BUFFALO FUNDS
Balanced Fund
Equity Fund
High Yield Fund
Small Cap Fund
USA Global Fund
Shares of the Funds have not been approved or disapproved by the
Securities and Exchange Commission nor has the Commission passed upon
the adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
Prospectus
July 31, 1999
Prospectus July 31, 1999
Buffalo Funds
INVESTMENT ADVISER:
KORNITZER CAPITAL MANAGEMENT, INC.
MANAGED AND DISTRIBUTED BY:
JONES & BABSON, INC.
Table of Contents Page
Information About the Funds
Investment Objectives and Principal Investment Strategies 2
Principal Risk Factors 3
Past Performance 5
Fees and Expenses 7
Management and Investment Adviser 9
Financial Highlights 10
Information About Investing
How to Purchase Shares 15
How to Redeem Shares 15
Shareholder Services 16
How Share Price is Determined 16
Distributions and Taxes 17
Additional Policies About Transactions 18
Conducting Business with the Buffalo Funds 20
Investment Objectives and Principal Investment Strategies
The investment objectives for the Buffalo Balanced, Buffalo Equity,
Buffalo Small Cap and Buffalo USA Global Funds are long-term growth of
capital. In addition, the Buffalo Balanced Fund also seeks to produce
high current income. The investment objective for the Buffalo High Yield
Fund emphasizes high current income with long-term growth of capital as
a secondary objective.
To pursue their investment objectives, the Funds intend to primarily
invest as described below:
Buffalo Balanced Fund - in common stocks, convertible bonds and
convertible preferred stocks and corporate
fixed income securities, many of which can be
high-yielding, high risk securities.
Buffalo Equity Fund - at least 65% of its assets in common stocks
of large capitalization companies most of
which are listed on the New York Stock
Exchange.
Market Capitalization: How much a company is considered to be worth. It
equals the number of outstanding shares times the share price. Large
capitalization companies are those in excess of $1 billion while small cap
companies are valued under that figure.
Buffalo High Yield Fund - at least 65% of its assets in high yielding,
high risk fixed income securities.
Buffalo Small Cap Fund - at least 65% of its assets in equity
securities issued by small capitalization
companies.
Buffalo USA Global Fund - in common stocks of companies based in the
United States that receive greater than 40%
of their revenues or income from global sales
and operations. The international operations
of these U.S. based companies will represent
more than 3 countries.
Each Fund's principal investment strategies are described below:
Buffalo Balanced Fund invests in a combination of common stocks, high
yield, high risk corporate bonds and high yield, high risk convertible
securities. The allocation of assets invested in each type of security
is designed to balance yield income and long-term capital appreciation
with reduced volatility of returns. The Fund expects to change its
allocation mix over time based on the adviser's view of economic
conditions and underlying security values. Usually, the adviser will
invest at least 25% of the Fund's assets in equity securities and at
least 25% in fixed-income securities.
Buffalo Equity Fund invests in companies that meet specific cash flow
criteria and/or are expected to benefit from long-term industry and
technological trends that are likely to positively impact company
performance. The cash flow criteria used by the adviser focuses on
consistency and predictability of cash generation. Separately, long-term
trends are identified with the purpose of investing in companies that
should have favorable operating environments over the next three to five
years. The final stock selection process includes: 1) ongoing
fundamental analysis of industries and the economic cycle; 2) analysis
of company-specific factors such as product cycles, management, etc.;
and 3) rigorous valuation analysis.
Buffalo High Yield Fund uses extensive fundamental research to
identify potential fixed income investment opportunities among high
risk, high yielding securities. Emphasis is placed on relative value and
good corporate management. Specifically, the adviser may look at a
number of past, present and estimated factors such as: 1) financial
strength of the issuer; 2) cash flow; 3) management; 4) borrowing
requirements; and 5) responsiveness to changes in interest rates and
business conditions.
Buffalo Small Cap Fund targets a mix of 'value' and 'growth' companies
with average market caps of $1 billion or less. The Fund identifies
smaller companies that exhibit consistent or predictable cash generation
and/or are expected to benefit from long-term industry or technological
trends. The adviser then selects securities based on: 1) fundamental
analysis of industries and the economic cycle; 2) company-specific
analysis such as product cycles, management, etc., and 3) rigorous
valuation analysis.
Buffalo USA Global Fund identifies companies that exhibit consistent
or predictable cash generation and/or are expected to benefit from long-
term industry or technological trends. The adviser then selects
securities based on: 1) fundamental analysis of industries and the
economic cycle; 2) company-specific analysis such as product cycles,
management, etc.; 3) rigorous valuation analysis; and, 4) the issuer
must have substantial international operations.
Temporary Investments. The Funds intend to hold a small percentage of
cash or high quality, short-term debt obligations for reserves to cover
redemptions and unanticipated expenses. There may be times, however,
when the Funds may respond to adverse market, economic, political or
other considerations by investing up to 100% of their assets in bonds or
other defensive investments for temporary investment purposes. During
those times, the Funds may not achieve their investment objectives and,
instead, will focus on preserving your investment.
The objectives and policies that determine how the Funds are managed as
described above can only be changed with the corresponding Fund's
shareholder's approval.
Principal Risk Factors
Market Risks . Equity securities are subject to market, economic and
business risks that will cause their prices to fluctuate over time.
Since the Funds (except Buffalo High Yield Fund) are normally invested
in equity securities, the value of these Funds will go up and down. As
with any mutual fund, there is a risk that you could lose money by
investing in the Funds.
Different types of investments shift in and out of favor depending on
market and economic conditions. At various times stocks will be more or
less favorable than bonds, and small company stocks will be more or less
favorable than large company stocks. Because of this, the Funds will
perform better or worse than other types of funds depending on what is
in 'favor.'
Small Company Risks. Buffalo Small Cap Fund invests primarily in small
companies. Generally, smaller and less seasoned companies have more
potential for rapid growth. However, they often involve greater risk
than larger companies and these risks are passed on to Funds that invest
in them. These companies may not have the management experience,
financial resources, product diversification and competitive strengths
of larger companies. Therefore, the securities of smaller companies are
more volatile than the securities of larger, more established companies.
Thus an investment in the Buffalo Small Cap Fund may be more suitable
for long-term investors who can bear the risk of these fluctuations.
While the Funds cannot eliminate these risks, the Funds' Investment
Adviser tries to minimize risk by diversifying.
Diversifying: A technique to reduce the risks inherent in any investment
by investing in a broad range of securities from different industries,
locations or asset classes.
Smaller company stocks tend to be bought and sold less often and in
smaller amounts than larger company stocks. Because of this, if the
Funds want to sell a large quantity of a small company stock it may have
to sell at a lower price than its Investment Adviser might prefer, or it
may have to sell in small quantities over a period of time. The Funds
try to minimize this risk by investing in stocks that are readily bought
and sold.
Fixed Income Risks . The yields and principle values of debt securities
will also fluctuate. Generally, values of debt securities change
inversely with interest rates. That is, as interest rates go up, the
values of debt securities tend to go down and vice versa. Furthermore,
these fluctuations tend to increase as a bond's maturity increases such
that a longer term bond will increase or decrease more for a given
change in interest rates than a shorter term bond.
High Yield Risks. Buffalo Balanced and Buffalo High Yield Funds invest
in lower-rated, high yielding bonds (so-called 'junk bonds'). These
bonds have a greater degree of default risk than higher rated bonds.
Lower-rated securities may be issued by companies that are
restructuring, are smaller and less credit worthy or are more highly
indebted than other companies. Lower-rated securities also tend to have
less liquid markets than higher-rated securities. In addition, market
prices of lower rated bonds tend to react more negatively to adverse
economic or political changes, investor perceptions or individual
corporate developments than higher rated bonds.
Default risk: The possibility that the issuer will fail to make timely
payments of principal or interest
to the Funds.
International Risks. International investing poses additional risks
such as currency fluctuation and political instability. However, Buffalo
USA Global Fund limits these risks by investing only in U.S. companies
traded in the U.S. and denominated in U.S. dollars. While this
eliminates direct foreign investment, the companies the Fund invests in
will experience these risks in their day-to-day business dealings. These
risks are inherently passed on to the company's shareholders and in
turn, to the Fund's shareholders.
Year 2000 Risks. Computer systems that cannot process and calculate
date-related information as of and after January 1, 2000 are a concern
for financial and business organizations around the world. We are taking
steps to address the Year 2000 issue with respect to the computers we
use, and have asked that our major service providers take comparable
steps. Also, the Fund's Investment Adviser is using its best efforts to
evaluate any potential adverse effects from the Year 2000 issue that may
affect companies whose securities may be purchased by the Funds.
However, there is no assurance that these steps will completely protect
the Funds from being affected.
Past Performance
The tables below and on the following page provide an indication of the
risks of investing in the Funds. The tables on the left side show
changes in the total returns generated by the respective Fund for each
calendar year. The tables on the right show how each Fund's average
annual returns for certain periods compare with those of a relevant,
widely recognized benchmark. Each table reflects all expenses of the
respective Fund and assumes that all dividends and capital gains
distributions have been reinvested in new shares of the Fund. Past
performance is not necessarily an indication of how a Fund will perform
in the future. No information is provided for the Buffalo Small Cap
Fund, since that Fund has not been in operation for a full calendar
year.
Buffalo Balanced Fund
Annual Total Return as of December 31 of Each Year
CHART
Year-to-Date Return (through June 30, 1999) = 7.1%
Best Quarter Ended September 30, 1997 = 9.7%
Worst Quarter Ended September 30, 1998 = -12.5%
CHART
Average Annual Total Return as of December 31, 1998
1 Year Since Inception*
Buffalo Balanced Fund (2.8%) 10.6%
S&P 500 Index 28.7% 27.7%
S&P 500 Index and Merrill Lynch Bond
Fund Index Weighted Average 17.0% 19.2%
Lipper Balanced Fund Index 15.1% 16.3%
*Buffalo Balanced commenced operations in August 1994.
Buffalo Equity Fund
Annual Total Return as of December 31 of Each Year
CHART
Year-to-Date Return (through June 30, 1999) = 11.7%
Best Quarter Ended December 31, 1998 = 19.7%
Worst Quarter Ended September 30, 1998 = -15.7%
CHART
Average Annual Total Return as of December 31, 1998
1 Year Since Inception*
Buffalo Equity Fund 10.7% 24.2%
S&P 500 Index 28.7% 26.4%
Lipper Capital Appreciation
Fund Index 20.0% 20.2%
*Buffalo Equity commenced operations in May 1995.
Buffalo High Yield Fund
Annual Total Return as of December 31 of Each Year
CHART
Year-to-Date Return (through June 30, 1999) = 4.1%
Best Quarter Ended June 30, 1997 = 7.3%
Worst Quarter Ended September 30, 1998 = -8.2%
CHART
Average Annual Total Return as of December 31, 1998
1 Year Since Inception*
Buffalo High Yield Fund (5.3%) 10.7%
Merrill Lynch High Yield Bond Index 3.7% 9.7%
Lipper High Yield Fund Index (0.1%) 9.0%
*Buffalo High Yield commenced operations in May 1995.
Buffalo USA Global Fund
Annual Total Return as of December 31 of Each Year
CHART
Year-to-Date Return (through June 30, 1999) = 15.9%
Best Quarter Ended September 30, 1996 = 19.7%
Worst Quarter Ended September 30, 1998 = -13.0%
CHART
Average Annual Total Return as of December 31, 1998
1 Year Since Inception*
Buffalo USA Global Fund 7.9% 20.4%
S&P 500 Index 28.7% 26.4%
Lipper Capital Appreciation
Fund Index 20.0% 20.2%
*Buffalo USA Global commenced operations in May 1995.
Fees & Expenses
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of each Fund.
Buffalo Buffalo Buffalo Buffalo Buffalo
Balanced Equity High Yield Small Cap USA Global
Fund Fund Fund Fund Fund
Shareholder Fees
(fees paid directly
from your investment)
Maximum Sales Charge
(Load)
Imposed on Purchases None None None None None
Maximum Deferred Sales
Charge (Load) None None None None None
Maximum Sales Charge
(Load)
Imposed on Reinvested
Dividends None None None None None
Redemption Fee None* None* None* None* None*
Exchange Fee None None None None None
*A $10 fee is imposed for redemptions by wire.
Annual Fund
Operating Expenses
(expenses that are
deducted from Fund
assets)
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00%
Distribution
(12b-1) fees None None None None None
Other Expenses .04% .06% .05% .02% .05%
Total Annual Fund
Operating Expenses 1.04% 1.06% 1.05% 1.02% 1.05%
Examples
The following examples are intended to help you compare the cost of
investing in each Fund with the cost of investing in other mutual funds.
The examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The examples also assume that your investment has a 5% return
each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Buffalo Balanced Fund $106 $331 $574 $1,271
Buffalo Equity Fund $108 $337 $585 $1,294
Buffalo High Yield Fund $107 $334 $579 $1,283
Buffalo Small Cap Fund $104 $325 $563 $1,248
Buffalo USA Global Fund $107 $334 $579 $1,283
Management and Investment Adviser
Jones & Babson, Inc. was founded in 1959. It organized the Funds in 1994
(except Buffalo Small Cap Fund, organized in 1997) and it acts as the
Funds' manager and principal underwriter. As Manager, Jones & Babson,
Inc. provides or pays the cost of all management, supervisory and
administrative services required in the normal operation of the Funds.
This includes investment management and supervision; fees of the
custodian, independent auditors and legal counsel; officers, directors
and other personnel; rent; shareholder services; and other items
incidental to corporate administration.
Operating expenses not required in the normal operation of the Funds are
payable by the Funds. These expenses include taxes, interest,
governmental charges and fees, including registration of the Funds with
the Securities and Exchange Commission and the various States, brokerage
costs, dues, and all extraordinary costs including expenses arising out
of anticipated or actual litigation or administrative proceedings.
Jones & Babson, Inc. employs at its own expense Kornitzer Capital
Management, Inc. to assist in the investment advisory function for the
Funds. Kornitzer Capital Management, Inc. is an independent investment
advisory firm founded in 1989. It serves a broad variety of individual,
corporate and other institutional clients by maintaining an extensive
research and analytical staff. It has an experienced investment analysis
and research staff which eliminates the need for Jones & Babson, Inc.
and the Funds to maintain an extensive duplicate staff. The Buffalo
Funds are managed by a team of four individuals. John Kornitzer has over
28 years of investment experience. He managed money at several Fortune
500 companies prior to founding Kornitzer Capital Management, Inc. Kent
Gasaway is a Chartered Financial Analyst with 17 years of research and
management experience. He holds a BS in Business Administration from
Kansas State University. Tom Laming is an experienced aerospace engineer
and research analyst. He holds a BS in Physics from the University of
Kansas, an MS in Aeronautics and Astronautics from MIT, and an MBA from
Indiana University. Bob Male is a Chartered Financial Analyst with more
than 10 years of investment research experience. He holds a B.S. in
Business Administration from the University of Kansas and an MBA from
Southern Methodist University.
For its services, each Fund pays Jones & Babson, Inc. a fee at the
annual rate of one percent (1.00%) of the Fund's average daily net
assets. The Management Agreement limits the liability of the Manager or
its Investment Adviser, as well as their officers, directors and
personnel, to acts or omissions involving willful malfeasance, bad
faith, gross negligence or reckless disregard of their duties.
Jones & Babson, Inc. also serves as transfer agent and principal
underwriter for the Funds. Jones & Babson is located at BMA Tower, 700
Karnes Blvd., Kansas City, MO 64108-3306 and Kornitzer Capital
Management is located at 7715 Shawnee Mission Parkway, Shawnee Mission,
KS 66202.
Financial Highlights
The financial highlights tables are intended to help you understand each
Fund's financial performance since inception. Certain information
reflects financial results for a single share of a Fund. The total
returns in the tables represent the rate that an investor would have
earned on an investment in a Fund (assuming reinvestment of all
dividends and distributions). This information has been audited by Ernst
& Young LLP, whose report, along with the Fund's financial statements,
are included in the annual report, which is available upon request.
Buffalo Balanced Fund, Inc.
Years Ended March 31, August 12, 1994
(Inception Date)
to March 31,
1999 1998 1997 1996 1995*
Net asset value,
beginning of period $11.50 $10.57 $10.70 $10.06 $10.07
Income (loss) from
investment operations:
Net investment income .66 .65 .72 .65 .32
Net gains (losses) on
securities (both realized
and unrealized) (1.86) 1.84 .69 1.07 (.03)
Total from investment
operations (1.20) 2.49 1.41 1.72 .29
Less distributions:
Dividends (from net
investment income) (.66) (.65) (.71) (.68) (.30)
Distributions (from
capital gains) (.77) (.91) (.83) (.40) -
Total distributions (1.43) (1.56) (1.54) (1.08) (.30)
Net asset value,
end of period $8.87 $11.50 $10.57 $10.70 $10.06
Total return (10.49%) 24.76% 13.22% 17.87% 2.91%
Ratios/Supplemental Data
Net assets, end of year
(in millions) $40 $55 $44 $50 $38
Ratio of expenses to
average net assets 1.04% 1.04% 1.05% 1.11% 1.06%
Ratio of net income to
average net assets 6.19% 5.61% 6.20% 6.27% 8.89%
Portfolio turnover rate 57% 61% 56% 61% 33%
*Ratios for this initial period of operations are annualized, except
total return.
The Fund was capitalized on June 6, 1994 with $100,000, representing
10,000 shares at a net asset value of $10.00 per share.
Initial public offering was made on August 12, 1994, at which time net
asset value was $10.07 per share.
Buffalo Equity Fund, Inc.
Years Ended March 31, May 19, 1995
(Inception Date)
to March 31,
1999 1998 1997 1996*
Net asset value, beginning of period $16.94 $13.93 $12.36 $10.14
Income (loss) from
investment operations:
Net investment income (loss) .04 .08 .15 .21
Net gains on securities
(both realized and unrealized) .40 4.85 2.51 2.72
Total from investment operations .44 4.93 2.66 2.93
Less distributions:
Dividends (from net
investment income) (.05) (.10) (.10) (.20)
Distributions (from capital gains) (.38) (1.82) (.99) (.51)
Total distributions (.43) (1.92) (1.09) (.71)
Net asset value, end of period $16.95 $16.94 $13.93 $12.36
Total return 2.73% 36.97% 21.23% 29.11%
Ratios/Supplemental Data
Net assets, end of year (in millions) $32 $35 $20 $6
Ratio of expenses to average net assets 1.06% 1.09% 1.16% 1.06%
Ratio of net income to average net assets .27% .56% 1.35% 2.55%
Portfolio turnover rate 83% 93% 123% 63%
*Ratios for this initial period of operations are annualized, except
total return.
The Fund was capitalized on February 13, 1995 with $100,000,
representing 10,000 shares at a net asset value of $10.00 per share.
Initial public offering was made on May 19, 1995, at which time net
asset value was $10.14 per share.
Buffalo High Yield Fund, Inc.
Years Ended March 31, May 19, 1995
(Inception Date)
to March 31,
1999 1998 1997 1996*
Net asset value, beginning of period $12.83 $11.73 $11.15 $10.14
Income (loss) from investment
operations:
Net investment income (loss) .93 .79 .82 .53
Net gains on securities (both
realized and unrealized) (2.18) 1.35 .71 1.14
Total from investment operations (1.25) 2.14 1.53 1.67
Less distributions:
Dividends (from net investment income) (.76) (.80) (.80) (.53)
Distributions (from capital gains) (.08) (.24) (.15) (.13)
Total distributions (.84) (1.04) (.95) (.66)
Net asset value, end of period $10.74 $12.83 $11.73 $11.15
Total return (9.92%) 18.63% 14.02% 16.67%
Ratios/Supplemental Data
Net assets, end of year (in millions) $58 $71 $20 $7
Ratio of expenses to average net assets 1.05% 1.03% 1.13% 1.03%
Ratio of net income to average net assets 7.76% 6.43% 7.63% 7.40%
Portfolio turnover rate 30% 24% 39% 25%
*Ratios for this initial period of operations are annualized, except
total return.
The Fund was capitalized on February 13, 1995 with $100,000,
representing 10,000 shares at a net asset value of $10.00 per share.
Initial public offering was made on May 19, 1995, at which time net
asset value was $10.14 per share.
Buffalo Small Cap Fund, Inc.
April 14, 1998
(Inception Date)
to March 31, 1999*
Net asset value, beginning of period $10.00
Income (loss) from investment operations:
Net investment income (loss) .04
Net gains or losses on securities (both realized and
unrealized) (.51)
Total from investment operations (.47)
Less distributions:
Dividends (from net investment income) (.04)
Distributions (from capital gains) -
Total distributions (.04)
Net asset value, end of period $9.49
Total return (4.69%)
Ratios/Supplemental Data
Net assets, end of period (in millions) $13
Ratio of expenses to average net assets 1.02%
Ratio of net income to average net assets .59%
Portfolio turnover rate 34%
*Ratios for this initial period of operations are annualized, except
total return.
The Fund was capitalized on January 12, 1998 with $100,000, representing
10,000 shares at a net asset value of $10.00 per share.
Initial public offering was made on April 14, 1998, at which time net
asset value was $10.00 per share.
Buffalo USA Global Fund, Inc.
Years Ended March 31, May 19, 1995
(Inception Date)
to March 31,
1999 1998 1997 1996*
Net asset value, beginning of period $17.29 $14.10 $11.36 $10.14
Income (loss) from investment
operations:
Net investment income (loss) .06 .07 .08 .15
Net gains on securities (both
realized and unrealized) (.51) 4.20 3.32 1.61
Total from investment operations (.45) 4.27 3.40 1.76
Less distributions:
Dividends (from net investment income) (.06) (.06) (.05) (.15)
Distributions (from capital gains) (.51) (1.02) (.61) (.39)
Total distributions (.57) (1.08) (.66) (.54)
Net asset value, end of period $16.27 $17.29 $14.10 $11.36
Total return (2.52%) 31.33% 29.87% 17.49%
Ratios/Supplemental Data
Net assets, end of year (in millions) $35 $45 $27 $5
Ratio of expenses to average net assets 1.05% 1.09% 1.13% 1.06%
Ratio of net income to average net assets .34% .47% .79% 1.94%
Portfolio turnover rate 42% 64% 88% 123%
*Ratios for this initial period of operations are annualized, except
total return.
The Fund was capitalized on February 13, 1995 with $100,000,
representing 10,000 shares at a net asset value of $10.00 per share.
Initial public offering was made on May 19, 1995, at which time net
asset value was $10.14 per share.
How to Purchase Shares
No Load Funds
There are no sales commissions or Rule 12b-1 distribution fees
How to Buy Shares (see chart on page 20 for details)
By phone, mail or wire
Through Automatic Monthly Investments
Through exchanges from a Babson or Buffalo Fund
Minimum Initial Investment
$2,500 (unless Automatic Monthly)
$100 with an Automatic Monthly Investment Plan
$250 for IRA and Uniform Transfer (Gift) to Minors accounts
$1,000 for exchanges from a Babson Money Market or another Buffalo Fund
Minimum Additional Investment
$100 by mail
$1,000 by wire or telephone (ACH)
$100 for Automatic Monthly Investments
$1,000 for exchanges from a Babson Money Market or Buffalo Fund
Minimum Account Size
You must maintain a minimum account value equal to the current minimum
initial investment (usually $2,500). If your account falls below this
amount due to redemptions (not market action) we may ask you to increase
the account to the minimum. If you do not bring the account up to the
minimum within 60 days after we contact you, we will close the account
and send your money to you.
How to Redeem Shares
You may withdraw from your account at any time in the following amounts:
Any amount for redemptions requested by mail or telegraph
$1,000 or more for redemptions wired to your account ($10 fee)
$50 or more for redemptions by a systematic redemption plan (there may be a
fee)
$1,000 or more for exchanges to another fund
$100 or more for redemptions by automatic monthly exchange to another fund
$100 or more via ACH; there is no fee but funds may take 4 days to reach your
account
Shareholder Services
The following services are also available to shareholders. Please call
1-800-49-BUFFALO (1-800-492-8332) for more information:
Uniform Transfers (Gifts) to Minors accounts
Accounts for corporations or partnerships
Sub-Accounting Services for Keogh, tax qualified retirement plans, and others
Prototype Retirement Plans for the self-employed, partnerships and
corporations
Traditional IRA accounts
Roth IRA accounts
Simplified Employee Pensions (SEPs)
How Share Price is Determined
Shares of each Fund are purchased or redeemed at its net asset value per
share next calculated after your purchase order and payment or
redemption order is received by the Fund in good order. In the case of
certain institutions which have made satisfactory payment or redemption
arrangements with the Funds, orders may be processed at the net asset
value per share next effective after receipt by that institution.
The net asset value is calculated by subtracting from the Fund's total
assets any liabilities and then dividing into this amount the total
outstanding shares as of the date of the calculation. The net asset
value per share is computed once daily, Monday through Friday, at 4:00
p.m. (Eastern Time) on days when the Funds are open for business
(generally the same days that the New York Stock Exchange is open for
trading). The Funds are generally closed on weekends, national holidays
and Good Friday.
Each security owned by a Fund that is listed on an Exchange is valued at
its last sale price on that Exchange on the date as of which assets are
valued. Where the security is listed on more than one Exchange, the Fund
will use the price of that Exchange which it generally considers to be
the principal Exchange on which the stock is traded. Lacking sales, the
security is valued at the mean between the last current closing bid and
asked prices. An unlisted security for which over-the-counter market
quotations are readily available is valued at the mean between the last
bid and asked prices. When market quotations are not readily available,
any security or other asset is valued at its fair value as determined in
good faith by the respective Board of Directors.
Distributions and Taxes
The Buffalo Balanced Fund and Buffalo High Yield Fund pay distributions
from net investment income quarterly, usually in March, June, September
and December. The Buffalo Equity Fund, Buffalo USA Global Fund and
Buffalo Small Cap Fund pay distributions from net investment income
semi-annually, usually in June and December. Distributions from net
capital gains realized on the sale of securities will be declared by the
Buffalo Balanced Fund and Buffalo Small Cap Fund annually on or before
December 31 and by the Buffalo High Yield Fund, Buffalo Equity Fund and
Buffalo USA Global Fund semi-annually, usually in June and December.
Your distributions will be reinvested automatically in additional shares
of the Fund, unless you have elected on your original application, or by
written instructions filed with the Fund, to have them paid in cash. We
automatically reinvest all dividends under $10.00 in additional shares
of the Fund. There are no fees or sales charges on reinvestments.
Tax Considerations. In general, distributions from a Fund are taxable
to you as either ordinary income or capital gains. This is true whether
you reinvest your distributions in additional shares of a Fund or
receive them in cash. Any capital gains a Fund distributes are taxable
to you as long-term capital gains no matter how long you have owned your
shares.
When you sell your shares of a Fund, you may have a capital gain or
loss. For tax purposes, an exchange of your Fund shares for shares of a
different Buffalo Fund or a Babson Money Market Fund is the same as a
sale. The individual tax rate on any gain from the sale or exchange of
your shares depends on how long you have held your shares.
Fund distributions and gains from the sale or exchange of your shares
will generally be subject to state and local income tax. Non-U.S.
investors may be subject to U.S. withholding and estate tax. You should
consult your tax advisor about the federal, state, local or foreign tax
consequences of your investment in a Fund.
Backup Withholding. By law, the Funds must withhold 31% of your taxable
distributions and proceeds if you do not provide your correct taxpayer
identification number (TIN) or certify that your TIN is correct, or if
the IRS instructs the Funds to do so.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared
in December but paid in January are taxable as if they were paid in
December.
Additional Policies About Transactions
We cannot process transaction requests that are not complete and in good
order as described in this section. We may cancel or change our
transaction policies without notice. To avoid delays, please call us if
you have any questions about these policies.
Purchases. We may reject orders when not accompanied by payment or when
in the best interest of the Funds and their shareholders.
Redemptions. We try to send proceeds as soon as practical. In any
event, we send proceeds by the third business day after we receive a
request in good order. We cannot accept requests that contain special
conditions or effective dates. We may request additional documentation
to ensure that a request is genuine. Under certain circumstances, we may
pay you proceeds in the form of portfolio securities owned by the Fund
being redeemed. If you receive securities instead of cash, you will
incur brokerage costs when converting into cash.
If you request a redemption within 15 days of purchase, we will delay
sending your proceeds until we have collected unconditional payment,
which may take up to 15 days from the date of purchase. For your
protection, if your account address has been changed within the last 30
days, your redemption request must be in writing and signed by each
account owner, with signature guarantees. The right to redeem shares may
be temporarily suspended in emergency situations only as permitted under
federal law.
Signature Guarantees. You can get a signature guarantee from most
banks, credit unions, savings & loans or securities broker/dealers, but
not a notary public. For your protection, we require a guaranteed
signature if you request:
A redemption check sent to a different payee, bank or address than we
have on file.
A redemption check mailed to an address that has been changed within
the last 30 days.
A redemption for $10,000 or more in writing.
A change in account registration or redemption instructions.
Corporations, Trusts and Other Entities. Additional documentation is
normally required for corporations, fiduciaries and others who hold
shares in a representative or nominee capacity. We cannot process your
request until we have all documents in the form required. Please call us
first to avoid delays.
Exchanges to Another Fund. You must meet the minimum investment
requirement of the Buffalo Fund or Babson Money Market Fund you are
exchanging into. The names and registrations on the two accounts must be
identical. Your shares must have been held in an open account for 15
days or more and we must have received good payment before we will
exchange shares. You should review the prospectus of the fund being
purchased. Call us for a free copy.
Telephone Services. During periods of increased market activity, you may
have difficulty reaching us by telephone. If this happens, contact us by
mail or telegraph. We may refuse a telephone request, including a
telephone or telegraph redemption request. We will use reasonable
procedures to confirm that telephone instructions are genuine. If such
procedures are followed and we reasonably believe the instructions are
genuine, the Funds are not liable for losses due to unauthorized or
fraudulent instructions. At our option, we may limit the frequency or
the amount of telephone redemption requests. Neither the Funds nor Jones
& Babson, Inc. assumes responsibility for the authenticity of telephone
redemption requests.
Conducting Business with the Buffalo Funds
BY PHONE
1-800-49-BUFFALO
(1-800-492-8332)
in the Kansas City area 751-5900
You must authorize each type of
telephone transaction on your account application or the appropriate
form, available from us. All account owners must sign. When you call, we
may request personal identification and tape record the call.
How to Open an Account
If you already have an account with us and you have authorized telephone
exchanges, you may call to open an account in another Babson or Buffalo
Fund by exchange ($1,000 minimum). The names and registrations on the
accounts must be identical.
How to Add to an Account
You may make investments ($1,000 minimum) by telephone. After we have
received your telephone call, we will deduct from your checking account
the cost of the shares.
Availability of this service is subject to approval by the Funds and
participating banks.
How to Sell Shares
Not applicable.
How to Exchange Shares
You may exchange shares ($1,000 minimum or the initial
minimum fund requirement) for shares in another Buffalo Fund or a Babson
Money Market Fund. The shares being exchanged must have been held in
open account for 15 days or more.
BY MAIL
Initial Purchases
and all Redemptions:
The Buffalo Fund Group
P.O. Box 419757
Kansas City, MO 64141-6757
Subsequent Purchases:
The Buffalo Fund Group
P.O. Box 419779
Kansas City, MO 64141-6779
How to Open an Account
Complete and sign the application which accompanies this Prospectus.
Your initial investment must meet the minimum amount. Make your check
payable to UMB Bank, n.a.
How to Add to an Account
Make your check ($100 minimum) payable to UMB Bank, n.a. and mail it to
us. Always identify your account number or include the detachable
reminder stub (from your confirmation statement).
How to Sell Shares
In a letter, include the genuine signature of each registered owner
(exactly as registered), the name of each account owner, the account
number and the number of shares or the dollar amount to be redeemed. We
will send funds only to the address of record.
How to Exchange Shares
In a letter, include the genuine signature of each registered owner, the
account number, the number of shares or dollar amount to be exchanged
($1,000 minimum) and the Buffalo or Babson Money Market Fund into which
the amount is being transferred.
BY WIRE
UMB Bank, n.a.,
Kansas City, Missouri,
ABA#101000695
For Buffalo ________________________ Fund
AC=9870595095
OBI = (your account number and
account name)
How to Open an Account
Call us first to get an account number. We will require information such
as your Social Security or Taxpayer Identification Number, the amount
being wired ($2,500 minimum), and the name and telephone number of the
wiring bank. Then tell your bank to wire the amount. You must send us a
completed application as soon as possible or payment of your redemption
proceeds will be delayed.
How to Add to an Account
Wire share purchases ($1,000 minimum) should include the names of each
account owner, your account number and the Buffalo Fund in which you are
purchasing shares. You should notify us by telephone that you have sent
a wire purchase order to UMB Bank, n.a.
How to Sell Shares
Redemption proceeds ($1,000 minimum) may be wired to your pre-identified
bank account. A $10 fee is deducted. If your written request is received
before 4:00 P.M. (Eastern Time) we will normally wire funds the
following business day. If we receive your written request later in the
day, we will normally wire funds on the second business day. Contact
your bank about the time of receipt and availability.
How to Exchange Shares
Not applicable.
THROUGH AUTOMATIC TRANSACTION PLANS
You must authorize each type of
automatic transaction on your account application or complete an
authorization form, available from us upon request. All registered
owners must sign.
How to Open an Account
Not applicable.
How to Add to an Account
Automatic Monthly Investment:
You may authorize automatic monthly investments in a constant dollar
amount ($100 minimum) from your checking account. We will draft your
checking account on the same day each month in the amount you authorize.
How to Sell Shares
Systematic Redemption Plan:
You may specify a dollar amount ($50 minimum) to be withdrawn monthly or
quarterly or have your shares redeemed at a rate calculated to exhaust
the account at the end of a specified period. A fee of $1.50 or less may
be charged for each withdrawal. You must own shares in an open account
valued at $10,000 when you first authorize the systematic redemption
plan. You may cancel or change your plan or redeem all your shares at
any time. We will continue withdrawals until your shares are gone or
until the Fund or you cancel the plan.
How to Exchange Shares
Monthly Exchanges:
You may authorize monthly exchanges from your account ($100 minimum) to
another Buffalo Fund or a Babson Money Market Fund. Exchanges will be
continued until all shares have been exchanged or until you terminate
the service.
Buffalo Mutual Funds
Balanced Fund
Equity Fund
High Yield Fund
Small Cap Fund
USA Global Fund
Additional Information
The Statement of Additional Information (SAI) contains additional
information about the Funds and is incorporated by reference into this
Prospectus. The Funds' annual and semi-annual reports to shareholders
contain additional information about each Fund's investments. In the
Funds' annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected each
Fund's performance during the last year.
You may obtain a free copy of these documents by calling, writing or e-
mailing the Funds as shown below.
You also may call the toll free number given below to request other
information about the Funds and to make shareholder inquiries.
You may review and copy the SAI and other information about the Funds by
visiting the Securities and Exchange Commission's Public Reference Room
in Washington, DC (1-800-SEC-0330) or by visiting the Commission's
Internet site at http://www.sec.gov. Copies of this information also may
be obtained, upon payment of a duplicating fee, by writing to the Public
Reference Section of the Commission, Washington, DC 20549-6009.
Buffalo Funds
Jones & Babson Distributors
A member of the Generali Group
P.O. Box 419757
Kansas City, MO 64141-6757
1-800-49-BUFFALO
(1-800-492-8332)
www.buffalofunds.com
811-8364 (Balanced Fund)
811-8900 (Equity Fund)
811-8898 (High Yield Fund)
811-8509 (Small Cap Fund)
811-8896 (USA Global Fund)
JB9B
(7/99)
PART B
BUFFALO BALANCED FUND, INC.
BUFFALO EQUITY FUND, INC.
BUFFALO HIGH YIELD FUND, INC.
BUFFALO SMALL CAP FUND, INC.
BUFFALO USA GLOBAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1999
This Statement is not a Prospectus but should
be read in conjunction with the current Prospectus
of the Funds' dated July 31, 1999. To obtain the
Prospectus or any Annual or Semi-Annual Report to
shareholders, please call the Fund toll-free at 1-
800-49 - Buffalo (1-800-492-8332), or in the Kansas
City area 751-5900.
TABLE OF CONTENTS
Page
Introduction 2
Information About the Funds' Investments 2
Objectives and Principal Investment Strategies 2
Risk Factors 4
Fundamental Investment Policies and Restrictions 6
Non-Fundamental Investment Policies and Restrictions 8
Fund Transactions 8
Performance Measures 10
Total Return 10
Performance Comparisons 11
Purchasing and Selling Shares 11
Purchases 11
Sales (Redemptions) 12
Signature Guarantees 13
How Share Price Is Determined 13
Additional Purchase and Redemption Policies 13
Management of the Company and Funds 14
Directors and Officers 14
Compensation 15
Manager and Investment Adviser 16
Custodian 17
Independent Auditors 17
Distributions and Taxes 17
Financial Statements 18
General Information and History 18
Appendix-Credit Ratings 19
INTRODUCTION
Buffalo Balanced Fund, Buffalo Equity Fund, Buffalo High Yield Fund,
Buffalo Small Cap Fund and Buffalo USA Global Fund (hereafter, the
"Funds") are each an open-end diversified management investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"). This classification means that the assets of the Funds
are invested in a diversified portfolio of securities and the Funds
operate as mutual funds, allowing shareholders to buy and sell shares
at any time (as described in the Prospectus).
This Statement of Additional Information supplements the information
contained in the Prospectus of the Funds.
INFORMATION ABOUT THE FUNDS' INVESTMENTS
Objectives and Principle Investment Strategies. Each Fund's
objectives and policies as described in this section will not be
changed without approval of a majority of the Fund's outstanding
shares.
Buffalo Balanced Fund - seeks both long-term capital growth and high
current income. Long-term capital growth is intended to be achieved
primarily by the Fund's investment in common stocks and secondarily by
the Fund's investment in convertible bonds and convertible preferred
stocks. High current income is intended to be achieved by the Fund's
investment in corporate bonds, government bonds, mortgage-backed
securities, convertible bonds, preferred stocks and convertible
preferred stocks.
It is expected that the majority of common stocks purchased by the Fund
will be large capitalization companies with most, if not all, listed on
the New York Stock Exchange. Large capitalization stocks are
considered to be those with capitalization in excess of $1 billion. It
is not the manager's intention to make wide use of Nasdaq-listed,
smaller capitalization common stocks (capitalization of less than $1
billion). The Fund may invest up to 75% of its assets in corporate
bonds, convertible bonds, preferred stocks and convertible preferred
stocks. The manager expects that generally these securities may be
rated below investment grade (BBB) or its equivalent by the major
rating agencies.
Securities rated below Baa by Moody's or BBB by Standard & Poor's are
commonly known as junk bonds and are considered to be high risk.
Yields on such bonds will fluctuate over time, and achievement of the
Fund's investment objective may be more dependent on the Fund's own
credit analysis than is the case for higher rated bonds. Up to 20% of
the Fund's assets may be invested in debt securities which are rated
less than B or are unrated. The Fund will not invest in securities
that, at the time of initial investment, are rated less than B by
Moody's or Standard & Poor's. Securities that are subsequently
downgraded in quality below B may continue to be held by the Fund, and
will be sold only at the Fund adviser's discretion. In addition, the
credit quality of unrated securities purchased by the Fund must be, in
the opinion of the Fund's adviser, at least equivalent to a B rating by
Moody's or Standard & Poor's. Securities rated less than Baa by
Moody's or BBB by Standard & Poor's are classified as non-investment
grade securities. Such securities carry a high degree of risk and are
considered speculative by the major credit rating agencies. (See "Risk
Factors Applicable to High Yielding Debt Securities.")
Buffalo Equity Fund - seeks long-term capital growth by investing
primarily in common stocks. Realization of dividend income is a
secondary consideration. Buffalo Equity Fund will normally invest in a
broad array of common stocks, in terms of companies and industries. It
is expected that the majority of common stocks purchased in the Fund
will be large capitalization companies with most, if not all, listed on
the New York Stock Exchange.
Buffalo High Yield Fund - primarily seeks a high level of current
income and secondarily, capital growth. The Fund invests primarily in
a diversified portfolio of high-yielding fixed income securities. High
current income is intended to be achieved by the Fund's investment in
fixed income securities, without restriction, such as corporate bonds,
government bonds, convertible bonds, preferred stocks and convertible
preferred stocks. The Fund may not invest in foreign government bonds.
Capital growth is intended to be achieved by the appreciation of fixed
income and equity investments held in the Fund.
The Fund may invest up to 100% of its assets in fixed income
securities, including without limitation, corporate bonds, convertible
bonds, preferred stocks and convertible preferred stocks. These
securities may be rated below investment grade by the major rating
agencies or, if unrated, are in the opinion of the manager of similar
quality. Securities rated Baa and below by Moody's or BBB and below by
Standard & Poor's are commonly known as "junk bonds" and are considered
to be high risk (see "Risk Factors Applicable to High Yielding Debt
Securities"). Yields on such bonds will fluctuate over time, and
achievement of the Fund's investment objective may be more dependant on
the Fund's own credit analysis than is the case for higher rated bonds.
Up to 20% of the Fund's assets may be invested in debt securities which
are rated less than B at the time of purchase or if unrated are in the
opinion of the manager of similar quality. Securities rated B or
higher at the time of purchase, which are subsequently downgraded, will
not be subject to this limitation. The lowest rating that may be held
in the Fund is D, or that of defaulted securities. The Fund will not
purchase obligations that are in default, but may hold in the portfolio
securities that go into default subsequent to acquisition by the Fund.
The proportion of the Fund invested in each type of security is
expected to change over time in accordance with the investment
manager's interpretation of economic conditions and underlying security
values. However, it is expected that a minimum of 65% of the Fund's
total assets will always be invested in fixed income securities and
that a maximum of 10% of its total assets will be invested in equity
securities. The Fund's flexible investment policy allows it to invest
in securities with varying maturities; however, it is anticipated that
the average maturity of securities acquired by the Fund will not exceed
15 years. The average maturity of the Fund will be generally ten years
or less.
Sometimes the manager may believe that a full or partial temporary
defensive position is desirable, due to present or anticipated market
or economic conditions. To achieve a defensive posture, the manager
may take any one or more of the following steps with respect to assets
in the Fund's portfolio: (1) shortening the average maturity of the
Fund's debt portfolio; (2) holding cash or cash equivalents; and (3)
emphasizing high-grade debt securities. Use of a defensive posture by
the Fund's manager may involve a reduction in the yield on the Fund's
portfolio.
Buffalo Small Cap Fund - seeks long-term capital growth by investing
primarily in equity securities of small companies. Equity securities
include common stock, preferred stock and securities convertible into
common stock or preferred stock. The Buffalo Small Cap Fund will
normally invest in a broad array of securities, diversified in terms of
companies and industries.
Buffalo USA Global Fund - seeks capital growth by investing in common
stocks of companies based in the United States that receive greater
than 40% of their revenues or income from international operations;
measured as of the preceding four completed quarters of business or the
respective company's most recently completed fiscal year. The Fund will
invest in common stocks considered by the manager to have above average
potential for appreciation; income is a secondary consideration. Under
normal circumstances, the Fund will invest in a majority of its assets
in common stocks listed on the New York Stock Exchange.
The Funds' investments are selected by Kornitzer Capital Management,
Inc.
Cash Management. For purposes including, but not limited to, meeting
redemptions and unanticipated expenses, the Funds may invest a portion
of their assets in cash or high-quality, short term debt obligations
readily changeable into cash. In addition, the Funds may invest up to
100% of their respective assets in such securities for temporary,
emergency purposes. Such high quality, short-term obligations
include: money market securities, commercial paper, bank certificates
of deposit, and repurchase agreements collateralized by government
securities. Investments in commercial paper are restricted to
companies in the top two short-term rating categories by Moody's
Investment Service, Inc. (Moody's) and Standard & Poor's Corporation.
Repurchase Agreements. The Funds may invest in issues of the United
States Treasury or a United States government agency subject to
repurchase agreements. A repurchase agreement involves the sale of
securities to the Fund with the concurrent agreement by the seller to
repurchase the securities at the Fund's cost plus interest at an agreed
rate upon demand or within a specified time, thereby determining the
yield during the Fund's period of ownership. The result is a fixed rate
of return insulated from market fluctuations during such period. Under
the 1940 Act, repurchase agreements are considered loans by the
respective Fund.
The Funds will enter into repurchase agreements only with United States
banks having assets in excess of $1 billion which are members of the
Federal Deposit Insurance Corporation, and with certain securities
dealers who meet the qualifications set from time to time by the Board
of Directors of the Company. The term to maturity of a repurchase
agreement normally will be no longer than a few days. Repurchase
agreements maturing in more than seven days and other illiquid
securities will not exceed 15% of the net assets of the Funds.
Covered Call Options. Each Fund is authorized to write (i.e. sell)
covered call options on the securities in which it may invest and to
enter into closing purchase transactions with respect to certain of
such options. A covered call option is an option where the Fund in
return for a premium gives another party a right to buy specified
securities owned by the Fund at a specified future date and price set
at the time of the contract. (See "Risk Factors Applicable to Covered
Call Options.") Covered call options are intended to serve as a
partial hedge against any declining price of the underlying securities.
Money Market Securities. Investments by the Funds in money market
securities shall include government securities, commercial paper, bank
certificates of deposit and repurchase agreements collateralized by
government securities. Investment in commercial paper is restricted to
companies in the top two rating categories by Moody's and Standard &
Poor's.
Asset-Backed Securities. The Buffalo High Yield Fund may invest in
asset-backed securities. Asset-backed securities are collateralized by
short maturity loans such as automobile receivables, credit card
receivables, other types of receivables or assets. Credit support for
asset-backed securities may be based on the underlying assets and/or
provided through credit enhancements by a third party. Credit
enhancement techniques include letters of credit, insurance bonds,
limited guarantees (which are generally provided by the issuer),
senior-subordinated structures and over-collateralization.
ADRs. Buffalo Equity Fund and Buffalo Small Cap Fund may gain
international exposure through investing in American Depository
Receipts (ADRs). ADRs, which are issued by domestic banks, are
publicly traded in the United States and represent ownership in
underlying foreign securities. The Funds do not intend to invest
directly in foreign securities or foreign currencies. (See "Risk
Factors Applicable to ADRs.")
RISK FACTORS
Risk Factors Applicable to High Yielding Securities. Buffalo Balanced
Fund and Buffalo High Yield Fund invest in high-yielding, high-risk
debt securities (so-called "junk bonds"). These lower rated bonds
involve a higher degree of credit risk, the risk that the issuer will
not make interest or principal payments when due. In the event of an
unanticipated default, a Fund would experience a reduction in its
income, and could expect a decline in the market value of the
securities so affected. More careful analysis of the financial
condition of each issuer of lower grade securities is therefore
necessary. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their
principal and interest payment obligations, to meet projected business
goals and to obtain additional financing.
The market prices of lower grade securities are generally less
sensitive to interest rate changes than higher rated investments, but
more sensitive to adverse economic or political changes or, in the case
of corporate issuers, individual corporate developments. Periods of
economic or political uncertainty and change can be expected to result
in volatility of prices of these securities. Since the last major
economic recession, there has been a substantial increase in the use of
high-yield debt securities to fund highly leveraged corporate
acquisitions and restructurings, so past experience with high-yield
securities in a prolonged economic downturn may not provide an accurate
indication of future performance during such periods. Lower rated
securities also may have less liquid markets than higher rated
securities, and their liquidity as well as their value may be adversely
affected by adverse economic conditions. Adverse publicity and
investor perceptions, as well as new or proposed laws, may also have a
negative impact on the market for high- yield/high-risk bonds.
Credit quality of lower-rated securities can change suddenly and
unexpectedly and even recently issued credit ratings may not fully
reflect the actual risks posed by a particular high-yield/high-risk
security. For these reasons, it is the Funds' policy not to rely
primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the investment adviser's
own independent and ongoing review of credit quality. As a mutual fund
investing in fixed income securities, each of the Funds is subject
primarily to interest rate, income and credit risk. Interest rate risk
is the potential for a decline in bond prices due to rising interest
rates. In general, bond prices vary inversely with interest rates.
When interest rates rise, bond prices generally fall. Conversely, when
interest rates fall, bond prices generally rise. The change in price
depends on several factors, including the bond's maturity date. In
general, bonds with longer maturities are more sensitive to interest
rates than bonds with shorter maturities.
The Funds are also subject to income risk, which is the potential for a
decline in the respective Fund's income due to falling market interest
rates. In addition to interest rate and income risks, each Fund is
subject to credit risk as defined above. The credit risk of a Fund
depends on the quality of its investments. Reflecting their higher
risks, lower-quality bonds generally offer higher yields (all other
factors being equal).
Risk Factors Applicable to Small Capitalization Securities.
Investments in common stocks in general are subject to market, economic
and business risks that will cause their price to fluctuate over time.
Investment in such smaller company may securities involve greater price
volatility than securities of larger, more established companies
Risk Factors Applicable to ADRs. Up to 25% of Buffalo Equity Funds'
and Buffalo Small Cap Funds' total assets may be invested in ADRs.
Most ADRs are traded on a U.S. stock exchange and can be sponsored or
unsponsored. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information in the U.S. and, therefore,
there may not be a correlation between such information and the market
value of the unsponsored ADR.
ADRs do not involve the same direct currency and liquidity risks as
securities denominated in foreign currency. However, their value will
generally be affected by currency fluctuations that alter the value of
the security underlying the ADRs with respect to the U.S. dollar.
Risk Factors Applicable to Covered Call Options. Each of the Buffalo
Funds may engage in covered call option transactions as described
herein. Up to 25% of a Fund's total assets may be subject to covered
call options. By writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any price
increase in the underlying security above the option exercise price.
In addition, a Fund's ability to sell the underlying security will be
limited while the option is in effect unless the Fund effects a closing
purchase transaction. A closing purchase transaction cancels out a
Fund's position as the writer of an option by means of an offsetting
purchase of an identical option prior to the expiration of the option
it has written. Upon the termination of a Fund's obligation under a
covered call option other than through exercise of the option, the Fund
will realize a short-term capital gain or loss. Any gain realized by a
Fund from the exercise of an option will be short- or long-term
depending on the period for which the stock was held. The writing of
covered call options creates a straddle that is potentially subject to
the straddle rules, which may override some of the foregoing rules and
result in a deferral of some losses for tax purposes.
Risk Factors Applicable to Repurchase Agreements. The Funds may enter
into repurchase agreements. The use of repurchase agreements involves
certain risks. For example, if the seller of the agreement defaults on
its obligation to repurchase the underlying securities at a time when
the value of these securities has declined, a Fund may incur a loss
when the securities are sold. If the seller of the agreement becomes
insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, disposition of the underlying securities
may be delayed pending court proceedings. Finally, it is possible that
a Fund may not be able to perfect its interest in the underlying
securities. While the Fund management acknowledges these risks, it is
expected that they can be controlled through stringent security
selection criteria and careful monitoring procedures.
Fundamental Investment Policies and Restrictions. The following
policies have been adopted by the Funds, except Buffalo Small Cap Fund,
and are fundamental. (Fundamental policies for buffalo Small Cap Fund
follow). These policies cannot be changed without the approval of a
"majority of the outstanding voting securities" of the respective
Fund. Under the 1940 Act, a "majority of the outstanding voting
securities" of a Fund means the vote of: (i) more than 50% of the
outstanding voting securities of the Fund; or (ii) 67% or more of the
voting securities of the Fund present at a meeting, if the holders of
more than 50% of the outstanding voting securities are present or
represented by proxy, whichever is less. In cases where the current
legal or regulatory limitations are explained, such explanations are
not part of the fundamental restriction and may be modified without
shareholder approval to reflect changes in the legal and regulatory
requirements.
Buffalo Balanced Fund, Buffalo Equity Fund, Buffalo High Yield Fund and
Buffalo USA Global Growth Fund will not:
(1) purchase the securities of any one issuer, except the United States
government, if immediately after and as a result of such purchase
(a) the value of the holding of the Fund in the securities of such
issuer exceeds 5% of the value of the Funds' total assets, or (b)
the Fund owns more than 10% of the outstanding voting securities, or
any other class of securities, of such issuer;
(2) engage in the purchase or sale of real estate (unless acquired as a
result of ownership of securities or other instruments and provided
that this restriction does not prevent the Fund from investing in
issuers which invest, deal or otherwise engage in transactions in
real estate or interests therein, or investing in securities that
are secured by real estate or interests therein), commodities
(unless acquired as a result of ownership of securities or other
instruments and provided that this restriction does not prevent the
Fund from engaging in transactions in securities secured by physical
commodities) or futures contracts;
(3) underwrite the securities of other issuers (except that the Fund may
engage in transactions involving the acquisition, disposition or
resale of its portfolio securities, under circumstances where it may
be considered to be an underwriter under the Securities Act of
1933);
(4) make loans to any of its officers, directors or employees, or to its
manager, general distributor or officers or directors thereof;
(5) make any loan (the purchase of a security subject to a repurchase
agreement or the purchase of a portion of and issue of publicly
distributed debt securities is not considered the making of a loan);
(6) invest in companies for the purpose of exercising control of
management;
(7) purchase securities on margin, or sell securities short, except that
the Fund may write covered call options;
(8) purchase shares of other investment companies except in the open
market at ordinary broker's commission or pursuant to a plan of
merger or consolidation;
(9) invest in the aggregate more than 5% of the value of its gross
assets in the securities of issuers (other than federal, state,
territorial, or local governments, or corporations, or authorities
established thereby), which, including predecessors have not had at
least three years' continuous operations;
(10) except for transactions in its shares or other securities through
brokerage practices which are considered normal and generally
accepted under circumstances existing at the time, enter into
dealings with its officers or directors, its manager or underwriter,
or their officers or directors, or any organization in which such
persons have a financial interest;
(11) borrow or pledge its assets under normal circumstances, except up
to 10% of its total assets (computed at the lower of fair market
value or cost) temporarily for emergency or extraordinary purposes,
and not for the purpose of leveraging its investments, and provided
further that any borrowing in excess of the 5% of the total assets
of the Fund shall have asset coverage of at least 3 to 1;
(12) make itself or its assets liable for the indebtedness of others;
(13) invest in securities which are assessable or involve unlimited
liability;
(14) purchase any securities which would cause 25% or more of the
assets of the Fund at the time of purchase to be invested in any one
industry. In applying this restriction, it is a matter of non-
fundamental policy that investment in certain categories of
companies will not be considered to be investments in a particular
industry. For example: (i) financial service companies will be
classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance
will each be considered a separate industry; (ii) technology
companies will be divided according to their products and services,
for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry;
(iii) asset-backed securities will be classified according to the
underlying assets securing such securities; and (iv) utility
companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be
considered a separate industry; or
(15) purchase or retain securities of any company in which any Fund
officers or directors, or Fund manager, its partner, officer, or
director beneficially owns more than 1/2 of 1% of such company's
securities, if all such persons owning more than 1/2 of 1% of such
company's securities, own in the aggregate more than 5% of the
outstanding securities of such company.
Buffalo Small Cap Fund Fundamental Policies. The following policies
have been adopted by the Buffalo Small Cap Fund, and are fundamental.
These policies cannot be changed without the approval of a "majority
of the outstanding voting securities" of the respective Fund. Under
the 1940 Act, a "majority of the outstanding voting securities" of a
Fund means the vote of: (i) more than 50% of the outstanding voting
securities of the Fund; or (ii) 67% or more of the voting securities of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy,
whichever is less. In cases where the current legal or regulatory
limitations are explained, such explanations are not part of the
fundamental restriction and may be modified without shareholder
approval to reflect changes in the legal and regulatory requirements.
Buffalo Small Cap will not:
(1) as to 75% of its total assets, purchase the securities of any one
issuer, except the United States government, if immediately after
and as a result of such purchase (a) the value of the holding of the
Fund in the securities of such issuer exceeds 5% of the value of the
Funds' total assets, or (b) the Fund owns more than 10% of the
outstanding voting securities, or any other class of securities, of
such issuer;
(2) engage in the purchase or sale of real estate (unless acquired as a
result of ownership of securities or other instruments and provided
that this restriction does not prevent the Fund from investing in
issuers which invest, deal or otherwise engage in transactions in
real estate or interests therein, or investing in securities that
are secured by real estate or interests therein), commodities
(unless acquired as a result of ownership of securities or other
instruments and provided that this restriction does not prevent the
Fund from engaging in transactions in securities secured by physical
commodities) or futures contracts;
(3) underwrite the securities of other issuers (except that the Fund may
engage in transactions involving the acquisition, disposition or
resale of its portfolio securities, under circumstances where it may
be considered to be an underwriter under the Securities Act of
1933);
(4) make loans to other persons, except by the purchase of debt
obligations which are permitted under its policy (the purchase of a
security subject to a repurchase agreement or the purchase of a
portion of an issue of publicly distributed debt securities is not
considered the making of a loan);
(5) purchase securities on margin, or sell securities short, except that
the Fund may write covered call options;
(6) borrow or pledge its credit under normal circumstances, except up to
10% of its total assets (computed at the lower of fair market value
or cost) temporarily for emergency or extraordinary purposes, and
not for the purpose of leveraging its investments, and provided
further that any borrowing in excess of the 5% of the total assets
of the Fund shall have asset coverage of at least 3 to 1;
(7) purchase any securities which would cause 25% or more of the assets
of the Fund at the time of purchase to be invested in any one
industry. In applying this restriction, it is a matter of non-
fundamental policy that investment in certain categories of
companies will not be considered to be investments in a particular
industry. For example: (i) financial service companies will be
classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance
will each be considered a separate industry; (ii) technology
companies will be divided according to their products and services,
for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry;
(iii) asset-backed securities will be classified according to the
underlying assets securing such securities; and (iv) utility
companies will be divided according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry.
Non-Fundamental Investment Policies and Restrictions. In addition to
the fundamental policies and investment restrictions described above,
and the various general investment policies described in the
Prospectus, the Funds (except Buffalo Small Cap) will be subject to the
following investment restrictions, which are considered non-fundamental
and may be changed by the Board of Directors without shareholder
approval. (Buffalo Small Cap non-fundamental policies follow.)
Other Investment Companies. The Buffalo Funds are permitted to invest
in other investment companies on the open market, including open-end,
closed-end or unregistered investment companies, either within the
percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to
percentage limits in connection with a merger, reorganization,
consolidation or other similar transaction. However, the Fund may not
operate as a fund of funds which invests primarily in the shares of
other investment companies as permitted by Section 12(d)(1)(F) or (G)
of the 1940 Act, if its own shares are utilized as investments by such
a fund of funds. Under current legal and regulatory requirements, the
Fund may invest up to 5% of its total assets in the securities of any
one investment company, but may not own more than 3% of any investment
company or invest more than 10% of its total assets in the securities
of other investment companies.
Buffalo Small Cap Fund Non-fundamental Policies. In addition to the
fundamental policies and investment restrictions described above, and
the various general investment policies described in the Prospectus,
Buffalo Small Cap Fund will be subject to the following investment
restrictions, which are considered non-fundamental and may be changed
by the Board of Directors without shareholder approval. Buffalo Small
Cap Fund will not:
(1) invest in companies for the purpose of exercising control of
management;
(2) purchase shares of other investment companies except in the open
market at ordinary broker's commission or pursuant to a plan of
merger or consolidation;
(3) invest in the aggregate more than 5% of the value of its gross
assets in the securities of issuers (other than federal, state,
territorial, or local governments, or corporations, or authorities
established thereby), which, including predecessors have not had at
least three years' continuous operations; or
(4) Enter into dealings with its officers or directors, its manager or
underwriter, or their officers or directors, or any organization in
which such persons have a financial interest, except for
transactions in its shares or transactions in other securities where
such person is acting as broker and the brokerage fees and practices
are considered normal and generally accepted
Fund Transactions. Decisions to buy and sell securities for the Funds
are made by Jones & Babson, Inc. pursuant to recommendations by
Kornitzer Capital Management, Inc. Officers of the Funds and Jones &
Babson, Inc. are generally responsible for implementing and supervising
these decisions, including allocation of portfolio brokerage and
principal business and the negotiation of commissions and/or price of
the securities. In instances where securities are purchased on a
commission basis, the Funds will seek competitive and reasonable
commission rates based on circumstances of the trade involved and to
the extent that they do not detract from the quality of the execution.
Following is information on the amount of brokerage commissions paid by
the Funds' during the periods indicated:
Name of Fund Fiscal Year Ended Fiscal Year Ended
March 31, 1998 March 31, 1999
Buffalo Balanced Fund $37,424 $42,771
Buffalo Equity Fund $56,215 $52,763
Buffalo High Yield Fund $4,997 $3,904
Buffalo Small Cap Fund N/A $35,033
Buffalo USA Global Fund $51,897 $25,317
The level of brokerage commissions generated by a Fund is directly
related to the number and the size of the buy and sell transactions
into which the Fund enters. The frequency and size of these
transactions are affected by various factors such as cash flows into
and out of a fund, the manager's interpretation of the market or
economic environment, etc. As shown above, commissions generated by
the Buffalo USA Global declined in fiscal year 1999 primarily due to
lower cash flows into the fund.
The Funds, in purchasing and selling portfolio securities, will seek
the best available combination of execution and overall price (which
shall include the cost of the transaction) consistent with the
circumstances which exist at the time. The Funds do not intend to
solicit competitive bids on each transaction. Portfolio turnover
ratios for the Funds are as follows:
Name of Fund Fiscal Year Ended Fiscal Year Ended
March 31, 1998 March 31, 1999
Buffalo Balanced Fund 61% 57%
Buffalo Equity Fund 93% 83%
Buffalo High Yield Fund 24% 30%
Buffalo Small Cap Fund N/A 34%
Buffalo USA Global Fund 64% 42%
The Funds believe it is in their best interest to have a stable and
continuous relationship with a diverse group of financially strong and
technically qualified broker-dealers who will provide quality
executions at competitive rates. Broker-dealers meeting these
qualifications also will be selected for their demonstrated loyalty to
the respective Fund, when acting on its behalf, as well as for any
research or other services provided to the respective Fund. The Funds
may execute a substantial portion of the portfolio transactions through
brokerage firms which are members of the New York Stock Exchange or
through other major securities exchanges. When buying securities in
the over-the-counter market, the Funds will select a broker who
maintains a primary market for the security unless it appears that a
better combination of price and execution may be obtained elsewhere.
The Funds will not normally pay a higher commission rate to broker-
dealers providing benefits or services to it than it would pay to
broker-dealers who did not provide such benefits or services. However,
the Funds reserve the right to do so within the principles set out in
Section 28(e) of the Securities Exchange Act of 1934 when it appears
that this would be in the best interests of the shareholders.
No commitment is made to any broker or dealer with regard to placing of
orders for the purchase or sale of Fund portfolio securities, and no
specific formula is used in placing such business. Allocation is
reviewed regularly by both the Boards of Directors of the Funds and
Jones & Babson, Inc.
Since the Funds do not market their shares through intermediary brokers
and dealers, it is not the Funds' practice to allocate brokerage or
principle business on the basis of sales of their shares which may be
made through such firms. However, they may place portfolio orders with
qualified broker-dealers who recommend the Funds to their clients, or
who act as agent in the purchase of the Funds' shares for their
clients.
Research services furnished by broker-dealers may be useful to the
Funds' manager and its investment counsel in serving other clients, as
well as the respective Funds. Conversely, the Funds may benefit from
research services obtained by the manager or its investment counsel
from the placement of portfolio brokerage of other clients.
When the manager in its fiduciary duty believes it to be in the best
interest of the shareholders, the Funds may join with other clients of
the manager and its investment counsel in acquiring or disposing of a
portfolio holding. Securities acquired or proceeds obtained will be
equitably distributed among the Funds and other clients participating
in the transaction. In some instances, this investment procedure may
affect the price paid or received by a Fund or the size of the position
obtained by a Fund.
PERFORMANCE MEASURES
The Funds may advertise "average annual total return" over various
periods of time. Such total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of
the measuring period to the end of the measuring period. These figures
reflect changes in the price of each Fund's shares and assume that any
income dividends and/or capital gains distributions made by the Funds
during the period were reinvested in shares of the Funds. Figures will
be given for recent one-, five- and ten-year periods (if applicable),
and may be given for other periods as well (such as from commencement
of the Fund's operations, or on a year-by-year basis). When considering
"average" total return figures for periods longer than one year, it is
important to note that a Fund's annual total return for any one year in
the period might have been greater or less than the average for the
entire period.
Total Return. The Funds' "average annual total return" figures
described and shown below are computed according to a formula
prescribed by the Securities and Exchange Commission. The formula can
be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the 1, 5 or 10 year
(or other) periods (or fractional portions thereof).
From time to time, Buffalo Balanced Fund and Buffalo High Yield Fund
may quote its yield in advertisements, shareholder reports or other
communications to shareholders. Yield is calculated according to the
following standardized SEC formula.
Current yield reflects the income per share earned by the Fund's
investments.
Current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price
per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all
shareholders during the base period.
The SEC standardized yield formula is as follows:
Yield = 2[(a-b+1) - 1]
--------------
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period.
Performance Comparisons. In advertisements or in reports to
shareholders, a Fund may compare its performance to that of other
mutual funds with similar investment objectives and to stock or other
relevant indices. For example, it may compare its performance to
rankings prepared by Lipper Analytical Services, Inc. (Lipper), a
widely recognized independent service which monitors the performance of
mutual funds. The Fund may compare its performance to the Standard &
Poor's 500 Stock Index (S&P 500), an index of unmanaged groups of
common stocks, the Dow Jones Industrial Average, a recognized unmanaged
index of common stocks of 30 industrial companies listed on the NYSE,
the Russell 2000 Index, a small company stock index, or the Consumer
Price Index.
Performance rankings, recommendations, published editorial comments
and listings reported in Money, Barron's, Kiplinger's Personal Finance
Magazine, Financial World, Forbes, U.S. News & World Report, Business
Week, The Wall Street Journal, Investors Business Daily, USA Today,
Fortune and Stanger's may also be cited (if the Fund is listed in any
such publication) or used for comparison, as well as performance
listings and rankings from Morningstar Mutual Funds, Personal Finance,
Income and Safety, The Mutual Fund Letter, No-Load Fund Investor,
United Mutual Fund Selector, No-Load Fund Analyst, No-Load Fund X,
Louis Rukeyser's Wall Street newsletter, Donoghue's Money Letter, CDA
Investment Technologies, Inc., Wiesenberger Investment Companies
Service and Donoghue's Mutual Fund Almanac.
The table below shows the average total return for each of the Funds
for the specified periods.
BALANCED EQUITY HIGH YIELD USA GLOBAL SMALL CAP
FUND FUND FUND FUND FUND
For the year
4/1/98 - 3/31/99 -10.49% 2.73% -9.92% -2.52% N/A
From beginning
of operations to 9.66% 22.64% 9.52% 18.90% -4.69%
3/31/99*
* Buffalo Balanced Fund began operation on August 12, 1994; Buffalo
Equity Fund, Buffalo High Yield Fund, and Buffalo USA Global Fund
each began operation on May 19, 1995. Buffalo Small Cap Fund
began operation on April 14, 1998
PURCHASING AND SELLING SHARES
Purchases. We will not be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems. We
cannot process transaction requests that are not complete and in good
order as described in the prospectus. If you use the services of any
other broker to purchase or redeem shares of the Fund, that broker may
charge you a fee. Each order accepted will be fully invested in whole
and fractional shares, unless the purchase of a certain number of whole
shares is specified, at the net asset value per share next effective
after the order is accepted by the Fund.
Each investment is confirmed by a year-to-date statement which provides
the details of the immediate transaction, plus all prior transactions
in your account during the current year. This includes the dollar
amount invested, the number of shares purchased or redeemed, the price
per share, and the aggregate shares owned. A transcript of all
activity in your account during the previous year will be furnished
each January. By retaining each annual summary and the last year-to-date
statement, you have a complete detailed history of your account which provides
necessary tax information. A duplicate copy of a past annual statement
is available from Jones & Babson, Inc. at its cost, subject to a
minimum charge of $5 per account, per year requested.
Normally, the shares which you purchase are held by the Fund in open
account, thereby relieving you of the responsibility of providing for
the safekeeping of a negotiable share certificate. Should you have a
special need for a certificate, one will be issued on request for all
or a portion of the whole shares in your account. There is no charge
for the first certificate issued. A charge of $3.50 will be made for
any replacement certificates issued. In order to protect the interests
of the other shareholders, share certificates will be sent to those
shareholders who request them only after the Fund has determined that
unconditional payment for the shares represented by the certificate has
been received by its custodian, UMB Bank, n.a.
If an order to purchase shares must be canceled due to non-payment, the
purchaser will be responsible for any loss incurred by the Funds
arising out of such cancellation. To recover any such loss, the Funds
reserve the right to redeem shares owned by any purchaser whose order
is canceled, and such purchaser may be prohibited or restricted in the
manner of placing further orders.
The Funds reserve the right in their sole discretion to withdraw all or
any part of the offering made by the prospectus or to reject purchase
orders when, in the judgment of management, such withdrawal or
rejection is in the best interest of the Funds and their shareholders.
The Funds reserve the right to refuse to accept orders for Fund shares
unless accompanied by payment, except when a responsible person has
indemnified the Funds against losses resulting from the failure of
investors to make payment. If an order to purchase shares must be
canceled due to non-payment, the purchaser will be responsible for any
loss incurred by the Fund arising out of such cancellation. To recover
any such loss, the Funds reserve the right to redeem shares by any
purchaser whose order is canceled, and such purchaser may be prohibited
or restricted in the manner of placing further orders.
Sales (Redemptions). We will not be responsible for the consequences
of delays, including delays in the banking or Federal Reserve wire
systems. We cannot process transaction requests that are not complete
and in good order. We must receive an endorsed share certificate with
a signature guarantee, where a certificate has been issued.
The right of redemption may be suspended, or the date of payment
postponed beyond the normal three-day period by the Board of Directors
under the following conditions authorized by the Investment Company Act
of 1940: (1) for any period (a) during which the New York Stock
Exchange is closed, other than customary weekend and holiday closing,
or (b) during which trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a
result of which (a) disposal by the Funds of securities owned by it is
not reasonably practical, or (b) it is not reasonably practical for the
Funds to determine the fair value of its net assets; or (3) for such
other periods as the Securities and Exchange Commission may by order
permit for the protection of the Funds' shareholders.
The Funds have elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which the Funds are
obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the Fund's net asset value during any 90-day period for any
one shareholder. Should redemptions by any shareholder exceed such
limitation, a Fund may redeem the excess in kind. If shares are
redeemed in kind, the redeeming shareholder may incur brokerage costs
in converting the assets to cash.
Signature Guarantees. Signature guarantees normally reduce the
possibility of forgery and are required in connection with each
redemption method to protect shareholders from loss. Signature
guarantees are required in connection with all redemptions of $10,000
or more by mail or changes in share registration, except as provided in
the Prospectus. Signature guarantees must appear together with the
signature(s) of the registered owner(s) on:
(1) a written request for redemption in excess of $10,000;
(2) a separate instrument of assignment, which should specify the
total number of shares to be redeemed (this "stock power" may be
obtained from the Funds or from most banks or stock brokers); or
(3) all stock certificates tendered for redemption.
(4) requests for redemptions checks to be sent to a different payee,
bank or address then we have on file.
How Share Price is Determined. The net asset value per share is
computed once daily, Monday through Friday, at 4:00 p.m. (Eastern Time)
except: days when the Funds are not open for business; days on which
changes in the value of portfolio securities will not materially affect
the net asset value; days during which no purchase or redemption order
is received by the Funds; and customary holidays.
The Funds do not compute their net asset value on the following
customary holidays:
New Year's Day January 1
Martin Luther King Jr. Day Third Monday in January
Presidents' Holiday Third Monday in February
Good Friday Friday before Easter
Memorial Day Last Monday in May
Independence Day July 4
Labor Day First Monday in September
Thanksgiving Day Fourth Thursday in November
Christmas Day December 25
Additional Purchase and Redemption Policies. We reserve the right to:
Waive or increase the minimum investment requirements with respect to
any person or class of persons, which include shareholders of the
Funds' special investment programs.
Cancel or change the telephone investment service, the
telephone/telegraph exchange service and the automatic monthly
investment plan without prior notice to you where in the best interest
of the Funds and its investors.
Begin charging a fee for the telephone investment service or the
automatic monthly investment plan and to cancel or change these
services upon 15 days written notice to you.
Begin charging a fee for the telephone/telegraph service and to cancel
or change the service upon 60 days written notice to you.
Begin charging a fee for the systematic redemption plan upon 30 days
written notice to you.
Waive signature guarantee requirements in certain instances where it
appears reasonable to do so and will not unduly affect the interests of
other shareholders. We may waive the signature guarantee requirement
if you authorize the telephone/telegraph redemption method at the same
time you submit the initial application to purchase shares.
Require signature guarantees if there appears to be a pattern of
redemptions designed to avoid the signature guarantee requirement, or
if we have other reason to believe that this requirement would be in
the best interests of the Funds and their shareholders.
MANAGEMENT OF THE COMPANY AND FUNDS
Directors and Officers . The officers of the Funds manage their day-to-
day operations. The Funds' manager and its officers are subject to the
supervision and control of the Board of Directors.
The following table lists the officers and directors of the Fund and
their ages. Unless noted otherwise, the address of each officer and
director is BMA Tower, 700 Karnes Blvd., Kansas City, Missouri 64108-3306.
Except as indicated, each has been an employee of Jones & Babson, Inc. for
more than five years.
*Larry D. Armel (57), President and Director. President and Director,
Jones & Babson, Inc. and
of each of the Babson Funds, UMB Scout Funds, Buffalo Funds and the
Investors Mark Series Fund, Inc.; President and Trustee, D.L. Babson Bond
Trust; Director, AFBA Five Star Fund, Inc.
*Kent W. Gasaway (39), Director. Senior Vice President, Kornitzer Capital
Management, Inc., KCM Building, Shawnee Mission, Kansas 66202. Director,
of each of the five investment companies within the Buffalo Group of
Mutual Funds; formerly Assistant Vice President, Waddell & Reed, Inc., a
mutual fund company.
*Stephen S. Soden (54), Director. President BMA Financial Services.
Chairman and Director, Jones & Babson, Inc.; Director, of each of the five
investment companies within the Buffalo Group of Mutual Funds.
Thomas C. Case (58), Director. Retired, 3485 Paydirt Dr., Placerville, CA
95667. Director, of each of the five investment companies within the
Buffalo Group of Mutual Funds; formerly President and Chief Executive
Officer, the Frankona American Companies, an insurance company.
Francis C. Rood (65), Director. Retired, 73-395 Agave Lane, Palm Desert,
California 92260-6653. Formerly Vice President of Finance, Hallmark
Cards, Inc.; Director of each of the Babson Funds, Buffalo Funds and the
Investors Mark Series Fund, Inc.; Trustee, D.L. Babson Bond Trust.
William H. Russell (76), Director. Financial Consultant, 645 West 67th
Street, Kansas City, Missouri 64113; previously Vice President, Sprint;
Director of each of the Babson Funds, Buffalo Funds and the Investors Mark
Series Fund, Inc.; Trustee, D.L. Babson Bond Trust.
H. David Rybolt (57), Director. Consultant, HDR Associates, P.O. Box
2468, Shawnee Mission, Kansas 66201; Director of each of the Babson Funds,
(except the Babson-Stewart Ivory International Fund, Inc.) Buffalo Funds
and the Investors Mark Series Fund, Inc.; Trustee, D.L. Babson Bond Trust.
* Directors who are interested persons as that term is defined in the
Investment Company Act of 1940, as amended.
P. Bradley Adams (39), Vice President and Treasurer. Vice President and
Treasurer, Jones & Babson, Inc., and of each of the Babson Funds, UMB
Scout Funds and Buffalo Funds; Vice President and Chief Financial Officer,
AFBA Five Star Fund, Inc.; Principal Financial Officer, Investors Mark
Series Fund, Inc.
W. Guy Cooke (38), Vice President and Chief Compliance Officer. Chief
Compliance Officer, Jones & Babson, Inc.; Vice President and Chief
Compliance Officer of the nine investment companies within the Babson
Mutual Fund Group; Vice President and Chief Compliance Officer of the nine
investment companies within the UMB Scout Funds group; Vice President and
Chief Compliance Officer of the five investment companies within the
Buffalo Group of Mutual Funds; Vice President and Chief Compliance
Officer, AFBA Five Star Fund, Inc. Mr. Cooke joined Jones & Babson in
March 1998 and previously was Director of Compliance at American Century
Companies.
Martin A. Cramer (49), Vice President and Secretary. Vice President and
Secretary, Jones & Babson, Inc., and of each of the Babson Funds, UMB
Scout Funds and Buffalo Funds; Secretary and Assistant Vice President,
AFBA Five Star Fund, Inc.; Secretary, Investors Mark Series Fund, Inc.
Rhonda L. Grimes (39), Vice President. Control and Technology
Integration, Vice President and Director, Jones & Babson, Inc.; Vice
President of the nine investment companies within the Babson Mutual Fund
Group; Vice President of the nine investment companies within the UMB
Scout Funds group; Vice President of the five investment companies within
the Buffalo Group of Mutual Funds; Vice President, AFBA Five Star Fund,
Inc. Ms. Grimes joined Jones and Babson in December 1998 and previously
was Client Services Manager at DST Systems.
Constance E. Martin (37), Vice President. Assistant Vice President, Jones
& Babson, Inc.; Vice President of each of the Babson Funds, UMB Scout
Funds and Buffalo Funds.
Compensation
None of the officers or directors will be remunerated by the Funds for
their normal duties and services. Their compensation and expenses arising
out of normal operations will be paid by Jones & Babson, Inc. under the
provisions of the Management Agreement
Messrs. Case, Rood, Russell & Rybolt have no financial interest in, nor
are they affiliated with either Jones & Babson, Inc. or Kornitzer Capital
Management, Inc.
The officers and directors of each of the Funds as a group own less than
1% of the Funds.
Compensation Table
Aggregate Pension or Estimated Total Compensation
Compensation Retirement Annual From All Buffalo
From Each Benefits Benefits Funds Paid to
Fund Accrued as Upon Directors**
Part of Fund Retirement
Name of Director Expenses
- ------------------------------------------------------------------------------
Larry D. Armel* -- -- -- --
Kent W. Gasaway* -- -- -- --
Thomas S. Case $5,500 -- -- $5,500
Stephen S. Soden* -- -- -- --
Francis C. Rood $5,500 -- -- $5,500
William H. Russell $5,500 -- -- $5,500
H. David Rybolt $5,500 -- -- $5,500
* As "interested directors," Messrs. Armel, Gasaway and Soden receive no
compensation for their services as directors.
**The amounts reported in this column reflect the total compensation paid
to each director for his services as a director of five Buffalo Funds
during the fiscal year ended March 31, 1999. Directors' fees are paid by
the Funds' manager and not by the Funds themselves.
Manager and Investment Adviser. Jones & Babson, Inc. serves as Manager,
Underwriter, Transfer Agent, Fund Accounting Agent and Distributor for the
five funds in the Buffalo Group of Mutual Funds. As part of the
Management Agreements between Jones & Babson, Inc., and Buffalo Balanced
Fund, Inc, Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc.,
Buffalo Small Cap Fund, Inc. and Buffalo USA Global Fund, Inc., Jones &
Babson, Inc. employs at its own expense Kornitzer Capital Management, Inc.
as its investment adviser.
As compensation for all the foregoing services, the Funds pay Jones &
Babson, Inc. a fee at the annual rate of one percent (1%) of average daily
net assets from which Jones & Babson, Inc. pays Kornitzer Capital
Management, Inc. a fee of 50/100 of 1% (.50%) of average daily net assets.
Both fees are computed daily; the fee to Jones & Babson, Inc. is paid
semimonthly, and the fee to Kornitzer Capital Management, Inc. is paid
monthly.
According to the Management Agreement, Jones & Babson received the
following investment advisory fees:
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 1997 March 31, 1998 March 31, 1999
Name of Fund
- ------------ ----------------- ----------------- -----------------
Buffalo
Balanced Fund $444,591 $489,966 $479,622
Buffalo
Equity Fund $135,178 $293,680 $327,856
Buffalo High
Yield Fund $129,964 $329,029 $643,569
Buffalo Small
Cap Fund N/A N/A $67,843
Buffalo USA
Global Fund $146,590 $436,378 $396,253
From these management fees, Jones & Babson, Inc. paid all the Fund's
expenses except those payable directly by the Fund. The 1% annual fee
charged by Jones & Babson, Inc. covers all normal operating costs of the
Fund including investment advisory fees paid to Kornitzer Capital
Management, Inc.
Kornitzer Capital Management, Inc. was founded in 1989. It is a private
investment research and advisory organization serving individual,
corporate and other institutional clients. The following amounts were
paid to Kornitzer Capital Management, Inc. for its investment advisory
services and are included in the amounts received by Jones & Babson, Inc.:
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Name of Fund March 31, 1997 March 31, 1998 March 31, 1999
- ------------ ----------------- ----------------- -----------------
Buffalo
Balanced Fund $222,268 $244,983 $239,811
Buffalo
Equity Fund $67,822 $146,840 $163,928
Buffalo High
Yield Fund $65,974 $164,514 $321,785
Buffalo Small
Cap Fund N/A N/A $33,922
Buffalo USA
Global Fund $73,332 $218,189 $198,127
Jones and Babson, Inc. also sponsors and manages, in association with its
investment counsel, David L. Babson & Co. Inc., nine no-load funds
comprising the Babson Mutual Fund Group. They are: David L. Babson Growth
Fund, Inc., Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc.,
Babson Value Fund, Inc. Shadow Stock Fund, Inc., Babson-Stewart Ivory
International Fund, Inc., D.L. Babson Bond Trust, D.L. Babson Money Market
Fund, Inc. and D.L. Babson Tax-Free Income Fund, Inc.
Jones & Babson, Inc. also sponsors eleven mutual funds which especially
seek to provide services to customers of affiliate banks of UMB Financial
Corporation. They are: UMB Scout Stock Fund, Inc., UMB Scout Bond Fund,
Inc., UMB Scout Money Market Fund, Inc., UMB Scout Tax-Free Money Market
Fund, Inc., UMB Scout Regional Fund, Inc., UMB Scout WorldWide Fund, Inc.,
UMB Scout Balanced Fund, Inc., UMB Scout Kansas Tax-Exempt Bond Fund,
Inc., UMB Scout Capital Preservation Fund, Inc., UMB Scout Stock Select
Fund, Inc. and UMB Scout WorldWide Select Fund, Inc.
Jones & Babson, Inc. also sponsors the AFBA Five Star Fund, Inc.
Certain officers and directors of the Fund are also officers or directors
or both of other Buffalo Funds, Jones & Babson, Inc. or Kornitzer Capital
Management, Inc. Jones & Babson, Inc. is a wholly-owned subsidiary of
Business Men's Assurance Company of America, which is considered to be a
controlling person under the Investment Company Act of 1940. Assicurazioni
Generali S.P.A., an insurance organization founded in 1831 based in Trieste,
Italy, is considered to be a controlling person and is the ultimate parent of
Business Men's Assurance Company of America. Mediobanca is a 5% owner of
Generali. Kornitzer Capital Management, Inc. is a closely held corporation and
has limitations in the ownership of its stock designed to maintain control in
those who are active in management. Owners of 5% or more of Kornitzer Capital
Management, Inc. are John C. Kornitzer, Kent W. Gasaway, Willard R. Lynch,
Thomas W. Laming and Susan Stack.
Custodian. The Funds' assets are held for safe-keeping by an independent
custodian, UMB Bank, n.a. This means UMB Bank, n.a., rather than Funds,
has possession of the Funds' cash and securities. UMB Bank, n.a. is not
responsible for the Funds' investment management or administration. But,
as directed by the Funds' officers, it delivers cash to those who have
securities to a Fund in return for such securities, and to those who have
purchased securities from a Fund, it delivers such securities in return
for their cash purchase price. It also collects income directly from
issuers of securities owned by a Fund and holds this for payment to
shareholders after deduction of a Fund's expenses. The custodian is
compensated by the manager. There is no charge to the Funds.
Independent Auditors. The Funds' financial statements are audited by
independent auditors approved by the directors each year, and in years in
which an annual meeting is held the directors may submit their selection
of independent auditors to the shareholders for ratification. Ernst &
Young LLP, One Kansas City Place, 1200 Main Street, Suite 2000, Kansas
City, Missouri 64105, is the present auditor for the Funds.
DISTRIBUTIONS AND TAXES
Distributions of net investment income - A Fund receives income generally
in the form of dividends and interest on its investments. This income,
less expenses incurred in the operation of a Fund, constitutes a Fund's
net investment income from which dividends may be paid to you. Any
distributions by a Fund from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional shares.
Distributions of capital gains - A Fund may derive capital gains and
losses in connection with sales or other dispositions of its portfolio
securities. Distributions from net short-term capital gains will be
taxable to you as ordinary income. Distributions from net long-term
capital gains will be taxable to you as long-term gain, regardless of how
long you have held your shares in a Fund. Any net capital gains realized
by a Fund generally will be distributed once each year, and may be
distributed more frequently, if necessary, in order to reduce or eliminate
excise or income taxes on a Fund.
Information on the tax character of distributions - A Fund will inform
you of the amount of your ordinary income dividends and capital gains
distributions at the time they are paid, and will advise you of their tax
status for federal income tax purposes shortly after the close of each
calendar year. If you have not held Fund shares for a full year, a Fund
may designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in a Fund.
Election to be taxed as a regulated investment company - Each Fund
intends to elect to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code. As a regulated investment
company, a Fund generally pays no income tax on the income and gains it
distributes to you. The Board reserves the right not to maintain the
qualification of a Fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, a
Fund will be subject to federal, and possibly state, corporate taxes on
its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of a Fund's earnings and profits.
Excise tax distribution requirements - To avoid federal excise taxes, the
Internal Revenue Code requires a Fund to distribute to you by December 31
of each year, at a minimum, the following amounts: 98% of its taxable
ordinary income earned during the calendar year; 98% of its capital gain
net income earned during the twelve month period ending October 31; and
100% of any undistributed amounts from the prior year. Each Fund intends
to declare and pay these amounts in December (or in January that are
treated by you as received in December) to avoid these excise taxes, but
can give no assurances that its distributions will be sufficient to
eliminate all taxes.
Redemption of Fund shares - Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. If you
redeem your Fund shares, or exchange your Fund shares for shares of a
different Buffalo Fund, the IRS will require that you report a gain or
loss on your redemption or exchange. If you hold your shares as a capital
asset, the gain or loss that you realize will be capital gain or loss and
will be long-term or short-term, generally depending on how long you hold
your shares. Any loss incurred on the redemption or exchange of shares
held for six months or less will be treated as a long-term capital loss to
the extent of any long-term capital gains distributed to you by a Fund on
those shares.
All or a portion of any loss that you realize upon the redemption of your
Fund shares will be disallowed to the extent that you buy other shares in
the Fund (through reinvestment of dividends or otherwise) within 30 days
before or after your share redemption. Any loss disallowed under these
rules will be added to your tax basis in the new shares you buy.
U.S. government obligations - Many states grant tax-free status to
dividends paid to you from interest earned on direct obligations of the
U.S. government, subject in some states to minimum investment requirements
that must be met by the Fund. Investments in Government National Mortgage
Association or Federal National Mortgage Association securities, bankers
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free
treatment. The rules on exclusion of this income are different for
corporations.
Dividends-received deduction for corporations - If you are a corporate
shareholder, you should note that the Funds anticipate that some
percentage of the dividends they pay will qualify for the dividends-
received deduction. In some circumstances, you will be allowed to deduct
these qualified dividends, thereby reducing the tax that you would
otherwise be required to pay on these dividends. The dividends-received
deduction will be available only with respect to dividends designated by a
Fund as eligible for such treatment. All dividends (including the
deducted portion) must be included in your alternative minimum taxable
income calculation.
FINANCIAL STATEMENTS
The audited financial statements of the Funds which are contained in the
March 31, 1999, Annual Report to Shareholders are incorporated herein by
reference.
Unaudited reports to shareholders will be published at least semiannually.
GENERAL INFORAMTION AND HISTORY
Each Fund is incorporated in the State of Maryland and registered as an
investment company under the Investment Company Act of 1940. All shares
issued by each Fund are of same class with like rights and privileges as
other shares issued by the same Fund. Each full and fractional share,
issued and outstanding, has (1) equal voting rights with respect to
matters that affect the Funds, and (2) equal dividend, distribution and
redemption rights to the assets of the Fund. Shares when issued are fully
paid and non-assessable. The Funds may create other series of stock but
will not issue senior securities. Shareholders do not have pre-emptive or
conversion rights.
Non-cumulative voting - Shares of the Funds have non-cumulative voting
rights, which means that the holders of 50% of the shares voting for the
election of directors can elect 100% of the directors, if they choose to
do so, and in such event, the holders of the remaining less than 50% of
the shares voting will not be able to elect any directors.
The Funds will not hold annual meetings except as required by the Investment
Company Act of 1940 and other applicable laws. The Funds are Maryland
corporations. Under Maryland law, a special meeting of shareholders of the
Funds must be held if the Funds receive the written request for a meeting
from the shareholders entitled to cast at least 25% of all the votes
entitled to be cast at the meeting.
The Funds have undertaken that their Directors will call a meeting of
shareholders if such a meeting is requested in writing by the holders of not
less than 10% of the outstanding shares of a Fund.
FIXED INCOME SECURITIES
DESCRIBED AND RATINGS
Description of Bond Ratings:
Standard & Poor's Corporation (S&P).
AAA Highest Grade. These securities possess the ultimate degree of
protection as to principal and interest. Marketwise, they move
with interest rates, and hence provide the maximum safety on all
counts.
AA High Grade. Generally, these bonds differ from AAA issues only in
a small degree. Here too, prices move with the long-term money
market.
A Upper-medium Grade. They have considerable investment strength,
but are not entirely free from adverse effects of changes in
economic and trade conditions. Interest and principal are
regarded as safe. They predominately reflect money rates in
their market behavior but, to some extent, also economic
conditions.
BBB Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay principal and interest for bonds in this category than for
bonds in the A category.
BB, B, CCC, CC Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. (Moody's).
Aaa Best Quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt-edge."
Interest payments are protected by a large, or by an
exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa High Quality by All Standards. They are rated lower than the
best bonds because margins of protection may not be as large as
in Aaa securities, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which
make the long-term risks appear somewhat greater.
A Upper-medium Grade. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have predominantly
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over any
long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
Description of Commercial Paper Ratings:
Moody's . . . Moody's commercial paper rating is an opinion of the
ability of an issuer to repay punctually promissory obligations not
having an original maturity in excess of nine months. Moody's has one
rating - prime. Every such prime rating means Moody's believes that
the commercial paper note will be redeemed as agreed. Within this
single rating category are the following classifications:
Prime - 1 Highest Quality
Prime - 2 Higher Quality
Prime - 3 High Quality
The criteria used by Moody's for rating a commercial paper issuer
under this graded system include, but are not limited to the following
factors:
(1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and
an appraisal of speculative type risks which may be inherent in
certain areas;
(3) evaluation of the issuer's products in relation to competition
and customer acceptance;
(4) liquidity;
(5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and relationships which
exist with the issuer; and
(8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations.
S&P . . .Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely repayment of debt having an
original maturity of no more than 270 days. Ratings are graded into
four categories, ranging from "A" for the highest quality obligations
to "D" for the lowest. The four categories are as follows:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category
are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is very strong.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as over-
whelming.
A-3 Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more vulnerable
to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
B Issues rated "B" are regarded as having only an adequate
capacity for timely payment. Furthermore, such capacity may be
damaged by changing conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D This rating indicates that the issuer is either in default or is
expected to be in default upon maturity.
