[GRAPHIC OMITTED]
TANAKA GROWTH FUND
230 Park Avenue - Suite 960
New York, NY 10169
(212) 490-3380
January 10, 2000
Dear TANAKA Growth Fund Shareholder:
We would like to welcome all of you as founding investors in the TANAKA
Growth Fund during our inaugural year. We have completed a successful launch,
and you will see that over time our investment philosophy will remain a
constant. We seek long term growth for shareholders and focus on above average
growth companies selling at reasonable valuations relative to future growth
based on our research. Our research discipline requires that we can see real
sales and earnings growth. For validation, we pursue our "kick the tires"
research, visiting with management to critically understand a company's growth
opportunities, threats and challenges and to assess whether management is honest
and conservative or promotional. We perform proprietary "top-down"
macro-economic and demographic analysis to help us identify industries that will
provide the best risk-adjusted returns. Our holdings reflect a blend of well
known large cap companies and small and medium size companies, many of which may
be relatively undiscovered by Wall Street.
PERFORMANCE
For the first year from inception on December 30, 1998 through the end
of our fiscal year on November 30, 1999, the TANAKA Growth Fund had outstanding
results as shown in the table below.
Since Inception On
December 30, 1998
Through Through Twelve Months
11/30/99 12/31/99 Ending 12/31/99
TANAKA GROWTH FUND +30.5% +60.3% +57.9%
S&P 500 14.0% 20.8% 21.1%
Russell 2000 11.6% 24.2% 21.3%
TANAKA GROWTH FUND
PERFORMANCE SINCE INCEPTION
TANAKA Growth Fund - Russell 2000 - S&P 500 -
$ 13,050 $ 11,159 $ 11,404
Dec-98 10000.0 10000.0 10000.0
Feb-99 9470.0 9540.0 10070.0
May-99 9928.0 10711.0 10618.0
Aug-99 10556.0 10485.0 10805.0
Nov-99 13050.0 11159.0 11404.0
Past performance does not guarantee future results. Investment return and
principal value fluctuate in response to the activities of individual companies
and general market and economic conditions. As a result, an investor's shares,
when redeemed, may be worth more or less than their original cost.
1999 was a great year for the Fund, not only because we were rewarded
for our longstanding emphasis on the enablers and beneficiaries of the
"Technology Revolution," but also because we were able to successfully invest in
areas that were new to us, telecom and software. Our performance was not a
result of huge gains from trading, hot IPO's or ".com" companies. In 1999 we
benefited from:
1. Being in the right industries (silicon, software, cellular and specialty
pharmaceuticals);
2. Having some of the best names in those industries (Qualcomm, Business
Objects, Three-Five Systems, Biovail, Novellus, ADC Telecom, ASM
Lithography, Nextel, and Best Software); and
3. The beginning of what will be a significant recovery and upward revaluing
of quality small cap stocks after 4 years of underperformance.
ECONOMIC OUTLOOK
In 2000, we expect the economy to continue to percolate with better
than expected real GDP growth of 2.5-3.5% and lower than expected inflation of
2-3% powered by better than expected productivity gains of 2-3%. Productivity
will continue to be driven by heavy corporate investing in technology and new
product development. Productivity gains from the Digital Revolution are what is
extending the demographically-fueled "Once-A-Generation Super Bull Market" into
extra innings. The by-product is higher real interest rates because the returns
on capital investments vastly exceed the cost of borrowing.
INVESTMENT STRATEGIES
After a favorable period, the natural tendency is to cash in your
chips and call it a day. While you shouldn't be surprised if we trim some of our
big winners, you can expect us to hold others. We believe that the Technology
Revolution is proceeding in earnest, and that for semiconductor and
semiconductor equipment companies, it's still early in the cycle. The software
stocks we bought for a post Y2K recovery have rebounded, and we expect that they
will soon get a second wind from "Business-to Business" investments in the
Internet. Telecom "convergence" (voice, video and data through the same pipe)
has just begun to be deployed and you can expect us to identify new rapid growth
opportunities in wireless, telecom services, cable and even information or media
"content."
We are researching the biotech area. While the group has appreciated,
there may be some excellent long term opportunities. We continue to look for the
"enablers and beneficiaries" of the Technology Revolution and believe we will be
well rewarded for investing in very rapid growers in an environment where
investors continue to worry about the end of the cycle.
Particularly after living through the Asia Crisis and Credit Squeeze,
we are always watchful of what might cause more than a normal 5-10% correction.
We are past Y2K, and with 3rd World economies beginning to recover, we don't
currently see any economic events that will put an end to this
productivity-fueled expansion. While Internet valuations are excessive, many
quality small, medium and even some large cap rapid growers appear attractive in
a market that we believe will pay even more for better than expected long term
earnings growth.
Thank you for your trust and confidence.
Sincerely yours,
Graham Y. Tanaka, CFA
<PAGE>
TANAKA Growth Fund
Schedule of Investments - November 30, 1999
Common Stocks - 84.6% Shares Value
Accident & Health Insurance - 2.9%
AFLAC Inc. 905 $ 43,327
------------
------------
Computers & Office Equipment - 1.5%
International Business Machines, Inc. 215 22,158
------------
------------
Crude Petroleum & Natural Gas - 0.6%
Anadarko Petroleum, Inc. 325 9,791
------------
------------
Federal Sponsored Credit - 2.1%
Federal National Mortgages 460 30,648
------------
------------
Industrial Machinery & Equipment - 2.4%
Deswell Industries, Inc. 2,135 36,295
------------
------------
Oil and Gas Field Exploration Services - 0.7%
Seitel, Inc. 1,570 10,597
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------------
Pharmaceutical Preparations - 15.3%
Biovail Corp International 825 57,389
K-V Pharmaceutical, Inc. - Class A (a) 5,415 104,914
Pfizer, Inc. 635 22,979
Schering-Plough, Inc. 840 42,945
------------
------------
228,227
------------
------------
Radio $ TV Broadcasting & Communication Equip. - 5.8%
QUALCOMM, Inc. (a) 238 86,230
------------
------------
Radio Telephone Communications - 3.0%
NEXTEL Communications - Class A (a) 450 44,606
------------
------------
Retail-lumber & Other Building Materials Dealers - 2.9%
Home Depot, Inc. 550 43,484
------------
------------
Search, Detection, Navigation, Guidance Sys. - 2.0%
FLIR Systems, Inc. 1,950 29,738
------------
------------
Security Brokers, Dealers & Flotation Companies - 2.3%
MFC Bancorp Ltd. (a) 3,775 33,975
------------
------------
Semiconductors & Related Devices - 12.0%
Intel Corp. 1,500 115,032
Three-Five Systems, Inc. (a) 1,530 65,025
------------
------------
180,057
------------
------------
TANAKA Growth Fund
Schedule of Investments - November 30, 1999 - continued
Common Stocks - continued Shares Value
Services-Computer Integrated Systems Design - 1.5%
General Electric, Inc. 170 $ 22,100
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------------
Services-Computer Programming Services - 2.5%
AMDOCS Ltd. (a) 1,070 37,651
------------
------------
Services-Engineering, Accounting, Research, Mgmt. - 0.8%
NFO Worldwide, Inc. (a) 900 11,756
------------
------------
Services-Prepackaged Software - 7.5%
Best Software (a) 1,240 32,240
Business Objects, Inc. (a) (c) 905 80,093
------------
------------
112,333
------------
------------
Special Industry Machinery - 11.7%
Novellus Systems, Inc. (a) 1,735 142,487
ASM Lithography Holdings NV (a) (c) 345 32,301
------------
------------
174,788
------------
------------
Telephone & Telegraph Apparatus - 3.1%
ADC Telecommunications, Inc. (a) 445 23,724
Research in Motion (a) 440 22,550
------------
------------
46,274
------------
------------
Wholesale-Paper & Paper Products - 4.0%
Staples, Inc. (a) 2,570 60,395
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------------
TOTAL COMMON STOCKS (Cost $1,033,967) 1,264,430
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Principal
Amount Value
Money Market Securities - 30.8%
Firstar Treasury Fund, 4.70% (b) (Cost $460,396) $460,396 460,396
------------
------------
TOTAL INVESTMENTS - 115.4% (Cost $1,494,363) 1,724,826
------------
------------
Other Assets Less Liabilities - (15.4)% (229,923)
------------
============
TOTAL NET ASSETS - 100.0% $ 1,494,903
============
============
(a) Non-income producing
(b) Variable rate security; the coupon rate shown represents the rate at
November 30, 1999
(c) American Depository Receipt
<PAGE>
TANAKA Growth Fund November 30, 1999
Statement of Assets & Liabilities
Assets
Investment in securities (cost $1,494,363) $ 1,724,826
Cash 99,985
Receivable for fund shares sold 1,000
Receivable for securities sold 2,004
Dividends receivable 630
Interest receivable 143
Receivable from Advisor for reimbursable expenses 12,347
-------------
Total assets 1,840,935
Liabilities
Accrued investment advisory fee payable $ 795
Payable for securities purchased 330,940
Accrued expenses 14,297
------------
Total liabilities 346,032
-------------
Net Assets $ 1,494,903
=============
Net Assets consist of:
Paid in capital $ 1,264,440
Net unrealized appreciation on investments 230,463
-------------
Net Assets, for 114,579 shares $ 1,494,903
=============
Net Asset Value
Class R:
Net Assets
Offering price and redemption price per share
($1,494,903/114,579) $ 13.05
=============
<PAGE>
TANAKA Growth Fund
Statement of Operations for the period December 30, 1998
(Commencement of Operations) to November 30, 1999
Investment Income
Dividend income $ 3,944
Interest income 1,884
----------
Total Income 5,828
Expenses
Investment advisory fee $ 6,159
Administration fees 27,500
Transfer agent fees 15,000
Fund Accounting Fees 13,750
Audit fees 8,740
Legal fees 6,297
Custodian fees 3,952
Pricing and out of pocket expenses 3,390
Registration fees 450
Shareholder reports 261
-------------
Total expenses before reimbursement 85,499
Reimbursed expenses (74,738)
-------------
Total operating expenses 10,761
----------
Net Investment Income (Loss) (4,933)
----------
Realized & Unrealized Gain (Loss)
Net realized gain on investment securities 4,664
Change in net unrealized appreciation (depreciation)
on investment securities 230,463
-------------
Net gain on investment securities 235,127
----------
==========
Net increase in net assets resulting from operations $ 230,194
==========
<PAGE>
TANAKA Growth Fund
Statement of Changes in Net Assets for the period December 30, 1998
(Commencement of Operations) to November 30, 1999
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (4,933)
Net realized gain on investment securities 4,664
Change in net unrealized appreciation (depreciation) 230,463
-----------
-----------
Net increase in net assets resulting from operations 230,194
-----------
Share Transactions - Class R
Net proceeds from sale of shares 1,275,976
Shares redeemed (11,267)
-----------
Net increase in net assets resulting
from share transactions 1,264,709
-----------
-----------
Total increase in net assets 1,494,903
-----------
Net Assets
Beginning of period -
-----------
End of period [including accumulated undistributed net
investment income of $0] $ 1,494,903
===========
<PAGE>
TANAKA Growth Fund - Class R
Financial Highlights for the period December 30, 1998
(Commencement of Operations) to November 30, 1999
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 reimburse (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>
TANAKA GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999
NOTE 1. ORGANIZATION
TANAKA Growth Fund (the AFund@) is organized as a series of TANAKA Funds,
Inc., a Maryland corporation (the ACompany@); the Fund commenced operations on
December 30, 1998. The Fund is registered under the Investment Company Act of
1940, as amended, as a non-diversified open-end management investment company.
The Fund=s investment objective is to provide growth of capital. The Company is
authorized to issue up to 250,000,000 shares of common stock, par value $0.01
per share, of which it currently has allocated 150,000,000 shares to the Fund.
The Board of Directors (the ABoard@) have authorized that shares of the Fund may
be offered in three classes: Class A, Class B and Class R; only Class R shares
of the Fund were outstanding as of November 30, 1999.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
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
TANAKA GROWTH FUND NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30 B CONTINUED
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES B CONTINUED
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.
FEDERAL INCOME TAXES- The Fund intends to qualify each year as a Aregulated
investment company@ under the Internal Revenue Code of 1986, as amended. By so
qualifying, the Fund will not be subject to federal income taxes to the extent
that it distributes substantially all of its net investment income and any
realized capital gains.
TANAKA GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30 B CONTINUED
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES B CONTINUED
DIVIDENDS AND DISTRIBUTIONS- The Fund intends to comply with federal tax rules
regarding distribution of substantially all of its net investment income and
capital gains. These rules may cause multiple distributions during the course of
the year.
OTHER- The Fund follows industry practice and records security transactions on
the trade date. The specific identification method is used for determining gains
or losses for financial statements and income tax purposes. Dividend income is
recorded on the ex-dividend date and interest income is recorded on an accrual
basis. Discounts and premiums on securities purchased are amortized over the
life of the respective securities.
NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund retains Tanaka Capital Management, Inc. (the AAdvisor@) to manage the
Fund=s investments. The Advisor was organized as a Delaware corporation in 1986.
Graham Y. Tanaka, portfolio manager and President of the Advisor, is primarily
responsible for the day-to-day management of the Fund=s portfolio.
Under the terms of the management agreement, (the AAgreement@), the Advisor
manages the Fund=s investments subject to approval of the Board. As compensation
for its management services, the Fund is obligated to pay the Advisor a fee
computed and accrued daily and paid monthly at an annual rate of 1.00% of the
average daily net assets of the Fund. For the period from December 30, 1998
(commencement of operations) through November 30, 1999, the Advisor received a
fee of $6,159 from the Fund. The Advisor has voluntarily agreed to limit the
total expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses) to an annual rate of 1.75% of the average net assets of
the Fund attributable to Class R shares until November 30, 1999. For the period
December 30, 1998 (commencement of operations) through November 30, 1999, the
Advisor reimbursed expenses of $74,738. Effective December 1, 1999 and until
April 1, 2001, the Advisor has additionally agreed to limit the total expenses
of the Fund (excluding brokerage fees and commissions, borrowing costs, taxes,
and extraordinary expenses) to an annual rate of 1.75% of the average net assets
of the Fund attributable to the class A shares, 2.50% of such assets
attributable to the class B shares, and 1.75% of such assets attributable to
class R shares.
The Fund retains AmeriPrime Financial Services, Inc. (the AAdministrator@)
to manage the Fund=s business affairs and provide the Fund with administrative
services, including all regulatory reporting and necessary office equipment and
personnel. For the period from December 30, 1998 (commencement of operations) to
November 30, 1999, the Administrator received fees of $27,500 from the Advisor
for administrative services provided to the Fund.
TANAKA GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30 B CONTINUED
NOTE 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES B CONTINUED
The Fund retains AmeriPrime Financial Securities, Inc. (Athe Distributor@) to
act as the principal distributor of the Fund=s shares. There were no payments
made to the Distributor from December 30, 1998 (commencement of operations) to
November 30, 1999.
NOTE 4. SHARE TRANSACTIONS
As of November 30, 1999, there were 150,000,000 authorized shares for the
Fund. Paid in capital at November 30, 1999 was $1,264,440.
Transactions in shares of Class R were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
For the period December 30, 1998 (Commencement of Operations) to November 30, 1999
- ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares Dollars
- -------------------------------------------------------------------------------------------------
Shares sold 115,607 $1,275,976
- -------------------------------------------------------------------------------------------------
Shares redeemed
(1,028) (11,267)
- -------------------------------------------------------------------------------------------------
114,579 $1,264,709
====== =======
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5. INVESTMENTS
For the period from December 30, 1998 (commencement of operations) through
November 30, 1999, purchases and sales of investment securities, other than
short-term investments, aggregated $1,312,814 and $283,511, respectively. As of
November 30, 1999, the gross unrealized appreciation for all securities totaled
$262,721 and the gross unrealized depreciation for all securities totaled
$32,258 for a net unrealized appreciation of $230,463. The aggregate cost of
securities for federal income tax purposes at November 30, 1999 was $1,494,363.
TANAKA GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 B CONTINUED
NOTE 6. ESTIMATES
Preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
NOTE 7. RELATED PARTY TRANSACTIONS
The Advisor is not a registered broker-dealer of securities and thus does
not receive commissions on trades made on behalf of the Fund. The beneficial
ownership, either directly or indirectly, of more than 25% of the voting
securities of a Fund creates a presumption of control of the Fund, under Section
2(a)(9) of the Investment Company Act of 1940. As of November 30, 1999, no
shareholders held over 25% of the voting securities of the Fund.
NOTE 8. RECLASSIFICATIONS
In accordance with SOP 93-2, the fund has recorded a reclassification in the
capital accounts. As of November 30, 1999 the fund recorded permanent book/tax
differences of $4,664 from undistributed net investment income to accumulated
undistributed net realized gains and $269 from undistributed net investment
income to paid in capital. This reclassification has no impact on the net asset
value of the fund and is designed generally to present undistributed income and
realized gains on a tax basis which is considered to be more informative to
shareholders.
.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Trustees
TANAKA Growth Fund
We have audited the accompanying statement of assets and liabilities of the
TANAKA Growth Fund, including the schedule of portfolio investments, as of
November 30, 1999, and the related statement of operations, statement of changes
in net assets and financial highlights for the period from December 30, 1998
(commencement of operations) to November 30, 1999 in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held as
of November 30, 1999 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
TANAKA Growth Fund as of November 30, 1999, the results of its operations, the
changes in its net assets, and the financial highlights for the period from
December 30, 1998 (commencement of operations) to November 30, 1999 in the
period then ended, in conformity with generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
December 16, 1999
