Discussion of Proposed Fundamental Restrictions
Proposed Fundamental Investment Restriction (1)
Proposed Fundamental Investment Restriction (1) relates to each Fund’s status as a diversified investment company under the meaning of the 1940 Act. The 1940 Act requires that a diversified fund have at least 75% of the value of its total assets in cash and cash equivalents, Government securities, securities of other investment companies, and other securities. Furthermore, the Fund may not own securities of a single issuer that account for more than 5% of the Fund’s assets or that constitute more than 10% of the issuer’s voting securities. The Boards of Directors/Trustees believe it is appropriate to include this fundamental investment restriction for all Funds because the 1940 Act requires shareholder approval in order to change a Fund’s sub-classification from diversified to non-diversified.
All Funds, with the exception of the Buffalo Jayhawk China Fund and the Buffalo International Fund, already include a fundamental restriction that is materially the same as the proposed restriction. Even though the Buffalo Jayhawk China Fund and Buffalo International Fund do not currently classify this restriction as fundamental, the Funds’ registration statements disclose that the Funds are “diversified” funds within the meaning of the 1940 Act, and that such classification cannot change without shareholder approval. The approval of this fundamental restriction will not change the status of any Fund, and all Funds will continue to be classified as “diversified” funds within the meaning of the 1940 Act.
Proposed Fundamental Investment Restriction (2)
While the 1940 Act does not prohibit a fund from investing in real estate, it does require that a fund’s policy with respect to investing in real estate be fundamental. Each Fund is currently subject to a fundamental policy prohibiting it from investing in real estate. The Boards of Directors/Trustees believe the new fundamental investment restriction with respect to investing in real estate is appropriate for each Fund because it is consistent with the investment strategy of each Fund, and will provide uniformity among the Funds.
Proposed Fundamental Investment Restriction (3)
Each Fund is currently subject to a fundamental investment restriction that prohibits it from acting as an underwriter of securities or an underwriter of securities of other issuers. Under the 1940 Act, a fund’s policy concerning underwriting is required to be fundamental. A company is generally considered to be an underwriter if it participates in the public distribution of securities of other issuers, including the purchasing of securities from another issuer with the intention of re-selling the securities to the public. Because underwriters are subject to significant regulatory requirements, the Funds operate in a manner that allows them to avoid acting as underwriters. The fundamental investment restriction with respect to underwriting is currently uniform for all Funds, and no changes are being proposed for this fundamental investment restriction.
Proposed Fundamental Investment Restriction (4)
The 1940 Act requires that a fund describe its policies with respect to making loans, and that such policies be designated as fundamental. The Funds are currently subject to a fundamental restriction prohibiting them from making loans, with each Fund’s restriction carving out exceptions for lending activity that is consistent with that Fund’s investment strategy (for example, investing in publicly distributed debt securities or repurchase agreements, or lending of portfolio securities). The Boards of Directors/Trustees recommends that the Funds adopt the new fundamental investment restriction because it provides for a uniform restriction with respect to the making loans for all Funds, while allowing a Fund to engage in activities that are consistent with its investment strategy.
Proposed Fundamental Investment Restriction (5)
The 1940 Act imposes limits on the ability of open-end funds to borrow money or issue senior securities. The purpose of this limitation is to protect shareholders by ensuring that a fund does not subject its assets to any claims of creditors or senior security holders who would be entitled to dividends or rights on liquidation of the fund that would have precedence over the rights of shareholders. Under the 1940 Act, policies and restrictions relating to borrowing and issuance of senior securities must be fundamental.
The 1940 Act makes it unlawful for any fund to issue any class of senior security or sell any senior security of which it is the issuer, except that a fund is permitted to borrow from any bank, provided that immediately after borrowing there is an asset coverage of at least 300% for all borrowings of the fund, and provided further, that in the event that such asset coverage falls below 300%, the fund shall within 3 days thereafter, reduce the amount of its borrowings to such an extent that the asset coverage of the fund’s borrowings shall be at least 300%. Under the 1940 Act, a fund is also permitted to borrow up to 5% of its total assets for temporary purposes. While the Funds use a variety of descriptions, all generally describe the borrowing limitations within the 1940 Act although most of the Funds also cap borrowings at 10% of their respective net assets, which is not required under the 1940 Act. This 10% cap on borrowing will be eliminated if the Funds’ shareholders approve this proposal. The proposed new fundamental investment restriction would allow each Fund to borrow within the specified limits of the 1940 Act.
Proposed Fundamental Investment Restriction (6)
Under the 1940 Act, a fund’s policy with respect to concentration of investments in the securities of companies in any particular industry must be fundamental. The Funds’ currently have varied investment restrictions with respect to concentration that in some cases specifically reference particular industries or groups of industries within the restriction. Many of these references are out of date with respect to a Fund’s current investment strategy. The Boards of Directors/Trustees recommend the new fundamental investment restriction because it is the same as the Funds’ current policies in all material respects, while refraining from specifically mentioning industries or groups of industries that may become irrelevant in the future. The proposed restriction is drafted to provide the Funds with flexibility to respond to changes in the SEC staff’s position on concentration of investments or to other relevant legal, regulatory or market developments without the delay of a shareholder vote. Adoption of the proposed restriction will not materially affect the manner in which the Funds are managed because this change does not reflect a change from non-concentration to concentration or vice versa.
Proposed Fundamental Investment Restriction (7)
Although the 1940 Act does not prohibit a fund from investing in futures contracts and options thereon, each Fund is currently subject to a fundamental policy that prohibits it from investing in physical commodities, futures contracts and options thereon. The use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become an important tool that allows for efficient management of a fund’s portfolio. Such instruments may be used to gain market exposure when other acceptable investments are not available or during periods of market volatility or to hedge portfolio positions. To the extent that the Advisor employs such financial instruments in the management of a Fund’s portfolio, a Fund will observe the “cover” and/or “segregation” requirements of the 1940 Act applicable to the issue of senior securities. The Boards of Directors/Trustees believe that the new fundamental investment restriction with respect to investing in physical commodities and commodities contracts is appropriate for each Fund in order to provide uniformity among the Funds and to permit the Advisor to efficiently manage a Fund’s portfolio through investments in derivative financial instruments.
Discussion of Material Differences and New Risks Which May Arise As A Result of Proposed Uniform Fundamental Investment Restrictions
If Proposal 3 is approved by the shareholders of a Fund, the proposed fundamental investment restrictions described above will become that Fund’s fundamental investment restrictions. Approval of the proposed uniform set of fundamental investment restrictions for most of the Funds will result in minor rewording and limited changes to the majority of current fundamental investment restrictions. In some instances, however, fundamental investment restrictions are added, eliminated, reclassified as non-fundamental and/or modified in a substantive manner. These differences could give rise to material risks in the future. For more information on the proposed changes to the fundamental investment restrictions for each Fund, please see Section VI, which compares each current fundamental investment restriction to the proposed uniform set of fundamental investment restrictions and notes material differences and possible risks which may arise as a result of the changes.
The proposed changes to each Fund’s fundamental investment restrictions do not suggest that there is any intention or plan to change the investment objectives, strategies or policies of the Fund. The investment objectives, strategies or policies of each Fund are expected to remain the same. Since the current operation of the Funds will not change as a result of the change in fundamental investment restrictions, there is no material increase in risk to the investors at the present time. Nevertheless, it is possible that a Fund may, in the future, implement a strategy or investment technique that is prohibited under the current fundamental investment restrictions. The Board may also approve a change to an investment restriction which, in some cases, previously required shareholder approval, although shareholders would be provided with prior written notice. Since these possibilities exist and material risks may arise as a result, we urge you to carefully review the proposed changes to the investment restrictions applicable to your Fund and your rights with respect to voting on future change in these restrictions.
Approval of Proposal 3 by a Fund’s shareholders will require the affirmative vote of a majority of outstanding shares of that Fund, as defined in the 1940 Act. Under the 1940 Act, the vote of a “majority of the outstanding shares” means the vote of (1) 67% or more of the voting securities entitled to vote on the Proposal that are present that the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) more than 50% of the outstanding voting securities entitled to vote on the Proposal, whichever is less. With respect to Proposal 3, shareholders of each Fund have the option of: (1) voting “For,” “Against” or “Abstain” as to all proposed changes in the Fund’s fundamental investment restrictions; or (2) voting on each proposed change in the Fund’s fundamental investment restrictions separately. All proxies voted, including abstentions and broker non-votes (where the underlying holder has not voted and the broker does not have discretionary authority to vote the shares), will be counted toward establishing a quorum. Abstentions and broker non-votes do not constitute a vote “FOR” and effectively result in a vote “AGAINST.”
THE BOARDS OF DIRECTORS/TRUSTEES UNANIMOUSLY RECOMMEND THAT
YOU VOTE FOR THE APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT
RESTRICTIONS FOR THE FUNDS
II. PROPOSAL 4
APPROVAL OF THE REDESIGNATION OF CERTAIN FUNDS’ INVESTMENT
OBJECTIVES FROM FUNDAMENTAL TO NON-FUNDAMENTAL
APPLICABLE FUNDS:
BUFFALO BALANCED FUND, INC.
BUFFALO HIGH YIELD FUND, INC.
BUFFALO LARGE CAP FUND, INC.
BUFFALO SMALL CAP FUND, INC.
BUFFALO USA GLOBAL FUND, INC.
The Boards of Directors of Buffalo Balanced, Buffalo High Yield, Buffalo Large Cap, Buffalo Small Cap and Buffalo USA Global Funds, Inc. recommend that shareholders of each Fund vote to approve the redesignation of the Fund’s investment objective from fundamental to non-fundamental. This Proposal does not apply to the Buffalo International, Buffalo Jayhawk China, Buffalo Micro Cap, Buffalo Mid Cap or Buffalo Science & Technology Funds because the investment objectives of those Funds are already designated as non-fundamental. The investment objectives for the Buffalo Balanced, Buffalo Large Cap, Buffalo Small Cap and Buffalo USA Global Funds are long-term growth of capital. In addition, the Buffalo Balanced Fund seeks to produce high current income. The investment objective for the Buffalo High Yield Fund is high current income with long-term growth of capital as a secondary objective.
| B. | DISCUSSION OF PROPOSAL |
The investment objective of each Fund to which this proposal applies is currently treated as “fundamental,” which means that any changes, even those that do not result in material changes in the manner in which a Fund is managed or the risks to which it is subject, require shareholder approval. Under the 1940 Act, the Funds’ investment objectives are not required to be fundamental. In order to provide Fund management with greater flexibility to respond to legal, regulatory, market or industry changes, the Boards of Directors have approved the redesignation of each applicable Funds’ investment objective from fundamental to non-fundamental. A non-fundamental investment objective may be changed at any time by the Fund’s Board without the delay and expense of soliciting proxies and holding a shareholder meeting.
The redesignation from fundamental to non-fundamental will not change any of the Funds’ current investment objectives. This is a material change, however, and if approved, increases shareholder risk by permitting a Fund’s Board to approve a change in a Fund’s investment objective in the future without obtaining shareholder approval. However, if such a change is made, shareholders will be given thirty (30) days written notice of the change prior to its implementation.
Approval of Proposal 4 by a Fund’s shareholders will require the affirmative vote of a majority of outstanding shares of that Fund, as defined in the 1940 Act. Under the 1940 Act, the vote of a “majority of the outstanding shares” means the vote of (1) 67% or more of the voting securities entitled to vote on the Proposal that are present that the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy; or (2) more than 50% of the outstanding voting securities entitled to vote on the Proposal, whichever is less. If the redesignation of any Fund’s investment objective from fundamental to non-fundamental is not approved by shareholders of that Fund, that Fund’s investment objective will remain fundamental. All proxies voted, including abstentions and broker non-votes (where the underlying holder has not voted and the broker does not have discretionary authority to vote the shares), will be counted toward establishing a quorum. Abstentions and broker non-votes do not constitute a vote “FOR” and effectively result in a vote “AGAINST.”
THE BOARDS OF DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE
FOR THE APPROVAL OF THE REDESIGNATION OF THE BUFFALO BALANCED,
BUFFALO HIGH YIELD, BUFFALO LARGE CAP, BUFFALO SMALL CAP AND BUFFALO
USA GLOBAL FUNDS’ INVESTMENT OBJECTIVES FROM FUNDAMENTAL TO NON-
III. PROPOSAL 5
APPROVAL OF THE REDESIGNATION OF CERTAIN FUNDS’ INVESTMENT
STRATEGIES AND POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL
APPLICABLE FUNDS:
BUFFALO BALANCED FUND, INC.
BUFFALO HIGH YIELD FUND, INC.
BUFFALO LARGE CAP FUND, INC.
BUFFALO SMALL CAP FUND, INC.
BUFFALO USA GLOBAL FUND, INC.
The Boards of Directors of Buffalo Balanced, Buffalo High Yield, Buffalo Large Cap, Buffalo Small Cap and Buffalo USA Global Funds, Inc. recommend that shareholders of each Fund vote for the approval of the redesignation of the Fund’s investment strategies and policies, as set forth in the Funds’ prospectus, from fundamental to non-fundamental. This Proposal does not apply to the Buffalo International, Buffalo Jayhawk China, Buffalo Micro Cap, Buffalo Mid Cap or Buffalo Science & Technology Funds because the investment strategies and policies of those Funds are already designated as non-fundamental.
| B. | DISCUSSION OF PROPOSAL |
The investment strategies and policies of each Fund to which this proposal applies are currently treated as “fundamental,” which means that any changes, even those that do not result in significant changes in the manner in which a Fund is managed or the risks to which it is subject, require shareholder approval. Under the 1940 Act, the Funds’ investment strategies and policies are not required to be fundamental. In order to provide Fund management with greater flexibility to respond to legal, regulatory, market or industry changes, the Boards of Directors have approved the redesignation of each applicable Funds’ investment strategies and policies from fundamental to non-fundamental. A non-fundamental investment strategy or policy may be changed at any time by a Fund’s Board without the delay and expense of soliciting proxies and holding a shareholder meeting.
For a complete discussion of your Fund’s investment strategies and policies, please refer to the Funds’ prospectus. (Each Fund’s investment strategies and polices are also discussed herein – please see “Proposal 1: Information About the New Funds”) The redesignation of the Funds’ investment policies and strategies from fundamental to non-fundamental will not change any of the Funds’ current investment strategies and policies. This is a material change, however, and if approved, it will increase shareholder risk by permitting a Fund’s Board to approve a change in a Fund’s investment strategies or policies in the future without obtaining shareholder approval. However, shareholders would be provided with 60 days’ prior written notice of any change in the Buffalo High Yield, Buffalo Large Cap, Buffalo Small Cap or Buffalo USA Global Fund’s investment policy of investing at least 80% of its net assets according to the strategies suggested by each of those Funds’ names.
Approval of Proposal 5 by a Fund’s shareholders will require the affirmative vote of a majority of outstanding shares of that Fund, as defined in the 1940 Act. Under the 1940 Act, the vote of a “majority of the outstanding shares” means the vote of (1) 67% or more of the voting securities entitled to vote on the Proposal that are present at the Special Meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) more than 50% of the outstanding voting securities entitled to vote on the Proposal, whichever is less. If the redesignation of any Fund’s investment strategies and policies from fundamental to non-fundamental is not approved by shareholders of that Fund, that Fund’s investment strategies and policies will remain fundamental. All proxies voted, including abstentions and broker non-votes (where the underlying holder has not voted and the broker does not have discretionary authority to vote the shares), will be counted toward establishing a quorum. Abstentions and broker non-votes do not constitute a vote “FOR” and effectively result in a vote “AGAINST.”
THE BOARDS OF DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE
FOR THE APPROVAL OF THE REDESIGNATION OF THE BUFFALO BALANCED,
BUFFALO HIGH YIELD, BUFFALO LARGE CAP, BUFFALO SMALL CAP AND BUFFALO
USA GLOBAL FUNDS’ INVESTMENT STRATEGIES AND POLICIES FROM
FUNDAMENTAL TO NON-FUNDAMENTAL
VI. SUMMARY OF PROPOSED CHANGES IN THE FUNDS
| | A. | OVERVIEW OF MATERIAL DIFFERENCES AND RISKS |
With the exception of Proposal 2, the foregoing proposals give rise to material differences in the Funds and, in some instances, pose new risks, if approved by the Funds’ shareholders.
Proposal 1
Proposal 1, regarding the reorganization of the Maryland Funds into new series of the Buffalo Funds, is a material change but does not pose new material risks. The Plan of Reorganization is being submitted for shareholder approval by the Boards of Directors of the Maryland Funds specifically because it is believed to simplify the structure of the Funds and will result in greater administrative efficiency, leading to probable decreases in operational expenses for shareholders.
Proposal 3
Proposal 3, regarding a uniform set of fundamental investment restrictions for the Maryland Funds (which have been adopted by the New Funds) and the current Delaware Funds, is also a material change and the differences in some of the proposed investment restrictions, as compared to the current investment restrictions, result in material risk for investors. The extent of the differences and the materiality of the changes can be evaluated by reviewing the Table set forth below which compares each current fundamental investment restriction with the proposed uniform fundamental restriction (where applicable) for each Fund. The material differences and new risks for each investment restriction are noted. You will have the opportunity to vote on the proposed change in each fundamental investment restriction or to vote “For” or “Against” the proposed changes collectively for each Fund.
As noted previously, there are no proposals to change the objectives, strategies or policies of any Funds. All Funds will be operated in the same manner as they currently operate. Accordingly, since the investment advisor has not proposed, and the Board of Directors/Trustees has not approved, any changes to the Funds’ objectives, strategies and policies, the Funds will be engaging in no new investment strategies or practices which give rise to additional risk to shareholders. The only immediate material risk to shareholders is that, due to the modifications to the Funds’ fundamental investment restrictions, the investment advisor could propose in the future, and the Board of Directors/Trustees could approve, a change in strategy or policy that is prohibited under the current fundamental investment restrictions. One of the material risks which could arise in the future is a consequence of the proposed uniform Fundamental Investment Restriction (7), related to physical commodities and derivatives. This new restriction includes language which permits a Fund to decide in the future to use options, financial futures, futures contracts and other financial instruments which are considered more speculative than the Fund’s current strategies. These financial instruments can be of significant benefit in managing Fund assets, but pose greater risks. Due to the limitations imposed on the Funds’ operations by the 1940 Act, however, many strategies and policies addressed by both the current and proposed fundamental investment restrictions are also prohibited or regulated by 1940 Act, so those strategies and policies will be subject to the restrictions of the 1940 Act, as well. Any change to the proposed fundamental investment restrictions would require shareholder approval.
In evaluating the proposed new fundamental investment restrictions, a complete analysis would also include the uniform non-fundamental investment restrictions approved by the Boards of Directors/Trustees of each Fund. These non-fundamental investment restrictions further limit the types of investment strategies and practices which the Funds use in managing their assets. These non-fundamental investment restrictions are intended to further protect shareholders by clarifying the strategies and policies the Funds may and may not use, and to reduce shareholder risk by restricting certain types of more speculative investment techniques and practices inconsistent with the Funds’ objectives. The uniform non-fundamental investment restrictions are set forth below, as well as in the table for each Fund. Any change in the non-fundamental investment restrictions must be approved by the Boards of Directors/Trustees of the Funds, in a manner, consistent with the best interests of the Fund and the Directors/Trustees fiduciary duty to the Funds.
Non-fundamental Investment Restrictions for the Funds
| | (1) | Each of the Buffalo High Yield, Buffalo Jayhawk China, Buffalo Large Cap, Buffalo Small Cap, Buffalo Mid Cap, Buffalo Micro Cap and Buffalo USA Global Funds are permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Funds currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
| | (2) | Each Fund will not invest more than 15% of its net assets in illiquid securities. The Funds consider a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid assets are determined to exceed 15% of net assets, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
| | (3) | Each Fund will not invest in any issuer for purposes of exercising control or management. |
| | (4) | Each Fund will not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
| | (5) | Each of the Buffalo High Yield, Buffalo Jayhawk China, Buffalo Large Cap, Buffalo Micro Cap, Buffalo Mid Cap, Buffalo Science & Technology, Buffalo Small Cap and Buffalo USA Global Funds will not change their respective investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Funds’ prospectus without first providing shareholders with at least 60 days’ prior notice. |
The SAI for the New Funds assumes that shareholders of the Maryland Funds will approve Proposal 3 and, accordingly, reflects the fundamental and non-fundamental investment restrictions described in the Proposal. To the extent any or all of the proposed changes to the Funds’ fundamental investment restrictions are not approved by the Maryland Funds’ shareholders, the fundamental investment restrictions for the New Funds will be amended to conform to the shareholder vote and the SAI for the New Funds will be supplemented to reflect the results of the shareholder vote.
Proposal 4
Proposal 4, which proposes that the five Maryland Funds redesignate their respective objectives from fundament to non-fundamental, is a material change. The effect of this proposal is to permit the investment advisor to respond to volatile market conditions more quickly by changing the objectives of the Fund upon consideration and approval by the Board of Directors/Trustees. Shareholders would be given thirty (30) days prior notice of a proposed change in objective, during which time they would have an opportunity to redeem their shares if in disagreement with the proposed change. Proposal 4 does give rise to a material risk that the Board of Directors/Trustees of a Fund could, at some point in the future, approve a change in the Fund’s objective, and shareholders would no longer have the right to vote on the proposed change. However, no change in the objective of any Fund is planned.
Proposal 5
Proposal 5, which proposes that the five Maryland Funds redesignate their respective strategies and policies from fundamental to non-fundamental, is a material change. Like Proposal 4, the effect of this proposal is to permit the investment advisor to respond to volatile market conditions more quickly by changing the strategies and policies of the Fund upon consideration and approval by the Board of Directors/Trustees. Proposal 5 does give rise to a material risk that the Board of Directors/Trustees of a Fund could, at some point in the future, approve a change in the Fund’s strategies or policies, and shareholders would no longer have the right to vote on the proposed change. Shareholders would be provided with 60 days’ prior written notice of any change in the Buffalo High Yield, Buffalo Large Cap, Buffalo Small Cap or Buffalo USA Global Fund’s investment policy of investing at least 80% of its net assets according to the strategies suggested by each of those Funds’ names. However, no change in the strategies or policies of any Fund is planned.
| | B. | DIFFERENCES BETWEEN THE MARYLAND FUNDS AND THE NEW FUNDS AS A RESULT OF THE PROPOSED CHANGES |
The Maryland Funds and New Funds are intended to be identical with respect to objectives, strategies, policies and restrictions. The New Funds will reflect any or all of the changes approved by the shareholders of the Maryland Funds as a result of this Prospectus/Proxy Statement. The shareholders of the Maryland Funds are not being asked to reorganize into new series of the Delaware Trust that pose greater risks than the Maryland Funds. Only if the Maryland Funds’ shareholders approve Proposals 3, 4 and 5 will there be material changes in the Funds. As set forth in the SAI, the New Funds currently incorporate all changes contemplated by Proposals 3, 4 and 5. To the extent some or all of these Proposals are not approved by the shareholders of the Maryland Funds, the SAI will be modified accordingly.
Since no changes in objectives, strategies and policies are planned, the two immediate material risks which arise as a result of the proposals are: 1) the Board of Trustees of a Fund may approve an investment strategy or policy which was previously prohibited by a fundamental investment restriction; or 2) the Board of Trustees of a Fund may approve a change in objective, policy or strategy which was previously subject to shareholder vote. In addition, material risks may arise in the future if the Fund does implement a change in objective, strategy or policy which is more speculative than the investment practices currently used by the Fund. The rationale underlying these proposals is explained in detail in the discussion regarding each proposal. By removing or modifying certain investment restrictions and authorizing the Board of Trustees to approve changes in objectives, policies or strategies on behalf on the shareholders of the relevant Fund, the Fund will be able to respond more quickly and with more options to the volatility and opportunities of a dynamic market environment. Any such approval by the Board would have to be consistent with their fiduciary duty to the shareholders and in the best interest of the Fund. It is important to note that any such future change could give rise to new and/or greater material risk for the Funds, as discussed below. However, these changes and risks would be the same whether the Maryland Funds remain as is or are reorganized as New Funds.
| | C. | SUMMARY OF CHANGES IN INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS |
Outlined below are comparisons for each Fund, in table format, which set forth the current fundamental investment restriction or policy, the proposed restriction or policy and the material differences and new risks which do or may arise as result of each proposal.
PROPOSAL #3: APPROVAL OF THE ADOPTION OF A UNIFORM SET OF INVESTMENT RESTRICTIONS
PROPOSAL #4: APPROVAL OF THE REDESIGNATION OF INVESTMENT OBJECTIVES FROM FUNDAMENTAL TO NON-FUNDAMENTAL.
PROPOSAL #5 APPROVAL OF THE REDESIGNATION OF INVESTMENT STRATEGIES AND POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL
All three Proposals apply to the following Funds:
Buffalo Balanced Fund, Inc.
Buffalo High Yield Fund, Inc.
Buffalo Large Cap Fund, Inc.
Buffalo Small Cap Fund, Inc.
Buffalo USA Global Fund, Inc
Buffalo Balanced Fund (BUFBX)
| This Fund invests in domestic common stocks, convertible preferred stocks, convertible debt securities, corporate debt securities and other debt securities, many of which are higher-yielding, high-risk debt securities. |
| Current | Proposed | Material Differences and Risks |
| Investment Objectives, Strategy and Policies | | |
Buffalo Balanced Fund The investment objective of the Buffalo Balanced Fund is long-term growth of capital. It also seeks to produce high current income. The Fund invests in a combination of domestic common stocks, preferred stocks, convertible preferred stocks, convertible debt securities, corporate debt securities, and other debt securities, including mortgage- and asset-backed securities. Many of the debt securities in which the Fund invests are higher-yielding, higher-risk investments rated below investment grade by the major rating agencies (or in similar unrated securities), commonly known as “junk bonds.” The allocation of assets invested in each type of security is designed to balance yield income and long-term capital appreciation with reduced volatility of returns. The Fund expects to change its allocation mix over time based on the Advisor’s view of economic conditions and underlying security values. | No Change. | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total assets, the Fund may not 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 Fund’s holdings 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. | As to 75% of its total assets, purchase the securities of any one issuer if, immediately after and as a result of such purchase (a) the value of the Funds’ holdings 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 securities of the issuer (this does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Investments in Real Estate: The Fund may not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from investing in issuers which invest deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein), commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) or futures contracts. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | This restriction has been modified by separating it into two restrictions: (1) the prohibition on investments in real estate or commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities); and (2) a new restriction (Proposal 3O below) which addresses futures contracts or options thereon. As a result, this proposed restriction is not a material change, since it restricts the same types of activities, except for those now addressed by the proposed new restriction described in Proposal 30. |
#3C Underwriting: The Fund may not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No change. |
#3D Loans to Fund Affiliates: The Fund may not make loans to any of its officers, directors or employees, or to its manager, general distributor or officers or directors thereof. | Restriction eliminated. | This is not a material change since Section 17(a)(3) of the 1940 Act prohibits affiliated persons and the principal underwriter of a registered investment company from borrowing money or other property makes it illegal to borrow money or other property from a registered investment company or from any company controlled by it (unless the borrower is controlled by the lender). The restriction was unnecessary, since such practices are regulated by law. |
#3E Making Loans: The Fund may 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). | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund lend its securities. This is a material change, since securities lending by the Fund, if it occurs, could increase the risk to the shareholder. The principal risk is the potential default or insolvency of the borrower. The new restriction, however, conforms to current legal requirements for the Fund and, pursuant to those limits, provides the Fund with the ability to lend its assets to increase Fund income. |
#3F Investments for the Purpose of Exercising Control: The Fund may not invest in companies for the purpose of exercising control of management. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. |
#3G Margin Purchases and Short Selling: The Fund may not purchase securities on margin, or sell securities short, except that a Fund may write covered call options. | Restriction eliminated. | This is a material difference and presents the possibility of increased risk, in that the Fund is no longer prohibited from engaging in margin purchases or short selling. While increasing the possibility of higher returns, these investment strategies subject the Fund to a greater risk of loss and more stringent Trust and regulatory policies and monitoring requirements. Section 18 of the 1940 Act limits the conditions of use of these investment techniques to add protections for investors. |
#3H Investments in Other Investment Companies:The Fund may not 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; and pursuant to the 1940 Act. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. In any event, Section 12(d)(1) of the 1940 Act limits the extent to which the Fund may invest in other investment companies. |
#3I Investments in Companies with Less than 3 Years Operation: The Fund may not 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 of continuous operations. | Restriction eliminated. | This is a material change and presents increased risk if the Fund elected to invest in such a company. Companies with less than three years of operations are generally considered to pose more risk to investors. In today’s market, however, with spin-off companies and other well-capitalized new companies, this may prevent the Fund from investing in a company which is consistent with its objectives. Nevertheless, despite the elimination of this restriction, the Fund does not intend to change its practice of not investing in such companies. |
#3J Transactions with Interested Persons: 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, the Fund may not 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. | Restriction eliminated. | The elimination of this restriction means that the Fund is no longer prohibited from engaging in transactions with certain affiliates or organizations in which such affiliates have a financial interest. This is a material change, and could subject the investor to risk. Transactions with interested persons subject the Fund to the risk of higher cost, conflicts or interest and/or non-arm’s length terms and conditions. However, most interested persons of the Fund are still restricted with respect to such transactions by Sections 10 and 17 of the 1940 Act, their fiduciary duty to investors and/or their obligation to avoid improper conflicts of interest if posed by such a transaction., as well as Board oversight for most types of such transactions. |
#3K Borrowing and Senior Securities: The Fund may not borrow or pledge its assets under normal circumstances, except up to 10% of its total assets (computed at the lower of fair market value or cost) temporarily for emergency or extraordinary purposes, and not for the purpose of leveraging its investments, and provided further that any borrowing in excess of the 5% of the total assets of a Fund shall have asset coverage of at least 3 to 1. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | This restriction is modified to eliminate the requirement that borrowing be undertaken only for temporary or emergency purposes and removes the 10% cap for emergency purposes. This is a material change, since increased borrowing by the Fund, if it occurs, could increase the risk to shareholders. The new restriction, however, conforms to current legal requirements for the Fund and provide the Fund with the ability to leverage its assets to enhance investment performance. |
#3L Assumption of Liability of Others: The Fund may not make itself or its assets liable for the indebtedness of others. | Restriction eliminated. | This is a material change and, should the Fund elect to engage in such transactions, there could be a material increase in the risk to investors. In the event that the Fund assumes liability for the indebtedness of others, there would be a risk that the Fund would have to divest itself of investor assets to satisfy the liability with out corresponding income or gain. In most cases, this would involve a private loan, which is prohibited by the Fund’s restrictions on loans and further regulated by Section 18 of the 1940 Act. Moreover, the Fund, however, does not intend to assume liabilities of others. |
#3M Investments in Securities with Unlimited Liability: The Fund may not invest in securities which are assessable or involve unlimited liability. | Restriction eliminated. | All stocks issued today are non-assessable stocks, so the removal of the restriction regarding assessable stocks does not increase risk. However, removing the restriction regarding investments in securities with unlimited liability is a material change and, should the Fund elect to invest in such transactions, there would be a material increase in the risk to investors because of the potential to lose more than the shareholder’s investment. |
#3N Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or U.S. Securities and Exchange Commission (“SEC”) staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit a Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry; for example, technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries; the SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries; or, purchase or retain securities of any company in which any Fund officer, director or the Advisor--its partners, officers or director--beneficially own more than 1/2 of 1% of such company’s securities, if all such persons owning more than 1/2 of 1% of such company’s securities, own in the aggregate more than 5% of the outstanding securities of such company. | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of this restriction is modified slightly, but the substantive effect remains the same: to prohibit the Fund from making investments which result in the concentration of assets in any one industry. The change is not material and the probability of increased risk is not material. |
#3O Physical Commodities and Derivatives: Previously no separate restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The Fund is currently subject to a fundamental investment restriction that prohibits it from investing in physical commodities or commodities contracts,. However, the use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become important tools that allow for efficient management of a fund’s portfolio. The new restriction is a material change and could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
| PROPOSAL #4 APPROVAL OF THE REDESIGNATION OF INVESTMENT OBJECTIVE FROM FUNDAMENTAL TO NON-FUNDAMENTAL. |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s Investment Objective. | Approval by the Board of Trustees with 30 prior written notice to shareholders is required for a change in the Fund’s Investment Objective. | This is a material change and there is a material risk that the Fund could change its Investment Objective without a shareholder vote. However, the Fund does not intend to change its Investment Objective. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. Moreover, shareholders would be given 30 days written notice prior to any change. |
| PROPOSAL #5 APPROVAL OF THE REDESIGNATION OF THE FUND’S INVESTMENT STRATEGIES AND POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s investment strategies and policies. | Approval by the Board of Trustees is required for a change in the Fund’s investment strategies and policies. | This is a material change and there is a material risk that the Fund could change its investment strategies and policies without a shareholder vote. However, the Fund does not intend to change its strategies and policies. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. |
Buffalo High Yield Fund (BUFHX)
| This Fund invests at least 80% of its net assets in higher-yielding, higher-risk debt securities.. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo High Yield Fund The investment objective for the Buffalo High Yield Fund is high current income with long-term growth of capital as a secondary objective. The Fundnormally invests at least 80% of its net assets in higher-yielding, high-risk, debt securities rated below investment grade by the major rating agencies (or in similar unrated securities). The Fund may also invest in preferred stocks, convertible preferred stocks, convertible debt securities, as well as mortgage- and asset-backed securities. The Fund’s Advisor performs extensive fundamental investment research to identify investment opportunities for the Fund. When evaluating investments and the credit quality of rated and unrated securities, the Advisor looks at a number of past, present and estimated future factors, including (1) financial strength of the issuer, (2) cash flow, (3) management, (4) borrowing requirements, (5) sensitivity to changes in interest rates and business conditions and (6) relative value. While the Fund maintains flexibility to invest in bonds of varying maturities, the Fund generally holds bonds with intermediate-term maturities. | No Change. | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total assets, the Fund may not 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 Fund’s holdings 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. | As to 75% of its total assets, purchase the securities of any one issuer if, immediately after and as a result of such purchase (a) the value of the Funds’ holdings 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 securities of the issuer (this does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Investments in Real Estate: The Fund may not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from investing in issuers which invest deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein), commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) or futures contracts. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | This restriction has been modified by separating it into two restrictions: (1) the prohibition on investments in real estate or commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities); and (2) a new restriction (Proposal 3O below) which addresses futures contracts or options thereon. As a result, this proposed restriction is not a material change, since it restricts the same types of activities, except for those now addressed by the proposed new restriction described in Proposal 30. |
#3C Underwriting: The Fund may not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No change. |
#3D Loans to Fund Affiliates: The Fund may not make loans to any of its officers, directors or employees, or to its manager, general distributor or officers or directors thereof. | Restriction eliminated. | This is not a material change since Section 17(a)(3) of the 1940 Act prohibits affiliated persons and the principal underwriter of a registered investment company from borrowing money or other property makes it illegal to borrow money or other property from a registered investment company or from any company controlled by it (unless the borrower is controlled by the lender). The restriction was unnecessary, since such practices are regulated by law. |
#3E Making Loans: The Fund may 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). | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund lend its securities. This is a material change, since securities lending by the Fund, if it occurs, could increase the risk to the shareholder. The principal risk is the potential default or insolvency of the borrower. The new restriction, however, conforms to current legal requirements for the Fund and, pursuant to those limits, provides the Fund with the ability to lend its assets to increase Fund income. |
#3F Investments for the Purpose of Exercising Control: The Fund may not invest in companies for the purpose of exercising control of management. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. |
#3G Margin Purchase and Short Selling: The Fund may not purchase securities on margin, or sell securities short, except that a Fund may write covered call options. | Restriction eliminated. | This is a material difference and presents the possibility of increased risk, in that the Fund is no longer prohibited from engaging in margins purchases or short selling. While increasing the possibility of higher returns, these investment strategies subject the Fund to a greater risk of loss and more stringent Trust and regulatory policies and monitoring requirements. Section 18 of the 1940 Act limits the conditions of use of these investment techniques to add protections for investors. |
#3H Investments in Other Investment Companies:The Fund may not 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; and pursuant to the 1940 Act. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. In any event, Section 12(d)(1) of the 1040 Act limits the extent to which the Fund may invest in other investment companies. |
#3I Investments in Companies with Less than 3 Years Operation: The Fund may not 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 of continuous operations. | Restriction eliminated. | This is a material change and presents increased risk if the Fund elected to invest in such a company. Companies with less than three years of operations are generally considered to pose more risk to investors. In today’s market, however, with spin-off companies and other well-capitalized new companies, this may prevent the Fund from investing in a company which is consistent with its objectives. Nevertheless, despite the elimination of this restriction, the Fund does not intend to change its practice of not investing in such companies. |
#3J Transactions with Interested Persons: 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, the Fund may not 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. | Restriction eliminated. | The elimination of this restriction means that the Fund is no longer prohibited from engaging in transactions with certain affiliates or organizations in which such affiliates have a financial interest. This is a material change, and could subject the investor to risk. Transactions with interested persons subject the Fund to the risk of higher cost, conflicts or interest and/or non-arm’s length terms and conditions. However, most interested persons of the Fund are still restricted with respect to such transactions by Sections 10 and 17 of the 1940 Act, their fiduciary duty to investors and/or their obligation to avoid improper conflicts of interest if posed by such a transaction., as well as Board oversight for most types of such transactions. |
#3K Borrowing and Senior Securities: The Fund may not borrow or pledge its assets under normal circumstances, except up to 10% of its total assets (computed at the lower of fair market value or cost) temporarily for emergency or extraordinary purposes, and not for the purpose of leveraging its investments, and provided further that any borrowing in excess of the 5% of the total assets of a Fund shall have asset coverage of at least 3 to 1. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | This restriction is modified to eliminate the requirement that borrowing be undertaken only for temporary or emergency purposes and removes the 10% cap for emergency purposes, This is a material change, since increased borrowing by the Fund, if it occurs, could increase the risk to shareholders. The new restriction, however, conforms to current legal requirements for the Fund and provide the Fund with the ability to leverage its assets to enhance investment performance. |
#3L Assumption of Liability of Others: The Fund may not make itself or its assets liable for the indebtedness of others. | Restriction eliminated. | This is a material change and, should the Fund elect to engage in such transactions, there could be a material increase in the risk to investors. In the event that the Fund assumes liability for the indebtedness of others, there would be a risk that the Fund would have to divest itself of investor assets to satisfy the liability with out corresponding income or gain. In most cases, this would involve a private loan, which is prohibited by the Fund’s restrictions on loans and further regulated by Section 18 of the 1940 Act. Moreover, the Fund, however, does not intend to assume liabilities of others. |
#3M Investments in Securities with Unlimited Liability: The Fund may not invest in securities which are assessable or involve unlimited liability. | Restriction eliminated. | All stocks issued today are non-assessable stocks, so the removal of the restriction regarding assessable stocks does not increase risk. However, removing the restriction regarding investments in securities with unlimited liability is a material change and, should the Fund elect to invest in such transactions, there would be a material increase in the risk to investors because of the potential to lose more than the shareholder’s investment. |
#3N Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or U.S. Securities and Exchange Commission (“SEC”) staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit a Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry; for example, technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries; the SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries; or, purchase or retain securities of any company in which any Fund officer, director or the Advisor--its partners, officers or director--beneficially own more than 1/2 of 1% of such company’s securities, if all such persons owning more than 1/2 of 1% of such company’s securities, own in the aggregate more than 5% of the outstanding securities of such company. | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of this restriction is modified slightly, but the substantive effect remains the same: to prohibit the Fund from making investments which result in the concentration of assets in any one industry. The change is not material and the probability of increased risk is not material. |
#3O Physical Commodities and Derivatives: Previously no separate restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The Fund is currently subject to a fundamental investment restriction that prohibits it from investing in physical commodities, commodities contracts and options. However, the use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become important tools that allow for efficient management of a fund’s portfolio. The new restriction is a material change and could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future.. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Investments in Other Investment Companies: The Fund is permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Fund currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
| PROPOSAL #4 APPROVAL OF THE REDESIGNATION OF INVESTMENT OBJECTIVE FROM FUNDAMENTAL TO NON-FUNDAMENTAL. |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s Investment Objective. | Approval by the Board of Trustees with 30 prior written notice to shareholders is required for a change in the Fund’s Investment Objective. | This is a material change and there is a material risk that the Fund could change its Investment Objective without a shareholder vote. However, the Fund does not intend to change its Investment Objective. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. Moreover, shareholders would be given 30 days written notice prior to any change. |
| PROPOSAL #5 APPROVAL OF THE REDESIGNATION OF THE FUND’S INVESTMENT STRATEGIES AND POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s investment strategies and policies. | Approval by the Board of Trustees is required for a change in the Fund’s investment strategies and policies. | This is a material change and there is a material risk that the Fund could change its investment strategies and policies without a shareholder vote. However, the Fund does not intend to change its strategies and policies. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. |
Buffalo Large Cap Fund (BUFEX)
| This Fund invests at least 80% of its net assets in domestic common stocks and other equity securities of large-capitalization (“large-cap”) companies. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo Large Cap Fund The investment objective of the Buffalo Large Cap Fund is long term growth. The Fundnormally invests at least 80% of its net assets in domestic common stocks and other equity securities of large-cap companies. The Fund considers a company to be a large-cap company if, at time of purchase by the Fund, it has a market capitalization (the total market value of a company’s outstanding stock) of $10 billion or greater. In its selection process for this Fund, the Advisor seeks to identify a broad mix of large-cap companies across many industries that are expected to benefit from long-term industry, technological and other trends. The Advisor also selects securities based upon (1) fundamental analysis of industries and the economic cycle, (2) company-specific analysis such as product cycles and quality of management and (3) rigorous valuation analysis. | No Change. | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total assets, the Fund may not 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 Fund’s holdings 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. | As to 75% of its total assets, purchase the securities of any one issuer if, immediately after and as a result of such purchase (a) the value of the Funds’ holdings 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 securities of the issuer (this does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Investments in Real Estate: The Fund may not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from investing in issuers which invest deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein), commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) or futures contracts. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | This restriction has been modified by separating it into two restrictions: (1) the prohibition on investments in real estate or commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities); and (2) a new restriction (Proposal 3O below) which addresses futures contracts or options thereon. As a result, this proposed restriction is not a material change, since it restricts the same types of activities, except for those now addressed by the proposed new restriction described in Proposal 30. |
#3C Underwriting: The Fund may not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No change. |
#3D Loans to Fund Affiliates: The Fund may not make loans to any of its officers, directors or employees, or to its manager, general distributor or officers or directors thereof. | Restriction eliminated. | This is not a material change since Section 17(a)(3) of the 1940 Act prohibits affiliated persons and the principal underwriter of a registered investment company from borrowing money or other property makes it illegal to borrow money or other property from a registered investment company or from any company controlled by it (unless the borrower is controlled by the lender). The restriction was unnecessary, since such practices are regulated by law. |
#3E Making Loans: The Fund may 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). | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund lend its securities. This is a material change, since securities lending by the Fund, if it occurs, could increase the risk to the shareholder. The principal risk is the potential default or insolvency of the borrower. The new restriction, however, conforms to current legal requirements for the Fund and, pursuant to those limits, provides the Fund with the ability to lend its assets to increase Fund income. |
#3F Investments for the Purpose of Exercising Control: The Fund may not invest in companies for the purpose of exercising control of management. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. |
#3G Margin Purchase and Short Selling: The Fund may not purchase securities on margin, or sell securities short, except that a Fund may write covered call options. | Restriction eliminated. | This is a material difference and presents the possibility of increased risk, in that the Fund is no longer prohibited from engaging in margins purchases or short selling. While increasing the possibility of higher returns, these investment strategies subject the Fund to a greater risk of loss and more stringent Trust and regulatory policies and monitoring requirements. Section 18 of the 1940 Act limits the conditions of use of these investment techniques to add protections for investors. |
#3H Investments in Other Investment Companies: The Fund may not 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; and pursuant to the 1940 Act. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. In any event, Section 12(d)(1) of the 1940 Act limits the extent to which the Fund may invest in other investment companies. |
#3I Investments in Companies with Less than 3 Years Operation: The Fund may not 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 of continuous operations. | Restriction eliminated. | This is a material change and presents increased risk if the Fund elected to invest in such a company. Companies with less than three years of operations are generally considered to pose more risk to investors. In today’s market, however, with spin-off companies and other well-capitalized new companies, this may prevent the Fund from investing in a company which is consistent with its objectives. Nevertheless, despite the elimination of this restriction, the Fund does not intend to change its practice of not investing in such companies. |
#3J Transactions with Interested Persons: 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, the Fund may not 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. | Restriction eliminated. | The elimination of this restriction means that the Fund is no longer prohibited from engaging in transactions with certain affiliates or organizations in which such affiliates have a financial interest. This is a material change, and could subject the investor to risk. Transactions with interested persons subject the Fund to the risk of higher cost, conflicts or interest and/or non-arm’s length terms and conditions. However, most interested persons of the Fund are still restricted with respect to such transactions by Sections 10 and 17 of the 1940 Act, their fiduciary duty to investors and/or their obligation to avoid improper conflicts of interest if posed by such a transaction., as well as Board oversight for most types of such transactions. |
#3K Borrowing and Senior Securities: The Fund may not borrow or pledge its assets under normal circumstances, except up to 10% of its total assets (computed at the lower of fair market value or cost) temporarily for emergency or extraordinary purposes, and not for the purpose of leveraging its investments, and provided further that any borrowing in excess of the 5% of the total assets of a Fund shall have asset coverage of at least 3 to 1. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | This restriction is modified to eliminate the requirement that borrowing be undertaken only for temporary or emergency purposes and removes the 10% cap for emergency purposes, This is a material change, since increased borrowing by the Fund, if it occurs, could increase the risk to shareholders. The new restriction, however, conforms to current legal requirements for the Fund and provide the Fund with the ability to leverage its assets to enhance investment performance. |
#3L Assumption of Liability of Others: The Fund may not make itself or its assets liable for the indebtedness of others. | Restriction eliminated. | This is a material change and, should the Fund elect to engage in such transactions, there could be a material increase in the risk to investors. In the event that the Fund assumes liability for the indebtedness of others, there would be a risk that the Fund would have to divest itself of investor assets to satisfy the liability with out corresponding income or gain. In most cases, this would involve a private loan, which is prohibited by the Fund’s restrictions on loans and further regulated by Section 18 of the 1940 Act. Moreover, the Fund, however, does not intend to assume liabilities of others. |
#3M Investments in Securities with Unlimited Liability: The Fund may not invest in securities which are assessable or involve unlimited liability. | Restriction eliminated. | All stocks issued today are non-assessable stocks, so the removal of the restriction regarding assessable stocks does not increase risk. However, removing the restriction regarding investments in securities with unlimited liability is a material change and, should the Fund elect to invest in such transactions, there would be a material increase in the risk to investors because of the potential to lose more than the shareholder’s investment. |
#3N Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or U.S. Securities and Exchange Commission (“SEC”) staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit a Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry; for example, technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries; the SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries; or, Purchase or retain securities of any company in which any Fund officer, director or the Advisor--its partners, officers or director--beneficially own more than 1/2 of 1% of such company’s securities, if all such persons owning more than 1/2 of 1% of such company’s securities, own in the aggregate more than 5% of the outstanding securities of such company. | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of this restriction is modified slightly, but the substantive effect remains the same: to prohibit the Fund from making investments which result in the concentration of assets in any one industry. The change is not material and the probability of increased risk is not material. |
#3O Physical Commodities and Derivatives: Previously no separate restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The Fund is currently subject to a fundamental investment restriction that prohibits it from investing in physical commodities, commodities contracts and options. fHowever, the use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become important tools that allow for efficient management of a fund’s portfolio. The new restriction is a material change and could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Investments in Other Investment Companies: The Fund is permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Fund currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
| PROPOSAL #4 APPROVAL OF THE REDESIGNATION OF INVESTMENT OBJECTIVE FROM FUNDAMENTAL TO NON-FUNDAMENTAL. |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s Investment Objective. | Approval by the Board of Trustees with 30 prior written notice to shareholders is required for a change in the Fund’s Investment Objective. | This is a material change and there is a material risk that the Fund could change its Investment Objective without a shareholder vote. However, the Fund does not intend to change its Investment Objective. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. Moreover, shareholders would be given 30 days written notice prior to any change. |
| PROPOSAL #5 APPROVAL OF THE REDESIGNATION OF THE FUND’S INVESTMENT STRATEGIES AND POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s investment strategies and policies. | Approval by the Board of Trustees is required for a change in the Fund’s investment strategies and policies. | This is a material change and there is a material risk that the Fund could change its investment strategies and policies without a shareholder vote. However, the Fund does not intend to change its strategies and policies. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. |
Buffalo Small Cap Fund (BUFSX)
| This Fund invests at least 80% of its net assets in domestic common stocks and other equity securities of small-capitalization (“small-cap”) companies |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo Small Cap Fund The investment objective of the Buffalo Small Cap Fund is long-term growth of capital. The Fund normally invests at least 80% of its net assets in domestic common stocks and other equity securities (including convertible preferred stocks and warrants) of small-cap companies. The Fund considers a company to be a small-cap company if, at time of purchase, (1) it has a market capitalization of $1 billion or less, or (2) if the company’s market capitalization would place it in the lowest 20% total market capitalization of companies that have equity securities listed on a U.S. national securities exchange or trading on the NASDAQ Stock Market, Inc. (“NASDAQ”) system. Based on current market conditions, the Fund targets companies with individual market capitalizations of $2 billion or less at the time of initial purchase. In its selection process for this Fund, the Advisor seeks to identify a broad mix of small-cap companies that are expected to benefit from long-term industry, technological or other trends. The Advisor also selects securities based on (1) fundamental analysis of industries and the economic cycle, (2) company-specific analysis such as product cycles and quality of management and (3) rigorous valuation analysis. | Same. | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total assets, the Fund may not 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 Fund’s holdings 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. | As to 75% of its total assets, the Fund will not purchase the securities of any one issuer if, immediately after and as a result of such purchase (a) the value of the Funds’ holdings 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 securities of the issuer (this does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Investments in Real Estate: The Fund may not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein), commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities) or futures contracts. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | This restriction has been modified to delete the prohibition on investments in commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities), futures contracts or, which is addressed in part by a new, separate restriction, Proposal 3H. This proposed restriction, in itself, is not a material difference and does not pose increased risk. However, Proposal 3H is a material change that which poses new risks to the extent described below. |
#3C Underwriting: The Fund may not underwrite the securities of other issuers (except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No Change. |
#3D Making Loans: The Fund may not make loans to other persons, except by the purchase of debt obligations which are permitted under its policy (the purchase of a security subject to a repurchase agreement or the purchase of a portion of an issue of publicly distributed debt securities is not considered the making of a loan). | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund to lend its securities. This is a material change, since securities lending by the Fund, if it occurs, could increase the risk to the shareholder. The principal risk is the possible default or insolvency of the borrower. The new restriction, however, conforms to current legal requirements for the Fund and provides the Fund with ability to leverage its assets to enhance investment performance. |
#3E Margin Purchases and Short Selling: The Fund may not purchase securities on margin, or sell securities short, except that the Fund may write covered call options. | Restriction eliminated. | This is a material difference and presents the possibility of increased risk, in that the Fund is no longer prohibited from engaging in margins purchases or short selling. While increasing the possibility of higher returns, these investment strategies subject the Fund to a greater risk of loss and more stringent Trust and regulatory policies and monitoring requirements. Section 18 of the 1940 Act limits the conditions of use of these investment techniques to add protections for investors. |
#3F Borrowing and Senior Securities: The Fund may 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 borrowing in excess of the 5% of the total assets of the Fund shall have asset coverage of at least 3 to 1. | The Fund may not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | This restriction is modified to eliminate the requirement that borrowing be undertaken only for temporary or emergency purposes and removes the 10% cap for emergency purposes. This is a material change, since increased borrowing by the fund, if it occurs, could increase the risk to the shareholder. The new restriction, however, conforms to current legal requirements for the Fund and, within permitted limits provides the Fund with the ability to lend its assets to increase Fund income. |
#3G Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit the Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry; for example, technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries. The SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries. | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of this restriction is modified slightly, but the substantive effect remains the same: to prohibit the Fund from making investments which result in the concentration of assets in any one industry. The change is not material and the probability of increased risk is not material. |
#3H Physical Commodities and Derivatives: Previously no separate restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The Fund is currently subject to a fundamental investment restriction that prohibits it from investing in physical commodities, options and other types financial instruments. However, the use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become an important tool that allows for efficient management of a fund’s portfolio. The new restriction is a material change and could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Investments in Other Investment Companies: The Fund is permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Fund currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
| PROPOSAL #4 APPROVAL OF THE REDESIGNATION OF INVESTMENT OBJECTIVE FROM FUNDAMENTAL TO NON-FUNDAMENTAL. |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s Investment Objective. | Approval by the Board of Trustees with 30 prior written notice to shareholders is required for a change in the Fund’s Investment Objective. | This is a material change and there is a material risk that the Fund could change its Investment Objective without a shareholder vote. However, the Fund does not intend to change its Investment Objective. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. Moreover, shareholders would be given 30 days written notice prior to any change. |
| PROPOSAL #5 APPROVAL OF THE REDESIGNATION OF THE FUND’S INVESTMENT STRATEGIES AND POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s investment strategies and policies. | Approval by the Board of Trustees is required for a change in the Fund’s investment strategies and policies. | This is a material change and there is a material risk that the Fund could change its investment strategies and policies without a shareholder vote. However, the Fund does not intend to change its strategies and policies. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. |
Buffalo USA Global Fund (BUFGX)
| This Fund invests at least 80% of its net assets in common stocks of U.S. companies that have substantial operations around the globe. The international operations of these U.S. companies will provide Fund investors with exposure to at least three foreign countries. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo USA Global Fund The investment objective of the USA Global Fund is long term growth of capital. The Fundnormally invests at least 80% of its net assets in common stocks of U.S. companies that have substantial international operations. The Fund considers a U.S. company to have substantial international operations if the company receives more than 40% of its revenue or operating income from sales or operations outside of the United States. The Fund will diversify its investment in these U.S. companies so that the Fund is exposed to the markets of at least three different foreign countries. In its selection process for this Fund, the Advisor seeks to identify U.S. companies with substantial international operations that are expected to benefit from long-term industry, technological or other trends. The Advisor also selects securities based on (1) fundamental analysis of industries and the economic cycle, (2) company-specific analysis such as product cycles and quality of management and (3) rigorous valuation analysis. | No change. | The Fund does not intend to change its investment objective, strategies or policies, so there no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total respective total assets, the Fund may not 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 Fund’s holdings 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. | As to 75% of its total assets, purchase the securities of any one issuer if, immediately after and as a result of such purchase (a) the value of the Funds’ holdings 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 securities of the issuer (this does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Investments in Real Estate: The Fund may not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from investing in issuers which invest deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein), commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) or futures contracts. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | This restriction has been modified by separating it into two restrictions: (1) the prohibition on investments in real estate or commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities); and (2) a new restriction (Proposal 3O below) which addresses futures contracts or options thereon.As a result, this proposed restriction is not a material change, since it restricts the same types of activities, except for those now addressed by the proposed new restriction described in Proposal 30. |
#3C Underwriting: The Fund may not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No change. |
#3D Loans to Fund Affiliates: The Fund may not make loans to any of its officers, directors or employees, or to its manager, general distributor or officers or directors thereof. | Restriction eliminated. | This is not a material change since Section 17(a)(3) of the 1940 Act prohibits affiliated persons and the principal underwriter of a registered investment company from borrowing money or other property makes it illegal to borrow money or other property from a registered investment company or from any company controlled by it (unless the borrower is controlled by the lender). The restriction was unnecessary, since such practices are regulated by law. |
#3E Making Loans: The Fund may 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). | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund lend its securities. This is a material change, since securities lending by the Fund, if it occurs, could increase the risk to the shareholder. The principal risk is the potential default or insolvency of the borrower. The new restriction, however, conforms to current legal requirements for the Fund and, pursuant to those limits, provides the Fund with the ability to lend its assets to increase Fund income. |
#3F Investments for the Purpose of Exercising Control: The Fund may not invest in companies for the purpose of exercising control of management. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. |
#3G Margin Purchases and Short Selling: The Fund may not purchase securities on margin, or sell securities short, except that a Fund may write covered call options. | Restriction eliminated. | This is a material difference and presents the possibility of increased risk, in that the Fund is no longer prohibited from engaging in margin purchases or short selling. While increasing the possibility of higher returns, these investment strategies subject the Fund to a greater risk of loss and more stringent Trust and regulatory policies and monitoring requirements. Section 18 of the 1940 Act limits the conditions of use of these investment techniques to add protections for investors. |
#3H Investments in Other Investment Companies:The Fund may not 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; and pursuant to the 1940 Act. | Changed to a non-fundamental restriction. | The Fund intends to remain bound by this restriction, but as noted above, there is a risk that the restriction could be changed without a shareholder vote. In any event, Section 12(d)(1) of the 1940 Act limits the extent to which the Fund may invest in other investment companies. |
#3I Investments in Companies with Less than 3 Years Operation: The Fund may not 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 of continuous operations. | Restriction eliminated. | This is a material change and presents increased risk if the Fund elected to invest in such a company. Companies with less than three years of operations are generally considered to pose more risk to investors. In today’s market, however, with spin-off companies and other well-capitalized new companies, this may prevent the Fund from investing in a company which is consistent with its objectives. Nevertheless, despite the elimination of this restriction, the Fund does not intend to change its practice of not investing in such companies. |
#3J Transactions with Interested Persons: 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, the Fund may not 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. | Restriction eliminated. | The elimination of this restriction means that the Fund is no longer prohibited from engaging in transactions with certain affiliates or organizations in which such affiliates have a financial interest. This is a material change, and could subject the investor to risk. Transactions with interested persons subject the Fund to the risk of higher cost, conflicts or interest and/or non-arm’s length terms and conditions. However, most interested persons of the Fund are still restricted with respect to such transactions by Sections 10 and 17 of the 1940 Act, their fiduciary duty to investors and/or their obligation to avoid improper conflicts of interest if posed by such a transaction., as well as Board oversight for most types of such transactions. |
#3K Borrowing and Senior Securities: The Fund may not borrow or pledge its assets under normal circumstances, except up to 10% of its total assets (computed at the lower of fair market value or cost) temporarily for emergency or extraordinary purposes, and not for the purpose of leveraging its investments, and provided further that any borrowing in excess of the 5% of the total assets of a Fund shall have asset coverage of at least 3 to 1. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | This restriction is modified to eliminate the requirement that borrowing be undertaken only for temporary or emergency purposes and removes the 10% cap for emergency purposes, This is a material change, since increased borrowing by the Fund, if it occurs, could increase the risk to shareholders. The new restriction, however, conforms to current legal requirements for the Fund and provide the Fund with the ability to leverage its assets to enhance investment performance. |
#3L Assumption of Liability of Others: The Fund may not make itself or its assets liable for the indebtedness of others. | Restriction eliminated. | This is a material change and, should the Fund elect to engage in such transactions, there could be a material increase in the risk to investors. In the event that the Fund assumes liability for the indebtedness of others, there would be a risk that the Fund would have to divest itself of investor assets to satisfy the liability with out corresponding income or gain. In most cases, this would involve a private loan, which is prohibited by the Fund’s restrictions on loans and further regulated by Section 18 of the 1940 Act. Moreover, the Fund, however, does not intend to assume liabilities of others. |
#3M Investments in Securities with Unlimited Liability: The Fund may not invest in securities which are assessable or involve unlimited liability. | Restriction eliminated. | All stocks issued today are non-assessable stocks, so the removal of the restriction regarding assessable stocks does not increase risk. However, removing the restriction regarding investments in securities with unlimited liability is a material change and, should the Fund elect to invest in such transactions, there would be a material increase in the risk to investors because of the potential to lose more than the shareholder’s investment. |
#3N Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or U.S. Securities and Exchange Commission (“SEC”) staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit a Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry; for example, technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries; the SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries; or, purchase or retain securities of any company in which any Fund officer, director or the Advisor--its partners, officers or director--beneficially own more than 1/2 of 1% of such company’s securities, if all such persons owning more than 1/2 of 1% of such company’s securities, own in the aggregate more than 5% of the outstanding securities of such company. | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of this restriction is modified slightly, but the substantive effect remains the same: to prohibit the Fund from making investments which result in the concentration of assets in any one industry. The change is not material and the probability of increased risk is not material. |
#3O Physical Commodities and Derivatives: Previously no separate restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The Fund is currently subject to a fundamental investment restriction that prohibits it from investing in physical commodities, options and other financial instruments. However, the use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become important tools that allow for efficient management of a fund’s portfolio. The new restriction is a material change and could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Investments in Other Investment Companies: The Fund is permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Fund currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
| PROPOSAL #4: APPROVAL OF THE REDESIGNATION OF INVESTMENT OBJECTIVE FROM FUNDAMENTAL TO NON-FUNDAMENTAL. |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s Investment Objective. | Approval by the Board of Trustees with 30 prior written notice to shareholders is required for a change in the Fund’s Investment Objective. | This is a material change and there is a material risk that the Fund could change its Investment Objective without a shareholder vote. However, the Fund does not intend to change its Investment Objective. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. Moreover, shareholders would be given 30 days written notice prior to any change. |
| PROPOSAL #5 APPROVAL OF THE REDESIGNATION OF THE FUND’S INVESTMENT STRATEGIES AND POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL |
| Current | Proposed | Material Differences and Risks |
| Shareholder Approval is required for a change in the Fund’s investment strategies and policies. | Approval by the Board of Trustees is required for a change in the Fund’s investment strategies and policies. | This is a material change and there is a material risk that the Fund could change its investment strategies and policies without a shareholder vote. However, the Fund does not intend to change its strategies and policies. In addition, any future changes would have to be approved by the Board of Directors/Trustees, acting in accordance with their fiduciary duties and in the best interests of the shareholders. |
PROPOSAL #3 APPROVAL OF THE ADOPTION OF A UNIFORM SET OF INVESTMENT RESTRICTIONS
Proposal #3 also applies to the following Funds:
Buffalo Jayhawk China Fund
Buffalo Micro Cap Fund
Buffalo Mid Cap Fund
Buffalo Science & Technology Fund
Buffalo International Fund
Buffalo Jayhawk China Fund (BUFCX)
| This Fund invests at least 80% of its net assets in equity securities of China Companies. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo Jayhawk China Fund The investment objective of the Buffalo Jayhawk China Fund is long term growth of capital. The Fund invests primarily in publicly traded common stock of China Companies. Under normal market conditions, the Fund invests at least 80% of its net assets in equity securities of “China Companies,” as defined below. The Fund considers China Companies to be those: -that are organized under the laws of, or with a principal office in, the People’s Republic of China or its administrative and other districts, including Hong Kong (“China”); or -that issue securities for which the principal trading market is in China; or -that derive at least 50% of their revenues or profits from goods produced or sold, investments made, or services performed in China, or which have at least 50% of their assets in China. | No Change. | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| In addition to its primary investments in common stocks, the Fund may make equity investments in preferred stock and securities convertible into common stock of China Companies; as well as interests in trusts or depositary receipts that represent indirect ownership interests in China Companies. The Fund also is authorized to make equity investments in the form of equity-linked notes or swap agreements designed to provide the Fund with investment exposure to equity securities of China Companies (although these investments are limited to 30% of the Fund’s net assets). The Fund’s indirect investments in China Company equity securities may be used as tools to gain exposure to Class A shares or other specific Chinese securities or markets, which may have certain limitations on direct investment. The Fund’s China Company portfolio securities are typically listed and traded in China (on the Shanghai and Shenzhen Stock Exchanges) and Hong Kong (on the Hong Kong Stock Exchange), but the Fund is authorized to invest in China Companies traded on any recognized securities exchange, including U.S., Taiwan or Singapore exchanges. | | |
PROPOSAL #3(f) APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
| Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Investments in Real Estate: The Fund may not purchase or sell real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or from investing in securities that are secured by real estate or interests therein), commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities), futures contracts or options thereon. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent the Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | This restriction has been modified by separating it into two restrictions: (1) the prohibition on investments in commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities), and futures contracts or options thereon, which is addressed in part by a new, separate restriction, Proposal 3G. As a result, this proposed restriction is not a material change since it restricts the same type of activities as previously, except for those addressed by the new proposed restriction, Proposal 3F. |
#3B Underwriting: The Fund may not underwrite the securities of other issuers (except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the 1933 Act). | The Fund will not underwrite the securities of other issuers (except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the 1933 Act). | No change. |
#3C Making Loans: The Fund may not make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, and loaning its assets to broker-dealers or institutional investors. | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that the Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in the Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund to lend its securities with more flexibility. The change is not material and is unlikely to cause additional risk to investors. The principal risk is the potential default or insolvency of the borrower. The new restriction, however, conforms to current legal requirements for the Fund and, within permitted limits, provides the Fund with the ability to lend its assets to increase Fund income. |
#3D Borrowing and Senior Securities: The Fund may not borrow money or issue senior securities, except as the 1940 Act, any rule or order thereunder, or SEC staff interpretation thereof, may permit. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, the Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | The proposed restriction adds a limit to the amount the Fund may borrow and retains the wording necessary to conform to current law. There is no increase in risk arising from the modification of this restriction. |
#3E Concentration: The Fund may not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | No change. |
#3F Diversification: Previously a non-fundamental restriction. | As to 75% of its total assets, the Fund will not purchase the securities of any one issuer if, immediately after and as a result of such purchase, (a) the value of the Fund’s holdings 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 of the issuer (this restriction does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities, or other investment companies). | The Fund was previously restricted similarly through a non-fundamental restriction. This modification is not a material change and does not pose an increase in risk. |
#3G Physical Commodities and Derivatives: Previously no separate restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The Fund is currently subject to a fundamental investment restriction that prohibits it from investing in physical commodities, options and other types of financial instruments.. However, the use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become an important tool that allows for efficient management of a fund’s portfolio. The new restriction is a material change and could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Investments in Other Investment Companies: The Fund is permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Fund currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
Buffalo Micro Cap Fund (BUFOX)
| This Fund invests at least 80% of its net assets in domestic common stocks and other equity securities of micro-capitalization (“micro-cap”) companies.. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo Micro Cap Fund The investment objective of the Buffalo Micro Cap Fund is long term growth of capital. The Fund normally invests at least 80% of its net assets in domestic common stocks and other equity securities (including convertible preferred stocks) of micro-cap companies. The Fund considers a company to be a micro-cap company if, at time of purchase by the Fund, it has a market capitalization less than or equal to (1) $600 million, or (2) the median capitalization of companies in the Russell 2000 Index, whichever is greater. The capitalization of companies within the Russell 2000 Index changes due to market conditions and changes with the composition of the Russell 2000 Index. As of May 31, 2007, the median capitalization of companies in the Russell 2000 Index was approximately $705 million. In its selection process for the Fund, the Advisor seeks to identify a broad mix of micro-cap companies across many industries that are expected to benefit from long-term industry, technological and other trends. The Advisor also selects securities based on (1) fundamental analysis of industries and the economic cycle, (2) company-specific analysis such as product cycles and quality of management and (3) rigorous valuation analysis. | No change. | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total assets, the Fund may not purchase the securities of any one issuer, except the United States government or other investment companies, if immediately after and as a result of such purchase (a) the value of the Fund’s holdings 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 of such issuer. | As to 75% of its total assets, the Fund will not purchase the securities of any one issuer if, immediately after and as a result of such purchase, (a) the value of the Fund’s holdings 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 of the issuer (this restriction does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities, or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Investments in Real Estate: The Fund may not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein), commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities), futures contracts or options thereon. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | This restriction has been modified by separating it into two restrictions (1) the prohibition on investments in real estate or commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities), and (2) a new restriction (Proposal 3H) which addresses futures contracts or options thereon. As a result, this proposed restriction is not a material change, since it restricts the same type of activities, except for those now addressed by the proposed new restriction., Proposal 3H. |
#3C Underwriting: The Fund may not underwrite the securities of other issuers (except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the 1933 Act). | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the 1933 Act). | No change. |
#3D Making Loans: The Fund may not make loans to other persons, except by the purchase of debt obligations which are permitted under its investment strategies or policies (entry into a repurchase agreement or the purchase of a portion of an issue of publicly distributed debt securities will not be deemed a loan for purposes of this investment restriction). | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund to lend its securities. This is a material change, since securities lending by the fund, if it occurs, could increase the risk to the shareholder. The principal risk is potential default or insolvency of the borrower. The new restriction, however, conforms to current legal requirements for the Fund, within the permitted limits, and provides the Fund with the ability to lend its assets to increase Fund income. |
#3E Margin Purchases and Short Selling: Purchase securities on margin, or sell securities short, except that the Fund may write covered call options. | This restriction is eliminated. | This is a material difference and presents the possibility of increased risk, in that the Fund is no longer prohibited from engaging in margins purchases or short selling. While increasing the possibility of higher returns, these investment strategies subject the Fund to a greater risk of loss and more stringent Trust and regulatory policies and monitoring requirements. Section 18 of the 1940 Act limits the conditions of use of these investment techniques to add protections for investors. |
#3F Borrowing and Senior Securities: The Fund may not borrow or pledge its assets in an amount exceeding 10% of the value of its total assets, and, in the event that market conditions or other factors result in the Fund’s borrowed amounts exceeding 10% of its assets (including the amount borrowed), the Fund will reduce the amount of its borrowing to an extent and in such a manner required by the 1940 Act. The Fund will not borrow for the purposes of leveraging its investments, but only for temporary or emergency purposes. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | This restriction is modified to eliminate the requirement that borrowing be undertaken only for temporary or emergency purposes and removes the 10% cap for emergency purposes. This is a material change, since increased borrowing by the fund, if it occurs, could increase the risk to the shareholder. The new restriction, however, conforms to current legal requirements for the Fund and provides the Fund with the ability, within the permitted limits, to lend its assets to increase Fund income. |
#3G Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit the Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry, for example: technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries. The SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries. | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of this restriction is modified slightly, but the substantive effect remains the same: to prohibit the Fund from making investments which result in the concentration of assets in any one industry. The change is not material and the probability of increased risk is not material. |
#3H Physical Commodities and Derivatives: This is a new Fundamental Restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The Fund is currently subject to a fundamental investment restriction that prohibits it from investing in physical commodities, , commodities contracts and options.. However, the use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become an important tool that allows for efficient management of a fund’s portfolio. The new restriction is a material change and could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future.. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Investments in Other Investment Companies: The Fund is permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Fund currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
Buffalo Mid Cap Fund (BUFMX)
| This Fund invests at least 80% of its net assets in domestic common stocks and other equity securities of medium-capitalization (“mid-cap”) companies. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo Mid Cap Fund The investment objective of the Buffalo Mid Cap Fund is long term growth of capital. The Fund normally invests at least 80% of its net assets in domestic common stocks and other equity securities (including convertible preferred stocks and warrants) of mid-cap companies. The Fund considers a company to be a mid-cap company if, at time of purchase by the Fund, it has a market capitalization between $1.5 billion and $10 billion. In its selection process for this Fund, the Advisor seeks to identify a broad mix of mid-cap companies that are expected to benefit from long-term industry, technological and other trends. The Advisor also selects securities based on (1) fundamental analysis of industries and the economic cycle, (2) company-specific analysis such as product cycles and quality of management and (3) rigorous valuation analysis. | No Change. | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total assets, the Fund may not 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 Fund’s holdings 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. | As to 75% of its total assets, the Fund will not purchase the securities of any one issuer if, immediately after and as a result of such purchase, (a) the value of the Fund’s holdings 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 of the issuer (this restriction does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities, or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit either Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry; for example, technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries; the SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries. | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of this restriction is modified slightly, but the substantive effect remains the same: to prohibit the Fund from making investments which result in the concentration of assets in any one industry. The change is not material and the probability of increased risk is not material. |
#3C Borrowing and Senior Securities: The Fund may not borrow money or issue senior securities, except as the 1940 Act, any rule thereunder, or SEC staff interpretation thereof, may permit; the regulatory limits allow either Fund to borrow up to 5% of its total assets for temporary purposes and to borrow from banks, provided that if borrowings exceed 5%, the Fund must have assets totaling at least 300% of the borrowing when the amount of the borrowing is added to the Fund’s other assets; the effect of this provision is to allow either Fund to borrow from banks amounts up to one-third (33 1/3%) of its total assets, including those assets represented by the borrowing. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3D Underwriting: The Fund may not underwrite the securities of other issuers, except that either Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933. | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No change. |
#3E Investments in Real Estate: The Fund may not purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent either Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | No change. |
#3F Physical Commodities and Derivatives: The Fund may not purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent either Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | This restriction is modified to increase the scope of financial investments the Fund may use. The use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become an important tool that allows for efficient management of a fund’s portfolio. This a material change. These types of investments could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future.. |
#3G Making Loans: The Fund may not make loans, provided that this restriction does not prevent either Fund from purchasing debt obligations, entering into repurchase agreements, and loaning its assets to broker/dealers or institutional investors. | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund to lend its securities with more flexibility. The change is not material and is unlikely to cause additional risk to investors. The new restriction, however, conforms to current legal requirements for the Fund and provides the Fund with the ability to lend its assets to increase Fund income. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Investments in Other Investment Companies: The Fund is permitted to invest in other investment companies on the open market, including open-end, closed-end or unregistered investment companies, either within the percentage limits set forth in the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof or without regard to such percentage limits in connection with a corporate event (meaning a merger, reorganization, consolidation or similar transaction). Current regulatory limits, with certain exceptions regarding a Fund’s investment in money market funds, allow a Fund to invest, outside of a corporate event, up to 5% of its total assets in the securities of any one investment company, without owning more than 3% of any investment company or having more than 10% of its total assets in the securities of other investment companies. The Fund currently operate in accordance to the limit exemption provided by Section 12(d)(1)(F) of the 1940 Act. The Funds also may not operate as a fund of funds that invests primarily in the shares of other investment companies as permitted by Section 12(d)(1)(G) of the 1940 Act, if its own shares are utilized as investments by such a fund of funds. |
Buffalo Science & Technology Fund (BUFTX)
| This Fund invests at least 80% of its net assets in domestic common stocks and other equity securities of companies expected to benefit from the development, advancement or use of science and technology. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo Science & Technology Fund The investment objective of the Buffalo Science & Technology Fund is long-term growth of capital. The Fund normally invests at least 80% of its net assets in domestic stocks and other equity securities (including convertible preferred stocks and warrants) of companies expected to benefit from the development, advancement or use of science and technology. The Fund invests in securities the Advisor believes have prospects for above average earnings based on intensive fundamental research. Holdings can range from small-cap companies that are developing new technologies to large, blue chip firms with established track records of developing, producing or distributing products and services in the science and technology industries. The Fund may also invest in companies that are likely to benefit from technological advances even if those companies are not directly involved in the specific research and development of the advance. Some of the industries likely to be represented in the Fund’s portfolio are electronics, including hardware, software and components; communications; E-commerce; information services; media; life sciences and healthcare; environmental services; chemicals and synthetic materials; and defense and aerospace. | No Change | The Fund does not intend to change its investment objective, strategies or policies, so no material differences or additional risks are expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: As to 75% of its total assets, the Fund may not 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 Fund’s holdings 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. | As to 75% of its total assets, the Fund will not purchase the securities of any one issuer if, immediately after and as a result of such purchase, (a) the value of the Fund’s holdings 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 of the issuer (this restriction does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities, or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Concentration: The Fund may not make investments that result in the concentration, as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof, of its investments in the securities of issuers primarily engaged in the same industry; this restriction does not limit either Fund from investing in obligations issued or guaranteed by the U.S. Federal Government, or its agencies or instrumentalities; in applying this fundamental policy concerning industry concentration, investments in certain broader categories of companies will not be considered to be investments in the same industry; for example, technology companies will be divided according to their products and services so that hardware, software, information services and outsourcing, and telecommunications will each be considered separate industries; financial service companies will be classified according to the end users of their services so that automobile finance, bank finance and diversified finance will each be considered separate industries; asset-backed securities will be classified according to the underlying assets securing such securities; and utility companies will be divided according to their services so that gas, gas transmission, electric and telephone will each be considered separate industries; the SEC staff has taken the position that a mutual fund concentrates its investments in a particular industry if 25% or more of its total assets are invested in issuers within the same industry or group of related industries | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3C Borrowing and Senior Securities: The Fund may not borrow money or issue senior securities, except as the 1940 Act, any rule thereunder, or SEC staff interpretation thereof, may permit; the regulatory limits allow either Fund to borrow up to 5% of its total assets for temporary purposes and to borrow from banks, provided that if borrowings exceed 5%, the Fund must have assets totaling at least 300% of the borrowing when the amount of the borrowing is added to the Fund’s other assets; the effect of this provision is to allow either Fund to borrow from banks amounts up to one-third (33 1/3%) of its total assets, including those assets represented by the borrowing. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3D Underwriting: The Fund may not underwrite the securities of other issuers, except that either Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933. | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No change. |
#3E Investments in Real Estate: The Fund may not purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent either Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | |
#3F Investments in Physical Commodities and Derivatives: The Fund may not purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become an important tool that allows for efficient management of a fund’s portfolio. The new restriction broadens the scope of permissible investments and is a material change. These types of investments could materially increase the risk of the Fund. . Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future. |
#3G Making Loans: The Fund may not make loans, provided that this restriction does not prevent either Fund from purchasing debt obligations, entering into repurchase agreements, and loaning its assets to broker/dealers or institutional investors. | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund to lend its securities with more flexibility. The change is not material and is unlikely to cause additional risk to investors. The new restriction conforms to current legal requirements for the Fund and, within the permitted limits, provides the Fund with the ability to lend its assets to increase Fund income. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Change in Investment Strategy: The Fund may not change its investment policy of investing at least 80% of the Fund’s net assets according to the strategies described in the Fund’s prospectus without first providing shareholders with at least 60 days’ prior notice. |
Purchase of Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investment for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitations on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
Buffalo International Fund (BUFIX)
| This Fund invests primarily in companies with significant international operations. |
| Current | Proposed | Material Differences and Risks |
| Investment Objective, Strategy and Policies | | |
Buffalo International Fund The investment objective for the Buffalo International Fund is long-term growth of capital. To pursue its investment objective, the Fund invests primarily in equity securities of established companies that are economically tied to a number of countries throughout the world (excluding the United States). The Fund may invest directly or indirectly in foreign securities or foreign currencies of both developed and developing countries. For purposes of the Fund’s investments, “foreign securities” means those securities issued by companies: · that are organized under the laws of, or with a principal office in, a country other than the United States and issue securities for which the principal trading market is in a country other than the United States; or · that derive at least 50% of their revenues or profits from goods produced or sold, investments made, or services provided in a country other than the United States, or have at least 50% of their assets in a country other than the United States. | No Change. | The Fund does not intend to change its investment objective, strategies or policies, so there are no material differences or additional risks expected. |
| PROPOSAL #3 APPROVAL OF A UNIFORM SET OF FUNDAMENTAL INVESTMENT RESTRICTIONS |
Changes in Fundamental Investment Restrictions: Shareholder Approval is required for a change in the Fund’s Fundamental Investment Restrictions. |
| Current Fundamental Investment Restrictions | Proposed Fundamental Investment Restrictions | Material Differences and Risks |
#3A Diversification: The Fund may not change its classification from diversified as defined under the 1940 Act to non-diversified. | As to 75% of its total assets, the Fund will not purchase the securities of any one issuer if, immediately after and as a result of such purchase, (a) the value of the Fund’s holdings 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 of the issuer (this restriction does not apply to investments in the securities of the U.S. Government, or its agencies or instrumentalities, or other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3B Concentration: The Fund may not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities). | The Fund will not make investments that result in the concentration (as that term is defined by the 1940 Act, any rule or order thereunder or SEC staff interpretation thereof) of its net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. Government, or any of its agencies or instrumentalities, or securities of other investment companies). | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. The proposed change makes an exception for investments in other investment companies, which is now addressed by a non-fundamental investment restriction. |
#3C Borrowing and Senior Securities: The Fund may not borrow money or issue senior securities, except as the 1940 Act, any rule thereunder, or SEC staff interpretation thereof, may permit; the Fund may borrow from banks in amounts not exceeding one-third of its total assets (including the amount borrowed). In addition, the Fund may borrow up to 5% of its total assets from a bank or other person for temporary purposes. | The Fund will not borrow money or issue senior securities except as the 1940 Act, any rule thereunder, any SEC staff interpretation thereof or SEC exemptive order, may permit, provided that, a Fund may borrow in amounts not exceeding one-third of its total assets (including the amount borrowed) and may borrow up to 5% of its total assets for temporary purposes. | The wording of the proposed restriction is slightly different than the current restriction, but there is no material change and no material increase in risk. |
#3D Underwriting: The Fund may not underwrite the securities of other issuers (except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the 1933 Act). | The Fund will not underwrite the securities of other issuers (except that a Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities under circumstances where it may be considered to be an underwriter under the Securities Act of 1933). | No change. |
#3E Investments in Real Estate: The Fund may not purchase or sell real estate (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from investing in issuers which invest, deal or otherwise engage in transactions in real estate or interests therein, or from investing in securities that are secured by real estate or interests therein), or commodities (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from engaging in transactions in securities secured by physical commodities, futures contracts or options thereon). | The Fund will not engage in the purchase or sale of real estate (unless acquired as a result of ownership of securities or other instruments) provided that this restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein or investment in securities that are secured by real estate or interests therein. | The proposed restriction is modified by separating it into two restrictions: (1) the prohibition on investments in real estate and or commodities (unless acquired as a result of ownership of securities or other instruments) and (2) a new proposed restriction (Proposal 3F) which addresses transactions related to securities secured by physical commodities, futures contracts or options thereon and other financial instruments.. Accordingly, this restriction, as modified, does not result in a material change or increased risk. |
#3F Investments in Physical Commodities and Derivatives: Previously no separate restriction. | The Fund will not purchase or sell physical commodities or commodities contracts (unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent a Fund from engaging in transactions in securities secured by physical commodities) except that a Fund may purchase and sell: (a) marketable securities issued by companies that own or invest in commodities or commodities contracts; (b) currencies; and (c) commodities contracts relating to financial instruments such as financial futures and options thereon, futures contracts, options, forward contracts, swaps, floors, caps, collars and other financial instruments. | The use of financial futures contracts (such as interest rate and index futures contracts), and options thereon, and other financial instruments have become an important tool that allows for efficient management of a fund’s portfolio. The new restriction broadens the scope of permissible investments and is a material change. These types of investments could materially increase the risk of the Fund. Commodities contracts, options and other derivatives pose a greater risk of loss: these are more speculative and volatile financial instruments. The Fund currently does not use these types of financial instruments and, if the Fund begins to utilize such strategies, shareholders will be provided with more detailed disclosures of the corresponding risks. Elimination of this restriction is intended to permit the investment advisor to efficiently manage the Fund’s portfolio and maintain and/or increase shareholder returns through investments in derivative financial instruments if appropriate in the future. |
#3G Making Loans: The Fund may not make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, and loaning its portfolio securities to broker dealers or institutional investors. | The Fund will not make loans if, as a result, more than the current statutory limit (currently 33 1/3%) of the Fund’s total assets would be lent to other parties, except that a Fund may: (a) purchase or hold publicly distributed debt securities or instruments; (b) enter into repurchase agreements; and (c) lend its securities, all as permitted under its investment strategies and policies as set forth in a Fund’s registration statement. | This restriction is modified slightly to conform to current law and to permit the Fund to lend its securities with more flexibility. The change is not material and is unlikely to cause additional risk to investors. The new restriction conforms to current legal requirements for the Fund, within the permitted limits, and provides the Fund with the ability to lend its assets to increase Fund income. |
Uniform Non-fundamental Investment Restrictions The uniform Non-fundamental Investment Restrictions afford shareholders with further protection, set forth additional limitations for the Fund and supplement the Fundamental Investment Restrictions. |
Changes in Non-fundamental Investment Restrictions: Approval by the Board of Directors/Trustees is required for a change in the Fund’s Non-fundamental Investment Restrictions. |
Illiquid Securities: The Fund may not invest more than 15% of its net assets in illiquid securities. The Fund considers a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which the Fund has valued the security. If the Fund’s illiquid securities are determined to exceed 15%, the Fund shall reduce its holdings of illiquid securities to bring them below 15% of net assets as soon as is practically possible. |
Investments for the Purpose of Exercising Control: The Fund may not invest in any issuer for purposes of exercising control or management. |
Limitation on New Investments Due to Borrowing: The Fund may not purchase additional securities when outstanding borrowings exceed 5% of the Fund’s total assets. |
VII. ADDITIONAL INFORMATION ABOUT THE FUNDS
| A. | INVESTMENT ADVISOR AND SUB-ADVISOR |
Kornitzer Capital Management, Inc. is the manager and investment advisor for the Funds and is responsible for overseeing and implementing each Fund’s investment program and managing the day-to-day investment activity and general operations of each Fund. KCM was founded in 1989. In addition to managing and advising the Funds, KCM provides investment advisory services to a broad variety of individual, corporate and other institutional clients. As manager, KCM, directly or through its service providers, provides or pays the cost of all management, supervisory and administrative services required in the normal operation of the Funds. This includes: investment management and supervision (including sub-advisor costs if applicable); transfer agent and accounting services; a portion of foreign custody fees (if applicable); fees for domestic custody services; independent auditors and legal counsel; fees and expenses of officers, directors/trustees and other personnel; rent; shareholder services; and other items incidental to corporate administration. KCM is located at 5420 West 61st Place, Shawnee Mission, KS 66205.
Jayhawk Capital Management, LLC (the “Sub-Advisor”) is the sub-advisor for the Buffalo Jayhawk China Fund only. Together with the Advisor, the Sub-Advisor is responsible for implementing the Buffalo Jayhawk China Fund’s investment program, and is responsible for the day-to-day investment activity of the Fund. The Sub-Advisor was founded in 1995. In addition to managing and advising the Buffalo Jayhawk China Fund, the Sub-Advisor provides investment advisory services to private investment funds, which may also invest in Chinese companies, similar to the Fund. The Sub-Advisor is located at 5410 West 61st Place, Suite 100, Mission, KS 66205.
KCM has retained USBFS, to provide various administrative and accounting services necessary for the operations of the Funds. Services provided by USBFS, pursuant to the Board-approved agreement between the parties, include: facilitating general Fund management; handling disbursement of Director/Trustee annual compensation for the Funds, monitoring Fund compliance with federal and state regulations; supervising the maintenance of each Fund’s general ledger, the preparation of each Fund’s financial statements, the determination of the net asset value of each Fund’s assets and the declaration and payment of dividends and other distributions to shareholders; and preparing specified financial, tax and other reports. KCM has also retained USBFS to serve as the transfer agent for each Fund. As the Funds’ transfer agent, USBFS performs shareholder service functions such as maintaining the records of each shareholder’s account, answering shareholders’ inquiries concerning their accounts, processing purchases and redemptions of each Fund’s shares, acting as dividend and distribution disbursing agent and performing other accounting and shareholder service functions.
KCM has retained USBFS, to provide various administrative and accounting services necessary for the operations of the Funds. Services provided by USBFS include: facilitating general Fund management; monitoring Fund compliance with federal and state regulations; supervising the maintenance of each Fund’s general ledger, the preparation of each Fund’s financial statements, the determination of the net asset value of each Fund’s assets and the declaration and payment of dividends and other distributions to shareholders; and preparing specified financial, tax and other reports. KCM has also retained USBFS to serve as the transfer agent for each Fund. As the Funds’ transfer agent, USBFS performs shareholder service functions such as maintaining the records of each shareholder’s account, answering shareholders’ inquiries concerning their accounts, processing purchases and redemptions of each Fund’s shares, acting as dividend and distribution disbursing agent and performing other accounting and shareholder service functions.
Quasar is the principal underwriter for the shares of the Funds. Quasar is a registered broker-dealer and member of FINRA, and is an affiliate of USBFS.
U.S. Bank, National Association, an affiliate of USBFS (the “Custodian”), is the custodian of the assets of the Funds pursuant to custody agreements between the Custodian and the Maryland Funds and the Trust, whereby the Custodian charges fees on a transactional basis plus out-of-pocket expenses. The Custodian’s address is 1555 N. River Center Drive, Suite 302, Milwaukee, WI 53212. The Custodian does not participate in decisions relating to the purchase and sale of securities by the Funds. The Custodian and its affiliates may participate in revenue sharing arrangements with service providers of mutual funds in which the Funds may invest.
| C. | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Funds’ financial statements are audited by an independent registered public accounting firm approved by the Directors each year, and in years in which an annual meeting is held the Directors may submit their selection of an independent registered public accounting firm to the shareholders for ratification. Ernst & Young LLP (“Ernst & Young”), One Kansas City Place, 1200 Main Street, Suite 2000, Kansas City, Missouri 64105 is the Funds’ current independent registered public accounting firm.
Audit Fees. For the fiscal years ended March 31, 2007 and March 31, 2008 , Ernst & Young received $138,050 and $167,018 , respectively, for professional services rendered for the audit of the Funds’ annual financial statements or services that are normally provided in connection with statutory and regulatory filings.
Audit-Related Fees. For the fiscal years ended March 31, 2007 and March 31, 2008 , Ernst & Young received $4,300 and $10,000 , respectively, for a review of the Funds’ semi-annual financial statements.
Tax Fees. For the fiscal years ended March 31, 2007 and March 31, 2008 , Ernst & Young received $19,100 and $22,800 , respectively, for professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees. For the fiscal years ended March 31, 2007 and March 31, 2008 , Ernst & Young did not bill the Maryland Funds or the Trust for products and services other than the services reported above.
Audit Committee Pre-Approval Policies and Procedures. The Audit Committee has adopted policies and procedures with regard to the pre-approval of services. The Audit Committee shall pre-approve and recommend to the Boards: (i) the selection, retention or termination of auditors and, in connection therewith, to evaluate the independence of the auditors, including whether the auditors provide any consulting services to the Advisor, and to receive the auditors’ specific representations as to their independence; (ii) the proposed scope of audit services and the related fees; (iii) the scope of all non-audit services to be provided by the Funds’ independent registered public accounting firm to the Funds; and (iv) the scope of non-audit services relating directly to the operation and financial reporting of the Funds provided to the Advisor or to any entity that controls, is controlled by or is under common control with the Advisor providing ongoing services to the Funds; when, without such pre-approval, the auditor would not be independent of the Funds under applicable federal securities laws, rules or auditing standards.
Non-Audit Fees. The aggregate non-audit fees billed by Ernst & Young to the Funds for audit-related and tax services were $23,400 and $22,800 for the 2007 and 2008 fiscal years, respectively.
The Audit Committee has considered whether the provision of non-audit services that were rendered to the Advisor and any affiliate of the Advisor that provides services to the Funds that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X as compatible with maintaining Ernst & Young’s independence.
The Maryland Funds’ Articles of Incorporation provide that to the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law (the “MGCL”), no director or officer of a Maryland Fund will be liable to the Maryland Fund or its shareholders for money damages. This limited liability provision applies to events occurring at the time a person serves as a director or officer of a Maryland Fund and may be relied upon even if such person is no longer serving as a director or officer at the time of any proceeding in which liability is asserted.
The Maryland Funds’ Articles of Incorporation also provide that the Maryland Funds will indemnify and advance expenses to its currently acting and its former directors to the fullest extent permitted by the MGCL. The Maryland Funds will indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Board of Directors may make further provisions for indemnification of directors, officers, employees and agents to the fullest extent permitted by the MGCL. However, the Maryland Funds will not indemnify any director or officer of the Maryland Funds against any liability to the Maryland Fund or its shareholders arising from such person’s willful misfeasance, bad faith, gross negligence or reckless disregard of the duties their office.
The Trust’s Declaration of Trust provides that to the fullest extent that limitations on the liability of trustees and officers are permitted by the Delaware Business Trust Act, officers and trustees shall not be responsible or liable in any event for any act or omission of: any agent or employee of the Trust; any investment advisor or principal underwriter of the Trust; or with respect to each trustee and officer, the act or omission of any other trustee or officer, respectively.
The Trust will indemnify the trustees and officers against any and all claims rising out of or related to such person’s performance of his or her duties as an officer or trustee of the Trust. This limitation on liability applies to events occurring at the time such person serves as a trustee or officer of the Trust, regardless of whether or not such person is serving as a trustee or officer at the time of any proceeding in which liability is asserted. However, the Trust will not indemnify any trustee or officer of the Trust against any liability to the Trust or its shareholders arising from such person’s willful misfeasance, bad faith, gross negligence or reckless disregard of the duties of their office.
The Trust’s Declaration of Trust also provides the trustees and officers will not be held personally liable for any note, bond, contract, instrument, certificate, undertaking or act whatsoever issued, executed or done by or on behalf of the Trust by a trustee or officer in his or her capacity as such, except as described in the last sentence of the first paragraph of Section 2 of Article VII.
If the shareholders of the Maryland Funds approve the Reorganization, the indemnification provisions that apply to the Trust will apply to the New Funds.
| E. | REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS |
The audited financial statements of each of the Buffalo Funds, which are contained in the March 31, 2008 Annual Report to Shareholders, are incorporated herein by reference. Unaudited reports to shareholders will be published at least semi-annually. You may obtain a free copy of these documents by calling or mailing the Funds, or by accessing the Funds’ website, using the information below:
1-800-49-BUFFALO
(1-800-492-8332)
Buffalo Funds
c/o U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
www.buffalofunds.com
Copies of the Funds’ Annual and Semi-Annual Reports to Shareholders and other information about the Funds may also be obtained by visiting the Securities and Exchange Commission’s Public Reference Room in Washington, DC (202-551-8090) or by accessing the EDGAR database on the Commission’s Internet site at http://www.sec.gov. Copies of this information also may be obtained, upon payment of a duplicating fee, by writing to the Commission’s Public Reference Section, Washington, D.C. 20549-0102 or by sending an e-mail request to: publicinfo@sec.gov.
| F. | SHAREHOLDER COMMUNICATIONS |
Shareholders may communicate with a Board of Directors/Trustees by sending communications to the Secretary of the Funds, Rachel A. Spearo c/o U.S. Bancorp Fund Services, LLC, 777 East Wisconsin Avenue, 4th Floor, Milwaukee, Wisconsin 53202.
| G. | VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS |
Shareholders of a Fund as of the close of business on June 3 , 2008 (the “Record Date”) will be entitled to be present and vote at the Special Meeting for each Proposal applicable to that Fund. As of that date, the following numbers of shares were outstanding for the Funds:
| Fund | Shares Outstanding and Entitled to Vote (unaudited) |
| Buffalo Balanced Fund, Inc. | |
| Buffalo High Yield Fund, Inc. | |
| Buffalo International Fund | |
| Buffalo Jayhawk China Fund | |
| Buffalo Large Cap Fund, Inc. | |
| Buffalo Micro Cap Fund | |
| Buffalo Mid Cap Fund | |
| Buffalo Science & Technology Fund | |
| Buffalo Small Cap Fund, Inc. | |
| Buffalo USA Global Fund, Inc. | |
As of the Record Date, the Funds’ shareholders of record and/or beneficial owners (to the Trust’s knowledge) who owned five percent or more of the Funds’ outstanding shares are set forth below:
Buffalo Balanced Fund, Inc.
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Charles Schwab & Co. Inc. 101 Montgomery St. San Francisco, CA 94104 | | | |
National Financial Services Corp One World Financial Center 200 Liberty St. MF Dept. 5th Fl New York, NY 10281 | | 23.43% | |
Great Plains Trust Co. 7700 Shawnee Mission PKWY Ste. 101 Overland Park, KS 66202 | | 10.18% | |
UMBSC & Co. A/C 110290 P.O. Box 419260 Kansas City, MO 64141 | | 2.90% | |
Buffalo High Yield Fund, Inc.
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Charles Schwab & Co. Inc. 101 Montgomery St. San Francisco, CA 94104 | | 24.21% | |
National Financial Services Corp For Benefit of NFS FMTC SEP IRA FOB Bennie B Batson One World Financial Center 200 Liberty St. MF Dept. 5th Fl New York, NY 10281 | | 10.69% | |
Great Plains Trust Co. 7700 Shawnee Mission PKWY Ste. 101 Overland Park, KS 66202 | | 13.55% | |
| | | | |
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
UMBSC & Co. A/C 110290 P.O. Box 419260 Kansas City, MO 64141 | | 20.74% | |
Ameritrade Inc. P.O. Box 2226 Omaha, NE 68103 | | 6.56% | |
Buffalo International Fund
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Great Plains Trust Co. 7700 Shawnee Mission PKWY Ste. 101 Overland Park, KS 66202 | | 41.71% | |
UMBSC & Co. A/C 110290 P.O. Box 419260 Kansas City, MO 64141 | | 42.01% | |
Buffalo Jayhawk China Fund
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
National Financial Services Corp One World Financial Center 200 Liberty St. MF Dept. 5th Fl New York, NY 10281 | | 7.42% | |
Great Plains Trust Co. 7700 Shawnee Mission PKWY Ste. 101 Overland Park, KS 66202 | | 23.38% | |
UMBSC & Co. A/C 110290 P.O. Box 419260 Kansas City, MO 64141 | | 31.65% | |
Buffalo Large Cap Fund, Inc.
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Charles Schwab & Co. Inc. 101 Montgomery St. San Francisco, CA 94104 | | 15.01% | |
Great Plains Trust Co. 7700 Shawnee Mission PKWY Ste. 101 Overland Park, KS 66202 | | 18.13% | |
UMBSC & Co. A/C 110290 P.O. Box 419260 Kansas City, MO 64141 | | 10.79% | |
Buffalo Micro Cap Fund
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Vermont Western Assurance Inc 84 Pine St. 600 Financial Plaza Burlington, VT 05401 | | 12.11% | |
Great Plains Trust Co. 7700 Shawnee Mission PKWY Ste. 101 Overland Park, KS 66202 | | 14.29% | |
UMBSC & Co. A/C 110290 P.O. Box 419260 Kansas City, MO 64141 | | 6.73% | |
Buffalo Mid Cap Fund
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Charles Schwab & Co. Inc. 101 Montgomery St. San Francisco, CA 94104 | | 27.71% | |
National Financial Services Corp For Benefit of Victor Von Althan One World Financial Center 200 Liberty St. MF Dept. 5th Fl New York, NY 10281 | | 17.85% | |
Perching LLC P.O. Box 2052 Jersey City, NJ 07303 | | 5.80% | |
Mitra & Co. C/O M&I Trust Co., NA 11270 W Park Pl Ste. 400 PPW-08-WM Attn: Mutual Funds Milwaukee, WI 53224 | | 10.72% | |
Buffalo Science & Technology Fund
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Charles Schwab & Co. Inc. 101 Montgomery St. San Francisco, CA 94104 | | 43.66% | |
National Financial Services Corp One World Financial Center 200 Liberty St. MF Dept. 5th Fl New York, NY 10281 | | 26.95% | |
Buffalo Small Cap Fund, Inc.
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Charles Schwab & Co. Inc. 101 Montgomery St. San Francisco, CA 94104 | | 31.67% | |
National Financial Services Corp One World Financial Center 200 Liberty St. MF Dept. 5th Fl New York, NY 10281 | | 12.73% | |
Buffalo USA Global Fund, Inc.
| Name and Address | No. of Shares Owned | % of Shares | Type of Ownership |
Charles Schwab & Co. Inc. 101 Montgomery St. San Francisco, CA 94104 | | 56.37% | |
Great Plains Trust Co. 7700 Shawnee Mission PKWY Ste. 101 Overland Park, KS 66202 | | 8.35% | |
UMBSC & Co. A/C 110290 P.O. Box 419260 Kansas City, MO 64141 | | 6.06% | |
| H. | MANAGEMENT OWNERSHIP OF THE FUNDS |
As of December 31, 2008 , the Directors/Trustees had the following interests in the Buffalo Funds’ securities:
| NAME OF DIRECTOR/TRUSTEE | DOLLAR RANGE OF EQUITY SECURITIES IN EACH FUND | AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES OVERSEEN BY DIRECTOR/TRUSTEE IN FAMILY OF INVESTMENT COMPANIES |
| INTERESTED DIRECTORS | | |
| Joseph C. Neuberger | Balanced: High Yield: International: Jayhawk China: Large Cap: Micro Cap: Mid Cap: Science & Tech: Small Cap: USA Global: | None None None None None None None None None None | None |
Kent W. Gasaway | Balanced: High Yield: International: Jayhawk China: Large Cap: Micro Cap: Mid Cap: Science & Tech: Small Cap: USA Global: | Above $100,000 Above $100,000 $50,001-$100,000 Above $100,000 Above $100,000 Above $100,000 Above $100,000 Above $100,000 Above $100,000 Above $100,000 | Above $100,000 |
| NAME OF DIRECTOR/TRUSTEE | DOLLAR RANGE OF EQUITY SECURITIES IN EACH FUND | AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES OVERSEEN BY DIRECTOR/TRUSTEE IN FAMILY OF INVESTMENT COMPANIES |
| INDEPENDENT DIRECTORS | | |
Thomas S. Case | Balanced: High Yield: International: Jayhawk China: Large Cap: Micro Cap: Mid Cap: Science & Tech: Small Cap: USA Global: | $1-$10,000 $1-$10,000 None None $1-$10,000 None $10,001-$50,000 None None $1-$10,000 | $10,001-$50,000 |
Gene M. Betts | Balanced: High Yield: International: Jayhawk China: Large Cap: Micro Cap: Mid Cap: Science & Tech: Small Cap: USA Global: | None $50,000-$100,000 None None None None None None None None | Above $100,000 |
J. Gary Gradinger | Balanced: High Yield: International: Jayhawk China: Large Cap: Micro Cap: Mid Cap: Science & Tech: Small Cap: USA Global: | None None None None None None None None None None | Above $100,000 |
Philip J. Kennedy | Balanced: High Yield: International: Jayhawk China: Large Cap: Micro Cap: Mid Cap: Science & Tech: Small Cap: USA Global: | Above $100,000 $1-$10,000 None $10,001-$50,000 $1-$10,000 $1-$10,000 $10,001-$50,000 $1-$10,000 $10,001-$50,000 $1-$10,000 | Above $100,000 |
As of June 3 , 2008, officers and Directors/Trustees owned 29,663.320 shares of common stock of the Buffalo Balanced Fund (0. 19 %), 21,723.719 shares of common stock of the Buffalo High Yield Fund (0. 16 %), 5,000.000 shares of common stock of the Buffalo International Fund (0.21%), 29,391.667 shares of common stock of the Buffalo Jayhawk China Fund (0. 96 %), 7,087.967 shares of common stock of the Buffalo Large Cap Fund (0. 36 %), 22,070.305 shares of common stock of the Buffalo Micro Cap Fund (0. 70 %), 21,229.673 shares of common stock of the Buffalo Mid Cap Fund (0. 08 %), 17,794.645 shares of common stock of the Buffalo Science & Technology Fund (0.14%), 18,933.459 shares of common stock of the Buffalo Small Cap Fund (0. 03 %) and 13,987.657 shares of common stock of the Buffalo USA Global Fund (0. 27 %).
In addition, as of December 31, 2008 , neither the Directors/Trustees who are not “interested persons” of the Funds, as that term is defined in the 1940 Act, nor members of their immediate family, owned securities beneficially or of record in the Advisor, the Distributor or any affiliate of the Advisor or the Distributor. Accordingly, as of December 31, 2008 , neither the Directors/Trustees who are not “interested persons” of the Funds nor members of their immediate family, have a direct or indirect interest, the value of which exceeds $120,000, in the Advisor, the Distributor or any of their affiliates. In addition, as of December 31, 2008 , neither the Directors/Trustees who are not “interested persons” of the Funds nor members of their immediate family had conducted any transactions (or series of transactions) in which the amount involved exceeds $120,000 and to which the Advisor, the Distributor or their affiliates were parties.
There are no legal matters currently pending with respect to the Funds as of the date of this Prospectus/Proxy Statement.
Certain legal matters in connection with the tax consequences of the Reorganization will be passed upon by Godfrey & Kahn, S.C.
The financial statements of the Funds for the fiscal year ended March 31, 2008 , contained in the Funds’ 2008 Annual Report to Shareholders, have been audited by Ernst & Young LLP, the independent registered public accounting firm for the Funds, which are incorporated herein by reference and have been so incorporated in reliance upon the reports of such firm given their authority as experts in accounting and auditing.
| K. | INFORMATION ABOUT VOTING AND THE SPECIAL MEETING |
Record Date
Only shareholders of record of each Fund as of the close of business on the Record Date ( June 3 , 2008) will be entitled to notice of, and to vote at, the Special Meeting. Each share owned of record of a Fund on the Record Date is entitled to one vote on each matter presented at the Special Meeting with respect to that Fund, with proportionate votes for fractional shares.
Solicitation of Proxies
This Prospectus/Proxy Statement is being sent to you in connection with the solicitation of proxies by the Boards of Directors/Trustees for use at the Special Meeting. The Funds expect that the solicitation will be primarily by mail, but also may include telephone or other means. Broadridge Financial Solutions, Inc., a proxy solicitation firm, has been engaged to solicit proxies in connection with the Special Meeting. The cost of the proxy solicitation firm is estimated to be approximately $140,000 . The solicitation may also include facsimile, Internet, telegraph, or oral communications by certain employees of the Advisor or USBFS, who will not be paid for these services. The Advisor and USBFS have agreed to share all ordinary costs of the Special Meeting, including legal costs and the cost of the solicitation of proxies, including the cost of the proxy solicitation firm.
Right of Revocation
Any shareholder giving a proxy may revoke it before it is voted at the Special Meeting, either by providing written notice to the Maryland Funds/Trust, by submission of a later-dated, duly executed proxy or by voting in person at the Special Meeting. A prior proxy can also be revoked by proxy voting again through the website or toll-free number listed in the enclosed Voting Instructions. If not so revoked, the votes will be cast at the Special Meeting, and any postponements or adjournments thereof. Attendance by a shareholder at the Special Meeting does not, by itself, revoke a proxy.
Voting Information
With regard to the Buffalo Balanced, Buffalo High Yield, Buffalo Large Cap, Buffalo Small Cap and Buffalo USA Global Funds, a majority of the outstanding shares of the Fund entitled to vote in person or by proxy as of the Record Date for the Special Meeting will constitute a quorum. With regard to the Buffalo International, Buffalo Jayhawk China, Buffalo Micro Cap, Buffalo Mid Cap and Buffalo Science & Technology Funds, for Proposal 2, 33 1/3% of shares present in person or represented by proxy will constitute a quorum, and for Proposals 3, 4 and 5 more than 50% of the outstanding shares of a Fund will constitute a quorum.
All shares represented by each properly signed proxy received before the meeting will be voted at the Special Meeting. Proxies may be voted by mail or by other instrument executed in writing (including electronic, telephonic, computerized or other alternatives to the execution of a written instrument) or by facsimile transmission, or by Internet. If a shareholder specifies how the proxy is to be voted on any business properly to come before the Special Meeting, it will be voted in accordance with instruction given. If no choice is indicated on the proxy, it will be voted “FOR” approval of the applicable Proposal. If any other matters come before the Special Meeting, proxies will be voted by the persons named as proxies in accordance with their best judgment.
With respect to shares of a Fund held in individual retirement accounts (including Traditional and Roth IRAs), the IRA Custodian will vote those shares for which it has received instructions from shareholders only in accordance with such instructions. If IRA shareholders do not vote their shares, the IRA Custodian will vote their shares for them in the same proportion as other shareholders have voted.
If a quorum of shareholders of a Fund is not present at the Special Meeting, or if a quorum is present but sufficient votes to approve the proposal described in this Prospectus/Proxy Statement with respect to a Fund are not received, the persons named as proxies may, but are under no obligation to, propose one or more adjournments of the Special Meeting of such Fund to permit further solicitation of proxies. Any business that might have been transacted at the Special Meeting with respect to a Fund may be transacted at any such adjourned session(s) at which a quorum is present. The Special Meeting with respect to a Fund may be adjourned from time to time by a majority of the votes of the Fund properly cast upon the question of adjourning the Special Meeting of such Fund to another date and time, whether or not a quorum is present, and the Special Meeting of the Fund may be held as adjourned without further notice. The persons named in the proxy will vote in favor of such adjournment those shares that they are entitled to vote if such adjournment is necessary to obtain a quorum or to obtain a favorable vote on the proposal. The persons named in the proxy will vote against adjournment those shares that they are entitled to vote if the shareholder proxies instruct persons to vote against the proposal.
All proxies voted, including abstentions and broker non-votes (where the underlying holder has not voted and the broker does not have discretionary authority to vote the shares), will be counted toward establishing a quorum. Approval of a Proposal will occur only if a sufficient number of votes are cast “FOR” that proposal. If shareholders of a Fund do not approve a Proposal, the Fund’s Board of Directors/Trustees may take any further action as it deems to be in the best interest of the Fund and its shareholders. Abstentions and broker non-votes do not constitute a vote “FOR” and effectively result in a vote “AGAINST.”
| L. | OTHER BUSINESS AND NEXT MEETING OF SHAREHOLDERS |
The Board knows of no other business to be brought before the Special Meeting. If any other matters come before the Special Meeting, the Board intends that proxies that do not contain specific restrictions to the contrary will be voted on those matters in accordance with the judgment of the persons named in the enclosed form of proxy.
The Funds are not required and do not intend to hold annual or other periodic meetings of shareholders except as required by the 1940 Act. By observing this policy, the Funds seek to avoid the expenses customarily incurred in the preparation of proxy material and the holding of shareholder meetings, as well as the related expenditure of staff time.
By Order of the Boards of Directors/Trustees of
Buffalo Balanced Fund, Inc.
Buffalo High Yield Fund, Inc.
Buffalo Large Cap Fund, Inc.
Buffalo Small Cap Fund, Inc.
Buffalo USA Global Fund, Inc.
Buffalo Funds
/s/ Rachel A. Spearo
Rachel A. Spearo, Secretary
June 9 , 2008
VIII. APPENDIX I – Form of Agreement and Plan of Reorganization
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made as of this __th day of ________, 2008, by and among [Corporation], a Maryland Corporation (the “Acquired Fund”), Buffalo Funds, a Delaware statutory trust (the “Trust”), for and on behalf of the [New Fund] (the “Acquiring Fund”), a series of the Trust, Kornitzer Capital Management, Inc. (the “Advisor”), a Kansas corporation, and U.S. Bancorp Fund Services, LLC, a Wisconsin limited liability company (“USBFS”), for certain requirements as set forth in paragraph 9, below, in the case of the Advisor and USBFS.
| Acquired Fund | Acquiring Fund |
| [Fund] | New Fund |
WHEREAS, in accordance with the terms and conditions set forth in this Agreement, the parties desire that the Acquiring Fund acquire assets and assume the liabilities of the Acquired Fund, in exchange for shares of the Acquiring Fund (“Acquiring Fund Shares”), and that these Acquiring Fund Shares be distributed immediately after the Closing, as defined in this Agreement, by the Acquired Fund to its shareholders in liquidation of the Acquired Fund;
WHEREAS, the Board of Directors of the Acquired Fund, including a majority of its Directors who are not “interested persons” of the Acquired Fund, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), has determined that the Reorganization (as such term is defined in Section 1.1 below) is in the best interests of the shareholders of the Acquired Fund, and that their interests would not be diluted as a result of the transactions contemplated thereby; and
WHEREAS, this Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”);
NOW THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound hereby, covenant and agree as follows:
| 1. | REORGANIZATION OF ACQUIRED FUND |
1.1 Subject to the terms and conditions herein set forth, and on the basis of the representations and warranties contained herein, the Acquired Fund shall assign, deliver and otherwise transfer its assets as set forth in paragraph 1.2 (the “Fund Assets”) to the Acquiring Fund and the Acquiring Fund shall assume the Acquired Fund’s liabilities as set forth in paragraph 1.3 (the “Liabilities”). The Acquiring Fund shall, as consideration therefor, on the Closing Date (as defined in paragraph 3.1), deliver to the Acquired Fund full and fractional Acquiring Fund Shares, the number of which shall be determined by dividing (a) the value of the Acquired Fund’s Assets, net of the Acquired Fund’s Liabilities, computed in the manner and as of the time and date set forth in paragraph 2.1, by (b) the net asset value of one share of the Acquiring Fund computed in the manner and as of the time and date set forth in paragraph 2.2. Such transfer, delivery and assumption shall take place at the closing provided for in paragraph 3.1 (hereinafter sometimes referred to as the “Closing”). Immediately following the Closing, the Acquired Fund shall distribute the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation of the Acquired Fund as provided in paragraph 1.5 hereof. Such transactions are hereinafter sometimes collectively referred to as the “Reorganization.”
1.2 (a) With respect to the Acquired Fund, the Fund Assets shall consist of all property and assets of any nature whatsoever, including, without limitation, all cash, cash equivalents, securities, instruments, claims and receivables (including dividend and interest receivables) owned by the Acquired Fund, and any prepaid expenses shown as an asset on the Acquired Fund’s books on the Closing Date.
(b) Before the Closing Date, the Acquired Fund will provide the Acquiring Fund with a schedule of its assets and known liabilities, and the Acquiring Fund will provide the Acquired Fund with a copy of the current investment objective and policies applicable to the Acquiring Fund. The Acquired Fund reserves the right to sell or otherwise dispose of any of the securities or other assets shown on the list of the Acquired Fund’s Fund Assets before the Closing Date but will not, without the prior approval of the Acquiring Fund, acquire any additional securities other than securities which the Acquiring Fund is permitted to purchase in accordance with its stated investment objective and policies.
1.3 The Acquired Fund will endeavor to discharge all of its known liabilities and obligations prior to the Closing Date. The Acquiring Fund will assume all liabilities and obligations allocated or attributable to the Acquired Fund, whether absolute or contingent, known or unknown, accrued or unaccrued (the “Liabilities”) (including contingent reimbursement to the Advisor of fees waived or expenses reimbursed under an expense limitation agreement.)
1.4 Immediately upon delivery of the one share of the Acquiring Fund to the Acquired Fund pursuant to paragraph 8.6 of this Agreement, the Acquired Fund is authorized, as the then initial shareholder of the Acquiring Fund, to approve the investment advisory agreement between the Advisor and the Trust for and on behalf of the Acquiring Fund, the form of which is included in the "proxy materials," as hereinafter defined, and the registration statement on Form N-14 relating to the Acquiring Fund Shares to be distributed pursuant to this Agreement.
1.5 Immediately following the Closing, the Acquired Fund will distribute the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1 pro rata to its shareholders of record determined as of the close of business on the Closing Date (“Acquired Fund Investors”) in complete liquidation of the Acquired Fund. That distribution will be accomplished by an instruction, signed by an appropriate officer of the Acquired Fund, to transfer the Acquiring Fund Shares then credited to the Acquired Fund’s account on the books of the Acquiring Fund to open accounts on the books of the Acquiring Fund established and maintained by the Acquiring Fund’s transfer agent in the names of record of the Acquired Fund Investors and representing the number of shares of the Acquiring Fund due such Acquired Fund Investor. All issued and outstanding shares of the Acquired Fund will be cancelled simultaneously therewith on the Acquired Fund’s books, and any outstanding share certificates representing interests in the Acquired Fund will represent only the right to receive such number of Acquiring Fund Shares after the Closing as determined in accordance with paragraph 1.1.
1.6 Following the transfer of Fund Assets by the Acquired Fund to the Acquiring Fund, the assumption of the Acquired Fund’s Liabilities by the Acquiring Fund, and the distribution by the Acquired Fund of the Acquiring Fund Shares received by it pursuant to paragraph 1.5, the Acquired Fund shall terminate its qualification, classification and registration with all appropriate federal and state agencies. Any reporting or other responsibility of the Acquired Fund are and shall remain the responsibility of the Acquired Fund up to and including the date on which the Acquired Fund is terminated and deregistered, subject to any reporting or other obligations described in paragraph 4.8.
2.1 The value of the Acquired Fund’s Fund Assets shall be the value of those assets computed as of the time at which its net asset value is calculated pursuant to the valuation procedures set forth in the Acquired Fund’s then-current Prospectus and Statement of Additional Information on the business day immediately preceding the Closing Date, or at such time on such earlier or later date as may mutually be agreed upon in writing among the parties hereto (such time and date being herein called the “Applicable Valuation Date”).
2.2 The net asset value of each share of the Acquired Fund shall be the net asset value per share computed on the Applicable Valuation Date, using the market valuation procedures set forth in the Acquired Fund’s then-current Prospectus and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2 shall be made by the Acquired Fund’s administrator in accordance with its regular practice as pricing agent. The Acquiring Fund shall cause the administrator to deliver a copy of its valuation report to the Acquired Fund at the Closing.
| 3. | CLOSING(S) AND CLOSING DATE |
3.1 The Closing for the Reorganization shall occur on or before June 30, 2008, and/or on such other date(s) as may be mutually agreed upon in writing by the parties hereto (each, a “Closing Date”). The Closing(s) shall be held at the offices of USBFS, 615 East Michigan Street, 4th Floor, Milwaukee, Wisconsin 53202, or at such other location as is mutually agreeable to the parties hereto. All acts taking place at the Closing(s) shall be deemed to take place simultaneously as of 12:00 p.m., Central time on the Closing Date unless otherwise provided.
3.2 The Acquiring Fund’s custodian shall deliver at the Closing evidence that: (a) the Acquired Fund’s Assets have been delivered in proper form to the Acquiring Fund on the Closing Date and (b) all necessary taxes including all applicable federal and state stock transfer stamps, if any, have been paid, or provision for payment shall have been made, by the Acquired Fund in conjunction with the delivery of portfolio securities.
3.3 Notwithstanding anything herein to the contrary, if on the Applicable Valuation Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on such exchange or elsewhere shall be disrupted so that, in the judgment of the Acquiring Fund, accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Applicable Valuation Date shall be postponed until the first business day after the day when trading shall have been fully resumed without restriction or disruption and reporting shall have been restored.
| 4. | COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED FUND |
4.1 With respect to the Acquired Fund, the Acquired Fund has called or will call a meeting of the Acquired Fund’s shareholders to consider and act upon this Agreement and to take all other actions reasonably necessary to obtain the approval of the transactions contemplated herein, including approval for the Acquired Fund’s liquidating distribution of Acquiring Fund Shares contemplated hereby, and for the Acquired Fund to terminate its qualification, classification and registration if requisite approvals are obtained with respect to the Acquired Fund. The Acquired Fund shall prepare the notice of meeting, form of proxy and proxy statement (collectively, “Proxy Materials”) to be used in connection with that meeting.
4.2 The Acquired Fund covenants that the corresponding Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement.
4.3 The Acquired Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of shares of the Acquired Fund.
4.4 Subject to the provisions hereof, the Acquired Fund and the Trust, each on its own behalf and the Trust on behalf of the Acquiring Fund, will take, or cause to be taken, all actions, and do, or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated herein.
4.5 The Acquired Fund shall furnish to the Acquiring Fund on the Closing Date, a final statement of the total amount of the Acquired Fund’s assets and liabilities as of the Closing Date.
4.6 The Trust, on behalf of the Acquiring Fund, has prepared and filed, or will prepare and file, with the Securities and Exchange Commission (the “SEC”) a registration statement on Form N-14, and the current prospectus and statement of additional information of the Acquiring Fund, under the Securities Act of 1933, as amended (the “1933 Act”), relating to the Acquiring Fund Shares (the “Registration Statement”). The Acquired Fund has provided or will provide the Acquiring Fund with the Proxy Materials for inclusion in the Registration Statement, prepared in accordance with paragraph 4.1, and with such other information and documents relating to the Acquired Fund as are requested by the Acquiring Fund and as are reasonably necessary for the preparation of the Registration Statement.
4.7 As soon after the Closing Date as is reasonably practicable, the Acquired Fund: (a) shall prepare and file all federal and other tax returns and reports of the Acquired Fund required by law to be filed with respect to all periods ending on/or before the Closing Date but not theretofore filed and (b) shall pay all federal and other taxes shown as due thereon and/or all federal and other taxes that were unpaid as of the Closing Date.
4.8 Following the transfer of Fund Assets by the Acquired Fund to the Acquiring Fund and the assumption of the Liabilities of the Acquired Fund in exchange for the Acquiring Fund Shares as contemplated herein, the Acquired Fund will file any final regulatory reports, including but not limited to any Form N-CSR filing with respect to the Acquired Fund, promptly after the Closing Date and also will take all other steps as are necessary and proper to effect the termination or declassification of the Acquired Fund in accordance with the laws of the state of Maryland and other applicable requirements, including the filing of Form N-8F with the SEC after all other applicable filings for the Acquired Fund have been completed.
| 5. | REPRESENTATIONS AND WARRANTIES |
5.1 The Trust, on behalf of the Acquiring Fund, represents and warrants to the Acquired Fund as follows:
(a) The Trust was duly created pursuant to its Agreement and Declaration of Trust by its trustees for the purpose of acting as an open-end, management investment company under the Investment Company Act of 1940 (the “1940 Act”) and is validly existing under the laws of the State of Delaware, and its Declaration of Trust directs its trustees to manage the affairs of the Trust and grants them all powers necessary or desirable to carry out such responsibility, including administering the Trust’s business as currently conducted by the Trust and as described in the current registration statement of the Trust. The Trust is registered as an investment company classified as an open-end, management investment company under the 1940 Act and its registration with the SEC as an investment company is in full force and effect;
(b) The Registration Statement, including the current prospectus and statement of additional information of the Acquiring Fund, conforms or will conform, at all times up to and including the Closing Date, in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the regulations thereunder and does not include and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(c) The Acquiring Fund is not in breach or violation of, and the execution, delivery and performance of this Agreement by the Trust for itself and on behalf of the Acquiring Fund does not and will not (i) violate the Trust’s Declaration of Trust or By-Laws, or (ii) result in a breach of, violate, or constitute a default under, any material agreement or material instrument to which the Trust is a party or by which its properties or assets are bound;
(d) Except as previously disclosed in writing to the Acquired Fund, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to the Trust’s knowledge threatened against the Trust or its business, the Acquiring Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect the Trust or the Acquiring Fund’s financial condition or the conduct of their business. The Trust knows of no facts that might form the basis for the institution of any such proceeding or investigation, and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions contemplated herein;
(e) All issued and outstanding shares, including shares to be issued in connection with the Reorganization, of the Acquiring Fund will, as of the Closing Date, be duly authorized and validly issued and outstanding, fully paid and non-assessable, free and clear of all liens, pledges, security interests, charges or other encumbrances. The shares of the Acquiring Fund issued and outstanding before the Closing Date were offered and sold in compliance with the applicable registration requirements, or exemptions therefrom, of the 1933 Act, and all applicable state securities laws, and the regulations thereunder, and the Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares nor is there outstanding any security convertible into any of its shares;
(f) The execution, delivery and performance of this Agreement on behalf of the Acquiring Fund will have been duly authorized prior to the Closing Date by all necessary action on the part of the Trust, its trustees and the Acquiring Fund, and this Agreement will constitute a valid and binding obligation of the Trust and the Acquiring Fund enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors’ rights, and to general equity principles;
(g) On the effective date of the Registration Statement, at the time of the meeting of the Acquired Fund’s shareholders and on the Closing Date, any written information furnished by the Trust with respect to the Acquiring Fund for use in the Proxy Materials, the Registration Statement or any other materials provided in connection with the Reorganization does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the information provided not misleading; and
(h) To the knowledge of the Acquiring Fund, no governmental consents, approvals, authorizations or filings are required under the 1933 Act, the Securities Exchange Act of 1934 (the “1934 Act”), the 1940 Act or Delaware law for the execution of this Agreement by the Trust, for itself and on behalf of the Acquiring Fund, or the performance of the Agreement by the Trust for itself and on behalf of the Acquiring Fund, except for such consents, approvals, authorizations and filings as have been contemplated by this Agreement, and except for such consents, approvals, authorizations and filings as may be required after the Closing Date.
5.2 The Acquired Fund represents and warrants to the Acquiring Fund as follows:
(a) The Acquired Fund was duly created pursuant to its Articles of Incorporation by its incorporator for the purpose of acting as an open-end, management investment company under the 1940 Act and is validly existing under the laws of the State of Maryland, and its Articles of Incorporation directs its directors to manage the affairs of the Acquired Fund and grants them all powers necessary or desirable to carry out such responsibility, including administering the Acquired Fund’s business as currently conducted by the Acquired Fund and as described in the current prospectus of the Acquired Fund. The Acquired Fund is registered as an investment company classified as an open-end, management investment company under the 1940 Act and its registration with the SEC as an investment company is in full force and effect.
(b) All of the issued and outstanding shares of the Acquired Fund have been offered and sold in compliance in all material respects with applicable registration or notice requirements of the 1933 Act and state securities laws. All issued and outstanding shares of the Acquired Fund are, and on the Closing Date will be, duly authorized and validly issued and outstanding, and fully paid and non-assessable, and the Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of their shares, nor is there outstanding any security convertible into any of their shares (other than exchange privileges set forth in the Registration Statement);
(c) The Registration Statement, including the current prospectus and statement of additional information of the Acquired Fund, conforms or will conform, at all times up to and including the Closing Date, in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the regulations thereunder and does not include and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(d) The Acquired Fund is not in breach or violation of, and the execution, delivery and performance of this Agreement by the Acquired Fund does not and will not (i) violate the Acquired Fund’s Articles of Incorporation or By-Laws, or (ii) result in a breach of, violate, or constitute a default under, any material agreement or material instrument to which the Acquired Fund is a party or by its properties or assets are bound;
(e) Except as previously disclosed in writing to the Acquiring Fund, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or, to the Acquired Fund’s knowledge, threatened against the Acquired Fund or its business, or any of its properties or assets which, if adversely determined, would materially and adversely affect the Acquired Fund or the Acquired Fund’s financial condition or the conduct of its business. The Acquired Fund knows of no facts that might form the basis for the institution of any such proceeding or investigation, and the Acquired Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions contemplated herein;
(f) The Statement of Assets and Liabilities, Statement of Operations and Statement of Changes in Net Assets of the Acquired Fund as of and for the period ended March 31, 2007, audited by Ernst & Young, LLP (copies of which have been or will be furnished to the Acquiring Fund) fairly present, in all material respects, the Acquired Fund’s financial condition as of such date and its results of operations for such period in accordance with generally accepted accounting principles consistently applied, and as of such date there were no liabilities of the Acquired Fund (contingent or otherwise) known to the Acquired Fund that were not disclosed therein but that would be required to be disclosed therein in accordance with generally accepted accounting principles;
(g) Since the date of its most recent audited financial statements, there has not been any material adverse change in any Acquired Fund’s financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed in writing to and accepted by the Acquiring Fund, prior to the Closing Date (for the purposes of this subparagraph (g), neither a decline in the Acquired Fund’s net asset value per share nor a decrease in the Acquired Fund’s size due to redemptions shall be deemed to constitute a material adverse change);
(h) All federal and other tax returns and reports of the Acquired Fund required by law to be filed on or before the Closing Date have been filed, and all taxes owed by the Acquired Fund or the Acquiring Fund have been paid so far as due, and to the best of the Acquired Fund’s knowledge, no such return is currently under audit and no assessment has been asserted with respect to any such return;
(i) For each full and partial taxable year from its inception through the Closing Date, the Acquired Fund has qualified as a regulated investment company under the Code and has taken all necessary and required actions to maintain such status [to be modified for Small Cap Fund];
(j) At the Closing Date, the Acquired Fund will have good and marketable title to its Fund Assets and full right, power and authority to assign, deliver and otherwise transfer such Fund Assets hereunder, and upon delivery and payment for such Fund Assets as contemplated herein, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the ownership or transfer thereof other than such restrictions as might arise under the 1933 Act;
(k) The execution, delivery and performance of this Agreement by the Acquired Fund will have been duly authorized prior to the Closing Date by all necessary action on the part of the Acquired Fund and its Directors, and this Agreement will constitute a valid and binding obligation of the Acquired Fund enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles;
(l) From the effective date of the Registration Statement through the time of the meeting of the Acquired Fund shareholders, and on the Closing Date, the Proxy Materials (exclusive of the portions of the Acquiring Fund’s Prospectus contained or incorporated by reference therein, and exclusive of any written information furnished by the Acquired Fund with respect to the Acquiring Fund): (i) will comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act and the regulations thereunder and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and as of such dates and times, any written information furnished by the Acquired Fund, for use in the Registration Statement or in any other manner that may be necessary in connection with the transactions contemplated hereby will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the information provided not misleading; and
(m) To the knowledge of the Acquired Fund, no governmental consents, approvals, authorizations or filings are required under the 1933 Act, the 1934 Act, the 1940 Act or Maryland law for the execution of this Agreement by the Acquired Fund, or the performance of the Agreement by the Acquired Fund, except for such consents, approvals, authorizations and filings as have been made or received, and except for such consents, approvals, authorizations and filings as may be required subsequent to the Closing Date.
| 6. | CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND |
The obligations of the Acquired Fund to consummate the Reorganization shall be subject to the performance by the Acquiring Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions with respect to the Acquiring Fund:
6.1 All representations and warranties of the Trust with respect to the Acquiring Fund contained herein shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated herein, as of the Closing Date with the same force and effect as if made on and as of the Closing Date.
6.2 The Trust, on behalf of the Acquiring Fund, shall have delivered to the Acquired Fund, at the Closing a certificate executed on behalf of the Acquiring Fund by any two of the Trust’s President, Treasurer or Secretary in a form reasonably satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Trust with respect to the Acquiring Fund made herein are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated herein, and as to such other matters as the Acquired Fund shall reasonably request.
6.3 Unless waived by the Acquired Fund, the Acquired Fund shall have received at the Closing assurances of an officer of the Trust, in a form reasonably satisfactory to the Acquired Fund, substantially to the effect that:
(a) The Trust is a duly registered, open-end, management investment company, and its registration with the SEC as an investment company under the 1940 Act is in full force and effect;
(b) The Trust is a statutory trust duly created pursuant to its Agreement and Declaration of Trust, is validly existing and in good standing under the laws of Delaware, and the Agreement and Declaration of Trust directs its trustees to manage the affairs of the Trust and the Acquiring Fund and grants them all powers necessary or desirable to carry out such responsibility, including administering the Acquiring Fund’s business as described in the registration statement of the Acquiring Fund;
(c) this Agreement has been duly authorized, executed and delivered by the Trust on behalf of the Trust and the Acquiring Fund and, assuming due authorization, execution and delivery of this Agreement on behalf of the Acquired Fund, is a valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditor’s rights and to general equity principles;
(d) the Acquiring Fund Shares to be issued to the Acquired Fund and then distributed to the Acquired Fund Investors pursuant to this Agreement are duly registered under the 1933 Act on the appropriate form, and are duly authorized and upon such issuance will be validly issued and outstanding and fully paid and non-assessable, and no shareholder of the Acquiring Fund has any preemptive rights to subscription or purchase in respect thereof;
(e) the Registration Statement has become effective with the SEC and, to the best of such officer’s knowledge, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or threatened;
(f) to the knowledge of such officer, no consent, approval, authorization, filing or order of any court or governmental authority of the United States or any state is required for the consummation of the Reorganization with respect to the Acquiring Fund, except for such consents, approvals, authorizations and filings as have been made or received, and except for such consents, approvals, authorizations and filings as may be required after the Closing Date; and
(g) to the knowledge of such officer, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Trust or the Acquiring Fund or any of their properties or assets, and neither the Trust nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects its business.
6.4 The Board of Trustees of the Trust shall have determined that the Reorganization is in the best interests of the Acquiring Fund.
| 7. | CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND |
The obligations of the Trust to consummate the Reorganization with respect to the Acquiring Fund shall be subject to the performance by the Acquired Fund of all the obligations to be performed by it hereunder, on or before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Acquired Fund contained herein shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date, with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquired Fund, shall have delivered to the Acquiring Fund at the Closing a certificate executed on behalf of the Acquired Fund, by the Acquired Fund’s President, Treasurer, or Secretary, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund made herein are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated herein and as to such other matters as the Acquiring Fund shall reasonably request.
7.3 The Acquiring Fund shall have received at the Closing assurances of an officer of the Acquired Fund, in a form reasonably satisfactory to the Acquiring Fund, substantially to the effect that:
(a) The Acquired Fund is a duly registered, open-end, management investment company, and its registration with the SEC as an investment company under the 1940 Act is in full force and effect;
(b) The Acquired Fund is a Maryland corporation duly created pursuant to its Articles of Incorporation, is validly existing and in good standing under the laws of Maryland, and the Articles of Incorporation directs its directors to manage the affairs of the Acquired Fund and grants them all powers necessary or desirable to carry out such responsibility, including administering the Acquired Fund’s business as described in the registration statement of the Acquired Fund.
(c) this Agreement has been duly authorized, executed and delivered by the Acquired Fund and, assuming due authorization, execution and delivery of this Agreement on behalf of the Acquiring Fund, is a valid and binding obligation of the Acquired Fund, enforceable against the Acquired Fund in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditor’s rights and to general equity principles;
(d) to the knowledge of such officer, no consent, approval, authorization, filing or order of any court or governmental authority of the United States or any state is required for the consummation of the Reorganization with respect to the Acquired Fund, except for such consents, approvals, authorizations and filings as have been made or received, and except for such consents, approvals, authorizations and filings as may be required subsequent to the Closing Date;
(e) to the knowledge of such officer, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Acquired Fund or any of its properties or assets and the Acquired Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely effects its business;
(f) the Acquired Fund Shares then issued and outstanding are duly registered under the 1933 Act on the appropriate form, and are duly authorized and are validly issued and outstanding and fully paid and non-assessable, and no shareholder of the corresponding Acquiring Fund has any preemptive rights to subscription or purchase in respect thereof; and
(g) the registration statement of the Acquired Fund is effective with the SEC and, to such officer’s knowledge, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or threatened.
7.4 The Board of Directors of the Acquired Fund shall have determined that the Reorganization is in the best interests of the Acquired Fund.
7.5 The transfer agent to the Acquired Fund shall have delivered to the Acquiring Fund at the Closing a certificate executed on its own behalf by an authorized officer in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the shareholder records of the Acquired Fund are in good order and as to such other matters as the Acquiring Fund shall reasonably request.
7.6 The Acquired Fund shall arrange to make the Acquired Fund’s auditors available to the Acquiring Fund and its agents to answer their questions at a mutually agreeable time prior to the Closing.
| 8. | FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND |
The obligations of the Acquiring Fund and of the Acquired Fund herein are each subject to the further conditions that on or before the Closing Date with respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Acquired Fund’s Articles of Incorporation and the requirements of the 1940 Act, and certified copies of the resolutions evidencing such approval shall have been delivered to the Trust.
8.2 On the Closing Date, no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders, approvals and permits of federal, state and local regulatory authorities (including, without limitation, those of the SEC and of state securities authorities) deemed necessary by the Trust, on behalf of the Acquiring Fund, or by the Acquired Fund, to permit consummation, in all material respects, of the transactions contemplated herein shall have been obtained, except where failure to obtain any such consent, order or permit would not, in the opinion of the party asserting that the condition to closing has not been satisfied, involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund.
8.4 The Registration Statement of the Acquiring Fund shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received an opinion of counsel to the Trust, dated as of the Closing Date, substantially to the effect that for federal income tax purposes:
(a) the transfer by the Acquired Fund of the Fund Assets in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the Liabilities will constitute a “reorganization” within the meaning of Section 368(a) of the Code and the Acquiring Fund and Acquired Fund are “parties to a reorganization” within the meaning of Section 368(b) of the Code;
(b) no gain or loss will be recognized by the Acquiring Fund upon the receipt of the Fund Assets solely in exchange for the corresponding Acquiring Fund Shares and the assumption by the Acquiring Fund of the Liabilities;
(c) no gain or loss will be recognized by the Acquired Fund upon the transfer of the Fund Assets to the Acquiring Fund and the assumption by the Acquiring Fund of the Liabilities in exchange for the Acquiring Fund Shares or upon the distribution (whether actual or constructive) of the Acquiring Fund Shares to the Acquired Fund’s shareholders in exchange for their shares of the Acquired Fund;
(d) no gain or loss will be recognized by the Acquired Fund’s shareholders upon the exchange of their Acquired Fund Shares for the corresponding Acquiring Fund Shares;
(e) the aggregate tax basis for the Acquiring Fund Shares received by the Acquired Fund’s shareholders pursuant to the Reorganization will be the same as the aggregate tax basis of the Acquired Fund’s shares held by such shareholder immediately prior to the Reorganization, and the holding period of the Acquiring Fund Shares to be received by the Acquired Fund’s shareholders will include the period during which the Acquired Fund’s shares exchanged therefor were held by such shareholder (provided the Acquired Fund’s shares were held as capital assets on the date of the Reorganization); and
(f) the tax basis of the Acquired Fund’s assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund.
8.6 Prior to the Closing, the Board of Trustees of the Trust shall have authorized the issuance of, and the Acquiring Fund shall have issued, one share of the Acquiring Fund to the Acquired Fund in consideration of the payment of $1.00, and the Acquired Fund shall have voted affirmatively on the matter referred to in paragraph 1.4, above.
The Advisor and USBFS shall each be responsible for an equal portion of all expenses in connection with the Reorganization, except as set forth in this paragraph, and shall reimburse each of the Acquiring Fund and the Acquired Fund for all expenses incurred by it in connection with the Reorganization and with this Agreement whether or not the transaction contemplated hereby is consummated. If expenses in connection with the Reorganization exceed $100,000, USBFS shall be responsible for all expenses incurred in excess of $100,000. The Acquired Fund’s shareholders will pay their personal expenses, if any, incurred in connection with the Reorganization.
| 10. | ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES |
10.1 This Agreement constitutes the entire agreement among the parties and supersedes any prior or contemporaneous understanding or arrangement with respect to the subject matter hereof.
10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated herein.
This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time before the Closing by the mutual consent of the Acquiring Fund and the Acquired Fund or if any governmental body shall have issued an order, decree or ruling having the effect of permanently enjoining, restraining or otherwise prohibiting the consummation of this Agreement. In the event of any termination pursuant to paragraph 11 there shall be no liability for damage on the part of either party to the other party respecting such termination. The Advisor and USBFS shall be responsible for out of pocket expenses associated with the terminated transaction.
This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Acquired Fund, and the Trust, on behalf of the Acquiring Fund, provided, however, that following the meeting of the shareholders of the Acquired Fund, no such amendment may have the effect of changing the provisions for determining the number of shares of the Acquiring Fund to be distributed to the Acquired Fund’s shareholders under this Agreement to the detriment of such Acquired Fund’s shareholders, or otherwise materially and adversely affecting the Acquired Fund, without the Acquired Fund obtaining the Acquired Fund’s shareholders’ approvals except that nothing in this paragraph 12 shall be construed to prohibit the Acquiring Fund and the Acquired Fund from amending this Agreement to change the Closing Date or Applicable Valuation Date by mutual agreement.
Any notice, report, statement or demand required or permitted by any provision of this Agreement shall be in writing and shall be given by facsimile, certified mail or overnight express courier addressed to:
For the Acquired Fund:
[Acquired Fund]
c/o U.S. Bancorp Fund Services, LLC
615 E. Michigan Street
Milwaukee, WI 53202
Attention: Rachel A. Spearo
Secretary
For the Trust, on behalf of itself and the Acquiring Fund:
Buffalo Funds
c/o U.S. Bancorp Fund Services, LLC
615 E. Michigan Street
Milwaukee, WI 53202
Attention: Rachel A. Spearo
Secretary
For Kornitzer Capital Management, Inc.:
Kornitzer Capital Management, Inc.
5420 W. 61st Place
Shawnee Mission, KS 66205
Attention: John C. Kornitzer
President
For U.S. Bancorp Fund Services, LLC:
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
Attention: Joseph C. Neuberger
Executive Vice President
| 14. | HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY |
14.1 The article and paragraph headings contained herein are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references herein to Articles, paragraphs, subparagraphs or Exhibits shall be construed as referring to Articles, paragraphs or subparagraphs hereof or Exhibits hereto, respectively. Whenever the terms “hereto,” “hereunder,” “herein” or “hereof” are used in this Agreement, they shall be construed as referring to this entire Agreement, rather than to any individual Article, paragraph, subparagraph or sentence.
14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the laws of Delaware (without regard to rules regarding choice of law).
14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed by its authorized officer.
[ACQUIRED FUND]
By: ��
Kent W. Gasaway
President
BUFFALO FUNDS
for itself and on behalf of
[Fund]
By:
Kent W. Gasaway
President
Kornitzer Capital Management, Inc.
with respect to its obligations under paragraph 9 of this Agreement:
By:
John C. Kornitzer
President
U.S. Bancorp Fund Services, LLC
With respect to its obligations under paragraph 9 of this Agreement:
By:
Joseph C. Neuberger
Executive Vice President
IX. APPENDIX II – Comparison of Maryland Funds and the Trust
The following is a comparison of certain principal differences between the organization of the Maryland Funds and the Trust (collectively referred to as the “Fund(s)”). References to the Trust include the New Funds if the Maryland Funds are reorganized into new series of the Trust, as proposed by Board of Directors of the Maryland Funds. More detailed information about each Fund’s current corporate structure is contained in the Funds’ SAI. All terms beginning with initial capital letters in this Appendix II and not otherwise defined herein shall have the meanings assigned to them in the Combined Prospectus/Proxy Statement.
Comparison of Capital Structure
The Trust was organized as a Delaware statutory trust pursuant to an Agreement and Declaration of Trust dated February 14, 2001. The number of shares of the Trust and its series is unlimited, each having no par value. The Trust may issue fractional shares.
The Maryland Funds were incorporated under the Maryland General Corporation Law (the “MGCL”) on the following dates:
| · | Buffalo Balanced Fund, Inc., January 25, 1994; |
| · | Buffalo Large Cap Fund, Inc., November 23, 1994; |
| · | Buffalo High Yield Fund, Inc., November 23, 1994; |
| · | Buffalo USA Global Fund, Inc., November 23, 1994; |
| · | Buffalo Small Cap Fund, Inc., October 16, 1997. |
Each of the Maryland Funds has authorized capital of the following number of shares of common stock with a par value of $1.00 per share:
| · | Buffalo Balanced Fund, Inc., twenty-five million shares; |
| · | Buffalo Large Cap Fund, Inc., ten million shares; |
| · | Buffalo High Yield Fund, Inc., one-hundred million shares; |
| · | Buffalo USA Global Fund, Inc., ten million shares; |
| · | Buffalo Small Cap Fund, Inc., one-hundred million shares; |
The New Funds will each be a new series of the Trust. The number of shares of each New Fund will be unlimited, each without par value. The New Funds will be able to issue fractional shares. Shares of the Trust and the Maryland Funds are, and shares of the New Funds will be, fully paid and nonassessable. Shareholders of the Funds have no preemptive or appraisal rights. Similarly, shareholders of the New Funds will have no appraisal rights.
Comparison of Voting Rights
For each Fund, each whole share is entitled to one vote as to any matter on which it is entitled to vote, and each fractional share carries a proportionate fractional vote. Shareholders of the Funds are not entitled to cumulative voting in the election of Trustees or Directors, as appropriate, or on any other matter. Quorum for a shareholders’ meeting of the Trust is thirty-three and one-third percent (33 1/3%) of the shares entitled to vote, which are present in person or by proxy. Quorum for a shareholders’ meeting of the Maryland Funds is a majority of the outstanding shares present in person or by proxy.
The 1940 Act provides that shareholders of the Funds have the power to vote with respect to the election of Trustees/Directors, the selection of auditors (under certain circumstances), approval of investment advisory agreements and plans of distribution, and amendments to investment objectives, strategies or restrictions deemed to be fundamental.
In addition, shareholders of the Maryland Funds and the Trust are granted the power to vote on certain matters by the laws of the jurisdiction under which they were formed, and, for the Trust, by its Declaration of Trust. In most instances, the rights to vote on these matters are similar between Maryland Funds and the Trust. In the case of the Maryland Funds, under the MGCL shareholders have the power to vote: (1) for the election of Directors, including the filling of vacancies on the Board of Directors (provided that at least two-thirds of the Directors must be elected by the shareholders); (2) for certain amendments to the Maryland Funds’ charters; (3) mergers and consolidations; (4) statutory share exchanges; and (5) dissolutions. In the case of the Trust, the Declaration of Trust specifically gives shareholders the power to vote: (1) for the election of Trustees, including the filling of any vacancies in the Board of Trustees (provided that the Trustees also have the power to fill vacancies in the Board of Trustees); (2) with respect to certain amendments to the Declaration of Trust as required by the Declaration of Trust or the 1940 Act; (3) for dissolution of the Trust or a series of the Trust, unless otherwise dissolved by the Board of Trustees upon written notice to the shareholders; and (4) on such matters as required by the Declaration of Trust, the by-laws, the 1940 Act and any registration statement of the Trust filed with the SEC, or as the Trustees may consider necessary or desirable.
A majority of a Maryland Fund’s shares voted in person or represented by proxy at a meeting attended by a quorum is required on any matters presented for shareholder vote other than election of Directors, unless otherwise required by applicable law. In the case of the Trust, a majority of the shares voted is required in all matters other than the election of Trustees, where a quorum is present, unless the Declaration of Trust, its by-laws or applicable law provide otherwise. Directors of the Maryland Funds and Trustees of the Trust are elected by not less than a plurality of the votes cast of the holders of shares entitled to vote present in person or represented by proxy at a shareholders meeting at which a quorum is present. The organizational documents for each Fund establish the maximum number of days prior to a shareholders’ meeting on which a record date may be set by that Fund’s Board. The maximum number of days is 90 for the Funds.
Comparison of Legal Structures
Mutual funds, such as the Trust, formed under the Delaware Statutory Trust Act (“DSTA”) are granted a significant amount of operational flexibility to adopt features, rights and obligations of the statutory trust, and its Trustees and shareholders, in their charter instruments. The Trust and its series have been able to benefit from this flexibility to streamline their operations and minimize expenses. To a similar effect, the MGLC contains provisions specifically designed for investment companies, such as the Maryland Funds, which take into account their unique structure and operations, and allow such investment companies to simplify their operations by reducing administrative burdens generally to operate more efficiently. For example, as with Delaware statutory trusts, funds organized as Maryland corporations are not required to hold annual stockholders’ meetings if meetings are not otherwise required by the federal securities laws or their charter or by-laws, and such funds may create new classes or series of stock without having to obtain the approval of stockholders at a meeting.
However, funds organized as Delaware statutory trusts have greater flexibility in structuring shareholder voting rights and shareholder meetings. For example, under the MGCL, certain fund transactions, such as mergers, certain reorganizations and liquidations, are subject to mandatory shareholder votes. The DSTA allows a fund to provide in its governing documents that each of these types of transactions may go forward with only Trustee approval. All are subject, however, to any special voting requirements of the 1940 Act. Finally, the MGCL imposes more stringent record date, notice, quorum and adjournment provisions than the DSTA, which may cause shareholder meetings to be more costly and may make obtaining any necessary shareholder approvals more difficult.
Limited Liability for Shareholders
Under the DSTA, shareholders of the Trust are entitled to the same limitation of personal liability as is extended to shareholders of a private corporation organized for profit under Delaware General Corporation Law. Under the MGCL, the shareholders of the Maryland Funds are not subject to any personal liability for any claims against or liabilities of the Maryland Funds solely by reason of being or having been a shareholder of a Maryland Fund. The Trust’s Board of Trustees may cause shareholders of the Trust to pay for charges of the Trust’s custodian, transfer agent or other similar servicing agent in an amount fixed from time to time by the Board of Trustees by offsetting such charges from declared but unpaid dividends or distributions owed to the shareholders and/or by reducing the number of shares in the account of such shareholder by that number of shares which represent the outstanding amount of such charges due from the shareholder.
Board of Trustees/Board of Directors
Pursuant to the laws of Delaware and the Declaration of Trust, the responsibility for the management of the Trust is vested in its Board of Trustees, which, among other things, is empowered by the Declaration of Trust to elect the officers of the Trust and to appoint such agents as the Board considers appropriate to assist and advise in such management. Pursuant to the Declaration of Trust, no Trustee shall be liable for any act or omission or any conduct whatsoever in his or her capacity as Trustee, except for such person’s own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office.
Pursuant to the MGLC and the Maryland Funds’ Articles of Incorporation, the responsibility for the management and the exercise of the powers of the Maryland Funds are vested in its Board of Directors. Under the MGLC, a Director is required to perform his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the Maryland Funds and with the care that an ordinarily prudent person in a like position would use under similar circumstances. To the extent that a Director performs his or her duties as required, he or she will not be liable by reason of having been a Director. In addition, the Maryland Funds’ Articles of Incorporation provide further indemnification of Directors and officers of the Maryland Funds for acts done in good faith and limit their personal liability for monetary damages. The Articles of Incorporation provide that the Maryland Funds will not indemnify any Director or officer of the Maryland Funds against any liability to the Maryland Fund or its shareholders arising from such person’s willful misfeasance, bad faith, gross negligence or reckless disregard of the duties their office.
Inspection Rights
The Funds provide certain inspection rights to shareholders of their books and records to the extent required by applicable law.
X. APPENDIX III – Form of Investment Advisory Agreement for New Fund(s)
MANAGEMENT AGREEMENT
between
KORNITZER CAPITAL MANAGEMENT, INC.
and
BUFFALO FUNDS
THIS AGREEMENT is made and entered into as of the __ day of _____, 2008, by and between BUFFALO FUNDS, a Delaware statutory trust (hereinafter referred to as the “Trust”), on behalf of the [Fund] series of the Trust (the “Fund”), and KORNITZER CAPITAL MANAGEMENT, INC., a corporation organized under the laws of the State of Kansas (hereinafter referred to as the “Manager”).
WHEREAS, the Trust is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and
WHEREAS, the Trust is authorized to create separate series of shares, with each series of shares representing interests in a separate portfolio of investments managed according to its own investment objective and policies, and the Trust currently consists of several series, including the Fund, and
WHEREAS, the Manager is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and is engaged in the business of providing investment advice and management services to registered investment companies and other clients as an independent contractor, and
WHEREAS, the Trust desires to retain the Manager to render investment management and other services with respect to the Fund, and the Manager is willing to render such services on the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual promises herein contained, and other good and valuable consideration, receipt of which is hereby acknowledged, it is mutually agreed and contracted by and between the parties hereto that:
1. DUTIES
The Trust, on behalf of the Fund, hereby employs the Manager, for the period set forth in Paragraph 5 hereof, and on the terms set forth herein, to render investment advice and management services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust. The Manager hereby accepts such employment and agrees, during such period, to render the services and assume the obligations herein set forth, for the compensation herein provided. The Manager shall, unless otherwise expressly provided and authorized, have no authority to act for or represent the Trust or the Fund in any way, or in any other way be deemed an agent of the Trust or Fund.
The Manager shall furnish the Fund investment management and administrative services. Investment management services shall include analysis, research and portfolio recommendations consistent with the Fund’s objectives and policies. Subject to the supervision of the Trust’s Board of Trustees, the Manager is authorized to make all determinations, without prior consultation with the Trust, as to which securities and other assets of the Fund will be acquired, held, disposed of or loaned, and shall take steps necessary to implement the same. Such determination and services shall also include determining the manner in which voting rights, rights to consent to corporate action, and any other rights pertaining to the Fund’s securities shall be exercised. The Manager shall render regular periodic reports to the Trust’s Board of Trustees concerning the Fund’s investment activities. In connection with the placement of orders for the execution of the Fund’s transactions, the Manager shall create and maintain all necessary brokerage records of the Fund in accordance with all applicable laws, rules and regulations.
The Manager will provide to the Trust (or its agent) records concerning the Manager’s activities which the Trust is required to maintain, and to render regular reports to the Trust’s officers and Trustees concerning the Manager’s performance of the foregoing responsibilities.
Administrative services shall include the services and compensation of such members of the Manager’s organization as shall be duly elected officers and/or Trustees of the Trust and such other personnel as shall be necessary to carry out its normal operations; fees of the independent Trustees, the custodian (except for the additional cost of maintaining custody of assets in foreign jurisdictions, in excess of domestic custody costs), the independent public accountant and legal counsel (but not legal and audit fees and other costs in contemplation of or arising out of litigation or administrative actions to which the Trust, its officers or Trustees are a party or incurred in anticipation of becoming a party); rent; the cost of a transfer and dividend disbursing agent or similar in-house services; bookkeeping; accounting; and all other clerical and administrative functions as may be reasonable and necessary to maintain the Fund’s records and for it to operate as an open-end management investment company. Exclusive of the management fee, the Fund shall bear the cost of any interest, taxes, dues, fees and other charges of governments and their agencies, including the cost of qualifying the Fund’s shares for sale in any jurisdiction, brokerage commissions, additional cost of maintaining custody of assets in foreign jurisdictions, in excess of domestic custody costs or any other expenses incurred by it which are not assumed herein by the Manager.
All property, equipment and information used by the Manager in the management and administration of the Fund shall belong to the Manager. Should the management and administrative relationship between the Trust and the Manager terminate, the Trust shall be entitled to, and the Manager shall provide the Trust, a copy of all information and records in the Manager’s files necessary for the Trust to continue the functions related to the Fund, which shall include computer systems and programs in use as of the date of such termination; but nothing herein shall prohibit thereafter the use of such information, systems or programs by the Manager, so long as such does not unfairly interfere with the continued operation of the Trust or the Fund.
2. COMPENSATION OF MANAGER
As compensation for the services to be rendered by the Manager under the provisions of this Agreement, the Trust agrees to pay the Manager a management fee computed at the annual rate of 1.00% of the average daily net assets of the Fund. Such compensation shall be paid to the Manager semi-monthly and shall be calculated by applying a daily rate to the assets of the Fund, based on the annual percentage rate described above.
The Manager may voluntarily or contractually agree to waive any portion of the compensation due to the Manager pursuant to this Agreement and may similarly agree to make payments to limit the overall operating expenses of the Trust. Unless otherwise agreed, any such reduction or payment shall be applicable only to such specific reduction or payment and shall not constitute an agreement to reduce any future compensation or reimbursement due to the Manager hereunder or to continue future payments. Any such reduction will be agreed upon prior to accrual of the related expense or fee and will be estimated daily. Any fee voluntarily reduced by the Manager and any expense paid by the Manager voluntarily or pursuant to an agreed expense limitation may be reimbursed by the Fund to the Manager in the first, second, or third (or any combination thereof) year next succeeding the year of the reduction or payment to the extent permitted by applicable law if the aggregate expenses for the next succeeding fiscal year, second fiscal year or third succeeding fiscal year do not exceed any limitation in effect at the time the fee was waived or the expense was reimbursed.
3. STATUS OF MANAGER
It is understood and agreed that the services to be rendered by the Manager to the Fund under the provisions of the Agreement are not to be deemed exclusive, and the Manager shall be free to render similar or different services to others so long as its ability to render the services provided for in this Agreement shall not be impaired thereby.
It is further understood and agreed that, to the extent that the purchase or sale of securities or other investments of any issuer may be deemed by the Manager to be suitable for two or more accounts managed by the Manager, the available securities or investments shall be allocated in a manner that is equitable to each account. It is recognized that, in some cases, this may adversely affect the price paid or received by the Fund or the size or position obtainable for or disposed by the Fund.
4. PERMISSIBLE INTERESTS
It is understood and agreed that the Trustees, officers, agents, employees of the Trust and shareholders of the Fund may be interested in the Manager as owners, employees, agents or otherwise, and that owners, employees and agents of the Manager may be interested in the Trust or Fund as shareholders or otherwise. It is understood and agreed that shareholders, officers, Trustees and other personnel of the Manager are and may continue to be officers and Trustees of the Trust, but that they receive no remuneration from the Trust solely for acting in those capacities. All such interests shall be fully disclosed between the parties as required by law.
5. DURATION AND TERMINATION
This Agreement shall become effective as to the Fund, if it is approved by the Trust’s Board of Trustees, including a majority of the Trustees who are not parties to the Agreement or interested persons of any such party (“Independent Trustees”), and by the vote of a majority of the outstanding voting securities of the Fund as contemplated under the 1940 Act. It shall remain in force for an initial two-year term and thereafter may be renewed for successive periods not exceeding one year only so long as such renewal and continuance is specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund as contemplated under the 1940 Act, and only if the terms and the renewal of this Agreement have been approved by a vote of a majority of the Trustees of the Trust, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such approval. It shall be the duty of the Trustees of the Trust to request and evaluate, and the duty of the Manager to furnish, such information as may reasonably be necessary to evaluate the terms of this Agreement and any amendment thereto.
This Agreement may be amended by mutual consent of the parties only if such amendment is specifically approved (1) by a majority of the Trustees of the Trust, including a majority of the Independent Trustees and, (2) if required by law or SEC rules or SEC staff interpretations, by the affirmative vote of a majority of the outstanding voting securities of the Fund.
This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust, or by the vote of a majority of the outstanding voting securities of the Fund as prescribed by the 1940 Act on not more than sixty days written notice to the Manager, and it may be so terminated by the Manager upon not less than sixty days written notice to the Trust. It shall terminate automatically in the event of its assignment by either party unless the parties hereby, by agreement, obtain an exemption from the Securities and Exchange Commission from the provisions of the 1940 Act pertaining to the subject matter of this paragraph. Any notice, request or instruction provided for herein, or for the giving of which, the occasion may arise hereunder, shall be deemed duly given, if in writing and mailed by registered mail, postage prepaid, addressed to the regular executive office of the Trust or the Manager, as the case may be. As used in this Agreement, the terms “assignment,” “majority of the outstanding voting securities” and “interested person” shall have the meanings contained in the 1940 Act, as interpreted by the SEC staff.
If this Agreement is terminated prior to the end of any calendar month, the management fee shall be prorated for the portion of any month in which this Agreement is in effect according to the proportion which the number of calendar days, during which the Agreement is in effect, bears to the number of calendar days in the month, and shall be payable within 10 days after the date of termination.
6. USE OF BUFFALO NAME
In the event that the Manager ceases to be the Fund’s investment manager for any reason, the Trust will (unless the Manager otherwise agrees in writing) take all necessary steps to cause itself and the Fund to cease using the word “Buffalo” in its name within a reasonable period of time. It is further agreed that the provisions of this Paragraph shall inure to the benefit of the Manager and may be imposed by it or any successor in interest as if it or such successor in interest were parties to this Agreement.
7. LIMITATION OF LIABILITY OF THE MANAGER
The Manager shall not be liable for any error in judgment or mistake at law for any loss suffered by the Fund in connection with any matters to which this Agreement relates, except that nothing herein contained shall be construed to protect the Manager against any liability by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reckless disregard of its obligations or duties under this Agreement.
8. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Delaware, without regard to conflict of law principles; provided, however that nothing herein shall be construed as being inconsistent with the 1940 Act.
9. NOTICE
Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party:
To the Advisor at: Kornitzer Capital Management, Inc.
5420 West 61 Place
Shawnee Mission, KS 66205
To the Trust at: Buffalo Funds
c/o Kornitzer Capital Management, Inc.
5420 West 61 Place
Shawnee Mission, KS 66205
10. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. ENTIRE AGREEMENT
This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement’s subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts, together, shall constitute only one instrument.
A copy of the Certificate of Trust of the Trust is on file with the Secretary of State of Delaware, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees, and is not binding upon any of the Trustees, officers, or shareholders of the Trust individually but binding only upon the assets and property of the Trust.
No series of the Trust shall be liable for the obligations of any other series of the Trust. Without limiting the generality of the foregoing, the Manager shall look only to the assets of a particular Fund for payment of fees for services rendered to that Fund.
Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the U.S. Securities and Exchange Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers on the day and year first above written.
| BUFFALO FUNDS |
| |
| | |
| By: | |
| | Kent W. Gasaway |
| | President |
| KORNITZER CAPITAL MANAGEMENT, INC. |
| | |
| By: | |
| | John C. Kornitzer |
| | President and Chief Investment Officer |
BUFFALO FUNDS
PART B
BUFFALO BALANCED FUND
BUFFALO HIGH YIELD FUND
BUFFALO LARGE CAP FUND
BUFFALO SMALL CAP FUND
BUFFALO USA GLOBAL FUND
STATEMENT OF ADDITIONAL INFORMATION
June 9 , 2008
This Statement of Additional Information is not a Prospectus but should be read in conjunction with the Buffalo Funds’ current Prospectus, dated June 9 , 2008. Certain information from the Buffalo Funds’ Annual Report to Shareholders is incorporated by reference into this Statement of Additional Information. To obtain the Prospectus or the most recent annual or semi-annual report to shareholders, free of charge, please call the Funds toll-free at 1-800-49-BUFFALO (1-800-492-8332).
TABLE OF CONTENTS
Page
| INTRODUCTION | 1 |
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| GENERAL INFORMATION AND HISTORY | 1 |
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| INFORMATION ABOUT THE FUNDS’ INVESTMENTS | 2 |
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| Description of the Funds | 2 |
| Principal Investment Strategies, Policies and Risks. | 4 |
| Non-Principal Investment Strategies, Policies and Risks. | 8 |
| Fundamental Investment Restrictions. | 15 |
| Non-Fundamental Investment Restrictions. | 16 |
| Portfolio Turnover. | 16 |
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| FUND SECURITIES TRANSACTIONS | 17 |
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| ADDITIONAL PAYMENTS TO DEALERS AND FINANCIAL INTERMEDIARIES | 18 |
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| PURCHASING AND SELLING SHARES | 19 |
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| Purchases. | 19 |
| Sales (Redemptions). | 19 |
| Market Timers. | 21 |
| Anti-Money Laundering Program. | 21 |
| Net Asset Value. | 21 |
| Calculation of NAV | 22 |
| Additional Purchase and Redemption Policies. | 23 |
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| MANAGEMENT OF THE FUNDS | 23 |
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| Trustees and Officers. | 23 |
| Committees of the Board. | 27 |
| Compensation. | 28 |
| Portfolio Holdings Disclosure Policies and Procedures | 29 |
| Investment Advisors and Manager. | 30 |
| Principal Underwriter. | 30 |
| Code of Ethics. | 31 |
| Custodian. | 31 |
| Independent Registered Public Accounting Firm. | 31 |
| Administrator. | 31 |
| Transfer Agent. | 31 |
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| PORTFOLIO MANAGERS OF THE FUNDS | 31 |
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| CONTROL PERSONS AND PRINCIPAL HOLDERS OF THE FUNDS | 35 |
| | |
| MANAGEMENT OWNERSHIP OF THE FUNDS | 37 |
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| DISTRIBUTIONS AND TAXES | 37 |
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| FINANCIAL STATEMENTS | 42 |
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| PROXY VOTING POLICIES AND PROCEDURES | 42 |
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| APPENDIX-RATINGS INFORMATION. | 44 |
This Statement of Additional Information (“SAI”) supplements the Buffalo Funds’ Prospectus dated June 9 , 2008. This SAI provides additional information concerning the organization, operation and management of the Buffalo Balanced Fund, Buffalo High Yield Fund, Buffalo Large Cap Fund, , Buffalo Small Cap Fund, and Buffalo USA Global Fund (each a “Fund,” and collectively, the “Buffalo Funds” or the “Funds”), each a series of Buffalo Funds, a Delaware statutory trust (the “Trust”). The Buffalo International Fund, Buffalo Jayhawk China Fund, Buffalo Micro Cap Fund, Buffalo Mid Cap Fund and Buffalo Science & Technology Fund are also series of the Trust which are not included as part of this SAI..
The Trust is an open-end, management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Funds are classified as “diversified” under the 1940 Act. “Diversified” means that at least 75% of the value of a Fund’s total assets must be comprised of: (i) cash and cash items; (ii) securities issued or guaranteed by the U.S. government, its agencies or instrumentalities; (iii) securities of other investment companies; or (iv) other securities; provided that no more than 5% of the value of the Fund’s total assets are invested in the securities of a single issuer, and the Fund does not own more than 10% of the outstanding voting securities of a single issuer. The remaining 25% of the value of the Fund’s total assets may be invested in a single issuer, or in multiple issuers, not subject to the above limitations. The Funds may not change their classifications as “diversified” without shareholder approval.
The Funds have elected and intend to qualify to be treated as regulated investment companies (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Such qualification relieves the Funds of liability for federal income taxes to the extent a Fund’s earnings are distributed in accordance with the Code. To so qualify, among other requirements, the Funds will limit their investments so that, at the close of each quarter of each Fund’s taxable year: (i) not more than 25% of the market value of the Fund’s total assets will be invested in the securities of a single issuer; and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer, and it will not own more than 10% of the outstanding voting securities of a single issuer.
Kornitzer Capital Management, Inc. serves as each Fund’s manager and investment advisor (“KCM” or the “Advisor”). KCM oversees the investment program and management of each Fund’s investments, makes the Funds’ day-to-day investment decisions.
General Information and History
The Trust was organized as a Delaware statutory trust on February 14, 2001. Each Fund is one series, or mutual fund, formed by the Trust, which, as noted above, also includes the Buffalo Micro Cap, Buffalo Mid Cap, Buffalo Science & Technology, Buffalo International and Buffalo Jayhawk China Funds . The Buffalo Balanced, Buffalo High Yield, Buffalo Large Cap, Buffalo Small Cap and Buffalo USA Global Funds (the “Successor Funds”) are the successors to the Buffalo Balanced Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo Large Cap Fund, Inc., Buffalo Small Cap Fund, Inc. and Buffalo USA Global Fund, Inc., respectively (the “Predecessor Fund(s)”), pursuant to a reorganization that took place on _______, 2008. Prior to that date, the Successor Funds had no investment operations.
The Predecessor Funds had the same investment objectives, strategies and policies as the corresponding Successor Funds and were managed by the same investment advisor as the Predecessor Funds. The investment objectives, strategies, policies and restrictions of the Successor Funds reflect changes in the Predecessor Funds as a result of a Proxy Statement and subsequent vote by the shareholders of the Predecessor Funds on _____, 2008. As a result of that vote, the shareholders approved a set of uniform fundamental investment restrictions as reflected herein. In addition, the objectives, strategies and policies of the Successor Funds were redesignated from fundamental to non-fundamental. The Successor Funds now correspond with the other Funds of the Trust and any changes to a Fund’s objectives, strategies, policies or restrictions must be effected in accordance with the procedures described below.
An unlimited number of shares of beneficial interest in the Trust were authorized for each of the Funds. All shares of each of the Funds have the same rights and privileges as other shares of the same Fund. Each full and fractional share issued and outstanding has: (1) equal voting rights with respect to matters that affect that Fund; and (2) equal dividend, distribution and redemption rights to the assets of that Fund. Shares when issued are fully paid and non-assessable. The Trust’s Board of Trustees (the “Board of Trustees”) may create other series of the Trust and divide any series into separate classes. Shareholders do not have pre-emptive or conversion rights. The Funds will not hold regular annual shareholder or other shareholder meetings except as required by the 1940 Act and other applicable laws, or as determined by the Board of Trustees.
Non-cumulative voting. Shares of the Funds have non-cumulative voting rights, which means that the holders of 50% of the shares voting for the election of Trustees can elect 100% of the Trustees, 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 Trustees.
Shareholder meetings. The Funds will not hold annual meetings except as required by the 1940 Act and other applicable laws. The Funds have undertaken that the Board of Trustees will call a meeting of shareholders if such a meeting is requested in writing by the holders of not less than 10% of the outstanding shares of a Fund for the purpose of voting upon the question of removal of a trustee or trustees and to assist in communications with other shareholders as required by Section 16(c) of the 1940 Act.
Information about the Funds’ Investments
The objectives, strategies and policies discussed in this SAI and in the Funds’ Prospectus generally apply when a Fund makes an investment. If a percentage or other restriction is met at the time of initial investment, except with respect to borrowings and holdings in illiquid securities, a Fund is usually not required to sell a security or other investment because circumstances change and the security or other investment no longer meets one or more of a Fund’s restrictions. If at any time a Fund’s borrowings exceed its limitations due to a decline in net assets, the Fund will, within three days thereafter, excluding Sundays and holidays, reduce the amount of its borrowings to an extent that the asset coverage of such borrowings will be at least 300%. Likewise, in the event that a Fund’s holdings in illiquid securities exceeds its limitations due to market factors, the Fund will make such adjustments necessary to reduce its holdings in such securities to comply with its limitations.
Unless otherwise stated, a Fund’s investment objective, strategies or policies may be changed only by the Board of Trustees, without shareholder approval. However, a Fund will not change its investment objective without providing advance thirty (30) days written notice of the change to shareholders. The Buffalo High Yield, Buffalo Large Cap Buffalo Small Cap, and Buffalo USA Global Funds will not change their investment policies of investing at least 80% of the Fund’s investments in the investments described above without first providing shareholders with at least 60-days’ prior written notice.
Below you will find descriptions of each Fund’s principal investment objective and strategies. Following the Fund descriptions, you will find a more detailed description of the Funds’ investments and their associated risks, with the Funds’ principal investment strategies and policies listed first, followed by additional investment strategies and policies used by the Funds to achieve their investment objectives.
Description of the Funds
Buffalo Balanced Fund--seeks, as a primary objective, long-term capital growth and, as a secondary objective, high current income. The Fund intends to achieve its primary objective by investing primarily in domestic common stocks and by investing secondarily in convertible debt securities and convertible preferred stocks. The Fund intends to achieve its secondary objective, high current income, by investing in corporate bonds, government bonds, convertible debt securities, preferred stocks and convertible preferred stocks. The Fund will often invest in higher yielding, high-risk debt securities. The Advisor generally expects that these debt securities will be rated below investment grade by the major rating agencies. The Fund typically invests at least 25% of its net assets in equity securities and at least 25% of its net assets in debt securities, although the Advisor may deviate from this combination when it believes that doing so is in the best interest of the Fund’s shareholders.
The Advisor expects that the majority of common stocks purchased for the Fund will be of large-capitalization (“large-cap”) companies. This Fund considers large-cap companies to be those with market capitalization in excess of $10 billion at the time of initial purchase.
The Fund retains the freedom to invest up to 75% of its net assets in corporate debt securities, convertible debt securities, preferred stocks and convertible preferred stocks, including higher yielding, high-risk debt securities. High-risk debt securities are those rated below BBB by Standard & Poor’s Ratings Group (“S&P”) or Baa by Moody’s Investors Service, Inc. (“Moody’s”) and are commonly called “junk bonds”. Yields on such bonds may fluctuate significantly, and, therefore, achievement of the Fund’s investment objectives may be more dependent on the Advisor’s credit analysis ability than it would be for investments in higher rated bonds.
The Fund will not purchase a debt security that is rated less than Caa/CCC by Moody’s or S&P, respectively, and will only purchase an unrated debt security if the Advisor believes that the security is of at least B quality. Rated debt securities, which are downgraded to below B quality and unrated debt securities, which the Advisor believes have fallen below B quality, will be sold at the Advisor’s discretion, subject to a limitation that the Fund may not hold more than 20% of its net assets in debt securities that are rated less than B or that are unrated.
Buffalo High Yield Fund--primarily seeks high current income and secondarily seeks long-term capital growth. The Fund invests, under normal conditions, at least 80% of its net assets (plus any borrowings made for investment purposes) in a diversified portfolio of higher yielding, high-risk debt securities (commonly known as “junk bonds”). The Fund also generally intends to invest a small percentage of its net assets in equity securities. The Fund will pursue its secondary investment objective, capital growth, through appreciation of the debt and equity securities that it holds. The proportion of the Fund’s net assets invested in debt and equity securities will change over time in accordance with the Advisor’s analysis of economic conditions and the underlying value of securities.
The Fund may invest up to 100% of its net assets in debt securities, including without limitation, corporate and convertible debt securities. The Fund may also purchase government debt securities, but will not invest directly in debt securities issued by foreign governments. The debt securities in which the Fund invests will typically be rated below investment grade by the major rating agencies, which place greater importance on the Advisor’s credit analysis ability than investing in higher rated debt securities. The Fund may also invest in preferred stocks and convertible preferred stocks.
The Fund may purchase and invest up to 20% of its net assets in debt securities that are rated less than B, by Moody’s or S&P, or in unrated debt securities of similar quality, based on the Advisor’s fundamental analysis of the issuer and of rated bonds issued by similar issuers. Rated debt securities, which are downgraded to below B quality after purchase, and unrated debt securities, which the Advisor believes have fallen below B quality after purchase, are not subject to this limitation, and such securities will be sold at the Advisor’s discretion. The lowest rated debt security that the Fund will hold is D quality (defaulted securities). Although the Fund will not purchase D quality debt securities, the Fund may continue to hold these securities and will sell them at the Advisor’s discretion.
The Fund maintains a flexible investment policy which allows it to invest in debt securities with varying maturities. However, it is anticipated that the dollar-weighted average maturity of debt securities that the Fund purchases will not exceed 15 years and that the average maturity of all securities that the Fund holds at any given time will be ten years or less.
If the Advisor believes that a full or partial temporary defensive position is necessary, due to present or anticipated market or economic conditions, the Advisor may take any one or more of the following steps to protect the Fund’s assets: (1) shorten the average maturity of the Fund’s debt securities; (2) hold more or all cash or cash equivalents; and (3) emphasize investment in higher grade debt securities. If the Advisor implements a defensive position, the Fund’s yield may decline and the Fund may not achieve its investment objectives.
Buffalo Large Cap Fund--seeks long-term capital growth by investing, under normal conditions, at least 80% of its net assets (plus any borrowings made for investment purposes) in domestic common stocks and other equity securities of large-cap companies. As a non-fundamental policy, the Fund considers a company to be a large-cap company if, at time of purchase by the Fund, it has a market capitalization of $10 billion or greater. The Advisor seeks dividend income as a secondary consideration in its stock selection process. The Fund will normally invest in a broad array of domestic common stocks that are diversified in terms of companies and industries.
Buffalo Small Cap Fund--seeks long-term capital growth by investing, under normal conditions, at least 80% of its net assets (plus any borrowings made for investment purposes) in domestic common stocks and other equity securities (including convertible preferred stocks and warrants) of smaller, or “small-cap,” companies. The Fund considers a company to be a small-cap company if, at the time of purchase, it has a market capitalization of under $2.5 billion. The Fund will normally invest in a broad array of securities that are diversified in terms of companies and industries.
Buffalo USA Global Fund--seeks long-term capital growth by investing, under normal conditions, at least 80% of its net assets (plus any borrowings made for investment purposes) in the common stocks of U.S. companies that have substantial international operations. The Fund considers a U.S. company to have substantial international operations if the company receives more than 40% of its revenue or operating income from sales or operations outside of the U.S. The Fund will diversify its investment in these U.S. companies so that the Fund is exposed to the markets of at least three different foreign countries. The Advisor measures the 40% minimums in income or revenue from international operations by looking at each respective company’s most recent completed quarter of business or its most recently completed fiscal year as of the time that the Fund makes its initial purchase of the company’s securities. The Advisor seeks to invest in the common stocks of companies that appear to have above-average potential for appreciation. Income is a secondary consideration.
Principal Investment Strategies, Policies and Risks.
Common Stock. All of the Buffalo Funds may invest in the common stock of domestic companies. The purchaser of common stock receives an ownership interest in a company and usually certain voting rights with regard to that company. The owner of common stock may participate in a company’s success through the receipt of dividends, which are distributions of earnings by the company to its owners. Owners of common stock may also participate in a company’s success or lack of success through increases or decreases in the value of the company’s shares as they are traded in the public securities markets. Common stocks, and stock markets generally, can be volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments.
Other Equity Securities. To the extent that any of the Buffalo Funds purchase equity securities other than common stocks, including preferred stocks, convertible preferred stocks, securities (or other investments) with prices linked to the value of common stock and warrants, they will be exposed to the following benefits and risks.
Preferred stocks are equity securities that often pay dividends at a specific rate and have a preference over common stocks in dividend payments and liquidation of assets. Preferred stockholders typically receive greater dividends, but may receive less appreciation than common stockholders and may have greater voting rights as well.
A convertible preferred stock is a preferred stock that may be converted within a specified period of time into a certain amount of common stock of the same or a different issuer. Convertible preferred stock provides a fixed-income stream and the opportunity, through its conversion feature, to participate in the capital appreciation resulting from a market price advance in its underlying common stock. Convertible preferred stock tends to increase in market value when interest rates decline and decrease in value when interest rates rise. Like a common stock, the value of a convertible preferred stock also tends to increase as the market value of the underlying stock rises, and tends to decrease as the market value of the underlying stock declines. Because both interest rate and market movements can influence its value, convertible preferred stock is not as sensitive to interest rates as a similar debt security and not as sensitive to changes in share price as its underlying stock.
Convertible preferred stock is usually issued either by an operating company or by an investment bank. When issued by an operating company, convertible preferred stock tends to be senior to common stock, but subordinate to other types of debt securities issued by that company. When convertible preferred stock issued by an operating company is “converted,” the operating company often issues new stock to the holder of the convertible stock. If, however, the parity price, which is the price at which the common stock underlying the convertible stock may be obtained, of the convertible stock is less than the call price, which is the price of the bond including any premium related to the conversion feature, the operating company may pay out cash instead of common stock. When convertible preferred stock is issued by an investment bank, the security is an obligation of, and is convertible through, the issuing investment bank.
In addition, the issuer of the convertible preferred stock may be important in determining the security’s true value. This is because the holder of the convertible preferred stock will have recourse only to the issuer. Convertible preferred stock may also be subject to redemption by the issuer, but only after a specified date and under circumstances established at the time the security is issued. Convertible preferred stock is treated like a preferred stock for a Fund’s financial reporting, credit rating and investment limitation purposes.
A warrant allows the holder to purchase a security at a fixed price during a preset time period. The value of a warrant will increase, if the market value of a particular security increases after the warrant is purchased. If the market value of the security decreases after the warrant is purchased or if the term of the warrant expires before it is exercised, the holder of the warrant will incur a loss. Warrants do not provide the holder the right to receive dividends or the right to vote.
Large-Cap Companies. The Buffalo Large Cap Fund and, to the extent that they purchase such securities, the other Buffalo Funds, will be exposed to the benefits and risks of investing in the securities of larger companies. Large-cap companies may be more stable than newer, smaller companies, and securities of larger companies tend to be regularly traded. Large-cap companies, however, may be unable to respond quickly to new competitive challenges. Large-cap companies are also sometimes unable to attain the high growth rates of successful, smaller companies, especially during extended periods of economic expansion.
Mid-Cap Companies To the extent that they purchase such securities, the Buffalo Funds, will be exposed to the benefits and risks of investing in the securities of mid-cap companies. Mid-cap companies may have more potential for growth than larger companies, but mid-cap companies may not have the management experience, financial resources, product diversification and competitive strengths of larger, more established companies. Mid-cap company securities also may be bought and sold less often and in smaller amounts than larger company securities. If a Fund wants to sell a large quantity of a mid-cap company’s securities, it may have to sell at a lower price or sell in smaller than desired quantities over a period of time.
Small-Cap Companies. The Buffalo Small Cap Fund, and to the extent that they purchase such securities, the other Buffalo Funds, will be exposed to the benefits and risks of investing in the securities of small-cap companies. Smaller, less seasoned companies may have more potential for greater and rapid growth, but investing in small-cap companies may also involve greater risk than investing in larger companies. Small-cap companies may not have the management experience, financial resources, product diversification and competitive strengths of larger, more established companies. Small-cap company stocks also tend to be bought and sold less often and in smaller amounts than larger company stocks. If a Fund wants to sell a large quantity of a small-cap company’s securities, it may have to sell at a lower price or sell in smaller than desired quantities over a period of time.
Micro-Cap Companies. The Buffalo Small Cap Fund and, to the extent that they purchase such securities, the other Buffalo Funds, will be exposed to the benefits and risks of investing in the securities of micro-cap companies. Small, less seasoned companies have more potential for rapid growth. They also often involve greater risk than larger companies. Micro-cap companies will likely not have the management experience, financial resources, product diversification and competitive strengths of larger companies, and will be more vulnerable to adverse business or economic developments in the market as a whole. In addition, many of these companies may face difficulties in obtaining the capital necessary to continue in operation and may go into bankruptcy, which could result in a complete loss of the investment in the company. The securities of micro-cap companies, therefore, tend to be more volatile than the securities of larger, more established companies. Micro-cap company stocks also will be bought and sold less often and in smaller amounts than other stocks, making them less liquid than other securities. If the Fund wants to sell a large quantity of a micro-cap company’s stock, it may have to sell at a lower price than the Advisor might prefer, or it may have to sell in smaller than desired quantities over a period of time.
Debt Securities. The Buffalo Balanced, the Buffalo High Yield and, to the extent that they purchase such securities, the other Buffalo Funds, will be exposed to the benefits and risks of investing in debt securities. A debt security represents a loan of money by the purchaser of the security to the issuer. A debt security typically has a fixed payment schedule that obligates the issuer to pay interest to the lender and to return the lender’s money over a certain period of time. Companies typically make payments on their debt securities before they declare and pay dividends to holders of their equity securities. Bonds, notes, debentures and commercial paper are types of debt securities. Each of these differs in the length of the issuer’s payment schedule, with commercial paper having the shortest payment schedule. Independent rating organizations rate debt securities based upon their assessment of the financial soundness of the issuer, and a lower rating usually indicates higher risk.
The yields and principal values of debt securities fluctuate. Generally, values of debt securities change inversely with interest rates. That is, as interest rates go up, the values of debt securities tend to go down and vice versa. These fluctuations tend to increase as a bond’s maturity increases such that a longer-term bond will increase or decrease more for a given change in interest rates than a shorter-term bond.
A convertible debt security is a debt obligation that may be converted in a specified period of time into a certain amount of common stock of the same or a different issuer. A convertible debt security provides a fixed-income stream and the opportunity, through its conversion feature, to participate in the capital appreciation resulting from a market price advance in its underlying common stock. As with a straight debt security, a convertible debt security tends to increase in market value when interest rates decline and decrease in value when interest rates rise. Like a common stock, however, the value of a convertible debt security also tends to increase as the market value of the underlying stock rises, and it tends to decrease as the market value of the underlying stock declines. Because both interest rate and market movements can influence its value, a convertible security is not as sensitive to interest rates as a similar debt security and not as sensitive to changes in share price as its underlying stock.
A convertible debt security is usually issued either by an operating company or by an investment bank. When issued by an operating company, convertible debt tends to be senior to common stock, but subordinate to other types of debt securities issued by that company. When a convertible debt security issued by an operating company is “converted,” the operating company often issues new stock to the holder of the convertible security. If, however, the parity price, which is the price at which the common stock underlying the convertible debt security may be obtained, of the convertible debt security is less than the call price, which is the price of the bond including any premium related to the conversion feature, the operating company may pay out cash instead of common stock. When a convertible debt security is issued by an investment bank, the security is an obligation of, and is convertible through, the issuing investment bank.
In addition, the issuer of a convertible debt security may be important in determining the security’s true value. This is because the holder of a convertible debt security will have recourse only to the issuer. A convertible debt security may be subject to redemption by the issuer, but only after a specified date and under circumstances established at the time the security is issued. The Advisor uses the same criteria to rate a convertible debt security as it uses to rate a more conventional debt security.
The Buffalo Balanced and Buffalo High Yield Funds purchase debt securities, as previously described in this SAI. Consistent with their investment objectives, strategies and policies, the remaining Buffalo Funds may purchase debt securities that, at the time of initial purchase, are rated A or higher by Moody’s or S&P or that are unrated, if the Advisor determines that the debt security is of comparable quality. Rated debt securities, which are downgraded below A after being purchased, and unrated debt securities, which the Advisor believes have fallen below that level after being purchased, will be sold at the Advisor’s discretion. Each of the Buffalo Funds may also purchase debt securities, as stated in this SAI’s Cash Management description, even though such an investment is not consistent with a Fund’s objectives or its other strategies or policies.
High Yield Debt Securities. The Buffalo Balanced and Buffalo High Yield Funds invest in higher yielding, high-risk debt securities, often referred to as “junk bonds”. These lower-grade debt instruments generally offer higher yields than other debt securities. They can also carry a greater risk of default, which is the risk that the issuer will not make interest or principal payments when due. In the event of an unanticipated default, a Fund would experience a reduction in its income, and could expect a decline in the market value of the securities affected by the default. During an economic downturn or substantial period of rising interest rates, highly leveraged issuers may experience financial stress that adversely affects their ability to service their principal and interest payment obligations, to meet projected business goals and to obtain additional financing, and any of these factors could lead to a default.
The market prices of lower-grade debt securities are generally less sensitive to interest rate changes than higher rated investments but are more sensitive to adverse economic or political conditions and negative, individual issuer developments. Lower-grade debt securities may also have less liquid markets than higher rated debt securities, and their liquidity may be more heavily impacted by adverse economic, political or issuer conditions. Negative publicity or investor perceptions, as well as new or proposed laws, may also have a significant impact on the market for these debt securities.
Credit quality of lower-grade securities can change suddenly and unexpectedly, and even recently-issued credit ratings may not fully reflect the actual risks posed by a particular higher yielding, high-risk debt security. For these reasons, the Advisor uses its own independent and ongoing review of credit quality in addition to the national rating organizations in selecting these debt securities for the Funds.
As mutual funds investing in debt securities, the Funds are subject primarily to interest rate, income and credit risk. Interest rate risk is the potential for a decline in bond prices due to rising interest rates. In general, bond prices vary inversely with interest rates. When interest rates rise, bond prices generally fall. Conversely, when interest rates fall, bond prices generally rise. The change in price depends on several factors, including the bond’s maturity date. In general, bonds with longer maturities are more sensitive to interest rates than bonds with shorter maturities. The Funds are also subject to income risk, which is the potential for a decline in the respective Fund’s income due to falling market interest rates. In addition to interest rate and income risks, each Fund is subject to credit risk, which is the risk of non-payment of interest or principal when due. The credit risk of a Fund depends on the quality of its investments.
International Investing. International investing allows a mutual fund the opportunity to avoid being exclusively tied to the performance of the U.S. economy and can expose a fund to growth in emerging markets. The Buffalo Funds may invest in U.S. dollar-denominated securities of foreign issuers traded in the U.S., including, but not limited to, ADRs.
The Buffalo USA Global Fund gains international exposure, while attempting to limit its risks, by investing primarily in U.S. companies with substantial international operations. The other Buffalo Funds may also invest in U.S. companies with substantial international operations to a more limited degree, and, to the extent they do so, will be subject to the same risks. Although this investment style is not direct foreign investment, the U.S. companies in which these Funds normally invest will directly experience the risk of foreign operations in their day-to-day business.
Each of the Buffalo Funds may gain international exposure by purchasing ADRs. ADRs are receipts typically issued by a U.S. bank or trust company that are denominated in U.S. Dollars, are publicly traded in the U.S. and represent ownership in underlying foreign securities. ADRs are subject to similar risks as are other types of foreign investments. Each of these Funds are authorized to invest up to 25% of its net assets in ADRs or in securities of foreign companies traded on U.S. stock exchanges, but such Funds presently expect to limit such investments to less than 10% of net assets.
Most ADRs are traded on a U.S. stock exchange and are either sponsored or unsponsored. Issuers of unsponsored ADRs are not contractually obligated to disclose material information in the U.S. and, therefore, there may not be a correlation between such information and the market value of an unsponsored ADR. A depositary may establish an unsponsored facility without participation by (or even necessarily the acquiescence of) the issuer of the deposited securities, although typically the depositary requests a letter of non-objection from such issuer prior to the establishment of such facility. Sponsored ADR facilities are created in generally the same manner as unsponsored facilities, except that the issuer of the deposited securities enters into a deposit agreement with the depositary. Also, unsponsored ADRs tend to have a less liquid trading market than sponsored ADRs. ADRs do not involve the same direct currency and liquidity risks as securities denominated in foreign currency. However, their value will generally be affected by currency fluctuations that alter the value of the security underlying the ADRs in relation to the U.S. dollar.
Investing in foreign companies, even indirectly through ADRs, may involve more risks than investing in U.S. companies. These risks can increase the potential for losses and may include: currency risks, such as adverse fluctuations in currency exchange rates; country risks, including political, social and economic instability, currency devaluation and policies that have the effect of limiting or restricting foreign investment or the movement of foreign assets; unusual trading practices; less government supervision; less publicly available information; limited trading markets; and greater volatility, among others. While ADRs do not involve the same direct currency and liquidity risks as securities denominated in a foreign currency, their value will generally be affected by currency fluctuations that alter the value of the security underlying the ADR in relation to the U.S. dollar.
Covered Call Options. Each of the Buffalo Funds are authorized to write, which means sell, covered call options on the securities in which a Fund invests and to enter into closing purchase transactions with respect to the options. A covered call option is an option where a 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. Covered call options are intended to serve as a partial hedge against any declining price of the underlying securities. A closing purchase transaction cancels out a Fund’s position as the writer of an option by means of an offsetting purchase of an identical option prior to the expiration of the option that the Fund has written.
Up to 25% of a Fund’s net assets may be subject to covered call options. By writing covered call options, a Fund gives up the opportunity, while the option is in effect, to profit from any price increase in the underlying security above the option exercise price. In addition, a Fund’s ability to sell the underlying security will be limited while the option is in effect unless the Fund effects a closing purchase transaction.
Upon the termination of a Fund’s obligation under a covered call option, other than through exercise of the option, the Fund will realize a short-term capital gain or loss. If a Fund exercises an option and realizes a gain, the gain will be short-term or long-term depending on the period that the stock was held. Writing of covered call options creates a straddle that is potentially subject to the straddle rules, which result in a deferral of some losses for tax purposes.
Non-Principal Investment Strategies, Policies and Risks.
Cash Management. Each of the Buffalo Funds may invest a portion of its assets in cash or high-quality, short-term debt obligations readily changeable into cash. Such high-quality, short-term obligations include money market securities, money market mutual funds, commercial paper, bank certificates of deposit and repurchase agreements that are collateralized by government securities. These investments may be used for cash management purposes and to maintain liquidity in order to satisfy redemption requests or pay unanticipated expenses, or they may be used while the Advisor looks for suitable investment opportunities. There may also be times when a Fund attempts to respond to adverse market, economic, political or other conditions by investing up to 100% of its assets in these types of investments for temporary, defensive purposes. During such times, the Fund taking the defensive position will not be able to pursue its primary investment objective and, instead, will focus on preserving its assets.
In pursuing cash management strategies, the Buffalo Funds apply the following criteria to their investments:
| (1) | certificates of deposit, bankers’ acceptances and other short-term obligations must be issued domestically by U.S. commercial banks having assets of at least $1 billion and which are members of the Federal Deposit Insurance Corporation or holding companies of such banks; |
| (2) | commercial paper will be limited to companies rated P-1 or higher by Moody’s or A-1 or higher by S&P, or if not rated by either Moody’s or S&P, a company’s commercial paper may be purchased if the company has an outstanding bond issue rated Aa or higher by Moody’s or AA or higher by S&P; |
| (3) | the Funds will purchase only short-term debt securities that are non-convertible, that have one year or less remaining to maturity at the date of purchase, and that are rated Aa or higher by Moody’s or AA or higher by S&P; and |
| (4) | the Funds will purchase only negotiable certificates of deposit and other short-term debt obligations of savings and loan associations having assets of at least $1 billion, which are members of the Federal Home Loan Banks Association and insured by the Federal Savings and Loan Insurance Corporation. |
The securities used for cash management can decrease in value. The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of these securities generally declines.
Repurchase Agreements. Each of the Buffalo Funds may invest in issues of the U.S. Treasury or a U.S. government agency subject to repurchase agreements. A repurchase agreement involves the sale of securities to a Fund with the concurrent agreement by the seller to repurchase the securities at the Fund’s cost plus interest at an agreed rate upon demand or within a specified time, thereby determining the yield during the Fund’s period of ownership. As a result, a repurchase agreement provides a fixed rate of return insulated from market fluctuations during such period. The term of a repurchase agreement generally is short, possibly overnight or for a few days, although it may extend over a number of months (up to one year) from the date of delivery. Repurchase agreements are considered under the 1940 Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund. Repurchase agreements will be fully collateralized and the collateral will be marked-to-market daily. The bank or broker-dealer must transfer to the Fund’s custodian securities with an initial market value of at least 102% of the dollar amount invested by the Fund in each repurchase agreement. The market value of the collateral will be monitored and adjusted, as necessary, on an on-going basis to ensure that the collateral is at least equal to 100% of the repurchase price. Investments in repurchase agreements that do not mature in seven days may be considered illiquid securities.
The Funds will enter into repurchase agreements only with U.S. 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 as set from time to time by the Board of Trustees. The term to maturity of a repurchase agreement normally will be no longer than a few days.
Illiquid Securities. The Funds may invest in illiquid securities, but these investments will not exceed more than 15% of a Fund’s net assets. The Funds consider a security to be illiquid if it cannot, due to restrictions on trading or lack of trading and not market action, be sold or disposed of in the ordinary course of business within seven days at approximately the price at which a Fund has valued the security.
Illiquid securities include repurchase agreements and time deposits with notice/termination dates of more than seven days, certain variable-amount master demand notes that cannot be called within seven days, certain insurance funding agreements, certain unlisted over-the-counter options and other securities that are traded in the U.S. but are subject to trading restrictions because they are not registered under the Securities Act of 1933, as amended (the “1933 Act”). Because illiquid securities may be difficult to sell at an acceptable price, they may be subject to greater volatility, which may result in a loss to the Fund.
Restricted Securities. The Funds may invest in securities that are subject to restrictions on resale because they have not been registered under the 1933 Act. These securities are sometimes referred to as private placements. Although securities which may be resold only to “qualified institutional buyers” in accordance with the provisions of Rule 144A under the 1933 Act are technically considered “restricted securities,” the Funds may purchase Rule 144A securities without regard to the limitation on investments in illiquid securities described above in the Illiquid Securities section, provided that a determination is made that such securities have a readily available trading market. The Funds may also purchase certain commercial paper issued in reliance on the exemption from regulations in Section 4(2) of the 1933 Act (“4(2) Paper”). The Advisor will determine the liquidity of Rule 144A securities and 4(2) Paper under the supervision of the Board of Trustees. The liquidity of Rule 144A securities and 4(2) Paper will be monitored by the Advisor and if, as a result of changed conditions, it is determined that a Rule 144A security or 4(2) Paper is no longer liquid, a Fund’s holdings of illiquid securities will be reviewed to determine what, if any, action is required to assure that the Fund does not exceed its applicable percentage limitation for investments in illiquid securities.
Limitations on the resale of restricted securities may have an adverse effect on the marketability of portfolio securities and a Fund might be unable to dispose of restricted securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemption requirements. A Fund might also have to register such restricted securities in order to dispose of them, resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities.
Temporary Defensive Position. The Funds generally hold some cash, short-term debt obligations, government securities, money market instruments or high quality investments for reserves to cover redemptions and unanticipated expenses. There may be times, however, when a Fund attempts to respond to adverse market, economic, political or other conditions by investing up to 100% of its assets in those types of investments for temporary defensive purposes. During those times, a Fund will not be able to pursue its primary investment objective, and, instead, will focus on preserving its assets. Also, a temporary defensive strategy still has the potential to lose money.
Commercial Paper. Commercial paper is an unsecured, short-term loan of a corporation, typically for financing accounts receivable and inventory. Investments in commercial paper are limited to obligations rated Prime-1 by Moody’s or A-1 by S&P or, if not rated by Moody’s or S&P, issued by companies having an outstanding debt issue currently rated Aaa or Aa by Moody’s or AAA or AA by S&P.
Other Investment Companies. Each Fund may invest a portion of its assets in shares of other investment companies, including money market mutual funds, other mutual funds or Exchange-Traded Funds (“ETFs”). A Fund’s investments in money market mutual funds may be a part of its cash management strategy and to maintain liquidity in order to satisfy redemption requests or pay unanticipated expenses. The Buffalo Jayhawk China Fund’s investment in other investment companies may also be in furtherance and of its investment objective of long term growth of capital. The Funds limit their investments in securities issued by other investment companies in accordance with the 1940 Act and the rules and regulations thereunder. In general, Section 12(d)(1) of the 1940 Act precludes a Fund from acquiring: (i) more than 3% of the total outstanding shares of another investment company; (ii) shares of another investment company having an aggregate value in excess of 5% of the value of the total assets of the Fund; or (iii) shares of another registered investment company and all other investment companies having an aggregate value in excess of 10% of the value of the total assets of the Fund. However, Section 12(d)(1)(F) of the 1940 Act provides that the provisions of paragraph 12(d) shall not apply to securities purchased or otherwise acquired by a Fund if: (i) immediately after such purchase or acquisition not more than 3% of the total outstanding shares of such investment company are owned by the Fund and all affiliated persons of the Fund; and (ii) the Fund has not offered or sold, and is not proposing to offer or sell its shares through a principal underwriter or otherwise at a public or offering price that includes a sales load of more than 1 1/2%.
If a Fund invests in investment companies pursuant to Section 12(d)(1)(F), it must comply with the following voting restrictions: when such Fund exercises voting rights, by proxy or otherwise, with respect to investment companies owned by the Fund, the Fund will either seek instruction from the Fund’s shareholders with regard to the voting of all proxies and vote in accordance with such instructions, or vote the shares held by the Fund in the same proportion as the vote of all other holders of such security. In addition, an investment company purchased by a Fund pursuant to Section 12(d)(1)(F) shall not be required to redeem its shares in an amount exceeding 1% of such investment company’s total outstanding shares in any period of less than thirty days. In addition to the advisory and operational fees a Fund bears directly in connection with its own operation, a Fund also bears its pro rata portion of the advisory and operational expenses of each other investment company in which it invests. Furthermore, the use of this strategy could affect the timing, amount and character of distributions to you and therefore may increase the amount of taxes payable to you. Additionally, if a Fund has an investment policy of investing at least 80% of its assets in a particular type of security, such Fund will not include its investments in other investment companies for the purpose of such policy.
In addition, the Funds may also take advantage of certain rules and regulations promulgated under the 1940 Act that may allow them to invest in certain types of funds (i.e. money market funds) in excess of the Section 12(d)(1) limits, provided that such investments would be consistent with a Fund’s investment objectives, policies and restrictions. The Funds, however, currently do not intend to take advantage of such rules and regulations.
A Fund’s investment in other investment companies may consist of shares of ETFs. ETFs are securities whose value tracks a well-known securities index or basket of securities. A Fund’s investments in ETFs are subject to its limitations on investments in other investment companies. The shares of an ETF may be assembled in a block (typically 50,000 shares) known as a creation unit and redeemed in kind for a portfolio of the underlying securities (based on the ETF’s net asset value) together with a cash payment generally equal to accumulated dividends as of the date of redemption. Conversely, a creation unit may be purchased from the ETF by depositing a specified portfolio of the ETF’s underlying securities, as well as a cash payment generally equal to accumulated dividends of the securities (net of expenses) up to the time of deposit. A Fund’s ability to redeem creation units may be limited by the 1940 Act, which provides that the ETFs will not be obligated to redeem shares held by a Fund in an amount exceeding one percent of their total outstanding securities during any period of less than 30 days.
Options, Futures and Similar Financial Instruments
General. The Funds are not prohibited from using options, futures and other strategies. While at the present time, the Funds do not use such strategies, one or more of the Funds may use some of these strategies in the future, given market volatility and the Funds’ respective investment objectives. The Fund may use certain options (both traded on an exchange and over-the-counter (“OTC”)), futures contracts (sometimes referred to as “futures”) and options on futures contracts (collectively, “Financial Instruments”) as a substitute for a comparable market position in the underlying security, to attempt to hedge or limit the exposure of the Fund’s position, to create a synthetic money market position, for certain tax-related purposes and to effect closing transactions.
The use of Financial Instruments is subject to applicable regulations of the SEC, the several exchanges upon which they are traded and the Commodity Futures Trading Commission (the “CFTC”). In addition, the Fund’s ability to use Financial Instruments will be limited by tax considerations. Pursuant to a claim for exemption filed with the National Futures Association on behalf of the Fund, the Fund is not deemed to be a commodity pool operator or a commodity pool under the Commodity Exchange Act and is not subject to registration or regulation as such under the Commodity Exchange Act. In addition to the instruments, strategies and risks described below and in the Prospectus, the Fund’s Advisor may discover additional opportunities in connection with Financial Instruments and other similar or related techniques. These new opportunities may become available as the Advisor develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new Financial Instruments or other techniques are developed. The Advisor may utilize these opportunities to the extent that they are consistent with the Fund’s investment objective and permitted by the Fund’s investment limitations and applicable regulatory authorities. The Prospectus or this SAI will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special considerations and risks, certain of which are described below. Risks pertaining to particular Financial Instruments are described in the sections that follow.
(1) Successful use of most Financial Instruments depends upon the Advisor’s ability to predict movements of the overall securities markets, which requires different skills than predicting changes in the prices of individual securities. The ordinary spreads between prices in the cash and futures markets, due to the differences in the natures of those markets, are subject to distortion. Due to the possibility of distortion, a correct forecast of stock market trends by the Advisor may still not result in a successful transaction. The Advisor may be incorrect in its expectations as to the extent of market movements or the time span within which the movements take place, which, thus, may result in the strategy being unsuccessful.
(2) Options and futures prices can diverge from the prices of their underlying instruments. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect or no correlation also may result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, and from imposition of daily price fluctuation limits or trading halts.
(3) As described below, the Fund might be required to maintain assets as “cover,” maintain segregated accounts or make margin payments when it takes positions in Financial Instruments involving obligations to third parties (e.g., Financial Instruments other than purchased options). If the Fund were unable to close out its positions in such Financial Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair the Fund’s ability to sell a portfolio security or make an investment when it would otherwise be favorable to do so or require that the Fund sell a portfolio security at a disadvantageous time. The Fund’s ability to close out a position in a Financial Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the transaction (the “counter-party”) to enter into a transaction closing out the position. Therefore, there is no assurance that any position can be closed out at a time and price that is favorable to the Fund.
(4) Losses may arise due to unanticipated market price movements, lack of a liquid secondary market for any particular instrument at a particular time or due to losses from premiums paid by the Fund on options transactions.
Options. The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment and general market conditions. Options that expire unexercised have no value. Options currently are traded on the Chicago Board Options Exchange (“CBOE”), the American Stock and Options Exchange (“AMEX”) and other exchanges, as well as the OTC markets.
By buying a call option on a security, the Fund has the right, in return for the premium paid, to buy the security underlying the option at the exercise price. By writing (selling) a call option and receiving a premium, the Fund becomes obligated during the term of the option to deliver securities underlying the option at the exercise price if the option is exercised. By buying a put option, the Fund has the right, in return for the premium, to sell the security underlying the option at the exercise price. By writing a put option, the Fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price.
Because options premiums paid or received by the Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities.
The Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, the Fund may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option. This is known as a closing purchase transaction. Conversely, the Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option. This is known as a closing sale transaction. Closing transactions permit the Fund to realize profits or limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between the Fund and its counter-party (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when the Fund purchases an OTC option, it relies on the counter-party from whom it purchased the option to make or take delivery of the underlying investment upon exercise of the option. Failure by the counter-party to do so would result in the loss of any premium paid by the Fund as well as the loss of any expected benefit of the transaction.
The Fund’s ability to establish and close out positions in exchange-traded options depends on the existence of a liquid market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counter-party or by a transaction in the secondary market if any such market exists. There can be no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counter-party, the Fund might be unable to close out an OTC option position at any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by the Fund could cause material losses because the Fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised.
Cover. Transactions using Financial Instruments, other than purchased options, expose the Fund to an obligation to another party. The Fund will not enter into any such transactions unless it owns either (1) an offsetting (“covered”) position in securities or other options or futures contracts or (2) cash and liquid assets with a value, marked-to-market daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above. The Fund will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash or liquid assets in an account with its custodian, U.S. Bank, N.A. (the “Custodian”), in the prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the position in the corresponding Financial Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of the Fund’s assets to cover accounts could impede portfolio management or the Fund’s ability to meet redemption requests or other current obligations.
Futures Contracts and Options on Futures Contracts. A futures contract obligates the seller to deliver (and the purchaser to take delivery of) the specified security on the expiration date of the contract. An index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying securities in the index is made.
When the Fund writes an option on a futures contract, it becomes obligated, in return for the premium paid, to assume a position in the futures contract at a specified exercise price at any time during the term of the option. If the Fund writes a call, it assumes a short futures position. If it writes a put, it assumes a long futures position. When the Fund purchases an option on a futures contract, it acquires the right in return for the premium it pays to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put).
Whether the Fund realizes a gain or loss from futures activities depends upon movements in the underlying security or index. The extent of the Fund’s loss from an unhedged short position in futures contracts or from writing unhedged call options on futures contracts is potentially unlimited. The Fund only purchases and sells futures contracts and options on futures contracts that are traded on a U.S. exchange or board of trade.
No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract the Fund is required to deposit “initial margin” in an amount generally equal to 10% or less of the contract value. Margin also must be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action.
Subsequent “variation margin” payments are made to and from the futures commission merchant daily as the value of the futures position varies, a process known as “marking-to-market.” Variation margin does not involve borrowing, but rather represents a daily settlement of the Fund’s obligations to or from a futures commission merchant. When the Fund purchases an option on a futures contract, the premium paid plus transaction costs is all that is at risk. In contrast, when the Fund purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If the Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter into offsetting closing transactions, similar to closing transactions in options, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures and options on futures contracts may be closed only on an exchange or board of trade that provides a secondary market. However, there can be no assurance that a liquid secondary market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract or an option on a futures contract can vary from the previous day’s settlement price. Once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain cash or liquid assets in an account.
Risks of Futures Contracts and Options Thereon. The ordinary spreads between prices in the cash and futures markets (including the options on futures markets), due to differences in the natures of those markets, are subject to the following factors, which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationships between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions.
