BUFFALO
FUNDS
Balanced Fund
Equity Fund
High Yield Fund
USA Global Fund
Annual Report
March 31, 1996
MESSAGE
To Our Shareholders
We are proud to be sending you for the first time an annual
report for the entire Buffalo Group of Mutual Funds. Since
our report last year we have introduced three new no-load
funds - Buffalo Equity, Buffalo High Yield and Buffalo USA
Global to complement our initial fund, the Buffalo Balanced
Fund. The Fund group continues to grow both in total assets
and in the number of shareholders. This growth is favorable
because it allows the Funds to spread total expenses over a
larger base keeping annual fees down to individual
shareholders. We remain absolutely committed to keeping the
Buffalo Funds affordable to our shareholders. Our view of an
"affordable" equity, balanced or high yield mutual fund is
one which is pure no-load (no sales charge, no 12b-1 fees
and no exit fee) with total annual fees of approximately 1%
(100 basis points). We are happy to report each Fund meets
this standard.
The twelve months ended March 1996 marked a highly
profitable period for the U.S. stock market and a generally
favorable period for the bond market. Common stocks
benefitted from continued growth of corporate earnings, low
inflation and record cash inflows into equity mutual funds,
as well as from declining interest rates. However, since
January short and long-term interest rates have risen about
100 basis points. This reversal is a reflection of a
significant mood shift concerning the strength of the U.S.
economy.
Just over two months ago the economy appeared to be entering
1996 with a growth pattern comparable to the fourth quarter
of 1995 when GDP (Gross Domestic Product) grew just .5%. The
Federal Reserve showed it's concern by lowering short-term
interest rates as recently as January 31, 1996. Since that
time U.S. economic data has improved appreciably. In
February and March, new job creation accelerated
dramatically, auto sales reached their highest levels of
this cycle and new home sales improved. Is this the
beginning of a period similar to 1994 when bond prices
collapsed and the stock market languished due to the fear of
an overheating economy? At this point we don't think so. It
is our belief that this recent burst of economic growth is
unsustainable for all of 1996 and reflects special factors.
For example, storms blanketed the country for most of
January and artificially depressed production, sales and job
growth. Thus, it is difficult to gauge how much of the
recent strength is attributable to a simple rebound from
weather depressed conditions and how much is attributable to
a potentially higher trend of real economic growth. Given
the large decline in interest rates during 1995 it is
reasonable to expect a lagged positive impact on the
economy. However, 5 1/2 years into an economic recovery we
would not expect the positive impact to be as dramatic as in
the early years. The pent-up demand at the consumer level is
simply not as great: Real GDP growth in 1995 was about 2%.
During 1996 we would expect an uptick to the 2.5-3% level.
Given the relatively tight U.S. labor market, we continue to
keep a close eye on wage inflation as a key variable in
determining future monetary policy and in turn the longevity
of the current bull market for common stocks. Wage inflation
remained in check during 1995 increasing roughly 2.5%.
However, wage increases exited 1995 at a pace above 3% and
bear close watch given the recent strength in new jobs
created. We believe U.S. companies are cognizant of current
labor trends and therefore will continue to strive for
higher productivity via strong capital spending. This factor
as well as the hard line stance large companies are taking
with labor unions tends to make us optimistic that wage
inflation will not get too far out of hand. Also worth
watching on the inflation front is the recent rise in
commodity prices, particularly energy and grain prices. The
situation in grains is particularly severe, with inventories
very low, export demand strong and unfavorable weather
patterns. Oil and gas prices have been very strong recently,
but we believe they will likely remain at current levels or
go lower by late summer.
Overall these factors make us think the outlook for common
stocks is still favorable for 1996. Yet, we do not see a
repeat of 1995. Interest rates will not likely help to the
degree they did in 1995 (we see them in a trading range
close to current levels) and corporate earnings, which
continue to beat expectations, will nonetheless show
decelerated growth compared to 1995. While the increase in
the equity market was extremely broad in 1995, we feel
proprietary company and industry research will become more
valuable in 1996 as the number of winning market sectors may
narrow. Consistent with this view, the Fund's portfolio
managers extensively research and visit the companies
considered for portfolio investment.
We appreciate your confidence as a Buffalo Fund Shareholder
and we look forward to tracking the group's progress with
you in future periods. The following is a snapshot and
comment on how each fund has performed over the past year or
since inception.
Buffalo Balanced Fund
Buffalo Balanced Fund generated a total return (price change
and reinvested distributions) of 17.87% for the twelve
months ended March 31, 1996. Since inception (August 12,
1994) the Fund has produced an average annualized return of
12.53%. The average balanced fund, as measured by Lipper
Analytical Services, registered returns of 20.41% and 15.57%
for the respective periods. Buffalo Balanced Fund lagged the
performance of the average balanced fund due to its
relatively low exposure to common stocks (roughly 33% at
March 31) during this robust period for the market. However,
during the past three months the Fund's relative performance
has improved due to its holdings of lower rated, high yield
corporate bonds which have substantially outperformed higher
rated bonds during the recent upturn in interest rates. The
portfolio manager's strategy of maintaining a conservative
position in common stocks, but a high average current yield
has not changed. The philosophy is to substantially increase
the weighting in stocks only during or after large
corrections in the market. The Fund's 30-day current yield
for the period ended March 31, 1996, was 6.03%.
Buffalo Balanced Fund continues to find strong values in
convertible securities, with convertible bonds and preferred
stocks comprising 34% of the portfolio. Corporate bonds
comprised 27% of the portfolio and the Fund held some 6% of
cash and other investments at March 31, 1996. The Fund made
four quarterly distributions over the past twelve months
totaling $.68 in dividends and $.40 in capital gains. For
corporate shareholders, 10.47% of ordinary income
distributions qualify for the corporate dividends received
deduction.
GRAPH -- Buffalo Balanced Fund versus S&P 500
and Merrill Lynch Bond Fund Index Weighted Average
Buffalo Equity Fund
Buffalo Equity Fund generated a total return (price change
and reinvested distributions) of 29.11% for the period from
Fund inception (May 19, 1995) to March 31, 1996. This return
outpaced the average capital appreciation fund, as measured
by Lipper Analytical Services, which produced a return of
25.59% for the same period. At March 31, 1996, common stocks
made up 86% of the portfolio. As seen in the portfolio
listing, the investments are dominated by large
capitalization stocks, with companies of $1 billion equity
market value or greater making up some 94% of holdings.
The portfolio manager made several strategic moves since
inception which contributed to the Fund's favorable
performance. During the last six months the Fund built a
substantial weighting in energy-related stocks anticipating
a more favorable environment for the sector. At March 31,
energy related stocks made up some 22% of the portfolio. The
Fund also carried a low weighting in technology stocks
during late 1995 when the sector substantially
underperformed the market. Since that time the Fund has
added to technology stocks which now represent over 17% of
the Fund's holdings. Recently the Fund added to holdings in
the basic materials, capital goods and consumer cyclical
sectors in anticipation of improved economic growth during
1996. Since inception the Fund has made two distributions to
shareholders totaling $.20 in dividends and $.51 in capital
gains. For corporate shareholders, 8.13% of ordinary income
distributions qualify for the corporate dividends received
deduction.
GRAPH -- Buffalo Equity Fund versus S&P 500
Buffalo High Yield Fund
Buffalo High Yield Fund produced a total return (price
change and reinvested distributions) of 16.67% for the
period from Fund inception (May 19, 1995) to March 31, 1996.
This return comfortably exceeded the average high yield bond
fund, as measured by Lipper Analytical Services, which
recorded a return of 9.82% for the same period. The Fund
experienced meaningful price appreciation in a number of
corporate and convertible securities which helped account
for the favorable performance. The Fund's portfolio manager
makes a concerted effort to overweight in corporate and
convertible securities those industries which have a
favorable equity outlook. Following this strategy, the
securities of energy-related companies made up nearly 28% of
the Fund's holdings at March 31, 1996. Given the prospects
for an improved economy in 1996, the Fund also added to its
holding of cyclical industries including the bonds of steel,
chemical and paper companies.
The Fund's current yield continued to climb as the portfolio
became more fully invested over the past six months. At
March 31 the Fund's level of cash was down to approximately
14%. The Fund's 30-day current yield stood at 8.05% as of
March 31, 1996. Since inception the Fund has made two
distributions to shareholders totaling $.53 in dividends and
$.13 in capital gains. For corporate shareholders, 5.79% of
ordinary income distributions qualify for the corporate
dividends received deduction.
GRAPH -- Buffalo High Yield Fund versus
Merrill Lynch High Yield Bond Fund Index
Buffalo USA Global Fund
Buffalo USA Global Fund generated a total return (price
change and reinvested distributions) of 17.49% for the
period from Fund inception (May 19, 1995) to March 31, 1996.
This unique Fund which invests only in U.S. based companies
which have heavy international exposure (companies must
generate at least 40% of total revenues or profits outside
the U.S.) isn't readily comparable to various Lipper
averages. However, the Lipper Capital Appreciation Fund
Index may be a reasonable benchmark. For the period since
inception, the USA Global Fund has underperformed the Lipper
Capital Appreciation Fund which returned 25.59% for the same
period.
As seen in the portfolio listing, the Fund was some 87%
invested in common stocks at March 31, 1996. The Fund's
investments are predominantly comprised of large
capitalization companies with small to mid-sized names
making up only a small portion of the portfolio at this
time. Given the Fund's geographical restrictions concerning
company revenues and profits, the universe of potential
investments is by definition more limited than the average
equity fund. Certain industries tend to have more
multinational companies than others that qualify for the
Fund. Some of these main industries would include
technology, consumer staples and energy. Along those lines,
the Fund carried over a 23% weighting in technology late in
1995 which hurt the portfolio's relative performance. At
March 31, given the portfolio manager's more constructive
view of U.S. and worldwide economic growth, this weighting
has been increased further to slightly over 30% and the Fund
has also added to its weighting in consumer cyclical and
capital goods companies. Since inception the Fund has paid
two distributions to shareholders totaling $.15 in dividends
and $.39 in capital gains. For corporate shareholders, 7.69%
of ordinary income distributions qualify for the corporate
dividends received deduction.
GRAPH -- Buffalo USA Global Fund versus S&P 500
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
BUFFALO
BALANCED FUND
STATEMENT OF NET ASSETS
March 31, 1996
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 32.86%
BASIC MATERIALS - 1.90%
50,000 Bethlehem Steel Corp.* $ 783,625 $ 656,250
5,500 Mead Corp. 284,962 297,000
1,068,587 953,250
CAPITAL GOODS - 5.63%
10,000 Allied-Signal, Inc. 396,450 591,250
10,000 Tenneco, Inc. 435,854 558,750
25,000 Trinity Industries, Inc. 778,500 871,875
25,000 WMX Technologies, Inc. 728,135 793,750
2,338,939 2,815,625
CONSUMER CYCLICAL - 5.88%
25,000 Chrysler Corp. 1,266,253 1,556,250
10,000 General Motors Corp. 543,000 532,500
10,000 Goodyear Tire & Rubber Co. 336,262 510,000
15,000 Wal-Mart Stores, Inc. 351,375 346,875
2,496,890 2,945,625
CONSUMER NON-CYCLICAL - 0.64%
5,000 Walt Disney Co. 309,625 319,375
ENERGY - 7.31%
10,000 Amoco Corp. 699,250 722,500
10,000 British Petroleum PLC Sh F ADR 973,000 1,062,500
5,000 Chevron Corp. 224,625 280,625
10,000 Coastal Corp. 378,000 395,000
20,000 Noble Drilling Corp.* 161,000 247,500
10,000 Triton Energy Ltd. 360,065 557,500
20,000 Union Texas Petroleum Holdings, Inc. 370,263 395,000
3,166,203 3,660,625
FINANCIAL - 0.39%
5,000 KeyCorp New 157,125 193,125
TECHNOLOGY - 6.71%
15,000 A T & T Corp. 747,600 918,750
5,000 Intel Corp. 275,625 284,375
5,000 Motorola, Inc. 267,125 265,000
15,000 National Semiconductor Corp.* 475,125 208,125
10,000 Pitney Bowes, Inc. 406,605 490,000
10,000 Sybase, Inc.* 279,375 232,500
50,000 Western Digital Corp.* 1,011,250 962,500
3,462,705 3,361,250
SHARES COMPANY COST MARKET VALUE
UTILITIES - 4.40%
10,000 NICOR, Inc. 256,275 267,500
40,000 Pacific Enterprises 993,750 1,035,000
25,000 Sonat, Inc. 878,383 900,000
2,128,408 2,202,500
TOTAL COMMON STOCKS 15,128,482 16,451,375
CONVERTIBLE PREFERRED STOCKS - 3.71%
20,000 ICO Inc., dep. shrs. repstg. 1/4 pfd. cv. 396,900 420,000
33,200 Maxus Energy Corp., $4.00 1,232,867 1,435,900
TOTAL CONVERTIBLE PREFERRED STOCKS 1,629,767 1,855,900
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
CORPORATE BONDS - 27.03%
$ 100,000 Bethlehem Steel Corp., 8.45% deb., due 3-1-05 97,000 99,125
1,730,000 CompUSA, Inc., 9.50% gtd. sr. sub. note,
due 6-15-00 1,615,306 1,755,950
110,000 Energy Ventures Inc., 10.25% sr. note, due 3-15-04 106,612 116,600
1,000,000 Giant Industries, Inc., 9.75% gtd. sr. sub. note,
due 11-15-03 977,500 1,015,000
1,000,000 Harris Chemical North America, Inc., 10.25% gtd.
sr. secd. note, due 7-15-01 999,687 990,000
2,000,000 HS Resources, Inc., 9.875% sr. sub. note,
due 12-1-03 1,936,813 1,945,000
200,000 Kaiser Aluminum & Chemical Corp., 9.875%
sr. note, due 2-15-02 195,175 200,000
175,000 Maxus Energy Corp., 9.875% note, due 10-15-02 174,557 176,750
500,000 Nortek Inc., 9.875% sr. sub. note, due 3-1-04 465,192 477,500
365,000 Payless Cashways, Inc., 9.125% sr. sub.
note, due 4-15-03 299,222 297,475
500,000 Pilgrim's Pride Corp., 10.875% sr. sub.
note, due 8-1-03 478,250 475,000
510,000 RJR Nabisco Inc., 8.75% gtd. sr. note, due
4-15-04 474,328 495,338
180,000 RJR Nabisco Inc., 8.75% note, due 8-15-05 166,266 178,178
350,000 Rohr Industries, Inc., 11.625% sr. note,
due 5-15-03 356,125 385,000
805,000 Santa Fe Energy Resources, Inc., 11.00%
sr. sub. deb., due 5-15-04 792,200 889,525
250,000 Stone Container Corp., 10.75% 1st mtg. note,
due 10-1-02 248,382 249,375
2,025,000 Stone Container Corp., 11.50% sr. note, due 10-1-04 2,025,000 1,999,688
100,000 Triangle Pacific Corp. Delaware, 10.50%
sr. note, due 8-1-03 99,500 105,500
75,000 Tuboscope Vetco International, Inc., 10.75% gtd.
sr. sub. note, due 4-15-03 74,392 78,562
52,000 Wainoco Oil Corp., 10.75% sub. deb., due 10-1-98 51,970 51,935
1,100,000 Wainoco Oil Corp., 12.00% sr. note, due 8-1-02 1,105,000 1,083,500
500,000 Wheeling-Pittsburgh Corp., 9.375% sr. note,
due 11-15-03 487,281 470,625
TOTAL CORPORATE BONDS 13,225,758 13,535,626
BUFFALO
BALANCED FUND (Continued)
STATEMENT OF NET ASSETS
March 31, 1996
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
CONVERTIBLE CORPORATE BONDS - 30.00%
$2,020,000 Air & Water Technologies Corp., 8.00% sub.
deb., due 5-15-15 $ 1,216,473 $ 1,772,550
935,000 Allwaste Inc., 7.25% sub. deb., due 6-1-14 802,600 799,425
1,870,000 Argosy Gaming Co., 12.00% sub. note, due 6-1-01 1,846,813 1,678,325
2,000,000 Bally Entertainment Corp., 10.00% sub. deb.,
due 12-15-06 1,702,773 1,990,000
245,000 Bally Entertainment Corp., 8.00% sr. sub.
deb., due 12-15-20 240,054 320,950
500,000 Beverly Enterprises Inc., 7.625% sub. deb.,
due 3-15-03 477,500 460,000
125,000 Hudson General Corp., 7.00% sub. deb., due
7-15-11 100,710 167,188
1,900,000 OHM Corp., 8.00% sub. deb., due 10-1-06 1,481,488 1,688,625
2,000,000 Oryx Energy Co., 7.50% sub. deb., due 5-15-14 1,730,388 1,797,500
280,000 Quixote Corp., 8.00% sub. deb., due 4-15-11 285,600 221,200
1,000,000 Rohr Industries, Inc., 7.00% sub. deb., due 10-1-12 698,100 872,500
800,000 Swift Energy Co., 6.50% sub. deb., due 6-30-03 759,249 919,000
200,000 UNC Inc., 7.50% sub. deb., due 3-31-06 166,040 183,250
1,595,000 Wainoco Oil Corp., 7.75% sub. deb., due 6-1-14 1,391,669 1,287,962
1,000,000 Weston (Roy F.) Inc., 7.00% sub. deb., due 4-15-02 795,000 863,750
TOTAL CONVERTIBLE CORPORATE BONDS 13,694,457 15,022,225
REPURCHASE AGREEMENT - 5.19%
2,600,000 UMB Bank, n.a., 4.875%, due 4-1-96
(Collateralized by $2,651,992 U.S. Treasury
Notes, 5.125%, due 6-30-98) 2,600,000 2,600,000
TOTAL INVESTMENTS - 98.79% $ 46,278,464 49,465,126
Other assets less liabilities - 1.21% 608,254
TOTAL NET ASSETS -100.00%
(equivalent to $10.70 per share; 10,000,000 shares of $1.00 par
value capital shares authorized; 4,678,334 shares outstanding) $ 50,073,380
For federal income tax purposes, the identified cost of
investments owned at March 31, 1996 was $46,278,464.
Net unrealized appreciation for federal income tax purposes
was $3,186,662, which is comprised of unrealized
appreciation of $4,129,244 and unrealized depreciation of
$942,582.
<FN>
<F1>*Securities on which no cash dividends were paid during the
preceding twelve months.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
BUFFALO
EQUITY FUND
STATEMENT OF NET ASSETS
March 31, 1996
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 85.67%
BASIC MATERIALS - 8.11%
5,000 ASARCO, Inc. $ 156,125 $ 175,000
5,000 Bethlehem Steel Corp.* 75,000 65,625
5,000 Cyprus Amax Minerals Co. 131,875 141,250
1,000 Mead Corp. 52,488 54,000
1,000 Weyerhaeuser Co. 41,550 46,125
457,038 482,000
CAPITAL GOODS - 11.11%
1,500 Allied-Signal, Inc. 63,975 88,688
2,000 General Electric Co. 132,863 155,750
1,000 Ingersoll-Rand Co. 41,050 40,750
2,000 Tenneco, Inc. 94,962 111,750
3,000 Trinity Industries, Inc. 98,650 104,625
5,000 WMX Technologies, Inc. 151,500 158,750
583,000 660,313
CONSUMER CYCLICAL - 10.14%
3,000 Argosy Gaming Co.* 47,400 22,500
3,500 Chrysler Corp. 182,388 217,875
4,000 General Motors Corp. 202,638 213,000
1,500 Goodyear Tire & Rubber Co. 60,138 76,500
1,000 Toys "R" Us, Inc.* 20,925 27,000
2,000 Wal-Mart Stores, Inc. 44,675 46,250
558,164 603,125
CONSUMER NON-CYCLICAL - 2.15%
2,000 Walt Disney Co. 125,662 127,750
CONSUMER STAPLES - 0.94%
2,000 Dial Corp. Arizona 52,750 56,000
ENERGY - 22.31%
2,000 Amoco Corp. 139,975 144,500
2,000 British Petroleum PLC Sh F ADR 195,537 212,500
4,000 Coastal Corp. 143,600 158,000
15,000 Global Marine, Inc. New* 129,875 150,000
10,000 Noble Drilling Corp.* 77,500 123,750
16,000 Oryx Energy Co.* 221,175 222,000
1,500 Schlumberger, Ltd. 96,662 118,687
3,000 Triton Energy Ltd. 159,550 167,250
1,500 Union Texas Petroleum Holdings, Inc. 30,263 29,625
1,194,137 1,326,312
BUFFALO
EQUITY FUND (Continued)
STATEMENT OF NET ASSETS
March 31, 1996
SHARES COMPANY COST MARKET VALUE
FINANCIAL - 4.67%
2,000 Allstate Corp. $ 74,725 $ 84,250
5,000 KeyCorp New 186,500 193,125
261,225 277,375
TECHNOLOGY - 17.61%
2,500 A T & T Corp. 148,375 153,125
4,000 CyberCash, Inc.* 68,000 136,000
6,000 Datalogix International, Inc.* 84,375 81,000
1,000 Intel Corp. 58,750 56,875
2,000 Motorola, Inc. 112,021 106,000
5,000 National Semiconductor Corp.* 111,875 69,375
2,500 Pitney Bowes, Inc. 108,175 122,500
5,000 Sybase, Inc.* 161,412 116,250
5,000 Sync Research, Inc.* 95,281 78,750
1,500 Vantive Corp.* 18,000 30,750
5,000 Western Digital Corp.* 96,500 96,250
1,062,764 1,046,875
UTILITIES - 8.63%
3,000 MAPCO, Inc. 161,837 167,625
5,000 Pacific Enterprises 128,663 129,375
6,000 Sonat, Inc. 192,638 216,000
483,138 513,000
TOTAL COMMON STOCKS 4,777,878 5,092,750
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
REPURCHASE AGREEMENT - 10.09%
$ 600,000 UMB Bank, n.a., 4.875%, due 4-1-96
(Collateralized by $611,998 U.S. Treasury Notes,
5.125%, due 6-30-98) $ 600,000 $ 600,000
TOTAL INVESTMENTS - 95.76% $ 5,377,878 5,692,750
Other assets less liabilities - 4.24% 252,649
TOTAL NET ASSETS - 100.00%
(equivalent to $12.36 per share; 10,000,000 shares of $1.00 par
value capital shares authorized; 481,214 shares outstanding) $ 5,945,399
For federal income tax purposes, the identified cost of
investments owned at March 31, 1996 was $5,377,878.
Net unrealized appreciation for federal income tax purposes
was $314,872, which is comprised of unrealized appreciation
of $465,799 and unrealized depreciation of $150,927.
<FN>
<F1>*Securities on which no cash dividends were paid during the
preceding twelve months.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
BUFFALO
HIGH YIELD FUND
STATEMENT OF NET ASSETS
March 31, 1996
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS - 11.01%
9,600 ICO Inc., dep. shrs. repstg. 1/4 pfd. cv. $ 191,875 $ 201,600
5,000 Maxus Energy Corp., $4.00 195,920 216,250
5,900 Noble Drilling Corp., pfd. cv. 155,541 187,325
10,000 Sante Fe Energy Resources, Inc. 187,995 198,750
TOTAL CONVERTIBLE PREFERRED STOCKS 731,331 803,925
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
CORPORATE BONDS - 38.59%
$ 65,000 Bethlehem Steel Corp., 10.375% sr. note, due 9-1-03 64,407 68,900
170,000 CompUSA, Inc., 9.50% gtd. sr. sub. note, due 6-15-00 165,375 172,550
150,000 Giant Industries, Inc., 9.75% gtd. sr. sub. note,
due 11-15-03 146,625 152,250
250,000 Harris Chemical North America, Inc., 10.25% gtd. sr.
secd. note, due 7-15-01 250,000 247,500
350,000 HS Resources, Inc., 9.875% sr. sub. note, due 12-1-03 345,125 340,375
60,000 Kaiser Aluminum & Chemical Corp., 9.875% sr. note,
due 2-15-02 59,372 60,000
10,000 Maxus Energy Corp., 11.50% deb., due 11-15-15 9,985 10,500
170,000 Nortek Inc., 9.875% sr. sub. note, due 3-1-04 156,653 162,350
290,000 Payless Cashways, Inc., 9.125% sr. sub. note,
due 4-15-03 233,561 236,350
350,000 Pilgrim's Pride Corp., 10.875% sr. sub. note,
due 8-1-03 335,875 332,500
150,000 RJR Nabisco, Inc., 8.75% note, due 8-15-05 149,917 148,482
150,000 RJR Nabisco, Inc., 9.25% deb., due 8-15-13 150,044 146,364
255,000 Stone Container Corp., 11.50% sr. note, due 10-1-04 254,956 251,813
160,000 Wainoco Oil Corp., 12.00% sr. note, due 8-1-02 160,406 157,600
350,000 Wheeling-Pittsburgh Corp., 9.375% sr. note,
due 11-15-03 339,713 329,437
TOTAL CORPORATE BONDS 2,822,014 2,816,971
CONVERTIBLE CORPORATE BONDS - 36.59%
325,000 Air & Water Technologies Corp., 8.00% sub.
deb., due 5-15-15 268,500 285,188
315,000 Argosy Gaming Co., 12.00% sub. note, due 6-1-01 303,725 282,713
330,000 Bally Entertainment Corp., 10.00% sub. deb.,
due 12-15-06 313,723 328,350
20,000 Bally Entertainment Corp., 8.00% sr. sub.
deb., due 12-15-20 19,036 26,200
298,000 Moran Energy Inc., 8.75% sub. deb., due 1-15-08 237,434 253,300
325,000 OHM Corp., 8.00% sub. deb., due 10-1-06 295,212 288,844
300,000 Oryx Energy Co., 7.50% sub. deb., due 5-15-14 265,100 269,625
25,000 Pogo Producing Co., 8.00% sub. deb., due 12-31-05 24,975 25,406
220,000 Quixote Corp., 8.00% sub. deb., due 4-15-11 198,600 173,800
225,000 Rohr Industries, Inc., 7.00% sub. deb., due 10-1-12 192,992 196,312
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
$ 55,000 Swift Energy Co., 6.50% sub. deb., due 6-30-03 $ 52,713 $ 63,181
300,000 UNC Inc., 7.50% sub. deb., due 3-31-06 273,750 274,875
236,000 Wainoco Oil Corp., 7.75% sub. deb., due 6-1-14 195,930 190,570
15,000 Weston (Roy F.) Inc. New, 7.00% sub. deb.,
due 4-15-02 12,900 12,956
TOTAL CONVERTIBLE CORPORATE BONDS 2,654,590 2,671,320
REPURCHASE AGREEMENT - 6.85%
500,000 UMB Bank n.a., 4.875%, due 4-1-96
(Collateralized by $509,998 U.S. Treasury Notes,
5.125%, due 6-30-98) 500,000 500,000
TOTAL INVESTMENTS - 93.04% $ 6,707,935 6,792,216
Other assets less liabilities - 6.96% 508,449
TOTAL NET ASSETS - 100.00%
(equivalent to $11.15 per share; 10,000,000 shares of $1.00 par
value capital shares authorized; 654,971 shares outstanding) $ 7,300,665
For federal income tax purposes, the identified cost of
investments owned at March 31, 1996 was $6,707,935.
Net unrealized appreciation for federal income tax purposes
was $84,281, which is comprised of unrealized appreciation
of $173,786 and unrealized depreciation of $89,505.
</TABLE>
See accompanying Notes to Financial Statements.
BUFFALO
USA GLOBAL FUND
STATEMENT OF NET ASSETS
March 31, 1996
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 87.41%
BASIC MATERIALS - 2.88%
4,700 Nalco Chemical Co. $ 141,847 $ 144,525
CAPITAL GOODS - 12.03%
4,600 Commercial Intertech Corp. 86,518 86,825
3,500 Cummins Engine Inc. 147,550 141,312
3,500 Ingersoll-Rand Co. 145,300 142,625
3,000 Lear Seating Corp.* 86,587 97,875
1,200 United Technologies Corp. 115,785 134,700
581,740 603,337
CONSUMER CYCLICAL - 11.08%
2,000 Exide Corp. 64,123 46,750
2,500 General Motors Corp. 131,938 133,125
2,800 Goodyear Tire & Rubber Co. 126,190 142,800
4,000 Manpower, Inc. Wisconsin 108,013 124,000
4,100 Modine Manufacturing 102,605 108,650
532,869 555,325
CONSUMER STAPLES - 20.48%
3,000 American Brands, Inc. 134,000 127,125
750 Avon Products, Inc. 61,631 64,313
1,800 Bristol-Myers Squibb Co. 149,828 154,125
1,500 Coca-Cola Co. 118,150 123,938
1,000 Gillette Co. 48,675 51,750
2,000 McDonald's Corp. 77,625 96,000
2,000 Pfizer, Inc. 123,325 134,000
4,000 Sara Lee Corp. 128,513 130,500
2,500 Schering-Plough Corp. 141,719 145,312
983,466 1,027,063
ENERGY - 6.24%
3,000 Camco International, Inc. 82,525 94,500
1,000 Schlumberger, Ltd. 70,863 79,125
2,500 Triton Energy Ltd. 129,875 139,375
283,263 313,000
FINANCIAL - 4.67%
4,500 AFLAC, Inc. 145,114 140,625
1,000 American International Group, Inc. 97,055 93,625
242,169 234,250
TECHNOLOGY - 30.03%
3,000 AMP, Inc. 121,900 124,125
3,750 Analog Devices, Inc.* 82,462 105,000
3,650 Autodesk, Inc. 122,375 137,788
2,700 Cisco Systems, Inc.* 93,261 125,212
2,500 Compaq Computer Corp.* 96,125 96,562
SHARES COMPANY COST MARKET VALUE
2,500 Etec Systems, Inc.* $ 25,000 $ 35,000
5,000 HMT Technology Corp.* 50,000 52,188
1,500 Informix Corp.* 48,188 39,562
1,000 Intel Corp. 65,187 56,875
10,500 Intevac Inc.* 64,000 76,125
1,250 Microsoft Corp.* 114,281 128,906
2,400 Motorola, Inc. 145,608 127,200
5,000 National Semiconductor Corp.* 110,062 69,375
1,500 Oracle Systems Corp.* 65,325 70,688
2,700 Perkin-Elmer Corp. 95,428 146,138
800 Sybase, Inc.* 17,600 18,600
5,000 Western Digital Corp.* 92,125 96,250
1,408,927 1,505,594
TOTAL COMMON STOCKS 4,174,281 4,383,094
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
REPURCHASE AGREEMENT - 7.98%
$ 400,000 UMB Bank n.a., 4.875%, due 4-1-96
(Collateralized by $407,999 U.S. Treasury Notes,
5.125%, due 6-30-98) 400,000 400,000
TOTAL INVESTMENTS - 95.39% $ 4,574,281 4,783,094
Other assets less liabilities - 4.61% 231,111
TOTAL NET ASSETS - 100.00%
(equivalent to $11.36 per share; 10,000,000 shares of $1.00 par
value capital shares authorized; 441,385 shares outstanding) $ 5,014,205
For federal income tax purposes, the identified cost of
investments owned at March 31, 1996 was $4,583,502.
Net unrealized appreciation for federal income tax purposes
was $199,592, which is comprised of unrealized appreciation
of $321,801 and unrealized depreciation of $122,209.
<FN>
<F1>*Securities on which no cash dividends were paid during the
preceding twelve months.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS
AND LIABILITIES
March 31, 1996
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (identified cost
$46,278,464, $5,377,878, $6,707,935, and
$4,574,281, respectively) $ 49,465,126 $ 5,692,750 $ 6,792,216 $ 4,783,094
Cash - 247,311 414,358 229,541
Dividends receivable 56,205 7,213 6,263 1,664
Interest receivable 1,016,760 - 174,138 -
Receivables for investments sold 672,477 - - -
Total assets 51,210,568 5,947,274 7,386,975 5,014,299
LIABILITIES AND NET ASSETS:
Cash overdraft 148,167 - - -
Payable for investments purchased 964,646 - 86,310 -
Call options written 24,375 1,875 - 94
Total liabilities 1,137,188 1,875 86,310 94
NET ASSETS $ 50,073,380 $ 5,945,399 $ 7,300,665 $ 5,014,205
NET ASSETS CONSIST OF:
Capital (capital stock and
paid-in capital) $ 46,292,683 $ 5,631,382 $ 7,217,078 $ 4,805,197
Distribution in excess of net
investment income (14,629) (475) (694) (323)
Accumulated net realized gain on
investment transactions 600,928 - - -
Net unrealized appreciation in
value of investments 3,194,398 314,492 84,281 209,331
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 50,073,380 $ 5,945,399 $ 7,300,665 $ 5,014,205
Capital shares, $1.00 par value
Authorized 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding 4,678,334 481,214 654,971 441,385
NET ASSET VALUE PER SHARE $ 10.70 $ 12.36 $ 11.15 $ 11.36
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EQUITY HIGH YIELD USA GLOBAL
BALANCED FUND FUND FUND
FUND FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE MAY 19, 1995 MAY 19,1995 MAY 19, 1995
YEAR ENDED (INCEPTION) TO (INCEPTION) TO (INCEPTION) TO
MARCH 31, 1996 MARCH 31, 1996 MARCH 31, 1996 MARCH 31, 1996
</CAPTION>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 490,026 $ 37,396 $ 28,516 $ 21,400
Interest 2,769,401 69,234 284,214 55,582
3,259,427 106,630 312,730 76,982
Expenses (Note 2):
Management fees 446,384 29,343 37,196 25,935
Registration fees and expenses 42,159 1,675 845 1,325
488,543 31,018 38,041 27,260
Net investment income 2,770,884 75,612 274,689 49,722
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Realized gain from investment
transactions (excluding
repurchase agreements):
Proceeds from sales of
investments 24,243,059 1,090,465 645,078 1,958,860
Cost of investments sold 22,418,065 876,415 565,942 1,829,378
Net realized gain from sales of
investments 1,824,994 214,050 79,136 129,482
Gain from option contracts
written 108,426 4,973 - 20,239
Net realized gain from
investment transactions 1,933,420 219,023 79,136 149,721
Unrealized appreciation on
investments:
Beginning of period 742,764 - - -
End of period 3,194,398 314,492 84,281 209,331
Increase in net unrealized
appreciation on investments 2,451,634 314,492 84,281 209,331
Net gain on investments 4,385,054 533,515 163,417 359,052
Increase in net assets
resulting from operations $ 7,155,938 $ 609,127 $ 438,106 $ 408,774
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND HIGH YIELD FUND USA GLOBAL FUND
FOR THE FOR THE FOR THE FOR THE
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
FOR THE AUGUST 12, 1994 MAY 19, 1995 MAY 19, 1995 MAY 19, 1995
YEAR ENDED (INCEPTION) TO (INCEPTION) TO (INCEPTION) TO (INCEPTION) TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1996 MARCH 31, 1996
</CAPTION>
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 2,770,884 $ 1,153,648 $ 75,612 $ 274,689 $ 49,722
Net realized gain from
investment transactions 1,933,420 284,096 219,023 79,136 149,721
Unrealized appreciation
of investments during
the period 2,451,634 742,764 314,492 84,281 209,331
Net increase in net
assets resulting
from operations 7,155,938 2,180,508 609,127 438,106 408,774
DISTRIBUTIONS TO
SHAREHOLDERS FROM:**
Net investment income (2,863,777) (1,060,755) (76,262) (275,340) (50,373)
In excess of net investment
income (14,629) - (475) (694) (323)
Net realized gain from
investment transactions (1,616,588) - (219,023) (79,136) (149,721)
Total distributions to
shareholders (4,494,994) (1,060,755) (295,760) (355,170) (200,417)
INCREASE FROM CAPITAL
SHARE TRANSACTIONS:*
Proceeds from shares sold 17,922,485 36,952,975 5,779,023 7,417,075 5,092,206
Net asset value of shares
issued for reinvestment
of distributions 4,322,228 993,105 276,620 316,259 190,594
22,244,713 37,946,080 6,055,643 7,733,334 5,282,800
Cost of shares repurchased (13,084,808) (913,964) (524,262) (616,256) (577,603)
Net increase from capital
share transactions 9,159,905 37,032,116 5,531,381 7,117,078 4,705,197
Total increase in
net assets 11,820,849 38,151,869 5,844,748 7,200,014 4,913,554
NET ASSETS:
Beginning of period 38,252,531 100,662 100,651 100,651 100,651
End of period (including
distributions in excess
of investment income of
$14,629, $475, $694, and
$323, respectively) $50,073,380 $38,252,531 $ 5,945,399 $ 7,300,665 $ 5,014,205
*Shares issued and
repurchased:
Number of shares sold 1,695,938 3,784,559 492,584 671,559 466,457
Number of shares
issued for reinvestment
of distributions 413,155 101,936 22,492 28,449 17,014
Number of shares
repurchased (1,234,579) (92,675) (43,862) (55,037) (52,086)
Net increase 874,514 3,793,820 471,214 644,971 431,385
**Distributions to
shareholders:
Income dividends
per share $ .678 $ .30 $ .203 $ .534 $ .1465
Capital gains
distribution per
share $ .402 $ - $ .514 $ .134 $ .392
</TABLE>
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND HIGH YIELD FUND USA GLOBAL FUND
FOR THE FOR THE FOR THE FOR THE
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
Condensed data for a share FOR THE AUGUST 12, 1994 MAY 19, 1995 MAY 19, 1995 MAY 19, 1995
of capital stock outstanding YEAR ENDED (INCEPTION) TO (INCEPTION) TO (INCEPTION) TO (INCEPTION) TO
throughout the period. MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1996 MARCH 31, 1996
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 10.06 $ 10.07 $ 10.14 $ 10.14 $ 10.14
Income from investment
operations:
Net investment income .65 .32 .21 .53 .15
Net gains or (losses)
on securities (both
realized and unrealized) 1.07 (.03) 2.72 1.14 1.61
Total from investment
operations 1.72 .29 2.93 1.67 1.76
Less distributions:
Dividends from net
investment income (.68) (.30) (.20) (.53) (.15)
Distributions from
capital gains (.40) - (.51) (.13) (.39)
Total distributions (1.08) (.30) (.71) (.66) (.54)
Net asset value, end
of period $ 10.70 $ 10.06 $ 12.36 $ 11.15 $ 11.36
Total return 17.87% 2.91% 29.11% 16.67% 17.49%
Ratios/Supplemental Data
Net assets, end of year
(in millions) $ 50 $ 38 $ 6 $ 7 $ 5
Ratio of expenses to
average net assets 1.11% 1.06% 1.06% 1.03% 1.06%
Ratio of net investment
income to average
net assets 6.27% 8.89% 2.55% 7.40% 1.94%
Portfolio turnover rate 61% 33% 63% 25% 123%
</TABLE>
Ratios for the Funds' initial periods of operations are
annualized.
Total return is not annualized.
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL
STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Funds are registered under the Investment Company Act of
1940, as amended, as diversified open-end management
investment companies. The following is a summary of
significant accounting policies consistently followed by the
Funds in the preparation of their financial statements.
A. Security Valuation - Corporate stocks, bonds and options
traded on a national securities exchange or national market
are valued at the latest sales price thereof, or if no sale
was reported on that date, the mean between the closing bid
and asked price is used.
Securities which are traded over-the-counter are priced at
the mean between the latest bid and asked price. Securities
not currently traded are valued at fair value as determined
by the Board of Directors.
B. Federal and State Taxes - The Funds complied with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and therefore, no provision
for federal or state tax is required.
C. Options - In order to produce incremental earnings and
protect gains, the Funds may write covered call options on
portfolio securities. When a Fund writes an option, an
amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to
reflect the current market value of the option written. If
an option which a Fund has written either expires on its
stipulated expiration date, or if a Fund enters into a
closing purchase transaction, the Fund realizes a gain (or
loss if the cost of a closing purchase transaction exceeds
the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is
extinguished. If a call option which the Fund has written is
exercised, the Fund realizes a capital gain or loss from the
sale of the underlying security and the proceeds from such
sale are increased by the premium originally received.
D. Other - Security transactions are accounted for on the
date the securities are purchased or sold. Dividend income
and distributions to shareholders are recorded on the ex-
dividend date. Realized gains and losses from investment
transactions and unrealized appreciation and depreciation of
investments are reported on the identified cost basis.
2. MANAGEMENT FEES:
Management fees were paid to Jones & Babson, Inc. at the
rate of 1% per annum of the average daily net asset values
of the Funds for services which include administration, and
all other operating expenses of the Funds except the cost of
acquiring and disposing of portfolio securities, the taxes,
if any, imposed directly on the Funds and its shares and the
cost of qualifying the Funds' shares for sale in any
jurisdiction. Certain officers and/or directors of the Funds
are also officers and/or directors of Jones & Babson, Inc.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the period ended March 31, 1996,
(excluding maturities of short-term commercial notes and
repurchase agreements) are as follows:
Balanced Fund
Purchases $ 33,077,087
Proceeds from sales 24,243,059
Equity Fund
Purchases $ 5,654,293
Proceeds from sales 1,090,465
High Yield Fund
Purchases $ 6,769,274
Proceeds from sales 645,078
USA Global Fund
Purchases $ 6,003,659
Proceeds from sales 1,958,860
4. COVERED CALL OPTIONS:
The following Covered Call Options Written remainded
outstanding as of March 31, 1996:
Shares
Common Stocks/ Subject to
Expiration Date/Exercise Price Call Value
Balanced Fund
Bethlehem Steel Corp/Apr/17.5 50,000 $ 15,625
Sybase, Inc/May/35 10,000 3,750
Union Texas Petroleum Holdings, Inc/Apr/20 20,000 5,000
Total (premiums received $32,111) $ 24,375
Value of shares subject to call $1,283,750
Equity Fund
Sybase, Inc/May/35 5,000 $ 1,875
Total (premiums received $1,495) $ 1,875
Value of shares subject to call $116,250
USA Global Fund
Intel Corp/Apr/65 1,000 94
Total (premiums received $611) $ 94
Value of shares subject to call $56,875
Transactions in call options written for the period ended
March 31, 1996 were as follows:
Number of Premium
Contracts Amount
Balanced Fund
Balance at March 31, 1995 1,330 $ 60,203
Opened 2,861 80,334
Closed and expired (3,391) (108,426)
Balance at March 31, 1996 800 $ 32,111
Equity Fund
Balance at beginning of period - $ -
Opened 145 6,468
Closed and expired (95) (4,973)
Balance at March 31, 1996 50 $ 1,495
USA Global Fund
Balance at beginning of period - $ -
Opened 232 20,850
Closed and expired (222) (20,239)
Balance at March 31, 1996 10 $ 611
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Buffalo Balanced Fund, Inc.
Buffalo Equity Fund, Inc.
Buffalo High Yield Fund, Inc.
Buffalo USA Global Fund, Inc.:
We have audited the accompanying statements of assets and
liabilities, including the statements of net assets, of
Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc. and Buffalo USA Global Fund,
Inc. (the Funds) as of March 31, 1996, and the related
statement of operations for the year then ended and the
statements of changes in net assets and financial highlights
for the year then ended and for the period August 12, 1994
(inception) through March 31, 1995 for the Buffalo Balanced
Fund, Inc. and the statements of operations and changes in
net assets and financial highlights for the period May 19,
1995 (inception) through March 31, 1996, for Buffalo Equity
Fund, Inc., Buffalo High Yield Fund, Inc., and Buffalo USA
Global Fund, Inc. These financial statements and financial
highlights are the responsibility of the Funds' management.
Our responsibility is to express an opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial
highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of
March 31, 1996, by correspondence with the custodian. As to
securities relating to uncompleted transactions, we
performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of each of the Funds
referred to above at March 31, 1996, the results of their
operations, the changes in their net assets and their
financial highlights for the periods indicated above, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Kansas City, Missouri
April 25, 1996
This report has been prepared for the information of the
Shareholders of the Buffalo Funds, and is not to be
construed as an offering of the shares of the Funds. Shares
of the Funds are offered only by the Prospectus, a copy of
which may be obtained from Jones & Babson, Inc.
BUFFALO MUTUAL FUNDS
Balanced Fund
Equity Fund
High Yield Fund
USA Global Fund
BUFFALO
FUNDS
Jones & Babson
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
1-800-49-BUFFALO
(1-800-492-8332)
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919228
<NAME> BUFFALO BALANCED FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> MAR-31-1996
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000933782
<NAME> BUFFALO EQUITY FUND, INC.
<S> <C>
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<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 5377878
<INVESTMENTS-AT-VALUE> 5692750
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