<PAGE> 1
NEEDHAM GROWTH FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT -- JUNE 1996
July 1996
DEAR SHAREHOLDER,
1996 SECOND QUARTER AND SIX MONTHS RESULTS
We are pleased to report performance results for the Needham Growth Fund
("Fund") for the second quarter and six month periods ended June 30, 1996. For
the second quarter, the Fund rose 12.6% as compared to the 4.5% gain for the S&P
500 and the 4.8% gain for the average equity mutual fund. Combined with the
25.7% gain in the first quarter, the Fund appreciated 41.5% for the six month
period. This six month return was significantly ahead of the 10.1% advance of
the S&P 500 and the 10.8% rise for the average equity mutual fund. During this
same six month period, the average growth mutual fund rose 10.1%.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
BENCHMARKS Q196 Q296 YTD
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEEDHAM GROWTH FUND(1) +25.7% +12.6% +41.5%
S&P 500(2) +5.4 +4.5 +10.1
Dow Jones Industrial Average(2) +9.8 +1.8 +11.8
Russell 2000(2) +4.1 +4.8 +9.7
Average Equity Fund(3) +5.7 +4.8 +10.8
Average Growth Fund(4) +5.4 +4.5 +10.1
-----------------------------------------------------------------------------------------
</TABLE>
(1) Represents aggregate returns not annualized
(2) Investment results calculated after reinvestment of dividends.
Unmanaged indices of common stocks representative of the broader market or
segments thereof.
(3) Source: Lipper Analytical Services and includes reinvestment of all
dividends. Equally weighted unmanaged index of 2005 funds which invest
primarily in equity securities. Index includes funds with a different
focus than the Needham Growth Fund, including the production of current
income.
(4) Source: Lipper Analytical Services and includes reinvestment of all
dividends. Equally weighted unmanaged index of 645 funds which have a
growth of earnings orientation.
<PAGE> 2
NEEDHAM GROWTH FUND
COMPARATIVE INVESTMENT RETURNS
An initial investment of $10,000 as of January 1, 1996 (inception) would be
worth $14,150 as of June 30, 1996.
<TABLE>
<CAPTION>
NASDAQ
Measurement Period Needham Industrial S&P 500
(Fiscal Year Covered) Growth Fund Average Stock Index
<S> <C> <C> <C>
1/2/96 10000.00 10000.00 10000.00
1/15/96 10060.00 9592.81 9695.04
1/31/96 10850.00 9994.11 10151.59
2/15/96 11530.00 10330.16 10561.27
2/29/96 12160.00 10468.64 10386.64
3/15/96 12420.00 10378.60 10324.13
3/29/96 12570.00 10425.99 10454.30
4/15/96 12710.00 10474.63 10257.11
4/30/96 13530.00 11297.17 10538.39
5/15/96 14090.00 11742.35 10722.69
5/31/96 14430.00 11768.00 10820.96
6/14/96 14300.00 11636.73 10760.06
6/28/96 14150.00 11128.20 11010.00
</TABLE>
2
<PAGE> 3
INVESTMENT STRATEGY
We apply primarily a bottom up investment strategy, selecting stocks based on
individual earnings growth prospects rather than on macro economic
considerations. We look for companies with large market opportunities, earnings
growth of at least 20% a year, industry leadership with strong product
offerings, and experienced management teams with a sound strategy and the
incentive to succeed.
We have continued to concentrate our holdings in technology, health care
services, and specialty retailing, sectors we believe have the best long term
growth prospects in the economy. These three sectors accounted for about 85% of
our invested assets at the end of the second quarter. We also continued to
broadly diversify the Fund and no one position accounted for more than 3% of
assets.
While Technology stocks have sharply corrected in recent weeks, we continue to
believe this sector offers the best longer term earnings growth prospects in the
economy. The need for corporate America to continue to improve overall
productivity while rebuilding and enhancing a global telecom infrastructure will
continue to drive demand for solutions. To capitalize on this opportunity we
have built major positions in the computer software and networking equipment
markets, two areas within technology that we have emphasized for high visible
growth and strong product cycles. Core holdings in this sector include: Oracle,
Citrix Systems, Ascend Communications, Cisco Systems and Lucent Technologies.
In Healthcare, we have focused our attention on those companies that are
benefiting from the trends towards physician practice and hospital management,
consolidation, and the need to upgrade management information systems as managed
care providers are forced to be more cost conscious,. Within this sector major
positions include: HBO & Company, Phycor, FPA Management, Theratex, Inc., and
Emcare.
Within Specialty Retailing, we look for quality niche companies within higher
growth markets that have proven concepts, favorable demographics, life style
themes, brand recognition, and positive comparable store sales -- all trends
that generally lead to predictable revenue and earnings growth. Important
investments include: Borders Group, Barnes & Noble, Cannondale, Pep Boys,
Staples, Tommy Hilfiger, GAP and Starbucks.
OUTLOOK
We continue to remain optimistic about the long term potential for growth stocks
considering the favorable economic backdrop. Long term interest rates will
likely remain low, economic growth appears moderate, inflationary pressures
should remain modest, mutual fund flows based on demographics should remain
favorable, and much of the valuation excesses have recently come out of the
stock market.
On a short term basis, however, we have been cautious and defensive since May.
We were concerned about extreme valuations, sharp volatility, rampant
speculation, a strong dollar, and a near term rise in interest rates. It
appeared to us that the market had all the elements in place for a correction,
especially in those sectors dominated by momentum investors. As such, we became
much more selective in our stock choices, upgraded our portfolio in terms of
quality and liquidity, temporarily increased our cash position, and selectively
hedged our portfolio by selling covered options, and purchasing put options on
several indices according to our portfolio weightings. This strategy enabled us
to protect our gains while significantly reducing the Fund's downside risk and
volatility. As a result, when the Nasdaq Composite sold
3
<PAGE> 4
off 4.7% in June, the Fund only declined 1.9%. Through July, the same pattern
has held true as we have significantly outperformed the market.
Looking toward the second half, we will continue to be opportunistic and
purchase quality growth stocks at reasonable valuations. We have begun to take
advantage of the recent correction by initiating new positions and adding to
existing positions at more attractive prices. Selectivity of stocks in terms of
earnings visibility and liquidity will be critical and we will continue to
upgrade the portfolio as the year progresses.
For your information, the Fund recently qualified for a Nasdaq Supplemental
Listing and effective July 17, 1996, the Net Asset Value of the Fund is
available over the Nasdaq Level 1 service distributed by leading market data
vendors (i.e., Quotron, ADP, Shark, Bloomberg, Instinet). The ticker symbol is
"NEEGX" with the CUSIP 63983V100.
We thank you for your continued support and confidence in the NEEDHAM GROWTH
FUND.
Sincerely,
/s/ HOWARD S. SCHACHTER
------------------------------
Howard S. Schachter
Executive Vice President
The above performance data represents past performance and may not be indicative
of future results. The investment return and principal value of an investment in
the Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the cost. This material must be preceded or accompanied
by a copy of the Fund's current prospectus.
4
<PAGE> 5
NEEDHAM GROWTH FUND
STATEMENT OF NET ASSETS -- JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK -- (63.8%)
COMPUTERS -- (1.3%)
Amdahl Corp.* 5,000 $ 53,750
Encad, Inc.*# 4,000 68,000
-----------
121,750
-----------
COMPUTER SOFTWARE -- (12.9%)
Citrix Systems, Inc.* 3,000 114,000
Documentum, Inc.* 3,000 91,500
Electronic Arts, Inc.*# 2,500 66,875
HBO & Co. 2,000 135,500
IKOS Systems, Inc.* 3,500 73,937
Insignia Solutions, Inc. - ADR* 5,000 42,500
JDA Software Group, Inc.* 3,000 61,875
McAfee Associates, Inc.* 1,500 73,500
Oracle Systems Corp.* 3,750 147,890
Planning Sciences International
P.L.C. - ADR* 3,000 67,500
Silicon Valley Research, Inc.* 5,000 29,375
Sybase, Inc.* 3,500 82,687
Systemsoft Corp.*# 4,000 188,000
Transition Systems, Inc.* 2,500 71,250
-----------
1,246,389
-----------
ELECTRONICS &
ELECTRICAL EQUIPMENT -- (2.8%)
Berg Electronics Corp.* 3,500 83,125
Helix Technology Corp.* 1,500 58,125
Lecroy Corp.*# 3,000 60,000
Sawtek, Inc.* 1,000 34,500
Zenith Electronics Corp.*# 2,500 30,313
-----------
266,063
-----------
FINANCIAL SERVICES -- (3.8%)
Associates First Capital Corp.* 3,500 131,687
Security First Network Bank*# 5,000 165,000
Travelers Aetna Property
Casualty Corp., Class A* 2,500 70,937
-----------
367,624
-----------
HOSPITAL MANAGEMENT -- (5.4%)
Apria Healthcare Group, Inc.* 3,000 94,125
Capstone Pharmacy Services* 5,000 64,375
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
HOSPITAL MANAGEMENT -- (5.4%) (CONT'D.)
EmCare Holdings, Inc.* 2,500 $ 74,375
FPA Medical Management, Inc.* 5,000 77,813
Phycor, Inc.* 3,000 114,000
Theratx, Inc.* 5,000 95,000
-----------
519,688
-----------
HOTEL & CASINO -- (4.2%)
MGM Grand, Inc.* 3,000 119,625
Scientific Games Holding, Inc. 3,500 101,500
Suburban Lodges of
America, Inc.* 2,000 46,250
WMS Industries, Inc.* 3,500 86,187
Wyndham Hotel Corp.* 2,500 52,188
-----------
405,750
-----------
MEDICAL DEVICES &
SUPPLIES -- (3.1%)
Baxter International, Inc. 2,500 118,125
Fischer Imaging Corp.* 5,000 60,000
Heartport, Inc.* 1,000 30,250
Kinetic Concepts, Inc. 3,500 54,250
Vidamed, Inc.* 2,500 31,875
-----------
294,500
-----------
NETWORKING &
TELECOMMUNICATIONS -- (10.0%)
Ascend Communications, Inc.* 2,500 140,625
Cisco Systems, Inc.* 3,500 198,187
EIS International, Inc.*# 5,000 127,500
IDT Corp.* 2,500 24,063
Lucent Technologies, Inc. 3,000 113,625
Midcom Communications, Inc.* 2,500 35,938
Premiere Technologies, Inc.* 2,500 78,750
Premisys Communications, Inc.* 2,000 122,000
VTEL Corp.*# 5,000 48,125
Xircom, Inc.* 5,000 73,750
-----------
962,563
-----------
PHARMACEUTICALS -- (0.8%)
Noven Pharmaceuticals, Inc.* 2,000 32,000
U.S. Bioscience, Inc.* 3,500 47,688
-----------
79,688
-----------
</TABLE>
5
<PAGE> 6
NEEDHAM GROWTH FUND
STATEMENT OF NET ASSETS -- JUNE 30, 1996 (UNAUDITED)(CONTINUED)
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK -- (63.8%) (CONT'D.)
RESTAURANTS &
ENTERTAINMENT -- (3.9%)
Dave & Buster's, Inc.* 3,000 $ 80,250
Empire of Carolina, Inc.* 5,000 60,000
Equity Marketing, Inc.* 3,000 47,250
Iwerks Entertainment, Inc.* 5,000 49,375
New World Communications Group,
Inc.* 2,500 36,563
Starbucks Corp.* 3,500 98,875
-----------
372,313
-----------
RETAIL & APPAREL -- (15.6%)
Barnes & Noble, Inc.* 2,500 89,687
Borders Group, Inc.* 3,000 96,750
Brookstone, Inc.* 2,500 28,125
Cannondale Corp.* 3,000 60,750
Consolidated Stores Corp.*# 2,500 91,875
Chico's Fas, Inc.*# 5,000 50,625
CUC International, Inc.* 4,000 142,000
Gap, Inc. 3,500 112,437
Gymboree Corp.* 3,500 106,750
Limited (The), Inc. 3,500 75,250
Pep Boys - Manny, Moe & Jack 3,000 102,000
Staples, Inc.* 5,000 97,500
Sunglass Hut International,
Inc.* 3,500 85,313
Tommy Hilfiger Corp.* 3,000 160,875
TJX Companies, Inc.* 3,500 118,125
Vans, Inc. 5,000 85,000
-----------
1,503,062
-----------
TOTAL COMMON STOCK
(Cost $5,776,040) 6,139,390
-----------
SHORT TERM INVESTMENTS -- (44.0%)
<CAPTION>
PAR
(000)
-------
<S> <C> <C>
TIME DEPOSITS -- (40.5%)
PNC BANK N.A.
Time Deposits, 5.00%,
Due 07/01/96
(Cost $3,900,000) $3,900 3,900,000
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
MONEY MARKET FUNDS -- (3.5%)
Temporary Investment Fund, Inc. -
TempCash Portfolio 170,483 $ 170,483
TempFund Portfolio 170,482 170,482
-----------
(Cost $340,965) 340,965
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $4,240,965) 4,240,965
-----------
CORPORATE BONDS -- (1.1%)
<CAPTION>
PAR
(000)
-------
<S> <C> <C>
The Men's Wearhouse, Inc.
Conv. Deb., 5.25%,
Due 03/01/03
(Cost $100,000) $100 109,000
-----------
PUT OPTIONS PURCHASED -- (2.6%)
<CAPTION>
NUMBER
NAME/EXPIRATION DATE/ OF
STRIKE PRICE CONTRACTS
- ------------------------------ ---------
<S> <C> <C>
CBOE Internet Index,
Sept., $160 31 73,625
Morgan Stanley Health Care
Provider Index, Sept., $305 33 25,988
Morgan Stanley High Tech
Index, Sept., $350 43 130,075
S&P Retail Stores Composite
Index, Sept., $380 26 18,850
-----------
TOTAL PUT OPTIONS PURCHASED
(Cost $199,637) 248,538
-----------
TOTAL INVESTMENTS -- (111.5%)
(Cost $10,316,642) 10,737,893
-----------
</TABLE>
6
<PAGE> 7
NEEDHAM GROWTH FUND
STATEMENT OF NET ASSETS -- JUNE 30, 1996 (UNAUDITED)(CONTINUED)
<TABLE>
<CAPTION>
COVERED CALL OPTIONS WRITTEN -- (-0.9%)
NUMBER
NAME/EXPIRATION DATE/ OF
STRIKE PRICE CONTRACTS VALUE
- ---------------------------- --------- -----------
<S> <C> <C>
Ascend Communications Inc.,
Sept., $65 15 $ (6,188)
Cisco Systems Inc., Oct., $60 25 (10,937)
CUC International Inc., Nov.,
$40 30 (4,500)
EIS International Inc., Nov.,
$35 25 (1,719)
Gymboree Corp., Oct., $40 25 (1,875)
Helix Technology Corp.,
Oct., $40 15 (6,281)
McAfee Associates Inc.,
Sept., $40 15 (17,250)
Pep Boys - Manny, Moe & Jack,
July, $35 20 (1,250)
Phycor, Inc., Sept., $40 30 (8,812)
Premisys Communications Inc.,
Oct., $60 20 (20,250)
Scientific Game Holdings, Inc.,
Nov., $35 25 (4,219)
Starbucks Corp., Oct., $30 25 (6,250)
Sunglass Hut International,
Inc., Sept., $30 25 (2,422)
-----------
TOTAL COVERED CALL OPTIONS WRITTEN
(Premiums Received $97,645) (91,953)
-----------
OTHER LIABILITIES IN EXCESS OF ASSETS -- (-10.6%)
Receivable from Brokers for Securities
Sold Short 909,892
Receivable for Investment Securities Sold 717,137
Other Assets 227,617
Payable for Investment Securities
Purchased (1,849,071)
Securities Sold Short at Value
(Proceeds - $909,892) (832,563)
Other Liabilities (193,596)
-----------
(1,020,584)
-----------
<CAPTION>
VALUE
-----------
<S> <C> <C>
NET ASSETS -- (100%),
(applicable to 680,266 shares
outstanding, $.001 par value,
1,000,000,000 shares authorized) $ 9,625,356
-----------
-----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $14.15
------
------
SCHEDULE OF SECURITIES SOLD SHORT
<CAPTION>
NAME OF ISSUER SHARES
- -------------------------------- -------
<S> <C> <C>
Chico's Fas, Inc. 5,000 $ 50,625
Consolidated Stores Corp. 2,500 91,875
EIS International, Inc. 2,500 63,750
Electronic Arts, Inc. 2,500 66,875
Encad, Inc. 4,000 68,000
Lecroy Corp. 3,000 60,000
Security First Network Bank 5,000 165,000
Systemsoft Corp. 4,000 188,000
VTEL Corp. 5,000 48,125
Zenith Electronics Corp. 2,500 30,313
-----------
TOTAL SECURITIES SOLD SHORT
(Proceeds $909,892) $ 832,563
-----------
-----------
</TABLE>
* Non-Income producing security.
# Security position is either entirely or partially placed in a segregated
account as collateral for securities sold short.
See accompanying notes to financial statements.
7
<PAGE> 8
NEEDHAM GROWTH FUND
STATEMENT OF OPERATIONS
January 1, 1996 (Commencement of Operations) through June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 2,323
Interest 44,324
----------
Total Investment Income 46,647
----------
EXPENSES:
Investment Advisory fee 29,924
Administration and Accounting fee 8,624
Custodian fee 9,689
Transfer Agent fee 6,977
Legal fee 20,448
Directors' fees 13,732
Audit fee 11,237
Distribution fees 6,271
Shareholders' reports 4,959
Other expenses 19,365
----------
Total Expenses 131,226
Expenses Waived and Reimbursable (68,421)
----------
Net Expenses 62,805
----------
NET INVESTMENT LOSS (16,158)
----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT SECURITIES:
Net Realized Gain on Investment Securities 466,540
Net Realized Gain on Investment Securities
Sold Short 372,536
Net Realized Loss on Option Contracts Written (47,242)
Change in Unrealized Appreciation of
Investment Securities 504,272
----------
Net Gain On Investments 1,296,106
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,279,948
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
January 1, 1996 (Commencement of Operations)
through June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment loss $ (16,158)
Net realized gain on investment securities 466,540
Net realized gain on investment securities
sold short 372,536
Net realized loss on option contracts written (47,242)
Change in unrealized appreciation
(depreciation) of investment securities 504,272
----------
Net increase in net assets resulting from
operations 1,279,948
----------
Distributions from:
Net investment income 0
----------
CAPITAL SHARE TRANSACTIONS(1):
Shares issued 8,009,842
Shares redeemed (204,434)
----------
Net increase from capital share transactions 7,805,408
----------
TOTAL INCREASE IN NET ASSETS 9,085,356
NET ASSETS
Beginning of period 540,000
----------
END OF PERIOD $9,625,356
==========
(1) SHARES ISSUED AND REDEEMED:
Shares issued 640,955
Shares redeemed (14,689)
----------
626,266
==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
NEEDHAM GROWTH FUND
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period
(Unaudited)
<TABLE>
<CAPTION>
January 1,
1996
(Commencement
of
operations)
through
June 30, 1996
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (0.02)
Net gain on securities (realized and
unrealized) 4.17
---------
TOTAL FROM INVESTMENT OPERATIONS 4.15
---------
LESS DISTRIBUTIONS
Net investment income 0.00
---------
NET ASSET VALUE, END OF PERIOD $ 14.15
=========
TOTAL RETURN 41.50%#
=========
Net assets, end of period (thousands) $ 9,625
Ratio of expenses to average net assets 2.50%*(a)
Ratio of net investment loss to average
net assets (0.64)%*(a)
Portfolio turnover rate 328.25%#
Average commission rate paid(1) $ 0.0565
</TABLE>
* Annualized
# Not Annualized
(a) Had certain waivers and reimbursements not been in effect, the
ratio of expenses to average net assets for the period would have
been 5.23% and the ratio of net investment loss to average net
assets for the period would have been (3.37%).
(1) Computed by dividing the total amount of brokerage commissions
paid by the total shares of investment securities purchased and
sold during the period for which commissions were charged.
See accompanying notes to financial statements.
9
<PAGE> 10
NEEDHAM GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
Needham Growth Fund (the "Fund") is a portfolio of The Needham Funds, Inc.,
which is registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company. The Needham Funds, Inc.
was organized as a Maryland corporation on October 12, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
Security Valuation: Investments in securities (including options) listed or
traded on a nationally recognized securities exchange are valued at the last
quoted sales price on the date the valuations are made. Securities regularly
traded in the over-the-counter market are valued at the last quoted sales price
on the NASDAQ System. If no sales price is available for a listed or NASDAQ
security, or if the security is not listed on NASDAQ, such security is valued at
a price equal to the mean of the latest bid and ask 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.
Federal Income Taxes: The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
and to distribute all its taxable income to its shareholders. Therefore, no
federal income tax provision is required.
Organizational Costs: Organizational costs have been capitalized and are being
amortized on a straight line basis over a period not exceeding 60 months
beginning at the Fund's commencement of operations.
Other: Security transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and losses on the
sale of investment securities are those of specific securities sold. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
3. INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
The Fund has engaged Needham Investment Management L.L.C. ("the Advisor") to
manage its investments. The Fund pays the Advisor a fee at the annual rate of
1.25% of the average daily net asset value of the Fund.
The Advisor 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. For the six months ended June 30, 1996, the Advisor has waived
its fee of $29,924 and has agreed to reimburse other expenses in the amount of
$38,497.
PFPC, Inc. ("PFPC") acts as the Fund's Administrator. The Fund pays PFPC a fee
at the annual rate of 0.10% of the average daily net asset value of the Fund.
PFPC also acts as the Fund's shareholder servicing agent and transfer agent.
Certain officers and directors of the Fund are also officers and directors of
the Advisor.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
4. DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the plan in effect for the fiscal year
ending December 31, 1996, the Fund will pay Needham & Company, Inc. and any
other distributor or financial institution with which the Fund has an agreement,
a fee at an annual rate of 0.25 of 1% of the Fund's daily net assets. For the
six months ended June 30, 1996, the Fund incurred $6,271 of distribution fees.
5. INVESTMENT TRANSACTIONS
For the six months ended June 30, 1996, the Fund made purchases of $14,668,842
and sales of $9,514,189 in investment securities, excluding short-term
investments.
At June 30, 1996, gross unrealized appreciation and depreciation for financial
reporting and federal income tax purposes of investment securities were $669,266
and $(164,994), respectively. The federal income tax basis of investments is the
same as the book basis.
6. OPTION TRANSACTIONS
The Fund may write call options on securities they own or have the right to
acquire, and may purchase put and call options on individual securities and
indexes written by others. Put and call options give the holder the right to
sell or purchase, respectively, a specified amount of a security at a specified
price on a certain date.
Put and call options purchased are accounted for in the same manner as portfolio
securities. The cost of securities acquired through the exercise of call options
is increased by the premium paid. The proceeds from securities sold through the
exercise of put options are decreased by the premiums paid. Options on stock
indexes differ from options on securities in that the exercise of an option on a
stock index does not involve delivery of the actual underlying security and are
settled in cash only.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. When the Fund enters into a closing purchase transaction, the Fund
realizes a gain or loss equal to the difference between the cost of a closing
purchase transaction and the premium received when the call option was written.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security in determining whether the Fund has a realized
gain or loss. If a put option is exercised, the premium reduces the cost basis
of the security purchased by the Fund.
A summary of put and call options written by the Fund for the six months ended
June 30, 1996 is as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUM
OPTIONS WRITTEN CONTRACTS RECEIVED
- ------------------------------------ --------- --------
<S> <C> <C>
Options outstanding at beginning of
period -- --
Options written 495 $165,214
Options expired -- --
Options exercised (10) (1,908)
Options terminated in closing
transactions (190) (65,661)
---- --------
Options outstanding at June 30, 1996 295 $ 97,645
==== ========
</TABLE>
11
<PAGE> 12
NEEDHAM GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
8. SHORT SALE TRANSACTIONS
The Fund may sell securities short for hedging purposes. During the six months
ended June 30, 1996, the Fund sold securities short 'against the box'. This
occurs when the Fund enters into a short sale while holding an offsetting long
position in the security sold short. An equivalent amount of securities owned by
the Fund are segregated as collateral while the short sale is outstanding. At
June 30, 1996, the market value of securities separately segregated to cover
short positions was $832,563. For financial statement purposes, an amount equal
to the settlement amount is included in the Statement of Net Assets as an asset
and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the short position.
9. COMPONENTS OF NET ASSETS
At June 30, 1996 net assets consisted of:
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<S> <C>
Paid-in Capital $8,345,408
Accumulated Net Investment Loss (16,158)
Accumulated Realized Net Gains 791,834
Net Unrealized Appreciation (Depreciation) of
Investment Securities 504,272
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Total Net Assets $9,625,356
==========
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INVESTMENT ADVISER
Needham Investment Management L.L.C.
445 Park Avenue
New York, NY 10022
DISTRIBUTOR
Needham & Company, Inc.
445 Park Avenue
New York, NY 10022
(212) 371-8300
ADMINISTRATOR, SHAREHOLDER SERVICING
AGENT AND TRANSFER AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 625-7071
CUSTODIAN
PNC Bank, N.A.
200 Stevens Drive,
Airport Business Center
Lester, PA 19113
DIRECTORS
George A. Needham
Raj Rajaratnam
George D. Gould
James P. Poitras
F. Randall Smith
Roger W. Johnson, as of July 18, 1996
EXECUTIVE OFFICERS
Raj Rajaratnam, President
Howard S. Schachter,
Executive Vice President
COUNSEL
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
LOGO
NEEDHAM
GROWTH FUND
SEMI-ANNUAL
REPORT
SIX MONTHS ENDED
JUNE 30, 1996
(UNAUDITED)
ADVISER
NEEDHAM INVESTMENT MANAGEMENT L.L.C.
445 PARK AVENUE
NEW YORK, NEW YORK 10022
For more information call the Fund's Administrator at
1-800-625-7071
