SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. File No. 333-40831 [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 File No. 811-08509 [X]
Buffalo Small Cap Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
BMA Tower, 700 Karnes Boulevard, Kansas City, MO 64108-3306
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code (816) 751-5900
Larry D. Armel, President, Buffalo Small Cap Fund, Inc.
BMA Tower, 700 Karnes Boulevard, Kansas City, MO 64108-3306
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Upon effective date of this
registration statement
Title of Securities Being Registered: Common Stock 1.00 par value
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective on such date as the Commission acting pursuant
to Section 8(a) of the Investment Company Act of 1940 may determine.
Please address inquiries and a carbon copy of all
and communications to: communications to:
John G. Dyer, Esq. Mark H. Plafker, Esq.
Buffalo Small Cap Fund, Inc. Stradley, Ronon, Stevens & Young, LLP
BMA Tower 2600 One Commerce Square
700 Karnes Blvd. Philadelphia, PA 19103-7098
Kansas City, MO 64108-3306 Telephone: (215) 564-8024
Telephone: (816) 751-5900
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BUFFALO SMALL CAP FUND, INC.
CROSS REFERENCE SHEET
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Form N-1A Item Number Location in Prospectus
Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Not Applicable
Item 3. Condensed Financial Information............................... Per Share Capital and Income
Changes
Item 4. General Description of Registrant............................. Investment Objective and
Portfolio Management Policy
Item 5. Management of the Fund........................................ Officers and Directors;
Management and Investment
Counsel
Item 6. Capital Stock and Other Securities............................ How to Purchase Shares;
How to Redeem Shares; How
Share Price is Determined;
General Information and
History; Dividends,
Distributions and their
Taxation
Item 7. Purchase of Securities........................................ Cover Page; How to
being Offered Purchase Shares; Shareholder
Services
Item 8. Redemption or Repurchase...................................... How to Redeem Shares
Item 9. Pending Legal Proceedings..................................... Not Applicable
<PAGE>
BUFFALO SMALL CAP FUND, INC.
CROSS REFERENCE SHEET (Continued)
Form N-1A Item Number Location in Statement of
Additional Information
Item 10. Cover Page........................................... Cover Page
Item 11. Table of Contents.................................... Cover Page
Item 12. General Information and History...................... Investment Objectives and
Policies; Management and
Investment Counsel
Item 13. Investment Objectives and Policies................... Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund............................... Management and Investment
Counsel
Item 15. Control Persons and Principal........................ Management and
Holders of Securities Investment Counsel; Officers
and Directors
Item 16. Investment Advisory and other........................ Management and
Services Investment Counsel
Item 17. Brokerage Allocation................................. Portfolio Transactions
Item 18. Capital Stock and Other Securities................... General Information and
History (Prospectus);
Financial Statements
Item 19. Purchase, Redemption and Pricing..................... How Share Purchases
of Securities Being Offered.......................... are Handled; Redemption of
Shares; Financial Statements
Item 20. Tax Status........................................... Dividends, Distributions and
their Taxation (Prospectus)
Item 21. Underwriters......................................... How the Fund's Shares are
Distributed
Item 22. Calculation of Yield Quotations...................... Not Applicable
of Money Market Fund
Item 23. Financial Statements................................. Financial Statements
</TABLE>
<PAGE>
PROSPECTUS
March __, 1998
BUFFALO SMALL CAP FUND, INC.
Toll-Free 1-800-49-BUFFALO
(1-800-492-8332)
Managed and Distributed By: Investment Counsel:
Jones & Babson, Inc. Kornitzer Capital Management, Inc.
BMA Tower Shawnee Mission, Kansas
700 Karnes Blvd.
Kansas City, Missouri 64108-3306
INVESTMENT OBJECTIVE
Buffalo Small Cap Fund, Inc. (the "Fund") seeks long-term capital
growth. Long-term capital growth is intended to be achieved primarily by the
Fund's investment in equity securities of small companies.
PURCHASE INFORMATION
Minimum Investment
Initial Purchase.............................................$ 2,500
Initial IRA and Uniform Transfers (Gifts)
to Minors Purchases:.......................................$ 250
Subsequent Purchase:
By Mail....................................................$ 100
By Telephone or Wire.......................................$ 1,000
All Automatic Purchases....................................$ 100
Shares are purchased and redeemed at net asset value. There are no
sales, redemption or Rule 12b-1 distribution charges. If you need further
information, please call the Fund at the telephone number indicated above.
ADDITIONAL INFORMATION
This prospectus should be read and retained for future reference. It
contains the information that you should know before you invest. A "Statement of
Additional Information" of the same date as this prospectus has been filed with
the Securities and Exchange Commission and is incorporated by reference.
Investors desiring additional information about the Fund may obtain a copy
without charge by calling the Fund at the telephone number indicated above or by
writing to the address on the cover.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
Fund Expenses...........................................................
Investment Objective and Portfolio Management Policies..................
Repurchase Agreements...................................................
Risk Factors............................................................
Investment Restrictions.................................................
Historical Performance of Kornitzer Capital Management, Inc.............
Performance Measures....................................................
How to Purchase Shares..................................................
Initial Investments.....................................................
Investments Subsequent to Initial Investment............................
Telephone Investment Service............................................
Automatic Monthly Investment Plan.......................................
How to Redeem Shares....................................................
Systematic Redemption Plan..............................................
How to Exchange Shares Between Funds....................................
How Share Price is Determined...........................................
Officers and Directors..................................................
Management and Investment Counsel.......................................
General Information and History.........................................
Dividends, Distributions and Their Taxation.............................
Shareholder Services....................................................
Shareholder Inquiries...................................................
2
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BUFFALO SMALL CAP FUND, INC.
FUND EXPENSES
The following information is provided in order to assist you in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. The expenses set forth below are estimates for the
initial fiscal year of the Fund.
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Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None
Exchange fee None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 1.00%
12b-1 fees None
Other expenses .02%
Total Fund operating expenses 1.02%
</TABLE>
Example
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
1 Year 3 Year
$10 $32
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual return. The actual return may be greater
or less than the assumed amount. The various costs and expenses reflected in the
foregoing Expense Tables and Example are explained in more detail in this
prospectus. "Other expenses" is based on estimated amounts for the current
fiscal year. Management fees are discussed in greater detail under "Management
and Investment Counsel."
INVESTMENT OBJECTIVE AND PORTFOLIO MANAGEMENT POLICIES
The Buffalo Small Cap Fund seeks long-term capital growth. Long-term
capital growth is intended to be achieved primarily by the Fund's investment in
equity securities of small companies. Equity securities include common stock,
preferred stock and securities convertible into common stock or preferred stock.
The Buffalo Small Cap Fund will normally invest in a broad array of
securities, diversified in terms of companies and industries. The Fund invests
at least 65% of its total assets in equity
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securities of small companies, during normal market conditions. Small companies
are considered to be issuers with individual market capitalization of up to $1
billion, or issuers whose individual market capitalization would place them at
the time of purchase in the lowest 20% total market capitalization of companies
that have equity securities listed on a U.S. national securities exchange or
traded in the NASDAQ system.
The Fund may invest in foreign securities through dollar-denominated
American Depository Receipts (ADRs), which are issued by domestic banks and
publicly traded in the United States. ADRs do not involve the same direct
currency and liquidity risks as securities denominated in foreign currency.
However, their value will generally be affected by currency fluctuations that
alter the value of the security underlying the ADRs with respect to the U.S.
dollar. The Fund does not intend to invest directly in foreign securities or
foreign currencies. (See "Risk Factors Applicable to ADRs.")
The Fund is authorized to write (i.e., sell) covered call options on
the securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option is
an option where the Fund in return for a premium gives another party a right to
buy specified securities owned by the Fund at a specified future date and price
set at the time of the contract. (See "Risk Factors Applicable to Covered Call
Options.")
Covered call options serve as a partial hedge against any price
declines of the underlying securities.
Investments in money market securities shall include government
securities, commercial paper, bank certificates of deposit and repurchase
agreements collateralized by government securities. Investment in commercial
paper shall be restricted to companies in the top two rating categories by
Moody's and Standard & Poor's.
The Fund may also invest in issues of the United States Treasury or a
United States government agency subject to repurchase agreements. The use of
repurchase agreements by the Fund involves certain risks. For a discussion of
these risks, see "Risk Factors Applicable to Repurchase Agreements."
There is no assurance that the Fund's objective of long-term growth of
capital can be achieved. Portfolio turnover will be no more than is necessary to
meet the Fund's objective. Under normal circumstances, it is anticipated that
the portfolio turnover rate for securities held in the Fund's portfolio will not
exceed 100% on an annual basis. A high portfolio turnover rate may increase
transaction costs and result in additional taxable gains.
REPURCHASE AGREEMENTS
A repurchase agreement involves the sale of securities to the Fund with
the concurrent agreement by the seller to repurchase the securities at the
Fund's cost plus interest at an agreed rate upon demand or within a specified
time, thereby determining the yield during the purchaser's period of ownership.
The result is a fixed rate of return insulated from market fluctuations during
such
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period. Under the Investment Company Act of 1940, repurchase agreements are
considered loans by the Fund.
The Fund will enter into such repurchase agreements only with United
States banks having assets in excess of $1 billion which are members of the
Federal Deposit Insurance Corporation, and with certain securities dealers who
meet the qualifications set from time to time by the Board of Directors. The
term to maturity of a repurchase agreement normally will be no longer than a few
days. Repurchase agreements maturing in more than seven days and other illiquid
securities will not exceed 10% of the net assets of the Fund.
RISK FACTORS
Risk Factors Applicable to Small Capitalization Securities
Investments in common stocks in general are subject to market, economic
and business risks that will cause their price to fluctuate over time.
Additionally, securities of companies with smaller revenues and capitalizations
may offer greater opportunity for capital appreciation than larger companies,
but investment in such companies present greater risks and may involve greater
price volatility than securities of larger, more established companies. In
addition, the market for small capitalization stocks is generally less liquid
than the markets for larger stocks, which can contribute to increased price
volatility of such stocks. Therefore, an investment in the Fund may be more
suitable for long-term investors who can bear the risk of these fluctuations.
Risk Factors Applicable to Common Stocks
The Fund is subject to market risk and performance risk. Market risk is
the possibility that stock prices in general will decline over short or even
extended periods of time. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when stock prices generally decline.
Performance risk is the possibility that the Fund's performance during a
specific period may not meet or exceed that of the stock market as a whole.
Risk Factors Applicable to Repurchase Agreements
The Fund may enter into repurchase agreements. The use of repurchase
agreements involves certain risks. For example, if the seller of the agreement
defaults on its obligation to repurchase the underlying securities at a time
when the value of these securities has declined, the Fund may incur a loss when
the securities are sold. If the seller of the agreement becomes insolvent and
subject to liquidation or reorganization under the Bankruptcy Code or other
laws, disposition of the underlying securities may be delayed pending court
proceedings. Finally, it is possible that the Fund may not be able to perfect
its interest in the underlying securities. While the Fund's management
acknowledges these risks, it is expected that they can be controlled through
stringent security selection criteria and careful monitoring procedures.
Risk Factors Applicable to Covered Call Options
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The Fund may engage in covered call option transactions as described
herein. Up to 25% of the Fund's total assets may be subject to covered call
options. By writing covered call options, the Fund gives up the opportunity,
while the option is in effect, to profit from any price increase in the
underlying security above the option exercise price. In addition, the Fund's
ability to sell the underlying security will be limited while the option is in
effect unless the Fund effects a closing purchase transaction. A closing
purchase transaction cancels out the Fund's position as the writer of an option
by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written.
Upon the termination of the Fund's obligation under a covered call
option other than through exercise of the option, the Fund will realize a
short-term capital gain or loss. Any gain realized by the Fund from the exercise
of an option will be short- or long-term depending on the period for which the
stock was held. The writing of covered call options creates a straddle that is
potentially subject to the straddle rules, which may override some of the
foregoing rules and result in a deferral of some losses for tax purposes.
Risk Factors Applicable to ADRs
Up to 25% of the Fund's total assets may be invested in ADRs. ADRs
(sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying foreign securities. Most ADRs are
traded on a U.S. stock exchange. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, there may not be a correlation between such information and the
market value of the unsponsored ADR.
INVESTMENT RESTRICTIONS
In addition to the policies set forth under the caption "Investment
Objective and Portfolio Management Policies," the Fund is subject to certain
other restrictions which may not be changed without approval of the lesser of:
(1) at least 67% of the voting securities present at a shareholder's meeting if
the holders of more than 50% of the outstanding securities of the Fund are
present or represented by proxy, or (2) more than 50% of the outstanding voting
securities of the Fund. Among these restrictions, the more important ones are
that the Fund will not purchase the securities of any issuer if more than 5% of
the Fund's total assets would be invested in the securities of such issuer, or
the Fund would hold more than 10% of any class of securities of such issuer; the
Fund will not make any loan (the purchase of a security subject to a repurchase
agreement or the purchase of a portion of an issue of publicly distributed debt
securities is not considered the making of a loan); and the Fund will not borrow
or pledge its credit under normal circumstances, except up to 10% of its total
assets (computed at the lower of fair market value or cost) temporarily for
emergency or extraordinary purposes, and not for the purpose of leveraging its
investments; and provided further that any borrowing in excess of 5% of the
total assets of the Fund shall have asset coverage of at least three to one. The
Fund will not buy securities while borrowings are outstanding. The full text of
these restrictions are set forth in the "Statement of Additional Information."
6
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HISTORICAL PERFORMANCE OF KORNITZER CAPITAL MANAGEMENT, INC.
Set forth below is certain information about the investment performance
record of Kornitzer Capital Management, Inc., the Fund's investment counsel
responsible for managing the Fund's portfolio of small cap securities. The
performance information shown is for the Great Plains Trust Company Small Cap
Collective Retirement Fund (the "Small Cap Retirement Fund"), which had
approximately $21,311,000 in total assets as of December 31, 1997, and has an
investment objective, strategy and investment policies that are substantially
similar to those of the Fund. The results shown assume the reinvestment of all
dividends and capital gains and reflect the deduction of all management fees
charged by Kornitzer. The results presented are not intended to predict or
suggest the return to be experienced by the Fund or the return that an
individual investor might achieve by investing in the Fund. The Fund's results
may be different from the performance of the Small Cap Retirement Fund because
of, among other things, differences in fees and expenses, and because private
accounts are not subject to certain investment limitations, diversification
requirements, and other restrictions imposed by the Investment Company Act of
1940 and the Internal Revenue Code, as amended, which, if applicable, may
adversely affect the performance of such accounts.
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<CAPTION>
Annualized Returns for
the Periods Ending Small Cap S&P 600
12/31/97 Retirement Fund Small Cap
Index*
<S> <C> <C>
One Year 33.14% 25.58%
Three Years 31.96% 24.05%
Since Inception
(3 yrs., 4 mos.)** 26.93% 20.81%
Annual Returns
1997 33.14% 25.58%
1996 28.81% 21.32%
1995 33.94% 29.95%
1994
(lst 4 mos.) -2.98% -3.32%
</TABLE>
*The S&P 600 Small Cap Index is a capitalization-weighted index that measures
the performance of selected U.S. stocks with smaller market capitalizations
(generally less than $1 billion). The index is unmanaged and therefore does not
reflect the deduction of any fees.
**9/1/94 Inception Date.
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PERFORMANCE MEASURES
From time to time, the Fund may advertise its performance in various
ways, as summarized below. Further discussion of these matters also appears in
the "Statement of Additional Information." A discussion of Fund performance will
be included in the Fund's Annual Report to Shareholders which will be available
from the Fund upon request at no charge.
Total Return
The Fund may advertise "average annual total return" over various
periods of time. Such total return figures show the average percentage change in
value of an investment in the Fund from the beginning date of the measuring
period to the end of the measuring period. These figures reflect changes in the
price of the Fund's shares and assume that any income dividends and/or capital
gains distributions made by the Fund during the period were reinvested in shares
of the Fund. Figures will be given for recent one-, five- and ten-year periods
(if applicable), and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). When
considering "average" total return figures for periods longer than one year, it
is important to note that a Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
Performance Comparisons
In advertisements or in reports to shareholders, the Fund may compare
its performance to that of other mutual funds with similar investment objectives
and to stock or other relevant indices. For example, it may compare its
performance to rankings prepared by Lipper Analytical Services, Inc. (Lipper), a
widely recognized independent service which monitors the performance of mutual
funds. The Fund may compare its performance to the Standard & Poor's 600 Small
Cap Index (S&P 600), an index of unmanaged groups of common stocks, or the
Consumer Price Index. Performance information, rankings, ratings, published
editorial comments and listings as reported in national financial publications
such as Kiplinger's Personal Finance Magazine, Business Week, Morningstar Mutual
Funds, Investor's Business Daily, Institutional Investor, The Wall Street
Journal, Mutual Fund Forecaster, No-Load Investor, Money, Forbes, Fortune and
Barron's may also be used in comparing performance of the Fund. Performance
comparisons should not be considered as representative of the future performance
of the Fund. Further information regarding the performance of the Fund is
contained in the "Statement of Additional Information."
Performance rankings, recommendations, published editorial comments and
listings reported in Money, Barron's, Kiplinger's Personal Finance Magazine,
Financial World, Forbes, U.S. News & World Report, Business Week, The Wall
Street Journal, Investors Business Daily, USA Today, Fortune and Stanger's, may
also be cited (if the Fund is listed in any such publication) or used for
comparison, as well as performance listings and rankings from Morningstar Mutual
Funds, Personal Finance, Income and Safety, The Mutual Fund Letter, No-Load Fund
Investor, United Mutual Fund Selector, No-Load Fund Analyst, No-Load Fund X,
Louis Rukeyeser's Wall Street newsletter, Donoghue's Money Letter, CDA
Investment Technologies, Inc., Wiesenberger Investment Company Service and
Donoghue's Mutual Fund Almanac.
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HOW TO PURCHASE SHARES
Shares are purchased at net asset value (no sales charge) from the Fund
through its agent, Jones & Babson, Inc., BMA Tower, 700 Karnes Blvd., Kansas
City, MO 64108-3306. To complete a purchase order by mail, wire or telephone,
please provide information detailed below. For information or assistance call
toll free 1-800-49-BUFFALO (1-800-492-8332). If an investor wishes to engage the
services of any other broker to purchase (or redeem) shares of the Fund, a fee
may be charged by such broker. The Fund will not be responsible for the
consequences of delays including delays in the banking or Federal Reserve wire
systems.
You do not pay a sales commission when you buy shares of the Fund.
Shares are purchased at the Fund's net asset value (price) per share next
effective after a purchase order and payment have been received and accepted by
the Fund. In the case of certain institutions which have made satisfactory
payment arrangements with the Fund, orders may be processed at the net asset
value per share next effective after a purchase order has been received and
accepted by the Fund.
The Fund reserves the right in its sole discretion to withdraw all or
any part of the offering made by this prospectus or to reject purchase orders
when, in the judgment of management, such withdrawal or rejection is in the best
interest of the Fund and its shareholders. The Fund also reserves the right at
any time to waive or increase the minimum requirements applicable to initial or
subsequent investments with respect to any person or class of persons, which
include shareholders of the Fund's special investment programs. The Fund
reserves the right to refuse to accept orders for shares unless accompanied by
payment, except when a responsible person has indemnified the Fund against
losses resulting from the failure of investors to make payment. In the event
that the Fund sustains a loss as the result of failure by a purchaser to make
payment, the Fund's underwriter, Jones & Babson, Inc., will cover the loss.
INITIAL INVESTMENTS
Initial investments -- By mail. You may open an account and make an
investment by completing and signing the application which accompanies this
prospectus. Make your check ($2,500 minimum unless your purchase is pursuant to
an IRA or the Uniform Transfers (Gifts) to Minors Act in which case the minimum
initial purchase is $250) payable to UMB Bank, n.a. Mail your application and
check to:
Buffalo Small Cap Fund, Inc.
BMA Tower
700 Karnes Blvd.
Kansas City, Missouri 64108-3306
Initial investments -- By wire. You may purchase shares of the Fund by
wiring funds ($2,500 minimum) through the Federal Reserve Bank to the custodian,
UMB Bank, n.a. Prior to sending your money, you must call the Fund toll free
1-800-49-BUFFALO (1-800-492-8332) and provide it with the identity of the
registered account owner, the registered address, the Social Security or
Taxpayer Identification Number of the registered owner, the amount being wired,
the name and telephone number of the wiring bank and the person to be contacted
in connection with the order.
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You will then be provided a Fund account number, after which you should instruct
your bank to wire the specified amount, along with the account number and the
account registration to:
UMB Bank, n.a.
Kansas City, Missouri, ABA #101000695
For: Buffalo Small Cap Fund, Inc.
AC = 987090-8328
For Account No. (insert assigned Fund account number and
name in which account is registered).
A completed application must be sent to the Fund as soon as possible so
the necessary remaining information can be recorded in your account. Payment of
redemption proceeds may be delayed until the completed application is received
by the Fund.
INVESTMENTS SUBSEQUENT TO INITIAL INVESTMENT
You may add to your Fund account at any time in amounts of $100 or more
if purchases are made by mail, or $1,000 or more if purchases are made by wire
or telephone. Automatic monthly investments must be in amounts of $100 or more.
Checks should be mailed to the Fund at its address, and made payable to
UMB Bank, n.a. Always identify your account number or include the detachable
reminder stub which accompanies each confirmation.
Wire share purchases should include your account registration, your
account number and the name of the Fund. It also is advisable to notify the Fund
by telephone that you have sent a wire purchase order to the bank.
TELEPHONE INVESTMENT SERVICE
To use the Telephone Investment Service, you must first establish your
Fund account and authorize telephone orders in the application form, or,
subsequently, on a special authorization form provided upon request. If you
elect the Telephone Investment Service, you may purchase Fund shares by
telephone and authorize the Fund to draft your checking account for the cost of
the shares so purchased. You will receive the next available price after the
Fund has received your telephone call. Availability and continuance of this
privilege is subject to acceptance and approval by the Fund and all
participating banks. During periods of increased market activity, you may have
difficulty reaching the Fund by telephone, in which case you should contact the
Fund by mail or telegraph. The Fund will not be responsible for the consequences
of delays including delays in the banking or Federal Reserve wire systems.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are followed, the
Fund will not be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited to, requiring
personal identification prior to acting upon instructions received by telephone,
providing written confirmations of such transactions and/or tape recording of
telephone instructions.
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The Fund reserves the right to initiate a charge for this service and
to terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any circumstances
where such termination or modification is in the best interest of the Fund and
its shareholders.
AUTOMATIC MONTHLY INVESTMENT PLAN
You may elect to make monthly investments in a constant dollar amount
from your checking account ($100 minimum). The Fund will draft your checking
account on the same day each month in the amount you authorize in your
application, or, subsequently, on a special authorization form provided upon
request. Availability and continuance of this privilege is subject to acceptance
and approval by the Fund and all participating banks. If the date selected falls
on a day upon which Fund shares are not priced, investment will be made on the
first date thereafter upon which Fund shares are priced. The Fund will not be
responsible for the consequences of delays including delays in the banking or
Federal Reserve wire systems.
The Fund reserves the right to initiate a charge for this service and
to terminate or modify any or all of the privileges in connection with this
service at any time upon 15 days written notice to shareholders, and to
terminate or modify the privileges without prior notice in any circumstances
where such termination or modification is in the best interest of the Fund and
its shareholders.
HOW TO REDEEM SHARES
The Fund will redeem shares at the price (net asset value per share)
effective after receipt of a redemption request in "good order." (See "How Share
Price is Determined.")
A written request for redemption, together with an endorsed share
certificate where a certificate has been issued, must be received by the Fund in
order to constitute a valid tender for redemption. For authorization of
redemptions by a corporation, it will also be necessary to have an appropriate
certified copy of resolutions on file with the Fund before a redemption request
will be considered in "good order." In the case of certain institutions which
have made satisfactory redemption arrangements with the Fund, redemption orders
may be processed by facsimile or telephone transmission at net asset value per
share next effective after receipt by the Fund. If an investor wishes to engage
the services of any other broker to redeem (or purchase) shares of the Fund, a
fee may be charged by such broker.
To be in "good order" the request must include the following:
(1) A written redemption request or stock assignment (stock power)
containing the genuine signature of each registered owner
exactly as the shares are registered, with clear
identification of the account by registered name(s), account
number and the number of shares or the dollar amount to be
redeemed;
(2) any outstanding stock certificates representing shares to be
redeemed;
(3) signature guarantees as required (see Signature Guarantees);
and
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(4) any additional documentation which the Fund may deem necessary
to insure a genuine redemption.
Where additional documentation is normally required to support
redemptions as in the case of corporations, fiduciaries and others who hold
shares in a representative or nominee capacity such as certified copies of
corporate resolutions, or certificates of incumbency, or such other
documentation as may be required under the Uniform Commercial Code or other
applicable laws or regulations, it is the responsibility of the shareholder to
maintain such documentation on file and in a current status. A failure to do so
will delay the redemption. If you have questions concerning redemption
requirements, please write or telephone the Fund well ahead of an anticipated
redemption in order to avoid any possible delay.
Requests which are subject to special conditions or which specify an
effective date other than as provided herein cannot be accepted. All redemption
requests must be transmitted to the Fund at BMA Tower, 700 Karnes Blvd., Kansas
City, Missouri 64108-3306.
The Fund will endeavor to transmit redemption proceeds to the proper
party, as instructed, as soon as practicable after a redemption request has been
received in "good order" and accepted, but in no event later than the third
business day thereafter. Transmissions are made by mail unless an expedited
method has been authorized and specified in the redemption request. The Fund
will not be responsible for the consequences of delays including delays in the
banking or Federal Reserve wire systems.
Redemptions will not become effective until all documents in the form
required have been received. In the case of redemption requests made within 15
days of the date of purchase, the Fund will delay transmission of proceeds until
such time as it is certain that unconditional payment in federal funds has been
collected for the purchase of shares being redeemed or 15 days from the date of
purchase, whichever occurs first. You can avoid the possibility of delay by
paying for all your purchases with a transfer of federal funds.
Signature Guarantees are required in connection with all redemptions by
mail, or changes in share registration, except as hereinafter provided. These
requirements may be waived by the Fund in certain instances where it appears
reasonable to do so and will not unduly affect the interests of other
shareholders. Signature(s) must be guaranteed by an "eligible Guarantor
institution" as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934. Eligible guarantor institutions include: (1) national or state banks,
savings associations, savings and loan associations, trust companies, savings
banks, industrial loan companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing agencies; or (3)
securities broker/dealers which are members of a national securities exchange or
clearing agency or which have a minimum net capital of $100,000. A notarized
signature will not be sufficient for the request to be in proper form.
Signature guarantees will be waived for mail redemptions of $10,000 or
less, but they will be required if the checks are to be payable to someone other
than the registered owner(s), or are to be mailed to an address different from
the registered address of the shareholder(s), or where there appears to be a
pattern of redemptions designed to circumvent the signature guarantee
requirement,
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<PAGE>
or where the Fund has other reason to believe that this requirement would be in
the best interests of the Fund and its shareholders.
The right of redemption may be suspended or the date of payment
postponed beyond the normal three-day period when the New York Stock Exchange is
closed or under emergency circumstances as determined by the Securities and
Exchange Commission. Further, the Fund reserves the right to redeem its shares
in kind under certain circumstances. If shares are redeemed in kind, the
shareholder may incur brokerage costs when converting into cash. Redemptions
in-kind must be in the form of readily marketable securities. Additional details
are set forth in the "Statement of Additional Information."
Due to the high cost of maintaining smaller accounts, the Board of
Directors has authorized the Fund to close shareholder accounts where their
value falls below the current minimum initial investment requirement at the time
of initial purchase as a result of redemptions and not as the result of market
action, and remains below this level for 60 days after each such shareholder
account is mailed a notice of: (1) the Fund's intention to close the account,
(2) the minimum account size requirement, and (3) the date on which the account
will be closed if the minimum size requirement is not met. Since the minimum
investment and the minimum account size are one and the same, any redemption
from an amount containing only the minimum investment amount may result in
redemption of that account.
SYSTEMATIC REDEMPTION PLAN
If you own shares in an open account valued at $10,000 or more, and
desire to make regular monthly or quarterly withdrawals without the necessity
and inconvenience of executing a separate redemption request to initiate each
withdrawal, you may enter into a Systematic Withdrawal Plan by completing forms
obtainable from the Fund. For this service, the manager may charge you a fee not
to exceed $1.50 for each withdrawal. Currently the manager assumes the
additional expenses arising out of this type of plan, but it reserves the right
to initiate such a charge at any time in the future when it deems it necessary.
If such a charge is imposed, participants will be provided 30 days notice.
Subject to a $50 minimum, you may withdraw each period a specified
dollar amount. Shares also may be redeemed at a rate calculated to exhaust the
account at the end of a specified period of time.
Dividends and capital gains distributions must be reinvested in
additional shares. Under all withdrawal programs, liquidation of shares in
excess of dividends and distributions reinvested will diminish and may exhaust
your account, particularly during a period of declining share values.
You may revoke or change your plan or redeem all of your remaining
shares at any time. Withdrawal payments will be continued until the shares are
exhausted or until the Fund or you terminate the plan by written notice to the
other.
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HOW TO EXCHANGE SHARES BETWEEN FUNDS
Shareholders may exchange their Fund shares, which have been held in an
open account for 15 days or more, and for which good payment has been received,
for identically registered shares of any Fund in the Buffalo or Babson Fund
Group which is legally registered for sale in the state of residence of the
investor, except Babson Enterprise Fund, Inc., provided that the minimum amount
exchanged has a value of $1,000 or more and meets the minimum investment
requirement of the Fund into which it is exchanged.
Effective at the close of business on January 31, 1992, the Directors
of the Babson Enterprise Fund, Inc. took action to limit the offering of that
Fund's shares. Babson Enterprise Fund, Inc. will not accept any new accounts,
including IRAs and other retirement plans, until further notice, nor will Babson
Enterprise Fund, Inc. accept transfers from shareholders of other Babson Funds,
who were not shareholders of record of Babson Enterprise Fund, Inc. at the close
of business on January 31, 1992.
To authorize the Telephone/Telegraph Exchange Privilege, all registered
owners must sign the appropriate section on the original application, or the
Fund must receive a special authorization form, provided upon request. During
periods of increased market activity, you may have difficulty reaching the Fund
by telephone, in which case you should contact the Fund by mail or telegraph.
The Fund reserves the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection with this service
at any time and without prior notice under any circumstances, where continuance
of these privileges would be detrimental to the Fund or its shareholders, such
as an emergency, or where the volume of such activity threatens the ability of
the Fund to conduct business, or under any other circumstances, upon 60 days
written notice to shareholders. The Fund will not be responsible for the
consequences of delays including delays in the banking or Federal Reserve wire
systems.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if such procedures are followed, the
Fund will not be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited to, requiring
personal identification prior to acting upon instructions received by telephone,
providing written confirmations of such transactions and/or tape recording of
telephone instructions.
Exchanges by mail may be accomplished by a written request properly
signed by all registered owners identifying the account by name and number, the
number of shares or dollar amount to be redeemed for exchange, and the Buffalo
or Babson Fund into which the account is being transferred.
If you wish to exchange part or all of your shares in the Fund for
shares of a Fund in the Buffalo or Babson Fund Group, you should review the
prospectus of the Fund to be purchased, which can be obtained from Jones &
Babson, Inc. Any such exchange will be based upon the respective net asset
values of the shares involved. An exchange between Funds involves the sale of an
asset. Unless the shareholder account is tax-deferred, this is a taxable event.
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<PAGE>
HOW SHARE PRICE IS DETERMINED
In order to determine the price at which new shares will be sold and at
which issued shares presented for redemption will be liquidated, the net asset
value per share of the Fund is computed once daily, Monday through Friday, at
the specific time during the day that the Board of Directors sets at least
annually, except on days on which changes in the value of portfolio securities
will not materially affect the net asset value, or days during which no security
is tendered for redemption and no order to purchase or sell such security is
received by the Fund, or customary holidays. For a list of the holidays during
which the Fund is not open for business, see "How Share Price is Determined" in
the "Statement of Additional Information."
The price at which new shares of the Fund will be sold and at which
issued shares presented for redemption will be liquidated is computed once daily
at 4:00 P.M. (Eastern Time), except on those days when the Fund is not open for
business.
The per share calculation is made by subtracting from the Fund's total
assets any liabilities and then dividing into this amount the total outstanding
shares as of the date of the calculation. Each security listed on an exchange is
valued at its last sale price on that exchange on the date as of which assets
are valued. Where the security is listed on more than one exchange, the Fund
will use the price of that exchange which it generally considers to be the
principal exchange on which the security is traded. Lacking sales, the security
is valued at the mean between the current closing bid and asked prices. An
unlisted security for which over-the-counter market quotations are readily
available is valued at the mean between the last current bid and asked prices.
When market quotations are not readily available, any security or other asset is
valued at its fair value as determined in good faith by the Board of Directors.
OFFICERS AND DIRECTORS
The officers of the Fund manage its day-to-day operations. The Fund's
manager and officers are subject to the supervision and control of the Board of
Directors. A list of the officers and directors of the Fund and a brief
statement of their present positions and principal occupations during the past
five years is set forth in the "Statement of Additional Information."
MANAGEMENT AND INVESTMENT COUNSEL
Jones & Babson, Inc. was founded in 1960. It organized the Fund in 1997
and acts as its manager and principal underwriter. Pursuant to the current
Management Agreement, Jones & Babson, Inc. pays or provides the cost of all
management, supervisory and administrative services required in the normal
operation of the Fund. This includes investment management and supervision; fees
of the custodian, independent auditors and legal counsel; remuneration of
officers, directors and other personnel; rent; shareholder services, including
the maintenance of the shareholder accounting system and transfer agency; and
such other items as are incidental to corporate administration.
Not considered normal operating expenses, and therefore payable by the
Fund, are taxes, interest, fees and other charges of governments and their
agencies, including the cost of qualifying
15
<PAGE>
the Fund's shares for sale in any jurisdiction, brokerage costs, dues, and all
extraordinary costs and expenses including but not limited to legal and
accounting fees incurred in anticipation of or arising out of litigation or
administrative proceedings to which the Fund, its officers or directors may be
subject or a party thereto.
As a part of the Management Agreement, Jones & Babson, Inc. employs at
its own expense Kornitzer Capital Management, Inc. as its investment counsel to
assist in the investment advisory function for the Fund. Kornitzer Capital
Management, Inc. is an independent investment counseling firm founded in 1989.
It serves a broad variety of individual, corporate and other institutional
clients by maintaining an extensive research and analytical staff. It has an
experienced investment analysis and research staff which eliminates the need for
Jones & Babson, Inc. and the Fund to maintain an extensive duplicate staff, with
the consequent increase in the cost of investment advisory service. The cost of
the services of Kornitzer Capital Management, Inc. is included in the fee of
Jones & Babson, Inc. The Management Agreement limits the liability of the
manager and its investment counsel, as well as their officers, directors and
personnel, to acts or omissions involving willful malfeasance, bad faith, gross
negligence, or reckless disregard of their duties. The organizational
arrangements of the investment counsel require that all investment decisions be
made by committee, and no person is primarily responsible for making
recommendations to that committee.
As compensation for all the foregoing services, the Fund pays Jones &
Babson, Inc. a fee at the annual rate of one percent (1%) of average daily net
assets from which Jones & Babson, Inc. pays Kornitzer Capital Management, Inc. a
fee of 50/100 of one percent (.50%) of the average daily total net assets. The
fees are computed daily and paid semimonthly.
Certain officers and directors of the Fund are also officers or
directors or both of other Buffalo Funds, Jones & Babson, Inc. or Kornitzer
Capital Management, Inc.
Jones & Babson, Inc. is a wholly-owned subsidiary of Business Men's
Assurance Company of America which is considered to be a controlling person
under the Investment Company Act of 1940. Assicurazioni Generali S.p.A., an
insurance organization founded in 1831 based in Trieste, Italy is considered to
be a controlling person and is the ultimate parent of Business Men's Assurance
Company of America. Mediobanca is a 5% owner of Generali.
Kornitzer Capital Management, Inc. is a closely held corporation and
has limitations in the ownership of its stock designed to maintain control in
those who are active in management. Owners of 5% or more of Kornitzer Capital
Management, Inc. are John C. Kornitzer, Kent W. Gasaway, Willard R. Lynch,
Thomas W. Laming and Susan Stack.
The current Management Agreement between the Fund and Jones & Babson,
Inc., which includes the Investment Counsel Agreement between Jones & Babson,
Inc. and Kornitzer Capital Management, Inc. will continue in effect until
October 31, 1999. The Agreements will continue automatically for successive
annual periods ending each October 31 so long as such continuance is
specifically approved at least annually by the Board of Directors of the Fund or
by the vote of a majority of the outstanding voting securities of the Fund, and,
provided also that such continuance is approved by the vote of a majority of the
directors who are not parties to the Agreements or interested persons of any
such party at a meeting held in person and called specifically for the
16
<PAGE>
purpose of evaluating and voting on such approval. Both Agreements provide that
either party may terminate by giving the other 60 days written notice. The
Agreements terminate automatically if assigned by either party, as required
under the Investment Company Act of 1940.
GENERAL INFORMATION AND HISTORY
The Fund was incorporated in Maryland on October 16, 1997. The Fund has
a present authorized capitalization of 10,000,000 shares of $1 par value common
stock. The Fund may divide its shares into series or sub-series (classes) with
the approval of its Board of Directors. The Fund currently issues a single class
of shares which all have like rights and privileges. Each full and fractional
share, when issued and outstanding, has: (1) equal voting rights with respect to
matters which affect the Fund; and (2) equal dividend, distribution and
redemption rights to the assets of the Fund. Shares when issued are fully paid
and non-assessable. The Fund may create other series of stock but will not issue
any senior securities. Shareholders do not have pre-emptive or conversion
rights.
Non-cumulative voting - These shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of directors can elect 100% of the directors, if they choose to do so,
and in such event, the holders of the remaining less than 50% of the shares
voting will not be able to elect any directors.
The Maryland General Corporation Law permits registered investment
companies, such as the Fund, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not required
by the Investment Company Act of 1940. There are procedures whereby the
shareholders may remove directors. These procedures are described in the
"Statement of Additional Information" under the caption "Officers and
Directors." The Fund has adopted the appropriate provisions in its By-Laws and
may not, at its discretion, hold annual meetings of shareholders for the
following purposes unless required to do so: (1) election of directors; (2)
approval of any investment advisory agreement; (3) ratification of the selection
of independent auditors; and (4) approval of a distribution plan. As a result,
the Fund does not intend to hold annual meetings.
The Fund may use the name "Buffalo" in its name so long as Kornitzer
Capital Management, Inc. is continued as its investment counsel. Complete
details with respect to the use of the name are set out in the Management
Agreement between the Fund and Jones & Babson, Inc.
This prospectus omits certain of the information contained in the
registration statement filed with the Securities and Exchange Commission,
Washington, D.C. These items may be inspected at the offices of the Commission
or obtained from the Commission upon payment of the fee prescribed.
DIVIDENDS, DISTRIBUTIONS AND THEIR TAXATION
The Fund pays dividends from net investment income semiannually,
usually in June and December. Distributions from capital gains realized on the
sale of securities, if any, will be declared annually on or before December 31.
Dividend and capital gains distributions will be reinvested automatically in
additional shares at the net asset value per share next computed and effective
at the
17
<PAGE>
close of business on the day after the record date, unless the shareholder has
elected on the original application, or by written instructions filed with the
Fund, to have them paid in cash.
The Fund intends to qualify for taxation as a "regulated investment
company" under Subchapter M of the Internal Revenue Code ("Code") so that the
Fund will not be subject to federal income tax to the extent that it distributes
its income to its shareholders. As such, the Fund will not be subject to federal
income tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code and by satisfying certain other requirements relating to
the sources of its income and diversification of its assets. Dividends, either
in cash or reinvested in shares, paid by the Fund from net investment income
will be taxable to shareholders as ordinary income, and will generally qualify
in part for the 70% dividends-received deduction for corporations. The portion
of the dividends so qualified depends on the aggregate taxable qualifying
dividend income received by the Fund from domestic (U.S.) sources. The Fund will
send to shareholders a statement each year advising the amount of the dividend
income which qualifies for such treatment.
Dividends from net investment income or net short-term gains will be
taxable to those investors who are subject to income taxes as ordinary income,
whether received in cash or in additional shares. Whether paid in cash or
additional shares of the Fund, and regardless of the length of time Fund shares
have been owned by the shareholder, distributions from long-term capital gains
are taxable to shareholders as such, but are not eligible for the
dividends-received deduction for corporations. The Fund does not try to realize
any particular amount of capital gains during a year; rather, realized gains are
a by-product of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before a record date for a dividend or capital gains distribution, a
portion of the investment will be returned as a taxable distribution. The 1997
Act creates a category of long-term capital gain for individual taxpayers that
will be taxed at new lower tax rates. For investors who are in the 28% or higher
federal income tax brackets, these gains will be taxed at a maximum of 20%. For
investors who are in the 15% federal income tax bracket, these gains will be
taxed at a maximum of 10%. Capital gain distributions will qualify for these new
maximum tax rates, depending on when the Fund's securities were sold and how
long they were held by the Fund before they were sold. Investors who want more
information on holding periods and other qualifying rules relating to these new
rates should review the expanded discussion in the "Statement of Additional
Information," or should contact their personal tax advisors. The Fund will
advise you in its annual information reporting at calendar year end of the
amount of its capital gains distributions which will qualify for these maximum
federal tax rates. Shareholders are notified annually by the Fund as to federal
tax status of dividends and distributions paid by the Fund. Such dividends and
distributions may also be subject to state and local taxes.
Exchange and redemption of Fund shares are taxable events for federal
income tax purposes. Shareholders may also be subject to state and municipal
taxes on such exchanges and redemptions. Any loss incurred on a sale or exchange
of Fund shares held for six months or less will be treated as a long-term
capital loss to the extent of capital gain dividends received with respect to
such shares. You should consult your tax adviser with respect to the tax status
of distributions from the Fund in your state and locality.
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<PAGE>
The Fund intends to declare and pay dividends and capital gains
distributions so as to avoid imposition of the federal excise tax. To do so, the
Fund expects to distribute during each calendar year an amount equal to: (1) 98%
of its calendar year ordinary income; (2) 98% of its capital gains net income
(the excess of short- and long-term capital gain over short- and long-term
capital loss) for the one-year period ending each October 31; and (3) 100% of
any undistributed ordinary or capital gain net income from the prior calendar
year. Dividends declared in October, November or December and made payable to
shareholders of record in such a month are deemed to have been paid by the Fund
and received by shareholders on December 31 of such year, so long as the
dividends are actually paid before February 1 of the following year.
To comply with IRS regulations, the Fund is required by federal law to
withhold 31% of reportable payments (which may include dividends, capital gains
distributions and redemptions) paid to shareholders who have not complied with
IRS regulations. In order to avoid this withholding requirement, shareholders
must certify on their Application, or on a separate form supplied by the Fund,
that their Social Security or Taxpayer Identification Number provided is correct
and that they are not currently subject to backup withholding, or that they are
exempt from backup withholding.
The federal income tax status of all distributions will be reported to
shareholders each January as a part of the annual statement of shareholder
transactions. Shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUND.
SHAREHOLDER SERVICES
The Fund and its manager offer shareholders a broad variety of services
described throughout this Prospectus. In addition, the following services are
available:
Automatic Monthly Investment - You may elect to make monthly
investments in a constant dollar amount from your checking account ($100
minimum). The Fund will draft your checking account on the same day each month
in the amount you authorize in your application, or, subsequently, on a special
authorization form provided upon request.
Automatic Reinvestment - Dividends and capital gains distributions may
be reinvested automatically, or shareholders may elect to have dividends paid in
cash and capital gains reinvested, or to have both paid in cash.
Telephone Investments - You may make investments of $1,000 or more by
telephone if you have authorized such investments in your application, or,
subsequently, on a special authorization form provided upon request. See
"Telephone Investment Service."
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<PAGE>
Automatic Exchange - You may exchange shares from your account ($100
minimum) in any of the Buffalo Funds to an identically registered account in any
other fund in the Buffalo or Babson Group according to your instructions.
Monthly exchanges will be continued until all shares have been exchanged or
until you terminate the Automatic Exchange authorization. A special
authorization form will be provided upon request.
Transfer of Ownership - A shareholder may transfer shares to another
shareholder account. The requirements which apply to redemptions apply to
transfers. A transfer to a new account must meet initial investment
requirements.
Systematic Redemption Plan - Shareholders who own shares in open
account valued at $10,000 or more may arrange to make regular withdrawals
without the necessity of executing a separate redemption request to initiate
each withdrawal.
Sub-Accounting - Keogh and corporate tax qualified retirement plans, as
well as certain other investors who must maintain separate participant
accounting records, may meet these needs through services provided by the Fund's
manager, Jones & Babson, Inc. Investment minimums may be met by accumulating the
separate accounts of the group. Although there is currently no charge for sub-
accounting, the Fund and its manager reserve the right to make reasonable
charges for this service.
Prototype Retirement Plans - Jones & Babson, Inc. offers a defined
contribution prototype plan - The Universal Retirement Plan - which is suitable
for all who are self-employed, including sole proprietors, partnerships, and
corporations. The Universal Prototype includes both money purchase pension and
profit-sharing plan options.
Individual Retirement Accounts - Also available are the following
Individual Retirement Accounts (IRAs):
Traditional IRA: The IRS has increased the phase-out ranges
for deductible contributions. The IRA uses the IRS model form of plan and
provides an excellent way to accumulate a retirement fund which will earn
tax-deferred dollars until withdrawn. An IRA may also be used to defer taxes on
certain distributions from employer-sponsored retirement plans. You may
contribute up to $2,000 of compensation each year ($4,000 if a spousal IRA is
established), some or all of which may be deductible. Consult your tax adviser
concerning the amount of the tax deduction, if any, as well as the best IRA for
your financial goals.
Roth IRA: Unlike the traditional IRA, contributions are
non-deductible, however, distribution will be exempt from federal taxes provided
that, at the time of withdrawal, the IRA has been held for five years and (1)
the account holder is 59 1/2 years old or (2) the withdrawals are used to
purchase a first home. The maximum contribution to a Roth IRA is $2,000 and
eligibility is subject to restrictions. Traditional IRAs may be converted into
Roth IRAs. Consult your tax adviser to determine the best IRA for your financial
goals.
Simplified Employee Pensions (SEPs) - The Jones & Babson IRA may be
used with IRS Form 5305 - SEP to establish a SEP-IRA, to which the self-employed
individual may contribute up
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to 15% of net earned income or $30,000, whichever is less. A SEP-IRA offers the
employer the ability to make the same level of deductible contributions as a
Profit-Sharing Plan with greater ease of administration, but less flexibility in
plan coverage of employees.
SHAREHOLDER INQUIRIES
Telephone inquiries may be made toll free to the Fund, 1-800-49-BUFFALO
(1-800-492-8332).
Shareholders may address written inquiries to the Fund at:
Buffalo Small Cap Fund, Inc.
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-3306
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<PAGE>
INVESTMENT COUNSEL
KORNITZER CAPITAL MANAGEMENT, INC.
Shawnee Mission, Kansas
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
Kansas City, Missouri
LEGAL COUNSEL
STRADLEY, RONON, STEVENS &
YOUNG, LLP
Philadelphia, Pennsylvania
JOHN G. DYER
Kansas City, Missouri
CUSTODIAN
UMB BANK, n.a.
Kansas City, Missouri
TRANSFER AGENT
JONES & BABSON, INC.
Kansas City, Missouri
22
<PAGE>
PART B
BUFFALO SMALL CAP FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
March __, 1998
This Statement is not a Prospectus but should be read in conjunction
with the Fund's current Prospectus dated March ___, 1998. To obtain the
Prospectus please call the Fund toll-free at 1-800-49-BUFFALO (1-800-492-8332).
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE AND POLICIES...................................... 2
PORTFOLIO TRANSACTIONS................................................. 2
INVESTMENT RESTRICTIONS................................................ 3
PERFORMANCE MEASURES................................................... 4
HOW THE FUND'S SHARES ARE DISTRIBUTED.................................. 4
HOW SHARE PURCHASES ARE HANDLED........................................ 4
REDEMPTION OF SHARES................................................... 6
DISTRIBUTIONS AND TAXES................................................ 6
SIGNATURE GUARANTEES................................................... 6
MANAGEMENT AND INVESTMENT COUNSEL...................................... 6
HOW SHARE PRICE IS DETERMINED.......................................... 7
OFFICERS AND DIRECTORS................................................. 7
CUSTODIAN..............................................................11
INDEPENDENT AUDITORS...................................................11
OTHER JONES & BABSON FUNDS.............................................11
DESCRIPTION OF COMMERCIAL PAPER RATINGS................................14
FINANCIAL STATEMENTS...................................................15
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's investment objective and
policies set forth in the Prospectus.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by Jones &
Babson, Inc. pursuant to recommendations by Kornitzer Capital Management, Inc.
Officers of the Fund and Jones & Babson, Inc. are generally responsible for
implementing or supervising these decisions, including allocation of portfolio
brokerage and principal business and the negotiation of commissions and/or the
price of the securities. In instances where securities are purchased on a
commission basis, the Fund will seek competitive and reasonable commission rates
based on circumstances of the trade involved and to the extent that they do not
detract from the quality of the execution.
The Fund, in purchasing and selling portfolio securities, will seek the
best available combination of execution and overall price (which shall include
the cost of the transaction) consistent with the circumstances which exist at
the time. The Fund does not intend to solicit competitive bids on each
transaction.
The Fund believes it is in its best interest and that of its
shareholders to have a stable and continuous relationship with a diverse group
of financially strong and technically qualified broker-dealers who will provide
quality executions at competitive rates. Broker-dealers meeting these
qualifications also will be selected for their demonstrated loyalty to the Fund,
when acting on its behalf, as well as for any research or other services
provided to the Fund. The Fund may execute a substantial portion of its
portfolio transactions through brokerage firms which are members of the New York
Stock Exchange or through other major securities exchanges. When buying
securities in the over-the-counter market, the Fund will select a broker who
maintains a primary market for the security unless it appears that a better
combination of price and execution may be obtained elsewhere. The Fund normally
will not pay a higher commission rate to broker-dealers providing benefits or
services to it than it would pay to broker-dealers who do not provide it such
benefits or services. However, the Fund reserves the right to do so within the
principles set out in Section 28(e) of the Securities Exchange Act of 1934 when
it appears that this would be in the best interests of the shareholders.
No commitment is made to any broker or dealer with regard to placing of
orders for the purchase or sale of Fund portfolio securities, and no specific
formula is used in placing such business. Allocation is reviewed regularly by
both the Board of Directors of the Fund and Jones & Babson, Inc.
Since the Fund does not market its shares through intermediary brokers
or dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, it may place portfolio orders with qualified broker-dealers who
recommend the Fund to other clients, or who act as agent in the purchase of the
Fund's shares for their clients.
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Research services furnished by broker-dealers may be useful to the
Fund's manager and its investment counsel in serving other clients, as well as
the Fund. Conversely, the Fund may benefit from research services obtained by
the manager or its investment counsel from the placement of portfolio brokerage
of other clients.
When it appears to be in the best interests of its shareholders, the
Fund may join with other clients of the manager and its investment counsel in
acquiring or disposing of a portfolio holding. Securities acquired or proceeds
obtained will be equitably distributed between the Fund and other clients
participating in the transaction. In some instances, this investment procedure
may affect the price paid or received by the Fund or the size of the position
obtained by the Fund.
INVESTMENT RESTRICTIONS
In addition to the investment objective and portfolio management
policies set forth in the Prospectus under the caption "Investment Objective and
Portfolio Management Policies," the following restrictions also may not be
changed without approval of the "holders of a majority of the outstanding
shares" of the Fund. The Fund will not: (1) as to 75% of its total assets,
purchase the securities of any one issuer, except the United States government,
if immediately after and as a result of such purchase (a) the value of the
holdings of the Fund in the securities of such issuer exceeds 5% of the value of
the Fund's total assets, or (b) the Fund owns more than 10% of the outstanding
voting securities, or any other class of securities, of such issuer; (2) engage
in the purchase or sale of real estate or commodities; (3) underwrite the
securities of other issuers; (4) make loans to other persons, except by the
purchase of debt obligations which are permitted under its policy (the purchase
of a security subject to a repurchase agreement or the purchase of a portion of
an issue of publicly distributed debt securities is not considered the making of
a loan); (5) purchase securities on margin, or sell securities short, except
that the Fund may write covered call options; (6) borrow or pledge its credit
under normal circumstances, except up to 10% of its gross assets (computed at
the lower of fair market value or cost) for temporary or emergency purposes, and
not for the purpose of leveraging its investments, and provided further that any
borrowing in excess of 5% of the total assets of the Fund shall have asset
coverage of at least three to one; or (7) purchase any securities which would
cause more than 25% of the value of a Portfolio's total net assets at the time
of such purchase to be invested in any one industry.
The following are "non-fundamental" restrictions which can be changed
by the Board of Directors of the Fund without shareholder approval. The Fund may
not: (1) invest in companies for the purpose of exercising control of
management; (2) purchase shares of other investment companies except as
permitted under the Investment Company Act of 1940, as amended from time to time
or pursuant to a plan of merger or consolidation or similar transaction; (3)
invest in the aggregate more than 5% of the value of its gross assets in the
securities of issuers (other than federal, state, territorial, or local
governments, or corporations, or authorities established thereby), which,
including predecessors, have not had at least three years' continuous
operations; or (4) except for transactions in its shares or other securities
through brokerage practices which are considered normal and generally accepted
under circumstances existing at the time, enter into dealings with its officers
or directors, its manager or underwriter, or their officers or directors or any
organizations in which such persons have a financial interest.
3
<PAGE>
PERFORMANCE MEASURES
TOTAL RETURN
The Fund's "average annual total return" figures will be computed
according to a formula prescribed by the Securities and Exchange Commission. The
formula can be expressed as follows:
P(1+T)n = ERV
Where P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical
$1000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the
end of the 1, 5 or 10 year (or other)
periods (or fractional portions thereof).
HOW THE FUND'S SHARES ARE DISTRIBUTED
Jones & Babson, Inc., as agent of the Fund, agrees to supply its best
efforts as sole distributor of the Fund's shares and, at its own expense, pay
all sales and distribution expenses in connection with their offering other than
registration fees and other government charges.
Jones & Babson, Inc. does not receive any fee or other compensation
under the distribution agreement which continues in effect until October 31,
1999, and which will continue automatically for successive annual periods ending
each October 31 if continued at least annually by the Fund's Board of Directors,
including a majority of those Directors who are not parties to such Agreement or
interested persons of any such party. It terminates automatically if assigned by
either party or upon 60 days written notice by either party to the other.
Jones & Babson, Inc. also acts as sole distributor of the shares of
David L. Babson Growth Fund, Inc., D.L. Babson Bond Trust, D.L. Babson Money
Market Fund, Inc., D.L. Babson Tax- Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc., Babson-Stewart Ivory International Fund, Inc., Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-Free
Money Market Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide Fund, Inc.,
Scout Balanced Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc., Scout
Capital Preservation Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc. and
AFBA Five Star Fund, Inc.
4
<PAGE>
HOW SHARE PURCHASES ARE HANDLED
Each order accepted will be fully invested in whole and fractional
shares, unless the purchase of a certain number of whole shares is specified, at
the net asset value per share next effective after an order is accepted by the
Fund.
Each investment is confirmed by a year-to-date statement which provides
the details of the immediate transaction, plus all prior transactions in your
account during the current year. This includes the dollar amount invested, the
number of shares purchased or redeemed, the price per share and the aggregate
shares owned. A transcript of all activity in your account during the previous
year will be furnished each January. By retaining each annual summary and the
last year-to-date statement, you have a complete detailed history of your
account which provides necessary tax information. A duplicate copy of a past
annual statement is available from Jones & Babson, Inc. at its cost, subject to
a minimum charge of $5 per account, per year requested.
Normally, the shares which you purchase are held by the Fund in open
account, thereby relieving you of the responsibility of providing for the
safekeeping of a negotiable share certificate. Should you have a special need
for a certificate, one will be issued on request for all or a portion of the
whole shares in your account. There is no charge for the first certificate
issued. A charge of $3.50 will be made for any replacement certificates issued.
In order to protect the interests of the other shareholders, share certificates
will be sent to those shareholders who request them only after the Fund has
determined that unconditional payment for the shares represented by the
certificate has been received by its custodian, UMB Bank, n.a.
If an order to purchase shares must be canceled due to non-payment, the
purchaser will be responsible for any loss incurred by the Fund arising out of
such cancellation. To recover any such loss, the Fund reserves the right to
redeem shares owned by any purchaser whose order is canceled, and such purchaser
may be prohibited or restricted in the manner of placing further orders.
The Fund reserves the right in its sole discretion to withdraw all or
any part of the offering made by the Prospectus or to reject purchase orders
when, in the judgment of management, such withdrawal or rejection is in the best
interest of the Fund and its shareholders. The Fund also reserves the right at
any time to waive or increase the minimum requirements applicable to initial or
subsequent investments with respect to any person or class of persons, which
include shareholders of the Fund's special investment programs.
REDEMPTION OF SHARES
The right of redemption may be suspended, or the date of payment
postponed beyond the normal three-day period by the Fund's Board of Directors
under the following conditions authorized by the Investment Company Act of 1940:
(1) for any period (a) during which the New York Stock Exchange is closed, other
than customary weekend and holiday closing, or (b) during which trading on the
New York Stock Exchange is restricted; (2) for any period during which an
emergency exists as a result of which (a) disposal by the Fund of securities
owned by it is not reasonably practicable, or (b) it is not reasonably
practicable for the Fund to determine the fair value of its net assets; or (3)
5
<PAGE>
for such other periods as the Securities and Exchange Commission may by order
permit for the protection of the Fund's shareholders.
The Fund may satisfy redemption requests by distributing securities in kind. The
method of valuing securities used to make redemptions in kind will be the same
as the method of valuing portfolio securities described under "How Share Price
is Determined" in the Prospectus, and such valuation will be made as of the same
time the redemption price is determined.
DISTRIBUTIONS AND TAXES
Distributions of Net Investment Income--The Fund receives income generally in
the form of dividends, interest, original issue, market and acquisition
discount, and other income derived from its investments. This income, less
expenses incurred in the operation of the Fund, constitutes its net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you, whether you take them in cash or in
additional shares.
Distributions of Capital Gains--The Fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions derived from the excess of net short-term capital gains over net
long-term capital losses will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by the Fund will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares in the Fund. Any net short-term or long-term capital gains realized
by the Fund (net of any capital loss carryovers) will generally be distributed
once each year, and may be distributed more frequently, if necessary, in order
to reduce or eliminate federal excise or income taxes on the Fund.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is required to
track its sales of portfolio securities and to report its capital gain
distributions to you according to the following categories of holding periods:
"28 percent tax rate gains:" securities sold by the Fund after July 28, 1997
that were held for more than one year but not more than 18 months, and under a
transitional rule securities sold by the Fund before May 7, 1997 that were held
for more than 12 months. These gains will be taxable to individual investors at
a maximum rate of 28%.
"20 percent tax rate gains:" securities sold by the Fund after July 28, 1997
that were held for more than 18 months, and under a transitional rule securities
sold by the Fund between May 7, 1997 and July 28, 1997 that were held for more
than 12 months. These gains will be taxable to individual investors at a maximum
rate of 20% for investors in the 28% or higher federal income tax rate brackets,
and at a maximum rate of 10% for investors in the 15% federal income tax rate
bracket.
"Qualified 5-year gains:" For individuals in the 15% federal income tax rate
bracket, qualified 5-year gains are net gains on securities held for more than 5
years which are sold after December 31, 2000. For individuals who are subject to
tax at higher federal income tax rate brackets, qualified 5-year gains are net
gains on securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at the higher federal income tax
rate brackets may
6
<PAGE>
also make an election for shares held on January 1, 2001 to recognize gain on
their shares in order to qualify such shares as qualified 5-year property. These
gains will be taxable to individual investors at a maximum rate of 18% for
investors in the 28% or higher federal income tax brackets, and at a maximum
rate of 8% for investors in the 15% federal income tax rate bracket.
The Fund will advise you in its annual information reporting at calendar year
end of the amount of its capital gain distributions which will qualify for these
maximum federal tax rates for each calendar year. Questions concerning each
investor's personal tax reporting should be addressed to the investor's personal
tax advisor.
Election to be Taxed as a Regulated Investment Company--The Fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code ("Code"), and intends to so qualify during the current fiscal year.
The directors reserve the right not to maintain the qualification of the Fund as
a regulated investment company if they determine such course of action to be
beneficial to you. In such case, the Fund will be subject to federal and
possibly state corporate taxes on its taxable income and gains, and
distributions to you will be taxed as ordinary dividend income to the extent of
the Fund's available earnings and profits.
In order to qualify as a regulated investment company for federal income tax
purposes, the Fund must meet certain specific requirements, including:
(i) The Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. Government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets, and,
with respect to 50% of the Fund's total assets, no investment (other than cash
and cash items, U.S. Government securities and securities of other regulated
investment companies) can exceed 5% of the Fund's total assets;
(ii) The Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
disposition of stock or securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies;
(iii) The Fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years; and
(iv) The Fund must realize less than 30% of its gross income for each fiscal
year from gains from the sale of securities and certain other assets that have
been held by the Fund for less than three months ("short-short income"). The
1997 Act repealed the 30% short-short income test for tax years of regulated
investment companies beginning after August 5, 1997; however, this rule may have
continuing effect in some states for purposes of classifying the Fund as a
regulated investment company.
Excise Tax Distribution Requirements--The Code requires the Fund to distribute
at least 98% of its taxable ordinary income earned during the calendar year and
98% of its capital gain net income earned during the 12-month period ending
October 31 (in addition to amounts from the prior year that were neither
distributed nor taxed to the Fund) to you by December 31 of each year in order
7
<PAGE>
to avoid federal excise taxes. The Fund intends as a matter of policy to declare
and pay sufficient dividends in December or January (which are treated by you as
received in December) but does not guarantee and can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
Dividends-Received Deduction for Corporations--Because the Fund's income is
derived primarily from dividends, a portion of its distributions will generally
be eligible for the dividends-received deduction. The dividends-received
deduction will be available only with respect to dividends designated by the
Fund as eligible for such treatment. Dividends so designated by the Fund must be
attributable to dividends earned by the Fund from U.S. corporations which are
not debt-financed. A holding period requirement applies both at the Fund level
and the corporate shareholder level. Under the 1997 Act, the amount that the
Fund may designate as eligible for the dividends-received deduction will be
reduced or eliminated if the shares on which the dividends earned by the Fund
are debt-financed or held by the Fund for less than a 46-day period during a
90-day period beginning 45 days before the ex-dividend date and ending 45 days
after the ex-dividend date. Similarly, if your Fund shares are debt-financed or
held by you for less than a 46-day period during a 90-day period beginning 45
days before the ex-dividend date and ending 45 days after the ex-dividend date,
then the dividend-received deduction for fund dividends on your shares may also
be reduced or eliminated. Even if designated as dividends eligible for the
dividend received deduction, all dividends (including any deducted portion) must
be included in your alternative minimum taxable income calculation.
SIGNATURE GUARANTEES
Signature guarantees normally reduce the possibility of forgery and are
required in connection with each redemption method to protect shareholders from
loss. Signature guarantees are required in connection with all redemptions by
mail or changes in share registration, except as provided in the Prospectus.
Signature guarantees must appear together with the signature(s) of the
registered owner(s), on:
(1) a written request for redemption;
(2) a separate instrument of assignment, which should specify the
total number of shares to be redeemed (this "stock power" may
be obtained from the Fund or from most banks or stock
brokers); or
(3) all stock certificates tendered for redemption.
8
<PAGE>
MANAGEMENT AND INVESTMENT COUNSEL
As a part of the Management Agreement, Jones & Babson, Inc. employs at
its own expense Kornitzer Capital Management, Inc., as its investment counsel.
Kornitzer Capital Management, Inc., was founded in 1989. It is a
private investment research and counseling organization serving individual,
corporate and other institutional clients.
The aggregate management fee to be paid to Jones & Babson, Inc. by the
Fund during the current fiscal year is 1%. The annual fee charged by Jones &
Babson, Inc. covers all normal operating costs of the Fund.
Kornitzer Capital Management, Inc., has an experienced investment
analysis and research staff which eliminates the need for Jones & Babson, Inc.
and the Fund to maintain an extensive duplicate staff, with the consequent
increase in the cost of investment advisory service. The cost of the services of
Kornitzer Capital Management, Inc., is included in the fee of Jones & Babson,
Inc.
HOW SHARE PRICE IS DETERMINED
The net asst value per share of the Fund portfolio is computed once
daily, Monday through Friday at the specific time during the day that the Board
of Directors of the Fund sets at least annually, except on days on which changes
in the value of a Fund's portfolio securities will not materially affect the net
asset value, or days during which no security is tendered for redemption and no
order to purchase or sell such security is received by the Fund, or the
following holidays:
New Year's Day January 1
Martin Luther King, Jr. Day Third Monday in January
Presidents' Holiday Third Monday in February
Good Friday Friday before Easter
Memorial Day Last Monday in May
Independence Day July 4
Labor Day First Monday in September
Thanksgiving Day Fourth Thursday in
November
Christmas Day December 25
OFFICERS AND DIRECTORS
The Fund is managed by Jones & Babson, Inc. subject to the supervision
and control of the Board of Directors. The following table lists the officers
and directors of the Fund and their ages. Unless noted otherwise, the address of
each officer and director is BMA Tower, 700 Karnes Blvd.,
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<PAGE>
Kansas City, Missouri 64108-3306. Except as indicated, each has been an employee
of Jones & Babson, Inc. for more than five years.
*Larry D. Armel (56) - President and Director. President and Director,
Jones & Babson, Inc., David L. Babson Growth Fund, Inc., D.L. Babson Money
Market Fund, Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc., Babson-Stewart Ivory International Fund, Inc., Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-Free
Money Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc., Scout Capital
Preservation Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo USA Global Fund, Inc., Buffalo High Yield Fund, Inc., Investors Mark
Series Fund, Inc.; Director, AFBA Five Star Fund, Inc.; President and Trustee,
D.L. Babson Bond Trust.
*Kent W. Gasaway (38) - Director. Senior Vice President, Kornitzer
Capital Management, Inc., KCM Building, Shawnee Mission, Kansas 66201. Director,
Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo USA Global Fund,
Inc., Buffalo High Yield Fund, Inc.; formerly Assistant Vice President, Waddell
& Reed, Inc., 6300 Lamar Avenue, Shawnee Mission, Kansas 66202.
*Stephen S. Soden (53) - Director. President, BMA Financial Services.
Chairman and Director, Jones & Babson, Inc.; Director, Buffalo Balanced Fund,
Inc., Buffalo Equity Fund, Inc., Buffalo USA Global Fund, Inc., Buffalo High
Yield Fund, Inc.
Thomas S. Case (56) - Director. Retired, 3485 Paydirt Dr., Placerville,
California 95667. Director, Buffalo Balanced Fund, Inc., Buffalo Equity Fund,
Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.; formerly
President and Chief Executive Officer, the Frankona American Companies, 2405
Grant Blvd., Suite 900, Kansas City, Missouri 64108.
Francis C. Rood (63) - Director. Retired, 73-395 Agave Lane, Palm
Desert, California 92260-6653. Director, David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc.,
Shadow Stock Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo USA Global Fund, Inc., Buffalo High Yield Fund, Inc., Investors Mark
Series Fund, Inc.; Trustee, D.L. Babson Bond Trust; formerly Vice President of
Finance, Hallmark Cards, Inc.
William H. Russell (74) - Director. Financial Consultant, 645 West 67th
Street, Kansas City, Missouri 64113. Director, David L. Babson Growth Fund,
Inc., D.L. Babson Money Market Fund, Inc., D.L. Babson Tax-Free Income Fund,
Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson
Value Fund, Inc., Shadow Stock Fund, Inc., Babson-Stewart Ivory International
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo USA
- --------
* Directors who are interested persons as that term is defined in the
Investment Company Act of 1940, as amended.
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<PAGE>
Global Fund, Inc., Buffalo High Yield Fund, Inc., Investors Mark Series Fund,
Inc.; Trustee, D.L. Babson Bond Trust; formerly Vice President, Sprint.
H. David Rybolt (55) - Director. Consultant, HDR Associates, P.O. Box
2468, Shawnee Mission, Kansas 66201. Director, David L. Babson Growth Fund,
Inc., D.L. Babson Money Market Fund, Inc., D.L. Babson Tax-Free Income Fund,
Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson
Value Fund, Inc., Shadow Stock Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo USA Global Fund, Inc., Buffalo High Yield Fund, Inc.,
Investors Mark Series Fund, Inc.; Trustee, D.L. Babson Bond Trust.
P. Bradley Adams (37) - Vice President and Treasurer. Vice President
and Treasurer, Jones & Babson, Inc., David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc.,
Shadow Stock Fund, Inc., Babson-Stewart Ivory International Fund, Inc., Scout
Stock Fund, Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide
Fund, Inc., Scout Capital Preservation Fund, Inc., Scout Kansas Tax-Exempt Bond
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High
Yield Fund, Inc., Buffalo USA Global Fund, Inc.; Vice President and Chief
Financial Officer, AFBA Five Star Fund, Inc.; Principal Financial Officer,
Investors Mark Series Fund, Inc.
Michael A. Brummel (40) - Vice President, Assistant Secretary and
Assistant Treasurer. Vice President, Jones & Babson, Inc., David L. Babson
Growth Fund, Inc., D.L. Babson Money Market Fund, Inc., D.L. Babson Tax-Free
Income Fund, Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund II,
Inc., Babson Value Fund, Inc., Shadow Stock Fund, Inc., Babson- Stewart Ivory
International Fund, Inc., D.L. Babson Bond Trust, Scout Stock Fund, Inc., Scout
Bond Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-Free Money Market
Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide Fund, Inc., Scout Kansas
Tax-Exempt Bond Fund, Inc., Scout Capital Preservation Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc.,
Buffalo USA Global Fund, Inc.
Martin A. Cramer (48) - Vice President and Secretary. Vice President
and Secretary, David L. Babson Growth Fund, Inc., D.L. Babson Money Market Fund,
Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson Enterprise Fund, Inc.,
Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow Stock Fund,
Inc., Babson-Stewart Ivory International Fund, Inc., D.L. Babson Bond Trust,
Scout Stock Fund, Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc.,
Scout Tax-Free Money Market Fund, Inc., Scout Regional Fund, Inc., Scout
WorldWide Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc., Scout Capital
Preservation Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.; Secretary and
Assistant Vice President, AFBA Five Star Fund, Inc.; Secretary, Investors Mark
Series Fund, Inc.
Constance E. Martin (36) - Vice President. Assistant Vice President,
Jones & Babson, Inc. Vice President, David L. Babson Growth Fund, Inc., D.L.
Babson Money Market Fund, Inc., D.L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc.,
Shadow Stock Fund, Inc., Babson-Stewart Ivory International Fund, Inc.,
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<PAGE>
D. L. Babson Bond Trust, Scout Stock Fund, Inc., Scout Bond Fund, Inc., Scout
Money Market Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout Regional
Fund, Inc., Scout WorldWide Fund, Inc., Scout Capital Preservation Fund, Inc.,
Scout Kansas Tax-Exempt Bond Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo
Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.
John G. Dyer (52) - Vice President. Vice President, Scout Stock Fund,
Inc., Scout Bond Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout
Tax-Free Money Market Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide
Fund, Inc., Scout Kansas Tax-Exempt Bond Fund, Inc., Scout Capital Preservation
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High
Yield Fund, Inc., Buffalo USA Global Fund, Inc.
None of the officers or directors will be remunerated by the Fund for
their normal duties and services. Their compensation and expenses arising out of
normal operations will be paid by Jones & Babson, Inc. under the provisions of
the Management Agreement.
Messrs. Case, Rood, Russell and Rybolt have no financial interest in,
nor are they affiliated with, either Jones & Babson, Inc. or Kornitzer Capital
Management, Inc.
The Audit Committee of the Board of Directors is composed of Messrs.
Case, Rood, Russell and Rybolt.
The officers and directors of the Fund as a group own less than 1% of
any of the Funds.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Annual Total Compensation
Compensation Benefits Accrued As Benefits Upon From Buffalo Fund Complex
Name of Director For Fund Service Part of Fund Expenses Retirement Paid to Directors**
- ---------------- ------------- --------------------- ---------- -------------------
<S> <C> <C> <C> <C>
Larry D. Armel* -- -- -- --
Kent W. Gasaway* -- -- -- --
Thomas S. Case $125 -- -- $5,250
Stephen S. Soden* -- -- -- --
Francis C. Rood $125 -- -- $2,125
William H. Russell $125 -- -- $2,125
H. David Rybolt $125 -- -- $2,125
</TABLE>
* As "interested directors," Messrs. Armel, Gasaway and Soden receive no
compensation for their services as directors.
** The amounts reported in this column reflect the total compensation expected
to be paid to each director for his services as a director of five Buffalo
Funds during the fiscal year ending March 31, 1998. Directors' fees are
paid by the Funds' manager and not by the Funds themselves.
The Fund will not hold annual meetings except as required by the
Investment Company Act of 1940 and other applicable laws. The Fund is a Maryland
corporation. Under Maryland law, a
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<PAGE>
special meeting of stockholders of the Fund must be held if the Fund receives
the written request for a meeting from the stockholders entitled to cast at
least 25% of all the votes entitled to be cast at the meeting. To the extent
required under Maryland law, the Fund will assist shareholder communications in
such matters.
CUSTODIAN
The Fund's portfolio assets are held for safekeeping by an independent
custodian, UMB Bank, n.a. This means the bank, rather than the Fund, has
possession of the Fund's cash and securities. The custodian bank is not
responsible for the Fund's investment management or administration. But, as
directed by the Fund's officers, it delivers cash to those who have sold
securities to the Fund in return for such securities, and to those who have
purchased portfolio securities from the Fund, it delivers such securities in
return for their cash purchase price. It also collects income directly from
issuers of securities owned by the Fund and holds this for payment to
shareholders after deduction of the Fund's expenses. The custodian is
compensated for its services by the manager. There is no charge to the Fund.
INDEPENDENT AUDITORS
The Fund's financial statements are audited annually by independent
auditors approved by the directors each year, and in years in which an annual
meeting is held the directors may submit their selection of independent auditors
to the shareholders for ratification. Ernst & Young LLP, One Kansas City Place,
1200 Main Street, Suite 2000, Kansas City, Missouri 64105, is the Fund's present
independent auditor.
Reports to shareholders will be published at least semiannually.
OTHER JONES & BABSON FUNDS
Jones & Babson, Inc. sponsors and manages, in association with its
investment counsel, Kornitzer Capital Management, Inc., the four additional
no-load Buffalo Funds described below.
Buffalo Balanced Fund, Inc. was organized in 1994 with the objective of
long-term capital growth and high current income through investing in common
stocks and secondarily by investing in convertible bonds, preferred stocks and
convertible preferred stocks.
Buffalo High Yield Fund, Inc. was organized in 1994 with the objective
of a high level of current income and secondarily, capital growth by investing
primarily in high-yielding fixed income securities.
Buffalo USA Global Fund, Inc. was organized in 1994 with the objective
of capital growth by investing in common stocks of U.S. companies that receive
greater than 40% of their revenues or pre-tax income from international
operations.
Buffalo Equity Fund, Inc. was organized in 1994 with the objective of
long-term capital appreciation by investing in common stocks. Realization of
dividend income is a secondary
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<PAGE>
consideration to the extent that it supplements the return on the Fund's
investments and investment in the dividend-producing securities is consistent
with achieving the Fund's objective of long-term capital appreciation.
A prospectus for any of the Funds may be obtained from Jones & Babson,
Inc., BMA Tower, 700 Karnes Blvd., Kansas City, Missouri 64108-3306.
Jones & Babson, Inc. also sponsors and manages, in association with its
investment counsel, David L. Babson & Co. Inc., nine no-load funds comprising
the Babson Mutual Fund Group. They are: David L. Babson Growth Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Shadow Stock
Fund, Inc., Babson-Stewart Ivory International Fund, Inc., Babson Value Fund,
Inc., D. L. Babson Bond Trust, D. L. Babson Money Market Fund, Inc. and D. L.
Babson Tax-Free Income Fund, Inc.
Jones & Babson, Inc. also sponsors nine mutual funds which especially
seek to provide services to customers of affiliate banks of UMB Financial
Corporation. They are: Scout Stock Fund, Inc., Scout Bond Fund, Inc., Scout
Money Market Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout Regional
Fund, Inc, Scout WorldWide Fund, Inc., Scout Balanced Fund, Inc., Scout Kansas
Tax-Exempt Bond Fund, Inc. and Scout Capital Preservation Fund, Inc.
Jones & Babson also sponsors the AFBA Five Star Fund, Inc.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's. Moody's commercial paper rating is an opinion of the ability
of an issuer to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's has one rating - prime. Every such
prime rating means Moody's believes that the commercial paper note will be
redeemed as agreed. Within this single rating category are the following
classifications:
Prime - 1 Highest Quality
Prime - 2 Higher Quality
Prime - 3 High Quality
The criteria used by Moody's for rating a commercial paper issuer under
this graded system include, but are not limited to the following factors:
(1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and
an appraisal of speculative type risks which may be inherent
in certain areas;
(3) evaluation of the issuer's products in relation to competition
and customer acceptance;
(4) liquidity;
14
<PAGE>
(5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and relationships which
exist with the issuer; and
(8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions
and preparations to meet such obligations.
S&P. Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely repayment of debt having an original maturity of no
more than 270 days. Ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. The four categories
are as follows:
"A" Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further
refined with the designations 1, 2, and 3 to indicate the relative
degree of safety.
"A-1" This designation indicates that the degree of safety regarding timely
payment is very strong.
"A-2" Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming.
"A-3" Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
"B" Issues rated "B" are regarded as having only an adequate capacity for
timely payment. Furthermore, such capacity may be damaged by changing
conditions or short-term adversities.
"C" This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
"D" This rating indicates that the issuer is either in default or is
expected to be in default upon maturity.
15
<PAGE>
FINANCIAL STATEMENTS
Report of Independent Auditors
The Shareholder and Board of Directors
Buffalo Small Cap Fund, Inc.
We have audited the accompanying statement of net assets of Buffalo Small Cap
Fund, Inc. (the Company) as of January 12, 1998. This statement of net assets is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this statement of net assets based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of net assets. Our procedures
included confirmation of cash as of January 12, 1998, by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of net assets presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all materials respects, the financial position of the Company at January 12,
1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
January 14, 1998
16
<PAGE>
Buffalo Small Cap Fund, Inc.
Statement of Net Assets
January 12, 1998
Assets
Cash $100,000
----------
Net assets applicable to outstanding shares $100,000
==========
Capital shares, $1.00 par value
Authorized 10,000,000
==========
Outstanding 10,000
==========
Net asset value per share $10.00
==========
Note - Significant Accounting Policies
Organization - Buffalo Small Cap Fund, Inc. (the Company) was organized as a
Maryland corporation on October 16, 1997 and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. Shares outstanding for the Company on January 12, 1998 were
issued to Jones & Babson, the Company's manager and distributor (the Manager).
The costs of organization will be paid by the Manager.
Management Fees - The Manager will charge the Company a fee based on an annual
rate of one percent (1.00%) of the Company's average daily net assets from which
the Manager will pay Kornitzer Capital Management, Inc., which serves as
investment counsel (the Adviser), a fee of one half of one percent (0.50%) of
average daily net assets. The Manager will pay all other operating expenses
except the cost of acquiring and disposing of portfolio securities, the taxes,
if any, imposed directly on the Company and its shares and the cost of
qualifying the Company's shares for sale in any jurisdiction. Certain officers
and directors of the Company are also officers or directors of the Manager.
17
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements: Included in Part B of the Registration
Statement
(b) (1) Registrant's Articles of Incorporation*
(2) Registrant's By-laws*
(3) Not applicable, because there is no voting trust
agreement
(4) Specimen copy of each security to be issued by the
registrant*
(5) (a) Form of Management Agreement between Jones &
Babson, Inc. and the Registrant*
(b) Form of Investment Counsel Agreement between
Jones & Babson, Inc. and Kornitzer Capital
Management, Inc.*
(6) Form of principal Underwriting Agreement between Jones &
Babson, Inc. and the Registrant*
(7) Not applicable, because there are no pension, bonus or
other agreements for the benefit of directors and
officers
(8) Form of Custodian Agreement between Registrant and
United Missouri Bank of Kansas City, N.A.*
(9) There are no other material contracts not made in the
ordinary course of business between the Registrant and
others
(10) Opinion and consent of counsel as to the legality of the
registrant's securities being registered*
(11) Not applicable.
(12) Not applicable.
1
<PAGE>
(13) Form of letter from contributors of initial capital to
the Registrant that purchase was made for investment
purposes without any present intention of redeeming or
selling (to be filed by amendment, if applicable).
(14) Not applicable.
(15) Not applicable.
(16) Schedule for computation of performance quotations. (To
be supplied by further amendment)
(17) Not Applicable
(18) Not Applicable
(19) Powers of Attorney*
*Previously filed and incorporated by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL OF THE
REGISTRANT.
NONE
Item 26. NUMBER OF HOLDERS OF SECURITIES.
The number of record holders of each class of securities of
the Registrant as of February 2, 1998, is as follows:
(1) (2)
Title of Class Number of Record Holders
------------------------------------------------------------------
Common Stock $1.00 par one
value
Item 27. INDEMNIFICATION.
Under the terms of the Maryland General Corporation Law and
the company's By-laws, the company shall indemnify any person
who was or is a director, officer, or employee of the company
to the maximum extent permitted by the Maryland General
Corporation Law; provided however, that any such
indemnification (unless ordered by a court) shall be made by
the company only as authorized in the specific case upon a
determination that indemnification of such persons is proper
in the circumstances. Such determination shall be made
2
<PAGE>
(i) by the Board of Directors by a majority vote of a quorum
which consists of the directors who are neither "interested
persons" of the company as defined in Section 2(a)(19) of the
1940 Act, nor parties to the proceedings, or
(ii) if the required quorum is not obtainable or if a quorum
of such directors so directs, by independent legal counsel in
a written opinion.
No indemnification will be provided by the company to any
director or officer of the company for any liability to the
company or shareholders to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duty.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISOR.
The principal business of Jones & Babson, Inc. is the
management of the Babson, Buffalo and Scout families of mutual
funds. It also has expertise in the tax and pension plan
field. It supervises a number of prototype and profit-sharing
plan programs sponsored by various organizations eligible to
be prototype plan sponsors.
The principal business of Kornitzer Capital Management, Inc.
is to provide investment counsel and advice to a wide variety
of clients. Kornitzer Capital Management has approximately
$1.3 billion under management.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Jones & Babson, Inc., the only principal underwriter of
the Registrant, also acts as principal underwriter for the
David L. Babson Growth Fund, Inc., D.L. Babson Money Market
Fund, Inc., D.L. Babson Tax-Free Income Fund, Inc., D.L.
Babson Bond Trust, Babson Value Fund, Inc., Shadow Stock Fund,
Inc., Babson-Stewart Ivory International Fund, Inc., Scout
Stock Fund, Inc., Scout Bond Fund, Inc., Scout Money Market
Fund, Inc. and Scout Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund, Inc., Scout Kansas
Tax-Exempt Bond Fund, Inc., Scout Capital Preservation Fund,
Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo USA Global Fund, Inc., Buffalo High Yield Fund, Inc.
and AFBA Five Star Fund, Inc.
(b) Herewith is the information required by the following
table with respect to each director, officer or partner of the
only underwriter named in answer to Item 21 of Part B:
3
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C>
Larry D. Armel President and Director President and Director
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
Kent W. Gasaway None None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
Stephen S. Soden Chairman and Director Director
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
Thomas S. Case None None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
Francis C. Rood None None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
William H. Russell None None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
H. David Rybolt Director None
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
4
<PAGE>
P. Bradley Adams Vice President and Vice President and
BMA Tower Treasurer Chief Financial Officer
700 Karnes Blvd.
Kansas City, MO 64108-
3306
Michael A. Brummel Vice President Vice President
BMA Tower
700 Karnes Blvd.
Kansas City, MO 64108-
3306
Martin A. Cramer Vice President and Secretary
BMA Tower Secretary
700 Karnes Blvd.
Kansas City, MO 64108-
3306
</TABLE>
(c) The principal underwriter does not receive any
remuneration or compensation for the duties or services
rendered to the Registrant pursuant to the principal
underwriting Agreement.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained
by Section 31(a) of the 1940 Act and the Rules (17 CFR
270.31a-1 to 31a-3) promulgated thereunder is in the physical
possession of Jones & Babson, Inc., at BMA Tower, 700 Karnes
Blvd., Kansas City, Missouri 64108-3306.
Item 31. MANAGEMENT SERVICES.
All management services are covered in the management
agreement between the Registrant and Jones & Babson, Inc.,
which are discussed in Parts A and B.
Item 32. UNDERTAKINGS.
Registrant undertakes to file a post-effective amendment using
uncertified financial statements within four to six months
from the commencement of the Fund's investment operations
after the effective date of Registrant's 1933 Act Registration
Statement.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto authorized,
in Kansas City, Missouri on the 27th day of February, 1998.
BUFFALO SMALL CAP FUND, INC.
(Registrant)
By: /s/ Larry D. Armel
Larry D. Armel, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
/s/ Larry D. Armel President, February 27, 1998
Larry D. Armel Principal Executive
Officer and Director
/s/ Kent W. Gasaway Director February 27, 1998
Kent W. Gasaway*
/s/ Stephen S. Soden Director February 27, 1998
Stephen S. Soden*
/s/ Thomas S. Case Director February 27, 1998
Thomas S. Case*
/s/ Francis C. Rood Director February 27, 1998
Francis C. Rood*
/s/ William H. Russell Director February 27, 1998
William H. Russell*
/s/ H. David Rybolt Director February 27, 1998
H. David Rybolt*
/s/ P. Bradley Adams Vice President and February 27, 1998
P. Bradley Adams Principal Financial
and Accounting
Officer
* by Larry D. Armel, pursuant to Power of Attorney previously filed
6
<PAGE>
Item 24(b)
EXHIBITS
(11) Auditors Consent
Exhibit 11
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated January 14, 1998 in the Registration
Statement (Form N-1A) and related Prospectus of Buffalo Small Cap Fund, Inc.
filed with the Securities and Exchange Commission in this Pre-Effective
Amendment No. 1 under the Securities Act of 1933 (Registration No. 333-40841)
and Amendment No. 1 under the Investment Company Act of 1940 (Registration No.
811-08509).
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
March 6, 1998
