As filed with the Securities and Exchange Commission on November 13, 1998
File No. 333-47207
811-8683
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [ X ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [ X ]
TANAKA FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
Two Portland Square, Portland, ME 04101
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 490-3380
Graham Y. Tanaka
Tanaka Funds, Inc.
Two Portland Square, Portland, ME 04101
(Name and address of agent for service of process)
Copies to: Margaret A. Bancroft, Esq. D. Blaine Riggle, Esq.
Dechert Price & Rhoads Forum Financial Services, Inc.
30 Rockefeller Plaza Two Portland Square
New York, NY 10112 Portland, ME 04101
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
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on ______________, 1998 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on (date) pursuant to paragraph (a) of Rule 485
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75 days after filing pursuant to paragraph (a)(2) of Rule 485
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on (date) pursuant to paragraph (a)(2) of Rule 485.
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Title of Securities Being Registered:
Tanaka Growth Fund - Common Stock divided into three classes designated Class A
common stock, Class B common stock and Class R common stock.
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TANAKA FUNDS, INC.
CROSS REFERENCE SHEET
(as required by 495(a))
N-1A Item Caption in Prospectus
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PART A: INFORMATION REQUIRED IN A PROSPECTUS
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Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary; Fund Expenses
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of Registrant Prospectus Summary; Cover Page; Investment Objective; Investment
Policies; Fundamental Investment Restrictions; Investment
Techniques
Item 5 Management of the Fund Prospectus Summary; The Fund's Management; To Obtain More
Information
Item 5A. Management's Discussion of Fund Not Included
Performance
Item 6. Capital Stock and Other Prospectus Summary; Choosing a Class of Shares; Taxes; Income
Securities and Capital Gain Distributions; Organization and Description of
Common Stock; To Obtain More Information
Item 7. Purchase of Securities Being Prospectus Summary; How to Invest; How Net Asset Value is
Offered Determined; Special Shareholder Services; Purchases and
Redemptions of Shares; Purchase and Redemption Procedures
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares; Purchase and Redemption
Procedures; Special Shareholder Services
Item 9. Pending Legal Proceedings Not Applicable
PART B: INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information and History
Item 13. Investment Objectives and Policies Additional Information on Investment Techniques; Investment
Restrictions
Item 14. Management of the Fund Directors and Officers
Item 15. Control Persons and Principal Directors and Officers
Holders of Securities
Item 16. Investment Advisory and Other Investment Adviser; Transfer Agent; Administrator; Distribution
Services
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Item 17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Practices
Item 18. Capital Stock and Other Securities General Information and History; Dividends and Distributions
Item 19. Purchase, Redemption and Pricing Special Shareholder Services; Net Asset Value
of Securities Being Offered
Item 20. Tax Status Taxes
Item 21. Underwriters Distribution
Item 22. Calculation of Performance Data Performance
Item 23. Financial Statements Financial Statements
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TANAKA Growth Fund
A "series" of TANAKA Funds, Inc.
Two Portland Square
Portland, Maine 04101
888-9-TANAKA (Toll Free)
PROSPECTUS
December ___, 1998
This Prospectus offers no-load shares of the TANAKA Growth Fund (the
"Fund"), a 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 dated December ___, 1998, as may be amended
from time to time, containing additional and more detailed information about the
Fund, has been filed with the Securities and Exchange Commission (the "SEC") and
is hereby incorporated by reference into this Prospectus. It is available
without charge and can be obtained by writing or calling the Fund at the address
and telephone number printed above.
The Fund may also offer Class A and Class B shares. Shares of these
classes are subject to sales charges and other expenses, which may affect their
performance. A prospectus for these classes of shares can be obtained by writing
or calling the Fund at the address and 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........................................................1
Fund Expenses.............................................................2
Investment Objective......................................................3
Investment Policies.......................................................3
Fundamental Investment Restrictions.......................................5
Investment Techniques.....................................................6
The Fund's Management.....................................................7
Service and Distribution Plan.............................................10
How to Invest.............................................................11
Purchases and Redemptions of Shares.......................................11
Purchase and Redemption Procedures........................................12
Special Shareholder Services..............................................16
Fund Performance..........................................................16
How Net Asset Value is Determined.........................................17
Income and Capital Gain Distributions.....................................17
Taxes.....................................................................18
Organization and Description of Capital Stock.............................18
To Obtain More Information................................................19
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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 lest 75% of its net assets in domestic securities, but may also invest
up to 25% of its net assets in foreign securities, including multinational and
emerging market securities. See "Investment Policies" on page 3.
Investment Adviser: Tanaka Fund Advisers, LLC (the "Investment
Adviser") is the investment adviser of the Fund. See "The Fund's Management" on
page 7.
Distributions: Paid annually from available capital gains and income.
See "Income and Capital Gain Distributions" on page 17.
Reinvestment: Shareholders may elect to have distributions reinvested
automatically without a sales charge. See "Income and Capital Gain
Distributions" on page 17.
Initial Purchase: $2,000 minimum.
Subsequent Purchases: $500 minimum. See "How to Invest" on page 11.
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
888-9-TANAKA. See "How Net Asset Value is Determined" on page 17.
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, and certain
investment techniques of the Fund, such as investments in repurchase agreements,
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" below.
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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%
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Total Fund Operating Expenses** 1.75%
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* 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
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$18 $55
These examples should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or lesser than
those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses associated with the Fund's Class R shares that they
will bear directly or indirectly. The assumption in the Example of a 5% annual
return is required by regulations of the SEC applicable to all mutual funds. The
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of the Fund's shares. "Other Expenses" are based
on estimated amounts for the Fund's current fiscal year.
The Investment Adviser has voluntarily agreed to limit the total
expenses of the Fund (excluding interest, taxes, brokerage, and extraordinary
expenses) to an annual rate of 1.75% of the average net assets of the Fund
attributable to the Class R shares until November 30, 1999. As long as this
temporary expense limitation continues, it may lower the expenses and increase
the total return attributable to the Class R shares. After November 30, 1999,
the expense limitation on the Class R shares may be terminated or revised at any
time, at which time the expenses of such class may increase and its total return
may be reduced depending on the total assets of the Fund attributable to such
class. Without the expense reimbursement, it is estimated that the total
operating expenses for the current fiscal year for the Class R
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shares of the Fund would have amounted to 2.27% 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 balance 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 and
diversified 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 in domestic
securities, but may also invest up to 25% of its net assets in foreign
securities, including multinational and emerging market securities. Depending
upon the Investment Adviser's assessment of the prospects, a portion of the
Fund's assets may be invested temporarily 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 and
medium, as well as small market capitalizations. The Fund's investments in
equity securities will generally consist of issues which the Investment Adviser
believes have capital growth potential due to factors such as rapid growth in
demand in existing markets, expansion into new markets, new product
introductions, reduced competitive pressures, cost reduction programs, changes
in management, and other fundamental changes which may result in improved
earnings growth or increased asset values.
The Investment Adviser relies on research, management meetings and
industry contacts to identify companies with above-average long term earnings
growth potential that could exceed market expectations. The Investment Adviser
also identifies industries that are positioned to participate in strong
demographic, societal or economic trends and looks for companies within those
industries that have a particular competitive advantage or niche. Stocks and
other equity securities are subject to the risk that specific stocks, industry
groups, or the prices of equity securities in general, will decline in value
over short or even extended periods of time.
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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. 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 "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. 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. Currency fluctuations will affect the net asset
value of the Fund irrespective of the performance of the underlying investments
in foreign issuers. The Fund will not purchase securities which it believes, at
the time of purchase, will be subject to exchange controls or withholding taxes;
however, there can be no assurance that such laws may not become applicable to
certain of the Fund's investments. 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 Statement of Additional
Information, 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
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companies, as well as those of the Fund. Federal securities laws impose limits
on such investments with which the Fund will comply, and may affect the ability
of the Fund to acquire or dispose of such shares.
Warrants and Rights
The Fund may invest up to 5% of its net assets 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 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 Fund 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.
To maintain portfolio diversification and reduce investment risk, as a
matter of fundamental policy, the Fund may not:
(1) invest 25% or more of its net assets in issuers conducting their
principal business in the same industry;
(2) invest more than 15% of its net assets in illiquid securities;
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(3) purchase the securities of any issuer (other than securities
issued or guaranteed as to principal or interest by the Government
of the United States or any agency or instrumentality thereof
("U.S. Government securities"), or securities of other investment
companies) if, as a result of such purchase, more than 5% of its
total assets would be invested in the securities of such issuer,
unless 75% of the Fund's total assets are invested in cash or cash
equivalents, U.S. Government securities, securities of other
investment companies, and securities of issuers in which the Fund
has not invested more than 5% of its total assets; or
(4) purchase stock or securities of an issuer (other than U.S.
Government securities) if such purchase would cause the Fund to
own more than 10% of any class of voting securities of such
issuer.
With regard to items 3 and 4 above, investments in repurchase
agreements secured by U.S. Government securities may be treated as U.S.
Government securities for purposes of applicable securities laws.
A complete statement of the Fund's objective, policies and
restrictions, both fundamental and nonfundamental, is set forth in the Statement
of Additional Information. In order to provide a degree of flexibility, the
Fund's investment objective, as well as other policies which are not deemed
fundamental, may be modified by the Board of Directors without shareholder
approval. Any change in the Fund's investment objective may result in the Fund
having investment objective different from the objectives 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 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 Rating Service or
Moody's Investors Service 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 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.
6
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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, custodian and transfer agent. 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. The biographical information for each of the Directors and officers
of the Fund 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, 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) and a 1973 graduate of Stanford University (MBA).
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 _____
graduate of Yale University ( ) and a _____ graduate of Harvard University
(MBA).
David M. Fox, Director
Mr. Fox has been Unapix Entertainment's President, Chief Executive
Officer and a Director since March 1992. From June 1991 until joining Unapix
Entertainment, he was the Chief Executive Officer of David Fox and Associates, a
company which he founded and which provided international programming consulting
services and acted as United States sales agent for producers worldwide. From
1981 until June 1991, Mr. Fox served as Chief Executive Officer and head of
Domestic Syndication and Cable Television for Fox/Lorber Associates, Inc.
("Fox/Lorber"), a corporation which he co-founded and which engaged in the
worldwide distribution of feature films, home video and television programs.
From March 1990 to June 1991, Mr. Fox also served as Director of GAGA
Communications, a Japanese company engaged in home video and theatrical
distribution. Prior to founding Fox/Lorber, Mr. Fox was Eastern and Midwest
Sales Manager for D.L. Taffner Ltd., syndicator of Three's Company and The Benny
Hill Show. He is a 1970 graduate of Brown University (BA) and a 1974 graduate of
Harvard (MBA).
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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 ____ graduate
of Williams College ( ) and a _______ graduate of Harvard University (MBA).
Scott D. Stooker, Director
Mr. Stooker has been the owner and President of 1st Team Communications
Inc. since _________. 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 _____
graduate of _________ ( ) and a ______ graduate of ______ ( ).
Investment Adviser
Tanaka Fund Advisers, LLC (the "Investment Adviser"), a registered
investment adviser, located at 230 Park Avenue, Suite 960, New York, New York
10169, manages the investments of the Fund pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"), dated December __, 1998. The Advisory
Agreement is effective for an initial term of two years and thereafter may be
renewed annually by the Board of Directors of the Fund.
The Investment Adviser is a limited liability company organized in
[year] under the laws of the State of Delaware. In addition to the assets of the
Fund, the Investment Adviser and its affiliates manage other assets of
approximately [$300] million as of the date of this Prospectus. Mr. Tanaka is
the portfolio manager and President of the Fund, and owns 100% of the shares of
the Investment Adviser. Mr. Tanaka has approximately 12 years of experience
managing a mutual fund portfolio, and has approximately 18 years of experience
managing investment portfolios for private clients.
Pursuant to the Advisory Agreement, the Investment Adviser provides the
Fund with investment management services, subject to the supervision of the
Company's Board of Directors. The Investment Adviser also provides office space
and pays the ordinary and necessary office and clerical expenses relating to
investment research, statistical analysis and supervision of the Fund's
portfolio and certain other costs. The Investment Adviser also bears the cost of
fees, salaries and other remuneration of the Company's Directors, officers or
employees who are officers, Directors, or employees of the Investment Adviser.
The Fund is responsible for all other costs and expenses, such as, but not
limited to, brokerage fees and commissions in connection with the purchase and
sale of securities, legal, auditing, bookkeeping and recordkeeping services,
custodian and transfer agency fees and other costs and fees of registration of,
or filing of notice of, its shares for sale under various state and Federal
securities laws. All expenses not specifically assumed by the Investment Adviser
are assumed by the Fund. [may be revised]
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
Forum Administrative Services, LLC ("FAdS"), Two Portland Square,
Portland, Maine 04101, serves as administrator to the Fund pursuant to an
Administration Agreement, dated November ___, 1998.
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FAdS provides certain recordkeeping, administrative and shareholder servicing
functions required of registered investment companies. FAdS 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 FAdS at an
annual rate of 0.10% of the average daily net assets of the Fund up to $100
million and 0.075% of the average daily net assets of the Fund in excess of $100
million, subject to a minimum fee of $25,000 during the Fund's first year of
operations, $32,500 during the second year and $40,000 thereafter.
Custodian
Investors Bank & Trust Company (the "Custodian" or "IBT"), 200
Clarendon Street, Boston, Massachusetts 02116, 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 U.S.
Fund Accountant
Forum Accounting Services, LLC ("FAcS"), Two Portland Square, Portland,
Maine 04101, provides fund accounting services to the Fund pursuant to a Fund
Accounting Agreement, dated November __, 1998.
Transfer and Dividend Disbursing Agent
Forum Shareholder Services, LLC (the "Transfer Agent" or "FSS"), Two
Portland Square, Portland, Maine 04101, is the Fund's transfer and dividend
disbursing agent. FSS 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 Transfer Agency
and Services Agreement between the Company and FSS, dated November __, 1998, FSS
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 $18,000 during the Fund's first year of operations and
$24,000 thereafter, plus $12,000 for each open class of shares above one.
Distributor
Forum Financial Services, Inc. (the "Distributor" or "FSSI"), Two
Portland Square, Portland, Maine 04101, acts as the Fund's distributor pursuant
to a Distribution Agreement dated November ___, 1998.
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Forum Financial Group
FAdS, FSSI, FSS and FAcS are affiliates of Forum Financial Group, LLC
("FFG"). FFG, together with its affiliates, provides a full range of services to
the investment company and financial services industry. As of the date of this
Prospectus, FFG provided services to registered investment companies and
collective investment funds with assets of approximately $47 billion. John Y.
Keffer is the sole shareholder (directly and indirectly) and director of FFG,
which owns (directly or indirectly) FAdS, FSSI, FSS, and FAcS.
Year 2000 and Euro
The Fund could be adversely affected if the computer systems used by
the 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 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Fund's investments. The Adviser and FAdS are taking
steps to address the Year 2000 and Euro issues 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 issues, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Fund.
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a Distribution and Service Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the
Fund in connection with the distribution of its Class R shares at an annual
rate, as determined from time-to-time by the Board of Directors, of up to 0.25%
of the Fund's average daily net assets attributable to the Class R shares.
Payments may be made by the Fund under the Plan for the purpose of
financing any activity primarily intended to result in the sales of Class R
shares of the Fund as determined by the Board of Directors. Such activities
typically include advertising; compensation for sales and sales marketing
activities of financial service agents and others, such as dealers or
distributors; shareholder account servicing; production and dissemination of
prospectuses and sales and marketing materials; and capital or other expenses of
associated equipment, rent, salaries, bonuses, interest and other overhead. To
the extent any activity is one which the Fund may finance without a Plan, the
Fund may also make payments to finance such activity outside of the Plan and not
subject to its limitations. Payments under the Plan are not tied exclusively to
actual distribution and service expenses, and the payments may exceed
distribution and service expenses actually incurred.
Administration of the Plan is regulated by Rule 12b-1 under the 1940
Act, which includes requirements that the Board of Directors receive and review
at least quarterly reports concerning the nature and qualification of expenses
which are made, that the Board of Directors approve all agreements implementing
the Plan and that the Plan may be continued from year-to-year only if the Board
of Directors concludes at least annually that continuation of the Plan is likely
to benefit shareholders.
In approving the Plan, the Directors determined, in the exercise of
their business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
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<PAGE>
HOW TO INVEST
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
$2,000. 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
FSSI, the Fund's Distributor. An Account Application should accompany this
Prospectus. For accounts opened directly through the Fund's Distributor, a
completed and signed Account Application is required for the initial account
opened with the Fund.
Stock certificates representing Class R shares will not be issued.
In addition to offering Class R shares, the Fund may also offers Class
A and Class B shares which are described in a separate prospectus. To obtain a
prospectus relating to such classes, contact the Distributor by writing to the
address or by calling the phone number listed on the front cover of this
Prospectus.
PURCHASES AND REDEMPTIONS OF SHARES
General
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 and Christmas ("Fund Business Day"). The net asset values 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 FSS. The
Company reserves the right to reject any subscription for the purchase of its
shares and may, in the 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. Fund shares become entitled to receive dividends on the same day
the shares are issued to an investor.
Redemptions
There is no redemption charge, no minimum period of investment, and no
restriction on frequency of redemptions. Shares are redeemed at a price equal to
the net asset value per share next determined following acceptance by FSS of the
redemption order in proper form (and any supporting documentation which FSS may
require). Shares redeemed are not entitled to participate in dividends declared
on the day on which a redemption becomes effective.
The date of payment of redemption proceeds may not be postponed for
more than seven days after shares are tendered to FSS for redemption by a
shareholder of record. The right of redemption may not be suspended except in
accordance with the provisions of the Investment Company Act of 1940.
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Account Statements
Shareholders will receive from the Company periodic statements listing
account activity during the statement period.
Share Certificates
FSS 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 888-9-TANAKA or by writing TANAKA Funds, Inc., at P.O. Box
446, Portland, Maine 04112.
Initial Purchase of Shares
Mail
Investors may send a check made payable to "TANAKA Funds, Inc." with a
completed account application to:
TANAKA Funds, Inc.
P.O. Box 446
Portland, Maine 04112
Checks are accepted at full value subject to collection. All checks
must be drawn on a United States bank. 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 a Fund, the Adviser or FSS.
For individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of a 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 a Fund must
be made payable on its face to "TANAKA Funds, Inc." No other method of payment
by check will be accepted. All purchases must be paid in U.S. dollars; checks
must be drawn on U.S. banks. Payment by Traveler's Checks is prohibited.
Bank Wire
To make an initial investment in a Fund using the fedwire system for
transmittal of money between banks, you should first telephone FSS at 207-______
or toll free at 888-9-TANAKA to obtain an account number. You should then
instruct a member commercial bank to wire your money immediately to:
BankBoston
Boston, Massachusetts
ABA # _______
For Credit to: Forum Shareholder Services, LLC
Account # ____________
TANAKA Funds, Inc.: (Name of Fund)
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(Investor's Name)
(Investor's Account Number)
You should then promptly complete and mail the account application.
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 FSSI.
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 a
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 a Fund by mailing a check or
sending a bank wire as indicated above. Shareholders using the wire system for
subsequent purchases should first telephone FSS at 207-___________ or toll free
at 888-9-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,
preselected 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 FSS. Shareholders may
terminate their automatic investments or change the amount to be invested at any
time by written notification to FSS.
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 a Fund through wire
transfers. If FSS receives a redemption request by 4:00 p.m. Eastern Time, the
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<PAGE>
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 $2,000. The Fund will not redeem accounts that fall below these amounts
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 FSS at the address above. You must sign all written requests for
redemption and provide a signature guarantee. See "Other Redemption Matters."
Telephone Redemptions
A shareholder that has elected telephone redemption privileges may make
a telephone redemption request by calling FSS at 207-________ or toll free at
888-9-TANAKA. In response to the telephone redemption instruction, a Fund will
mail a check to the shareholder's record address. If the shareholder has elected
wire redemption privileges, FSS may wire the proceeds as set forth below under
"Bank Wire Redemptions."
In an effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Company and FSS will employ reasonable procedures to confirm
that such instructions are genuine. Shareholders must provide FSS with the
shareholder's account number, the exact name in which the shares are registered
and some additional form of identification. The Company or FSS may employ other
procedures such as recording certain transactions. If such procedures are
followed, neither FSS nor the Company will be liable for any losses due to
unauthorized or fraudulent redemption requests. Shareholders should verify the
accuracy of telephone instructions immediately upon receipt of confirmation
statements.
During times of drastic economic or market changes, it may be difficult
to make a redemption by telephone. If you cannot reach FSS by telephone, you may
mail or hand-deliver your request to FSS at Two Portland Square, Portland, Maine
04101.
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, telephone
redemption or exchange option election 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
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<PAGE>
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, a 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. If you wish
to request bank wire redemptions by telephone, you must also elect telephone
redemption privileges.
Exchange Privilege
Shareholders of the Fund may exchange their shares for shares of the
Daily Assets Government Fund, a money market fund managed by FAdS and a separate
series of Forum Funds (R) or the Investors Bond Fund, also a separate series of
Forum Funds managed by FAdS. You may receive a copy of the prospectus for the
Daily Assets Government Fund or the Investors Bond Fund by writing FSS or
calling toll free at 888-9TANAKA. No sales charges are imposed on exchanges
between a Fund and the Daily Assets Government Fund. Exchanges into the
Investors Bond Fund are subject to the fees charged by that fund as set forth in
the Investor Bond Fund's prospectus.
Exchange Procedure
You may request an exchange by writing to FSS at Two Portland Square,
Portland, Maine 04101. The minimum amount for an exchange to open an account in
the Daily Assets Government Fund or the Investors Bond Fund is $2,500. 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 the Daily Assets
Government Fund or the Investors Bond Fund, as applicable, may legally be sold.
Telephone Exchanges
If you have elected telephone exchange privileges, you may request an
exchange by calling FSS toll free at 888-9-TANAKA. Neither the Company nor FSS
are responsible for the authenticity of telephone instructions or losses, if
any, resulting from unauthorized telephone exchange requests. The Company
employs reasonable procedures to insure that telephone orders are genuine and,
if it does not, may be liable for any losses due to unauthorized transactions.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements.
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<PAGE>
Retirement Accounts
The Fund may be a suitable investment vehicle for part or all of the
assets held in Traditional or Roth individual retirement accounts (collectively
"IRAs"). An IRA account application form may be obtained by contacting the
Company at 888-9-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.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following three types of services for its
shareholders:
o Regular Account - allows shareholders to make voluntary additions
and withdrawals to and from their account as often as they wish.
o Automatic Investment Plan - permits automatic monthly investments
into the Fund from your checking account on a fixed or flexible schedule;
o Individual Retirement Accounts (IRA's).
More information regarding these services appears in the Statement of Additional
Information which may be obtained by request and without charge by writing or
calling the Fund at the address and telephone number printed on the front cover
of this Prospectus.
FUND PERFORMANCE
From time-to-time, the Fund may advertise its "average annual total
return" over various periods of time. This total return figure shows the average
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the ending date of the measuring period. The figure
reflects changes in the price of the Fund's shares and assumes that any income
dividends and/or capital gains distributions made by the Fund during the period
are reinvested in shares of the Fund. Figures will be given for recent one-,
five- and ten-year periods (when applicable), and may be given for other periods
as well (such as from commencement of the Fund's operations, or on a
year-by-year basis). When considering "average" total return figures for periods
longer than one year, investors should note that the Fund's annual total return
for any one year in the period might have been greater or less than the average
for the entire period. The Fund also may use "aggregate" total return figures
for various periods, representing the cumulative change in value of an
investment in the Fund for the specific period (again
16
<PAGE>
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 (5) Russell 2000 Index
Further information on performance measurement may be found in the
Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
Shares are purchased at their net asset value per share. The Fund
calculates its net asset value (NAV) as follows:
(Value of Fund Assets) - (Fund Liabilities)
NAV = ---------------------------------------------
Number of Outstanding Shares
Net asset value is determined as of the end of regular trading hours on
the New York Stock Exchange (currently 4:00 p.m. New York City time) on days
that the New York Stock Exchange is open.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
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
17
<PAGE>
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. 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.
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
18
<PAGE>
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.
TO OBTAIN MORE INFORMATION
For further information on the TANAKA Growth Fund, please contact
_______________. Additional information may also be obtained by requesting a
copy of the Fund's Statement of Additional Information.
Investment Adviser: Tanaka Fund Advisers, LLC
230 Park Avenue, Suite 960
New York, NY 10169
Distributor: Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Counsel: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
Independent Auditors:
[General Information: For general information on the Fund and [______], call the
Distributor at (800) ___-____ Toll Free.]
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<PAGE>
Transfer Agent: For account information, wire purchases
or redemptions, call or write to the
Fund's Transfer Agent:
Forum Shareholders Services, LLC
Two Portland Square
Portland, ME 04101
More Information: For 24-hour, 7-days-a-week price
information, call 888-9-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 the Distributor.
This Prospectus does not constitute an offer by the Fund or the 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.
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TANAKA Growth Fund
A "Series" of TANAKA Funds, Inc.
Two Portland Square
Portland, Maine 04104
888-9-TANAKA (Toll Free)
PROSPECTUS
December ___, 1998
This Prospectus offers shares of the TANAKA Growth Fund (the "Fund"), a
diversified series of TANAKA Funds, Inc. (the "Company"), an open-end management
investment company commonly known as a "mutual fund." The Company is currently
composed of one series, the Fund.
This Prospectus relates only to the Class A and Class B shares of the
Fund and sets forth concisely information about the Fund which a prospective
investor should know before investing. It should be read and retained for future
reference. A Statement of Additional Information dated December __, 1998, as may
be amended from time to time, containing additional and more detailed
information about the Fund, has been filed with the Securities and Exchange
Commission (the "SEC") and is hereby incorporated by reference into this
Prospectus. It is available without charge and can be obtained by writing or
calling the Fund at the address and telephone number printed above.
The Fund also offers Class R shares which are subject to expenses
different from those of the Class A and Class B shares. A prospectus for the
Class R shares can be obtained by writing or calling the Fund at the address and
telephone number printed above.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary........................................................1
Fund Expenses.............................................................2
Investment Objective......................................................3
Investment Policies.......................................................3
Fundamental Investment Restrictions.......................................5
Investment Techniques.....................................................6
The Fund's Management.....................................................7
Distribution Plan.........................................................10
Shareholder Services Plan.................................................11
Choosing a Class of Shares................................................11
How to Invest.............................................................15
Purchases and Redemptions of Shares.......................................16
Purchase and Redemption Procedures........................................16
Special Shareholder Services..............................................21
Fund Performance..........................................................21
How Net Asset Value Is Determined.........................................22
Income and Capital Gain Distributions.....................................22
Taxes.....................................................................22
Organization and Description of Common Stock..............................23
To Obtain More Information................................................24
i
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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 lest 75% of its net assets in domestic securities, but may also invest
up to 25% of its net assets in foreign securities, including multinational and
emerging market securities. See "Investment Policies" on page 3.
Investment Adviser: Tanaka Fund Advisers, LLC (the "Investment
Adviser") is the investment adviser of the Fund. See "The Fund's Management" on
page 7.
Distributions: Paid annually from available capital gains and income.
See "Income and Capital Gain Distributions" on page 22.
Reinvestment: Shareholders may elect to have distributions reinvested
automatically without a sales charge. See "Income and Capital Gain
Distributions" on page 22.
Initial Purchase: $2,000 minimum (may be waived under certain
circumstances.) See "How to Invest" on page 15.
Subsequent Purchases: $500 minimum. See "How to Invest" on page 15.
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
1-888-9-TANAKA. See "How Net Asset Value is Determined" on page22.
Sales Charge or Redemption Fees: Class A shares are subject to an
initial sales charge of up to 4.50% of the offering price of the shares
depending on the amount invested. Class B shares are offered at net asset value
without an initial sales charge. The Fund imposes a contingent deferred sales
charge ("CDSC") on Class B shares of 5% on shares redeemed during the first year
after purchase, 4% on shares redeemed during the second or third year after
purchase, 2% on shares redeemed during the fourth or fifth year after purchase
and 1% on shares redeemed during the sixth year after purchase. Class B shares
may be redeemed without a sales charge during or after the seventh year
following the purchase. Class B shares of the Fund automatically convert to
Class A shares at the end of the month which precedes the 8th anniversary of the
purchase date.
Principal Risk Factors: Investment in any mutual fund has inherent
risks. There can be no assurance that the investment objective of the Fund will
be realized or that the Fund's portfolio will not decline in value. Economic
conditions change and stock markets are volatile. If the Investment Adviser
judges market conditions incorrectly, the Fund's portfolio may decline in value.
Moreover, investors should be aware that certain investment policies of the
Fund, such as investing in illiquid and foreign
<PAGE>
securities, and certain investment techniques of the Fund, such as investments
in repurchase agreements, 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"
below.
FUND EXPENSES
Shareholder Transaction Expenses Class A Class B
------- -------
Maximum Sales Charge Imposed on Purchases 4.5%(1) None
(as a percentage of offering price)'
Maximum Sales Charge Imposed on Reinvested
Dividends None None
(and other distributions)
Maximum Contingent Deferred Sales Charge 0%(2) 5%(3)
(as a percentage of the lesser of the
net asset value of shares redeemed or
their original purchase price)
Redemption Fees None None
- ------------------
(1) Sales charges are reduced for large purchases.
(2) A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following purchases without a sales charge.
(3) The contingent deferred sales charge is 5% on shares redeemed during the
first year after purchase, 4% on shares redeemed during the second and third
years after purchase, 2% on shares redeemed during the fourth and fifth
years after purchase, 1% on shares redeemed during the sixth year after
purchase and 0% thereafter. Class B shares of the Fund automatically convert
to Class A shares at the end of the month which precedes the 8th anniversary
of the purchase date.
Annual Fund Operating Expenses (as % of average net assets)
Class A Class B
------- -------
Management Fee 1.00% 1.00%
12b-1 Fees* 0.00% 0.75%
Service Fees 0.25% 0.25%
Other Operating Expenses 0.50% 0.50%
----- -----
Total Fund Operating Expenses 1.75% 2.50%
- ------------------
* Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by rules of the National
Association of Securities Dealers, Inc.
For expense information about the Class R shares of the Fund, see the
separate prospectus relating to that class.
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.
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Year 1 Year 3
------ ------
Class A $62 $98
Class B
Assuming redemption at the end of each period $77 $121
Assuming no redemption at the end of each period $25 $ 78
These examples should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or lesser than
those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses associated with the Fund's Class A and Class B shares
that they will bear directly or indirectly. The assumption in the Example of a
5% annual return is required by regulations of the SEC applicable to all mutual
funds. The assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of the Fund's shares. "Other
Expenses" are based on estimated amount for the Fund's current fiscal year.
INVESTMENT OBJECTIVE
The investment objective of the Fund is growth of capital. Given the
Fund's objective to achieve growth of capital, investment in the Fund may be
best suited to investors who are not concerned with current income. The Fund is
not intended by itself to constitute a balance 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 and
diversified 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 in domestic
securities, but may also invest up to 25% of its net assets in foreign
securities, including multinational and emerging market securities. Depending
upon the Investment Adviser's assessment of the prospects, a portion of the
Fund's assets may be invested temporarily 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 and
medium, as well as 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
3
<PAGE>
programs, changes in management, and other fundamental changes which may result
in improved earnings growth or increased asset values.
The Investment Adviser relies on research, management meetings and
industry contacts to identify companies with above-average long term earnings
growth potential that could exceed market expectations. The Investment Adviser
also identifies industries that are positioned to participate in strong
demographic, societal or economic trends and looks for companies within those
industries that have a particular competitive advantage or niche. Stocks and
other equity securities are subject to the risk that specific stocks, industry
groups, or the prices of equity securities in general, will decline in value
over short or even extended periods of time.
Foreign Securities
The Fund expects to invest primarily in the securities of companies
domiciled in the United States, although the Fund may also invest up to 25% of
its net assets, measured at the time of investment, in securities of foreign
issuers which meet the same criteria for investment as domestic companies. 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 "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. 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. Currency fluctuations will affect the net asset
value of the Fund irrespective of the performance of the underlying investments
in foreign issuers. The Fund will not purchase securities which it believes, at
the time of purchase, will be subject to exchange controls or withholding taxes;
however, there can be no assurance that such laws may not become applicable to
certain of the Fund's investments. 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
4
<PAGE>
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 Statement of Additional
Information, the Fund may invest in shares of open- and closed-end investment
companies that acquire equity securities of issuers in emerging markets
countries. By investing in shares of such investment companies, the Fund would
indirectly pay a portion of the operating expenses, management expenses, and
brokerage costs of such companies, as well as those of the Fund. Federal
securities laws impose limits on such investments with which the Fund will
comply, and may affect the ability of the Fund to acquire or dispose of such
shares.
Warrants and Rights
The Fund may invest up to 5% of its net assets 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 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 Fund 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
5
<PAGE>
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.
To maintain portfolio diversification and reduce investment risk, as a
matter of fundamental policy, the Fund may not:
(1) invest 25% or more of its net assets in issuers conducting their
principal business in the same industry;
(2) invest more than 15% of its net assets in illiquid securities;
(3) purchase the securities of any issuer (other than securities
issued or guaranteed as to principal or interest by the
Government of the United States or any agency or instrumentality
thereof ("U.S. Government securities"), or securities of other
investment companies) if, as a result of such purchase, more than
5% of its total assets would be invested in the securities of
such issuer, unless 75% of the Fund's total assets are invested
in cash or cash equivalents, U.S. Government securities,
securities of other investment companies, and securities of
issuers in which the Fund has not invested more than 5% of its
total assets; or
(4) purchase stock or securities of an issuer (other than U.S.
Government securities) if such purchase would cause the Fund to
own more than 10% of any class of voting securities of such
issuer.
With regard to items 3 and 4 above, investments in repurchase
agreements secured by U.S. Government securities may be treated as U.S.
Government securities for purposes of applicable securities laws.
A complete statement of the Fund's objective, policies and
restrictions, both fundamental and nonfundamental, is set forth in the Statement
of Additional Information. In order to provide a degree of flexibility, the
Fund's investment objective, as well as other policies which are not deemed
fundamental, may be modified by the Board of Directors without shareholder
approval. Any change in the Fund's investment objective may result in the Fund
having investment objective different from the objectives 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 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 Rating Service or
Moody's Investors Service 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 in repurchase
agreements with maturities of more than seven days.
6
<PAGE>
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.
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, custodian and transfer agent. 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. The biographical information for each of the Directors and officers
of the Fund 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, 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) and a 1973 graduate of Stanford University (MBA).
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 _____
graduate of Yale University ( ) and a _____ graduate of Harvard University
(MBA).
David M. Fox, Director
Mr. Fox has been Unapix Entertainment's President, Chief Executive
Officer and a Director since March 1992. From June 1991 until joining Unapix
Entertainment, he was the Chief Executive Officer of David Fox and Associates, a
company which he founded and which provided international programming consulting
services and acted as United States sales agent for producers worldwide. From
1981 until June 1991, Mr. Fox served as Chief Executive Officer and head of
Domestic Syndication and Cable Television for Fox/Lorber Associates, Inc.
("Fox/Lorber"), a corporation which he co-founded and which engaged in
7
<PAGE>
the worldwide distribution of feature films, home video and television programs.
From March 1990 to June 1991, Mr. Fox also served as Director of GAGA
Communications, a Japanese company engaged in home video and theatrical
distribution. Prior to founding Fox/Lorber, Mr. Fox was Eastern and Midwest
Sales Manager for D.L. Taffner Ltd., syndicator of Three's Company and The Benny
Hill Show. He is a 1970 graduate of Brown University (BA) and a 1974 graduate of
Harvard (MBA).
Thomas R. Schwarz, Director
Mr. Schwarz was President and Chief Operating Officer of Dunkin Donuts
Inc. (1966-1989); Chairman of the Board and Chief Executive Officer of Grossmans
Inc. (1989-1994) and retired in 1994. Mr. Schwarz currently sits on the
following boards: TransAct Technologies, Inc., Tridex Corporation, A&W
Restaurants, Lebhar-Friedman Publishing and Foilmark Inc. He is a ____ graduate
of Williams College ( ) and a _______ graduate of Harvard University (MBA).
Scott D. Stooker, Director
Mr. Stooker has been the owner and President of 1st Team Communications
Inc. since _________. 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 _____
graduate of _________ ( ) and a ______ graduate of ______ ( ).
Investment Adviser
Tanaka Fund Advisers, LLC (the "Investment Adviser"), a registered
investment adviser, located at 230 Park Avenue, Suite 960, New York, New York
10169, manages the investments of the Fund pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"), dated December __, 1998. The Advisory
Agreement is effective for an initial term of two years and thereafter may be
renewed annually by the Board of Directors of the Fund.
The Investment Adviser is a limited liability company organized in
[year] under the laws of the State of Delaware. In addition to the assets of the
Fund, the Investment Adviser and its affiliates manage other assets of
approximately [$300] million as of the date of this Prospectus. Mr. Tanaka is
the portfolio manager and President of the Fund, and owns 100% of the shares of
the Investment Adviser. Mr. Tanaka has approximately 12 years of experience
managing a mutual fund portfolio, and has approximately 18 years of experience
managing investment portfolios for private clients.
Pursuant to the Advisory Agreement, the Investment Adviser provides the
Fund with investment management services, subject to the supervision of the
Company's Board of Directors. The Investment Adviser also provides office space
and pays the ordinary and necessary office and clerical expenses relating to
investment research, statistical analysis and supervision of the Fund's
portfolio and certain other costs. The Investment Adviser also bears the cost of
fees, salaries and other remuneration of the Company's Directors, officers or
employees who are officers, Directors, or employees of the Investment Adviser.
The Fund is responsible for all other costs and expenses, such as, but not
limited to, brokerage fees and commissions in connection with the purchase and
sale of securities, legal, auditing, bookkeeping and recordkeeping services,
custodian and transfer agency fees and other costs and fees of registration of,
or filing of notice of, its shares for sale under various state and Federal
securities laws. All expenses not specifically assumed by the Investment Adviser
are assumed by the Fund. [may be revised]
8
<PAGE>
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
Forum Administrative Services, LLC ("FAdS"), Two Portland Square,
Portland, Maine 04101, serves as administrator to the Fund pursuant to an
Administration Agreement, dated November ___, 1998. FAdS provides certain
recordkeeping, administrative and shareholder servicing functions required of
registered investment companies. FAdS 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 FAdS at an
annual rate of 0.10% of the average daily net assets of the Fund up to $100
million and 0.075% of the average daily net assets of the Fund in excess of $100
million, subject to a minimum fee of $25,000 during the Fund's first year of
operations, $32,500 during the second year and $40,000 thereafter.
Custodian
Investors Bank & Trust Company (the "Custodian" or "IBT"), 200
Clarendon Street, Boston, Massachusetts 02116, 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 U.S.
Fund Accountant
Forum Accounting Services, LLC ("FAcS"), Two Portland Square, Portland,
Maine 04101, provides fund accounting services to the Fund pursuant to a Fund
Accounting Agreement, dated November __, 1998.
Transfer and Dividend Disbursing Agent
Forum Shareholder Services, LLC (the "Transfer Agent" or "FSS"), Two
Portland Square, Portland, Maine 04101, is the Fund's transfer and dividend
disbursing agent. FSS 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 Transfer Agency
and Services Agreement between the Company and FSS, dated November __, 1998, FSS
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 $18,000 during the Fund's first year of operations and
$24,000 thereafter, plus $12,000 for each open class of shares above one, plus
other related expenses.
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<PAGE>
Distributor
Forum Financial Services, Inc. (the "Distributor" or "FSSI"), Two
Portland Square, Portland, Maine 04101, acts as the Fund's distributor pursuant
to a Distribution Agreement dated November ___, 1998.
Forum Financial Group
FAdS, FSSI, FSS and FAcS are affiliates of Forum Financial Group, LLC
("FFG"). FFG, together with its affiliates, provides a full range of services to
the investment company and financial services industry. As of the date of this
Prospectus, FFG provided services to registered investment companies and
collective investment funds with assets of approximately $47 billion. John Y.
Keffer is the sole shareholder (directly and indirectly) and director of FFG,
which owns (directly or indirectly) FAdS, FSSI, FSS, and FAcS.
Year 2000 and Euro
The Fund could be adversely affected if the computer systems used by
the 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 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Fund's investments. The Adviser and FAdS are taking
steps to address the Year 2000 and Euro issues 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 issues, there can be
no assurance that these steps will be sufficient to avoid any adverse impact on
the Fund.
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act for both the Class A Shares and Class B Shares of the
Fund (each a "Plan"). Under the Plans, the Fund may pay a distributor, a service
fee at an annual rate not to exceed 0.25% of the average daily value of the
Fund's net assets attributable to the Class A shares and Class B shares.
The services for which service fees may be paid include, among other
things, advising clients or customers regarding the purchase, sale or retention
of shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
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. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B Plan, the Fund also pays a Distributor 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 distributor
may reallow to dealers all or a portion of the service and distribution fees as
the distributor may determine from time to time. 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
the printing of prospectuses and reports for persons other than existing
shareholders and the preparation, printing and distribution of sales literature
and advertising materials. Pursuant to the Class B Plan, a distributor may
include interest, carrying or other finance charges in its calculation of
distribution expenses, if not prohibited from doing so pursuant to an order of
or a regulation adopted by the SEC.
The distributor may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. The distributor also may make payments (such
as the service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by the
distributor.
10
<PAGE>
Administration of each Plan is regulated by Rule 12b-1 under the 1940
Act, which includes requirements that the Directors receive and review at least
quarterly reports concerning the nature and qualification of expenses which are
made, that the Directors approve all agreements implementing each Plan and that
each Plan may be continued from year-to-year only if the Directors conclude at
least annually that continuation of the Plan is likely to benefit shareholders.
In approving each Plan, the Directors determined, in the exercise of
their business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
CHOOSING A CLASS OF SHARES
This Prospectus offers two classes of shares: Class A and Class B. Each
class has its own cost structure.
Although not currently being offered for sale, Class A shares are sold
to investors who prefer to pay an initial sales load and have the benefit of
lower continuing fees. Class B shares are sold to investors choosing to pay no
initial load, a higher distribution fee and a contingent deferred sales charge
with respect to redemptions within six years of purchase and who desire shares
to convert automatically to Class A shares after eight years.
Investors who expect to maintain their investment for an extended
period of time might choose to purchase Class A shares because over time the
accumulated continuing distribution fees of Class B shares may exceed the
initial sales load and lower on-going fee of Class A shares. This consideration
must be weighed against the fact that the amount invested in the Fund will be
reduced by the initial sales load on Class A shares deducted at the time of
purchase. Furthermore, the distribution fees on Class B shares will be offset to
the extent any return is realized on the additional funds initially invested in
Class B shares that would have been equal to the amount of the initial sales
load on Class A shares.
Investors who qualify for reduced initial sales loads might also choose
to purchase Class A shares because the sales load deducted at the time of
purchase would be waived. However, investors should consider the effect of the
1% contingent deferred sales charge imposed on shares on which the initial sales
11
<PAGE>
load was waived because the amount of Class A shares purchased was $1,000,000 or
more. In addition, Class B shares will be converted automatically to Class A
shares after a period of approximately eight years, and thereafter investors
will be subject to lower ongoing fees. Shares purchased through reinvestment of
dividends and distributions on Class B shares also will convert automatically to
Class A shares along with the underlying shares on which they were earned.
Investors should bear in mind that total asset based sales charges
(i.e., the higher continuing distribution fee plus the contingent deferred sales
charge) on Class B shares that are redeemed may exceed the total asset based
sales charges that would be payable on the same amount of Class A shares,
particularly if the Class B shares are redeemed shortly after purchase or if the
investor qualifies for a reduced sales load on the Class A shares.
Investors should understand that the purpose and function of the
initial sales loads (and deferred sales charges, when applicable) with respect
to Class A shares is the same as those of the deferred sales charges and higher
distribution fees with respect to Class B shares in that the sales charges and
distribution fees applicable to each class provide for the financing of the
distribution of the shares of the Fund.
The two classes of shares represent interests in the same portfolio of
investments, have the same rights and are generally identical in all respects
except that each class bears its separate distribution and, potentially, certain
other class expenses and has exclusive voting rights with respect to any matter
to which a separate vote of any class is required by the 1940 Act or Maryland
law. The net income attributable to each class and dividends payable on the
shares of each class will be reduced by the amount of distribution and other
expenses of each class. Class B shares bear higher distribution fees, which will
cause the Class B shares to pay lower dividends than the Class A shares.
Each class has advantages and disadvantages for different investors,
and investors should choose the class that best suits their circumstances and
their objectives. Dealers and agents may receive different compensation for
selling Class A or Class B shares.
Class A Shares -- Initial Sales Charge
An initial sales charge may apply, as described below, when purchasing
Class A shares of the Fund. Sales charges may be reduced for large purchases as
indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Charge Dealer
A Percentage Concession
as Percentage of
Offering Net Amount Offering
Investment Amount Price Invested Price
- ----------------- ----- -------- -----
Less than $100,000 ............................................4.50% 4.71% 4.00%
$100,000 but less than $250,000 ...............................3.75% 3.90% 3.25%
$250,000 but less than $500,000................................2.75% 2.83% 2.50%
$500,000 but less than $1 million..............................2.25% 2.30% 2.00%
$1 million or more and certain other see below see below see below
investments described below ....................................
</TABLE>
Investments of $1 million or more are sold with no initial sales
charge. A 1% contingent deferred sales charge may be imposed on certain
redemptions made within one year of purchase by Class A
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<PAGE>
accounts of $1 million or more. A dealer concession of up to 1% may be paid by
the Distributor on these investments. Investments by certain individuals and
entities including employees and other associated persons of dealers authorized
to sell shares of the Fund and the Investment Adviser are not subject to a sales
charge (see "Sales at Net Asset Value" below).
Reducing the Sales Charge. As shown in the table above, the size of the
total investment in the Class A shares of the Fund will affect the sales charge.
Described below are several methods to reduce the applicable sales charge. In
order to obtain a reduction in the sales charge, an investor must notify, at the
time of purchase, his dealer, the transfer agent or the Investment Adviser of
the applicability of one of the following:
Rights of Aggregation. The investment schedule above applies to the
total amount being invested by any "person," which term includes an individual,
his spouse and children under the age of 21, a trustee or other fiduciary
purchasing for a single trust, estate or single fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under the Code) although more than one beneficiary is involved,
or any United States bank or investment adviser purchasing shares for its
investment advisory clients or customers. Any such person purchasing for several
accounts at the same time may combine these investments into a single
transaction in order to reduce the applicable sales charge.
Rights of Accumulation. The Class A shares of the Fund may be purchased
at a reduced sales charge by a "person" (as defined above) who is already a
shareholder by taking into account not only the amount then being invested, but
also the current net asset value of the shares of the Fund already held by such
person. If the current net asset value of the qualifying shares already held
plus the net asset value of the current purchase exceeds a point in the schedule
of sales charges at which the charge is reduced to a lower percentage, the
entire current purchase is eligible for the reduced charge. To be entitled to a
reduced sales charge pursuant to the Rights of Accumulation, the investor must
notify his dealer, the Transfer Agent or the Distributor at the time of purchase
that he wishes to take advantage of such entitlement, and give the numbers of
his account, and those accounts held in the name of his spouse or for a minor
child, and the specific relationship of each such other person to the investor.
Letter of Intention. An investor may also qualify for a reduced sales
charge by completing a Letter of Intention (the "Letter") set forth on a
separate form for this purpose which is available from the Fund. This enables
the investor to aggregate purchases of shares of the Fund during a 12-month
period for purposes of calculating the applicable sales charge. All shares of
the Fund currently owned by the investor will be credited as purchases toward
the completion of the Letter at the greater of their net asset value on the date
the Letter is executed or their cost. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter. For each investment made,
the investor must notify his dealer, the Transfer Agent or the Distributor that
a Letter is on file along with all account numbers associated with the Letter.
The Letter is not a binding obligation on the investor. However, 5% of
the amount specified in the Letter will be held in escrow, and if the investor's
purchases are less than the amount specified, the investor will be requested to
remit to the Fund an amount equal to the difference between the sales charge
paid and the sales charge applicable to the aggregate purchases actually made.
If not remitted within 20 days after written request, an appropriate number of
escrowed shares will be redeemed in order to realize the difference. However,
the sales charge applicable to the investment will in no event be higher than if
the shareholder had not submitted a Letter.
13
<PAGE>
Sales at Net Asset Value. Class A shares of the Fund may be sold at net
asset value (i.e., without a sales charge) (i) to registered representatives or
employees (and their immediate families) of authorized dealers, or to any trust,
pension, profit-sharing or other benefit plan for only such persons, (ii) to
banks or trust companies or their affiliates when the bank, trust company, or
affiliate is authorized to make investment decisions on behalf of a client,
(iii) to investment advisers and financial planners who place trades for their
own accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services, (iv) to clients of such investment
advisers and financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker, agent, investment
adviser or financial institution, and (v) to retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to those defined in Section 401(a), 403(b) or 457 of the Code and `rabbi
trusts.' Investors may be charged a fee if they effect transactions in Fund
shares through a broker or agent. Class A shares of the Fund may also be sold at
net asset value to current officers, directors and employees (and their
immediate families) of the Fund, the Adviser, the Distributor, employees (and
their immediate families) of certain firms providing services to the Fund (such
as the custodian and shareholder servicing agent), and to any trust, pension,
profit-sharing or other benefit plan for only such persons. The Fund may also
issue Class A shares at net asset value in connection with the acquisition of,
or merger or consolidation with, another investment company.
The sales of Class A shares at net asset value described in this
section are made upon the written assurance of the purchaser that the purchase
is made for investment purposes and that the Class A shares will not be resold
except through redemption. Such notice must be given to the Transfer Agent or
the Distributor at the time of purchase on a form for this purpose as available
from the Fund.
Class B Shares -- Deferred Sales Charge Alternative
The Class B shares can be purchased at net asset value without an
initial sales charge. However, if the Class B shares are redeemed within six
years after purchase, they are subject to a contingent deferred sales charge
(expressed as a percentage of the lesser of the current net asset value or
original cost) which will vary according to the number of years from the
purchase of Class B shares until the redemption of those shares. The amount of
the contingent deferred sales charge on Class B shares is set forth below.
Year Since Purchase CDSC
------------------- ----
Less than 1 year................................. 5.0%
1 to 3 years..................................... 4.0%
3 to 5 years..................................... 2.0%
5 to 6 years..................................... 1.0%
6 years or more.................................. None
Class B shares are subject to higher distribution fees than Class A
shares for a period of eight years (after which they convert to Class A shares).
Shares purchased through reinvestment of dividends on Class B shares also will
convert automatically to Class A shares along with the underlying shares on
which they were earned. Conversion occurs at the end of the month which precedes
the eight anniversary of the purchase date.
The higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
14
<PAGE>
General
In addition to the discount or commission paid to dealers, the
Distributor may from time to time pay additional cash or other incentives to
dealers in connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, in some cases together with other
revenues of such dealers, to provide additional compensation to registered
representatives who sell shares of the Fund. On some occasions, such cash or
other incentives will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund during a specific period of time. Such
incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer and their immediate family members to urban or resort locations within or
outside of the United States. Such dealer may elect to receive cash incentives
of equivalent amount in lieu of such payments.
Application of the Contingent Deferred Sales Charge
Shares obtained from dividend or distribution reinvestment are not
subject to the contingent deferred sales charge. The contingent deferred sales
charge, if applicable, is deducted from the amount of the redemption. The
contingent deferred sales charge will be waived on redemptions of shares
following the death or disability of a shareholder or to meet the requirements
of certain qualified retirement plans. See the Statement of Additional
Information for more information.
Reinstatement Privilege
If a shareholder redeems Class A shares and then decides to reinvest
them, the shareholder may, within 120 calendar days of the date of redemption,
use all or any part of the proceeds of the redemption to reinstate, free of an
initial sales charge, all or any part of the investment in Class A shares of the
Fund. If a shareholder redeems Class A shares and the redemption was subject to
a contingent deferred sales charge, the shareholder may reinstate all or any
part of the investment in shares of the same class of the Fund within 120
calendar days of the date of redemption and receive a credit for the applicable
contingent deferred sales charge paid. Such investment will be reinstated at the
net asset value per share established as of the close of trading on the New York
Stock Exchange on the day the request is received. The transfer agent must be
informed that the purchase represents a reinstated investment. Reinstated shares
must be registered exactly and be of the same class as the shares previously
redeemed; and the Fund's minimum initial investment amount must be met at the
time of reinstatement.
Additional Class
In addition to offering Class A and Class B shares, the Fund offers
Class R shares, which are described in a separate prospectus. The Class R shares
are generally distributed directly by the Distributor and do not have a
front-end sales charge or a CDSC. To obtain the prospectus that describes the
Fund's Class R shares, contact the Fund or the Distributor by writing to the
address or by calling the telephone number listed on the front cover of this
Prospectus.
HOW TO INVEST
The minimum initial investment to open a shareholder account of any
class is $2,000. The minimum amount for subsequent investments in any class is
$500. The Fund reserves the right to waive the minimums under certain
circumstances. The Fund's shares may be purchased through authorized dealers or
directly through FSSI, the Fund's distributor. An Account Application should
accompany this
15
<PAGE>
Prospectus. For accounts opened directly through FSSI, a completed and signed
Account Application is required for the initial account opened with the Fund.
Stock certificates for Class A and Class B shares will not be issued.
PURCHASES AND REDEMPTIONS OF SHARES
General
You may purchase or redeem shares of the Fund at their net asset value,
less any applicable sales charges, on any weekday except days when the New York
Stock Exchange is closed, normally, New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas ("Fund Business Day"). The net asset values 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 FSS. The
Company reserves the right to reject any subscription for the purchase of its
shares and may, in the 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. Fund shares become entitled to receive dividends on the same day
the shares are issued to an investor.
Redemptions
There is no redemption charge, no minimum period of investment, and no
restriction on frequency of redemptions. Shares are redeemed at a price equal to
the net asset value per share next determined following acceptance by FSS of the
redemption order in proper form (and any supporting documentation which FSS may
require). Shares redeemed are not entitled to participate in dividends declared
on the day on which a redemption becomes effective.
The date of payment of redemption proceeds may not be postponed for
more than seven days after shares are tendered to FSS for redemption by a
shareholder of record. The right of redemption may not be suspended except in
accordance with the provisions of the Investment Company Act of 1940.
Account Statements
Shareholders will receive from the Company periodic statements listing
account activity during the statement period.
Share Certificates
FSS 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 888-9-TANAKA or by writing TANAKA Funds, Inc., at P.O. Box
446, Portland, Maine 04112.
16
<PAGE>
Initial Purchase of Shares
Mail
Investors may send a check made payable to "TANAKA Funds, Inc." with a
completed account application to:
TANAKA Funds, Inc.
P.O. Box 446
Portland, Maine 04112
Checks are accepted at full value subject to collection. All checks
must be drawn on a United States bank. 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 a Fund, the Adviser or FSS.
For individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of a 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 a Fund must
be made payable on its face to "TANAKA Funds, Inc." No other method of payment
by check will be accepted. All purchases must be paid in U.S. dollars; checks
must be drawn on U.S. banks. Payment by Traveler's Checks is prohibited.
Bank Wire
To make an initial investment in a Fund using the fedwire system for
transmittal of money between banks, you should first telephone FSS at 207-______
or toll free at 888-9-TANAKA to obtain an account number. You should then
instruct a member commercial bank to wire your money immediately to:
BankBoston
Boston, Massachusetts
ABA # _______
For Credit to: Forum Shareholder Services, LLC
Account # ____________
TANAKA Funds, Inc.: (Name of Fund)
(Investor's Name)
(Investor's Account Number)
You should then promptly complete and mail the account application.
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 FSSII.
These institutions may charge a fee for their services
17
<PAGE>
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 a
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 a Fund by mailing a check or
sending a bank wire as indicated above. Shareholders using the wire system for
subsequent purchases should first telephone FSS at 207-___________ or toll free
at 888-9-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,
preselected 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 FSS. Shareholders may
terminate their automatic investments or change the amount to be invested at any
time by written notification to FSS.
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 a Fund through wire
transfers. If FSS 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 $2,000. The Fund will not redeem accounts that fall below these amounts
solely as a result of a reduction in net asset value of the Fund's shares.
Redemption by Mail
18
<PAGE>
You may redeem all or any number of your shares by sending a written
request to FSS at the address above. You must sign all written requests for
redemption and provide a signature guarantee. See "Other Redemption Matters."
Telephone Redemptions
A shareholder that has elected telephone redemption privileges may make
a telephone redemption request by calling FSS at 207-________ or toll free at
888-9-TANAKA. In response to the telephone redemption instruction, a Fund will
mail a check to the shareholder's record address. If the shareholder has elected
wire redemption privileges, FSS may wire the proceeds as set forth below under
"Bank Wire Redemptions."
In an effort to prevent unauthorized or fraudulent redemption requests
by telephone, the Company and FSS will employ reasonable procedures to confirm
that such instructions are genuine. Shareholders must provide FSS with the
shareholder's account number, the exact name in which the shares are registered
and some additional form of identification. The Company or FSS may employ other
procedures such as recording certain transactions. If such procedures are
followed, neither FSS nor the Company will be liable for any losses due to
unauthorized or fraudulent redemption requests. Shareholders should verify the
accuracy of telephone instructions immediately upon receipt of confirmation
statements.
During times of drastic economic or market changes, it may be difficult
to make a redemption by telephone. If you cannot reach FSS by telephone, you may
mail or hand-deliver your request to FSS at Two Portland Square, Portland, Maine
04101.
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, telephone
redemption or exchange option election 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, a 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. If you wish
to request bank wire redemptions by telephone, you must also elect telephone
redemption privileges.
19
<PAGE>
Exchange Privilege
Shareholders of the Fund may exchange their shares for shares of the
Daily Assets Government Fund, a money market fund managed by FAdS and a separate
series of Forum Funds (R) or the Investors Bond Fund, also a separate series of
Forum Funds managed by FAdS. You may receive a copy of the prospectus for the
Daily Assets Government Fund or the Investors Bond Fund by writing FSS or
calling toll free at 888-9-TANAKA. No sales charges are imposed on exchanges
between a Fund and the Daily Assets Government Fund. Exchanges into the
Investors Bond Fund are subject to the fees charged by that fund as set forth in
the Investor Bond Fund's prospectus.
Exchange Procedure
You may request an exchange by writing to FSS at Two Portland Square,
Portland, Maine 04101. The minimum amount for an exchange to open an account in
the Daily Assets Government Fund or the Investors Bond Fund is $2,500. 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 the Daily Assets
Government Fund or the Investors Bond Fund, as applicable, may legally be sold.
Telephone Exchanges
If you have elected telephone exchange privileges, you may request an
exchange by calling FSS toll free at 888-9-TANAKA. Neither the Company nor FSS
are responsible for the authenticity of telephone instructions or losses, if
any, resulting from unauthorized telephone exchange requests. The Company
employs reasonable procedures to insure that telephone orders are genuine and,
if it does not, 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
Company at 888-9-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.
20
<PAGE>
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.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following three types of services for its
shareholders:
o Regular Account - allows shareholders to make voluntary additions and
withdrawals to and from their account as often as they wish.
o Automatic Investment Plan - permits automatic monthly investments
into the Fund from your checking account on a fixed or flexible schedule;
o Individual Retirement Accounts (IRA's).
More information regarding these services appears in the Statement of Additional
Information which may be obtained by request and without charge by writing or
calling the Fund at the address and telephone number printed on the front cover
of this Prospectus.
FUND PERFORMANCE
From time-to-time, the Fund may advertise its "average annual total
return" over various periods of time. This total return figure shows the average
percentage change in value of an investment in the Fund from the beginning date
of the measuring period to the ending date of the measuring period. The figure
reflects changes in the price of the Fund's shares and assumes that any income
dividends and/or capital gains distributions made by the Fund during the period
are reinvested in shares of the Fund. Figures will be given for recent one-,
five- and ten-year periods (when applicable), and may be given for other periods
as well (such as from commencement of the Fund's operations, or on a
year-by-year basis). When considering "average" total return figures for periods
longer than one year, investors should note that the Fund's annual total return
for any one year in the period might have been greater or less than the average
for the entire period. The Fund also may use "aggregate" total return figures
for various periods, representing the cumulative change in value of an
investment in the Fund for the specific period (again reflecting changes in the
Fund's share price and assuming reinvestment of dividends and distributions).
Aggregate total returns may be shown by means of schedules, charts or graphs,
and may indicate subtotals of the various components of total return (that is,
the change in value of initial investment, income dividends and capital gains
distributions).
The Fund may quote the Fund's average annual total and/or aggregate
total return for various time periods in advertisements or communications to
shareholders. The Fund may also compare its performance to that of other mutual
funds with similar investment objectives and to stock and other relevant indices
or to rankings prepared by independent services or industry publications. For
example, the Fund's total return may be compared to data prepared by Lipper
Analytical Services, Inc., Morningstar, Value Line Mutual Fund Survey and CDA
Investment Technologies, Inc. Total return data as reported in such national
financial publications as The Wall Street Journal, The New York Times,
Investor's Business Daily, USA
21
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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
(5) Russell 2000 Index
Further information on performance measurement may be found in the
Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
Shares are purchased at their net asset value, less any applicable
initial sales charge. The Fund calculates its net asset value (NAV) as follows:
(Value of Fund Assets) - (Fund Liabilities)
NAV = --------------------------------------------
Number of Outstanding Shares
Net asset value is determined as of the end of regular trading hours on
the New York Stock Exchange (currently 4:00 p.m. New York City time) on days
that the New York Stock Exchange is open.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.
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.
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.
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<PAGE>
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.
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
23
<PAGE>
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.
TO OBTAIN MORE INFORMATION
For further information on the TANAKA Growth Fund, please contact
_______________. Additional information may also be obtained by requesting a
copy of the Fund's Statement of Additional Information.
Investment Adviser: Tanaka Fund Advisers, LLC
230 Park Avenue, Suite 960
New York, NY 10169
Distributor: Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Counsel: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
Independent Auditors:
[General Information: For general information on the Fund and
[______], call the Distributor at
(800) ___-____ Toll Free.]
Transfer Agent: For account information, wire purchases or
redemptions, call or write to the Fund's
Transfer Agent:
Forum Shareholder Services, LLC
Two Portland Square
Portland, ME 04101
More Information: For 24-hour, 7-days-a-week price
information, call 888-9-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
24
<PAGE>
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
the Distributor. This Prospectus does not constitute an offer by the Fund or the
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).
25
<PAGE>
TANAKA FUNDS, INC.
TANAKA GROWTH FUND
Two Portland Square
Portland, Maine 04101
(888)-9-TANAKA (Toll Free)
Statement of Additional Information
December ___, 1998
TANAKA Funds, Inc. (the "Company"), the sole series of which is TANAKA
Growth Fund (the "Fund"), is an open-end, management investment company,
commonly known as a "mutual fund." This Statement of Additional Information is
not a prospectus and is authorized for distribution only when preceded or
accompanied by the Fund's prospectus dated _________, 1998 (the "Prospectus").
This Statement of Additional Information contains additional and more detailed
information than that set forth in the Prospectus and should be read in
conjunction with the Prospectus, additional copies of which may be obtained
without charge by writing or calling the Fund at the address and 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...........................................................16
Transfer Agent...............................................................16
Administrator................................................................17
Distribution.................................................................17
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 series of the Company, a Maryland corporation which is an
open-end, management investment company, commonly known as a "mutual fund." The
Fund is a diversified series of the Company.
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 only in high grade convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. "High grade" securities are those rated within
the three highest ratings categories of Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's") or that are determined by the
investment adviser to be of equivalent quality. 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
<PAGE>
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.
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 closed-end 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 in warrants. A
warrant is a long-term option issued by a corporation that generally gives the
investor the right to buy a specified number of
2
<PAGE>
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.
3
<PAGE>
As a matter of fundamental policy, the Fund may not:
1. purchase the securities of any issuer (other than securities issued or
guaranteed as to principal or interest by the Government of the United
States or any agency or instrumentality thereof ("U.S. Government
securities"), or securities of other investment companies) if, as a
result of such purchase, more than 5% of its total assets would be
invested in the securities of such issuer, unless 75% of the Fund's
total assets are invested in cash or cash equivalents, U.S. Government
securities, securities of other investment companies, and securities of
issuers in which the Fund has not invested more than 5% of its total
assets;
2. purchase stock or securities of an issuer (other than U.S. Government
securities) if such purchase would cause the Fund to own more than 10%
of any class of voting securities of such issuer;
3. 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;
4. 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;
5. 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;
6. 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;
7. 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;
8. 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
9. 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 not fundamental policies and may be changed
without shareholder approval. The Fund currently may not:
4
<PAGE>
(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;
(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
5
<PAGE>
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.
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.
6
<PAGE>
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 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.
7
<PAGE>
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains 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 a 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.
8
<PAGE>
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.
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 Adviser. Transactions on United States 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
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 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 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
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 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 Adviser's expenses,
it is not possible to
9
<PAGE>
estimate its value and in the opinion of the Adviser it does not reduce the
Adviser's expenses in a determinable amount. The extent to which the 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 Adviser does so in
accordance with its judgment of the best interests of the Fund and their
shareholders.
PORTFOLIO TURNOVER
Average annual portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. A
higher rate involves greater transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in the Investment Adviser's opinion, to meet the Fund's objective.
The Investment Adviser anticipates that the Fund's average annual portfolio
turnover rate will be less than 100%.
NET ASSET VALUE
The Fund's net asset value ("NAV") per share is calculated daily from
Monday through Friday on each business day on which the New York Stock Exchange
(the "Exchange") is open. The Exchange is currently closed on weekends and on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and the preceding Friday or subsequent Monday when any of
these holidays falls on a Saturday or Sunday, respectively.
The Board of Directors has determined that the Fund's NAV be calculated
as of the close of trading of the Exchange (generally 4:00 p.m., Eastern Time)
on each business day from Monday to Friday or on each day (other than a day
during which no security was tendered for redemption and no order to purchase or
sell such security was received by the Fund) in which there is a sufficient
degree of trading in the Fund's portfolio securities that the current NAV of the
Fund's shares might be materially affected by changes in the value of such
portfolio security. The Fund may compute its NAV per share more frequently if
necessary to protect shareholders' interests.
NAV per share is determined by dividing the total value of the Fund's
securities and other assets, less liabilities (including proper accruals of
taxes and other expenses), by the total number of shares then outstanding, and
rounding the result to the nearer cent.
Generally, securities owned by the Fund are valued at market value. In
valuing the Fund's assets, portfolio securities, including American Depositary
Receipts ("ADRs") and American Depositary Shares ("ADSs"), which are traded on
the Exchange, will be valued at the last sale price prior to the close of
regular trading on the Exchange. Lacking any sales, the security will be valued
at the last bid price prior to the close of regular trading on the Exchange.
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.
10
<PAGE>
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 the 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 $1,000,000 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 Forum Fund
Services, LLC ("FSSI"), the Fund's distributor, and are used by FSSI to defray
the expenses of FSSI 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 FSSI and are used by FSSI to defray the expenses of FSSI
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. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion schedules will be
the schedules that applied at the time of the purchase of shares of the
corresponding class of the Fund originally purchased by the shareholder.
12
<PAGE>
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70 1/2, or (iii) that had been purchased
by present or former directors of the Fund, by the relative of any such person,
by any trust, individual retirement account or 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 FSSI 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. ("Tanaka Capital"),
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, 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) and a 1973 graduate of Stanford University (MBA).
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
13
<PAGE>
Technologies, Inc., Pinnacle Automation and DT Industries, as well as the boards
of several private companies. He is a _____ graduate of Yale University ( ) and
a _____ graduate of Harvard University (MBA).
David M. Fox, Director ([date of birth ___________])
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 ____ graduate
of Williams College ( ) and a _______ 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 _________. 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 _____
graduate of _________ ( ) and a ______ graduate of ______ ( ).
*Stephen J. Barrett, Vice President and Assistant Secretary ([DOB])
Manager of Client Services, Forum Financial Services, Inc., with which
he has been associated since September 1996. Prior to joining Forum, Mr. Barrett
spent two and a half years at Fidelity Investments where he served as a Senior
Product Manager. Prior to that, he was a Securities Analyst for two and a half
years with Bingham, Dana & Gould in Boston, Massachusetts. Mr. Barrett also is
an officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Fund Services, LLC serves as manager,
administrator and/or distributor. His address is Two Portland Square, Portland,
Maine 04101.
*Victoria M. McCann, Vice President (6/8/67)
Ms. McCann has been Head of Operations and the Head Trader at Tanaka
Capital since 1991.
*Sara M. Morris, Treasurer ([DOB])
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<PAGE>
Managing Director, Forum Financial Services, Inc., with which she has
been associated since 1994. Prior thereto, from 1991 to 1994, Ms. Morris was
Controller of Wright Express Corporation and for six years prior thereto was
employed at Deloitte & Touche LLP as an accountant. Ms. Morris is also an
officer of various registered investment companies for which Forum
Administrative Services, LLC or Forum Fund Services, LLC serves as manager,
administrator and/or distributor. Her address is Two Portland Square, Portland,
Maine 04101.
*D. Blaine Riggle, Secretary ([DOB])
Assistant Counsel, Forum Financial Services, Inc., with which he has
been associated since 1998. Prior thereto, Mr. Riggle was Associate Counsel for
Wright Express Corporation from 1997 to 1998 and for three years thereto was an
associate with the law firm of Friedman, Babcock & Gaythwaite in Portland,
Maine. Mr. Riggle also is an officer of various registered investment companies
for which Forum Administrative Services, LLC or Forum Fund Services, LLC serves
as manager, administrator and/or distributor. His address is Two Portland
Square, Portland, Maine 04101.
*Dawn Taylor, Assistant Treasurer ([DOB])
Tax Manager, Forum Financial Services, Inc., with which she has been
associated since 1994. Prior thereto, from 1986-1994, Ms. Taylor was a Tax
Consultant for The New England Mutual Life Insurance Company, Boston,
Massachusetts. Ms. Taylor is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum Fund Services,
LLC serves as manager, administrator and/or distributor. Her address is Two
Portland Square, Portland, Maine 04101.
*Marcella A. Cote, Assistant Secretary ([DOB])
Fund Administrator, Forum Financial Services, Inc., with which she has
been associated since 1998. Prior thereto, from 1997 to 1998, Ms. Cote was a
budget analyst for the Maine Automated Child Welfare Information System, a
federally funded project of the Maine Department of Human Services. From 1991 to
1997, Ms. Cote acted as staff to the Maine Inter-departmental Committee on
Transition. Ms. Cote is also an officer of various registered investment
companies for which Forum Administrative Services, LLC or Forum Fund Services,
LLC serves as manager, administrator and/or distributor. Her address is Two
Portland Square, Portland, Maine 04101.
- ----------------------
* 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.
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 an annual retainer of $_____, and
a fee of $_____ for each meeting attended and is reimbursed for the expenses of
attendance at such meetings.
Compensation of Directors and Certain Officers
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
15
<PAGE>
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>
<S> <C> <C>
Total
Aggregate Compensation
Compensation from Registrant
Name of Person, Position from Registrant Paid to Directors
Graham Y. Tanaka, Chairman, CEO and President** $0 $0
Charles A. Dill, Director* $_____ $_____
David M. Fox, Director* $_____ $_____
Thomas R. Schwarz, Director* $_____ $_____
Scott D. Stooker, Director* $_____ $_____
</TABLE>
_________________________
* Member of the Audit Committee.
** "Interested person," as defined in the 1940 Act, of the Fund
because of the affiliation with Tanaka Fund Advisers, LLC.
INVESTMENT ADVISER
Tanaka Fund Advisers, LLC (the "Investment Adviser"), 230 Park Avenue,
Suite 960, New York, New York 10169, manages the investment of the assets of the
Fund pursuant to an Investment Advisory Agreement (the "Advisory Agreement").
The Advisory Agreement will be effective for a period of two years from December
__, 1998 and may be renewed thereafter only so long as such renewal and
continuance is specifically approved at least annually by the Company's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund, provided the continuance is also approved by a majority of the Directors
who are not "interested persons" of the Company or the Investment Adviser by
vote cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable without penalty on 60 days'
notice by the Company's Board of Directors or by the Investment Adviser. The
Advisory Agreement provides that it will terminate automatically in the event of
its assignment.
The Company has designated Graham Y. Tanaka, President and a Director
of the Investment Adviser, as the Chairman, President and Chief Executive
Officer of the Company.
The Investment Adviser is paid a fee to be accrued daily at an annual
rate of 1.00% of the average daily net assets of the Fund. All expenses not
specifically assumed by the Investment Adviser are assumed by the Fund.
TRANSFER AGENT
Forum Shareholder Services, LLC ("FSS"), Two Portland Square, Portland,
Maine 04101, is the Fund's Transfer Agent and Dividend Disbursing Agent,
pursuant to a Transfer Agency and Services Agreement dated November ___, 1998.
Pursuant to the Transfer Agency and Services Agreement, the minimum
payment by the Fund per year is $18,000 during the Fund's first year of
operations and $24,000 thereafter, plus $12,000 for each open class of shares
above one, plus other related expenses.
16
<PAGE>
ADMINISTRATOR
Forum Administrative Services, LLC (the "FAdS"), Two Portland Square,
Portland, Maine 04101, is the Fund's administrator pursuant to an Administration
Agreement, which is dated November __, 1998. 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 FAdS,] approve the extension at least annually.
DISTRIBUTION
Distributor
Forum Financial Services, Inc. (the "Distributor" or "FSSI"), Two
Portland Square, Portland, Maine 04101, is the Fund's distributor pursuant to a
Distribution Agreement between the Fund and the Distributor.
Distribution and Service Plans
The Fund has adopted, in accordance with Rule 12b-1 under the 1940 Act,
separate Rule 12b-1 distribution and 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 Fund 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 pays a
distributor a service fee, accrued daily and paid monthly, at the annual rate of
up to 0.25% of the average daily net assets attributable to its Class A or Class
B shares, as the case may be. The services for which service fees may be paid
include, among other things, advising clients or customers regarding the
purchase, sale or retention of shares of the Fund, answering routine inquiries
concerning the Fund and assisting shareholders in changing options or enrolling
in specific plans. 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. The Class A Plan does not provide for the payment of interest
or carrying charges as distribution expenses.
Under the Fund's Class B Plan, the Fund also pays a Distributor 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 distributor
may reallow to dealers all or a portion of the service and distribution fees as
the distributor may determine from time to time. 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
the printing of prospectuses and reports for persons other than existing
shareholders and the preparation, printing and distribution of sales literature
and advertising materials. Pursuant to the Class B Plan, a distributor may
include interest, carrying or other finance charges in its calculation of
distribution expenses, if not prohibited from doing so pursuant to an order of
or a regulation adopted by the SEC.
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.
The distributor or Investment Adviser, as the case may be, may make
payments for distribution assistance and for administrative and accounting
services from resources that may include the management fees paid by the Fund.
The distributor or Investment Adviser, as the case may be, also may make
payments (such as the service fee payments described above) to unaffiliated
broker-dealers for services rendered in the distribution of the Fund's shares.
To qualify for such payments, shares may be subject to a minimum holding period.
However, no such payments will be made to any dealer or broker if at the end of
each year the amount of shares held does not exceed a minimum amount. The
minimum holding period and minimum level of holdings will be determined from
time to time by the distributor or Investment Adviser, as the case may be.
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
17
<PAGE>
stock certificates, if any, and registration and qualification fees and
expenses); legal and auditing expenses; and the cost of stationery and forms
prepared exclusively for the Fund.
The allocation of the general expenses of the Company among the Fund
and any other series of the Company that may be created in the future will be
made on a basis that the Company's Board of Directors deems fair and equitable,
which may be based on the relative net assets of the series of the Company or
the nature of the services performed and relative applicability to each series
of the Company.
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, it 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, preselected 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 FSSI.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to FSSI.
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
18
<PAGE>
individual nonetheless may make nondeductible contributions up to $2,000, or
100% of earned income if less, for that year. One spouse also may contribute up
to $2,000 per year to the other spouse's own IRA, even if the other spouse has
earned income of less than $2,000, as long as the spouses' joint earned income
is at least $4,000. There are special rules for determining how withdrawals are
to be taxed if an IRA contains both deductible and nondeductible amounts. In
general, a proportionate amount of each withdrawal will be deemed to be made
from nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. If you receive a lump sum distribution from
another qualified retirement plan, you may roll over all or part of that
distribution into a traditional IRA. Such a 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.
19
<PAGE>
If additional series were to be formed, the rights of existing series
shareholders would not change, and the objective, policies and investments of
each series would not necessarily be changed. A share of any series would
continue to have a priority in the assets of that series in the event of a
liquidation.
The shares of each series when issued will be fully paid and
nonassessable, will have no preference over other shares of the same series as
to conversion, dividends, or retirement, and will have no preemptive rights. The
shares of any series will be redeemable from the assets of that series at any
time at a shareholder's request at the current net asset value of that series
determined in accordance with the provisions of the 1940 Act and the rules
thereunder. The Company's general corporate expenses (including 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:
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<PAGE>
Yield = 2 [(a-b + 1)6 -1]
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
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 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
21
<PAGE>
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the yield or return to
shareholders only for the limited historical period used.
Comparison of Portfolio Performance
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when 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>
FINANCIAL STATEMENTS
[to come]
Investment Adviser: Tanaka Fund Advisers, LLC
230 Park Avenue, Suite 960
New York, NY 10169
Distributor: Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Counsel: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
Independent Auditors:
Transfer Agent: For account information, wire purchases or
redemptions, call or write to the Fund's
Transfer Agent:
Forum Shareholder Services, LLC
Two Portland Square
Portland, ME 04101
More Information: For 24-hour, 7-days-a-week price information call
1-800-___-____.
For information on the Fund, investment plans, or
other shareholder services, call the Company at
888-9-TANAKA during normal business hours, or
write the Company at _______.
23
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TANAKA FUNDS, INC.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
N/A
(b) Exhibits.
(1) Amended and Restated Articles of Incorporation of Registrant.*
(2) By-Laws of Registrant.
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Investment Advisory Agreement between Tanaka Fund
Advisers, LLC and the Registrant on behalf of the TANAKA GROWTH
FUND.
(6) Form of Distribution Agreement between Forum Fund Services, LLC
and the Registrant on behalf of the TANAKA GROWTH FUND.
(7) Not Applicable.
(8) Form of Custodian Agreement between Investor's Bank & Trust
Company and the Registrant on behalf of the TANAKA GROWTH FUND.
(9) (a) Form of Transfer Agency and Services Agreement between Forum
Shareholder Services, LLC and the Registrant on behalf of the
TANAKA GROWTH FUND.
(b) Form of Administration Agreement between Forum
Administrative Services, LLC and the Registrant on behalf of
the TANAKA GROWTH FUND.
(c) Form of Fund Accounting Agreement between Forum Accounting
Services, LLC and the Registrant on behalf of the TANAKA
GROWTH FUND.
(10) Opinion of Counsel.*
(11) Report and Consent of Independent Accountants.*
* To be filed by Pre-Effective Amendment.
C-1
<PAGE>
(12) Not applicable.
(13) Subscription Agreement.*
(14)
(15) Distribution Plan pursuant to Rule 12b-1.*
(16) Not Applicable.
(17) Not Applicable.
(18) Multiple Class Plan pursuant to Rule 18f-3.*
(19) Powers-of-Attorney.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES: As of November 9, 1998:
Number of
Title of Class Record Holders
-------------- --------------
TANAKA GROWTH FUND 0
ITEM 27. INDEMNIFICATION.
The Registrant is incorporated under the General Corporation Law (the
"GCL") of the State of Maryland. The Registrant's Articles of
Incorporation provide for indemnification of directors, officers and
other agents of the corporation to the fullest extent permitted under
the GCL. The Articles limit such indemnification so as to comply with
the prohibition against indemnifying such persons under Section 17 of
the 1940 Act for certain conduct set forth in that section ("Disabling
Conduct"). Contracts between the Fund and various service providers
include provisions for indemnification, but also forbid the Registrant
to indemnify affiliates for Disabling Conduct.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
TANAKA Advisors, Inc., the investment advisor to the TANAKA GROWTH FUND
series, provides investment advisory services consisting of portfolio
management for a variety of individuals and institutions and as of
October 31, 1998, had approximately [$235] million in assets under
management.
For information as to any other business, profession, vocation or
employment of a substantial nature in which each director, officer or
partner of Tanaka Fund
* To be filed by Pre-Effective Amendment.
C-2
<PAGE>
Advisers, LLC (the "Adviser") is or has been, at any time during the
past two fiscal years, engaged for his own account or in the capacity
of director, officer, employee, partner or trustee, reference is made
to the Adviser's Form ADV (File #801-??), currently on file with the
Commission as required by the Investment Advisors Act of 1940, as
amended.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Forum Financial Services, Inc., Registrant's underwriter, serves
as underwriter for the following investment companies registered
under the Investment Company Act of 1940, as amended:
The CRM Funds
The Cutler Trust
Forum Funds
Memorial Funds
Monarch Funds
Norwest Advantage Funds
Norwest Select Funds
Sound Shore Fund, Inc.
(b) The following officer of Forum Financial Services, Inc. holds the
following position with Registrant. Their business address is Two
Portland Square, Portland, Maine 04101.
Name Position with Underwriter Position with Registrant
-------------- ------------------------- ------------------------
Sara M. Morris Treasurer Treasurer
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents of the Registrant required to be
maintained by ss.31(a) of the Investment Company Act of 1940, as
amended, and the rules promulgated thereunder are kept in several
locations:
(a) Shareholder account records (including share ledgers, duplicate
confirmations, duplicate account statements, and applications
forms) of the TANAKA GROWTH FUND series of the Registrant are
maintained by its transfer agent, Forum Shareholder Services, LLC,
Two Portland Square, Portland, Maine 04101.
(b) Investment records including research information, records
relating to the placement of brokerage transactions, memorandums
regarding investment recommendations for supporting and/or
authorizing the purchase or sale of assets, information relating
to the placement of securities transactions, and certain records
concerning investment recommendations of the TANAKA GROWTH FUND
series are maintained at the series' investment advisor, Tanaka
Fund Advisers, LLC, at 230 Park Avenue, Suite 960, New York, New
York 10169.
(c) Accounts and records for portfolio securities and other investment
assets, including cash of the Tanaka Fund series are maintained in
the custody of the Registrant's custodian bank, Investor's Bank &
Trust Company, 200 Clarendon Street, P.O. Box 9130, Boston,
Massachusetts 02117.
(d) Accounting records, including general ledgers, supporting ledgers,
pricing computations, etc. of the Tanaka Fund series are
maintained by the Registrant's fund accounting agent, Forum
Accounting Services, LLC, Two Portland Square, Portland, Maine
04101.
(e) Administrative records, including copies of the charter, by-laws,
minute books, agreements, compliance records and reports, certain
shareholder communications, etc., are kept at the Registrant's
principal office, at [ask],
C-3
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[by the Registrant's Administrator, Commonwealth Shareholder
Services, Inc., whose address is the same as Registrant's.]
(f) Records relating to distribution of shares of the Registrant are
maintained by the Registrant's distributor, Forum Fund Services,
LLC, Two Portland Square, Portland, Maine 04101.
ITEM 31. MANAGEMENT SERVICES. There are no management-related service
contracts not discussed in Parts A or B of this Form.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
C-4
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of New York, and
the State of New York on the 13th day of November, 1998.
TANAKA FUNDS, INC.
By: *
------------------------
Graham Y. Tanaka
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 has been signed below by the following person in
the capacities and on the date indicated below.
(Signature) (Title) (Date)
* Director November 13, 1998
- ------------------------
Graham Y. Tanaka
* Director November 13, 1998
- ------------------------
Charles A. Dill
* Director November 13, 1998
- ------------------------
David M. Fox
* Director November 13, 1998
- ------------------------
Scott D. Stooker
* Director November 13, 1998
- ------------------------
Thomas R. Schwarz
/s/ Margaret A. Bancroft
- ------------------------
Margaret A. Bancroft
Attorney-In-Fact
* Pursuant to Powers-of-Attorney
C-5
<PAGE>
Exhibits
99.2 By-Laws
99.5 Form of Investment Advisory Agreement
99.6 Form of Distribution Agreement
99.8 Form of Custodian Agreement
99.9(a) Form of Transfer Agency and Services Agreement
99.9(b) Form of Administration Agreement
99.9(c) Form of Fund Accounting Agreement
99.19 Powers-of-Attorney
BY-LAWS
OF
TANAKA FUNDS, INC.
(as amended through November 16, 1998)
---------------------------
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The Corporation shall have a
principal office in the City of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices also at such
other places within and without the State of Maryland as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be held at
such place, either within the State of Maryland or at such other place within
the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be required to
hold an annual meeting of stockholders in any year in which the election of
directors is not required to be acted on by stockholders under the Investment
Company Act of 1940. If the Corporation is required to hold a meeting of
stockholders to elect directors, the meeting shall be designated as the annual
meeting of stockholders for that year and shall be held no later than 120 days
after the occurrence of the event requiring the meeting. Any business may be
considered at an annual meeting of stockholders without the purpose of the
meeting having been specified in the notice.
Section 3. Notice of Annual Meeting. Written or printed notice of the
annual meeting, stating the place, date and hour thereof, shall be given to each
stockholder entitled to vote thereat and each other shareholder entitled to
notice thereof not less than ten nor more than ninety days before the date of
the meeting.
<PAGE>
Section 4. Special Meetings. Special meetings of stockholders may be
called by the chairman, the president or by the Board of Directors and shall be
called by the secretary upon the written request of holders of shares entitled
to cast not less than fifty percent of all the votes entitled to be cast at such
meeting. Such request shall state the purpose or purposes of such meeting and
the matters proposed to be acted on thereat. In the case of such request for a
special meeting, upon payment by such stockholders to the Corporation of the
estimated reasonable cost of preparing and mailing a notice of such meeting, the
secretary shall give the notice of such meeting. The secretary shall not be
required to call a special meeting to consider any matter which is substantially
the same as a matter acted upon at any special meeting of stockholders held
within the preceding twelve months unless requested to do so by holders of
shares entitled to cast not less than a majority of all votes entitled to be
cast at such meeting. Notwithstanding the foregoing, to the extent required by
the Investment Company Act of 1940, special meetings of stockholders for the
purpose of voting upon the question of removal of any director or directors of
the Corporation shall be called by the secretary upon the written request of
holders of shares entitled to cast not less than ten percent of all the votes
entitled to be cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed notice of a
special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat and each other shareholder entitled to notice thereof not less than ten
nor more than ninety days before the date fixed for the meeting.
Section 6. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice thereof.
Section 7. Quorum. The holders of shares entitled to cast one-third of
the votes entitled to be cast thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except with respect to any matter which, under
applicable statutes or regulatory requirements or the Corporation's charter,
requires approval by a separate vote of one or more classes of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast on the matter shall constitute a
quorum. A meeting of stockholders convened on the date for which it is called
may be adjourned from time to time without further notice to a date not more
than 120
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days after the record date. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting on the date specified in the original notice.
Section 8. Voting. If a quorum is present at any meeting, the holders
of a majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting who shall be present in person
or by proxy at such meeting shall have power to approve any matter properly
before the meeting (except a plurality of all votes cast at a meeting at which a
quorum is present shall be sufficient for the election of a director), unless
the question is one upon which by express provision of the Investment Company
Act of 1940, as from time to time in effect, or other statutes or rules or
orders of the Securities and Exchange Commission or any successor thereto or of
the Articles of Incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
holders of such majority shall also have power to adjourn the meeting to any
specific time or times, and no notice of any such adjourned meeting need be
given to stockholders absent or otherwise.
Section 9. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to vote in person or by written proxy signed by the
stockholder or by his duly authorized attorney-in-fact. No proxy shall be voted
after eleven months from its date, unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date which shall be
not more than ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock transfer books shall be
closed for a stated period, but not to exceed, in any case, twenty days. If the
stock transfer books are closed for the purpose of determining stockholders
entitled to notice of or to
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vote at a meeting of stockholders, such books shall be closed for at least ten
days immediately preceding such meeting. If no record date is fixed and the
stock transfer books are not closed for the determination of stockholders: (1)
The record date for the determination of stockholders entitled to notice of, or
to vote at, a meeting of stockholders shall be at the close of business on the
day on which notice of the meeting of stockholders is mailed or the day thirty
days before the meeting, whichever is the closer date to the meeting; and (2)
The record date for the determination of stockholders entitled to receive
payment of a dividend or an allotment of any rights shall be at the close of
business on the day on which the resolution of the Board of Directors, declaring
the dividend or allotment of rights, is adopted, provided that the payment or
allotment date shall not be more than sixty days after the date of the adoption
of such resolution. If a record date has been fixed for the determination of
stockholders entitled to vote at a meeting, only the stockholders of record on
the record date shall be entitled to vote at the meeting and such stockholders
shall be entitled to vote at the meeting notwithstanding the subsequent transfer
or redemption of the shares owned of record on such date.
Section 11. Inspectors of Election. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed, the
person residing at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, may be
required to take and sign an oath faithfully to execute the duties of inspector
at such meeting with strict impartiality and according to the best of his
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting or any stockholder, the inspector or
inspectors, if any, shall make a report in writing of
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<PAGE>
any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
Section 12. Informal Action by Stockholders. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors constituting
the entire Board of Directors (which initially was fixed at one in the
Corporation's Articles of Incorporation) may be increased or decreased from time
to time by the vote of a majority of the entire Board of Directors within the
limits permitted by law but at no time may be less than three or more than
twelve, but the tenure of office of a director in office at the time of any
decrease in the number of directors shall not be affected as a result thereof.
The directors shall be elected to hold offices at the annual meeting of
stockholders and each director shall hold office until the next annual meeting
of stockholders or until his successor is elected and qualifies. Any director
may resign at any time upon written notice to the Corporation. Any director may
be removed, either with or without cause, at any meeting of stockholders duly
called and at which a quorum is present by the affirmative vote of the majority
of the votes entitled to be cast thereon, and the vacancy in the Board of
Directors caused by such removal may be filled by the stockholders at the time
of such removal. Directors need not be stockholders.
Section 2. Vacancies and Newly-Created Directorships. Any vacancy
occurring in the Board of Directors for any cause other than by reason of an
increase in the number of directors may be filled by a majority of the remaining
members of the Board of Directors although
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<PAGE>
such majority is less than a quorum. Any vacancy occurring by reason of an
increase in the number of directors may be filled by a majority of the entire
Board of Directors. A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of
stockholders or until his successor is elected and qualifies.
Section 3. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Articles of Incorporation or by these By-Laws conferred
upon or reserved to the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation or any
committee thereof may hold meetings, both regular and special, either within or
without the State of Maryland. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board of Directors. Special meetings of the Board of Directors
may be called by the chairman, the president or by two or more directors. Notice
of special meetings of the Board of Directors shall be given by the secretary to
each director at least three days before the meeting if by mail or at least 24
hours before the meeting if given in person or by telephone or by telegraph. The
notice need not specify the business to be transacted.
Section 5. Quorum and Voting. During such times when the Board of
Directors shall consist of more than one director, a quorum for the transaction
of business at meetings of the Board of Directors shall consist of one-third of
the entire Board of Directors, but in no event less than two directors. The
action of a majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 6. Committees. The Board of Directors may appoint from among
its members an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may delegate to such committees any of the
powers of the Board of Directors except
6
<PAGE>
those which may not by law be delegated to a committee. Such committee or
committees shall have the name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Unless the Board of Directors
designates one or more directors as alternate members of any committee, who may
replace an absent or disqualified member at any meeting of the committee, the
members of any such committee present at any meeting and not disqualified from
voting may, whether or not they constitute a quorum, appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member of such committee. At meetings of any such committee, a
majority of the members or alternate members of such committee shall constitute
a quorum for the transaction of business and the act of a majority of the
members or alternate members present at any meeting at which a quorum is present
shall be the act of the committee.
Section 7. Minutes of Committee Meetings. The committees shall keep
regular minutes of their proceedings.
Section 8. Informal Action by Board of Directors and Committees. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if a
written consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee, provided,
however, that such written consent shall not constitute approval of any matter
which pursuant to the Investment Company Act of 1940 and the rules thereunder
requires the approval of directors by vote cast in person at a meeting.
Section 9. Meeting by Conference Telephone. The members of the Board of
Directors or any committee thereof may participate in a meeting of the Board of
Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and such participation shall
constitute presence in person at such meeting, provided, however, that such
participation shall not constitute presence in person with respect to matters
which pursuant to the Investment Company Act of 1940 and the rules thereunder
require the approval of directors by vote cast in person at a meeting.
7
<PAGE>
Section 10. Fees and Expenses. The directors may be paid their expenses
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors, a stated salary as
director or such other compensation as the Board of Directors may approve. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like reimbursement and compensation for
attending committee meetings.
Section 11. Emeritus Directors. Upon retirement of a Director, the
Board may elect him or her to the position of Director Emeritus. Said Director
Emeritus shall serve for one year and may be re-elected by the Board from year
to year thereafter. Said Director Emeritus shall not vote at meetings of
Directors and shall not be held responsible for actions of the Board but shall
receive fees paid to Board members for serving as such.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed to
them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes, of the Articles of Incorporation or
of these By-Laws, each person entitled to said notice waives notice if, before
or after the meeting he signs a written waiver of notice and such waiver is
filed with the records of the meeting. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a chairman of the Board of Directors, a
president, a secretary and a treasurer. The Board of Directors may choose also
such vice presidents and additional officers or assistant officers as it may
deem advisable. Any number of offices, except the offices of president and vice
president.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation shall
hold office at the pleasure of the Board of Directors. Each officer shall hold
his office until his successor is elected and qualifies or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Any officer elected or appointed by the Board of Directors
may be removed at any time by the Board of Directors when, in its judgment, the
best interests of the Corporation will be served thereby. Any vacancy occurring
in any office of the Corporation by death, resignation, removal or otherwise
shall be filled by the Board of Directors.
Section 4. Chairman of the Board of Directors. The chairman of the
Board of Directors shall preside at all meetings of the stockholders and of the
Board of Directors. Unless otherwise determined by the Board of Directors, he
shall be the chief executive officer and shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall be ex
officio a member of all committees designated by the Board of Directors except
as otherwise determined by the Board of Directors. He shall have authority to
execute instruments and contracts on behalf of the Corporation except where
required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation.
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Section 5. President. The president shall act under the direction of
the chairman and in the absence or disability of the chairman shall perform the
duties and exercise the powers of the chairman. Unless otherwise determined by
the Board of Directors, he shall be the chief operating officer and shall
perform such other duties and have such other powers as the chairman or the
Board of Directors may from time to time prescribe. He shall have authority to
execute instruments and contracts on behalf of the Corporation except where
required by law to be otherwise signed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
Section 6. Vice Presidents. The vice presidents shall act under the
direction of the chairman and the president and in the absence or disability of
the president shall perform the duties and exercise the powers of the president.
They shall perform such other duties and have such other powers as the chairman,
the president or the Board of Directors may from time to time prescribe. The
Board of Directors may designate one or more executive vice presidents or may
otherwise specify the order of seniority of the vice presidents and, in that
event, the duties and powers of the president shall descend to the vice
presidents in the specified order of seniority. Section 7. Secretary. The
secretary shall act under the direction of the chairman and the president.
Subject to the direction of the chairman and the president he shall attend all
meetings of the Board of Directors and all meetings of stockholders and record
the proceedings in a book to be kept for that purpose and shall perform like
duties for the committees designated by the Board of Directors when required. He
shall give, or cause to be given, notice of all meetings of stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the chairman or the Board of Directors. He shall keep in
safe custody the seal of the Corporation and shall affix the seal or cause it to
be affixed to any instrument requiring it.
Section 8. Assistant Secretaries. The assistant secretaries in the
order of their seniority, unless otherwise determined by the chairman, the
president or the Board of Directors, shall, in the absence or disability of the
secretary, perform the duties and exercise the powers of the secretary. They
shall perform such other duties and have such other powers as the chairman, the
president or the Board of Directors may from time to time prescribe.
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Section 9. Treasurer. The treasurer shall act under the direction of
the chairman and the president. Subject to the direction of the chairman and the
president he shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the chairman, the president or the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the chairman, the president and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as treasurer and of the financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in the order
of their seniority, unless otherwise determined by the chairman, the president
or the Board of Directors, shall, in the absence or disability of the treasurer,
perform the duties and exercise the powers of the treasurer. They shall perform
such other duties and have such other powers as the chairman, the president or
the Board of Directors may from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. To the extent authorized by the Board of Directors,
every holder of stock of the Corporation who has made full payment of the
consideration for such stock shall be entitled upon request to have a
certificate, signed by, or in the name of the Corporation by, the chairman, the
president or a vice president and countersigned by the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the Corporation,
certifying the number of whole shares of each class of stock owned by him in the
Corporation.
Section 2. Fractional Share Interests. The Corporation may issue
fractions of a share of stock. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares.
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Section 3. Signatures on Certificates. Any of or all the signatures on
a certificate may be a facsimile. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall cease to be such
officer before such certificate is issued, it may be issued with the same effect
as if he were such officer at the date of issue. The seal of the Corporation or
a facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered owner of
shares, and if a certificate has been issued to represent such shares upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transaction upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including voting and dividends, and the
Corporation shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Maryland.
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ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for such other purpose as the Board of
Directors shall think conducive to the interest of the Corporation, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation may,
subject to the provisions of the Articles of Incorporation and of applicable
law, be declared by the Board of Directors at any time. Dividends may be paid in
cash, in property or in shares of the Corporation's stock, subject to the
provisions of the Articles of Incorporation and of applicable law.
Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. If the Corporation is required to place its seal to a
document, consistent with Section 1-304 of the Maryland General Corporation Law,
it may place the word "(seal)" adjacent to the signature of the person
authorized to sign the document on behalf of the Corporation.
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ARTICLE VIII
Indemnification
Section 1. Indemnification of Directors and Officers. The Corporation
shall indemnify its directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify its officers to the same extent as its directors and to such
further extent as is consistent with law. The Corporation shall indemnify its
directors and officers who while serving as directors or officers also serve at
the request of the Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights provided by this
Article shall continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person. This Article shall not protect any such person against any
liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct").
Section 2. Advances. Any current or former director or officer of the
Corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification without requiring a preliminary determination of ultimate
entitlement to indemnification except as provided below, to the fullest extent
permissible under the Maryland General Corporation Law. The person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking to repay any such advance
if it should ultimately be determined that the standard of conduct has not been
met. In addition, at least one of the following additional conditions shall be
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance;
- 14 -
<PAGE>
or (c) a majority of a quorum of directors of the Corporation who are neither
"interested persons" as defined in Section 2(a)(19) of the Investment Company
Act of 1940, as amended, nor parties to the proceeding ("disinterested non-party
directors"), or independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of disinterested
non-party directors or (ii) an independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. Other Rights. The Board of Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise. The
rights provided to any person by this Article shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer, employee, or agent as
provided above.
- 15 -
<PAGE>
Section 6. Amendments. References in this Article are to the Maryland
General Corporation Law and to the Investment Company Act of 1940 as from time
to time amended. No amendment of these By-laws shall effect any right of any
person under this Article based on any event, omission or proceeding prior to
the amendment.
ARTICLE IX
Amendments
The Board of Directors shall have the power to make, alter and repeal
by-laws of the Corporation.
- 16 -
FORM OF
TANAKA FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998, by and between
TANAKA Funds, Inc., a Maryland Corporation, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Corporation"),
and Tanaka Fund Advisers, LLC, a Delaware limited liability company with its
principal office and place of business at 230 Park Avenue, Ste. 1432, New York,
New York 10169 ("Adviser").
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end, management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series; and
WHEREAS, the Corporation desires that the Adviser perform investment
advisory services for each series of the Corporation listed in Appendix A hereto
(each, a "Fund" and collectively, the "Funds"), and the Adviser is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and the Adviser hereby agree as
follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Corporation hereby employs Adviser, subject to the direction
and control of the Board, to manage the investment and reinvestment of the
assets in each Fund and, without limiting the generality of the foregoing, to
provide other services as specified herein. The Adviser accepts this employment
and agrees to render its services for the compensation set forth herein.
(b) In connection therewith, the Corporation has delivered to the
Adviser copies of (i) the Corporation's Articles of Incorporation and Bylaws
(collectively, as amended from time to time, "Organic Documents"), (ii) the
Corporation's Registration Statement and all amendments thereto filed with the
U.S. Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the 1940 Act (the "Registration
Statement"), (iii) the Corporation's current Prospectuses and Statements of
Additional Information of each Fund (collectively, as currently in effect and as
amended or supplemented, the "Prospectus"), and (iv) all procedures adopted by
the Corporation with respect to the Funds (i.e., repurchase agreement
procedures), and shall promptly furnish the Adviser with all amendments of or
supplements to the foregoing. The Corporation shall deliver to the Adviser (x) a
certified copy of the resolution of the Board of Directors of the Corporation
(the "Board") appointing the Adviser and authorizing the execution and delivery
of this Agreement, (y) a copy of all proxy statements and related materials
relating to the Funds, and (z) any other documents, materials or information
that the Adviser shall reasonably request to enable it to perform its duties
pursuant to this Agreement.
<PAGE>
(c) The Adviser has delivered to the Corporation (i) a copy of its Form
ADV as most recently filed with the SEC and (ii) a copy of its code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act (the "Code").
The Adviser shall promptly furnish the Corporation with all amendments of or
supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE CORPORATION
In order for the Adviser to perform the services required by this
Agreement, the Corporation (i) shall cause all service providers to the
Corporation to furnish information to the Adviser, and assist the Adviser as may
be required and (ii) shall ensure that the Adviser has reasonable access to all
records and documents maintained by the Corporation or any service provider to
the Corporation.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser will make decisions with respect to all purchases and
sales of securities and other investment assets in each Fund. To carry out such
decisions, the Adviser is hereby authorized, as agent and attorney-in-fact for
the Corporation, for the account of, at the risk of and in the name of the
Corporation, to place orders and issue instructions with respect to those
transactions of the Funds. In all purchases, sales and other transactions in
securities and other investments for the Funds, the Adviser is authorized to
exercise full discretion and act for the Corporation in the same manner and with
the same force and effect as the Corporation might or could do with respect to
such purchases, sales or other transactions, as well as with respect to all
other things necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions.
Consistent with Section 28(e) of the Securities and Exchange Act of
1934, as amended, the Adviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Adviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Adviser or its affiliates.
Whenever the Adviser simultaneously places orders to purchase or sell the same
asset on behalf of a Fund and one or more other accounts advised by the Adviser,
the orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable over time to each account.
(b) The Adviser will report to the Board at each meeting thereof as
requested by the Board all material changes in each Fund since the prior report,
and will also keep the Board informed of important developments affecting the
Corporation, the Funds and the Adviser, and on its own initiative, will furnish
the Board from time to time with such information as the Adviser may believe
appropriate for this purpose, whether concerning the individual companies whose
securities are included in the Funds' holdings, the industries in which they
engage, the economic, social or political conditions prevailing in each country
in which the Funds maintain investments, or otherwise. The Adviser will also
furnish the Board with such statistical and analytical information with respect
to investments of the Funds as the Adviser may believe appropriate or as
- 2 -
<PAGE>
the Board reasonably may request. In making purchases and sales of securities
and other investment assets for the Funds, the Adviser will bear in mind the
policies set from time to time by the Board as well as the limitations imposed
by the Organic Documents and Registration Statement, the limitations in the 1940
Act, the Securities Act, the Internal Revenue Code of 1986, as amended, and
other applicable laws and the investment objectives, policies and restrictions
of the Funds.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Corporation's behalf in any such respect.
(d) The Adviser will report to the Board all material matters related
to the Adviser. On an annual basis, the Adviser shall report on its compliance
with its Code to the Board and upon the written request of the Corporation, the
Adviser shall permit the Corporation, or its representatives to examine the
reports required to be made to the Adviser under the Code. The Adviser will
notify the Corporation of any change of control of the Adviser and any changes
in the key personnel who are either the portfolio manager(s) of the Fund or
senior management of the Adviser, in each case prior to or promptly after such
change.
(e) The Adviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Corporation under the 1940 Act. The Adviser shall prepare
and maintain, or cause to be prepared and maintained, in such form, for such
periods and in such locations as may be required by applicable law, all
documents and records relating to the services provided by the Adviser pursuant
to this Agreement required to be prepared and maintained by the Adviser or the
Corporation pursuant to applicable law. To the extent required by law, the books
and records pertaining to the Corporation which are in possession of the Adviser
shall be the property of the Corporation. The Corporation, or its
representatives, shall have access to such books and records at all times during
the Adviser's normal business hours. Upon the reasonable request of the
Corporation, copies of any such books and records shall be provided promptly by
the Adviser to the Corporation or its representatives.
(f) The Adviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to the accountants for the performance of the accountants' duties.
(g) The Adviser will provide the Funds' custodian and fund accountant
on each business day with such information relating to all transactions
concerning the Funds' assets as the custodian and fund accountant may reasonably
require. In accordance with procedures adopted by the Board, the Adviser is
responsible for assisting in the fair valuation of all Fund assets and will use
its reasonable efforts to arrange for the provision of prices from a parties who
are not affiliated persons of the Adviser for each asset for which the Funds'
fund accountant does not obtain prices in the ordinary course of business.
- 3 -
<PAGE>
(h) The Adviser shall authorize and permit any of its directors,
officers and employees who may be elected as Directors or officers of the
Corporation to serve in the capacities in which they are elected.
(i) The Adviser shall have no duties or obligations pursuant to this
Agreement (other than the continuation of its preexisting duties and
obligations) during any period in which the Fund invests all (or substantially
all) of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Corporation shall pay the
Adviser, with respect to each of Fund, a fee at an annual rate as listed in
Appendix A hereto. Such fees shall be accrued by the Corporation daily and shall
be payable monthly in arrears on the first day of each calendar month for
services performed hereunder during the prior calendar month. If fees begin to
accrue in the middle of a month or if this Agreement terminates before the end
of any month, all fees for the period from that date to the end of that month or
from the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Corporation shall pay to the Adviser
such compensation as shall be payable prior to the effective date of
termination.
(b) The Adviser may reimburse expenses of each Fund or waive its fees
expense ratio agreements.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
(d) The Corporation shall be responsible for and assumes the obligation
for payment of all of its expenses, including: (a) the fee payable under this
Agreement; (b) the fees payable to each administrator under an agreement between
the administrator and the Corporation; (c) expenses of issue, repurchase and
redemption of Shares; (d) interest charges, taxes and brokerage fees and
commissions; (e) premiums of insurance for the Corporation, its directors and
officers and fidelity bond premiums; (f) fees and expenses of third parties,
including the Corporation's independent accountant, custodian, transfer agent,
dividend disbursing agent and fund accountant; (g) fees of pricing, interest,
dividend, credit and other reporting services; (h) costs of membership in trade
associations; (i) telecommunications expenses; (j) funds transmission expenses;
(k) auditing, legal and compliance expenses; (l) costs of forming the
Corporation and maintaining its existence; (m) costs of preparing, filing and
printing the Corporation's Prospectuses, subscription application forms and
shareholder reports and other communications and delivering them to existing
shareholders, whether of record or beneficial; (n) expenses of meetings of
shareholders and proxy solicitations therefor; (o) costs of maintaining books of
original entry for portfolio and fund
- 4 -
<PAGE>
accounting and other required books and accounts, of calculating the net asset
value of Shares and of preparing tax returns; (p) costs of reproduction,
stationery, supplies and postage; (q) fees and expenses of the Corporation's
directors and officers; (r) the costs of personnel (who may be employees of the
Adviser, an administrator or their respective affiliated persons) performing
services for the Corporation; (s) costs of Board, Board committee, shareholder
and other corporate meetings; (t) SEC registration fees and related expenses;
(u) state, territory or foreign securities laws registration fees and related
expenses; and (v) all fees and expenses paid by the Corporation in accordance
with any distribution or service plan or agreement related to similar manners.
SECTION 5. STANDARD OF CARE
(a) The Corporation shall expect of the Adviser, and the Adviser will
give the Corporation the benefit of, the Adviser's best judgment and efforts in
rendering its services to the Corporation. The Adviser shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to protect, or
purport to protect, the Adviser against any liability to the Corporation or to
the Corporation's security holders to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties hereunder, or by reason of the Adviser's
reckless disregard of its obligations and duties hereunder.
(b) The Adviser shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties (other than those related to the Adviser's
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon approval by a majority of the outstanding voting securities of
that Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case, (ii) by the vote of a majority of the Corporation's directors
who are not parties to this Agreement or interested persons of any such party
(other than as directors of the Corporation) cast in person at a meeting called
for the purpose of voting on such approval; provided further, however, that if
the continuation of this Agreement is not approved as to a Fund, the Adviser may
continue to render to that Fund the services described herein in the manner and
to the extent permitted by the 1940 Act and the rules and regulations
thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting
- 5 -
<PAGE>
securities of the Fund on 60 days' written notice to the Adviser or (ii) by the
Adviser on 60 days' written notice to the Corporation. This Agreement shall
terminate immediately upon its assignment.
SECTION 7. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's directors, officers or employees to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 8. REPRESENTATIONS OF ADVISER.
The Adviser represents and warrants that (i) it is either registered as
an investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act") (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act,
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement, (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, and (iv) will promptly notify the Corporation of
the occurrence of any event that would disqualify the Adviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise.
SECTION 9. SUBADVISERS
At its own expense, the Adviser may carry out any of its obligations
under this Agreement by employing, subject to the direction and control of the
Board, one or more persons who are registered as investment advisers pursuant to
the Advisers Act or who are exempt from registration thereunder ("Subadvisers").
Each Subadviser's employment will be evidenced by a separate written agreement
approved by the Board and, if required, by the shareholders of the applicable
Fund. The Adviser shall not be liable hereunder for any act or omission of any
Subadviser, except to exercise good faith in the employment of the Subadviser
and except with respect to matters as to which the Adviser assumes
responsibility in writing.
SECTION 10. LIMITATION OF SHAREHOLDER AND DIRECTOR LIABILITY
The Directors of the Corporation and the shareholders of each Fund
shall not be liable for any obligations of the Corporation or of the Funds under
this Agreement, and the Adviser agrees that, in asserting any rights or claims
under this Agreement, it shall look only to the assets and property of the
Corporation or the Fund to which the Adviser's rights or claims relate in
settlement of such rights or claims, and not to the Directors of the Corporation
or the shareholders of the Funds.
- 6 -
<PAGE>
SECTION 11. RIGHTS TO NAME
If the Adviser ceases to act as investment adviser to the Corporation
or any Fund whose name includes the word "TANAKA" (the "Mark") or if the Adviser
requests in writing, the Corporation shall take prompt action to change the name
of the Corporation any such Fund to a name that does not include the Mark. The
Adviser may from time to time make available without charge to the Corporation
for the Corporation's use any marks or symbols owned by the Adviser, including
marks or symbols containing the Mark or any variation thereof, as the Adviser
deems appropriate. Upon the Adviser's request in writing, the Corporation shall
cease to use any such mark or symbol at any time. The Corporation acknowledges
that any rights in or to the Mark and any such marks or symbols which may exist
on the date of this Agreement or arise hereafter are, and under any and all
circumstances shall continue to be, the sole property of the Adviser. The
Adviser may permit other parties, including other investment companies, to use
the Mark in their names without the consent of the Corporation. The Corporation
shall not use the Mark in conducting any business other than that of an
investment company registered under the 1940 Act without the permission of the
Adviser.
SECTION 12. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the 1940 Act, by a vote of a majority of the
outstanding voting securities of any Fund thereby affected.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall effect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced
- 7 -
<PAGE>
as if the Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Corporation are
separate and distinct from the assets and liabilities of each other Fund and
that no Fund shall be liable or shall be charged for any debt, obligation or
liability of any other Fund, whether arising under this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Adviser shall be liable at law or in equity for the Adviser's obligations
under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
TANAKA FUNDS, INC.
--------------------------
[Officer name]
[Title]
TANAKA FUND ADVISERS, LLC
--------------------------
[Officer name]
[Title]
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<PAGE>
TANAKA FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
Appendix A
Fee as a % of the Annual
Fund of the Corporation Average Daily Net Assets of the Fund
- ----------------------- ------------------------------------
TANAKA Growth Fund 1.00
- A1 -
FORM OF
TANAKA FUNDS, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998, by and between
TANAKA Funds, Inc., a Maryland Corporation, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Corporation"),
and Forum Financial Services, Inc., a Delaware corporation with its principal
office and place of business at Two Portland Square, Portland, Maine 04101
("Forum").
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company, may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series and classes and continuously offers for sale its
Shares to the public; and
WHEREAS, Forum is registered under the Securities Exchange Act of 1934,
as amended ("1934 Act"), as a broker-dealer and is engaged in the business of
selling shares of registered investment companies either directly to purchasers
or through other securities dealers;
WHEREAS, the Corporation intends to offer shares in the series as
listed in Appendix A hereto (each such series, together with all other series
subsequently established by the Corporation and made subject to this Agreement
in accordance with Section 6, being herein referred to as a "Fund," and
collectively as the "Funds") and the Corporation intends initially to offer
shares of various classes of each Fund as listed in Appendix A hereto (each such
class together with all other classes subsequently established by the
Corporation in a Fund being herein referred to as a "Class," and collectively as
the "Classes");
WHEREAS, the Corporation desires that Forum offer the Shares of each
Fund and Class thereof to the public and Forum is willing to provide those
services on the terms and conditions set forth in this Agreement in order to
promote the growth of the Funds and facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and Forum hereby agree as follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Corporation has delivered to Forum copies of its Articles of
Incorporation and Bylaws (collectively, as amended from time to time, "Organic
Documents"), the Corporation's Registration Statement and all amendments thereto
filed with the U.S. Securities and Exchange Commission ("SEC") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the 1940 Act (the
"Registration Statement") and the current Prospectus and Statement of Additional
Information of each Fund (collectively, as currently in effect and as amended or
<PAGE>
supplemented, the "Prospectus") and shall promptly furnish Forum with all
amendments of or supplements to the foregoing.
(b) The Corporation hereby appoints Forum as the principal underwriter
and distributor of the Funds to sell the Shares of the Funds to the public and
hereby agrees during the term of this Agreement to sell Shares of the Funds to
Forum upon the terms and conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
Forum shall be the exclusive representative of the Corporation to act
as principal underwriter and distributor of the Funds except that the rights
given under this Agreement to Forum shall not apply to Shares issued in
connection with the merger, consolidation or reorganization of any other
investment company with a Fund; a Fund's acquisition by purchase or otherwise of
all or substantially all of the assets or stock of any other investment company;
or the reinvestment in Shares by a Fund's shareholders of dividends or other
distributions or any other offering by the Corporation of securities to its
shareholders.
SECTION 3. PURCHASE OF SHARES FROM THE CORPORATION; OFFERING OF SHARES
(a) Forum shall have the right to buy from the Corporation the Shares
needed to fill unconditional orders for unsold Shares of the Funds as shall then
be effectively registered under the Securities Act placed with Forum by
investors or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers or on their own behalf.
Alternatively, Forum may act as the Corporation's agent, to offer, and to
solicit offers to subscribe to, unsold Shares of the Funds as shall then be
effectively registered under the Securities Act. Forum will promptly forward all
orders and subscriptions to the Corporation. The price which Forum shall pay for
Shares purchased from the Corporation and the price that Forum shall offer
Shares shall be the net asset value, determined as set forth in Section 3(c)
hereof, used in determining the public offering price on which the orders are
based. Shares purchased by Forum are to be resold by Forum to investors at the
public offering price, as set forth in Section 3(b) hereof, or to securities
dealers, depository institutions or other financial intermediaries acting as
agent for their customers that have entered into agreements with Forum pursuant
to Section 9 hereof or acting on their own behalf. The Corporation reserves the
right to sell Shares of the Funds directly to investors through subscriptions
received by the Corporation, but no such direct sales shall affect the sales
charges due to Forum hereunder.
(b) The public offering price of the Shares of a Fund, i.e., the price
per Share at which Forum or selected dealers or selected agents (each as defined
in Section 9 hereof) may sell Shares to the public or to those persons eligible
to invest in Shares as described in the applicable Prospectus, shall be the
public offering price determined in accordance with the then currently effective
Prospectus of the Fund or Class thereof under the Securities Act, relating to
such Shares, but not to exceed the net asset value at which Forum, when acting
as principal, is to purchase such Shares, plus, in the case of Shares for which
an initial sales charge is assessed, an
- 2 -
<PAGE>
initial charge equal to a specified percentage or percentages of the public
offering price of the Shares as set forth in the current Prospectus relating to
the Shares. In the case of Shares for which an initial sales charge may be
assessed, Shares may be sold to certain classes of persons at reduced sales
charges or without any sales charge as from time to time set forth in the
current Prospectus relating to the Shares. The Corporation will advise Forum of
the net asset value per Share at each time as the net asset value per Share
shall have been determined by the Corporation.
(c) The net asset value per Shares of each Fund or Class thereof shall
be determined by the Corporation, or an agent of the Corporation, as of the
close of the New York Stock Exchange or such other time as set forth in the
applicable Prospectus on each Fund business day in accordance with the method
set forth in the Prospectus and guidelines established by the Corporation's
Board of Directors (the "Board").
(d) The Corporation reserves the right to suspend the offering of
Shares of a Fund or of any class thereof at any time in the absolute discretion
of the Board, and upon notice of such suspension Forum shall cease to offer
Shares of the Funds or Classes thereof specified in the notice.
(e) The Corporation, or any agent of the Corporation designated in
writing to Forum by the Corporation, shall be promptly advised by Forum of all
purchase orders for Shares received by Forum and all subscriptions for Shares
obtained by Forum as agent shall be directed to the Corporation for acceptance
and shall not be binding until accepted by the Corporation. Any order or
subscription may be rejected by the Corporation; provided, however, that the
Corporation will not arbitrarily or without reasonable cause refuse to accept or
confirm orders or subscriptions for the purchase of Shares. The Corporation (or
its agent) will confirm orders and subscriptions upon their receipt, will make
appropriate book entries and, upon receipt by the Corporation (or its agent) of
payment thereof, will issue such Shares in certificated or uncertificated form
pursuant to the instructions of Forum. Forum agrees to cause such payment and
such instructions to be delivered promptly to the Corporation (or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES BY THE CORPORATION
(a) Any of the outstanding Shares of a Fund or Class thereof may be
tendered for redemption at any time, and the Corporation agrees to redeem or
repurchase the Shares so tendered in accordance with its obligations as set
forth in the Corporation's Organic Documents and the Prospectus relating to the
Shares. The price to be paid to redeem or repurchase the Shares of a Fund shall
be equal to the net asset value calculated in accordance with the provisions of
Section 3(b) hereof less, in the case of Shares for which a deferred sales
charge is assessed, a deferred sales charge equal to a specified percentage or
percentages of the net asset value of those Shares as from time to time set
forth in the Prospectus relating to those Shares (or, in the case of Exchange
Shares, relating to Exchange Shares and the original B Shares) or their cost
(or, in the case of Exchange Shares, the cost of the B Shares of a Fund that
were first purchased by the shareholder and then exchanged, either directly or
indirectly through a series of exchanges, for the Exchange Shares (the "Original
B Shares")), whichever is less. Shares of a Fund or Class thereof
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for which a deferred sales charge may be assessed and that have been outstanding
for a specified period of time may be redeemed without payment of a deferred
sales charge as from time to time set forth in the Prospectus relating to those
Shares (or, in the case of Exchange Shares, relating to the Original B Shares).
(b) The Corporation (or its agent) shall pay (i) the total amount of
the redemption price consisting of the redemption price less any applicable
deferred sales charge to the redeeming shareholder or its agent and (ii) except
as may be otherwise required by the Rules of Fair Practice (the "Rules") of the
National Association of Securities Dealers Regulation, Inc. (the "NASD") and any
interpretations thereof, any applicable deferred sales charges to Forum in
accordance with Forum's instructions on or before the fifth business day
subsequent to the Corporation or its agent having received the notice of
redemption in proper form. Notwithstanding the termination of this Agreement,
Forum shall be entitled to receive its Allocable Portion (as defined in and
determined in accordance with Appendix B hereto) ("Allocable Portion") of all
contingent deferred sales charges ("CDSCs") paid or payable with respect to the
Shares in accordance with this Section 4(b).
(c) Redemption of Shares or payment therefor may be suspended at times
when the New York Stock Exchange is closed for any reason other than its
customary weekend or holiday closings, when trading thereon is restricted, when
an emergency exists as a result of which disposal by the Corporation of
securities owned by a Fund is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value of a Fund's net
assets, or during any other period when the SEC so permits.
SECTION 5. COMPENSATION
(a) In consideration of Forum's services in connection with the
distribution of Shares of each Fund and Class thereof, Forum shall receive (i)
any applicable sales charge assessed upon investors in connection with the
purchase of Shares, (ii) from the Corporation, any applicable CDSC assessed upon
investors in connection with the redemption of Shares, (iii) from the
Corporation, Forum's Allocable Portion of the distribution service fees in
respect of the Shares (the "Distribution Fee") and (iv) from the Corporation,
the maintenance fee in respect of the Shares (the "Maintenance Fee"). The
Distribution Fee shall be accrued daily by each applicable Fund or Class thereof
and shall be paid monthly as promptly as possible after the last day of each
calendar month but in any event prior to the tenth (10th) day of the following
calendar month, at the rate set forth in the Corporation's distribution plan as
amended from time to time (the "Plan") together with interest as determined in
accordance with the Plan.
Forum will be deemed to have fully earned its Allocable Portion of the
Distribution Fee payable in respect of Shares of each Fund or Class thereof upon
the sale of the Commission Shares (as defined in Appendix B hereto)("Commission
Shares") of the Fund or Class htereof taken into account in determining Forum's
Allocable Portion of the Distribution Fee.
(b) The Corporation shall cause its transfer agent (the "Transfer
Agent") to withhold, from redemption proceeds payable to holders of Shares of
the Funds, all CDSCs properly payable
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by the shareholders in accordance with the terms of the applicable Prospectus
and shall cause the Transfer Agent to pay such amounts over as promptly as
possible after the settlement date for each redemption of Shares.
(c) Forum may direct the Corporation to pay any or all of the
Distribution Fee or CDSCs payable to Forum in respect of any Shares of any Fund
directly to persons providing funds to Forum to cover or otherwise enable the
incurring of expenses associated with distribution services, and the Corporation
agrees to accept and to comply with any reasonable direction of Forum. Forum
shall, at its own expense, provide the Corporation with any necessary
calculations of Forum's Allocable Portion of any Distribution Fee or CDSCs, and
the Corporation shall be entitled to rely conclusively on Forum's calculations,
without prejudice to any claim it may have concerning the accuracy of the
calculations.
(d) Notwithstanding anything to the contrary contained in this
Agreement or in any relevant Plan, (i) the amount of asset-based sales charges
and CDSCs paid to Forum by any Fund or any Class thereof and (ii) the aggregate
amount of asset-based sales charges and CDSCs paid to Forum by any Fund or any
Class thereof shall not exceed the amount permitted by the Rules.
(e) The Maintenance Fee shall be accrued daily by each applicable Fund
or Class thereof and shall be paid monthly as promptly as possible after the
last day of each calendar month but in any event prior to the tenth (10th) day
of the following calendar month, at the rate set forth in the Plan.
SECTION 6. ASSIGNMENT OF COMPENSATION
(a) Forum may, from time to time, assign, transfer or pledge
("Transfer") to one or more designees (each an "Assignee"), its rights to all or
a designated portion of (i) Forum's Allocable Portion of the Distribution Fee
(but not Forum's duties and obligations pursuant hereto or pursuant to the
Plan), (ii) Forum's Allocable Portion of CDSCs and (iii) the Maintenance Fee,
each free and clear of any offsets or claims the Corporation may have against
Forum. Each such Assignee's interest in a designated portion of Forum's
Allocable Portion of the Distribution Fees and Forum's Allocable Portion of
CDSCs is hereinafter referred to as an "Assignee's 12b-1 Portion" and an
"Assignee's CDSC Portion," respectively. A Transfer pursuant to this Section
6(a) shall not reduce or extinguish any claim of the Corporation against Forum.
(b) Forum shall promptly notify the Corporation in writing of each
Transfer pursuant to Section 6(a) hereof by providing the Corporation with the
name and address of each Assignee.
(c) In connection with a Transfer Forum may direct the Corporation to
pay any or all of Forum's Allocable Portion of the Distribution Fees and Forum's
Allocable Portion of CDSCs from time to time to a depository or collection agent
designated by Forum or an Assignee. The depository or collection agent may be
given the duty of dividing Forum's Allocable Portion of the Distribution Fees
and Forum's Allocable Portion of CDSCs into (i) the Assignee's 12b-1 Portion and
the balance Forum's portion (the balance, when distributed to Forum by the
depository or collection agent, is hereinafter referred to as "Forum's 12b-1
Share") and (ii) and the Assignee's
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CDSC Portion and the balance Forum's Portion (the balance, when distributed to
Forum by the depository or collection agent, is hereinafter referred to as
"Forum's Earned CDSC Portion"), respectively. In which case only Forum's 12b-1
Share and Forum's Earned CDSC Portion may be subject to offsets or claims the
Corporation may have against Forum.
(d) The Corporation shall not amend the Plan to reduce the amount
payable under Section 5(a) hereof to Forum or any Assignee with respect to the B
Shares for any B Shares which have been issued prior to the date of such
amendment.
SECTION 7. DUTIES AND REPRESENTATIONS OF THE CORPORATION
(a) The Corporation shall furnish to Forum copies of all information,
financial statements, annual and interim and other papers which Forum may
reasonably request for use in connection with the distribution of Shares of the
Funds, including, upon request by Forum, one certified copy of all financial
statements prepared for the Funds by independent accountants. The Corporation
shall make available to Forum such number of copies of the Funds' Prospectuses
as Forum shall reasonably request.
(b) The Corporation shall take, from time to time, subject to the
approval of the Board and any required approval of its shareholders, all action
necessary to fix the number of authorized shares of the Funds (if such number is
not limited) and to register the Shares under the Securities Act, to the end
that there will be available for sale the number of Shares as Forum reasonably
may be expected to sell.
(c) The Corporation and Forum will cooperate with each other in taking
any action as may be necessary to qualify Shares for sale under the securities
laws of the states and other jurisdictions as the Corporation may designate;
provided that Forum shall not be required to register as a broker-dealer or file
a consent to service of process in any state or jurisdiction. Any qualification
may be withheld, terminated or withdrawn by the Corporation at any time in its
discretion. Forum shall furnish such information and other material relating to
its affairs and activities as may be required by the Corporation in connection
with such qualification. The Corporation will pay all fees and expenses of
registering Shares under the Securities Act and of qualification and the
maintenance of qualification of Shares and its qualification under applicable
state securities laws. Forum shall pay all expenses relating to Forum's
broker-dealer qualification.
(d) The Corporation represents and warrants to Forum that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
(ii) It is empowered under applicable laws and by its Organic Documents
to enter into this Agreement and perform its duties under this
Agreement.
(iii) All requisite corporate proceedings have been taken to authorize
it to enter into this Agreement and perform its duties under this
Agreement.
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(iv) It is an open-end management investment company registered under
the 1940 Act.
(v) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Corporation, enforceable
against the Corporation in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
secured parties.
(vi) The Registration statement will be effective and will remain
effective with respect to all Shares of the Funds and Classes of the
Corporation being offered for sale.
(vii) The Registration Statement and Prospectuses included therein have
been or will be, as the case may be, carefully prepared in conformity
with the requirements of the Securities Act and the rules and
regulations thereunder.
(viii) The Registration Statement and Prospectuses contain or will
contain all statements required to be stated therein in accordance with
the Securities Act and the rules and regulations thereunder, and that
all statements of fact contained or to be contained therein are or will
be true and correct at the time indicated or on the effective date as
the case may be; that neither the Registration Statement nor any
Prospectus, when they shall become effective or be authorized for use,
will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares.
(ix) The Corporation will from time to time file such amendment or
amendments to the Registration Statement and Prospectuses as, in the
light of future developments, shall, in the opinion of its counsel, be
necessary in order to have the Registration Statement and Prospectuses
at all times contain all material facts required to be stated therein
or necessary to make any statements therein not misleading to a
purchaser of Shares, but, if the Corporation shall not file such
amendment or amendments within fifteen days following receipt of a
written request from Forum to do so, Forum may, at its option,
terminate this agreement immediately.
(x) The Corporation shall not file any amendment to the Registration
Statement or Prospectuses without giving Forum reasonable notice
thereof in advance; provided, however, that nothing contained in this
agreement shall in any way limit the Corporation's right to file at any
time such amendments to the Registration Statement or Prospectuses, of
whatever character, as the Corporation may deem advisable, such right
being in all respects absolute and unconditional.
(xi) Any amendment to the Registration Statement or Prospectuses
hereafter filed will, when they becomes effective, contain all
statements required to be stated therein in accordance with the Act and
the rules and regulations of the SEC, that all statements of fact
contained therein will, when the same shall become effective, be true
and correct and
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that no such amendment, when it becomes effective, will include an
untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Shares.
SECTION 8. DUTIES AND REPRESENTATIONS OF FORUM
(a) Forum shall use its best efforts to sell Shares of the Funds upon
the terms and conditions contained herein and in the then current Prospectus.
Forum shall devote reasonable time and effort to effect sales of Shares of the
Funds, but shall not be obligated to sell any specific number of Shares. The
services of Forum to the Corporation hereunder are not to be deemed exclusive
and nothing herein contained shall prevent Forum from entering into like
arrangements with other investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(b) In selling Shares of the Funds, Forum shall use its best efforts in
all material respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. None of Forum, any selected
dealer, any selected agent, or any other person is authorized by the Corporation
to give any information or to make any representations other than as is
contained in a Fund's Prospectus and SAI, as from time to time in effect, or any
sales literature specifically approved in writing by the Corporation.
(c) Forum shall adopt and follow procedures, as approved by the
officers of the Corporation, for the confirmation of sales to investors and
selected dealers or selected agents, the collection of amounts payable by
investors and selected dealers or selected agents on such sales, and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the NASD as may from time to time exist.
(d) Forum represents and warrants to the Corporation that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
(ii) It is duly qualified to carry on its business in the State of
Maine.
(iii) It is empowered under applicable laws and by its Article of
Incorporation and By-Laws to enter into this Agreement and perform its
duties under this Agreement.
(iv) All requisite corporate proceedings have been taken to authorize
it to enter into this Agreement and perform its duties under this
Agreement.
(v) It has access to the necessary facilities, equipment, and personnel
to perform its duties and obligations under this Agreement.
(vi) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of Forum, enforceable against Forum
in accordance with its terms,
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subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of
creditors and secured parties.
(vii) It is registered as a broker-dealer under the 1934 Act.
SECTION 9. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
Forum shall have the right to enter into selected dealer agreements
with securities dealers of its choice ("selected dealers") and selected agent
agreements with depository institutions and other financial intermediaries of
its choice ("selected agents") for the sale of Shares of the Funds and to fix
therein the portion of the sales charge that may be allocated to the selected
dealers or selected agents; provided, that the Corporation shall approve the
forms of agreements with selected dealers or selected agents and shall review
the compensation set forth therein. Shares of each Fund or Class thereof shall
be resold by selected dealers or selected agents only at the public offering
price(s) set forth in the Prospectus relating to the Shares. Within the United
States, Forum shall offer and sell Shares of the Funds only to such selected
dealers as are members in good standing of the NASD.
SECTION 10. PAYMENT OF EXPENSES
(a) The Corporation shall bear all costs and expenses of the Funds,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of its Registration Statement and Prospectuses and
the preparing and mailing of annual and interim reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
registration statements, prospectuses, annual or interim reports or proxy
materials).
(b) The Corporation shall bear the cost and expenses of the
qualification of Shares of the Funds and Classes thereof for sale, and, if
necessary or advisable in connection therewith, of qualifying the Corporation
(but not Forum) as an issuer or as a broker or dealer, in such states of the
United States or other jurisdictions as shall be selected by the Corporation and
Forum pursuant to Section 7(c) hereof and the costs and expenses payable to each
state or jurisdiction for continuing qualification therein until the Corporation
decides to discontinue qualification pursuant to Section 7(c) hereof.
SECTION 11. INDEMNIFICATION OF FORUM
The Corporation agrees to indemnify, defend and hold Forum, its
employees, agents, directors, officers and managers and any person who controls
Forum within the meaning of section 15 of the Securities Act or section 20 of
the 1934 Act ("Forum Indemnitees") free and harmless from and against any and
all claims, demands, actions, suits, judgments, liabilities, losses, damages,
costs, charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities) which any Forum Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Corporation's Registration Statement or the Prospectuses in effect from time to
time under
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the Securities Act or arising out of or based upon any alleged omission to state
a material fact required to be stated in any one thereof or necessary to make
the statements in any one thereof not misleading; provided, however, that in no
event shall anything herein contained be so construed as to protect Forum
against any liability to the Corporation or its security holders to which Forum
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of Forum's reckless
disregard of its obligations and duties under this Agreement. The Corporation's
agreement to indemnify each Forum Indemnitee is expressly conditioned upon the
Corporation's being notified of the commencement of any action brought against
any Forum Indemnitee, such notification to be given by letter or by telegram
addressed to the Corporation at its principal office, and sent to the
Corporation by the person against whom such action is brought within twenty days
after the summons or other first legal process shall have been served. The
Corporation will be entitled to assume the defense of any suit brought to
enforce any such claim and to retain counsel of good standing chosen by the
Corporation and approved by Forum. In the event the Corporation elects to assume
the defense of any such suit and retain counsel of good standing approved by
Forum, the defendants in the suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Corporation does not
elect to assume the defense of the suit or in case Forum does not approve of
counsel chosen by the Corporation, the Corporation will reimburse the Forum
Indemnitee named defendant or defendants in the suit for the fees and expenses
of any counsel retained by the Forum Indemnitee. This Section shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Forum Indemnitee and shall survive the sale of any of a
Fund's Shares made pursuant to subscriptions obtained by Forum. This Section
will inure exclusively to the benefit of each person that is or may be a Forum
Indemnitee at any time and to the benefit of their respective successors and
assigns. The Corporation agrees promptly to notify Forum of the commencement of
any litigation or proceeding against the Corporation in connection with the
issue and sale of any of the Shares. The failure to notify the Corporation of
the commencement of any such action shall not relieve the Corporation from any
liability which it may have to the Forum Indemnitees by reason of any alleged
untrue statement or omission otherwise than on account of this Section.
SECTION 12. INDEMNIFICATION OF THE CORPORATION
Forum agrees to indemnify, defend and hold the Corporation, its
officers and directors, and any person who controls the Corporation within the
meaning of Section 15 of the Securities Act or section 20 of the 1934 Act
(Corporation Indemnitees"), free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities) which any Corporation Indemnitee may
incur, under the Securities Act, or under common law or otherwise, but only to
the extent that such liability or expense incurred by a Corporation Indemnitee
resulting from such claims or demands shall arise out of or be based upon (i)
any alleged untrue statement of a material fact contained in information
furnished in writing by Forum to the Corporation for use in its Registration
Statement insofar as it relates to a Fund or the Prospectuses relating to a Fund
in effect from time to time under the Securities Act, (ii) any alleged omission
to state a material fact in connection with such information required to be
stated in the Registration
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Statement or a Prospectus or necessary to make the information not misleading or
(iii) willful misfeasance, bad faith or gross negligence in the performance by
Forum of its duties, or by reason of Forum's reckless disregard of its
obligations and duties under this Agreement. Forum's agreement to indemnify each
Corporation Indemnitee is expressly conditioned upon Forum being notified of the
commencement of any action brought against any Corporation Indemnitee, such
notification to be given by letter or telegram addressed to Forum at its
principal office, and sent to Forum by the person against whom the action is
brought, within twenty days after the summons or other first legal process shall
have been served. Forum will be entitled to assume the defense of the action,
with counsel in good standing of its own choosing approved by the Corporation,
if the action is based solely upon alleged misstatement, omission or action
described in clauses (i), (ii) or (iii) above and in any other event Forum and
the Corporation Indemnitees shall each have the right to participate in the
defense or preparation of the defense of any such action. In the event Forum
elects to assume the defense of any such suit and retain counsel of good
standing approved by the Corporation, the defendants in the suit shall bear the
fees and expenses of any additional counsel retained by any of them; but in case
Forum does not elect to assume the defense of the suit or in case the
Corporation does not approve of counsel chosen by Forum, Forum will reimburse
the Corporation Indemnitee named defendant or defendants in the suit for the
fees and expenses of any counsel retained by the Corporation Indemnitee. This
Section shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Corporation Indemnitee and shall
survive the sale of any of the Shares made pursuant to orders or subscriptions
obtained by Forum. This Section will inure exclusively to the benefit of each
person that is or may be a Corporation Indemnitee at any time and to the benefit
of their respective successors and assigns. Forum agrees promptly to notify the
Corporation of the commencement of any litigation or proceeding against Forum in
connection with the issue and sale of any of the Shares. The failure to notify
Forum of the commencement of any action shall not relieve Forum from any
liability which it may have to the Corporation Indemnitees by reason of any
untrue statement or omission on the part of or action by Forum otherwise than on
account of this Section.
SECTION 13. NOTIFICATION BY THE CORPORATION
The Corporation agrees to advise Forum immediately: (i) of any request
by the SEC for amendments to the Corporation's Registration Statement insofar as
it relates to the Funds, a Fund's Prospectus or for additional information, (ii)
in the event of the issuance by the SEC of any stop order suspending the
effectiveness of the Corporation's Registration Statement insofar as it relates
to the Funds, a Fund's Prospectus or the initiation of any proceeding for that
purpose, (iii) of the happening of any material event which makes untrue any
statement made in the Corporation's Registration Statement insofar as it relates
to the Funds or any Fund's Prospectus or which requires the making of a change
in either thereof in order to make the statements therein not misleading, and
(iv) of all actions of the SEC with respect to any amendments to the
Corporation's Registration Statement insofar as it relates to the Funds or a
Fund's Prospectus which may from time to time be filed with the SEC under the
Securities Act.
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SECTION 14. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each Fund on
the date on which the Corporation's Registration Statement relating to the
Shares of the Fund becomes effective. Upon effectiveness of this Agreement, it
shall supersede all previous agreements between the parties hereto covering the
subject matter hereof insofar as such Agreement may have been deemed to relate
to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund for
a period of one year from its effectiveness and shall continue in effect for
successive one-year periods; provided, that continuance is specifically approved
at least annually (i) by the Board or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by a vote of a majority of Directors of
the Corporation (I) who are not parties to this Agreement or interested persons
of any such party (other than as Directors of the Corporation) and (II) with
respect to each class of a Fund for which there is an effective plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act, who do not have
any direct or indirect financial interest in any such plan applicable to the
class or in any agreements related to the plan, cast in person at a meeting
called for the purpose of voting on such approval; provided further, however,
that if the continuation of this Agreement is not approved as to a Fund, Forum
may continue to render to the Fund the services described herein in the manner
and to the extent permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated at any time with respect to a
Fund, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund or, with respect to
each class of a Fund for which there is an effective plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act, a majority of Directors of
the Corporation who do not have any direct or indirect financial interest in any
such plan or in any agreements related to the plan, on 60 days' written notice
to Forum or (ii) by Forum on 60 days' written notice to the Corporation.
(d) This Agreement shall also automatically terminate in the event of
its assignment; provided, that a Transfer shall not cause a termination of this
Agreement or be deemed to be an assignment.
(e) If this Agreement is terminated for any reason other than a
Complete Termination (as defined in Section 10 of the Plan), the obligations of
the Corporation and Forum pursuant to Sections 5(a)-(d) and Section 6 of this
Agreement will continue and survive any such termination. A termination of the
Plan (including a Complete Termination as defined in Section 10 of the Plan)
with respect to the Shares of any or all Funds or Classes thereof shall not
affect the obligations of the Corporation with respect to payments of Forum's
Allocable Portion of CDSC or of the obligations of Forum in respect of CDSC's
pursuant to Sections 5 and 6 of this Agreement.
SECTION 15. NOTICES
Any notice required or permitted to be given hereunder by either party
to the other shall be deemed sufficiently given if personally delivered or sent
by telegram or registered, certified or overnight mail, postage prepaid,
addressed by the party giving such notice to the other party at
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the last address furnished by the other party to the party giving such notice,
and unless and until changed pursuant to the foregoing provisions hereof each
such notice shall be addressed to the Corporation or Forum, as the case may be.
SECTION 16. ACTIVITIES OF FORUM
Except to the extent necessary to perform Forum's obligations
hereunder, nothing herein shall be deemed to limit or restrict Forum's right, or
the right of any of Forum's officers, directors or employees who may also be a
trustee, officer or employee of the Corporation, or affiliated persons of the
Corporation to engage in any other business or to devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
trust, firm, individual or association.
SECTION 17. LIMITATION OF SHAREHOLDER AND DIRECTOR LIABILITY
The Directors of the Corporation and the shareholders of each Fund
shall not be liable for any obligations of the Corporation or of the Funds under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Corporation
or the Fund to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the Directors of the Corporation or the
shareholders of the Funds.
SECTION 18. MISCELLANEOUS
(a) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(b) Except for Appendix A to add new Funds and Classes in accordance
with Section 6, no provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties hereto.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of New York.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced
- 13 -
<PAGE>
as if the Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Corporation are
separate and distinct from the assets and liabilities of each other Fund and
that no Fund shall be liable or shall be charged for any debt, obligation or
liability of any other Fund, whether arising under this Agreement or otherwise.
(i) No affiliated person, employee, agent, director, officer or manager
of Forum shall be liable at law or in equity for Forum's obligations under this
Agreement.
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
TANAKA FUNDS, INC.
By:
-------------------------
[Officer name]
[Title]
FORUM FINANCIAL SERVICES, INC.
By:
-------------------------
John Y. Keffer
President
- 14 -
<PAGE>
TANAKA FUNDS, INC.
DISTRIBUTION AGREEMENT
Appendix A
Fund and Classes
as of __________, 1998
Fund
TANAKA Growth Fund
Classes
R Share
B Share
A Share
- A1 -
<PAGE>
TANAKA FUNDS, INC.
DISTRIBUTION AGREEMENT
Appendix B
Forum's "Allocable Portion" of the CDSCs and Distribution Fees in
respect of a Fund or Class thereof shall be 100 percent until such time as Forum
shall cease to serve as exclusive distributor of the Shares of that Fund and
thereafter shall be recomputed first on the date of any termination of Forum's
services as exclusive distributor of Shares of any Fund and thereafter on the
first business day of each month (or, in Forum's discretion, the first business
day of each week or every business day or every day) (each a "Computation Date")
in accordance with this Appendix B based upon the number representing the Shares
of the Fund outstanding on each Computation Date allocated to Forum.
For Purposes of this Appendix B the following terms shall have the
following meanings:
"Commission Share" shall mean, in respect of any Fund or Class thereof,
each Share of the Fund or Class thereof that is issued under circumstances that
would normally give rise to an obligation of the holder of the Share to pay a
CDSC upon redemption of the Share, including, without limitation, any Share of
issued in connection with a Permitted Free Exchange. A Share shall not cease to
be a Commission Share prior to the redemption (including a redemption in
connection with a Permitted Free Exchange) or conversion of the Share even
though the obligation to pay the CDSC shall have expired or conditions for
waivers thereof shall exist.
"Date of Original Issuance" means in respect of any Commission Share,
the date with reference to which the amount of the CDSC payable on redemption
thereof is computed.
"Free Share" shall mean, in respect of any Fund or Class thereof, each
Share of the Fund or Class thereof other than a Commission Share.
"Other Distributor" shall mean in respect of the Shares of any Fund,
each entity appointed from time to time as the exclusive distributor for the
Shares of the Fund after Forum ceases to serve in that capacity.
"Permitted Free Exchange" with respect to any Shares of any Fund or
Class thereof, shall mean an exchange of the Share for a Share of another Fund
that, pursuant to the terms of the Prospectus for the Shares, relieves or defers
the CDSCs in respect of the Share.
"Transfer Agent" shall mean, in respect of any Fund, the entity serving
as the transfer agent and who maintains accounts for each record holder of
Shares of the Fund.
Section A. Attribution of Shares
Each Share of each Class which are outstanding from time to time shall
be attributed to either Forum or an Other Distributor in accordance with the
following:
- B1 -
<PAGE>
Commission Shares.
------------------
(a) Commission Shares of each Class attributed to Forum or an Other
Distributor are those Commission Shares that were sold while Forum or
the Other Distributor was the exclusive Distributor for the Shares,
determined in accordance with the records of the Transfer Agent.
(b) The Commission Shares of each Class attributed to Forum or a Other
Distributor shall be the Date of Original Issuance of which occurs
during the period in which Forum or such Other Distributor was the
exclusive distributor for such Fund in respect of such class of Shares
of such Fund.
(c) A Commission Share of a Fund issued in consideration of the
investment of proceeds of the redemption of a Commission Share of
another Fund (the "First Fund") in connection with a Permitted Free
Exchange shall have a Date of Original Issuance identical to the Date
of Original Issuance of the Commission Share of the First Fund which
was redeemed.
(d) A Commission Share of a Fund that is redeemed other than in
connection with a Permitted Free Exchange or that is automatically
converted to a class A share is no longer a Commission Share attributed
to Forum or an Other Distributor.
Free Shares
-----------
(a) Free Shares outstanding on the date of termination of Forum's
services hereunder will be attributed to Forum or the Other Distributor
in the same proportion that Commission Shares were attributed to Forum
and the Other Distributor on that date.
(b) After the date of termination of Forum's services hereunder, Free
Shares that are issued in connection with the reinvestment of dividends
or other distributions or in connection with the reinvestment of
proceeds of redemption of Free Shares of another Fund are attributed to
Forum and the Other Distributor based upon the percentage of total Free
Shares of the Fund which were outstanding as of the previous
Computation Date which were attributed to each of Forum and the Other
Distributor on that Computation Date.
(c) Free Shares that are redeemed or automatically converted into class
A shares during any period after the date of termination of Forum's
services hereunder are deemed to be redeemed out of the Free Shares of
the Fund attributed to Forum and the Other Distributor based upon the
percentages of total Free Shares of the Fund which as of the previous
Computation Date which were attributed to Forum and the Other
Distributor on that Computation Date.
- B2 -
<PAGE>
Section B. Allocation of Distribution Fees
The portion of the Distribution Fees accruing in respect of Shares of a
Fund or Class thereof during a particular calendar month that are allocated to
Forum is determined by multiplying the total of the Distribution Fees accruing
during the month by the following:
[(BAS)(BNAV) + (EAS)(ENAV)]
---------------------------
[(BTS)(BNAV) + (ETS)(ENAV)]
where:
BAS = Total Number of Shares of the Fund or Class thereof outstanding
("Total Shares") as of the beginning of the month and attributed to
Forum.
EAS = Total Shares as of the end of the month attributed to Forum.
BTS = Total Shares as of the beginning of the month.
ETS = Total Shares as of the end of the month.
BNAV = Per Share Net Asset Value of Shares of the Fund or Class thereof
("NAV/Share") at the beginning of the month.
ENAV = NAV/Share at the end of the month.
Section C. Allocation of CDSCs
CDSCs will be allocated to either Forum or an Other Distributor based
upon whether the Commission Share giving rise to such CDSC was attributed to
Forum or the Other Distributor in accordance with Section A above.
Section D. Allocation Procedures For Shares Held Through an Account
Maintained in the Name of an Intermediary
In the case of Shares of a Fund held through an account maintained in
the name of a broker-dealer or other intermediary, the allocation procedures
contained in this Appendix B shall be amplified as Forum and the Corporation
shall agree to ensure the appropriate attribution of, and allocation of
Distribution Fees attributable to those Shares.
- B3 -
FORM OF
TANAKA FUNDS, INC.
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of __________, 1998, between TANAKA
FUNDS, INC., a company organized under the laws of the state of Maryland (the
"Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the
"Bank").
The Fund, an open-end management investment company [on behalf of the
portfolios/series listed on Appendix A hereto (as such Appendix A may be amended
from time to time) (each a "Portfolio" and collectively, the "Portfolios")],
desires to place and maintain all of its portfolio securities and cash in the
custody of the Bank. The Bank has at least the minimum qualifications required
by Section 17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to
act as custodian of the portfolio securities and cash of the Fund, and has
indicated its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix B
hereto.
2. Definitions. Whenever used herein, the terms listed below will have
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of its Board, and set forth in a
certificate as required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
Trustees of the Fund, as the case ----- may be.
2.3 Security. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of
<PAGE>
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to, or option contract to
purchase or sell any of the foregoing, and futures, forward contracts and
options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security
owned by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the sole obligation of the Bank with respect to
any follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such series or
portfolio containing the assets of such series or portfolio (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
- 2 -
<PAGE>
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to such individual series and any obligation or liability of the Fund
hereunder shall be binding only with respect to such individual series, and
shall be discharged only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the
- 3 -
<PAGE>
securities received by the Bank before such payment is made, as confirmed in the
Proper Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the
repurchase or redemption of common shares of the Fund offered for repurchase or
redemption in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection
with the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of any
Portfolio Securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to
- 4 -
<PAGE>
charge any such payment due under any Foreign Exchange Agreement against any
balance of account standing to the credit of the Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and
hold pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
- 5 -
<PAGE>
6.3 Corporate Action. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund no later than 5:00 p.m.
on the date specified as the Response Deadline and only if the Bank (or its
agent or subcustodian hereunder) has actual possession of all necessary
Securities, consents and other materials no later than 5:00 p.m. on the date
specified as the Response Deadline.
(b) The Bank shall have no duty to act upon a required
Response if Proper Instructions relating to such Response and all necessary
Securities, consents and other materials are not received by and in the
possession of the Bank no later than 5:00 p.m. on the date specified as the
Response Deadline. Notwithstanding, the Bank may, in its sole discretion, use
its best efforts to act upon a Response for which Proper Instructions and/or
necessary Securities, consents or other materials are received by the Bank after
5:00 p.m. on the date specified as the Response Deadline, it being acknowledged
and agreed by the parties that any undertaking by the Bank to use its best
efforts in such circumstances shall in no way create any duty upon the Bank to
complete such Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a
Corporate Action requiring a Response and the Bank has received no other notice
of such Corporate Action, the Response Deadline shall be 48 hours prior to the
Response expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any
Corporate Action involving Foreign Portfolio Securities held by a Selected
Foreign Sub-Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Fund assets in the Book-Entry System, and (ii) for any subsequent changes to
such arrangements following such approval, the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or
- 6 -
<PAGE>
its agent) in such System which shall not include any assets of the Bank (or
such agent) other than assets held as a fiduciary, custodian, or otherwise for
customers;
(b) The records of the Bank (and any such agent) with respect
to the Fund's participation in the Book-Entry System through the Bank (or any
such agent) will identify by book entry the Portfolio Securities which are
included with other securities deposited in the Account and shall at all times
during the regular business hours of the Bank (or such agent) be open for
inspection by duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that
payment for securities sold or payment of the initial cash collateral against
the delivery of securities loaned by the Fund has been transferred to the
Account; and
(ii) the making of an entry on the records of the
Bank (or its agent) to reflect such transfer and payment for the account of the
Fund. Copies of all advices from the Book-Entry System of transfers of
securities for the account of the Fund shall identify the Fund, be maintained
for the Fund by the Bank and shall be provided to the Fund at its request. The
Bank shall send the Fund a confirmation, as defined by Rule 17f-4 of the 1940
Act, of any transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
- 7 -
<PAGE>
(b) Registration of Portfolio Securities may be made in the
name of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio Securities,
payment will be made only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund only upon delivery of the Securities to
or for the account of the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against payment therefor or, in the
event Portfolio Securities are loaned, delivery of Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any
certificated Portfolio Security deposited with it in the event such Security is
lost, destroyed, wrongfully taken or otherwise not available to be returned to
the Bank upon its request;
(ii) Proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the
Bank such records with respect to the performance of the Bank's obligations and
duties hereunder as may be necessary for the Fund to comply with the
recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers
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with whom the Bank has entered into a book-entry agreement (the "Issuers"). In
maintaining procedures for Book-Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the
Fund in an account of the Bank that includes only assets held by it for
customers;
(b) The records of the Bank with respect to the Fund's
purchase of Book-Entry Paper through the Bank will identify, by book-entry,
commercial paper belonging to the Fund which is included in the Book-Entry
System and shall at all times during the regular business hours of the Bank be
open for inspection by duly authorized officers, employees or agents of the
Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation
upon the maturity thereof upon contemporaneous (i) receipt of advice that
payment for such Book-Entry Paper has been transferred to the Fund, and (ii) the
making of an entry on the records of the Bank to reflect such payment for the
account of the Fund; and
(e) The Bank will send to the Fund such reports on its system
of internal accounting control with respect to the Book-Entry Paper as the Fund
may reasonably request from time to time.
.
6.7 Use of Immobilization Programs. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Portfolio Securities are identified on the books of the Bank
as belonging to the Fund and that the books of the Bank identify the European
Branch holding such Portfolio Securities. Notwithstanding any other provision of
this Agreement to the contrary, except as stated in the first sentence of this
subsection 6.8, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
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(i) The Bank shall take action as to put options
("puts") and call options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in accordance with the provisions of
any agreement entered into upon receipt of Proper Instructions among the Bank,
any broker-dealer registered with the National Association of Securities
Dealers, Inc. (the "NASD"), and, if necessary, the Fund, relating to the
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires it to do so,
the Bank shall be under no duty or obligation to see that the Fund has deposited
or is maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Fund. The Bank shall have no responsibility for the legality of any put or
call purchased or sold on behalf of the Fund, the propriety of any such purchase
or sale, or the adequacy of any collateral delivered to a broker in connection
with an option or deposited to or withdrawn from a Segregated Account (as
defined in subsection 6.10 below). The Bank specifically, but not by way of
limitation, shall not be under any duty or obligation to: (i) periodically check
or notify the Fund that the amount of such collateral held by a broker or held
in a Segregated Account is sufficient to protect such broker or the Fund against
any loss; (ii) effect the return of any collateral delivered to a broker; or
(iii) advise the Fund that any option it holds, has or is about to expire. Such
duties or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement entered into upon the receipt of Proper
Instructions among the Fund, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund.
(ii) The responsibilities of the Bank as to futures,
puts and calls traded on commodities exchanges, any Futures Commission Merchant
account and the Segregated Account shall be limited as set forth in subparagraph
(a)(ii) of this Section 6.9 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls thereon
instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
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(i) in accordance with the provisions of any
agreement among the Fund, the Bank and a broker-dealer registered under the
Exchange Act and a member of the NASD or any Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Options Clearing Corporation and of any registered national
securities exchange or the Commodity Futures Trading Commission or any
registered Contract Market, or of any similar organizations regarding escrow or
other arrangements in connection with transactions by the Fund;
(ii) for the purpose of segregating cash or
securities in connection with options purchased or written by the Fund or
commodity futures purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash,
U.S. Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only, in
the case of this clause (v), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board, or of the executive
committee of the Board signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such Segregated Account and declaring such purposes to be proper corporate
purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance
with the provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to
(a)(iii) or (a)(iv) above, for sale or delivery to meet the Fund's obligations
under outstanding forward commitment or when-issued agreements for the purchase
of Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal
or greater value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding
forward commitment or when-issued agreements for the purchase of portfolio
securities or reverse repurchase agreements are sold to other parties or the
Fund's obligations thereunder are met from assets of the Fund other than those
in the Segregated Account;
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(v) for delivery upon settlement of a forward
commitment or when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to
(a)(v) above, in accordance with the purposes of such account as set forth in
Proper Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as such
Securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section only upon receipt of
Proper Instructions. The Proper Instructions shall state that such transfer,
exchange or delivery is for a purpose permitted under the terms of this Section
6.12, and shall specify the applicable subsection, or describe the purpose of
the transaction with sufficient particularity to permit the Bank to ascertain
the applicable subsection. After receipt of such Proper Instructions, the Bank
will transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided, however, that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian
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hereunder) has actual possession of such Security at least two business days
prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund
upon authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund
to a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
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<PAGE>
(k) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles of Incorporation or Declaration of Trust
and By-laws of the Fund (the "Articles"), from assets available for said
purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable instruments
or other orders for the payment of money received by it for the account of the
Fund and hold for the account of the Fund all income, dividends, interest and
other payments or distributions of cash with respect to the Portfolio Securities
held thereunder;
9.2 Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the
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Treasury Department issued thereunder, or by the laws of any state, now or
hereafter in effect, inserting the Fund's name on such certificates as the owner
of the securities covered thereby, to the extent it may lawfully do so and as
may be required to obtain payment in respect thereof. The Bank will execute and
deliver such certificates in connection with Portfolio Securities delivered to
it or by it under this Agreement as may be required under the provisions of the
Internal Revenue Code and any Regulations of the Treasury Department issued
thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal.
11. Maintenance of Records and Accounting Services. The Bank will
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. [Reserved]
13. Additional Services. The Bank shall perform the additional services
for the Fund as are set forth on Appendix C hereto. Appendix C may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix B shall be appropriately increased.
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<PAGE>
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will
not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of
the Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the
Fund or the legality of the distribution of any Portfolio Securities as payment
in kind of such dividend; and
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered or paid by it pursuant
to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal or state statutes or
any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund
Held in the United States. The Bank may employ agents of its own selection in
the performance of its duties hereunder and shall be responsible for the acts
and omissions of such agents as if performed by the Bank hereunder. Without
limiting the foregoing, certain duties of the Bank hereunder may be performed by
one or more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ
subcustodians selected by or at the direction of the Fund, provided that any
such subcustodian meets at least the minimum qualifications required by Section
17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with respect
to property of the Fund held in the United States. The Bank shall have no
liability to the Fund or any other person by reason of any act or omission of
any such subcustodian and the Fund shall indemnify the Bank and hold it harmless
from and against any and all actions, suits and claims, arising directly or
indirectly out of the performance of any
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subcustodian. Upon request of the Bank, the Fund shall assume the entire defense
of any action, suit, or claim subject to the foregoing indemnity. The Fund shall
pay all fees and expenses of any subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Custody Manager.
(i) If the Fund has appointed the Bank Foreign
Custody Manager (as that term is defined in Rule 17f-5 under the 1940 Act), the
Bank's duties and obligations with respect to the Fund's Portfolio Securities
and other assets maintained outside the United States shall be, to the extent
not set forth herein, as set forth in the Delegation Agreement between the Fund
and the Bank (the "Delegation Agreement").
(ii) If the Fund has appointed any other person or
entity Foreign Custody Manager, the Bank shall act only upon Proper Instructions
from the Fund with regard to any of the Fund's Portfolio Securities or other
assets held or to be held outside of the United States, and the Bank shall be
without liability for any Claim (as that term is defined in Section 15 hereof)
arising out of maintenance of the Fund's Portfolio Securities or other assets
outside of the United States. The Fund also agrees that it shall enter into a
written agreement with such Foreign Custody Manager that shall obligate such
Foreign Custody Manager to provide to the Bank in a timely manner all
information required by the Bank in order to complete its obligations hereunder.
The Bank shall not be liable for any Claim arising out of the failure of such
Foreign Custody Manager to provide such information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
foreign sub-custodian (each an "Eligible Foreign Custodian") selected by the
Foreign Custody Manager, subject to receipt by the Bank of the necessary
information from such Eligible Foreign Custodian if the Foreign Custody Manager
is not the Bank.
(c) Access of Independent Accountants of the Fund. If the Bank
is the Fund's Foreign Custody Manager, upon request of the Fund, the Bank will
use its best efforts to arrange for the independent accountants of the Fund to
be afforded access to the books and records of any foreign banking institution
employed as an Eligible Foreign Custodian insofar as such books and records
relate to the performance of such foreign banking institution with regard to the
Fund's Portfolio Securities and other assets.
(d) Reports by Bank. If the Bank is the Fund's Foreign Custody
Manager, the Bank will supply to the Fund the reports required under the
Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable agreement between the Foreign Custody
Manager and such Eligible Foreign Custodian. If at any
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time any Foreign Portfolio Securities shall be registered in the name of the
nominee of the Eligible Foreign Custodian, the Fund agrees to hold any such
nominee harmless from any liability by reason of the registration of such
securities in the name of such nominee.
Notwithstanding any provision of this Agreement to
the contrary, settlement and payment for Foreign Portfolio Securities received
for the account of the Fund and delivery of Foreign Portfolio Securities
maintained for the account of the Fund may be effected in accordance with the
customary established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such securities from
such purchaser or dealer.
In connection with any action to be taken with
respect to the Foreign Portfolio Securities held hereunder, including, without
limitation, the exercise of any voting rights, subscription rights, redemption
rights, exchange rights, conversion rights or tender rights, or any other action
in connection with any other right, interest or privilege with respect to such
Securities (collectively, the "Rights"), the Bank shall promptly transmit to the
Fund such information in connection therewith as is made available to the Bank
by the Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Fund pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Fund is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Fund
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or the Bank
as custodian of the Fund by the tax laws of any jurisdiction, and it shall be
the responsibility of the Fund to notify the Bank of the obligations imposed on
the Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Eligible Foreign Custodian with regard
to such tax law shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law of jurisdictions
for which the Fund has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder,
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<PAGE>
and for all necessary proper disbursements, expenses and charges made or
incurred by the Bank in the performance of this Agreement (including any duties
listed on any Schedule hereto, if any) including any indemnities for any loss,
liabilities or expense to the Bank as provided above. For the services rendered
by the Bank hereunder, the Fund will pay to the Bank such compensation or fees
at such rate and at such times as shall be agreed upon in writing by the parties
from time to time. The Bank will also be entitled to reimbursement by the Fund
for all reasonable expenses incurred in conjunction with termination of this
Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness, in and to any
property at any time held by it for the Fund's benefit or in which the Fund has
an interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any time to charge any
overdraft or indebtedness, together with interest due thereon, against any
balance of account standing to the credit of the Fund on the Bank's books.
15. Limitation of Liability.
15.1 Notwithstanding anything in this Agreement to the contrary, in
no event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the gross negligence,
willful misfeasance or bad faith of the Bank or any Indemnified Party. Without
limiting the foregoing, neither the Bank nor the Indemnified Parties shall be
liable for, and the Bank and the Indemnified Parties shall be indemnified
against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party
in good faith reliance upon the terms of this Agreement, any Officer's
Certificate, Proper Instructions, resolution of the Board, telegram, telecopier,
notice, request, certificate or other instrument reasonably believed by the Bank
to genuine;
(b) Any act or omission of any subcustodian selected by or at
the direction of the Fund;
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<PAGE>
(c) Any act or omission of any Foreign Custody Manager other
than the Bank or any act or ommission of any Eligible Foreign Custodian if the
Bank is not the Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event related
to Portfolio Securities which, at the direction of the Fund, have not been
registered in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the
Bank has not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m.on the date
specified as the Response Deadline;
(f) Any act or omission of any European Branch of a U.S.
banking institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(g) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in
no event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. Termination.
16.1 The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than ninety days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any
Renewal Term upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of such
ninety days, provided, however, that the effective date of such termination may
be postponed to a date not more than one hundred twenty days after delivery of
the written notice: (i) at the request of the Bank, in order to prepare for the
transfer
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<PAGE>
by the Bank of all of the assets of the Fund held hereunder; or (ii) at the
request of the Fund, in order to give the Fund an opportunity to make suitable
arrangements for a successor custodian.
16.2 In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund
may, upon written request, have reasonable access to the records of the Bank
relating to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
- 21 -
<PAGE>
18. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
[ ]
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: __________________, Director - Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time
designate in writing.
19. Amendments. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Limitation of Liability. The Bank agrees that the obligations
assumed by the Fund hereunder shall be limited in all cases to the assets of the
Fund and that the Bank shall not seek
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<PAGE>
satisfaction of any such obligation from the officers, agents, employees,
trustees, or shareholders of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
TANAKA FUNDS, INC.
By:
-------------------------
Name:
Title:
Investors Bank & Trust Company
By:
-------------------------
Name:
Title:
- 23 -
<PAGE>
Appendices
Appendix A............................................... Portfolios
Appendix B............................................... Fee Schedule
Appendix C............................................... Additional Services
- 24 -
FORM OF
TANAKA FUNDS, INC.
TRANSFER AGENCY AND SERVICES AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998, by and between
TANAKA Funds, Inc., a Maryland corporation, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Corporation"),
and Forum Shareholder Services, LLC, a Delaware limited liability company with
its principal office and place of business at Two Portland Square, Portland,
Maine 04101 ("Forum").
WHEREAS, the Corporation is authorized to issue shares in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets, and is authorized to divide those series into
separate classes; and
WHEREAS, the Corporation intends to offer shares in various series as
listed in Appendix A hereto (each such series, together with all other series
subsequently established by the Corporation and made subject to this Agreement
in accordance with Section 13, being herein referred to as a "Fund," and
collectively as the "Funds") and the Corporation intends to offer shares of
various classes of each Fund as listed in Appendix A hereto (each such class
together with all other classes subsequently established by the Corporation in a
Fund being herein referred to as a "Class," and collectively as the "Classes");
and
WHEREAS, the Corporation on behalf of the Funds desires to appoint
Forum as its transfer agent and dividend disbursing agent and Forum desires to
accept such appointment;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and Forum hereby agree as follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) Appointment. The Corporation, on behalf of the Funds, hereby
appoints Forum to act as, and Forum agrees to act as, (i) transfer agent for the
authorized and issued shares of beneficial interest of the Corporation
representing interests in each of the respective Funds and Classes thereof
("Shares"), (ii) dividend disbursing agent and (iii) agent in connection with
any accumulation, open-account or similar plans provided to the registered
owners of shares of any of the Funds ("Shareholders") and set out in the
currently effective prospectuses and statements of additional information
(collectively "prospectus") of the applicable Fund, including, without
limitation, any periodic investment plan or periodic withdrawal program.
(b) Document Delivery. The Corporation has delivered to Forum copies of
(i) the Corporation's Articles of Incorporation and Bylaws (collectively, as
amended from time to time, "Organic Documents"), (ii) the Corporation's
Registration Statement and all amendments thereto filed with the U.S. Securities
and Exchange Commission ("SEC") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), or the Investment Company Act of 1940, as
amended
<PAGE>
("1940 Act")(the "Registration Statement"), (iii) the Corporation's current
Prospectus and Statement of Additional Information of each Fund (collectively,
as currently in effect and as amended or supplemented, the "Prospectus"), (iv)
each current plan of distribution or similar document adopted by the Corporation
under Rule 12b-1 under the 1940 Act ("Plan") and each current shareholder
service plan or similar document adopted by the Corporation ("Service Plan"),
and (v) all procedures adopted by the Corporation with respect to the Funds
(i.e., repurchase agreement procedures), and shall promptly furnish Forum with
all amendments of or supplements to the foregoing. The Corporation shall deliver
to Forum a certified copy of the resolution of the Board of Directors of the
Corporation (the "Board") appointing Forum and authorizing the execution and
delivery of this Agreement.
SECTION 2. DUTIES OF FORUM
(a) Services. Forum agrees that in accordance with procedures
established from time to time by agreement between the Corporation on behalf of
each of the Funds, as applicable, and Forum, Forum will perform the following
services:
(i) provide the services of a transfer agent, dividend disbursing agent
and, as relevant, agent in connection with accumulation, open-account
or similar plans (including without limitation any periodic investment
plan or periodic withdrawal program) that are customary for open-end
management investment companies including: (A) maintaining all
Shareholder accounts, (B) preparing Shareholder meeting lists, (C)
mailing proxies to Shareholders, (D) mailing Shareholder reports and
prospectuses to current Shareholders, (E) withholding taxes on U.S.
resident and non-resident alien accounts, (F) preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required by
federal authorities with respect to distributions for Shareholders, (G)
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, (H) preparing and
mailing activity statements for Shareholders, and (I) providing
Shareholder account information;
(ii) receive for acceptance orders for the purchase of Shares and
promptly deliver payment and appropriate documentation therefor to the
custodian of the applicable Fund (the "Custodian") or, in the case of
Fund's operating in a master-feeder or fund of funds structure, to the
transfer agent or interestholder recordkeeper for the master portfolios
in which the Fund invests;
(iii) pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iv) receive for acceptance redemption requests and deliver the
appropriate documentation therefor to the Custodian or, in the case of
Fund's operating in a master-feeder or fund of funds structure, to the
transfer agent or interestholder recordkeeper for the master portfolios
in which the Fund invests;
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<PAGE>
(v) as and when it receives monies paid to it by the Custodian with
respect to any redemption, pay the redemption proceeds as required by
the prospectus pursuant to which the redeemed Shares were offered and
as instructed by the redeeming Shareholders;
(vi) effect transfers of Shares upon receipt of appropriate
instructions from Shareholders;
(vii) prepare and transmit to Shareholders (or credit the appropriate
Shareholder accounts) payments for all distributions declared by the
Corporation with respect to Shares;
(viii) issue share certificates and replacement share certificates for
those share certificates alleged to have been lost, stolen, or
destroyed upon receipt by Forum of indemnification satisfactory to
Forum and protecting Forum and the Corporation and, at the option of
Forum, issue replacement certificates in place of mutilated share
certificates upon presentation thereof without requiring
indemnification;
(ix) receive from Shareholders or debit Shareholder accounts for sales
commissions, including contingent deferred, deferred and other sales
charges, and service fees (i.e., wire redemption charges) and prepare
and transmit payments to underwriters, selected dealers and others for
commissions and service fees received;
(x) track shareholder accounts by financial intermediary source and
otherwise as requested by the Corporation and provide periodic
reporting to the Corporation or its administrator or other agent;
(xi) maintain records of account for and provide reports and statements
to the Corporation and Shareholders as to the foregoing;
(xii) record the issuance of Shares of the Corporation and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934,
as amended ("1934 Act") a record of the total number of Shares of the
Corporation, each Fund and each Class thereof, that are authorized,
based upon data provided to it by the Corporation, and are issued and
outstanding and provide the Corporation on a regular basis a report of
the total number of Shares that are authorized and the total number of
Shares that are issued and outstanding; and
(xiii) provide a system which will enable the Corporation to calculate
the total number of Shares of each Fund and Class thereof sold in each
State.
(b) Other Services. Forum shall provide the following additional
services on behalf of the Corporation and such other services agreed to in
writing by the Corporation and Forum:
(i) monitor and make appropriate filings with respect to the
escheatment laws of the various states and territories of the United
States; and
- 3 -
<PAGE>
(ii) receive and tabulate proxy votes/oversee the activities of proxy
solicitation firms and coordinate the tabulation of proxy and
shareholder meeting votes.
(c) Blue Sky Matters. The Corporation or its administrator or other
agent (i) shall identify to Forum in writing those transactions and assets to be
treated as exempt from reporting for each state and territory of the United
States and for each foreign jurisdiction (collectively "States") and (ii) shall
monitor the sales activity with respect to Shareholders domiciled or resident in
each State. The responsibility of Forum for the Corporation's State registration
status is solely limited to the reporting of transactions to the Corporation,
and Forum shall have no obligation, when recording the issuance of Shares, to
monitor the issuance of such Shares or to take cognizance of any laws relating
to the issue or sale of such Shares, which functions shall be the sole
responsibility of the Corporation or its administrator or other agent.
(d) Safekeeping. Forum shall establish and maintain facilities and
procedures reasonably acceptable to the Corporation for the safekeeping,
control, preparation and use of share certificates, check forms, and facsimile
signature imprinting devices. Forum shall establish and maintain facilities and
procedures reasonably acceptable to the Corporation for safekeeping of all
records maintained by Forum pursuant to this Agreement.
(e) Cooperation With Accountants. Forum shall cooperate with each
Fund's independent public accountants and shall take reasonable action to make
all necessary information available to the accountants for the performance of
the accountants' duties.
(f) Responsibility for Compliance With Law. Except with respect to
Forum's duties as set forth in this Section 2 and except as otherwise
specifically provided herein, the Corporation assumes all responsibility for
ensuring that the Corporation complies with all applicable requirements of the
Securities Act, the 1940 Act and any laws, rules and regulations of governmental
authorities with jurisdiction over the Corporation. All references to any law in
this Agreement shall be deemed to include reference to the applicable rules and
regulations promulgated under authority of the law and all official
interpretations of such law or rules or regulations.
SECTION 3. RECORDKEEPING
(a) Predecessor Records. Prior to the commencement of Forum's
responsibilities under this Agreement, if applicable, the Corporation shall
deliver or cause to be delivered over to Forum (i) an accurate list of
Shareholders of the Corporation, showing each Shareholder's address of record,
number of Shares owned and whether such Shares are represented by outstanding
share certificates and (ii) all Shareholder records, files, and other materials
necessary or appropriate for proper performance of the functions assumed by
Forum under this Agreement (collectively referred to as the "Materials"). The
Corporation shall on behalf of each applicable Fund or Class indemnify and hold
Forum harmless from and against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liability arising out of or attributable to
any error, omission, inaccuracy or other deficiency of the Materials, or out of
the failure of the
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<PAGE>
Corporation to provide any portion of the Materials or to provide any
information in the Corporation's possession or control reasonably needed by
Forum to perform the services described in this Agreement.
(b) Recordkeeping. Forum shall keep records relating to the services to
be performed under this Agreement, in the form and manner as it may deem
advisable and as required by applicable law. To the extent required by Section
31 of the 1940 Act, and the rules thereunder, Forum agrees that all such records
prepared or maintained by Forum relating to the services to be performed by
Forum under this Agreement are the property of the Corporation and will be
preserved, maintained and made available in accordance with Section 31 of the
1940 Act and the rules thereunder, and will be surrendered promptly to the
Corporation on and in accordance with the Corporation's request. The Corporation
and the Corporation's authorized representatives shall have access to Forum's
records relating to the services to be performed under this Agreement at all
times during Forum's normal business hours. Upon the reasonable request of the
Corporation, copies of any such records shall be provided promptly by Forum to
the Corporation or the Corporation's authorized representatives.
(c) Confidentiality of Records. Forum and the Corporation agree that
all books, records, information, and data pertaining to the business of the
other party which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required by law.
(d) Inspection of Records by Others. In case of any requests or demands
for the inspection of the Shareholder records of the Corporation, Forum will
endeavor to notify the Corporation and to secure instructions from an authorized
officer of the Corporation as to such inspection. Forum shall abide by the
Corporation's instructions for granting or denying the inspection; provided,
however, that Forum may grant the inspection without instructions if Forum is
advised by counsel to Forum that failure to do so will result in liability to
Forum.
SECTION 4. ISSUANCE AND TRANSFER OF SHARES
(a) Issuance of Shares. Forum shall make original issues of Shares of
each Fund and Class thereof in accordance with the Corporation's then current
prospectus only upon receipt of (i) instructions requesting the issuance, (ii) a
certified copy of a resolution of the Board authorizing the issuance, (iii)
necessary funds for the payment of any original issue tax applicable to such
Shares, and (iv) an opinion of the Corporation's counsel as to the legality and
validity of the issuance, which opinion may provide that it is contingent upon
the filing by the Corporation of an appropriate notice with the SEC, as required
by Section 24 of the 1940 Act or the rules thereunder. If the opinion described
in (iv) above is contingent upon a filing under Section 24 of the 1940 Act, the
Corporation shall indemnify Forum for any liability arising from the failure of
the Corporation to comply with that section or the rules thereunder.
(b) Transfer of Shares. Transfers of Shares of each Fund and Class
thereof shall be registered on the Shareholder records maintained by Forum. In
registering transfers of Shares,
- 5 -
<PAGE>
Forum may rely upon the Uniform Commercial Code as in effect in the State of
Delaware or any other statutes that, in the opinion of Forum's counsel, protect
Forum and the Corporation from liability arising from (i) not requiring complete
documentation, (ii) registering a transfer without an adverse claim inquiry,
(iii) delaying registration for purposes of such inquiry or (iv) refusing
registration whenever an adverse claim requires such refusal. As Transfer Agent,
Forum will be responsible for delivery to the transferor and transferee of such
documentation as is required by the Uniform Commercial Code.
SECTION 5. SHARE CERTIFICATES
(a) Certificates. The Corporation shall furnish to Forum a supply of
blank share certificates of each Fund and Class thereof and, from time to time,
will renew such supply upon Forum's request. Blank share certificates shall be
signed manually or by facsimile signatures of officers of the Corporation
authorized to sign by the Organic Documents of the Corporation and, if required
by the Organic Documents, shall bear the Corporation's seal or a facsimile
thereof. Unless otherwise directed by the Corporation, Forum may issue or
register Share certificates reflecting the manual or facsimile signature of an
officer who has died, resigned or been removed by the Corporation.
(b) Endorsement; Transportation. New Share certificates shall be issued
by Forum upon surrender of outstanding Share certificates in the form deemed by
Forum to be properly endorsed for transfer and satisfactory evidence of
compliance with all applicable laws relating to the payment or collection of
taxes. Forum shall forward Share certificates in "non-negotiable" form by
first-class or registered mail, or by whatever means Forum deems equally
reliable and expeditious. Forum shall not mail Share certificates in
"negotiable" form unless requested in writing by the Corporation and fully
indemnified by the Corporation to Forum's satisfaction.
(c) Non-Issuance of Certificates. In the event that the Corporation
informs Forum that any Fund or Class thereof does not issue share certificates,
Forum shall not issue any such share certificates and the provisions of this
Agreement relating to share certificates shall not be applicable with respect to
those Funds or Classes thereof.
SECTION 6. SHARE PURCHASES; ELIGIBILITY TO RECEIVE DISTRIBUTIONS
(a) Purchase Orders. Shares shall be issued in accordance with the
terms of a Fund's or Class' prospectus after Forum or its agent receives either:
(i) (A) an instruction directing investment in a Fund or Class, (B) a
check (other than a third party check) or a wire or other electronic
payment in the amount designated in the instruction and (C), in the
case of an initial purchase, a completed account application; or
(ii) the information required for purchases pursuant to a selected
dealer agreement, processing organization agreement, or a similar
contract with a financial intermediary.
- 6 -
<PAGE>
(b) Distribution Eligibility. Shares issued in a Fund after receipt of
a completed purchase order shall be eligible to receive distributions of the
Fund at the time specified in the prospectus pursuant to which the Shares are
offered.
(c) Determination of Federal Funds. Shareholder payments shall be
considered Federal Funds no later than on the day indicated below unless other
times are noted in the prospectus of the applicable Class or Fund:
(i) for a wire received, at the time of the receipt of the wire;
(ii) for a check drawn on a member bank of the Federal Reserve System,
on the second Fund Business Day following receipt of the check; and
(iv) for a check drawn on an institution that is not a member of the
Federal Reserve System, at such time as Forum is credited with Federal
Funds with respect to that check.
SECTION 7. FEES AND EXPENSES
(a) Fees. For the services provided by Forum pursuant to this
Agreement, the Corporation, on behalf of each Fund, agrees to pay Forum the fees
set forth in Clauses (i) and (ii) of Appendix B hereto. Fees will begin to
accrue for each Fund on the latter of the date of this Agreement or the date of
commencement of operations of the Fund. If fees begin to accrue in the middle of
a month or if this Agreement terminates before the end of any month, all fees
for the period from that date to the end of that month or from the beginning of
that month to the date of termination, as the case may be, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. Upon the termination of this Agreement with
respect to a Fund, the Corporation shall pay to Forum such compensation as shall
be payable prior to the effective date of termination.
(b) Expenses. In connection with the services provided by Forum
pursuant to this Agreement, the Corporation, on behalf of each Fund, agrees to
reimburse Forum for the expenses set forth in Appendix B hereto. In addition,
the Corporation, on behalf of the applicable Fund, shall reimburse Forum for all
expenses and employee time (at 150% of salary) attributable to any review of the
Corporation's accounts and records by the Corporation's independent accountants
or any regulatory body outside of routine and normal periodic reviews. Should
the Corporation exercise its right to terminate this Agreement, the Corporation,
on behalf of the applicable Fund, shall reimburse Forum for all out-of-pocket
expenses and employee time (at 150% of salary) associated with the copying and
movement of records and material to any successor person and providing
assistance to any successor person in the establishment of the accounts and
records necessary to carry out the successor's responsibilities.
(c) Payment. All fees and reimbursements are payable in arrears on a
monthly basis and the Corporation, on behalf of the applicable Fund, agrees to
pay all fees and reimbursable expenses within five (5) business days following
receipt` of the respective billing notice.
- 7 -
<PAGE>
SECTION 8. REPRESENTATIONS AND WARRANTIES
(a) Representations and Warranties of Forum. Forum represents and
warrants to the Corporation that:
(i) It is a limited liability company duly organized and existing and
in good standing under the laws of the State of Delaware.
(ii) It is duly qualified to carry on its business in the State of
Maine.
(iii) It is empowered under applicable laws and by its Operating
Agreement to enter into this Agreement and perform its duties under
this Agreement.
(iv) All requisite corporate proceedings have been taken to authorize
it to enter into this Agreement and perform its duties under this
Agreement.
(v) It has access to the necessary facilities, equipment, and personnel
to perform its duties and obligations under this Agreement.
(vi) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of Forum, enforceable against Forum
in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
(vii) It is registered as a transfer agent under Section 17A of the
1934 Act.
(b) Representations and Warranties of the Corporation. The Corporation
represents and warrants to Forum that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of Maryland.
(ii) It is empowered under applicable laws and by its Organic Documents
to enter into this Agreement and perform its duties under this
Agreement.
(iii) All requisite corporate proceedings have been taken to authorize
it to enter into this Agreement and perform its duties under this
Agreement.
(iv) It is an open-end management investment company registered under
the 1940 Act.
(v) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Corporation, enforceable
against the Corporation in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
secured parties.
- 8 -
<PAGE>
(vi) A registration statement under the Securities Act is currently
effective and will remain effective, and appropriate State securities
law filings have been made and will continue to be made, with respect
to all Shares of the Funds and Classes of the Corporation being offered
for sale.
SECTION 9. PROPRIETARY INFORMATION
(a) Proprietary Information of Forum. The Corporation acknowledges that
the databases, computer programs, screen formats, report formats, interactive
design techniques, and documentation manuals maintained by Forum on databases
under the control and ownership of Forum or a third party constitute
copyrighted, trade secret, or other proprietary information (collectively,
"Proprietary Information") of substantial value to Forum or the third party. The
Corporation agrees to treat all Proprietary Information as proprietary to Forum
and further agrees that it shall not divulge any Proprietary Information to any
person or organization except as may be provided under this Agreement.
(b) Proprietary Information of the Corporation. Forum acknowledges that
the Shareholder list and all information related to Shareholders furnished to
Forum by the Corporation or by a Shareholder in connection with this Agreement
(collectively, "Customer Data") constitute proprietary information of
substantial value to the Corporation. In no event shall Proprietary Information
be deemed Customer Data. Forum agrees to treat all Customer Data as proprietary
to the Corporation and further agrees that it shall not divulge any Customer
Data to any person or organization except as may be provided under this
Agreement or as may be directed by the Corporation.
SECTION 10. INDEMNIFICATION
(a) Indemnification of Forum. Forum shall not be responsible for, and
the Corporation shall on behalf of each applicable Fund or Class thereof
indemnify and hold Forum harmless from and against, any and all losses, damages,
costs, charges, reasonable counsel fees, payments, expenses and liability
arising out of or attributable to:
(i) all actions of Forum or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken
in good faith and without gross negligence or willful misconduct;
(ii) the Corporation's lack of good faith or the Corporation's gross
negligence or willful misconduct;
(iii) the reliance on or use by Forum or its agents or subcontractors
of information, records, documents or services which have been
prepared, maintained or performed by the Corporation or any other
person or firm on behalf of the Corporation, including but not limited
to any previous transfer agent or registrar;
- 9 -
<PAGE>
(iv) the reasonable reliance on, or the carrying out by Forum or its
agents or subcontractors of, any instructions or requests of the
Corporation on behalf of the applicable Fund; and
(v) the offer or sale of Shares in violation of any requirement under
the Federal securities laws or regulations or the securities laws or
regulations of any State that such Shares be registered in such State
or in violation of any stop order or other determination or ruling by
any federal agency or any State with respect to the offer or sale of
such Shares in such State.
(b) Indemnification of Corporation. Forum shall indemnify and hold the
Corporation and each Fund or Class thereof harmless from and against any and all
losses, damages, costs, charges, reasonable counsel fees, payments, expenses and
liability arising out of or attributed to any action or failure or omission to
act by Forum as a result of Forum's lack of good faith, gross negligence or
willful misconduct with respect to the services performed under or in connection
with this Agreement.
(c) Reliance. At any time Forum may apply to any officer of the
Corporation for instructions, and may consult with legal counsel to the
Corporation or to Forum with respect to any matter arising in connection with
the services to be performed by Forum under this Agreement, and Forum and its
agents or subcontractors shall not be liable and shall be indemnified by the
Corporation on behalf of the applicable Fund for any action taken or omitted by
it in reasonable reliance upon such instructions or upon the advice of such
counsel. Forum, its agents and subcontractors shall be protected and indemnified
in acting upon (i) any paper or document furnished by or on behalf of the
Corporation, reasonably believed by Forum to be genuine and to have been signed
by the proper person or persons, (ii) any instruction, information, data,
records or documents provided Forum or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by the
Corporation, and (iii) any authorization, instruction, approval, item or set of
data, or information of any kind transmitted to Forum in person or by telephone,
vocal telegram or other electronic means, reasonably believed by Forum to be
genuine and to have been given by the proper person or persons. Forum shall not
be held to have notice of any change of authority of any person, until receipt
of written notice thereof from the Corporation. Forum, its agents and
subcontractors shall also be protected and indemnified in recognizing share
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Corporation, and the proper
countersignature of any former transfer agent or former registrar or of a
co-transfer agent or co-registrar of the Corporation.
(d) Reliance on Electronic Instructions. If the Corporation has the
ability to originate electronic instructions to Forum in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information, then in such event Forum shall be entitled to rely on the
validity and authenticity of such instruction without undertaking any further
inquiry as long as such instruction is undertaken in conformity with security
procedures established by Forum from time to time.
- 10 -
<PAGE>
(e) Use of Fund/SERV and Networking. The Corporation has authorized or
in the future may authorize Forum to act as a "Mutual Fund Services Member" for
the Corporation or various Funds. Fund/SERV and Networking are services
sponsored by the National Securities Clearing Corporation ("NSCC") and as used
herein have the meanings as set forth in the then current edition of NSCC Rules
and Procedures published by NSCC or such other similar publication as may exist
from time to time. The Corporation shall indemnify and hold Forum harmless from
and against any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising directly or indirectly out of or
attributed to any action or failure or omission to act by NSCC.
(f) Notification of Claims. In order that the indemnification
provisions contained in this Section shall apply, upon the assertion of a claim
for which either party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all developments concerning
such claim. The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such claim
or to defend against said claim in its own name or in the name of the other
party. The party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
SECTION 11. EFFECTIVENESS, DURATION AND TERMINATION
(a) Effectiveness. This Agreement shall become effective with respect
to each Fund or Class on the later of the date on which the Corporation's
Registration Statement relating to the Shares of the Fund or Class becomes
effective or the date of the commencement of operations of the Fund or Class.
Upon effectiveness of this Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter hereof insofar as such
Agreement may have been deemed to relate to the Funds.
(b) Duration. This Agreement shall continue in effect with respect to a
Fund until terminated; provided, that continuance is specifically approved at
least annually (i) by the Board or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by a vote of a majority of Directors of
the Corporation who are not parties to this Agreement or interested persons of
any such party (other than as Directors of the Corporation).
(c) Termination. This Agreement may be terminated with respect to a
Fund at any time, without the payment of any penalty (i) by the Board on 60
days' written notice to Forum or (ii) by Forum on 60 days' written notice to the
Corporation. Any termination shall be effective as of the date specified in the
notice. Upon notice of termination of this Agreement by either party, Forum
shall promptly transfer to the successor transfer agent the original or copies
of all books and records maintained by Forum under this Agreement including, in
the case of records maintained on computer systems, copies of such records in
machine-readable form, and shall cooperate with, and provide reasonable
assistance to, the successor transfer agent in the establishment of the books
and records necessary to carry out the successor transfer agent's
responsibilities.
- 11 -
<PAGE>
(d) Survival. The obligations of Sections 7, 9 and 10 shall survive any
termination of this Agreement.
SECTION 12. ADDITIONAL FUNDS AND CLASSES. In the event that the
Corporation establishes one or more series of Shares or one or more classes of
Shares after the effectiveness of this Agreement, such series of Shares or
classes of Shares, as the case may be, shall become Funds and Classes under this
Agreement. Forum or the Corporation may elect not to make and such series or
classes subject to this Agreement.
SECTION 13. ASSIGNMENT. Except as otherwise provided in this Agreement,
neither this Agreement nor any rights or obligations under this Agreement may be
assigned by either party without the written consent of the other party. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective permitted successors and assigns. Forum may, without further
consent on the part of the Corporation, subcontract for the performance hereof
with any entity, including affiliated persons of Forum; provided however, that
Forum shall be as fully responsible to the Corporation for the acts and
omissions of any subcontractor as Forum is for its own acts and omissions.
SECTION 14. FORCE MAJEURE. Forum shall not be responsible or liable for
any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control including, without limitation, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical
breakdowns, flood or catastrophe, acts of God, insurrection, war, riots or
failure of the mails or any transportation medium, communication system or power
supply.
SECTION 15. LIMITATIONS OF LIABILITY OF THE DIRECTORS AND SHAREHOLDERS,
OFFICERS, EMPLOYEES AND AGENTS. The directors of the Corporation and the
shareholders of each Fund shall not be liable for any obligations of the
Corporation or of the Funds under this Agreement, and Forum agrees that, in
asserting any rights or claims under this Agreement, it shall look only to the
assets and property of the Corporation or the Fund to which Forum's rights or
claims relate in settlement of such rights or claims, and not to the directors
of the Corporation or the shareholders of the Funds.
SECTION 16. TAXES. Forum shall not be liable for any taxes, assessments
or governmental charges that may be levied or assessed on any basis whatsoever
in connection with the Corporation or any Shareholder or any purchase of Shares,
excluding taxes assessed against Forum for compensation received by it under
this Agreement.
SECTION 17. MISCELLANEOUS
(a) No Consequential Damages. Neither party to this Agreement shall be
liable to the other party for consequential damages under any provision of this
Agreement.
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<PAGE>
(b) Amendments. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement properly authorized and
executed by both parties hereto.
(c) Choice of Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of
Delaware.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof whether oral or written.
(e) Counterparts. This Agreement may be executed by the parties hereto
on any number of counterparts, and all of the counterparts taken together shall
be deemed to constitute one and the same instrument.
(f) Severability. If any part, term or provision of this Agreement is
held to be illegal, in conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not be affected, and the
rights and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
(g) Headings. Section and paragraph headings in this Agreement are
included for convenience only and are not to be used to construe or interpret
this Agreement.
(h) Notices. Notices, requests, instructions and communications
received by the parties at their respective principal addresses, or at such
other address as a party may have designated in writing, shall be deemed to have
been properly given.
(i) Business Days. Nothing contained in this Agreement is intended to
or shall require Forum, in any capacity hereunder, to perform any functions or
duties on any day other than a Fund Business Day. Functions or duties normally
scheduled to be performed on any day which is not a Fund Business Day shall be
performed on, and as of, the next Fund Business Day, unless otherwise required
by law.
(j) Distinction of Funds. Notwithstanding any other provision of this
Agreement, the parties agree that the assets and liabilities of each Fund of the
Corporation are separate and distinct from the assets and liabilities of each
other Fund and that no Fund shall be liable or shall be charged for any debt,
obligation or liability of any other Fund, whether arising under this Agreement
or otherwise.
(k) Nonliability of Affiliates. No affiliated person (as that term is
defined in the 1940 Act), employee, agent, director, officer or manager of Forum
shall be liable at law or in equity for Forum's obligations under this
Agreement.
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<PAGE>
(l) Representation of Signatories. Each of the undersigned expressly
warrants and represents that they have full power and authority to sign this
Agreement on behalf of the party indicated and that their signature will bind
the party indicated to the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
persons, as of the day and year first above written.
TANAKA FUNDS, INC.
By:
---------------------------
[Officer name]
[Title]
FORUM SHAREHOLDER SERVICES, LLC
By:
---------------------------
Lisa J. Weymouth
Managing Director
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<PAGE>
TANAKA FUNDS, INC.
TRANSFER AGENCY AND SERVICE AGREEMENT
Appendix A
Fund and Classes
as of __________, 1998
Fund
TANAKA Growth Fund
Classes
R Share
B Share
A Share
- A1 -
<PAGE>
TANAKA FUNDS, INC.
TRANSFER AGENCY AND SERVICE AGREEMENT
Appendix B
Fees and Expenses
(i) Base Fee:
Fees per Fund with one Class
...................................$24,000 ($2,000 per month) [$18,000
($1,500 per month) for the first twelve months of this Agreement]
Fees per Fund with more than one Class
...................................$24,000 ($2,000 per month) [$18,000
($1,500 per month) for the first twelve months of this Agreement] plus
$12,000 ($1,000 per month) per each class above one.
The rates set forth above shall remain fixed through December 31, 1999.
On January 1, 2,000, and on each successive January 1, the rates may be
adjusted automatically by Forum without action of the Corporation to
reflect changes in the Consumer Price Index for the preceding calendar
year, as published by the U.S. Department of Labor, Bureau of Labor
Statistics. Forum shall notify the Corporation each year of the new
rates, if applicable.
(ii) Shareholder Account Fees:
$30 per Shareholder account per year.
Shareholder account fees are based upon the number of Shareholder
accounts as of the last Fund Business Day of the prior month.
(iii) Out-Of-Pocket and Related Expenses
The Corporation, on behalf of the applicable Fund, shall reimburse
Forum for all out-of-pocket and ancillary expenses in providing the
services described in this Agreement, including but not limited to the
cost of (or appropriate share of the cost of): (i) statement,
confirmation, envelope and stationary stock, (ii) share certificates,
(iii) printing of checks and drafts, (iv) postage, (v)
telecommunications, (vi) banking services (DDA account, wire and ACH,
check and draft clearing and lock box fees and charges), (vii) NSCC
Mutual Fund Service Member fees and expenses, (viii) outside proxy
solicitors and tabulators, (ix) proxy solicitation fees and (ix)
microfilm and microfiche. In addition, any other expenses incurred by
Forum at the request or with the consent of the Corporation, will be
reimbursed by the Corporation on behalf of the applicable Fund.
- B1 -
FORM OF
TANAKA FUNDS, INC.
ADMINISTRATION AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998, by and between
TANAKA Funds, Inc., a Maryland corporation, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Corporation"),
and Forum Administrative Services, LLC, a Delaware limited liability company
with its principal office and place of business at Two Portland Square,
Portland, Maine 04101 ("Forum").
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series and classes; and
WHEREAS, the Corporation offers shares in various series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Corporation and made subject to this Agreement in accordance
with Section 6, being herein referred to as a "Fund," and collectively as the
"Funds") and the Corporation offers shares of various classes of each Fund as
listed in Appendix A hereto (each such class together with all other classes
subsequently established by the Corporation in a Fund being herein referred to
as a "Class," and collectively as the "Classes"); and
WHEREAS, the Corporation desires that Forum perform certain
administrative services for each Fund and Class thereof and Forum is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and Forum hereby agree as follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Corporation hereby appoints Forum, and Forum hereby agrees, to
act as administrator of the Corporation for the period and on the terms set
forth in this Agreement.
(b) In connection therewith, the Corporation has delivered to Forum
copies of (i) the Corporation's Articles of Incorporation and Bylaws
(collectively, as amended from time to time, "Organic Documents"), (ii) the
Corporation's Registration Statement and all amendments thereto filed with the
U.S. Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the 1940 Act (the "Registration
Statement"), (iii) the Corporation's current Prospectus and Statement of
Additional Information of each Fund (collectively, as currently in effect and as
amended or supplemented, the "Prospectus"), (iv) each current plan of
distribution or similar document adopted by the Corporation under Rule 12b-1
under the 1940 Act ("Plan") and each current shareholder service plan or similar
document adopted by the Corporation ("Service Plan"), and (iv) all procedures
adopted by the Corporation
<PAGE>
with respect to the Funds (i.e., repurchase agreement procedures), and shall
promptly furnish Forum with all amendments of or supplements to the foregoing.
The Corporation shall deliver to Forum a certified copy of the resolution of the
Board of Directors of the Corporation (the "Board") appointing Forum and
authorizing the execution and delivery of this Agreement.
SECTION 2. DUTIES OF FORUM AND THE CORPORATION
(a) Subject to the direction and control of the Board, Forum shall
manage all aspects of the Corporation's operations with respect to the Funds
except those that are the responsibility of any other service provider hired by
the Corporation, all in such manner and to such extent as may be authorized by
the Board.
(b) With respect to the Corporation or each Fund, as applicable, Forum
shall:
(i) at the Corporation's expense, provide the Corporation with, or
arrange for the provision of, the services of persons competent to
perform such legal, administrative and clerical functions not otherwise
described in this Section 2(b) as are necessary to provide effective
operation of the Corporation;
(ii) oversee (A) the preparation and maintenance by the Corporation's
custodian, transfer agent, dividend disbursing agent and fund
accountant in such form, for such periods and in such locations as may
be required by applicable United States law, of all documents and
records relating to the operation of the Corporation required to be
prepared or maintained by the Corporation or its agents pursuant to
applicable law; (B) the reconciliation of account information and
balances among the Corporation's custodian, transfer agent, dividend
disbursing agent and fund accountant; (C) the transmission of purchase
and redemption orders for Shares; and (D) the performance of fund
accounting, including the calculation of the net asset value of the
Shares;
(iii) oversee the performance of administrative and professional
services rendered to the Corporation by others, including its
custodian, transfer agent and dividend disbursing agent as well as
legal, auditing, shareholder servicing and other services performed for
the Funds;
(iv) file or oversee the filing of each document required to be filed
by the Corporation in either written or, if required, electronic format
(e.g., electronic data gathering analysis and retrieval system or
"EDGAR") with the SEC;
(v) assist in and oversee the preparation, filing and printing and the
periodic updating of the Registration Statement and Prospectuses;
(vi) oversee the preparation and filing of the Corporation's tax
returns;
(vii) oversee the preparation of financial statements and related
reports to the Corporation's shareholders, the SEC and state and other
securities administrators;
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<PAGE>
(viii) assist in and oversee the preparation and printing of proxy and
information statements and any other communications to shareholders;
(ix) provide the Corporation with adequate general office space and
facilities and provide persons suitable to the Board to serve as
officers of the Corporation;
(x) assist the investment advisers in monitoring Fund holdings for
compliance with Prospectus investment restrictions and assist in
preparation of periodic compliance reports, as applicable;
(xi) prepare, file and maintain the Corporation's Organic Documents and
minutes of meetings of Directors, Board committees and shareholders;
(xii) with the cooperation of the outside counsel to the Corporation,
investment advisers, the officers of the Corporation and other relevant
parties, prepare and disseminate materials for meetings of the Board,
as applicable;
(xiii) maintain the Corporation's existence and good standing under
applicable state law;
(xiv) monitor sales of Shares, ensure that the Shares are properly and
duly registered with the SEC and register, or prepare applicable
filings with respect to, the Shares with the various state and other
securities commissions;
(xv) oversee the calculation of performance data for dissemination to
information services covering the investment company industry, for
sales literature of the Corporation and other appropriate purposes;
(xvi) oversee the determination of the amount of and supervise the
declaration of dividends and other distributions to shareholders as
necessary to, among other things, maintain the qualification of each
Fund as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code"), and prepare and distribute to
appropriate parties notices announcing the declaration of dividends and
other distributions to shareholders;
(xvii) advise the Corporation and the Board on matters concerning the
Corporation and its affairs;
(xviii) calculate, review and account for Fund expenses and report on
Fund expenses on a periodic basis;
(xix) authorize the payment of Corporation expenses and pay, from
Corporation assets, all bills of the Corporation;
- 3 -
<PAGE>
(xx) prepare Fund budgets, pro-forma financial statements, expense and
profit/loss projections and fee waiver/expense reimbursement
projections on a periodic basis;
(xxi) prepare financial statement expense information;
(xxii) assist the Corporation in the selection of other service
providers, such as independent accountants, law firms and proxy
solicitors; and
(xxiii) perform such other recordkeeping, reporting and other tasks as
may be specified from time to time in the procedures adopted by the
Board; provided, that Forum need not begin performing any such task
except upon 65 days' notice and pursuant to mutually acceptable
compensation agreements.
(c) Forum shall provide such other services and assistance relating to
the affairs of the Corporation as the Corporation may, from time to time,
reasonably request pursuant to mutually acceptable compensation agreements. In
addition, the lawyers who are employed by Forum or its affiliates shall provide
any of the legal services identified in Appendix C hereto to the Corporation,
subject to satisfaction of the conditions contained in Section 9(c) and to the
consents and waivers by the Corporation and Forum of any general conflict of
interest existing as a result of the provision of those services. Forum shall
not charge the Corporation for providing the legal services identified in
Appendix C, except for those matters designated as Special Legal Services, as to
which Forum may charge, and, subject to review and approval by the Chairman of
the Audit Committee or outside counsel to the Corporation, the Corporation shall
pay, an additional amount as reimbursement of the cost to Forum of providing the
Special Legal Services. Nothing in this Agreement shall require Forum to provide
any of the services listed in Appendix C, and each of those services may be
performed by an outside vendor if appropriate in the judgment of Forum or the
Corporation.
(d) Forum shall maintain records relating to its services, such as
journals, ledger accounts and other records, as are required to be maintained
under the 1940 Act and Rule 31a-1 thereunder. The books and records pertaining
to the Corporation that are in possession of Forum shall be the property of the
Corporation. The Corporation, or the Corporation's authorized representatives,
shall have access to such books and records at all times during Forum's normal
business hours. Upon the reasonable request of the Corporation, copies of any
such books and records shall be provided promptly by Forum to the Corporation or
the Corporation's authorized representatives. In the event the Corporation
designates a successor that assumes any of Forum's obligations hereunder, Forum
shall, at the expense and direction of the Corporation, transfer to such
successor all relevant books, records and other data established or maintained
by Forum under this Agreement.
(e) Nothing contained herein shall be construed to require Forum to
perform any service that could cause Forum to be deemed an investment adviser
for purposes of the 1940 Act or the Investment Advisers Act of 1940, as amended,
or that could cause a Fund to act in contravention of the Fund's Prospectus or
any provision of the 1940 Act. Except with respect to Forum's duties as set
forth in this Section 2 and except as otherwise specifically provided herein,
- 4 -
<PAGE>
the Corporation assumes all responsibility for ensuring that the Corporation
complies with all applicable requirements of the Securities Act, the 1940 Act
and any laws, rules and regulations of governmental authorities with
jurisdiction over the Corporation. All references to any law in this Agreement
shall be deemed to include reference to the applicable rules and regulations
promulgated under authority of the law and all official interpretations of such
law or rules or regulations.
(f) In order for Forum to perform the services required by this Section
2, the Corporation (i) shall cause all service providers to the Corporation to
furnish any and all information to Forum, and assist Forum as may be required
and (ii) shall ensure that Forum has access to all records and documents
maintained by the Corporation or any service provider to the Corporation.
SECTION 3. STANDARD OF CARE AND RELIANCE
(a) Forum shall be under no duty to take any action except as
specifically set forth herein or as may be specifically agreed to by Forum in
writing. Forum shall use its best judgment and efforts in rendering the services
described in this Agreement. Forum shall not be liable to the Corporation or any
of the Corporation's shareholders for any action or inaction of Forum relating
to any event whatsoever in the absence of bad faith, willful misfeasance or
gross negligence in the performance of Forum's duties or obligations under this
Agreement or by reason of Forum's reckless disregard of its duties and
obligations under this Agreement.
(b) The Corporation agrees to indemnify and hold harmless Forum, its
employees, agents, directors, officers and managers and any person who controls
Forum within the meaning of section 15 of the Securities Act or section 20 of
the Securities Exchange Act of 1934, as amended, ("Forum Indemnitees") against
and from any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising out of or in any way related to Forum's
actions taken or failures to act with respect to a Fund that are consistent with
the standard of care set forth in Section 3(a) or based, if applicable, on good
faith reliance upon an item described in Section 3(d) (a "Claim"). The
Corporation shall not be required to indemnify any Forum Indemnitee if, prior to
confessing any Claim against the Forum Indemnitee, Forum or the Forum Indemnitee
does not give the Corporation written notice of and reasonable opportunity to
defend against the claim in its own name or in the name of the Forum Indemnitee.
(c) Forum agrees to indemnify and hold harmless the Corporation, its
employees, agents, directors and officers against and from any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character arising out of Forum's actions taken or failures to act with respect
to a Fund that are not consistent with the standard of care set forth in Section
3(a). Forum shall not be required to indemnify the Corporation if, prior to
confessing any Claim against the Corporation, the Corporation does not give
Forum written notice of and reasonable opportunity to defend against the claim
in its own name or in the name of the Corporation.
- 5 -
<PAGE>
(d) A Forum Indemnitee shall not be liable for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Corporation or of counsel, who may be counsel to
the Corporation or counsel to Forum, and upon statements of
accountants, brokers and other persons reasonably believed in good
faith by Forum to be experts in the matter upon which they are
consulted;
(ii) any oral instruction which it receives and which it reasonably
believes in good faith was transmitted by the person or persons
authorized by the Board to give such oral instruction. Forum shall have
no duty or obligation to make any inquiry or effort of certification of
such oral instruction;
(iii) any written instruction or certified copy of any resolution of
the Board, and Forum may rely upon the genuineness of any such document
or copy thereof reasonably believed in good faith by Forum to have been
validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order, or other document reasonably believed in good faith by
Forum to be genuine and to have been signed or presented by the
Corporation or other proper party or parties;
and no Forum Indemnitee shall be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which Forum reasonably believes in good faith
to be genuine.
(e) Forum shall not be liable for the errors of other service providers
to the Corporation including the errors of printing services (other than to
pursue all reasonable claims against the pricing service based on the pricing
services' standard contracts entered into by Forum) and errors in information
provided by an investment adviser (including prices and pricing formulas and the
untimely transmission of trade information), custodian or transfer agent to the
Corporation.
SECTION 4. COMPENSATION AND EXPENSES
(a) In consideration of the administrative services provided by Forum
pursuant to this Agreement, the Corporation shall pay Forum, with respect to
each Class of each of the Funds, the fees set forth in Appendix B hereto. These
fees shall be accrued by the Corporation daily and shall be payable monthly in
arrears on the first day of each calendar month for services performed under
this Agreement during the prior calendar month.
If fees begin to accrue in the middle of a month or if this Agreement
terminates before the end of any month, all fees for the period from that date
to the end of that month or from the
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<PAGE>
beginning of that month to the date of termination, as the case may be, shall be
prorated according to the proportion that the period bears to the full month in
which the effectiveness or termination occurs. Upon the termination of this
Agreement with respect to a Fund, the Corporation shall pay to Forum such
compensation as shall be payable prior to the effective date of termination.
(b) Notwithstanding anything in this Agreement to the contrary, Forum
and its affiliated persons may receive compensation or reimbursement from the
Corporation with respect to (i) the provision of services on behalf of the Funds
in accordance with any Plan or Service Plan, (ii) the provision of shareholder
support or other services, (iii) service as a director or officer of the
Corporation and (iv) services to the Corporation, which may include the types of
services described in this Agreement, with respect to the creation of any Fund
and the start-up of the Fund's operations.
(c) The Corporation shall be responsible for and assumes the obligation
for payment of all of its expenses, including: (a) the fee payable under this
Agreement; (b) the fees payable to each investment adviser under an agreement
between the investment adviser and the Corporation; (c) expenses of issue,
repurchase and redemption of Shares; (d) interest charges, taxes and brokerage
fees and commissions; (e) premiums of insurance for the Corporation, its
directors and officers and fidelity bond premiums; (f) fees, interest charges
and expenses of third parties, including the Corporation's independent
accountant, custodian, transfer agent, dividend disbursing agent and fund
accountant; (g) fees of pricing, interest, dividend, credit and other reporting
services; (h) costs of membership in trade associations; (i) telecommunications
expenses; (j) funds transmission expenses; (k) auditing, legal and compliance
expenses; (l) costs of forming the Corporation and maintaining its existence;
(m) costs of preparing, filing and printing the Corporation's Prospectuses,
subscription application forms and shareholder reports and other communications
and delivering them to existing shareholders, whether of record or beneficial;
(n) expenses of meetings of shareholders and proxy solicitations therefor; (o)
costs of maintaining books of original entry for portfolio and fund accounting
and other required books and accounts, of calculating the net asset value of
Shares and of preparing tax returns; (p) costs of reproduction, stationery,
supplies and postage; (q) fees and expenses of the Corporation's directors; (r)
compensation of the Corporation's officers and employees and costs of other
personnel (who may be employees of the investment adviser, Forum or their
respective affiliated persons) performing services for the Corporation; (s)
costs of Board, Board committee, shareholder and other corporate meetings; (t)
SEC registration fees and related expenses; (u) state, territory or foreign
securities laws registration fees and related expenses; and (v) all fees and
expenses paid by the Corporation in accordance with any Plan or Service Plan or
agreement related to similar manners.
(d) Should the Corporation exercise its right to terminate this
Agreement, the Corporation, on behalf of the applicable Fund, shall reimburse
Forum for all out-of-pocket expenses and employee time (at 150% of salary)
associated with the copying and movement of records and material to any
successor person and providing assistance to any successor person in the
establishment of the accounts and records necessary to carry out the successor's
responsibilities.
- 7 -
<PAGE>
SECTION 5. EFFECTIVENESS, DURATION, TERMINATION AND ASSIGNMENT
(a) This Agreement shall become effective with respect to each Fund or
Class on the later of the date on which the Corporation's Registration Statement
relating to the Shares of the Fund or Class becomes effective or the date of the
commencement of operations of the Fund or Class. Upon effectiveness of this
Agreement, it shall supersede all previous agreements between the parties hereto
covering the subject matter hereof insofar as such Agreement may have been
deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund
until terminated; provided, that continuance is specifically approved at least
annually (i) by the Board or by a vote of a majority of the outstanding voting
securities of the Fund and (ii) by a vote of a majority of Directors of the
Corporation who are not parties to this Agreement or interested persons of any
such party (other than as Directors of the Corporation).
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Corporation.
The obligations of Sections 3 and 4 shall survive any termination of this
Agreement.
(d) This Agreement and the rights and duties under this Agreement
otherwise shall not be assignable by either Forum or the Corporation except by
the specific written consent of the other party. All terms and provisions of
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.
SECTION 6. ADDITIONAL FUNDS AND CLASSES
In the event that the Corporation establishes one or more series of
Shares or one or more classes of Shares after the effectiveness of this
Agreement, such series of Shares or classes of Shares, as the case may be, shall
become Funds and Classes under this Agreement. Forum or the Corporation may
elect not to make any such series or classes subject to this Agreement.
SECTION 7. CONFIDENTIALITY
Forum agrees to treat all records and other information related to the
Corporation as proprietary information of the Corporation and, on behalf of
itself and its employees, to keep confidential all such information, except that
Forum may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
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<PAGE>
(c) release such other information as approved in writing by the
Corporation, which approval shall not be unreasonably withheld and may not be
withheld where Forum may be exposed to civil or criminal contempt proceedings
for failure to release the information, when requested to divulge such
information by duly constituted authorities or when so requested by the
Corporation.
SECTION 8. FORCE MAJEURE
Forum shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdowns, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
SECTION 9. ACTIVITIES OF FORUM
(a) Except to the extent necessary to perform Forum's obligations under
this Agreement, nothing herein shall be deemed to limit or restrict Forum's
right, or the right of any of Forum's managers, officers or employees who also
may be a director, officer or employee of the Corporation, or persons who are
otherwise affiliated persons of the Corporation to engage in any other business
or to devote time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other corporation, trust, firm, individual or association.
(b) Forum may subcontract any or all of its responsibilities pursuant
to this Agreement to one or more corporations, trusts, firms, individuals or
associations, which may be affiliated persons of Forum, who agree to comply with
the terms of this Agreement; provided, that any such subcontracting shall not
relieve Forum of its responsibilities hereunder. Forum may pay those persons for
their services, but no such payment will increase Forum's compensation from the
Corporation.
(c) Without limiting the generality of the Sections 9(a) and (b), the
Corporation acknowledges that certain legal services may be provided to it by
lawyers who are employed by Forum or its affiliates and who render services to
Forum and its affiliates. A lawyer who provides such services to the
Corporation, and any lawyer who supervises such lawyer, although employed
generally by Forum or its affiliates, will have a direct professional
attorney-client relationship with the Corporation. Those services for which such
a direct relationship will exist are listed in Appendix C hereto. Provided (i)
Forum agrees with any attorney performing legal services for the Corporation to
not direct the professional judgment of the attorney in performing those legal
services and (ii) the attorney agrees to disclose to the Chairman of the Audit
Committee or to outside counsel to the Corporation any circumstance in which a
legal service the attorney proposes to provide relates to a matter in which the
Corporation and Forum or the Corporation and any other investment company to
which the attorney is providing legal services have or may
- 9 -
<PAGE>
have divergent legal or economic interests, each of Forum and the Corporation
hereby consents to the simultaneous representation by the attorney of both Forum
and the Corporation and waives any general conflict of interest existing in such
simultaneous representation, and the Corporation agrees that, in the event the
attorney ceases to represent the Corporation, whether at the request of the
Corporation or otherwise, the attorney may continue thereafter to represent
Forum, and the Corporation expressly consents to such continued representation.
SECTION 10. COOPERATION WITH INDEPENDENT ACCOUNTANTS
Forum shall cooperate, if applicable, with each Fund's independent
public accountants and shall take reasonable action to make all necessary
information available to the accountants for the performance of the accountants'
duties.
SECTION 11. SERVICE DAYS
Nothing contained in this Agreement is intended to or shall require
Forum, in any capacity under this Agreement, to perform any functions or duties
on any day other than a business day of the Corporation or of a Fund. Functions
or duties normally scheduled to be performed on any day which is not a business
day of the Corporation or of a Fund shall be performed on, and as of, the next
business day, unless otherwise required by law.
SECTION 12. LIMITATION OF SHAREHOLDER AND DIRECTOR LIABILITY
The directors of the Corporation and the shareholders of each Fund
shall not be liable for any obligations of the Corporation or of the Funds under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Corporation
or the Fund to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the directors of the Corporation or the
shareholders of the Funds.
SECTION 13. MISCELLANEOUS
(a) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(b) Except for Appendix A to add new Funds and Classes in accordance
with Section 6, no provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties hereto.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
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<PAGE>
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(i) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Corporation are
separate and distinct from the assets and liabilities of each other Fund and
that no Fund shall be liable or shall be charged for any debt, obligation or
liability of any other Fund, whether arising under this Agreement or otherwise.
(j) No affiliated person, employee, agent, director, officer or manager
of Forum shall be liable at law or in equity for Forum's obligations under this
Agreement.
(k) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
(l) The terms "vote of a majority of the outstanding voting
securities," "interested person," and "affiliated person" shall have the
meanings ascribed thereto in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
persons, as of the day and year first above written.
TANAKA FUNDS, INC.
By:
------------------------------
[Officer name]
[Title]
FORUM ADMINISTRATIVE SERVICES, LLC
By:
------------------------------
David I. Goldstein
Managing Director
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<PAGE>
TANAKA FUNDS, INC.
ADMINISTRATION AGREEMENT
Appendix A
Fund and Classes
as of __________, 1998
Fund
TANAKA Growth Fund
Classes
R Share
B Share
A Share
- A1 -
<PAGE>
TANAKA FUNDS, INC.
ADMINISTRATION AGREEMENT
Appendix B
Fees and Expenses
For its services under the agreement, the Corporation shall pay Forum 0.10% of
the average daily net assets under $100 million of each Fund and 0.075% of the
average daily net assets over $100 million of each Fund.
Notwithstanding the above, the minimum fee per Fund shall be $25,000 for the
first twelve months, $32,500 for the next twelve months and $40,000 per annum
thereafter.
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<PAGE>
TANAKA FUNDS, INC.
ADMINISTRATION AGREEMENT
Appendix C
Legal Services
1. Advise the Corporation on compliance with applicable U.S. laws and
regulations with respect to matters that are within the ordinary course of
the Corporation's business.
2. Advise the Corporation on compliance with applicable U.S. laws and
regulations with respect to matters that are outside the ordinary course of
the Corporation's business(*).
3. Liaison with the SEC.
4. Draft correspondences to SEC and respond to SEC comments.
5. Liaison with the Corporation's outside counsel.
6. Provide attorney letters to the Corporation's auditors.
7. Assist Corporation outside counsel in the preparation of exemptive
applications, no-action letters, prospectuses, registration statements and
proxy statements and related material.
8. Prepare exemptive applications, no-action letters, prospectuses,
registration statements and proxy statements and related material, and
draft correspondences to SEC and respond to SEC comments with respect
thereto(*).
9. Prepare prospectus supplements.
10. Review and authorize Section 24 filings.
11. Prepare and/or review agendas and minutes for and respond to inquiries at
board and shareholder meetings regarding applicable U.S. laws and
regulations.
12. Prepare and/or review agreements between the Corporation and any third
parties.
Note: Items designated with an (*) are Special Legal Services.
- C1 -
FORM OF
TANAKA FUNDS, INC.
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998, by and between
TANAKA Funds, Inc., a Maryland Corporation, with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Corporation"),
and Forum Accounting Services, LLC, a Delaware limited liability company with
its principal office and place of business at Two Portland Square, Portland,
Maine 04101 ("Forum").
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company and may issue its shares of beneficial interest, no par value (the
"Shares"), in separate series and classes; and
WHEREAS, the Corporation intends to offer shares in various series as
listed in Appendix A hereto (each such series, together with all other series
subsequently established by the Corporation and made subject to this Agreement
in accordance with Section 6, being herein referred to as a "Fund," and
collectively as the "Funds") and the Corporation intends to offer shares of
various classes of each Fund as listed in Appendix A hereto (each such class
together with all other classes subsequently established by the Corporation in a
Fund being herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Corporation desires that Forum perform certain fund
accounting services for each Fund and Class thereof and Forum is willing to
provide those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and Forum hereby agree as follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Corporation hereby appoints Forum, and Forum hereby agrees, to
act as fund accountant of the Corporation for the period and on the terms set
forth in this Agreement.
(b) In connection therewith, the Corporation has delivered to Forum
copies of (i) the Corporation's Articles of Incorporation and Bylaws
(collectively, as amended from time to time, "Organic Documents"), (ii) the
Corporation's Registration Statement and all amendments thereto filed with the
U.S. Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), or the 1940 Act (the "Registration
Statement"), (iii) the Corporation's current Prospectus and Statement of
Additional Information of each Fund (collectively, as currently in effect and as
amended or supplemented, the "Prospectus") and (iv) all procedures adopted by
the Corporation with respect to the Funds (i.e., repurchase agreement
procedures), and shall promptly furnish Forum with all amendments of or
supplements to the foregoing. The Corporation shall deliver to Forum a certified
copy of the resolution of the Board
<PAGE>
of Directors of the Corporation (the "Board") appointing Forum and authorizing
the execution and delivery of this Agreement.
SECTION 2. DUTIES OF FORUM
(a) Forum and the Corporation's administrator, Forum Administrative
Services, LLC (the "Administrator"), may from time to time adopt such procedures
as they agree upon to implement the terms of this Section. With respect to each
Fund, Forum shall perform the following services:
(i) calculate the net asset value per share with the frequency
prescribed in each Fund's then-current Prospectus;
(ii) calculate each item of income, expense, deduction, credit, gain
and loss, if any, as required by the Corporation and in conformance
with generally accepted accounting practice ("GAAP"), the SEC's
Regulation S-X (or any successor regulation) and the Internal Revenue
Code of 1986, as amended (or any successor laws)(the "Code");
(iii) maintain each Fund's general ledger and record all income,
expenses, capital share activity and security transactions of each
Fund;
(iv) calculate the yield, effective yield, tax equivalent yield and
total return for each Fund, and each Class thereof, as applicable, and
such other measure of performance as may be agreed upon between the
parties hereto;
(v) provide the Corporation and such other persons as the Administrator
may direct with the following reports (A) a current security position
report, (B) a summary report of transactions and pending maturities
(including the principal, cost, and accrued interest on each portfolio
security in maturity date order), and (C) a current cash position and
projection report;
(vi) prepare and record, as of each time when the net asset value of a
Fund is calculated or as otherwise directed by the Corporation, either
(A) a valuation of the assets of the Fund (unless otherwise specified
in or in accordance with this Agreement, based upon the use of outside
services normally used and contracted for this purpose by Forum in the
case of securities for which information and market price or yield
quotations are readily available and based upon evaluations conducted
in accordance with the Corporation's instructions in the case of all
other assets) or (B) a calculation confirming that the market value of
the Fund's assets does not deviate from the amortized cost value of
those assets by more than a specified percentage;
(vii) make such adjustments over such periods as Forum deems necessary
to reflect over-accruals or under-accruals of estimated expenses or
income;
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<PAGE>
(viii) request any necessary information from the Administrator and the
Corporation's transfer agent and distributor in order to prepare, and
prepare, the Corporation's Form N-SAR;
(ix) provide appropriate records to assist the Corporation's
independent accountants and, upon approval of the Corporation or the
Administrator, any regulatory body in any requested review of the
Corporation's books and records maintained by Forum;
(x) prepare semi-annual financial statements and oversee the production
of the semi-annual financial statements and any related report to the
Corporation's shareholders prepared by the Corporation or its
investment advisers, as applicable;
(xi) file the Funds' semi-annual financial statements with the SEC or
ensure that the Funds' semi-annual financial statements are filed with
the SEC;
(xii) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information with respect to investment companies;
(xiii) provide the Corporation or Administrator with the data requested
by the Administrator that is required to update the Corporation's
registration statement;
(xiv) provide the Corporation or independent accountants with all
information requested with respect to the preparation of the
Corporation's income, excise and other tax returns;
(xv) prepare or prepare, execute and file all Federal income and excise
tax returns and state income and other tax returns, including any
extensions or amendments, each as agreed between the Corporation and
Forum;
(xvi) produce quarterly compliance reports for investment advisers, as
applicable, to the Corporation and the Board and provide information to
the Administrator, investment advisers to the Corporation and other
appropriate persons with respect to questions of Fund compliance;
(xvii) determine the amount of distributions to shareholders as
necessary to, among other things, maintain the qualification of each
Fund as a regulated investment company under the Code, and prepare and
distribute to appropriate parties notices announcing the declaration of
dividends and other distributions to shareholders;
(xviii) transmit to and receive from each Fund's transfer agent
appropriate data to on a daily basis and daily reconcile Shares
outstanding and other data with the transfer agent;
(xix) periodically reconcile all appropriate data with each Fund's
custodian;
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<PAGE>
(xx) verify investment trade tickets when received from an investment
adviser, as applicable, and maintain individual ledgers and historical
tax lots for each security; and
(xxi) perform such other recordkeeping, reporting and other tasks as
may be specified from time to time in the procedures adopted by the
Board; provided, that Forum need not begin performing any such task
except upon 65 days' notice and pursuant to mutually acceptable
compensation agreements.
(b) Forum shall prepare and maintain on behalf of the Corporation the
following books and records of each Fund, and each Class thereof, pursuant to
Rule 31a-1 under the 1940 Act (the "Rule"):
(i) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of
cash and all other debits and credits, as required by subsection (b)(1)
of the Rule;
(ii) Journals and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, as required by
subsection (b)(2) of the Rule (but not including the ledgers required
by subsection (b)(2)(iv);
(iii) A record of each brokerage order given by or on behalf of the
Corporation for, or in connection with, the purchase or sale of
securities, and all other portfolio purchases or sales, as required by
subsections (b)(5) and (b)(6) of the Rule;
(iv) A record of all options, if any, in which the Corporation has any
direct or indirect interest or which the Corporation has granted or
guaranteed and a record of any contractual commitments to purchase,
sell, receive or deliver any property as required by subsection (b)(7)
of the Rule;
(v) A monthly trial balance of all ledger accounts (except shareholder
accounts) as required by subsection (b)(8) of the Rule; and
(vi) Other records required by the Rule or any successor rule or
pursuant to interpretations thereof to be kept by open-end management
investment companies, but limited to those provisions of the Rule
applicable to portfolio transactions and as agreed upon between the
parties hereto.
(c) The books and records maintained pursuant to Section 2(b) shall be
prepared and maintained in such form, for such periods and in such locations as
may be required by the 1940 Act. The books and records pertaining to the
Corporation that are in possession of Forum shall be the property of the
Corporation. The Corporation, or the Corporation's authorized representatives,
shall have access to such books and records at all times during Forum's normal
business hours. Upon the reasonable request of the Corporation or the
Administrator, copies of any such books and records shall be provided promptly
by Forum to the Corporation or the Corporation's authorized representatives at
the Corporation's expense. In the event the
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<PAGE>
Corporation designates a successor that shall assume any of Forum's obligations
hereunder, Forum shall, at the expense and direction of the Corporation,
transfer to such successor all relevant books, records and other data
established or maintained by Forum under this Agreement.
(d) In case of any requests or demands for the inspection of the
records of the Corporation maintained by Forum, Forum will endeavor to notify
the Corporation and to secure instructions from an authorized officer of the
Corporation as to such inspection. Forum shall abide by the Corporation's
instructions for granting or denying the inspection; provided, however, that
Forum may grant the inspection without instructions if Forum is advised by
counsel to Forum that failure to do so will result in liability to Forum.
SECTION 3. STANDARD OF CARE; RELIANCE
(a) Forum shall be under no duty to take any action except as
specifically set forth herein or as may be specifically agreed to by Forum in
writing. Forum shall use its best judgment and efforts in rendering the services
described in this Agreement. Forum shall not be liable to the Corporation or any
of the Corporation's shareholders for any action or inaction of Forum relating
to any event whatsoever in the absence of bad faith, willful misfeasance or
gross negligence in the performance of Forum's duties or obligations under this
Agreement or by reason of Forum's reckless disregard of its duties and
obligations under this Agreement.
(b) The Corporation agrees to indemnify and hold harmless Forum, its
employees, agents, directors, officers and managers and any person who controls
Forum within the meaning of section 15 of the Securities Act or section 20 of
the Securities Exchange Act of 1934, as amended, ("Forum Indemnitees") against
and from any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character arising out of or in any way related to Forum's
actions taken or failures to act with respect to a Fund that are consistent with
the standard of care set forth in Section 3(a) or based, if applicable, on good
faith reliance upon an item described in Section 3(c)(a "Claim"). The
Corporation shall not be required to indemnify any Forum Indemnitee if, prior to
confessing any Claim against the Forum Indemnitee, Forum or the Forum Indemnitee
does not give the Corporation written notice of and reasonable opportunity to
defend against the claim in its own name or in the name of the Forum Indemnitee.
(c) A Forum Indemnitee shall not be liable for any action taken or
failure to act in good faith reliance upon:
(i) the advice of the Corporation or of counsel, who may be counsel to
the Corporation or counsel to Forum;
(ii) any oral instruction which it receives and which it reasonably
believes in good faith was transmitted by the person or persons
authorized by the Board to give such oral instruction (Forum shall have
no duty or obligation to make any inquiry or effort of certification of
such oral instruction.);
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<PAGE>
(iii) any written instruction or certified copy of any resolution of
the Board, and Forum may rely upon the genuineness of any such document
or copy thereof reasonably believed in good faith by Forum to have been
validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order, or other document reasonably believed in good faith by
Forum to be genuine and to have been signed or presented by the
Corporation or other proper party or parties;
and no Forum Indemnitee shall be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which Forum reasonably believes in good faith
to be genuine.
(d) Forum shall not be liable for the errors of other service providers
to the Corporation, including the errors of pricing services (other than to
pursue all reasonable claims against the pricing service based on the pricing
services' standard contracts entered into by Forum) and errors in information
provided by an investment adviser (including prices and pricing formulas and the
untimely transmission of trade information), custodian or transfer agent to the
Corporation.
(e) With respect to Funds which do not value their assets in accordance
with Rule 2a-7 under the 1940 Act, notwithstanding anything to the contrary in
this Agreement, Forum shall not be liable to the Corporation or any shareholder
of the Corporation for (i) any loss to the Corporation if an NAV Difference for
which Forum would otherwise be liable under this Agreement is less than or equal
to 0.001 (1/10 of 1%) or (ii) any loss to a shareholder of the Corporation if
the NAV Difference for which Forum would otherwise be liable under this
Agreement is less than or equal to 0.005 (1/2 of 1%) or if the loss in the
shareholder's account with the Corporation is less than or equal to $10. Any
loss for which Forum is determined to be liable hereunder shall be reduced by
the amount of gain which inures to shareholders, whether to be collected by the
Corporation or not.
(f) For purposes of this Agreement, (i) the NAV Difference shall mean
the difference between the NAV at which a shareholder purchase or redemption
should have been effected ("Recalculated NAV") and the NAV at which the purchase
or redemption is effected, divided by the Recalculated NAV, (ii) NAV Differences
and any Forum liability therefrom are to be calculated each time a Fund's (or
class's) NAV is calculated, (iii) in calculating any NAV Difference for which
Forum would otherwise be liable under this Agreement for a particular NAV error,
Fund losses and gains shall be netted and (iv) in calculating any NAV Difference
for which Forum would otherwise be liable under this Agreement for a particular
NAV error that continues for a period covering more than one NAV determination,
Fund losses and gains for the period shall be netted.
- 6 -
<PAGE>
(g) Nothing contained herein shall be construed to require Forum to
perform any service that could cause Forum to be deemed an investment adviser
for purposes of the 1940 Act or the Investment Advisers Act of 1940, as amended,
or that could cause a Portfolio to act in contravention of a Portfolio's
Offering Document or any provision of the 1940 Act. Except as otherwise
specifically provided herein, the Corporation assumes all responsibility for
ensuring that the Corporation complies with all applicable requirements of the
Securities Act, the 1940 Act and any laws, rules and regulations of governmental
authorities with jurisdiction over the Corporation. All references to any law in
this Agreement shall be deemed to include reference to the applicable rules and
regulations promulgated under authority of the law and all official
interpretations of such law or rules or regulations.
SECTION 4. COMPENSATION AND EXPENSES
(a) In consideration of the services provided by Forum pursuant to this
Agreement, the Corporation shall pay Forum, with respect to each Fund, the fees
set forth in Clause (i) of Appendix B hereto. In consideration of the services
provided by Forum to begin the operations of a new Fund, the Corporation shall
pay Forum, with respect to each Fund, the fees set forth in clause (ii) of
Appendix B hereto. In consideration of additional services provided by Forum to
perform certain functions, the Corporation shall pay Forum, with respect to each
Fund the fees set forth in clause (iii) of Appendix B hereto. Nothing in this
Agreement shall require Forum to perform any of the services listed in Section
2(a)(xiv) and clause (iii) of Appendix B hereto, as such services may be
performed by the Fund's independent accountant if appropriate.
All fees payable hereunder shall be accrued daily by the Corporation.
The fees payable for the services listed in clauses (i) and (iii) of Appendix B
hereto shall be payable monthly in advance on the first day of each calendar
month for services to be performed during the following calendar month. The fees
payable for the services listed in clause (ii) and for all reimbursements as
described in Section 4(b) shall be payable monthly in arrears on the first day
of each calendar month (the first day of the calendar month after the Fund
commences operations in the case of the fees listed in clause (ii) of Appendix B
hereto) for services performed during the prior calendar month. If fees payable
for the services listed in clause (i) begin to accrue in the middle of a month
or if this Agreement terminates before the end of any month, all fees for the
period from that date to the end of that month or from the beginning of that
month to the date of termination, as the case may be, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. Upon the termination of this Agreement with
respect to a Fund, the Corporation shall pay to Forum such compensation as shall
be payable prior to the effective date of termination.
(b) In connection with the services provided by Forum pursuant to this
Agreement, the Corporation, on behalf of each Fund, agrees to reimburse Forum
for the expenses set forth in Clause (iv) of Appendix B hereto. In addition, the
Corporation, on behalf of the applicable Fund,
- 7 -
<PAGE>
shall reimburse Forum for all expenses and employee time (at 150% of salary)
attributable to any review of the Corporation's accounts and records by the
Corporation's independent accountants or any regulatory body outside of routine
and normal periodic reviews. Should the Corporation exercise its right to
terminate this Agreement, the Corporation, on behalf of the applicable Fund,
shall reimburse Forum for all out-of-pocket expenses and employee time (at 150%
of salary) associated with the copying and movement of records and material to
any successor person and providing assistance to any successor person in the
establishment of the accounts and records necessary to carry out the successor's
responsibilities.
(d) Forum may, with respect to questions of law relating to its
services hereunder, apply to and obtain the advice and opinion of counsel to the
Corporation or counsel to Forum. The costs of any such advice or opinion shall
be borne by the Corporation.
SECTION 5. EFFECTIVENESS, DURATION, TERMINATION AND ASSIGNMENT
(a) This Agreement shall become effective with respect to each Fund or
Class on the later of the date on which the Corporation's Registration Statement
relating to the Shares of the Fund or Class becomes effective or the date of the
commencement of operations of the Fund or Class. Upon effectiveness of this
Agreement, it shall supersede all previous agreements between the parties hereto
covering the subject matter hereof insofar as such Agreement may have been
deemed to relate to the Funds.
(b) This Agreement shall continue in effect with respect to a Fund
until terminated; provided, that continuance is specifically approved at least
annually (i) by the Board or by a vote of a majority of the outstanding voting
securities of the Fund and (ii) by a vote of a majority of Directors of the
Corporation who are not parties to this Agreement or interested persons of any
such party (other than as Directors of the Corporation).
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty (i) by the Board on 60 days' written
notice to Forum or (ii) by Forum on 60 days' written notice to the Corporation.
The obligations of Sections 3 and 4 shall survive any termination of this
Agreement.
(d) This Agreement and the rights and duties under this Agreement
otherwise shall not be assignable by either Forum or the Corporation except by
the specific written consent of the other party. All terms and provisions of
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.
SECTION 6. ADDITIONAL FUNDS AND CLASSES
In the event that the Corporation establishes one or more series of
Shares or one or more classes of Shares after the effectiveness of this
Agreement, such series of Shares or classes of Shares, as the case may be, shall
become Funds and Classes under this Agreement. Forum or the Corporation may
elect not to make any such series or classes subject to this Agreement.
SECTION 7. CONFIDENTIALITY. Forum agrees to treat all records and other
information related to the Corporation as proprietary information of the
Corporation and, on
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<PAGE>
behalf of itself and its employees, to keep confidential all such information,
except that Forum may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information as approved in writing by the
Corporation, which approval shall not be unreasonably withheld and may not be
withheld where Forum may be exposed to civil or criminal contempt proceedings
for failure to release the information, when requested to divulge such
information by duly constituted authorities or when so requested by the
Corporation.
SECTION 8. FORCE MAJEURE
Forum shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or caused,
directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdowns, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply. In addition, to the extent
Forum's obligations hereunder are to oversee or monitor the activities of third
parties, Forum shall not be liable for any failure or delay in the performance
of Forum's duties caused, directly or indirectly, by the failure or delay of
such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with Forum.
SECTION 9. ACTIVITIES OF FORUM
(a) Except to the extent necessary to perform Forum's obligations under
this Agreement, nothing herein shall be deemed to limit or restrict Forum's
right, or the right of any of Forum's managers, officers or employees who also
may be a director, officer or employee of the Corporation, or persons who are
otherwise affiliated persons of the Corporation to engage in any other business
or to devote time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other corporation, trust, firm, individual or association.
(b) Forum may subcontract any or all of its responsibilities pursuant
to this Agreement to one or more corporations, trusts, firms, individuals or
associations, which may be affiliated persons of Forum, who agree to comply with
the terms of this Agreement; provided, that any such subcontracting shall not
relieve Forum of its responsibilities hereunder. Forum may pay those persons for
their services, but no such payment will increase Forum's compensation from the
Corporation.
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<PAGE>
SECTION 10. COOPERATION WITH INDEPENDENT ACCOUNTANTS
Forum shall cooperate, if applicable, with each Fund's independent
public accountants and shall take reasonable action to make all necessary
information available to the accountants for the performance of the accountants'
duties.
SECTION 11. SERVICE DAYS
Nothing contained in this Agreement is intended to or shall require
Forum, in any capacity under this Agreement, to perform any functions or duties
on any day other than a business day of the Corporation or of a Fund. Functions
or duties normally scheduled to be performed on any day which is not a business
day of the Corporation or of a Fund shall be performed on, and as of, the next
business day, unless otherwise required by law.
SECTION 12. LIMITATION OF SHAREHOLDER AND DIRECTOR LIABILITY
The directors of the Corporation and the shareholders of each Fund
shall not be liable for any obligations of the Corporation or of the Funds under
this Agreement, and Forum agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the assets and property of the Corporation
or the Fund to which Forum's rights or claims relate in settlement of such
rights or claims, and not to the directors of the Corporation or the
shareholders of the Funds.
SECTION 13. MISCELLANEOUS
(a) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(b) Except for Appendix A to add new Funds and Classes in accordance
with Section 6, no provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties hereto.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Delaware.
(d) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced
- 10 -
<PAGE>
as if the Agreement did not contain the particular part, term or provision held
to be illegal or invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(i) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Corporation are
separate and distinct from the assets and liabilities of each other Fund and
that no Fund shall be liable or shall be charged for any debt, obligation or
liability of any other Fund, whether arising under this Agreement or otherwise.
(j) No affiliated person, employee, agent, director, officer or manager
of Forum shall be liable at law or in equity for Forum's obligations under this
Agreement.
(k) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
(l) The terms "vote of a majority of the outstanding voting
securities," "interested person" and "affiliated person" shall have the meanings
ascribed thereto in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
TANAKA FUNDS, INC.
By:
----------------------------
[Officer name]
[Title]
FORUM ACCOUNTING SERVICES, LLC
By:
----------------------------
Stacey Hong
Managing Director
- 12 -
<PAGE>
TANAKA FUNDS, INC.
FUND ACCOUNTING AGREEMENT
Appendix A
Fund and Classes
as of __________, 1998
Fund
TANAKA Growth Fund
Classes
R Share
B Share
A Share
- A1 -
<PAGE>
TANAKA FUNDS, INC.
FUND ACCOUNTING AGREEMENT
Appendix B
Fees and Expenses
<TABLE>
<CAPTION>
<S> <C> <C>
(i) Base Fee
A. Standard Fee
Fee per Fund................................................................... $3,000/month
Fee for each additional Class of the Fund above one............................ $1,000/month
B. Plus additional surcharges for each of:
(i) Portfolios with asset levels exceeding $100 million................... $500/month
Portfolios with asset levels exceeding $250 million................... $500/month
Portfolios with asset levels exceeding $500 million................... $1,500/month
Portfolios with asset levels exceeding $1,000 million................. $2,000/month
(ii) Portfolios requiring international custody............................ $1,000/month
(iii) Portfolios with more than 30 international positions ................. $1,000/month
(iv) Tax free money market Funds........................................... $1,000/month
(v) Portfolios with more than 25% of net assets invested in
asset backed securities............................................... $1,000/month
Portfolios with more than 50% of net assets invested in
asset backed securities............................................... $2,000/month
(vii) Portfolios with more than 100 security positions...................... $1,000/month
(viii) Portfolios with a monthly portfolio turnover rate of 10%
or greater............................................................ $1,000/month
C. Standard Fee per Gateway Fund (a Fund operating pursuant to Section
12(d)(1)(E) of the 1940 Act)
Standard Fee per Fund.......................................................... $1,000/month
Standard Fee per Fund that invests in one or more instruments
in addition to the fund in which it invests.................................... $2,000/month
Fee for each additional Class of a Fund above one.............................. $1,000/month
Additional surcharges listed above do not apply
D. Standard Fee per Gateway Fund (a Fund operating pursuant to Section
12(d)(1)(G) of the 1940 Act or in a similar structure)
Standard Fee per Fund.......................................................... $1,000/month
Fee for each additional Class of a Fund above one.............................. $1,000/month
Plus additional surcharges listed above if the Fund invests in
securities other than investment companies (calculated as if
the securities were the Fund's only assets)
</TABLE>
- B1 -
<PAGE>
Note 1: Surcharges are determined based upon the total assets, security
positions or other factors as of the end of the prior month and on the
portfolio turnover rate for the prior month. Portfolio turnover rate
shall have the meaning ascribed thereto in SEC Form N-1A.
Note 2: The rates set forth above shall remain fixed through December
31, 1999. On January 1, 2000, and on each successive January 1, the
rates may be adjusted automatically by Forum without action of the
Corporation to reflect changes in the Consumer Price Index for the
preceding calendar year, as published by the U.S. Department of Labor,
Bureau of Labor Statistics. Forum shall notify the Corporation each
year of the new rates, if applicable.
(ii) Other Services (payable in equal installments monthly)
Tax Services. Preparation of Federal income and excise tax
returns and preparation, execution and filing of state income
tax returns, including any extensions or amendments
<TABLE>
<CAPTION>
<S> <C>
Standard Fee.................................................. $3,000/fiscal period
Fee per Gateway Fund (a Fund described
in (i)(C) or (D) above)....................................... $1,500/fiscal period
Fee per Gateway Fund (a Fund described in (i)(C) or (D) above)
that invests in more than one instrument in addition to the
fund(s) in which
it invests.................................................... $3,000/fiscal period
</TABLE>
(iii) Out-Of-Pocket and Related Expenses
The Corporation, on behalf of the applicable Fund, shall reimburse
Forum for all out-of-pocket and ancillary expenses in providing the
services described in this Agreement, including but not limited to the
cost of (or appropriate share of the cost of): (i) pricing, paydown,
corporate action, credit and other reporting services, (ii) taxes,
(iii) postage and delivery services, (iv) telephone services, (v)
electronic or facsimile transmission services, (vi) reproduction, (vii)
printing and distributing financial statements, (xiii) microfilm and
microfiche and (ix) Corporation record storage and retention fees. In
addition, any other expenses incurred by Forum at the request or with
the consent of the Corporation, will be reimbursed by the Corporation
on behalf of the applicable Fund.
- B2 -
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that TANAKA Funds, Inc. (the
"Corporation") constitutes and appoints Margaret A. Bancroft, Jennifer O.
Epstein, Gregory S. Konzal. Paul Weisenfeld and Michael Andersen and each of
them, as its true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for such attorney-in-fact in such
attorney-in-fact's name, place and stead, to sign any and all registration
statements applicable to the Corporation, and any amendments or supplements
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection with
the aforesaid and hereby ratifying and confirming all that said attorney-in-fact
and agent, or his or her substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Dated: November , 1998
TANAKA FUNDS, INC.
By:/S/ Graham Y. Tanaka
--------------------
Name: Graham Y. Tanaka
Title: President
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Jennifer O. Epstein, Gregory S. Konzal, Paul
Weisenfeld and Michael Andersen and each of them, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for such attorney-in-fact in such attorney-in-fact's name, place and stead, to
sign any and all registration statements applicable to TANAKA Funds, Inc. (the
"Corporation"), and any amendments or supplements thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person in his capacity as a Director or Officer of the
Corporation, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
- --------- ----- ----
/s/ Graham Y. Tanaka
- --------------------
Graham Y. Tanaka Director November , 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Jennifer O. Epstein, Gregory S. Konzal, Paul
Weisenfeld and Michael Andersen and each of them, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for such attorney-in-fact in such attorney-in-fact's name, place and stead, to
sign any and all registration statements applicable to TANAKA Funds, Inc. (the
"Corporation"), and any amendments or supplements thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person in his capacity as a Director or Officer of the
Corporation, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
- --------- ----- ----
/s/ Charles A. Dill
- -------------------
Charles A. Dill Director November , 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Jennifer O. Epstein, Gregory S. Konzal, Paul
Weisenfeld and Michael Andersen and each of them, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for such attorney-in-fact in such attorney-in-fact's name, place and stead, to
sign any and all registration statements applicable to TANAKA Funds, Inc. (the
"Corporation"), and any amendments or supplements thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person in his capacity as a Director or Officer of the
Corporation, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
- --------- ----- ----
/s/ David M. Fox
- ----------------
David M. Fox Director November , 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Jennifer O. Epstein, Gregory S. Konzal, Paul
Weisenfeld and Michael Andersen and each of them, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for such attorney-in-fact in such attorney-in-fact's name, place and stead, to
sign any and all registration statements applicable to TANAKA Funds, Inc. (the
"Corporation"), and any amendments or supplements thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person in his capacity as a Director or Officer of the
Corporation, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
- --------- ----- -----
/s/ Thomas R. Schwarz
- ---------------------
Thomas R. Schwarz Director November , 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Margaret A. Bancroft, Jennifer O. Epstein, Gregory S. Konzal, Paul
Weisenfeld and Michael Andersen and each of them, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for such attorney-in-fact in such attorney-in-fact's name, place and stead, to
sign any and all registration statements applicable to TANAKA Funds, Inc. (the
"Corporation"), and any amendments or supplements thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person in his capacity as a Director or Officer of the
Corporation, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
- --------- ----- ----
/s/ Scott D. Stooker
- --------------------
Scott D. Stooker Director November , 1998
