TANAKA GROWTH FUND
CLASS A SHARES AND CLASS B SHARES
PROSPECTUS
JANUARY 31, 2000
INVESTMENT OBJECTIVE:
Growth of capital
230 Park Avenue, Suite 960
New York, New York 10169
877-4-TANAKA (Toll Free)
UNTIL FURTHER NOTICE, CLASS A SHARES
ARE NOT AVAILABLE FOR PURCHASE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
ABOUT THE FUND...............................................................1
FEES AND EXPENSES OF INVESTING IN THE FUND...................................4
HOW TO BUY SHARES............................................................4
HOW TO REDEEM SHARES.........................................................9
DETERMINATION OF NET ASSET VALUE............................................10
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................10
MANAGEMENT OF THE FUND......................................................11
FINANCIAL HIGHLIGHTS........................................................12
FOR MORE INFORMATION................................................BACK COVER
<PAGE>
ABOUT THE FUND
INVESTMENT OBJECTIVE
The investment objective of the TANAKA Growth Fund is growth of capital.
PRINCIPAL STRATEGIES
The Fund invests primarily in common stocks and other equity securities of
small, medium and large capitalization companies. The Fund will invest primarily
in domestic securities, but it may also invest up to 45% of its net assets,
measured at the time of investment, in foreign securities, including
multinational and emerging market securities. The Fund is a non-diversified
fund, which means that the Fund may take larger positions in a small number of
companies than a diversified fund.
The Fund's investments in equity securities will generally consist of
issues which the Fund's advisor believes have capital growth potential due to
factors such as:
o rapid growth in demand in existing markets;
o expansion into new markets;
o new product introductions;
o reduced competitive pressures;
o cost reduction programs;
o changes in management; and
o other fundamental changes which may result in improved earnings
growth or increased asset values.
The Fund's advisor relies on research, management meetings and industry
contacts to identify:
o companies with above-average long-term earnings growth potential that could
exceed market expectations;
o industries that are positioned to participate in strong demographic,
societal or economic trends; and
o companies within those industries that have a particular competitive
advantage or niche.
The Fund may sell a security when:
o the fundamentals of the company decline;
o the security reaches a target price or price-to-earnings ratio; or
o the Fund's advisor determines to reallocate assets to a security with
superior capital growth potential.
While it is anticipated that the Fund will diversify its investments
across a range of industry sectors, certain sectors are likely to be
overweighted compared to others because the Fund's advisor seeks the best
investment opportunities regardless of sector. The Fund may, for example, be
overweighted at times in the telecommunications, technology and
pharmaceutical/health care sectors. The sectors in which the Fund may be
overweighted will vary at different points in the economic cycle.
PRINCIPAL RISKS OF INVESTING IN THE FUND
MANAGEMENT RISK. The advisor's growth-oriented approach may fail to produce the
intended results.
SMALLER COMPANY RISK. To the extent the Fund invests in smaller capitalization
companies, the Fund will be subject to additional risks. These include:
o The earnings and prospects of smaller companies are more volatile than
larger companies.
o Smaller companies may experience higher failure rates than do larger
companies.
o The trading volume of securities of smaller companies is normally less than
that of larger companies and, therefore, may disproportionately affect
their market price, tending to make them fall more in response to selling
pressure than is the case with larger companies.
o Smaller companies may have limited markets, product lines or financial
resources and may lack management experience.
COMPANY RISK. The value of the Fund may decrease in response to the activities
and financial prospects of an individual company in the Fund's portfolio. The
value of an individual company can be more volatile than the market as a whole.
MARKET RISK. Overall stock market risks may also affect the value of the Fund.
Factors such as domestic economic growth and market conditions, interest rate
levels, and political events affect the securities markets and could cause the
Fund's share price to fall.
FOREIGN RISK. To the extent the Fund invests in foreign securities, the Fund
could be subject to greater risks because the Fund's performance may depend on
issues other than the performance of a particular company. Changes in foreign
economies and political climates are more likely to affect the Fund than a
mutual fund that invests exclusively in U.S. companies. The value of foreign
securities is also affected by the value of the local currency relative to the
U.S. dollar. There may also be less government supervision of foreign markets,
resulting in non-uniform accounting practices and less publicly available
information.
Investment in securities of issuers based in underdeveloped emerging markets
entails all of the risks of investing in securities of foreign issuers outlined
in this section to a heightened degree. These heightened risks include: (i)
greater risks of expropriation, confiscatory taxation, nationalization, and less
social, political and economic stability; (ii) the smaller size of the market
for such securities and a low or nonexistent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict a Fund's investment opportunities; and (iv) in the case of Eastern
Europe and in China and other Asian countries, the absence of developed capital
markets and legal structures governing private or foreign investment and private
property and the possibility that recent favorable economic and political
developments could be slowed or reversed by unanticipated events.
In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
NON-DIVERSIFICATION RISK. As a non-diversified fund, the Fund will be subject to
substantially more investment risk and potential for volatility than a
diversified fund because its portfolio may at times focus on a limited number of
companies. SECTOR RISK. If the Fund's portfolio is overweighted in a certain
industry sector, any negative development affecting that sector will have a
greater impact on the Fund than a fund that is not overweighted in that sector.
For example, to the extent the Fund is overweighted in the telecommunications
sector, the technology sector or the pharmaceutical/health care sector, it will
be affected by developments affecting the applicable sector. All three sectors
are subject to changing government regulations that may limit profits and
restrict services offered. Companies in these sectors also may be significantly
affected by intense competition, and their products may be subject to rapid
obsolescence. VOLATILITY RISK. Common stocks tend to be more volatile than other
investment choices. The value of an individual company can be more volatile than
the market as a whole. This volatility affects the value of the Fund's shares.
ADDITIONAL RISKS.
o An investment in the Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
o The Fund is not a complete investment program. As with any mutual fund
investment, the Fund's returns will vary and you could lose money.
IS THE FUND RIGHT FOR YOU?
The Fund may be suitable for:
o Long-term investors seeking a fund with a growth investment strategy;
o Investors who can tolerate the greater risks associated with common stock
investments;
o Investors willing to accept the greater market price fluctuations of
smaller companies;
o Investors who can tolerate the increased risks of foreign and emerging
market securities; or
o Investors who can tolerate the increased risks and price fluctuations
associated with a non-diversified fund.
GENERAL
The investment objective of the Fund may be changed without shareholder
approval.
From time to time, the Fund may take temporary defensive positions which
are inconsistent with the Fund's principal investment strategies, in attempting
to respond to adverse market, economic, political, or other conditions. For
example, the Fund may hold all or a portion of its assets in money market
instruments or repurchase agreements. If the Fund invests in shares of a money
market fund, the shareholders of the Fund generally will be subject to
duplicative management fees. As a result of engaging in these temporary
measures, the Fund may not achieve its investment objective. The Fund may also
invest in such instruments at any time to maintain liquidity or pending
selection of investments in accordance with its policies.
HOW THE FUND HAS PERFORMED
The Fund has three authorized classes of shares: Class A shares, Class B
shares and Class R shares. The information provided below is for Class R, which
is the Class with the longest history. Its expenses generally are lower, and its
performance higher than Class A and Class B shares. Each Class is subject to
different expenses and a different sales charge structure. Class R shares are
offered through a separate prospectus only to certain investors. The bar chart
and table below show the variability of the Fund's returns, which is one
indicator of the risks of investing in the Fund. The bar chart shows the Fund's
performance (for Class R shares) for 1999, and the best and worst quarters for
that year follow the bar chart. The table shows how the Fund's average annual
total returns (for Class R shares) compare over time to those of a broad-based
securities market index. Sales charges have not been deducted from total
returns. Returns would have been lower had these charges been deducted. As with
all mutual funds, past results are not an indication of future performance.
1999 57.9%
During the period shown, the highest return for a quarter was 51.1% (Q4,
1999); and the lowest return was -1.7% (Q1, 1999).
AVERAGE ANNUAL TOTAL RETURNS (through December 31, 1999):
One Year Since Inception 1
The Fund 57.9% 59.9%
S&P Index 21.1% 20.7%
Russell 2000 Index 21.3% 24.2%
1 December 30, 1998
FEES AND EXPENSES OF INVESTING IN THE FUND
The tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly Class A Class B
from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ......4.50%............NONE
Maximum Deferred Sales Charge (Load)...................1.00%............5.00%
Redemption Fee.........................................NONE.............NONE
Exchange Fee.............................................NONE.............NONE
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Management Fees.........................................1.00%............1.00%
Distribution (12b-1) Fees (A)...........................0.25%............1.00%
Other Expenses (B)......................................1.22%............1.22%
Total Annual Fund Operating Expenses (B)................2.47%............3.22%
Expense Reimbursement (B) (C)............................(.72)%...........(.72)%
Net Expenses (After Expense Reimbursement)...............1.75%............2.50%
(A) 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.
(B) Estimated.
(C) The Fund's advisor has contractually agreed to limit the total expenses of
the Fund (excluding interest, taxes, brokerage, and extraordinary expenses)
until April 1, 2001 to an annual rate of 1.75% of the average net assets of
the Fund attributable to the Class A shares and 2.50% of the average net
assets of the Fund attributable to the Class B shares.
Example:
The example below is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial investment
for the time periods indicated, reinvestment of dividends and distributions, 5%
annual total return, constant operating expenses, and sale of all shares at the
end of each time period. Although your actual expenses may be different, based
on these assumptions your costs1 will be:
1 YEAR 3 YEARS
------ --------
CLASS A $721 $1,293
CLASS B $756 $1,431
1 Your actual expenses may be different because expenses are a function of Fund
size. These costs assume an average Fund size of $6,500,000 for each of the
next three years.
HOW TO BUY SHARES
The minimum initial investment in the Fund is $1,000 and minimum
subsequent investments are $500. The Fund may waive the minimum under certain
circumstances.
INITIAL PURCHASE
BY MAIL - To be in proper form, your initial purchase request must
include:
o a completed and signed investment application form (which accompanies this
Prospectus); and
o a check (subject to the minimum amounts) made payable to the Fund. Mail the
application (be sure to specify whether you are purchasing Class A or Class
B shares) and check to:
U.S. Mail: Overnight:
TANAKA Funds, Inc TANAKA Funds, Inc.
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
BY WIRE - You may also purchase shares of the Fund by wiring federal funds
from your bank, which may charge you a fee for doing so. To wire money, you must
call Unified Fund Services, Inc. the Fund's transfer agent at 877-4-TANAKA to
set up your account and obtain an account number. You should be prepared at that
time to provide the information on the application. Then, provide your bank with
the following information for purposes of wiring your investment:
Firstar Bank, N.A.
ABA #0420-0001-3
Attn: TANAKA Funds, Inc.: TANAKA Growth Fund
Account Name _________________(write in shareholder name)
For the Account # ______________(write in shareholder account number)
D.D.A.#488922451
You must also mail a signed application to Unified Fund Services, Inc.,
the Fund's transfer agent, at the above address in order to complete your
initial wire purchase. Wire orders will be accepted only on a day on which the
Fund, custodian and transfer agent are open for business. A wire purchase will
not be considered made until the wired money is received and the purchase is
accepted by the Fund. Any delays which may occur in wiring money, including
delays which may occur in processing by the banks, are not the responsibility of
the Fund or the transfer agent. There is presently no fee for the receipt of
wired funds.
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 the Fund's
distributor. These institutions may charge a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Fund. The Fund is not responsible for the failure of any institution to
promptly forward these requests.
If you purchase shares through a broker-dealer or financial institution,
your purchase will be subject to its procedures, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in the Fund
directly. You should acquaint yourself with the institution's procedures and
read this Prospectus in conjunction with any materials and information provided
by the 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.
ADDITIONAL INVESTMENTS
You may purchase additional shares of the Fund at any time (subject to
minimum investment requirements) by mail, wire, or automatic investment. Each
additional mail purchase request must contain:
-your name -the name of your account(s)
-your account number(s) -a check made payable to TANAKA Funds, Inc.
Checks should be sent to the TANAKA Funds, Inc., c/o Unified Fund
Services, Inc. at the address listed above. A bank wire should be sent as
outlined above.
SALES CHARGE (LOAD)
CLASS A SHARES
Shares of the Fund are purchased at the public offering price. The public
offering price for Class A shares is the next determined NAV plus a sales charge
(load) as shown in the following table.
<TABLE>
===========================================================================================
<CAPTION>
Sales Charge as % of:
<S> <C> <C> <C>
Public Net
Amount of Investment Offering Amount Dealer Reallowance as %
Price Invested of Public Offering 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 $1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more See below See below See below
==========================================================================================
</TABLE>
Investments of $1 million or more are sold with no initial sales charge. A
1% contingent deferred sales charge may be imposed on certain redemptions made
within one year of purchase by Class A accounts of $1 million or more. A dealer
concession of up to 1% may be paid by 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
Fund's advisor 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, you must notify, at the time of
purchase, your dealer, the transfer agent or the investment advisor 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 advisor 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. You may purchase Class A shares of the Fund
at a reduced sales charge 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. 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, you must notify your
dealer, the transfer agent or the distributor at the time of purchase that you
wish to take advantage of such entitlement, and give the numbers of your
account, and those accounts held in the name of your spouse or for a minor
child, and your specific relationship to each such other person.
LETTER OF INTENTION. You may also qualify for a reduced sales charge
by completing a Letter of Intention set forth on a separate form, which is
available from the Fund. This enables you 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 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, you must notify your 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. However, 5% of the amount
specified in the Letter will be held in escrow, and if your purchases are less
than the amount specified, you 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 you had not
submitted a Letter.
SALES AT NET ASSET VALUE. Class A shares of the Fund may be sold at net
asset value (i.e., without a sales charge) to:
o 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;
o 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;
o investment advisors 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;
o clients of such investment advisors and financial planners who place trades
for their own accounts if the accounts are linked to the master account of
such investment advisor or financial planner on the books and records of
the broker, agent, investment advisor or financial institution; and
o 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."
o current officers, trustees, directors and employees (and their immediate
families) of the Fund, the Fund's advisor, the Fund's distributor,
employees (and their immediate families) of certain firms providing
services to the Fund (such as the Fund's custodian and administrator), and
any trust, pension, profit-sharing or other benefit plan for any 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 available from
the Fund.
CLASS B SHARES--CONTINGENT DEFERRED SALES CHARGE
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 ("CDSC")
(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.
HOLDING PERIOD CDSC
Redeemed during the first year 5.0%
Redeemed during the second or third year 4.0%
Redeemed during the fourth or fifth year 2.0%
Redeemed during the sixth year 1.0%
Redeemed after the sixth year None
Class B shares are subject to higher distribution fees than Class A shares
for a period of eight years (after which they convert to Class A shares). Shares
purchased through reinvestment of dividends on Class B shares also will convert
automatically to Class A shares along with the underlying shares on which they
were earned. Conversion occurs at the end of the month which precedes the eighth
anniversary of the purchase date.
The higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
APPLICATION OF THE CONTINGENT DEFERRED SALES CHARGE. Shares obtained from
dividend or distribution reinvestment are not subject to the contingent deferred
sales charge. The contingent deferred sales charge, if applicable, is deducted
from the amount of the redemption. The contingent deferred sales charge will be
waived on redemptions of shares following the death of a shareholder or to meet
the requirements of certain qualified retirement plans. The contingent deferred
sales charge will also be waived for accounts for the benefit of present or
former directors of the Fund or their relatives.
GENERAL
In addition to the discount or commission paid to dealers, a distributor
may from time to time pay additional cash or other incentives to dealers in
connection with the sale of shares of the Fund. Such additional amounts may be
utilized, in whole or in part, in some cases together with other revenues of
such dealers, to provide additional compensation to registered representatives
who sell shares of the Fund.
REINSTATEMENT PRIVILEGE
If you redeem Class A shares and then decide to reinvest them, you may,
within 90 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 you redeem Class B
shares and the redemption was subject to a contingent deferred sales charge, you
may reinstate all or any part of the investment in Class B shares of the Fund
within 90 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 next calculated after 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. The reinstatement
privilege is limited to two times per calendar year.
DESCRIPTION OF CLASSES
The Fund currently is authorized to offer three classes of shares: Class
A, Class B and Class R shares. Each Class is subject to different expenses and a
different sales charge structure.
When purchasing shares, please specify whether you are purchasing Class A
shares or Class B shares. The differing expenses applicable to the different
Classes of the Fund's shares may affect the performance of those Classes.
Broker/dealers and others entitled to receive compensation for selling or
servicing Fund shares may receive more with respect to one Class than another.
DISTRIBUTION PLANS
Each Class has adopted a plan under Rule 12b-1 that allows the Class to
pay distribution fees for the sale and distribution of its shares and allows the
Class to pay for services provided to shareholders. Class A shares pay annual
12b-1 expenses of 0.25%. Class B shares pay annual 12b-1 expenses of 1.00%.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
AUTOMATIC INVESTMENT PLAN
You may make regular investments in the Fund with an Automatic Investment
Plan by completing the appropriate section of the account application,
obtainable from the transfer agent. Investments may be made monthly or
quarterly. You may terminate the automatic investment or change the amount of
your monthly purchase at any time by written notification to the Transfer Agent.
TAX SHELTERED RETIREMENT PLANS
Since the Fund is oriented to longer-term investments, the Fund may be an
appropriate investment medium for tax-sheltered retirement plans, including:
individual retirement plans (IRAs); simplified employee pensions (SEPs); 401(k)
plans; qualified corporate pension and profit-sharing plans (for employees); tax
deferred investment plans (for employees of public school systems and certain
types of charitable organizations); and other qualified retirement plans. You
should contact the Fund's transfer agent for the procedure to open an IRA or SEP
plan, as well as more specific information regarding these retirement plan
options. Please consult with an attorney or tax advisor regarding these plans.
You must pay custodial fees for your IRA by redemption of sufficient shares of
the Fund from the IRA unless you pay the fees directly to the IRA custodian.
Call the Fund's transfer agent about the IRA custodial fees.
OTHER PURCHASE INFORMATION
The Fund may limit the amount of purchases and refuse to sell to any
person. If your check or wire does not clear, you will be responsible for any
loss incurred by the Fund. If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the Fund as reimbursement for
any loss incurred. You may be prohibited or restricted from making future
purchases in the Fund.
HOW TO REDEEM SHARES
You may receive redemption payments by check or federal wire transfer. The
proceeds may be more or less than the purchase price of your shares, depending
on the market value of the Fund's securities at the time of your redemption.
Presently there is no charge for wire redemptions; however, the Fund may charge
for this service in the future. Any charges for wire redemptions will be
deducted from your Fund account by redemption of shares. If you redeem your
shares through a broker/dealer or other institution, you may be charged a fee by
that institution.
BY MAIL - You may redeem any part of your account in the Fund at no charge
by mail. Your request should be addressed to:
TANAKA Funds, Inc.
c/o Unified Fund Services, Inc.
P.O. Box 6110
Indianapolis, Indiana 46206-6110
Requests to sell shares are processed at the net asset value next
calculated after we receive your order in proper form, less any applicable sales
charge. To be in proper form, your request for a redemption must include your
letter of instruction, including the Fund name, account number, account name(s),
the address, and the dollar amount or number of shares you wish to redeem. This
request must be signed by all registered share owner(s) in the exact name(s) and
any special capacity in which they are registered. The Fund may require that
signatures be guaranteed by a bank or member firm of a national securities
exchange. Signature guarantees are for the protection of shareholders. At the
discretion of the Fund or the Fund's transfer agent, a shareholder, prior to
redemption, may be required to furnish additional legal documents to insure
proper authorization.
BY TELEPHONE - You may redeem any part of your account in the Fund by
calling the Fund's transfer agent at 877-4-TANAKA. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the transfer agent and the custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The Fund or the transfer agent may terminate the telephone redemption
procedures at any time. During periods of extreme market activity, it is
possible that shareholders may encounter some difficulty in telephoning the
Fund, although neither the Fund nor the transfer agent has ever experienced
difficulties in receiving and in a timely fashion responding to telephone
requests for redemptions or exchanges. If you are unable to reach the Fund by
telephone, you may request a redemption or exchange by mail.
BY WIRE- If you have elected wire redemption privileges, the Fund will,
upon request, transmit the proceeds of any redemption greater than $10,000 by
Federal Funds wire to a bank account designated on your Account Application.
Presently there is no charge for wire redemptions; however, the Fund reserves
the right to charge for this service. Any charge for wire redemptions will be
deducted from your Fund account by redemption of shares. If you wish to request
bank wire redemptions by telephone, you must also elect telephone redemption
privileges.
ADDITIONAL INFORMATION - If you are not certain of the requirements for a
redemption please call the Fund's transfer agent at 877-4-TANAKA. Redemptions
specifying a certain date or share price cannot be accepted and will be
returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has been collected, which
normally may take up to fifteen calendar days. Also, when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closing, or under any emergency circumstances (as
determined by the Securities and Exchange Commission) the Fund may suspend
redemptions or postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund may require you to redeem all of your shares in the Fund on
60 days' written notice if the value of your shares in the Fund is less than
$1,000 due to redemption, or such other minimum amount as the Fund may determine
from time to time. An involuntary redemption constitutes a sale. You should
consult your tax advisor concerning the tax consequences of involuntary
redemptions. You may increase the value of your shares in the Fund to the
minimum amount within the 60-day period. Your shares are subject to redemption
at any time if the Board of Trustees determines in its sole discretion that
failure to so redeem may have materially adverse consequences to all or any of
the shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
The price you pay for your shares is based on the Fund's net asset value
per share (NAV). The NAV is calculated at the close of trading (normally 4:00
p.m. Eastern time) on each day the New York Stock Exchange is open for business
(the Stock Exchange is closed on weekends, Federal holidays and Good Friday).
The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
The Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued by the Fund's
advisor at their fair value, according to procedures approved by the Fund's
board of trustees.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form, less any applicable sales
charge.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund typically distributes substantially
all of its net investment income in the form of dividends and taxable capital
gains to its shareholders. These distributions are automatically reinvested in
the Fund unless you request cash distributions on your application or through a
written request. The Fund expects that its distributions will consist primarily
of capital gains.
TAXES. In general, selling shares of the Fund and receiving distributions
(whether reinvested or taken in cash) are taxable events. Depending on the
purchase price and the sale price, you may have a gain or a loss on any shares
sold. Any tax liabilities generated by your transactions or by receiving
distributions are your responsibility. Because distributions of long-term
capital gains are subject to capital gains taxes, regardless of how long you
have owned your shares, you may want to avoid making a substantial investment
when a Fund is about to make a long-term capital gains distribution.
Early each year, the Fund will mail to you a statement setting forth the
federal income tax information for all distributions made during the previous
year. If you do not provide your taxpayer identification number, your account
will be subject to backup withholding.
The tax considerations described in this section do not apply to
tax-deferred accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax advisor about your
investment.
MANAGEMENT OF THE FUND
Tanaka Capital Management, Inc., 230 Park Avenue, Suite 960, New York, New
York 10169, serves as investment advisor to the Fund. Tanaka Capital Management,
Inc. has been providing portfolio management services since its founding, in
1986, by Graham Y. Tanaka. In addition to the assets of the Fund, the investment
advisor and its affiliates manage other assets of approximately $200 million.
Graham Y. Tanaka has been primarily responsible for the day-to-day
management of the Fund's portfolio since its inception in December 1998. 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. From 1973 until 1978, Mr. Tanaka was a research
analyst at Morgan Guaranty Trust. He then worked at Fiduciary Trust Company of
New York as Vice President from 1978-1980. Prior to launching Tanaka Capital,
Mr. Tanaka served as Chairman at Milbank Tanaka & Associates from 1980 to 1986.
He is a member of The Electronic Analyst Group and also a member of the
Healthcare Analyst Association. Mr. Tanaka currently serves on the boards of
TransAct Technologies, Inc. and Tridex Corporation. He is a 1971 graduate of
Brown University (BS, BA), a 1973 graduate of Stanford University (MBA) and a
Chartered Financial Analyst (CFA).
During the fiscal period from December 30, 1998 to November 30, 1999, the
Fund paid the advisor a fee at an annualized rate of 1.00% of its average daily
net assets. The advisor may pay certain financial institutions (which may
include banks, brokers, securities dealers and other industry professionals) a
fee for providing distribution related services and/or for performing certain
administrative servicing functions for Fund shareholders to the extent these
institutions are allowed to do so by applicable statute, rule or regulation.
<PAGE>
FINANCIAL HIGHLIGHTS
The following condensed supplementary financial information for the period
December 30, 1998 (commencement of operations) to November 30, 1999 is derived
from the audited financial statements of the Fund. As of November 30, 1999, the
Class A and Class B shares had not been offered for sale. The following
information relates to Class R only. The financial statements of the Fund have
been audited by McCurdy & Associates CPA's, Inc., independent public
accountants, and are included in the Fund's Annual Report. The Annual Report
contains additional performance information and is available upon request and
without charge.
TANAKA GROWTH FUND - CLASS R
SELECTED PER SHARE DATA
Net asset value, beginning of period $ 10.00
----------
Income from investment operations
Net investment income (0.08)
Net realized and unrealized gain (loss) 3.13
----------
----------
Total from investment operations 3.05
----------
Net asset value, end of period $ 13.05
==========
TOTAL RETURN (b) 30.50%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000) $1,495
Ratio of expenses to average net assets 1.75% (a)
Ratio of expenses to average net assets before 13.89% (a)
reimbursement
Ratio of net investment income (loss) to average net (0.80)% (a)
assets
Ratio of net investment income (loss) to
average net assets before reimbursement (12.94)% (a)
Portfolio 53.45% (a)
turnover rate
(a) Annualized
(b) For periods of less than a full year, total returns are not
annualized.
<PAGE>
FOR MORE INFORMATION
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated into this prospectus by
reference, contains detailed information on Fund policies and operations. Annual
and semi-annual reports contain management's discussion of market conditions,
investment strategies and performance results as of the Fund's latest
semi-annual or annual fiscal year end.
Call the Funds at 877-4-TANAKA to request free copies of the SAI and the
Fund's annual and semi-annual reports, to request other information about the
Fund and to make shareholder inquiries.
You may review and copy information about the Fund (including the SAI and
other reports) at the Securities and Exchange Commission (SEC) Public Reference
Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and
operation. You may also obtain reports and other information about the Fund on
the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: [email protected], or by
writing the SEC's Public Reference Section of the SEC, Washington, D.C.
20549-0102.
Investment Company Act #811-9096
<PAGE>
The following should be read in conjunction with the section titled "How to Buy
Shares" on page 4 of the Prospectus. Class R shares of the TANAKA Growth Fund
are available for purchase to all investors whose investment is received no
later than September 30, 2000. For more information, please call TANAKA Capital
directly at (212) 490-3380 or the Transfer Agent at 877-4-TANAKA.
TANAKA GROWTH FUND
CLASS R SHARES
PROSPECTUS
JANUARY 31, 2000
INVESTMENT OBJECTIVE:
Growth of capital
230 Park Avenue, Suite 960
New York, New York 10169
877-4-TANAKA (TOLL FREE)
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
ABOUT THE FUND...............................................................1
FEES AND EXPENSES OF INVESTING IN THE FUND...................................4
HOW TO BUY SHARES............................................................4
HOW TO REDEEM SHARES.........................................................7
DETERMINATION OF NET ASSET VALUE.............................................8
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................8
MANAGEMENT OF THE FUND.......................................................8
FINANCIAL HIGHLIGHTS.........................................................9
FOR MORE INFORMATION................................................BACK COVER
<PAGE>
ABOUT THE FUND
INVESTMENT OBJECTIVE
The investment objective of the TANAKA Growth Fund is growth of capital.
PRINCIPAL STRATEGIES
The Fund invests primarily in common stocks and other equity securities of
small, medium and large capitalization companies. The Fund will invest primarily
in domestic securities, but it may also invest up to 45% of its net assets,
measured at the time of investment, in foreign securities, including
multinational and emerging market securities. The Fund is a non-diversified
fund, which means that the Fund may take larger positions in a small number of
companies than a diversified fund.
The Fund's investments in equity securities will generally consist of
issues which the Fund's advisor believes have capital growth potential due to
factors such as:
o rapid growth in demand in existing markets;
o expansion into new markets;
o new product introductions;
o reduced competitive pressures;
o cost reduction programs;
o changes in management; and
o other fundamental changes which may result in improved earnings growth or
increased asset values.
The Fund's advisor relies on research, management meetings and industry
contacts to identify:
o companies with above-average long-term earnings growth potential that could
exceed market expectations;
o industries that are positioned to participate in strong demographic,
societal or economic trends; and
o companies within those industries that have a particular competitive
advantage or niche.
The Fund may sell a security when:
o the fundamentals of the company decline;
o the security reaches a target price or price-to-earnings ratio; or
o the Fund's advisor determines to reallocate assets to a security with
superior capital growth potential.
While it is anticipated that the Fund will diversify its investments
across a range of industry sectors, certain sectors are likely to be
overweighted compared to others because the Fund's advisor seeks the best
investment opportunities regardless of sector. The Fund may, for example, be
overweighted at times in the telecommunications, technology and
pharmaceutical/health care sectors. The sectors in which the Fund may be
overweighted will vary at different points in the economic cycle.
PRINCIPAL RISKS OF INVESTING IN THE FUND
MANAGEMENT RISK. The advisor's growth-oriented approach may fail to produce the
intended results.
SMALLER COMPANY RISK. To the extent the Fund invests in smaller capitalization
companies, the Fund will be subject to additional risks. These include:
o The earnings and prospects of smaller companies are more volatile than
larger companies.
o Smaller companies may experience higher failure rates than do larger
companies.
o The trading volume of securities of smaller companies is normally less than
that of larger companies and, therefore, may disproportionately affect
their market price, tending to make them fall more in response to selling
pressure than is the case with larger companies.
o Smaller companies may have limited markets, product lines or financial
resources and may lack management experience.
COMPANY RISK. The value of the Fund may decrease in response to the activities
and financial prospects of an individual company in the Fund's portfolio. The
value of an individual company can be more volatile than the market as a whole.
MARKET RISK. Overall stock market risks may also affect the value of the Fund.
Factors such as domestic economic growth and market conditions, interest rate
levels, and political events affect the securities markets and could cause the
Fund's share price to fall.
FOREIGN RISK. To the extent the Fund invests in foreign securities, the Fund
could be subject to greater risks because the Fund's performance may depend on
issues other than the performance of a particular company. Changes in foreign
economies and political climates are more likely to affect the Fund than a
mutual fund that invests exclusively in U.S. companies. The value of foreign
securities is also affected by the value of the local currency relative to the
U.S. dollar. There may also be less government supervision of foreign markets,
resulting in non-uniform accounting practices and less publicly available
information.
Investment in securities of issuers based in underdeveloped emerging markets
entails all of the risks of investing in securities of foreign issuers outlined
in this section to a heightened degree. These heightened risks include: (i)
greater risks of expropriation, confiscatory taxation, nationalization, and less
social, political and economic stability; (ii) the smaller size of the market
for such securities and a low or nonexistent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict a Fund's investment opportunities; and (iv) in the case of Eastern
Europe and in China and other Asian countries, the absence of developed capital
markets and legal structures governing private or foreign investment and private
property and the possibility that recent favorable economic and political
developments could be slowed or reversed by unanticipated events.
In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
NON-DIVERSIFICATION RISK. As a non-diversified fund, the Fund's portfolio may at
times focus on a limited number of companies and will be subject to
substantially more investment risk and potential for volatility than a
diversified fund. SECTOR RISK. If the Fund's portfolio is overweighted in a
certain industry sector, any negative development affecting that sector will
have a greater impact on the Fund than a fund that is not overweighted in that
sector. For example, to the extent the Fund is overweighted in the
telecommunications sector, the technology sector or the pharmaceutical/health
care sector, it will be affected by developments affecting the applicable
sector. All three sectors are subject to changing government regulations that
may limit profits and restrict services offered. Companies in these sectors also
may be significantly affected by intense competition, and their products may be
subject to rapid obsolescence. VOLATILITY RISK. Common stocks tend to be more
volatile than other investment choices. The value of an individual company can
be more volatile than the market as a whole. This volatility affects the value
of the Fund's shares. ADDITIONAL RISKS.
o An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
o The Fund is not a complete investment program. As with any mutual fund
investment, the Fund's returns will vary and you could lose money.
IS THE FUND RIGHT FOR YOU?
The Fund may be suitable for:
o Long-term investors seeking a fund with a growth investment strategy;
o Investors who can tolerate the greater risks associated with common stock
investments;
o Investors willing to accept the greater market price fluctuations of
smaller companies;
o Investors who can tolerate the increased risks of foreign and emerging
market securities; or
o Investors who can tolerate the increased risks and price fluctuations
associated with a non-diversified fund.
GENERAL
The investment objective of the Fund may be changed without shareholder
approval.
From time to time, the Fund may take temporary defensive positions which are
inconsistent with the Fund's principal investment strategies, in attempting to
respond to adverse market, economic, political, or other conditions. For
example, the Fund may hold all or a portion of its assets in money market
instruments or repurchase agreements. If the Fund invests in shares of a money
market fund, the shareholders of the Fund generally will be subject to
duplicative management fees. As a result of engaging in these temporary
measures, the Fund may not achieve its investment objective. The Fund may also
invest in such instruments at any time to maintain liquidity or pending
selection of investments in accordance with its policies.
HOW THE FUND HAS PERFORMED
The bar chart and table below show the variability of the Fund's returns,
which is one indicator of the risks of investing in the Fund. The bar chart
shows the Fund's performance for 1999, and the best and worst quarters for that
year follow the bar chart. The table shows how the Fund's average annual total
returns compare over time to those of a broad-based securities market index. As
with all mutual funds, past results are not an indication of future performance.
1999 57.9%
During the period shown, the highest return for a quarter was 51.1% (4th
quarter, 1999); and the lowest return was -1.7% (1st quarter, 1999).
AVERAGE ANNUAL TOTAL RETURNS (through December 31, 1999):
One Year Since Inception 1
TANAKA Growth Fund 57.9% 59.9%
S&P 500 Index 21.1% 20.7%
Russell 2000 Index 21.3% 24.2%
1 December 30, 1998
FEES AND EXPENSES OF INVESTING IN THE FUND
The tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases .........................NONE
Maximum Deferred Sales Charge (Load)......................................NONE
Redemption Fee............................................................NONE
Exchange Fee..............................................................NONE
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Management Fees..........................................................1.00%
Distribution (12b-1) Fees (A)............................................0.25%
Other Expenses (B) .....................................................12.64%
Total Annual Fund Operating Expenses (B) ...............................13.89%
Expense Reimbursement (B) (C)...........................................12.14%
Net Expenses (After Expense Reimbursement) ..............................1.75%
(A) 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.
(B) These percentage amounts reflect an average Fund size of $668,868.
(C) The Fund's advisor has contractually 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 April 1, 2001.
Example:
The example below is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial investment
for the time periods indicated, reinvestment of dividends and distributions, 5%
annual total return, constant operating expenses, and sale of all shares at the
end of each time period. Although your actual expenses may be different, based
on these assumptions your costs1 will be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ -------- ------- --------
$179 $2,982 $5,291 $9,437
1 Your actual expenses may be different because expenses are a function of Fund
size. These costs assume an average Fund size of $668,868 for each of the next
ten years.
HOW TO BUY SHARES
The purchase of Class R shares is only available to the following persons:
o Current shareholders in Class R, or the spouse, siblings, children,
grandchildren, parents, or grandparents of any such person or any such
person's spouse (collectively "relatives");
o Investment advisory clients of the Fund's advisor and their relatives;
o Officers and trustees of the Fund, officers, directors and employees of the
Fund's advisor and their relatives, or any trust or individual retirement
account or self-employed retirement plan for the benefit of any such person
or relative;
o Shares purchased on behalf of wrap fee client accounts by broker-dealers
that have sales agreements with the distributor of the Fund;
o Registered representatives employed by broker-dealers that have sales
agreements with the distributor of the Fund, and their spouses and children
(or any trust or individual retirement account or self-employed retirement
plan for the benefit of any such person); and
o Shares purchased on behalf of clients of financial planners, registered
investment advisors, bank trust departments and other financial
intermediaries with service agreements with the distributor of the Fund.
The minimum initial investment in the Fund is $1,000 and minimum
subsequent investments are $500. The Fund may waive the minimum under certain
circumstances.
INITIAL PURCHASE
BY MAIL - TO be in proper form, your initial purchase request must
include:
o a completed and signed investment application form (which accompanies this
Prospectus); and
o a check (subject to the minimum amounts) made payable to the Fund.
Mail the application and check to:
U.S. Mail: Overnight:
TANAKA Funds, Inc TANAKA Funds, Inc.
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
BY WIRE - You may also purchase shares of the Fund by wiring federal funds
from your bank, which may charge you a fee for doing so. To wire money, you must
call Unified Fund Services, Inc. the Fund's transfer agent at 877-4-TANAKA to
set up your account and obtain an account number. You should be prepared at that
time to provide the information on the application. Then, provide your bank with
the following information for purposes of wiring your investment:
Firstar Bank, N.A.
ABA #0420-0001-3
Attn: TANAKA Funds, Inc.: TANAKA Growth Fund
Account Name _________________(write in shareholder name)
For the Account # ______________(write in shareholder account number)
D.D.A.#488922451
You must also mail a signed application to Unified Fund Services, Inc.,
the Fund's transfer agent, at the above address in order to complete your
initial wire purchase. Wire orders will be accepted only on a day on which the
Fund, custodian and transfer agent are open for business. A wire purchase will
not be considered made until the wired money is received and the purchase is
accepted by the Fund. Any delays which may occur in wiring money, including
delays which may occur in processing by the banks, are not the responsibility of
the Fund or the transfer agent. There is presently no fee for the receipt of
wired funds.
THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares of the Fund through brokers and other
financial institutions that have entered into sales agreements with AmeriPrime.
These institutions may charge a fee for their services and are responsible for
promptly transmitting purchase, redemption and other requests to the Fund. The
Fund is not responsible for the failure of any institution to promptly forward
these requests.
If you purchase shares through a broker-dealer or financial institution,
your purchase will be subject to its procedures, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in the Fund
directly. You should acquaint yourself with the institution's procedures and
read this Prospectus in conjunction with any materials and information provided
by the 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.
<PAGE>
ADDITIONAL INVESTMENTS
You may purchase additional shares of the Fund at any time (subject to
minimum investment requirements) by mail, wire, or automatic investment. Each
additional mail purchase request must contain:
-your name -the name of your account(s)
-your account number(s) -a check made payable to TANAKA Funds, Inc.
Checks should be sent to the TANAKA Funds, Inc., c/o Unified Fund Services at
the address listed above. A bank wire should be sent as outlined above.
DESCRIPTION OF CLASSES
The Fund currently is authorized to offer three classes of shares: Class
A, Class B and Class R shares. Each Class is subject to different expenses and a
different sales charge structure.
When purchasing shares, please specify that you are purchasing Class R
shares. The differing expenses applicable to the different Classes of the Fund's
shares may affect the performance of those Classes. Broker/dealers and others
entitled to receive compensation for selling or servicing Fund shares may
receive more with respect to one Class than another.
DISTRIBUTION PLAN
The Fund has adopted a plan under Rule 12b-1 that allows Class R of the
Fund to pay distribution fees for the sale and distribution of its shares and
allows the Class to pay for services provided to shareholders. Class R shares
pay annual 12b-1 expenses of 0.25%. Because these fees are paid out of the
Fund's assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
AUTOMATIC INVESTMENT PLAN
You may make regular investments in the Fund with an Automatic Investment
Plan by completing the appropriate section of the account application,
obtainable from the transfer agent. Investments may be made monthly or
quarterly. You may terminate the automatic investment or change the amount of
your monthly purchase at any time by written notification to the Transfer Agent.
TAX SHELTERED RETIREMENT PLANS
Since the Fund is oriented to longer-term investments, the Fund may be an
appropriate investment medium for tax-sheltered retirement plans, including:
individual retirement plans (IRAs); simplified employee pensions (SEPs); 401(k)
plans; qualified corporate pension and profit-sharing plans (for employees); tax
deferred investment plans (for employees of public school systems and certain
types of charitable organizations); and other qualified retirement plans. You
should contact the Fund's transfer agent for the procedure to open an IRA or SEP
plan, as well as more specific information regarding these retirement plan
options. Please consult with an attorney or tax advisor regarding these plans.
You must pay custodial fees for your IRA by redemption of sufficient shares of
the Fund from the IRA unless you pay the fees directly to the IRA custodian.
Call the Fund's transfer agent about the IRA custodial fees.
OTHER PURCHASE INFORMATION
The Fund may limit the amount of purchases and refuse to sell to any
person. If your check or wire does not clear, you will be responsible for any
loss incurred by the Fund. If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the Fund as reimbursement for
any loss incurred. You may be prohibited or restricted from making future
purchases in the Fund.
HOW TO REDEEM SHARES
You may receive redemption payments by check or federal wire transfer. The
proceeds may be more or less than the purchase price of your shares, depending
on the market value of the Fund's securities at the time of your redemption.
Presently there is no charge for wire redemptions; however, the Fund may charge
for this service in the future. Any charges for wire redemptions will be
deducted from your Fund account by redemption of shares. If you redeem your
shares through a broker/dealer or other institution, you may be charged a fee by
that institution.
BY MAIL - You may redeem any part of your account in the Fund at no charge
by mail. Your request should be addressed to:
TANAKA Funds, Inc.
c/o Unified Fund Services, Inc.
P.O. Box 6110
Indianapolis, Indiana 46206-6110
Requests to sell shares are processed at the net asset value next
calculated after we receive your order in proper form. To be in proper form,
your request for a redemption must include your letter of instruction, including
the Fund name, account number, account name(s), the address, and the dollar
amount or number of shares you wish to redeem. This request must be signed by
all registered share owner(s) in the exact name(s) and any special capacity in
which they are registered. The Fund may require that signatures be guaranteed by
a bank or member firm of a national securities exchange. Signature guarantees
are for the protection of shareholders. At the discretion of the Fund or the
Fund's transfer agent, a shareholder, prior to redemption, may be required to
furnish additional legal documents to insure proper authorization.
BY TELEPHONE - You may redeem any part of your account in the Fund by
calling the Fund's transfer agent at 877-4-TANAKA. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the transfer agent and the custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The Fund or the transfer agent may terminate the telephone redemption
procedures at any time. During periods of extreme market activity, it is
possible that shareholders may encounter some difficulty in telephoning the
Fund, although neither the Fund nor the transfer agent has ever experienced
difficulties in receiving and in a timely fashion responding to telephone
requests for redemptions or exchanges. If you are unable to reach the Fund by
telephone, you may request a redemption or exchange by mail.
BY WIRE - If you have elected wire redemption privileges, the Fund will,
upon request, transmit the proceeds of any redemption greater than $10,000 by
Federal Funds wire to a bank account designated on your Account Application.
Presently there is no charge for wire redemptions; however, the Fund reserves
the right to charge for this service. Any charge for wire redemptions will be
deducted from your Fund account by redemption of shares. If you wish to request
bank wire redemptions by telephone, you must also elect telephone redemption
privileges.
ADDITIONAL INFORMATION - If you are not certain of the requirements for a
redemption please call the Fund's transfer agent at 877-4-TANAKA. Redemptions
specifying a certain date or share price cannot be accepted and will be
returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has been collected, which
normally may take up to fifteen calendar days. Also, when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closing, or under any emergency circumstances (as
determined by the Securities and Exchange Commission) the Fund may suspend
redemptions or postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund may require you to redeem all of your shares in the Fund on
60 days' written notice if the value of your shares in the Fund is less than
$1,000 due to redemption, or such other minimum amount as the Fund may determine
from time to time. An involuntary redemption constitutes a sale. You should
consult your tax advisor concerning the tax consequences of involuntary
redemptions. You may increase the value of your shares in the Fund to the
minimum amount within the 60-day period. Your shares are subject to redemption
at any time if the Board of Trustees determines in its sole discretion that
failure to so redeem may have materially adverse consequences to all or any of
the shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
The price you pay for your shares is based on the Fund's net asset value
per share (NAV). The NAV is calculated at the close of trading (normally 4:00
p.m. Eastern time) on each day the New York Stock Exchange is open for business
(the Stock Exchange is closed on weekends, Federal holidays and Good Friday).
The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
The Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued by the Fund's
advisor at their fair value, according to procedures approved by the Fund's
board of trustees.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund typically distributes substantially
all of its net investment income in the form of dividends and taxable capital
gains to its shareholders. These distributions are automatically reinvested in
the Fund unless you request cash distributions on your application or through a
written request. The Fund expects that its distributions will consist primarily
of capital gains.
TAXES. In general, selling shares of the Fund and receiving distributions
(whether reinvested or taken in cash) are taxable events. Depending on the
purchase price and the sale price, you may have a gain or a loss on any shares
sold. Any tax liabilities generated by your transactions or by receiving
distributions are your responsibility. Because distributions of long-term
capital gains are subject to capital gains taxes, regardless of how long you
have owned your shares, you may want to avoid making a substantial investment
when a Fund is about to make a long-term capital gains distribution.
Early each year, the Fund will mail to you a statement setting forth the
federal income tax information for all distributions made during the previous
year. If you do not provide your taxpayer identification number, your account
will be subject to backup withholding.
The tax considerations described in this section do not apply to
tax-deferred accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax advisor about your
investment.
MANAGEMENT OF THE FUND
Tanaka Capital Management, Inc., 230 Park Avenue, Suite 960, New York, New
York 10169, serves as investment advisor to the Fund. Tanaka Capital Management,
Inc. has been providing portfolio management services since its founding, in
1986, by Graham Y. Tanaka. In addition to the assets of the Fund, the investment
advisor and its affiliates manage other assets of approximately $200 million.
Graham Y. Tanaka has been primarily responsible for the day-to-day
management of the Fund's portfolio since its inception in December 1998. 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. From 1973 until 1978, Mr. Tanaka was a research
analyst at Morgan Guaranty Trust. He then worked at Fiduciary Trust Company of
New York as Vice President from 1978-1980. Prior to launching Tanaka Capital,
Mr. Tanaka served as Chairman at Milbank Tanaka & Associates from 1980 to 1986.
He is a member of The Electronic Analyst Group and also a member of the
Healthcare Analyst Association. Mr. Tanaka currently serves on the boards of
TransAct Technologies, Inc. and Tridex Corporation. He is a 1971 graduate of
Brown University (BS, BA), a 1973 graduate of Stanford University (MBA) and a
Chartered Financial Analyst (CFA).
During the fiscal period from December 30, 1998 to November 30, 1999, the
Fund paid the advisor a fee equal to 1.00% of its average daily net assets. The
advisor may pay certain financial institutions (which may include banks,
brokers, securities dealers and other industry professionals) a fee for
providing distribution related services and/or for performing certain
administrative servicing functions for Fund shareholders to the extent these
institutions are allowed to do so by applicable statute, rule or regulation.
FINANCIAL HIGHLIGHTS
The following condensed supplementary financial information for the period
December 30, 1998 (commencement of operations) to November 30, 1999 is derived
from the audited financial statements of the Fund. The financial statements of
the Fund have been audited by McCurdy & Associates CPA's, Inc., independent
public accountants, and are included in the Fund's Annual Report. The Annual
Report contains additional performance information and is available upon request
and without charge.
TANAKA GROWTH FUND - CLASS R
SELECTED PER SHARE DATA
Net asset value, beginning of period $ 10.00
----------
Income from investment operations
Net investment income (0.08)
Net realized and unrealized gain (loss) 3.13
----------
----------
Total from investment operations 3.05
----------
Net asset value, end of period $ 13.05
==========
TOTAL RETURN (b) 30.50%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000) $1,495
Ratio of expenses to average net assets 1.75%
(a)
Ratio of expenses to average net assets
before reimbursement 13.89%
(a)
Ratio of net investment income (loss) to
average net assets (0.80)%
(a)
Ratio of net investment income (loss) to
average net assets before reimbursement (12.94)%
(a)
Portfolio turnover rate 53.45%
(a)
(a) Annualized
(b) For periods of less than a full year, total returns are
not annualized.
<PAGE>
FOR MORE INFORMATION
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated into this prospectus by
reference, contains detailed information on Fund policies and operations. Annual
and semi-annual reports contain management's discussion of market conditions,
investment strategies and performance results as of the Fund's latest
semi-annual or annual fiscal year end.
Call the Funds at 877-4-TANAKA to request free copies of the SAI and the
Fund's annual and semi-annual reports, to request other information about the
Fund and to make shareholder inquiries.
You may review and copy information about the Fund (including the SAI and
other reports) at the Securities and Exchange Commission (SEC) Public Reference
Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and
operation. You may also obtain reports and other information about the Fund on
the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: [email protected], or by
writing the SEC's Public Reference Section of the SEC, Washington, D.C.
20549-0102.
Investment Company Act #811-9096
<PAGE>
TANAKA FUNDS, INC.
TANAKA GROWTH FUND
230 Park Avenue, Suite 960
New York, New York 10169
877-4-TANAKA (Toll Free)
Statement of Additional Information
January 31, 2000
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the TANAKA Growth Fund's Prospectus for Class
R shares dated January 31, 2000 or the TANAKA Growth Fund's Prospectus for Class
A and Class B shares dated January 31, 2000. This SAI incorporates by reference
the Fund's Annual Report to Shareholders for the fiscal year ended November 30,
1999 ("Annual Report"). A free copy of either Prospectus or Annual Report can be
obtained by writing to TANAKA Funds, Inc., P.O. Box 6110, Indianapolis, Indiana
46204 or calling 877-4-TANAKA.
TABLE OF CONTENTS PAGE
Additional Information on Investment Techniques................................1
Investment Restrictions........................................................4
Taxes..........................................................................5
Dividends and Distributions....................................................9
Portfolio Transactions and Brokerage...........................................9
Portfolio Turnover............................................................10
Net Asset Value...............................................................10
Contingent Deferred Sales Charge..............................................11
Directors and Officers........................................................13
Investment Adviser............................................................14
Transfer Agent................................................................14
Administrator.................................................................15
Custodian.....................................................................15
Distribution..................................................................15
Expenses of the Fund..........................................................16
Special Shareholder Services..................................................17
General Information and History...............................................18
Performance...................................................................19
Financial Statements..........................................................21
......TANAKA Funds, Inc. (the "Company"), is an open-end, management investment
company, commonly known as a "mutual fund" and was organized on November 5,
1997. The TANAKA Growth Fund (the "Fund"), the sole series of the company, is a
non-diversified series organized on November 5, 1997.
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES
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
Convertible Securities
......The Fund may invest in convertible securities that are bonds, notes,
debentures, preferred stocks and other securities, which are convertible into
common stocks that the investment adviser deems suitable. Investments in
convertible securities may provide incidental income through interest and
dividend payments and/or an opportunity for capital appreciation by virtue of
their conversion or exchange features.
......Convertible debt securities and convertible preferred stocks, until
converted, have general characteristics similar to both debt and equity
securities. Although, to a lesser extent than with debt securities generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stocks changes, and, therefore, also tends to follow movements in the
general market for equity securities. As the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
......As debt securities, convertible securities are investments , which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
......Convertible securities are generally subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
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 45% 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. It is possible that some material information
about unsponsored ADRs and ADSs will not be available.
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.
......Investment in securities of issuers based in underdeveloped emerging
markets entails all of the risks of investing in securities of foreign issuers
outlined in this section to a heightened degree. These heightened risks include:
(i) greater risks of expropriation, confiscatory taxation, nationalization, and
less social, political and economic stability; (ii) the smaller size of the
market for such securities and a low or nonexistent volume of trading, resulting
in lack of liquidity and in price volatility; (iii) certain national policies
which may restrict a Fund's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) in the case of Eastern Europe and in China and other Asian
countries, the absence of developed capital markets and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events. So long as the Communist Party continues to
exercise a significant or, in some countries, dominant role in Eastern European
countries or in China and other Asian countries, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The Communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation. There may be no assurance that such expropriation will not occur
in the future in either the Eastern European countries or other countries. In
the event of such expropriation, a Fund could lose a substantial portion of any
investments it has made in the affected countries. Further, no accounting
standards exist in Eastern European countries. Finally, even though certain
Eastern European currencies may be convertible into U.S. dollars, the conversion
rates may be artificial to the actual market values and may be adverse to Fund
shareholders.
......In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of a security due to settlement problems could result
either in losses to the Fund due to subsequent declines in the value of the
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
......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
......The Fund may invest up to 5% of its net assets, measured at the time of
investment, in warrants or rights. A warrant is a long-term option issued by a
corporation that generally gives the investor the right to buy a specified
number of shares of the underlying common stock of the issuer at a specified
exercise price at any time on or before an expiration date. Rights are similar
to warrants, but normally have shorter durations. If the Fund does not exercise
or dispose of a warrant prior to its expiration, it will expire worthless. 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.
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.
Illiquid or Restricted Securities
The Fund may invest up to 15% of its net assets, measured at the time of
investment, in illiquid securities, for which there is a limited trading market
and for which a low trading volume of a particular security may result in abrupt
and erratic price movements. The Fund may be unable to dispose of its holdings
in illiquid securities at acceptable prices and may have to dispose of such
securities over extended periods of time. The Fund may invest in (i) securities
that are sold in private placement transactions between their issuers and their
purchasers and that are neither listed on an exchange nor traded
over-the-counter, and (ii) securities that are sold in transactions between
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933, as amended. Such securities are subject to contractual or legal
restrictions on subsequent transfer. As a result of the absence of a public
trading market, such restricted securities may in turn be less liquid and more
difficult to value than publicly traded securities. Although these securities
may be resold in privately negotiated transactions, the prices realized from the
sales could, due to illiquidity, be less than those originally paid by the Fund
or less than their fair value and in some instances, it may be difficult to
locate any purchaser. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements that may be applicable if their securities were publicly traded. If
any privately placed or Rule 144A securities held by the Fund are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the expenses of registration.
Securities which are freely tradable under Rule 144A may be treated as liquid if
the Board of Directors of the Company is satisfied that there is sufficient
trading activity and reliable price information. Investing in Rule 144A
securities could have the effect of increasing the level of illiquidity of the
Fund's portfolio to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such 144A securities.
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.
......As a matter of fundamental policy, the Fund may not:
......1. borrow money, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by a regulatory authority
having jurisdiction, from time to time;
......2. concentrate its investments in a particular industry, as that term is
used in the Investment Company Act of 1940, as amended, and as interpreted or
modified by a regulatory authority having jurisdiction, from time to time;
......3. act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the disposition
of portfolio securities of the Fund;
......4. make loans to other persons, except (a) loans of portfolio securities,
and (b) to the extent that the entry into repurchase agreements and the purchase
of debt securities in accordance with its investment objective and investment
policies may be deemed to be loans;
......5. issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by a regulatory
authority having jurisdiction, from time to time; provided that the segregation
of assets or other collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted investments, including
deposits of initial and variation margin, are not considered to be the issuance
of senior securities for purposes of this restriction, and obligations for which
the Fund segregates assets in accordance with securities regulatory requirements
will not be deemed to be senior securities;
......6. purchase or sell real estate (except that the Fund may invest in (i)
securities of companies which deal in real estate, or mortgages, and (ii)
securities secured by real estate or interests therein, and that the Fund
reserves freedom of action to hold and to sell real estate acquired as a result
of the Fund's ownership of securities); or
7. purchase or sell physical commodities or contracts relating to physical
commodities.
......The Fund has voluntarily adopted certain policies and restrictions, which
are observed in the conduct of its affairs. These represent intentions of the
Board of Directors based upon current circumstances. They differ from
fundamental investment policies in that they may be changed or amended by action
of the Board of Directors without prior notice to or approval of shareholders.
The following policies are non-fundamental policies and may be changed without
shareholder approval. The Fund currently may not:
......(a) purchase or sell futures contracts or options thereon;
......(b) make short sales;
......(c) pledge, mortgage or hypothecate its assets in excess, together with
permitted borrowings, of 1/3 of its total assets;
......(d) purchase securities on margin, except that the Fund may obtain such
short term credits as are necessary for the clearance of transactions;
......(e) invest more than 15% of its net assets in securities which are
illiquid or not readily marketable; and
......(f) write put or call options.
......If a percentage restriction on investment or utilization of assets as set
forth under "Investment Restrictions" above is adhered to at the time an
investment is made, a later change in percentage resulting from changes in the
value or the total cost of the Fund's assets will not be considered a violation
of the restriction.
TAXES
......The Fund will seek to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). A
regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its investment
company taxable income (including net short term capital gain) and generally is
not subject to federal income tax (assuming the Fund meets the 90% gross income
test and the tax diversification test of Subchapter M, described below) to the
extent that it distributes annually its investment company taxable income and
net realized capital gains in the manner required under the Code. The Fund
intends to distribute at least annually all of its investment company taxable
income and net realized capital gains and therefore generally does not expect to
pay federal income taxes.
In order to meet the tax diversification test, at the close of each quarter of
its fiscal year, (I) at least 50% of the value of the Fund's total assets must
be represented by cash and cash items including receivables, U.S. Government
securities, and securities of other regulated investment companies, and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the value of its total assets, and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and the securities of other regulated investment
companies.)
......The Fund will meet the 90% of gross income test if 90% of its annual gross
income is derived from dividends, interest, payments with respect to certain
securities loans, and gain from the sale or disposition of stock or securities
or foreign currencies, or other income (including, but not limited to, gains
from options, futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies.
......The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but which are not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses prescribed by the Code) realized during the one-year
period ending October 31 during such year, and all ordinary income and capital
gains for prior years that were not previously distributed.
......Investment company taxable income generally includes dividends, interest,
net short-term capital gains in excess of net long-term capital losses, and net
foreign currency gains, if any, less expenses. Realized net capital gains for a
fiscal year are computed by taking into account any capital loss carry forward
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.
......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.
......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. Gain 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 the Fund. Each investor should consult his or her own tax adviser
about the applicability of these taxes. A distribution of net investment income
to nonresident aliens and foreign corporations that are not engaged in a trade
or business in the U.S. to which the distribution is effectively connected, will
be subject to a withholding tax imposed at the rate of 30% upon the gross amount
of the distribution in the absence of a Tax Treaty providing for a reduced rate
or exemption from U.S. taxation. A distribution of net long-term capital gains
realized by the Fund is not subject to tax unless the distribution is
effectively connected with the conduct of the shareholder's trade or business
within the United States, or the foreign shareholder is a non-resident alien
individual who was physically present in the U.S. during the tax year for more
than 182 days.
......The foregoing is a general abbreviated summary of present Federal income
taxes on dividends and distributions. Shareholders should consult their tax
advisers about the application of the provisions of the tax law described in
this Statement of Additional Information in light of their particular tax
situations and about any state and local taxes applicable to dividends and
distributions.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
......As stated previously, it is the policy of the Fund to distribute
substantially all of its net investment income and net realized capital gains,
if any, shortly after the close of the fiscal year (November 30th).
......All dividend and capital gains distributions, if any, will be reinvested
in full and fractional shares based on net asset value (without a sales charge)
as determined on the ex-dividend date for such distributions. Shareholders may,
however, elect to receive all such payments, or the dividend or distribution
portion thereof, in cash, by sending written notice to this effect to the
Transfer Agent. This written notice will be effective as to any subsequent
payment if received by the Transfer Agent prior to the record date used for
determining the shareholders' entitlement to such payment. Such an election will
remain in effect unless or until the Transfer Agent is notified by the
shareholder in writing to the contrary.
PORTFOLIO TRANSACTIONS AND BROKERAGE
......Subject to the supervision of the Directors, decisions to buy and sell
securities for the Fund and negotiation of their brokerage commission rates are
made by the Investment Adviser. Transactions on U.S. stock exchanges involve the
payment by the Fund of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market but the price paid by the Fund usually includes an undisclosed dealer
commission or mark-up. In certain instances, the Fund may make purchases of
underwritten issues at prices which include underwriting fees. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to its obligation of seeking best qualitative execution, the
Fund's adviser may give consideration to sales of shares of the Trust as a
factor in the selection of brokers and dealers to execute portfolio
transactions. For the period December 30, 1998 (commencement of operations)
through November 30, 1999, the Fund paid brokerage commissions of $1,075.
......In selecting a broker to execute each particular transaction, the
Investment Adviser takes the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of the Fund on a
continuing basis. Accordingly, the cost of the brokerage commissions to the Fund
in any transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. For example, the Investment Adviser will consider the research
and investment services provided by brokers or dealers who effect or are parties
to portfolio transactions of the Fund or the Investment Adviser's other clients.
Such research and investment services include statistical and economic data and
research reports on particular companies and industries as well as research
software. Subject to such policies and procedures as the Directors may
determine, the Investment Adviser shall not be deemed to have acted unlawfully
or to have breached any duty solely by reason of its having caused the Fund to
pay a broker that provides research services to the Investment Adviser an amount
of commission for effecting a portfolio investment transaction in excess of the
amount another broker would have charged for effecting that transaction, if the
Investment Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the research service provided by such
broker viewed in terms of either that particular transaction or the Investment
Adviser's ongoing responsibilities with respect to the Fund.
......Research and investment information is provided by these and other brokers
at no cost to the Investment Adviser and is available for the benefit of other
accounts advised by the investment adviser and its affiliates, and not all of
the information will be used in connection with the Fund. While this information
may be useful in varying degrees and may tend to reduce the Investment Adviser's
expenses, it is not possible to estimate its value and in the opinion of the
Investment Adviser it does not reduce the Investment Adviser's expenses in a
determinable amount. The extent to which the Investment Adviser makes use of
statistical, research and other services furnished by brokers is considered by
the Investment Adviser in the allocation of brokerage business but there is no
formula by which such business is allocated. The Investment Adviser does so in
accordance with its judgment of the best interests of the Fund and its
shareholders.
PORTFOLIO TURNOVER
......Average annual portfolio turnover rate is the ratio of the lesser of sales
or purchases to the monthly average value of the portfolio securities owned
during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. A
higher rate involves greater transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in the Investment Adviser's opinion, to meet the Fund's objective.
The Investment Adviser anticipates that the Fund's average annual portfolio
turnover rate will be less than 100%.
NET ASSET VALUE
......The Fund's net asset value ("NAV") per share is calculated daily from
Monday through Friday on each business day on which the New York Stock Exchange
(the "Exchange") is open. The Exchange is currently closed on weekends and on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day, and the preceding Friday or subsequent Monday when any of
these holidays falls on a Saturday or Sunday, respectively.
......The Board of Directors has determined that the Fund's NAV be calculated as
of the close of trading of the Exchange (generally 4:00 p.m., Eastern Time) on
each business day from Monday to Friday or on each day (other than a day during
which no security was tendered for redemption and no order to purchase or sell
such security was received by the Fund) in which there is a sufficient degree of
trading in the Fund's portfolio securities that the current NAV of the Fund's
shares might be materially affected by changes in the value of such portfolio
security. The Fund may compute its NAV per share more frequently if necessary to
protect shareholders' interests.
......NAV per share is determined by dividing the total value of the Fund's
securities and other assets, less liabilities (including proper accruals of
taxes and other expenses), by the total number of shares then outstanding, and
rounding the result to the nearer cent.
......Generally, securities owned by the Fund are valued at market value. In
valuing the Fund's assets, portfolio securities, including American Depositary
Receipts ("ADRs") and American Depositary Shares ("ADSs"), which are traded on
the Exchange, will be valued at the last sale price prior to the close of
regular trading on the Exchange, unless there are indications of substantially
different valuations. Lacking any sales, the security will be valued at the last
bid price prior to the close of regular trading on the Exchange. ADRs and ADSs
for which such a value cannot be readily determined on any day will be valued at
the closing price of the underlying security adjusted for the exchange rate. In
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated in accordance with procedures approved by the
Board of Directors of the Fund as the primary market. Securities will be valued
using quotations on the exchange and lacking any sales, securities will be
valued at the last reported bid price prior to the Fund's valuation time, unless
the Fund is aware of a material change in the value prior to the time it values
its securities.
......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 on their cost if acquired within 60 days of maturity or, if
already held, on the 60th day prior to maturity, based on the value determined
on the 61st day prior to maturity.
......Any purchase order may be rejected by a distributor or by the Fund.
......The Company has reserved the right to redeem its shares by payment of its
portfolio securities in-kind but does not intend to do so under normal
circumstances.
CONTINGENT DEFERRED SALES CHARGES
Class A Shares
......With respect to purchases of $1 million or more, Class A shares redeemed
within one year of purchase will be subject to a contingent deferred sales
charge equal to 1% of the lesser of the cost of the shares being redeemed or
their net asset value at the time of redemption. Accordingly, no sales charge
will be imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. In determining, the
contingent deferred sales charge applicable to a redemption of Class A shares,
it will be assumed that the redemption is, first, of any shares that are not
subject to a contingent deferred sales charge (for example, because an initial
sales charge was paid with respect to the shares, or they have been held beyond
the period during which the charge applies or were acquired upon the
reinvestment of dividends and distributions) and, second, of shares held longest
during the time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to the distributors
of the Fund's Class A shares, and are used by the distributor to defray the
expenses related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment of compensation
to selected dealers or financial intermediaries for selling Class A shares.
Class B Shares
......Class B shares that are redeemed within six years of purchase will be
subject to a contingent deferred sales charge at the rates set forth in the
Prospectus charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the cost of the
shares being redeemed or their net asset value at the time of redemption.
Accordingly, no sales charge will be imposed on increases in net asset value
above the initial purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains distributions.
......Proceeds from the contingent deferred sales charge on the Class B shares
are paid to the distributor and are used to defray the expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, including payments to dealers and other financial
intermediaries for selling Class B shares and interest and other financing costs
associated with the Class B shares.
......In determining the contingent deferred sales charge applicable to a
redemption of Class B shares, it will be assumed that the redemption is, first,
of any shares that were acquired upon the reinvestment of dividends or
distributions and, second, of any shares held longest during the time they are
subject to the sales charge.
......The contingent deferred sales charge is waived on redemptions of shares
(i) following the death 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 the distributor to have been compensated
for distribution expenses incurred in the sale of such shares.
......For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
<PAGE>
Class R Shares
......Class R shares are not subject to a contingent deferred sales charge.
DIRECTORS AND OFFICERS
......The Board of Directors supervises the business activities of the
corporation. The Board of Directors approves all significant agreements between
the Fund and persons or companies furnishing services to it, including the
Fund's agreements with its investment adviser, administrator, fund accountant,
transfer agent and custodian. The management of the Fund's day-to-day operations
is delegated to its officers, the Investment Adviser and the administrator,
subject always to the investment objective and policies of the Fund and to
general supervision by the Board of Directors. A list of the Company's Directors
and Officers and their principal occupations during the past five years are set
forth below. The address of each director and Officer is c/o Tanaka Capital
Management, Inc., 230 Park Avenue, Suite 960, New York, New York 10169.
*Graham Y. Tanaka, Chairman, Chief Executive Officer and President of the
Company (Year of Birth 1948)
......Mr. Tanaka is currently the President of Tanaka Capital Management, Inc.
("Tanaka Capital"), having founded the firm in December 1986. From 1973 until
1978, Mr. Tanaka was a research analyst at Morgan Guaranty Trust. He then worked
at Fiduciary Trust Company of New York as Vice President from 1978-1980. Prior
to launching Tanaka Capital, Mr. Tanaka served as Chairman at Milbank Tanaka &
Associates from 1980 to 1986. He is a member of The Electronic Analyst Group and
also a member of the Healthcare Analyst Association. Mr. Tanaka currently serves
on the boards of TransAct Technologies, Inc. and Tridex Corporation. He is a
1971 graduate of Brown University (BS, BA), a 1973 graduate of Stanford
University (MBA) and a Chartered Financial Analyst (CFA).
David M. Fox, Director (Year of Birth 1948)
......Mr. Fox, has been the President and CEO of myTVshop.com, Inc. since
January 1999. From March 1992 until joining myTVshop.com he was Unapix
Entertainment's President, Chief Executive Officer and a Director. From June
1991 until joining Unapix Entertainment in March 1992, 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 (Year of Birth 1936)
......Mr. Schwarz was President and Chief Operating Officer of Dunkin Donuts
Inc. (1966-1989); Chairman of the Board and Chief Executive Officer of Grossmans
Inc. (1989-1994) and retired in 1994. Mr. Schwarz currently sits on the
following boards: TransAct Technologies, Inc., Tridex Corporation, A&W
Restaurants, Lebhar-Friedman Publishing and Foilmark Inc. He is a 1958 graduate
of Williams College (BA) and a 1964 graduate of Harvard University (MBA).
Scott D. Stooker, Director (Year of Birth 1954)
......Mr. Stooker has been the owner and President of 1st Team Communications
Inc. since 1990. He has served as a member on the board of directors of The
Advertising Club of Delaware, Big Brothers/Little Sisters of Delaware, and
currently serves on the board of Saint Anthony's Community Center. He is a 1976
graduate of University of Kansas (BSJ, BFA).
Robert L. Grant, Secretary (Year of Birth 1939)
Mr. Grant is a Senior Research Analyst with Tanaka Capital Management,
having joined the firm in 1992. From 1988 to 1992, he was the chairman of
Worldwide Computer Services. From 1966 to 1991, Mr. Grant was a senior analyst
and portfolio manager with various companies.
Kenneth D. Trumpfheller, Treasurer, Chief Financial Officer and Assistant
Secretary (Year of Birth 1958)
Mr. Trumpfheller is President, Treasurer and Secretary of AmeriPrime
Financial Services, Inc., a fund administrator and AmeriPrime Financial
Securities, Inc., a fund distributor, since 1994. He is the President and a
Trustee of AmeriPrime Funds, AmeriPrime Advisors Trust and AmeriPrime Insurance
Trust. Prior to December 1994, Mr. Trumpfheller was a senior client executive
with SEI Financial Services.
* "Interested person," as defined in the 1940 Act, of the Fund because of
the affiliation with Tanaka Capital Management, Inc.
Compensation of Directors and Officers
The Directors and officers of the Fund receive no remuneration or other
compensation from the Fund. No fees will be paid to Directors until such time as
they determine the Fund has sufficient assets.
INVESTMENT ADVISER
Tanaka Capital Management, Inc. (the "Investment Adviser"), 230 Park
Avenue, Suite 960, New York, New York 10169, manages the investment of the
assets of the Fund pursuant to an Investment Advisory Agreement (the "Advisory
Agreement"). The Advisory Agreement will be effective for a period of two years
from December 14, 1998 and may be renewed thereafter only so long as such
renewal and continuance is specifically approved at least annually by the
Company's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund, provided the continuance is also approved by a majority
of the Directors who are not "interested persons" of the Company or the
Investment Adviser by vote cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement is terminable without penalty on
60 days' notice by the Company's Board of Directors or by the Investment
Adviser. The Advisory Agreement provides that it will terminate automatically in
the event of its assignment.
The Company has designated Graham Y. Tanaka, President and a Director of
the Investment Adviser, as the Chairman, President and Chief Executive Officer
of the Company.
The Investment Adviser is paid a fee to be accrued daily at an annual rate
of 1.00% of the average daily net assets of the Fund. All expenses not
specifically assumed by the Investment Adviser are assumed by the Fund. For the
period December 30, 1998 (commencement of operations) through November 30, 1999,
the Fund paid advisory fees of $6,159.
TRANSFER AGENT
Unified Fund Services, Inc. ("Unified"), 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, is the Fund's transfer agent and dividend
disbursing agent, pursuant to a Mutual Fund Services Agreement dated as of
December 14, 1998. For its services as transfer agent, Unified receives a
monthly fee of $1.30 per shareholder (subject to a minimum monthly fee of
$1,250). Unified also provides fund accounting services to the Fund under this
agreement. Unified is compensated pursuant to a schedule of fees for its fund
accounting services, and by reimbursement for out-of-pocket expenses. The
schedule calls for an annual fee equal to 0.050% of the Fund's assets up to $100
million, 0.040% of the Fund's assets from $100 million to $300 million, and
0.030% of the Fund's assets over $300 million, subject to a minimum payment by
the Fund of $21,000 per year. For the period December 30, 1998 (commencement of
operations) though November 30, 1999, Unified received $13,750, from the Adviser
for these fund accounting services.
ADMINISTRATOR
AmeriPrime Financial Services, Inc. (the "Administrator"), 1793 Kingswood
Drive, Suite 200, Southlake, Texas 76092, is the Fund's administrator pursuant
to an Administrative Services Agreement, which is dated as of December 14, 1998
(the "Administration Agreement"). The Administration Agreement continues in
effect for two years initially, and from year to year therefore only if the
Board of Directors, including a majority of the Directors who are not interested
persons of the Company or the Administrator, approve the extension at least
annually. For the period December 30, 1998 (commencement of operations) through
November 30, 1999, the Administrator received $27,500, from the Advisor for
these services.
Custodian
Firstar Bank, N.A. (the "Custodian"), 425 Walnut Street, Cincinnati, Ohio
45202, is the custodian for the Fund. The Custodian collects income when due and
holds all of the Fund's portfolio securities and cash. The Custodian is
authorized to appoint other entities to act as sub-custodians to provide for the
custody of foreign securities which may be acquired and held by the Fund outside
the United States.
DISTRIBUTION
Distributor
AmeriPrime Financial Securities, Inc. (the "Distributor" or "AmeriPrime"),
1793 Kingswood Drive, Suite 200, Southlake, Texas 76092, acts as a distributor
of the Fund's shares pursuant to a Distribution Agreement between the Fund and
the Distributor. The Administrator, the Distributor and Unified (the Fund's
transfer agent) are each controlled by Unified Financial Services, Inc.
Distribution and Service Plans
The Company has adopted, in accordance with Rule 12b-1 under the 1940 Act,
separate Rule 12b-1 distribution and/or service plans pertaining to the Fund's
Class A, Class B and Class R shares (each, a "Plan"). In adopting each Plan, a
majority of the Independent Directors have concluded in accordance with the
requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan
will benefit the Fund and its shareholders. The Directors of the Company believe
that the Plans should result in greater sales and/or fewer redemptions of the
Fund's shares, although it is impossible to know for certain the level of sales
and redemptions of the Fund's shares in the absence of a Plan or under an
alternative distribution arrangement.
Under the Plan applicable to the Class R shares of the Fund, payments may
be made by the Fund for the purpose of financing any activity primarily intended
to result in the sales of Class R shares of the Fund as determined by the Board
of Directors. Such activities typically include advertising; compensation for
sales and sales marketing activities of financial service agents and others,
such as dealers or distributors; shareholder account servicing; production and
dissemination of prospectuses and sales and marketing materials; and capital or
other expenses of associated equipment, rent, salaries, bonuses, interest and
other overhead. To the extent any activity on behalf of the Class R shares is
one which the Fund may finance without a Plan, the Fund may also make payments
to finance such activity outside of the Plan and not subject to its limitations.
Payments under the Class R Plan are not tied exclusively to actual distribution
and service expenses, and the payments may exceed distribution and service
expenses actually incurred on behalf of the Class R shares.
Under the Plans for the Class A and Class B shares, the Fund may pay a
service fee, accrued daily and paid monthly, at the annual rate of up to 0.25%
of the average daily net assets attributable to its Class A or Class B shares,
as the case may be. The services for which service fees may be paid include,
among other things, advising clients or customers regarding the purchase, sale
or retention of shares of the Fund, answering routine inquiries concerning the
Fund, assisting shareholders in changing options or enrolling in specific plans
and providing shareholders with information regarding the Fund and related
developments. Pursuant to each Plan, service fee payments made out of or charged
against the assets attributable to the Fund's Class A or Class B shares must be
in reimbursement for services rendered for or on behalf of the affected class.
The expenses not reimbursed in any one month may be reimbursed in a subsequent
month. Under the Fund's Class B Plan, the Fund also pays a distribution fee at
the annual rate of 0.75% of the average daily net assets attributable to its
Class B shares to the Investment Adviser as compensation for financing the Class
B broker-dealer fees and commissions.
Among other things, each Plan provides that (1) the distributor or the
Investment Adviser, as the case may be, will submit to the Board at least
quarterly, and the Directors will review, written reports regarding all amounts
expended under the Plan and the purposes for which such expenditures were made;
(2) each Plan will continue in effect only so long as such continuance is
approved at least annually, and any material amendment thereto is approved, by
the votes of a majority of the Board, including the Independent Directors, cast
in person at a meeting called for that purpose; (3) payments by the Fund under
each Plan shall not be materially increased without the affirmative vote of the
holders of a majority of the outstanding shares of the relevant class; and (4)
while each Plan is in effect, the selection and nomination of Directors who are
not "interested persons" (as defined in the 1940 Act) of the Fund shall be
committed to the discretion of the Directors who are not "interested persons" of
the Company.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
As of the date of this SAI, no payments had been made under the Plans with
respect to the Fund.
Each Plan may be amended at any time with respect to the class of shares
of the Fund to which the Plan relates by vote of the Directors, including a
majority of the Independent Directors, cast in person at a meeting called for
the purpose of considering such amendment provided that approval of the
shareholders of the applicable class is required for any amendment to increase
materially the costs which a class may bear for distribution pursuant to the
Plan. 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; Fund
accounting expenses; custodian fees and expenses; stock transfer and dividend
disbursing fees and expenses; taxes; expenses of the issuance and redemption of
Fund shares (including registration and qualification fees and expenses); legal
and auditing expenses; and the cost of stationery and forms prepared exclusively
for the Fund.
The allocation of the general expenses of the Company among the Fund and any
other series of the Company that may be created in the future will be made on a
basis that the Company's Board of Directors deems fair and equitable, which may
be based on the relative net assets of the series of the Company or the nature
of the services performed and relative applicability to each series of the
Company.
SPECIAL SHAREHOLDER SERVICES
As described briefly in the Prospectus, the Fund offers the following
shareholder services:
Regular Account: The regular account allows for voluntary investments to
be made at any time and is available to individuals, custodians, corporations,
trusts, estates, corporate retirement plans and others. Investors are free to
make additions and withdrawals to or from their regular account as often as they
wish. Simply use the Account Application provided with the Prospectus to open
your regular account.
Telephone Transactions: You may redeem shares by telephone if you request
this service at the time you complete the initial Account Application. If you do
not elect this service at that time, you may do so at a later date by putting
your request in writing to the Transfer Agent and having your signature
guaranteed.
The Fund and the Transfer Agent employ reasonable procedures designed to
confirm the authenticity of your instructions communicated by telephone and, if
the Fund or Transfer Agent does not, they may be liable for any losses due to
unauthorized or fraudulent transactions. As a result of this policy, a
shareholder authorizing a telephone redemption bears the risk of loss which may
result from unauthorized or fraudulent transactions which the Fund or Transfer
Agent believes to be genuine. When you request a telephone redemption, or
exchange, if available, you will be asked to respond to certain questions
designed to confirm your identity as a shareholder of record. Your cooperation
with these procedures will protect your account and the Fund from unauthorized
transactions.
Automatic Investment Plan: Shareholders may also purchase additional Fund
shares at regular, pre-selected intervals by authorizing the automatic transfer
of funds from a designated bank account maintained with a United States banking
institution which is an Automated Clearing House member. Under the program,
existing shareholders may authorize amounts to be debited from their bank
account and invested in the Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the applicable forms from the Transfer
Agent. Shareholders may terminate their automatic investments or change the
amount to be invested at any time by written notification to the Transfer Agent.
Individual Retirement Account (IRA):
Traditional IRA: An individual may make a deductible contribution to a
traditional individual retirement account ("IRA") of up to $2,000 or, if less,
the amount of the individual's earned income for any taxable year prior to the
year the individual reaches age 70 1/2 if neither the individual nor his or her
spouse is an active participant in an employer's retirement plan. An individual
who is (or who has a spouse who is) an active participant in an employer
retirement plan also may be eligible to make deductible IRA contributions; the
amount, if any, of IRA contributions that are deductible by such an individual
is determined by the individual's (and spouse's, if applicable) adjusted gross
income for the year. Even if an individual is not permitted to make a deductible
contribution to an IRA for a taxable year, however, the individual nonetheless
may make nondeductible contributions up to $2,000, or 100% of earned income if
less, for that year. One spouse also may contribute up to $2,000 per year to the
other spouse's own IRA, even if the other spouse has earned income of less than
$2,000, as long as the spouses' joint earned income is at least $4,000. There
are special rules for determining how withdrawals are to be taxed if an IRA
contains both deductible and nondeductible amounts. In general, a proportionate
amount of each withdrawal will be deemed to be made from nondeductible
contributions; amounts treated as a return of nondeductible contributions will
not be taxable. If you receive a lump sum distribution from another qualified
retirement plan, you may roll over all or part of that distribution into a
traditional IRA. Such a 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. The Company does not issue share certificates.
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
non-assessable, 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.
As of January 31, 2000, the following persons were the beneficial owners
(due to record ownership or power to vote or direct the investment) of five
percent (5%) or more of the Fund Class R shares: Graham Y. Tanaka, 230 Park
Avenue, Suite 960, New York, NY 10169, 53.05%; Perry Stewart Ward and Margret D.
Ward, 129 Deer Park Avenue, San Rafael, CA 94901, 8.37%; McFarland Dewey & Co.,
230 Park Avenue, Suite 1450, 14th Floor, New York, NY 10169, 18.62%; Charles A.
Dill, TTEE, 807 S. Warson Road, Saint Louis, MO 63124, 6.38%; and TANAKA Capital
Management, Inc. retirement plans, 230 Park Avenue, Suite 960, New York, NY
10169, 27.01% [the above percentages include some duplication of ownership].
As of January 31, 2000, the following person was the record owner of five
percent (5%) or more of the Fund Class B shares: Graham Y. Tanaka, 230 Park
Avenue, Suite 960, New York, NY 10169, 100.00%.
As of January 31, 2000, Graham Y. Tanaka may be deemed to control the
Fund's shares as a result of his beneficial ownership of the R shares and B
shares of the Fund. As the controlling shareholder, he would control the outcome
of any proposal submitted to the shareholders for approval including changes to
the Fund's fundamental policies or the terms of the management agreement with
the Fund's adviser.
As of January 31, 2000, the officers and directors as a group owned
beneficially (due to record ownership or power to vote or direct the investment)
68.31% of the Fund Class R shares and 100% of the Fund Class B shares.
Each outstanding share of the Company is entitled to one vote for each
full share of stock and a fractional vote for each fractional share of stock.
All shareholders vote on matters that concern the Company as a whole. Election
of Directors or ratification of the independent accountants are examples of
matters to be voted upon by all shareholders. The Company is not required to
hold a meeting of shareholders each year. The Company intends to hold meetings
of shareholders when it is required to do so by the General Corporation Law of
Maryland or the 1940 Act. Each series will vote separately on matters (1) when
required by the General Corporation Law of Maryland, (2) when required by the
1940 Act, and (3) when matters affect only the interest of the particular
series. An example of a matter affecting only one series is a proposed change in
an investment restriction of that series. The Fund shares will not have
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of Directors can elect all of the Directors if
they choose to do so.
PERFORMANCE
Total return and current yield are the two primary methods of measuring
investment performance. Occasionally, however, the Fund may include its
distribution rate in sales literature. Yield, in its simplest form, is the ratio
of income per share derived from the Fund's portfolio investments to the current
maximum offering price expressed in terms of percent. The yield is quoted on the
basis of earnings after expenses have been deducted. Total return, on the other
hand, is the total of all income and capital gains paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the change in the
value of the original investment, expressed as a percentage of the purchase
price. The distribution rate is the amount of distributions per share made by
the Fund over a twelve-month period divided by the current maximum offering
price.
Performance quotations by investment companies are subject to certain
rules adopted by the Securities and Exchange Commission (the "Commission").
These rules require the use of standardized performance quotations, or
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information computed
as required by the Commission. Current yield and total return quotations used by
the Fund are based on the standardized methods of computing performance mandated
by the Commission.
Current Yield. As indicated below, current yield is determined by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period and annualizing the
result. Expenses accrued for the period include any fees charged to all
shareholders during the 30-day (or one-month) base period ended on the date for
which the yield is quoted. According to the Commission formula:
Yield = 2 [(a-b + 1)6 -1]
cd
where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The Fund's 30 day yield for Class R shares for the 30 days ended November
10, 1999 was -0.64%.
Total Return. The Fund may periodically advertise "average annual total
return". As the following formula indicates, the "average annual total return"
is determined by multiplying a hypothetical initial purchase order of $1,000 by
the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period, less any fees charged to all shareholder accounts, and
annualizing the result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one-, five- and ten-year period or the period since
inception if shorter than the one-, five- or ten-year period and the deduction
of all applicable charges and fees.
According to the Commission formula:
P(1+T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year period at the end of the
one-,five-, or ten-year periods (or fractional portion thereof).
The Fund's total return for the period December 30, 1998 (commencement of
operations) through November 30, 1999 was 33.53%.
Sales literature pertaining to the Fund may quote a distribution rate in
addition to the yield or total return. The distribution rate is the amount of
distributions per share made by the Fund over a twelve-month period divided by
the current maximum offering price. The distribution rate differs from the yield
because it measures what the Fund paid to shareholders rather than what the Fund
earned from investments. It also differs from the yield because it may include
dividends paid from premium income from option writing, if applicable, and
short-term capital gains in addition to dividends from investment income. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout, or a fundamental change in investment policies, it might be
appropriate to annualize the distributions paid over the period such policies
were in effect, rather than using the distributions paid during the past twelve
months.
Occasionally, statistics may be used to specify the Fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
changes in net asset value, or its performance, relative to a market index. One
measure of volatility is beta. Beta is the volatility of the Fund relative to
the total market as represented by the Standard & Poor's 500 Stock Index. A beta
of more than 1.00 indicates volatility greater than the market, and a beta of
less than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the yield or return to
shareholders only for the limited historical period used.
Comparison of Portfolio Performance
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effect of the methods used to calculate performance when 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.
FINANCIAL STATEMENTS
The financial statements and independent auditor's report required to be
included in the Statement of Additional Information are incorporated herein by
reference to the Fund's Annual Report to Shareholders for the period ended
November 30, 1999. The Trust will provide the Annual Report without charge by
calling the Fund at 1-877-4-TANAKA.