BUFFALO
FUNDS
Balanced Fund
Equity Fund
High Yield Fund
USA Global Fund
Annual Report
March 31, 1998
MESSAGE
To Our Shareholders
Fiscal year ending March 31, 1998 was a successful period for the Buffalo
Funds. During the twelve month period, the group added about 4,000
shareholders and $97 million in assets under management. Total distribution
for the Funds for the fiscal year are as follows:
Investment Short-Term Long-Term
Income Capital Gains Capital Gains Total
Balanced $ .6501 $ .3321 $ .5758 $ 1.5580
Equity $ .0977 $ 1.4673 $ .3513 $ 1.9163
High Yield $ .8004 $ .2217 $ .0148 $ 1.0369
USA Global $ .0653 $ .6978 $ .3179 $ 1.0810
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 10%, 12%, 7% and 28%, respectively.
The balance of this report will be the Portfolio Management Review, in which
the Funds' investment counsel, Kornitzer Capital Management, Inc. will discuss
fund performance, stock market and economic trends, as well as other matters
of interest to our investors.
We welcome the new shareholders who have joined us in the past year, and
appreciate the opportunity to serve all of our investors. We would be happy to
answer your questions and comments, or to provide information about your
respective accounts.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Portfolio Management Review
We want to thank all our fellow shareholders for their continued support. We
are pleased to report the twelve month Fund returns are strong and to announce
the formation of our fifth Fund, the Buffalo Small Cap Fund. The new Fund, now
open to investors, focuses on the stocks of smaller companies with an average
market capitalization of $1 billion or less. This Fund will be collectively
managed by the research staff at Kornitzer Capital Management, Inc. (KCM) and
will invest in both growth and value oriented companies.
We feel the time for starting this Fund is ideal. Over the past five years
large company stocks have outpaced small company stocks by nearly 5% annually
(measuring the S&P 500 versus the S&P 600 smallcap index). As a result, we are
finding many good values in the smallcap segment. With a strong U.S. economy
and a lower capital gains tax, we believe the relative performance of small
company stocks should soon improve, perhaps meaningfully. We encourage
potential investors to order and read the Small Cap Fund prospectus to learn
more about the risks of the Fund, the fees and the historical performance of
KCM managing small cap assets.
Now let us talk about the financial markets in more detail. In our opinion,
the U.S. escaped a serious problem by leading the efforts to contain the Asian
financial crisis. Had the collapse of currencies and flight of capital spread
to China, South America, Latin America and possibly even Japan, U.S. markets
would have fared much worse. Those Asian countries most affected by the crisis
are now experiencing economic recessions. Without containment much of the
world might now be headed for recession. This was a close call, don't let
anyone tell you it wasn't. There still remains some risk that the crisis could
repeat itself as both Japan and Indonesia are resisting needed reforms. At
present we believe the situation is under control, but should be monitored
closely.
While the International Monetary Fund (IMF) has been criticized for the strict
reforms it ordered on various Asian countries in exchange for monetary aid,
the speed of their actions and the strong role they played must be commended.
Influenced by the IMF, the U.S. Treasury Department and top officials of other
developed countries, major financial and regulatory reforms are now taking
place in Korea and Thailand. Some of the key reforms include the elimination
of government directed loans by private banks, the closing of bankrupt banks
and the ability of foreign companies to purchase majority stakes in Korean and
Thai companies. These reforms have restored confidence in the currencies and
stock markets of both countries with each having rebounded from their low
point. Long-term these reforms are positive for U.S. companies that want to
enter these markets to do business. These markets should be more open to
foreign investment and foreign control with less political corruption.
Turning back to the U.S. we are witnessing nothing less than boom conditions.
The economy is booming - only the slowdown in exports is keeping Gross
Domestic Product (GDP) from growing in excess of 5%. The stock market is
booming. The real estate market is heating up. How much longer this party
lasts or with what vigor it will continue is now partly in the hands of the
Federal Reserve. With the Asian crisis now seemingly in the recovery stage the
Fed will likely redirect its attention back to the domestic economy.
The next move by the Fed will be very telling because it may signal whether
they believe there are structural changes taking place in the economy that
will allow for faster growth without increased inflation. This camp, which may
include Chairman Alan Greenspan, believes the economy is much less prone to
inflation than previously thought. Some of the reasons for this sustainable
change include the technology revolution, global competition, the decline of
unions, deregulation of most industries, managed healthcare and the continuing
high level of business investment. The traditional central banker argument
would be that it is dangerous to wait until inflation pressures build before
raising interest rates. Interest rates should be used as a preventive tool
when the economy is exhibiting signs of strength. No one knows which camp will
win, but a move to raise rates would likely lead to a short-term correction in
the stock market.
Over the past year KCM has remained committed to its philosophy of stressing
consistent returns and paying close attention to the risk profile of all the
Funds. As you will read in the upcoming paragraphs on each of the Funds, KCM
positioned the Funds in a more defensive position during the months leading up
to the Asian crisis. This meant a bit more cash than usual and less exposure
to companies doing business in Asia. Looking back, the U.S. market experienced
only a minor correction and bounced back with amazing speed. However, if we
faced the same situation today our strategy would be no different. The risk
level in the market was very high and the outcome was impossible to predict.
Stocks could have easily dropped 20% versus rising 20% as they eventually did.
With the world macroeconomic picture now more settled our strategy as we move
forward in 1998 is to intensify our research efforts and focus on picking
attractive stocks and bonds. The KCM research team has recently embarked on an
effort to do in-depth reviews of industries with high growth potential. One
recent review was done on the genomics (study of human genes) industry - a
high technology industry which represents the next evolutionary step in
disease management and prevention. Our findings here may lead to numerous
investments in the Buffalo Funds, particularly the new Small Cap Fund, which
could add strong growth potential long-term. As the year progresses, we intend
to target other high growth industries for proprietary research to supplement
our ongoing efforts.
The following is a snapshot and comment on how each of the Buffalo Funds
performed over the past 12 months.
Buffalo Balanced Fund
Buffalo Balanced Fund generated a total return (price change and reinvested
distributions) of 24.76% for the twelve months ended March 31, 1998. The
average balanced fund, as measured by Lipper Analytical Services, registered a
return of 28.13% for the period. It is important to note that this performance
for the Buffalo Balanced Fund was achieved despite an ending fund allocation
of only 31% to common stocks during a strong period for equities. This
allocation is well below the average balanced fund which typically invests
over 50% of assets in common stocks according to Morningstar, Inc. The Fund
carried little cash during the period, but at times allocated as little as 25%
to stocks to reduce risk during the Asian crisis.
The Balanced Fund's asset allocation continues to be driven by a philosophy
which emphasizes consistent performance and a low level of fund price
volatility. We continue to recommend this Fund for those investors wanting to
reduce, but not eliminate exposure to stocks. The Fund's current 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 and
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
Kmart, Bethlehem Steel, McDermott International, Loral Space & Communications
and Rent-Way. Strong equity performers for the period included companies such
as Beneficial Corp., Chase Manhattan Corp., Fleet Financial, PMI Group and
Texas Industries.
GRAPH -- Buffalo Balanced Fund versus S&P 500
and Merrill Lynch Bond Fund Index Weighted Average
Average Annual compounded total returns for one year, three years and the
life of the Fund (inception August 12, 1994) as of March 31, 1998, were
24.76%, 18.52% and 15.96%, 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 36.97% for the twelve months ended March 31, 1998. This
return lagged the unmanaged Standard & Poor's 500 return of 47.96% and the
38.93% return for the average capital appreciation fund, as measured by Lipper
Analytical Services.
The Fund's underperformance for the twelve month period came largely in the
September 1997 to March 1998 timeframe. During this period the Fund had as
much as 20% of assets in cash as a defensive measure to the threat of the
Asian crisis. The Fund also reduced holdings of companies with significant
business exposure to Asia.
Top stocks for the period included names such as Allstate, Merck, A T & T,
Sara Lee and Bestfoods. The Fund now carries a minimal cash position and is
back to the core focus of buying a combination of both growth and value
stocks. Individual stock-picking will be the key to performance for the coming
year.
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, 1998, were 36.97%
and 30.45%. 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 18.63% for the twelve months ended March 31, 1998. The
Lipper High Yield Bond Fund Index provided a return of 16.94% for the period.
Many of the same convertible 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 bonds such as Bay Networks and
Argosy Gaming.
The Fund continues to bolster its large holdings of high yielding convertible
bonds in the technology sector. Another area of recent interest is the copper
industry which is terribly out of favor, but showing early signs of a
turnaround in the supply/demand equation. New purchases here include Freeport
Copper & Gold and Cypress Amax Minerals. The Fund ended the period with a
large cash position. This position was not strategic, but was the result of a
large inflow of new cash just days before March 31. This cash is now being
invested at a steady pace.
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, 1998, were 18.63%
and 17.24%. 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 31.33% for the twelve months ended March 31, 1998. These
results lagged the 47.96% return of the unmanaged Standard & Poor's 500 and
the 38.93% return for the average capital appreciation fund, as measured by
Lipper Analytical Services. The Fund must be primarily compared to U.S.
benchmarks because it owns only U.S. stocks. However, the Fund has a strong
international component since all companies in the Fund must receive at least
40% of sales or net income from outside the United States.
Much like the Equity Fund the USA Global Fund suffered from a larger than
normal cash position during a portion of the period. This cash position
reached as high as 22% of assets during the highest risk period of the Asian
crisis. The Fund also restructured some of its holdings in anticipation of the
crisis.
We believe the companies in the Fund could be long-term beneficiaries of the
many positive reforms taking place throughout Asia. We say this with
confidence because the Fund concentrates on the type of U.S. companies most
likely to already have or soon will have major investments in these countries.
We have rarely been more optimistic about the long-term prospects for U.S.
multinational companies. Down the road we believe the Asian crisis will be
viewed as a precursor to freer markets throughout the region and as a major
buying opportunity for these companies.
Some of the Fund's top performers for the period included AFLAC, Bristol-Myers
Squibb, Cisco, Interface and Schering-Plough.
We look forward to reviewing all the Funds 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 helping
you achieve 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, 1998, were 31.33%
and 27.43%. 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, 1998
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C>
COMMON STOCKS - 31.19%
BASIC MATERIALS - 2.24%
18,400 Republic Group, Inc. $ 356,866 $ 374,900
15,000 Texas Industries, Inc. 628,797 867,188
985,663 1,242,088
CAPITAL GOODS - 3.80%
15,000 Blount International, Inc. Cl. A 348,198 446,250
15,000 Elcor Corp. 390,299 403,125
7,500 Lockheed Martin Corp. 730,710 843,750
7,500 TRW, Inc. 427,656 413,436
1,896,863 2,106,561
CONSUMER CYCLICAL - 4.11%
16,000 Dillard's, Inc. Cl. A 578,925 591,000
8,000 Interface, Inc. Cl. A 318,500 332,500
50,000 Kmart Corp.* 652,750 834,375
15,000 Modine Manufacturing Co. 442,375 521,250
1,992,550 2,279,125
CONSUMER STAPLES - 1.04%
15,000 Dial Corp. 245,750 359,062
15,000 Pilgrim's Pride Corp. 206,685 218,438
452,435 577,500
ENERGY - 7.40%
7,500 Coastal Corp. 283,500 503,906
5,000 Enron Corp. 199,000 231,875
20,000 McDermott (J. Ray) SA* 757,850 842,500
25,000 McDermott International, Inc.* 711,228 1,032,813
10,000 Triton Energy Ltd. Cayman Islands Cl. A* 283,687 367,500
15,500 United Meridian Corp.* 484,400 468,875
86,200 Wainoco Oil Corp.* 654,842 651,888
3,374,507 4,099,357
FINANCIAL - 6.70%
7,500 Allstate Corp. 553,527 689,531
4,000 American Financial Group, Inc. 167,950 173,500
7,500 Beneficial Corp. 602,320 932,344
5,000 Chase Manhattan Corp. 517,000 674,375
7,500 Fleet Financial Group, Inc. 540,547 637,969
7,500 PMI Group, Inc. 446,625 605,625
2,827,969 3,713,344
HEALTH CARE - 1.29%
7,500 American Home Products Corp. 587,656 715,313
TECHNOLOGY - 3.41%
15,000 Diebold, Inc. 530,875 660,000
10,000 GTE Corp. 496,344 598,750
25,000 Seagate Technology, Inc.* 889,875 631,250
1,917,094 1,890,000
TRANSPORTATION & SERVICES - 1.20%
22,500 Southwest Airlines Co. 365,750 665,156
TOTAL COMMON STOCKS 14,400,487 17,288,444
CONVERTIBLE PREFERRED STOCKS - 10.57%
16,500 Bethlehem Steel Corp.,
$3.50, 144A 683,813 783,750
5,000 Cyprus Amax Minerals Co.,
$4, Series A* 248,125 242,500
53,900 ICO Inc.,
dep. shrs. repstg. 1/4 pfd. cv. 1,126,889 1,195,906
14,900 Kmart Financing I,
7.750% tr. cv. pfd. secs. 835,149 934,975
10,000 Loral Space & Communications Ltd.,
Series C 494,550 752,500
10,000 McDermott International, Inc.,
Series A 303,500 413,750
26,210 McDermott International, Inc.,
Series C 1,100,622 1,536,561
TOTAL CONVERTIBLE PREFERRED STOCKS 4,792,648 5,859,942
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
CORPORATE BONDS - 27.07%
$ 690,000 Argosy Gaming Co.,
13.25% 1st. mtg. note, due 6-1-04 627,800 769,350
1,500,000 Callon Petroleum Co. Delaware,
10.125% sr. sub. note, due 9-15-02 1,491,360 1,573,859
800,000 Clark Material Handling Co.,
10.75% sr. note, due 11-15-06 800,000 862,000
726,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 625,420 752,317
750,000 Fairchild Semiconductor Corp.,
10.125% sr. sub. note, due 3-15-07 748,750 780,000
1,000,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 977,500 1,042,500
1,785,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 1,757,475 1,856,400
250,000 ICO, Inc.,
10.375% sr. note, due 6-1-07 250,000 262,500
1,000,000 Kaiser Aluminum & Chemical Corp.,
9.875% sr. note, due 2-15-02 985,175 1,043,750
250,000 Kmart Corp.,
8.375% note, due 7-1-22 239,000 253,664
750,000 Nationwide Credit, Inc.,
10.25% sr. sub. note 144A, due 1-15-08 750,000 772,500
750,000 Nortek Inc.,
9.875% sr. sub. note, due 3-1-04 714,567 780,937
415,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 396,437 436,788
500,000 Purina Mills, Inc.,
9.00% sr. sub. note 144A, due 3-15-10 500,000 518,750
675,000 Rutherford-Moran Oil Corp.,
10.75% sr. sub. note 144A, due 10-1-04 675,625 705,375
150,000 Stone Container Corp.,
10.75% 1st. mtg. note, due 10-1-02 149,029 160,500
100,000 Triangle Pacific Corp. Delaware,
10.50% sr. note, due 8-1-03 99,500 105,500
1,000,000 United Refining Co.,
10.75% sr. note, Series A, due 6-15-07 1,000,000 1,055,000
1,300,000 Wiser Oil Co. Delaware,
9.50% sr. sub. note, due 5-15-07 1,265,750 1,270,750
TOTAL CORPORATE BONDS 14,053,388 15,002,440
CONVERTIBLE CORPORATE BONDS - 28.48%
1,500,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 885,000 1,246,875
1,099,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 966,025 1,013,827
1,870,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 1,846,813 1,715,725
300,000 Danka Business Systems PLC,
6.75% sub. note, due 4-1-02 283,500 288,375
2,292,000 Exide Corp.,
2.90% sr. sub. note, due 12-15-05 1,420,980 1,418,175
1,500,000 HMT Technology Corp.,
5.75% sub. note, due 1-15-04 1,330,656 1,282,500
1,658,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 1,423,940 1,485,982
1,500,000 Intevac, Inc.,
6.50% sub. note 144A, due 3-1-04 1,315,938 1,164,376
700,000 Key Energy Group, Inc.,
5.00% sub. note 144A, due 9-15-04 637,552 576,875
500,000 Moran Energy Inc.,
8.75% sub. deb., due 1-15-08 431,438 492,500
500,000 National Semiconductor Corp.,
6.50% sub. note 144A, due 10-1-02 493,125 484,375
160,000 Oryx Energy Co.,
7.50% sub. deb., due 5-15-14 134,063 160,400
1,300,000 Rent-Way, Inc.,
7.00% sub. deb., due 2-1-07 1,237,500 2,255,500
415,000 Sun, Inc.,
6.75% sub. deb., due 6-15-12 412,553 439,381
127,000 Swift Energy Co.,
6.25% sub. note, due 11-15-06 124,972 124,460
985,000 Synoptics Communications, Inc.,
5.25% sub. deb., due 5-15-03 872,363 964,069
680,000 VLSI Technology, Inc.,
8.25% sub. note, due 10-1-05 650,729 675,750
TOTAL CONVERTIBLE CORPORATE BONDS 14,467,147 15,789,145
REPURCHASE AGREEMENT - 1.08%
600,000 UMB Bank, n.a., 5.38%, due 4-1-98
(Collateralized by $612,588
U.S.Treasury Notes, 6.25%, due 4-30-01) $ 600,000 $ 600,000
TOTAL INVESTMENTS - 98.39% $ 48,313,670 54,539,971
Other assets less liabilities - 1.61% 893,884
TOTAL NET ASSETS -100.00%
(equivalent to $11.50 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
4,820,580 shares outstanding) $ 55,433,855
</TABLE>
For federal income tax purposes, the identified cost of investments
owned at March 31, 1998, was $48,313,670.
Net unrealized appreciation for federal income tax purposes was
$6,226,301, which is comprised of unrealized appreciation
of $6,926,800 and unrealized depreciation of $700,499.
*Non-income producing security
See accompanying Notes to Financial Statements.
BUFFALO
EQUITY FUND
STATEMENT OF NET ASSETS
March 31, 1998
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C>
COMMON STOCKS - 96.16%
BASIC MATERIALS - 5.01%
18,800 Georgia Gulf Corp. $ 563,678 $ 509,950
2,000 Praxair, Inc. 103,850 102,875
25,500 Sigma Aldrich Corp. 891,476 949,875
3,500 Texas Industries, Inc. 153,450 202,344
1,712,454 1,765,044
CAPITAL GOODS - 7.13%
12,800 Elcor Corp. 344,677 344,000
1,500 Lockheed Martin Corp. 152,325 168,750
1,500 Northrop Grumman Corp. 132,825 161,156
11,500 Rockwell International Corp. 680,387 659,812
19,500 Sundstrand Corp. 1,039,815 1,179,750
2,350,029 2,513,468
CONSUMER CYCLICAL - 11.32%
16,600 Cendant Corp.* 571,111 657,775
28,800 CompUSA, Inc.* 689,377 748,800
21,400 Dillard's, Inc. Cl. A 769,973 790,462
15,550 FDX Corp.* 858,452 1,020,469
6,400 Interface, Inc. Cl. A 253,300 266,000
30,200 Kmart Corp.* 420,820 503,962
3,563,033 3,987,468
CONSUMER STAPLES - 13.58%
7,600 Bestfoods, Inc. 589,872 888,250
5,500 Coca-Cola Co. 348,150 425,906
32,000 Dial Corp. 590,662 766,000
14,000 McDonald's Corp. 664,132 840,000
4,000 Reebok International Ltd.* 161,950 122,000
15,400 Sara Lee Corp. 653,845 949,025
32,700 Viad Corp. 631,148 792,975
3,639,759 4,784,156
ENERGY - 12.86%
8,100 Amoco Corp. 785,080 699,637
8,150 British Petroleum PLC Sh F ADR 648,451 701,410
7,400 Chevron Corp. 590,620 594,313
23,800 Enron Corp. 930,753 1,103,725
11,000 Mobil Corp. 825,206 842,875
16,000 Triton Energy Ltd. Cayman Islands Cl. A* 607,800 588,000
4,387,910 4,529,960
FINANCIAL - 18.97%
13,300 AFLAC, Inc. 716,002 841,225
11,500 Allstate Corp. 731,875 1,057,281
10,800 American Express Co. 942,315 991,575
14,000 American Financial Group, Inc. 581,969 607,250
5,900 Chase Manhattan Corp. 649,264 795,763
8,100 Chubb Corp. 515,579 634,838
12,100 Fleet Financial Group, Inc. 958,455 1,029,256
7,600 Golden West Financial Corp. Delaware 665,130 728,175
5,760,589 6,685,363
HEALTH CARE - 10.70%
8,000 ALZA Corp.* 221,713 358,500
12,000 Johnson & Johnson 763,625 879,750
10,500 Merck & Company, Inc. 949,338 1,347,938
6,400 Pfizer, Inc. 287,610 638,000
6,700 Schering-Plough Corp. 504,116 547,306
2,726,402 3,771,494
MISCELLANEOUS - 0.44%
900 ISS Group, Inc.* 19,800 34,988
6,500 Melita International Corp.* 64,250 118,625
84,050 153,613
TECHNOLOGY - 13.39%
7,000 A T & T Corp. 299,756 459,375
6,000 Bay Networks, Inc.* 137,050 162,750
10,400 Cisco Systems, Inc.* 484,569 711,100
17,800 Diebold, Inc. 705,421 783,200
11,700 GTE Corp. 597,441 700,537
4,000 Hewlett-Packard Co. 251,608 253,500
13,300 Loral Space & Communications, Ltd.* 231,953 371,569
18,400 National Semiconductor Corp.* 424,482 385,250
19,500 Scientific-Atlanta, Inc. 367,444 381,469
5,000 Seagate Technology, Inc.* 204,219 126,250
11,900 Tracor, Inc.* 349,195 381,544
4,053,138 4,716,544
TRANSPORTATION & SERVICES - 2.76%
32,900 Southwest Airlines Co. 540,407 972,606
TOTAL COMMON STOCKS 28,817,771 33,879,716
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
REPURCHASE AGREEMENT - 6.67%
$ 2,350,000 UMB Bank, n.a.,
5.38%, due 4-1-98
(Collateralized by $2,397,903
U.S. Treasury Notes, 6.25%, due 4-30-01) $ 2,350,000 $ 2,350,000
TOTAL INVESTMENTS - 102.83% $ 31,167,771 36,229,716
Other assets less liabilities - (2.83%) (996,776)
TOTAL NET ASSETS - 100.00%
(equivalent to $16.94 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
2,080,301 shares outstanding) $ 35,232,940
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
March 31, 1998, was $31,171,912.
Net unrealized depreciation for federal income tax purposes was $5,057,804,
which is comprised of unrealized appreciation
of $5,400,294 and unrealized depreciation of $342,490.
*Non-income producing security
See accompanying Notes to Financial Statements.
BUFFALO
HIGH YIELD FUND
STATEMENT OF NET ASSETS
March 31, 1998
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C>
COMMON STOCK - 0.72%
96,233 Fedders Corp. Cl. A (non-voting) $ 549,138 $ 511,238
CONVERTIBLE PREFERRED STOCKS - 9.52%
22,000 Bethlehem Steel Corp.,
$3.50, 144A 930,500 1,045,000
11,000 Cyprus Amax Minerals Co.,
$4, Series A* 545,875 533,500
7,000 Freeport-McMoran Copper & Gold, Inc.,
dep. shrs. repstg. 0.05 pfd. cv. step up 147,612 159,688
15,000 Hollinger International, Inc.,
9.75% pfd. increased div. equity sec. 189,331 214,687
33,000 ICO, Inc., dep. shrs.
repstg. 1/4 pfd. cv. 704,810 732,187
24,900 Kmart Financing I, 7.750%
tr. cv. pfd. secs. 1,365,673 1,562,475
6,000 Lomak Financing Trust,
tr. cv. pfd. secs. 144A 302,250 302,250
17,300 Loral Space & Communications Ltd.,
Series C 868,938 1,301,825
4,100 McDermott International, Inc.,
Series A 119,865 169,638
13,000 McDermott International, Inc.,
Series C 541,500 762,125
TOTAL CONVERTIBLE PREFERRED STOCKS 5,716,354 6,783,375
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
CORPORATE BONDS - 25.60%
$ 400,000 Argosy Gaming Co.,
13.25% 1st. mtg. note, due 6-1-04 376,500 446,000
65,000 Bethlehem Steel Corp.,
10.375% sr. note, due 9-1-03 64,407 69,225
1,000,000 Callon Petroleum Co. Delaware,
10.125% sr. sub. note, due 9-15-02 994,240 1,049,239
700,000 Clark Material Handling Co.,
10.75% unrestricted sr. note 144A,
due 11-15-06 700,000 754,250
500,000 Cliffs Drilling Co.,
10.25% sr. note, Series B, due 5-15-03 518,750 543,750
545,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 550,244 564,756
600,000 Duane Reade, Inc.,
9.25% sr. sub note, due 2-15-08 600,000 607,500
500,000 Exide Corp.,
10.00% sr. note, due 4-15-05 495,000 526,250
535,000 Fairchild Semiconductor Corp.,
10.125% sr. sub. note, due 3-15-07 534,912 556,400
435,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 431,625 453,487
765,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 751,975 795,600
500,000 ICO, Inc.,
10.375% sr. note, due 6-1-07 500,000 525,000
500,000 Interface, Inc.,
9.50% sr. sub. note, Series B, due 11-15-05 480,000 543,750
121,000 Kmart Corp. Pass Thru Trust,
9.78% mtg. pass thru ctf.,
Series 95-K-2, due 1-15-20 125,235 125,235
35,000 Kmart Funding Corp.,
9.44% secd. lease bd., Series G, due 7-1-18 35,350 38,176
575,000 Kmart Corp.,
8.25% note, due 1-1-22 551,731 583,148
650,000 Kaiser Aluminum & Chemical Corp.,
9.875% sr. note, due 2-15-02 642,397 678,438
750,000 Nationwide Credit, Inc.,
10.25% sr. sub. note 144A, due 1-15-08 750,000 772,500
1,000,000 Newcor, Inc.,
9.875% sr. sub. note 144A, due 3-1-08 1,000,000 1,015,000
505,000 Nortek, Inc.,
9.875% sr. sub. note, due 3-1-04 487,628 525,831
500,000 Numatics, Inc.,
9.625% sr. sub. note 144A, due 4-1-08 500,000 513,750
100,000 Parker Drilling Co.,
9.75% sr. note, Series B, due 10-15-06 99,215 107,250
600,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 578,750 631,500
25,000 Plains Resources, Inc.,
10.25% sr. sub. note, Series B, due 3-15-06 25,437 27,000
250,000 Premier Parks, Inc.,
9.25% sr. note, due 4-1-06 250,000 256,875
150,000 Premier Parks, Inc.,
9.75% sr. note, due 1-15-07 150,000 162,188
1,250,000 Purina Mills, Inc.,
9.00% sr. sub note 144A, due 3-15-10 1,250,000 1,296,875
1,000,000 Rutherford-Moran Oil Corp.,
10.75% sr. sub. note 144A, due 10-1-04 1,001,250 1,045,000
500,000 Southdown, Inc.,
10.00% sr. sub. note, Series B, due 3-1-06 512,500 557,500
25,000 URS Corp.,
8.625% sr. sub. deb., due 1-15-04 23,125 24,875
790,000 United Refining Co.,
10.75% sr. note, Series B, due 6-15-07 789,550 833,450
1,650,000 Wiser Oil Co. Delaware,
9.50% sr. sub. note, due 5-15-07 1,614,000 1,612,875
TOTAL CORPORATE BONDS 17,383,821 18,242,673
CONVERTIBLE CORPORATE BONDS - 24.13%
570,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 481,175 473,812
1,076,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 1,060,775 992,610
675,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 574,198 619,313
500,000 Danka Business Systems PLC,
6.75% sub. note, due 4-1-02 476,625 480,625
1,950,000 Exide Corp.,
2.90% sr. sub. note, due 12-15-05 1,220,750 1,206,562
1,705,000 HMT Technology Corp.,
5.75% sub. note, due 1-15-04 1,444,267 1,457,775
1,470,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 1,264,088 1,317,487
1,730,000 Intevac, Inc.,
6.50% sub. note 144A, due 3-1-04 1,529,575 1,342,913
895,000 Key Energy Group, Inc.,
5.00% sub. note 144A, due 9-15-04 832,323 735,501
1,075,000 Micron Technology, Inc.,
7.00% sub. note, due 7-1-04 1,058,750 1,036,031
761,000 Moran Energy Inc.,
8.75% sub. deb., due 1-15-08 643,357 749,585
1,500,000 National Semiconductor Corp.,
6.50% sub. note 144A, due 10-1-02 1,461,250 1,453,125
550,000 OHM Corp.,
8.00% sub. deb., due 10-1-06 493,537 537,625
535,000 Oryx Energy Co.,
7.50% sub. deb., due 5-15-14 475,825 536,337
700,000 Rent-Way, Inc.,
7.00% sub. deb., due 2-1-07 670,000 1,214,500
525,000 Swift Energy Co.,
6.25% sub. note, due 11-15-06 517,150 514,500
500,000 Synoptics Communications, Inc.,
5.25% sub. deb., due 5-15-03 439,625 489,375
1,350,000 VLSI Technology, Inc.,
8.25% sub. note, due 10-1-05 1,322,948 1,341,563
1,000,000 Western Digital Corp.,
zero cpn. sub. deb. 144A, due 2-18-18 356,710 355,000
378,000 Weston (Roy F.), Inc.,
7.00% sub. deb., due 4-15-02 322,590 341,618
TOTAL CONVERTIBLE CORPORATE BONDS 16,645,518 17,195,857
REPURCHASE AGREEMENT - 1.96%
1,395,000 UMB Bank, n.a., 5.38%, due 4-1-98
(Collateralized by $1,423,427
U.S. Treasury Notes, 6.25%, due 4-30-01) $ 1,395,000 $ 1,395,000
TOTAL INVESTMENTS - 61.93% $ 41,689,831 44,128,143
Other assets less liabilities - 38.07% 27,129,549
TOTAL NET ASSETS - 100.00%
(equivalent to $12.83 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
5,552,397 shares outstanding) $ 71,257,692
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
March 31, 1998, was $41,689,831.
Net unrealized appreciation for federal income tax purposes was $2,438,312,
which is comprised of unrealized appreciation
of $2,898,116 and unrealized depreciation of $459,804.
*Non-income producing security
See accompanying Notes to Financial Statements.
BUFFALO
USA GLOBAL FUND
STATEMENT OF NET ASSETS
March 31, 1998
<TABLE>
<CAPTION>
SHARES COMPANY COST MARKET VALUE
</CAPTION>
<S> <C> <C>
COMMON STOCKS - 91.69%
BASIC MATERIALS - 2.15%
19,000 Praxair, Inc. $ 949,173 $ 977,313
CAPITAL GOODS - 14.58%
15,900 Air Products & Chemicals, Inc. 1,248,401 1,317,713
17,950 Boeing Co. 950,386 935,644
24,400 Rockwell International Corp. 1,298,358 1,399,950
39,000 Teleflex, Inc. 1,075,075 1,638,000
24,300 TRW, Inc. 1,340,821 1,339,538
5,913,041 6,630,845
CONSUMER CYCLICAL - 5.33%
30,000 Interface, Inc. Cl. A 611,396 1,246,875
20,900 Lear Corp.* 794,989 1,178,238
1,406,385 2,425,113
CONSUMER STAPLES - 18.13%
15,900 Bestfoods, Inc. 1,268,118 1,858,313
11,700 Coca-Cola Co. 686,232 906,019
1,800 Gillette Co. 213,278 213,638
32,550 McDonald's Corp. 1,540,821 1,953,000
27,500 Sara Lee Corp. 1,124,269 1,694,688
19,800 Wrigley, (Wm.) Jr. Co. 1,261,446 1,618,650
6,094,164 8,244,308
ENERGY - 8.59%
20,000 McDermott International, Inc. 690,688 826,250
17,600 Mobil Corp. 1,217,807 1,348,600
15,900 Texaco, Inc. 927,225 957,975
21,000 Trition Energy Ltd. Cayman Islands Cl. A* 796,643 771,750
3,632,363 3,904,575
FINANCIAL - 3.85%
27,700 AFLAC, Inc. 1,122,762 1,752,025
HEALTH CARE - 14.81%
7,300 American Home Products Corp. 574,765 696,237
15,700 Bristol-Myers Squibb Co. 973,778 1,637,706
23,200 Johnson & Johnson 1,290,754 1,700,850
10,200 Pfizer, Inc. 454,705 1,016,813
20,600 Schering-Plough Corp. 765,126 1,682,762
4,059,128 6,734,368
TECHNOLOGY - 24.25%
31,000 AMP, Inc. 1,236,025 1,358,188
28,400 Analog Devices, Inc.* 683,857 944,300
17,900 Applied Micro Circuits Corp.* 238,750 402,750
5,822 Avant Corp. 111,450 121,534
19,000 Bay Networks, Inc.* 489,925 515,375
20,100 Cisco Systems, Inc.* 932,300 1,374,337
22,200 Hewlett-Packard Co. 1,275,101 1,406,925
63,100 HMT Technology Corp.* 839,854 816,356
39,800 Integrated Device Technology, Inc.* 442,931 559,687
57,400 Intevac, Inc.* 607,774 441,262
5,600 Motorola, Inc. 323,118 339,500
40,300 National Semiconductor Corp.* 1,054,002 843,781
16,500 OSI Systems, Inc.* 222,750 191,812
26,100 Seagate Technology, Inc.* 940,713 659,025
16,500 SED International Holdings, Inc.* 312,450 187,687
22,600 Thermoquest Corp.* 421,093 406,800
3,000 VLSI Technology, Inc.* 59,438 56,250
22,900 Western Digital Corp.* 553,320 402,181
10,744,851 11,027,750
TOTAL COMMON STOCKS 33,921,867 41,696,297
FACE
AMOUNT DESCRIPTION COST MARKET VALUE
REPURCHASE AGREEMENT - 9.31%
$ 4,235,000 UMB Bank, n.a., 5.70%, due 4-1-98
(Collateralized by $4,320,631
U.S. Treasury Notes,
6.25%, due 4-30-01) 4,235,000 4,235,000
TOTAL INVESTMENTS - 101.00% $ 38,156,867 45,931,297
Other assets less liabilities - (1.00%) (455,862)
TOTAL NET ASSETS - 100.00%
(equivalent to $17.29 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
2,629,431 shares outstanding) $ 45,475,435
</TABLE>
For federal income tax purposes, the identified cost of investments owned at
March 31, 1998, was $38,255,313.
Net unrealized appreciation for federal income tax purposes was $7,675,984,
which is comprised of unrealized appreciation
of $8,727,010 and unrealized depreciation of $1,051,026.
*Non-income producing security
See accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS
AND LIABILITIES
March 31, 1998
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (identified cost
$48,313,670, $31,167,771, $41,689,831, and
$38,156,867, respectively) $ 54,539,971 $ 36,229,716 $ 44,128,143 $ 45,931,297
Cash 661,143 60,353 26,559,100 618,279
Dividends receivable 68,315 42,139 25,522 17,305
Interest receivable 805,026 - 794,927 -
Receivables for investments sold - 109,296 - -
Total assets 56,074,455 36,441,504 71,507,692 46,566,881
LIABILITIES AND NET ASSETS:
Payable for investments purchased 640,600 1,208,564 250,000 1,091,446
Total liabilities 640,600 1,208,564 250,000 1,091,446
NET ASSETS $ 55,433,855 $ 35,232,940 $ 71,257,692 $ 45,475,435
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 47,971,754 $ 29,372,862 $ 68,376,331 $ 36,438,982
Accumulated undistributed
net investment income 18,710 64,097 59,581 74,949
Accumulated undistributed
net realized gain on
investment transactions 1,217,090 734,036 383,468 1,187,074
Net unrealized appreciation in
value of investments 6,226,301 5,061,945 2,438,312 7,774,430
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 55,433,855 $ 35,232,940 $ 71,257,692 $ 45,475,435
Capital shares, $1.00 par value
Authorized 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding 4,820,580 2,080,301 5,552,397 2,629,431
NET ASSET VALUE PER SHARE $ 11.50 $ 16.94 $ 12.83 $ 17.29
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS
OF OPERATIONS
Year Ended March 31, 1998
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 439,158 $ 360,038 $ 243,736 $ 452,651
Interest 2,826,256 121,677 2,323,125 220,495
3,265,414 481,715 2,566,861 673,146
Expenses (Note 2):
Management fees 489,966 293,680 329,029 436,378
Registration fees and expenses 19,220 25,022 25,275 34,320
509,186 318,702 354,304 470,698
Net investment income 2,756,228 163,013 2,212,557 202,448
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 28,693,310 25,104,793 6,731,074 24,991,509
Cost of investments sold 25,474,441 22,545,587 5,945,804 22,578,056
Net realized gain from sales of investments 3,218,869 2,559,206 785,270 2,413,453
Gain from option contracts written 33,873 337,716 - 628,905
Net realized gain from investment
transactions 3,252,742 2,896,922 785,270 3,042,358
Unrealized appreciation (depreciation)
on investments:
Beginning of year 1,603,437 (248,434) 307,013 828,942
End of year 6,226,301 5,061,945 2,438,312 7,774,430
Increase in net unrealized appreciation
on investments 4,622,864 5,310,379 2,131,299 6,945,488
Net gain on investments 7,875,606 8,207,301 2,916,569 9,987,846
Increase in net assets resulting
from operations $ 10,631,834 $ 8,370,314 $ 5,129,126 $ 10,190,294
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended March 31, 1998
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND
1998 1997 1998 1997
</CAPTION>
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,756,228 $ 2,769,432 $ 163,013 $ 180,281
Net realized gain from investment
transactions 3,252,742 4,210,481 2,896,922 2,410,435
Net unrealized appreciation (depreciation)
of investments during the year 4,622,864 (1,590,961) 2,896,922 2,410,435
Net increase in net assets resulting
from operations 10,631,834 5,388,952 8,370,314 2,027,790
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (2,775,972) (2,730,978) (161,898) (117,299)
Net realized gain from investment
transactions (3,860,703) (2,986,358) (3,468,742) (1,104,579)
Total distributions to shareholders (6,636,675) (5,717,336) (3,630,640) (1,221,878)
INCREASE (DECREASE) FROM CAPITAL
SHARE TRANSACTIONS:*
Proceeds from shares sold 12,885,564 11,993,517 12,516,901 13,787,512
Net asset value of shares issued for
reinvestment of distributions 6,520,617 5,290,321 3,566,498 1,166,645
19,406,181 17,283,838 16,083,399 14,954,157
Cost of shares repurchased (11,716,138) (23,280,181) (5,659,255) (1,636,346)
Net increase (decrease) from
capital share transactions 7,690,043 (5,996,343) 10,424,144 13,317,811
Total increase (decrease) in
net assets 11,685,202 (6,324,727) 15,163,818 14,123,723
NET ASSETS:
Beginning of year 43,748,653 50,073,380 20,069,122 5,945,399
End of year (including undistributed
net investment income of $18,710,
$64,097, $59,581, and
$74,949, respectively) $ 55,433,855 $ 43,748,653 $ 35,232,940 $ 20,069,122
*Shares issued and repurchased:
Number of shares sold 1,120,147 1,078,525 759,078 995,159
Number of shares issued for reinvestment
of distributions 595,174 484,825 234,208 80,961
Number of shares repurchased (1,033,780) (2,102,645) (354,109) (116,210)
Net increase (decrease) 681,541 (539,295) 639,177 959,910
**Distributions to shareholders:
Income dividends per share $ .6501 $ .707 $ .0977 $ .1046
Capital gains distribution per share $ .9079 $ .833 $ 1.8186 $ .9854
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Two Years Ended March 31, 1998
<TABLE>
<CAPTION>
HIGH YIELD FUND USA GLOBAL FUND
1997 1998 1997 1998
</CAPTION>
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,212,557 $ 1,009,590 $ 202,448 $ 116,725
Net realized gain from investment
transactions 785,270 434,013 3,042,358 1,878,723
Net unrealized appreciation (depreciation)
of investments during the year 785,270 434,013 3,042,358 1,878,723
Net increase in net assets resulting
from operations 5,129,126 1,666,335 10,190,294 2,615,059
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (2,186,837) (975,729) (175,131) (69,093)
Net realized gain from investment
transactions (642,456) (193,359) (2,940,660) (793,347)
Total distributions to shareholders (2,829,293) (1,169,088) (3,115,791) (862,440)
INCREASE (DECREASE) FROM CAPITAL
SHARE TRANSACTIONS:*
Proceeds from shares sold 55,449,764 13,872,995 23,849,303 21,080,722
Net asset value of shares issued for
reinvestment of distributions 2,687,187 1,036,474 3,019,319 825,953
58,136,951 14,909,469 26,868,622 21,906,675
Cost of shares repurchased (8,765,697) (3,120,776) (15,559,371) (1,581,818)
Net increase (decrease) from
capital share transactions 49,371,254 11,788,693 11,309,251 20,324,857
Total increase (decrease) in
net assets 51,671,087 12,285,940 18,383,754 22,077,476
NET ASSETS:
Beginning of year 19,586,605 7,300,665 27,091,681 5,014,205
End of year (including undistributed
net investment income of $18,710,
$64,097, $59,581, and
$74,949, respectively) $ 71,257,692 $ 19,586,605 $ 45,475,435 $ 27,091,681
*Shares issued and repurchased:
Number of shares sold 4,360,648 1,192,596 1,466,815 1,536,130
Number of shares issued for reinvestment
of distributions 212,697 88,882 198,067 58,002
Number of shares repurchased (690,445) (266,952) (957,318) (113,650)
Net increase (decrease) 3,882,900 1,014,526 707,564 1,480,482
**Distributions to shareholders:
Income dividends per share $ .8004 $ .798 $ .0653 $ .0528
Capital gains distribution per share $ .2365 $ .147 $ 1.0157 $ .6072
</TABLE>
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
<TABLE>
<CAPTION>
BALANCED FUND
FOR THE PERIOD
FROM AUGUST 12, 1994
YEARS ENDED MARCH 31, (INCEPTION)
1998 1997 1996 TO MARCH 31, 1995
</CAPTION>
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.57 $ 10.70 $ 10.06 $ 10.07
Income from investment operations:
Net investment income 0.65 0.72 0.65 0.32
Net gains (losses) on securities
(both realized and unrealized) 1.84 0.69 1.07 (0.03)
Total from investment operations 2.49 1.41 1.72 .29
Less distributions:
Dividends from net investment income (0.65) (0.71) (0.68) (0.30)
Distributions from capital gains (0.91) (0.83) (0.40) -
Total distributions (1.56) (1.54) (1.08) (0.30)
Net asset value, end of period $ 11.50 $ 10.57 $ 10.70 $ 10.06
Total return 24.76% 13.22% 18.87% 2.91%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 55 $ 44 $ 50 $ 38
Ratio of expenses to average net assets 1.04% 1.05% 1.06% 1.06%
Ratio of net investment income to average net assets 5.61% 6.20% 6.27% 8.89%
Portfolio turnover rate 61% 56% 61% 33%
*Average commission paid per equity share trad $ 0.0438 $ 0.0420 - -
</TABLE>
Performance ratios for the Funds' initial periods of operations are
annualized, except total return.
*Disclosure required for fiscal years beginning after September 1, 1995.
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
<TABLE>
<CAPTION>
EQUITY FUND
FOR THE PERIOD
FROM MAY 19, 1995
YEARS ENDED MARCH 31, (INCEPTION)
1998 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.93 $ 12.36 $ 10.14
Income from investment operations:
Net investment income 0.08 0.15 0.21
Net gains (losses) on securities
(both realized and unrealized) 4.85 2.51 2.72
Total from investment operations 4.93 2.66 2.93
Less distributions:
Dividends from net investment income (0.10) (0.10) (0.20)
Distributions from capital gains (1.82) (0.99) (0.51)
Total distributions (1.92) (1.09) (0.71)
Net asset value, end of period $ 16.94 $ 13.93 $ 12.36
Total return 36.97% 21.23% 29.11%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 35 $ 20 $ 5
Ratio of expenses to average net assets 1.09% 1.16% 1.06%
Ratio of net investment income to average net assets 0.56% 1.35% 2.55%
Portfolio turnover rate 93% 123% 63%
*Average commission paid per equity share traded $ 0.0469 $ 0.0492 -
</TABLE>
Performance ratios for the Funds' initial periods of operations are
annualized, except total return.
*Disclosure required for fiscal years beginning after September 1, 1995.
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
<TABLE>
<CAPTION>
HIGH YIELD FUND
FOR THE PERIOD
FROM MAY 19, 1995
YEARS ENDED MARCH 31, (INCEPTION)
1998 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.73 $ 11.15 $ 10.14
Income from investment operations:
Net investment income 0.79 0.82 0.53
Net gains (losses) on securities
(both realized and unrealized) 1.35 0.71 1.14
Total from investment operations 2.14 1.53 1.67
Less distributions:
Dividends from net investment income (0.80) (0.80) (0.53)
Distributions from capital gains (0.24) (0.15) (0.13)
Total distributions (1.04) (0.95) (0.66)
Net asset value, end of period $ 12.83 $ 11.73 $ 11.15
Total return 18.63% 14.02% 16.67%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 71 $ 20 $ 7
Ratio of expenses to average net assets 1.03% 1.13% 1.03%
Ratio of net investment income to average net assets 6.43% 7.63% 7.40%
Portfolio turnover rate 24% 39% 25%
*Average commission paid per equity share traded - - -
</TABLE>
Performance ratios for the Funds' initial periods of operations are
annualized, except total return.
*Disclosure required for fiscal years beginning after September 1, 1995.
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
<TABLE>
<CAPTION>
USA GLOBAL FUND
FOR THE PERIOD
FROM MAY 19, 1995
YEARS ENDED MARCH 31, (INCEPTION)
1998 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.10 $ 11.35 $ 10.14
Income from investment operations:
Net investment income 0.07 0.08 0.15
Net gains (losses) on securities
(both realized and unrealized) 4.20 3.32 1.61
Total from investment operations 4.27 3.40 1.76
Less distributions:
Dividends from net investment income (0.06) (0.05) (0.15)
Distributions from capital gains (1.02) (0.61) (0.39)
Total distributions (1.08) (0.66) (0.54)
Net asset value, end of period $ 17.29 $ 14.10 $ 11.36
Total return 31.33% 29.87% 17.49%
Ratios/Supplemental Data
Net assets, end of year (in millions) $ 45 $ 27 $ 5
Ratio of expenses to average net assets 1.09% 1.13% 1.06%
Ratio of net investment income to average net assets 0.47% 0.79% 1.94%
Portfolio turnover rate 64% 88% 123%
*Average commission paid per equity share traded $ 0.0471 $ 0.0486 -
</TABLE>
Performance ratios for the Funds' initial periods of operations are
annualized, except total return.
*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, High Yield and USA Global Funds
designate $2,448,588, $670,056, $40,214 and $920,382, 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, 1998,
(excluding maturities of short-term commercial notes and repurchase
agreements) are as follows:
Balanced Fund
Purchases $ 34,595,175
Proceeds from sales 28,693,310
Equity Fund
Purchases $ 32,643,892
Proceeds from sales 25,104,793
High Yield Fund
Purchases $ 29,538,046
Proceeds from sales 6,731,074
USA Global Fund
Purchases $ 34,076,926
Proceeds from sales 24,991,509
4. COVERED CALL OPTIONS:
There were no outstanding Covered Call Options as of March 31, 1998.
Transactions in call options written for the year ended
March 31, 1998, were as follows:
Number of Premium
Contracts Amount
Balanced Fund
Balance at March 31, 1997 - $ -
Opened 150 51,499
Expired (50) (9,875)
Closing Buys (50) (28,624)
Exercised (50) (13,000)
Balance at March 31, 1998 - $ -
Equity Fund
Balance at March 31, 1997 278 $ 72,301
Opened 1,493 277,005
Expired (592) (93,658)
Closing Buys (76) (20,315)
Exercised (1,103) (235,333)
Balance at March 31, 1998 - $ -
USA Global Fund
Balance at March 31, 1997 680 $ 101,114
Opened 2,834 527,791
Expired (2,793) (465,459)
Exercised (721) (163,446)
Balance at March 31, 1998 - $ -
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, 1998, the related
statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended, 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 ouraudits.
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, 1998, 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,
1998, 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
May 8, 1998
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 Distributors
A member of the Generali Group
BMA Tower
700 Karnes Blvd.
Kansas City, Missouri 64108-3306
1-800-49-BUFFALO
(1-800-492-8332)
JB9C-2 5/98
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</TABLE>
<TABLE> <S> <C>
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</TABLE>
