Prospectus
May 19, 1995
Buffalo High Yield Fund, Inc.
Investment Counsel:
Kornitzer Capital Management, Inc.
Shawnee Mission, Kansas
Managed and Distributed By:
Jones & Babson, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
Toll-Free: 1-800-49-BUFFALO (1-800-492-8332)
Investment Objective The 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. The Fund will
invest in debt securities and preferred stock. The Fund may
invest in any fixed income securities, whether nonconvertible
or convertible without restriction. This Fund will invest a
significant portion, up to 90% of its assets, in lower rated
bonds, commonly known as "junk bonds," that entail greater
risks including default risks, than those found in higher rated
securities. The Fund's fixed income investments may consist
totally of securities rated below investment grade. Investors
should carefully consider these risks before investing. See
"Investment Objective and Portfolio Management Policy,"
page 4; "Risk Factors," page 6; "Investment Restrictions,"
page 7 and "Fixed Income Securities described and ratings,"
page 17. Secondarily, the Fund may invest up to 10% of the
value of its total assets in common stocks and other equity
securities.
Purchase Information
Minimum Investment Initial
Purchase $ 2,500
Initial IRA and Uniform
Transfers (Gifts)
to Minors Purchases $ 250
Subsequent Purchase:
By Mail $ 100
By Telephone or Wire $ 1,000
All Automatic Purchases $ 100
Shares are
purchased and redeemed at net asset value. There are no
sales, redemption or Rule 12b-1 distribution charges. If you
need further information, please call the Fund at the
telephone number indicated.
Additional Information
This prospectus should be read and retained for future reference. It
contains the information that you should know before you
invest. A "Statement of Additional Information" of the same
date as this prospectus has been filed with the Securities and
Exchange Commission and is incorporated by reference.
Investors desiring additional information about the Fund may
obtain a copy without charge by writing or calling the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Table of Contents Page Fund Expenses 3
Investment Objective and Portfolio Management Policy 4
Asset-Backed Securities 5
Repurchase Agreements 5
Risk Factors 6
Investment Restrictions 7
Performance Measures 7
How to Purchase Shares 8
Initial Investments 9
Investments Subsequent to Initial Investment 9
Telephone Investment Service 10
Automatic Monthly Investment Plan 10
How to Redeem Shares 10
Systematic Redemption Plan 12
How to Exchange Shares Between Buffalo Funds 12
How Share Price is Determined 13
Officers and Directors 13
Management and Investment Counsel 14
General Information and History 15
Dividends, Distributions and Their Taxation 15
Description of Securities Ratings 17
Shareholder Services 18
Shareholder Inquiries 19
Buffalo High Yield Fund, Inc.
Fund Expenses
Shareholder Transaction Expenses
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Redemption fee None
Exchange fee None
Annual Fund Operation Expenses (as a
percentage of average net assets)
Management fees 1.00%
12b-l fees None
Other expenses .08%
Total Fund operating expenses 1.08%
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
1 Year 3 Year
$11 $34
The above information is provided in order to assist you in
understanding the various costs and expenses that a
shareholder of the Fund will bear directly or indirectly. The
expenses set forth above are an estimate only. "Other
Expenses" is based on estimated amounts for the current
fiscal year. The example should not be considered a
representation of past or future expenses. Actual expenses
may be greater or less than those shown.
Investment Objective And Portfolio Management Policy
The 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 any 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 is a no-load, open-
end, diversified management company commonly referred to
as a "mutual fund."
The Fund may invest up to 90% of its
assets in any fixed income securities, including without
limitation, corporate bonds, convertible bonds, preferred
stocks and convertible preferred stocks. These securities may
be rated below investment grade (BB/Ba and B/B) by the
major rating agencies or, if unrated, are in the opinion of the
manager of similar quality. The manager believes this policy
is justified given the manager's view that these securities
from time-to-time offer superior value and given the
manager's experience and substantial in-house credit research
capabilities with higher yielding securities.
Securities rated
Baa or higher by Moody's or BBB by Standard & Poor's or
higher are classified as investment grade securities. Although
securities rated Baa by Moody's and BBB by Standard &
Poor's have speculative characteristics, they are considered to
be "medium" investment grade. Such securities carry a lower
degree of risk than lower rated securities.
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. 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.
(See "Risk Factors Applicable to High Yielding High Risk
Debt Securities.")
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. (See
"Risk Factors Applicable to High Yielding High Risk Debt
Securities.") The Fund will not purchase obligations that are
in default, but may hold in the portfolio securities which 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. The manager may look at a
number of factors in selecting securities for the Fund's
portfolio. These include the past, current and estimated
future: (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. 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. Going
defensive in any one or more of these manners might involve
a reduction in the yield on the Fund's portfolio. The Fund's
investment objective and policy as described in this section
will not be changed without approval of a majority of the
Fund's outstanding shares.
The table below shows the
percentage of the Fund's assets to be invested in securities
assigned to the various rating categories by Moody's and
Standard & Poor's and in unrated securities determined by
the Investment Counsel to the Fund to be of comparable
quality:
Unrated securities of
Rated Securities, comparable quality,
as a percentage of as percentage of
Rating Fund's assets Fund's assets
AAA/Aaa up to 20% up to 20%
AA/Aa up to 20% up to 20%
A/A up to 20% up to 20%
BBB/Baa up to 90% up to 90%
BB/Ba up to 90% up to 90%
B/B up to 90% up to 90%
CCC/Caa* up to 20% up to 20%
CC/Ca* up to 20% up to 20%
D/D* up to 20% up to 20%
* The investments in securities with this rating are
subject to an aggregate maximum limit of 20% of all
securities so noted. Securities rated B or higher at the time of
purchase, which are subsequently downgraded, will not be
subject to this limitation.
The 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 serve as a partial hedge
against the price of the underlying security declining.
Investments 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. The Fund may also invest in
issues of the United States Treasury or a United States
government agency subject to repurchase agreements. The use
of repurchase agreements by the Fund involves certain risks.
For a discussion of these risks, see "Risk Factors Applicable
to Repurchase Agreements."
There is no assurance that the
Fund's objective of a high level of current income and
secondarily capital growth can be achieved. Portfolio turnover
will be no more than is necessary to meet the Fund's
objective. Under normal circumstances, it is anticipated that
portfolio turnover will not exceed 100% on an annual basis.
Asset-Backed Securities
The 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.
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
purchaser's period of ownership. The result is a fixed rate of
return insulated from market fluctuations during such period.
Under the Investment Company Act of 1940, repurchase
agreements are considered loans by the Fund. The Fund will
enter into such 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 Fund. 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 10% of the total assets of the Fund.
During the initial
month of operations, it is anticipated that the Fund may be
invested up to 100% in repurchase agreements, however
under normal circumstances, the Fund may invest up to 25%
of its assets in repurchase agreements. (See "Risk Factors
Applicable to Repurchase Agreements.")
Risk Factors
Risk Factors Applicable To High Yielding High Risk Debt
Securities
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,
the 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 high-yield high-risk securities (so-called
"junk bonds") 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 Fund's 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, the Fund 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 Fund is also subject to income risk which is
the potential for a decline in the Fund'' income due to falling
market interest rates.
In addition to interest rate and income
risks, the Fund is subject to credit risk. Credit risk, also
known as default risk, is the possibility that a bond issuer will
fail to make timely payments of interest or principal to the
Fund. The credit risk of the Fund depends on the quality of its
investments. Reflecting their higher risks, lower-quality
bonds generally offer higher yields (all other factors being
equal). Rating of debt securities are defined under the caption
"Fixed Income Securities Described and Ratings."
Risk Factors Applicable To Covered Call Options
Up to 25% of the 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, the 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 the 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 the 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 the 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 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, the Fund may incur a loss upon disposition of them.
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
the Fund may not be able to perfect its interest in the
underlying securities. While the Fund's management
acknowledges these risks, it is expected that they can be
controlled through stringent security selection criteria and
careful monitoring procedures.
Investment Restrictions
In addition to the policies set forth under the caption
"Investment Objective and Portfolio Management Policy," the
Fund is subject to certain other restrictions which may not be
changed without approval of the lesser of: (1) at least 67% of
the voting securities present at a meeting if the holders of
more than 50% of the outstanding securities of the Fund are
present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Fund. Among these
restrictions, the more important ones are that the Fund will
not purchase the securities of any issuer if more than 5% of
the Fund's total assets would be invested in the securities of
such issuer, or the Fund would hold more than 10% of any
class of securities of such issuer; the Fund will not make any
loan (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); and the Fund will not 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 borrowings shall have asset coverage of at
least 3 to 1. The Fund will not buy securities while
borrowings are outstanding. The full text of these restrictions
are set forth in the "Statement of Additional Information."
Performance Measures
From time to time, the Fund may
advertise its performance in various ways, as summarized
below. Further discussion of these matters also appears in the
"Statement of Additional Information." A discussion of Fund
performance will be included in the Fund's Annual Report to
Shareholders which will be available from the Fund upon
request at no charge.
Total Return
The Fund 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 the Fund's shares and
assume that any income dividends and/or capital gains
distributions made by the Fund during the period were
reinvested in shares of the Fund. 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.
Yield
The Fund may advertise a yield figure derived
by dividing the Fund's net investment income per share
during a 30-day base period by the per-share price on the last
day of the base period.
Performance Comparisons
In advertisements or in reports to shareholders, the 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 Shearson/Lehman
Government/Corporate Index, an unmanaged index of
government and corporate bonds, or the Consumer Price
Index. Performance information, rankings, ratings, published
editorial comments and listings as reported in national
financial publications such as Kiplinger's Personal Finance
Magazine, Business Week, Morningstar Mutual Funds,
Investor's Business Daily, Institutional Investor, The Wall
Street Journal, Mutual Fund Forecaster, No-Load Investor,
Money, Forbes, Fortune and Barron's may also be used in
comparing performance of the Fund. Performance
comparisons should not be considered as representative of the
future performance of any Fund. Further information
regarding the performance of the Fund is contained in the
"Statement of Additional Information."
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
Company Service, and Donoghue's Mutual Fund Almanac.
How To Purchase Shares
Shares are purchased at net asset
value (no sales charge) from the Fund through its agent,
Jones & Babson, Inc., Three Crown Center, 2440 Pershing
Road, Suite G-15, Kansas City, MO 64108. For information
call toll free 1-800-49-BUFFALO (1-800-492-8332). If an
investor wishes to engage the services of any other broker to
purchase (or redeem) shares of the Fund, a fee may be
charged by such broker. The Fund will not be responsible for
the consequences of delays including delays in the banking or
Federal Reserve wire systems. You do not pay a sales
commission when you buy shares of the Fund. Shares are
purchased at the Fund's net asset value (price) per share next
effective after a purchase order and payment have been
received by the Fund. In the case of certain institutions which
have made satisfactory payment arrangements with the Fund,
orders may be processed at the net asset value per share next
effective after a purchase order has been received by the
Fund. The Fund reserves the right in its sole discretion to
withdraw all or any part of the offering made by this
prospectus or to reject purchase orders when, in the judgment
of management, such withdrawal or rejection is in the best
interest of the Fund and its shareholders. The Fund also
reserves the right at any time to waive or increase the
minimum requirements applicable to initial or subsequent
investments with respect to any person or class of persons,
which include shareholders of the Fund's special investment
programs. The Fund reserves the right to refuse to accept
orders for Fund shares unless accompanied by payment,
except when a responsible person has indemnified the Fund
against losses resulting from the failure of investors to make
payment. In the event that the Fund sustains a loss as the
result of failure by a purchaser to make payment, the Fund's
underwriter, Jones & Babson, Inc. will cover the loss.
Initial Investments
Initial investments - By mail.
You may open an
account and make an investment by completing and signing
the application which accompanies this prospectus. Make
your check ($2,500 minimum unless your purchase is
pursuant to an IRA or the Uniform Transfers (Gifts) to
Minors Act in which case the minimum initial purchase is
$250) payable to UMB Bank, n.a. Mail your application and
check to:
Buffalo High Yield Fund, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, Missouri 64108
Initial investments - By wire.
You may purchase shares of
the Fund by wiring funds ($2,500 minimum) through the
Federal Reserve Bank to the custodian, UMB Bank, n.a. Prior
to sending your money, you must call the Fund toll free 1-
800-49-BUFFALO (1-800-492-8332), and provide it with the
identity of the registered account owner, the registered
address, the Social Security or Taxpayer Identification
Number of the registered owner, the amount being wired, the
name and telephone number of the wiring bank and the
person to be contacted in connection with the order. You will
then be provided a Fund account number, after which you
should instruct your bank to wire the specified amount, along
with the account number and the account registration to:
UMB Bank, n.a.
Kansas City, Missouri, ABA #101000695
For Buffalo High Yield Fund, Inc./
AC= 987071-5899
OBI=(assigned Fund number and name in which registered.)
A completed
application must be sent to the Fund as soon as possible so the
necessary remaining information can be recorded in your
account. Payment of redemption proceeds will be delayed
until the completed application is received by the Fund.
Investments Subsequent To Initial Investment
You may add
to your Fund account at any time in amounts of $100 or more
if purchases are made by mail, or $1,000 or more if purchases
are made by wire or telephone. Automatic monthly
investments must be in amounts of $100 or more.
Checks should be mailed to the Fund at its address, but make them
payable to UMB Bank, n.a. Always identify your account
number or include the detachable reminder stub which
accompanies each confirmation.
Wire share purchases
should include your account registration, your account
number and the Buffalo Fund in which you are purchasing
shares. It also is advisable to notify the Fund by telephone
that you have sent a wire purchase order to the bank.
Telephone Investment Service
To use the Telephone
Investment Service, you must first establish your Fund
account and authorize telephone orders in the application
form, or, subsequently, on a special authorization form
provided upon request. If you elect the Telephone Investment
Service, you may purchase Fund shares by telephone and
authorize the Fund to draft your checking account for the cost
of the shares so purchased. You will receive the next available
price after the Fund has received your telephone call.
Availability and continuance of this privilege is subject to
acceptance and approval by the Fund and all participating
banks. During periods of increased market activity, you may
have difficulty reaching the Fund by telephone, in which case
you should contact the Fund by mail or telegraph. The Fund
will not be responsible for the consequences of delays
including delays in the banking or Federal Reserve wire
systems.
The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are
genuine, and if such procedures are not followed, the Fund
may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited
to requiring personal identification prior to acting upon
instructions received by telephone providing written con-
firmations of such transactions, and/or tape recording of
telephone instructions.
The Fund reserves the right to initiate
a charge for this service and to terminate or modify any or all
of the privileges in connection with this service at any time
upon 15 days written notice to shareholders, and to terminate
or modify the privileges without prior notice in any
circumstances where such termination or modification is in
the best interest of the Fund and its investors.
Automatic Monthly Investment Plan
You may elect to make monthly
investments in a constant dollar amount from your checking
account ($100 minimum). The Fund will draft your checking
account on the same day each month in the amount you
authorize in your application, or, subsequently, on a special
authorization form provided upon request. Availability and
continuance of this privilege is subject to acceptance and
approval by the Fund and all participating banks. If the date
selected falls on a day upon which the Fund shares are not
priced, investment will be made on the first date thereafter
upon which Fund shares are priced. The Fund will not be
responsible for the consequences of delays including delays in
the banking or Federal Reserve wire systems.
The Fund
reserves the right to initiate a charge for this service and to
terminate or modify any or all of the privileges in connection
with this service at any time upon 15 days written notice to
shareholders, and to terminate or modify the privileges
without prior notice in any circumstances where such
termination or modification is in the best interest of the Fund
and its investors.
How To Redeem Shares
The Fund will
redeem shares at the price (net asset value per share) next
computed after receipt of a redemption request in "good
order." (See "How Share Price is Determined.") A written
request for redemption, together with an endorsed share
certificate where a certificate has been issued, must be
received by the Fund in order to constitute a valid tender for
redemption. For authorization of redemptions by a
corporation, it will also be necessary to have an appropriate
certified copy of resolutions on file with the Fund before a
redemption request will be considered in "good order." In the
case of certain institutions which have made satisfactory
redemption arrangements with the Fund, redemption orders
may be processed by facsimile or telephone transmission at
net asset value per share next effective after receipt by the
Fund. If an investor wishes to engage the services of any
other broker to redeem (or purchase) shares of the Fund, a fee
may be charged by such broker.
To be in "good order" the request must include the following:
(1) A written redemption request or stock
assignment (stock power) containing the genuine
signature of each registered owner exactly as the
shares are registered, with clear identification of
the account by registered name(s) and account
number and the number of shares or the dollar
amount to be redeemed;
(2) any outstanding stock certificates
representing shares to be redeemed;
(3) signature guarantees as required; and
(See Signature Guarantees.)
(4) any additional documentation which
the Fund may deem necessary to insure a genuine
redemption.
Where additional documentation is normally
required to support redemptions as in the case of
corporations, fiduciaries, and others who hold shares in a
representative or nominee capacity such as certified copies of
corporate resolutions, or certificates of incumbency, or such
other documentation as may be required under the Uniform
Commercial Code or other applicable laws or regulations, it is
the responsibility of the shareholder to maintain such
documentation on file and in a current status. A failure to do
so will delay the redemption. If you have questions
concerning redemption requirements, please write or
telephone the Fund well ahead of an anticipated redemption
in order to avoid any possible delay.
Requests which are
subject to special conditions or which specify an effective date
other than as provided herein cannot be accepted. All
redemption requests must be transmitted to the Fund at Three
Crown Center, 2440 Pershing Road, Suite G-15, Kansas City,
Missouri 64108. The Fund will redeem shares at the price
(net asset value per share) next computed after receipt of a
redemption request in "good order." (See "How Share Price is
Determined.")
The Fund will endeavor to transmit
redemption proceeds to the proper party, as instructed, as
soon as practicable after a redemption request has been
received in "good order" and accepted, but in no event later
than the seventh day thereafter. Transmissions are made by
mail unless an expedited method has been authorized and
specified in the redemption request. The Fund will not be
responsible for the consequences of delays including delays in
the banking or Federal Reserve wire systems. Redemptions
will not become effective until all documents in the form
required have been received. In the case of redemption
requests made within 15 days of the date of purchase, the
Fund will delay transmission of proceeds until such time as it
is certain that unconditional payment in federal funds has
been collected for the purchase of shares being redeemed or
15 days from the date of purchase. You can avoid the
possibility of delay by paying for all of your purchases with a
transfer of federal funds.
Signature Guarantees are required
in connection with all redemptions by mail, or changes in
share registration, except as hereinafter provided. These
requirements may be waived by the Fund in certain instances
where it appears reasonable to do so and will not unduly
affect the interests of other shareholders. Signature(s) must be
guaranteed by an "eligible Guarantor institution" as defined
under Rule l7Ad-15 under the Securities Exchange Act of
1934. Eligible guarantor institutions include: (1) national or
state banks, savings associations, savings and loan
associations, trust companies, savings banks, industrial loan
companies and credit unions; (2) national securities
exchanges, registered securities associations and clearing
agencies; or (3) securities broker/dealers which are members
of a national securities exchange or clearing agency or which
have a minimum net capital of $100,000. A notarized
signature will not be sufficient for the request to be in proper
form.
Signature guarantees will be waived for mail
redemptions of $10,000 or less, but they will be required if
the checks are to be payable to someone other than the
registered owner(s), or are to be mailed to an address different
from the registered address of the shareholder(s), or where
there appears to be a pattern of redemptions designed to
circumvent the signature guarantee requirement, or where the
Fund has other reason to believe that this requirement would
be in the best interests of the Fund and its shareholders.
The right of redemption may be suspended or the date of payment
postponed beyond the normal seven-day period when the New
York Stock Exchange is closed or under emergency
circumstances as determined by the Securities and Exchange
Commission. Further, the Fund reserves the right to redeem
its shares in kind under certain circumstances. If shares are
redeemed in kind, the shareholder may incur brokerage costs
when converting into cash. Redemptions in kind will be in
the form of readily marketable securities. Additional details
are set forth in the "Statement of Additional Information."
Due to the high cost of maintaining smaller accounts, the
Board of Directors has authorized the Fund to close
shareholder accounts where their value falls below the current
minimum initial investment requirement at the time of initial
purchase as a result of redemptions and not as the result of
market action, and remains below this level for 60 days after
each such shareholder account is mailed a notice of: (1) the
Fund's intention to close the account, (2) the minimum
account size requirement, and (3) the date on which the
account will be closed if the minimum size requirement is not
met.
Systematic Redemption Plan
If you own shares in an
open account valued at $10,000 or more, and desire to make
regular monthly or quarterly withdrawals without the
necessity and inconvenience of executing a separate
redemption request to initiate each withdrawal, you may enter
into a Systematic Withdrawal Plan by completing forms
obtainable from the Fund. For this service, the manager may
charge you a fee not to exceed $1.50 for each withdrawal.
Currently the manager assumes the additional expenses
arising out of this type of plan, but it reserves the right to
initiate such a charge at any time in the future when it deems
it necessary. If such a charge is imposed, participants will be
provided 30 days notice.
Subject to a $50 minimum, you may
withdraw each period a specified dollar amount. Shares also
may be redeemed at a rate calculated to exhaust the account at
the end of a specified period of time.
Dividends and capital
gains distributions must be reinvested in additional shares.
Under all withdrawal programs, liquidation of shares in
excess of dividends and distributions reinvested will diminish
and may exhaust your account, particularly during a period of
declining share values.
You may revoke or change your plan
or redeem all of your remaining shares at any time.
Withdrawal payments will be continued until the shares are
exhausted or until the Fund or you terminate the plan by
written notice to the other.
How To Exchange Shares
Between Buffalo Funds
Shareholders may exchange their
Fund shares, which have been held in open account for 30
days or more, and for which good payment has been received,
for identically registered shares of any Fund in the Buffalo
Fund Group which is legally registered for sale in the state of
residence of the investor, provided that the minimum amount
exchanged has a value of $1,000 or more and meets the
minimum investment requirement of the Fund into which it is
exchanged.
To authorize the Telephone/Telegraph Exchange
Privilege, all registered owners must sign the appropriate
section on the original application, or the Fund must receive a
special authorization form, provided upon request. During
periods of increased market activity, you may have difficulty
reaching the Fund by telephone, in which case you should
contact the Fund by mail or telegraph. The Fund reserves the
right to initiate a charge for this service and to terminate or
modify any or all of the privileges in connection with this
service at any time and without prior notice under any
circumstances where continuance of these privileges would be
detrimental to the Fund or its shareholders such as an
emergency, or where the volume of such activity threatens the
ability of the Fund to conduct business, or under any other
circumstances, upon 60 days written notice to shareholders.
The Fund will not be responsible for the consequences of
delays including delays in the banking or Federal Reserve
wire systems.
The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are
genuine, and if such procedures are not followed, the Fund
may be liable for losses due to unauthorized or fraudulent
instructions. Such procedures may include, but are not limited
to requiring personal identification prior to acting upon
instructions received by telephone, providing written
confirmations of such transactions, and/or tape recording of
telephone instructions.
Exchanges by mail may be
accomplished by a written request properly signed by all
registered owners identifying the account, the number of
shares or dollar amount to be redeemed for exchange, and the
Buffalo Fund into which the account is being transferred.
If you wish to exchange part or all of your shares in the Fund
for shares of a Fund in the Buffalo Fund Group, you should
review the prospectus of the Fund to be purchased, which can
be obtained from Jones & Babson, Inc. Any such exchange
will be based on the respective net asset values of the shares
involved. Any exchange between Funds involves the sale of
an asset. Unless the shareholder account is tax-deferred, this
is a taxable event.
How Share Price Is Determined
In order to determine the price at which new shares will be sold and at
which issued shares presented for redemption will be
liquidated, the net asset value per share is computed once
daily, Monday through Friday, at the specific time during the
day that the Board of Directors sets at least annually, except
on days on which changes in the value of portfolio securities
will not materially affect the net asset value, or days during
which no security is tendered for redemption and no order to
purchase or sell such security is received by the Fund, or
customary holidays. For a list of the holidays during which
the Fund is not open for business, see "How Share Price is
Determined" in the "Statement of Additional Information."
The price at which new shares of the Fund will be sold and at
which issued shares presented for redemption will be
liquidated is computed once daily at 4:00 P.M. (Eastern
Time), except on those days when the Fund is not open for
business.
The per share calculation is made 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.
Each security 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 security is traded. Lacking sales, the security is
valued at the mean between the 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 current 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 Board of Directors.
Officers And Directors
The officers of the Fund manage its day-to-day operations. The Fund's
manager and its officers are subject to the supervision and
control of the Board of Directors. A list of the officers and
directors of the Fund and a brief statement of their present
positions and principal occupations during the past five years
is set forth in the "Statement of Additional Information."
Management And Investment Counsel
Jones & Babson, Inc.
was founded in 1960. It organized the Fund in 1994, and acts
as its manager and principal underwriter. Pursuant to the
current Management Agreement, Jones & Babson, Inc.
provides or pays the cost of all management, supervisory and
administrative services required in the normal operation of
the Fund. This includes investment management and
supervision; fees of the custodian, independent auditors and
legal counsel; remuneration of officers, directors and other
personnel; rent; shareholder services, including the
maintenance of the shareholder accounting system and
transfer agency; and such other items as are incidental to
corporate administration.
Not considered normal operating
expenses, and therefore payable by the Fund, are taxes,
interest, governmental charges and fees, including
registration of the Fund and its shares with the Securities and
Exchange Commission and the Securities Departments of the
various States, brokerage costs, dues, and all extraordinary
costs and expenses including but not limited to legal and
accounting fees incurred in anticipation of or arising out of
litigation or administrative proceedings to which the Fund, its
officers or directors may be subject or a party thereto.
As a part of the Management Agreement, Jones & Babson, Inc.
employs at its own expense Kornitzer Capital Management,
Inc. as its investment counsel to assist in the investment
advisory function. Kornitzer Capital Management, Inc. is an
independent investment counseling 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 Fund to maintain an extensive duplicate staff,
with the consequent increase in the cost of investment
advisory service. The cost of the services of Kornitzer Capital
Management, Inc. is included in the fee of Jones & Babson,
Inc. The Management Agreement limits the liability of the
manager and its investment counsel, 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. The organizational arrangements of
the investment counsel require that all investment decisions
be made by committee, and no person is primarily responsible
for making recommendations to that committee.
As compensation for all the foregoing services, the Fund pays
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
(.50%) of average daily net assets. The fees are computed
daily and paid semimonthly.
The annual fee charged by
Jones & Babson, Inc. is higher than the fees of most other
investment advisers whose charges cover only investment
advisory services with all remaining operational expenses
absorbed directly by the Fund, however, it is anticipated that
the total expenses of the Fund will compare favorably with
those of other mutual funds whose advisers' fees cover only
investment advisory services with all remaining operational
expenses absorbed by the Funds.
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 limitation in the ownership of its stock designed to
maintain control in those who are active in management.
The current Management Agreement between the Fund and
Jones & Babson, Inc., which includes the Investment Counsel
Agreement between Jones & Babson, Inc. and Kornitzer
Capital Management, Inc. will continue in effect until
October 31, 1996, and will continue automatically for
successive annual periods ending each October 31 so long as
such continuance is specifically approved at least annually by
the Board of Directors of the Fund or by the vote of a majority
of the outstanding voting securities of the Fund, and,
provided also that such continuance is approved by the vote of
a majority of the directors who are not parties to the
Agreements or interested persons of any such party at a
meeting held in person and called specifically for the purpose
of evaluating and voting on such approval. Both Agreements
provide that either party may terminate by giving the other 60
days written notice. The Agreements terminate automatically
if assigned by either party.
General Information And History
The Fund, incorporated in Maryland on November 23, 1994,
has a present authorized capitalization of 10,000,000 shares
of $1 par value common stock. All shares are of the same
class with like rights and privileges. Each full and fractional
share, when issued and outstanding, has: (1) equal voting
rights with respect to matters which affect the Fund; and (2)
equal dividend, distribution and redemption rights to the
assets of the Fund. Shares when issued are fully paid and
non-assessable. The Fund may create other series of stock but
will not issue any senior securities. Shareholders do not have
pre-emptive or conversion rights.
Non-cumulative voting -
These shares have non-cumulative voting rights, which
means that the holders of more than 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 Maryland Statutes permit
registered investment companies, such as the Fund, to operate
without an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by the
Investment Company Act of 1940. There are procedures
whereby the shareholders may remove directors. These
procedures are described in the "Statement of Additional
Information" under the caption "Officers and Directors." The
Fund has adopted the appropriate provisions in its By-Laws
and may not, at its discretion, hold annual meetings of
shareholders for the following purposes unless required to do
so: (1) election of directors; (2) approval of any investment
advisory agreement; (3) ratification of the selection of
independent auditors; and (4) approval of a distribution plan.
As a result, the Fund does not intend to hold annual
meetings.
The Fund may use the name "Buffalo" in its name
so long as Kornitzer Capital Management, Inc. is continued
as its investment counsel. Complete details with respect to the
use of the name are set out in the Management Agreement
between the Fund and Jones & Babson, Inc.
This prospectus
omits certain of the information contained in the registration
statement filed with the Securities and Exchange
Commission, Washington, D.C. These items may be
inspected at the offices of the Commission or obtained from
the Commission upon payment of the fee prescribed.
Dividends, Distributions And Their Taxation
The Fund pays
dividends from net investment income quarterly, usually in
March, June, September and December. Distribution from
capital gains realized on the sale of securities, if any, will be
declared semiannually, usually in June and December.
Dividend and capital gains distributions will be reinvested
automatically in additional shares at the net asset value per
share next computed and effective at the close of business on
the day after the record date, unless the shareholder has
elected on the original application, or by written instructions
filed with the Fund, to have them paid in cash.
The Fund
intends to qualify for taxation as a "regulated investment
company" under the Internal Revenue Code so that the Fund
will not be subject to federal income tax to the extent that it
distributes its income to its shareholders. Dividends, either in
cash or reinvested in shares, paid by the Fund from net
investment income will be taxable to shareholders as ordinary
income, and will generally qualify in part for the 70%
dividends-received deduction for corporations. The portion of
the dividends so qualified depends on the aggregate taxable
qualifying dividend income received by the Fund from
domestic (U.S.) sources. The Fund will send to shareholders a
statement each year advising the amount of the dividend
income which qualifies for such treatment.
Whether paid in
cash or additional shares of the Fund, and regardless of the
length of time Fund shares have been owned by the
shareholder, distributions from long-term capital gains are
taxable to shareholders as such, but are not eligible for the
dividends-received deduction for corporations. Shareholders
are notified annually by the Fund as to federal tax status of
dividends and distributions paid by the Fund. Such dividends
and distributions may also be subject to state and local taxes.
Exchange and redemption of Fund shares are taxable events
for federal income tax purposes. Shareholders may also be
subject to state and municipal taxes on such exchanges and
redemptions. You should consult your tax adviser with
respect to the tax status of distributions from the Fund in your
state and locality.
The Fund intends to declare and pay
dividends and capital gains distributions so as to avoid
imposition of the federal excise tax. To do so, the Fund
expects to distribute during each calendar year an amount
equal to: (1) 98% of its calendar year ordinary income; (2)
98% of its capital gains net income (the excess of short- and
long-term capital gain over short- and long-term capital loss)
for the one-year period ending each October 31; and (3)
100% of any undistributed ordinary or capital gain net
income from the prior calendar year. Dividends declared in
October, November or December and made payable to
shareholders of record in such a month are deemed to have
been paid by the Fund and received by shareholders on
December 31 of such year, so long as the dividends are
actually paid before February 1 of the following year.
To comply with IRS regulations, the Fund is required by federal
law to withhold 31% of reportable payments (which may
include dividends, capital gains distributions, and
redemptions) paid to shareholders who have not complied
with IRS regulations. In order to avoid this withholding
requirement, shareholders must certify on their Application,
or on a separate form supplied by the Fund, that their Social
Security or Taxpayer Identification Number provided is
correct and that they are not currently subject to backup
withholding, or that they are exempt from backup
withholding.
The federal income tax status of all
distributions will be reported to shareholders each January as
a part of the annual statement of shareholder transactions.
Shareholders not subject to tax on their income will not be
required to pay tax on amounts distributed to them.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
HEREIN FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR
OWN TAX ADVISERS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF AN INVESTMENT IN
THE FUND.
Description Of Securities Ratings
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.
Shareholder Services
The Fund and its manager offer shareholders a broad variety of services
described throughout this prospectus. In addition, the
following services are available:
Automatic Monthly Investment - You may elect to make monthly investments in
a constant dollar amount from your checking account ($100
minimum). The Fund will draft your checking account on the
same day each month in the amount you authorize in your
application, or, subsequently, on a special authorization form
provided upon request.
Automatic Reinvestment -
Dividends and capital gains distributions may be reinvested
automatically, or shareholders may elect to have dividends
paid in cash and capital gains reinvested, or to have both paid
in cash.
Telephone Investments - You may make
investments of $1,000 or more by telephone if you have
authorized such investments in your application, or,
subsequently, on a special authorization form provided upon
request. See "Telephone Investment Service."
Automatic Exchange - You may exchange shares from your account
($100 minimum) in any of the Buffalo Funds to an identically
registered account in any other fund in the Buffalo Group
according to your instructions. Monthly exchanges will be
continued until all shares have been exchanged or until you
terminate the Automatic Exchange authorization. A special
authorization form will be provided upon request. Transfer of
Ownership - A shareholder may transfer shares to another
shareholder account. The requirements which apply to
redemptions apply to transfers. A transfer to a new account
must meet initial investment requirements.
Systematic Redemption Plan - Shareholders who own shares in open
account valued at $10,000 or more may arrange to make
regular withdrawals without the necessity of executing a
separate redemption request to initiate each withdrawal.
Sub-Accounting - Keogh and corporate tax qualified retirement
plans, as well as certain other investors who must maintain
separate participant accounting records, may meet these needs
through services provided by the Fund's manager, Jones &
Babson, Inc. Investment minimums may be met by
accumulating the separate accounts of the group. Although
there is currently no charge for sub-accounting, the Fund and
its manager reserve the right to make reasonable charges for
this service.
Prototype Retirement Plans - Jones & Babson,
Inc. offers a defined contribution prototype plan - The
Universal Retirement Plan - which is suitable for all who
are self-employed, including sole proprietors, partnerships,
and corporations. The Universal Prototype includes both
money purchase pension and profit-sharing plan options.
Individual Retirement Accounts - Also available is an
Individual Retirement Account (IRA). The IRA uses the IRS
model form of plan and provides an excellent way to
accumulate a retirement fund which will earn tax-deferred
dollars until withdrawn. An IRA may also be used to defer
taxes on certain distributions from employer-sponsored
retirement plans. You may contribute up to $2,000 of
compensation each year ($2,250 if a spousal IRA is
established), some or all of which may be deductible. Consult
your tax adviser concerning the amount of the tax deduction,
if any.
Simplified Employee Pensions (SEPs) - The Jones &
Babson IRA may be used with IRS Form 5305 - SEP to
establish a SEP-IRA, to which the self-employed individual
may contribute up to 15% of net earned income or $30,000,
whichever is less. A SEP-IRA offers the employer the ability
to make the same level of deductible contributions as a Profit-
Sharing Plan with greater ease of administration, but less
flexibility in plan coverage of employees.
Shareholder Inquiries
Telephone inquiries may be made toll free to the
Fund, 1-800-49-BUFFALO (1-800-492-8332).
Shareholders
may address written inquiries to the Fund at:
Buffalo High Yield Fund, Inc.
Three Crown Center
2440 Pershing Road, Suite G-15
Kansas City, MO 64108
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
Kansas City, Missouri
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG
Philadelphia, Pennsylvania
JOHN G. DYER
Kansas City, Missouri
CUSTODIAN
UMB BANK, n.a.
Kansas City, Missouri
TRANSFER AGENT
JONES & BABSON, INC.
Kansas City, Missouri
<PAGE>
PART B
BUFFALO HIGH YIELD FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 19, 1995
This Statement is not a Prospectus but should be read in
conjunction with the Fund's current Prospectus dated
May 19, 1995. To obtain the Prospectus please call the
Fund toll-free 1-800-49-BUFFALO (1-800-492-8332).
TABLE OF CONTENTS Page
INVESTMENT OBJECTIVE AND POLICIES 2
PORTFOLIO TRANSACTIONS 2
INVESTMENT RESTRICTIONS 2
HOW THE FUND'S SHARES ARE DISTRIBUTED 4
HOW SHARE PURCHASES ARE HANDLED 4
REDEMPTION OF SHARES 4
SIGNATURE GUARANTEES 5
MANAGEMENT AND INVESTMENT COUNSEL 5
HOW SHARE PRICE IS DETERMINED 5
OFFICERS AND DIRECTORS 6
CUSTODIAN 8
INDEPENDENT AUDITORS 8
OTHER BUFFALO FUNDS 8
DESCRIPTION OF COMMERCIAL PAPER RATINGS 8
FINANCIAL STATEMENT 10
INVESTMENT OBJECTIVE AND
POLICIES
The following policies supplement the Fund's
investment objective and policies set forth in the
Prospectus.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the
Fund are made by Jones & Babson, Inc. pursuant
to recommendations by Kornitzer Capital
Management, Inc. Officers of the Fund and Jones
& Babson, Inc. are generally responsible for
implementing or supervising these decisions,
including allocation of portfolio brokerage and
principal business as well as the negotiation of
commissions and/or the price of the securities. In
instances where securities are purchased on a
commission basis, the Fund 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.
The Fund, 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 Fund does not intend to solicit
competitive bids on each transaction.
The Fund believes it is in its best interest and
that of its shareholders 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 Fund, when
acting on its behalf, as well as for any research or
other services provided to the Fund. Substantially
all of the portfolio transactions are through
brokerage firms which are members of the New
York Stock Exchange because usually the most
active market in the size of the Fund's
transactions and for the types of securities
predominant in the Fund's portfolio is to be
found there. When buying securities in the over-
the-counter market, the Fund 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 Fund normally will not pay a higher
commission rate to broker-dealers providing
benefits or services to it than it would pay to
broker-dealers who do not provide it such
benefits or services. However, the Fund reserves
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 Board of Directors of the Fund and
Jones & Babson, Inc.
Since the Fund does not market its shares
through intermediary brokers or dealers, it is not
the Fund's practice to allocate brokerage or
principal business on the basis of sales of its
shares which may be made through such firms.
However, it may place portfolio orders with
qualified broker-dealers who recommend the
Fund to other clients, or who act as agent in the
purchase of the Fund's shares for their clients.
Research services furnished by broker-dealers
may be useful to the Fund manager and its
investment counsel in serving other clients, as
well as the Fund. Conversely, the Fund may
benefit from research services obtained by the
manager or its investment counsel from the
placement of portfolio brokerage of other clients.
When it appears to be in the best interest of its
shareholders, the Fund 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 between the Fund and other
clients participating in the transaction. In some
instances, this investment procedure may affect
the price paid or received by the Fund or the size
of the position obtained by the Fund.
INVESTMENT RESTRICTIONS
In addition to the investment objective and
portfolio management policies set forth in the
Prospectus under the caption "Investment
Objective and Portfolio Management Policy," the
following restrictions also may not be changed
without approval of the "holders of a majority of
the outstanding shares" of the Fund.
The 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 holdings of
the Fund in the securities of such issuer exceeds
5% of the value of the Fund's 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, commodities or futures contracts;
(3) underwrite the securities of other issuers; (4)
make loans to any of its officers, directors, or
employees, or to its manager, or 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 an 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) 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 said 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; (12) borrow or
pledge its credit under normal circumstances,
except up to 10% of its gross 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 5% of the total assets of
the Fund shall have asset coverage of at least 3 to
1; (13) make itself or its assets liable for the
indebtedness of others; (14) invest in securities
which are assessable or involve unlimited
liability; or (15) purchase any securities which
would cause 25% or more of the Fund's total
assets at the time of such purchase to be invested
in any one industry.
In addition to the fundamental investment
restrictions set out above, in order to comply
with the law or regulations of various States, the
Fund will not engage in the following practices:
(1) invest in securities which are not readily
marketable or in securities of foreign issuers
which are not listed on a recognized domestic or
foreign securities exchange (the Fund does not
intend to invest in foreign securities; this policy
is not fundamental); (2) invest in puts, calls,
straddles, spreads, and any combination thereof
if by reason thereof the value of its aggregate
investment in such classes of securities will
exceed 5% of its total assets, except that the
Fund may write covered call options in excess of
this limitation; (3) invest in oil, gas and other
mineral leases or arbitrage transactions; (4)
purchase or sell real estate (including limited
partnership interests, but excluding readily
marketable interests in real estate investment
trusts or readily marketable securities of
companies which invest in real estate); or (5)
purchase securities, including 144(a) securities,
of issuers which the company is restricted from
selling to the public without registration under
the securities Act of 1933. The Fund intends to
limit calls to writing calls issued by the Options
Clearing Corporation.
Certain States also require that the Fund's
investments in warrants, valued at the lower of
cost or market, may not exceed 5% of the value
of the Fund's net assets. Included within that
amount, but not to exceed 2% of the value of the
Fund's net assets may be warrants which are not
listed on the New York or American Stock
Exchange. Warrants acquired by the Fund in
units or attached to securities may be deemed to
be without value for purposes of this limitation.
In addition, the Fund has undertaken to the state
of California to comply with the expense
limitations set forth in Rule 260.140.84(a) of
Title 10 of the California Administrative Code.
HOW THE FUND'S SHARES
ARE DISTRIBUTED
Jones & Babson, Inc., as agent of the Fund,
agrees to supply its best efforts as sole distributor
of the Fund's shares and, at its own expense, pay
all sales and distribution expenses in connection
with their offering other than registration fees
and other government charges.
Jones & Babson, Inc. does not receive any fee
or other compensation under the distribution
agreement which continues in effect until
October 31, 1996, and which will continue
automatically for successive annual periods
ending each October 31, if continued at least
annually by the Fund's Board of Directors,
including a majority of those Directors who are
not parties to such agreements or interested
persons of any such party. It terminates
automatically if assigned by either party or upon
60 days written notice by either party to the
other.
Jones & Babson, Inc. also acts as sole
distributor of the shares of David L. Babson
Growth Fund, Inc., D. L. Babson Bond Trust,
D. L. Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income 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., Scout Stock Fund, Inc., Scout Bond
Fund, Inc., Scout Money Market Fund, Inc.,
Scout Tax-Free Money Market Fund, Inc., Scout
Regional Fund, Inc., Scout WorldWide Fund,
Inc., Buffalo Balanced Fund, Inc. Buffalo Equity
Fund, Inc. and Buffalo USA Global Fund., Inc.
HOW SHARE PURCHASES ARE
HANDLED
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 safe keeping 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 Fund
arising out of such cancellation. To recover any
such loss, the Fund reserves 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 Fund reserves the right in its 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 Fund and its shareholders.
The Fund also reserves the right at any time to
waive or increase the minimum requirements
applicable to initial or subsequent investments
with respect to any person or class of persons,
which include shareholders of the Fund's special
investment programs.
REDEMPTION OF SHARES
The right of redemption may be suspended, or
the date of payment postponed beyond the
normal seven-day period by the Fund' s 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 Fund of securities owned by it
is not reasonably practicable, or (b) it is not
reasonably practicable for the Fund 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 Fund's shareholders.
The Fund has elected to be governed by Rule
18f-1 under the Investment Company Act of
1940 pursuant to which the Fund is 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, the 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.
The method of valuing securities used to make
redemptions in kind will be the same as the
method of valuing portfolio securities described
under "How Share Price is Determined" in the
Prospectus, and such valuation will be made as
of the same time the redemption price is
determined.
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 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,
(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 Fund or from
most banks or stock brokers), or
(3) all stock certificates tendered for
redemption.
MANAGEMENT AND
INVESTMENT COUNSEL
As a part of the Management Agreement,
Jones & Babson, Inc. employs at its own expense
Kornitzer Capital Management, Inc., as its
investment counsel. Kornitzer Capital
Management, Inc., was founded in 1989. It is a
private investment research and counseling
organization serving individual, corporate and
other institutional clients. It participates with
Jones & Babson in the management of four
Buffalo no-load mutual funds.
The annual fee charged by Jones & Babson,
Inc. covers all normal operating costs of the
Fund.
Kornitzer Capital Management, Inc., has an
experienced investment analysis and research
staff which eliminates the need for Jones &
Babson, Inc. and the Fund to maintain an
extensive duplicate staff, with the consequent
increase in the cost of investment advisory
service. The cost of the services of Kornitzer
Capital Management, Inc. is included in the fee
of Jones & Babson, Inc.
HOW SHARE PRICE IS DETERMINED
The net asset value per share of the Fund
portfolio is computed once daily, Monday
through Friday, at the specific time during the
day that the Board of Directors of the Fund sets
at least annually, except on days on which
changes in the value of a Fund's portfolio
securities will not materially affect the net asset
value, or days during which no security is
tendered for redemption and no order to purchase
or sell such security is received by the Fund, or
the following holidays:
New Year's Day January 1
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
OFFICERS AND DIRECTORS
The Fund is managed by Jones & Babson, Inc.
subject to the supervision and control of the
Board of Directors. The following table lists the
Officers and Directors of the Fund. Unless noted
otherwise, the address of each Officer and
Director is Three Crown Center, 2440 Pershing
Road, Suite G-15, Kansas City, Missouri 64108.
Except as indicated, each has been an employee
of Jones & Babson, Inc. for more than five years.
* Larry D. Armel, President and Director.
President and Director, Jones & Babson, Inc.,
Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo USA Global Fund, Inc.;
David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income 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.; Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout
Money Market Fund, Inc., Scout Tax-Free
Money Market Fund, Inc., Scout Regional
Fund, Inc., Scout WorldWide Fund, Inc.;
President and Trustee, D. L. Babson Bond
Trust.
* Kent W. Gasaway, Director.
Senior Vice President, Kornitzer Capital
Management, Inc., KCM Building, Shawnee
Mission, Kansas 66201. Formerly Assistant
Vice President, Waddell & Reed, Inc., 6300
Lamar Avenue, Shawnee Mission, Kansas
66202; Director, Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Inc., Buffalo USA
Global Fund, Inc.
Thomas S. Case, Director.
President and Chief Executive Officer, the
Frankona American Companies, 2405 Grant
Blvd., Suite 900, Kansas City, Missouri
64108; Director, Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Inc., Buffalo USA
Global Fund, Inc.
* Stephen S. Soden, Director.
President, BMA Financial Services, BMA
Tower, One Penn Valley Park, Kansas City,
Missouri, 64141; Chairman and Director,
Jones & Babson, Inc.; Director, Buffalo
Balanced Fund, Inc., Buffalo Equity Fund,
Inc., Buffalo USA Global Fund, Inc.
Francis C. Rood, Director.
Retired, 6429 West 92nd Street, Overland
Park, Kansas 66212. Formerly, Group Vice
President-Administration, Hallmark Cards,
Inc.; Director, Buffalo Balanced Fund, Inc.,
Buffalo Equity Fund, Inc., Buffalo USA
Global Fund, Inc.; David L. Babson Growth
Fund, Inc., D. L. Babson Money Market Fund,
Inc., D. L. Babson Tax-Free Income Fund,
Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund,
Inc., Shadow Stock Fund, Inc.
William H. Russell, Director.
Financial consultant, 645 West 67th Street,
Kansas City, Missouri 64113; Director,
Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo USA Global Fund, Inc.;
David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund
II; Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc. and Babson-Stewart Ivory
International Fund, Inc.
H. David Rybolt, Director.
Consultant, HDR Associates, P.O. Box 2468,
Shawnee Mission, Kansas 66202; Director,
Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo USA Global Fund, Inc.;
David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L. Babson
Tax-Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc.,
Babson Value Fund, Inc., Shadow Stock Fund,
Inc.
P. Bradley Adams, Vice President and
Treasurer.
Vice President and Treasurer, Jones & Babson,
Inc., Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo USA Global Fund, Inc.;
David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L. Babson
Tax-Free Income 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; Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc.,
Scout WorldWide Fund, Inc .
Michael A. Brummel, Vice President,
Assistant Secretary and Assistant Treasurer.
Vice President, Assistant Secretary and Assistant
Treasurer, Jones & Babson, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo USA Global Fund, Inc.; David L.
Babson Growth Fund, Inc., D. L. Babson Money
Market Fund, Inc., D. L. Babson Tax-Free
Income 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; Scout Stock Fund, Inc.,
Scout Bond Fund, Inc., Scout Money Market
Fund, Inc., Scout Tax-Free Money Market Fund,
Inc., Scout Regional Fund, Inc, Scout
WorldWide Fund, Inc.
Martin A. Cramer, Vice President and
Secretary.
Vice President and Secretary, Jones & Babson,
Inc., Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo USA Global Fund, Inc.;
David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L. Babson
Tax-Free Income 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; Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc.,
Scout WorldWide Fund, Inc.
John G. Dyer, Vice President.
Vice President, Jones & Babson, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo USA Global Fund, Inc.; Scout Stock
Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc.,
Scout WorldWide Fund, Inc.
Ruth Evans, Vice President.
Vice President, Jones & Babson, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo USA Global Fund, Inc.; David L.
Babson Growth Fund, Inc., D. L. Babson Money
Market Fund, Inc., D. L. Babson Tax-Free
Income 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; Scout Stock Fund, Inc.,
Scout Bond Fund, Inc., Scout Money Market
Fund, Inc., Scout Tax-Free Money Market Fund,
Inc., Scout Regional Fund, Inc., Scout
WorldWide Fund, Inc.
None of the officers or directors will be
remunerated by the Fund 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 and Rybolt have
no financial interest in, nor are they affiliated
with, either Jones & Babson, Inc. or Kornitzer
Capital Management, Inc.
The Audit Committee of the Board of
Directors is composed of Messrs. Case, Rood,
Russell and Rybolt.
The Officers and Directors of the Fund as a
group own less than 1% of the Fund.
The Fund will not hold annual meetings except
as required by the Investment Company Act of
1940 and other applicable laws. The Fund is a
Maryland corporation. Under Maryland law, a
special meeting of stockholders of the Fund must
be held if the Fund receives the written request
for a meeting from the stockholders entitled to
cast at least 25 percent of all the votes entitled to
be cast at the meeting. The Fund has undertaken
that its Directors will call a meeting of
stockholders if such a meeting is requested in
writing by the holders of not less than 10% of the
outstanding shares of the Fund. To the extent
required by the undertaking, the Fund will assist
shareholder communications in such matters.
CUSTODIAN
The Fund's assets are held for safekeeping by
an independent custodian, UMB Bank, n.a. This
means the bank, rather than the Fund, has
possession of the Fund's cash and securities. The
custodian bank is not responsible for the Fund's
investment management or administration. But,
as directed by the Fund's officers, it delivers cash
to those who have sold securities to the Fund in
return for such securities, and to those who have
purchased portfolio securities from the Fund, it
delivers such securities in return for their cash
purchase price. It also collects income directly
from issuers of securities owned by the Fund and
holds this for payment to shareholders after
deduction of the Fund's expenses. The custodian
is compensated for its services by the manager.
There is no charge to the Fund.
INDEPENDENT AUDITORS
The Fund's financial statements are audited
annually 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
Fund's present independent auditor.
Reports to shareholders will be published at
least semiannually.
OTHER BUFFALO FUNDS
Jones & Babson, Inc. sponsors and manages
three additional no-load funds in association with
Kornitzer Capital Management, Inc. The Funds
are:
Buffalo Balanced Fund, Inc. was organized
in 1994 with the objective of long-term capital
growth and high current income through
investing in common stocks and secondarily by
investing in convertible bonds, preferred stocks
and convertible preferred stocks.
Buffalo Equity Fund, Inc. was organized in
1994 with the objective of long-term capital
appreciation to be achieved primarily by
investment in common stocks. Realization of
dividend income is a secondary consideration.
Buffalo USA Global Fund, Inc. was
organized in 1994 with the objective of capital
growth by investing in common stocks of
companies that receive greater than 40% of their
revenues or pre-tax income from international
operations.
A prospectus for any of the Funds may be
obtained from Jones & Babson, Inc., Three
Crown Center, 2440 Pershing Road, Suite G-15,
Kansas City, Missouri 64108.
Jones & Babson, Inc. also sponsors and
manages nine no-load funds comprising the
Babson Mutual Fund Group managed by Jones &
Babson, Inc. in association with its investment
counsel, David L. Babson & Co. Inc. The funds
are: David L. Babson Growth Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II,
Inc., Shadow Stock Fund, Inc., Babson-Stewart
Ivory International Fund, Inc., Babson Value
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 and
manages six mutual funds which especially seek
to provide services to customers of affiliate
banks of UMB Financial Corporation. They are
Scout Stock Fund, Inc., Scout Bond Fund, Inc.,
Scout Money Market Fund, Inc., Scout Tax-Free
Money Market Fund, Inc., Scout Regional Fund,
Inc. and Scout WorldWide Fund, Inc.
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
overwhelming.
"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. Further-more, 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.
* Directors who are interested persons as that
term is defined in the Investment Company
Act of 1940, as amended.
