BUFFALO
FUNDS
Balanced Fund
Equity Fund
High Yield Fund
USA Global Fund
ANNUAL REPORT
March 31, 1997
MESSAGE
TO OUR SHAREHOLDERS
We are pleased to be reporting to you after another successful period for the
Buffalo Funds. March 31, 1997, completed the first full fiscal year of
operations for the Buffalo Equity, High Yield and USA Global Funds and the
second fiscal year for the Buffalo Balanced Fund. Relative performance for the
group will be discussed in detail in the Portfolio Management Review which
follows. Buffalo name recognition continues to strengthen with the
considerable publicity the Funds have garnered over the past year due to
investment performance. The group added over 4,000 shareholders during the
year while total assets increased from $68 million at March 31, 1996, to over
$110 million at March 31, 1997. Total distributions for the Funds are shown
below:
Investment Short-Term Long-Term
Income Capital Gains Capital Gains Total
Balanced $ .707 $ .558 $ .275 $1.54
Equity $ .1046 $ .9454 $ .04 $1.09
High Yield $ .798 $ .137 $ .01 $1.945
USA Global $ .0528 $ .6072 - $1.66
For corporate shareholders, Buffalo Balanced, Equity, High Yield and USA
Global Funds percent of ordinary income distributions qualifying for the
corporate dividends received deduction are 8%, 7%, 3% and 8%, respectively.
We have made a slight change in our report format from last year. In addition
to the President's Message we have added a Portfolio Management Review. The
Fund's investment counsel, Kornitzer Capital Management Inc. (KCM), will
discuss not only Fund performance and the economy but also provide an in-depth
look into their investment philosophies, strategies and holdings for each of
the Funds.
We welcome the new investors who have joined us in the past year, and look
forward to continuing our efforts to provide all our shareholders with
consistent, favorable returns in the future.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Portfolio Management Review
As investment counsel for the Buffalo Funds the favorable performance results
over the past year are very gratifying. However, as relatively new entrants
into the public mutual fund market (the first Buffalo Fund started in 1994) we
feel we are still in the very early stages of proving our abilities. Those
firms at the pinnacle of the mutual fund industry have delivered consistently
superior results to shareholders over the past 5, 10, 15 years and longer. We
aspire to have the Buffalo Funds listed among the very top and consistent
performers for the long-term. We feel KCM has the staff, the resources and the
investment discipline in place to reach this goal. We readily accept the
challenge.
By studying the top performing mutual funds over the long-term we have found
at least two traits common to the majority of those funds. First, we found a
long tenure by the investment counsel's individual or team managing the fund.
Very rarely have you seen funds perform consistently well while experiencing
rapid turnover of their investment staff. This has recently been a well
publicized problem in the fund industry and one which shareholders should take
very seriously. KCM certainly takes this subject seriously. The firm currently
has five investment professionals which are integral to the management of the
Buffalo Funds. Of those five, three are currently shareholders of KCM and the
other two will soon be shareholders. The firm believes that share ownership is
the strongest recruitment, incentive and retention tool available. Since
inception of the firm in 1989, KCM has experienced no turnover among it's
investment staff.
A second common trait we found among the top long-term performers is a
disciplined investment strategy. KCM has an investment discipline for both
stocks and bonds which are unique and well defined. The firm's approach to
picking stocks doesn't fit neatly into the growth or value categories.
Instead, following strict para-meters, the firm will most often own selected
stocks from both groups. For growth stocks the firm focuses on companies that
are able to consistently meet expectations for their earnings. However, unlike
momentum investors KCM does not seek out high P/E growth stocks which have the
potential to beat expectations for their earnings. The firm believes the risk
and volatility associated with these stocks is simply too high. For value
stocks the firm focuses on companies believed to be coming out of industry
downturns. In these cases the companies typically have the best opportunity to
beat expectations for earnings. The common denominators for most holdings
include: a P/E near or below the market based on KCM's expected earnings,
companies with a high level of insider ownership and companies with healthy
balance sheets. All of the above applies to our stockpicking efforts in the
Buffalo Equity, USA Global and Balanced Funds.
The firm's approach to investing in bonds is to focus on a combination of high
yield corporate and convertible bonds. High yield corporate bonds are
purchased to provide a high level of current income. Convertible bonds are
purchased to provide a reasonable level of current income and for the
opportunity to realize long-term capital appreciation. KCM research focuses
primarily on the corporate bonds issued by small and medium sized companies
and the bonds of cyclical companies. These bonds typically are given lower
ratings by the rating agencies due to their size and volatility of earnings.
The higher yields available on these bonds provide an attractive opportunity
for a firm like KCM which is research intensive and has great experience in
evaluating industry cycles. Convertible bonds can be particularly attractive
as they provide a "get paid while you wait strategy" for companies whose
underlying stock is temporarily depressed. This approach to bond investing is
employed in both the Buffalo High Yield and Balanced Funds.
KCM's unique breakdown of management and research responsibilities among the
staff allows for quick decision-making and a high degree of synergy between
the firm's equity and bond research efforts. Each professional has a different
background, having analyzed or worked in numerous industries. Based on their
area of expertise each individual is responsible for closely covering certain
industries and is empowered to make investments in both stocks and bonds in
those industries for the Buffalo Funds. While each fund has a point person for
executing trades, it is the cumulation of ideas by the entire team (within the
firm's investment disciplines) which allows the entire process to work
efficiently. In our next letter we will focus on each individual's background
and on their industry coverage responsibilities at KCM.
The following is a snapshot and comment on how each of the Buffalo Fund's
performed over the past twelve months.
Buffalo Balanced Fund
Buffalo Balanced Fund generated a total return (price change and reinvested
distributions) of 13.22% for the twelve months ended March 31, 1997. The
average balanced fund, as measured by Lipper Analytical Services, registered a
return of 11.02% for the period. It is important to note that this performance
was achieved despite an average fund allocation of only 30% to common stocks
during a strong period for equities. The Fund's allocation to common stocks
has, in fact, never exceeded 40% since the inception of the Fund. This is well
below the average balanced fund which typically invests over 50% of assets in
common stocks. The Fund's 30-day current yield for the period ended March 31,
1997, was 6.04%.
Fund asset allocation decisions are driven by a philosophy which emphasizes
consistent performance and a low level of fund price volatility. The Fund's
typical combination of roughly 1/3 blue chip stocks, 1/3 high yield corporate
bonds and 1/3 high yield convertible securities produces a high level of
current income, yet positions the Fund for reasonable capital appreciation
during a rising stock market. The past twelve months was a perfect example. In
addition to it's position in equities, the Fund benefited from numerous large
gains in convertible security holdings. These included such issues as Bally
Entertainment, Swift Energy, Maxus Energy and Key Energy. The Fund also
enjoyed price appreciation in it's high yield bond holdings, while balanced
funds owning investment grade bonds suffered price erosion due to rising
interest rates.
The Balanced Fund, as well as other Buffalo Funds, greatly benefited from a
correct call on the energy industry by KCM early in 1996. At March 31, 1996,
the Fund held 7% of assets in energy equities, 11% in energy corporate bonds
and 12% in energy convertible securities. The industry was one of the top
performing groups over the period. KCM has recently pared it's weighting in
energy, but maintains a healthy position given the industry's strong
fundamental outlook. New corporate and convertible bond positions have
recently been built in a number of technology issues, taking advantage of the
large sell-off in the sector in early 1997. These issues include Fairchild
Semiconductor, Integrated Device Technology, Bay Networks and VLSI Technology.
GRAPH --Buffalo Balanced Fund versus S&P 500 and Merrill Lynch Bond Fund Index
Weighted Average
Average annual compounded total returns for one year and the life of the Fund
(inception August 12, 1994) as of March 31, 1997, were 13.22% and 12.79%,
respectively. Performance data contained in this report is for past periods
only. Past performance is not predictive of future performance. Investment
return and share value will fluctuate, and redemption value may be more or
less than original cost.
Buffalo Equity Fund
Buffalo Equity Fund generated a total return (price change and reinvested
distributions) of 21.23% for the twelve months ended March 31, 1997. This
return outpaced the unmanaged Standard and Poor's 500 return of 19.83% and
dramatically outperformed the average capital appreciation fund, as measured
by Lipper Analytical Services, return of 4.00%. The Fund benefited from
overweighting two industries which well outpaced the overall market, energy
and technology. Beginning in late 1996 and early 1997, KCM trimmed the Fund's
holdings in both sectors, reducing energy positions from over 20% to 12% and
technology positions from 18% to below 15%. Due to overvaluation concerns,
positions were trimmed or eliminated in stocks such as Noble Drilling, British
Petroleum, Amoco, Chevron, Nabors Industries, Claremont Technologies and
Western Digital.
Proceeds from the portfolio restructuring were placed into a combination of
steady growth stocks and cyclical stocks. Purchases of steady, predictable
growth stocks included such companies as CPC International, Sara Lee, Merck
and Pfizer. Purchases of cyclical stocks believed to be emerging from
industry downturns included such companies as Cummins Engine, Southwest
Airlines, Cincinnati Milacron and Federal Express. With the recent rise in
interest rates, holdings were also increased in the financial sector with
purchases such as Chubb and ITT Hartford. The Buffalo Equity portfolio is now
very well balanced, reflecting our belief that 1997 will be more of a
individual stockpicking market. Only one sector, capital goods, is heavily
overweighted. This position reflects our belief that capital spending will
remain strong in the U.S. given robust corporate cash flows and a very tight
labor market. Additionally, capital spending in rapidly developing nations
outside the U.S. should continue to flourish.
GRAPH -- Buffalo Equity Fund versus S&P 500
Average annual compounded total returns for one year and the life of the Fund
(inception May 19, 1995) as of March 31, 1997, were 21.23% and 27.10%,
respectively. Performance data contained in this report is for past periods
only. Past performance is not predictive of future performance. Investment
return and share value will fluctuate, and redemption value may be more or
less than original cost.
Buffalo High Yield Fund
Buffalo High Yield Fund generated a total return (price change and reinvested
distributions) of 14.02% for the twelve months ended March 31, 1997. The
average high yield bond fund, as measured by Lipper Analytical Services,
provided a return of 10.28% for the period. The Fund's 30-day current yield
for the period ended March 31, 1997, was 8.12%. Many of the same strategies
and securities highlighted in our discussion of the Balanced Fund were also
deployed in the High Yield Fund. Other outperforming issues over the past year
included convertible preferred stocks such as Noble Drilling and Santa Fe
Energy as well as corporate and convertible bonds of smaller, underfollowed
companies such as Interface, Moran Energy and Pilgrim's Pride.
New holdings in the Fund include out-of-favor companies such as McDermott
International and Exide, smaller companies such as Clark Material Handling and
Rent-Way and most of the technology issues mentioned in the Balanced Fund.
GRAPH --Buffalo High Yield Fund versus Merrill Lynch High Yield Bond Fund
Index
Average annual compounded total returns for one year and the life of the Fund
(inception May 19, 1995) as of March 31, 1997, were 14.02% and 16.50%,
respectively. Performance data contained in this report is for past periods
only. Past performance is not predictive of future performance. Investment
return and share value will fluctuate, and redemption value may be more or
less than original cost.
Buffalo USA Global
Buffalo USA Global Fund generated a total return (price change and reinvested
distributions) of 29.87% for the twelve months ended March 31, 1997. These
results far outpaced the 19.83% return of the unmanaged Standard and Poor's
500 and the 4.00% return for the average capital appreciation fund, as
measured by Lipper Analytical Services. The Fund benefited from the higher
than average earnings growth and growth prospects of it's holdings. This
reflects the Fund's positioning in many of America's best (both large and
small) companies which have high international sales exposure and are growing
rapidly. These holdings include household names such as Boeing, Goodyear,
Coca-Cola, McDonald's, Wrigley, Citicorp, Intel and Microsoft. However, these
holdings also include numerous smaller, underfollowed, yet high quality
companies such as Teleflex, Interface and Dallas Semiconducter. All companies
held in the Fund must derive at least 40% of sales or income from outside the
U.S. On average the companies in the Fund generate well over 50% of their
total sales or income from outside the U.S. This restriction makes the USA
Global Fund very unique to the mutual fund industry.
Much like the Equity Fund the USA Global Fund restructured it's holdings early
in 1997. The major change was a reduction in the technology weighting from
over 30% to 20% and an increase in the capital goods weighting from 12% to
24%. The reduction in the technology sector was accomplished to reduce the
volatility of the overall Fund and to reflect the very high valuations of many
stocks. Stocks trimmed included names such as Cisco, Applied Materials,
Compaq, Analog Devices and Autodesk. Stocks added included a number of
cyclicals believed to be emerging from industry downturns such as Aluminum Co.
of America and Cummins Engine and growth cyclicals such as Air Products &
Chemicals and Boeing. Our non-stop search continues for both small and large
U.S. based multinational companies. The exciting aspect to KCM is every
quarter more companies pass the 40% threshold opening up new opportunities for
the Fund.
We look forward to tracking each Fund's progress with you in future letters.
All of us on the KCM research team thank you for your confidence in our
management of the Buffalo Funds. As fellow shareholders we are fully committed
to your financial success in the future.
GRAPH -- Buffalo USA Global Fund versus S&P 500
Average annual compounded total returns for one year and the life of the Fund
(inception May 19, 1995) as of March 31, 1997, were 29.87% and 25.38%,
respectively. Performance data contained in this report is for past periods
only. Past performance is not predictive of future performance. Investment
return and share value will fluctuate, and redemption value may be more or
less than original cost.
Sincerely,
/s/John Kornitzer
John Kornitzer
President
/s/Kent Gasaway
Kent Gasaway
Sr. Vice President
/s/Tom Laming
Tom Laming
Sr. Vice President
BUFFALO
BALANCED FUND
STATEMENT OF NET ASSETS
March 31, 1997
MARKET
SHARES COMPANY COST VALUE
COMMON STOCKS - 31.12%
BASIC MATERIALS - 0.29%
5,000 Georgia Gulf Corp. $ 135,838 $ 126,250
CAPITAL GOODS - 10.55%
10,000 Blount International, Inc. Cl. A 395,450 412,500
10,000 Cummins Engine, Inc. 462,800 512,500
12,500 Fluor Corp. 783,303 656,250
10,000 Ingersoll-Rand Co. 438,000 436,250
10,000 Rockwell International Corp. 610,500 648,750
9,300 Teleflex, Inc. 463,515 491,737
15,000 Trinity Industries, Inc. 452,250 455,625
5,000 United Technologies Corp. 337,750 376,250
15,000 York International Corp. 791,687 628,125
4,735,255 4,617,987
CONSUMER CYCLICAL - 6.35%
35,000 Chrysler Corp. 902,509 1,050,000
12,500 Federal Express Corp.* 666,875 651,563
10,000 General Motors Corp. 543,000 553,750
10,000 Goodyear Tire & Rubber Co. 336,262 522,500
2,448,646 2,777,813
CONSUMER STAPLES - 0.54%
5,000 McDonald's Corp. 230,125 236,250
ENERGY - 5.79%
7,500 Amoco Corp. 533,260 649,688
7,500 Chevron Corp. 416,625 522,188
10,000 Coastal Corp. 378,000 480,000
15,000 Triton Energy Ltd.* 738,000 581,250
10,000 United Meridian Corp.* 314,250 301,250
2,380,135 2,534,376
HEALTH CARE - 1.52%
2,500 Merck & Company, Inc. 214,813 214,687
4,000 Pfizer, Inc. 343,763 336,500
1,500 Schering-Plough Corp. 111,075 111,000
669,651 662,187
TECHNOLOGY - 5.07%
15,000 A T & T Corp. $ 530,395 $ 521,250
7,500 Hewlett-Packard Co. 383,863 399,375
10,000 Informix Corp.* 155,000 151,250
5,000 Intel Corp. 275,625 695,625
10,000 Seagate Technology * 416,125 448,750
1,761,008 2,216,250
TRANSPORTATION & SERVICES - 1.01%
20,000 Southwest Airlines Co. 489,124 442,500
TOTAL COMMON STOCKS 12,849,782 13,613,613
CONVERTIBLE PREFERRED STOCKS - 3.22%
20,000 ICO Inc., dep. shrs.
repstg. 1/4 pfd. cv. 396,900 452,500
23,210 McDermott International, Inc.,
Series C 973,123 957,412
TOTAL CONVERTIBLE PREFERRED STOCKS 1,370,023 1,409,912
FACE MARKET
AMOUNT DESCRIPTION COST VALUE
CORPORATE BONDS - 25.90%
$ 435,000 Argosy Gaming Co.,
13.25% 1st. mtg. note, due 6-1-04 391,760 383,887
500,000 Clark Material Handling Co.,
10.75% sr. note, due 11-15-06 500,000 513,750
1,300,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 1,193,847 1,313,000
750,000 Fairchild Semiconductor Corp.,
10.125% sr. sub. note, due 3-15-07 748,750 750,000
1,000,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 977,500 1,012,500
1,500,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 1,473,187 1,518,750
1,000,000 Kaiser Aluminum & Chemical Corp.,
9.875% sr. note, due 2-15-02 985,175 1,005,000
500,000 Maxus Energy Corp.,
9.875% note, due 10-15-02 497,048 510,000
750,000 Nortek Inc.,
9.875% sr. sub. note, due 3-1-04 714,567 740,625
415,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 396,437 426,413
360,000 RJR Nabisco Inc.,
8.75% gtd. sr. note, due 4-15-04 334,648 355,050
CORPORATE BONDS (Continued)
160,000 RJR Nabisco Inc.,
8.75% note, due 8-15-05 $ 148,738 $ 157,564
150,000 Stone Container Corp.,
10.75% 1st mtg. note, due 10-1-02 149,029 148,687
100,000 Triangle Pacific Corp. Delaware,
10.50% sr. note, due 8-1-03 99,500 106,750
52,000 Wainoco Oil Corp.,
10.75% sub. deb., due 10-1-98 51,970 52,260
1,810,000 Wainoco Oil Corp.,
12.00% sr. note, due 8-1-02 1,774,175 1,864,300
500,000 Wheeling-Pittsburgh Corp.,
9.375% sr. note, due 11-15-03 487,281 474,375
TOTAL CORPORATE BONDS 10,923,612 11,332,911
CONVERTIBLE CORPORATE BONDS - 31.23%
1,500,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 885,000 1,323,750
935,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 802,600 883,575
1,870,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 1,846,813 1,178,100
500,000 Ashland, Inc.,
6.75% sub. deb., due 7-1-14 496,250 500,000
495,000 Beverly Enterprises Inc.,
7.625% sub. deb., due 3-15-03 472,725 492,525
800,000 Exide Corp.,
2.90% sr. sub. note, due 12-15-05 492,000 457,000
1,298,000 Integrated Device Technology Inc.,
5.50% sub. note, due 6-1-02 1,114,690 1,054,625
160,000 Key Energy Group, Inc.,
7.00% sub. deb., due 7-1-03 158,400 244,800
500,000 Moran Energy Inc.,
8.75% sub. deb., due 1-15-08 431,439 448,750
1,355,000 OHM Corp.,
8.00% sub. deb., due 10-1-06 1,059,338 1,287,250
1,595,000 Oryx Energy Co.,
7.50% sub. deb., due 5-15-14 1,379,688 1,527,212
1,200,000 Rent-Way, Inc.,
7.00% sub. deb., due 2-1-07 1,149,000 1,062,000
1,000,000 Rohr Industries, Inc.,
7.00% sub. deb., due 10-1-12 698,100 918,750
465,000 Sun, Inc.,
6.75% sub. deb., due 6-15-12 462,477 448,144
1,085,000 Synoptics Communications, Inc.,
5.25% sub. deb., due 5-15-03 961,613 945,306
205,000 UNC Inc.,
7.50% sub. deb., due 3-31-06 170,790 202,694
680,000 VLSI Technology, Inc.,
8.25% sub. note, due 10-1-05 650,728 645,150
50,000 Wainoco Oil Corp.,
7.75% sub. deb., due 6-1-14 40,125 42,563
TOTAL CONVERTIBLE CORPORATE BONDS 13,271,776 13,662,194
FACE MARKET
AMOUNT DESCRIPTION COST VALUE
REPURCHASE AGREEMENT - 10.88%
4,760,000 UMB Bank, n.a., 5.70%, due 4-1-97
(Collateralized by $4,784,613 U.S.
Treasury Notes, 6.50%, due 5-15-97) $ 4,760,000 $ 4,760,000
TOTAL INVESTMENTS - 102.35% $ 43,175,193 44,778,630
Other assets less liabilities - (2.35%) (1,029,977)
TOTAL NET ASSETS -100.00%
(equivalent to $10.57 per share;
10,000,000 shares of $1.00 par value capital
shares authorized; 4,139,039 shares outstanding) $ 43,748,653
For federal income tax purposes, the identified cost of
investments owned at March 31, 1997, was $43,175,193.
Net unrealized appreciation for federal income tax purposes
was $1,603,437, which is comprised of unrealized appreciation
of $3,081,263 and unrealized depreciation of $1,477,826.
* Securities on which no cash dividends were paid
during the preceding twelve months.
See accompanying Notes to Financial Statements.
BUFFALO
EQUITY FUND
STATEMENT OF NET ASSETS
March 31, 1997
MARKET
SHARES COMPANY COST VALUE
COMMON STOCKS - 91.82%
BASIC MATERIALS - 6.86%
8,500 Air Products & Chemicals, Inc. $ 595,263 $ 576,937
7,500 ASARCO, Inc. 230,938 210,937
5,100 Eastman Chemical Co. 279,418 274,125
12,500 Georgia Gulf Corp. 369,063 315,625
1,474,682 1,377,624
CAPITAL GOODS - 20.36%
2,500 Boeing Co. 268,429 246,563
20,000 Cincinnati Milacron, Inc. 434,438 375,000
11,100 Cummins Engine Inc. 536,405 568,875
5,000 General Electric Co. 463,963 496,250
10,000 General Motors Corp. Cl. H 539,875 542,500
11,000 Ingersoll-Rand Co. 492,254 479,875
11,000 Rockwell International Corp. 591,497 713,625
7,500 Sun Hydraulics, Inc. 71,250 82,500
6,600 United Technologies Corp. 463,280 496,650
2,000 York International Corp. 101,350 83,750
3,962,741 4,085,588
CONSUMER CYCLICAL - 9.31%
10,000 Argosy Gaming Co.* 97,625 37,500
6,000 Chrysler Corp. 170,425 180,000
6,500 CompUSA Inc.* 113,388 102,375
13,000 Federal Express Corp.* 671,400 677,625
4,000 Genuine Parts Co. 191,700 186,500
4,000 Goodyear Tire & Rubber Co. 207,888 209,000
9,000 Manpower, Inc. 289,137 324,000
3,000 Tandy Corp. 153,300 150,375
1,894,863 1,867,375
CONSUMER STAPLES - 10.47%
5,700 CPC International, Inc. 453,835 467,400
8,000 Dial Corp. New 129,150 129,000
14,300 McDonald's Corp. 661,477 675,675
13,000 Sara Lee Corp. 517,400 526,500
9,000 Tupperware Corp. 474,137 301,500
2,235,999 2,100,075
ENERGY - 12.04%
11,000 Coastal Corp. 428,409 528,000
11,000 MAPCO, Inc. 312,175 341,000
28,000 Nabors Industries, Inc.* 456,150 546,000
5,000 Schlumberger, Ltd. 439,449 536,250
12,000 Triton Energy Ltd.* 575,250 465,000
2,211,433 2,416,250
FINANCIAL - 6.53%
9,700 Allstate Corp. $ 600,023 $ 575,937
8,500 Chubb Corp. 513,675 457,938
2,500 ITT Hartford Group, Inc. 186,375 180,313
4,500 USF & G Corp. 97,350 96,750
1,397,423 1,310,938
HEALTH CARE - 5.66%
13,000 Allergan, Inc. 453,441 378,625
5,000 Merck & Company, Inc. 453,750 421,250
4,000 Pfizer, Inc. 361,950 336,500
1,269,141 1,136,375
TECHNOLOGY - 14.79%
7,500 A T & T Corp. 298,344 260,625
15,000 AMP, Inc. 581,000 515,625
5,000 Bay Networks, Inc.* 111,500 89,375
1,000 Cisco Systems, Inc.* 50,000 48,125
3,100 Compaq Computer Corp.* 238,528 237,538
4,000 Computer Sciences Corp.* 283,200 247,000
11,500 Dallas Semiconductor Corp. 276,085 304,750
6,700 Hewlett-Packard Co. 358,898 356,775
2,500 Intel Corp. 270,875 347,812
11,500 National Semiconductor Corp.* 218,262 316,250
5,000 Sync Research, Inc.* 95,281 15,703
7,000 Verifone, Inc.* 250,750 229,250
3,032,723 2,968,828
TRANSPORTATION & SERVICES - 5.80%
27,000 Southwest Airlines Co. 630,350 597,375
10,000 Union Pacific Corp. 610,111 567,500
1,240,461 1,164,875
TOTAL COMMON STOCKS 18,719,466 18,427,928
FACE MARKET
AMOUNT DESCRIPTION COST VALUE
REPURCHASE AGREEMENT - 8.07%
$ 1,620,000 UMB Bank, n.a., 5.70%, due 4-1-97
(Collateralized by $1,628,377 U.S.
Treasury Notes, 6.50%, due 5-15-97) 1,620,000 1,620,000
TOTAL INVESTMENTS - 99.89% $ 20,339,466 20,047,928
Other assets less liabilities - 0.11% 21,194
TOTAL NET ASSETS - 100.00%
(equivalent to $13.93 per share; 10,000,000 shares
of $1.00 par value capital shares authorized;
1,441,124 shares outstanding) 20,069,122
For federal income tax purposes, the identified cost of investments owned at
March 31, 1997, was $20,339,466.
Net unrealized depreciation for federal income tax purposes was $291,538,
which is comprised of unrealized appreciation of $841,425 and unrealized
depreciation of $1,132,963.
* Securities on which no cash dividends were paid during the preceding twelve
months.
See accompanying Notes to Financial Statements.
BUFFALO
HIGH YIELD FUND
STATEMENT OF NET ASSETS
March 31, 1997
MARKET
SHARES COMPANY COST VALUE
CONVERTIBLE PREFERRED STOCKS - 4.98%
10,200 Fedders Corp. $ 60,160 $ 59,925
10,000 ICO Inc., dep. shrs. repstg. 1/4 pfd. cv. 200,549 226,250
1,000 McDermott International, Inc., Series A 27,175 29,250
16,000 McDermott International, Inc., Series C 668,375 660,000
TOTAL CONVERTIBLE PREFERRED STOCKS 956,259 975,425
FACE MARKET
AMOUNT DESCRIPTION COST VALUE
CORPORATE BONDS - 42.53%
$ 400,000 Argosy Gaming Co.,
13.25% 1st. mtg. note, due 6-1-04 376,500 353,000
65,000 Bethlehem Steel Corp.,
10.375% sr. note, due 9-1-03 64,407 68,087
500,000 Clark Material Handling Co.,
10.75% sr. note, due 11-15-06 500,000 515,000
545,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 550,244 550,450
500,000 Exide Corp.,
10.00% sr. note, due 4-15-05 495,000 507,500
535,000 Fairchild Semiconductor Corp.,
10.125% sr. sub. note, due 3-15-07 534,912 535,000
435,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 431,625 440,438
615,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 602,350 622,688
500,000 Interface, Inc.,
9.50% sr. sub. note, Series B,
due 11-15-05 480,000 510,000
650,000 Kaiser Aluminum & Chemical Corp.,
9.875% sr. note, due 2-15-02 642,397 653,250
10,000 Maxus Energy Corp.,
11.50% deb., due 11-15-15 9,985 10,500
100,000 Maxus Energy Corp.,
9.875% note, due 10-15-02 99,228 102,000
505,000 Nortek Inc.,
9.875% sr. sub. note, due 3-1-04 487,628 498,687
100,000 Parker Drilling Co.,
9.75% sr. note, Series B, due 10-15-06 99,215 102,000
600,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 578,750 616,500
150,000 Premier Parks, Inc.,
9.75% sr. note, due 1-15-07 150,000 154,500
370,000 RJR Nabisco, Inc.,
8.75% note, due 8-15-05 366,026 364,366
500,000 Southdown, Inc.,
10.00% sr. sub. note, Series B,
due 3-1-06 512,500 528,750
425,000 UNC, Inc.,
11.00% sr. sub. note, due 6-1-06 442,437 499,375
25,000 URS Corp. New,
8.625% sr. sub. deb., due 1-15-04 23,125 24,656
285,000 Wainoco Oil Corp.,
12.00% sr. note, due 8-1-02 285,844 293,550
400,000 Wheeling-Pittsburgh Corp.,
9.375% sr. note, due 11-15-03 386,138 379,500
TOTAL CORPORATE BONDS 8,118,311 8,329,797
CONVERTIBLE CORPORATE BONDS - 39.18%
570,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 481,175 503,025
507,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 498,912 479,115
630,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 540,360 396,900
500,000 Cliffs Drilling Co.,
10.25% sr. note, Series B, due 5-13-03 518,750 512,500
200,000 Exide Corp.,
2.90% sr. sub. note, due 12-15-05 123,000 114,250
CONVERTIBLE CORPORATE BONDS (Continued)
$ 90,000 Fedders Corp.,
8.50% sub. deb., due 6-15-12 $ 88,455 $ 87,413
800,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 687,875 650,000
295,000 Key Energy Group, Inc.,
7.00% sub. deb., due 7-1-03 291,325 451,350
640,000 Moran Energy Inc.,
8.75% sub. deb., due 1-15-08 531,272 574,400
550,000 OHM Corp.,
8.00% sub. deb., due 10-1-06 493,537 522,500
535,000 Oryx Energy Co.,
7.50% sub. deb., due 5-15-14 475,825 512,263
25,000 Plains Resources, Inc.,
10.25% sr. sub. note, Series B, due 3-15-06 25,437 26,062
550,000 Rent-Way, Inc.,
7.00% sub. deb., due 2-1-07 537,250 486,750
520,000 Rohr Industries, Inc.,
7.00% sub. deb., due 10-1-12 452,293 477,750
650,000 Synoptics Communications, Inc.,
5.25% sub. deb., due 5-15-03 573,500 566,312
300,000 UNC Inc.,
7.50% sub. deb., due 3-31-06 273,750 296,625
600,000 VLSI Technology, Inc.,
8.25% sub. note, due 10-1-05 574,198 569,250
525,000 Wainoco Oil Corp.,
7.75% sub deb., due 6-1-14 430,096 446,906
TOTAL CONVERTIBLE CORPORATE BONDS 7,597,010 7,673,371
REPURCHASE AGREEMENT - 12.76%
2,500,000 UMB Bank n.a., 5.70%, due 4-1-97
(Collateralized by $2,512,927 U.S.
Treasury Notes, 6.50%, due 5-15-97) 2,500,000 2,500,000
TOTAL INVESTMENTS - 99.45% $ 19,171,580 19,478,593
Other assets less liabilities - 0.55% 108,012
TOTAL NET ASSETS - 100.00%
(equivalent to $11.73 per share; 10,000,000 shares
of $1.00 par value capital shares authorized;
1,669,497 shares outstanding) $ 19,586,605
For federal income tax purposes, the identified cost of investments owned at
March 31, 1997, was $19,171,580.
Net unrealized appreciation for federal income tax purposes was $307,013,
which is comprised of unrealized appreciation of $627,231 and unrealized
depreciation of $320,218 .
* Securities on which no cash dividends were paid during the preceding twelve
months.
See accompanying Notes to Financial Statements.
BUFFALO
USA GLOBAL FUND
STATEMENT OF NET ASSETS
March 31, 1997
MARKET
SHARES COMPANY COST VALUE
COMMON STOCKS - 85.55%
BASIC MATERIALS - 2.76%
11,000 Aluminum Company of America $ 804,550 $ 748,000
CAPITAL GOODS - 24.34%
12,300 Air Products & Chemicals, Inc. 839,137 834,863
1,900 Boeing Co. 202,972 187,388
26,400 Cincinnati Milacron, Inc. 572,433 495,000
16,000 Cummins Engine, Inc. 730,663 820,000
5,250 Fluor Corp. 345,188 275,625
13,000 Ingersoll-Rand Co. 601,346 567,125
13,000 Rockwell International Corp. 783,850 843,375
13,000 Teleflex, Inc. 691,525 687,375
5,726 TRW, Inc. 306,580 296,320
12,900 United Technologies Corp. 840,697 970,725
14,700 York International Corp. 736,260 615,562
6,650,651 6,593,358
CONSUMER CYCLICAL - 5.95%
3,000 Exide Corp. 70,275 49,125
15,500 Goodyear Tire & Rubber Co. 786,025 809,875
15,500 Interface Inc. Cl. A 224,813 388,469
14,900 Modine Manufacturing Co. 395,295 365,050
1,476,408 1,612,519
CONSUMER STAPLES - 12.78%
6,500 CPC International, Inc. 497,488 533,000
8,200 Coca-Cola Co. 400,523 458,175
16,750 McDonald's Corp. 760,313 791,437
22,500 Sara Lee Corp. 889,125 911,250
12,700 Tupperware Corp. 651,760 425,450
5,900 Wrigley, (Wm.) Jr. Co. 317,682 344,412
3,516,891 3,463,724
ENERGY - 3.71%
4,500 Mobil Corp. 541,387 587,812
3,000 Schlumberger, Ltd. 277,112 321,750
2,500 Triton Energy Ltd.* 131,825 96,875
950,324 1,006,437
FINANCIAL - 6.17%
17,500 AFLAC, Inc. 614,702 656,250
6,800 American International Group, Inc. 719,570 798,150
2,000 Citicorp 187,425 216,500
1,521,697 1,670,900
HEALTH CARE - 10.21%
17,000 Allergan, Inc. $ 550,496 $ 495,125
7,200 Bristol-Myers Squibb Co. 370,628 424,800
13,000 Johnson & Johnson 679,113 687,375
8,400 Pfizer, Inc. 656,995 706,650
6,200 Schering-Plough Corp. 393,653 451,050
2,650,885 2,765,000
TECHNOLOGY - 19.63%
20,500 AMP, Inc. 814,588 704,688
18,000 Analog Devices, Inc. 364,544 405,000
2,000 Applied Materials, Inc.* 103,375 92,750
6,250 Bay Networks, Inc.* 144,156 111,719
7,000 Cisco Systems, Inc.* 413,763 336,875
17,000 Dallas Semiconductor Corp. 381,740 450,500
7,000 Hewlett-Packard Co. 369,625 372,750
8,750 Informix Corp.* 152,438 132,344
16,000 Integrated Device Technology, Inc.* 159,062 160,000
3,000 Intel Corp. 286,125 417,375
9,000 Interlink Computer Sciences, Inc. 90,000 95,625
4,900 Microsoft Corp.* 340,581 449,269
2,000 Motorola, Inc. 118,900 120,750
18,000 National Semiconductor Corp.* 355,087 495,000
4,000 Oracle Systems Corp.* 155,637 182,500
16,000 Seagate Technology* 517,970 718,000
7,000 Technology Modeling Associates, Inc.* 84,000 72,625
4,851,591 5,317,770
TOTAL COMMON STOCKS 22,422,997 23,177,708
FACE MARKET
AMOUNT DESCRIPTION COST VALUE
REPURCHASE AGREEMENT - 13.84%
$ 3,750,000 UMB Bank n.a., 5.70%, due 4-1-97
(Collateralized by $3,769,391 U.S.
Treasury Notes, 6.50%, due 5-15-97) $ 3,750,000 $ 3,750,000
TOTAL INVESTMENTS - 99.39% 26,172,997 26,927,708
Other assets less liabilities - 0.61% 163,973
TOTAL NET ASSETS - 100.00%
(equivalent to $14.10 per share;
10,000,000 shares of $1.00 par value
capital shares authorized; 1,921,867 shares outstanding) 27,091,681
For federal income tax purposes, the identified cost of investments owned at
March 31, 1997, was $26,176,865.
Net unrealized appreciation for federal income tax purposes was $750,843,
which is comprised of unrealized appreciation of $1,772,921and unrealized
depreciation of $1,022,078.
* Securities on which no cash dividends were paid during the preceding twelve
months.
See accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS
AND LIABILITIES
March 31, 1997
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (identified cost $43,175,193,
$20,339,466, $19,171,580, and $26,172,997, respectively) $ 44,778,630 20,047,928 19,478,593 26,927,708
Cash 7,422 59,115 331,717 665,120
Dividends receivable 27,003 31,941 5,408 16,793
Interest receivable 766,973 - 445,142 -
Receivables for investments sold 178,080 70,310 - 42,186
Total assets 45,758,108 20,209,294 20,260,860 27,651,807
LIABILITIES AND NET ASSETS:
Payable for investments purchased 2,009,455 110,975 674,255 533,243
Call options written - 29,197 - 26,883
Total liabilities 2,009,455 140,172 674,255 560,126
NET ASSETS 43,748,653 20,069,122 19,586,605 27,091,681
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) 40,281,711 18,948,718 19,005,077 25,129,731
Accumulated undistributed income:
Undistributed net investment income 38,454 62,982 33,861 47,632
Accumulated net realized gain on investment transactions 1,825,051 1,305,856 240,654 1,085,376
Net unrealized appreciation (depreciation)
in value of investments 1,603,437 (248,434) 307,013 828,942
NET ASSETS APPLICABLE TO OUTSTANDING SHARES 43,748,653 20,069,122 19,586,605 27,091,681
Capital shares, $1.00 par value
Authorized 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding 4,139,039 1,441,124 1,669,497 1,921,867
NET ASSET VALUE PER SHARE $ 10.57 $ 13.93 $ 11.73 $ 14.10
See accompanying Notes to Financial Statements.
</TABLE>
STATEMENTS
OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31, 1997
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 387,991 $ 192,228 $ 40,624 $ 172,123
Interest 2,852,164 143,142 1,118,735 111,310
3,240,155 335,370 1,159,359 283,433
Expenses (Note 2):
Management fees 444,591 135,178 129,964 146,590
Registration fees and expenses 26,132 19,911 19,805 20,118
470,723 155,089 149,769 166,708
Net investment income 2,769,432 180,281 1,009,590 116,725
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 32,621,058 13,074,209 4,381,174 11,019,393
Cost of investments sold 28,645,384 10,761,018 3,947,161 9,274,816
Net realized gain from sales of investments 3,975,674 2,313,191 434,013 1,744,577
Gain from option contracts written 234,807 97,244 - 134,146
Net realized gain from investment transactions 4,210,481 2,410,435 434,013 1,878,723
Unrealized appreciation (depreciation) on investments:
Beginning of year 3,194,398 314,492 84,281 209,331
End of year 1,603,437 (248,434) 307,013 828,942
Increase (decrease) in net unrealized
appreciation (depreciation) on investments (1,590,961) (562,926) 222,732 619,611
Net gain on investments 2,619,520 1,847,509 656,745 2,498,334
Increase in net assets resulting from operations $ 5,388,952 $ 2,027,790 $ 1,666,335 $ 2,615,059
See accompanying Notes to Financial Statements.
</TABLE>
STATEMENTS OF CHANGES
IN NET ASSETS
BALANCED FUND
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,769,432 $ 2,770,884
Net realized gain from investment transactions 4,210,481 1,933,420
Unrealized appreciation (depreciation)
of investments during the period (1,590,961) 2,451,634
Net increase in net assets resulting from operations 5,388,952 7,155,938
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (2,730,978) (2,863,777)
In excess of net investment income - (14,629)
Net realized gain from investment transactions (2,986,358) (1,616,588)
Total distributions to shareholders (5,717,336) (4,494,994)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 11,993,517 17,922,485
Net asset value of shares issued for
reinvestment of distributions 5,290,321 4,322,228
17,283,838 22,244,713
Cost of shares repurchased (23,280,181) (13,084,808)
Net increase (decrease)
from capital share transactions (5,996,343) 9,159,905
Total increase (decrease) in net assets (6,324,727) 11,820,849
NET ASSETS:
Beginning of period 50,073,380 38,252,531
End of period
(including undistributed net investment income of
$38,454, $62,982, $33,861, and $47,632, respectively) $ 43,748,653 $ 50,073,380
*Shares issued and repurchased:
Number of shares sold 1,078,525 1,695,938
Number of shares issued for reinvestment of distributions 484,825 413,155
Number of shares repurchased (2,102,645) (1,234,579)
Net increase (decrease) (539,295) 874,514
**Distributions to shareholders:
Income dividends per share $ .707 $ .678
Capital gains distribution per share $ .833 $ .402
</TABLE>
EQUITY FUND
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
YEAR ENDED MAY 19, 1995 (INCEPTION)
MARCH 31, 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 180,281 $ 75,612
Net realized gain from investment transactions 2,410,435 219,023
Unrealized appreciation (depreciation) of investments
during the period (562,926) 314,492
Net increase in net assets resulting from operations 2,027,790 609,127
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (117,299) (76,262)
In excess of net investment income - (475)
Net realized gain from investment transactions (1,104,579) (219,023)
Total distributions to shareholders (1,221,878) (295,760)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 13,787,512 5,779,023
Net asset value of shares issued for
reinvestment of distributions 1,166,645 276,620
14,954,157 6,055,643
Cost of shares repurchased (1,636,346) (524,262)
Net increase (decrease) from capital share transactions 13,317,811 5,531,381
Total increase (decrease) in net assets 14,123,723 5,844,748
NET ASSETS:
Beginning of period 5,945,399 100,651
End of period
(including undistributed net investment income of
$38,454, $62,982, $33,861, and $47,632, respectively) $ 20,069,122 $ 5,945,399
*Shares issued and repurchased:
Number of shares sold 995,159 492,584
Number of shares issued for reinvestment of distributions 80,961 22,492
Number of shares repurchased (116,210) (43,862)
Net increase (decrease) 959,910 471,214
**Distributions to shareholders:
Income dividends per share $ .1046 $ .203
Capital gains distribution per share $ .9854 $ .514
</TABLE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
YEAR ENDED MAY 19, 1995 (INCEPTION)
MARCH 31, 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,009,590 $ 274,689
Net realized gain from investment transactions 434,013 79,136
Unrealized appreciation (depreciation) of investments
during the period 222,732 84,281
Net increase in net assets resulting from operations 1,666,335 438,106
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (975,729) (275,340)
In excess of net investment income - (694)
Net realized gain from investment transactions (193,359) (79,136)
Total distributions to shareholders (1,169,088) (355,170)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 13,872,995 7,417,075
Net asset value of shares issued for
reinvestment of distributions 1,036,474 316,259
14,909,469 7,733,334
Cost of shares repurchased (3,120,776) (616,256)
Net increase (decrease) from
capital share transactions 11,788,693 7,117,078
Total increase (decrease) in net assets 12,285,940 7,200,014
NET ASSETS:
Beginning of period 7,300,665 100,651
End of period
(including undistributed net investment income of
$38,454, $62,982, $33,861, and $47,632, respectively) $ 19,586,605 $ 7,300,665
*Shares issued and repurchased:
Number of shares sold 1,192,596 671,559
Number of shares issued for reinvestment of distributions 88,882 28,449
Number of shares repurchased (266,952) (55,037)
Net increase (decrease) 1,014,526 644,971
Distributions to shareholders:
Income dividends per share $ .798 $ .534
Capital gains distribution per share $ .147 $ .134
</TABLE>
USA GLOBAL FUND
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
YEAR ENDED MAY 19, 1995 (INCEPTION)
MARCH 31, 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 116,725 $ 49,722
Net realized gain from investment transactions 1,878,723 149,721
Unrealized appreciation (depreciation) of investments
during the period 619,611 209,331
Net increase in net assets resulting from operations 2,615,059 408,774
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (69,093) (50,373)
In excess of net investment income - (323)
Net realized gain from investment transactions (793,347) (149,721)
Total distributions to shareholders (862,440) (200,417)
INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 21,080,722 5,092,206
Net asset value of shares issued for
reinvestment of distributions 825,953 190,594
21,906,675 5,282,800
Cost of shares repurchased (1,581,818) (577,603)
Net increase (decrease) from capital share transactions 20,324,857 4,705,197
Total increase (decrease) in net assets 22,077,476 4,913,554
NET ASSETS:
Beginning of period 5,014,205 100,651
End of period
(including undistributed net investment income of
$38,454, $62,982, $33,861, and $47,632, respectively) $ 27,091,681 $ 5,014,205
*Shares issued and repurchased:
Number of shares sold 1,536,130 466,457
Number of shares issued for reinvestment
of distributions 58,002 17,014
Number of shares repurchased (113,650) (52,086)
Net increase (decrease) 1,480,482 431,385
Distributions to shareholders:
Income dividends per share $ .0528 $ .1465
Capital gains distribution per share $ .6072 $ .392
</TABLE>
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
BALANCED FUND
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE PERIOD FROM
Condensed data for a share of capital YEAR ENDED YEAR ENDED AUGUST 12, 1994 (INCEPTION)
stock outstanding throughout the period. MARCH 31, 1997 MARCH 31, 1996 TO MARCH 31, 1995
</CAPTION>
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.70 $ 10.06 $ 10.07
Income from investment operations:
Net investment income .72 .65 .32
Net gains or (losses) on securities
(both realized and unrealized) .69 1.07 (.03)
Total from investment operations 1.41 1.72 .29
Less distributions:
Dividends from net investment income (.71) (.68) (.30)
Distributions from capital gains (.83) (.40) -
Total distributions (1.54) (1.08) (.30)
Net asset value, end of period $ 10.57 $ 10.70 $ 10.06
Total return 13.22% 17.87% 2.91%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 44 $ 50 $ 38
Ratio of expenses to average net assets 1.05% 1.11% 1.06%
Ratio of net investment income to average net assets 6.20% 6.27% 8.89%
Portfolio turnover rate 56% 61% 33%
* Average commission paid per equity share traded $ .0420 - -
</TABLE>
Ratios for the Funds' initial periods of operations are annualized.
Total return is not annualized.
* Disclosure required for fiscal years beginning after September 1, 1995.
EQUITY FUND
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
Condensed data for a share of capital YEAR ENDED MAY 19, 1995 (INCEPTION)
stock outstanding throughout the period. MARCH 31, 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C>
Net asset value, beginning of period $ 12.36 $ 10.14
Income from investment operations:
Net investment income .15 .21
Net gains or (losses) on securities
(both realized and unrealized) 2.51 2.72
Total from investment operations 2.66 2.93
Less distributions:
Dividends from net investment income (.10) (.20)
Distributions from capital gains (.9) (.51)
Total distributions (1.09) (.71)
Net asset value, end of period $ 13.93 $ 12.36
Total return 21.23% 29.11%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 20 $ 6
Ratio of expenses to average net assets 1.16% 1.06%
Ratio of net investment income to average net assets 1.35% 2.55%
Portfolio turnover rate 123% 63%
* Average commission paid per equity share traded $ .0492 -
</TABLE>
Ratios for the Funds' initial periods of operations are annualized.
Total return is not annualized.
* Disclosure required for fiscal years beginning after September 1, 1995.
HIGH YIELD FUND
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
Condensed data for a share of capital YEAR ENDED MAY 19, 1995 (INCEPTION)
stock outstanding throughout the period. MARCH 31, 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C>
Net asset value, beginning of period $ 11.15 $ 10.14
Income from investment operations:
Net investment income .82 .53
Net gains or (losses) on securities
(both realized and unrealized) .71 1.14
Total from investment operations 1.53 1.67
Less distributions:
Dividends from net investment income (.80) (.53)
Distributions from capital gains (.15) (.13)
Total distributions (.95) (.66)
Net asset value, end of period $ 11.73 $ 11.15
Total return 14.02% 16.67%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 20 $ 7
Ratio of expenses to average net assets 1.13% 1.03%
Ratio of net investment income to average net assets 7.63% 7.40%
Portfolio turnover rate 39% 25%
* Average commission paid per equity share traded $ - -
</TABLE>
Ratios for the Funds' initial periods of operations are annualized.
Total return is not annualized.
* Disclosure required for fiscal years beginning after September 1, 1995.
USA GLOBAL FUND
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FROM
Condensed data for a share of capital YEAR ENDED MAY 19, 1995 (INCEPTION)
stock outstanding throughout the period. MARCH 31, 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C>
Net asset value, beginning of period $ 11.36 $ 10.14
Income from investment operations:
Net investment income .08 .15
Net gains or (losses) on securities
(both realized and unrealized) 3.32 1.61
Total from investment operations 3.40 1.76
Less distributions:
Dividends from net investment income (.05) (.15)
Distributions from capital gains (.61) (.39)
Total distributions (.66) (.54)
Net asset value, end of period $ 14.10 $ 11.36
Total return 29.87% 17.49%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 27 $ 5
Ratio of expenses to average net assets 1.13% 1.06%
Ratio of net investment income to average net assets .79% 1.94%
Portfolio turnover rate 88% 123%
* Average commission paid per equity share traded $ .0486 -
</TABLE>
Ratios for the Funds' initial periods of operations are annualized.
Total return is not annualized.
* Disclosure required for fiscal years beginning after September 1, 1995.
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. The Buffalo
Balanced, Equity and High Yield Funds designate $985,770, $44,840 and $13,156,
respectively as capital gain dividends.
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 year ended March 31, 1997, (excluding
maturities of short-term commercial notes and repurchase agreements) are as
follows:
Balanced Fund
Purchases $ 23,221,577
Proceeds from sales 32,621,058
Equity Fund
Purchases $ 24,700,715
Proceeds from sales 13,074,209
High Yield Fund
Purchases $ 14,408,088
Proceeds from sales 4,381,174
USA Global Fund
Purchases $ 27,923,531
Proceeds from sales 11,019,393
4. COVERED CALL OPTIONS:
The following Covered Call Options Written were outstanding as of March 31,
1997:
Shares
Common Stocks/ Subject to
Expiration Date/Exercise Price Call Value
Equity Fund
CPC International, Inc./Apr/85 5,700 $ 1,247
Compaq Computer Corp./Apr/85 3,100 2,325
Manpower, Inc./Apr/35 9,000 16,875
Union Pacific Corp./Apr/60 10,000 8,750
Total (premiums received $72,301) $ 29,197
Value of shares subject to call $1,596,438
USA Global Fund
Cincinnati Milacron, Inc./Apr/20 5,000 $ 938
Coca-Cola Co./Apr/60 8,200 3,075
CPC International, Inc./Apr/85 6,500 1,422
Cummins Engine Inc./Apr/55 16,000 3,501
Informix Corp./Apr/17.5 2,700 422
Johnson & Johnson/Apr/60 9,000 2,812
Motorola, Inc./Apr/60 2,000 4,563
Tupperware Corp./Apr/35 12,700 7,938
Wrigley (Wm.) Jr. Co./Apr/60 5,900 2,212
Total (premiums received $101,114) $ 26,883
Value of shares subject to call $3,312,250
Transactions in call options written for the year ended
March 31, 1997 were as follows:
Number of Premium
Contracts Amount
Balanced Fund
Balance at March 31, 1996 800 $ 32,111
Opened 3,715 202,695
Expired (3,721) (167,051)
Exercised (794) (67,755)
Balance at March 31, 1997 - $ -
Equity Fund
Balance at March 31, 1996 50 $ 1,495
Opened 2,468 168,050
Expired (1,576) (69,582)
Exercised (664) (27,662)
Balance at March 31, 1997 278 $ 72,301
USA Global Fund
Balance at March 31, 1996 10 $ 611
Opened 1,648 234,649
Expired (913) (91,109)
Exercised (65) (43,037)
Balance at March 31, 1997 680 $ 101,114
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, 1997, and the related statements
of operations for the year then ended and the statements of changes in net
assets for each of the two years in the period then ended (except for Equity
Fund, High Yield Fund and USA Global Fund which are for the year ended March
31, 1997 and the period May 19, 1995 (inception) through March 31, 1996), and
the financial highlights for each of the fiscal periods since 1995. 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, 1997, 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, 1997, 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 30, 1997
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
Jones & Babson
2440 Pershing Road
Kansas City, Missouri 64108-2518
1-800-49-BUFFALO
(1-800-492-8332)
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