As filed with the
Securities and Exchange Commission on December 6, 1995
File No. 33-98310
811-9114
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/
Registrant's Telephone Number, including Area Code: (212) 371-8300
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 .
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Calculation of Registration Fee Under the Securities Act of 1933
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Securities Being Price Offering Registration
Being Registered Registered Per Unit Price Fee
- -------------------------------------------------------------------------------------------------
Shares of common Indefinite* $10.00 Indefinite* $1,500.00**
stock in
Needham
Growth Fund
- -------------------------------------------------------------------------------------------------
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* 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.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(a)
Items Required by Form N-1A
Part A Location
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Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
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 . . . . . . . . . *
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* Omitted since answer is negative or inapplicable.
Part B Location
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Statement of Additional
Item No. Item Caption Information Caption
- -------- ------------ -----------------------
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
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* Omitted since answer is negative or inapplicable.
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.
Table of Contents
Caption Page 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 |
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.
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
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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.
SHAREHOLDER AND FUND EXPENSES AND COSTS
SHAREHOLDER TRANSACTION
EXPENSES
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
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TOTAL FUND OPERATING EXPENSES 2.50%
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* Redemption fee applies to shares redeemed or exchanged within six months of purchase.
EXAMPLE:
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
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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.
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
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
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.
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.
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.
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
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.
PURCHASE OF SHARES
BY MAIL INITIAL PURCHASE SUBSEQUENT INVESTMENT
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
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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
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
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
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.
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
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
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.
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
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.
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.
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.
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
--------------------------
----------------------------------------------------------------------------
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*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 ______
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.
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.
TABLE OF CONTENTS
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
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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.
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
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
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
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
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.
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
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
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.
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
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.
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
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.
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
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
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.
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.
Position with Registrant and
Name and Address Age Occupation(s) During Past 5 Years
---------------- --- ---------------------------------
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.
|
[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.
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)
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
---------------- --------------- --------------------- --------------- ------------------
George A. Needham $0 $0 $0 $0
Raj Rajaratnam 0 0 0 0
______________ _______ 0 0 _______
______________ _______ 0 0 _______
______________ _______ 0 0 _______
|
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
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.
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
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
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.
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
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.
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.
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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.
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.
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.
FINANCIAL STATEMENTS
THE NEEDHAM FUNDS, INC.
Statement of Assets and Liabilities
December ___, 1995
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 . . . . . . . . . . . . . . . . . . . . .
--------
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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
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.
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.
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
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.
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.
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.
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.
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.
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:
Exhibit
Number Description
------- -----------
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.
|
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.
|
* Previously filed.
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.
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:
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
------------------ ------------- -------------
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
|
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 |
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.
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.
Signature Title Date
--------- ----- ----
/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)
|
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
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.
|
* Previously filed.
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
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:
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.
|
For Value Received, __________________________ do hereby sell, assign and transfer unto
__________________________________________________________________________Shares of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
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.
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
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.
(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").
(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
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
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
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
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
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
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,
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.
NEEDHAM & COMPANY, INC.
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
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;
(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.
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
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,
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
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
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.
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.
(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
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
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
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;
(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
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.
(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
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
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
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.
(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
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
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
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
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
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.
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
THE NEEDHAM FUNDS, INC.
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
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE - ---------------------------- ---------------------------- - ---------------------------- ---------------------------- - ---------------------------- ---------------------------- - ---------------------------- ---------------------------- - ---------------------------- ---------------------------- - ---------------------------- ---------------------------- |
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
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
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
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
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.
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
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.
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
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.
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
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;
(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
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.
(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.
THE NEEDHAM FUNDS, INC.
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
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE _____________________ _____________________ _____________________ _____________________ _____________________ _____________________ _____________________ _____________________ _____________________ _____________________ _____________________ _____________________ |
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
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
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.
(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
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,
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.
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
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
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;
(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:
(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
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
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
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.
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
(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.
(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.
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
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE - ------------------------ ------------------------ - ------------------------ ------------------------ - ------------------------ ------------------------ - ------------------------ ------------------------ - ------------------------ ------------------------ - ------------------------ ------------------------ |
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 ------------------------ |
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
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.
Executive Vice President
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 |
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-
|
-
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 |
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:
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.
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
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%.
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.
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.
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.
(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
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.
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
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:
(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
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.
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.)
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
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.
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
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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
_______________________________________________ _______________________________
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City State Zip Code City State Zip Code
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.
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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
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.
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
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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
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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
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:
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_________________________________
* 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.
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
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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
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
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.