TANAKA GROWTH FUND
230 Park Avenue - Suite 960
New York, NY 10169
(212) 490-3380
July 29, 1999
Dear TANAKA Growth Fund Shareholder,
We welcome you as a founding investor in The TANAKA Growth Fund! The
objective of The TANAKA Growth Fund is to provide long term growth for its
shareholders. Our focus is on identifying above average growth companies which
are selling at reasonable valuations. Our flexibility and size allow us to
pursue the best values from all market caps and from a variety of industries.
Our holdings reflect a blend of well-known, large cap companies with above
average growth prospects, as well as medium and small cap companies many of
which may be relatively undiscovered but have significant growth potential.
OUTLOOK
The 1st Half of 1999 was a watershed period with immensely positive
implications for investors. The 3.8% growth in U.S. productivity for the 1st
Quarter validates our belief that productivity gains from greater saving and
investment could extend this "Once-A-Generation" Super Bull Market into "extra
innings."
There will no doubt be external shocks to the system like the 4th
Quarter '97 Asia Crisis, the collapse of Russia and the 1998 Credit Crunch.
However, there are now "Four Virtuous Circles" at play which are reinforcing
each other to extend the current environment of "inflationless growth":
(1) Consumers, particularly Baby Boomers and Working Women, are
saving/ investing for their retirement and are benefiting from the
"Wealth Effect" of rising stock and home prices.
(2) Corporations continue to trim costs, improving cash flow and
investing in new technology to further reduce costs, improve
productivity, provide new and better products and services, and
enhance profitability.
(3) State, Local & Federal Governments are generating higher than
expected tax revenues due to the already longer than normal 7-year
economic expansion. We believe that the surplus will grow faster
due to higher corporate profits and incomes and will be used to
reduce debt and taxes which will tend to lower interest rates and
provide greater incentive to work, ultimately expanding the labor
pool.
(4) Technological advances in semiconductors, software,
telecommunications and the Internet are converting the U.S. into a
"Digital Economy," reducing corporate and government costs by
eliminating whole layers of distribution, stimulating new and
improved services, providing significant productivity gains for
the first time in the service sector and creating new higher
paying jobs.
INVESTMENT STRATEGIES
As the capital markets begin to understand the investment implications
of a 3-4% growth economy produced by 2.5 - 3.5% productivity gains and very
little inflation, we believe that greater premiums will be paid for more rapidly
growing companies. Over the next few years, the market will focus increasingly
on smaller cap companies with high growth potential. Since these small cap
companies have been out of favor for four years, they are also very cheap,
presenting us with an unusual window of opportunity to invest in the best small
companies at reasonable prices.
We have been seeking new investments in the drivers and beneficiaries
of improving productivity, including telecom, semiconductors, software and drug
delivery technology. However, we do cast our nets wide to maintain
diversification in a variety of areas.
Thank you for your trust and confidence.
Sincerely yours,
Graham Y. Tanaka, CFA
<PAGE>
TANAKA Growth Fund
Schedule of Investments - May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Common Stocks - 89.1% Shares Value
ENERGY - 4.1%
Energy Services - 2.3%
Eagle Geophysical, Inc. (a) 65 $ 219
Seitel, Inc. 1,020 16,129
-----------------
16,348
-----------------
Oil & Gas - 1.8%
Anadarko Petroleum, Inc. 325 12,188
-----------------
TOTAL ENERGY - 28,536
-----------------
FINANCE - 14.6%
Banks - 1.7%
MFC Bancorp Ltd. 1,550 12,206
-----------------
Credit & Other Finance - 1.5%
Associates First Capital Corp. - Class A 250 10,250
-----------------
Federal Sponsored Credit - 4.2%
Fannie Mae 430 29,240
-----------------
Insurance - 5.9%
AFLAC Inc. 590 30,090
American International Group 100 11,431
-----------------
41,521
-----------------
Securities Industry - 1.3%
Paine Webber Group 200 9,400
-----------------
TOTAL FINANCE 102,617
-----------------
HEALTH - 16.8%
Drugs & Pharmaceuticals - 16.8%
ICN Pharmaceuticals, Inc. 500 16,437
K-V Pharmaceutical, Inc. - Class A (a) 1,290 21,688
Lilly (Eli) 230 16,431
Pfizer, Inc. 230 24,610
Schering-Plough, Inc. 550 24,785
Warner Lambert, Inc. 225 13,950
-----------------
117,901
-----------------
INDUSTRIAL MACHINERY & EQUIPMENT - 10.0%
Electrical Equipment - 7.9%
ASM Lithography Holdings NV (a) 345 15,223
General Electric, Inc. 110 11,186
Novellus Systems, Inc. (a) 600 29,287
-----------------
55,696
-----------------
See accompanying notes which are an integral part of the financial statements
<PAGE>
TANAKA Growth Fund
Schedule of Investments - May 31, 1999 (Unaudited) - continued
Common Stocks - continued Shares Value
INDUSTRIAL MACHINERY & EQUIPMENT - continued
Industrial Machinery & Equipment - 2.1%
Deswell Industries, Inc. 1,400 $ 14,700
-----------------
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT - 70,396
-----------------
MEDIA & LEISURE - 3.8%
Leisure Durables & Toys - 1.8%
Mattel, Inc. 480 12,690
-----------------
Restaurants - 2.0%
IHOP Corp. (a) 600 14,325
-----------------
TOTAL MEDIA & LEISURE - 27,015
-----------------
NON-DURABLES - 6.2%
Beverages - 1.7%
PepsiCo, Inc. 340 12,176
-----------------
Household Products - 1.7%
Colgate-Palmolive, Inc. 120 11,985
-----------------
Tobacco - 2.8%
Philip Morris Cos. 500 19,281
-----------------
TOTAL NON-DURABLES - 43,442
-----------------
RETAIL & WHOLESALE - 10.4%
Building Supplies - 2.9%
Home Depot, Inc. 360 20,475
-----------------
Specialty - 7.5%
Garden Ridge, Inc. (a) 1,800 11,025
Staples, Inc. (a) 940 27,025
Toys R Us, Inc. (a) 650 14,991
-----------------
53,041
-----------------
TOTAL RETAIL & WHOLESALE - 73,516
-----------------
SERVICES - 2.6%
Services - 2.6%
NFO Worldwide, Inc. (a) 900 12,769
Thomas Group, Inc. (a) 650 5,728
-----------------
18,497
-----------------
See accompanying notes which are an integral part of the financial statements
<PAGE>
TANAKA Growth Fund
Schedule of Investments - May 31, 1999 (Unaudited) - continued
Common Stocks - continued Shares Value
TECHNOLOGY - 17.6%
Computers & Office Equipment - 2.3%
International Business Machines, Inc. 140 $ 16,284
-----------------
Computer Services & Software - 5.3%
Business Objects, Inc. (a) 580 16,675
Priceline.com, Inc. (a) 100 11,203
TownPagesNet.com (a) 1,135 9,505
-----------------
37,383
-----------------
Electronics - 8.5%
Intel Corp. 980 52,981
Three-Five Systems, Inc. (a) 500 6,719
-----------------
59,700
-----------------
Photography & Imaging - 1.5%
FLIR Systems, Inc. (a) 800 10,700
-----------------
TOTAL TECHNOLOGY - 124,067
-----------------
TELECOMMUNICATIONS - 3.0%
Telecommunications - 3.0%
ADC Telecommunications, Inc. (a) 75 3,666
AT&T Corp. 210 11,655
QUALCOMM, Inc. (a) 60 5,835
-----------------
21,156
-----------------
TOTAL COMMON STOCKS (Cost $649,851) 627,143
-----------------
Principal
Amount Value
Money Market Securities - 10.2%
Star Treasury Fund, 3.97% (b) (Cost $71,693) $ 71,693 71,693
-----------------
TOTAL INVESTMENTS - 99.3% (Cost $721,544) 698,836
-----------------
Other assets less liabilities - 0.7% 4,937
-----------------
TOTAL NET ASSETS - 100.0% $ 703,773
=================
(a) Non-income producing
(b) Variable rate security; the coupon rate shown represents the rate at May 31, 1999
</TABLE>
See accompanying notes which are an integral part of the financial statements
<PAGE>
TANAKA Growth Fund May 31, 1999
Statement of Assets & Liabilities (Unaudited)
<TABLE>
<S> <C> <C>
Assets
Investment in securities (cost $721,544) $ 698,836
Receivable for securities sold 11,350
Dividends receivable 253
Interest receivable 218
------------------
Total assets 710,657
Liabilities
Accrued investment advisory fee payable $ 601
Payable for securities purchased 5,433
Distribution fees payable 545
Other payables and accrued expenses 305
-----------------
Total liabilities 6,884
------------------
Net Assets $ 703,773
==================
Net Assets consist of:
Paid in capital $ 698,928
Accumulated net investment income (loss) (1,328)
Accumulated undistributed net realized gain on investments 28,881
Net unrealized depreciation on investments (22,708)
------------------
Net Assets, for 70,887 shares $ 703,773
==================
Net Asset Value
Class R:
Net Assets
Offering price and redemption price per share ($703,773/70,887) $ 9.93
==================
</TABLE>
See accompanying notes which are an integral part of the financial statements
<PAGE>
TANAKA Growth Fund
Statement of Operations for the period December 30, 1998
(Commencement of Operations) to May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividend income $ 1,294
Interest income 1,193
---------------
Total Income 2,487
Expenses
Investment advisory fee $ 2,180
Administration fees 12,500
Transfer agent and pricing & bookkeeping fees 16,009
Distribution fee - Class R 545
Custodian fees 1,660
Audit fees 4,000
Registration fees 450
Shareholder reports 107
------------------
Total expenses before reimbursement 37,451
Reimbursed expenses (33,636)
------------------
Total operating expenses 3,815
---------------
Net Investment Income (Loss) (1,328)
---------------
Realized & Unrealized Gain (Loss)
Net realized gain on investment securities 28,881
Change in net unrealized appreciation (depreciation)
on investment securities (22,708)
------------------
Net gain on investment securities 6,173
---------------
===============
Net increase in net assets resulting from operations $ 4,845
===============
</TABLE>
See accompanying notes which are an integral part of the financial statements
<PAGE>
TANAKA Growth Fund
Statement of Changes in Net Assets for the period December 30, 1998
(Commencement of Operations) to May 31, 1999 (Unaudited)
<TABLE>
<S> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (1,328)
Net realized gain on investment securities 28,881
Change in net unrealized appreciation (depreciation) (22,708)
------------------
------------------
Net increase in net assets resulting from operations 4,845
------------------
Share Transactions - Class R
Net proceeds from sale of shares 702,438
Shares redeemed (3,510)
------------------
Net increase in net assets resulting
from share transactions 698,928
------------------
------------------
Total increase in net assets 703,773
------------------
Net Assets
Beginning of period -
------------------
End of period [including accumulated undistributed net
investment income loss of $1,328] $ 703,773
==================
</TABLE>
See accompanying notes which are an integral part of the financial statements
<PAGE>
TANAKA Growth Fund - Class R
Financial Highlights for the period December 30, 1998
(Commencement of Operations) to May 31, 1999 (Unaudited)
Selected Per Share Data
Net asset value, beginning of period $ 10.00
--------------
Income from investment operations
Net investment income (0.03)
Net realized and unrealized gain (loss) (0.04) (c)
--------------
--------------
Total from investment operations (0.07)
--------------
Net asset value, end of period $ 9.93
==============
Total Return (b) (0.70)%
Ratios and Supplemental Data
Net assets, end of period (000) $704
Ratio of expenses to average net assets 1.75% (a)
Ratio of expenses to average net assets
before reimbursement 17.17% (a)
Ratio of net investment income (loss) to
average net assets (0.61)% (a)
Ratio of net investment income (loss) to
average net assets before reimbursement (16.03)% (a)
Portfolio turnover rate 41.52% (a)
(a) Annualized
(b) For periods of less than a full year, total returns are not annualized.
(c) The amount shown for a share outstanding does not correspond with the net
realized and unrealized gain (loss) on investments for the period due to the
timing of sales and repurchases of class shares in relation to market values
of the fund's investment in securities.
See accompanying notes which are an integral part of the financial statements
<PAGE>
TANAKA Growth Fund
Notes to Financial Statements
May 31, 1999 (Unaudited)
NOTE 1. ORGANIZATION
TANAKA Growth Fund (the "Fund") is organized as a series of TANAKA Funds,
Inc., a Maryland corporation (the "Trust"); the Fund commenced operations on
December 30, 1998. The Fund is registered under the Investment Company Act of
1940, as amended, as a non-diversified open-end management investment company.
The Fund's investment objective is to provide growth of capital. The Trust is
authorized to issue up to 250,000,000 shares of common stock, par value $0.01
per share, of which it currently has allocated 150,000,000 shares to the Fund.
The Board of Directors (the "Board") have authorized that shares of the Fund may
be offered in three classes: Class A, Class B and Class R; only Class R shares
of the Fund were outstanding as of June 30, 1999.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Securities Valuations- Securities which are traded on any exchange or on
the NASDAQ over-the-counter market are valued at the last quoted sale price.
Lacking a last sale price, a security is valued at its last bid price except
when, in the Advisor's opinion, the last bid price does not accurately reflect
the current value of the security. All other securities for which
over-the-counter market quotations are readily available are valued at their
last bid price. When market quotations are not readily available, when the
Advisor determines the last bid price does not accurately reflect the current
value or when restricted securities are being valued, such securities are valued
as determined in good faith by the Advisor, in conformity with guidelines
adopted by and subject to review of the Board of Trustees of the Trust (the
"Board").
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when the
Advisor believes such prices accurately reflect the fair market value of such
securities. A pricing service utilizes electronic data processing techniques
based on yield spreads relating to securities with similar characteristics to
determine prices for normal institutional-size trading units of debt securities
without regard to sale or bid prices. When prices are not readily available from
a pricing service, or when restricted or illiquid securities are being valued,
securities are valued at fair value as determined in good faith by the Advisor,
subject to review of the Board. Short-term investments in fixed-income
securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued by using the amortized
cost method of valuation, which the Board has determined will represent fair
value.
<PAGE>
TANAKA Growth Fund
Notes to Financial Statements
May 31, 1999 (Unaudited) - continued
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - continued
Federal Income Taxes- The Fund intends to qualify each year as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended. By so
qualifying, the Fund will not be subject to federal income taxes to the extent
that it distributes substantially all of its net investment income and any
realized capital gains.
Dividends and Distributions- The Fund intends to distribute substantially all of
its net investment income as dividends to its shareholders on an annual basis.
The Fund intends to distribute its net long-term capital gains and its net
short-term capital gains at least once a year.
Other- The Fund follows industry practice and records security transactions on
the trade date. The specific identification method is used for determining gains
or losses for financial statements and income tax purposes. Dividend income is
recorded on the ex-dividend date and interest income is recorded on an accrual
basis. Discounts and premiums on securities purchased are amortized over the
life of the respective securities.
NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund retains Tanaka Capital Management, Inc. (the "Advisor") to manage
the Fund's investments. The Advisor was organized as a Delaware corporation in
1986. Graham Y. Tanaka, portfolio manager and President of the Advisor, is
primarily responsible for the day-to-day management of the Fund's portfolio.
Under the terms of the management agreement, (the "Agreement"), the Advisor
manages the Fund's investments subject to approval of the Board. As compensation
for its management services, the Fund is obligated to pay the Advisor a fee
computed and accrued daily and paid monthly at an annual rate of 1.00% of the
average daily net assets of the Fund. For the period from December 30, 1998
(commencement of operations) through May 31, 1999, the Advisor received a fee of
$2,180 from the Fund. The Advisor has voluntarily agreed to limit the total
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses) to an annual rate of 1.75% of the average net assets of
the Fund attributable to Class R shares until November 30, 1999. For the period
December 30, 1998 (commencement of operations) through May 31, 1999, the Advisor
reimbursed expenses of $29,636.
The Fund retains AmeriPrime Financial Services, Inc. (the "Administrator")
to manage the Fund's business affairs and provide the Fund with administrative
services,
<PAGE>
TANAKA Growth Fund
Notes to Financial Statements
May 31, 1999 (Unaudited) - continued
NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - continued
including all regulatory reporting and necessary office equipment and personnel.
For the period from December 30, 1998 (commencement of operations) to May 31,
1999, the Administrator received fees of $12,500 from the Advisor for
administrative services provided to the Fund.
The Fund retains AmeriPrime Financial Securities, Inc. ("the Distributor")
to act as the principal distributor of the Fund's shares. There were no payments
made to the Distributor from December 30, 1998 (commencement of operations) to
May 31, 1999.
NOTE 4. SHARE TRANSACTIONS
As of May 31, 1999, there were 150,000,000 authorized shares for the Fund.
Paid in capital at June 30, 1999 was $698,928.
Transactions in shares of Class R were as follows:
For the period December 30, 1998
(Commencement of Operations) to May 31, 1999
Shares Dollars
Shares sold 71,234 $702,438
Shares redeemed (347) (3,510)
------- ---------
70,887 698,928
======= =========
NOTE 5. INVESTMENTS
For the period from December 30, 1998 (commencement of operations) through
May 31, 1999, purchases and sales of investment securities, other than
short-term investments, aggregated $670,471 and $61,578, respectively. As of May
31, 1999, the gross unrealized appreciation for all securities totaled $43,647
and the gross unrealized depreciation for all securities totaled $66,355 for a
net unrealized depreciation of $22,708. The aggregate cost of securities for
federal income tax purposes at May 31, 1999 was $721,544.
<PAGE>
TANAKA Growth Fund
Notes to Financial Statements
May 31, 1999 (Unaudited) - continued
NOTE 6. ESTIMATES
Preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
NOTE 7. RELATED PARTY TRANSACTIONS
The Advisor is not a registered broker-dealer of securities and thus does
not receive commissions on trades made on behalf of the Fund. The beneficial
ownership, either directly or indirectly, of more than 25% of the voting
securities of a Fund creates a presumption of control of the Fund, under Section
2(a)(9) of the Investment Company Act of 1940. As of May 31, 1999, Graham Y.
Tanaka and McFarland Dewey & Co. beneficially owned more than 30% and 31%,
respectively, of the Fund.
NOTE 7. YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Advisor, Administrator or other service providers
to the Fund do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Issue." The Advisor and Administrator have taken steps that they believe are
reasonably designed to address the Year 2000 Issue with respect to computer
systems that are used and to obtain reasonable assurances that comparable steps
are being taken by each of the Fund's major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Fund. In addition, the Advisor cannot make any
assurances that the Year 2000 Issue will not affect the companies in which the
Fund invests or worldwide markets and economies.
