Filed pursuant to Rule 497(c)
for File No. 333-47207
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 15, 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 15, 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.
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TABLE OF CONTENTS
Prospectus Summary............................................................2
Fund Expenses.................................................................3
Investment Objective..........................................................4
Investment Policies...........................................................4
Fundamental Investment Restrictions...........................................6
Investment Techniques.........................................................7
The Fund's Management.........................................................8
Distribution and Service Plan.................................................11
Purchases and Redemptions of Shares...........................................12
Purchase and Redemption Procedures............................................13
Special Shareholder Services..................................................16
Fund Performance..............................................................17
How Net Asset Value is Determined.............................................18
Income and Capital Gain Distributions.........................................19
Taxes.........................................................................19
Organization and Description of Common Stock..................................20
To Obtain More Information....................................................21
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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 4.
Investment Adviser: Tanaka Capital Management, Inc. (the "Investment
Adviser") is the investment adviser of the Fund. See "The Fund's Management" on
page 8.
Distributions: Distributions are declared and paid annually from
available capital gains and income. See "Income and Capital Gain Distributions"
on page 19.
Reinvestment: Unless you elect otherwise, distributions are reinvested
automatically without a sales charge. See "Income and Capital Gain
Distributions" on page 19.
Initial Purchase: $1,000 minimum. See "Purchases and Redemptions of
Shares" on page 12.
Subsequent Purchases: $500 minimum. See "Purchases and Redemptions of
Shares" on page 12.
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 18.
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 4 through 7.
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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
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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
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
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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
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,
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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 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
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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, 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.
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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
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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, 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 14, 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
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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 14,
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 Unified, dated
December 14, 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.
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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 14, 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.
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
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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.
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
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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.
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.
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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 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.
SPECIAL SHAREHOLDER SERVICES
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
16
<PAGE>
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, 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
17
<PAGE>
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.
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.
18
<PAGE>
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.
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.
19
<PAGE>
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.
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<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).
<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 15, 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 December 15, 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........................1
Investment Restrictions................................................3
Taxes..................................................................5
Dividends and Distributions............................................9
Portfolio Transactions and Brokerage...................................9
Portfolio Turnover....................................................10
Net Asset Value.......................................................10
Contingent Deferred Sales Charge......................................12
Directors and Officers................................................13
Investment Adviser....................................................15
Transfer Agent........................................................16
Administrator.........................................................16
Distribution..........................................................16
Expenses of the Fund..................................................17
Special Shareholder Services..........................................18
General Information and History.......................................19
Performance...........................................................20
<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.
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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
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specified number of shares of the 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.
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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;
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(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.
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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
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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. gainSimilarly, 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
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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.
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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
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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, unless there are indications of substantially
different valuations. Lacking any sales, the security will be valued at the last
bid price prior to the close of regular trading on the Exchange. 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.
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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 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
11
<PAGE>
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.
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
12
<PAGE>
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 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
13
<PAGE>
companies. He is a 1961 graduate of Yale University (BSME) and a 1963 graduate
of Harvard University (MBA).
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
14
<PAGE>
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.
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.
Compensation Table
Fiscal Year Ended November 30, 1998
<TABLE>
<CAPTION>
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* $0 $0
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 14, 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.
15
<PAGE>
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
14, 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 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 14,
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
17
<PAGE>
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 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.
17
<PAGE>
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.
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
18
<PAGE>
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 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.
19
<PAGE>
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 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:
20
<PAGE>
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.
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.
21
<PAGE>
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 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
<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.
<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
------
<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
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
