<PAGE> 1
As filed with the
Securities and Exchange Commission on December 6, 1995
File No. 33-98310
811-9114
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. 1 /x/
Post-Effective Amendment No. / /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 1 /x/
THE NEEDHAM FUNDS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
445 Park Avenue
New York, NY 10022
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 371-8300
Raj Rajaratnam
The Needham Funds, Inc.
445 Park Avenue
New York, NY 10022
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
William H. Bohnett, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement
is declared effective.
It is proposed that this filing will become effective
(check appropriate box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485.
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
Total number of pages is . Exhibit index appears at page .
---- ----
<PAGE> 2
Calculation of Registration Fee Under the Securities Act of 1933
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Securities Being Price Offering Registration
Being Registered Registered Per Unit Price Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of common Indefinite* $10.00 Indefinite* $1,500.00**
stock in
Needham
Growth Fund
- -------------------------------------------------------------------------------------------------
</TABLE>
* Pursuant to the provisions of Rule 24f-2 under the Investment Company
Act of 1940 (the "1940 Act"), Registrant hereby elects to register an
indefinite number of shares under the Securities Act of 1933.
** Registration fee of $1,500.00, previously paid, is the total amount
required to register shares of The Needham Funds, Inc. pursuant to Rule
24f-2(a)(3) of the 1940 Act and Rule 8b-6 of the 1940 Act.
---------------------------
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
-ii-
<PAGE> 3
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(a)
Items Required by Form N-1A
<TABLE>
<CAPTION>
Part A Location
------ --------
Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . Fund Highlights; Shareholder and Fund Expenses and
Costs
3. Condensed Financial
Information . . . . . . . . . . . . . . . . *
4. General Description of
Registrant . . . . . . . . . . . . . . . . Cover Page; Management of the Fund; Fund Highlights;
Investment Objective and Policies; Risks
5. Management of the Fund . . . . . . . . . . Management of the Fund; Organization of the Fund
6. Capital Stock and Other
Securities . . . . . . . . . . . . . . . . Purchase of Shares; Redemption of Shares; Shareholder
Services; Automatic Reinvestment of Dividends and
Capital Gains Distributions; Dividends, Distributions
and Taxes; Administrator and Shareholder Servicing,
Dividend Paying and Transfer Agent; Organization of
the Fund; Statement of Additional Information
7. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . Purchase of Shares; Redemption of Shares; Shareholder
Services; Determination of Net Asset Value;
Distribution and Services Agreement
8. Redemption or Repurchase . . . . . . . . . Redemption of Shares; Shareholder Services
9. Pending Legal Proceedings . . . . . . . . . *
</TABLE>
* Omitted since answer is negative or inapplicable.
-iii-
<PAGE> 4
<TABLE>
<CAPTION>
Part B Location
------ --------
Statement of Additional
Item No. Item Caption Information Caption
- -------- ------------ -----------------------
<S> <C> <C>
10. Cover Page . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . *
13. Investment Objectives and
Policies . . . . . . . . . . . . . . . . . Investment Objective and Policies; Investment Restrictions
14. Management of Fund . . . . . . . . . . . . Directors and Officers
15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . Directors and Officers
16. Investment Advisory and
Other Services . . . . . . . . . . . . . . Investment Advisory Services; Additional Information
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . . . Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities . . . . The Distributor and Distribution of the Shares; Taxes
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . Valuation of the Shares
20. Tax Status . . . . . . . . . . . . . . . . Tax-Sheltered Retirement Plans; Taxes
21. Underwriters . . . . . . . . . . . . . . . The Distributor and Distribution of the Shares
22. Calculation of Performance Data . . . . . . Performance Information
23. Financial Statements . . . . . . . . . . . Financial Statements
</TABLE>
* Omitted since answer is negative or inapplicable.
-iv-
<PAGE> 5
- --------------------------------------------------------------------------------
NEEDHAM GROWTH FUND
- --------------------------------------------------------------------------------
NEEDHAM GROWTH FUND (the "Fund") is a portfolio of The Needham Funds, Inc., an
open-end management investment company. The Fund seeks to provide long-term
capital appreciation through investment primarily in equity securities of growth
companies. The Fund is offered on a continuous, no-load basis. For a discussion
of the Fund's investment objective and policies, including the risks associated
with an investment in the Fund, see "Investment Objective and Policies" on page
3 and "Risks" on page 8.
The Fund's adviser is NEEDHAM INVESTMENT MANAGEMENT L.L.C. (the "Adviser"), 445
Park Avenue, New York, New York 10022, a registered investment adviser under the
Investment Advisers Act of 1940. The Adviser is an affiliate of NEEDHAM &
COMPANY, INC., a registered broker-dealer and member of the National Association
of Securities Dealers, Inc., which will act as the Fund's distributor (the
"Distributor").
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that you
should know before investing. It should be read and retained for future
reference.
A Statement of Additional Information, dated December ___, 1995, about the Fund
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. A copy is available without charge by calling the Fund's
administrator, PFPC Inc. (the "Administrator"), at 1-800-331-3186.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December ___, 1995.
<PAGE> 6
Table of Contents
<TABLE>
<CAPTION>
Caption Page
<S> <C>
Fund Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Shareholder and Fund Expenses and Costs . . . . . . . . . . . . . . . . 2
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 3
Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 9
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 12
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . 14
Automatic Reinvestment of Dividends and Capital Gains Distributions . . 14
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 16
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . 16
Administrator, Shareholder Servicing Agent, and Transfer Agent . . . . 17
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Legal Counsel and Independent Auditors . . . . . . . . . . . . . . . . 18
Organization of the Fund . . . . . . . . . . . . . . . . . . . . . . . 18
Distribution and Services Agreement . . . . . . . . . . . . . . . . . . 19
</TABLE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Statement of
Additional Information incorporated herein by reference, in connection with the
offering made by this Prospectus and, if given, or made, such information or
representations must not be relied upon as having been authorized by the Fund or
the Distributor. This Prospectus does not constitute an offering by the Fund or
by the Distributor in any jurisdiction in which such offering may not lawfully
be made.
-i-
<PAGE> 7
FUND HIGHLIGHTS
The following summary is qualified in its entirety by
the detailed information appearing elsewhere in this
Prospectus.
The Fund: Needham Growth Fund (the "Fund") is a
portfolio of The Needham Funds, Inc., an
open-end management investment company
organized as a Maryland corporation on October
12, 1995, commonly referred to as a mutual
fund. The Fund is offered on a continuous,
no-load basis.
Investment Objective: The Fund is designed to seek long-term capital
appreciation.
Management: Needham Investment Management L.L.C., a
registered investment adviser, is an affiliate
of Needham & Company, Inc., a registered
broker-dealer engaged in a variety of
investment banking and institutional brokerage
activities.
Risks: Investment in any mutual fund has inherent
risks. In seeking to achieve its investment
objective, the Fund may use certain futures
and option strategies, principally for hedging
purposes. These various hedging and income
enhancement strategies may be considered
speculative and may result in higher risks and
costs to the Fund. The Adviser seeks to
identify opportunities in various securities,
market and economic sectors. The Adviser may
then devote relatively more assets in
exploiting those opportunities than many other
mutual funds. See "Investment Objective and
Policies" and "Risks."
Offering of Shares: Shares of the Fund are offered at net asset
value. Purchases may be made through any
authorized dealer, financial institution or
directly from the Fund c/o PFPC Inc., by mail
or by wire. See "Purchase of Shares" and
"Redemption of Shares" for more information as
to how shares may be purchased and redeemed.
Minimum Investment: The minimum initial investment is $5,000; the
minimum initial investment for IRAs is $2,000.
There is a $100 minimum for subsequent
investments, except as indicated herein. See
"Purchase of Shares."
Investor Profile: This Fund is best suited to an investor who is
seeking higher returns and willing to accept a
higher degree of risk than he or she would
find in most mutual funds. Production of
current income is not the Fund's focus.
<PAGE> 8
SHAREHOLDER AND FUND EXPENSES AND COSTS
SHAREHOLDER TRANSACTION
EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested
Dividends and Capital Gains None
Deferred Sales Load None
Redemption Fees
During first six months
after purchase* 0.50%
Thereafter None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 1.25%
12b-1 Fees 0.25
Other Expenses (after expense
reimbursement) 1.00
----
TOTAL FUND OPERATING EXPENSES 2.50%
</TABLE>
* Redemption fee applies to shares redeemed or exchanged within six
months of purchase.
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C> <C>
1 year 3 years
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period: $25 $78
</TABLE>
The foregoing table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
Adviser has voluntarily agreed to waive its fee for, and to reimburse expenses
of, the Fund in an amount that operates to limit annual operating expenses for
the year ending December 31, 1996 to not more than 2.50% of average daily net
assets. The Adviser estimates that, absent the limitation, other expenses of the
Fund would be approximately 1.04% and the total annual expenses of the Fund
would be 2.54% (assuming an average first year fund size of $25 million). A fee
of $7.50 is charged for each wire redemption. For a further discussion of fees,
see "Management of the Fund," "Administrator" and "Distribution and Services
Agreement" herein. The figures reflected in the foregoing Example should not be
considered a representation of past or future expenses. Actual expenses may be
greater or lesser than those shown.
-2-
<PAGE> 9
MANAGEMENT OF THE FUND
Needham Investment Management L.L.C. (the "Adviser") serves as the Adviser for
the Fund and directs investments of the Fund pursuant to an Investment Advisory
Agreement dated as of January 1, 1996 (the "Advisory Agreement"). The Fund pays
the Adviser a fee at the annual rate of 1.25% of the average daily net asset
value of the Fund. This fee is higher than that paid by most mutual funds. The
Adviser or persons employed by or associated with the Adviser are, subject to
the authority of the Fund's Board of Directors, responsible for the overall
management of the Fund's affairs.
The Adviser is an affiliate of Needham & Company, Inc., a registered
broker-dealer engaged in a variety of investment banking and institutional
brokerage activities. Needham & Company, Inc. was founded by its Chairman and
Chief Executive Officer, George A. Needham in 1985. The Adviser's President, Raj
Rajaratnam is also President and Chief Operating Officer of Needham & Company,
Inc. The principal business address of the Adviser is 445 Park Avenue, New York,
New York 10022.
Although the Adviser was recently formed and thus has no prior operating
history, Howard S. Schachter, the Fund's portfolio manager, had a 25 year career
in the securities industry where he has specialized in growth stocks. Over that
time, Mr. Schachter has served in a variety of positions including Senior
Securities Analyst, Portfolio Manager, Director of Technology Research and
Managing Director of Institutional Sales. Mr. Schachter is an Executive Vice
President of the Adviser and will be primarily responsible for the day-to-day
management of the Fund's portfolio.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation. There is
no assurance that the investment objective will be met. The Fund is not intended
to constitute a balanced investment program.
Under normal market conditions, the Fund intends to invest at least 65% of its
total assets in equity securities of domestic issuers listed on a nationally
recognized securities exchange or traded on the Nasdaq System. The balance of
the Fund's assets may be held in cash or invested in other securities, including
preferred stock, common stock equivalents (mainly securities exchangeable for
common stock), options, futures and various corporate debt instruments.
The Fund may invest in the following portfolio securities, may engage in the
following practices and will be subject to the following risks and limitations.
The Fund may engage in such investment strategies for hedging purposes or to
seek to increase its
-3-
<PAGE> 10
investment return. Each of the percentage limitations with respect to
investments in securities described below applies immediately after a purchase
and any subsequent change in the applicable percentage resulting from market
fluctuations does not require unwinding any part of the transaction. Except as
may be specifically stated, the Fund's investment objective and investment
policies described herein do not constitute fundamental policies and may be
changed or modified by the Fund's Board of Directors without shareholder
approval. Shareholders will receive written notice of any changes in the Fund's
investment objective.
EQUITY SECURITIES
The Fund emphasizes investments in common stocks which may include equity
securities of smaller companies. The Fund also may buy securities such as
convertible debt, preferred stock, warrants, or other securities exchangeable
for shares of common stock and other equity securities, including publicly
traded partnership interests. In selecting equity investments for the Fund, the
Adviser seeks to identify companies which it believes will achieve superior
growth rates, based on its market research and company analysis. The Adviser
will consider overall growth prospects, financial condition, competitive
position, technology, research and development, productivity, labor costs, raw
materials costs and sources, competitive operating margins, return on
investment, management and other factors.
Investments in smaller companies may offer greater opportunities for capital
appreciation than larger companies, but may also involve certain special risks.
Such companies may have limited product lines, markets, or financial resources
and may be dependent on a limited management group. Such securities may also
trade less frequently and at a lower volume than more widely held securities,
and may fluctuate in value more sharply than those of other securities. There
may be less available information about these issuers or less market interest
than is normally the case with respect to larger companies.
DEBT SECURITIES
The Fund may buy debt securities of all types issued by both domestic and
foreign issuers, including government securities, corporate bonds and
debentures, commercial paper, and certificates of deposit. It is the Fund's
intention to invest no more than 35% of total assets in debt securities.
No more than 10% of the Fund's total assets (such 10% also being included in the
35% limitation stated above) may be invested in non-investment grade debt
securities (commonly called "junk bonds" or "high yield bonds"). These
securities are considered to be highly speculative, may have poor prospects of
attaining investment standing and may be in default. Like those of other
fixed-income securities, the value of lower-rated securities fluctuate in
response to changes in interest rates. In addition, the values of such
securities are also affected by changes in general economic conditions and
business
-4-
<PAGE> 11
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of any fixed-income security and in
the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. See Statement of Additional Information.
FOREIGN SECURITIES
The Fund will invest primarily in securities of companies domiciled in the
United States, but the Fund may also invest up to 25% of its total assets,
measured at the time of investment, in securities of foreign issuers. Such
investments will be made either directly in such issuers or indirectly through
American Depository Receipts (ADR's) or closed-end investment companies. It is
possible that some material information about unsponsored ADR's will be
unavailable.
Foreign securities involve certain inherent risks that are different from those
of domestic issuers, including political or economic instability of the issuer
or the country of issue, changes in foreign currency and exchange rates, and the
possibility of adverse changes in investment or exchange control regulations.
Currency fluctuations may affect the net asset value of the Fund irrespective of
the performance of the underlying investments in foreign issuers if and to the
extent the Fund invests in non-dollar denominated securities.
The Fund may seek to hedge its position in foreign securities and/or protect
against foreign currency fluctuations by investing in put or call options on
securities and foreign currencies and enter into forward foreign currency
exchange contracts. See "-- Options, Futures and Forward Contracts."
ILLIQUID INVESTMENTS
The Fund may not hold more than 15% of its net assets (determined at the time of
investment) in securities for which market quotations are not readily available,
in repurchase agreements which have a maturity longer than seven days and in
securities subject to restrictions on resale for which no adequate trading
market exists. See Statement of Additional Information.
REPURCHASE AGREEMENTS
A repurchase agreement arises when a buyer, such as the Fund, purchases a
security and simultaneously agrees to resell it to the vendor at an agreed upon
future date, normally within seven days. Such agreements permit the Fund to keep
all of its assets at work while retaining overnight flexibility in pursuit of
investments of a longer-term nature. With respect to repurchase agreements, no
more than 15% of the Fund's net assets may be invested in illiquid investments,
which include repurchase agreements with maturities exceeding seven days. There
is no percentage restriction on the Fund's ability to enter into repurchase
agreements with maturities of seven days or less.
-5-
<PAGE> 12
If the other party to a repurchase agreement becomes bankrupt, the Fund may
experience delays and costs in recovering its cash. To the extent that the value
of the security purchased has decreased in the meantime, the Fund could
experience a loss. The Fund's repurchase agreements are fully collateralized.
The Fund's Board of Directors has established procedures which enable the
Adviser to monitor the creditworthiness of the dealers with which the Fund
enters into a repurchase agreement transaction. The Fund may also invest in
reverse repurchase agreements. See Statement of Additional Information.
BORROWING AND LEVERAGE
As a fundamental policy, the Fund may borrow from banks up to 25% of its total
assets and may pledge its assets in connection with such borrowings. If the Fund
makes additional investments while borrowings are outstanding, this may be
construed as a form of leverage. This leverage may exaggerate changes in the
Fund's share value and the gains and losses on the Fund's investment. Leverage
also creates interest expenses that may exceed the return on investments made
with the borrowings.
LENDING
The Fund may lend securities to broker-dealers and other institutions as a means
of earning additional income. If the borrower becomes bankrupt, the Fund could
experience delays and costs in recovering its securities. To the extent that the
value of securities loaned increased under such circumstances, the Fund could
experience a loss. Security loans must be fully collateralized, and the Adviser
must find the creditworthiness of the other party to the transaction
satisfactory. As a fundamental policy, loans (which include repurchase
agreements), in the aggregate, may not exceed 20% of the Fund's total assets.
SHORT SALES
The Fund may sell securities short and borrow the same security from a broker or
other institution to complete the sale. The Fund may make a profit or loss
depending upon whether the market price of the security decreases or increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. All short sales must be fully collateralized and the Fund
will not sell short securities whose underlying value exceeds 25% of its net
assets. The Fund will also limit short sales in any one issuer's securities to
2% of the Fund's net assets and will not sell short more than 2% of any one
class of the issuer's securities.
-6-
<PAGE> 13
OPTIONS, FUTURES AND FORWARD CONTRACTS
The Fund may buy and sell options and futures contracts to manage its exposure
to changing interest rates, security prices, currency exchange rates and
precious metals prices. The Fund may enter into forward contracts as a hedge
against future fluctuations in foreign exchange rates. The Fund may buy and sell
stock index futures contracts or related options in anticipation of general
market or market sector movements. The Fund may also invest in indexed
securities or related options whose value is linked to currencies, interest
rates, commodities, indices, or other financial indicators. Options and futures
may be combined with each other or with forward contracts in order to adjust the
risk and return characteristics of the overall strategy. The Fund may invest in
options and futures based on any type of security, index, or currency related to
their investments, including options and futures traded on foreign exchanges and
options not traded on exchanges.
Except as described below, the Fund will not engage in options, futures or
forward transactions, other than for hedging purposes, if as a result more than
5% of its total assets would be so invested. The Fund may engage in such
transactions to an unlimited extent for hedging purposes.
Options, futures and forward contracts can be volatile investments and involve
certain risks. The ability of the Fund to use these strategies successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. If the Fund makes a transaction at an inappropriate time or
judges market conditions incorrectly, options and futures strategies may
significantly lower the Fund's return. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. See Statement of Additional Information.
OTHER PERMITTED INVESTMENTS
The Fund may invest in securities issued by other investment companies within
the limits prescribed by the Investment Company Act of 1940 (the "1940 Act") and
applicable rules thereunder. As a shareholder of another investment company, the
Fund would bear, along with other shareholders, its pro rata portion of the
other investment company's expenses, including advisory fees. These expenses
thus would be in addition to the advisory and other expenses that the Fund bears
in connection with its own operations.
The Fund may also purchase or sell portfolio securities on a when-issued or
delayed delivery basis in compliance with applicable 1940 Act guidelines.
When-issued or delayed delivery transactions involve a commitment by the Fund to
purchase or sell securities with payment and delivery to take place in the
future in order to secure what is considered to be an advantageous price or
yield to the Fund at the time of entering into the transaction.
-7-
<PAGE> 14
DEFENSIVE INVESTMENTS
The Fund may invest temporarily up to 100% of its assets in cash or cash
equivalents, investment grade debt securities or repurchase agreements for
defensive purposes. Consistent with the Fund's investment objective and
policies, its Adviser may make changes in the portfolio consistent with the
Fund's policies whenever it believes doing so is in the best interest of the
Fund.
NON-DIVERSIFICATION AND INVESTMENT IN MARKET SECTORS
The Fund is "non-diversified" for purposes of the 1940 Act and so has the
flexibility to invest its assets in the securities of fewer issuers than if it
was "diversified." To the extent the Fund invests a significant portion of its
assets in a few issuers' securities, the performance of the Fund could be
significantly affected by the performance of those issuers. The Fund must,
however, meet certain diversification requirements under federal tax law. See
Statement of Additional Information -- "Investment Restrictions."
As a fundamental policy, the Fund will not invest more than 25% of its net
assets in issuers conducting their principal business in the same industry.
However, the Fund at times may invest more than 25% of its total assets in
securities of issuers in one or more market sectors. A market sector may be made
up of companies in a number of related industries. Business and economic
developments affecting that sector likely would have greater effect on the Fund
than those same developments would have on a fund invested in a wider spectrum
of market or industrial sectors.
RISKS
For additional risks associated with an investment in the Fund, this section
should be read in conjunction with "Investment Objective and Policies" herein
and the Statement of Additional Information. The Fund invests primarily in
equity and debt securities, which fluctuate in value. Therefore, shares of the
Fund will also fluctuate in value. The net asset value of the Fund's shares, to
the extent the Fund invests in debt securities, is affected by changes in the
general level of interest rates.
Certain investment techniques described in this Prospectus, such as short sales,
options and futures strategies, and leverage, may entail risks and may result in
significant capital loss. The Fund may engage in various strategies as described
above, to varying degrees, both to seek to increase its return and to hedge its
portfolio against movements in the securities markets and exchange rates. Use of
such strategies involves the risk of imperfect correlation in movements in the
price of options and futures and movements in the price of the securities or
currencies which are the subject of the hedge. There can be no assurance that a
liquid secondary market for options and futures contracts will exist at any
specific time. Options and futures contracts, and
-8-
<PAGE> 15
certain of the other investments described above, may be considered "derivative"
investments, and entail certain risks described above and in the Statement of
Additional Information.
In addition, the Fund may invest in the securities of non-U.S. issuers, which
have risks that are different from the risks associated with investments in the
securities of U.S. issuers. See "Investment Objective and Policies -- Foreign
Securities" and Statement of Additional Information.
It is anticipated that under normal conditions the annual rate of portfolio
turnover of the Fund may exceed 200%. This rate of turnover will likely result
in higher brokerage commissions and higher levels of realized gains than if the
turnover rate was lower and may subject investors to higher levels of taxable
gains.
Because of the nature of its investments, the Fund is designed for long-term
investors who can bear the risk of market fluctuations. An investment in the
Fund should not be considered a complete investment program. See "Investment
Objective and Policies" and Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which are fundamental and
may not be changed without a shareholder vote. Except as specifically noted, the
Fund's investment objective and policies described in the preceding pages are
not fundamental policies and may be changed or modified by the Fund's Board of
Directors without shareholder approval. The Fund will not, however, change its
investment objective without first providing written notice to shareholders at
least 30 days in advance. A complete list of the Fund's fundamental investment
restrictions and certain other policies not described in the Prospectus may be
found in the Statement of Additional Information.
-9-
<PAGE> 16
PURCHASE OF SHARES
<TABLE>
<CAPTION>
BY MAIL INITIAL PURCHASE SUBSEQUENT INVESTMENT
<S> <C> <C>
Complete and sign the Make your check payable to
Application. Make your check Needham Growth Fund and
payable to Needham Growth Fund mail it to the address at the
and send to: left. Put your account name,
address and Needham
account number on your
check. Subsequent
Needham Growth Fund investment forms will be
c/o PFPC Inc. included with each
P.O. Box 8916 shareholder statement for
Wilmington, DE 19899-8916 your convenience.
Alternatively, include a note
giving your Needham account
number, your name and your
address.
BY OVERNIGHT COURIER Needham Growth Fund Follow above directions and
c/o PFPC Inc. forward to address at left.
400 Bellevue Parkway
Wilmington, DE 19809
BY TELEPHONE Telephone transactions may not be Presently, all subsequent
used for initial purchases. If you investments to be made by
want to make subsequent telephone telephone must be paid by wire
transactions, select this feature on transfer.
your Application or call
1-800-331-3186 to request an
authorization form to set up your
account for this feature.
Purchases currently must be made
by wire.
By Wire First, call the Administrator at Please carefully follow
1-800-331-3186 to notify them instructions at left.
that you intend to purchase
shares by wire and to verify wire
instructions.
Then, wire funds care of
PNC Bank, N.A.,
ABA#: 031-000-053
Credit: Needham Growth Purchase
Account
Bank Account#: 86-1108-2195
Further credit: Needham Growth
Fund
Shareholder Account # ________
Shareholder Name/Registration
Taxpayer Identification Number.
AUTOMATIC See description of Automatic This feature must be set up by
INVESTMENT Investment Program below. you in advance.
PROGRAM
</TABLE>
-10-
<PAGE> 17
Shares of the Fund may be purchased at net asset value without any sales or
other charge by sending a completed application form to Needham Growth Fund, c/o
PFPC Inc. at P.O. Box 8916, Wilmington, DE 19899-8916. Applications sent by
overnight courier and all other correspondence should be sent to Needham Growth
Fund, c/o PFPC Inc. at 400 Bellevue Parkway, Wilmington, DE 19809. Telephone
transactions may not be used for initial purchases. If you want to make
subsequent telephone transactions, select this feature on your Application or
call 1-800 331-3186 to request an authorization form to set up your account for
this feature. See "Redemption of Shares -- Telephone Redemptions" for a
discussion of liability for telephone errors.
Shares of the Fund may also be purchased through authorized broker-dealers or
other institutions who may charge for their services. Such sales agents have the
responsibility of transmitting purchase orders and funds, and of crediting their
customers' accounts following redemptions in a timely manner and in accordance
with their customer agreements and this Prospectus.
The minimum initial investment for individuals, corporations, partnerships or
trusts is $5,000; the minimum initial investment for IRAs is $2,000. There is a
$100 minimum for subsequent investments. Shares of the Fund are offered on a
continuous basis. The Fund, however, reserves the right, in its sole discretion,
to reject any application to purchase shares. Applications will not be accepted
unless they are accompanied by a check drawn on a U.S. bank, savings and loan,
or credit union in U.S. funds for the full amount of the shares to be purchased.
After an account is opened, additional shares may be purchased by sending a
check payable to Needham Growth Fund and following the instructions given above.
All shares will be purchased at the net asset value per share next determined
after receipt of the shareholder's application in proper order and acceptance of
such application by the Fund. Subsequent investments may also be made by
telephone (electronic funds transfer) from a bank checking or money market
account. The transfer must specify account name, address and Needham account
number. This feature must be set up in advance according to the above
instructions.
The Fund will charge a $25.00 fee against a shareholder's account, in addition
to any loss sustained by the Fund, for any payment check returned for
insufficient funds. Shareholders should contact the Administrator at 1-800
331-3186 to obtain the latest wire instructions for wiring funds to PFPC Inc.
for the purchase of Fund shares and to notify PFPC Inc. that a wire transfer is
coming.
AUTOMATIC INVESTMENT PROGRAM
An eligible shareholder may also participate in the Fund's Automatic Investment
Program, an investment plan that automatically debits money from the
shareholder's bank account and invests it in the Fund through the use of
electronic funds transfers or automatic bank drafts. Shareholders may elect to
make subsequent investments by
-11-
<PAGE> 18
transfers of a minimum of $50 on the fifth or twentieth day of each month into
their established Fund account. Contact the Administrator for more information
about the Fund's Automatic Investment Program.
CERTIFICATES
In the interest of economy and convenience, physical stock certificates
representing the Fund's shares will not be issued unless requested in writing
directly to the Fund's Administrator or to an account representative of an
eligible broker-dealer or bank. Wire and telephone redemptions of shares held in
certificate form are not permitted and the shares represented thereby will not
be reported on brokerage or bank statements sent to clients. See "Redemption of
Shares" below.
REDEMPTION OF SHARES
Shareholders may redeem their shares at any time. Fund shareholders will be
entitled to redeem all or any portion of the shares credited to their accounts
by submitting a written request for redemption by regular mail to: Needham
Growth Fund, c/o PFPC Inc. at P.O. Box 8916, Wilmington, DE 19899-8916.
Redemption requests sent by overnight courier should be sent to PFPC Inc. at 400
Bellevue Parkway, Wilmington, DE 19899.
Upon the receipt of a redemption request, the shareholder will receive a check
based on the net asset value next determined after the redemption request has
been received, which may be more or less than the amount originally invested. If
the shares to be redeemed represent an investment made by check, the Fund
reserves the right to withhold the proceeds until the check clears. It will
normally take up to three days to clear local checks and up to seven days to
clear other checks, but may take longer under some circumstances. Shares
redeemed or exchanged within six months of purchase will be charged a redemption
fee of 0.50%.
A written redemption request will be considered to have been received in "proper
order" if the following conditions are satisfied:
- the request is in writing, indicates the number of
shares to be redeemed and identifies the shareholder's account number;
- the request is signed by the shareholder(s) exactly
as the shares are registered;
- the request is accompanied by certificates, if any,
issued representing the shares, which have been endorsed for transfer
(or are
-12-
<PAGE> 19
themselves accompanied by an endorsed stock power) exactly as the
shares are registered; and
- if the redemption proceeds are requested to be sent
other than to the address of record or if the proceeds of a requested
redemption exceed $50,000, the signature(s) on the request is/are
guaranteed by an eligible signature guarantor.
No written redemption request will become effective until all documents have
been received in "proper order" by PFPC Inc.
TELEPHONE REDEMPTIONS
The Fund permits individual shareholders (once within a thirty day period) or a
representative of record for an account to redeem shares by telephone in amounts
up to $10,000 by calling PFPC Inc. at 1-800-331-3186. In order to use this
service, the shareholder must have elected to do so in his or her Application or
complete an authorization form supplied by the Fund. Telephone redemptions must
be in amounts of $1,000 or more. Instructions must include the shareholder's
account number. Checks issued must be made payable to the owner of record and
may only be mailed to the address of record. The request cannot be honored if an
address change has been made for the account within 60 days of the telephone
redemption request.
If there are multiple account owners, PFPC Inc. may rely on the instructions of
only one owner. This account option is not available for retirement account
shares, or newly purchased (within the prior 15 days) shares. The Administrator
may record all calls.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include, among other
things, requiring some form of personal identification prior to acting upon
telephone instructions. The Fund reserves the right to refuse a telephone
redemption if it believes it advisable to do so. Assuming the Fund's security
procedures are followed, neither the Fund nor PFPC Inc. will be responsible for
the authenticity of redemption instructions received by telephone and believed
to be genuine and any loss therefrom will be borne by the investor. During
periods of substantial economic or market change, telephone redemptions may be
difficult to complete. Shares may always be redeemed by mail if a shareholder is
unable to contact PFPC Inc. by telephone.
ADDITIONAL INFORMATION ON REDEMPTIONS
A shareholder who holds Fund shares in non-certificate form may elect to have
redemption proceeds of $5,000 or more wired to the shareholder's brokerage
account
-13-
<PAGE> 20
or a commercial bank account designated by the shareholder. The administrative
fee for this service is $7.50.
Shareholders who have an IRA or other retirement plan must indicate on their
redemption request whether or not to withhold federal income tax. Redemption
requests failing to indicate an election not to have federal tax withheld will
be subject to withholding.
Shareholders may also redeem Fund shares through broker-dealers holding such
shares who have made arrangements with the Fund permitting redemptions by
telephone or facsimile transmission. These broker-dealers may charge a fee for
this service.
If a shareholder's transactions at any time reduce the shareholder's account in
the Fund to below $500 in value, the Fund may notify the shareholder that,
unless the account is brought up to at least such minimum amount, the Fund may,
within a reasonable time, redeem all shares in the account and close it by
making payment to the shareholder.
SHAREHOLDER SERVICES
The Fund offers certain tax-sheltered retirement plans through which shares may
be purchased, including IRAs (and "rollovers" from existing retirement plans)
for individuals and their spouses and SEP-IRAs. Shares of the Fund may also be
purchased by Qualified Retirement Plans such as profit-sharing and money
purchase plans, 401(k) Plans and other Defined Contribution Plans, and by
Defined Benefit Plans.
These types of accounts may be established only upon receipt of a written
application form. See Statement of Additional Information.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS DISTRIBUTIONS
Unless a shareholder elects to do otherwise, all dividends and capital gains
distributions from the Fund will be automatically reinvested in additional full
and fractional Fund shares. Shareholders who do not wish to have dividends and
distributions automatically reinvested in Fund shares, may choose between two
options:
(1) automatic reinvestment of capital gains distributions in Fund shares
and payment of dividends in cash; or
(2) payment of all dividends and distributions in cash.
-14-
<PAGE> 21
Shareholders may change this election at any time by notifying the Administrator
or their account representative if the account is maintained at an eligible
broker-dealer or bank. Dividends and distributions will be reinvested at the
Fund's per share net asset value on the reinvestment date established for the
dividend or distribution.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to elect treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), so as to be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, income from certain foreign
currency transactions and any excess of net short-term capital gains over net
long-term capital loss) and net capital gain that is annually distributed to its
shareholders. The Fund will continue to elect treatment as a regulated
investment company so long as it remains in the best interests of its
shareholders to do so.
The Fund intends to make annual distributions to its shareholders of record of
substantially all of its realized net capital gains (the excess of realized net
long-term capital gains over realized net short-term capital losses), any
realized net gains from foreign currency transactions, net investment income and
the excess, if any, of realized net short-term capital gains over realized net
long-term capital losses. The Fund may make additional distributions, if
necessary, to avoid a 4% Federal excise tax on certain undistributed ordinary
income and capital gain net income. Certain distributions made to shareholders
of record as of a date in October, November or December of a given year which
are paid by the Fund in January of the immediately subsequent year will be
taxable to shareholders as if received on December 31 of such given year.
Dividends from the investment company's taxable income (whether paid in cash or
reinvested in additional Fund shares) are taxable to shareholders as ordinary
income. Distributions to shareholders properly designated as capital gain
dividends (whether paid in cash or reinvested in additional Fund shares) are
taxable to shareholders as long-term capital gains, regardless of how long they
have held their Fund shares. The maximum regular income tax rate for
non-corporate taxpayers is currently 39.6%, however, net capital gains of such
taxpayers currently are subject to a maximum income tax rate of 28%. The maximum
regular income tax rate for a corporate taxpayer currently is 35% for ordinary
income, net short-term capital gains and net capital gains.
The Fund is required to withhold as "backup withholding" 31% of all dividends,
capital gain distributions and redemption proceeds payable to any individuals
and certain other non-corporate shareholders who do not provide the Fund with a
correct taxpayer identification number and certain required certifications or
who are otherwise subject to backup withholding. Upon a redemption of Fund
shares, a shareholder will ordinarily recognize a taxable gain or loss, subject
to certain Federal tax rules. The
-15-
<PAGE> 22
Fund anticipates that it will be subject to foreign withholding taxes for which
it may, in certain years, be able to pass through as a credit or deduction to
its shareholders.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and shareholders. See the Statement
of Additional Information for a further discussion including a discussion of tax
considerations for foreign shareholders. In addition to those considerations,
there may be other Federal, state, local, or foreign tax considerations
applicable to a particular investor. Prospective shareholders are therefore
urged to consult their tax advisers with respect to the effects of the
investment on their own tax situations.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund will be determined on each day when
the New York Stock Exchange (the "Exchange") is open for business at the close
of the Exchange and will be computed by determining the aggregate market value
of all assets of the Fund less its liabilities, and then dividing by the total
number of shares outstanding. The determination of net asset value for a
particular day is applicable to all applications for the purchase of shares as
well as all requests for the redemption of shares received before the close of
trading on the Exchange on that day.
Portfolio securities and options positions for which market quotations are
readily available are stated at the last sale price reported by the principal
exchange for each such security as of the exchange's close of business.
Securities and options for which no sale has taken place during the day and
securities which are not listed on an exchange are valued at the mean of the
current closing bid and asked prices. All other securities and assets for which
market quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Directors, although the actual
calculations may be made by persons acting pursuant to the direction of the
Board of Directors. The assets of the Fund may also be valued on the basis of
valuations provided by a pricing service approved by the Board of Directors.
PERFORMANCE INFORMATION
From time to time, in advertisements to prospective investors or reports to
shareholders, the Fund may compare its performance, in terms of its total return
to that of other mutual funds with similar investment objectives, and/or to
various published indices which are widely used as benchmarks. The Fund may also
compare its performance to rankings prepared by Lipper Analytical Services,
Inc., a widely recognized independent service which monitors and ranks the
performance of mutual
-16-
<PAGE> 23
funds, and to rankings prepared by other national financial publications. The
Fund's average annual total return is computed by finding the average annual
compounded rates of return for the most recently completed fiscal year and the
period since the commencement of operations through the most recently completed
quarter. It is based on a hypothetical $1,000 initial payment less any
applicable sales charge, while assuming reinvestment of all dividends and
distributions, and with recognition of all recurring charges. The Fund may also
use a total return computed in the same manner but for differing periods,
without annualizing the total return. For purposes of the yield calculation,
yield to maturity of each debt obligation in the Fund's portfolio is determined
based on a modified market value method of amortization. In computing net
investment income all recurring charges are recognized. In calculating
performance results, initial sales charges, if any, are taken into account, but
other non-recurring charges are not. Total return or yield information may be
useful in reviewing the Fund's performance and for providing a basis for
comparison with other investment alternatives. However, since the performance of
the Fund changes in response to fluctuations in market conditions, interest
rates, currency fluctuations and Fund expenses, no performance quotation should
be considered a representation as to the Fund's performance for any future
period.
ADMINISTRATOR, SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
The Fund employs PFPC Inc. as Administrator under an administration contract
dated December __, 1995 (the "Administration Contract") to provide
administrative services to the Fund. The services provided by the Administrator
under the Administration Contract are subject to the supervision of the officers
and Directors of the Fund, and include day-to-day administration of matters
related to the corporate existence of the Fund, maintenance of its records and
preparation of reports. For these services, the Fund pays a monthly fee at the
annual rate of 0.10% on the first $200 million of average daily net assets of
the Fund subject to a minimum annual fee of $100,000.
PFPC Inc. also provides various shareholder services made available to each
shareholder, including performance of transfer agency and registrar functions
and dividend paying agent. PFPC Inc., as Administrator, acts as the Fund's
shareholder servicing agent. The principal address of PFPC Inc. is 400 Bellevue
Parkway, Wilmington, Delaware 19809.
-17-
<PAGE> 24
CUSTODIAN
PNC Bank, National Association acts as custodian for the Fund. Rules adopted
under the 1940 Act permit the Fund to maintain its non-U.S. securities and cash
in the custody of certain eligible banks and securities depositories. Pursuant
to such Rules, the Fund's non-U.S. securities and cash are held by its
sub-custodians who have been approved by the Board of Directors of the Fund in
accordance with the rules of the Commission. Selection of the sub-custodians has
been made by the Directors following a consideration of a number of factors,
including, but not limited to, the reliability and financial stability of the
institution, the ability of the institution to perform capable custodial
services for the Fund, the reputation of the institution in its national market,
the political and economic stability of the countries in which the
sub-custodians will be located, and risks of potential nationalization or
expropriation of Fund assets. In addition, the 1940 Act requires that non-U.S.
sub-custodians, among other requirements, have shareholder equity in excess of
$200 million, have no lien on the assets of the Fund and maintain adequate
accessible records. The fees of sub-custodians holding assets outside the U.S.
are generally higher than those charged for assets held in the U.S.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, acts as
counsel to the Fund. Ernst & Young LLP acts as independent auditors to the Fund.
ORGANIZATION OF THE FUND
The Needham Funds, Inc. ("Needham Funds") was incorporated in Maryland on
October 12, 1995 and is registered with the Commission under the 1940 Act as an
open-end management investment company. Needham Funds may from time to time
issue shares of one or more of its portfolios. Only shares of one such
portfolio, the Fund, are being offered by this Prospectus. The business and
affairs of Needham Funds are managed under the direction of its board of
directors. Needham Funds is an affiliate of Needham & Company, Inc.
Needham Funds has an authorized capitalization of 1 billion shares of $0.001 par
value common stock. Each share of Needham Funds entitles the shareholder to
participate equally in dividends and distributions declared and in net assets
upon liquidation or dissolution remaining after satisfaction of outstanding
liabilities, except expenses related to the distribution of the shares will be
borne solely by Needham Funds. Shares
-18-
<PAGE> 25
issued are fully-paid and non-assessable by Needham Funds. Additional portfolios
may be created by the Board of Directors, without further action by the
shareholders, in the future and any one or more of such portfolios may have
multiple classes of shares.
Maryland law does not require annual meetings of shareholders, except under
certain specified circumstances, and it is anticipated that shareholder meetings
will be held only when required by Federal or Maryland law. Shareholders do have
the right under the Articles of Incorporation to call a vote for the removal of
directors. Needham Funds will be required to call a special meeting of
shareholders in accordance with the requirements of the 1940 Act to seek
approval of new management and advisory arrangements, of a material increase in
distribution or account maintenance fees, or of a change in fundamental
policies, objectives or restrictions.
DISTRIBUTION AND SERVICES AGREEMENT
Needham & Company, Inc., an affiliate of the Adviser, acts as a distributor (the
"Distributor") for the Fund. Rule 12b-1 adopted by the Securities and Exchange
Commission under the 1940 Act permits an investment company to directly or
indirectly finance any activity associated with the distribution of its shares
(the "distribution expenses") in accordance with a plan adopted by the Fund's
Board of Directors ("12b-1 Plan"). Pursuant to such rule, the Directors of the
Fund have approved, and the Fund has entered into, a Distribution and Services
Agreement (the "Distribution Agreement") with Needham & Company, Inc. under
which the Fund may pay a distribution services fee to the Distributor or others
at an annual rate of up to 0.25 of 1% of the aggregate average daily net assets
of the Fund.
The Distribution Agreement provides that the Distributor will use the
distribution services fee received from the Fund, in part, for payments (i) to
compensate broker-dealers or other persons for providing distribution
assistance, (ii) to otherwise promote the sale of shares of the Fund such as by
paying for the preparation, printing and distribution of prospectuses for other
than current shareholders and sales literature or other promotional activities,
and (iii) to compensate banks and other qualified financial institutions for
providing administrative, accounting and shareholder liaison services with
respect to the Fund's shareholders. Some payments under the Distribution
Agreement are used to compensate broker-dealers based on assets maintained in
the Fund by their customers. Distribution services fees are accrued daily and
paid monthly, and are charged as expenses of the Fund as accrued. Distribution
services fees received from the Fund will not be used to pay any interest
expenses, carrying charges or other financial costs. In adopting the
Distribution Agreement, the Directors of the Fund determined that there was a
reasonable likelihood that the Distribution Agreement would benefit the Fund and
the shareholders.
-19-
<PAGE> 26
The Fund and/or the Distributor also provides that the Distributor may enter
into related servicing agreements appointing various firms, such as
broker-dealers or banks, to provide all or any portion of the foregoing services
for their customers or clients through the Fund. The Fund and/or the Distributor
may enter into servicing agreements with banks and others, including the Adviser
or its affiliates, to provide such services, except for certain underwriting or
distribution services which banks may be prohibited from providing under the
Glass-Steagall Act for their clients that desire to purchase any of the Fund's
shares. If the Glass- Steagall Act should prevent banks from acting in any
capacity or providing any of the described services, the Directors of the Fund
will consider what action, if any, is appropriate to provide efficient servicing
for Fund shareholders. It is not anticipated that the termination of any bank
relationship would result in a financial loss to shareholders or affect the
Fund's net asset value.
The administrative and accounting services provided by banks and other qualified
financial institutions may include, but are not limited to, establishing and
maintaining shareholder accounts, sub-accounting, processing of purchase and
redemption orders, sending confirmation of transactions, forwarding financial
reports and other communications to shareholders and responding to shareholder
inquiries regarding the Fund.
-20-
<PAGE> 27
NEEDHAM GROWTH FUND
ADVISER
NEEDHAM INVESTMENT MANAGEMENT L.L.C.
445 PARK AVENUE
NEW YORK, NEW YORK 10022
For more information call the Fund's Administrator at 1-800-331-3186.
<PAGE> 28
NEW ACCOUNT APPLICATION
(PLEASE NOTE THAT THIS APPLICATION SHOULD NOT
BE USED FOR IRA AND OTHER RETIREMENT PLANS.
PLEASE CALL (800) 331-3186 FOR THE APPROPRIATE APPLICATION.)
/ / Individual
1. PLEASE PRINT
/ / Joint Tenant
-------------------------------------------------------
Owner / / Custodian
------------------------------------------------------- / / UGMA
Co-owner*, minor, trust
/ / Trust
-------------------------------------------------------
State Address / / Corporation
------------------------------------------------------- / / Other
City State Zip Code
-----------------------------------------------------------------------
Telephone number (Day and Evening)
Citizen(s) of / / USA or / / other, please specify
--------------------------
----------------------------------------------------------------------------
*For joint registration, both must sign the application. The registration
will be as joint tenants with the right of survivorship and not as tenants
in common, unless otherwise stated.
2. Enclosed is my check for $___________ (minimum of $5,000) made payable to
"Needham Growth Fund."
3. Under penalty of perjury, I certify with my signature below that the
number shown in this section of the Application is my correct taxpayer
identification number and that I am not subject to backup withholding
as a result of a failure to report all interest or dividends, or the
Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
If you are subject to backup withholding, check this box. / /
or or
---------------------- ------------------------ -----------------------
(Owner's Social (Tax Identification
Security Number) Number)
4. A. DIVIDEND ELECTION
Unless you elect otherwise, all dividends and capital gains
distributions will be automatically reinvested in additional shares. If
you prefer to be paid in cash, check the appropriate box below. Pay
all:
/ / dividends and capital gains in cash
/ / dividends in cash and reinvest capital gains
B. WIRE REDEMPTIONS PLEASE CROSS OUT THIS SECTION IF
THIS PRIVILEGE IS NOT WANTED.
The Fund or its agents are authorized to honor properly authorized telephone
or other instructions from any person for the redemption of shares. Proceeds
are to be wire transferred to the bank account referenced below ($5,000
minimum per redemption). Shareholders holding share certificates are not
eligible for wire redemption. An administrative fee of $7.50 is charged for
this service.
Name of Depositor ________________________________________________________
(as shown on bank records)
Name of Bank __________________________________________ Account No._________
(a savings and loan or credit union may not be able to receive wire
redemptions)
Street __________________ City ______________ State _____________ Zip ______
<PAGE> 29
C. TELEPHONE REDEMPTION
IF YOU WISH TO SET UP THIS PRIVILEGE, PLEASE CHECK THIS BOX. / / Your
account will provide for telephone redemption privileges in accordance
with the terms discussed in the Prospectus under "Redemptions --
Telephone Redemptions." Then, when you wish to redeem shares, all you
need to do is call (800) 331-3186. Shareholders holding share
certificates may not redeem shares by telephone. The same registration
and address will be used as is listed on this form under
"Registration." As described in the Prospectus, it is understood that
neither PFPC nor the Fund will be liable for any loss, liability, cost
or expense for acting upon telephone exchange requests reasonably
believed to be genuine.
D. AUTOMATIC INVESTING
This program provides for investments to be made automatically by
authorizing PFPC to withdraw funds from your bank account. After the
initial minimum investment of $5,000 is made, subsequent investments
may be made in amounts of at least $100. The program requires
additional information so that PFPC may contact your bank to make sure
the arrangement is properly established.
5. Citizenship: / / U.S. / / Other _______ Please provide
Phone Number (___ ) ___________
Sign below exactly as printed in Section 1 above.
The undersigned certifies that he or she has full authority and legal
capacity to purchase the shares of the Fund and that he or she has received
and agreed to the terms of the Prospectus. I (we) hereby certify that each
of the persons listed below has been duly elected, and is now legally
holding the office set below his name and has the authority to make this
authorization.
INDIVIDUAL AND JOINT REGISTRATION
------------------------------------ -------------------------------------
Signature Signature of Joint Tenant (if any)
CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS
------------------------------------ -------------------------------------
Signature (Co-owner, Secretary of Corporation,
Co-trustee, etc.) Additional
Signature (if required)
6. TO BE COMPLETED BY DEALER OR DISTRIBUTOR
------------------------------------ -------------------------------------
Firm name Representative's name (print)
------------------------------------ -------------------------------------
Branch Street Address City State Zip
------------------------------------ -------------------------------------
Branch Number Representative Number
------------------------------------ -------------------------------------
Representative's Signature Date
FOR ASSISTANCE IN COMPLETING THIS APPLICATION CALL (800) 331-3186.
<PAGE> 30
1933 Act File Number 33-98310
1940 Act File Number 811-9114
STATEMENT OF ADDITIONAL INFORMATION
NEEDHAM GROWTH FUND
445 Park Avenue
New York, New York 10022
A Portfolio of The Needham Funds, Inc.
December ___, 1995
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current Prospectus for Needham Growth Fund ("the Fund"),
dated December ___, 1995 (the "Prospectus"). Much of the information contained
in this Statement of Additional Information expands upon the subjects discussed
in the Prospectus. No investment in shares of the Fund (the "Shares") should be
made without first reading the Prospectus. A copy of the Prospectus for the Fund
may be obtained at no charge by writing the Fund's administrator, PFPC Inc. (the
"Administrator") or by calling the Administrator at 1-800-331-3186.
<PAGE> 31
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . 1
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . 10
INVESTMENT ADVISORY SERVICES . . . . . . . . . . . . . . 12
THE DISTRIBUTOR AND DISTRIBUTION OF THE SHARES . . . . . 14
TRANSFER AGENCY, ADMINISTRATION SERVICES AND FUND
ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . 15
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . 15
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . 17
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . 18
TAX-SHELTERED RETIREMENT PLANS . . . . . . . . . . . . . 19
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxation of the Fund -- In General . . . . . . . 20
Taxation of the Fund's Investments . . . . . . . 21
Taxation of the Shareholders . . . . . . . . . . 22
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . 25
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . 26
Custodian . . . . . . . . . . . . . . . . . . . 26
Independent Auditors . . . . . . . . . . . . . . 26
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 27
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 32
GENERAL INFORMATION
The Needham Funds, Inc. is an open-end management investment company
organized as a corporation under the laws of the State of Maryland on October
12, 1995, which at present is comprised of one portfolio of securities, Needham
Growth Fund (the "Fund"). The Board of Directors has authority to create
additional portfolios, each of which may issue separate classes of shares. The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940 (the "1940 Act") and is offered on a no-load basis.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are discussed in the
Prospectus. This portion of the Statement of Additional Information is designed
to supplement that discussion.
Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities of domestic issuers listed on a nationally
recognized securities exchange or traded on the Nasdaq System. The balance of
the Fund's assets may be held in cash or invested in other securities, including
preferred stock, common stock equivalents, options, futures and various
corporate debt instruments.
The Appendix to this Statement of Additional Information contains an
explanation of the rating categories of Moody's Investors Service and Standard &
Poor's Corporation relating to the fixed-income securities and preferred stocks
in which the Fund may invest, including a description of the risks associated
with each category.
LOWER-RATED DEBT SECURITIES
The Fund may purchase lower-rated debt securities, sometimes referred
to as "junk" or "high yield bonds" (those rated BB or lower by Standard & Poor's
Corporation ("S&P") or Ba or lower by Moody's Investor Service, Inc.
("Moody's")). See Appendix A for a description of these ratings.
The lower ratings of certain securities held by the Fund reflect the
greater possibility that adverse changes in the financial condition of the
issuer, or in general economic conditions, or both may impair the ability of the
issuer to make payments of interest and principal. A number of factors,
including ability of the issuer to make timely payments, could lessen liquidity
and limit the Fund's ability to sell at prices approximating the values the Fund
placed on such securities. In the absence of a liquid trading market for
securities held by the Fund, it may be difficult to establish the fair market
value of these securities. The rating assigned to a security by Moody's or
Standard & Poor's does not reflect an assessment of the volatility of the
security's market value or of the liquidity of an investment in the security.
<PAGE> 33
Changes by recognized rating services in their ratings of any
fixed-income security and in the ability of an issuer to make payments of
interest and principal may also affect the value of these investments.
Issuers of lower-rated securities are often highly leveraged and,
consequently, their ability to service their debt during an economic downturn or
during sustained periods of rising interest rates may be impaired. In addition,
such issuers may be unable to repay debt at maturity by refinancing. The risk of
loss due to default is significantly greater because such securities frequently
are unsecured and subordinated to senior indebtedness. Certain of the
lower-rated securities in which the Fund invests are issued to raise funds in
connection with the acquisition of a company. The highly leveraged capital
structure of such issuers may make them especially vulnerable to adverse changes
in economic conditions.
In order to enforce its rights in the event of a default under such
securities, the Fund may be required to take possession of and manage assets
securing the issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the Fund's net asset value. A
Fund may also be limited in its ability to enforce its rights and may incur
greater costs in enforcing its rights in the event an issuer becomes the subject
of bankruptcy proceedings.
OTHER DEBT SECURITIES
Zero-coupon securities are debt securities which are usually issued at
a deep discount and do not provide for payment of interest prior to maturity.
Even though zero-coupon securities do not pay current interest in cash, the Fund
is nonetheless required to accrue interest income on them and to distribute the
amount of that interest at least annually to shareholders. Thus, the Fund could
be required at times to liquidate other investments in order to satisfy its
distribution requirement.
When other debt obligations are stripped of their unmatured interest
coupons by the holder, the stripped coupons are sometimes sold separately. The
principal or corpus is then sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does not
receive any rights to periodic cash interest payments. Purchasers of stripped
principal obligations acquire, in effect, discount obligations that are
economically identical to zero-coupon bonds.
INVESTING IN CONVERTIBLE SECURITIES.
The Fund may invest in convertible securities: that is, bonds, notes,
debentures, preferred stocks and other securities which are convertible into
common stocks. 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
2
<PAGE> 34
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 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.
INVESTING IN FOREIGN SECURITIES
Certain of the Fund's investments may be of securities in issuers
located in countries having repatriation restrictions. Investment in securities
subject to repatriation restrictions of more than seven days will be considered
illiquid securities and will be subject to the Fund's overall 15% limitation on
investment in illiquid 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, resources, self-sufficiency and balance of
payments position. Further, a Fund investing in foreign securities may encounter
greater difficulties or be unable to pursue legal remedies or obtain judgments
in foreign courts.
Because foreign securities typically will be denominated in foreign
currencies, the value of such securities to the Fund will be affected by changes
in currency exchange rates and in exchange control regulations, and costs will
be incurred in connection with conversions between currencies. A change in the
value of a foreign currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of the Fund's securities
denominated in the currency. Such changes will also affect the Fund's income and
distributions to shareholders. The Fund may be affected either favorably or
unfavorably by fluctuations in the relative rates of exchange between the
3
<PAGE> 35
currencies of different nations, and the Fund therefore may engage in certain
foreign currency hedging strategies. Such hedging strategies may include the
purchase and sale of foreign currencies on a spot or forward basis, or the
purchase and sale of options or futures contracts with respect to foreign
currencies. Such strategies involve certain investment risks and transaction
costs to which the Fund might not otherwise be subject. These risks include
dependence on the Adviser's ability to predict movements in exchange rates, as
well as the difficulty of predicting, and the imperfect movements between,
exchange rates and currency hedges.
Investments may be made from time to time in companies in developing
countries as well as in developed countries. Although there is no universally
accepted definition, a developing country is generally considered by the Adviser
to be a country which is in the initial state of industrialization. Shareholders
should be aware that investing in the equity and fixed income markets of
developing countries involves exposure to unstable governments, economies based
on only a few industries and securities markets which trade a small number of
securities. Securities markets of developing countries tend to be more volatile
than the markets of developed countries; however, such markets have in the past
provided the opportunity for higher rates of return to investors. There are
substantial risks involved in investing in securities issued by developing
country companies which are in addition to the usual risks inherent in foreign
investments. Some countries in which the Fund may invest may have fixed or
managed currencies. Further, certain currencies may not be traded
internationally. Certain of these currencies have experienced a steady
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a U.S. instrument and foreign entities may not be subject
to accounting, auditing, and financial reporting standards and requirements
comparable to those of the U.S. There is generally less government supervision
and regulation for exchanges, financial institutions and issuers in foreign
countries than there is in the U.S. Moreover, certain foreign investments may be
subject to foreign withholding taxes. 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 securities purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of Fund
securities due to settlement problems could also result either in losses to the
Fund due to subsequent declines in value of the Fund security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser.
Foreign securities such as those purchased by the Fund may be subject
to foreign government taxes, higher custodian fees and dividend collection fees
which could reduce
4
<PAGE> 36
the yield on such securities. Trading in futures contracts traded on foreign
commodity exchanges may be subject to the same or similar risks as trading in
foreign securities.
FOREIGN CURRENCY TRANSACTIONS
Under normal circumstances, consideration of the prospects for currency
exchange rates will be incorporated into the long-term investment decisions made
for the Fund with regard to overall diversification strategies. Although the
Fund values its assets daily in terms of U.S. dollars, it does not intend
physically to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund may 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 may use forward contracts, along
with futures contracts and put and call options, to "lock in" the U.S. dollar
price of a security bought or sold and as part of its overall hedging strategy.
The Fund will conduct its foreign currency exchange transactions, either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through purchasing put and call options on, or by entering
into futures contracts or forward contracts to purchase or sell foreign
currencies. See "-- Forward Foreign Currency Exchange Contracts" and "-- Futures
and Options Transactions."
It is impossible to forecast the market value of a particular portfolio
security at the expiration of the contract. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward currency contract prices. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward contracts as a hedge against future
fluctuations in foreign exchange rates. A forward foreign currency exchange
contract ("forward contract") involves an obligation to purchase or sell a fixed
amount of U.S. dollars or foreign currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the parties,
at the price set at the time of the contract. Unlike foreign currency futures
contracts, which are standardized exchange-traded contracts, forward currency
contracts are usually traded in the
5
<PAGE> 37
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers.
The Fund may enter into forward contracts under various circumstances.
For example, the Fund may enter into a forward contract for the purchase or sale
of a security denominated in a foreign currency in order to lock in the price of
the security in U.S. dollars or some other foreign currency which the Fund is
holding. By entering into a forward contract for the purchase or sale of a fixed
amount of U.S. dollars or other currency for the amount of foreign currency
involved in the underlying security transactions, the Fund will be able to
protect itself against any adverse movements in exchange rates between the time
the security is purchased or sold and the date on which payment is made or
received. The Fund may also purchase a forward contract to hedge against an
anticipated rise in a currency versus the U.S. dollar or other currency, pending
investment in a security denominated in that currency.
The Fund may enter into a forward contract to sell or purchase, for a
fixed amount of U.S. dollars or other currency, an amount of foreign currency
other than the currency in which the securities to be hedged or purchased are
denominated approximating the value of some or all of the portfolio securities
to be hedged or purchased. This method of hedging, called cross-hedging, will be
used when it is determined that the foreign currency in which the portfolio
securities are denominated has insufficient liquidity or is trading at a
discount as compared with some other foreign currency with which it tends to
move in tandem. The Fund is permitted to enter into forward contracts with
respect to currencies in which certain of its portfolio securities are
denominated and on which options have been written.
In certain of the above circumstances the Fund may have realized fewer
gains than had the Fund not entered into the forward contracts. Moreover, the
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible, since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.
The Fund's Custodian will place cash or liquid equity or debt
securities into a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward foreign
currency contracts. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. At maturity of a forward
currency contract, the Fund may either sell the portfolio security and make
delivery of the foreign currency, or it may retain the security and terminate
its contractual obligation to deliver the foreign currency prior to maturity by
purchasing an "offsetting" contract with the same currency trade obligating it
to purchase, on the same maturity date, the same amount of the foreign currency.
There can be no assurance, however, that the Fund will be able to effect such a
closing purchase transaction.
6
<PAGE> 38
FUTURES AND OPTIONS TRANSACTIONS
The use of financial futures contracts and options on such futures
contracts may reduce the Fund's exposure to fluctuations in the prices of
portfolio securities and may prevent losses if the prices of such securities
decline. Similarly, such investments may protect the Fund against fluctuation in
the value of securities in which the Fund is about to invest.
The use of financial futures contracts and options on such futures
contracts as hedging instruments involves several risks. First, there can be no
assurance that the prices of the futures contracts or options and the hedged
security will move as anticipated. If prices do not move as anticipated, the
Fund may incur a loss on its investment. Second, investments in options, futures
contracts and options on futures contracts may reduce the gains which would
otherwise be realized from the sale of the underlying securities which are being
hedged. Third, the effective use of options and futures contracts also depends
on the Fund's ability to terminate options and futures positions as desired.
There can be no assurance there will be a sufficiently liquid market for the
Fund to effect closing transactions at any particular time or at an acceptable
price. If the Fund cannot close a futures position, or if limitations imposed by
an exchange or board of trade on which futures contracts are traded prevent the
Fund from closing out a contract, the Fund may incur a loss or may be forced to
make or take delivery of the underlying securities or currencies at a
disadvantageous time.
In addition, the purchase or sale of futures contracts or sale of
options on futures contracts involve the risk that the Fund could lose more than
the original margin deposit required to initiate the transaction. The purchase
of options on futures contracts involves less potential risk than the purchase
or sale of futures contracts because the maximum amount at risk is the premium
paid for the options plus transaction costs. Although the maximum amount at risk
when the Fund purchases an option on a security, currency, index or futures
contract is the premium paid for the option plus transaction costs, there may be
circumstances when the purchase of an option would result in a loss to the Fund,
whereas the purchase of the underlying security, currency or futures contract
would not, such as when there is no movement in the level of the underlying
security, currency or futures contract. The value of an options or futures
position relating to a non-U.S. currency may vary with changes in the value of
either the currency involved or the U.S. dollar or both and has no relationship
to the investment merits of individual non-U.S. securities held in a hedged
investment portfolio.
The Fund may write covered call options on its underlying portfolio
securities, whether equity or debt, on stock or bond indexes and on currencies
in which the Fund invests. Covered call writing may be used for hedging purposes
and for closing long call positions and for achieving incremental income. A call
option will be considered covered if the Fund (a) owns the security or currency
underlying the written option, (b) holds a call option on the underlying
security, currency or index with a similar exercise
7
<PAGE> 39
price or (c) maintains sufficient cash, cash equivalents or liquid high grade
securities sufficient to cover the exercise price of the option.
The Fund may also write covered put options. This technique will be
used when the Fund seeks to purchase a security, or group of securities in the
case of an index option, at a price equal to or less than the prevailing market
price at the time of the put sale. The Fund may also sell covered puts for
achieving incremental income. A put will be considered covered if a Fund (a)
maintains cash, cash equivalents or liquid, high grade debt obligations
sufficient to cover the exercise price of the option, (b) holds a put option on
the underlying security with an exercise price equal to or greater than the
exercise price of the written put or (c) where the exercise price of the
purchased put is lower than that of the written put, the Fund maintains
sufficient cash, cash equivalents or liquid high grade debt obligations equal to
the difference. Puts may also be written in order to close long put positions.
In order to fix the cost of future purchases, the Fund may purchase
calls on equity and debt securities that the Adviser intends to include in the
Fund's portfolio. Calls may also be used to participate in an anticipated price
increase of a security without taking on the full risk associated with actually
purchasing the underlying security. The Fund may purchase puts to hedge against
a decline in the market value of portfolio securities.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
The Fund will only enter into a repurchase agreement where (i) the
underlying securities are of the type which the Fund's investment policies would
allow it to purchase directly, (ii) the market value of the underlying security,
including accrued interest, will be at all times equal to or exceed the value of
the repurchase agreement, and (iii) payment for the underlying securities is
made only upon physical delivery or evidence of book-entry transfer to the
account of the custodian or a bank acting as agent. The Fund will not enter into
a repurchase agreement with a maturity of more than seven business days if, as a
result, more than 15% of the value of the Fund's net assets would then be
invested in such repurchase agreements and other illiquid securities.
The Fund may enter into reverse repurchase agreements in which the Fund
sells securities and agrees to repurchase them at a mutually agreed date and
price. Generally, the Fund will be able to keep the interest income associated
with those portfolio securities while the securities reside with the other party
to the agreement. Such transactions are advantageous if the interest cost to the
fund of the reverse repurchase transaction is less than the cost of otherwise
obtaining the cash raised through the transaction.
Reverse repurchase agreements involve the risk that the market value of
the Securities that the Fund is obligated to repurchase under the agreement may
decline below the repurchase price. In the event the other party under reverse
repurchase agreement becomes bankrupt or insolvent, the Fund's use of the
proceeds of the
8
<PAGE> 40
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities.
SECURITIES LENDING
The Fund may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government securities,
cash, or cash equivalents adjusted daily to have a market value at least equal
to the current market value of the securities loaned; (2) the Fund may at any
time call the loan and regain the securities loaned; (3) the Fund will receive
any interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed such percentage of
the total assets of the Fund as the Directors may establish. In addition, it is
anticipated that the Fund may share with the borrower some of the income
received on the collateral for the loan or that it will be paid a premium for
the loan.
Before the Fund enters into a loan, the Adviser considers the relevant
facts including the creditworthiness of the borrower. The risks in lending
portfolio securities consist of possible delay in recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
INDEXED SECURITIES
The Fund may purchase securities whose prices are indexed to the prices
of other securities, securities indices, currencies, commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities largely depends on the performance of the security, currency,
commodity or other instrument to which they are indexed, as well as general
economic factors in the U.S. or abroad. At the same time, indexed securities are
subject to the credit risks associated with the issuer of the security and their
values may decline substantially if the issuer's creditworthiness deteriorates.
Indexed securities may be more volatile than the underlying instrument itself.
ADDITIONAL RISKS ASSOCIATED WITH HEDGING INSTRUMENTS
The Fund's ability to hedge effectively all or a portion of its
securities depends upon the ability of the Adviser to predict correctly the
degree to which price movements of securities held in the Fund's portfolio
correlate to the price movements of the relevant hedging instruments. In
addition, the effectiveness of any hedging strategy using index options, index
futures, interest rate options or interest rate futures depends upon the
correlation between the components of the underlying index and the securities
held by the Fund.
9
<PAGE> 41
INVESTMENT RESTRICTIONS
As matters of fundamental policy, the Fund may not:
1. Make investments for the purpose of exercising control or
management;
2. Purchase or sell real estate or real estate mortgage loans (provided
that such restriction shall not apply to securities secured by real estate or an
interest therein or issued by companies which invest in real estate or interests
therein), commodities or commodity contracts (except that the Fund may deal in
forward foreign exchange between currencies and the Fund may purchase and sell
interest rate and currency options, futures contracts and related options and
indexed notes and commercial paper), or interests or leases in oil, gas or other
mineral exploration or development programs (provided that such restriction
shall not apply to securities issued by companies which invest in oil, gas or
other mineral exploration or development programs);
3. Except as described in the Prospectus, purchase any securities on
margin, except for use of short-term credit necessary for clearance of purchases
and sales of portfolio securities (the deposit or payment by the Fund of initial
or variation margin in connection with futures contracts or options transactions
is not considered the purchase of a security on margin);
4. Borrow amounts and pledge assets in connection therewith in excess
of 25% of its total assets taken at market value (including the amount
borrowed), and then only from banks as a temporary measure, including to meet
redemptions or to settle securities transactions and provided further that no
additional investments shall be made while borrowings exceed 5% of total assets;
5. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit the Fund from making any
otherwise permissible borrowings, mortgages or pledges, short sales, or entering
into permissible reverse repurchase agreements, and options and futures
transactions;
6. Underwrite any issue of securities (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities);
7. Make loans of its securities exceeding 20% of its total assets; and
8. invest 25% or more of its net assets in one or more issuers
conducting their principal business in the same industry.
The foregoing restrictions are fundamental policies which may only be
changed by vote of a majority of the Fund's outstanding shares. The term
"majority of the Fund's outstanding shares" means the vote of (i) 67% or more of
the Fund's shares present at a meeting, if more than 50% of the outstanding
shares of the Fund are
10
<PAGE> 42
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
shares, whichever is less.
As matters of non-fundamental policy, the Fund may not:
1. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or if
immediately thereafter not more than (i) 3% of the total outstanding voting
stock of any one such company is owned by the Fund, (ii) 5% of the Fund's total
assets, taken at market value, would be invested in any one such company, or
(iii) 10% of the Fund's total assets, taken at market value, would be invested
in such companies' securities. Any purchase by the Fund of securities of other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization, shall be made in the open market where no
commission results other than customary brokerage commissions;
2. Purchase or retain a security of any issuer if any of the officers
or Directors of the Fund or its investment adviser owns beneficially more than
1/2 of 1% of the securities of such issuer, and all such persons taken together
own more than 5% of the securities of such issuer;
3. With respect to 50% of the value of its total assets, invest more
than 25% of the value of its total assets in the securities of one issuer, and
with respect to the other 50% of the value of its total assets, invest more than
5% of the value of its total assets in the securities of one issuer or acquire
more than 10% of the outstanding voting securities of a single issuer.
This restriction shall not apply to U.S. Government securities;
4. With respect to 75% of the value of its total assets, purchase more
than 10% of the outstanding voting securities of any issuer;
5. Invest more than 15% of the value of its total assets, in the
aggregate, in the securities of issuers which, together with any predecessors,
have a record of less than three years continuous operations;
6. Invest in oil, gas or mineral exploration or development programs or
leases;
7. Purchase or sell real estate or make real estate mortgage loans or
invest in real estate limited partnerships not traded on a national securities
exchange, except that the Fund may purchase or sell securities issued by
entities engaged in the real estate industry or instruments backed by real
estate; and
8. Invest in warrants (other than warrants acquired by the Fund as a
part of a unit or attached to securities at the time of purchase) if, as a
result, such investment (valued at the lower of cost or market value) would
exceed 5% of the value of the Fund's net assets, provided that not more than 2%
of the Fund's net assets may be invested in warrants not listed on a national
securities exchange.
11
<PAGE> 43
These restrictions are not fundamental policies and may be changed by
the Board of Directors without a shareholder vote, to the extent permitted by
applicable law including rules of the Commission. Except as otherwise may be
specifically stated herein, the Fund's other investment policies stated in this
Statement of Additional Information and in the Prospectus are not considered
fundamental and may be changed by the Board of Directors at any time without a
shareholder vote if and to the extent any such changes are consistent with the
requirements of the 1940 Act.
If a percentage restriction is adhered to at the time of the
investment, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of net assets will not be considered
a violation of any of the foregoing restrictions. The Fund shall, however,
reduce its holdings of illiquid securities in an orderly fashion in order to
maintain adequate liquidity.
In order to permit the sale of the Fund's shares in certain states, the
Fund may make commitments with respect to the Fund more restrictive than the
investment policies listed above and in the Prospectus. Should the Fund
determine that any commitment made to permit the sale of the Fund's shares in
any state is no longer in the best interests of the Fund, it may revoke the
commitment by terminating sales of the Fund's shares in the state involved.
INVESTMENT ADVISORY SERVICES
The investment adviser of the Fund is Needham Investment Management
L.L.C. (the "Adviser"), a Delaware limited liability company, pursuant to an
Investment Advisory Agreement with the Fund dated as of January 1, 1996 (the
"Advisory Agreement"). The Adviser furnishes an investment program for the Fund
and determines, subject to the overall supervision and review of the Board of
Directors, what investments should be purchased, sold and held.
Under the terms of the Advisory Agreement, and at the direction of the
Board of directors, the Adviser maintains records and furnishes or causes to be
furnished all required reports or other information concerning the Fund to the
extent such records, reports and other information are not maintained by the
Administrator, Shareholder Servicing Agent, Custodian or other agents.
The Adviser provides the Fund with office space, facilities and certain
business equipment and provides the services of consultants, executive and
clerical personnel for administering the affairs of the Fund. The Adviser
compensates all executive and clerical personnel and Directors of the Fund if
such persons are employees or affiliates of the Adviser or its affiliates. The
advisory fee is computed daily and paid monthly.
The expenses borne by the Fund include: the charges and expenses of the
shareholder servicing and dividend disbursing agent; custodian fees and
expenses; legal, auditors' and auditors' fees and expenses; brokerage
commissions for portfolio transactions; taxes, if any; the advisory fee;
extraordinary expenses (as determined by the Directors of the Fund); expenses of
shareholder and Director meetings, and of preparing, printing and mailing proxy
statements, reports and other communications
12
<PAGE> 44
to shareholders; expenses of preparing and setting in type prospectuses and
periodic reports and expenses of mailing them to current shareholders; expenses
of registering and qualifying shares for sale (including compensation of the
Adviser's employees in relation to the time spent on such matters); expenses
relating to the Plan of Distribution (Rule 12b-1 Plan); fees of Directors who
are not "interested persons" of the Adviser; membership dues of the Investment
Company Institute; fidelity bond and errors and omissions insurance premiums;
the cost of maintaining the books and records of the Fund; and any other charges
and fees not specifically enumerated as an obligation of the Distributor (as
hereinafter defined) or Adviser.
The Advisory Agreement provides that the fee payable to the Adviser
will be reduced to the extent expenses of the Fund exceed certain limits as
specified in the Prospectus and those expenses are in excess of certain expense
limitations required by state regulation, and further that the Adviser will make
any other necessary arrangements to limit expenses in accordance with applicable
expense limitations unless the Fund has obtained an appropriate waiver of such
expense limitations or expense items from a particular state authority. Under
the Advisory Agreement, the maximum annual expenses which the Fund may be
required to bear, inclusive of the advisory fee but exclusive of interest,
taxes, brokerage fees, Rule 12b-1 Plan distribution payments and extraordinary
items, may not exceed the lowest expense limitation imposed by any state in
which the Fund is registered or the specified Prospectus expense limit,
whichever is lower. The amount of the advisory fee to be paid to the Adviser
each month will be reduced by the amount, if any, by which the annualized
expenses of the Fund for that month exceed the foregoing limitations. At the end
of the fiscal year, if the aggregate annual expenses of a Fund exceed the amount
permissible under the foregoing limitations, then the Adviser will be required
promptly to return to such Fund monthly advisory fees previously received during
such fiscal year equal to the total amount by which expenses exceed the amount
of the limitations, and, if necessary, make any other arrangements necessary to
maintain the Fund's expenses within such limitations. If aggregate annual
expenses are within the limitations, however, any excess amount previously
withheld will be paid by the Adviser.
The Advisory Agreement has been approved by the Board of Directors of
the Fund, including a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party, and by the initial
shareholder on _____________, 1995. The Advisory Agreement provides that it
shall have an initial two year term and shall continue in effect from year to
year with respect to the Fund as long as it is approved at least annually (i) by
a vote of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act or (ii) by a vote of a majority of the Directors of the
Fund including a vote of a majority of the Directors who are not parties to the
Advisory Agreement or "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated on 60 days' written notice by either party and will
terminate automatically if it is assigned within the meaning of the Act.
Raj Rajaratnam is President of the Adviser as well as President of the
Fund; Howard S. Schachter is Executive Vice President of the Adviser as well as
Executive Vice President of the Fund.
13
<PAGE> 45
THE DISTRIBUTOR AND DISTRIBUTION OF THE SHARES
Shares of the Fund are offered on a continuous basis and are currently
distributed through Needham & Company, Inc. 445 Park Avenue, New York, New York
10022 (the "Distributor"). The Board of Directors of the Fund has approved a
Distribution and Services Agreement (the "Distribution Agreement") appointing
the Distributor as a distributor of shares of the Fund.
The Distribution Agreement provides that the Distributor will bear the
cost and expense of printing and distributing any materials not prepared by the
Fund and other materials used by the Distributor in connection with its offering
shares of the Fund. The Fund will pay all fees and expenses in connection with
registering and qualifying its shares under federal and state securities laws.
To compensate the Distributor for the services which it provides and
for the expenses it bears under the Distribution Agreement, the Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. Fees
paid by the Fund under the Plan will be used for promotional and distribution
expenses incurred only during the applicable year. Pursuant to the Plan, the
Distributor provides the Fund at least quarterly with a written report of the
amounts expended under the Plan and the purpose for which such expenditures were
made. The Board of Directors reviews such reports on a quarterly basis.
The Plan has been approved by the Board of Directors of the Fund,
including a majority of the Directors who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan, on _______, 1995. The Plan continues in effect as to the Fund,
provided such continuance is approved annually by a vote of the Directors in
accordance with the Act. Information with respect to distribution revenues and
expenses will be presented to the Directors each year for their consideration in
connection with their deliberations as to the continuance of the Plan. In the
review of the Plan, the Directors will be asked to take into consideration
expenses incurred in connection with the distribution of shares. The Plan may
not be amended to increase materially the amount to be spent for the services
described therein without approval of the shareholders of the Fund, and all
material amendments of the Plan must also be approved by the Directors in the
manner described above. The Plan may be terminated at any time, without payment
of any penalty, by vote of a majority of the Directors who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plan, or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the Act) on not more than 30 days' written
notice to any other party to the Plan. The Plan will automatically terminate in
the event of its assignment (as defined in the Act). So long as the Plan is in
effect, the election and nomination of Directors who are not "interested
persons" of the Fund shall be committed to the discretion of the Directors who
are not "interested persons." The Directors have determined that, in their
judgment, there is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders. The Fund will preserve copies of the Plan and any
agreement or
14
<PAGE> 46
report made pursuant to Rule 12b-1 under the Act, for a period of not less than
six years from the date of the Plan or such agreement or report, the first two
years in an easily accessible place.
TRANSFER AGENCY, ADMINISTRATION SERVICES
AND FUND ACCOUNTING
PFPC Inc. has been retained by the Fund to perform shareholder
servicing, registrar and transfer agent functions for the Fund pursuant to an
agreement with the Fund. PFPC Inc. has also been retained pursuant to a separate
agreement to perform certain Fund and shareholder accounting and administrative
functions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities and
other investments for the Fund, the selection of brokers and dealers to effect
the transactions and the negotiation of brokerage commissions, if any. In
transactions on stock and commodity exchanges in the U.S., these commissions are
negotiated, whereas on foreign stock and commodity exchanges these commissions
are generally fixed and are generally higher than brokerage commissions in the
U.S. In the case of securities traded on the over-the-counter markets, there are
generally no stated commissions, but the price usually includes an undisclosed
commission or markup. In underwritten offerings, the price includes a disclosed,
fixed commission or discount. The Fund may invest in obligations which are
normally traded on a "principal" rather than agency basis. This may be done
through a dealer (e.g., securities firm or bank) who buys or sells for its own
account rather than as an agent for another client, or directly with the issuer.
A dealer's profit, if any, is the difference, or spread, between the dealer's
purchase and sale price for the obligation.
In purchasing and selling the Fund's portfolio investments, it is the
Adviser's policy to obtain quality execution at the most favorable prices
through responsible broker-dealers. In selecting broker-dealers, the Adviser
will consider various relevant factors, including, but not limited to: the size
and type of the transaction; the nature and character of the markets for the
security or asset to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer's firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
The Adviser may cause the Fund to pay a broker-dealer who furnishes
brokerage and/or research services a commission that is in excess of the
commission another broker-dealer would have received for executing the
transaction if it is determined that such commission is reasonable in relation
to the value of the brokerage and/or research services as defined in Section
28(e) of the Securities Exchange Act of 1934 which have been provided. Such
research services may include, among other things, analyses and reports
concerning issuers, industries, securities, economic factors and trends, and
portfolio strategy. Any such research and other information provided by brokers
to the
15
<PAGE> 47
Adviser is considered to be in addition to and not in lieu of services required
to be performed by the Adviser under its Advisory Agreement with the Fund. The
research services provided by broker-dealers can be useful to the Adviser in
serving its other clients or clients of the Adviser's affiliates.
The Board of Directors periodically reviews the Adviser's performance
of its responsibilities in connection with the placement of portfolio
transactions on behalf of the Fund and reviews the commissions paid by the Fund
over representative periods of time to determine if they are reasonable in
relation to the benefits to the Fund.
Investment decisions for the Fund are made independently from those of
the other investment accounts managed by the Adviser or affiliated companies.
Occasions may arise, however, when the same investment decision is made for more
than one client's account. It is the practice of the Adviser to allocate such
purchases or sales insofar as feasible among its several clients or the clients
of its affiliates in a manner it deems equitable. The principal factors which
the Adviser considers in making such allocations are the relative investment
objectives of the clients, the relative size of the portfolio holdings of the
same or comparable securities and the then availability in the particular
account of funds for investment. Portfolio securities held by one client of the
Adviser may also be held by one or more of its other clients or by clients of
its affiliates. When two or more of its clients or clients of its affiliates are
engaged in the simultaneous sale or purchase of securities, transactions are
allocated as to amount in accordance with formulae deemed to be equitable as to
each client. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Board may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
While it is the policy of the Fund generally not to engage in trading
for short-term gains, the Fund will effect portfolio transactions without regard
to the holding period (subject to compliance with certain tax requirements for
qualification as a regulated investment company) if, in the judgment of the
Adviser, such transactions are advisable in light of a change in circumstances
of a particular company, within a particular industry or country, or in general
market, economic or political conditions. The Fund anticipates that its annual
portfolio turnover rate may in some years exceed 200%. The Fund may pay a
greater amount in brokerage commissions than similar size funds with a lower
turnover rate. In addition, since the Fund may have a high rate of portfolio
turnover, the Fund may realize capital gains or losses. Capital gains will be
distributed annually to the shareholders. Capital losses cannot be distributed
to shareholders but may be used to offset capital gains at the Fund level and
carried forward for up to eight years to the extent there are no gains to offset
for a particular year. See "Taxes" both in the Prospectus and in this Statement
of Additional Information. The portfolio turnover rate of the Fund may vary
significantly from year to year.
16
<PAGE> 48
DIRECTORS AND OFFICERS
The Directors and officers of the Fund, their addresses, ages,
positions with the Fund and principal occupations during the past five years are
set forth below.
<TABLE>
<CAPTION>
Position with Registrant and
Name and Address Age Occupation(s) During Past 5 Years
---------------- --- ---------------------------------
<S> <C> <C>
GEORGE A. NEEDHAM* 52 Chairman and Director of the Fund; Chairman of the
445 Park Avenue Board and Chief Executive Officer of Needham & Company
New York, NY 10022 Inc. since 1985.
RAJ RAJARATNAM* 38 President of the Fund; President of the Adviser;
445 Park Avenue President and Chief Operating Officer of Needham &
New York, NY 10022 Company, Inc. since 1989.
HOWARD S. SCHACHTER 51 Executive Vice President of the Fund; Executive Vice
445 Park Avenue President of the Adviser; Managing Director of Needham
New York, New York 10022 & Company, Inc. since October 1992; Executive Vice
President, Cramer & Co., from October 1991 to October
1992; Principal, Sanford C. Bernstein & Co., from March
1989 to October 1991.
</TABLE>
[Three disinterested directors to be appointed at a meeting to be held December
[20], 1995]
The fees for non-interested directors, $_____ per year and $_____ for
each meeting attended, are paid by the Fund. The Board of Directors has
established an audit committee, comprised of the Fund's non-interested
directors, which will review the audits of the Fund and recommend firms to serve
as independent auditors of the Fund. As of the date of this Statement of
Additional Information, the Fund has one shareholder, Needham & Company, Inc.
- ------------------------
* An "interested person" as defined in the 1940 Act.
17
<PAGE> 49
For the fiscal year ending December 31, 1996, the Fund estimates it
will pay the following in directors' compensation:
COMPENSATION TABLE
(estimates for the fiscal year ending December 31, 1996)
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Total Compensation
Compensation Benefits Accrued as Annual Benefits from Registrant &
Name of Director from Registrant Part of Fund Expenses upon Retirement Fund Complex
---------------- --------------- --------------------- --------------- ------------------
<S> <C> <C> <C> <C>
George A. Needham $0 $0 $0 $0
Raj Rajaratnam 0 0 0 0
______________ _______ 0 0 _______
______________ _______ 0 0 _______
______________ _______ 0 0 _______
</TABLE>
Directors and employees of the Fund and the Adviser are permitted to
engage in personal securities transactions subject to the restrictions and
procedures contained in the Fund's Code of Ethics, which was approved by the
Boards of Directors of the Fund and the Adviser.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund will be determined on each
day when the New York Stock Exchange (the "Exchange") is open for business at
the close of the Exchange and will be computed by determining the aggregate
market value of all assets of the Fund less its liabilities, and then dividing
by the total number of shares outstanding. The determination of net asset value
for a particular day is applicable to all applications for the purchase of
shares as well as all requests for the redemption of shares received before the
close of trading on the Exchange on that day. Shares of the Fund are sold at the
public offering price which is determined once each day the Fund is open for
business and is the net asset value per share.
Portfolio securities positions for which market quotations are readily
available are stated at the last sale price reported by the principal exchange
for each such security as of the exchange's close of business. Securities for
which no sale has taken place during the day and securities which are not listed
on an exchange are valued at the mean of the current closing bid and asked
prices. Foreign market closing prices are translated into U.S. dollar values at
the mean of the bid and asked prices for the particular foreign currency as
quoted on the valuation date. The value of a financial futures contract equals
the unrealized gain or loss on the contract that is determined by marking it to
the current settlement price for a like contract acquired on the day on which
the commodity futures contract is being valued. A settlement price may not be
used if the market makes a limit move with respect to the financial futures
contract. In cases where securities are traded on more than one exchange, the
securities are
18
<PAGE> 50
valued on the exchange designated by or under the authority of the Board of
Directors as the primary market.
Short-term investments denominated in U.S. dollars that will mature in
60 days or less are stated at amortized cost; short-term investments denominated
in foreign currencies are stated at amortized cost as determined in the foreign
currency, translated to U.S. dollars at the current day's exchange rate. All
other securities and assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors, although the actual calculations may be made by persons
acting pursuant to the direction of the Board of Directors. The assets of the
Fund may also be valued on the basis of valuations provided by a pricing service
approved by the Board of Directors.
Generally, trading in foreign securities and futures contracts, as well
as corporate bonds, United States Government securities and money market
instruments, is substantially completed each day at various times prior to the
close of the Exchange. The values of such securities used in determining the net
asset value of the shares of the Fund may be computed as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of such securities and such
exchange rates may occur between such times and the close of the Exchange which
will not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair market value as
determined in good faith by the Directors.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers certain tax-sheltered retirement plans through which
shares may be purchased, including IRAs (and "rollovers" from existing
retirement plans) for individuals and their spouses and SEP-IRAs. Shares of the
Fund may also be purchased by Qualified Retirement Plans such as profit-sharing
and money purchase plans, 401(k) Plans and other Defined Contribution Plans, and
by Defined Benefit Plans. Persons who wish to establish a tax-sheltered
retirement plan should consult their own tax advisers or attorneys regarding
their eligibility to do so and the laws applicable thereto, such as the
fiduciary responsibility provisions and diversification requirements and the
reporting and disclosure obligations under the Employee Retirement Income
Security Act of 1974. The Fund is not responsible for compliance with such laws.
Further information regarding the retirement plans, including applications and
fee schedules, may be obtained upon request to the Fund.
19
<PAGE> 51
TAXES
TAXATION OF THE FUND -- IN GENERAL
The Fund is a separate entity for federal income tax purposes and the
Fund intends to has qualify and elect to be treated for each taxable year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund intends to continue to so qualify and
elect to be treated as a regulated investment company so long as to do so is in
the best interests of its shareholders. To so qualify, the Fund, among other
things, must (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) derive less than 30% of its gross income from the sale or other disposition
of any of the following which was held less than three months (the "30% test"):
(i) stock or securities; (ii) options, futures or forward contracts (other than
on foreign currencies) or (iii) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, future or forward contracts) are not directly related to the Fund's
principal business of investing in stock or securities; and (c)(i) have at least
50% of the market value of the Fund's assets represented by cash, government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not have more than 25% of the value
of its assets invested in the securities of any one issuer (other than
government securities).
In addition, the Fund must satisfy the distribution requirements of the
Code, including the requirement that it distribute at least 90% of its
investment company taxable income annually. By qualifying (and electing to be
treated) as a regulated investment company, the Fund will not be subject to
federal income tax on its investment company taxable income and net capital gain
that it distributes to shareholders. However, if for any taxable year the Fund
does not satisfy the requirements of Subchapter M of the Code, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to shareholders as ordinary income to the extent of that Fund's current
or accumulated earnings or profits.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement. To avoid the tax, during each calendar year the Fund
must distribute (i) at least 98% of its ordinary income realized during such
calendar year, (ii) at least 98% of its capital gain net income for the twelve
month period ending on October 31 (or December 31, if the Fund so elects), and
(iii) any income or gain from the prior year that was neither distributed to
shareholders nor taxed to the Fund for such year. The Fund intends to make
sufficient distributions to avoid this 4% excise tax.
As long as the Fund qualifies as a regulated investment company for
U.S. federal income tax purposes and distributes all of its investment company
taxable income and
20
<PAGE> 52
net capital gain, it will not be subject to any corporate income or excise taxes
in the State of Maryland.
TAXATION OF THE FUND'S INVESTMENTS
Ordinarily, gains and losses realized from portfolio transactions are
treated as capital gain or loss. However, all or a portion of the gain or loss
from the disposition of non-U.S. dollar denominated securities (including debt
instruments, certain financial forward, futures and option contracts, and
certain preferred stock) may be treated as ordinary income or loss under Section
988 of the Code. In addition, all or a portion of the gain realized from the
disposition of market discount bonds is treated as ordinary income under Section
1276 of the Code. Generally, a market discount bond is defined as any bond
bought by the Fund after its original issuance, at a price below its face or
accredited value. Finally, all or a portion of the gain realized from engaging
in "conversion transactions" is treated as ordinary income under Section 1258 of
the Code. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold to
produce capital gains, or transactions described in applicable Treasury
regulations.
Under Section 1256 of the Code, any gain or loss the Fund realizes from
certain futures or forward contracts and options transactions is treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss arises upon exercise or lapse of such contracts and options as well as from
closing transactions. In addition, any such contracts or options remaining
unexercised at the end of the Fund's taxable year are treated as sold for their
then fair market value, resulting in additional gain or loss to the Fund
characterized in the manner described above.
Offsetting positions held by the Fund involving certain financial
forward, futures or options contracts (including certain foreign currency
forward contracts or options) may constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Sections 1092 and 1258 of the
Code, which, in certain circumstances, override or modify the provisions of
Sections 1256 and 988. If the Fund were treated as entering into "straddles" by
reason of its engaging in certain forward contracts or options transactions,
such "straddles" would be characterized as "mixed straddles" if the forward
contracts or options transactions comprising a part of such "straddles" were
governed by Section 1256. The Fund may make one or more elections with respect
to "mixed straddles." Depending on which election is made, if any, the results
to the Fund may differ. If no election is made to the extent the "straddle"
rules apply to positions established by the Fund, losses realized by the Fund
will be deferred to the extent of unrealized gain in the offsetting position.
Moreover, as a result of the "straddle" rules, short-term capital loss on
"straddle" positions may be recharacterized as long-term capital loss, and
long-term capital gains may be treated as short-term capital gains.
In order to qualify as a regulated investment company, the Fund must
derive less than 30% of its annual gross income as gain from the sale or other
disposition of securities or other investments held less than three months and
will limit its activities in options, futures contracts, options on futures,
forward contracts and transactions
21
<PAGE> 53
subject to Section 988 of the Code to the extent necessary to comply with this
requirement.
If the Fund invests in any non-U.S. corporation that either satisfies
(i) the "passive income test" (e.g., receives at least 75% of its annual gross
income from passive sources, such as sources that produce interest, dividend,
rental, royalty or capital gain income) or (ii) the "passive asset test" (e.g.,
at least 50% of its assets consist of assets which produce passive income)
("passive foreign investment company" or "PFIC") and that does not distribute
its income on a regular basis, the Fund could be subject to federal income tax
and additional interest charges on "excess distributions" received from such
company or gain from the sale of stock in such company, even if all income or
gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. If the Fund were to invest in the stock of a passive
foreign investment company and elect to treat such company as a "qualified
electing fund" under the Code (and the company agreed to adhere to certain
information reporting requirements), in lieu of the foregoing requirements, the
Fund would be required to include in income each year a portion of the ordinary
earnings and net capital gains of the qualified electing fund, even if not
distributed to the Fund, and such amounts would be subject to the 90% and
calendar year distribution requirements described above even if the Fund
received no money to distribute. To satisfy those distribution requirements, the
Fund would have to use cash from other sources, including proceeds from the
disposition of its assets. Finally, under certain proposed Treasury regulations,
the Fund may be able to employ a mark-to-market approach in dealing with shares
of PFICs and thereby avoid the application of the excess distribution rules in
the case of PFICs as to which a qualified electing fund election is not
available. However, the gain realized under such approach would impact upon the
amount of distributions required by the Fund so as to avoid the imposition of
the 4% excise tax (even though no cash would be available from such
mark-to-market transaction with which to make any such distribution).
Accordingly, the Fund will limit its investments in such passive foreign
investment companies and will undertake appropriate actions to limit its tax
liability, if any, with respect to such investments.
TAXATION OF THE SHAREHOLDERS
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss are taxable as ordinary income to
shareholders. Distributions of net capital gain (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. Any loss realized upon a taxable
disposition of shares within six months from the date of their purchase is
treated as a long-term capital loss to the extent of any long-term capital gain
distributions received by shareholders during such period.
Distributions of net investment income and capital gain net income are
taxable as described above whether received in cash or reinvested in additional
shares. A shareholder's tax basis in each share received from the Fund is equal
to the fair market value of such share on the payment date.
22
<PAGE> 54
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's tax basis, such distribution nevertheless is taxable to the
shareholder as ordinary income or long-term capital gain as described above,
even though, from an investment standpoint, it may constitute a partial return
of capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a distribution receive a return
of investment upon such distribution which is nevertheless taxable to them.
Upon a redemption of Fund shares, a shareholder ordinarily recognizes a
taxable gain or loss depending upon the difference between the amount realized
and his tax basis in his Fund shares. Such gain or loss is treated as a capital
gain or loss if the shares are held as capital assets and is long-term or
short-term depending upon whether the shareholder's holding period exceeds one
year. A sales load paid in purchasing shares of the Fund cannot be taken into
account for purposes of determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent shares of the
Fund are subsequently acquired without payment of a sales load pursuant to the
30-day reinvestment privilege. Such load results in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, any loss
realized upon a taxable disposition of shares within six months from the date of
their purchase is treated as a long-term capital loss to the extent of long-term
capital gain distributions received from the Fund during such six-month period.
Finally, all or a portion of any loss realized upon a taxable disposition of
Fund shares may be disallowed if other shares of the same Fund are purchased
(including a purchase by automatic reinvestment) within 30 days before or after
such disposition. In such a case, the tax basis of the shares acquired is
adjusted to reflect the disallowed loss.
Income received by the Fund may give rise to withholding and other
taxes imposed by foreign countries. If more than 50% of the value of the Fund's
assets at the close of a taxable year consists of securities of foreign
corporations, the Fund may make an election that will permit shareholders to
take a credit (or, if more advantageous, a deduction) for foreign income taxes
paid by the Fund, subject to limitations contained in the Code. Investors would
then include in gross income both dividends paid to the shareholders and the
foreign taxes paid by the Fund on its foreign investments. The Fund cannot
assure investors that they will be eligible for the foreign tax credit. The Fund
will advise the shareholders annually of their share of any creditable foreign
taxes paid by the Fund.
Taxation of a shareholder who, as to the U.S., is a nonresident alien
individual, foreign trust or estate, foreign corporation or foreign partnership
(a "Foreign Shareholder") depends, in part, on whether the Foreign Shareholder's
income from the Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder.
If the Foreign Shareholder is a non-resident alien and the income from
the Fund is not effectively connected with a U.S. trade or business carried on
by the Foreign
23
<PAGE> 55
Shareholder, Fund distributions other than net capital gains distributions and
distributions not out of earnings and profits are subject to a 30% (or lower
treaty rate) U.S. withholding tax. Furthermore, such Foreign Shareholders are
subject to an increased U.S. tax on their income if the Fund elects (as
described above) to "pass through" amounts of foreign taxes paid by the Fund due
to the fact that such Foreign Shareholders are not able to claim a credit or
deduction with respect to the foreign taxes treated as having been paid by them.
Net capital gain distributions to, and capital gains realized by, such a Foreign
Shareholder upon the sale of shares or receipt of distributions which are in
excess of its tax basis and not made from earnings and profits are not subject
to U.S. tax unless the Foreign Shareholder is an individual and is present in
the U.S. for 183 days or more during the taxable year in which the gain was
realized. Foreign Shareholders may also be subject to 31% backup withholding
unless appropriate certification is provided.
If a shareholder is a resident alien or if dividends or distributions
from the Fund are effectively connected with a U.S. trade or business carried on
by the shareholder, then Fund distributions and any gains realized with respect
to the shares are subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations, as appropriate.
The value of shares held by an individual Foreign Shareholder, even
though he is a nonresident at his death, is includible in his gross estate for
U.S. federal estate tax purposes.
The tax consequences to a Foreign Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
above. Such shareholders may be required to provide appropriate documentation to
establish their entitlement to the benefits of such a treaty. Foreign
Shareholders are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
U.S. trade or business carried on by them, (b) whether they may claim the
benefits of an applicable tax treaty, and (c) any other tax consequences to them
of an investment in the Fund.
The foregoing discussion is a general summary of certain of the current
federal income tax laws affecting the Fund and investors in the shares. The
discussion does not purport to deal with all of the federal income tax
consequences applicable to the Fund, or to all categories of investors, some of
which may be subject to special rules. Investors should consult their own
advisors regarding the tax consequences, including state and local tax
consequences to them of investment in the Fund. Foreign investors should also
consult their tax advisers with respect to the applicability of a 30%
withholding tax (which may be reduced or eliminated under certain income tax
treaties) upon Fund distributions of ordinary income.
24
<PAGE> 56
PERFORMANCE INFORMATION
The Fund may advertise its performance in terms of average annual total
return for 1, 5 and 10 year periods, or for such lesser periods as the Fund has
been in existence. Average annual total return is computed by finding the
average annual compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according to the
following 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 1, 5 or 10 year periods at
the end of the year or period.
The calculation assumes an initial $1,000 payment and assumes all
dividends and distributions by the Fund are reinvested at the price stated in
the Prospectus on the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts.
The Fund may also advertise performance in terms of aggregate total
return. Aggregate total return for a specified period of time is determined by
ascertaining the percentage change in the net asset value of shares of the Fund
initially acquired assuming reinvestment of dividends and distributions and
without giving effect to the length of time of the investment according to the
following formula:
100 [(B-A)/A] = ATR
Where: A = initial investment
B = value at end of specified period
ATR = aggregate total return.
The calculation assumes all distributions by the Fund are reinvested at
the price stated in the Prospectus on the reinvestment dates during the period,
and includes all recurring fees that are charged to all shareholder accounts.
25
<PAGE> 57
ADDITIONAL INFORMATION
CUSTODIAN
PNC Bank, National Association is the custodian of the Fund's portfolio
securities, cash, coins and bullion. The Custodian is authorized, upon the
approval of the Fund, to establish credits or debits in dollars or foreign
currencies with, and to cause portfolio securities of the Fund to be held by,
its overseas branches or subsidiaries, and foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the Securities and Exchange Commission.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the Fund's independent auditors.
26
<PAGE> 58
FINANCIAL STATEMENTS
THE NEEDHAM FUNDS, INC.
The statement of assets and liabilities and the auditors' report to the
Directors and initial shareholder of the Fund dated December ___, 1995 are
hereby incorporated by reference into this Statement of Additional Information.
27
<PAGE> 59
FINANCIAL STATEMENTS
THE NEEDHAM FUNDS, INC.
Statement of Assets and Liabilities
December ___, 1995
<TABLE>
<S> <C>
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Deferred organization expenses (Note 1) . . . . . . . . . . . . . .
--------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $
========
Liabilities:
Organization expenses payable (Note 1) . . . . . . . . . . . . . . . $
Commitments (Notes 1 and 2) . . . . . . . . . . . . . . . . . . . .
--------
$
========
Net Assets:
Common Stock, $0.001 par value, 1,000,000,000 shares authorized;
10,000 shares issued and outstanding . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . .
--------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
========
Net Asset value per share . . . . . . . . . . . . . . . . . . . . .
--------
</TABLE>
NOTE 1
The Needham Funds, Inc. was incorporated in the State of Maryland on
October 12, 1995 and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Needham Funds, Inc.
may offer one or more portfolios of its shares; at present only shares of
Needham Growth Fund (the "Fund") are being offered. Costs incurred and to be
incurred in connection with the organization of The Needham Funds, Inc. and the
Fund will be paid or advanced by the Fund and reimbursed by the Fund.
Organizational and initial registration costs, estimated at $_________, will be
deferred and amortized on a straight line basis over five years from the
commencement of the Fund's operations. These expenses will be advanced by
Needham Investment Management L.L.C. (the "Adviser") and will be reimbursed by
the Fund over a period of not more than 5 years. If any of the initial shares of
the Fund are redeemed by a holder thereof during the amortization period, the
redemption proceeds will be reduced by the unamortized organizational expenses
F-1
<PAGE> 60
in the same ratio as the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of redemption.
NOTE 2
The Fund intends to enter into an Investment Advisory Agreement with
Needham Investment Management L.L.C. (the "Adviser") for day-to-day portfolio
management services to be provided by the Adviser to the Fund. The Investment
Advisory Agreement provides for the Adviser to receive a fee computed weekly and
payable monthly at an annual rate of 1.25%, such fee being based upon the Fund's
average daily net assets. The Investment Advisory Agreement will initially be
effective for a two-year period and thereafter will be approved on an annual
basis.
PFPC Inc. (the "Administrator") will provide administrative,
accounting, transfer agency and shareholder services to the Fund. Under the
Administration and Accounting Services Agreement, the Administrator will receive
a fee payable monthly at an annual rate of ___% of the Fund's average weekly net
assets. Under the Transfer Agency Services Agreement, PFPC Inc. will receive a
fee payable monthly at an annual rate of ___% of the Fund's average weekly net
assets.
F-2
<PAGE> 61
APPENDIX
CORPORATE BOND RATINGS
Moody's Investors Service, Inc. Corporate Bond Ratings:
Aaa -- Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be greater or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Caa -- Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
A-1
<PAGE> 62
Ca -- Bonds rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Standard & Poor's Corporate Bond Ratings:
AAA -- Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B -- Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BB- rating.
CCC -- Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial and economic
conditions to meet
A-2
<PAGE> 63
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
CC -- Bonds rated CC are typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC bond rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- bond rating.
The C rating may be used to cover a situation where a bankruptcy
petition has been filed but debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
D -- Bonds rated D are in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Standard & Poor's modifies ratings AA to CCC by the addition of a plus
or minus to show relative standing within the major rating categories.
Fitch Corporate Bond Ratings
AAA -- Bonds and notes rated AAA are regarded as being of the highest
quality, with the obligor having an extraordinary ability to pay interest and
repay principal which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds and notes rated AA are regarded as high quality
obligations. The obligor's ability to pay interest and repay principal, while
very strong, is somewhat less than for AAA rated securities and more subject to
possible change over the term of the issue.
A -- Bonds and notes rated A are regarded as being of good quality. The
obligor's ability to pay interest and repay principal is strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds and notes with higher ratings.
BBB -- Bonds and notes rated BBB are regarded as being of satisfactory
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds and notes with higher
ratings.
A-3
<PAGE> 64
BB -- Bonds and notes rated BB are considered speculative. The
obligor's ability to pay interest and repay principal may be affected over time
by adverse economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B -- Bonds and notes rated B are considered highly speculative. While
bonds and notes in this class are currently meeting debt service requirements,
the probability of continued timely payment of principal and interest reflects
the obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC -- Bonds and notes rated CCC have certain identifiable
characteristics which, if not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic environment.
CC -- Bonds and notes rated CC are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C -- Bonds and notes rated C are in imminent default in payment of
interest or principal.
DDD, DD and D -- Bonds and notes rated DDD, DD and D are in default on
interest and/or principal payments. Such bonds and notes are extremely
speculative and should be valued on the basis of their ultimately recovery value
in liquidation or reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds and notes, and "D" represents the lowest
potential for recovery.
Note: Fitch ratings (other than the AAA, DDD, DD or D categories) may
be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. These are refinements more closely
reflecting strengths and weaknesses, and are not to be used as trend indicators.
COMMERCIAL PAPER RATINGS
Standard & Poor's Commercial Paper Ratings:
A is the highest commercial paper rating category utilized by S&P,
which uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
A-4
<PAGE> 65
Moody's Investors Service, Inc. Commercial Paper Ratings:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
Leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Fitch-1, Fitch-2, Duff 1 and Duff 2 Commercial Paper Ratings:
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an assurance
of timely payment only slightly less in degree than the strongest issue.
Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment; excellent
liquidity factors supported by strong fundamental protection factors; and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors and good access to capital markets.
A-5
<PAGE> 66
PREFERRED STOCK RATINGS
Moody's Investors Service, Inc. Preferred Stock Ratings:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of convertible preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper
medium-grade preferred stock. While risks are judged to be somewhat greater than
in the aaa and aa classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be medium-grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
ba -- An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on
dividend payments. This rating classification does not purport to indicate the
future status of payment.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
A-6
<PAGE> 67
Standard & Poor's Preferred Stock Ratings:
AAA -- This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effect of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B, CCC -- Preferred stocks rated BB, B and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
A-7
<PAGE> 68
PART C. OTHER INFORMATION
Item 24. Financial Statement and Exhibits
(a) Financial Statements:
Included in Prospectus:
None
Included in the Statement of Additional Information:
Statement of Assets and Liabilities of The Needham Funds,
Inc.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1 -- Articles of Incorporation of Registrant.*
2 -- By-Laws of Registrant.*
3 -- Not applicable.
4 -- Form of Specimen Certificate of Shares of Needham Growth Fund.
5(a) -- Form of Investment Advisory Agreement between
Registrant and Needham Investment Management L.L.C.*
5(b) -- Form of Investment Advisory Agreement Supplement
between Needham Growth Fund and Needham
Investment Management L.L.C.*
6 -- Distribution and Services Agreement between Registrant
and Needham & Company, Inc.
7 -- Not applicable.
8 -- Form of Custodian Services Agreement between
Registrant and PNC Bank, National Association.
9(a) -- Form of Administration and Accounting Services
Agreement between Registrant and PFPC Inc.
</TABLE>
C-1
<PAGE> 69
<TABLE>
<S> <C>
9(b) -- Form of Transfer Agency Services Agreement between
Registrant and PFPC Inc.
10 -- Opinion and consent of Fulbright & Jaworski L.L.P.,
counsel to Registrant.
11 -- Consent of Ernst & Young LLP, Independent Auditors.
12 -- Not applicable.
13 -- Form of Initial Subscription Agreement between the Fund
and Needham Investment Management L.L.C.
14 -- Prototype of Individual Retirement Account Plan (IRA).
15 -- Plan of Distribution Pursuant to Rule 12b-1.
16 -- Not applicable.
17 -- Not applicable.
18 -- Not applicable.
</TABLE>
- ---------------------
* Previously filed.
C-2
<PAGE> 70
Item 25. Persons Controlled by or Under Common Control with Registrant
The Registrant and Needham Investment Management L.L.C. (the
"Adviser"), a Delaware limited liability company, may be deemed to be under the
common control of Needham & Company, Inc. a Delaware corporation.
Item 26. Number of Holders of Securities
Not applicable.
Item 27. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland,
the state in which the Registrant was organized, empowers a corporation, subject
to certain limitations, to indemnify its directors, officers, employees and
agents against expenses (including attorneys' fees, judgments, penalties, fines
and settlements) actually and reasonably incurred by them in connection with any
suit or proceeding to which they are a party so long as they acted in good faith
or without active and deliberate dishonesty, or they received no actual improper
personal benefit in money, property or services, if, with respect to any
criminal proceeding, so long as they had no reasonable cause to believe their
conduct to have been unlawful.
Article Eight of the Fund's Articles of Incorporation and Article X of
the Fund's Bylaws provide for indemnification.
The Registrant will comply with applicable indemnification requirements
as set forth in releases under the Investment Company Act.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C-3
<PAGE> 71
Item 28. Business and Other Connections of Investment Adviser
The investment adviser to the Fund is Needham Investment Management
L.L.C., 445 Park Avenue, New York, New York 10022, a registered investment
adviser under the Investment Advisers Act of 1940. Additional information
regarding the Adviser is included in its Form ADV filed with the Securities and
Exchange Commission (SEC File No. 801-_______).
The following information is provided with respect to each executive
officer of the Adviser:
Raj Rajaratnam, President of the Adviser, and President and Director of
Needham & Company, Inc., 445 Park Avenue, New York, New York, a registered
broker-dealer engaged in a variety of investment banking and institutional
brokerage activities.
Howard S. Schachter, Executive Vice President of the Adviser and Managing
Director of Needham & Company, Inc., 445 Park Avenue, New York, New York, a
registered broker-dealer engaged in a variety of investment banking and
institutional brokerage activities.
Item 29. Principal Underwriters
(a) Not applicable.
(b) Officers and Directors:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
------------------ ------------- -------------
<S> <C> <C>
George A. Needham Chief Executive Officer and Chairman
Chairman of the Board
Raj Rajaratnam President and Chief Operating President
Officer and Director
John C. Michaelson Managing Director and Director None
Edgar F. Heizer, Jr. Director None
Joseph H. Reich Director None
Eugene R. White Director None
Roger C. Cotta Managing Director None
Chad W. Keck Managing Director None
A. Churchill Lewis Managing Director None
Bernard Lirola Managing Director None
Gary S. Rosenbach Managing Director None
</TABLE>
C-4
<PAGE> 72
<TABLE>
<S> <C> <C>
Stuart W. Sanderson Managing Director None
Howard S. Schachter Managing Director Executive Vice President
Krishen K. Sud Managing Director None
Byron Walker Managing Director None
</TABLE>
The principal business address for all such persons is 445 Park Avenue,
New York, New York 10022.
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained
at the offices of PFPC Inc.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes
(a) Not applicable.
(b) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the effective date of this Registration Statement.
(c) The Registrant undertakes to provide each person to whom a copy of the
prospectus is given with a copy of the Fund's Annual Report, which
contains the information required by Item 5A of Form N-1A, upon request
by such person and free of charge.
(d) The Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director or
directors when requested in writing to do so by the holders of at least
10% of the Registrant's outstanding shares and in connection with such
meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
C-5
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, State of New York, on the 5th
day of December, 1995.
THE NEEDHAM FUNDS, INC.
By: /s/ Raj Rajaratnam
-------------------------
Raj Rajaratnam
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ George A. Needham Director and Chairman December 5, 1995
- ----------------------- (Principal Executive Officer)
George A. Needham
/s/ Raj Rajaratnam Director and President December 5, 1995
- ----------------------- (Principal Financial and
Raj Rajaratnam Accounting Officer)
</TABLE>
C-6
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C>
1 -- Articles of Incorporation of Registrant.*
2 -- By-Laws of Registrant.*
3 -- Not applicable.
4 -- Form of Specimen Certificate of Shares of
Needham Growth Fund.
5(a) -- Form of Investment Advisory Agreement between
Registrant and Needham Investment Management L.L.C.*
5(b) -- Form of Investment Advisory Agreement Supplement
between Needham Growth Fund and Needham
Investment Management L.L.C.*
6 -- Distribution and Services Agreement between
Registrant Needham & Company, Inc.
7 -- Not applicable.
8 -- Form of Custodian Services Agreement between Registrant
and PNC Bank, National Association.
9(a) -- Form of Administration and Accounting Services Agreement between
Registrant and PFPC Inc.
9(b) -- Form of Transfer Agency Agreement between Registrant
and PFPC Inc.
10 -- Opinion and consent of Fulbright & Jaworski L.L.P.,
counsel to Registrant.
11 -- Consent of Ernst & Young LLP, Independent Auditors.
12 -- Not applicable.
13 -- Form of Initial Subscription Agreement between the Fund and
Needham Investment Management L.L.C.
14 -- Prototype of Individual Retirement Account Plan (IRA).
15 -- Plan of Distribution Pursuant to Rule 12b-1.
16 -- Not applicable.
17 -- Not applicable.
18 -- Not applicable.
</TABLE>
- ---------------------
* Previously filed.
C-7
<PAGE> 1
EXHIBIT 4
[NUMBER] [LOGO] [SHARES]
NEEDHAM GROWTH FUND
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
CUSIP 63983V 10 D
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT ACCOUNT NO. ALPHA CODE
SPECIMEN
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
OF THE PAR VALUE OF $0.001 EACH OF
NEEDHAM GROWTH FUND
(herein called the "Corporation") transferable on the books of the Corporation
in person or by attorney duly authorized in writing upon surrender of this
certificate properly endorsed, subject to the above mentioned provisions
restricting the right to transfer the shares evidenced hereby. The holder
hereof by accepting this certificate expressly assents to and is bound by the
Article of Incorporation, as amended, and the By-Laws, as amended, of the
Corporation, copies of which are available for inspection at the office of
the Corporation.
This Certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Secretary President
COUNTERSIGNED:
PFPC INC.
(WILMINGTON, DE) TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM-as tenants in common UNIF GIFT MIN ACT-_____________ Custodian ____________ under
TEN ENT-as tenants by the entireties (Cust) (Minor)
JT TEN-as joint tenants with right of survivorship Uniform Gifts or Minors Act__________________________
and not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For Value Received, __________________________ do hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
_______________________________________________________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated: __________________________
In presence of
________________________________________
__________________________________
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE> 1
EXHIBIT 6
THE NEEDHAM FUNDS, INC.
DISTRIBUTION AND SERVICES AGREEMENT
AGREEMENT made as of the 1st day of January, 1996, between Needham
Growth Fund (the "Fund"), a portfolio of The Needham Funds, Inc., a Maryland
corporation, and Needham & Company, Inc., a Delaware corporation (the
"Distributor"), such Distributor to act on behalf of the Fund in the manner
contemplated by this Agreement.
W I T N E S S E T H :
WHEREAS, The Needham Funds, Inc. is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a series open-end
management investment company, the Fund is one series of The Needham Funds, Inc.
and it is in the interest of the Fund to offer its shares for sale continuously;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Fund's shares of
Common Stock, $.001 par value ("Common Stock").
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
the Distributor its non-exclusive agent to sell and to arrange for the sale of
the shares of Common Stock, including both issued and treasury shares, on the
terms and for the period
<PAGE> 2
set forth in this Agreement, and the Distributor hereby accepts such
appointment and agrees to act hereunder.
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell, as agent for the Fund, from time
to time during the term of this Agreement, Common Stock (whether unissued or
treasury shares, in the Fund's sole discretion) upon the terms described in the
Fund's prospectus. As used in this Agreement, the term "Prospectus" shall mean
the prospectus and statement of additional information included as part of the
Fund's registration statement on Form N-1A, as such Prospectus and Statement of
Additional Information may be amended or supplemented from time to time, and the
term "Registration Statement" shall mean the Registration Statement on Form N-1A
most recently filed by the Fund with the Securities and Exchange Commission and
effective under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act, as such Registration Statement is amended by any amendments thereto at
the time in effect.
(b) The Distributor will hold itself available to receive orders,
satisfactory to the Distributor, for the purchase of Common Stock and will
accept such orders on behalf of the Fund as of the time of payment for those
orders and will transmit such orders as are so accepted to the Fund's transfer
and dividend disbursing agent as promptly as practicable. Purchase orders shall
be deemed effective at the time and in the manner set forth in the Prospectus.
-2-
<PAGE> 3
(c) The Distributor in its discretion may sell shares to such
registered and qualified retail dealers as it may select. In making agreements
with such dealers, the Distributor shall act only as principal and not as agent
for the Fund.
(d) The offering price of shares of Common Stock shall be the net
asset value (as defined in the articles of incorporation of the Fund and
determined as set forth in the Prospectus) per share of Common Stock next
determined following receipt of payment. The Fund shall furnish the Distributor,
with all possible promptness, an advice of each computation of net asset value.
(e) The Distributor shall not be obligated to sell any certain number
of shares of Common Stock and nothing herein contained shall prevent the
Distributor from entering into like distribution arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
Section 3. Compensation of the Distributor.
(a) As promptly as possible after the first business day of each
month this Distribution Agreement is in effect, the Fund shall pay to the
Distributor for its distribution and services expenditures and activities
hereunder made or performed during the previous month at the annual rate of
.25% of the average daily net assets of the Fund which are related to the
Distributor's activities hereunder; provided that payment shall be made in any
month only to the extent that such payment, together with any other payments
made by the Fund pursuant to its Plan (as defined herein) to the Distributor or
others, shall not exceed an annual rate of .25% of the average daily net
assets of the Fund for that month. The payments by the Fund made pursuant to
this Agreement to the Distributor are authorized pursuant to the plan adopted
by the Fund under Rule 12b-1 under the 1940 Act (the "Plan").
-3-
<PAGE> 4
(b) For purposes of this Agreement, "distribution expenditures and
service activities" of the Distributor shall mean all expenditures and
activities of the Distributor primarily intended to result in the sale of Common
Stock, including, but not limited to, the following: (i) compensation to
personnel of the Distributor and to securities dealers and other financial
institutions and organizations to obtain various distribution related services
for the Fund; (ii) expenditures for support services such as telephone
facilities and expenses and shareholder services as the Fund may reasonably
request; (iii) formulation and implementation of marketing and promotional
activities, including, but not limited to, direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising; (iv)
preparation, printing and distribution of sales literature; (v) preparation,
printing and distribution of the Prospectus and reports for recipients other
than existing shareholders of the Fund; (vi) provision to the Fund of such
information, analyses and opinions, with respect to marketing and promotional
activities as the Fund may, from time to time, reasonably request; and (vii)
payment of capital or other expenses associated with the foregoing including
equipment, rent, salaries, bonuses or other overhead costs.
(c) The Distributor shall prepare and deliver such reports to the
Treasurer of the Fund as may be required by the Plan.
Section 4. Duties of the Fund.
(a) The Fund agrees to sell its shares of Common Stock so long as it
has shares available for sale and to deliver certificates for, or cause the
Fund's transfer and dividend disbursing agent to issue non-negotiable share
deposit receipts evidencing, such shares registered in such names and amounts as
the Distributor has requested in writing, as
-4-
<PAGE> 5
promptly as practicable after receipt by the Fund of the net asset value
thereof and written request of the Distributor therefor.
(b) The Fund shall keep the Distributor fully informed with regard to
its affairs and shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of shares of the Fund,
including one certified copy, upon request by the Distributor, of all financial
statements prepared for the Fund by independent accountants and such reasonable
number of copies of its most current Prospectus as the Distributor may request,
and the Fund shall cooperate fully in the efforts of the Distributor to sell and
arrange for the sale of the Fund's shares and in the performance of the
Distributor under this Agreement.
(c) The Fund shall take, from time to time, all necessary action to
fix the number of authorized shares and such steps, including payment of the
related filing fee, as may be necessary to register the same under the 1933 Act
and the 1940 Act to the end that there will be available for sale such number of
shares as the Distributor may be expected to sell. The Fund agrees to file from
time to time such amendments, reports and other documents as may be necessary to
ensure that there will be no untrue statement of a material fact in a
Registration Statement or Prospectus, or that there will be no omission to state
a material fact in the Registration Statement or Prospectus which omission would
make the statements therein misleading.
(d) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its shares of Common Stock for sale
under the
-5-
<PAGE> 6
securities laws of such states as the Distributor and the Fund may approve;
provided however, that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Common Stock in
any state from the terms set forth in its Registration Statement and
Prospectus, to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims arising out
of the offering of its Common Stock. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.
Section 5. Expenses.
(a) The Fund shall bear all costs and expenses of the continuous
offering of its shares in connection with: (i) fees and disbursements of its
counsel and independent accountants, (ii) the preparation, filing and printing
of the Registration Statement and/or Prospectus required under the federal
securities laws, (iii) the preparation and mailing of annual and interim
reports, prospectuses and proxy materials to existing shareholders and (iv) the
qualifications of shares of Common Stock for sale under the securities laws of
such states or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 4(d) hereof and the cost and expenses payable to
each such state for continuing qualification therein.
(b) The Distributor shall bear (i) the costs and expenses of
preparing, printing and distributing any materials not prepared by the Fund and
other materials used by the Distributor in connection with its offering of
shares of Common Stock for sale to the
-6-
<PAGE> 7
public, (ii) the expenses of registration or qualification of the Distributor
as a dealer or broker under federal or state laws and the expenses of
continuing such registration or qualification and (iii) the expenses of any
sales commissions for sales of the Fund's shares (except such expenses as are
specifically undertaken herein by the Fund).
Section 6. Indemnification. The Fund agrees to indemnify, defend and
hold the Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact contained in the Registration
Statement or Prospectus or arising out of or based upon any alleged omission to
state a material fact required to be stated in either thereof or necessary to
make the statements in either thereof not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement shall not inure to the benefit
of such officer, director or controlling person unless a court of competent
jurisdiction shall determine, in a final decision on the merits, that the person
to be indemnified was not liable, by reason of willful misfeasance, bad faith,
or gross negligence, in the performance of its duties, or by reason of its
reckless disregard of its
-7-
<PAGE> 8
obligations under this Agreement ("disabling conduct"), or, in the absence of
such a decision, a reasonable determination, based upon a review of the facts,
that the indemnified person was not liable by reason of disabling conduct, by
(a) a vote of a majority of a quorum of directors who are neither "interested
persons" of the Fund as defined in Section 2(a)(19) of the 1940 Act nor parties
to the proceeding, or (b) an independent legal counsel in a written opinion.
The Fund's agreement to indemnify the Distributor, its officers and directors
and any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such notification to
be given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees to promptly notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any shares of its Common Stock.
The Distributor agrees to indemnify, defend and hold the Fund, its
officers and directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its directors or
officers or any such controlling person may incur under the 1933 Act or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Fund, its directors or officers or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact
-8-
<PAGE> 9
contained in information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus or shall arise out of or be
based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. The
Distributor's agreement to indemnify the Fund, its directors and officers, and
any such controlling person as aforesaid is expressly conditioned upon the
Distributor's being promptly notified of any action brought against the Fund,
its officers or directors or any such controlling person, such notification
being given to the Distributor at its principal business office.
Section 7. Compliance with Securities Laws. The Fund represents that
it is registered as an open-end management investment company under the 1940
Act, and agrees that it will comply with all of the provisions of the 1940 Act
and of the rules and regulations thereunder. The Fund and the Distributor each
agree to comply with all of the applicable terms and provisions of the 1940 Act,
the 1933 Act and, subject to the provisions of Section 4(d) hereof, all
applicable state securities laws. The Distributor agrees to comply with all of
the applicable terms and provisions of the Securities Exchange Act of 1934.
Section 8. Duration and Termination of this Agreement. This
Agreement shall become effective as of the date first above written. This
Agreement shall continue in effect for a period of more than two years from the
date hereof only so long as such continuance is specifically approved at least
annually by (i) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund, cast in person or by
proxy, and (ii) a majority of those directors who are not parties to this
Agreement or
-9-
<PAGE> 10
interested persons of any such party and who have no direct or indirect
financial interest in this Agreement or in any agreement related thereto, cast
in person at a meeting called for the purpose of voting upon such approval.
This Agreement may be terminated at any time without the payment of
any penalty, by the Board of Directors of the Fund, by a majority of the
Directors of the Fund who are not interested persons of the Fund and who have
no direct or indirect financial interest in this Agreement or by vote of a
majority of the outstanding voting securities of the Fund, or by the
Distributor, on not more than sixty (60) days' nor less than thirty (30) days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment (as defined in the 1940 Act).
Section 9. Amendments of this Agreement. This Agreement may be
amended by the parties only if such amendment is specifically approved by (i)
the Board of Directors of the Fund or by the vote of a majority of outstanding
voting securities of the Fund, and (ii) a majority of those directors of the
Fund who are not parties to this Agreement or interested persons of any such
party and who have no direct or indirect financial interest in this Agreement,
cast in person at a meeting called for the purpose of voting on such approval.
Section 10. Notices. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to the Distributor at 445 Park Avenue, New York, N.Y.
10022, Attention: George A. Needham or (2) to the Fund at 445 Park Avenue, New
York, N.Y. 10022,
-10-
<PAGE> 11
Attention: President, or such other address or addresses as the parties hereto
may designate in writing.
Section 11. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto and supersedes all prior agreements,
understandings and arrangements with respect to the subject matter hereof.
Section 12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
THE NEEDHAM FUNDS, INC.
By:
---------------------------------
Raj Rajaratnam
President
NEEDHAM & COMPANY, INC.
By:
---------------------------------
George A. Needham
Chairman of the Board and
Chief Executive Officer
-11-
<PAGE> 1
EXHIBIT 8
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of , 1995 by and between PNC
BANK, NATIONAL ASSOCIATION, a national banking association ("PNC Bank"), and
THE NEEDHAM FUNDS, INC., a Maryland corporation (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PNC Bank to provide custodian
services to its investment portfolios listed on Exhibit A as attached hereto
and made a part hereof, as such Exhibit A may be amended from time to time
(each, a "Portfolio"), and PNC Bank wishes to furnish custodian services,
either directly or through an affiliate or affiliates, as more fully described
herein.
NOW, THEREFORE, In consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Fund and any
other person duly authorized by the Fund's Board of Directors to give Oral
Instructions and Written Instructions (as
<PAGE> 2
defined herein) on behalf of the Fund and listed on the Authorized Persons
Appendix attached hereto and made a part hereof or any amendment thereto as may
be received by PNC Bank. An Authorized Person's scope of authority may be
limited by the Fund by setting forth such limitation in the Authorized Persons
Appendix.
(d) "Book-Entry System" means Federal Reserve Treasury
book-entry system for United States and federal agency securities, its
successor or successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "Oral Instructions" mean oral instructions received by
PNC Bank from an Authorized Person or from a person reasonably believed by PNC
Bank to be an Authorized Person.
(g) "PNC Bank" means PNC Bank, National Association or a
subsidiary or affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange Commission.
(i) "Securities Laws" mean the 1933 Act, the 1934 Act, the
1940 Act and the CEA.
(j) "Shares" mean the shares of beneficial interest of any
series or class of the Fund.
(k) "Property" means:
(i) any and all securities and other investment
items which the Fund may from time to time
deposit, or cause to be deposited, with PNC
Bank or which PNC Bank may from time to time
hold for the Fund;
2
<PAGE> 3
(ii) all income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by PNC
Bank from time to time, from or on behalf of
the Fund.
(k) "Written Instructions" mean written instructions signed
by two Authorized Persons and received by PNC Bank. The instructions may be
delivered by hand, mail, tested telegram, cable, telex or facsimile sending
device.
2. APPOINTMENT. The Fund hereby appoints PNC Bank to provide
custodian services to the Fund and PNC Bank accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where
applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions
of the Fund's Board of Directors, approving the
appointment of PNC Bank or its affiliates to provide
services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the distribution plan with respect to each
class of Shares;
(e) a copy of each Portfolio's administration agreement
if PNC Bank is not providing the Portfolio with such
services;
(f) copies of any shareholder servicing agreements
made in respect of the Fund or a Portfolio; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
3
<PAGE> 4
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PNC Bank
hereunder. Except as specifically set forth herein, PNC Bank assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank
shall act only upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PNC Bank to be an Authorized Person)
pursuant to this Agreement. PNC Bank may assume that any Oral Instructions or
Written Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Board of Directors or of the Fund's
shareholders, unless and until PFPC receives Oral Instructions or Written
Instructions to the contrary.
(c) The Fund agrees to forward to PNC Bank Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given
by PNC Bank or its affiliates) so that PNC Bank receives the Written
Instructions by the close of business on the same day that such Oral
Instructions are received. The fact
4
<PAGE> 5
that such confirming Written Instructions are not received by PNC Bank shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral Instructions or Written
Instructions reasonably appear to have been received from an Authorized Person,
PNC Bank shall incur no liability to the Fund in acting upon such Oral
Instructions or Written Instructions provided that PNC Bank's actions comply
with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PNC Bank is in doubt as to any
action it should or should not take, PNC Bank may request directions or advice,
including Oral Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to
any question of law pertaining to any action it should or should not take, PNC
Bank may request advice at its own cost from such counsel of its own choosing
(who may be counsel for the Fund, the Fund's investment adviser or PNC Bank, at
the option of PNC Bank).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PNC Bank
receives from the Fund subject to subsection (a), and the advice it receives
from counsel subject to subsection (b), PNC Bank shall be entitled to rely upon
and follow the advice of counsel. In the event PNC Bank so relies on the
advice of counsel, PNC Bank remains liable for any action or omission on the
part of PNC Bank which constitutes willful misfeasance, bad faith,
5
<PAGE> 6
gross negligence or reckless disregard by PNC Bank of any duties, obligations
or responsibilities set forth in this Agreement.
(d) Protection of PNC Bank. Subject to subsection (c)
PNC Bank shall be protected in any action it takes or does not take in reliance
upon directions, advice or Oral Instructions or Written Instructions it
receives from the Fund or from counsel pursuant to subsections (a) and (b)
respectively and which PNC Bank believes, in good faith, to be consistent with
those directions, advice or Oral Instructions or Written Instructions. Nothing
in this section shall be construed so as to impose an obligation upon PNC Bank
(i) to seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
Instructions or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC Bank's properly
taking or not taking such action. Nothing in this subsection shall excuse PNC
Bank when an action or omission on the part of PNC Bank constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PNC Bank of
any duties, obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund and
any Portfolio, which are in the possession or under the control of
PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940
Act and other applicable securities laws, rules and regulations.
The Fund and Authorized Persons shall have access to
6
<PAGE> 7
such books and records at all times during PNC Bank's normal business hours.
Upon the request of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an authorized representative of the
Fund, at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all
records of the Fund and information relating to the Fund and its prior, present
and potential shareholders, unless the release of such records or information is
otherwise consented to, in writing, by the Fund. The Fund agrees that such
consent shall not be unreasonably withheld and may not be withheld where there
is a reasonable likelihood that PNC Bank will be exposed to civil or criminal
contempt proceedings or when required by law to divulge such information or
records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PNC Bank shall have no liability
7
<PAGE> 8
with respect to the loss of data or service interruptions caused by equipment
failure provided such loss or interruption is not covered by PNC Bank's own
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties or obligations under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by
PNC Bank during the term of this Agreement, the Fund, on behalf of each of the
Portfolios, will pay to PNC Bank a fee or fees as may be agreed to in writing
from time to time by the Fund and PNC Bank.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees
to indemnify and hold harmless PNC Bank and its affiliates from all taxes,
charges, expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any state and
foreign securities and blue sky laws, and amendments thereto, and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action or omission to act which PNC Bank takes
(i) at the request or on the direction of or in reliance on the advice of the
Fund or (ii) upon Oral Instructions or Written Instructions. Neither PNC Bank,
nor any of its affiliates, shall be indemnified against any liability (or any
expenses incident to such liability) arising out of PNC Bank's or its
affiliates' own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties under this Agreement.
8
<PAGE> 9
13. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on
behalf of the Fund or any Portfolio except as specifically set forth herein or
as may be specifically agreed to by PNC Bank in writing. PNC Bank shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing services provided for under this Agreement. PNC Bank
shall be liable for any damages arising out of PNC Bank's failure to perform
its duties under this agreement to the extent such damages arise out of PNC
Bank's willful misfeasance, bad faith, gross negligence or reckless disregard
of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) PNC Bank shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instructions or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PNC Bank reasonably believes to be
genuine; or (B) subject to section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's control, including acts
of civil or military authority, national emergencies, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
9
<PAGE> 10
(c) Notwithstanding anything in this Agreement to the contrary,
neither PNC Bank nor its affiliates shall be liable to the Fund or to any
Portfolio for any consequential, special or indirect losses or damages which
the Fund may incur or suffer by or as a consequence of PNC Bank's or its
affiliates' performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank or its affiliates.
14. DESCRIPTION OF SERVICES.
(a) Delivery of the Property. The Fund will deliver or arrange
for delivery to PNC Bank, all the Property owned by the Portfolios, including
cash received as a result of the distribution of Shares, during the period that
is set forth in this Agreement. PNC Bank will not be responsible for such
property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon
Written Instructions, shall open and maintain separate accounts in the Fund's
name using all cash received from or for the account of the Fund, subject to
the terms of this Agreement. In addition, upon Written Instructions, PNC Bank
shall open separate custodial accounts for each separate series or Portfolio of
the Fund (collectively, the "Accounts") and shall hold in the Accounts all cash
received from or for the Accounts of the Fund specifically designated to each
separate series or Portfolio.
PNC Bank shall make cash payments from or for the Accounts of a
Portfolio only for:
(i) purchases of securities in the name of
10
<PAGE> 11
a Portfolio or PNC Bank or PNC Bank's nominee as
provided in sub-section (j) and for which PNC Bank
has received a copy of the broker's or dealer's
confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund
delivered to PNC Bank;
(iii) payment of, subject to Written Instructions,
interest, taxes, administration, accounting,
distribution, advisory, management fees or similar
expenses which are to be borne by a Portfolio;
(iv) payment to, subject to receipt of Written
Instructions, the Fund's transfer agent, as agent for
the shareholders, an amount equal to the amount of
dividends and distributions stated in the Written
Instructions to be distributed in cash by the transfer
agent to shareholders, or, in lieu of paying the
Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually
agreed upon from time to time by and among the Fund,
PNC Bank and the Fund's transfer agent.
(v) payments, upon receipt Written Instructions, in
connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Fund and
held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends received with
respect to securities sold short;
(vii) payments made to a sub-custodian pursuant to
provisions in sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other
proper Fund purposes.
PNC Bank is hereby authorized to endorse and collect all
11
<PAGE> 12
checks, drafts or other orders for the payment of money received as custodian
for the Accounts.
(c) Receipt of Securities; Subcustodians.
(i) PNC Bank shall hold all securities received by
it for the Accounts in a separate account that
physically segregates such securities from
those of any other persons, firms or
corporations, except for securities held in a
Book-Entry System. All such securities shall
be held or disposed of only upon Written
Instructions of the Fund pursuant to the terms
of this Agreement. PNC Bank shall have no
power or authority to assign, hypothecate,
pledge or otherwise dispose of any such
securities or investment, except upon the
express terms of this Agreement and upon
Written Instructions, accompanied by a
certified resolution of the Fund's Board of
Directors, authorizing the transaction. In no
case may any member of the Fund's Board of
Directors, or any officer, employee or agent
of the Fund withdraw any securities.
(ii) At PNC Bank's own expense and for its own
convenience, PNC Bank may enter into
sub-custodian agreements with other United
States banks or trust companies to perform
duties described in this sub-section (c).
Such bank or trust company shall have an
aggregate capital, surplus and undivided
profits, according to its last published
report, of at least one million dollars
($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank or
trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such
bank or trust company must be qualified to
act as custodian and agree to comply with the
relevant provisions of the 1940 Act and other
applicable rules and regulations. Any such
arrangement will not be entered into without
prior written notice to the Fund.
(iii) PNC Bank shall remain responsible for the
performance of all of its duties as described
in this Agreement and shall hold the Fund and
12
<PAGE> 13
each Portfolio harmless from its own acts or
omissions, under the standards of care
provided for herein, or the acts and
omissions of any sub-custodian chosen by PNC
Bank under the terms of this sub-section (c).
(d) Transactions Requiring Instructions. Upon receipt of
Oral Instructions or Written Instructions and not otherwise, PNC Bank, directly
or through the use of the Book-Entry System, shall:
(i) deliver any securities held for a Portfolio
against the receipt of payment for the sale
of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral Instructions or
Written Instructions, proxies, consents,
authorizations, and any other
instruments whereby the authority of a
Portfolio as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof,
or its agent, when such securities are called,
redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or
other consideration is to be delivered to PNC
Bank;
(iv) deliver any securities held for a Portfolio
against receipt of other securities or cash
issued or paid in connection with the
liquidation, reorganization, refinancing,
tender offer, merger, consolidation or
recapitalization of any corporation, or the
exercise of any conversion privilege;
(v) deliver any securities held for a Portfolio
to any protective committee, reorganization
committee or other person in connection with
the reorganization, refinancing, merger,
consolidation, recapitalization or sale of
assets of any corporation, and receive and
hold under the terms of this Agreement such
certificates of deposit, interim receipts or
other instruments or documents as may be
issued to it to evidence such delivery;
13
<PAGE> 14
(vi) make such transfer or exchanges of the assets
of the Portfolios and take such other steps as
shall be stated in said Oral Instructions or
Written Instructions to be for the purpose of
effectuating a duly authorized plan of
liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(vii) release securities belonging to a Portfolio to
any bank or trust company for the purpose of a
pledge or hypothecation to secure any loan
incurred by the Fund on behalf of that
Portfolio; provided, however, that securities
shall be released only upon payment to PNC
Bank of the monies borrowed, except that in
cases where additional collateral is required
to secure a borrowing already made subject to
proper prior authorization, further securities
may be released for that purpose; and repay
such loan upon redelivery to it of the
securities pledged or hypothecated therefor
and upon surrender of the note or notes
evidencing the loan;
(viii) release and deliver securities owned by a
Portfolio in connection with any repurchase
agreement entered into on behalf of the Fund,
but only on receipt of payment therefor; and
pay out moneys of the Fund in connection with
such repurchase agreements, but only upon the
delivery of the securities;
(ix) release and deliver or exchange securities
owned by the Fund in connection with any
conversion of such securities, pursuant to
their terms, into other securities;
(x) release and deliver securities owned by the
fund for the purpose of redeeming in kind
shares of the Fund upon delivery thereof to
PNC Bank; and
(xi) release and deliver or exchange securities
owned by the Fund for other corporate
purposes.
PNC Bank must also receive a certified
resolution describing the nature of the
14
<PAGE> 15
corporate purpose and the name and address of
the person(s) to whom delivery shall be made
when such action is pursuant to sub-paragraph
d.
(e) Use of Book-Entry System. The Fund shall deliver to
PNC Bank certified resolutions of the Fund's Board of Directors approving,
authorizing and instructing PNC Bank on a continuous basis, to deposit in the
Book-Entry System all securities belonging to the Portfolios eligible for
deposit therein and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities by the
Portfolios, and deliveries and returns of securities loaned, subject to
repurchase agreements or used as collateral in connection with borrowings. PNC
Bank shall continue to perform such duties until it receives Written
Instructions or Oral Instructions authorizing contrary actions.
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio
which are maintained in the Book-Entry
System, the records of PNC Bank shall
identify by Book-Entry or otherwise those
securities belonging to each Portfolio. PNC
Bank shall furnish to the Fund a detailed
statement of the Property held for each
Portfolio under this Agreement at least
monthly and from time to time and upon
written request.
(ii) Securities and any cash of each Portfolio
deposited in the Book-Entry System will
at all times be segregated from any
assets and cash controlled by PNC Bank in
other than a fiduciary or custodian capacity
but may be commingled with other assets held
in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money
only upon receipt of securities and will
deliver securities only upon the receipt of
money.
15
<PAGE> 16
(iii) All books and records maintained by
PNC Bank which relate to the Fund's
participation in the Book-Entry System will
at all times during PNC Bank's regular
business hours be open to the inspection of
Authorized Persons, and PNC Bank will furnish
to the Fund all information in respect of the
services rendered as it may require.
PNC Bank will also provide the Fund with such reports on its
own system of internal control as the Fund may request from time to time.
(f) Registration of Securities. All Securities held for a
Portfolio which are issued or issuable only in bearer form, except such
securities held in the Book-Entry System, shall be held by PNC Bank in bearer
form; all other securities held for a Portfolio may be registered in the name
of the Fund on behalf of that Portfolio, PNC Bank, the Book-Entry System, a
sub-custodian, or any duly appointed nominees of the Fund, PNC Bank,
Book-Entry System or sub-custodian. The Fund reserves the right to instruct
PNC Bank as to the method of registration and safekeeping of the securities of
the Fund. The Fund agrees to furnish to PNC Bank appropriate instruments to
enable PNC Bank to hold or deliver in proper form for transfer, or to register
in the name of its nominee or in the name of the Book-Entry System, any
securities which it may hold for the Accounts and which may from time to time
be registered in the name of the Fund on behalf of a Portfolio.
(g) Voting and Other Action. Neither PNC Bank nor its
nominee shall vote any of the securities held pursuant to this Agreement by or
for the account of a Portfolio, except in
16
<PAGE> 17
accordance with Written Instructions. PNC Bank, directly or through the use of
the Book-Entry System, shall execute in blank and promptly deliver all notices,
proxies and proxy soliciting materials to the registered holder of such
securities. If the registered holder is not the Fund on behalf of a Portfolio,
then Written or Oral Instructions must designate the person who owns such
securities.
(h) Transactions Not Requiring Instructions. In the absence
of contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account
of each Portfolio, all income,
dividends, distributions, coupons,
option premiums, other payments and
similar items, included or to be
included in the Property, and, in
addition, promptly advise each
Portfolio of such receipt and credit
such income, as collected, to each
Portfolio's custodian account;
(B) endorse and deposit for collection,
in the name of the Fund, checks,
drafts, or other orders for the
payment of money;
(C) receive and hold for the account of
each Portfolio all securities
received as a distribution on the
Portfolio's securities as a result of
a stock dividend, share split-up or
reorganization, recapitalization,
readjustment or other rearrangement
or distribution of rights or similar
securities issued with respect to any
securities belonging to a Portfolio
and held by PNC Bank hereunder;
(D) present for payment and collect the
amount payable upon all securities
17
<PAGE> 18
which may mature or be called,
redeemed, or retired, or otherwise
become payable on the date such
securities become payable; and
(E) take any action which may be
necessary and proper in connection
with the collection and receipt of
such income and other payments and
the endorsement for collection of
checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) deliver or cause to be delivered
Property against payment or other
consideration or written receipt
therefor in the following cases:
(1) for examination by a broker
or dealer selling for the
account of a Portfolio in
accordance with street
delivery custom;
(2) for the exchange of interim
receipts or temporary
securities for definitive
securities; and
(3) for transfer of securities
into the name of the Fund on
behalf of a Portfolio or PNC
Bank or nominee of either, or
for exchange of securities
for a different number of
bonds, certificates, or other
evidence, representing the
same aggregate face amount or
number of units bearing the
same interest rate, maturity
date and call provisions, if
any; provided that, in any
such case, the new securities
are to be delivered to PNC
Bank.
(B) Unless and until PNC Bank receives
Oral Instructions or Written
Instructions to the contrary, PNC
Bank shall:
(1) pay all income items held by
18
<PAGE> 19
it which call for payment upon
presentation and hold the cash
received by it upon such payment
for the account of each
Portfolio;
(2) collect interest and cash
dividends received, with notice
to the Fund, to the account of
each Portfolio;
(3) hold for the account of each
Portfolio all stock dividends,
rights and similar securities
issued with respect to any
securities held by PNC Bank; and
(4) execute as agent on behalf of
the Fund all necessary ownership
certificates required by the
Internal Revenue Code or the
Income Tax Regulations of the
United States Treasury
Department or under the laws of
any state now or hereafter in
effect, inserting the Fund's
name, on behalf of a Portfolio,
on such certificate as the owner
of the securities covered
thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or
Oral Instructions establish and maintain a
segregated account on its records for and on
behalf of each Portfolio. Such account may
be used to transfer cash and securities,
including securities in the Book-Entry
System:
(A) for the purposes of compliance by
the Fund with the procedures
required by a securities or option
exchange, providing such procedures
comply with the 1940 Act and any
releases of the SEC relating to the
maintenance of segregated accounts
by registered investment companies;
and
(B) Upon receipt of Written Instructions,
for other proper corporate purposes.
19
<PAGE> 20
(ii) PNC Bank shall arrange for the establishment
of IRA custodian accounts for such
shareholders holding Shares through IRA
accounts, in accordance with the Fund's
prospectus, the Internal Revenue Code of
1986, as amended (including regulations
promulgated thereunder), and with such other
procedures as are mutually agreed upon from
time to time by and among the Fund, PNC Bank
and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle
purchased securities upon receipt of Oral Instructions
or Written Instructions from the Fund or its
investment advisers that specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number
if applicable;
(ii) the number of shares or the principal
amount purchased and accrued interest,
if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such
purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the
broker through whom the purchase was made.
PNC Bank shall, upon receipt of
securities purchased by or for a Portfolio,
pay out of the monies held for the
account of the Portfolio the total amount
payable to the person from whom or the
broker through whom the purchase was
made, provided that the same conforms to
the total amount payable as set forth in
such Oral Instructions or Written
Instructions.
(k) Sales of Securities. PNC Bank shall settle sold
securities upon receipt of Oral Instructions or Written
20
<PAGE> 21
Instructions from the Fund that specify:
(i) the name of the issuer and the title of
the security, including CUSIP number if
applicable;
(ii) the number of shares or principal amount
sold, and accrued interest, if
any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund
upon such sale;
(vi) the name of the broker through whom or
the person to whom the sale was made;
(vii) the location to which the security must
be delivered and delivery deadline, if
any; and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided that the total amount payable
is the same as was set forth in the Oral Instructions or Written Instructions.
Subject to the foregoing, PNC Bank may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) Reports; Proxy Materials.
(i) PNC Bank shall furnish to the Fund the
following reports:
(A) such periodic and special reports as
the Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the
account of each Portfolio, listing
each Portfolio securities
belonging to
21
<PAGE> 22
each Portfolio with the adjusted
average cost of each issue and the
market value at the end of
such month and stating the
cash account of each Portfolio
including disbursements;
(C) the reports required to be furnished
to the Fund pursuant to Rule 17f-4;
and
(D) such other information as may be
agreed upon from time to time
between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund
any proxy statement, proxy material, notice
of a call or conversion or similar
communication received by it as custodian of
the Property. PNC Bank shall be under no
other obligation to inform the Fund as to
such actions or events.
(m) Collections. All collections of monies or other
property in respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by PNC Bank) shall be at the sole risk of the
Fund. If payment is not received by PNC Bank within a reasonable time after
proper demands have been made, PNC Bank shall notify the Fund in writing,
including copies of all demand letters, any written responses, memoranda of all
oral responses and shall await instructions from the Fund. PNC Bank shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. PNC Bank shall also notify the Fund as soon
as reasonably practicable whenever income due on securities is not collected in
due course and shall provide the Fund with periodic status reports of such
income collected after a reasonable time.
15. DURATION AND TERMINATION. This Agreement shall continue
22
<PAGE> 23
until terminated by the Fund or by PNC Bank on sixty (60) days' prior written
notice to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property), PNC Bank shall not deliver cash, securities or other property of the
Portfolios to the Fund. It may deliver them to a bank or trust company of PNC
Bank's choice, having an aggregate capital, surplus and undivided profits, as
shown by its last published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under terms similar to
those of this Agreement. PNC Bank shall not be required to make any such
delivery or payment until full payment shall have been made to PNC Bank of all
of its fees, compensation, costs and expenses. PNC Bank shall have a security
interest in and shall have a right of setoff against the Property as security
for the payment of such fees, compensation, costs and expenses.
16. NOTICES. All notices and other communications, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to PNC
Bank at Airport Business Center, International Court 2, 200 Stevens Drive,
Lester, Pennsylvania 19113, marked for the attention of the Custodian Services
Department (or its successor) (b) if to the Fund, at 445 Park Avenue, New York,
NY 10022, Attn: Raj Rajaratnam; or (c) if to neither of the foregoing, at such
other address as shall have been
23
<PAGE> 24
given by like notice to the sender of any such notice or other communication by
the other party. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
five days after it was mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it was delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be changed
or waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and
delegate its duties hereunder to any wholly-owned direct or indirect subsidiary
of PNC Bank or PNC Bank Corp., provided that (i) PNC Bank gives the Fund thirty
(30) days' prior written notice; (ii) the delegate (or assignee) agrees with
PNC Bank and the Fund to comply with all relevant provisions of the 1940 Act;
and (iii) PNC Bank and such delegate (or assignee) promptly provide such
information as the Fund may request, and respond to such questions as the Fund
may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further
acts and execute such further documents as are necessary to
24
<PAGE> 25
effectuate the purposes hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a
contract made in Pennsylvania and governed by Pennsylvania law, without regard
to its principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any
party to this Agreement shall constitute the valid and binding execution hereof
by such party.
25
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
---------------------------
Title:
------------------------
THE NEEDHAM FUNDS, INC.
By:
---------------------------
Title: Executive Vice President
------------------------
26
<PAGE> 27
EXHIBIT A
THIS EXHIBIT A, dated as of ________________, 1995, is the Exhibit A to
that certain Custodian Services Agreement dated as of _______________, 1995
between PNC Bank and The Needham Funds, Inc.
PORTFOLIOS
Needham Growth Fund
27
<PAGE> 28
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
28
<PAGE> 1
EXHIBIT 9(a)
ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of _____________, 1995 by and between THE
NEEDHAM FUNDS, INC., a Maryland corporation (the "Fund"), and PFPC INC., a
Delaware corporation ("PFPC"), which is an indirect, wholly-owned subsidiary of
PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to provide administration and
accounting services to its investment portfolios listed on Exhibit A as
attached hereto and made a part hereof, as such Exhibit A may be amended from
time to time (each, a "Portfolio"), and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Fund and any
other person duly authorized by the Fund's Board of Directors to give Oral
Instructions and Written Instructions (as such terms are defined herein) on
behalf of the Fund and listed on
<PAGE> 2
the Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by
PFPC from an Authorized Person or from a person reasonably believed by PFPC to
be an Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" means the 1933 Act, the 1934 Act, the
1940 Act and the CEA.
(h) "Shares" mean the shares of beneficial interest of
any series or class of the Fund.
(i) "Written Instructions" mean written instructions
signed by an Authorized Person and received by PFPC. The instructions may be
delivered by hand, mail, tested telegram, cable, telex or facsimile sending
device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide
administration and accounting services to the each of the Portfolios, in
accordance with the terms set forth in this Agreement. PFPC accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where
applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions
of the Fund's Board of Directors, approving
2
<PAGE> 3
the appointment of PFPC or its affiliates to provide
services to each Portfolio and approving this
Agreement;
(b) a copy of Fund's most recent effective registration
statement;
(c) a copy of each Portfolio's advisory agreement or
agreements;
(d) a copy of the distribution plan with respect to each
class of Shares representing an interest in a
Portfolio;
(e) a copy of any additional administration agreement
with respect to a Portfolio;
(f) a copy of any shareholder servicing agreement made in
respect of the Fund or a Portfolio; and
(f) copies (certified or authenticated, where applicable)
of any and all amendments or supplements to the
foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS.
PFPC undertakes to comply with all applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC
hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC
shall act only upon Oral Instructions and/or Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PFPC to be an Authorized Person) pursuant
to this Agreement. PFPC may assume
3
<PAGE> 4
that any Oral Instructions or Written Instruction received hereunder is not in
any way inconsistent with the provisions of organizational documents or this
Agreement or of any vote, resolution or proceeding of the Fund's Board of
Directors or of the Fund's shareholders, unless and until PFPC receives Oral
Instructions or Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written
Instructions confirming Oral Instructions (except where such Oral Instructions
are given by PFPC or its affiliates) so that PFPC receives the Written
Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to the Fund in
acting upon such Oral Instructions or Written Instructions provided that PFPC's
actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions or advice,
including Oral Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to
any question of law pertaining to any action it should or should
4
<PAGE> 5
not take, PFPC may request advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's investment adviser or
PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written Instructions PFPC
receives from the Fund pursuant to subsection (a) and the advice PFPC receives
from counsel pursuant to subsection (b), PFPC may rely upon and follow the
advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC
remains liable for any action or omission on the part of PFPC which constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by PFPC
of any duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. Subject to subsection (c), PFPC
shall be protected in any action it takes or does not take in reliance upon
directions, advice or Oral Instructions or Written Instructions it receives
from the Fund or from counsel pursuant to subsections (a) and (b) respectively
and which PFPC believes, in good faith, to be consistent with those directions,
advice and Oral Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to seek such
directions, advice or Oral Instructions or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
5
<PAGE> 6
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities set
forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund and the
Portfolios which are in the possession or under the control of PFPC shall be
the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons shall have access to
such books and records at all times during PFPC's normal business hours. Upon
the request of the Fund, copies of any such books and records shall be provided
by PFPC to the Fund or to an Authorized Person, at the Fund's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to each
Portfolio's books of account;
(ii) records of each Portfolio's securities
transactions;
(iii) all other books and records as PFPC is
required to maintain pursuant to Rule 31a-1
of the 1940 Act in connection with the
services provided hereunder.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records
of the Fund and information relating to the Fund and its prior, present and
potential shareholders, unless the release of such records or information is
otherwise consented to, in writing, by the Fund. The Fund agrees that such
consent shall not be unreasonably withheld and may not be withheld where there
is a
6
<PAGE> 7
reasonable likelihood that PFPC will be exposed to civil or criminal contempt
proceedings or when required by law to divulge such information or records to
duly constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the
Fund's independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit-related schedules with respect to each
Portfolio. PFPC shall take all reasonable action in the performance of its
duties under this Agreement to assure that the necessary information is made
available to such accountants for the expression of their opinion, as required
by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect to
the loss of data or service interruptions caused by equipment failure, provided
such loss or interruption is not caused by PFPC's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties or obligations
under this Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC
during the term of this Agreement, the Fund, on behalf of each Portfolio, will
pay to PFPC a fee or fees as may be agreed to in writing by the Fund and PFPC.
7
<PAGE> 8
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio,
agrees to indemnify and hold harmless PFPC and its affiliates from all taxes,
charges, expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any state or
foreign securities and blue sky laws, and amendments thereto), and expenses,
including (without limitation) attorneys' fees and disbursements arising
directly or indirectly from any action or omission to act which PFPC takes (i)
at the request or on the direction of or in reliance on the advice of the Fund
or (ii) upon Oral Instructions or Written Instructions. Neither PFPC, nor any
of its affiliates', shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its affiliates' own
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties and obligations under this Agreement. Any amounts payable by the Fund
hereunder shall be satisfied only against the relevant Portfolio's assets and
not against the assets of any other investment portfolio of the Fund.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on
behalf of the Fund or any Portfolio except as specifically set forth herein or
as may be specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise care and diligence in the performance of its duties hereunder, to act
in good faith and to use its best efforts, within reasonable limits, in
performing services provided for under this Agreement. PFPC shall be liable
8
<PAGE> 9
for any damages arising out of PFPC's failure to perform its duties under this
Agreement to the extent such damages arise out of PFPC's willful misfeasance,
bad faith, gross negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or
of any other provision of this Agreement, (i) PFPC shall not be liable for
losses beyond its control, provided that PFPC has acted in accordance with the
standard of care set forth above; and (ii) PFPC shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral Instructions or
Written Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC nor its affiliates shall be liable to the Fund or to any
Portfolio for any consequential, special or indirect losses or damages which
the Fund or any Portfolio may incur or suffer by or as a consequence of PFPC's
or any affiliates' performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC or its
affiliates.
9
<PAGE> 10
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following accounting services with respect to
each Portfolio on a continuous basis:
(i) Journalize investment, capital share and
income and expense activities;
(ii) Verify investment buy/sell trade tickets when
received from the investment adviser for a
Portfolio (the "Adviser") and transmit trades
to the Fund's custodian (the "Custodian") for
proper settlement;
(iii) Maintain individual ledgers for investment
securities;
(iv) Maintain historical tax lots for each
security;
(v) Reconcile cash and investment balances of the
Fund with the Custodian, and provide the
Adviser with the beginning cash balance
available for investment purposes;
(vi) Update the cash availability throughout the
day as required by the Adviser;
(vii) Post to and prepare the Statement of Assets
and Liabilities and the Statement of
Operations;
(viii) Calculate various contractual expenses
(e.g., advisory and custody fees);
(ix) Monitor the expense accruals and notify
an officer of the Fund of any proposed
adjustments;
(x) Control all disbursements and authorize such
disbursements upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Obtain security market quotes from
independent pricing services approved by the
Adviser, or if such quotes are unavailable,
then obtain such prices from the Adviser, and
in either case calculate the market value of
10
<PAGE> 11
each Portfolio's Investments;
(xiv) Transmit or mail a copy of the daily
portfolio valuation to the Adviser;
(xv) Compute net asset value;
(xvi) As appropriate, compute yields, total return,
expense ratios, portfolio turnover rate, and,
if required, portfolio average
dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement, which
will include the following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following administration services with
respect to each Portfolio:
(i) Prepare quarterly broker security
transactions summaries;
(ii) Prepare monthly security transaction
listings;
(iii) Supply various normal and customary Portfolio
and Fund statistical data as requested on an
ongoing basis;
(iv) Prepare for execution and file the Fund's
Federal and state tax returns;
(v) Prepare and file the Fund's Semi-Annual
Reports with the SEC on Form N-SAR;
(vi) Prepare and file with the SEC the Fund's
annual, semi-annual, and quarterly
shareholder reports;
(vii) Assist in the preparation of registration
statements and other filings relating to the
registration of Shares;
11
<PAGE> 12
(viii) Monitor each Portfolio's status as a
regulated investment company under
Sub-chapter M of the Internal Revenue Code of
1986, as amended;
(ix) Coordinate contractual relationships and
communications between the Fund and its
contractual service providers;
(x) Monitor the Fund's compliance with the
amounts and conditions of each state
qualification; and
(xi) Assist in obtaining and monitoring the Fund's
fidelity bond and assist in obtaining
directors' and officers' liability insurance.
16. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the
other party.
17. NOTICES. All notices and other communications, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. If notice is sent by first-class mail, it shall be deemed to have
been given three days after it was mailed. If notice is sent by messenger, it
shall be deemed to have been given on the day it was delivered. Notices shall
be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware
19809; (b) if to the Fund, at 445 Park Avenue, New York, NY 10022, Attn: Raj
Rajaratnam; or (c) if to neither of the foregoing, at such other address as
shall have been provided by like notice to the sender of any such notice or
other communication by the other party.
18. AMENDMENTS. This Agreement, or any term thereof, may be
12
<PAGE> 13
changed or waived only by written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC may assign its rights and
delegate its duties hereunder to any wholly-owned direct or indirect subsidiary
of PNC Bank or PNC Bank Corp., provided that (i) PFPC gives the Fund thirty
(30) days' prior written notice; (ii) the delegate (or assignee) agrees with
PFPC and the Fund to comply with all relevant provisions of the 1940 Act; and
(iii) PFPC and such delegate (or assignee) promptly provide such information as
the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
22. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
13
<PAGE> 14
(b) Captions. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be
a contract made in Delaware and governed by Delaware law, without regard to its
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any
party to this Agreement shall constitute the valid and binding execution hereof
by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
PFPC INC.
By:
---------------------------
Title:
------------------------
THE NEEDHAM FUNDS, INC.
By:
---------------------------
14
<PAGE> 15
Title:Executive Vice President
------------------------
15
<PAGE> 16
EXHIBIT A
THIS EXHIBIT A, dated as of ____________________, 1995, is the Exhibit
A to that certain Administration and Accounting Services Agreement dated as of
_________________, 1995 between PFPC Inc. and The Needham Funds, Inc.
PORTFOLIOS
Needham Growth Fund
16
<PAGE> 17
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
17
<PAGE> 1
EXHIBIT 9(b)
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of , 1995 by and between THE NEEDHAM
FUNDS, INC., a Maryland corporation (the "Fund") and PFPC INC., a Delaware
corporation ("PFPC"), which is an indirect, wholly-owned subsidiary of PNC Bank
Corp.
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to its
investment portfolios listed on Exhibit A as attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each, a
"Portfolio"), and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Fund and any
other person duly authorized by the Fund's Board of Directors to give Oral
Instructions and Written Instructions (as
<PAGE> 2
such terms are defined herein) on behalf of the Fund and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC
from an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940
Act and the CEA.
(h) "Shares" mean the shares of beneficial interest of any
series or class of the Fund.
(i) "Written Instructions" mean written instructions signed by
an Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to serve as
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent to the Fund in accordance with the terms set forth in this Agreement. PFPC
accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where
2
<PAGE> 3
applicable, will provide PFPC with the following:
(a) Certified or authenticated copies of the
resolutions of the Fund's Board of Directors,
approving the appointment of PFPC or its
affiliates to provide services to the Fund and
approving this Agreement;
(b) A copy of the Fund's most recent effective
registration statement;
(c) A copy of the advisory agreement with respect to
each investment Portfolio of the Fund (each, a
Portfolio);
(d) A copy of the distribution plan with respect to
each class of Shares of the Fund;
(e) A copy of each Portfolio's administration
agreements if PFPC is not providing the Portfolio
with such services;
(f) Copies of any shareholder servicing agreements
made in respect of the Fund or a Portfolio; and
(g) Copies (certified or authenticated where
applicable) of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to
comply with all applicable requirements of the Securities Laws and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to the duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the Fund
or any of its investment portfolios.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act
only upon Oral Instructions and Written Instructions.
3
<PAGE> 4
(b) PFPC shall be entitled to rely upon any Oral Instructions
and Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instructions or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Fund's Board of Directors or of the Fund's shareholders,
unless and until PFPC receives Oral Instructions or Written Instructions to the
contrary.
(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions Instructions so that PFPC receives the Written
Instructions by the close of business on the same day that such Oral
Instructions Instructions are received. The fact that such confirming Written
Instructions are not received by PFPC shall in no way invalidate the
transactions or enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions reasonably appear
to have been received from an Authorized Person, PFPC shall incur no liability
to the Fund in acting upon such Oral Instructions or Written Instructions
provided that PFPC's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from
4
<PAGE> 5
the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to
any question of law pertaining to any action it should or should not take, PFPC
may request advice at its own cost from such counsel of its own choosing (who
may be counsel for the Fund, the Fund's investment adviser or PFPC, at the
option of PFPC).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written Instructions PFPC
receives from the Fund pursuant to subsection (a), and the advice it receives
from counsel pursuant to subsection (b), PFPC may rely upon and follow the
advice of counsel. In the event PFPC so relies on the advice of counsel, PFPC
remains liable for any action or omission on the part of PFPC which constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by PFPC
of any duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. Subject to subsection (c) PFPC
shall be protected in any action it takes or does not take in reliance upon
directions, advice or Oral Instructions or Written Instructions it receives from
the Fund or from counsel pursuant to subsections (a) and (b) respectively and
which PFPC believes, in good faith, to be consistent with those directions,
advice or Oral Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to seek such
directions, advice or Oral Instructions or Written Instructions, or (ii) to act
in accordance with such directions,
5
<PAGE> 6
advice or Oral Instructions or Written Instructions unless, under the terms of
other provisions of this Agreement, the same is a condition of PFPC's properly
taking or not taking such action. Nothing in this subsection shall excuse PFPC
when an action or omission on the part of PFPC constitutes willful misfeasance,
bad faith, gross negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the
Fund, which are in the possession or under the control of PFPC, shall be the
property of the Fund. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules and
regulations. The Fund and Authorized Persons shall have access to such books and
records at all times during PFPC's normal business hours. Upon the request of
the Fund, copies of any such books and records shall be provided by PFPC to the
Fund or to an Authorized Person, at the Fund's expense.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all
records of the Fund and information relating to the Fund and its prior, present
and potential shareholders, unless the release of such records or information is
otherwise consented to, in writing, by the Fund. The Fund agrees that such
consent shall not be unreasonably withheld and may not be withheld where there
is a reasonable likelihood PFPC will be exposed to civil or criminal contempt
proceedings or when required by law to divulge such information or records to
duly constituted authorities.
6
<PAGE> 7
9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the
Fund's independent public accountants and shall take all reasonable actions in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect to the
loss of data or service interruptions caused by equipment failure, provided such
loss or interruption is not caused by PFPC's own willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC
during the term of this Agreement, the Fund will pay to PFPC a fee or fees as
may be agreed to from time to time in writing by the Fund and PFPC.
12. INDEMNIFICATION. The Fund agrees to indemnify and hold harmless
PFPC and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and
7
<PAGE> 8
expenses, including (without limitation) attorneys' fees and disbursements,
arising directly or indirectly from any action or omission to act which PFPC
takes (i) at the request or on the direction of or in reliance on the advice of
the Fund or (ii) upon Oral Instructions or Written Instructions. Neither PFPC,
nor any of its affiliates, shall be indemnified against any liability (or any
expenses incident to such liability) arising out of PFPC's or its affiliates'
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under this Agreement.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of
the Fund except as specifically set forth herein or as may be specifically
agreed to by PFPC in writing. PFPC shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in good faith and
to use its best efforts, within reasonable limits, in performing services
provided for under this Agreement. PFPC shall be liable for any damages arising
out of PFPC's failure to perform its duties under this Agreement to the extent
such damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties. (b) Without limiting the
generality of the foregoing or of any other provision of this Agreement, (i)
PFPC, shall not be liable for losses beyond its control, provided that PFPC has
acted in accordance with the standard of care set forth above; and (ii) PFPC
shall not be under any duty or obligation to inquire into and
8
<PAGE> 9
shall not be liable for (A) the validity or invalidity or authority or lack
thereof of any Oral Instructions or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which PFPC reasonably believes to be genuine; or (B) subject to Section 10,
delays or errors or loss of data occurring by reason of circumstances beyond
PFPC's control, including acts of civil or military authority, national
emergencies, labor difficulties, fire, flood, catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund may incur or
suffer by or as a consequence of PFPC's or its affiliates' performance of the
services provided hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
14. DESCRIPTION OF SERVICES.
(a) Services Provided on an Ongoing Basis, If Applicable.
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with
shareholders to complete or correct
information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in con-
junction with proxy solicitations;
9
<PAGE> 10
(vi) Countersign share certificates;
(vii) Prepare and mail to shareholders confirmation
of activity;
(viii) Provide toll-free lines for direct shareholder
use, plus customer liaison staff for on-line
inquiry response;
(ix) Mail duplicate confirmations to broker-dealers
of their clients' activity, whether executed
through the broker-dealer or directly with
PFPC;
(x) Provide periodic shareholder lists and
statistics to the clients;
(xi) Provide detailed data for underwriter/broker
confirmations;
(xii) Prepare periodic mailing of year-end tax and
statement information;
(xiii) Notify on a timely basis the investment
adviser, accounting agent, and custodian of
fund activity; and
(xiv) Perform other participating broker-dealer
shareholder services as may be agreed upon
from time to time.
(b) Services Provided by PFPC Under Oral Instructions or
Written Instructions.
(i) Accept and post daily Fund purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers
and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates (when requested
in writing by the shareholder).
(c) Purchase of Shares. PFPC shall issue and credit an
account of an investor, in the manner described in the Fund's prospectus, once
it receives:
10
<PAGE> 11
(i) A purchase order;
(ii) Proper information to establish a shareholder
account; and
(iii) Confirmation of receipt or crediting of funds
for such order to the Fund's custodian.
(d) Redemption of Shares. PFPC shall redeem Shares only
if that function is properly authorized by the certificate of incorporation or
resolution of the Fund's Board of Directors. Shares shall be redeemed and
payment therefor shall be made in accordance with the Fund's prospectus and the
1940 Act, when the recordholder tenders Shares in proper form and directs the
method of redemption. If Shares are received in proper form, Shares shall be
redeemed before the funds are provided to PFPC from the Fund's custodian (the
"Custodian"). If the recordholder has not directed that redemption proceeds be
wired, when the Custodian provides PFPC with funds, the redemption check shall
be sent to and made payable to the recordholder, unless:
(i) the Surrendered certificate is drawn to the
order of an assignee or holder and transfer
authorization is signed by the recordholder;
or
(ii) Transfer authorizations are signed by the
recordholder when Shares are held in book-
entry form.
When a broker-dealer notifies PFPC of a redemption desired by a customer and the
Custodian provides PFPC with funds, PFPC shall prepare and send the redemption
check to the broker-dealer and made payable to the broker-dealer on behalf of
its customer.
(e) Dividends and Distributions. Upon receipt of a
resolution of the Fund's Board of Directors authorizing the
11
<PAGE> 12
declaration and payment of dividends and distributions, PFPC shall issue
dividends and distributions declared by the Fund in Shares, or, upon shareholder
election, pay such dividends and distributions in cash, if provided for in the
Fund's prospectus. Such issuance or payment, as well as payments upon redemption
as described above, shall be made after deduction and payment of the required
amount of funds to be withheld in accordance with any applicable tax laws or
other laws, rules or regulations. PFPC shall mail to the Fund's shareholders
such tax forms and other information, or permissible substitute notice, relating
to dividends and distributions paid by the Fund as are required to be filed and
mailed by applicable law, rule or regulation. PFPC shall prepare, maintain and
file with the IRS and other appropriate taxing authorities reports relating to
all dividends above a stipulated amount paid by the Fund to its shareholders as
required by tax or other law, rule or regulation.
(f) Shareholder Account Services.
(i) PFPC may arrange, in accordance with the pro-
spectus, for issuance of Shares obtained
through:
- Any pre-authorized check plan; and
- Direct purchases through broker wire orders,
checks and applications.
(ii) PFPC may arrange, in accordance with the pro-
spectus, for a shareholder's:
- Exchange of Shares for shares of another fund
with which the Fund has exchange privileges;
- Automatic redemption from an account where
that shareholder participates in a automatic
redemption plan; and/or
- Redemption of Shares from an account with a
12
<PAGE> 13
checkwriting privilege.
(g) Communications to Shareholders. Upon timely Written
Instructions, PFPC shall mail all communications by the Fund to its
shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund
shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
In addition, PFPC will receive and tabulate the proxy
cards for the meetings of the Fund's shareholders.
(h) Records. PFPC shall maintain records of the accounts
for each shareholder showing the following information:
(i) Name, address and United States Tax
Identification or Social Security number;
(ii) Number and class of Shares held and number and
class of Shares for which certificates, if
any, have been issued, including certificate
numbers and denominations;
(iii) Historical information regarding the account
of each shareholder, including dividends and
distributions paid and the date and price for
all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the
transfer agent to perform any calculations
13
<PAGE> 14
contemplated or required by this Agreement.
(i) Lost or Stolen Certificates. PFPC shall place a
stop notice against any certificate reported to be lost or stolen and comply
with all applicable federal regulatory requirements for reporting such loss or
alleged misappropriation. A new certificate shall be registered and issued only
upon:
(i) The shareholder's pledge of a lost instrument
bond or such other appropriate indemnity bond
issued by a surety company approved by PFPC;
and
(ii) Completion of a release and indemnification
agreement signed by the shareholder to protect
PFPC and its affiliates.
(j) Shareholder Inspection of Stock Records. Upon a
request from any Fund shareholder to inspect stock records, PFPC will notify the
Fund and the Fund will issue instructions granting or denying each such request.
Unless PFPC has acted contrary to the Fund's instructions, the Fund agrees and
does hereby, release PFPC from any liability for refusal of permission for a
particular shareholder to inspect the Fund's stock records.
(k) Withdrawal of Shares and Cancellation of Certificates.
Upon receipt of Written Instructions, PFPC shall cancel
outstanding certificates surrendered by the Fund to reduce the total amount of
outstanding shares by the number of shares surrendered by the Fund.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PFPC on sixty (60) days' prior written notice to
the other party.
14
<PAGE> 15
16. NOTICES. All notices and other communications, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notices shall be addressed (a) if to PFPC, at
103 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 445
Park Avenue, New York, NY 10022, Attn: Raj Rajaratnam; or (c) if to neither of
the foregoing, at such other address as shall have been given by like notice to
the sender of any such notice or other communication by the other party. If
notice is sent by confirming telegram, cable, telex or facsimile sending device,
it shall be deemed to have been given immediately. If notice is sent by
first-class mail, it shall be deemed to have been given three days after it was
mailed. If notice is sent by messenger, it shall be deemed to have been given on
the day it was delivered.
17. AMENDMENTS. This Agreement, or any term thereof, may be
changed or waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PFPC may assign its rights and
delegate its duties hereunder to any wholly-owned direct or indirect subsidiary
of PNC Bank or PNC Bank Corp., provided that (i) PFPC gives the Fund thirty (30)
days' prior written notice; (ii) the delegate (or assignee) agrees with PFPC and
the Fund to comply with all relevant provisions of the 1940 Act; and (iii) PFPC
and such delegate (or assignee) promptly provide such information as the Fund
may request, and respond to such questions as the Fund may ask, relative to the
delegation (or assignment), including
15
<PAGE> 16
(without limitation) the capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the
entire agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be
a contract made in Delaware and governed by Delaware law, without regard to its
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
16
<PAGE> 17
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of
any party to this Agreement shall constitute the valid and binding execution
hereof by such party.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
-----------------------------
Title:
------------------------
THE NEEDHAM FUNDS, INC.
By:
-----------------------------
Title: Executive Vice President
------------------------
18
<PAGE> 19
EXHIBIT A
THIS EXHIBIT A, dated as of , 1995, is Exhibit A to that
certain Transfer Agency Services Agreement dated as of , 1995 between
PFPC Inc. and The Needham Funds, Inc.
PORTFOLIOS
Needham Growth Fund
19
<PAGE> 20
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ------------------------ ------------------------
- ------------------------ ------------------------
- ------------------------ ------------------------
- ------------------------ ------------------------
- ------------------------ ------------------------
- ------------------------ ------------------------
20
<PAGE> 1
EXHIBIT 10
[FULBRIGHT & JAWORSKI LETTERHEAD]
December 4, 1995
The Needham Funds, Inc.
445 Park Avenue
New York, NY 10022
Re: Registration Statement on Form N-1A
Securities Act File No. 33-98310
Dear Sir or Madam:
This will refer to the Registration Statement under the Securities Act
of 1933 (File No. 33-98310), filed by The Needham Funds, Inc. (the "Fund"), an
open-end management investment company, with the Securities and Exchange
Commission and the further amendments thereto (the "Registration Statement"),
covering the registration under the Securities Act of 1933 of an indefinite
number of shares of beneficial interest of the Fund (the "Shares").
As counsel to the Fund, we have examined such documents and reviewed
such questions of law as we deem appropriate. On the basis of such examination
and review, it is our opinion that the Shares have been duly authorized and,
when issued, sold and paid for in the manner contemplated by the Registration
Statement, will be legally issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and the references to this firm in the Registration Statement. This
consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Securities Act of 1933.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI
------------------------
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Legal Counsel and
Independent Auditors" in the prospectus and "Independent Auditors" in the
Statement of Additional Information in this Registration Statement (Form N-1A
33-98310) of The Needham Funds, Inc.
ERNST & YOUNG LLP
New York, New York
December 4, 1995
<PAGE> 1
EXHIBIT 13
NEEDHAM INVESTMENT MANAGEMENT L.L.C.
445 Park Avenue
New York, New York 10022
December , 1995
The Needham Funds, Inc.
445 Park Avenue
New York, New York 10022
Gentlemen:
Please be advised that 10,000 shares (the "Shares") of Common Stock,
$.001 par value, of The Needham Funds, Inc., a Maryland corporation, were
purchased on or before this date by me for investment purposes only, and not for
the purpose of, or as part of any plan for the distribution or resale of the
Shares. I further confirm that I have no present intention of reselling or
otherwise disposing of or distributing all or any portion of the Shares, and
will only sell the Shares pursuant to a registration statement under the
Securities Act of 1933, as amended, or an applicable exemption therefrom.
NEEDHAM INVESTMENT
MANAGEMENT L.L.C.
------------------------------------
Howard S. Schachter
Executive Vice President
<PAGE> 1
EXHIBIT 14
THE NEEDHAM FUNDS, INC.
F U N D S
INDIVIDUAL RETIREMENT ACCOUNT
Application Instructions 2
IRA Disclosure Statement 4
Custodial Account Agreement 9
Application, Adoption Agreement
& Beneficiary Designation 20
Rollover Certification Form 24
Transfer Authorization Form 26
<PAGE> 2
APPLICATION INSTRUCTIONS
1 HOW TO COMPLETE THE ENCLOSED FORMS:
IF YOU ARE OPENING AN IRA WHICH WILL NOT CONTAIN CONTRIBUTIONS THAT
HAVE BEEN TRANSFERRED FROM ANOTHER IRA OR QUALIFIED RETIREMENT PLAN:
-
To establish an IRA with The Needham Funds, Inc. (the "Funds), please
complete the "Application, Adoption Agreement and Beneficiary
Designation" (Application). Please note that the Applicant's name must be
that of an individual not a business.
-
If you are opening an IRA for your non-working spouse, a separate
Application must be completed by your spouse. Please be sure to check the
circle for "Spousal IRA" under "Type of Account" in section 1 on page 2
of the Application packet.
-
The maximum allowable contribution for an IRA is $2,000 per year (or
$2,250 per year combined contribution for an Individual and a Spousal
IRA, with neither account receiving more than $2,000).
-
The minimum initial investment per Fund is currently $2,000. If you are
dividing your contribution between IRAs for yourself and your non-working
spouse, the amounts invested per Fund in each account will be combined
for the purpose of satisfying the minimum initial investment.
Prospectus(es) for the Funds may be obtained from PFPC Inc. at
1-800-331-3186. Please be sure to read the prospectus carefully before
investing.
-
Please be sure to read carefully the "Terms and Conditions of the IRA
Adoption Agreement" in Section 5 of the Application. There is a $10.00
annual custodial maintenance fee on this account.
-
Please make checks payable to The Needham Funds, Inc. If you are
dividing your contribution between an Individual and a Spousal IRA, only
one check, with instructions how to allocate the contribution between
accounts, needs to be included with both Applications.
IF YOU ARE OPENING AN IRA WHICH WILL CONTAIN CONTRIBUTIONS WHICH HAVE
BEEN TRANSFERRED FROM ANOTHER IRA OR QUALIFIED RETIREMENT PLAN:
-2-
<PAGE> 3
-
Please read and follow the instructions above for establishing an IRA.
Be sure to note on the Application that your contribution is a rollover
from another IRA or qualified retirement plan.
-
To transfer the distribution from your current IRA or qualified
retirement plan directly from the trustee (custodian) of that plan to the
custodian for the IRA, please complete the "Transfer Authorization Form."
Please note that if an eligible rollover distribution from a qualified
plan is not transferred directly to another qualified plan or an IRA, the
IRS mandatory 20% withholding amount will be withheld from the
distribution.
-
To certify that the contribution you are making to the IRA is a rollover
from an IRA or a qualified retirement plan, please complete the "Rollover
Certification Form." Rollovers must be completed within 60 calendar days
of the date you receive the distribution.
2 MAIL THE COMPLETED APPLICATION AND CHECK (IF APPLICABLE) TO:
REGULAR MAIL: OVERNIGHT EXPRESS:
PFPC Inc. PFPC Inc.
Attn: The Needham Attn: The Needham Funds, Inc. IRA
Funds, Inc. IRA 400 Bellevue Parkway
P.O. Box 8950 Wilmington, DE 19809
Wilmington, DE 19809 1-800-331-3186
-3-
<PAGE> 4
INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT
The following information is the disclosure statement required by Federal Tax
regulations. You should read this disclosure statement, the custodial account
Agreement, and the prospectuses for the Funds in which your Needham Individual
Retirement Account (IRA) contributions will be invested.
REVOCATION OF YOUR IRA
You have the right to revoke your Needham IRA and receive the entire amount of
your contribution by notifying PNC Bank, National Association, the Custodian of
your IRA, in writing within seven (7) days of establishment of your IRA. If you
revoke your IRA within seven days, you are entitled to a return of the entire
amount paid by you, without adjustment for such items as sales commission,
administrative expenses, or fluctuations in market value. If you decide to
revoke your IRA, notice should be delivered or mailed to:
REGULAR MAIL: OVERNIGHT EXPRESS:
PNC Bank, National Association PNC Bank, National Association
c/o PFPC Inc. c/o PFPC Inc.
Attn: The Needham Funds, Inc., IRA Attn: The Needham Funds Inc., IRA
P.O. Box 8950 400 Bellevue Parkway
Wilmington, DE 19809 Wilmington, DE 19809
1-800-331-3186
This notice should be signed by you and include the following:
1. The date;
2. A statement that you elect to revoke your Needham IRA;
3. Your Needham IRA account number;
4. The date your Needham IRA was established;
5. Your signature and your printed or typed name.
Mailed notice will be deemed given on the date that it is postmarked, if it is
deposited in the United States mail, first class postage prepaid and properly
addressed. This means that if you mail your notice it must be postmarked on or
before the seventh day after your Needham IRA was opened. A revoked IRA will be
reported to the Internal Revenue Service and the Depositor on Forms 1099-R and
5498.
YOUR INDIVIDUAL RETIREMENT ACCOUNT (IRA)
You have opened a Needham Individual Retirement Account which is an account for
the exclusive benefit of you and your beneficiaries, created by a written
instrument (the Custodial Account Agreement). The following requirements apply
to your IRA:
-4-
<PAGE> 5
1. Contributions, transfers, and rollovers may be made only in "cash"
by check, draft, wire transfer, or other form acceptable to the
Custodian;
2. The Custodian must be a bank;
3. No part may be invested in life insurance;
4. Your interest must be nonforfeitable (not subject to escheat
laws);
5. The assets of the custodial account may not be mixed with other
property except in a common investment fund; and
6. You must begin receiving distributions from your account no later
than April 1 of the year following the year in which you become
70-1/2 years old; and distribution must be completed over a period
that is not longer than the joint life expectancy of you and your
beneficiary.
CONTRIBUTIONS
You may not contribute more than 100% of your compensation or earnings from
self-employment, and the maximum contribution is $2,000 per tax year. If your
spouse is not employed or earns less than $250 per year, you may also contribute
to a Spousal IRA, but the total contribution for both of you may not exceed
$2,250 per tax year. The total ($2,250) may be divided between the accounts for
you and your spouse in any manner, except that not more than $2,000 may be
contributed to either account.
EXCESS CONTRIBUTIONS
Amounts contributed to your IRA in excess of the allowable limit will be subject
to a nondeductible excise tax of 6% for each year until the excess is used up as
an allowable contribution (in a subsequent year) or returned to you. A
distribution of excess contributions must be included in your taxable income
when distributed, and may also be subject to the 10% excise tax on early
distributions discussed below. The 6% excise tax will not apply if the excess
contribution and earnings applicable to it are distributed by the due date for
your Federal Income Tax Return, including extensions. If such a distribution is
made by the due date of your tax return, only the earnings are taxable.
INCOME TAX DEDUCTION
Your contribution may be deductible on your Federal Income Tax Return. However,
there is a phase-out of the IRA deduction if either you or your spouse (if you
file a joint return) is an active participant in an employer-sponsored
retirement plan. The IRA deduction is reduced proportionately as adjusted gross
income increases from $25,000 to $35,000 for a single individual, $40,000 to
$50,000 for a married couple filing a joint return, or from $0 to $10,000 for a
married individual who is an active participant and files a separate return. The
amount of the reduction is equal to 20% of the amount by which your adjusted
gross income exceeds the $25,000, $40,000, and $0 amounts, respectively. Your
contributions in excess of the permitted deduction will be nondeductible
contributions.
-5-
<PAGE> 6
TAXATION OF DISTRIBUTIONS
The income of your IRA is not taxed until the money is distributed to you.
Distributions are taxable as ordinary income when received except that the
amount of any distribution representing non-deductible contributions is not
taxed.
In general, you may "rollover" a distribution from another IRA, an eligible
rollover distribution from your employer's qualified plan, or distributions from
certain tax deferred annuities or accounts. If a distribution is rolled over,
i.e. deposited to your IRA within 60 calendar days of receipt, the amount rolled
over is not taxable. The IRS enforces the 60-day time limit strictly. You may
rollover a portion of a distribution in which case the remainder will be subject
to tax. The IRS requires that distributions from your employer's qualified plan
have 20% of the distribution withheld for income tax unless your money is
transferred in a direct asset transfer to an eligible retirement plan such as
another qualified plan or IRA. The rules regarding rollovers are complex and you
should consult your tax adviser prior to rolling over all or part of a
distribution.
PENALTY TAX ON CERTAIN TRANSACTIONS
EXCESS CONTRIBUTIONS
If you make an excess contribution to your IRA and it is not corrected on a
timely basis, an excise tax of 6% is imposed on the excess amount. This tax will
apply each year to any part or all of the excess which remains in your account.
EARLY DISTRIBUTIONS
Your receipt or use of any portion of your account before you attain age 59-1/2
is considered an early distribution unless the distribution is a result of death
or disability or is rolled over. The amount of any early taxable distribution
(excluding any amount representing a return of nondeductible contributions) is
subject to a penalty tax equal to 10% of the distribution. A pre-age 59-1/2
taxable distribution will be exempt from the 10% penalty tax if it is part of a
scheduled series of substantially equal payments over your life, or over the
joint life expectancy of you and a beneficiary, or if it was made because you
became disabled. If you request a distribution in the form of a series of
substantially equal payments, and you modify the payments before 5 years have
elapsed and before attaining age 59 1/2, the 10% additional income tax will
apply retroactively to the year payments began through the year of such
modification. This 10% penalty is in addition to any Federal income tax that is
owed at distribution.
REQUIRED DISTRIBUTIONS
You are required to begin receiving minimum distributions from your IRA no later
than April 1 following the calendar year in which you reach the age of 70-1/2.
The distribution may be paid either in installments, or in a lump sum. The
installments may be paid over your life, or over the joint and last survivor
life expectancy of you and your designated
-6-
<PAGE> 7
beneficiary. If the amount distributed during a taxable year is less than the
minimum amount required to be distributed, the recipient is subject to a
penalty tax equal to 50% of the difference between the amount distributed and
the amount required to be distributed.
EXCESS DISTRIBUTIONS
If you receive more than the greater of $112,500 (subject to annual
cost-of-living adjustments)or $150,000 in a calendar year from certain
retirement plans, a 15% tax is imposed on the amount in excess of that amount.
(Special rules may apply to benefits accumulated prior to August 1, 1986.) All
distributions from IRAs, qualified retirement plans, and tax-sheltered annuities
must be added together for purposes of this excise tax.
There are several possible favorable elections that may reduce or eliminate this
tax. The rules are very complicated. You should consult a competent tax adviser.
ADDITIONAL INFORMATION ON DISTRIBUTIONS
An IRA distribution request form is available from the Custodian, and should be
obtained and used to request any distribution from your IRA.
PROHIBITED TRANSACTIONS
If you or your beneficiary engage in any prohibited transaction (such as any
sale, exchange, borrowing, or leasing of any property between you and the
account; or any other interference with the independent status of the account),
the account will lose its exemption from tax and be treated as having been
distributed to you. The value of the entire account will be includable in your
gross income. If you are under age 59-1/2, you would also be subject to the 10%
penalty tax on early distributions.
If you or your beneficiary use (pledge) all or any part of your IRA as security
for a loan, then the portion so pledged will be treated as if distributed to
you, and will be taxable to you as ordinary income, and subject to a 10% penalty
tax if you have not attained age 59-1/2 during the year which you make such a
pledge.
INCOME TAX WITHHOLDING
The Custodian is required to withhold income tax from any distribution from your
IRA to you at the rate of 10% unless you choose not to have tax withheld. You
may elect out of withholding by advising the Custodian in writing, prior to the
distribution, that you do not want tax withheld from the distribution. This
election may be made on IRS Form W-4P, or any other form acceptable to the
Custodian. If you do not elect out of tax withholding, you may direct the
Custodian to withhold an additional amount of tax in excess of 10%.
-7-
<PAGE> 8
ADDITIONAL INFORMATION
For more detailed information, you may obtained Publication 590, Individual
Retirement Arrangements (IRAs) from any district office of the Internal Revenue
Service or by calling 1-800-TAX-FORM.
Any IRA transaction may have tax consequences; consult your tax adviser to
obtain information about the tax consequences in connection with your particular
circumstances.
INFORMATION ABOUT YOUR INVESTMENTS
A mutual fund investment involves investment risks, including possible loss of
principal. In addition, growth in the value of your account is neither
guaranteed nor projected due to the characteristics of a mutual fund investment.
Detailed information about the shares of each mutual fund available for
investment by your Needham IRA must be furnished to you in the form of a
prospectus. The method for computing and allocating annual earnings is set forth
in the prospectus. (See prospectus section entitled "Dividends.") If you made an
initial contribution of $1,000 on the first day of a calendar year and no
further investment during that year, your contribution would also be subject to
certain costs and expenses which would reduce any yield you might obtain from
your investment. (See the prospectus section entitled "Shareholder and Fund
Expenses and Costs" and the sections referred to therein.) For further
information regarding expenses, earnings, and distributions, see the Fund's
financial statements, prospectus and/or statement of additional information.
FEES AND CHARGES
The charges in connection with your Needham IRA are set forth in the
Application. The Custodian may also charge a service fee in connection with any
distribution from your IRA.
IRS APPROVED FORM
Your Needham IRA is the Internal Revenue Service's model custodial account
contained in IRS Form 5305-A. Certain additions have been added in Article VIII
of the form. By following this form, your Needham IRA meets the requirements of
the Internal Revenue Code. However, the IRS has not endorsed the merits of the
investments allowed under the IRA. Form 5305-A may also be used by qualifying
employers in conjunction with Form 5305-SEP to establish a simplified employee
pension plan (SEP) on behalf of employees. If your IRA is part of a SEP, details
regarding SEPs should also be provided by your employer.
-8-
<PAGE> 9
CUSTODIAL ACCOUNT AGREEMENT
(UNDER SECTION 408(a) OF THE INTERNAL REVENUE CODE - FORM 5305-A
(REVISED OCTOBER 1992))
The Depositor (Contributor) whose name appears in the accompanying Application
is establishing an Individual Retirement Account (IRA) (under section 408(a) of
the Internal Revenue Code of 1986, as amended, the "Code") to provide for his or
her retirement and for the support of his or her beneficiary(ies) after death.
The Custodian, PNC Bank, National Association, has given the Depositor the
disclosure statement required under Treasury Regulations section 1.408-6.
The Depositor and the Custodian make the following agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled
with other property except in a common trust fund or common investment
fund (within the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold and silver coins
and coins issued under the laws of any state.
-9-
<PAGE> 10
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall
be made in accordance with the following requirements and shall
otherwise comply with section 408(a)(6) and Proposed Regulations
section 1.408-8, including the incidental death benefit provisions of
Proposed Regulations section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse
under paragraph 4, other than in the case of a life annuity, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Depositor and the surviving spouse and shall
apply to all subsequent years. The life expectancy of a nonspouse
beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date,
(April 1 following the calendar year end in which the Depositor reaches
age 70-1/2). By that date, the Depositor may elect, in a manner
acceptable to the Custodian, to have the balance in the custodial
account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life
expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last
survivor expectancy of the Depositor and his or her designated
beneficiary.
4. If the Depositor dies before his or her entire interest is distributed
to him or her, the entire remaining interest will be distributed as
follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
-10-
<PAGE> 11
(b) If the Depositor dies before distribution of his or her
interest has begun, the entire remaining interest will, at the
election of the Depositor or, if the Depositor has not so
elected, at the election of the beneficiary or beneficiaries,
either
(i) Be distributed by the December 31 of the year
containing the fifth anniversary of the Depositor's
death, or
(ii) Be distributed in equal or substantially equal
payments over the life or life expectancy of the
designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is the
Depositor's surviving spouse, then this distribution
is not required to begin before December 31 of the
year in which the Depositor would have turned age
70-1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations
has irrevocably commenced, distributions are treated as having
begun on the Depositor's required beginning date, even though
payments may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has
been distributed and if the beneficiary is other than the
surviving spouse, no additional cash contributions or rollover
contributions may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
Custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint
life and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
paragraph 3, determine the initial life expectancy (or joint life and
last survivor expectancy) using the attained ages of the Depositor and
designated beneficiary as of their birthdays in the year the Depositor
reaches age 70-1/2. In the case of a distribution in accordance with
paragraph 4(b)(ii) determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to
satisfy the minimum distribution requirements described above. This
method permits an individual to satisfy these requirements by taking
from one individual retirement account the
-11-
<PAGE> 12
amount required to satisfy the requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under
section 408(i) and Regulations section 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Article I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the provision of
the Code and related regulations. Other amendments may be made with the consent
of the Depositor and the Custodian.
ARTICLE VIII
1. All funds in the custodial account (including earnings) shall be
invested in shares of beneficial interest of any one or more of the
regulated investment companies managed by the company listed on the
Application Form contained in this package or any of its subsidiaries
or affiliates, and which have been designated by such company as
eligible for investment under this custodial account, which investment
companies shall be collectively referred to as "the Funds" and which
shares shall be collectively referred to as "Fund Shares." Fund Shares
shall be purchased at the public offering value for Fund Shares next to
be determined after receipt of the contribution by the Custodian or its
agent.
2. The shareholder of record of all Fund Shares shall be the Custodian or
its nominee.
3. The Depositor shall, from time to time, direct the Custodian to invest
the funds of his/her custodian account in Fund Shares. Any funds which
are not directed as to investment will be returned to the Depositor
without being deemed to have been contributed to his/her custodial
account. The Depositor shall be the beneficial owner of all Fund Shares
held in the custodial account, and the Custodian shall not vote any
such shares except upon written direction of the Depositor.
-12-
<PAGE> 13
4. The Custodian agrees to forward, or to cause to be forwarded, to every
Depositor the then-current prospectus(es) of the Funds, as applicable,
which have been designated by the Custodian as eligible for investment
under the custodial account and selected by the Depositor for such
investment, and all notices, proxies and related proxy soliciting
materials applicable to said Fund Shares received by it.
5. Each Depositor shall have the right by written notice to the Custodian
to designate or to change a beneficiary to receive any benefit to which
such Depositor may be entitled in the event of his/her death prior to
the complete distribution of such benefit. If no such designation is in
effect on the Depositor's death, or if the designated beneficiary has
predeceased the Depositor, the beneficiary shall be the Depositor's
estate.
6. (a) The Custodian shall have the right to receive rollover
contributions as described in Article I of this Agreement. The
Custodian reserves the right to refuse to accept any property
which is not in the form of cash.
(b) The Custodian, upon written direction of the Depositor and
after submission to the Custodian of such documents as it may
reasonably require, shall transfer the assets held under this
Agreement (reduced by (1) any amounts referred to in paragraph
8 of this Article VIII and (2) any amounts required to be
distributed during the calendar year of transfer) to a
qualified retirement plan, to a successor individual
retirement account, to an individual retirement annuity for
the Depositor's benefit, or directly to the Depositor. Any
amounts received or transferred by the Custodian under this
paragraph 6 shall be accompanied by such records and other
documents as the Custodian deems necessary to establish the
nature, value and extent of the assets and of the various
interests therein.
7. Without in any way limiting the foregoing, the Depositor hereby
irrevocably delegates to the Custodian the right and power to amend at
any time and from time to time the terms and provisions of this
Agreement and hereby consents to such amendments, provided they shall
comply with all applicable provisions of the Code, the Treasury
regulations thereunder and with any other governmental law, regulation
or ruling. Any such amendments shall be effective when the notice of
such amendments is mailed to the address of the Depositor indicated by
the Custodian's records.
8. Any income taxes or other taxes of any kind whatsoever levied or
assessed upon or in respect of the assets of the custodial account or
the income arising therefrom, any transfer taxes incurred, all other
administrative expenses incurred, all other administrative expenses
incurred by the Custodian in the performance of its duties including
fees for legal services rendered to the Custodian, and the Custodian's
-13-
<PAGE> 14
compensation may be paid by the Depositor and, unless so paid within
such time period as the Custodian may establish, shall be paid from the
Depositor's custodial account. The Custodian reserves the right to
change or adjust its compensation upon 30 days advance notice to the
Depositor.
9. The benefits provided hereunder shall not be subject to alienation,
assignment, garnishment, attachment, execution or levy of any kind, and
any attempt to cause such benefits to be so subjected shall not be
recognized, except to such extent as may be required by law.
10. The Custodian may rely upon any statement by the Depositor when taking
any action or determining any fact or question which may arise under
this Custodial Agreement. The Depositor hereby agrees that the
Custodian will not be liable for any loss or expense resulting from any
action taken or determination made in reliance on such statement. The
Depositor assumes sole responsibility for assuring that contributions
to the custodial account satisfy the limits specified in the
appropriate provisions of the Code.
11. The Custodian may resign at any time upon 30 days written notice to the
Depositor and may be removed by the Depositor at any time upon 30 days
written notice to the Custodian. Upon the resignation or removal of the
Custodian, a successor Custodian shall be appointed within 30 days of
such resignation notice and in the absence of such appointment, the
Custodian shall appoint a successor unless the Agreement be sooner
terminated. Any successor Custodian shall be a bank (as defined in
section 408(n) of the Code) or such other person found qualified to act
as a Custodian under an individual account plan by the Secretary of the
Treasury or his delegate. The appointment of a successor Custodian
shall be effective upon receipt by the Custodian of such successor's
written acceptance which shall be submitted to the Custodian and the
Depositor. Within 30 days of the effective date of a successor
Custodian's appointment, the Custodian shall transfer and deliver to
the successor Custodian applicable account records and assets of the
custodial account (reduced by any unpaid amounts referred to in
paragraph 8 of this Article VIII). The successor Custodian shall be
subject to the provisions of this Agreement (or any successor thereto)
on the effective date of its appointment.
12. Notwithstanding any provision hereof to the contrary, for taxable years
in which contributions to the custodial account are to qualify as
contributions to a Spousal Individual Retirement Account, the following
provisions shall apply: a separate custodial account shall be
established under this Agreement in the name of the spouse, who shall
thereafter be deemed to be the Depositor with respect to such separate
custodial account. The sum of the amount contributed to the custodial
account of the Depositor and the Depositor's spouse for a given tax
year shall not exceed the lesser of:
-14-
<PAGE> 15
(i) An amount equal to 100% of the compensation (including earned
income in the case of a self-employed individual) includable
in the employed spouse's gross income for the taxable year or
(ii) $2,250, provided, however, that no more than $2,000 may be
contributed to either of such custodial accounts.
13. The Custodian shall, from time to time, in accordance with instructions
in writing from the Depositor, make distributions out of the custodial
account to the Depositor in the manner and amounts as may be specified
in such instructions (reduced by any amounts referred to in Article
VIII, paragraph 8). An IRA distribution request form is available from
the Custodian, and should be obtained and used to request any
distribution from your IRA. Notwithstanding the provisions of Article
IV above, the Custodian assumes (and shall have) no responsibility to
make any distribution to the Depositor (or the Depositor's beneficiary
if the Depositor is deceased) unless and until such written
instructions specify the occasion for such distribution and the elected
manner of distribution, except as set forth in the second part of this
paragraph (13) below, with respect to age 70 1/2 distributions. Prior
to making any such distribution from the custodial account, the
Custodian shall be furnished with any and all applications,
certificates, tax waivers, signature guarantees, and other documents
(including proof of any legal representative's authority) deemed
necessary or advisable by the Custodian, but the Custodian shall not be
liable for complying with written instructions which appear on their
face to be genuine, or for refusing to comply if not satisfied such
instructions are genuine, and assumes no duty of further inquiry. Upon
receipt of proper written instructions as required above, the Custodian
shall cause the assets of the custodial account to be distributed in
cash and/or in kind, as specified in such written order.
The Depositor may select as a method of distribution under Article IV,
paragraph 3, option (a), (d), or (e); but may not select option (b) or
(c), notwithstanding description of such in Article IV. If the
Depositor requests age 70 1/2 distribution by timely written
instruction but does not choose any of the methods of distribution
described above by the April 1st following the calendar year in which
he or she reaches age 70 1/2, distribution to the Depositor will be
made in accordance with Article IV, paragraph 3, option (d). If the
Depositor does not request age 70 1/2 distribution from the custodial
account by timely written instruction, or does not specify a method of
calculating the amount of the age 70 1/2 distribution which the
Depositor will be taking from another IRA(s), calculation of the
current year Required Minimum Distribution amount which can not be
transferred or rolled over to another IRA will be made in accordance
with Article IV, paragraph 3, option (d).
14. Distribution of the assets of the custodial account shall be made in
accordance with the provisions of Article IV as the Depositor (or the
Depositor's beneficiary if the
-15-
<PAGE> 16
depositor is deceased) shall elect by written instructions to the
Custodian; subject, however, to the provisions of sections 401(a)(9),
408(a)(6) and 403(b)(10) of the Code, the regulations promulgated
thereunder, and the following:
(i) The recalculation of life expectancy of the Depositor and/or
the Depositor's spouse may be made only at the written election
of the Depositor. The recalculation of life expectancy of the
surviving spouse shall only be made at the written election of
the surviving spouse.
(ii) If the Depositor dies before his/her entire interest in the
custodial account has been distributed, and if the designated
beneficiary of the Depositor is the Depositor's surviving
spouse, the spouse may treat the custodial account as his/her
own individual retirement arrangement. This election will be
deemed to have been made if the surviving spouse makes a
regular IRA contribution to the custodial account, makes a
rollover to or from such custodial account, or fails to receive
a payment from the custodial account within the appropriate
time period applicable to the deceased Depositor under section
401(a)(9)(B) of the Code.
(iii) With respect to distributions in calendar years beginning in or
after 1989, if the Depositor's designated beneficiary is not
his/her spouse, then distributions to the Depositor and his/her
beneficiary commencing with the Depositor's required beginning
date shall comply with the minimum distribution incidental
benefit requirement.
The provisions of this paragraph (14) of Article VIII shall
prevail over the provisions of Article IV to the extent the
provisions of this paragraph (14) are permissible under
proposed and/or final regulations promulgated by the Internal
Revenue Service.
15. In the event any amounts remain in the custodial account after the
death of the Depositor, the rights of the Depositor hereunder shall
thereafter be exercised by his or her beneficiary.
16. The Custodian is authorized to hire agents (including any transfer
agent for Fund Shares) to perform certain duties hereunder.
17. This Agreement shall terminate coincident with the complete
distribution of the assets of the Depositor's account.
18. All notices to be given by the Custodian to the Depositor shall be
deemed to have been given when mailed to the address of the Depositor
indicated by the Custodian's records.
-16-
<PAGE> 17
19. The Custodian shall not be responsible for any losses, penalties or
other consequences to the Depositor or any other person arising out of
the making of, or the failure to make, any contribution or withdrawal.
20. In addition to the reports required by paragraph (2) of Article V, the
Custodian shall periodically cause to be mailed to the Depositor in
respect of each such period an account of all transactions affecting
the custodial account during such period and a statement showing the
custodial account as of the end of such period. If, within 60 days
after such mailing, the Depositor has not given the Custodian written
notice of any exception or objection thereto, the periodic accounting
shall be deemed to have been approved and, in such case or upon the
written approval of the Depositor, the Custodian shall be released,
relieved and discharged with respect to all matters and statements set
forth in such accounting as though the account had been settled by
judgment or decree of a court of competent jurisdiction.
21. In performing the duties conferred upon the Custodian by the Depositor
hereunder, the Custodian shall act as the agent of the Depositor. The
parties do not intend to confer any fiduciary duties on the Custodian
and none shall be implied. The Custodian shall not be liable (and does
not assume any responsibility) for the collection of contributions, the
deductibility or the propriety of any contribution under this
Agreement, the selection of any Fund Shares for this custodial account,
or the purpose or propriety of any distribution made in accordance with
Article IV and Paragraph 13, 14 or 15 of Article VIII, which matters
are the sole responsibility of the Depositor or the Depositor's
beneficiary, as the case may be.
22. The Custodian shall be responsible solely for the performance of those
duties expressly assigned to it in this Agreement and by operation of
law. The Custodian shall have no duty to account for deductible
contributions separately from nondeductible contributions, unless
required to do so by applicable law. In determining the taxable amount
of a distribution, the Depositor shall rely only on his or her Federal
tax records, and the Custodian shall withhold Federal income tax from
any distribution from the custodial account as if the total amount of
the distribution is includable in the Depositor's income.
23. Except to the extent superseded by Federal law, this Agreement shall be
governed by, and construed, administered and enforced according to, the
laws of the Commonwealth of Pennsylvania, and all contributions shall
be deemed made in Pennsylvania.
GENERAL INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
-17-
<PAGE> 18
PURPOSE OF FORM
Form 5305-A is a model custodial account agreement that meets
the requirements of section 408(a) and has been automatically
approved by the IRS. An individual retirement account (IRA) is
established after the form is fully executed by both the
individual (Depositor) and the Custodian and must be completed
no later than the due date of the individual's income tax
return for the tax year (without regard to extensions). This
account must be created in the United States for the exclusive
benefit of the Depositor or his or her beneficiaries.
Individuals may rely on regulations for the Tax Reform Act of
1986 to the extent specified in those regulations.
Do not file Form 5305-A with the IRS. Instead, keep it for
your records.
For more information on IRAs, including the required
disclosure you can get from your custodian, get Pub. 590,
Individual Retirement Arrangements (IRAs).
DEFINITIONS
CUSTODIAN. - The Custodian must be a bank or savings and loan
association, as defined in section 408(n), or any person who
has the approval of the IRS to act as custodian.
DEPOSITOR. - The Depositor is the person who establishes the
custodial account.
IDENTIFYING NUMBER
The depositor's social security number will serve as the
identification number of his or her IRA. An employer
identification number is required only for an IRA for which a
return is to be filed to report unrelated business taxable
income. An employer identification number is required for a
common fund created for IRAs.
IRA FOR NONWORKING SPOUSE
Form 5305-A may be used to establish the IRA custodial account
for a nonworking spouse.
Contributions to an IRA custodial account for a nonworking
spouse must be made to a separate IRA custodial account
established by the nonworking
-18-
<PAGE> 19
spouse.
SPECIFIC INSTRUCTIONS
ARTICLE IV. - Distributions made under this article may be made in a
single sum, periodic payment, or a combination of both. The
distribution option should be reviewed in the year the Depositor
reaches age 70-1/2 to ensure that the requirements of section 408(a)(6)
have been met.
ARTICLE VIII. - Article VIII and any that follow it may incorporate
additional provisions that are agreed to by the Depositor and Custodian
to complete the agreement. They may include, for example, definitions,
investment powers, voting rights, exculpatory provisions, amendment and
termination, removal of the Custodian, Custodian's fees, state law
requirements, beginning date of distributions, accepting only cash,
treatment of excess contributions, prohibited transactions with the
Depositor, etc. Use additional pages if necessary and attach them to
this form.
NOTE. Form 5305-A may be reproduced and reduced in size for adoption to
passbook purposes.
-19-
<PAGE> 20
APPLICATION, ADOPTION AGREEMENT & BENEFICIARY DESIGNATION
Please complete both pages of this form to establish an IRA.
1 TYPE OF ACCOUNT (PLEASE CHECK ONE OF THE CIRCLES BELOW.)
/ / Regular IRA / / SEP IRA - Name of Employer / / IRA Rollover
/ / Spousal IRA / / Rollover/Direct Rollover from a Qualified
Retirement Plano Direct Transfer IRA to IRA
2 REGISTRATION-DEPOSITOR
- -
- --------------------------------------------------------------------------------
First Name Middle Initial Last Name Social Security Number
/ /
- --------------------------------------------------------------------------------
Street Date of Birth
( )
- --------------------------------------------------------------------------------
City State Zip Code Telephone
3 INVESTMENT
Initial investments must be at least $2,000.
Enclosed is a check for $______________ payable to Needham Growth Fund
to be invested in each Fund as follows:
This contribution applies to the tax year 19__ . (Applies only to
Regular, Spousal and SEP IRAs.)
4 BENEFICIARY DESIGNATION
Complete this section to designate Primary and Contingent
Beneficiary(ies) to receive, in the event of your death, any benefits
which may be payable under your IRA. A beneficiary must survive you to
receive anything. If your Primary Beneficiary(ies) do not survive you,
your Contingent Beneficiary(ies) will receive the funds. If more than
one person is named and no percentage is indicated, a joint tenancy
with the right of survivorship will be deemed to have been created. If
the beneficiary is a trust, please indicate the date of the trust and
the trustee(s) name. You may change your beneficiaries at any time by
giving written notice to the Custodian.
Depositor's Designation: In event of my death, I thereby designate the
following individuals as the Primary and Contingent Beneficiary(ies) to
receive all benefits that may become due and payable under my Needham
Growth Fund IRA.
Consent of Depositor's Spouse: Spousal consent is required in community
property and marital property states where an IRA Depositor wishes to
name a beneficiary other than, or in addition to, the spouse. Spouses
of Depositors who reside in community property or marital property
states (AZ, CA, ID, LA, NV, NM, TX, WA, WI) must sign the consent
below.
I hereby consent to and join in the designation of beneficiary below. I
give to the Depositor any interest I have in the funds deposited in this
account.
______________________________________________________ _____________________
Signature of Depositor's Spouse (if applicable) Date
PRIMARY BENEFICIARY(IES):/ / PLEASE CHECK HERE IF YOU HAVE ATTACHED A
SEPARATE SHEET WITH ADDITIONAL PRIMARY BENEFICIARY(IES). SIGN AND DATE
THE SHEET.
_______________________________________________ _______________________________
Name % of Distribution Name % of Distribution
_______________________________________________ _______________________________
Street Street
_______________________________________________ _______________________________
City State Zip Code City State Zip Code
<PAGE> 21
( ) ( )
________________________________________ ______________________________________
Taxpayer Identification No. Telephone Taxpayer Identification No. Telephone
-21-
<PAGE> 22
5 TERMS AND CONDITIONS OF THE NEEDHAM FUNDS, INC. IRA ADOPTION AGREEMENT
Please sign and date this Application and Adoption Agreement. If you
are also establishing a Spousal IRA, be sure to have your spouse sign
and date as well. You, the Depositor, acknowledge that you have
received and read the current Prospectus for each Fund which you have
designated for investment.
All subsequent contributions will be invested as indicated by you in
the "Investment" section of this form. All dividends and distributions
from the Fund shares held in your Account will be reinvested in shares
of the Fund from which received.
CUSTODIAL FEES: $________________ annual maintenance fee per account.
The annual maintenance fee may be paid by the Depositor in addition to
the maximum annual contribution to his or her IRA. If the fee is not
included, the Custodian will deduct the fee from the Account at
year-end or at the time the Account is closed.
The Custodian reserves the right to change the Custodian fee, but will
give at least 30 days written notice to the Depositor of any fee
changes. The Custodian will keep records, identify and file returns and
provide other information concerning your Account as required by the
Internal Revenue Code and any Regulations issued or forms adopted by
the Treasury Department of the United States.
I (THE DEPOSITOR) HEREBY ESTABLISH AN IRA UNDER THE TERMS AND
CONDITIONS CONTAINED IN THE ACCOMPANYING CUSTODIAL ACCOUNT AGREEMENT,
WHICH IS INCORPORATED HEREIN BY REFERENCE. THE COMBINED INSTRUMENT IS
HEREINAFTER REFERRED TO AS THE "AGREEMENT." THIS IRA BECOMES EFFECTIVE
UPON WRITTEN ACCEPTANCE OF THIS APPLICATION AND ADOPTION AGREEMENT BY
THE CUSTODIAN, PNC BANK, NATIONAL ASSOCIATION, WHICH WRITTEN ACCEPTANCE
SHALL CONSIST OF A CONFIRMATION OF TRANSACTION STATEMENT ISSUED BY THE
CUSTODIAN. THE DEPOSITOR UNDERSTANDS AND AGREES THAT THE CUSTODIAN IS
NOT RESPONSIBLE FOR ANY ASSETS UNTIL RECEIVED.
I (THE DEPOSITOR) CERTIFY UNDER THE PENALTIES OF PERJURY THAT MY SOCIAL
SECURITY NUMBER IS TRUE, CORRECT AND COMPLETE AND THAT THIS NUMBER IS
MY TAXPAYER IDENTIFICATION NUMBER.
_______________________________________________________________________
Signature Date
Accepted: PNC Bank, National Association, C/O PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19809
By:____________________________________________________________________
Authorized Representative of Custodian Date
Distributor:_____________
Shares of The Needham Funds, Inc. are offered by the Distributor. The
Distributor is not a bank, and shares of the Fund are not deposits or
obligations of, or guaranteed or endorsed by, any bank nor are they
federally insured or otherwise supported by the FDIC, the Federal
Reserve Board or any other agency.
FOR DEALER USE ONLY
_____________________ ________________________
Representative's Name Representative's Number
-22-
<PAGE> 23
_________________________________ ________________________
Representative's Telephone Number Broker Dealer Number
-23-
<PAGE> 24
ROLLOVER CERTIFICATION FORM
Use this form to rollover a distribution from your current IRA or
eligible distribution from a qualified retirement plan to your Needham
IRA. You must complete the rollover within 60 calendar days of your
receipt of that distribution.
PLEASE NOTE: 20% withholding is required on any eligible rollover
distribution from a qualified retirement plan unless the distribution
is transferred directly to an IRA or other qualified plan. To transfer
your distribution directly, please complete the "Transfer Authorization
Form" included with this Application.
__________________________________________________________________________
Name of Depositor (Contributor) Social Security Number
__________________________________________________________________________
Distributing IRA Name Distributing Qualified Plan Name
OR
__________________________________________________________________________
Distributing IRA Account Number Distributing Qualified Plan Account Number
1 TYPE OF ROLLOVER CONTRIBUTION (PLEASE CHECK ONE.)
- IRA Rollover - Note that 365 days must have passed since you last
received a rollover distribution from the distributing IRA.
- Eligible Rollover Distribution - A distribution from a qualified
retirement plan of all or part of your plan balance, other than the
portion of any distribution which is nontaxable. Your employer's
benefits or personnel office should be able to tell you what portion
of your distribution is an "eligible distribution".
- Qualified Domestic Relations Order Distribution.
-24-
<PAGE> 25
2 70-1/2 ROLLOVER RESTRICTIONS (PLEASE CHECK ONE.)
- I am not nor will be 70-1/2 or older in this calendar year.
- I am or will be 70-1/2 or older in this calendar year. I
understand that I may not rollover any amounts required to be
distributed under Internal Revenue Code Sections 408(a)(6) and
401(a)(9).
3 CERTIFICATION
I certify that the contribution described above is an eligible IRA
rollover contribution and that I am rolling over this contribution
within 60 calendar days of my receipt of that distribution. I
understand that this rollover is irrevocable and involves important tax
considerations. Specifically, I understand that a rollover contribution
from a qualified retirement plan will no longer be eligible for the
special averaging, capital gains and separate tax treatment that may be
available for distributions from such plans. Other tax considerations
may also apply.
I agree that I am solely responsible for all tax consequences of this
rollover contribution. I also agree that the IRA custodian shall have
no responsibility for any tax consequences.
I understand that if I commingle a qualified retirement plan rollover
with annual IRA contributions, I will not be eligible to rollover the
amount to another qualified plan in the future. Other restrictions
regarding subsequent rollovers of this contribution may also apply.
I HAVE READ AND UNDERSTAND AND AGREE TO BE LEGALLY BOUND BY THE TERMS
OF THIS FORM. I ALSO UNDERSTAND THAT THE IRA CUSTODIAN WILL RELY ON
THIS FORM WHEN ACCEPTING MY ROLLOVER CONTRIBUTION. I UNDERSTAND THAT
THIS ROLLOVER IS IRREVOCABLE AND MAY NOT BE REVERSED IN THE FUTURE. I
ALSO UNDERSTAND THAT I AM RESPONSIBLE FOR THE MOVEMENT OF THE ROLLOVER
TO MY SUCCESSOR IRA, AND THAT PNC BANK, NATIONAL ASSOCIATION AND PFPC
INC. HAVE NO DUTY TO ENFORCE THE COLLECTION OF ANY ASSETS TO BE ROLLED
OVER TO MY NEEDHAM IRA.
_______________________________________
Depositor's Signature
_______________________________________
Date
-25-
<PAGE> 26
TRANSFER AUTHORIZATION FORM
Use this form to transfer amounts from your current IRA or qualified
retirement plan directly to this IRA. (NOTE: A direct transfer from a
qualified plan to your IRA will avoid the IRS mandatory 20% withholding
requirement.)
1 DEPOSITOR NAME AND ADDRESS
_____________________ _____________________________________________
Depositor's Name Spouse's Name (if transferring a Spousal IRA)
_______________________________________________________________________
Address
_______________________________________________________________________
City State Zip Code
( ) ( )
_____________________ _____________________________________________
Home Phone Work Phone
_____________________ _____________________________________________
Depositor's Social Spouse's Social Security Number
Security Number
2 PLEASE TELL US ABOUT YOUR PRESENT IRA OR RETIREMENT PLAN
Type of account to be transferred:
/ / Individual IRA / / Spousal IRA / / Qualified Retirement Plan
/ / 403(b) Plan Arrangement / / SEP - IRA / / Other____________________
Transfer from:
(Please complete entirely. For more information or questions about your
retirement plan, contact your employer's benefits or personnel
department.)
___________________________________ ________________________________
Account Number Account Registration
___________________________________ ________________________________
Name of Present Trustee/Custodian Name of Employer (if applicable)
___________________________________ ________________________________
Street of Present Trustee/Custodian Plan Name (if applicable)
_______________________________________________ ___________________
City State Zip Code Telephone
-26-
<PAGE> 27
3 PLEASE TELL US WHERE TO INVEST YOUR
IRA OR QUALIFIED RETIREMENT PLAN ASSETS
PLEASE NOTE: If you have deductible and nondeductible IRA
contributions, you may wish to invest in separate accounts.
While these funds may be commingled in a single account,
separate accounts may facilitate the keeping of appropriate
records. Also please note that if you commingle a qualified
plan rollover with annual IRA contributions, you will not be
eligible to rollover the amount to another qualified plan in
the future.
Transfer to: (Please check one of the following.)
A. / / I am opening a new account and have attached a completed
Application.
B. / / Please deposit proceeds in my existing IRA. Complete
information below:
_________________________________ _____________________________________
Existing IRA Account Name Fund Name(s) Account Number
4 IF YOU ARE AGE 70 1/2 OR OLDER, COMPLETE THE FOLLOWING
/ / Yes / / No Required Minimum Distribution has been taken for the current
tax year
Current Election Is:
/ / Single life non-recalculated
/ / Single life recalculated
/ / Joint life non-recalculated
/ / Joint life recalculated (Please fill out beneficiary information
below if you checked this circle)
Beneficiary name______________________________
Beneficiary date of birth_____________________
Beneficiary relationship______________________
5 PLEASE AUTHORIZE YOUR PRESENT TRUSTEE OR CUSTODIAN TO TRANSFER YOUR
RETIREMENT PLAN OR YOUR IRA ASSETS TO THE IRA CUSTODIAN - PNC BANK, NATIONAL
ASSOCIATION
To Present Trustee or Custodian:
Please liquidate / / all or / / part ($___________) of the account listed in
Section 2 above and transfer the proceeds of liquidation ("cash" only, by
check, draft, wire transfer or other form acceptable to the receiving
Custodian) to my new IRA Custodian - PNC Bank, National Association.
I have appointed PNC Bank, National Association as Custodian of my IRA and
authorize you to transfer amounts as indicated above to the new Custodian.
Please send the new Custodian any documents or records needed to complete the
transfer. I understand that I am responsible for the transfer of all assets
to my successor IRA, and that PNC Bank, National Association, and PFPC Inc.
have no duty to enforce the collection of any assets to be transferred to my
Needham IRA.
Your Signature_______________________
Date_________________________________
Signature Guarantee__________________
(if required*)
Date_________________________________
-27-
<PAGE> 28
* Your present trustee or custodian may require your signature to be
guaranteed. Please call them for requirements; the lack of a required
signature guarantee could delay your transfer.
-28-
<PAGE> 29
FOR CUSTODIAN USE ONLY
AUTHORIZED ACCEPTANCE OF PLAN TO BE COMPLETED BY PNC BANK, NATIONAL ASSOCIATION
- - CUSTODIAN
PNC Bank, National Association, as IRA Custodian, will accept the transfer of
assets of the account specified in Item 2 above into an Individual Retirement
Account qualified under the Internal Revenue Code and established for the
benefit of the Depositor named below.
_______________________________________ ______________
Depositor's Name Account Number
_______________________________________ ______________
Account Number
_______________________________________ ______________________________
Authorized Representative Date Telephone Number
PNC Bank, National Association
Please indicate Needham IRA Account Number(s) on all documents sent to us.
Please forward a copy of this form with the transfer proceeds for proper account
identification. If any of the funds represent contributions for the current
calendar year, please specify said amounts.
Make check payable and forward with a copy of this Transfer Authorization Form
to: PNC Bank, National Association - Custodian
FBO:_________________ Needham IRA Account Number:__________
c/o PFPC INC., P.O. Box 8950, Wilmington, DE 19809
-29-
<PAGE> 1
EXHIBIT 15
NEEDHAM GROWTH FUND
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
January 1, 1996
WHEREAS, The Needham Funds, Inc. (the "Company") engages in business as
an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Company may create one or more series of shares, each of
which may hold a portfolio of securities;
WHEREAS, the Company has created one such series, Needham Growth Fund
(the "Fund"), and the Company desires to adopt a Plan of Distribution (the
"Plan") for the Fund pursuant to Rule 12b-1 under the Act and in accordance with
Article III, Section 26 of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and the Directors of the Company have
determined that there is a reasonable likelihood that adoption of this Plan of
Distribution will benefit the Fund and its shareholders; and
WHEREAS, the Company desires to enter into agreements with distributors
and other entities ("Distributors" or "Service Providers") to obtain
distribution services and/or shareholder services for the Fund, it being
understood that the Fund may also pay for any such services outside the Plan to
the extent such services may be paid for outside a 12b-1 plan.
NOW, THEREFORE, the Fund hereby adopts this Plan in accordance with
Rule 12b-1 under the Act and with Article III, Section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. on the
following terms and conditions:
1. The Fund may pay to any Distributor or Service Provider compensation
for services with respect to shares held or purchased by their respective
customers or in connection with the purchase of shares attributable to the
efforts of such Distributor or Service Provider, as the case may be. The amount
of such compensation shall not exceed an annual rate of .25 of 1% of the
aggregate average daily net assets of the Fund and shall be paid at such
intervals as the Directors may determine.
2. The amount set forth in Section 1 may be paid as a service fee to
any Distributors or Service Provider so long as the Fund's records adequately
detail that such amount was paid for personal service and/or the maintenance of
shareholder accounts, which terms include, but are not limited to: compensation
for sales; marketing activities; incentive compensation to Distributors or
Service Providers to obtain distribution services and/or shareholder services;
preparation by the Fund or others of advertising or sales literature and other
promotional activities; servicing shareholder accounts by processing new account
applications and performing other shareholder liaison functions; preparing and
transmitting records of transactions by customers to the Fund's transfer agent;
serving as a source of information to the Fund's shareholders; and preparing,
printing and distributing
<PAGE> 2
prospectuses to those persons not already shareholders of the Fund. Aggregate
payments made under the Plan may exceed distribution and shareholder services
expenses actually incurred.
3. This Plan shall not take effect until the Plan, together with any
related agreement, has been approved by votes of a majority of both (a) the
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and have no direct or
indirect interest in the operation of the Plan or any agreements related to it
(the "Rule 12b-1 Directors") cast in person at a meeting (or meetings) called
for the purpose of voting on the Plan and such related agreements.
4. This Plan shall remain in effect until January 1, 1997 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 3.
5. All persons authorized to direct the disposition of monies paid or
payable by the Fund pursuant to this Plan or any related agreement shall provide
to the Company's Board of Directors, and the Directors shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
6. This Plan may be terminated by the Fund at any time by a vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the
outstanding voting securities of the Fund.
7. This Plan may not be amended to increase materially the amount of
distribution expenses payable pursuant to Section 1 hereof unless such amendment
is approved by a vote of at least a majority (as defined in the Act) of the
outstanding voting securities of the Fund, and no material amendment to the Plan
shall be made unless approved in the manner provided in Section 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
9. The Fund shall preserve copies of this Plan, any related agreements
and all reports made pursuant to Section 5 hereof for a period of not less than
six years from the date of the Plan, any such agreement or any such report, the
first two years in an easily accessible place.
IN WITNESS WHEREOF, the Company has executed this Plan of Distribution
as of the day and year first above written.
The Needham Funds, Inc.
By:
-----------------------------
Raj Rajaratnam
President
-2-
