporation's independent auditors.
J. Monitor and administer arrangements with the Corporation's Custodian
and depository banks.
K. A listing of reports that will be available to the Corporation is
included below.
II. Daily Reports
-------------
A. General Ledger Reports
1. Trial Balance Report
2. General Ledger Activity Report
11
<PAGE>
B. Fund Reports
1. Fund Report
2. Cost Lot Report
3. Purchase Journal
4. Sell/Maturity Journal
5. Amortization/Accretion Report
6. Maturity Projection Report
C. Pricing Reports
1. Pricing Report
2. Pricing Report by Market Value
3. Pricing Variance by % Change
4. NAV Report
5. NAV Proof Report
6. Money Market Pricing Report
D. Accounts Receivable/Payable Reports
1. Accounts Receivable for Investments Report
2. Accounts Payable for Investments Report
3. Interest Accrual Report
4. Dividend Accrual Report
E. Other Reports
1. Dividend Computation Report
2. Cash Availability Report
3. Settlement Journal
III. Monthly Reports
---------------
Standard Reports
1. Cost Proof Report
2. Transaction History Report
3. Realized Gain/Loss Report
4. Interest Record Report
5. Dividend Record Report
6. Broker Commission Totals
7. Broker Principal Trades
8. Shareholder Activity Report
9. Corporation Performance Report
10.SEC Yield Calculation Work Sheet (fixed-income funds only)
12
<PAGE>
EXHIBIT C
to
Mutual Fund Services Agreement
Description of Transfer Agency Services
The following is a general description of the transfer agency services
Unified shall provide to the Corporation.
A. Shareholder Recordkeeping. Maintain records showing for each Corporation
shareholder the following: (i) name, address and tax identifying number;
(ii) number of shares of each Fund; (iii) historical information including,
but not limited to, dividends paid and date and price of all transactions
including individual purchases and redemptions; and (iv) any dividend
reinvestment order, application, dividend address and correspondence
relating to the current maintenance of the account.
B. Shareholder Issuance. Record the issuance of shares of each Fund. Except as
specifically agreed in writing between Unified and the Corporation, Unified
shall have no obligation when countersigning and issuing and/or crediting
shares to take cognizance of any other laws relating to the issue and sale
of such shares except insofar as policies and procedures of the Stock
Transfer Association recognize such laws.
C. Purchase Orders. Process all orders for the purchase of shares of the
Corporation in accordance with the Corporation's current registration
statement. Upon receipt of any check or other payment for purchase of shares
of the Corporation from an investor, Unified will (i) stamp the envelope
with the date of receipt, (ii) forthwith process the same for collection,
(iii) determine the amounts thereof due the Corporation, and notify the
Corporation of such determination and deposit, such notification to be given
on a daily basis of the total amounts determined and deposited to the
Corporation's custodian bank account during such day. Unified shall then
credit the share account of the investor with the number of Fund shares to
be purchased made on the date such payment is received by Unified, as set
forth in the Corporation's current prospectus and shall promptly mail a
confirmation of said purchase to the investor, all subject to any
instructions which the Corporation may give to Unified with respect to the
timing or manner of acceptance of orders for shares relating to payments so
received by it.
D. Redemption Orders. Receive and stamp with the date of receipt all requests
for redemptions or repurchase of shares held in certificate or
non-certificate form, and process redemptions and repurchase requests as
follows: (i) if such certificate or redemption request complies with the
applicable standards approved by the Corporation, Unified shall on each
business day notify the Corporation of the total number of shares presented
and covered by such requests received by Unified on such day; (ii) on or
prior to the seventh calendar day succeeding any such requests received by
Unified, Unified shall notify the Custodian, subject to instructions from
the Corporation, to transfer monies to such account as designated by Unified
for such payment to the redeeming shareholder of the applicable redemption
or repurchase price; (iii) if any such certificate or request for redemption
or repurchase does not comply with applicable standards, Unified shall
promptly notify the investor of such fact, together with the reason
therefor, and shall effect such redemption at the Corporation's price next
determined after receipt of documents complying with said standards, or, at
such other time as the Corporation shall so direct.
E. Telephone Orders. Process redemptions, exchanges and transfers of
Corporation shares upon telephone instructions from qualified shareholders
in accordance with the procedures set forth in the
13
<PAGE>
Corporation's current Prospectus. Unified shall be permitted to redeem,
exchange and/or transfer Corporation shares from any account for which such
services have been authorized.
F. Transfer of Shares. Upon receipt by Unified of documentation in proper form
to effect a transfer of shares, including in the case of shares for which
certificates have been issued the share certificates in proper form for
transfer, Unified will register such transfer on the Corporation's
shareholder records maintained by Unified pursuant to instructions received
from the transferor, cancel the certificates representing such shares, if
any, and if so requested, countersign, register, issue and mail by first
class mail new certificates for the same or a smaller whole number of
shares.
G. Shareholder Communications and Meetings. Address and mail all communications
by the Corporation to its shareholders promptly following the delivery by
the Corporation of the material to be mailed. Prepare shareholder lists,
mail and certify as to the mailing of proxy materials, receive the tabulated
proxy cards, render periodic reports to the Corporation on the progress of
such tabulation, and provide the Corporation with inspectors of election at
any meeting of shareholders.
H. Share Certificates. If the Corporation issues certificates, and if a
shareholder of the Corporation requests a certificate representing his
shares, Unified as Transfer Agent, will countersign and mail by first class
mail with receipt confirmed, a share certificate to the investor at his/her
address as it appears on the Corporation's transfer books. Unified shall
supply, at the expense of the Corporation, a supply of blank share
certificates. The certificates shall be properly signed, manually or by
facsimile, as authorized by the Corporation, and shall bear the
Corporation's seal or facsimile; and notwithstanding the death, resignation
or removal of any officers of the Corporation authorized to sign
certificates, Unified may, until otherwise directed by the Corporation,
continue to countersign certificates which bear the manual or facsimile
signature of such officer.
I. Returned checks. In the event that any check or other order for the payment
of money is returned unpaid for any reason, Unified will take such steps,
including redepositing the check for collection or returning the check to
the investor, as Unified may, at its discretion, deem appropriate and notify
the Corporation of such action, or as the Corporation may instruct.
J. Shareholder Correspondence. Acknowledge all correspondence from shareholders
relating to their share accounts and undertake such other shareholder
correspondence as may from time to time be mutually agreed upon.
14
<PAGE>
EXHIBIT D
to
MUTUAL FUND SERVICES AGREEMENT
TRANSFER AGENCY FEE SCHEDULE
I Conversion Fee: Manual conversion/new fund establishment - fee not to exceed
$500 per portfolio. Electronic conversion - $2.50 per shareholder account
with a $5,000 minimum fee.
II Standard Base Fee for Standard Base Services
The Base Fee* is $1.40 for money market funds and $1.30 for equity/bond
funds per active Shareholder Account per active Shareholder Account per
month with a minimum fee of $1,250 per portfolio or class per month. An
Active Shareholder Account is any Shareholder Account existing on Transfer
Agent's computerized files with a non-zero Share balance. There is a $.40
per account charge for any account with a zero share balance for the current
calendar year, as determined on the last day of each month.
*The Base Fee does not include: forms design and printing, statement
production, envelope design and printing, postage and handling, shipping,
statement microfiche copies and 800 number access to Unified's shareholder
services group.
Unified supports for an additional monthly fee of $0.05 per account per
service: receivables accounting, 12b-1 fund reporting, back-end sales load
recapture accounting, and/or detailed dealer and representative load
commission accounting and reporting. Funds paying dividends more frequently
than once per quarter (generally, money market funds) are charged an
additional $0.30 per month per account.
Unified will provide lost account search services in connection of SEC Rules
17Ad-17 and 17a-24 at a cost of $2.50 per account per account searched.
These "Electronic Data Search Services" will be performed on a semi-annual
basis. This service will apply to only Active Shareholder Accounts
maintained on the transfer agency system coded as RPO accounts.
In addition to the above fees, there will be a $500.00 minimum fee/rerun
charge when the nightly processing has be repeated due to incorrect NAV or
dividend information received from the Fund Accountant/Pricing Agent.
II Standard Base Transaction Fees
Fund/Serv processing charges are $0.25 per transaction in addition to direct
Fund/Serv charges that are passed through (See Section VI herein). Minimum
charge: $250.00 per month
Networking processing charges are $0.24 per account for Matrix levels 1, 2 &
4 and $0.06 for Matrix level 3 in addition to direct Networking charges that
are passed through (See Section VI herein). Minimum charge: $250.00 per
month.
III Standard Services Provided
-Opening new accounts
-Maintaining Shareholder accounts
Includes:
-Maintaining certificate records
-Changing addresses
-Daily reports on number of Shares, accounts
-Preparation of Shareholder federal tax information
-Withhold taxes on U.S. resident and non-resident alien accounts
-Reply to Shareholder calls and correspondence other than that for
Corporation information and related inquiries
15
<PAGE>
-Processing purchase of Shares
-Issuing /Canceling of certificates (Excessive use may be subject
to additional charges)
-Processing partial and complete redemptions
-Regular and legal transfer of accounts
-Mail processing of semi-annual and annual reports
-Processing dividends and distributions
-Prepare Shareholder meeting lists
-One proxy processing per year per fund. Tabulation is
limited to three.
-Receiving and tabulating of proxies
-Confirmation of all transactions as provided by the terms of
each Shareholder's account
-Provide a system which will enable Corporation to monitor the total
number of Shares sold in each state. System has capability to halt
sales and warn of potential oversell. (Blue Sky Reports)
-Determination/Identification of lost Shareholder accounts
-1099 reporting
IV Standard Reports Available
-12b-1 Disbursement Report -Holdings by Account Type
-12b-1 Disbursement Summary -Posting Details
-Dealer Commission Report -Posting Summary
-Dealer Commission Summary Report -Settlement Summary
-Exchange Activity Report -Tax Register
-Fees Paid Summary Report -Transactions Journal
-Corporation Accrual Details
V Additional Fees for Services Outside the Standard Base
<TABLE>
<CAPTION>
<S> <C>
-Archiving of old records/storage of aged records negotiable
-Off-line Shareholder research $25/hour (Billed to customer account)
-Check copies $3/each (Billed to customer account)
-Statement copies $5/each (Billed to customer account)
-Mutual Fund fulfillment/prospect file maintenance $1.00/item
-Shareholder communications charges (Faxes) pass through
-Leased line/equipment on TA's computer system pass through
-Dial-up access to TA's computer system pass through
-Labels .05 ea/$100 minimum
-Electronic filings of approved forms $75/transmission
-Monthly Director's Reports $25/mo/portfolio
-Direct Fund/Serv expenses Pass through
-Direct Networking expenses Pass through
-AD-HOC REPORTWRITER Report Generation $50.00 per report
-Bank Reconciliation Service $50.00 monthly maintenance fee per bank account
$1.50 per bank item
-Systems Programming Labor Charges:
System Support Representatives $100.00/hour
Programmers, Consultants or
Department Heads $125.00/hour
Officers $150.00/hour
-Additional Proxy Processing:
Each processing $225.00 fixed charge per processing
Preparation and Tabulation $0.145/proxy issued
(includes 3 tabulations, sixteen
propositions)
Each Extra Tabulation $23.00 fixed charge per processing
$0.02 per proxy tabulated
</TABLE>
16
<PAGE>
FUND ACCOUNTING FEE SCHEDULE
The prices contained herein are effective for twelve months from the
execution date of the Fund Accounting Agreement.
Conversion Fee: $500.00 per portfolio
Standard Fee - charged per portfolio/class of shares*
0.050% for the first $100 million in assets; 0.040% from $100 million
to $300 million in assets; 0.030% over $300 million in assets.
*Subject to a minimum of $15,000 per year.
Out of Pocket Fees: Fees charged for outside pricing services
and all accompanying administrative
expenditures.
Standard Services Provided
-Daily processing of Corporation transactions
-Ability to specify and execute partial sales on FIFO, LIFO, high cost,
low cost and specifically identified lots
-"As-of" reporting, as far back as transactions are maintained on
Unified's systems
-Monitoring and communication to management and
adviser(s) on cash activity
-General ledger processing
-Calculations of Net Asset Value
-Calculations of Money Market Daily Dividend Factor
-Reporting of NAV to NASDAQ and Corporation management
-Reporting of NAV to principal reporting services (Lipper, etc.)
-Daily portfolio valuation
-Estimation of income and capital gain distributions
-Provide information to complete semi-annual and annual financial
statements and Director's reports
-Coordination with auditors
-Coordination and communication with investment advisers
-Payables processing
-Full bond accrual, accretion, amortization, including
variable rates
-Daily accrual and amortization of income and expense
-Full accounting for all securities transactions
-Complete audit trail
-Automated securities and income records
-Fiscal year-end processing
-Load funds processing
Standard Reports Provided
-Daily cash reports
-Daily portfolio valuations
-Daily Pricing Sheets
-Weekly accruals transactions listing
-Standard monthly Closing Packages
-Monthly general ledger activity report as requested
-Reports to assist in the preparation of semi-annual and annual
financial statements
-Dividend estimations worksheet
-Pre-approved audit schedules
17
<PAGE>
-Broker commissions report for N-SAR filings
-Financial schedules for proxy statements and prospectuses
*Requests for Unified to provide standard reports with increased
frequency may be subject to additional service fees.
Optional Services Available - Initial (for desired services)
<TABLE>
<CAPTION>
<S> <C> <C>
-Each additional share class $6,000/class/year
- ---------------
-Additional portfolio sub-adviser fee $10,000/portfolio
- ---------------
-Multiple custodian fee $5,000/fund group
- ---------------
-GNMA securities fee $2,500/portfolio
- ---------------
-Monthly dividend estimation fee $2,500/portfolio
- ---------------
-Quarterly financial statement preparation fee $5,000/portfolio
- ---------------
-Creation of semi-annual and annual reports $3,000/fund group
- ---------------
-Statistical reporting fee (ICI, Lipper, Donoghue, etc.) $100/report
- ---------------
-Quarterly tax and compliance checklist $4,000/portfolio
- ---------------
-Accrual calculations $2,500/fund group
- ---------------
-SEC yield calculations $1,000/portfolio
- ---------------
-S.E.C. audit requirements pass through
- ---------------
-Processing of backup withholding $1,500/portfolio
- ---------------
</TABLE>
Special Report Generation Fees
AD-HOC Report Generation $75.00 per report
Reruns $75.00 per run
Extract Tapes $110.00 plus
Systems Programming Labor Charges
System Support Representatives $100.00/hour
Programmers, Consultants or
Department Heads $125.00/hour
Officers $150.00/hour
De-Conversion Fees
De-Conversion fees will be subject to additional charges commensurate
with particular circumstances and dependent upon scope of problems.
18
FORM OF
TANAKA FUNDS, INC.
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT (the "Agreement") dated as of December ____ 1998, between TANAKA
Funds, Inc. (the "Corporation"), a Maryland corporation, and AmeriPrime
Financial Services, Inc. (the "Administrator"), a Texas corporation.
WHEREAS, the Corporation has been organized to operate as an open-end
management investment company registered under the Investment Company Act of
1940 (the "Act"); and
WHEREAS, the Corporation wishes to avail itself of the information, advice,
assistance and facilities of the Administrator to perform on behalf of the
Corporation the services as hereinafter described; and
WHEREAS, the Administrator wishes to provide such services to the
Corporation under the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Corporation and the Administrator agree as
follows:
1. Appointment. The Corporation, being duly authorized, hereby employs the
Administrator to perform those services described in this Agreement. The
Administrator shall perform the obligations thereof upon the terms and
conditions hereinafter set forth. Any administrative services undertaken by the
Administrator pursuant to this Agreement, as well as any other activities
undertaken by the Administrator on behalf of the Corporation pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Corporation.
2. Representations and Warranties of AmeriPrime.
(a) no legal or administrative proceedings have been instituted or
threatened against AmeriPrime that would impair its ability to perform its
duties and obligations under this Agreement; and
(b) AmeriPrime's entrance into this Agreement will not cause a material
breach or be in material conflict with any other agreement or obligation of
AmeriPrime or any law or regulation applicable to AmeriPrime.
3. Corporation Administration. The Administrator shall give the Corporation
the benefit of its best judgment, efforts and facilities in rendering its
services as administrator. The Administrator shall at all times conform to: (i)
all applicable provisions of the Act and any rules and regulations adopted
thereunder, (ii) the provisions of the Registration Statement of the Corporation
under the Securities Act of 1933 and the Act as amended from time to time, (iii)
the provisions of the Articles of Incorporation and the By-Laws of the
Corporation, and (iv) any other applicable provisions of state and federal law.
Subject to the direction and control of the Corporation, the Administrator
shall supervise the Corporation's business affairs not otherwise supervised by
other agents of the Corporation. To the extent not otherwise the primary
responsibility of, or provided by, other parties under agreement with the
Corporation, the Administrator shall supply (i) non-investment related
statistical and research data, (ii) internal regulatory compliance services, and
(iii) executive and administrative services. The Administrator shall supervise
the preparation of (i) tax returns, (ii) reports to shareholders of the
Corporation, (iii) reports to and filings with the Securities and Exchange
Commission, state securities commissions and Blue Sky authorities including
preliminary and definitive proxy materials and post-effective amendments to the
Corporation's registration statement, and (iv) necessary materials for meetings
of the Corporation's Board of Directors. The Administrator shall provide
personnel to serve as officers of the Corporation if so elected by the Board of
Directors; provided, however, that the Corporation shall reimburse the
Administrator for the expenses incurred by such personnel in attending Board of
Directors' meetings and shareholders' meetings of the Corporation. Executive and
administrative services include, but are not limited to, the coordination of all
third parties furnishing services to the Corporation, review of the books and
records of the Corporation maintained by such third parties, and the review and
submission to the officers of the Corporation for their approval, of invoices or
other requests for payment of Corporation expenses; and such other action with
respect to the Corporation as may be necessary in the opinion of the
Administrator to perform its duties hereunder.
4. Record Keeping and Other Information. The Administrator shall create and
maintain all necessary records in accordance with all applicable laws, rules and
regulations, including but not limited to records required by Section 31(a) of
the Act and the rules thereunder, as the same may be amended from time to time,
pertaining to the various functions performed by it and not otherwise created
and maintained by another party pursuant to contract with the Corporation. Where
applicable, such records shall be maintained by the Administrator for the
periods and in the places required by Rule 31a-2 under the Act.
<PAGE>
5. Audit, Inspection and Visitation. The Administrator shall make available
to the Corporation during regular business hours all records and other data
created and maintained pursuant to the foregoing provisions of this Agreement
for reasonable audit and inspection by the Corporation or any regulatory agency
having authority over the Corporation.
6. Compensation. For the performance of the Administrator's obligations
under this Agreement, each series of the Corporation shall pay the
Administrator, on the first business day following the end of each month, a fee
as set out in the fee schedule attached hereto as Exhibit A. In addition, the
Corporation shall reimburse the Administrator for reasonable out-of-pocket
expenses incurred on behalf of the Corporation and for reasonable expenses
related to personnel of the Administrator attending Corporation meetings. The
Administrator shall not be required to reimburse the Corporation or the
Corporation's investment adviser for (or have deducted from its fees) any
expenses in excess of expense limitations imposed by certain state securities
commissions having jurisdiction over the Corporation.
7. Limitation of Liability. Administrator may rely on information
reasonably believed by it to be accurate and reliable. Except as may otherwise
be required by the Act or the rules thereunder, neither Administrator nor its
shareholders, officers, directors, employees, agents, control persons or
affiliates of any thereof (collectively, the "Administrator's Employees") shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Corporation in connection with, any error of judgment, mistake of law, any
act or omission in connection with or arising out of any services rendered under
or payments made pursuant to this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of the duties of
Administrator under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Administrator under this
Agreement. Any person, even though also a director, officer, employee,
shareholder or agent of the Administrator, who may be or become an officer,
director, employee or agent of the Corporation, shall be deemed, when rendering
services to the Corporation or acting on any business of the Corporation (other
than services or business in connection with the Administrator's duties
hereunder), to be rendering such services to or acting solely for the
Corporation and not as a director, officer, employee, shareholder or agent, or
one under the control or direction of the Administrator, even though paid by it.
8. Indemnification. (a) Subject to and except as otherwise provided in the
Securities Act of 1933, as amended (the "1933 Act"), and the Act, the
Corporation shall indemnify Administrator and each of Administrator's Employees
(hereinafter collectively referred to as a "Covered Person") against all
liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while serving as the administrator for the Corporation or as one of
Administrator's Employees, or, thereafter, by reason of being or having been the
administrator for the Corporation or one of Administrator's Employees,
including, but not limited to, liabilities arising due to any misrepresentation
or misstatement in any of the Corporation's prospectuses, other regulatory
filings, and amendments thereto, or in other documents originating from the
Corporation; provided, however, that this indemnity agreement shall not apply to
any liabilities arising due to any misrepresentation or misstatements in any of
the Corporation's prospectuses, other regulatory filings or amendments thereto
made in reliance upon information furnished to the Corporation by the
Administrator. In no case shall a Covered Person be indemnified against any
liability to which such Covered Person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties of such Covered Person.
(b) Subject to and except as otherwise provided in the Act and the 1933
Act, the Administrator shall indemnify the Corporation and its shareholders,
officers, directors, employees, agents, control persons or affiliates of any
thereof (hereafter collectively referred to as a "Covered Person of the
Corporation") against all liabilities, including, but not limited to, amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person of the Corporation in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person of the
Corporation may be or may have been involved as a party or otherwise or with
which such person may be or may have been threatened, including, but not limited
to, liabilities arising due to any misrepresentation or misstatement in any of
the Corporation's prospectuses, other regulatory filings, and amendments
thereto, or in other documents originating from the Corporation made in reliance
upon information furnished
2
<PAGE>
by the Administrator to the Corporation. In no case shall a Covered Person of
the Corporation be indemnified against any liability to which such Covered
Person of the Corporation would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties of
such Covered Person of the Corporation.
9. Services for Others. Nothing in this Agreement shall prevent the
Administrator or any affiliated person of the Administrator from providing
services for any other person, firm or corporation, including other investment
companies; provided, however, that the Administrator expressly represents that
it will undertake no activities which, in its judgment, will adversely affect
the performance of its obligations to the Corporation under this Agreement.
10. Compliance with the Act. The parties hereto acknowledge and agree that
nothing contained herein shall be construed to require the Administrator to
perform any services for any series of the Corporation which services could
cause the Administrator to be deemed an "investment adviser" within the meaning
of Section 2(a)(20) of the Act or to supersede or contravene the Prospectus or
Statement of Additional Information of any series of the Corporation or any
provisions of the Act and the rules thereunder.
11. Effectiveness, Duration, Termination and Assignment. (a) This Agreement
shall be effective on the date first above written, shall continue in effect for
two years from that date and shall continue from year to year thereafter, but
only so long as such continuance is approved by a vote of a majority of the
directors of the Corporation who are not parties to this Agreement or interested
persons (as defined in the Act) of any such party, and by a vote of a majority
of the Corporation's Board of Directors or a majority of the Corporation's
outstanding voting securities.
(b) This Agreement may be terminated at any time, without the payment of
any penalty (i) by the Board on 60 days' written notice to the Administrator or
(ii) by the Administrator on 60 days' written notice to the Corporation.
(c) This Agreement and the rights and duties under this Agreement otherwise
shall not be assignable by either the Administrator or the Corporation except by
the specific written consent of the other party. All terms and provisions of
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.
12. Limitation of Director and Shareholder Liability. It is expressly
agreed that the obligations of the Corporation hereunder shall not be binding
upon any of the directors, shareholders, nominees, officers, agent or employees
of the Corporation, personally, but bind only the property of the Corporation.
The execution and delivery of this Agreement have been authorized by the Board
of Directors of the Corporation and signed by an officer of the Corporation,
acting as such, and neither such authorization by the Board of Directors nor
such execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
but shall bind only the property of the Corporation.
13. Miscellaneous. (a) Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
(b) This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Texas.
(c) The captions and headings in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(d) Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number of
counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
3
<PAGE>
(g) If any part, term or provision of this Agreement is held to be illegal,
in conflict with any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(i) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each series of the Corporation are
separate and distinct from the assets and liabilities of each other series and
that no series shall be liable or shall be charged for any debt, obligation or
liability of any other series, whether arising under this Agreement or
otherwise.
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
TANAKA Funds Inc.
By:
-------------------------------
Its: President
AmeriPrime Financial Services, Inc.
By:
-------------------------------
Its: President
4
<PAGE>
EXHIBIT A
----------
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
Monthly Fee Schedule*
Average Value of Daily Net Assets Annual Rate
--------------------------------- -----------
Under Fifty Million Dollars 0.10%
Fifty to One Hundred Million Dollars 0.075%
Over One Hundred Million Dollars 0.050%
* Subject to a minimum fee of $2,500 per month for each series.
5
December 14, 1998
TANAKA Funds, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
Ladies and Gentlemen:
We have acted as counsel to TANAKA Funds, Inc., a Maryland corporation
consisting of a single series, TANAKA Growth Fund (the "Fund"), in connection
with the preparation and filing of its Pre-Effective Amendment No. 2 to its
Registration Statement on Form N-1A ("PEA No. 2") covering the Class A, Class B
and Class R shares of common stock, $.01 par value per share, of the Fund.
We have examined copies of the Amended and Restated Articles of
Incorporation and By-Laws of the Fund, PEA No. 2 and such other records,
proceedings and documents as we have deemed necessary for the purpose of this
opinion. We have also examined such other documents, papers, statutes and
authorities as we deemed necessary to form a basis for the opinion hereinafter
expressed. In our examination of such material, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
submitted to us.
Based upon the foregoing, we are of the opinion that the Class A, Class
B and Class R shares of common stock, $.01 par value per share, of the Fund to
be issued in accordance with the terms of the offering, as set forth in PEA No.
2, when so issued and paid for will constitute validly authorized and legally
issued shares of common stock, fully paid and non-assessable by the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm as set forth under the
caption "Counsel" in the above-referenced Registration Statement. In giving such
consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
Very truly yours,
/s/ Dechert Price & Rhoads
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Pre-effective Amendment No. 2 to the Registration Statement for the TANAKA
Funds, Inc. of our audit report of the statement of assets and liabilities of
the Fund and all references to our firm included in or made a part of this
Pre-effective Amendment.
\s\ McCurdy & Associates
McCurdy & Associates CPA's, Inc.
December 10, 1998
December 14, 1998
TANAKA Funds, Inc.
230 Park Avenue, Suite 960
New York, New York 10169
Dear Sir/Madam:
I, Graham Y. Tanaka, hereby accept the offer to purchase 10,000 Class R
shares of TANAKA Growth Fund, the Corporation's sole series (the "Fund"), at a
price of $10.00 per share for an aggregate purchase price of $100,000. This
agreement is subject to the understanding that I have no present intention of
selling or redeeming the shares so acquired.
I further understand that any redemption of these shares by me will be
reduced by a pro rata portion of any then unamortized organization expenses of
the Fund. This proration will be calculated by dividing the number of shares to
be redeemed by the aggregate number of shares held which represent the initial
capital of the Fund.
Sincerely,
\s\ Graham Y. Tanaka
Graham Y. Tanaka, CFA
Accepted:
TANAKA Funds, Inc.
By: /s/ Victoria McCann
-------------------------------
Victoria McCann, Vice President
FORM OF SERVICE PLAN
(Class A Shares Only)
WHEREAS, TANAKA Funds, Inc. (the "Company") is registered as an
open-end management investment company under the Investment Company Act of 1940
(the "Act") and consists of one or more separate investment portfolios (the
"Funds") as may be established and designated from time to time;
WHEREAS, the Board of Directors of the Company has determined to adopt
a Service Plan (the "Plan") in accordance with the requirements of the Act and
has determined that there is a reasonable likelihood that the Plan will benefit
the Company and its shareholders;
NOW THEREFORE, the Company hereby adopts the Plan to apply only to
Class A shares on the following terms and conditions:
1. The Plan will pertain to the Class A shares of TANAKA Growth Fund
and the Class A shares of such other Funds as shall be designated from time to
time by the Board of Directors in any supplement to the Plan.
2. The Funds may charge a service fee to reimburse brokers for account
maintenance and personal service to shareholders on an annualized basis of 0.25%
of each Fund's average daily net assets attributable to the Class A shares (the
"Service Fee"); provided that, at any time such payment is made, whether or not
this Plan continues in effect, the making thereof will not cause the limitation
upon such payments established by this Plan to be exceeded. Such fee shall be
calculated and accrued daily and paid at such intervals as the Board of
Directors of the Company shall determine, subject to any applicable restriction
imposed by rules of the National Association of Securities Dealers, Inc. The
services for which Service Fees may be made include, among others, advising
clients or customers regarding the purchase, sale or retention of Class A shares
of a Fund, answering routine inquiries concerning a Fund, assisting shareholders
in changing options or enrolling in specific plans and providing shareholders
with information regarding the Fund and related developments. Costs and expenses
for the services rendered pursuant to this paragraph 2 not reimbursed in any one
given month may be reimbursed in a subsequent month. If this Plan is terminated
with respect to a Fund, the Fund will owe no payments other than any portion of
the Service Fee accrued through the effective date of termination but then
unpaid.
3. The Plan shall not take effect with respect to the Class A shares of
a Fund until it has been approved by a vote of at least a majority of the
outstanding Class A voting securities of a Fund (as defined in the Act) if the
Class A shares of the Fund have already been publicly offered. With respect to
the submission of the Plan for such a vote, it shall have been effectively
approved with respect to the Class A shares of a Fund if a majority of the
outstanding Class A voting securities of the Fund votes for approval of the
Plan, notwithstanding that the matter has not been approved by a majority of the
outstanding voting securities of the Company or of any other Fund or class.
1
<PAGE>
4. The Plan shall not take effect until it has been approved, together
with any related agreements and supplements, by the vote of a majority of both
(a) the Board of Directors of the Company, and (b) those Directors of the
Company who are not "interested persons" (as defined in the Act) and have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Plan Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on the Plan and such related
agreements.
5. The Plan shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in paragraph 4.
6. Any person authorized to direct the disposition of monies paid or
payable by the Company pursuant to the Plan or any related agreements shall
provide to the Company's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
7. Any agreement related to the Plan shall be in writing and shall
provide: (a) that such agreement may be terminated at any time as to a Fund,
without payment of any penalty, by vote of a majority of the Plan Directors or
by vote of a majority of the outstanding Class A voting securities of the Fund
(as defined in the Act), on not more than sixty (60) days' written notice to any
other party to the agreement; and (b) that such agreement shall terminate
automatically in the event of its assignment.
8. The Plan may be terminated at any time with respect to a Fund,
without payment of any penalty, by vote of a majority of the Plan Directors, or
by vote of a majority of the outstanding Class A voting securities of the Fund
(as defined in the Act).
9. The Plan may be amended at any time with respect to a Fund by the
Company's Board of Directors, provided that (a) any amendment to increase
materially the costs which a Fund may bear for distribution (including the
Service Fee) pursuant to the Plan shall be effective only upon approval by a
vote of a majority of the outstanding Class A voting securities of the Fund (as
defined in the Act), and (b) any material amendments of the terms of the Plan
shall become effective only upon approval as provided in paragraph 4 hereof.
10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not interested
persons.
11. The Company shall preserve copies of the Plan, any related
agreement and any report made pursuant to paragraph 6 hereof, for a period of
not less than six (6) years from the date of the Plan, such agreement or report,
as the case may be, the first two (2) years of which shall be in an easily
accessible place.
2
<PAGE>
12. It is understood and expressly stipulated that neither the holders
of shares of the Company nor any Director, officer, agent or employees of the
Company shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Company only shall be liable.
IN WITNESS WHEREOF, the Company has adopted this Service Plan effective
as of the ____ day of _______________, 1998.
TANAKA FUNDS, INC.
By:
-----------------------
Name:
Title:
3
FORM OF
DISTRIBUTION AND SERVICE PLAN
(Class B Shares Only)
WHEREAS, TANAKA Funds, Inc. (the "Company") is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"Act") and consists of one or more separate investment portfolios (the "Funds")
as may be established and designated from time to time;
WHEREAS, the Board of Directors of the Company has determined to adopt a
Distribution and Service Plan (the "Plan") in accordance with the requirements
of the Act and has determined that there is a reasonable likelihood that the
Plan will benefit the Company and its shareholders;
NOW, THEREFORE, the Company hereby adopts the Plan to apply only to Class B
shares on the following terms and conditions:
1. The Plan will pertain to the Class B shares of TANAKA Growth Fund and
the Class B shares of such other Funds as shall be designated from time to time
by the Board of Directors in any supplement to the Plan.
2. The Funds may charge a fee for distribution of the Class B shares of
each Fund and for services to Class B shareholders of each Fund at the annual
rate of 1.00% of each Fund's average daily net assets attributable to the Class
B shares. Such fee shall be calculated and accrued daily and paid at such
intervals as the Board of Directors of the Company shall determine, subject to
any applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc. Costs and expenses for the services rendered pursuant
to paragraphs 3 and 4 of this Plan not reimbursed in any one given month may be
reimbursed in a subsequent month. If this Plan is terminated with respect to a
Fund, the Fund will owe no payments other than any portion of the distribution
fee accrued through the effective date of termination but then unpaid.
3. The amount set forth in paragraph 2 of this Plan may be paid to a
distributor of the Class B shares of a Fund in connection with any activities or
expenses primarily intended to result in the sale of the Class B shares of a
Fund, including, but not limited to, compensation to broker-dealers that have
entered into a Dealer Agreement with the distributor, compensation to and
expenses of employees of the distributor who engage in or support distribution
of a Fund's Class B shares; telephone expenses; interest expense; printing of
prospectuses and reports for other than existing shareholders; preparation,
printing and distribution of sales literature and advertising materials; and
profit on the foregoing; provided, however, that a portion equal to 0.25% of
each Fund's average daily net assets attributable to Class B shall be paid to it
for account maintenance and personal service to shareholders (the "Service
Fee").
4. The services for which the Service Fee may be made include, among
others, advising clients or customers regarding the purchase, sale or retention
of Class B shares of a
1
<PAGE>
Fund, answering routine inquiries concerning a Fund, assisting shareholders in
changing options or enrolling in specific plans and providing shareholders with
information regarding the Fund and related developments.
5. The Plan shall not take effect with respect to the Class B shares of a
Fund until it has been approved by a vote of at least a majority of the
outstanding Class B voting securities of a Fund (as defined in the Act) if the
Class B shares of the Fund have already been publicly offered. With respect to
the submission of the Plan for such a vote, it shall have been effectively
approved with respect to the Class B shares of a Fund if a majority of the
outstanding Class B voting securities of the Fund votes for approval of the
Plan, notwithstanding that the matter has not been approved by a majority of the
outstanding voting securities of the Company or of any other Fund or class.
6. The Plan shall not take effect until it has been approved, together with
any related agreements and supplements, by the vote of a majority of both (a)
the Board of Directors of the Company, and (b) those Directors of the Company
who are not "interested persons" (as defined in the Act) and have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it (the "Plan Directors"), cast in person at a meeting (or meetings)
called for the purpose of voting on the Plan and such related agreements.
7. The Plan shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in paragraph 6.
8. Any person authorized to direct the disposition of monies paid or
payable by the Company pursuant to the Plan or any related agreements shall
provide to the Company's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
9. Any agreement related to the Plan shall be in writing and shall provide:
(a) that such agreement may be terminated at any time as to a Fund, without
payment of any penalty, by vote of a majority of the Plan Directors or by vote
of a majority of the outstanding Class B voting securities of the Fund (as
defined in the Act), on not more than sixty (60) days' written notice to any
other party to the agreement; and (b) that such agreement shall terminate
automatically in the event of its assignment.
10. The Plan may be terminated at any time with respect to a Fund, without
payment of any penalty, by vote of a majority of the Plan Directors, or by vote
of a majority of the outstanding Class B voting securities of the Fund. If the
Plan is terminated with respect to a Fund, that Fund will not be obligated to
reimburse a distributor for any unreimbursed trail fee payments.
11. The Plan may be amended at any time with respect to a Fund by the
Company's Board of Directors, provided that (a) any amendment to increase
materially the costs which a Fund may bear for distribution (including the
Service Fee) pursuant to the Plan shall be effective
2
<PAGE>
only upon approval by a vote of a majority of the outstanding Class B voting
securities of the Fund (as defined in the Act), and (b) any material amendments
of the terms of the Plan shall become effective only upon approval as provided
in paragraph 6 hereof.
12. While the Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the Act) of the Company shall be
committed to the discretion of the Directors who are not interested persons.
13. The Company shall preserve copies of the Plan, any related agreement
and any report made pursuant to paragraph 8 hereof, for a period of not less
than six (6) years from the date of the Plan, such agreement or report, as the
case may be, the first two (2) years of which shall be in an easily accessible
place.
14. It is understood and expressly stipulated that neither the holders of
shares of the Company nor any Director, officer, agent or employees of the
Company shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Company only shall be liable.
IN WITNESS WHEREOF, the Company has adopted this Distribution and Service
Plan effective as of the ____ day of ____________, 1998.
TANAKA FUNDS, INC.
By:
----------------------
Name:
Title:
3
FORM OF
DISTRIBUTION AND SERVICE PLAN
(Class R Shares Only)
WHEREAS, TANAKA Funds, Inc. (the "Company") is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"Act") and consists of one or more separate investment portfolios (the "Funds")
as may be established and designated from time to time;
WHEREAS, the Board of Directors of the Company has determined to adopt a
Distribution and Service Plan (the "Plan") in accordance with the requirements
of the Act and has determined that there is a reasonable likelihood that the
Plan will benefit the Company and its shareholders;
WHEREAS, the Company desires to both act as a distributor of the Class R
shares of the Funds and to enter into agreements with dealers and other
financial service organizations to obtain various distribution-related and/or
shareholder services for the Funds, all as permitted and contemplated by Rule
12b-1 adopted under the Act, it being understood that to the extent any activity
is one which the Funds may finance without a Rule 12b-1 plan, the Funds may also
make payments to finance such activity outside such a plan and not subject to
its limitation;
NOW THEREFORE, the Company hereby adopts the Plan to apply only to Class R
shares on the following terms and conditions:
1. The Plan will pertain to the Class R shares of TANAKA Growth Fund and
the Class R shares of such other Funds as shall be designated from time to time
by the Board of Directors in any supplement to the Plan.
2. The Funds may charge a fee for distribution and shareholder services on
an annualized basis of 0.25% of each Fund's average daily net assets
attributable to the Class R shares; provided that, at any time such payment is
made, whether or not this Plan continues in effect, the making thereof will not
cause the limitation upon such payments established by this Plan to be exceeded.
Such fee shall be calculated and accrued daily and paid at such intervals as the
Board of Directors of the Company shall determine, subject to any applicable
restriction imposed by rules of the National Association of Securities Dealers,
Inc.
3. The amount set forth in paragraph 1 of this Plan shall be paid for
services in connection with any activities or expenses primarily intended to
result in the sale of Class R shares of a Fund, including, but not limited to,
compensation for sales and sales marketing activities, including incentive
compensation, to securities dealers and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Fund. These services
include, among other things, servicing shareholder accounts by processing new
shareholder account applications, preparing and transmitting to a Fund's
Transfer Agent computer processable tapes of all transactions by
<PAGE>
customers and serving as the primary source of information to customers in
answering questions concerning the Fund and their transactions with the Fund for
which a continuing fee may accrue immediately after the sale of shares. Each
Fund itself as well as Service Organizations are authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of the Fund. In addition, this Plan hereby
authorizes payment by each Fund of the cost of preparing, printing and
distributing Fund Prospectuses and Statements of Additional Information to
prospective investors and of implementing and operating the Plan as well as
payment of capital or other expenses of associated equipment, rent, salaries,
bonuses, interest and other overhead costs. Payments under the Plan are not tied
exclusively to actual distribution and service expenses, and the payments may
exceed distribution and service expenses actually incurred.
4. The Plan shall not take effect with respect to the Class R shares of a
Fund until it has been approved by a vote of at least a majority of the
outstanding Class R voting securities of a Fund (as defined in the Act) if the
Class R shares of the Fund have already been publicly offered. With respect to
the submission of the Plan for such a vote, it shall have been effectively
approved with respect to the Class R shares of a Fund if a majority of the
outstanding Class R voting securities of the Fund votes for approval of the
Plan, notwithstanding that the matter has not been approved by a majority of the
outstanding voting securities of the Company or of any other Fund or class.
5. The Plan shall not take effect until it has been approved, together with
any related agreements and supplements, by the vote of a majority of both (a)
the Board of Directors of the Company, and (b) those Directors of the Company
who are not "interested persons" (as defined in the Act) and have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it (the "Plan Directors"), cast in person at a meeting (or meetings)
called for the purpose of voting on the Plan and such related agreements.
6. The Plan shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in paragraph 5.
7. Any person authorized to direct the disposition of monies paid or
payable by the Company pursuant to the Plan or any related agreements shall
provide to the Company's Board of Directors, and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
8. Any agreement related to the Plan shall be in writing and shall provide:
(a) that such agreement may be terminated at any time as to a Fund, without
payment of any penalty, by vote of a majority of the Plan Directors or by vote
of a majority of the outstanding Class R voting securities of the Fund (as
defined in the Act), on not more than sixty (60) days' written notice to any
other party to the agreement; and (b) that such agreement shall terminate
automatically in the event of its assignment.
2
<PAGE>
9. The Plan may be terminated at any time with respect to a Fund, without
payment of any penalty, by vote of a majority of the Plan Directors, or by vote
of a majority of the outstanding Class R voting securities of the Fund (as
defined in the Act).
10. The Plan may be amended at any time with respect to a Fund by the
Company's Board of Directors, provided that (a) any amendment to increase
materially the costs which a Fund may bear for distribution pursuant to the Plan
shall be effective only upon approval by a vote of a majority of the outstanding
Class R voting securities of the Fund (as defined in the Act), and (b) any
material amendments of the terms of the Plan shall become effective only upon
approval as provided in paragraph 5 hereof.
11. While the Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the Act) of the Company shall be
committed to the discretion of the Directors who are not interested persons.
12. The Company shall preserve copies of the Plan, any related agreement
and any report made pursuant to paragraph 7 hereof, for a period of not less
than six (6) years from the date of the Plan, such agreement or report, as the
case may be, the first two (2) years of which shall be in an easily accessible
place.
13. It is understood and expressly stipulated that neither the holders of
shares of the Company nor any Director, officer, agent or employees of the
Company shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Company only shall be liable.
IN WITNESS WHEREOF, the Company has adopted this Distribution and Service
Plan effective as of the _____ day of __________, 1998.
TANAKA FUNDS, INC.
By:
---------------------
Name:
Title:
3
FORM OF
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
FOR
TANAKA FUNDS, INC.
WHEREAS, TANAKA Funds, Inc. (the "Company") engages in business as an
open-end, management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Company has one series designated TANAKA Growth Fund (the
"Fund");
WHEREAS, the Company desires to adopt a Multiple Class Plan pursuant to
Rule 18f-3 under the Act (the "Plan") with respect to the Fund; and
NOW, THEREFORE, the Company, on behalf of the Fund, hereby adopts the
Plan, in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. Features of the Classes. The Fund issues its shares of common stock
in three classes: "Class A Shares," "Class B Shares," and "Class R Shares."
Shares of each class of the Fund shall represent an equal pro rata interest in
the Fund and, generally, shall have identical voting, dividend, distribution,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications, and terms and conditions, except that: (a) each class shall have
a different designation; (b) each class of shares shall bear any Class Expenses,
as defined in Section 5 below; and (c) each class shall have exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution arrangement and each class shall have separate voting rights on any
matter submitted to shareholders in which the interests of one class differ from
the interests of any other class. In addition, Class A, Class B and Class R
shares of the Fund shall have the features described in Sections 2, 3 and 4
below.
2. Service Fee. The Company has adopted a Service Plan with respect to
the Class A and Class B shares of the Fund, which provides that the Fund may pay
a service fee at an annual rate up to 0.25% of the average daily net asset value
of the Class A and Class B shares. The Class R shares are not subject to a
service fee.
The services for which service fees may be paid include, among other
things, advising clients or customers regarding the purchase, sale or retention
of shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
3. Distribution Fee. The Fund has adopted Distribution and Service
Plans with respect to the Class B and Class R shares of the Fund pursuant to
Rule 12b-1 promulgated under the Securities Exchange Act of 1934. The Class R
Distribution and Service Plan authorizes payments by the Fund in connection with
the distribution of its Class R shares at an annual rate of up to 0.25% of the
average net asset value of the Class R shares. The Class B Distribution and
Service Plan authorizes payments by the Fund in connection with the distribution
of its Class B shares at an annual rate of up to 0.75% of the average net asset
value of the Class B shares.
<PAGE>
Payments may be made by the Fund under the Plans for the purpose of
financing any activity primarily intended to result in the sales of shares of
the Fund as determined by the Board of Directors. Such activities typically
include advertising; compensation for sales and sales marketing activities of
financial service agents and others, such as dealers or distributors;
shareholder account servicing; production and dissemination of prospectuses and
sales and marketing materials; and capital or other expenses of associated
equipment, rent, salaries, bonuses, interest and other overhead.
4. Allocation of Income and Expenses. (a) The gross income of the Fund
shall, generally, be allocated to each class on the basis of net assets. To the
extent practicable, certain expenses (other than Class Expenses as defined below
which shall be allocated more specifically) shall be subtracted from the gross
income on the basis of the net assets of each class of the Fund.
These expenses include:
(1) Expenses incurred by the Fund (for example, fees of
Directors, auditors and legal counsel) not attributable to a particular
class of shares of the Fund ("Fund Level Expenses"); and
(2) Expenses incurred by the Fund not attributable to any
particular class of the Fund's shares (for example, advisory fees,
custodial fees, or other expenses relating to the management of the
Fund's assets) ("Fund Expenses").
(b) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a distribution plan and/or a
service plan; (ii) transfer agent fees attributable to a specific class; (iii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a specific class; (iv) Blue Sky registration fees incurred by a class; (v) SEC
registration fees incurred by a class; (vi) the expense of administrative
personnel and services to support the shareholders of a specific class; (vii)
litigation or other legal expenses relating solely to one class; and (viii)
directors' fees incurred as a result of issues relating to one class. Expenses
in category (i) above must be allocated to the class for which such expenses are
incurred. All other "Class Expenses" listed in categories (ii)-(viii) above may
be allocated to a class but only if the President and Chief Financial Officer
have determined, subject to Board approval or ratification, which of such
categories of expenses will be treated as Class Expenses consistent with
applicable legal principles under the Act and the Internal Revenue Code of 1986,
as amended.
Therefore, expenses of the Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Fund Level Expenses and Fund
Expenses will be allocated among the classes of shares based on their relative
net asset values. Approved Class Expenses shall be allocated to the particular
class to which they are attributable. In addition, certain expenses may be
allocated differently if their method of imposition changes. Thus, if a Class
Expense can no longer be attributed to a class, it shall be charged to the Fund
for allocation among classes, as determined by the Board of Directors. Any
additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of the
Company in light of the requirements of the Act and the Internal Revenue Code of
1986, as amended.
2
<PAGE>
5. Conversion Features. There shall be no conversion features
associated with the Class A or Class R shares of the Fund. The Class B shares of
the Fund convert automatically into Class A shares at the end of the month which
precedes the eighth anniversary of the purchase date.
6. Quarterly and Annual Reports. The Directors shall receive quarterly
and annual statements concerning all allocated Class Expenses and distribution
and servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as
it may be amended from time to time. In the statements, only expenditures
properly attributable to the sale or servicing of a particular class of shares
will be used to justify any distribution or servicing fee or other expenses
charged to that class. Expenditures not related to the sale or servicing of a
particular class shall not be presented to the Directors to justify any fee
attributable to that class. The statements, including the allocations upon which
they are based, shall be subject to the review and approval of the independent
Directors in the exercise of their fiduciary duties.
7. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser to the Fund or any other provider of services to the
Fund without the prior approval of the Fund's Board of Directors.
8. Effectiveness of Plan. The Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of the Fund and
(b) those Directors of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of this Plan, cast in person at a meeting (or meetings) called for the
purpose of voting on this Plan.
9. Material Modifications. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in Paragraph 8 hereof.
10. Limitation of Liability. The Directors and the shareholders of the
Fund shall not be liable for any obligations of the Fund under this Plan, and
Underwriter or any other person, in asserting any rights or claims under this
Plan, shall look only to the assets and property of the Fund in settlement of
such right or claim, and not to such Directors or shareholders.
IN WITNESS WHEREOF, the Company, on behalf of the Fund, has adopted
this Multiple Class Plan as of the ____ day of ________, 1998, to be effective
_____________, 1998.
TANAKA FUNDS, INC.
By:
-----------------------
Name:
Title:
3
