ck0001002537-20231231
THE
NEEDHAM FUNDS, INC.
_______________________________________________
NEEDHAM
GROWTH FUND
Retail
Class (NEEGX)
Institutional
Class
(NEEIX)
NEEDHAM
AGGRESSIVE GROWTH FUND
Retail
Class (NEAGX)
Institutional
Class
(NEAIX)
NEEDHAM
SMALL CAP GROWTH FUND
Retail
Class (NESGX)
Institutional
Class
(NESIX)
250
Park Avenue, 10th
Floor
New
York, New York 10177
_______________________________________________
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STATEMENT
OF ADDITIONAL INFORMATION
April 29,
2024 |
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This
Statement of Additional Information is not a prospectus and should be read in
conjunction with the current Prospectus for the Funds, dated April 29,
2024. It
is intended to provide additional information regarding the activities and
operations of The Needham Funds, Inc. A copy of the Prospectus may be
obtained at no charge by contacting the Funds’ administrator, U.S. Bank Global
Fund Services, P.O. Box 701, Milwaukee, WI 53201-0701 or by calling
1-800-625-7071. This Statement of Additional Information is
incorporated by reference into the Funds’ Prospectus. The financial
statements of each of the Funds for the fiscal year ended December 31,
2023,
appearing in the Funds’ Annual
Report
to Shareholders, and the fiscal period ended June 30, 2023,
appearing in the Fund’s Semi-Annual
Report
to Shareholders, are incorporated by reference herein.
TABLE
OF CONTENTS
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DESCRIPTION
OF THE FUNDS AND INVESTMENT OBJECTIVES AND POLICIES |
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INVESTMENT
RESTRICTIONS |
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INVESTMENT
ADVISER |
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THE
DISTRIBUTOR AND DISTRIBUTION OF THE SHARES |
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ADMINISTRATION
SERVICES, |
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FUND
ACCOUNTING, TRANSFER AGENCY AND OTHER SERVICES |
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PORTFOLIO
MANAGERS |
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PORTFOLIO
TRANSACTIONS AND BROKERAGE |
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MANAGEMENT |
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LEADERSHIP
STRUCTURE AND BOARD OF DIRECTORS |
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RISK
OVERSIGHT |
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Share
Ownership |
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Remuneration |
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Proxy
and Corporate Action Voting Policies and Procedures |
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Codes
of Ethics |
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PURCHASE,
REDEMPTION AND CONVERSION OF SHARES |
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NET
ASSET VALUE |
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TAX-ADVANTAGED
RETIREMENT PLANS |
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TAXES |
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Taxation
of the Funds – In General |
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Capital
Loss Carry-Forwards |
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Taxation
of the Funds’ Investments |
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Taxation
of the Shareholders |
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The
Hiring Incentives to Restore Employment Act |
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Transfer
on Death Registration |
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ORGANIZATION
AND CAPITALIZATION |
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OTHER
INFORMATION |
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FINANCIAL
STATEMENTS |
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DESCRIPTION
OF THE FUNDS AND INVESTMENT OBJECTIVES AND POLICIES
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. This Statement of Additional Information relates to the Growth
Fund, the Aggressive Growth Fund and the Small Cap Growth Fund (each a “Fund”
and collectively, the “Funds”), which are each a series of The Needham Funds,
Inc. The Funds are also diversified as that term is defined in the Investment
Company Act of 1940, as amended (the “1940 Act”). The Funds are each offered on
a no-load basis.
Under
normal conditions, the Growth Fund and the Aggressive Growth Fund each invests
at least 65% of its respective total assets, and the Small Cap Growth Fund
invests at least 80% of its net assets, in the equity securities (principally,
common stock) of domestic issuers listed on a nationally recognized securities
exchange. The Funds consider domestic issuers of equity securities to be
companies located, organized, or with a majority of assets or business in the
United States.
In
addition to the principal investment strategies and techniques and the principal
risks of the Funds described in the Prospectus, the Funds may utilize other
non-principal investment techniques and may be subject to the additional risks
which are described below.
Market
Risk; Market Developments
The
market values of securities or other assets will fluctuate, sometimes sharply
and unpredictably, due to changes in general market conditions, overall economic
trends or events, governmental actions or intervention, political developments,
actions taken by the Federal Reserve or other central banks, market disruptions
caused by trade disputes or other events or circumstances, natural disasters, a
pandemic or other public health crisis, investor sentiment and other factors
that may or may not be related to the issuer of the security or other asset.
Economies and financial markets throughout the world are increasingly
interconnected. Economic, financial or political events; trading and tariff
arrangements; armed conflicts or terrorist activities; wars; economic sanctions
and countermeasures in response to sanctions; major cybersecurity events;
environmental disasters; natural disasters; public health crises; and other
events or circumstances in one country or region could have profound impacts on
global economies or markets. As a result, whether or not a Fund invests in
securities of issuers located in or with significant exposure to the countries
directly affected by such events or circumstances, the value and liquidity of
the Fund’s investments may be negatively affected. Raising the ceiling on U.S.
government debt has become increasingly politicized. Any failure to increase the
total amount that the U.S. government is authorized to borrow could lead to a
default on U.S. government obligations, with unpredictable consequences for
economies and markets in the U.S. and elsewhere. Market volatility, inflation
(or expectations for inflation), deflation (or expectations for deflation),
dramatic interest rate moves and/or unfavorable economic conditions may lower a
Fund’s performance or impair a Fund’s ability to achieve its investment
objective. The Adviser intends to monitor developments and seek to manage the
Funds in a manner consistent with achieving each Fund’s investment objective,
but there can be no assurance that it will be successful in doing
so.
The
rapid and global spread of a novel coronavirus disease (known as “COVID-19”) was
declared a pandemic by the World Health Organization in 2020 and resulted in
volatility in financial markets worldwide; reduced liquidity of many
instruments; border closings and other restrictions on international and, in
some cases, local travel; significant disruptions to business operations,
including disruptions to supply chains, consumer demand and employee
availability, and, in some cases, business closures; strained healthcare
systems; quarantines, health screenings and testing and other measures intended
to contain the spread of COVID-19 affecting individuals, businesses of all
types, certain government operations, public and private educational systems,
and public and private cultural, charitable and other institutions; and
widespread uncertainty regarding the duration and long-term effects of the
pandemic.
Some
sectors of the economy, certain industries and individual issuers have
experienced particularly adverse effects and there may be adverse impacts on the
broader financial and credit markets. Certain risks discussed in the Prospectus
and elsewhere in this SAI may be exacerbated by these circumstances, such as
credit risk, liquidity risk, interest rate risk and the risks of investing in
certain sectors, industries or issuers. Developing or emerging market countries
may be more affected by the COVID-19 pandemic as they may have less established
health care systems and may be less able to control or mitigate the effects of
the pandemic.
The
U.S. government and the Federal Reserve, as well as certain other governments
and central banks, have taken extraordinary actions to support local and global
economies and the financial markets in response to the COVID-19 pandemic. These
actions have resulted in significant expansion of public debt, including in the
U.S., the long term consequences of which are not known. Actions taken to-date
and future government intervention in the economy and financial markets intended
to address the COVID-19 pandemic may not be successful, particularly if the
efforts are perceived by investors as being unlikely to achieve the desired
results. Further Federal Reserve actions in response to market conditions,
including with respect to interest rates, may adversely affect the value,
volatility and liquidity of dividend and interest paying securities in
particular. Extraordinary government actions have contributed, and may continue
to contribute, to market volatility, which may result in heightened volatility
and/or losses in the value of the Funds' investments.
The
direct and indirect impact of the COVID-19 pandemic may last for an extended
period of time. The ultimate economic fallout from the pandemic, including the
long-term impact on economies, markets, industries and individual issuers, are
not known. The COVID-19 pandemic may result, in the U.S. and worldwide, in a
sustained economic downturn or recession, disruption to financial markets,
political and social instability, damage to diplomatic and international trade
relations and increased volatility and/or decreased liquidity in the securities
markets. The COVID-19 pandemic could adversely impact the Funds, including the
value and liquidity of a Fund’s investments, a Fund’s ability to satisfy
redemption requests or Fund performance.
Debt
Securities
The
Funds 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. Under normal
conditions, the Growth Fund and the Aggressive Growth Fund may invest a maximum
of 35% of their total assets in debt securities and the Small Cap Growth Fund
may invest a maximum of 20% of its net assets in debt securities.
Lower-Rated
Debt Securities
The
Funds may purchase lower-rated debt securities, sometimes referred to as “junk”
or “high yield bonds” (those rated BB or lower by Standard & Poor’s Ratings
Group (“S&P”) or Ba or lower by Moody’s Investors Service, Inc.
(“Moody’s”)). However, no more than 10% of each Fund’s total assets
(such 10% also being included in the 35% or 20% limitation, respectively, stated
above) may be invested in non-investment grade debt securities. 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 fluctuates 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.
The
lower ratings of certain securities held by the Funds 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 the ability of the issuer to make timely payments, could lessen
liquidity and limit the Funds’ ability to sell these securities at prices
approximating the values placed on such securities. In the absence of
a liquid trading market for securities held by the Funds, it may be difficult to
establish the fair market value of these securities. The rating
assigned to a security by Moody’s or S&P 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
Funds may invest 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, a
Fund may be required to take possession of and manage assets securing the
issuer’s obligations on such securities. This may increase the Fund’s
operating expenses and adversely affect the Fund’s net asset
value. The Funds may also be limited in their ability to enforce
their rights and may incur greater costs in enforcing their 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. The amount
of this discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Even though zero-coupon securities do not pay current
interest in cash, the Funds are nonetheless required to accrue interest income
on them and to distribute the amount of that interest at least annually to their
respective shareholders. Thus, the Funds could be required at times
to liquidate other investments in order to satisfy their distribution
requirements. The market prices of these securities generally are more volatile
and are likely to respond to a greater degree to changes in interest rates than
the market price of securities that pay interest periodically having similar
maturities and credit qualities.
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.
Risks
of Debt Securities
General.
Yield on debt securities, including municipal securities, are
dependent on a variety of factors, including the general conditions of the debt
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Debt securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities.
Certain
debt securities may be subject to extension risk, which refers to the change in
total return on a security resulting from an extension or abbreviation of the
security’s maturity. Issuers may prepay fixed rate debt securities
when interest rates fall, forcing a Fund to invest in securities with lower
interest rates. Issuers of debt securities are also subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors that may restrict the ability of the issuer to pay, when
due, the principal of and interest on its debt securities. The
possibility exists therefore, that, as a result of bankruptcy, litigation or
other conditions, the ability of an issuer to pay, when due, the principal of
and interest on its debt securities may become impaired.
Interest
Rate Risk.
The market value of the interest-bearing debt securities held by a
Fund will be affected by changes in interest rates. There is normally
an inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The
longer the remaining maturity (and duration) of a security, the more sensitive
the security is to changes in interest rates. All debt securities,
including U.S. government securities, can change in value when there is a change
in interest rates. As a result, an investment in a Fund is subject to
risk even if all debt securities in the Fund’s investment portfolio are paid in
full at maturity.
Credit
Risk.
Changes in the ability of an issuer to make payments of interest and
principal and in the markets’ perception of an issuer’s creditworthiness will
also affect the market value of that issuer’s debt securities. The
financial condition of an issuer of a debt security held by a Fund may cause it
to default on interest or principal payments due on a security. This
risk generally increases as security credit ratings fall.
Convertible
Securities
The
Funds 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 common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock, although typically not as much as
the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As
debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero-coupon securities, accretion of income)
with generally higher yields than common stocks. However, convertible
securities generally offer lower yields than non-convertible debt 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
securities
typically have lower ratings than similar non-convertible
securities.
Foreign
Securities
As
described in the Prospectus, the Funds may invest in foreign securities,
including depositary receipts. Certain of the Funds’ investments may be in
securities of 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 each Fund’s 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, by investing in foreign securities, the Funds 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 Funds 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 Funds’ securities denominated in that
currency. Such changes will also affect the Funds’ income and
distributions to shareholders. The Funds may be affected either
favorably or unfavorably by fluctuations in the relative rates of exchange
between the currencies of different nations and the Funds 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 Funds 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 Funds 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 a Fund’s portfolio securities are denominated may have a
detrimental impact on that 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 United States. There is generally less
government supervision and regulation for exchanges, financial institutions and
issuers in foreign countries than there is in the United
States. 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 Funds are uninvested and no return is earned
thereon. The inability of the Funds to make intended securities
purchases due to settlement problems could cause the Funds to miss attractive
investment opportunities. Inability of the Funds to dispose of a
security due to settlement problems could also result either in losses to the
Funds due to subsequent declines in value of the security or, if the Funds have
entered into a contract to sell the securities, could result in possible
liability to the purchaser.
Foreign
securities such as those purchased by the Funds 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.
In
June 2016, the United Kingdom (the “UK”) held a referendum resulting in a vote
in favor of the exit of the UK from the European Union (the “EU”), known as
“Brexit”. On March 29, 2017, the UK triggered the withdrawal procedures in
Article 50 of the Treaty of Lisbon which provides for a two-year negotiation
period between the EU and the withdrawing member state. Accordingly, it was
initially anticipated that the UK would cease to be a member of the EU by the
end of March 2019; however, this was subsequently extended to January 31, 2020.
Following this date, the UK ceased to be a member of the EU and the EU-UK
Withdrawal Agreement came into force, under which EU law still had effect in the
UK during a transitional period. This transitional period concluded on December
31, 2020, and the UK left the EU single market and customs union under the terms
of a new trade agreement. The agreement governs the new relationship between the
UK and EU with respect to trading goods and services, but critical aspects of
the relationship remain unresolved and subject to further negotiation and
agreement. The full scope and nature of the consequences of the UK’s exit are
not known at this time and are unlikely to be known for a significant period of
time. The current uncertainty and related future developments could have a
negative impact on both the UK economy and the economies of other countries in
Europe, as well as greater volatility in the global financial and currency
markets. It is also unknown whether the UK’s exit from the EU will increase the
likelihood of other countries also departing the EU. Any additional exits from
the EU, or the possibility of such exits, may have a significant impact on
European and global economies, which may result in increased volatility and
illiquidity, new legal and regulatory uncertainties and potentially lower
economic growth. It is not possible to ascertain the precise impact these events
may have on a Fund or its investments from an economic, financial, tax or
regulatory perspective but any such impact could have material consequences for
the Funds and their investments.
Whether
or not a Fund invests in securities of issuers located in Europe or has
significant exposure to European issuers or countries, these events could
negatively affect the value and liquidity of the Fund’s investment.
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 Funds
with regard to overall diversification strategies. Although the Funds
value their respective assets daily in terms of U.S. dollars, they do not intend
to physically convert their holdings of foreign currencies into U.S. dollars on
a daily basis. The Funds 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 a Fund at one rate while offering a lesser rate of
exchange should that Fund desire to resell that currency to the
dealer. Each 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 Funds will conduct their 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 Funds 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 Funds are obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency.
If
a 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.
Options,
Futures and Forward Contracts
The
Funds may use hedging techniques, such as the buying and selling of options and
futures contracts, where appropriate, to reduce some of the high volatility
inherent to rapidly changing markets and industries. A Fund may also buy and
sell options and futures contracts to manage its exposure to changing interest
rates, currency exchange rates and precious metals prices. Additionally, the
Funds may enter into forward contracts as a hedge against future fluctuations in
foreign exchange rates. The Funds may buy and sell stock index futures contracts
or related options in anticipation of general market or market sector movements.
The Funds may also invest in indexed securities or related options, the value of
which 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 Funds 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 domestic and foreign exchanges and options not
traded on any exchange. However, a 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 Funds may engage in these
kinds of transactions to an unlimited extent for hedging purposes.
Forward
Foreign Currency Exchange Contracts
The
Funds 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
Funds may enter into forward contracts under various
circumstances. For example, a 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, a 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 Funds 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
Funds 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 Funds are permitted to enter into forward
contracts with respect to currencies in which certain of their respective
portfolio securities are denominated and on which options have been
written.
In
certain of the above circumstances a Fund may have realized fewer gains than had
that 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.
U.S.
Bank, N.A., the Funds’ Custodian (as
hereinafter defined),
will place cash or liquid equity or debt securities into a segregated account of
each Fund in an amount equal to the value of that 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 that 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 a 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 Funds’ 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 Funds against
fluctuations in the value of securities in which the Funds are 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 Funds may each incur a loss on their respective
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 Funds’ ability to terminate options and futures positions as
desired. There can be no assurance that there will be a sufficiently
liquid market for the Funds to effect closing transactions at any particular
time or at an acceptable price. If a Fund cannot close a futures
position, or if limitations imposed by an exchange or board of trade on which
futures contracts are traded prevent that Fund from closing out a contract, that
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 involves the risk that the Funds 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 Funds purchase 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 Funds, 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
Funds may write covered call options on underlying portfolio securities, whether
equity or debt, on stock or bond indices and on currencies in which the Funds
invest. 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 for a particular Fund if that Fund (i)
owns the security or currency underlying the written option, (ii) holds a call
option on the underlying security, currency or index with a similar exercise
price or (iii) maintains sufficient cash, cash equivalents or liquid high-grade
securities sufficient to cover the market value of the option.
The
Funds may also write covered put options. This technique will be used
when a 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 Funds may also sell covered puts for
achieving incremental income. A put will be considered covered for a
particular Fund if that Fund (i) maintains cash, cash equivalents or liquid,
high-grade debt obligations sufficient to cover the exercise price of the
option, (ii) 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 (iii)
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 calculating the 5% limitation
on options, futures and forward transactions, other than for hedging purposes,
each Fund shall include the premiums paid on options and options on futures
(excluding in-the-money amounts on such options) and the initial margin deposits
on its futures positions.
In
order to fix the cost of future purchases, the Funds may purchase calls on
equity and debt securities that the Adviser intends to include in the Funds’
portfolios. 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 Funds may purchase
puts to hedge against a decline in the market value of portfolio
securities.
Rule
18f-4
The
Securities and Exchange Commission (the “SEC”) adopted Rule 18f-4 under the 1940
Act, which, effective August 18, 2022, regulates the use of derivatives for
certain funds registered under the 1940 Act. The rule defines "derivatives
transactions" as (i) any swap, security-based swap, futures contract, forward
contract, option, any combination of the foregoing, or any similar instrument
("derivatives instrument"), under which a fund is or may be required to make any
payment or delivery of cash or other assets during the life of the instrument or
at maturity or early termination, whether as margin or settlement payment or
otherwise; (ii) investment in a security on a when-issued or forward-settling
basis, or with a non-standard settlement cycle, unless (a) the fund intends to
physically settle the transaction and (b) the transaction will settle within 35
days of its trade date; (iii) any short sale borrowing; and (iv) any reverse
repurchase agreement or similar financing transactions if a fund relies on Rule
18f-4(d)(1)(ii) and therefore is required to treat its reverse repurchase
agreements and similar financing transactions as derivatives transactions.
Unless a Fund qualifies as a “limited derivatives transactions user” as defined
in Rule 18f-4, the rule would, among other things, require the Fund to establish
a comprehensive derivatives risk management program (“DRM Program”) administered
by a board-approved derivatives risk manager, to comply with certain
value-at-risk (“VaR”) based leverage limits and to provide additional disclosure
both publicly and to the SEC regarding its derivatives positions. If a Fund
qualifies as a limited derivatives user, the Fund is not required to adopt a DRM
Program or otherwise comply with a VaR test if it adopts and implements policies
and procedures reasonably designed to manage the Fund's derivatives risks. A
Fund will qualify as a "limited derivatives user" if its derivative exposure
does not exceed 10% of its net assets, excluding derivatives transactions used
to hedge certain currency and interest rate risks. The rule defines the term
"derivatives exposure" to mean the sum of: (1) the gross notional
amounts
of a fund's derivatives transactions and (2) in the case of short sale
borrowings, the value of any asset sold short. Derivatives instruments that do
not involve future payment obligations—and therefore are not a "derivatives
transaction" under the rule—are not included in a Fund's derivatives
exposure.
The
Funds have each been deemed to be a "limited derivatives user" and the board for
the Funds has adopted and implemented policies and procedures reasonably
designed to manage the Funds' derivatives risks, including counterparty risk,
leverage risk, liquidity risk, market risk, operational risk, and legal
risk.
Investments
in New Issues
The
Funds are permitted to invest in U.S. equity securities that are offered in
initial public offerings (also referred to as “new issue” securities). New issue
securities have no trading history, and there may be less public information
about the companies. In addition, the prices of new issue securities may be
highly volatile or may decline shortly after the initial public offering. New
issues may also be subject to varying patterns of trading volume and may, at
times, be difficult to sell. When an initial public offering is brought to the
market, availability may be limited and the Funds may not be able to buy any
shares at the offering price.
Repurchase
Agreements and Reverse Repurchase Agreements
The
Funds will only enter into repurchase agreements where (i) the underlying
securities are of the type which the Funds’ investment policies would allow the
Funds to purchase directly, (ii) the market value of the underlying security,
including accrued interest, will at all times be 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. A 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 its net assets would then be
invested in such repurchase agreements and other illiquid
securities.
The
Funds may enter into reverse repurchase agreements in which the Funds sell
securities and agree to repurchase them at a mutually agreed date and
price. Generally, the Funds 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 to a
Fund 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 Funds are obligated to repurchase under the agreement may decline below
the repurchase price. In the event the other party under a reverse
repurchase agreement becomes bankrupt or insolvent, the Funds’ 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 Funds’ obligation to
repurchase the securities.
Securities
Lending
The
Funds may lend their respective portfolio securities, provided that with regard
to each Fund (i) 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, (ii) the Fund may at any time call the loan and regain the securities
loaned, (iii) the Fund will receive any interest or dividends paid on the loaned
securities, and (iv) the aggregate market value of securities loaned will not at
any time exceed such percentage of the total assets of the Fund as the
Board
of Directors (the “Board” or the “Directors”)
may establish, but not to exceed 20%. 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
a 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
Funds 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
Funds’ ability to hedge effectively all or a portion of their securities depends
upon the ability of the Adviser to predict correctly the degree to which price
movements of securities held in the Funds’ portfolios 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
Funds.
Real
Estate Investment Trusts (REITs)
The
Funds may invest in REITs. A REIT is a corporation, or a business trust that
would otherwise be taxed as a corporation, which meets the definitional
requirements of the United States Internal Revenue Code of 1986, as amended (the
“Code”). The Code permits a qualifying REIT to deduct dividends paid, thereby
effectively eliminating corporate level federal income tax and making the REIT a
pass-through vehicle for federal income tax purposes. To meet the definitional
requirements of the Code, a REIT must, among other things, invest substantially
all of its assets in interests in real estate (including mortgages and other
REITs) or cash and government securities, derive most of its income from rents
from real property or interest on loans secured by mortgages on real property,
and distribute to shareholders annually a substantial portion of its otherwise
taxable income.
REITs
are characterized as equity REITs, mortgage REITs and hybrid REITs. Equity REITs
invest primarily in the fee ownership or leasehold ownership of land and
buildings and derive their income primarily from rental income. Equity REITs
also can realize capital gains (or losses) by selling properties that have
appreciated (or depreciated) in value. Mortgage REITs can hold real estate
mortgage investment conduit (“REMIC”) regular interests and can hold or make
construction, development or long-term mortgage loans and are sensitive to the
credit quality of the borrower. Mortgage REITs derive their income from interest
payments on such loans or REMIC interests. Hybrid REITs combine the
characteristics of both equity and mortgage REITs, generally by holding both
ownership interests and mortgage interests in real estate. The value of
securities issued by REITs is affected by tax and regulatory requirements and by
perceptions of management skill. They also are subject to heavy cash flow
dependency, defaults by borrowers or tenants, self-liquidation and the
possibility of failing to qualify for tax-free status under the Code or to
maintain exemption from the 1940 Act. A Fund will indirectly bear its
proportionate share of expenses, including management fees, paid by each REIT in
which it invests in addition to the expenses of the Fund.
Other
Permitted Investments
The
Funds may invest in securities issued by other investment companies within the
limits prescribed by the 1940 Act and applicable rules thereunder. The
Funds may invest in exchange-traded funds (“ETFs”). ETFs are
investment companies that are bought and sold on a securities
exchange. Many ETFs represent a portfolio of securities designed to
track a particular market segment or index. The risks of owning an
ETF generally reflect the risks of owning the underlying securities and ETFs
have management fees that increase their costs versus the costs of owning the
underlying securities directly.
Rule
12d1-4 under the 1940 Act allows a Fund to acquire the securities of another
investment company, including ETFs, in excess of the limitations imposed by
Section 12 of the 1940 Act without obtaining an exemptive order from the SEC,
subject to certain limitations and conditions. While Rule 12d1-4 permits more
types of fund of funds arrangements without an exemptive order, it imposes
certain conditions on funds and their advisers, including
limits
on control and voting of acquired funds’ shares, evaluations and findings by the
advisers and limits on most three-tier fund structures.
In
addition to the management and operational fees the Funds bear directly in
connection with their own operation, a Fund will also bear its pro rata portion
of the advisory and operational expenses incurred indirectly through its
investments in other investment companies including
ETFs.
The
Funds 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 a 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 that Fund at the time of entering into the
transaction.
Each
Fund may also invest up to 15% of its net assets in illiquid securities,
including restricted securities, (i.e., securities that are not readily
marketable without registration under the Securities Act of 1933, as amended
(the “1933 Act”)) and other securities that are not readily
marketable. The Funds may purchase restricted securities that can be
offered and sold to “qualified institutional buyers” under Rule 144A of the 1933
Act.
Liquidity
Risk
The
Funds may be subject to liquidity risk primarily due to investments in
derivatives. Each Fund may invest up to 15% of its net assets in illiquid
securities or instruments. Derivatives, such as swaps, options and warrants, may
not be readily marketable and, therefore, may be deemed to be illiquid.
Investments in illiquid assets involve the risk that the Fund may be unable to
sell the asset or sell it at a reasonable price. In addition, the Fund may be
required to liquidate positions or close out derivatives on unfavorable terms at
a time contrary to the interests of the Fund in order to raise cash to pay
redemptions.
Pursuant
to Rule 22e-4 under the 1940 Act (the “Liquidity Rule”), the Funds have adopted
a liquidity risk management program and related procedures to identify illiquid
investments pursuant to the rule. In connection with the implementation of the
Liquidity Rule, the term “illiquid security” is defined as a security which a
Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the security. If the limitation on
illiquid securities is exceeded, other than by a change in market values, the
condition will be reported to the Board and, when required by the Liquidity
Rule, to the SEC.
An
investment in derivatives is also subject to the risk that a Fund may not be
able to terminate the derivatives effective on whatever date it chooses, or that
the settlement of any early termination may depend on subsequent market
movements. As a result, a Fund may be exposed to the risk of additional losses
due to such delays.
Cybersecurity
Risk
The
Funds and their service providers are susceptible to operational and information
security and related risks of cybersecurity incidents. In general, cybersecurity
incidents can result from deliberate attacks or unintentional events.
Cybersecurity attacks include, but are not limited to, gaining unauthorized
access to digital systems (e.g., through “hacking” or malicious software coding)
for purposes of misappropriating assets or sensitive information, corrupting
data or causing operational disruption. Cybersecurity attacks also may be
carried out in a manner that does not require gaining unauthorized access, such
as causing denial of service attacks on websites (i.e., efforts to make services
unavailable to intended users). Cybersecurity incidents affecting the Adviser,
Transfer Agent (as
hereinafter defined)
or Custodian or other service providers, such as financial intermediaries, have
the ability to cause disruptions and impact business operations, potentially
resulting in financial losses, including by impediments to a Fund’s investment
trading; the inability of Fund shareholders to purchase and redeem Fund shares;
interference with a Fund’s ability to calculate its
net asset value;
violations of applicable privacy, data security or other laws; regulatory fines
and penalties; reputational damage; reimbursement or other compensation or
remediation costs; legal fees; or additional compliance costs. Similar adverse
consequences could result from cybersecurity incidents affecting issuers of
securities in which a Fund invests; counterparties with which a Fund engages in
transactions; governmental and other regulatory authorities; exchange and other
financial market
operators;
and banks, brokers, dealers, insurance companies and other financial
institutions and other parties. There are inherent limitations in any
cybersecurity risk management system or business continuity plan, including the
possibility that certain risks have not been identified.
Portfolio
Holdings
Each
Fund will publicly disclose its portfolio holdings on a calendar quarter-end
basis, no earlier than 10 calendar days after such quarter end, on its website
accessible at www.needhamfunds.com under “Mutual Funds” then “Portfolio” under
the listed information for each Fund. The ten largest equity holdings of each
Fund also include the percentage of that Fund’s net assets that each holding
represents. The portfolio holdings information will remain accessible online at
least until each Fund files a report as an exhibit to Form N-PORT or on Form
N-CSR for the period that includes the date as of which the information was
current.
The
Adviser and the Funds maintain a portfolio holdings disclosure policy that
governs the disclosure of information regarding the portfolio holdings of the
Funds. This policy has been approved and adopted by the Board.
The
portfolio holdings disclosure policy prohibits the release of nonpublic
information concerning portfolio holdings of the Funds to individual investors,
institutional investors, intermediaries that provide services to Fund
shareholders, rating and ranking organizations, service providers and all other
parties that are not Directors or officers of the Funds, except in the following
circumstances:
(A) From
time to time, fund rating companies such as Morningstar, Inc. may request
complete portfolio holdings information in connection with rating the Funds. The
Funds believe that these third parties have legitimate objectives in requesting
such portfolio holdings information. To prevent the potential misuse of any
nonpublic portfolio holdings information, the Funds generally will permit the
disclosure of such information to fund rating companies only as of the end of
the most recent calendar quarter, with a lag of at least ten (10) days. In
addition, the Funds’ Chief Compliance Officer, on a case by case basis, may
permit additional disclosure of nonpublic portfolio holdings information to fund
rating companies at differing times, with a lag of at least ten (10)
days.
(B) The
Funds’ service providers, such as its Adviser and the Distributor (as
hereinafter defined) and their employees and other affiliates; the Funds’
custodian, fund accountant, administrator, liquidity classification agent,
transfer agent, legal counsel and independent auditors, all of which are subject
to duties of confidentiality, including a duty not to disclose or trade on
nonpublic information, whether imposed by law, contract, compliance policies and
procedures and/or professional standards, may receive nonpublic portfolio
holdings information (with no time lag) in connection with providing their
services to the Funds. The Funds’ custodian, fund accountant and administrator
have continuous access to the Funds’ portfolio holdings.
(C) Circumstances
in which the Funds are required by applicable law or regulation or by judicial
or administrative process to disclose such information to a governmental or
regulatory authority.
(D) Other
circumstances, but only after the Funds’ Chief Compliance Officer has approved
the disclosure after determining that: (i) both the person requesting the
disclosure and the Funds have legitimate business purposes for the disclosure
(the Funds have a legitimate business purpose only if the Chief Compliance
Officer determines that the disclosure of portfolio holdings information is
necessary or useful to the Funds, and the Company’s officers and legal counsel
may assist the Chief Compliance Officer in determining whether there is a
legitimate business purpose for the disclosure); (ii) the disclosure is in the
best interest of the Funds and their shareholders; and (iii) the recipient is
subject to an agreement that requires: (1) the recipient and, if applicable, its
employees, to keep the nonpublic information confidential and not to purchase or
sell the Funds’ shares or the Funds’ portfolio holdings, and to not provide
access to the information to any party not already authorized to receive the
information pursuant to this policy, in each case before one day after the
portfolio holdings are disclosed on the Funds’ website or the portfolio holdings
otherwise become public; and (2) that the recipient will not use the information
to facilitate or assist in any investment program.
There
are currently no ongoing arrangements to make available information about the
Funds’ portfolio securities, other than as described above, except that the
Funds may disclose summary and statistical information, including, but not
limited to, sector weightings, that does not identify specific portfolio
holdings, if such disclosure is otherwise in accordance with the general
principles set forth in the Funds’ policy. None of the Funds, the Adviser
or
any affiliate of the Adviser or any of their respective employees nor any other
parties receive any compensation or other consideration in connection with the
disclosure of the Funds’ portfolio holdings information. The Board receives and
reviews at least annually a list of persons (in addition to those described
above in (A), (B) or (C), if any) approved to receive nonpublic portfolio
holdings information and the purpose for which it has been furnished. The Funds’
Chief Compliance Officer monitors dissemination of the Funds’ portfolio holdings
information for compliance with the Funds’ policy and to address potential
conflicts of interest that could arise between the interests of the Funds’
shareholders and the interests of the Adviser and its affiliates.
INVESTMENT
RESTRICTIONS
The
following investment restrictions have been adopted by each Fund as fundamental
policies and may only be changed with regard to each Fund by the affirmative
vote of a majority of that Fund’s outstanding shares. The term
“majority of that Fund’s outstanding shares” means the vote of (i) 67% or more
of that Fund’s shares present at a meeting, if the holders of more than 50% of
the outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund’s outstanding shares, whichever is less.
These
investment restrictions provide that each Fund may not:
1.Make
investments for the purpose of exercising control or management of the
issuer;
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 a 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 issuance of securities (except to the extent that the Fund may be deemed to
be an underwriter within the meaning of the 1933 Act in the disposition of
restricted securities);
7.Make
loans of its securities exceeding 20% of its total assets;
8.Invest
25% or more of its net assets in one or more issuers conducting their principal
business in the same industry;
9.Hold
more than 10% of the outstanding voting securities of any single issuer (this
fundamental policy applies only with respect to 75% of the Fund’s total assets
and does not apply to securities issued or guaranteed by the U.S. Government, or
its agencies or instrumentalities and securities of other investment companies);
and
10.Invest
more than 5% of its assets in the obligations of any single issuer, except that
up to 25% of the value of the Fund’s total assets may be invested, and
securities issued or guaranteed by the U.S. Government or
its
agencies or instrumentalities and securities of other investment companies may
be purchased, without regard to any such limitation.
As
matters of non-fundamental policy, each Fund may not:
1.With
respect to 75% of the value of its total assets, purchase more than 10% of the
outstanding voting securities of any issuer;
2.Sell
short securities the underlying value of which exceeds 25% of the value of the
net assets of the Fund. Any short sale up to such limit must be fully
collateralized and each Fund will also limit its short sales in any one issuer’s
securities to 2% of the value of the Funds’ net assets and will not sell short
more than 2% of any one class of the issuer’s securities;
3.Invest
in real estate limited partnerships not traded on a national securities
exchange, except that a Fund may purchase or sell securities issued by entities
engaged in the real estate industry or instruments backed by real
estate;
4.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 any warrants in which the Fund is short
“against the box” will be netted for purposes of this 5% limitation;
and
5.Invest
more than 35% (20% of net assets in the case of the Small Cap Growth Fund) of
its total assets in debt securities and invest more than 10% of its total assets
in non-investment grade debt securities (such 10% limitation to be included in
the 35% (20% of net assets in the case of the Small Cap Growth Fund)
limitation).
These
restrictions are not fundamental policies and may be changed with respect to any
Fund by the Board without a shareholder vote, to the extent permitted by
applicable law including rules of the SEC. Except as otherwise may be
specifically stated herein, the Funds’ 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 at any time without a shareholder
vote if and to the extent any such changes are consistent with the requirements
of the 1940 Act.
Except
with respect to the limitations on borrowing, 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 affected Fund shall, however, reduce its holdings
of illiquid securities in an orderly fashion in order to maintain adequate
liquidity.
INVESTMENT
ADVISER
The
investment adviser of the Funds is Needham Investment Management LLC (the
“Adviser”), a Delaware limited liability company, pursuant to a Restated
Investment Advisory Agreement with The Needham Funds, Inc., dated as of October
21, 2004, together with a Fee Waiver and Expense Reimbursement Agreement between
the Funds and the Adviser (the “Advisory Agreement”). The Adviser
furnishes investment programs for the Funds and determines, subject to the
overall supervision and review of the Board, what investments should be
purchased, sold and held. The Adviser is one hundred percent (100%)
owned by Needham Asset Management, LLC, which is wholly-owned by Needham
Holdings, LLC (which in turn is wholly-owned by the parent holding company, The
Needham Group, Inc.). George A. Needham may be deemed to be a control person of
Needham Asset Management, LLC based upon his position as an officer, director
and/or stockholder of that entity or a controlling entity. See
“Management” and “The Distributor and Distribution of the Shares” in this
Statement of Additional Information.
Under
the terms of the Advisory Agreement, and at the direction of the Board, the
Adviser maintains records and furnishes or causes to be furnished all required
reports or other information concerning the Funds to the extent such records,
reports and other information are not maintained by the Funds’ Administrator,
Custodian or other agents.
The
Adviser provides the Funds with office space, facilities and certain business
equipment and provides the services of consultants and executive and clerical
personnel for administering the affairs of the Funds. The Adviser
compensates all executive and clerical personnel and Directors of The Needham
Funds, Inc. if such persons are employees or affiliates of the Adviser or its
affiliates.
The
expenses borne by each Fund include: the charges and expenses of the shareholder
servicing and dividend disbursing agent; custodian fees and expenses; legal and
auditors’ fees and expenses; brokerage commissions for portfolio transactions;
taxes, if any; the advisory fee; extraordinary expenses (as determined by the
Board); 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 Amended and Restated Plan of Distribution (the “Plan”); fees of
Directors who are not affiliated with the Adviser; fidelity bond and errors and
omissions insurance premiums; the cost of maintaining the books and records of
that Fund; and any other charges and fees not specifically enumerated as an
obligation of the Distributor (as hereinafter defined) or Adviser.
The
fee payable by each Fund to the Adviser is accrued daily and paid
monthly.
For
the fiscal years ended December 31, 2023, 2022, and 2021, the Funds paid the
following advisory fees:
|
|
|
|
|
|
|
|
|
|
|
| |
| Fiscal
Year Ended December 31, |
|
| 2023 |
2022 |
2021 |
|
Growth
Fund |
|
|
| |
Fees
Accrued by Adviser |
$ |
1,660,669 |
| $ |
1,802,550 |
| $ |
2,092,174 |
| |
Fees
Waived/Reimbursed |
$ |
63,757 |
| $ |
163,006 |
| $ |
76,378 |
| |
Fees
Recouped |
$ |
— |
| $ |
36,285 |
| $ |
— |
| |
Net
Fees Paid to Adviser |
$ |
1,596,912 |
| $ |
1,675,829 |
| $ |
2,015,796 |
| |
Aggressive
Growth Fund |
|
|
| |
Fees
Accrued by Adviser |
$ |
2,789,139 |
| $ |
1,755,716 |
| $ |
1,156,189 |
| |
Fees
Waived/Reimbursed |
$ |
486,365 |
| $ |
371,424 |
| $ |
169,327 |
| |
Fees
Recouped |
$ |
30,657 |
| $ |
80,996 |
| $ |
17,527 |
| |
Net
Fees Paid to Adviser |
$ |
2,342,431 |
| $ |
1,465,288 |
| $ |
1,004,389 |
| |
Small
Cap Growth Fund |
|
|
| |
Fees
Accrued by Adviser |
$ |
2,119,763 |
| $ |
2,591,993 |
| $ |
3,460,789 |
| |
Fees
Waived/Reimbursed |
$ |
490,522 |
| $ |
724,898 |
| $ |
639,777 |
| |
Fees
Recouped |
$ |
18,315 |
| $ |
125,549 |
| $ |
76,376 |
| |
Net
Fees Paid to Adviser |
$ |
1,647,556 |
| $ |
1,992,644 |
| $ |
2,897,388 |
| |
The
Adviser has entered into an agreement with The Needham Funds, Inc. (the “Expense
Limitation Agreement”) whereby the Adviser has contractually agreed to waive its
investment advisory fee for, and to reimburse expenses of, each Fund in an
amount that limits annual operating expenses to not more than 1.95% and
1.21%
(for
the Growth Fund) or 1.85% and 1.18% (for the Aggressive Growth Fund and the
Small Cap Growth Fund) of the average daily net assets of each Fund’s Retail
Class and Institutional Class shares, respectively (excluding taxes, interest,
brokerage, dividends on short positions, acquired fund fees and expenses and
extraordinary items but including the investment advisory fee stated in the
Advisory Agreement). The Expense Limitation Agreement is effective until April
29, 2025.
The Expense Limitation Agreement shall continue in effect from year to year
thereafter only upon mutual agreement of The Needham Funds, Inc. and the
Adviser. Similar agreements were in effect for certain prior
periods.
Any
reimbursements or fee waivers made by the Adviser in respect of a Fund are
subject to recoupment by the Adviser, to the extent that the Fund is able to
make the repayment within the expense limitation established in the Expense
Limitation Agreement. Under the Expense Limitation Agreement, such recoupments
must be made up
to
36 months from the time in which the Adviser reduced its compensation and/or
assumed expenses for the applicable Fund. The table below indicates the
amount of fees that the Adviser has the potential to recoup from the
Funds:
|
|
|
|
|
|
|
|
|
|
| |
| Recovery
Expiring on |
| 12/31/2026 |
12/31/2025 |
12/31/2024 |
Growth
Fund |
|
| |
Retail
Class |
$ |
— |
| $ |
— |
| $ |
— |
|
Institutional
Class |
$ |
63,757 |
| $ |
144,750 |
| $ |
76,378 |
|
Aggressive
Growth Fund |
|
| |
Retail
Class |
$ |
18,377 |
| $ |
57,810 |
| $ |
— |
|
Institutional
Class |
$ |
467,987 |
| $ |
307,532 |
| $ |
163,479 |
|
Small
Cap Growth Fund |
|
| |
Retail
Class |
$ |
35,362 |
| $ |
60,133 |
| $ |
— |
|
Institutional
Class |
$ |
455,161 |
| $ |
597,068 |
| $ |
584,257 |
|
THE
DISTRIBUTOR AND DISTRIBUTION OF THE SHARES
Shares
of the Funds are offered on a continuous basis and are currently distributed
through Needham & Company, LLC, 250 Park Avenue, 10th
Floor, New York, New York 10177 (the “Distributor”). The Board has
approved a Distribution and Services Agreement (the “Distribution Agreement”)
appointing the Distributor as a distributor of shares of the Funds.
The
Distribution Agreement provides that the Distributor will bear the cost and
expense of printing and distributing any materials not prepared by the Funds and
other materials used by the Distributor in connection with its offering shares
of the Funds. Each 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 and other service providers for the distribution
and/or shareholder-related services provided by them, each Fund has adopted
the
Plan
pursuant to Rule 12b-1 under the 1940 Act for Retail Class
shares. Fees paid by the Funds under the Plan will be used for
promotional, distribution and shareholder-related services with respect to
Retail Class shares incurred only during the applicable
year. Pursuant to the Plan, the service providers are required to
provide the Funds 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 reviews such reports on a quarterly
basis.
The
Plan has been approved on behalf of each Fund by the Board, including a majority
of the Directors who are not “interested persons” (as that term is defined in
the 1940 Act) of the Funds (the “Independent Directors”) and who have no direct
or indirect financial interest in the operation of the Plan. The Plan
continues in effect as to each Fund, provided such continuance is approved
annually by a vote of the Directors in accordance with the 1940
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 with respect to any Fund without
approval of the Retail Class shareholders of that 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 Independent Directors who
have no direct or indirect financial interest in the operation of the Plan, or
by a vote of a majority of the Retail Class outstanding voting securities (as
defined in the 1940 Act) of the Fund 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 1940 Act). So long as
the Plan is in effect, the election and nomination of Independent Directors
shall be committed to the discretion of the Independent Directors. The Directors
have determined that, in their judgment, there is a reasonable likelihood that
the Plan will benefit the Funds and their respective Retail Class
shareholders. The Funds
will
preserve copies of the Plan and any agreement or report made pursuant to Rule
12b-1 under the 1940 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.
Payments
generally are made under the Plan at the annual rate of 0.25% of the value of
each Fund’s Retail Class shares held in accounts maintained by each such service
provider. In the case of certain of the Funds’ agreements, the
Adviser is required to pay an additional 0.15% (or other percentage) of the
value of all Retail Class Fund shares held in such accounts out of its financial
resources other than 12b-1 fees. The Adviser is required to make
these payments to the Funds’ service providers regardless of any actual expenses
incurred by them.
During
the fiscal year ended December 31, 2023, the Funds paid fees under the Plan in
the amount of $170,485; $215,519; and $132,572 for the Retail Class shares of
the Growth Fund, Aggressive Growth Fund, and Small Cap Growth Fund,
respectively. Of the total paid under the Plan, the following amounts were spent
on the following services:
|
|
|
|
|
|
|
|
|
|
| |
Service |
Growth
Fund – Retail Class |
Aggressive Growth
Fund – Retail Class |
Small
Cap Growth Fund – Retail Class |
Advertising |
$0 |
$0 |
$0 |
Printing
and mailing prospectus to other than current shareholders |
$0 |
$0 |
$0 |
Compensation
to broker-dealers |
$170,485 |
$215,519 |
$132,572 |
Compensation
to underwriters |
$0 |
$0 |
$0 |
Compensation
to sales personnel |
$0 |
$0 |
$0 |
Interest,
carrying, or other financing charges |
$0 |
$0 |
$0 |
Other |
$0 |
$0 |
$0 |
ADMINISTRATION
SERVICES
FUND
ACCOUNTING, TRANSFER AGENCY AND OTHER SERVICES
Administration
Pursuant
to a Fund Administration Servicing Agreement (the “Administration Agreement”),
U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund
Services (“Fund Services”), 615 East Michigan Street, Milwaukee, Wisconsin 53202
(the “Administrator”), acts as administrator for the Funds. The
Administrator provides certain administrative services to the Funds, including,
among other responsibilities, arranging for the computation of performance data,
including net asset value and yield; acting as liaison among Fund service
providers; supplying corporate secretarial services, office facilities and
non-investment-related statistical and research data; coordinating the Board
communications, including preparing meeting agendas and resolutions with the
assistance of Fund counsel; preparing reports for the Board based on financial
and administrative data; evaluating independent auditors; securing and
monitoring fidelity bond and director and officer liability coverage and making
related filings; preparing minutes of meetings; recommending dividend
declarations; assisting independent auditors and facilitating the audit process;
assisting in the overall operations of the Funds; paying Fund expenses upon
written authorization; monitoring compliance with the 1940 Act; monitoring
compliance with policies and investment limitations; monitoring applicable
regulatory and operational service issues; complying with state securities
requirements; assisting with SEC registration and reporting; monitoring for IRS
compliance; calculating required distributions; financial reporting; tax
reporting; responding to shareholder inquiries; and providing, at its own
expense, office facilities, equipment and personnel necessary to carry out its
duties. In this capacity, the Administrator does not have any
responsibility or authority for the management of the Funds, the determination
of investment policy, or for any matter pertaining to the distribution of Fund
shares.
For
its administration services, Fund Services is compensated based on a percentage
of the market value of the Funds’ assets, subject to a minimum annual fee. Fund
Services also is compensated for any out of pocket expenses that are reasonably
incurred by Fund Services in carrying out its duties under the Administration
Agreement. For
the
fiscal years ended December 31,
2023, 2022, and 2021, the Funds paid the Administrator the following amounts for
its administration services:
|
|
|
|
|
|
|
|
|
|
|
| |
Fund |
2023 |
2022 |
2021 |
|
Growth
Fund |
$ |
160,627 |
| $ |
172,696 |
| $ |
182,279 |
| |
Aggressive
Growth Fund |
$ |
239,897 |
| $ |
166,696 |
| $ |
116,987 |
| |
Small
Cap Growth Fund |
$ |
202,606 |
| $ |
230,646 |
| $ |
302,306 |
| |
Fund
Accountant and Transfer Agent
Fund
Services also serves as the Funds’ accountant, transfer agent (“Transfer Agent”)
and dividend disbursing agent under separate agreements with the
Funds.
Custodian
Pursuant
to a custody agreement between the Funds and U.S. Bank, N.A., 1555 North
Rivercenter Drive, Suite 302, Milwaukee, Wisconsin 53212 (the “Custodian”), the
Custodian serves as the custodian of the Funds’ assets, holds the Funds’
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. The Custodian is compensated with an
asset-based fee plus transaction fees and is reimbursed for out-of-pocket
expenses. The Custodian and its affiliates may participate in revenue sharing
arrangements with service providers of mutual funds in which the Funds may
invest.
The
Administrator and Custodian are affiliated entities under the common control of
U.S. Bancorp.
PORTFOLIO
MANAGERS
The
following table shows information regarding other accounts managed by each
portfolio manager as of December 31, 2023.
Asset amounts are approximate and have been rounded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Number
of Other Accounts Managed and Assets by Account Type |
Number
of Accounts and Assets for Which Advisory Fee is Performance
Based |
|
Portfolio
Manager
|
Registered
Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
Registered
Investment Companies |
Other
Pooled Investment Vehicles |
Other
Accounts |
|
John
O. Barr |
None |
None |
None |
None |
None |
None |
|
Christopher
J. Retzler |
None |
None |
None |
None |
None |
None |
|
Mr.
Barr and Mr. Retzler are compensated by the Adviser with an annual salary and
bonus, both of which vary from year-to-year, based on a variety of factors,
including overall profitability of the firm, the profitability of the asset
management activities of the firm, and assessments by the senior management of
the firm of the contributions of said individuals to the success of the
firm. The portfolio managers’ compensation is not based on the Funds’
pre- or after-tax performance or on the value of assets held in each Fund’s
portfolio.
One
of the components of the bonus pool which both Mr. Barr and Mr. Retzler are
eligible to participate in each year is the performance fees which may be
received by affiliates of The Needham Group, Inc. for managing non-registered
investment accounts. The bonus pool is also composed of profits from
the other business units of The Needham Group, Inc.
The
following table shows the range of equity securities beneficially owned by each
portfolio manager in the Funds managed by the portfolio manager as of December
31, 2023
using the following ranges: none; $1-$10,000; $10,001-$50,000; $50,001-$100,000;
$100,001-$500,000; $500,001-$1,000,000; and over $1,000,000.
|
|
|
|
|
| |
Fund/Portfolio
Manager |
| Dollar
Range of Beneficial Ownership in the Fund as of 12/31/23 |
Growth
Fund |
| |
John
O. Barr |
| $100,001
- $500,000 |
Christopher
Retzler |
| $1
- $10,000 |
Aggressive
Growth Fund |
| |
John
O. Barr |
| Over
$1,000,000 |
Christopher
Retzler |
| $1
- $10,000 |
Small
Cap Growth Fund |
| |
John
O. Barr |
| $1
- $10,000 |
Christopher
Retzler |
| Over
$1,000,000 |
PORTFOLIO
TRANSACTIONS AND BROKERAGE
The
Adviser is responsible for decisions to buy and sell securities and other
investments for the Funds, 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 Funds 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 each Fund’s portfolio investments, it is the Adviser’s
policy to obtain best execution, which is considered to be the most favorable
combination of price and quantity that can be traded at a given point in time,
based on all circumstances related to the trade. The Adviser considers, among
other factors, the liquidity, market conditions, and required urgency of
execution. 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 each 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
(“soft-dollar brokerage commissions”) 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, as
amended, 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 are considered to be in addition to and not in lieu of services
required to be performed by the Adviser under the Advisory
Agreement. The research services provided by broker-dealers can be
useful to the Adviser in serving any other clients or clients of the Adviser’s
affiliates. The Board periodically reviews the Adviser’s performance
of its responsibilities in connection with the placement of portfolio
transactions on behalf of each Fund and reviews the commissions paid by each
Fund over representative periods of time to determine if they are reasonable in
relation to the benefits to the Funds.
For
the year ended December 31,
2023,
the total dollar value of transactions on which the Funds paid commissions for
such brokerage and/or research services and the amount of the related
commissions paid, were as follows:
|
|
|
|
|
|
|
| |
Fund |
Dollar
Value of
Securities
Traded |
Related
“Soft Dollar”
Brokerage
Commissions |
Growth
Fund |
$0 |
$0 |
Aggressive
Growth Fund |
$112,157 |
$88 |
Small
Cap Growth Fund |
$560,784 |
$438 |
Investment
decisions for the Funds 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 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 Financial Industry Regulatory Authority
(“FINRA”) and subject to seeking the most favorable price and execution
available and such other policies as the Board may determine, the Funds may
employ Needham & Company, LLC (which is the Funds’ Distributor) as a broker
consistent with the rules under the 1940 Act and the Funds’ Rule 17e-1
procedures. For the years ended December 31, 2023,
2022, and 2021,
each Fund paid brokerage commissions on portfolio transactions as shown in the
table below.
|
|
|
|
|
|
|
|
|
|
| |
Fund |
Year
Ended |
Total
Brokerage Commissions Paid |
Total
Brokerage Commissions Paid to the Distributor |
Growth
Fund |
2023 |
$50,008 |
$17,584 |
| 2022 |
$71,010 |
$6,808 |
| 2021 |
$65,789 |
$14,974 |
|
|
| |
Aggressive
Growth Fund |
2023 |
$314,025 |
$109,653 |
| 2022 |
$166,685 |
$38,592 |
| 2021 |
$66,277 |
$14,001 |
|
|
| |
Small
Cap Growth Fund |
2023 |
$851,809 |
$142,144 |
| 2022 |
$982,313 |
$195,421 |
| 2021 |
$1,283,799 |
$218,162 |
|
|
| |
The
total brokerage commissions paid has fluctuated in the last three fiscal years
due to changing net assets and as a result of volatile market conditions that
have caused the Adviser to make adjustments in the volume of trades effected in
order to implement each Fund’s investment strategy.
For
the year ended December 31, 2023,
each Fund’s portfolio transactions with the Distributor involved the percentages
indicated in the following table:
|
|
|
|
|
|
|
| |
Fund |
%
of Total Brokerage Commissions Paid to the Distributor |
%
of Total Transactions Involving Commissions Paid to the
Distributor |
Growth
Fund |
35.16% |
37.49% |
Aggressive
Growth Fund |
34.92% |
40.52% |
Small
Cap Growth Fund |
16.69% |
24.68% |
As
of December 31, 2023,
the Funds did not hold investment securities of their regular
broker-dealers.
While
it is the policy of the Funds generally not to engage in trading for short-term
gains, the Funds 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 Funds may pay a greater
amount in brokerage commissions than similar size funds with a lower turnover
rate. In addition, since the Funds may have a high rate of portfolio
turnover, the Funds 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 (and in
certain cases, indefinitely) to the extent there are no gains to offset for a
particular year. See “Taxes” in this Statement of Additional
Information. Variations in turnover rate may be due to market conditions,
fluctuating volume of shareholder purchases and redemptions or changes in the
Investment Adviser’s investment outlook. Each Fund’s portfolio
turnover rate for the last two fiscal years is shown in the table
below.
|
|
|
|
|
|
|
|
| |
Fund |
2023 |
2022 |
|
Growth
Fund |
9% |
14% |
|
Aggressive
Growth Fund |
7% |
11% |
|
Small
Cap Growth Fund |
126% |
109% |
|
MANAGEMENT
The
Directors and officers of The Needham Funds, Inc., their addresses, ages,
positions with The Needham Funds, Inc., term of office and length of time
served, principal occupations during the past five years, the number of
portfolios overseen by each of them and other directorships held by each of them
are set forth below. The Directors are responsible for the overall
supervision of the Funds and its affairs, as well as evaluating the Adviser,
consistent with their duties as directors under the corporate laws of the State
of Maryland and have approved contracts, as described above, under which certain
companies provide essential management services to the Funds.
INTERESTED
DIRECTOR
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name,
Address and Year of Birth |
Position
with Registrant |
Term
of Office and Length of Time Served |
Number
of Portfolios in Fund Complex Overseen by Director |
Principal
Occupation(s) and Other Directorships Held During Past 5
Years |
George
A. Needham
*
250
Park Avenue
New
York, NY 10177
Year
of Birth: 1943 |
President,
Chairman and Director |
Indefinite;
since 1996 |
Three |
Founder
and Chairman of the Board of The Needham Group, Inc. and Needham Holdings,
LLC since December 2004. President and Chief Executive Officer of Needham
Asset Management, LLC since April 2006. Chairman of the Board from 1996 to
December 2004 and Chief Executive Officer from 1985 to December 2004 of
Needham & Company, LLC. Managing Member of Needham Capital Management,
LLC from 2000 to 2019. |
INDEPENDENT
DIRECTORS
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name,
Address and Year of Birth |
Position
with Registrant |
Term
of Office and Length of Time Served |
Number
of Portfolios in Fund Complex Overseen by Director |
Principal
Occupation(s)
and
Other Directorships Held During Past 5 Years |
F.
Randall Smith
250
Park Avenue
New
York, NY 10177
Year
of Birth: 1938 |
Director |
Indefinite;
since 1996 |
Three |
Founder,
Member of Investment Committee, Investment Analyst, and Portfolio Manager
of Capital Counsel LLC (a registered investment adviser) since September
1999; President from 1999-2014. Co-Founder and Chief Investment Officer of
Train, Smith Counsel (a registered investment adviser) from 1975 to August
1999. |
David
T. Shukis
250
Park Avenue
New
York, NY 10177
Year
of Birth: 1951 |
Director |
Indefinite;
since April 2021 |
Three |
Currently
retired. Head of Global Investment Services (and other positions) at
Cambridge Associates, LLC (global investment consulting firm) from 1989 to
2016. Director and Chair of Cambridge Associates Fiduciary Trust Company
from 2015 to 2018. Director, from 2011 to 2016, and Audit Committee Chair,
since 2016, of Boston Lyric Opera. |
__________________________________
* An
“interested person” (as defined in the 1940 Act) of the Funds or the
Adviser. Mr. Needham is deemed to be an interested person because he
may be deemed to be an “affiliated person” (as defined in the 1940 Act) of the
Adviser and of the Distributor.
OFFICERS
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Name,
Address and Age |
Position
with Registrant |
Term
of Office and Length of Time Served |
Principal
Occupation(s) During Past 5 Years |
John
O. Barr
250
Park Avenue
New
York, NY 10177
Year
of Birth: 1956 |
Executive
Vice President and Co-Portfolio Manager of Needham Growth Fund;
Executive Vice President and Portfolio Manager of Needham Aggressive
Growth Fund |
One
year; since 2010 |
Portfolio
Manager of Needham Asset Management since 2010. Managing Director of
Needham Asset Management, LLC since 2009. Founding and Managing Member of
Oliver Investment Management, LLC from 2008 to 2009. Portfolio Manager and
Analyst at Buckingham Capital, from 2002 to 2008. From 2000 to 2002,
Managing Director and a Senior Analyst at Robertson Stephens following
semiconductor technology companies. From 1995 to 2000, Managing Director
and Senior Analyst at Needham and Company. He also served as Director of
Research. Director of Coventor, Inc. from 2009 to 2017. |
Christopher
J. Retzler
250
Park Avenue
New
York, NY 10177
Year
of Birth: 1971 |
Executive
Vice President and Co-Portfolio Manager of Needham Growth Fund; Executive
Vice President and Portfolio Manager of Needham Small Cap Growth
Fund |
One
year; since 2008 |
Portfolio
Manager of Needham Asset Management, LLC since 2008. Managing Director of
Needham Asset Management, LLC since 2005. Head of Winterkorn, a
healthcare manufacturing and distribution company, from 2002 to
2005. |
James
W. Giangrasso
250
Park Avenue
New
York, NY 10177
Year
of Birth: 1962 |
Chief
Financial Officer, Secretary and Treasurer |
One
year; since 2011 |
Chief
Financial Officer of Needham Asset Management, LLC and Needham Investment
Management, LLC since 2011. Principal and Controller of Needham Asset
Management, LLC from 2006 to 2011. |
James
M. Abbruzzese
250
Park Avenue
New
York, NY 10177
Year
of Birth: 1969 |
Chief
Compliance Officer |
One
year; since 2004 |
Chief
Compliance Officer of Needham Investment Management, LLC since 2004. Chief
Compliance Officer of Needham Asset Management, LLC since April 2006.
Chief Compliance Officer and Managing Director of Needham & Company,
LLC from 2008 through 2012. Chief Administrative Officer of Needham &
Company LLC since 2012. Chief Compliance Officer of Needham Capital
Management, LLC since 2000. |
LEADERSHIP
STRUCTURE AND BOARD OF DIRECTORS
The
Board currently is comprised of three Directors, two of whom are Independent
Directors. Thus, two-thirds of the Board is presently
independent. George
A. Needham, President and Chief Executive Officer of the Funds, acts as Chairman
of the Board and is an “interested person” (as that term is defined in the 1940
Act) of the Funds. The Chairman presides at all meetings of the
Board.
The
Board has appointed F. Randall Smith, Chairman of the Funds’ Audit Committee, to
serve as Lead Independent Director. The Lead Independent Director,
among other things, chairs executive sessions of the
Independent
Directors, serves as a spokesperson for the Independent Directors and serves as
a liaison between the Funds’ other Independent Director and the Funds’
management, Chief Compliance Officer, service providers, auditors and counsel
between Board meetings. The Funds believe this structure allows the
Independent Director to participate in the full range of the Board’s
responsibilities with respect to its oversight of the Funds’
management. The Board has determined that this leadership structure,
including the role of the Lead Independent Director, is appropriate given the
size and complexity of the Funds, the number of Directors overseeing the Funds
and the Board’s oversight responsibilities.
The
Board holds four regular meetings each year to consider and address matters
involving the Funds. The Board also may hold special meetings to
address matters arising between regular meetings. These meetings may
take place in person or by telephone. The Independent Directors also
meet each quarter and additionally on an as-needed basis in executive sessions
outside the presence of management. The Board has access to
independent legal counsel for the Funds and the Independent Directors for
consultation concerning any issues that may occur during or between regularly
scheduled Board meetings. As discussed below, the Board has
established an Audit Committee to assist the Board in performing its oversight
responsibilities.
The
specific experience, qualifications, attributes or skills that led to the
conclusion that each Director should serve as a Director of the Funds are as
follows:
The
Chairman of the Board, George A. Needham, has been a Director of the Funds since
their inception. Mr. Needham founded Needham & Company, Inc. (predecessor to
The Needham Group, Inc.) in 1985. Mr. Needham is the Chairman of the Board and
Chief Executive Officer of The Needham Group, Inc., President and Chief
Executive Officer of Needham Holdings, LLC and President and Chief Executive
Officer of Needham Asset Management, LLC. Mr. Needham received a B.S. degree
from Bucknell University and an M.B.A. from the Stanford University Graduate
School of Business. Mr. Needham is also a principal of the respective general
partners of several private investment limited partnerships.
F.
Randall Smith, Lead Independent Director and Chairman of the Audit Committee,
has been an Independent Director of the Funds since their
inception. Mr. Smith is founder (and, formerly, President) of Capital
Counsel LLC, a registered investment advisory firm. He was a
co-founder and Chief Investment Officer of Train, Smith Counsel, a registered
investment advisory firm, from 1975 to 1999. Before that he
co-founded National Journal, a weekly publication on the U.S. Government,
and served as Special Assistant to the Undersecretary of State for Economic
Affairs prior to founding Train, Smith Counsel. Mr. Smith received a
B.A. degree from Williams College and attended Fordham
University. The Board has determined that Mr. Smith is an “audit
committee financial expert.”
David
T. Shukis has substantial investment and executive experience in the asset
management industry, including his former position as Head of Global Investment
Services of Cambridge Associates, LLC (a global investment consulting firm). He
has also served as a board member of a trust company and non-profit
organizations. Mr. Shukis received a B.A. degree from the University of
Pittsburgh and an M.B.A. from the Harvard Graduate School of Business
Administration, and completed graduate level work at Brown University.
As
a result of Mr. Needham’s extensive experience as an executive of an investment
bank and asset management firm, Mr. Smith’s extensive experience in the
investment advisory business, and Mr. Shukis’s extensive experience in the
investment consulting industry, the Funds believe the directors have
demonstrated throughout their careers qualifications, attributes and skills that
well qualify them to be directors of the Funds.
The
Board annually performs a self-assessment on the current members, which includes
a review of the size of the Board; use of committees and committee structure;
number of committees; exposure and access to management; Board composition,
including skills and diversity; committee member selection and rotation and
criteria for selection of Board members.
RISK
OVERSIGHT
Consistent
with its responsibility for oversight of the Funds, the Board, among other
things, oversees risk management of the Funds’ investment program and business
affairs directly and through the committee structure
that
it has established. The Board, and particularly the Lead Independent
Director, has substantial ongoing contacts with the Adviser to review its
investment strategies, techniques, policies and procedures designed to manage
these risks.
The
Board requires the Adviser and the Chief Compliance Officer of the Funds and the
Adviser to report to the full Board on a variety of matters at regular meetings
of the Board, including matters relating to risk management. The
Audit Committee also receives regular reports from the Funds’ independent
registered public accounting firm on internal control and financial reporting
matters. On a quarterly basis, the Board meets with the Funds’ Chief
Compliance Officer to discuss issues related to Fund compliance. On
an annual basis, the Board receives a written report from the Chief Compliance
Officer on the operation of the Funds’ policies and procedures and those of its
service providers. The report addresses the operation of the policies
and procedures of the Funds and each service provider since the last report, any
material changes to the policies and procedures since the last report, any
recommendations for material changes to the policies and procedures as a result
of the annual review and any material compliance matters since the date of the
last report. These annual reviews are conducted in conjunction with
the Board’s risk oversight function and enable the Board to review and assess
any material risks facing the Funds or their service providers.
In
addition, at regular Board meetings, and on an as needed basis, the Board
receives and reviews reports from the Adviser and the Administrator related to
the investments, performance and operations of the Funds. The Board
also requires the Adviser to report to the Board on other matters relating to
risk management on a regular and as-needed basis. The Lead
Independent Director periodically meets with representatives of the Funds’
service providers, including the Adviser, Administrator, Transfer Agent,
Custodian and independent registered public accounting firm, to review and
discuss the activities of the Funds and to provide direction with respect
thereto.
The
Board has established an Audit Committee, comprised of the Independent Directors
of The Needham Funds, Inc., which met
two times
during the fiscal year ended December 31, 2023. The
Audit Committee operates under a written charter approved by the Board and
reviews the audits of the Funds and recommends a firm to serve as independent
registered public accounting firm of the Funds, among other things.
Share
Ownership
The
following table shows the dollar range of each Director’s “beneficial ownership”
of the equity securities of the Funds and the aggregate dollar range of each
Director’s “beneficial ownership” interest in all series of The Needham Funds,
Inc. overseen by the Director as of December 31, 2023. “Beneficial
ownership” is determined in accordance with Rule 16a-1(a)(2) under the 1934
Act.
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Director |
Dollar
Range of Equity Securities in the Needham Growth Fund |
Dollar
Range of Equity Securities in the Needham Aggressive Growth Fund |
Dollar
Range of Equity Securities in the Needham Small Cap Growth Fund |
Aggregate
Dollar Range of Equity Securities in All Registered Investment
Companies Overseen by Director in Family of Investment
Companies |
Interested
Director |
George
A. Needham |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Over
$100,000 |
Independent
Directors |
|
F.
Randall Smith |
None |
None |
None |
None |
David
T. Shukis |
None |
None |
None |
None |
As
of December 31,
2023,
no Independent Director owned, either directly or indirectly, any securities of
the Adviser or Needham & Company, LLC.
Remuneration
Each
Independent Director receives a quarterly retainer of $3,000 and a per-meeting
fee of $500 for each Board meeting attended in person or by telephone. Each
Independent Director is also a member of the Audit Committee and receives a fee
of $500 per meeting attended. No retirement benefits are received by any
Director from the Funds. These fees are paid by The Needham Funds,
Inc.
For
the fiscal year ended December 31, 2023, the Directors received the following
compensation from The Needham Funds, Inc.:
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Director |
Aggregate
Compensation from Registrant |
Pension
or Retirement Benefits Accrued As Part of Fund Expenses |
Estimated
Annual Benefits upon Retirement |
Total
Compensation from Registrant & Fund Complex |
Interested
Director |
George
A. Needham |
$0 |
$0 |
$0 |
$0 |
Independent
Directors |
F.
Randall Smith |
$15,000 |
$0 |
$0 |
$15,000 |
David
T. Shukis |
$15,000 |
$0 |
$0 |
$15,000 |
John
W. Larson* |
$15,000 |
$0 |
$0 |
$15,000 |
*Mr.
Larson resigned from the Board effective as of the close of business on December
31, 2023.
The
officers of the Funds receive no compensation from The Needham Funds, Inc. for
the performance of any duties with respect to the Funds.
Proxy
and Corporate Action Voting Policies and Procedures
The
Funds have adopted Proxy and Corporate Action Voting Policies and Procedures
that govern the voting of proxies for securities held by the
Funds. The Board has delegated to the Adviser full authority to vote
proxies or act with respect to other shareholder actions on behalf of each
Fund. The Adviser’s primary consideration in voting proxies is the
best interest of each Fund. The proxy voting procedures address the
resolution of potential conflicts of interest and circumstances under which the
Adviser will limit its role in voting proxies. Where a proxy proposal
raises a material conflict between the Adviser’s interests and a Fund’s
interests, the Adviser will resolve the conflict by following the policy
guidelines. The proxy voting guidelines describe the Adviser’s
general position on proposals. The Adviser will generally vote for
board approved proposals but will vote on a case-by-cases basis on board
approved proposals relating to significant corporate
transactions. The Adviser will vote on a case-by-case basis on all
shareholder proposals. The Adviser will vote proxies of foreign
issuers in accordance with the guidelines with a view toward enhancing corporate
governance. Information regarding how the Funds voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available on the SEC’s website at www.sec.gov,
on the Funds’ website at www.needhamfunds.com, or without charge, upon request
by contacting the Funds’ administrator, U.S. Bancorp Fund Services, LLC, P.O.
Box 701, Milwaukee, WI 53201-0701 or by calling 1-800-625-7071.
Codes
of Ethics
The
Board and the Distributor have adopted a Code of Ethics pursuant to Rule 17j-1
under the 1940 Act. In addition, the Adviser has adopted a Code of
Ethics which has been approved by the Board in accordance with standards set
forth under the 1940 Act. Directors and employees of The Needham Funds, Inc.,
the Adviser and the Distributor are permitted to engage in personal securities
transactions subject to the restrictions and procedures contained in the codes
of ethics which were adopted by the Boards, the Adviser and the Distributor, as
applicable, pursuant to federal securities laws. Each code of ethics
is filed as an exhibit to the Funds’ Registration Statement and available to the
public.
PURCHASE,
REDEMPTION AND CONVERSION OF SHARES
Information
relating to the purchase, redemption and conversion of shares of the Funds is
located in the Prospectus.
NET
ASSET VALUE
The
net asset value per share of each Fund will be determined on each day when the
New York Stock Exchange (the “Exchange”) is open for regular business, generally
as of the close of regular session trading on the Exchange (usually 4:00 p.m.,
Eastern Time, the “Regular Closing Time”). When trading on the Exchange is
unexpectedly closed prior to the Regular Closing Time, or an earlier scheduled
close (such as on certain days around holidays when the Exchange is scheduled to
close before 4:00 p.m.), and remains closed through the time of the Regular
Closing Time (or an earlier scheduled close), the net asset value per share of
each class of a Fund may nonetheless be calculated as of the Regular Closing
Time (or an earlier scheduled close) if, in the judgment of the Adviser, there
is sufficient trading in other markets between the unexpected close and the
Regular Closing Time (or an earlier scheduled close) for securities for which
the Exchange is usually considered the primary market. The net asset value per
share of each Fund will be computed by determining the aggregate market value of
all assets of each class of a Fund less its liabilities, and then dividing that
number by the total number of shares of the Fund 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 time at which net asset value is
determined on that day. Shares of the Funds are sold at the public
offering price which is determined once each day the Funds are open for business
and is the net asset value per share. Each Fund may change the time
at which the price of its shares is determined if the Exchange closes at a
different time or an emergency or other extraordinary situation
exists.
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, as
applicable. 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 highest closing bid and lowest 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 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 for which market prices are not “readily available” are valued
at their fair value in accordance with Fair Value Procedures established by the
Board. Fair value of investments may be determined by the Adviser, as the Funds'
Valuation Designee pursuant to Rule 2a-5 under the 1940 Act, using such
information as it deems appropriate under the circumstances. The factors that
may be considered when fair valuing a security include fundamental analytical
data, the nature and duration of restrictions on disposition, an evaluation of
the forces that influence the market in which the securities are purchased and
sold, and public trading in similar securities of the issuer or comparable
issuers. Using fair value to price investments may result in a value that is
different from a security's most recent closing price and from the prices used
by other mutual funds to calculate their net asset values.
Generally,
trading in foreign securities and futures contracts, as well as corporate bonds,
U.S. 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 Funds 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 each 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 described in the preceding paragraph.
TAX-ADVANTAGED
RETIREMENT PLANS
Certain
tax-advantaged retirement plans are available through which shares may be
purchased, including IRAs (and “rollovers” from existing retirement plans) for
individuals and their spouses, SEP-IRAs and Roth IRAs. Shares of the
Funds 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-advantaged 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 Funds are 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 Funds.
TAXES
Taxation
of the Funds – In General
Each
Fund intends to remain qualified each year as a “regulated investment company”
under Subchapter M of the Code, so long as doing so remains in the best
interests of its shareholders. To so qualify, each Fund, among other
things, must (i) 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 certain other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
and (ii) pursuant to Section 851(b)(3) of the Code (a) at the close of each
quarter of the taxable year, have at least 50% of the value of the Fund’s assets
represented by cash, U.S. government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the value of the
Fund’s assets and 10% of the outstanding voting securities of such issuer, and
(b) not have more than 25% of the value of its assets invested in the securities
of any one issuer (other than U.S. government securities and the securities of
other regulated investment companies).
In
addition, each 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 as a regulated
investment company, the Funds will not be subject to Federal income tax on their
investment company taxable income and net capital gain that it distributes to
shareholders. However, if for any taxable year a 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 dividend income to the extent of the Fund’s current or
accumulated earnings or profits.
Each
Fund will be liable for a non-deductible 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 each Fund
must distribute (i) at least 98% of its ordinary income realized during such
calendar year, (ii) at least 98.2% 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 Funds intend to
make sufficient distributions to avoid this 4% excise tax.
As
long as each 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 tax in the State
of Maryland and generally will also not be liable for New York State income
taxes, other than a nominal corporation franchise tax (as adjusted by the
applicable New York State surtaxes).
Capital
Loss Carry-Forwards
A
Fund is permitted to carry forward a net capital loss attributable to tax years
that began before December 22, 2010 to offset its capital gains, if any,
realized during the eight years following the year of the loss. A
Fund is permitted to carry forward indefinitely a net capital loss attributable
to taxable years that began after December 22, 2010 to offset future capital
gains of the Fund, and such loss retains its character as either short-term or
long-term. Pursuant to a new ordering rule, however, net capital losses incurred
in taxable years of the Fund beginning before December 22, 2010 may not be used
to offset the Fund’s future capital gains until all net capital losses incurred
in taxable years of the Fund beginning after December 22, 2010 have been
utilized. As a result, certain net capital losses incurred in taxable years of
the Fund beginning before December 22, 2010 may expire unutilized, even while
future, unrestricted capital losses may be required to be utilized first against
capital gains in future years.
If
future capital gains are offset by carried forward capital losses, such future
capital gains are not subject to Fund-level federal income taxation, regardless
of whether they are distributed to shareholders. Additionally, any
future capital gains offset by carried forward capital losses would generally be
treated as ordinary dividends (rather than capital gains dividends) to
shareholders. Accordingly, the Funds do not expect to distribute such
capital gains. The Funds cannot carry back or carry forward any net
operating losses.
Any
losses incurred in the taxable year subsequent to October 31 (“post-October
capital loss”) will be deferred to the next taxable year and used to reduce
subsequent year distributions. As of December 31, 2023,
the Funds had accumulated capital loss carryovers of:
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Loss Carryover Short-Term |
Capital
Loss Carryover Long-Term |
Needham
Growth Fund |
$(191,869) |
(8,844) |
Needham
Aggressive Growth Fund |
(526,527) |
(2,504,901) |
Needham
Small Cap Growth Fund |
$(18,157,043) |
$(58,424,604) |
Taxation
of the Funds’ Investments
Ordinarily,
gains and losses realized from portfolio transactions are treated as capital
gains or losses. 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 a Fund after its original issuance at a price
below its principal amount. In addition, 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. Also, gains or losses
attributable to fluctuations in foreign currency exchange rates which occur
between the time a Fund accrues income or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time a Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss.
Under
Section 1256 of the Code, any gain or loss a 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. Absent
an election to the contrary, 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 a 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 of the
Code. If a Fund was treated as entering into “straddles” by reason of
its engaging in certain forward contracts or options transactions, such
“straddles” generally would be characterized as “mixed straddles” if the forward
contracts or options transactions comprising a part of such “straddles” were
governed by Section 1256 of the Code. However, a Fund may make one or
more elections with respect to “mixed straddles.” Depending on which election is
made, if any, the results to that Fund may differ. If no election is
made, to the extent the “straddle” rules apply to positions established by that
Fund, losses realized by that 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 losses on “straddle” positions may be
recharacterized as long-term capital losses, and long-term capital gains may be
treated as short-term capital gains or ordinary income.
If
a Fund makes a “constructive sale” of an “appreciated financial position,” the
Fund will recognize gain but not loss as if the position were sold at fair
market value on the date of such constructive sale. Constructive
sales include short sales of substantially identical property, offsetting
notional principal contracts with respect to substantially identical property
and futures and forward contracts to deliver substantially identical
property. However, transactions that otherwise would be treated as
constructive sales are disregarded if closed within 30 days after the close of
the taxable year and that Fund holds the position and does not hedge such
position for 60 days thereafter. In addition, to the extent provided
in regulations (which have not yet been promulgated), a constructive sale also
occurs if a taxpayer enters into one or more other transactions (or acquires one
or more positions) that have “substantially the same effect” as the transactions
described above. Appreciated financial positions include positions
with respect to stock, certain debt instruments or partnership interests if gain
would be recognized on a disposition at fair market value. If the
constructive sale rules apply, adjustments are made to the basis and holding
period of the affected financial position, and a Fund would recognize gain but
would not have cash available to make distributions. Accordingly, the
gain realized under the constructive sale provisions would impact the amount of
distributions required by that Fund so as to avoid the imposition of the 4%
excise tax.
The
Funds may invest in non-U.S. corporations that could be classified as “passive
foreign investment companies” as defined for federal income tax
purposes. For federal income tax purposes, such an investment may,
among other things, cause the Funds to recognize income or gain without a
corresponding receipt of cash, to incur an interest charge on taxable income
that is deemed to have been deferred and/or to recognize ordinary income that
would otherwise have been treated as capital gain.
Taxation
of the Shareholders
Distributions
of net investment income and the excess of net short-term capital gain over net
long-term capital loss generally are taxable as ordinary income to
shareholders. A Fund may also make distributions of net capital gain
(the excess of net long-term capital gain over net short-term capital
loss). In general, a non-corporate shareholder’s net capital gains
will be taxed at a maximum rate of 20%. A Fund will provide
information relating to the portions of any net capital gain distribution that
may be treated by non-corporate shareholders as eligible for the maximum
long-term capital gains rate. Such treatment would apply regardless
of the length of time the shares of that Fund have been held by such
shareholders. Distributions of net investment income and net capital
gains are taxable as described above whether received in cash or reinvested in
additional shares.
Under
current law, “qualified dividend income” received by non-corporate shareholders
from certain domestic and foreign corporations may be taxed at the same rates as
long-term capital gains. Because the Funds intend to invest in common
stocks, a portion of the ordinary income dividends paid by the Funds should be
eligible for this reduced rate, provided the Funds satisfy certain requirements
including holding period limitations. A shareholder would also have
to satisfy a 61-day holding period with respect to any distribution of
qualifying dividends in order to obtain the benefit of the lower
rate.
In
addition, a 3.8% Medicare tax is imposed on the “net investment income” of
certain U.S. individuals, estates and trusts. For this purpose, “net investment
income” generally includes taxable dividends and redemption proceeds from
investments in regulated investment companies such as the Funds.
Dividends
from domestic corporations may comprise some portion of a Fund’s gross
income. To the extent that such dividends constitute a portion of a
Fund’s gross income, a portion of the income distributions received by
corporations from a Fund may be eligible for the 70% deduction for dividends
received. Taxable corporate shareholders will be informed of the
portion of dividends which so qualify. Receipt of dividends that
qualify for the dividends-received deduction may result in the reduction of a
corporate shareholder’s tax basis in its shares by the untaxed portion of such
dividends if they are treated as “extraordinary dividends” under Section 1059 of
the Code. The dividends-received deduction is reduced to the extent
the shares of a Fund with respect to which the dividends are received are
treated as debt-financed under Federal income tax law and is eliminated if the
shares are deemed to have been held for less than 46 days (91 days for preferred
stock) during the 90-day period (180-day period for preferred stock) beginning
on the date which is 45 days (90 days for preferred stock) before the
ex-dividend date (for this purpose, holding periods are reduced for periods
where the risk of loss with respect to shares is diminished). The
same restrictions apply to a Fund with respect to its ownership of the
dividend-paying stock. In addition, the deducted amount is included
in the calculation of the Federal alternative minimum tax, if any, applicable to
such corporate shareholders. In contrast, distributions of net
capital gains are not eligible for the dividends-received deduction for
corporate shareholders.
Distributions
by a Fund result in a reduction in the net asset value of that 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.
A
redemption of Fund shares by a shareholder generally will result in the
recognition of taxable gain or loss depending upon the difference between the
amount realized and his tax basis in his Fund shares. Generally, such
gain or loss is treated as a capital gain or loss if the shares are held as
capital assets. In the case of a non-corporate shareholder, if such
shares were held for more than one year at the time of disposition, such gain
will be long-term capital gain and if such shares were held for one year or less
at the time of disposition, such gain will be short-term capital gain and will
be taxed at the applicable ordinary income tax rate. In addition, as
noted above, for U.S. individuals, estates and trusts, any capital gains
recognized from a redemption of Fund shares generally will be included in the
calculation of “net investment income” subject to the 3.8% Medicare tax. 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 a Fund during such six-month
period. Finally, all or a portion of any loss realized upon a taxable
disposition of a Fund’s 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.
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”), as defined in the Code, depends, in part, on whether the Foreign
Shareholder’s income from a Fund is “effectively connected” with a U.S. trade or
business carried on by such shareholder.
If
the income from a Fund is not effectively connected with a U.S. trade or
business carried on by the Foreign Shareholder, Fund distributions other than
net capital gain distributions and distributions not out of earnings and profits
generally are subject to a 30% (or lower treaty rate) U.S. withholding
tax. 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. federal income tax unless (i) such capital
gains are effectively connected with a U.S. trade or business carried on by such
shareholder or (ii) 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, and certain other conditions are satisfied. A Foreign
Shareholder will be required to satisfy certification requirements in order to
claim treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules. These requirements will
require identification of the Foreign Shareholder and must be made under
penalties of perjury. A Foreign Shareholder that is eligible for a reduced rate
of U.S. withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
IRS.
If
dividends or distributions from a Fund are effectively connected with a U.S.
trade or business carried on by the Foreign 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 residents or domestic
corporations, as appropriate. Foreign Shareholders that are
corporations may also be subject to an additional “branch profits tax” with
respect to income from a Fund that is effectively connected with a U.S. trade or
business. 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 (i) whether their
income from a Fund is or is not effectively connected with a U.S. trade or
business carried on by them, (ii) whether they may claim the benefits of an
applicable tax treaty, and (iii) any other tax consequences to them of an
investment in that Fund.
Federal
regulations generally require a Fund to withhold (“backup withholding”) and
remit to the U.S. Treasury 24% of dividends, distributions from net realized
securities gains and the proceeds of any redemption paid to shareholders,
regardless of the extent to which gain or loss may be realized, if (i) the
shareholder fails to furnish the Funds with the shareholder’s correct taxpayer
identification number or social security number, (ii) the IRS notifies the
shareholder or the Funds that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (iii) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Any amounts
withheld may be credited against the shareholder’s federal income tax
liability. The Funds must also report annually to the IRS and to each
shareholder (other than a Foreign Shareholder) the amount of ordinary income
dividends, capital gain dividends or redemption proceeds paid to such
shareholder and the amount, if any, of tax withheld pursuant to the backup
withholding rules with respect to such amounts. In the case of a
Foreign Shareholder, the Funds must report to the IRS and such shareholder the
amount of ordinary income dividends, capital gain dividends or redemption
proceeds paid that are subject to withholding (including backup withholding, if
any) and the amount of tax withheld with respect to such
amounts. This information may also be made available to the tax
authorities in the Foreign Shareholder’s country of residence.
Pursuant
to legislation passed by Congress in 2008, the Funds are required to report
their shareholders’ cost basis, gain or loss, and holding period to the Internal
Revenue Service on the Consolidated Form 1099 provided to the shareholders of
the Funds when “covered” shares of the Funds are redeemed. Covered shares are
any shares acquired (including shares acquired through reinvestment of the
Funds’ distributions) on or after January 1, 2012. Each of the Funds has chosen
the “average cost” method as its default tax method. The Funds will use this
method for purposes of reporting a shareholder’s cost basis unless a shareholder
instructs the relevant Fund in writing to use a different calculation method. A
shareholder may choose a method different from the default method chosen by the
Funds at the time of purchase or sale of covered shares. Shareholders should
consult their tax advisors with regard to their particular
circumstances.
The
Hiring Incentives to Restore Employment Act
Under
the Foreign Account Tax Compliance Act provisions enacted as part of The Hiring
Incentives to Restore Employment Act, P.L. 111-147 (the “HIRE Act”), a 30%
withholding tax will be imposed on dividends paid by a Fund, and on long-term
capital gain dividends and redemption proceeds paid after December 31, 2016, to:
(i) a foreign financial institution (as that term is defined in Section
1471(d)(4) of the Code) unless that foreign financial institution enters into an
agreement with the U.S. Treasury Department to collect and disclose information
regarding U.S. account holders of that foreign financial institution (including
certain account holders that are foreign entities that have U.S. owners) and
satisfies other requirements; and (ii) specified other foreign entities unless
such entity certifies that it does not have any substantial U.S. owners or
provides the name, address and taxpayer identification number of each
substantial U.S. owner and such entity satisfies other specified requirements.
To comply with these requirements, a Fund may, in appropriate circumstances,
require shareholders to provide information and tax documentation regarding
their direct and indirect owners, and direct and indirect owners of certain
entity shareholders may be required to waive the application of any non-U.S.
laws which, but for such waiver, would prevent such entity from reporting
information in respect of U.S. accounts in accordance with the applicable
provisions of the HIRE Act or any agreement described in Section 1471(b) of the
Code. The HIRE Act also
imposes
information reporting requirements on individuals (and, to the extent provided
in future regulations, certain domestic entities) that hold any interest in a
“specified foreign financial asset” if the aggregate value of all such assets
held by such individual exceeds $50,000. Significant penalties can apply upon a
failure to make the required disclosure and in respect of understatements of tax
attributable to undisclosed foreign financial assets. The scope of this
reporting requirement is not entirely clear and all shareholders should consult
their own tax advisors as to whether reporting may be required in respect of
their indirect interests in certain investments of a Fund. Foreign Shareholders
should consult their own tax advisors regarding the application of this
legislation to them.
Transfer
on Death Registration
The
Funds generally permit transfer on death (“TOD”), registration of shares, so
that on the death of the shareholder the shares are transferred to a designated
beneficiary or beneficiaries. If you wish to register your account in the name
of one or more beneficiaries for the purpose of transferring the account upon
your death, you may do so by completing a TOD Agreement and Beneficiary
Designation. To obtain a TOD Agreement and Beneficiary Designation, please
contact Shareholder Services at 1-800-625-7071 or you may download a copy at
www.needhamfunds.com. With the TOD Agreement and Beneficiary Designation you
will receive a copy of the Rules Governing TOD Registration which specify how
the registration becomes effective and operates. By registering your account,
you agree to be bound by these rules.
The
foregoing discussion is a general summary of certain of the current federal
income tax laws affecting the Funds and investors in the shares. This
summary is based on the provisions of the Code, final, temporary and proposed
U.S. Treasury Regulations promulgated thereunder, and administrative and
judicial interpretations thereof, all as in effect on the date hereof, and all
of which are subject to change, possibly with retroactive
effect. Accordingly, shareholders should consult their tax advisers
about the application of the provisions of tax law described in this Statement
of Additional Information in light of their particular tax situations, as well
as the effects of state, local and foreign tax law. Foreign
Shareholders 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.
ORGANIZATION
AND CAPITALIZATION
General
The
Needham Funds, Inc. was incorporated in Maryland on October 12, 1995 and is
registered with the SEC under the 1940 Act as an open-end management investment
company. The business and affairs of The Needham Funds, Inc. are
managed under the direction of its Board. Needham Investment
Management LLC, the investment adviser of the Funds, is an affiliate of Needham
& Company, LLC, which is wholly-owned by Needham Holdings, LLC (which in
turn is wholly-owned by the parent holding company, The Needham Group,
Inc.).
The
authorized capital stock of The Needham Funds, Inc. consists of one billion
shares of common stock having a par value of one-tenth of one cent ($0.001) per
share. The Board is authorized to divide the unissued shares into
separate classes and series of stock, each series representing a separate,
additional investment portfolio. The Needham Funds, Inc. is currently
comprised of three portfolios, Needham Growth Fund, Needham Aggressive Growth
Fund and Needham Small Cap Growth Fund, each of which is designated as a
separate series of stock. On November 3, 2016, the shares of each Fund were
designated as Retail Class shares. On December 29, 2016, each Fund began
offering Institutional Class shares. Each share of any class or
series of shares when issued has equal dividend, distribution, and liquidation
rights within the series for which it was issued. Each share of a
Fund is entitled to such dividends and distributions out of the income earned on
the assets belonging to that Fund as are declared in the discretion of the
Board.
There
are no preemptive or, except as described in the Prospectus, conversion rights
in connection with any shares of the Funds, and the shares are freely
transferable. All shares, when issued and paid for in accordance with
the terms of the offering, will be fully paid and
non-assessable. Shares are redeemable at net asset value, at the
option of the investor. In the event of liquidation of a particular
series, the shareholders of the series being liquidated shall be entitled to
receive the excess of the assets belonging to that series over the liabilities
belonging to
that
series. The holders of any shares of any series shall not be entitled
thereby to any distribution upon liquidation of any other series.
Each
share of the Funds shall have equal voting rights with every other share of
every other series of The Needham Funds, Inc. and all shares of all such series
shall vote as a single group except where a separate vote of any class or series
is required by the 1940 Act, the laws of the State of Maryland, the Articles of
Incorporation of The Needham Funds, Inc. or as the Board may determine in its
sole discretion. Fractional shares shall be entitled to fractional
votes.
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. The Needham Funds, Inc. will be required to
call a special meeting of shareholders in accordance with the requirements of
the 1940 Act.
Control
Persons and Principal Holders of Securities
A
principal shareholder is any person who owns of record or beneficially 5% or
more of the outstanding shares of a Fund. A control person is one who
owns beneficially or through controlled companies more than 25% of the voting
securities of a company or acknowledges the existence of control.
As
of April
1, 2024,
to the knowledge of management, the following persons held of record or
beneficially owned 5% or more of the Growth Fund’s outstanding common
stock:
Retail
Class
|
|
|
|
|
|
|
| |
Name
and Address |
Percent
Held |
Nature
of Ownership |
Charles
Schwab & Co., Inc. 211 Main Street San Francisco, CA
94105-1901 |
31.87% |
Record |
|
| |
National
Financial Services LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
26.61% |
Record |
Institutional
Class
|
|
|
|
|
|
|
| |
Name
and Address |
Percent
Held |
Nature
of Ownership |
National
Financial Services LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
27.78% |
Record |
|
| |
George
A. Needham New York, NY 10075-0202 |
15.55% |
Beneficial |
|
| |
Charles
Schwab & Co., Inc. 211 Main Street San Francisco, CA
94105-1901 |
11.26% |
Record |
As
of April
1, 2024,
to the knowledge of management, the following persons held of record or
beneficially owned 5% or more of the Aggressive Growth Fund’s outstanding common
stock:
Retail
Class
|
|
|
|
|
|
|
| |
Name
and Address |
Percent
Held |
Nature
of Ownership |
National
Financial Services LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
35.19% |
Record |
|
| |
Charles
Schwab & Co., Inc. 211 Main Street San Francisco, CA
94105-1901 |
34.92% |
Record |
|
| |
Merrill
Lynch Pierce Fenner & Smith 4800 Deer Lake Drive
East Jacksonville, FL 32246-6484 |
10.03% |
Record |
Institutional
Class
|
|
|
|
|
|
|
| |
Name
and Address |
Percent
Held |
Nature
of Ownership |
National
Financial Services LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
33.75% |
Record |
|
| |
LPL
Financial 4707 Executive Drive San Diego, CA 92121-3091 |
20.17% |
Record |
|
| |
Pershing
LLC 1 Pershing Plaza, Floor 14 Jersey City, NJ 07399-2052 |
12.60% |
Record |
|
| |
Charles
Schwab & Co., Inc. 211 Main Street San Francisco, CA
94105-1901 |
10.44% |
Record |
As
of April
1, 2024,
to the knowledge of management, the following persons held of record or
beneficially owned 5% or more of the Small Cap Growth Fund’s outstanding common
stock:
Retail
Class
|
|
|
|
|
|
|
| |
Name
and Address |
Percent
Held |
Nature
of Ownership |
Charles
Schwab & Co., Inc. 211 Main Street San Francisco, CA
94105-1901 |
37.53% |
Record |
|
| |
National
Financial Services LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
36.13% |
Record |
|
| |
Merrill
Lynch Pierce Fenner & Smith 4800 Deer Lake Drive
East Jacksonville, FL 32246-6484 |
7.83% |
Record |
|
| |
Morgan
Stanley Smith Barney LLC 1 New York Plaza, 39th Floor New York, NY
10004-1932 |
5.35% |
Record |
Institutional
Class
|
|
|
|
|
|
|
| |
Name
and Address |
Percent
Held |
Nature
of Ownership |
LPL
Financial 4707 Executive Drive San Diego, CA 92121-3091 |
27.85% |
Record |
|
| |
National
Financial Services LLC 499 Washington Boulevard Jersey City, NJ
07310-1995 |
25.24% |
Record |
|
| |
Wells
Fargo Clearing Services, LLC 2801 Market Street Saint Louis, MO
63103-2523 |
15.38% |
Record |
|
| |
Pershing
LLC 1 Pershing Plaza, Floor 14 Jersey City, NJ 07399-2052 |
8.50% |
Record |
|
| |
Charles
Schwab & Co., Inc. 211 Main Street San Francisco, CA
94105-1901 |
5.16% |
Record |
As
of April 1, 2024, the Directors and officers of The Needham Funds, Inc. as a
group owned approximately 8.96% of the outstanding shares of the Growth
Fund, approximately 2.85% of the outstanding shares of the Aggressive
Growth Fund and approximately2.26% of the outstanding shares of the Small Cap
Growth Fund.
OTHER
INFORMATION
Legal
Counsel
Proskauer
Rose LLP serves as legal counsel for the Funds and the Funds’ Independent
Directors.
Independent
Registered Public Accounting Firm
RSM
US LLP serves as the independent registered public accounting firm for the
Funds. RSM US LLP provides audit services, tax return preparation and
assistance, and other related services in connection with certain SEC filings.
Its office is located at RSM
US LLP,
80 City Square, Boston MA 02129.
FINANCIAL
STATEMENTS
The
financial statements of each of the Funds for the fiscal year ended December 31,
2023,
appearing in the Funds’ Annual
Report
to Shareholders, have been audited by RSM US LLP, the Funds’ independent
registered public accounting firm. The financial statements of each of the Funds
for the fiscal period ended June 30,
2023,
appearing in the Fund’s Semi-Annual
Report
to Shareholders, are incorporated by reference herein. A copy of the Funds’
Annual Report and Semi-Annual Report may be obtained without charge from U.S.
Bancorp Fund Services by calling 1-800-625-7071.