EXHIBIT 7(a.1)

                               AMENDMENT NO. 2 TO
                          CUSTODIAN SERVICES AGREEMENT

         This Amendment No. 2 to Custodian Services Agreement is made as of
May___, 2002, by and between PFPC Trust Company (the "Custodian") and The
Needham Funds, Inc., a Maryland corporation (the "Company").

                              W I T N E S S E T H:


         WHEREAS, PNC Bank, National Association ("PNC Bank") and the Company
entered into that certain Custodian Services Agreement, dated as of January 2,
1996 (the "Original Agreement"), whereby the Company retained PNC Bank to
provide certain custodian services as described therein to the Company's
investment portfolios set forth on Exhibit A attached thereto; and

         WHEREAS, PNC Bank assigned its rights and duties under the Original
Agreement to the Custodian, effective December 31, 1998; and

         WHEREAS, the Custodian and the Company amended Exhibit A to the
Original Agreement on August 29, 2001 to provide for the addition of Needham
Aggressive Growth Fund to the list of investment portfolios to which the
Custodian will provide the custodian services described in the Original
Agreement ("Amendment No. 1"); and

         WHEREAS, the Custodian and the Company now desire to further amend
Exhibit A to the Original Agreement to provide for the addition of Needham Small
Cap Growth Fund to the list of investment portfolios to which the Custodian will
provide the custodian services described in the Original Agreement.

         NOW, THEREFORE, In consideration of the premises and the mutual
covenants contained herein and intending to be legally bound hereby, the parties
hereto agree as follows:

1.       Amendment of Exhibit A. Exhibit A to the Original Agreement, as amended
         by Amendment No. 1, is hereby amended and restated in its entirety to
         read in the form attached hereto as Exhibit A.

2.       Miscellaneous.

         (a)      Governing Law. This Amendment No. 2 shall be governed by the
                  laws of the Commonwealth of Pennsylvania without regard for
                  conflicts of law principles thereof.



                                                                  EXHIBIT 7(a.1)

         (b)      Successors and Assigns. This Amendment No. 2 shall be binding
                  upon and shall inure to the benefit of the parties hereto and
                  their respective successors and assigns as permitted in the
                  Original Agreement.

         (c)      Counterpart Signatures. This Amendment No. 2 may be executed
                  in counterpart and by facsimile signature, each counterpart
                  being deemed an original, but which when taken together shall
                  constitute one and the same instrument.

              IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 2 to Custodian Services Agreement to be executed as of the date first
written above.


                                          PFPC TRUST COMPANY


                                          By:
                                                ------------------------------
                                                Name:
                                                Title:



                                          THE NEEDHAM FUNDS, INC.


                                          By:
                                                ------------------------------
                                                Name:
                                                Title:



                                                                  EXHIBIT 7(a.1)

                                    EXHIBIT A

                                   PORTFOLIOS

                               NEEDHAM GROWTH FUND

                         NEEDHAM AGGRESSIVE GROWTH FUND

                          NEEDHAM SMALL CAP GROWTH FUND