BUFFALO
Funds
Balanced Fund
Equity Fund
High Yield Fund
Small Cap Fund
USA Global Fund
ANNUAL REPORT
March 31, 1999
MESSAGE
To Our Shareholders
The fiscal year ended March 31, 1999 was a turbulent time for the
financial markets, and for the mutual fund industry in general. At March
31 the Buffalo Funds included about 13,000 shareholders and $179 million
in assets under management.
Total distributions for the Funds for the fiscal year were as follows:
Investment Short-Term Long-Term
Income Capital Gains Capital Gains Total
Balanced $ .66 $ .18 $ .59 $ 1.43
Equity $ .055 $ .325 $ .05 $ .43
High Yield $ .765 $ .04 $ .035 $ .84
Small Cap $ .04 $ - $ - $ .04
USA Global $ .06 $ .05 $ .46 $ .57
For corporate shareholders, Buffalo Balanced, Equity, High Yield, Small
Cap and USA Global Funds percent of ordinary income distributions
qualifying for the corporate dividends received deduction are 15%, 100%,
13%, 37% and 100%, respectively.
Because much has already been written in the financial press concerning
economic and market conditions in recent months, we are using this
report as an opportunity to begin a series of discussions concerning
overall portfolio and investment strategies of the various Buffalo
Funds. The Portfolio Management Review immediately following this letter
will discuss the strategic approach utilized by Kornitzer Capital
Management, Inc. with respect to Buffalo Equity Fund.
We appreciate your continuing interest in the Buffalo Funds, and are
happy to answer your questions and comments, or to provide additional
information about your investments.
Sincerely,
/s/Larry D. Armel
Larry D. Armel
President
Portfolio Management Review
We often get questions regarding the overall strategies for the Buffalo
Mutual Funds. In this report we will discuss how we select stocks in the
Buffalo Equity Fund. While this discussion includes the names of various
securities we owned as of the date at which this report went to press,
as well as the reasons for owning these stocks, please be aware that
circumstances change, sometimes quickly, which could cause us to sell
any of these stocks. In
addition, we often rebalance holdings in the portfolios due to
price changes. This discussion should not be viewed as a
recommendation to purchase any individual stock, but to provide a better
understanding of how and why we choose companies in which to invest.
Certain styles or sectors dictate the management of most mutual funds.
For example, some funds buy only small companies; others buy only large
companies. Some funds focus on value stocks -
typically companies that are priced at relatively low ratios of
price-to-earnings (P/E) or price-to-book value. Yet other funds buy only
growth stocks - stocks that sell at high ratios of price-to-
earnings and/or price-to-book value, but usually having high earnings
growth rates. When one of these "sectors" is in favor, those
portfolios using that particular management approach tend to do well.
Last year, "growth" stocks significantly outperformed "value"
stocks, therefore, growth-oriented funds did particularly well.
Similarly, large company stocks performed significantly better than did
small company stocks during 1998, hence the poor relative
performance of small capitalization mutual funds versus their large cap
cousins.
In this letter, we will discuss the overall strategic approach for the
management of the Buffalo Equity Fund. The Buffalo Equity Fund does not
buy stocks based on specific sector/style classifications. Rather than
focus solely on "value" or "growth" stocks, or companies of a
particular size, we favor an approach which we believe will provide more
consistent long-term fund performance. This approach is not dependent on
a particular style or sector of stocks performing well in any given
year. Our process begins by identifying and monitoring positive long-
term trends that are driving various industries. We are looking for
developments that will
provide positive, long-term, operating environments for our companies.
This forces us to be unlike many investors in that we care as much about
the potential earnings of a company three years from now as what that
company may earn in the current quarter. It is important to note that we
also look very closely at the valuation of the stock before we purchase
it. Paying too much for a stock not only makes the additional work of
analyzing a company worthless, but it can also lead to disastrous
returns. Now let us take a look at specific examples of events that we
expect to be the drivers of many of the holdings within the Buffalo
Equity Fund.
Trends That Will Shape The Next Ten Years
Demographics. The aging of the baby boom generation is probably one of
the most talked about trends taking place within the United States, with
most people only considering what it means for the solvency of the
Social Security program. The rapid growth in the birthrate during the
post World War II period through the early
sixties, followed by the "baby bust," which lasted until the early
seventies, has led to significant differences in the growth rate of
certain age groups. This "baby-boom," by which it has come to be
known, will cause dramatic shifts in spending as this large group
progresses through its various stages of life. The table below shows the
dramatic impact of the "baby boom" generation.
Projections of Households and Age of Householder
Age Group 1998 2008 % Change
25 to 34 years 17,745,661 16,875,195 -4.9
35 to 44 years 23,766,619 21,398,771 -10.0
45 to 54 years 19,727,324 25,062,402 27.0
55 to 64 years 13,236,547 19,256,448 45.5
65 to 74 years 11,587,631 12,541,726 8.2
Total U.S. households 101,042,864 112,362,848 11.2
Source: U.S. Census Bureau
What are the implications of this table? We believe that the aging of
the baby boom generation will cause larger than expected increases in
spending for pharmaceuticals, leisure activities, larger homes, vacation
homes, furniture, and financial services. We base our conclusions on
analysis of spending patterns of households as they age - obtaining
data directly from corporations, the Bureau of Labor Statistics, and
from the U.S. Census Bureau. Ultimately,
services for the elderly will start to grow rapidly, but as the table
indicates, the boom times for nursing and funeral homes lie at least ten
years into the future. What stocks do we own in the Buffalo Equity Fund
to take advantage of this demographic trend? We own the pharmaceutical
stocks Merck, Abbott Laboratories, Johnson and Johnson, and Schering-
Plough, leisure activity companies Brunswick and Mirage Resorts, book
retailer Barnes and Noble, home building products companies Elcor and
Republic Group, and motor home manufacturer Coachmen Industries. We also
own home furnishings provider Ethan Allen, and financial service
providers American Express, Allstate, Fleet Financial Group, PNC Bank
and Union Planters.
Increasing Demand for Communications Bandwidth. Today's
communications infrastructure is being placed under considerable strain
by a host of new uses, and the demand for bandwidth
(essentially, faster communication speed) will increase geometrically in
the foreseeable future. What drives this need? The growing uses of the
Internet, video-conferencing, and eventually voice communications over
IP (Internet Protocol) networks. We believe that it will be very
difficult to predict the Internet winners in such areas as retail since
most of the business models appear to be unsustainable. For example,
Amazon.com prices books for sale to yield a
mid-twenties percent gross margin while Shopping.com sells its books at
zero gross margin (yes, they sell books and other items to you at cost
and hope to make money on advertising). We do believe, however, that the
predictable long-term winners will be companies involved with the
"build out" of on-line infrastructure - independent of who wins the
electronic-commerce battle. We own Cisco Systems because of its dominant
position in equipment needed for the continued evolution of the Internet
and the potential for the growth of a totally new infrastructure for
voice communications. At the component level, we own Atmel, a company
involved in high-speed semiconductor technology that is important to the
wireless communications market.
Internet Commerce. The ease of establishing a commerce site on the
Internet underscores the low barriers to entry that lead to
cutthroat pricing. Picking the long-term winners may be impossible.
However, there are relatively few ways to ship the goods purchased over
the Internet, and even fewer ways to invest in those shippers. We own
Federal Express for its dominant worldwide delivery
capability and significant level of value added to the entire
electronic commerce industry.
The Shift from Analog to Digital Photography. Since digital cameras are
made primarily of semiconductors, performance and price tend to follow
typical semiconductor learning curves. Hence, they double in performance
every 18 months. This rate of improvement in the product assures that
conventional cameras are sitting ducks, and will be overtaken by their
digital cousins in the not too distant future. There will be little need
to take film anywhere for developing. Consumers will be able to edit and
print their pictures right at home, e-mail them to friends, and cut and
paste them into documents. We believe that Hewlett-Packard is the
biggest beneficiary of this trend via its sale of color printers, photo
quality paper, ink cartridges, and digital cameras.
Deregulation of Electric Utilities. Much like long distance
telephone deregulation during the 1980's, the electric utility
industry is just beginning the process of deregulation. Enron
Corporation's web site, www.enron.com, contains an excellent
summary of the status of the progress towards deregulation in each
state. Customers will soon be choosing their electric power provider the
way they currently choose a long distance provider. There will be many
more losers than winners as electric utility producers will enter into
competition for the first time, and those with the highest power-
generation costs will suffer greatly. The days of owning a
utility stock for safety and dividends are a thing of the past. Who will
be the winners? We believe only companies with the lowest- cost power-
generation capabilities, and those having the ability to purchase and
distribute electricity nationally, will be the primary beneficiaries,
companies such as Enron Corporation.
International Growth of Recognized Branded Products. The
combination of generally high economic growth rates and low
penetration rates for the adoption and use of many consumer
products makes many international economies strong prospects for
investment. Companies that have worldwide distribution capabilities and
globally recognized brand names are in the best position to capitalize
on these opportunities. For example, according to survey data, Coca-Cola
is one of the most recognized brand names in China, yet the average
Chinese citizen drank only six Coca-Cola products last year, versus 371
per capita per year in Mexico. That is what we mean by low penetration.
McDonald's, PepsiCo and Sara Lee capture the potential for strong growth
of international markets for the Buffalo Equity Fund.
The Shift from Analog to Digital Cable. Cable companies are rolling out
new digital services in response to direct broadcast satellite (DBS)
systems, such as Direct TV. These services will include
digital broadcast of television signals, video-on-demand, cable modem
connection to the Internet, and cable telephony (voice communications
over your cable line instead of your existing telephone line). The
biggest beneficiaries should be the suppliers of cable set-top boxes.
Here we own Scientific-Atlanta, from which Time-Warner, which has 12
million customers, recently committed to purchase 1.1 million of
Scientific-Atlanta's Explorer 2000 set-tops.
Expansion of Media Distribution Channels. On average, the number of
cable channels available in the home grew from nineteen in 1985 to
forty-five by 1996. Over the next few years, as cable
systems are upgraded and digital transmission is increasingly used as
the distribution method of choice, the number of cable channels will
continue to grow. In addition, because of the virtually unlimited
volume of content available via the Internet, coupled with the rise of
the Internet as a viable distribution platform for multimedia and video
on-demand, competition for viewers will rise dramatically. Because
consumers will be able to view so many sources of content (movies,
sports programming, news, etc.), the cost of distribution will continue
to drop. Pricing power will therefore shift away from
distributors of content (like Internet portals and cable operators)
toward media content providers. Companies possessing valuable content
should have the advantage, and in this area we own Disney.
The above description of the Buffalo Equity Fund is not
exhaustive, but does cover the majority of the Fund's holdings. We do
hold stocks at various times for reasons other than those covered above
- - often due to very attractive valuations or other special
considerations, such as a positive management change. However, the core
holdings of the Fund continue to be developed by searching for positive
long-term influences on specific sectors of the economy, identifying
those companies that stand to benefit most from these trends, and
finally determining a fair price to pay for the stocks. We hope this
discussion of the Buffalo Equity Fund has been useful in giving you
insight to the management of the Fund. We look forward to discussing
other Funds with you in the future.
Sincerely,
/s/John C. Kornitzer /s/Kent W. Gasaway
John C. Kornitzer Kent W. Gasaway
President Sr. Vice President
/s/Tom W. Laming
Tom W. Laming
Sr. Vice President
Investment Results - Total Return
Three Months One Year
Ended Ended Since
3/31/99 3/31/99 Inception*
BUFFALO
BALANCED FUND -1.50% -10.49% 9.66%
Lipper Balanced
Fund Index 1.60% 8.36% 15.71%
BUFFALO
EQUITY FUND 0.47% 2.73% 22.64%
Lipper Capital Appreciation
Fund Index 4.80% 11.49% 20.25%
BUFFALO
HIGH YIELD FUND -1.52% -9.92% 9.52%
Lipper High Yield Bond
Fund Index 3.19% -1.23% 9.31%
BUFFALO
SMALL CAP FUND -1.45% n/a -4.69%
Lipper Small-Cap
Fund Index -4.72% -14.68% -15.76%
BUFFALO
USA GLOBAL FUND -0.25% -2.52% 18.90%
Lipper Capital Appreciation
Fund Index 4.80% 11.49% 20.25%
Lipper Global
Fund Index 2.55% 3.68% 14.52%
*Buffalo Balanced Fund (8/12/94), Buffalo Equity Fund (5/19/95),
Buffalo High Yield Fund (5/19/95), Buffalo Small Cap Fund (4/14/98),
Buffalo USA Global Fund (5/19/95).
CHART - Buffalo Balanced Fund versus S&P 500
and Merrill Lynch Bond Fund Index Weighted Average
Average annual compounded total returns for one year, three years and
the life of the Fund (inception August 12, 1994) as of March 31, 1999,
were -10.49%, 8.13% and 9.66%, respectively. Performance data contained
in this report is for past periods only. Past performance is not
predictive of future performance. Investment return and share value will
fluctuate, and redemption value may be more or less than original cost.
CHART - Buffalo Equity Fund versus S&P 500
Average annual compounded total returns for one year, three years and
the life of the Fund (inception May 19, 1995) as of March 31, 1999, were
2.73%, 19.48% and 22.64%, respectively. Performance data contained in
this report is for past periods only. Past performance is not predictive
of future performance. Investment return and share value will fluctuate,
and redemption value may be more or less than original cost.
CHART - Buffalo High Yield Fund versus
Merrill Lynch High Yield Bond Fund Index
Average annual compounded total returns for one year, three years and
the life of the Fund (inception May 19, 1995) as of March 31, 1999, were
- -9.92%, 6.80% and 9.52%, respectively. Performance data contained in
this report is for past periods only. Past performance is not predictive
of future performance. Investment return and share value will fluctuate,
and redemption value may be more or less than original cost.
CHART - Buffalo Small Cap Fund versus S&P 600
Average annual compounded total return for the life of the Fund
(inception April 14, 1998) as of March 31, 1999, was -4.69%. Performance
data contained in this report is for past periods only. Past performance
is not predictive of future performance. Investment return and share
value will fluctuate, and redemption value may be more or less than
original cost.
CHART - Buffalo USA Global Fund versus S&P 500
Average annual compounded total returns for one year, three years and
the life of the Fund (inception May 19, 1995) as of March 31, 1999, were
- -2.52%, 18.47% and 18.90%, respectively. Performance data contained in
this report is for past periods only. Past performance is not predictive
of future performance. Investment return and share value will fluctuate,
and redemption value may be more or less than original cost.
Buffalo
BALANCED Fund
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 31.46%
BASIC MATERIALS - 1.49%
40,000 Republic Group, Inc. $ 602,500
CAPITAL GOODS - 0.93%
10,000 Lockheed Martin Corp. 376,875
CONSUMER CYCLICAL - 10.71%
6,000 Barnes & Noble, Inc. 192,750
10,000 Brunswick Corp. 190,625
12,500 Carnival Corp. 607,031
10,000 Dillard's, Inc. Cl. A 253,750
30,000 Elcor Corp. 1,055,625
12,500 Ethan Allen Interiors, Inc. 519,531
22,500 Interface, Inc. Cl. A 216,563
50,000 Kmart Corp.* 840,625
5,000 Mirage Resorts, Inc. 106,250
10,000 ServiceMaster Co. 203,125
5,000 Sylvan Learning Systems, Inc. 136,875
4,322,750
CONSUMER STAPLES - 0.78%
3,000 Disney (Walt) Holding Co. 93,375
2,000 PepsiCo, Inc. 78,375
10,000 Service Corporation International 142,500
314,250
ENERGY - 4.29%
191,200 Frontier Oil Corp.* 956,000
30,576 McDermott International, Inc. 773,955
1,729,955
FINANCIAL - 3.26%
10,000 Allstate Corp. 370,625
2,000 American Express Co. 235,000
7,500 Fleet Financial Group, Inc. 282,188
7,500 Kansas City Southern Industries, Inc. 427,500
1,315,313
HEALTH CARE - 3.23%
10,600 Merck & Company, Inc. 849,987
12,000 Quintiles Transnational Corp. 453,000
1,302,987
TECHNOLOGY - 3.71%
15,000 Diebold, Inc. 360,000
4,000 International Business Machines Corp. 709,000
1,000 Microsoft Corp. 89,625
12,500 Scientific-Atlantic, Inc. 340,625
1,499,250
TRANSPORTATION & SERVICES - 2.42%
4,000 FDX Corp.* 371,250
20,000 Southwest Airlines Co. 605,000
976,250
UTILITIES - 0.64%
4,000 Enron Corp. 257,000
TOTAL COMMON STOCKS 12,697,130
(cost $11,613,677)
CONVERTIBLE PREFERRED STOCKS - 9.11%
16,500 Bethlehem Steel Corp., $3.50, 144A 620,813
15,000 Cyprus Amax Minerals Co., $4, Series A 605,625
69,400 ICO Holdings, Inc.,
dep. shrs. repstg. 1/4 pfd. cv. 1,032,325
9,900 Kmart Financing I,
7.75% tr. cv. pfd. secs. 598,950
26,000 Lomak Petroleum, Inc.,
5.75%, 144A 373,750
10,000 Loral Space & Communications Ltd.,
6%, 144A, Series C 447,500
TOTAL CONVERTIBLE PREFERRED STOCKS 3,678,963
(cost $4,424,162)
FACE
AMOUNT DESCRIPTION MARKET VALUE
CORPORATE BONDS - 34.70%
$ 500,000 Advance Stores, Inc.,
10.25% sr. sub. note, 144A, due 4-15-08 510,000
1,400,000 Callon Petroleum Co.,
10.125% sr. sub. note, due 9-15-02 1,372,000
500,000 Chiles Offshore LLC/ Chiles Offshore Finance Corp.,
10.00% sr. note, 144A, due 5-1-08 362,500
1,500,000 Eagle Geophysical, Inc.,
10.75% sr. note, 144A, due 7-15-08 967,500
650,000 Fairchild Semiconductor Corp.,
10.125% sr. sub. note, due 3-15-07 659,750
750,000 Frontier Oil Corp.,
9.125% sr. note, due 2-15-06 735,000
1,000,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 985,000
1,785,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 1,798,387
250,000 ICO Holdings, Inc.,
10.375% sr. note, due 6-1-07 171,250
1,000,000 Kaiser Aluminum & Chemical Corp.,
9.875% sr. note, due 2-15-02 995,000
500,000 Kaiser Aluminum & Chemical Corp.,
12.75% sr. sub. note, due 2-1-03 485,000
500,000 Key Energy Services, Inc.,
14.00%, due 1-15-09 467,500
750,000 Nationwide Credit, Inc.,
10.25% sr. sub. note, 144A, due 1-15-08 581,250
415,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 429,525
400,000 Purina Mills, Inc.,
9.00% sr. sub. note, 144A, due 3-15-10 328,000
1,000,000 Republic Group, Inc.,
9.50% sr. sub. note, due 7-15-08 1,012,500
1,800,000 United Refining Co.,
10.75% sr. note, Series B, due 6-15-07 1,269,000
1,300,000 Wiser Oil Co.,
9.50% sr. sub. note, due 5-15-07 877,500
TOTAL CORPORATE BONDS 14,006,662
(cost $15,613,028)
CONVERTIBLE CORPORATE BONDS - 21.51%
1,500,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 999,375
1,099,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 87,920
1,820,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 1,845,025
2,292,000 Exide Corp.,
2.90% sr. sub. note, due 12-15-05 1,283,520
1,450,000 HMT Technology Corp.,
5.75% sub. note, due 1-15-04 723,188
1,158,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 827,970
1,450,000 Intevac, Inc.,
6.50% sub. note, 144A, due 3-1-04 739,500
250,000 Key Energy Group, Inc.,
5.00% sub. note, 144A, due 9-15-04 132,500
280,000 Lomak Petroleum, Inc.,
6.00% sub. deb., due 2-1-07 141,400
400,000 Moran Energy, Inc.,
8.75% sub. deb., due 1-15-08 369,500
1,000,000 National Semiconductor Corp.,
6.50% sub. note, 144A, due 10-1-02 828,750
525,000 Swift Energy Co.,
6.25% sub. note, due 11-15-06 391,125
1,500,000 Western Digital Corp., due 2-18-18 313,125
TOTAL CONVERTIBLE CORPORATE BONDS 8,682,898
(cost $10,842,589)
REPURCHASE AGREEMENT - 0.74%
300,000 UMB Bank, n.a., 4.38%, due 4-1-99
(Collateralized by U.S. Treasury Notes,
6.625%, due 6-30-01 with a value of $305,899)
(COST $300,000) 300,000
TOTAL INVESTMENTS - 97.52% 39,365,653
(cost $42,793,456)
Other assets less liabilities - 2.48% 1,000,290
TOTAL NET ASSETS - 100.00%
(equivalent to $8.87 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
4,550,104 shares outstanding) $ 40,365,943
For federal income tax purposes, the identified cost of investments owned at
March 31, 1999, was $42,887,061.
Net unrealized depreciation for federal income tax purposes was $3,521,408,
which is comprised of unrealized appreciation of $2,565,752 and unrealized
depreciation of $6,087,160.
*Non-income producing security
See accompanying Notes to Financial Statements.
Buffalo
EQUITY Fund
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 99.40%
BASIC MATERIALS - 1.43%
30,000 Republic Group, Inc. $ 451,875
CAPITAL GOODS - 1.54%
15,900 Loral Space & Communications Ltd.* 229,556
6,800 Lockheed Martin Corp. 256,275
485,831
CONSUMER CYCLICAL - 13.71%
16,800 Barnes & Noble, Inc. 539,700
23,000 Brunswick Corp. 438,438
20,500 Coachmen Industries, Inc. 420,250
38,900 CompUSA, Inc. 272,300
20,300 Elcor Corp. 714,306
19,500 Ethan Allen Interiors, Inc. 810,469
15,000 Kmart Corp.* 252,187
9,200 Liz Claiborne, Inc. 300,150
27,500 Mirage Resorts, Inc. 584,375
4,332,175
CONSUMER STAPLES - 14.11%
5,200 Coca-Cola Co. 319,150
23,300 Disney (Walt) Holding Co. 725,213
19,000 McDonald's Corp. 860,937
23,000 PepsiCo, Inc. 901,312
29,900 Sara Lee Corp. 740,025
32,700 Viad Corp. 909,469
4,456,106
ENERGY - 4.92%
8,150 British Petroleum PLC Sh F ADR 822,641
14,100 Royal Dutch Petroleum Co. 733,200
1,555,841
FINANCIAL - 18.39%
27,900 Allstate Corp. 1,034,044
9,700 American Express Co. 1,139,750
15,000 American Financial Group, Inc. 527,812
10,400 CIT Group, Inc. Cl. A 317,850
18,900 Fleet Financial Group, Inc. 711,113
6,100 Golden West Financial Corp. 582,550
13,900 PNC Bank Corp. 772,319
16,500 Union Planters Corp. 724,969
5,810,407
HEALTH CARE - 13.02%
20,500 Abbott Laboratories 959,656
12,200 Johnson & Johnson 1,142,988
12,800 Merck & Company, Inc. 1,026,400
17,800 Schering-Plough Corp. 984,562
4,113,606
TECHNOLOGY - 20.07%
17,500 Analog Devices* 520,625
26,000 Atmel Corp.* 394,875
15,400 Cisco Systems, Inc. 1,687,262
26,800 Diebold, Inc. 643,200
21,200 HMT Technology Corp. 74,200
8,400 Hewlett-Packard Co. 569,625
16,400 Microsoft Corp. 1,469,850
15,200 Scientific-Atlanta, Inc. 414,200
19,100 Seagate Technology, Inc. 564,644
6,338,481
TRANSPORTATION & SERVICES - 6.21%
11,850 FDX Corp.* 1,099,828
28,450 Southwest Airlines Co. 860,613
1,960,441
UTILITIES - 6.01%
17,200 Enron Corp. 1,105,100
13,100 GTE Corp. 792,550
1,897,650
TOTAL COMMON STOCKS 1,402,413
(cost $25,807,538)
TOTAL INVESTMENTS - 99.41% 31,402,413
(cost $25,807,538)
Other assets less liabilities - 0.59% 184,987
TOTAL NET ASSETS - 100.00%
(equivalent to $16.95 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
1,863,774 shares outstanding) $ 31,587,400
For federal income tax purposes, the identified cost of investments owned at
March 31, 1999, was $25,823,597.
Net unrealized appreciation for federal income tax purposes was $5,578,816,
which is comprised of unrealized appreciation of $6,969,470 and unrealized
depreciation of $1,390,654.
*Non-income producing security
See accompanying Notes to Financial Statements.
Buffalo
HIGH YIELD Fund
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCK - 0.45%
56,233 Fedders Corp. Cl. A (non-voting) $ 260,078
(cost $317,643)
CONVERTIBLE PREFERRED STOCKS - 15.85%
22,000 Bethlehem Steel Corp.,
$3.50, 144A 827,750
30,270 Cyprus Amax Minerals Co.,
$4, Series A 1,222,151
42,600 Freeport-McMoran Copper & Gold, Inc.,
dep. shrs. repstg. 0.05 pfd. cv. step up 676,275
15,000 Hollinger International, Inc.,
9.75% pfd. increased div. equity sec. 203,437
76,300 ICO Holdings, Inc.,
dep. shrs. repstg. 1/4 pfd. cv. 1,134,963
30,900 Kmart Financing I,
7.750% tr. cv. pfd. secs. 1,869,450
14,870 Lomak Financing Trust,
tr. cv. pfd. secs. 144A 213,756
13,000 Loral Space & Communications Ltd.,
6%, 144A, Series C 581,750
4,300 Loral Space & Communications Ltd.,
6%, 144A, Series C* 192,425
40,000 Tesoro Petroleum Corp.,
prem. income equity secs. dep. shrs. 477,500
40,100 Texas Industries, capital trust 1,303,250
10,000 Union Pacific Capital Trust,
6.25% term income deferrable equity secs. 501,250
TOTAL CONVERTIBLE PREFERRED STOCKS 9,203,957
(cost $10,215,277)
FACE
AMOUNT DESCRIPTION MARKET VALUE
CORPORATE BONDS - 49.43%
$ 1,250,000 Advance Stores, Inc.,
10.25% sr. sub. note, 144A, due 4-15-08 1,275,000
65,000 Bethlehem Steel Corp.,
10.375% sr. note, due 9-1-03 70,687
1,000,000 Callon Petroleum Co.,
10.125% sr. sub. note, due 9-15-02 980,000
2,000,000 Chiles Offshore LLC/
Chiles Offshore Finance Corp.,
10.00% sr. note, 144A, due 5-1-08 1,450,000
500,000 Cliffs Drilling Co.,
10.25% sr. note, Series B, due 5-15-03 482,500
1,245,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 1,201,425
2,175,000 Eagle Geophysical, Inc.,
10.75% sr. note, 144A, due 7-15-08 1,359,375
500,000 Exide Corp.,
10.00% sr. note, due 4-15-05 500,000
535,000 Fairchild Semiconductor Corp.,
10.125% sr. sub. note, due 3-15-07 543,025
250,000 Fairchild Semiconductor Corp.,
10.375%, due 10-1-07 250,000
2,000,000 Frontier Oil Corp.,
9.125% sr. note, due 2-15-06 1,960,000
435,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 428,475
765,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 770,737
750,000 ICO Holdings, Inc.,
10.375% sr. note, due 6-1-07 513,750
121,000 Kmart Corp., pass thru trust,
9.78% mtg. pass thru ctf.,
Series 95-K-2, due 1-5-20 123,686
65,000 Kmart Funding Corp.,
9.44% secd. lease bd.,
Series G, due 7-1-18 65,468
650,000 Kaiser Aluminum & Chemical Corp.,
9.875% sr. note, due 2-15-02 646,750
1,200,000 Kaiser Aluminum & Chemical Corp.,
12.75% sr. sub. note, due 2-1-03 1,164,000
500,000 Key Energy Service,
14.00%, due 1-15-09 470,000
1,250,000 King Pharmacy, Inc.,
10.75%, due 2-15-09 1,281,250
1,000,000 Luigino's, Inc.,
10.00%, due 2-1-06 1,001,875
750,000 Nationwide Credit, Inc.,
10.25% sr. sub. note, 144A, due 1-15-08 581,250
500,000 Packaging Corp. of America,
9.625%, 144A, due 4-1-09 500,000
100,000 Parker Drilling Co.,
9.75% sr. note, Series B, due 10-15-06 83,500
600,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 621,000
1,275,000 Plains Resources, Inc.,
10.25% sr. sub. note, Series B, due 3-15-06 1,268,625
1,250,000 Purina Mills, Inc.,
9.00% sr. sub. note, due 3-15-10 1,025,000
3,110,000 Republic Group, Inc.,
9.50% sr. sub. note, due 7-15-08 3,148,875
1,300,000 Specialty Retailers, Inc.,
9.00% sr. sub. note, due 7-15-07 1,020,500
1,000,000 Telecommunications Techniques Co. LLC,
9.75% sr. sub. note 144A, due 5-15-08 1,020,000
2,515,000 United Refining Co.,
10.75% sr. note, Series A, due 6-15-07 1,773,075
1,650,000 Wiser Oil Co.,
9.50% sr. sub. note 144A, due 5-15-07 1,113,750
TOTAL CORPORATE BONDS 28,693,578
(cost $32,043,655)
CONVERTIBLE CORPORATE BONDS - 27.79%
570,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 379,762
1,076,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 86,080
1,141,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 1,156,689
1,950,000 Exide Corp.,
2.90% sr. sub. note, due 12-15-05 1,092,000
3,080,000 HMT Technology Corp.,
5.75% sub. note 144A, due 1-15-04 1,536,150
750,000 Hexcel Corp.,
10.75%, due 8-1-03 633,750
1,970,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 1,408,550
2,955,000 Intevac, Inc.,
6.50% sub. note 144A, due 3-1-04 1,507,050
215,000 Kmart Corp., pass thru trust,
9.35% pass thru ctf., Series 95-K-4, due 1-2-20 211,993
500,000 Key Energy Group, Inc.,
7.00%, due 7-1-03 331,875
2,635,000 Key Energy Group, Inc.,
5.00% sub. note, 144A, due 9-15-04 838,425
2,260,000 Lomak Petroleum, Inc.,
6.00% sub. deb., due 2-1-07 1,141,300
1,760,000 Micron Technology, Inc.,
7.00% sub. note, due 7-1-04 1,870,000
761,000 Moran Energy, Inc.,
8.75% sub. deb., due 1-15-08 702,974
1,200,000 National Semiconductor Corp.,
6.50% sub. note, 144A, due 10-1-02 994,500
550,000 OHM Corp.,
8.00% sub. deb., due 10-1-06 497,750
1,010,000 Sabratek Corp.,
6.00%, due 4-15-05 652,713
200,000 Southern Mineral Corp.,
6.875% deb., due 10-1-07 39,000
705,000 VLSI Technology, Inc.,
8.25% sub. note, due 10-1-05 701,475
378,000 Weston (Roy F.), Inc.,
7.00% sub. deb., due 4-15-02 351,540
TOTAL CONVERTIBLE CORPORATE BONDS 16,133,576
(cost $20,819,495)
REPURCHASE AGREEMENT - 5.68%
3,300,000 UMB Bank, n.a., 4.38%, due 4-1-99
(Collateralized by U.S. Treasury Notes,
7.125%, due 2-29-00 with a value of $3,486,866)
(COST $3,300,000) $ 3,300,000
TOTAL INVESTMENTS - 99.20% 57,591,189
(cost $66,696,070)
Other assets less liabilities - 0.80% 462,019
TOTAL NET ASSETS - 100.00%
(equivalent to $10.74 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
5,405,721 shares outstanding) $ 58,053,208
For federal income tax purposes, the identified cost of investments owned at
March 31, 1999, was $66,723,315.
Net unrealized depreciation for federal income tax purposes was $9,132,126,
which is comprised of unrealized appreciation of $858,798 and unrealized
depreciation of $9,990,924.
*Non-income producing security
See accompanying Notes to Financial Statements.
Buffalo
SMALL CAP Fund
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 91.38%
BASIC MATERIALS - 3.54%
20,000 Republic Group, Inc. $ 301,250
10,000 Steel Dynamics, Inc.* 165,625
466,875
CONSUMER CYCLICAL - 31.10%
7,500 AHL Services, Inc.* 153,750
4,700 Brunswick Corp. 89,594
10,600 Coachmen Industries, Inc. 217,300
14,200 CompUSA, Inc. 99,400
35,000 Edutrek International Cl. A 240,625
12,000 Elcor Corp. 422,250
8,400 Ethan Allen Interiors, Inc. 349,125
40,000 Fedders Corp. Cl. A (non-voting) 185,000
17,500 First Service Corp. 228,594
25,800 Hollinger International, Inc. Cl. A 349,912
17,000 Interface, Inc. Cl. A 163,625
29,900 Paul Harris Stores, Inc.* 220,512
10,000 Premier Parks, Inc. 372,500
20,000 Racing Champions 220,000
16,500 Stage Stores, Inc. 119,625
6,000 Stewart Enterprises, Inc. 96,375
6,000 Strayer Education, Inc. 222,000
7,500 Sylvan Learning Systems, Inc. 205,313
10,000 Vail Resorts, Inc. 158,750
4,114,250
CONSUMER STAPLES - 3.41%
85,000 Argosy Gaming Co. 451,562
ENERGY - 13.31%
25,000 Callon Petroleum Co. 278,125
15,000 Dril-Quip, Inc. 330,938
10,000 Eagle Geophysical, Inc. 38,125
53,000 Frontier Oil Corp.* 265,000
25,000 Global Industries, Inc. 253,125
18,600 ICO Holdings, Inc. 22,669
25,000 Key Energy Group, Inc. 117,187
12,500 Nabors Industries, Inc.* 227,344
5,000 Ocean Energy, Inc.* 34,062
7,500 Tidewater, Inc. 194,063
1,760,638
FINANCIAL - 7.82%
5,500 Everest Reinsurance Holdings, Inc. 171,531
3,200 Executive Risk, Inc. 227,200
7,000 Heller Financial, Inc. Cl. A 164,500
1,300 Money (The) Group, Inc. 32,338
1,700 Paula Financial 12,644
1,600 Stirling Cooke Brown Holdings 11,200
8,900 Susquehanna Bancshares, Inc. 163,537
11,500 UST Corp. 251,203
1,034,153
HEALTH CARE - 3.92%
8,000 CombiChem, Inc.* 30,000
5,700 Human Genome Sciences, Inc. 197,719
8,500 Kendle International 171,062
8,000 Sabratek Corp. 120,000
518,781
TECHNOLOGY - 24.36%
8,500 Analog Devices, Inc.* 252,875
2,500 Applied Micro Circuits Corp.* 106,875
2,500 Atlantic Data Services, Inc.* 10,156
15,500 Atmel Corp. 235,406
9,700 Ciena Corp.* 218,250
9,200 Diebold, Inc. 220,800
6,600 Etec Systems, Inc.* 194,288
16,400 HMT Technology Corp. 57,400
7,500 HNC Software 245,625
11,900 Integrated Device Technology, Inc. 64,334
14,600 Intevac, Inc. 83,950
5,000 Loral Space & Communications, Ltd.* 72,188
9,400 Meta Group, Inc. 144,525
20,700 National Semiconductor Corp. 192,769
3,300 Orbital Science Corp. 93,431
6,500 Remec, Inc.* 135,688
9,500 Scientific Atlantic, Inc. 258,875
5,900 SunGard Data Systems, Inc.* 236,000
7,500 Thermoquest Corp.* 90,937
11,000 VLSI Technology, Inc. 213,125
12,000 Western Digital Corp. 95,250
3,222,747
TRANSPORTATION - 3.92%
4,700 Expeditors International Washington, Inc. 253,800
9,000 Midwest Express Holdings 264,375
518,175
TOTAL COMMON STOCKS 12,087,181
(cost $11,684,888)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 8.01%
$ 1,060,000 UMB Bank, n.a., 4.38%, due 4-1-99
(Collateralized by U.S. Treasury Notes,
7.125%, due 2-29-00 with a value of $1,120,172)
(COST $1,060,000) $ 1,060,000
TOTAL INVESTMENTS - 99.39% 13,147,181
(cost $12,744,888)
Other assets less liabilities - 0.61% 80,946
TOTAL NET ASSETS - 100.00%
(equivalent to $9.49 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
1,393,193 shares outstanding) $ 13,228,127
For federal income tax purposes, the identified cost of investments owned at
March 31, 1999, was $12,785,603.
Net unrealized appreciation for federal income tax purposes was $361,578,
which is comprised of unrealized appreciation of $1,560,509 and unrealized
depreciation of $1,198,931.
*Non-income producing security
See accompanying Notes to Financial Statements.
Buffalo
USA Global Fund
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 100.12%
BASIC MATERIALS - 3.73%
16,000 Praxair, Inc. $ 577,000
25,300 Sigma-Aldrich Corp. 740,025
1,317,025
CAPITAL GOODS - 8.01%
14,400 Allied-Signal, Inc. 708,300
8,200 Applied Materials, Inc.* 505,838
17,950 Boeing Co. 612,544
29,300 Teleflex, Inc. 998,031
2,824,713
CONSUMER CYCLICAL - 5.42%
93,900 Interface, Inc. Cl. A 903,787
9,000 Korn/Ferry International 118,125
20,900 Lear Corp. 892,169
1,914,081
CONSUMER STAPLES - 21.58%
20,800 Bestfoods, Inc. 977,600
18,000 Coca-Cola Co. 1,104,750
35,700 McDonald's Corp. 1,617,656
10,000 Procter & Gamble Co. 979,375
55,000 Sara Lee Corp. 1,361,250
17,400 Wrigley, (Wm.) Jr. Co. 1,573,613
7,614,244
ENERGY - 9.11%
19,000 Global Marine, Inc.* 223,250
11,500 Mobil Corp. 1,012,000
16,000 Schlumberger Ltd. 963,000
17,900 Texaco, Inc. 1,015,825
3,214,075
FINANCIAL - 0.52%
3,400 AFLAC, Inc.* 185,088
HEALTH CARE - 17.34%
20,400 American Home Products Corp. 1,331,100
21,400 Bristol-Myers Squibb Co. 1,376,287
16,500 Johnson & Johnson 1,545,844
8,800 Quintiles Transnational Corp. 332,200
27,700 Schering-Plough Corp. 1,532,156
6,117,587
TECHNOLOGY - 34.41%
24,100 AMP, Inc. 1,293,869
30,400 Analog Devices, Inc.* 904,400
17,900 Applied Micro Circuits Corp.* 765,225
17,650 Cisco Systems, Inc. 1,933,778
1,900 Etec Systems, Inc.* 55,931
16,200 Hewlett-Packard Co. 1,098,563
90,300 HMT Technology Corp. 316,050
39,800 Integrated Device Technology, Inc. 215,169
6,000 Intel Corp. 714,750
75,500 Intevac, Inc. 434,125
13,200 Microsoft Corp. 1,183,050
13,300 Motorola, Inc. 974,225
78,900 National Semiconductor Corp. 734,756
19,900 Rockwell International Corp. 844,506
22,600 Thermoquest Corp.* 274,025
50,200 Western Digital Corp. 398,462
12,140,884
TOTAL COMMON STOCKS 35,327,697
(cost $29,343,650)
TOTAL INVESTMENTS - 100.12% 35,327,697
(cost $29,343,650)
Other assets less liabilities - (0.12%) (42,338)
TOTAL NET ASSETS - 100.00%
(equivalent to $16.27 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
2,168,673 shares outstanding) $ 35,285,359
For federal income tax purposes, the identified cost of investments owned at
March 31, 1999, was $29,583,744.
Net unrealized appreciation for federal income tax purposes was $5,743,953,
which is comprised of unrealized appreciation of $8,840,056 and unrealized
depreciation of $3,096,103.
*Non-income producing security
See accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS
AND LIABILITIES
March 31, 1999
<TABLE>
<CAPITON>
BALANCED EQUITY HIGH YIELD SMALL CAP USA GLOBAL
FUND FUND FUND FUND FUND
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value
(identified cost $42,793,456,
$25,807,538, $66,696,070,
$12,744,888 and $29,343,650,
respectively) $ 39,365,653 $ 31,402,413 $ 57,591,189 $ 13,147,181 $ 35,327,697
Cash - 18,873 12,399 145,470 -
Dividends receivable 40,943 42,333 73,298 5,464 28,429
Interest receivable 658,658 - 1,184,855 - -
Receivable for investments sold 550,279 213,677 - 319,699 203,127
Receivable for fund shares sold 4,250 604 5,779 47,606 618
Total assets 40,619,783 31,677,900 58,867,520 13,665,420 35,559,871
LIABILITIES AND NET ASSETS:
Cash overdraft 227,749 - - - 246,349
Fees payable 17,773 14,100 25,224 5,740 15,725
Payable for investments purchased - 69,800 753,148 427,053 -
Payable for fund share redemptions 8,318 6,600 35,940 4,500 12,438
Total liabilities 253,840 90,500 814,312 437,293 274,512
NET ASSETS $ 40,365,943 $ 31,587,400 $ 58,053,208 $ 13,228,127 $ 35,285,359
NET ASSETS CONSIST OF:
Capital (capital stock and
paid-in capital) $ 44,408,563 $ 25,823,072 $ 66,543,481 $ 12,955,034 $ 29,155,288
Accumulated undistributed
net investment income - 48,385 989,536 - 58,808
Accumulated undistributed
net realized gain (loss)
on sale of investments (614,817) 121,068 (374,928) (129,200) 87,216
Net unrealized appreciation in
value of investments (3,427,803) 5,594,875 (9,104,881) 402,293 5,984,047
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $ 40,365,943 $ 31,587,400 $ 58,053,208 $ 13,228,127 $ 35,285,359
Capital shares, $1.00 par value:
Authorized 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding 4,550,104 1,863,774 5,405,721 1,393,193 2,168,673
NET ASSET VALUE PER SHARE $ 8.87 $ 16.95 $ 10.74 $ 9.49 $ 16.27
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS
OF OPERATIONS
For The Period Ended March 31, 1999
<TABLE>
<CAPTION>
SMALL CAP FUND
FOR THE PERIOD FROM
April 14, 1998
BALANCED EQUITY HIGH YIELD (inception) USA GLOBAL
FUND FUND FUND to MARCH 31, 1999 FUND
</CAPTION>
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends
(net of foreign taxes withheld) $ 517,801 $ 362,509 $ 696,696 $ 30,256 $ 403,020
Interest 2,945,213 74,349 4,973,220 78,853 147,914
3,463,014 436,858 5,669,916 109,109 550,934
Expenses (Note 2):
Management fees 479,622 327,856 643,569 67,843 396,253
Registration fees and expenses 17,706 20,213 34,975 1,200 21,476
497,328 348,069 678,544 69,043 417,729
Net investment income 2,965,686 88,789 4,991,372 40,066 133,205
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) from
investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 33,078,531 28,577,178 16,406,123 1,900,245 19,657,629
Cost of investments sold 31,696,293 28,507,823 16,781,051 2,023,831 19,618,297
Net realized gain (loss) from
sales of investments 1,382,238 69,355 (374,928) (123,586) 39,332
Gain from option contracts written - 55,854 - - 146,330
Net realized gain (loss) from
investment transactions 1,382,238 125,209 (374,928) (123,586) 185,662
Unrealized appreciation
(depreciation) on investments:
Beginning of period 6,226,301 5,061,945 2,438,312 - 7,774,430
End of period (3,427,803) 5,594,875 (9,104,881) 402,293 5,984,047
Increase (decrease) in
net unrealized appreciation
(depreciation) on investments (9,654,104) 532,930 (11,543,193) 402,293 (1,790,383)
Net gain (loss) on investments (8,271,866) 658,139 (11,918,121) 278,707 (1,604,721)
Increase (decrease) in net assets
resulting from operations $ (5,306,180) $ 746,928 $ (6,926,749) $ 318,773 $(1,471,516)
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Periods Ended March 31, 1999 and 1998
Balanced fund
1999 1998
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,965,686 $ 2,756,228
Net realized gain (loss) from
investment transactions 1,382,238 3,252,742
Net unrealized appreciation (depreciation)
of investments during the year (9,654,104) 4,622,864
Net increase (decrease) in
net assets resulting from operations (5,306,180) 10,631,834
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (2,952,429) (2,775,972)
Net realized gain from
investment transactions (2,877,691) (3,860,703)
In excess of net investment income - -
In excess of net realized gains (368,421) -
Total distributions to shareholders (6,198,541) (6,636,675)
INCREASE (DECREASE) FROM
CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 6,844,399 12,885,564
Net asset value of shares issued
for reinvestment of distributions 6,092,480 6,520,617
12,936,879 19,406,181
Cost of shares repurchased (16,500,070) (11,716,138)
Net increase (decrease) from
capital share transactions (3,563,191) 7,690,043
Total increase (decrease) in net assets (15,067,912) 11,685,202
NET ASSETS:
Beginning of period 55,433,855 43,748,653
End of period $ 40,365,943 $ 55,433,855
Undistributed net investment income
at end of period $ - $ 18,710
*Shares issued and repurchased:
Number of shares sold 657,856 1,120,147
Number of shares issued for
reinvestment of distributions 656,634 595,174
1,314,490 1,715,321
Number of shares repurchased (1,584,966) (1,033,780)
Net increase (decrease) (270,476) 681,541
**Distributions to shareholders:
Income dividends per share $ .66 $ .65
Capital gains distribution per share $ .77 $ .91
See accompanying Notes to Financial Statements.
<TABLE>
<CAPTION>
EQUITY FUND HIGH YIELD FUND SMALL CAP FUND USA GLOBAL FUND
For The Period From
April 14, 1998 (Inception)
1999 1998 1999 1998 to March 31, 1999 1999 1998
</CAPTION>
<C> <C> <C> <C> <C> <C> <C>
$ 88,789 $ 163,013 $ 4,991,372 $ 2,212,557 $ 40,066 $ 133,205 $ 202,448
125,209 2,896,922 (374,928) 785,270 (123,586) 185,662 3,042,358
532,930 5,310,379 (11,543,193) 2,131,299 402,293 (1,790,383) 6,945,488
746,928 8,370,314 (6,926,749) 5,129,126 318,773 (1,471,516) 10,190,294
(112,732) (161,898) (4,063,980) (2,186,837) (40,066) (149,346) (175,131)
(729,946) (3,468,742) (380,905) (642,456) - (1,163,523) (2,940,660)
- - - - (5,614) - -
- - - - - - -
(842,678) (3,630,640) (4,444,885) (2,829,293) (45,680) (1,312,869) (3,115,791)
7,611,572 12,516,901 31,624,268 55,449,764 14,026,235 6,422,253 23,849,303
831,725 3,566,498 4,306,579 2,687,187 44,750 1,282,254 3,019,319
8,443,297 16,083,399 35,930,847 58,136,951 14,070,985 7,704,507 26,868,622
(11,993,087) (5,659,255) (37,763,697) (8,765,697) (1,215,951) (15,110,198) (15,559,371)
(3,549,790) 10,424,144 (1,832,850) 49,371,254 12,855,034 (7,405,691) 11,309,251
(3,645,540) 15,163,818 (13,204,484) 51,671,087 13,128,127 (10,190,076) 18,383,754
35,232,940 20,069,122 71,257,692 19,586,605 100,000 45,475,435 27,091,681
$ 31,587,400 $ 35,232,940 $ 58,053,208 $ 71,257,692 $ 13,228,127 $ 35,285,359 $ 45,475,435
$ 48,385 $ 64,097 $ 989,536 $ 59,581 $ - $ 58,808 $ 74,949
466,748 759,078 2,645,243 4,360,648 1,526,344 397,233 1,466,815
51,559 234,208 378,664 212,697 4,827 80,691 198,067
518,307 993,286 3,023,907 4,573,345 1,531,171 477,924 1,664,882
(734,834) (354,109) (3,170,583) (690,445) (137,978) (938,682) (957,318)
(216,527) 639,177 (146,676) 3,882,900 1,393,193 (460,758) 707,564
$ .05 $ .10 $ .76 $ .80 $ .04 $ .06 $ .06
$ .38 $ 1.82 $ .08 $ .24 $ - $ .51 $ 1.02
</TABLE>
NOTES TO FINANCIAL
STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Funds are registered under the Investment Company Act of 1940, as
amended, as diversified open-end management investment companies. The
following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements.
A. Security Valuation - Corporate stocks, bonds and options traded on a
national securities exchange or national market are
valued at the latest sales price thereof, or if no sale was reported on
that date, the mean between the closing bid and asked price is used.
Securities which are traded over-the-counter are priced at the mean
between the latest bid and asked price. Securities not currently
traded are valued at fair value as determined by the Board of Directors.
Securities with maturities of 60 days or less when acquired or
subsequently within 60 days of maturity are valued at amortized cost,
which approximates market value.
B. Federal and State Taxes - The Funds complied with the requirements
of the Internal Revenue Code applicable to regulated investment
companies and therefore, no provision for federal or state tax is
required. The Buffalo Balanced, Equity, HighYield, Small Cap and USA
Global Funds designate $2,487,281, $103,034, $177,756, $0 and
$1,063,658, respectively as long-term capital gain dividends. The
Buffalo High Yield Fund has an accumulated net realized loss on sales of
investments for federal income tax purposes of $248,566, which expires
in 2007.
C. Options - In order to produce incremental earnings and
protect gains, the Funds may write covered call options on portfolio
securities. When a Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market
to reflect the current market value of the option written. If an option
which a Fund has written either expires on its stipulated expiration
date, or if a Fund enters into a closing purchase transaction, the Fund
realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was written) without regard
to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished. If a call option which
the Fund has written is exercised, the Fund realizes a capital gain or
loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. The primary risks
associated with the use of options are an imperfect correlation between
the change in market value of the securities held by the Fund and the
price of the option, the possibility of an illiquid market, and the
inability of the counterparty to meet the terms of the contract.
D. Security Transactions and Investment Income - Security transactions
are accounted for on the date the securities are purchased or sold.
Dividend income less foreign taxes withheld (if any) are recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Realized gains and losses from investment transactions and unrealized
appreciation and depreciation of investments are reported on the
identified cost basis. Market discounts on debt securities are
amortized; premiums are not amortized.
E. Distributions to Shareholders - Distributions to shareholders are
recorded on the ex-dividend date. Distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for amounts related to redemptions of shares as a
part of the deduction for dividends paid for income tax purposes, and
deferral of post October and wash sale losses.
F. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from such estimates.
2. MANAGEMENT FEES:
Management fees are paid to Jones & Babson, Inc. at the rate of
1% per annum of the average daily net asset values of the Funds for
services which include administration, and all other operating expenses
of the Funds except the cost of acquiring and disposing of portfolio
securities, the taxes, if any, imposed directly on the Funds and its
shares and the cost of qualifying the Funds' shares for sale in any
jurisdiction. Certain officers and/or directors of the Funds are also
officers and/or directors of Jones & Babson, Inc.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the period ended March 31, 1999, (excluding
maturities of short-term commercial notes and repurchase agreements)
were as follows:
Balanced Fund
Purchases $ 26,319,353
Proceeds from sales 33,078,531
Equity Fund
Purchases $ 25,497,389
Proceeds from sales 28,577,178
High Yield Fund
Purchases $ 39,672,169
Proceeds from sales 16,406,123
Small Cap Fund
Purchases $ 13,708,970
Proceeds from sales 1,900,245
USA Global Fund
Purchases $ 15,040,080
Proceeds from sales 19,657,629
4. COVERED CALL OPTIONS:
There were no outstanding covered call options as of March 31, 1999.
Transactions in call options written for the year ended
March 31, 1999, were as follows:
Number of Premium
Contracts Amount
Equity Fund
Balance at March 31, 1998 - $ -
Opened 1,028 145,632
Expired (403) (44,547)
Closing Buys (86) (11,307)
Exercised (539) (89,778)
Balance at March 31, 1999 - $ -
USA Global Fund
Balance at March 31, 1998 - $ -
Opened 1,520 151,930
Expired (1,485) (146,330)
Exercised (35) (5,600)
Balance at March 31, 1999 - $ -
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
<TABLE>
<CAPTION>
BALANCED FUND
FOR THE PERIOD
FROM AUGUST 12, 1994
YEARS ENDED March 31, (INCEPTION)
1999 1998 1997 1996 TO MARCH 31, 1995
</CAPTION>
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.50 $ 10.57 $ 10.70 $ 10.06 $ 10.07
Income from investment operations:
Net investment income 0.66 0.65 0.72 0.65 0.32
Net gains (losses) on securities
(both realized and unrealized) (1.86) 1.84 0.69 1.07 (0.03)
Total from investment operations (1.20) 2.49 1.41 1.72 0.29
Less distributions:
Dividends from net investment income (0.66) (0.65) (0.71) (0.68) (0.30)
Distributions from capital gains (0.77) (0.91) (0.83) (0.40) -
Total distributions (1.43) (1.56) (1.54) (1.08) (0.30)
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 period (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 investment income to
average net assets 6.19% 5.61% 6.20% 6.27% 8.89%
Portfolio turnover rate 57% 61% 56% 61% 33%
Performance ratios for the Funds' initial periods of operations are
annualized, except total return.
</TABLE>
See accompanying Notes to Financial Statements.
EQUITY FUND
FOR THE PERIOD
FROM MAY 19, 1995
YEARS ENDED MARCH 31, (INCEPTION)
1999 1998 1997 TO MARCH 31, 1996
$ 16.94 $ 13.93 $ 12.36 $ 10.14
0.04 0.08 0.15 0.21
0.40 4.85 2.51 2.72
0.44 4.93 2.66 2.93
(0.05) (0.10) (0.10) (0.20)
(0.38) (1.82) (0.99) (0.51)
(0.43) (1.92) (1.09) (0.71)
$ 16.95 $ 16.94 $ 13.93 $ 12.36
2.73% 36.97% 21.23% 29.11%
$ 32 $ 35 $ 20 $ 5
1.06% 1.09% 1.16% 1.06%
0.27% 0.56% 1.35% 2.55%
83% 93% 123% 63%
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
HIGH YIELD FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 19, 1995
YEARS ENDED MARCH 31, (INCEPTION)
1999 1998 1997 TO MARCH 31, 1996
</CAPTION>
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.83 $ 11.73 $ 11.15 $ 10.14
Income from investment operations:
Net investment income 0.93 0.79 0.82 0.53
Net gains (losses) on securities
(both realized and unrealized) (2.18) 1.35 0.71 1.14
Total from investment operations (1.25) 2.14 1.53 1.67
Less distributions:
Dividends from net investment income (0.76) (0.80) (0.80) (0.53)
Distributions from capital gains (0.08) (0.24) (0.15) (0.13)
Total distributions (0.84) (1.04) (0.95) (0.66)
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 period (in millions) $ 58 $ 71 $ 20 $ 7
Ratio of expenses to average net assets 1.05% 1.03% 1.13% 1.03%
Ratio of net investment income to
average net assets 7.76% 6.43% 7.63% 7.40%
Portfolio turnover rate 30% 24% 39% 25%
</TABLE>
Performance ratios for the Funds' initial periods of operations are
annualized, except total return.
See accompanying Notes to Financial Statements.
SMALL CAP FUND
FOR THE PERIOD
FROM APRIL 14, 1998
(INCEPTION)
TO MARCH 31, 1999
$ 10.00
0.04
(0.51)
(0.47)
(0.04)
-
(0.04)
$ 9.49
(4.69%)
$ 13
1.02%
0.59%
34%
USA GLOBAL FUND
FOR THE PERIOD
FROM MAY 19, 1995
YEARS ENDED MARCH 31, (INCEPTION)
1999 1998 1997 TO MARCH 31, 1996
$ 17.29 $ 14.10 $ 11.35 $ 10.14
0.06 0.07 0.09 0.15
(0.51) 4.20 3.32 1.61
(0.45) 4.27 3.41 1.76
(0.06) (0.06) (0.05) (0.15)
(0.51) (1.02) (0.61) (0.39)
(0.57) (1.08) (0.66) (0.54)
$ 16.27 $ 17.29 $ 14.10 $ 11.36
(2.52%) 31.33% 29.87% 17.49%
$ 35 $ 45 $ 27 $ 5
1.05% 1.09% 1.13% 1.06%
0.34% 0.47% 0.79% 1.94%
42% 64% 88% 123%
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Buffalo Balanced Fund, Inc.
Buffalo Equity Fund, Inc.
Buffalo High Yield Fund, Inc.
Buffalo Small Cap Fund, Inc.
Buffalo USA Global Fund, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the statements of net assets, of Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo Small
Cap Fund, Inc. and Buffalo USA Global Fund, Inc. (the Funds) as of March
31, 1999, and the related statements of operations, changes in net
assets and financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of investments owned as of March 31,
1999, by correspondence with the custodian. As to securities relating to
uncompleted transactions, we performed other audit procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the Funds referred to above at March 31,
1999, and the results of their operations, changes in their net assets
and financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.
Kansas City, Missouri
April 30, 1999
This report has been prepared for the information of the Shareholders of
the Buffalo Funds, and is not to be construed as an offering of the
shares of the Funds. Shares of the Funds are offered only by the
Prospectus, a copy of which may be obtained from Jones & Babson, Inc.
Buffalo Mutual Funds
Balanced Fund
Equity Fund
High Yield Fund
Small Cap Fund
USA Global Fund
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
JB9C-2 507201
