ck0001135300-20230331
BUFFALO
FUNDS
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BUFFALO
DISCOVERY FUND
Investor Class:
(BUFTX)
Institutional Class: (BUITX)
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BUFFALO
HIGH YIELD FUND
Investor Class:
(BUFHX)
Institutional Class: (BUIHX) |
BUFFALO
DIVIDEND FOCUS FUND
Investor Class:
(BUFDX)
Institutional Class: (BUIDX)
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BUFFALO
INTERNATIONAL FUND
Investor Class:
(BUFIX)
Institutional Class: (BUIIX) |
BUFFALO
EARLY STAGE GROWTH FUND
Investor Class:
(BUFOX)
Institutional Class: (BUIOX)
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BUFFALO
LARGE CAP FUND
Investor Class:
(BUFEX)
Institutional Class: (BUIEX) |
BUFFALO
FLEXIBLE INCOME FUND
Investor Class:
(BUFBX)
Institutional Class: (BUIBX)
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BUFFALO
MID CAP FUND
Investor Class:
(BUFMX)
Institutional Class: (BUIMX) |
BUFFALO
GROWTH FUND
Investor Class:
(BUFGX)
Institutional Class: (BIIGX) |
BUFFALO
SMALL CAP FUND
Investor Class:
(BUFSX)
Institutional Class:
(BUISX) |
STATEMENT
OF ADDITIONAL INFORMATION
July
28, 2023
This
Statement of Additional Information is not a Prospectus but should be read in
conjunction with the Buffalo Funds’ current Prospectus, dated July 28, 2023, as
supplemented. 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
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| INTRODUCTION |
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| GENERAL
INFORMATION AND HISTORY |
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| INFORMATION
ABOUT THE BUFFALO FUNDS’ INVESTMENTS |
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NON-PRINCIPAL
INVESTMENT STRATEGIES, POLICIES AND ASSOCIATED RISKS |
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FUNDAMENTAL
INVESTMENT RESTRICTIONS |
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NON-FUNDAMENTAL
INVESTMENT RESTRICTIONS |
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PORTFOLIO
TURNOVER |
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| FUND
SECURITIES TRANSACTIONS |
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| ADDITIONAL
PAYMENTS TO DEALERS AND FINANCIAL INTERMEDIARIES |
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| SHAREHOLDER
SERVICING PLAN |
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| PURCHASING
AND SELLING SHARES |
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PURCHASES |
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SALES
(REDEMPTIONS) |
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MARKET
TIMERS |
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ANTI-MONEY
LAUNDERING PROGRAM |
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NET
ASSET VALUE |
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VALUATION
OF FOREIGN SECURITIES |
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CALCULATION
OF NAV |
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ADDITIONAL
PURCHASE AND REDEMPTION POLICIES |
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| MANAGEMENT
OF THE FUNDS |
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BOARD
OF TRUSTEES |
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COMMITTEES
OF THE BOARD |
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COMPENSATION
AND REIMBURSEMENT OF OUT-OF-POCKET EXPENSES |
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PORTFOLIO
HOLDINGS DISCLOSURE POLICIES AND PROCEDURES |
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| INVESTMENT
ADVISER AND MANAGER |
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PRINCIPAL
UNDERWRITER |
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CODE
OF ETHICS |
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PROXY
VOTING POLICY |
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CUSTODIAN |
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LEGAL
COUNSEL |
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INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM |
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ADMINISTRATOR |
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TRANSFER
AGENT |
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| PORTFOLIO
MANAGERS OF THE FUNDS |
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| CONTROL
PERSONS AND PRINCIPAL HOLDERS OF THE FUNDS |
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| MANAGEMENT
OWNERSHIP OF THE FUNDS |
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| DISTRIBUTIONS
AND TAXES |
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| FINANCIAL
STATEMENTS |
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| APPENDIX
A – RATINGS DEFINITIONS |
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INTRODUCTION
This
Statement of Additional Information (“SAI”) provides additional information
concerning the organization, operation and management of the Buffalo Discovery
Fund (the “Discovery Fund”), Buffalo Dividend Focus Fund (the “Dividend Focus
Fund”), Buffalo Early Stage Growth Fund (the “Early Stage Growth Fund”), Buffalo
Flexible Income Fund (the “Flexible Income Fund”), Buffalo Growth Fund (the
“Growth Fund”), Buffalo High Yield Fund (the “High Yield Fund”), Buffalo
International Fund (the “International Fund”), Buffalo Large Cap Fund (the
“Large Cap Fund”), Buffalo Mid Cap Fund (the “Mid Cap Fund”), and Buffalo Small
Cap Fund (the “Small Cap Fund”), (each a “Fund,” and collectively, the “Buffalo
Funds” or the “Funds”), each a series of Buffalo Funds, a Delaware statutory
trust (the “Trust”). Effective October 16, 2020, the Early Stage Growth Fund’s
name was changed from the “Buffalo Emerging Opportunities Fund” to the “Buffalo
Early Stage Growth Fund.”
The
Trust is an open-end, management investment company under the Investment Company
Act of 1940, as amended (the “1940 Act”). Each of the Funds in the Trust is
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 (“RICs”) under Subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”). As RICs, the Funds are generally not subject to federal
income taxes on amounts distributed to shareholders provided that the Funds
comply with all applicable Code requirements regarding the sources of their
income, the timing, amount, and character of their distributions, and the
diversification of their assets. 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) at least 50% of the value of the Fund’s assets consists
of cash, cash equivalents, U.S. government securities, securities of other RICs,
and other acceptable securities with such other securities limited, in respect
to any one issuer, to an amount not greater in value than 5% of the value of the
Fund’s total assets and to not more than 10% of the outstanding voting
securities of such issuer; and (ii) no more than 25% of the value of the Fund’s
assets may be invested in the securities of any one issuer (other than U.S.
government securities or securities of other RICs), or of any two or more
issuers that are controlled, as determined under applicable Code rules, by the
Fund and that are engaged in the same, similar, or related trades or businesses,
or of certain qualified publicly traded partnerships.
Kornitzer
Capital Management, Inc. serves as each Fund’s manager and investment adviser
(“KCM” or the “Adviser”). KCM oversees the investment program and management of
each Fund’s investments and 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.
With
respect to the Funds, the Trust may offer more than one class of shares. Each
share of a series or class represents an equal proportionate interest in that
series or class with each other share of that series or class. The Trust, on
behalf of the Funds, has adopted a multiple class plan under Rule 18f-3 under
the 1940 Act, detailing the attributes of the Funds’ share classes. The Funds
offer two classes of shares: Investor Class shares and Institutional Class
shares.
An
unlimited number of shares of beneficial interest in the Trust were authorized
for each series of the Trust. 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 Buffalo Funds have non-cumulative voting rights, which means that
the holders of more than 50% of the shares of the Buffalo Funds 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 BUFFALO 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.
Investment
Objectives
Discovery
Fund, Early Stage Growth Fund, Growth Fund, International Fund, Large Cap Fund,
Mid Cap Fund, and Small Cap Fund –
the investment objective of each Fund is long-term growth of
capital.
Dividend
Focus Fund and High Yield Fund
– the investment objective of each Fund is current income, with long-term growth
of capital as a secondary objective.
Flexible
Income Fund
– the investment objective of the Flexible Income Fund is the generation of high
current income and, as a secondary objective, long-term growth of
capital.
Changes
to investment objectives, strategies or policies.
Unless otherwise stated, a Fund’s investment objectives, 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 60
days’ advance written notice of the change to shareholders. The Dividend Focus,
High Yield, Large Cap, Mid Cap and Small Cap Funds will not change their
investment policies of investing at least 80% of the Fund’s net assets in
investments suggested by such Fund’s name without first providing shareholders
with at least 60 days’ prior written notice. The Early Stage Growth Fund has a
strategy of normally investing at least 80% of its net assets according to a
particular strategy and will not change its investment objective without
providing 60 days’ advance written notice of the change to
shareholders.
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
Adviser looks for suitable investment opportunities. There may also be times
when a Fund attempts to respond to market, economic or political conditions by
investing up to 100% of its assets in these types of investments. During such
times, the Fund taking the defensive position may not be able to pursue its
primary investment objective and, instead, may 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 Investors
Services, Inc. (“Moody’s”) or A-1 or higher by S&P Global Ratings
(“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;
(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; and
(5)the
Funds will invest in U.S. Government obligations, which include securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities, such as the U.S. Treasury.
Repurchase
Agreements.
Each of the Buffalo Funds may invest in repurchase agreements in accordance with
regulatory requirements. 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 counter-party (usually a 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.
The
use of repurchase agreements by a Fund involves certain risks. For example, if
the other party to a repurchase agreement defaults on its obligation to
repurchase the underlying security at a time when the value of the security has
declined, a Fund may incur a loss upon disposition of the security. If the other
party to the agreement becomes insolvent and subject to liquidation or
reorganization under the bankruptcy code or other laws, a court may determine
that the underlying security is collateral for the loan by a Fund not within the
control of that Fund, and therefore the realization by a Fund on the collateral
may be automatically stayed. Finally, it is possible that a Fund may not be able
to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Adviser
acknowledges these risks, it is expected that if repurchase agreements are
otherwise deemed useful to a Fund, these risks can be controlled through careful
monitoring procedures.
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 the Funds reasonably expect that a security cannot be sold or
disposed of in current market conditions in seven calendar days or less without
significantly changing the market value of the security. In the event that a
Fund’s holdings in illiquid securities exceeds 15% of its net assets due to
market factors, the Fund will make such adjustments necessary to reduce its
holdings in illiquid securities to comply with the 15% limitation. 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 Securities Act of 1933, as
amended (the “1933 Act”). These securities are sometimes referred to as private
placements. The Funds may also purchase certain commercial paper issued in
reliance on the exemption from registration in Section 4(a)(2) of the 1933 Act
(“4(a)(2) Paper”). The Adviser will determine the liquidity of Rule 144A
securities and 4(a)(2) Paper pursuant to the Funds’ liquidity risk management
program.
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.
Derivatives.
The
regulation of derivatives markets in the United States is a rapidly changing
area of law and is subject to modification by government and judicial action.
New laws and regulations may negatively impact the Funds by increasing
transaction or regulatory compliance costs, limiting the availability of certain
derivatives, or otherwise adversely affecting the value or performance of
derivatives the Funds trade. Each Fund, to the extent it invests in derivatives,
qualifies as a limited derivatives user as defined by Rule 18f-4 under the 1940
Act as of the date of this SAI. Rule 18f-4 requires the Fund to comply with a
10% notional exposure-based limit on derivatives transactions and to adopt
written policies and procedures reasonably designed to manage the Fund’s
derivatives risks. Complying with the Derivatives Rule may increase the cost of
a Fund’s investments and cost of doing business. Other potentially adverse
regulatory obligations can develop suddenly and without notice.
Covered
Call Options.
As a non-principal investment strategy, 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.
A
Fund’s derivatives exposure including the selling of covered call options may
not exceed 10% of net assets.
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 the purchaser of a covered call option written by the Fund exercises
such option and the Fund realizes a gain, the gain will be short-term or
long-term depending on the period that the stock was held by the Fund. Writing
of covered call options may be subject to the straddle rules of the Code, which
could result in a deferral of some losses for federal income tax
purposes.
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 or political 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 Funds may rely on Rule
12d1-4 under the 1940 Act, which allows a Fund to invest in other registered
funds, including exchange traded funds, in excess of the limits set forth in
Section 12(d)(1) if the Fund satisfies certain conditions specified in the Rule.
Among other conditions, a Fund and its advisory group may not control
(individually or in the aggregate) an acquired fund (namely, hold more than 25%
of the outstanding voting securities of an acquired fund that is a registered
open-end management investment company). 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.
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 by 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.
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.
Bank
Loan Risk. The
Funds’ investments in secured and unsecured participations in bank loans and
assignments of such loans may create substantial risk. In making investments in
such loans, which banks or other financial intermediaries make to borrowers, a
Fund will depend primarily upon the creditworthiness of the borrower for payment
of principal and interest. If a Fund does not receive scheduled interest or
principal payments on such indebtedness, the Fund’s share price could be
adversely affected. A Fund may invest in loan participations that are rated by a
nationally recognized statistical rating organization or are unrated, and may
invest in loan participations of any credit quality, including loans to
“distressed” companies with respect to which there is a substantial risk of
losing the entire amount invested. In addition, certain bank loans in which a
Fund may invest may be illiquid and, therefore, difficult to value and/or sell
at a price that is beneficial to the Fund. Bank loans often have contractual
restrictions on resale, which can delay the sale and adversely impact the sale
price.
FUNDAMENTAL
INVESTMENT RESTRICTIONS
The
Board of Trustees has adopted the following investment restrictions as
fundamental policies for each of the respective Buffalo Funds as stated below.
These investment restrictions cannot be changed without
the
approval of a majority of the outstanding voting securities of the applicable
Fund, which means, under the 1940 Act, the vote of: (1) more than 50% of the
outstanding voting securities of a Fund; or (2) 67% or more of the voting
securities of a Fund present at a meeting, if the holders of more than 50% of
the outstanding voting securities are present or represented by proxy at the
meeting, whichever is less. Many of these investment restrictions recite the
current legal or regulatory requirements. When the legal or regulatory
requirements change, a Fund’s applicable investment restrictions may also be
modified to reflect the new legal or regulatory requirements without seeking
shareholder approval, so long as any such modification is consistent with a
Fund’s investment objective, strategies and policies.
Each
Fund will not:
(1)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 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);
(2)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;
(3)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);
(4)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 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(a),(b),(c),(d);
(5)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 from a bank in amounts not exceeding one-third
of its total assets (including the amount borrowed) and up to 5% of its total
assets for temporary purposes;
(6)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)(e)
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);
or
(7)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.
(a)The
33 1/3% limit refers to the restrictions on borrowing and issuing senior
securities under the 1940 Act. Although the Fund is permitted to make loans,
loans are also subject to the limit of 33 1/3% of the Fund’s total
assets.
(b)Pledging
of Assets: A pledged asset is an asset that is transferred to a lender for the
purpose of securing debt. The lender of the debt maintains possession of the
pledged asset, but does not have ownership unless default occurs. Under the
regulatory restrictions of the 1940 Act, a Fund may pledge assets only if it
conforms with requirements that no more than 33 1/3% of the Fund’s net assets
are encumbered, either through a pledge of assets as collateral or other forms
of encumbrance. In addition, the 1940 Act imposes other restrictions regarding,
among other things, the manner in which assets may be pledged. The Buffalo Funds
currently do not engage in the pledging of assets.
(c)Securities
Lending: The 1940 Act generally permits a Fund to lend portfolio securities,
provided that the Fund has adopted a fundamental investment policy permitting
the making of loans to other persons. The Buffalo Funds each have a Fundamental
Investment Restriction which permits lending pursuant to the regulatory
requirements. In addition, the SEC staff has developed guidelines regulating the
securities lending activities of funds, which guidelines are set out primarily
in a series of SEC staff no-action letters. The guidelines developed by the SEC
staff relating to securities lending activities are summarized
below:
•Collateral.
With
respect to each loan, the Fund must receive eligible collateral equal to at
least 100% of the market value of the securities loaned. Collateral must be
marked daily to account for any increases in the market value of the securities
loaned and/or decreases in the market value of the collateral
•Termination.
The Fund must have the right to terminate the loan at any time and recall the
securities within the normal and customary settlement time for the loaned
securities.
•Returns.
The Fund must receive a reasonable return on the loan.
•Fees.
With the approval of the Board of Trustees, a Fund may pay reasonable fees to
entities engaged in securities lending activities on behalf of the
Fund.
•Voting
Rights.
A Fund must be able to exercise voting rights with respect to material matters
for issuers of securities loaned.
•Loan
Limit.
A Fund may not loan securities with a value in excess of one-third of its total
asset value.
(d)Repurchase
Agreements: 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. All of the Buffalo Funds are authorized to use
repurchase agreements as a non-principal investment strategy, and subject to
market conditions, currently intend to invest no more than 10% of net assets in
repurchase agreements.
(e)SEC
position on Industry Concentration: The 1940 Act requires a Fund to disclose a
policy or intention to concentrate in any industry or group of industries. The
SEC Staff has taken the position that an investment of 25% or more of a Fund’s
total assets in a particular industry is considered “concentration” in that
industry. (See,
e.g.,
Guide 19 of Form N-1A.) The Staff position also applies to the holding of debt
securities. For purposes of this Fundamental Investment Restriction, the
limitation on concentrating in “any one industry” also applies to any “group of
industries”. Each Fund may be concentrated in a sector but will not be
concentrated in any industry or group of industries.
NON-FUNDAMENTAL
INVESTMENT RESTRICTIONS
In
addition to the objectives, strategies and policies described in the Prospectus
and this SAI and the fundamental investment restrictions described above, the
Board of Trustees has adopted the following investment restrictions as
non-fundamental policies for the respective Buffalo Funds. The Board of Trustees
may change these non-fundamental investment restrictions without shareholder
approval.
(1)Each
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 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.
(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 Dividend Focus, Early Stage Growth Fund, High Yield, Large Cap, Mid Cap
and Small Cap Funds will not change their respective investment policy of
investing at least 80% of the Fund’s net assets according to the principal
strategies described in the Funds’ prospectus without first providing
shareholders with at least 60 days’ prior notice.
PORTFOLIO
TURNOVER
Although
the Funds generally will not invest for short-term trading purposes, portfolio
securities may be sold without regard to the length of time they have been held
when, in the opinion of the Adviser, investment considerations warrant such
action. Portfolio turnover rate is calculated by dividing (1) the lesser of
purchases or sales of portfolio securities for the fiscal year by (2) the
monthly average of the value of portfolio securities owned during the fiscal
year. A 100% turnover rate would occur if all the securities in a Fund’s
portfolio, with the exception of securities whose maturities at the time of
acquisition were one year or less, were sold and either repurchased or replaced
within one year. A high rate of portfolio turnover (100% or more) generally
leads to higher transaction costs and may generate capital gains, including
short-term capital gains taxable to shareholders at ordinary income
rates.
The
portfolio turnover rates for the Funds as of the fiscal years ended March 31,
2023 and 2022 were as follows:
|
|
|
|
|
|
|
|
| |
|
| Portfolio
Turnover |
| Name
of Fund |
2023 |
2022 |
| Discovery
Fund |
26% |
41% |
| Dividend
Focus Fund |
2% |
4% |
| Early
Stage Growth Fund |
10% |
34% |
| Flexible
Income Fund |
1% |
4% |
| Growth
Fund |
11% |
13% |
| High
Yield Fund |
30% |
41% |
| International
Fund |
8% |
13% |
| Large
Cap Fund |
46% |
83% |
| Mid
Cap Fund |
23% |
19% |
| Small
Cap Fund |
44% |
59% |
FUND
SECURITIES TRANSACTIONS
The
Funds’ Adviser makes the decisions about buying and selling securities for the
Buffalo Funds. It selects brokers and dealers to execute securities
transactions, allocate portfolio brokerage and principal business and negotiate
commissions and prices for securities. In instances where securities are
purchased on a commission basis, the Funds’ Adviser seeks best execution of
transactions at competitive and reasonable commission rates based on all
circumstances related to the trade. The Funds paid the following brokerage
commissions during the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Fiscal
Year Ended March 31, |
| Name
of Fund |
2023 |
2022 |
2021 |
| Discovery
Fund |
$600,091(1) |
$947,554(2) |
$1,398,615 |
| Dividend
Focus Fund |
$18,330 |
$10,059 |
$22,311 |
| Early
Stage Growth Fund |
$83,165(1) |
$209,993 |
$178,554 |
| Flexible
Income Fund |
$55,213 |
$42,592 |
$74,318 |
| Growth
Fund |
$40,639 |
$36,529 |
$32,595 |
| High
Yield Fund |
$5,262 |
$3,090 |
$13,026 |
| International
Fund |
$136,815 |
$189,328 |
$173,226 |
| Large
Cap Fund |
$25,254 |
$48,025 |
$9,261 |
| Mid
Cap Fund |
$66,140 |
$54,795 |
$95,365 |
| Small
Cap Fund |
$1,115,708(1) |
$1,516,284(3) |
$1,228,448 |
(1)The
decrease in the Discovery, Early Stage Growth and Small Cap Funds’ brokerage
commissions from 2022 to 2023 is attributable to a decrease in portfolio
turnover.
(2)The
decrease in the Discovery Fund’s brokerage commissions from 2021 to 2022 is
attributable to a decrease in portfolio turnover.
(3)The
increase in the Small Cap Fund’s brokerage commissions from 2021 to 2022 is
attributable to an increase in the number of shares transacted due to a lower
share price.
The
level of brokerage commissions generated by a Fund is directly related to the
number and the size of the buy and sell transactions into which the Fund enters.
The frequency and size of these transactions are affected by various factors
such as cash flows into and out of a Fund, the Adviser’s interpretation of the
market or economic environment, etc.
The
Funds believe it is in their best interest to have a stable and continuous
relationship with a diverse group of financially strong and technically
qualified broker-dealers who will provide quality executions at competitive
rates. Broker-dealers meeting these qualifications also will be selected for
their demonstrated loyalty to the respective Fund, when acting on its behalf, as
well as for any research services provided to the respective Fund. The Funds may
execute a substantial portion of the portfolio transactions through brokerage
firms that are members of the NYSE or through other major securities exchanges.
When buying securities in the over-the-counter market, the Funds will select a
broker who maintains a primary market for the security unless it appears that a
better combination of price and execution may be obtained elsewhere. The Funds
will not normally pay a higher commission rate to broker-dealers providing
benefits or services to it than it would pay to broker-dealers who did not
provide such benefits or services. However, the Funds reserve the right to do so
within the principles set out in Section 28(e) of the Securities Exchange Act of
1934, as amended, when it appears that this would be in the best interests of
the shareholders. The nature of research services the Funds may receive includes
(1) advice furnished, either directly or through publications or writings, as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities and/or (2) analyses and reports furnished concerning issuers,
industries, securities, economic
factors
and trends, portfolio strategy, and the performance of accounts.
No
commitment is made to any broker or dealer with regard to placing of orders for
the purchase or sale of Fund’s portfolio securities. Allocation is reviewed
regularly by both the Board of Trustees and the Adviser.
Although
the Funds may place portfolio orders with qualified broker-dealers who recommend
the Funds to their clients, or who act as agent in the purchase of the Funds’
shares for their clients, the Funds do not consider the sale of Fund shares as a
factor when selecting broker-dealers to effect portfolio
transactions.
Research
services furnished by broker-dealers may be useful to the Adviser in serving
other clients, as well as the respective Buffalo Funds. Likewise, the Funds may
benefit from research services obtained by the Adviser from the placement of
their other clients’ portfolio brokerage.
When
the Adviser, in its fiduciary capacity, believes it to be in the best interest
of a Fund’s shareholders, a Fund may join with the Adviser’s other clients in
acquiring or disposing of a security. Securities acquired or proceeds obtained
will be equitably distributed among the Fund and the Adviser’s other clients
participating in such a transaction. In some instances, this investment
procedure may affect the price paid or received by a Fund or the size of the
position obtained by a Fund.
The
Funds are required to identify any securities of their “regular brokers or
dealers” that a Fund has acquired during its most recent fiscal year. During the
fiscal year ended March 31, 2023, the Funds did not acquire any such securities.
The
Funds are also required to identify any brokerage transactions during their most
recent fiscal year that were directed to a broker because of research services
provided, along with the amount of any such transactions and any related
commissions paid by the Funds.
The
following table below indicates the total amount of brokerage commissions paid
by each Fund for transactions directed to a broker because of research services
provided during the fiscal year ended March 31, 2023.
|
|
|
|
|
|
|
|
| |
|
| Fiscal
Year Ended March 31, 2023 |
| Fund
Name |
Commissions |
Transactions |
| Discovery
Fund |
$154,501 |
$317,809,653 |
| Dividend
Focus Fund |
10,258 |
10,491,200 |
| Early
Stage Growth Fund |
31,250 |
10,938,199 |
| Flexible
Income |
28,258 |
11,521,411 |
| Growth
Fund |
10,807 |
23,149,180 |
| High
Yield Fund |
4,317 |
2,213,145 |
| International
Fund |
17,807 |
16,999,888 |
| Large
Cap Fund |
7,975 |
47,576,387 |
| Mid
Cap Fund |
37,728 |
41,050,622 |
| Small
Cap |
492,922 |
344,502,245 |
ADDITIONAL
PAYMENTS TO DEALERS AND FINANCIAL INTERMEDIARIES
The
Adviser and/or the Funds’ distributor, Quasar Distributors, LLC (the
“Distributor”), out of their own resources and not out of Fund assets
(i.e.,
without additional cost to the Funds or their shareholders), may provide
additional cash payments or non-cash compensation to some, but not all, brokers
and other financial intermediaries who sell shares of the Fund. Such payments
and compensation are in addition to any service fees and other fees paid by the
Fund to such brokers and other financial intermediaries. These arrangements are
sometimes referred to as “revenue sharing” arrangements. Revenue sharing
arrangements are not financed by the Funds, and thus, do not result in increased
Fund expenses. They are not reflected in the fees and expenses listed in the
fees and expenses sections of the Funds’ prospectus.
Such
additional cash payments may be made to brokers, dealers and other financial
intermediaries that provide services to the Funds and/or investors in the Funds,
including (without limitation) shareholder servicing and marketing support.
These payments may take a variety of forms, including (without limitation)
compensation for sales, “trail” fees for shareholder servicing and maintenance
of investor accounts, and finder’s fees that vary depending on the Fund and the
dollar amount of shares sold. The level of payments made to a qualifying
financial intermediary in any given year will vary. Revenue sharing payments may
be structured: (i) as a percentage of net sales; (ii) as a percentage of net
assets; and/or (iii) as a fixed dollar-amount. As of the date of this SAI, the
maximum amount of additional compensation that the Adviser or Distributor is
paying to any intermediary from its own assets is 0.40% of average daily net
assets attributable to the financial intermediary.
These
payments may provide an additional incentive to financial intermediaries to
actively promote the Funds. Depending on the arrangements in place at any
particular time, a financial intermediary may have a financial incentive to
recommend a particular Fund. Your financial intermediary may charge you
additional fees and commissions. You should consult your dealer or financial
intermediary for more details about any such payment it receives. As of the date
of this SAI, the Adviser or Distributor may pay a more substantial amount of
additional cash payments to the following firms in connection with the sale of
Fund shares: Charles Schwab; Pershing LLC; Fidelity Brokerage Services, Inc.;
Nationwide Investment Services Corp.; National Investor Services Corporation;
and Invesmart Securities, LLC.
Although
a financial intermediary that sells Fund shares may also act as a broker or
dealer in connection with a Fund’s purchase or sale of portfolio securities, the
Adviser does not consider a financial intermediary’s sale of shares of a Fund as
a factor when choosing brokers or dealers to effect portfolio transactions for
the Funds.
SHAREHOLDER
SERVICING PLAN
The
Trust has adopted a Shareholder Servicing Plan (the “Shareholder Servicing
Plan”) on behalf of the Investor Class shares of the Funds, which authorizes the
Funds to pay Investor Class shareholder support services from a Fund’s assets
pursuant to a Shareholder Servicing Agreement in an amount not to exceed 0.15%
of a Fund’s average daily net assets attributable to Investor Class shares. The
Funds are responsible for paying a portion of shareholder servicing fees to each
of the shareholder servicing agents who have written shareholder servicing
agreements with the Funds, perform shareholder servicing functions and maintain
shareholder accounts on behalf of Investor Class shareholders.
The
table below shows the amount of shareholder servicing fees paid during the past
three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Fiscal
Year Ended March 31, |
| Name
of Fund |
2023 |
2022 |
2021 |
| Discovery
Fund |
$1,222,555 |
$2,022,322 |
$2,080,950 |
| Dividend
Focus Fund |
$43,164 |
$46,320 |
$40,881 |
| Early
Stage Growth Fund |
$82,008 |
$127,519 |
$97,160 |
| Flexible
Income Fund |
$467,745 |
$433,814 |
$426,383 |
| Growth
Fund |
$117,668 |
$173,289 |
$163,212 |
| High
Yield Fund |
$75,056 |
$81,890 |
$73,017 |
| International
Fund |
$337,130 |
$429,851 |
$364,338 |
| Large
Cap Fund |
$41,846 |
$60,436 |
$53,494 |
| Mid
Cap Fund |
$113,726 |
$160,971 |
$148,659 |
| Small
Cap Fund |
$709,582 |
$1,257,921 |
$870,904 |
PURCHASING
AND SELLING SHARES
PURCHASES
Neither
the Funds nor the entities that provide services to them (the “Fund Complex”)
will be responsible for the consequences of delays, including delays in the
banking or Federal Reserve wire systems. The Funds cannot process transaction
requests that are not completed properly. If you use the services of any other
broker to purchase or redeem shares of the Fund, that broker may charge you a
fee. Shares of the Funds may be purchased directly from the Fund without these
fees. Each order accepted will be fully invested in whole and fractional shares
of the Funds, unless the purchase of a certain number of whole shares is
specified, at the net asset value (“NAV”) per share next effective after the
order is accepted by the Fund.
Each
investment is confirmed by a year-to-date statement that provides the details of
the immediate transaction, plus all prior transactions in the account for the
current year. This includes the dollar amount invested, the number of shares
purchased or redeemed, the price per share, and the aggregate shares owned. A
transcript of all activity in the account during the previous year will be
furnished each January. By retaining each annual summary and the last
year-to-date statement, a customer will have a complete detailed history of the
account that also provides necessary tax information. Annual statements are
available from the Funds’ “Transfer Agent” at its cost, subject to a minimum
charge of $5 per account, per year requested.
The
shares you purchase are held by the Fund in book-entry form, thereby relieving
you of the responsibility of providing for the safekeeping of a negotiable share
certificate. The Funds will not issue share certificates.
The
Fund Complex reserves the right in its sole discretion to withdraw all or any
part of the offering made by the Prospectus or to reject purchase orders when,
in the judgment of Fund management, such withdrawal or rejection is in the best
interest of the Funds and their shareholders. Further, the Funds reserve the
right to reject any purchase order for any reason or no reason at
all.
The
Fund Complex reserves the right to refuse to accept orders for Fund shares
unless accompanied by payment, except when a responsible person has agreed to
indemnify the Funds against losses resulting from the failure of investors to
make payment. If an order to purchase shares must be canceled due to
non-payment,
the purchaser will be responsible for any loss incurred by the Fund arising out
of such cancellation. To recover any such loss, the Fund Complex reserves the
right to redeem shares owned/held by any purchaser whose order is canceled. A
$25 return item charge, which will be paid from the redemption of additional
shares, will also be incurred by the purchaser. The purchaser may also be
prohibited from, or restricted in, placing further orders. If an order is
cancelled or rejected for any reason, the investor will be notified within one
to two business days.
SALES
(REDEMPTIONS)
The
Funds will not be responsible for the consequences of delays that are out of its
immediate control, including delays in the banking or Federal Reserve wire
systems. The Funds cannot process transaction requests that are not completed
properly.
The
Funds may suspend the right of redemption or postpone the date of payment beyond
the normal three-day redemption period under the following conditions authorized
by the 1940 Act: (1) for any period (a) during which the NYSE is closed, other
than customary weekend and holiday closing, or (b) during which trading on the
NYSE is restricted; (2) for any period during which an emergency exists as a
result of which (a) disposal of a Fund’s securities is not reasonably practical,
or (b) it is not reasonably practical for a Fund to determine the fair value of
its net assets; (3) under certain circumstances where certain shareholders are
attempting to “time the market” (see “Market Timers” below”) by purchasing and
redeeming shares of a Fund on a regular basis; or (4) for such other periods as
the SEC may by order permit for the protection of a Fund’s
shareholders.
The
Funds have elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to
which the Funds are obligated to redeem shares solely in cash up to the lesser
of $250,000 or 1% of a Fund’s NAV during any 90-day period for any one
shareholder. Should redemptions by any shareholder exceed such limitation, a
Fund may redeem the excess in-kind. If shares are redeemed in kind, the
redeeming shareholder will incur expenses subsequently converting the securities
into cash and would bear any market risk until such securities are converted
into cash. For federal income tax purposes, redemptions in kind are taxed in the
same manner to a redeeming shareholder as redemptions made in cash.
MARKET
TIMERS
The
Board of Trustees has adopted policies and procedures with respect to frequent
purchases and redemptions of Fund shares by Fund shareholders. These policies
are summarized below.
Frequent
purchases and redemptions of a Fund’s shares may present certain risks for the
Fund and its shareholders. These risks may include, among other things, dilution
in the value of Fund shares held by long-term shareholders, interference with
the efficient management of the Fund’s portfolio and increased brokerage and
administrative costs. A Fund may have difficulty implementing long-term
investment strategies if it is unable to anticipate what portion of its assets
it should retain in cash to provide liquidity to its shareholders.
The
Funds do not allow market timers. A Fund may refuse to sell shares to market
timers and will take actions necessary to stop market timing activity, including
closing any account to new purchases believed to be held by or for a market
timer. You will be considered a market timer if you: (i) have requested a
redemption or exchange of Fund shares within 90 days of an earlier purchase or
exchange request; (ii) make investments of large amounts followed by a
redemption or exchange request shortly after the purchase; or (iii) otherwise
seem to follow a timing pattern. Shares under common ownership or control are
combined for these purposes.
ANTI-MONEY
LAUNDERING PROGRAM
The
Funds are required to comply with various federal anti-money laundering laws and
regulations. Consequently, the Funds may be required to “freeze” the account of
a shareholder if the shareholder appears to be involved in suspicious activity
or if certain account information matches information on government lists of
known terrorists or other suspicious persons, or the Funds may be required to
transfer the account or proceeds of the account to a government agency. In
addition, pursuant to the Funds’ Customer Identification Program, the Transfer
Agent will complete a thorough review of all new opening account applications
and will not transact business with any person or legal entity whose identity
and beneficial owners, if applicable, cannot be adequately
verified.
NET
ASSET VALUE
The
NAV and offering price of shares of the Funds will be determined once daily as
of the close of public trading on the NYSE (generally 4:00 p.m. Eastern time) on
each day that the NYSE is open for trading. The Funds do not expect to determine
the net asset value of their shares on any day when the NYSE is not open for
trading, days on which changes in the value of portfolio securities will not
materially affect a Fund’s NAV, days during which a Fund receives no purchase or
redemption orders, customary holidays and days when the national securities
exchanges are not open for unrestricted trading. The Funds do not compute their
NAV on days when the NYSE is closed or on the following customary
holidays:
New
Year’s Day January 1
Martin
Luther King Jr. Day Third Monday in January
Presidents’
Day Third Monday in February
Good
Friday Friday before Easter
Memorial
Day Last Monday in May
Juneteenth
National Independence Day June 19
Independence
Day July 4
Labor
Day First Monday in September
Thanksgiving
Day Fourth Thursday in November
Christmas
Day December 25
In
valuing the Funds’ assets for calculating NAV, readily marketable portfolio
securities listed on a national securities exchange (including ADRs) are valued
at the last sale price on the business day as of which such value is being
determined. Fund securities listed on NASDAQ will be valued at the NASDAQ
Official Closing Price, which may not necessarily represent the last sale price.
If there has been no sale on such exchange or on NASDAQ on such day, the
security is valued at the mean between the most recent quoted bid and ask price.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the last sale price in the over-the-counter market. If a
non-exchange traded security does not trade on a particular day, then the mean
between the closing bid and asked price will be used.
If
market quotations are not readily available or when they may not reflect the
actual market value, a security or other asset will be valued at its fair value
in accordance with Rule 2a-5 under the 1940 Act.
Debt
securities with remaining maturities of 60 days or less are valued at the last
sale price reported. If there is no trade on the particular day, then the
security will be priced at the mean between the most recent bid and asked
prices. U.S. Government and Agency Securities are valued at the mean between the
most recent bid and asked prices provided by a pricing service. Other debt
securities are valued at the mean between the closing bid and the asked prices
provided by a pricing service. Cash and receivables will be valued at their face
amounts. Interest will be recorded as accrued, and dividends will be recorded
on
their ex-dividend date. All other assets of the Funds are valued in such manner
as the Board of Trustees in good faith deems appropriate to reflect their fair
value.
Exchange
traded options are valued at the composite price, using the National Best Bid
and Offer quotes (“NBBO”). NBBO consists of the highest bid prices and lowest
ask prices across any of the exchanges on which an option is quoted, thus
providing a view across the entire U.S. options marketplace. Specifically,
composite pricing looks at the last trades on the exchanges where the options
are traded. If there are no trades for the option on a given business day,
composite option pricing calculates the mean of the highest bid price and lowest
ask price across the exchanges where the option is traded. Non-exchange traded
options also will be valued at the mean between the last bid and asked
quotations.
Redeemable
securities issued by open-end investment companies and held by a Fund are valued
on any given business day using the respective NAVs of such companies for
purchase and/or redemption orders placed on that day.
The
Funds have adopted fair valuation procedures for use in appropriate
circumstances.
As
part of these procedures, the Board of Trustees has designated the Adviser to
serve as Valuation Designee to perform fair value determinations with respect to
all of the Funds’ investments, when necessary.
If
no price, or in KCM’s determination no price representing fair value, is
provided for a security held by a Fund by an independent pricing agent, then the
security shall be fair valued.
In
using fair value pricing, a Fund attempts to establish the price that it might
reasonably have expected to receive upon a sale of the security at the close of
public trading on the NYSE, (generally 4:00 p.m. Eastern time).
Due
to the subjective and variable nature of fair value pricing, it is possible that
the value determined for a particular security may be materially different from
the value realized upon its sale.
VALUATION
OF FOREIGN SECURITIES
Under
normal market conditions, the International Fund determines the value of a
foreign security as of the close of trading on the foreign stock exchange on
which the security is primarily traded, or as of the close of trading on the
NYSE, if earlier. The value is then converted into its U.S. dollar equivalent at
the foreign exchange rate in effect at the close of public trading on the NYSE
(generally 4:00 p.m. Eastern time) on the day that the value of the foreign
security is determined. If no sale is reported at that time, the foreign
security will be valued at the mean between the most recent quoted bid and ask
price. Occasionally events (such as repatriation limits or restrictions) may
impact the availability or reliability of foreign exchange rates used to convert
the U.S. dollar equivalent value. If such an event occurs, the foreign exchange
rate will be valued at fair value using the Trust’s and the Adviser’s fair value
pricing procedures subject to oversight by the Board of Trustees.
Trading
in securities on foreign securities stock exchanges and over-the-counter
markets, such as those in Europe and Asia, may be completed well before the
close of business on the NYSE on each day that the NYSE is open. Occasionally,
events occur between the time at which trading in a foreign security is
completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a foreign portfolio
security held by the Funds. As a result, the Funds may be susceptible to what is
referred to as “time zone arbitrage.” Certain investors in a Fund may seek to
take advantage of discrepancies in the value of the Fund’s portfolio securities
as determined by the foreign market at its close and the latest indications of
value attributable to the portfolio securities at the time the Fund’s NAV is
computed. This type of trading may dilute the value of a Fund’s shares if such
discrepancies in security values actually exist. To attempt to minimize the
possibilities for time zone arbitrage, and in accordance with procedures
established by the Trust and Adviser and subject to the oversight by the Board
of Trustees, the Funds’ portfolio managers monitor price movements following the
close of trading in foreign stock markets through a series of country specific
market proxies (such as
baskets
of depositary receipts, futures contracts and exchange traded
funds).
These
price movements are measured against established trigger thresholds for each
specific market proxy to assist in determining if an event has occurred that
might call into question the availability (including the reliability) of the
values of foreign securities between the times at which they are determined and
the close of the NYSE. If such an event occurs, the foreign securities may be
valued using the Trust’s and Adviser’s fair value pricing procedures subject to
oversight by the Board of Trustees. In certain circumstances these procedures
include the use of independent pricing services. The intended effect of applying
fair value pricing is to compute an NAV that accurately reflects the value of a
Fund’s portfolio at the time that the NAV is calculated, to discourage potential
arbitrage market timing in Fund shares, to mitigate the dilutive impact of such
attempted arbitrage market timing and to be fair to purchasing, redeeming and
existing shareholders. However, the application of fair value pricing procedures
may, on occasion, worsen rather than mitigate the potential dilutive impact of
shareholder trading.
In
addition, trading in foreign portfolio securities generally, or in securities
markets in a particular country or countries, may not take place on every NYSE
business day. Furthermore, trading takes place in various foreign markets on
days that are not business days for the NYSE, and on which the Fund’s NAV is not
calculated. Thus, the calculation of a Fund’s NAV does not take place
contemporaneously with the determination of the prices of many of the foreign
portfolio securities used in the calculation. If events affecting the last
determined values of these foreign securities occur (determined through the
monitoring process described above), the securities will be valued at fair value
determined in good faith in accordance with the Trust’s and Adviser’s fair value
procedures subject to oversight by the Board of Trustees.
CALCULATION
OF NAV
The
NAV per share of each Fund is calculated as follows: all liabilities incurred or
accrued are deducted from the valuation of total assets which includes accrued
but undistributed income; the resulting net assets are divided by the number of
shares of the Fund outstanding at the time of the valuation; and the result
(adjusted to the nearest cent) is the net asset value per share.
|
|
|
|
|
|
|
|
| |
| Net
Assets |
= |
NAV
per share |
| Shares
Outstanding |
An
example of how each Fund calculated its net asset value per share as of
March 31, 2023 is as follows:
Discovery
Fund
|
|
|
|
|
|
|
|
| |
| $722,076,653 |
= |
$21.30 |
| 33,894,956 |
Dividend
Focus Fund
|
|
|
|
|
|
|
|
| |
| $32,255,541 |
= |
$24.07 |
| 1,339,910 |
Early
Stage Growth Fund
|
|
|
|
|
|
|
|
| |
| $50,836,594 |
= |
$15.05 |
| 3,377,014 |
Flexible
Income Fund
|
|
|
|
|
|
|
|
| |
| $300,336,306 |
= |
$18.11 |
| 16,583,226 |
Growth
Fund
|
|
|
|
|
|
|
|
| |
| $73,407,543 |
= |
$25.79 |
| 2,846,156 |
High
Yield Fund
|
|
|
|
|
|
|
|
| |
| $58,920,131 |
= |
$10.20 |
| 5,775,331 |
International
Fund
|
|
|
|
|
|
|
|
| |
| $253,664,075 |
= |
$20.23 |
| 12,536,008 |
Large
Cap Fund
|
|
|
|
|
|
|
|
| |
| $27,414,134 |
= |
$35.13 |
| 780,470 |
Mid
Cap Fund
|
|
|
|
|
|
|
|
| |
| $73,143,532 |
= |
$14.72 |
| 4,968,753 |
Small
Cap Fund
|
|
|
|
|
|
|
|
| |
| $575,978,957 |
= |
$14.18 |
| 40,626,344 |
ADDITIONAL
PURCHASE AND REDEMPTION POLICIES
The
Funds reserve the right to:
(1)waive
or increase the minimum investment requirements with respect to any person or
class of persons, which include shareholders who invest through any of the
Funds’ special investment programs;
(2)cancel
or change the telephone investment service, the telephone exchange service,
Internet service, the automatic monthly investment plan, systematic redemption
plan or monthly exchange
privilege
without prior notice when doing so is in the best interest of a Fund and its
shareholders;
(3)begin
charging a fee for the telephone investment service or the automatic monthly
investment plan and to cancel or change these services upon 30 days’ written
notice to you;
(4)begin
charging a fee for the telephone service and to cancel or change the service
upon 30 days’ written notice to you;
(5)begin
charging a fee for the systematic redemption plan upon 30 days’ written notice
to you;
(6)waive
signature guarantee requirements in certain instances where it appears
reasonable to do so and will not unduly affect the interests of other
shareholders. The Funds may waive the signature guarantee requirement if you
authorize the telephone redemption method at the same time you submit the
initial application to purchase shares; and
(7)require
signature guarantees if there appears to be a pattern of redemptions designed to
avoid the signature guarantee requirement, or if a Fund has other reasons to
believe that this requirement would be in the best interest of its
shareholders.
A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker’s authorized designee, receives
the order.
MANAGEMENT
OF THE FUNDS
BOARD
OF TRUSTEES
Board
Leadership Structure
The
Board of Trustees is currently comprised of three Independent Trustees –Mr.
Philip J. Kennedy, Ms. Rachel F. Lupardus, and Mr. Jeffrey D. Yowell (Chairman)
– and one Interested Trustee – Ms. Laura Symon Browne. Ms. Symon Browne is an
interested person of the Trust by virtue of the fact that she is an
employee of
the Adviser.
The
Board of Trustees has established three standing committees – the Audit
Committee, the Nominating Committee, and the Marketing and Distribution
Committee. All Independent Trustees are members of the Audit Committee and the
Nominating Committee. Inclusion of all Independent Trustees as members of the
Audit Committee and the Nominating Committee allows all such Trustees to
participate in the full range of the Board of Trustees’ oversight duties,
including oversight of risk management processes. In accordance with the fund
governance standards prescribed by the SEC under the 1940 Act, the Independent
Trustees on the Nominating Committee select and nominate all candidates for
Independent Trustee positions. Mr. Yowell and Ms. Symon Browne are members of
the Marketing and Distribution Committee.
Each
Trustee was appointed to serve on the Board of Trustees because of his or her
experience, qualifications, attributes and/or skills as set forth in the
subsection “Trustee Qualifications,” below. The Board of Trustees reviews its
leadership structure regularly. The Board of Trustees believes that its
leadership structure is appropriate and effective in light of the size of the
Trust, the nature of its business and industry practices.
The
Board of Trustees’ role is one of oversight rather than day-to-day management of
the Funds. The Trust’s Audit Committee assists with this oversight function. The
Board of Trustees’ oversight extends to the Trust’s risk management processes.
Those processes are overseen by Trust officers, including the President and
Treasurer, Secretary and Chief Compliance Officer (“CCO”), who regularly report
to the Board of Trustees on a variety of matters at Board meetings.
The
Adviser reports to the Board of Trustees, on a regular and as-needed basis, on
actual and possible risks affecting the Funds and the Trust as a whole. The
Adviser reports to the Board of Trustees on various elements of risk, including
investment, credit, liquidity, valuation, operational and compliance risks, as
well as any overall business risks that could impact the Funds.
The
Board of Trustees has appointed the CCO who reports directly to the Board of
Trustees and who participates in the Board of Trustees’ regular meetings. In
addition, the CCO presents an annual report to the Board of Trustees in
accordance with the Trust’s compliance policies and procedures. The CCO
regularly discusses risk issues affecting the Trust and the Funds during Board
of Trustee meetings. The CCO also provides updates to the Board of Trustees on
the operation of the Funds’ compliance policies and procedures and on how these
procedures are designed to mitigate risk. Finally, the CCO and/or other officers
of the Trust report to the Board of Trustees in the event any material risk
issues arise in between Board meetings.
The
Trust is governed by the Board of Trustees which is responsible for protecting
the interests of Fund shareholders under the laws of Delaware. The Trustees are
experienced business and academic persons, who meet throughout the year to
oversee the Funds’ activities, review contractual arrangements with companies
that provide services to the Funds, and review Fund performance. The officers of
the Trust are responsible for supervising the Funds’ business operations, but
the Funds are managed by the Adviser, subject to the supervision and control of
the Board of Trustees. Certain officers of the Trust are also officers of the
Adviser as noted in the table below.
Trustees
and Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| NAME,
ADDRESS AND YEAR OF BIRTH |
POSITION(S)
HELD WITH FUNDS |
TERM
OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL
OCCUPATION(S) DURING PAST FIVE YEARS |
NUMBER
OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY
TRUSTEE |
OTHER
DIRECTORSHIPS HELD BY TRUSTEE DURING THE PAST FIVE YEARS |
|
INDEPENDENT
TRUSTEES |
Philip
J. Kennedy
5420 West 61st Place
Shawnee Mission, KS 66205
Year of
Birth: 1945
|
Trustee |
Indefinite
term and served since May 1995.
|
Business
Consultant.
|
10 |
None |
Rachel
F. Lupardus
5420 West 61st Place
Shawnee Mission, KS 66205
Year
of Birth: 1972
|
Trustee |
Indefinite
term and served since October 2015. |
Chief
Operating Officer/Chief Financial Officer, Trozzolo Communications Group
(marketing communications agency), 2015 – present.
|
10 |
None |
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
| |
| NAME,
ADDRESS AND YEAR OF BIRTH |
POSITION(S)
HELD WITH FUNDS |
TERM
OF OFFICE AND LENGTH OF TIME SERVED |
PRINCIPAL
OCCUPATION(S) DURING PAST FIVE YEARS |
NUMBER
OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY
TRUSTEE |
OTHER
DIRECTORSHIPS HELD BY TRUSTEE DURING THE PAST FIVE YEARS |
Jeffrey
D. Yowell
5420 West 61st Place
Shawnee Mission, KS 66205
Year of
Birth: 1967
|
Chairman
Trustee |
One
year term and served since December 31, 2017.
Indefinite
term and served since October 2015. |
President
and Owner, Getter Farms, LLC (agriculture and farm-related operations),
2007 – present.
|
10 |
None |
|
INTERESTED
TRUSTEE |
Laura
Symon Browne
5420 West 61st Place
Shawnee Mission, KS 66205
Year
of Birth: 1971 |
Interested
Trustee(1)
President
and Treasurer |
Indefinite
term and served since February 2023.
Indefinite
term and served since November 2022. |
President
and Treasurer, Buffalo Funds, 2022 – present; Principal, Head of National
Broker/Dealer Key Accounts, Vanguard (financial services firm) 2013 –
2022. |
10 |
None |
| OFFICER |
Fred
Coats
5420 West 61st Place
Shawnee Mission, KS 66205
Year of
Birth: 1965
|
Chief
Compliance Officer
Anti-Money
Laundering Officer
Secretary |
Indefinite
term and served since May 2015.
Indefinite
term and served since May 2015.
Indefinite
term and served since August 2019. |
Chief
Compliance Officer, Kornitzer Capital Management, Inc. (management
company) May 2015 – present.
|
N/A |
N/A |
(1) Ms.
Symon Browne is deemed to be an “interested person” of the Funds as that term is
defined in the 1940 Act, by virtue of the fact that she is an
employee
of
the Adviser.
Trustee
Qualifications
The
following is a brief discussion of the experience, qualifications, attributes
and/or skills that led to the Board of Trustees’ conclusion that each individual
identified below is qualified to serve as a Trustee of the Trust.
Philip
J. Kennedy.
Mr. Kennedy has served as a Trustee of the Trust since inception, and serves as
the Chair of the Audit Committee. He is a C.P.A. and serves as a business
consultant, since 1987. In addition, Mr. Kennedy also served as Internship
Coordinator and Instructor in the Department of Business Administration, Penn
State Shenango, from 2001 to 2011. Through his board and employment experience,
Mr. Kennedy is experienced with financial, accounting, regulatory and investment
matters.
Rachel
F. Lupardus.
Ms. Lupardus has served as a Trustee of the Trust since October 2015. Ms.
Lupardus has been the Chief Operating Officer/Chief Financial Officer of
Trozzolo Communications Group, a marketing communications agency, since March
2015. Prior to that Ms. Lupardus served as the Chief Financial Officer of KBM
Group LLC, Customer Engagement, from 2014 until March 2015 and as Chief
Financial Officer of DataCore Marketing LLC, an entity that was acquired by KBM
Group LLC in 2007, from 2004 to 2013. Through her employment experience, Ms.
Lupardus is experienced with financial, accounting, regulatory and investment
matters.
Jeffrey
D. Yowell.
Mr. Yowell has served as a Trustee of the Trust since October 2015, and as
Chairman of the Board since December 31, 2017. He has been the President and
owner of Getter Farms, LLC, an agriculture and farm operation, since 2007. Mr.
Yowell was the owner, President and Chief Executive Officer of DataCore
Marketing, LLC from 1992 – 2007. KBM Group LLC purchased DataCore Marketing, LLC
in 2007; however, Mr. Yowell continued to serve as President and CEO of DataCore
until 2012. Mr. Yowell served as President of KBM Group LLC in 2013. KBM and
DataCore Marketing, LLC, are both marketing services companies. Through his
employment experience, Mr. Yowell is experienced with financial, accounting,
regulatory and investment matters.
Laura
Symon Browne. Ms.
Symon Browne has served as a Trustee of the Trust since February 2023, and has
served as President and Treasurer of the Trust since November 2022. Ms. Symon
Browne has over 30 years of experience in financial services, most recently as
Principal at Vanguard – the world’s second largest investment firm. Ms. Symon
Browne has previously held various senior leadership roles including leading
Vanguard’s Broker Dealer Home Office Sales, Business Development Group Sales,
and Arizona Retail operations. Through her employment experience, Ms. Symon
Browne is experienced with financial, accounting, regulatory and investment
matters.
Trustee
Ownership of Fund Shares
As
of December 31, 2022, the Funds’ officers, and the Board as a group,
beneficially owned less than 1% of the outstanding shares of each
Fund.
As
of December 31, 2022, the Trustees had the following interests in the Buffalo
Funds’ securities:
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|
|
|
|
| |
| Name
of Fund |
Laura
Symon Browne
Interested Trustee |
Philip
K. Kennedy
Independent Trustee |
Rachel
F. Lupardus
Independent Trustee |
Jeffrey
D. Yowell
Independent Trustee |
|
|
|
|
| |
| Discovery
Fund |
None |
$10,001
- $50,000 |
$10,001
- $50,000 |
Above
$100,000 |
|
|
|
|
| |
| Dividend
Focus Fund |
None |
Above
$100,000 |
None |
Above
$100,000 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Fund |
Laura
Symon Browne
Interested Trustee |
Philip
K. Kennedy
Independent Trustee |
Rachel
F. Lupardus
Independent Trustee |
Jeffrey
D. Yowell
Independent Trustee |
| Early
Stage Growth Fund |
None |
$1
- $10,000 |
None |
$50,001
- $100,000 |
|
|
|
|
| |
| Flexible
Income Fund |
None |
Above
$100,000 |
Above
$100,000 |
Above
$100,000 |
|
|
|
|
| |
| Growth
Fund |
None |
$10,001
- $50,000 |
None |
Above
$100,000 |
|
|
|
|
| |
| High
Yield Fund |
None |
None |
None |
$50,001
- $100,000 |
|
|
|
|
| |
| International
Fund |
None |
$50,001
- $100,000 |
$50,001
- $100,000 |
Above
$100,000 |
|
|
|
|
| |
| Large
Cap Fund |
None |
$10,001
- $50,000 |
None |
Above
$100,000 |
|
|
|
|
| |
| Mid
Cap Fund |
None |
$10,001
- $50,000 |
$10,001
- $50,000 |
Above
$100,000 |
|
|
|
|
| |
| Small
Cap Fund |
None |
Above
$100,000 |
$10,001
- $50,000 |
Above
$100,000 |
|
|
|
|
| |
|
Aggregate
Dollar Range of Equity Securities in All Registered Investment Companies
Overseen by Trustee in Family of Investment Companies(1) |
None |
Above
$100,000 |
Above
$100,000 |
Above
$100,000 |
(1) Beneficial
ownership is determined in accordance with Rule 16a-1(a)(2) under the Securities
Exchange Act of 1934, as amended.
COMMITTEES
OF THE BOARD
Audit
Committee
The
Trust has an Audit Committee, which assists the Board of Trustees in fulfilling
its duties relating to each Fund’s accounting and financial reporting practices,
and also serves as a direct line of communication between the Board of Trustees
and the independent registered public accounting firm. The Audit Committee is
comprised of all of the Trust’s Independent Trustees, and Mr. Kennedy serves as
the Chair of the Audit Committee. The specific functions of the Audit Committee
include recommending the engagement or retention of the independent registered
public accounting firm, reviewing with the independent registered public
accounting firm the plan and results of the auditing engagement, approving
professional services provided by the independent registered public accounting
firm prior to the performance of such services, considering the range of audit
and non-audit fees, reviewing the
independence
of the independent registered public accounting firm, reviewing the scope and
results of the Trust’s procedures for internal auditing, and reviewing the
Trust’s system of internal accounting controls. The Audit Committee met twice
during the Trust’s last fiscal year.
Nominating
Committee
The
Trust also has a Nominating Committee, which has the responsibility, among other
things, to: (i) make recommendations and to consider shareholder recommendations
for nominations for Board members; (ii) periodically review and approve Trustee
compensation; and (iii) make recommendations to the full Board of Trustees for
nominations for membership on all committees, review all committee assignments
and periodically review the responsibilities and need for all committees of the
Board of Trustees. The Nominating Committee is comprised of all of the Trust’s
Independent Trustees and Mr. Yowell serves as the Chair of the Nominating
Committee. In accordance with the Trust’s Nominating Committee charter, Trustees
are subject to mandatory retirement during the year in which they turn 75. The
Nominating Committee met once during the Trust’s last fiscal year. Exceptions to
this policy and extensions of the timeframe for accepting an Independent
Trustee’s resignation may be made on a case by case basis.
Qualifying
Shareholders may recommend nominations for Board members. A Qualifying
Shareholder is a (i) shareholder that beneficially owns more than 3% of a Fund’s
outstanding shares for at least 3 years prior to submitting the recommendation
to the Nominating Committee, or (ii) a group of shareholders that beneficially
own, in the aggregate, more than 3% of a Fund’s shares for at least 3 years
prior to submitting the recommendation to the Nominating Committee. Each
Qualifying Shareholder must also provide a written notice to the Nominating
Committee containing the following information:
(i)
the name and address of the Qualifying Shareholder
making the recommendation;
(ii)
the number of shares of each class and series, if any,
of shares of the Fund which are owned of record and beneficially by such
Qualifying Shareholder and the length of time that such shares have been so
owned by the Qualifying Shareholder;
(iii) a
description of all arrangements and understandings between such Qualifying
Shareholder and any other person or persons (naming such person or persons)
pursuant to which the recommendation is being made;
(iv) the
name, age, date of birth, business address and residence address of the person
or persons being recommended;
(v) such
other information regarding (i) the Qualifying Shareholder and (ii) each person
recommended by such Qualifying Shareholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated by the Board;
(vi) whether
the Qualifying Shareholder making the recommendation believes the person
recommended would or would not be an “interested person” of the Funds, as
defined in Section 2(a)(19) of the 1940 Act; and
(vii) the
written consent of each person recommended to be named in the Funds’ proxy
statement and to serve as a Trustee of the Funds if so nominated and
elected/appointed.
It
is the intention of the Nominating Committee that the Qualifying Shareholder
demonstrate a significant and long-term commitment to the Funds and its other
shareholders and that his or her objectives in submitting a recommendation is
consistent with the best interests of the Funds and all of their
shareholders.
In
the event the Nominating Committee receives a recommendation from a Qualifying
Shareholder (i) during a time when no vacancy exists or is expected to exist in
the near term or (ii) within 60 days of the date of a meeting of the Board at
which the Board acts to fill a vacancy or call a meeting of shareholders for the
purpose of filling such vacancy, and, in each case, the recommendation otherwise
contains all the information required, the Nominating Committee will retain such
recommendation in its files until a vacancy exists or is expected to exist in
the near term and the Nominating Committee commences its efforts to fill such
vacancy.
Marketing
and Distribution Committee
The
Board of Trustees has appointed a Marketing and Distribution Committee, which
has the responsibility, among other things, to oversee and advise the Board on:
(i) efforts to increase the Funds’ brand recognition and endorsement through
various avenues including but not limited to the Funds’ website, collateral
materials, social media, etc.; (ii) marketing and distribution strategies for
the Funds, including competitive positioning within the marketplace; and (iii)
the quantitative and qualitative effectiveness and competitiveness of the Funds’
marketing strategies and expenditures. The Marketing and Distribution Committee
meets as often as deemed necessary. The Marketing and Distribution Committee may
invite members of KCM and/or external marketing experts/resources, to attend its
meetings as it deems appropriate. Currently, Mr. Yowell and Ms. Symon Browne are
the members of the Marketing and Distribution Committee. The Marketing and
Distribution Committee met four times during the Trust’s last fiscal
year.
COMPENSATION
AND REIMBURSEMENT OF OUT-OF-POCKET EXPENSES
The
Funds do not directly compensate any Trustee or Trust officer for their normal
duties and services. Ms. Symon Browne, who is an interested Trustee due to her
employment with the Adviser, is compensated by the Adviser and not by the Funds.
U.S. Bank Global Fund Services (“Fund Services”) pays the trustee fees from its
share of the management fee that it receives from KCM.
For
the fiscal year ended March 31, 2023, each Independent Trustee received an
annual retainer of $60,000 for the fiscal year (April 1 to March 31), plus
$550 per Fund for each regular meeting of the Board of Trustees attended and
$100 per Fund for telephone attendance for special meetings. The Chair of the
Board of Trustees receives additional annual compensation of $10,000. The Chair
of the Audit Committee receives additional annual compensation of $5,000. The
Board of Trustees generally meets four times each year.
For
the fiscal year ending March 31, 2024, each Independent Trustee will receive an
annual retainer of $65,000 for the fiscal year (April 1 to March 31), plus $550
per Fund for each regular meeting of the Board of Trustees attended and $200 per
Fund for telephone attendance for special meetings.
In
addition, the Funds are directly responsible for payment of out-of-pocket
expenses incurred by the Independent Trustees for travel, meals, lodging and
similar items in connection with attendance at conferences or Board meetings.
Reimbursements to Trustees for out-of-pocket expenses are accrued and paid for
by the Funds. Payment of out-of-pocket expenses is allocated equally among the
Funds.
The
following table shows the total amount of compensation paid to each Independent
Trustee, including fees paid on behalf of the Funds by Fund Services and
out-of-pocket expenses paid directly by the Funds, for the fiscal year ended
March 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Compensation
Table |
Name
of Person,
Position |
Aggregate
Compensation
Paid
on behalf of Buffalo Funds by Fund Services |
Pension
or Retirement Benefits Accrued as Part of Fund Expenses |
Estimated
Annual Benefits Upon Retirement |
Total
Amount of Compensation |
Philip
J. Kennedy,
Independent Trustee |
$87,000 |
None |
None |
$87,000 |
Rachel
F. Lupardus,
Independent Trustee |
$82,000 |
None |
None |
$82,000 |
Jeffrey
D. Yowell,
Independent Trustee |
$92,000 |
None |
None |
$92,000 |
PORTFOLIO
HOLDINGS DISCLOSURE POLICIES AND PROCEDURES
The
Funds disclose a complete list of their portfolio holdings four times in each
fiscal year, within 60 days of the end of each fiscal quarter. The Funds file
the lists with the SEC on Part F of Form N-PORT, and the semi-annual and annual
reports to shareholders are mailed to all shareholders of record. Shareholders
may view Part F of the Funds’ Form N-PORT on the SEC’s web site at
www.sec.gov.
The
Board of Trustees has approved ongoing arrangements with service providers,
whereby current portfolio holdings information is made available to such service
providers. These service providers are Fund Services, the Funds’ administrator,
accountant and transfer agent, U.S. Bank, National Association, the Funds’
custodian, Ernst & Young LLP, the independent registered public accounting
firm, and Godfrey & Kahn, S.C., outside legal counsel. The Funds may also
disclose holdings information to financial printers or proxy voting services.
These service providers are subject to duties of confidentiality, including a
duty not to trade on non-public information, imposed by law and/or contract. The
Funds may also disclose such information to state and federal regulators and
government agencies, or as otherwise required by law or judicial process. No
party receives compensation for disclosing holdings information and any
disclosure must be authorized under the disclosure policy adopted by the Board
of Trustees.
Additionally,
the Funds may provide information regarding their portfolio holdings to
shareholders, firms and institutions before their public disclosure is required
or authorized as discussed above, provided that: (i) the recipient makes a
specific request to the Fund for the information and the Chief Compliance
Officer of the Fund determines that the Fund has a legitimate business purpose
for disclosing the non-public portfolio holdings information to the recipient;
and (ii) the recipient signs a written confidentiality agreement that provides
that the non-public portfolio holdings information will be kept confidential,
will not be used for trading purposes and will not be disseminated or used for
any purpose other than the purpose for which it was approved. Persons and
entities unwilling to execute a confidentiality agreement that is acceptable to
the Funds may only receive portfolio holdings information that has otherwise
been publicly disclosed. Non-public portfolio holdings information will not be
disclosed to members of the media under any circumstance.
Exceptions
to, or waivers of, the Funds’ policy on portfolio disclosures may only be made
by the Funds’ CCO and must be disclosed to the Board of Trustees at its next
regularly scheduled quarterly meeting. In the event of a conflict between the
interests of the Fund and the interests of the Adviser, the Funds’ CCO shall
make a determination in the best interests of the Funds and shall report such
determination to the Board of Trustees at the end of the quarter in which such
determination was made. The Board of Trustees is also responsible for reviewing
any potential conflict of interest between the interests of the Funds’
shareholders and a third party with respect to the disclosure of non-public
portfolio holdings information prior to its dissemination, and reviews the
Funds’ portfolio disclosure policy on an annual basis.
INVESTMENT
ADVISER AND MANAGER
Kornitzer
Capital Management, Inc. serves as the Funds’ investment adviser and manager.
KCM is a federally registered investment advisory firm that was founded in
1989.
KCM
is a closely held corporation controlled by persons who are active in the
management of the firm’s business. John C. Kornitzer is the majority stockholder
of the firm and serves as the Chairman of KCM’s Board of Directors. Joseph C.
Neuberger serves as President of KCM.
KCM
serves as investment adviser and manager of each Fund pursuant to a Management
Agreement that requires KCM to provide or pay the costs of all advisory and
non-advisory services required to operate the Funds, in exchange for a single
unitary management fee. KCM provides business management and advisory services,
and contracts with others to provide other needed services for the Funds. In
this respect, KCM has entered into a Master Services Agreement with Fund
Services pursuant to which Fund Services provides or obtains various operational
services required by the Funds, pays various Fund expenses and acts as paying
agent to compensate other Fund service providers. Some of the other Fund service
providers are affiliates of Fund Services.
As
compensation for its services, each Fund (other than the Dividend Focus Fund,
Growth Fund, Large Cap Fund and the Early Stage Growth Fund) pays KCM a fee at
the annual rate of eighty-five one-hundredths of a percent (0.85%) of each
Fund’s average daily net assets. The Dividend Focus Fund, Growth Fund and Large
Cap Fund pay KCM a fee at the annual rate of seventy-five one-hundredths of a
percent (0.75%) of each Fund’s average daily net assets. The Early Stage Growth
Fund pays KCM a fee at the annual rate of one and thirty one-hundredths of a
percent (1.30%) of the Fund’s average daily net assets. KCM pays Fund Services a
fee of thirty one-hundredths of one percent (0.30%) of each Fund’s (other than
the Dividend Focus Fund, Growth Fund and Large Cap Fund) average daily net
assets out of the fees KCM receives from the Funds. KCM pays Fund Services a fee
of twenty-five one-hundredths of one percent (0.25%) of the Dividend Focus,
Growth and Large Cap Funds’ average daily net assets out of the fees KCM
receives from the Funds. Both KCM’s and Fund Services’ fees are computed daily
and the Funds pay KCM’s fees monthly.
With
respect to the Small Cap Fund only, the annual management fee rate of eight-five
one-hundredths of a percent (0.85%) of the Small Cap Fund’s average daily net
assets is a base fee paid to KCM that is subject to reduced fees paid on assets
in excess of certain levels (breakpoints). The fee paid by KCM to Fund Services
is also subject to breakpoints on assets in excess of certain levels. The
breakpoint schedules for the management fees paid by the Small Cap Fund to KCM
and the fees paid by KCM to Fund Services are set forth in the following
table:
|
|
|
|
|
|
|
|
| |
| Small
Cap Fund Fee Breakpoints |
|
|
| (as
a % of average daily net assets) |
| Asset
Level |
Management
Fee |
Fund
Services Fee |
|
Assets
up to $6 billion |
0.85% |
0.300% |
|
Assets
over $6 billion up to $7 billion |
0.80% |
0.275% |
|
Assets
over $7 billion up to $8 billion |
0.75% |
0.250% |
|
Assets
over $8 billion up to $9 billion |
0.70% |
0.225% |
|
Assets
over $9 billion |
0.65% |
0.200% |
For
the past three fiscal years, the following management fees were paid by the
Funds to KCM:
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Fiscal
Year Ended March 31, |
| Name
of Fund |
2023 |
2022 |
2021 |
| Discovery
Fund |
$8,880,149 |
$14,696,008 |
$14,069,595 |
| Dividend
Focus Fund |
$858,836 |
$843,450 |
$624,307 |
| Early
Stage Growth Fund |
$1,192,322 |
$1,762,739 |
$1,314,222 |
| Flexible
Income Fund |
$4,072,323 |
$3,825,034 |
$3,634,059 |
| Growth
Fund |
$1,130,362 |
$1,585,640 |
$1,393,340 |
| High
Yield Fund |
$2,428,818 |
$2,493,677 |
$2,033,536 |
| International
Fund |
$4,497,848 |
$5,209,880 |
$4,086,300 |
| Large
Cap Fund |
$697,290 |
$904,830 |
$738,054 |
| Mid
Cap Fund |
$1,218,823 |
$1,651,850 |
$1,432,127 |
| Small
Cap Fund |
$7,219,447 |
$9,798,514 |
$6,544,601 |
PRINCIPAL
UNDERWRITER
The
Distributor, Quasar Distributors, LLC, a Delaware limited liability company
located at 111 East Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin 53202, is
the principal underwriter for the shares of the Funds. The Distributor is a
registered broker-dealer and member of the Financial Industry Regulatory
Authority, Inc. The offering of the Funds’ shares is continuous, and the
Distributor will distribute the shares on a best-efforts basis.
CODE
OF ETHICS
The
Funds, the Adviser and the Distributor have each adopted a code of ethics, as
required by federal securities laws. Under each code of ethics, persons who are
designated as access persons may engage in personal securities transactions,
including transactions involving securities that may be purchased or sold by a
Fund, subject to certain general restrictions and procedures. These codes of
ethics are on file with the SEC.
PROXY
VOTING POLICY
The
Board has adopted proxy voting policies and procedures that delegate to the
Adviser the authority to vote proxies relating to portfolio securities held by
the Funds, subject to Board oversight. Such policy provides that it is the
policy of the Funds to adopt the policies and procedures used by the Adviser to
vote proxies relating to portfolio securities held by its clients, including the
Funds. At least annually, the
Adviser
presents to the Board its proxy voting policies and procedures and a record of
each proxy voted with respect to portfolio securities held by the Funds during
the twelve-month period. With respect to those proxies the Adviser has
identified as involving conflicts of interest, the Adviser is required to submit
a separate report indicating the nature of the conflict of interest and how it
was resolved.
When
voting proxies, the Adviser’s primary concern is to make decisions in the best
interests of its clients, which are intended to enhance the economic value of
the assets of clients’ accounts. Generally, the Adviser votes against management
proposals not in the shareholders’ best interest, which may include: issues
regarding the issuer’s board entrenchment and anti-takeover measures; provisions
providing for cumulative voting rights; and election of directors who sit on
more than five boards. The Adviser votes in favor of routine proposals that do
not change the structure, bylaws, or operations of the corporation to the
detriment of the shareholders. Given the routine nature of these proposals,
proxies will normally be voted with management. Where a proxy proposal raises a
material conflict between the Adviser’s interests and its clients’ interests, to
the extent the Adviser has little or no discretion to deviate from its proxy
guidelines with respect to the proposal in question, the Adviser shall vote in
accordance with such pre-determined voting policy. To the extent that the
Adviser has discretion to deviate from its proxy guidelines with respect to the
proposal in question, the Adviser discloses the conflict to the clients and
obtains each client’s consent to the proposed vote prior to voting the
securities. If clients do not respond to such a conflict and disclosure request
or deny the request, the Adviser will abstain from voting the securities held by
such clients.
Each
Fund’s proxy voting record for the most recent 12-month period ended June 30, if
applicable, is available without charge, either upon request, by calling toll
free, 1-800-49-BUFFALO (1-800-492-8332), or by accessing the SEC’s website at
http://www.sec.gov.
CUSTODIAN
U.S.
Bank, National Association (the “Custodian”), an affiliate of Fund Services
located at 1555 North River Center Drive, Suite 302, Milwaukee, WI 53212, serves
as the custodian of the assets of the Funds pursuant to a custody agreement
between the Custodian and the Trust, whereby the Custodian charges fees on a
transactional basis plus out‑of‑pocket expenses. The Custodian is responsible
for among other things, holding all securities and cash, handling the receipt
and delivery of securities, and receiving and collecting income from
investments. The Custodian does not participate in decisions relating to the
purchase and sale of securities by the Fund. The Custodian and its affiliates
may participate in revenue sharing arrangements with service providers of mutual
funds in which the Funds may invest.
LEGAL
COUNSEL
Godfrey
& Kahn, S.C., 833 East Michigan Street, Suite 1800, Milwaukee, Wisconsin
53202, serves as counsel to the Funds.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The
Funds’ financial statements are audited by Ernst & Young LLP, 1828 Walnut
St, Suite 04-100, Kansas City, MO 64108, the Funds’ independent registered
public accounting firm. Other professional auditing, tax, and accounting
services are also provided by Ernst & Young.
ADMINISTRATOR
The
Adviser has retained Fund Services, 615 East Michigan Street, Milwaukee, WI
53202, to provide various administrative and accounting services necessary for
the operations of the Funds. Services provided by the Administrator 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.
For
the past three fiscal years, the following fees for administration and
accounting services were paid by KCM to Fund Services under the Master Services
Agreement:
|
|
|
|
|
|
|
|
| |
| Fiscal
Year Ended March 31, |
| 2023 |
2022 |
2021 |
| $1,976,925 |
$1,278,606 |
$333,968 |
TRANSFER
AGENT
The
Adviser has retained Fund Services, P.O. Box 701, Milwaukee, WI 53201-0701, to
serve as the transfer agent for the Funds. The transfer agent 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
distribution disbursing agent; and performing other accounting and shareholder
service functions.
PORTFOLIO
MANAGERS OF THE FUNDS
The
Buffalo Funds are managed by a portfolio management team supported by an
experienced investment analysis and research staff. Descriptions of the
portfolio managers’ education, training, and experience are provided in the
Prospectus.
Other
Accounts Managed by Portfolio Managers
The
following table identifies, for each portfolio manager of each Fund, the number
of other accounts managed (including other Buffalo Funds managed by the same
manager), and the total assets in such accounts, within each of the following
categories: registered investment companies, other pooled investment vehicles,
and other accounts. The Funds’ portfolio managers do not provide day-to-day
management of accounts with performance-based advisory fees. Information in the
table is shown as of March 31, 2023 (except as otherwise noted). Asset amounts
are approximate and have been rounded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Other
Registered Investment Companies(1) |
Other
Pooled
Investment Vehicles |
Other
Accounts |
| Portfolio
Manager |
Number |
Total
Assets |
Number |
Total
Assets |
Number |
Total
Assets |
|
| Buffalo
Discovery Fund |
| Dave
Carlsen |
1 |
$144.6
million |
0 |
N/A |
0 |
N/A |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Other
Registered Investment Companies(1) |
Other
Pooled
Investment Vehicles |
Other
Accounts |
| Portfolio
Manager |
Number |
Total
Assets |
Number |
Total
Assets |
Number |
Total
Assets |
| Buffalo
Dividend Focus Fund |
| Paul
Dlugosch |
2 |
$774.0
million |
0 |
N/A |
0 |
N/A |
| Jeff
K. Deardorff |
1 |
$304.4
million |
0 |
N/A |
0 |
N/A |
| Jeffrey
Sitzmann |
1 |
$304.4
million |
0 |
N/A |
0 |
N/A |
|
| Buffalo
Early Stage Growth Fund |
| Craig
Richard |
1 |
$850.8
million |
0 |
N/A |
0 |
N/A |
| Doug
Cartwright |
1 |
$139.3
million |
0 |
N/A |
0 |
N/A |
|
| Buffalo
Flexible Income Fund |
| John
Kornitzer |
0 |
N/A |
0 |
N/A |
4,761 |
$3.1
billion |
| Paul
Dlugosch |
2 |
$422.7
million |
0 |
N/A |
0 |
N/A |
|
| Buffalo
Growth Fund |
| Dave
Carlsen |
1 |
$911.0
million |
0 |
N/A |
0 |
N/A |
| Josh
West |
1 |
$139.3
million |
0 |
N/A |
0 |
N/A |
|
| Buffalo
High Yield Fund |
| Paul
Dlugosch |
2 |
$587.8
million |
0 |
N/A |
0 |
N/A |
| Jeffrey
Sitzmann |
1 |
$118.3
million |
0 |
N/A |
0 |
N/A |
| Jeff
K. Deardorff |
1 |
$118.3
million |
0 |
N/A |
0 |
N/A |
|
| Buffalo
International Fund |
| Nicole
Kornitzer |
0 |
N/A |
0 |
N/A |
0 |
N/A |
|
| Buffalo
Large Cap Fund |
| Ken
Laudan |
0 |
N/A |
0 |
N/A |
0 |
N/A |
|
| Buffalo
Mid Cap Fund |
| Josh
West |
1 |
$144.7
million |
0 |
N/A |
0 |
N/A |
| Doug
Cartwright |
1 |
$85.5
million |
0 |
N/A |
0 |
N/A |
|
|
|
|
|
|
|
|
|
| |
| Buffalo
Small Cap Fund |
| Robert
Male |
0 |
N/A |
0 |
N/A |
0 |
N/A |
| Craig
Richard |
1 |
$85.5
million |
0 |
N/A |
0 |
N/A |
(1)Some
Buffalo Fund portfolio managers manage multiple portfolios within the Buffalo
Funds series of mutual funds. All accounts listed in the category “Registered
Investment Companies” are Buffalo Funds. Our portfolio managers do not manage
portfolios for any other registered investment companies except the Buffalo
Funds.
Ownership
of Securities in the Funds by Portfolio Managers as of March 31, 2023 (except as
otherwise noted):
|
|
|
|
|
| |
| Portfolio
Manager |
Dollar
Range in Portfolio |
|
| Buffalo
Discovery Fund |
| Dave
Carlsen |
$500,001
- $1,000,000 |
|
| Buffalo
Dividend Focus Fund |
| Paul
Dlugosch |
$100,001
- $500,000 |
| Jeff
K. Deardorff |
$100,001
- $500,000 |
| Jeffrey
Sitzmann |
$100,001
- $500,000 |
|
| Buffalo
Early Stage Growth Fund |
| Craig
Richard |
$100,001
- $500,000 |
| Doug
Cartwright |
$100,001
- $500,000 |
|
| Buffalo
Flexible Income Fund |
| John
Kornitzer |
Over
$1,000,000 |
| Paul
Dlugosch |
$100,001
- $500,000 |
|
| Buffalo
Growth Fund |
| Dave
Carlsen |
$100,001
- $500,000 |
| Josh
West |
$100,001
- $500,000 |
|
| Buffalo
High Yield Fund |
| Paul
Dlugosch |
$100,001
- $500,000 |
| Jeffrey
Sitzmann |
$100,001
- $500,000 |
| Jeff
K. Deardorff |
$100,001
- $500,000 |
|
| Buffalo
International Fund |
| Nicole
Kornitzer |
$500,001
- $1,000,000 |
|
| Buffalo
Large Cap Fund |
| Ken
Laudan |
$50,001
- $100,000 |
|
| |
| Buffalo
Mid Cap Fund |
| Josh
West |
$100,001
- $500,000 |
| Doug
Cartwright |
$50,001
- $100,000 |
|
| Buffalo
Small Cap Fund |
| Robert
Male |
$100,001
- $500,000 |
| Craig
Richard |
$50,001
- $100,000 |
Material
Conflicts Arising from Other Accounts Managed by Portfolio Managers
The
management of multiple accounts gives rise to potential conflicts of interest if
the Funds and accounts have different objectives, benchmarks, time horizons, and
fees, as a portfolio manager must allocate his or her time and investment ideas
across multiple accounts, including the Funds. A portfolio manager may execute
transactions for a Fund or account that may adversely impact the value of
securities held by another Fund or account. Securities selected for one account
may outperform the securities selected for another account.
As
a registered investment adviser, the Adviser and the portfolio managers have a
fiduciary duty to place the interests of clients first, before their own
interests. Therefore, conflicts of interest inherent in the management of
multiple accounts must be addressed. When a portfolio manager determines, based
on each Fund or account’s investment objectives and restrictions, that an
investment is appropriate or suitable for more than one Fund or account, the
following considerations apply.
Trade
Practices.
Portfolio managers follow certain trade practices in executing and processing
trades for multiple accounts. Portfolio managers may be deemed to have conflicts
of interest to the extent the trade practices result in better execution and
performance in certain accounts. Portfolio managers monitor and modify the trade
practices to avoid the potential for conflicts of interest and to act in the
best interest of all Funds and accounts to the fullest extent possible over
time. Because multiple factors influence execution beyond their control,
portfolio managers may be unable to minimize the effects of the trade practices
on execution and different execution results may occur as among accounts. The
trade practices may cause varying account performance. Advice and actions taken
for one account will differ from advice and the time and nature of actions for
other accounts. Transactions in a specific security may not be accomplished for
all accounts at the same price and at the same time.
Trade
Aggregation.
When the same investment decisions are made for multiple accounts, the portfolio
managers aggregate trades for execution to achieve better and more efficient
execution and more consistent results across accounts. Portfolio managers may
not aggregate trades if reduced costs may not be achieved because administrative
and other costs may be imposed. Portfolio managers use their discretion in
aggregating trades.
Aggregated
trades are allocated among accounts based on the orders designated for the
accounts. Orders may be designated for accounts according to a percentage of the
account or on a round lot basis as to each individual account. Upon execution,
aggregated trades are processed back into accounts according to the original
orders and further dependent on the manner of execution. An aggregated order
executed in full is placed back into all accounts, with each account receiving
the average execution price and sharing in transaction costs on pro rata basis.
If an aggregated trade is executed in a series of transactions, the transactions
are processed back into accounts on a pro rata basis according to the relative
sizes of the orders placed or on a rotational basis. Sequencing delays and
market impact costs may occur among accounts if an aggregated trade is executed
in a series of transactions.
Portfolio
managers may also process aggregated orders back into accounts in any other
manner they deem equitable and consistent with the fiduciary duty to the Funds
and other clients. Order processing is also subject to available cash, account
restrictions, and all relevant investment considerations.
To
the extent portfolio managers designate investments for accounts based on a
percentage of account size, when orders are processed on a pro rata basis
according to the original relative order sizes, larger accounts have their
orders processed first back into their accounts prior to smaller accounts.
Variances in execution as between larger and smaller accounts may result.
Smaller accounts may receive investments
at
different times and amounts and may not receive all the same investments as
larger accounts. Investment performance among relatively larger and smaller
accounts may vary, particularly during periods of relatively higher volatility
of performance in accounts.
When
portfolio managers process trades on a rotational basis, they process orders
among accounts so that all accounts receive a certain minimum amount and then
pro rata according to the original orders placed. If an account does not receive
the full amount designated for it in any aggregated trade, the account remains
eligible for the next order processed or for the next similar investment
subsequently placed.
An
aggregated trade may be executed in a series of transactions depending on the
security, market conditions, and the characteristics of the aggregated trade.
When portfolio managers place market limit orders, an aggregated order may not
be executed in full. As an order is executed, if the price increases beyond the
desired level for the investment, execution of the remaining order may be
terminated or postponed.
Portfolio
managers may impose minimum transaction sizes for processing orders back into
accounts and not process orders into accounts below the minimum transaction
size. Imposition of minimum transaction sizes may cause smaller accounts not to
receive any amount of an order and larger accounts to receive their complete
order when orders are processed on a pro rata basis. To minimize the impact of
minimum transaction sizes, portfolio managers may process trades at the lowest
minimum transaction size necessary to cause all accounts to receive part of a
trade. Portfolio managers may vary the minimum transaction size depending on the
actual trade being executed, the accounts aggregated in a trade, the manner of
execution and other equitable factors.
Significant
administrative difficulties exist in executing transactions in lesser amounts,
causing hardships for the custodians in timely settlement and payment, tax
considerations, income projections and general administrative burdens. Minimum
transaction sizes may be increased because of costs and other factors emanating
from account custodians. If the amount of a minimum transaction would be so
small that it would provide no material benefit to the account or present
difficulty in effecting an advantageous position, portfolio managers may impose
higher minimum transaction sizes. Minimum transaction sizes may also be
increased during times of more active trading in the accounts and based on
investment considerations.
Disparate
Account Sizes.
The relative sizes of certain Buffalo Funds and other accounts following the
same or similar strategy are disparate. To the extent these account sizes vary
more significantly, different trade consequences, varying performances and other
unforeseen circumstances may result. For example, when portfolio managers
aggregate trades of “small cap” strategy accounts with the Small Cap Fund, and
if trades are executed in a series of transactions and processed back into
accounts on a pro rata basis, the Small Cap Fund receives its trades first
before the small cap strategy accounts that are relatively much smaller in size.
If portfolio managers impose minimum transaction sizes in the pro rata
processing of a trade back into accounts according to size, the available shares
for processing into smaller accounts may be less than the minimum transaction
size. Only the larger accounts may receive shares in such a transaction
processed on a pro rata basis. Varying execution and performance may
result.
Portfolio
managers monitor these trade practices for the accounts and modify them as
conditions warrant, to be in the best interest of all Funds and accounts.
Portfolio managers may impose rotational participation and minimum transaction
sizes small enough to have all accounts participate if necessary in processing
orders executed such that all accounts participate on a more equitable
basis.
Limited
Investment Opportunities.
All Funds and other accounts receive different investments according to their
investment needs, objectives, and their risk profiles. In certain instances an
investment opportunity may be limited in availability for all accounts with
similar investment requirements. Portfolio managers endeavor to allocate limited
unique investment opportunities among accounts fairly over time and based on
factors particular to each account. When making allocations of limited
investment opportunities, portfolio managers consider the investment needs,
objectives, risk profiles, cash levels, tax considerations and other holdings in
the account. After considering the individual factors associated with the
accounts, investment opportunities bearing similar investment characteristics
are allocated among accounts having similar investment requirements on a
rotational basis to the fullest extent possible.
Portfolio
managers place initial public offerings in the Buffalo Funds, certain strategy
accounts and collective trust funds they manage if an initial public offering
fits within a defined investment strategy of a particular Fund, strategy account
or collective trust fund and is a good investment within the Fund, strategy
account or collective trust fund mix. Based on these accounts’ relative larger
sizes, flexibility in trading activity and lesser tax considerations, initial
public offerings are appropriate for the Buffalo Funds, certain strategy
accounts and the collective trust funds. Portfolio managers reevaluate the
suitability of initial public offerings for all the accounts as market
conditions and the nature, characteristics and risk of initial public offerings
may change. If in the best interests of the accounts, the Adviser modifies the
policies according to then current conditions.
Personal
Accounts.
The portfolio managers’ management of their personal accounts may give rise to
potential conflicts of interest. The Funds and the Adviser have adopted a code
of ethics that they believe contains provisions reasonably necessary to prevent
such conflicts.
Compensation
of Portfolio Managers
The
following is a description of the Adviser’s portfolio manager compensation as of
March 31, 2023. Portfolio manager compensation primarily consists of a modest
fixed base salary and a larger bonus. Bonuses are determined annually on
individual performance and contribution to the firm, performance of funds and
accounts managed, and success of the firm overall. A majority of a portfolio
manager’s bonus is tied to the overall performance of their respective Funds
that they manage based upon relative performance against the primary benchmark
and the Morningstar peer group and is measured on a one, three, and five-year
basis, or such shorter time as the portfolio manager has managed a Fund, as
applicable, with greater weight given to long-term performance. In addition,
other factors impacting the portfolio manager’s bonus include the individual
contribution of his/her investment ideas within the portfolios managed and the
personal contribution to other portfolios for which they provide analytical
support across the firm.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF THE FUNDS
Control
persons are persons deemed to control a Fund because they own beneficially over
25% of the Fund’s outstanding equity securities. As a result, control persons
could have the ability to vote a majority of the shares of a Fund on any matter
requiring the approval of the shareholders of that Fund. Principal holders are
persons that own beneficially 5% or more of a Fund’s outstanding equity
securities. As of June 30, 2023, the following shareholders were considered to
be either a control person or principal shareholder of each Class of each Fund:
|
|
|
|
|
|
|
|
| |
| Discovery
Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
39.28% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
24.72% |
Record |
Morgan
Stanley Smith Barney LLC
For Exclusive Benefit of Its Customers
1
New York Plaza, 39th Floor
New York, NY 10004-1932 |
6.62% |
Record |
|
|
|
|
|
|
|
|
| |
| Discovery
Fund – Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057
|
35.37% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
14.93% |
Record |
Charles
Schwab & Co. Inc.
Special Custody A/C FBO Customers
Attn: Mutual
Funds
211 Main Street
San Francisco, CA 94105-1905 |
14.70% |
Record |
|
|
|
|
|
|
|
|
| |
| Dividend
Focus Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
38.24% |
Record |
Charles
Schwab & Co. Inc.
Special Custody A/C FBO Customers
Attn: Mutual
Fund Department
211 Main Street
San Francisco, CA
94105-1905
|
28.70% |
Record |
|
|
|
|
|
|
|
|
| |
| Dividend
Focus Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
TD
Ameritrade, Inc.
For the Exclusive Benefit of Our Clients
P.O. Box
2226
Omaha, NE 68103-2226 |
6.13% |
Record |
|
|
|
|
|
|
|
|
| |
| Dividend
Focus Fund – Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057 |
88.02% |
Record |
|
|
|
|
|
|
|
|
| |
| Early
Stage Growth Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
37.39% |
Record |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
16.83% |
Record |
Pershing
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
5.10% |
Record |
|
|
|
|
|
|
|
|
| |
| Early
Stage Growth Fund – Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057 |
66.27% |
Record |
|
|
|
|
|
|
|
|
| |
| Flexible
Income Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
45.32% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010 |
34.79% |
Record |
|
|
|
|
|
|
|
|
| |
| Flexible
Income Fund – Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057 |
83.83% |
Record |
|
|
|
|
|
|
|
|
| |
| Growth
Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
31.08% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
19.07% |
Record |
TD
Ameritrade, Inc.
For the Exclusive Benefit of Our Clients
P.O. Box
2226
Omaha, NE 68103-2226 |
8.41% |
Record |
|
|
|
|
|
|
|
|
| |
| Growth
Fund – Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057 |
70.19% |
Record |
|
|
|
|
|
|
|
|
| |
| High
Yield Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
29.69% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
23.59% |
Record |
LPL
Financial
Omnibus Customer Account
4707 Executive Drive
San
Diego, CA 92121-3091
|
15.02% |
Record |
Pershing
LLC
1 Pershing Plaza
Jersey City, NJ 07399-0002 |
5.49% |
Record |
|
|
|
|
|
|
|
|
| |
| High
Yield Fund - Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057
|
82.03% |
Record |
TD
Ameritrade, Inc.
For the Exclusive Benefit of Our Clients
P.O. Box
2226
Omaha, NE 68103-2226 |
8.10% |
Record |
|
|
|
|
|
|
|
|
| |
| International
Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
46.14% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
18.55% |
Record |
|
|
|
|
|
|
|
|
| |
| International
Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
LPL
Financial
Omnibus Customer Account
4707 Executive Drive
San
Diego, CA 92121-3091
|
10.51% |
Record |
TD
Ameritrade, Inc.
For the Exclusive Benefit of Our Clients
P.O. Box
2226
Omaha, NE 68103-2226 |
9.92% |
Record |
|
|
|
|
|
|
|
|
| |
| International
Fund – Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057
|
36.06% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010 |
16.10% |
Record |
Raymond
James
Omnibus for Mutual Funds
House Account Firm 92500015
880
Carillon Parkway
St. Petersburg, FL 33716-1100
|
10.93% |
Record |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
10.65% |
Record |
Firtan
& Co.
P.O. Box 1806
Manhattan, KS 66505-1806 |
7.80% |
Record |
|
|
|
|
|
|
|
|
| |
| Large
Cap Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
22.92% |
Record |
|
|
|
|
|
|
|
|
| |
| Large
Cap Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
TD
Ameritrade, Inc.
For the Exclusive Benefit of Our Clients
P.O. Box
2226
Omaha, NE 68103-2226
|
14.94% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010 |
14.60% |
Record |
|
|
|
|
|
|
|
|
| |
| Large
Cap Fund - Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057 |
76.76% |
Record |
|
|
|
|
|
|
|
|
| |
| Mid
Cap Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
40.52% |
Record |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
23.92% |
Record |
Morgan
Stanley Smith Barney LLC
For the Exclusive Benefit of its
Customers
1 New York Plaza, 39th Floor
New York, NK
10004-1932
|
5.21% |
Record |
TD
Ameritrade, Inc.
For the Exclusive Benefit of Our Clients
P.O. Box
2226
Omaha, NE 68103-2226 |
5.06% |
Record |
|
|
|
|
|
|
|
|
| |
| Mid
Cap Fund - Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057 |
72.69% |
Record |
|
|
|
|
|
|
|
|
| |
| Small
Cap Fund – Investor Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
22.11% |
Record |
Charles
Schwab & Co. Inc.
Reinvest Account
Attn: Mutual Fund
Department
211 Main Street
San Francisco, CA
94105-1905
|
19.78% |
Record |
LPL
Financial
Omnibus Customer Account
4707 Executive Drive
San
Diego, CA 92121-3091 |
5.33% |
Record |
|
|
|
|
|
|
|
|
| |
| Small
Cap Fund – Institutional Class |
| Name
and Address |
%
Ownership |
Type
of Ownership |
Great
Plains Trust Company*
7700 Shawnee Mission Parkway, Suite
101
Overland Park, KS 66202-3057
|
22.25% |
Record |
National
Financial Services Corp.
For Exclusive Benefit of Customers
Attn:
Mutual Funds Dept. 4th Floor
499 Washington Boulevard
Jersey City,
NJ 07310-2010
|
15.81% |
Record |
Edward
D. Jones & Co.
For the Benefit of Customers
12555 Manchester
Road
St. Louis, MO 63131-3710
|
7.79% |
Record |
Princor
Financial Services Corp.
DCGT as TTEE and/or Cust
FBO PLIC Various
Retirement Plans Omnibus
711 High Street
Des Moines, IA
50392-0001 |
7.47% |
Record |
*
The majority beneficial owner of Great Plains Trust Company is an irrevocable
trust created by John C. Kornitzer, the Chairman of the Adviser, for the benefit
of his family members; therefore, Mr. Kornitzer is considered a principal
shareholder in several of the Funds.
MANAGEMENT
OWNERSHIP OF THE FUNDS
As
of December 31, 2022, neither the 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 Adviser, the
Distributor or any affiliate of the Adviser or the Distributor. Accordingly, as
of
December 31, 2022,
neither the Trustees who are not “interested” persons of the Trust, nor members
of their immediate family, had any direct or indirect interest, the value of
which exceeds $120,000, in the Adviser, the Distributor or any of their
affiliates. In addition, as of December 31, 2022, neither the Trustees who are
not “interested” persons of the Trust 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 Adviser, the Distributor or their
affiliates were parties.
DISTRIBUTIONS
AND TAXES
This
section is not intended to be a full discussion of federal income tax laws and
the effect of such laws on you.
This
section is based on the Code, Treasury Regulations, judicial decisions, and IRS
guidance on the date hereof, all of which are subject to change, and possibly
with retroactive effect. These changes could impact a Fund’s investments or the
tax consequences to you of investing in a Fund. Some of the changes could affect
the timing, amount and tax treatment of a Fund’s distributions made to
shareholders. There may be other federal, state, foreign or local tax
considerations to a particular shareholder. No assurance can be given that
legislative, judicial, or administrative changes will not be forthcoming which
could affect the accuracy of any statements made in this section. Please consult
your tax advisor before investing.
Distributions
of Investment Company Taxable Income.
The Funds receive income generally in the form of dividends, interest, net
short-term capital gain and net gain from foreign currency transactions on their
investments in portfolio securities. This income, less expenses incurred in the
operation of a Fund, constitutes its “investment company taxable income,” from
which distributions may be paid to you. If you are a taxable investor, any
distributions by a Fund from such income (other than amounts attributable to and
reported as qualified dividend income) will be taxable to you at ordinary income
rates, whether you receive them in cash or in additional Fund shares. For
non-corporate shareholders, distributions attributable to and reported as
qualified dividend income are currently taxable at long-term capital gain rates,
provided certain holding period requirements are met by such shareholders. See
the discussion below under the heading, “Qualified Dividend Income for
Non-corporate Shareholders.”
Distributions
of Net Capital Gain.
A Fund may realize capital gains and losses in connection with sales or other
dispositions of its portfolio securities. Distributions of investment company
taxable income, which includes net short-term capital gain (the excess of net
short-term capital gain over net long-term capital loss) will be taxable to you
as ordinary income, as described above. Distributions of “net capital gain” (the
excess of net long-term capital gain over net short-term capital loss) will be
taxable to you as long-term capital gain regardless of how long you have held
your shares in a Fund. Any net short-term or long-term capital gain realized by
a Fund (net of any capital loss carryforward) generally will be distributed once
each year and may be distributed more frequently, if necessary, in order to
reduce or eliminate federal excise or income taxes on the Fund.
Qualified
Dividend Income for Non-Corporate Shareholders.
For
non-corporate shareholders, a portion of a Fund’s distributions of investment
company taxable income may be attributable to and reported as qualified dividend
income, which is currently eligible for taxation at long-term capital gain rates
for federal income tax purposes. Qualified dividend income treatment is
generally available for Fund distributions of investment company taxable income
attributable to dividends earned on the Fund’s investment in stocks of domestic
corporations and qualified foreign corporations.
Both
a Fund and the shareholder must meet certain holding period requirements to
qualify for this treatment. Specifically, a Fund must hold the stock for at
least 61 days during the 121-day period beginning 60 days before the stock
becomes ex-dividend. Similarly, shareholders must hold their Fund shares for at
least 61 days during the 121-day period beginning 60 days before the Fund
distribution becomes ex-dividend. The ex-dividend date is the first date
following the declaration of a dividend on which the purchaser of stock is not
entitled to receive the next dividend payment. When counting the number of days
you held your Fund shares, include the day you sold your shares but not the day
you acquired these shares.
While
the income designated as qualified dividend income is currently taxed at the
same rates applicable to long-term capital gains, such income will not be
considered as long-term capital gain for other federal income tax purposes. For
example, you generally will not be allowed to offset your long-term capital
losses against qualified dividend income on your federal income tax return. Any
qualified dividend income that you elect to be taxed at these reduced rates also
cannot be treated as investment income in determining your allowable investment
interest expense. For other limitations on the amount of or use of qualified
dividend income on your income tax return, please contact your personal tax
advisor.
After
the close of its fiscal year, a Fund will report the portion of its
distributions of investment company taxable income attributable to qualified
dividend income. If 95% or more of a Fund’s income is from qualified sources, it
will be allowed to designate 100% of its distributions of investment company
taxable income as qualified dividend income.
Dividends-Received
Deduction for Corporations.
For corporate shareholders, a portion of the distributions of investment company
taxable income paid by a Fund may qualify for the dividends-received deduction.
The portion of such distributions paid by a Fund that so qualifies will be
reported each year in a notice mailed to the Fund’s shareholders, and cannot
exceed the gross amount of dividends received by the Fund directly or indirectly
from domestic (U.S.) corporations that would have qualified for the
dividends-received deduction in the hands of the Fund if the Fund were a regular
corporation. Either none or only a nominal portion of the distributions paid by
the High Yield Fund and International Fund will be eligible for the
dividends-received deduction because such Funds invest primarily in debt
instruments and/or foreign securities.
The
availability of the dividends-received deduction is subject to certain holding
period and debt-financing restrictions imposed under the Code on the corporation
claiming the deduction. The amount that a Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares on
which the dividends earned by the Fund were debt-financed or held by the Fund
for less than a minimum period of time, generally 46 days during a 91-day period
beginning 45 days before the stock becomes ex-dividend. Similarly, if a
corporate shareholder’s Fund shares are debt-financed or held for less than a
46-day period, then the dividends-received deduction for Fund distributions may
also be reduced or eliminated.
Returns
of Capital.
If a Fund’s distributions exceed its then-current and accumulated earnings and
profits, all or a portion of the distributions made in the same taxable year may
be recharacterized as a return of capital to shareholders. A return of capital
distribution will generally not be taxable, but will reduce each shareholder’s
cost basis in Fund shares and result in a higher reported capital gain or lower
reported capital loss when those shares (on which the distribution was received)
are ultimately sold, exchanged or redeemed. Any return of capital in excess of
your basis, however, is taxable as a capital gain.
Pass-Through
of Foreign Tax Credits.
If more than 50% of the value of a Fund’s total assets at the end of a fiscal
year are invested in foreign securities, such Fund may elect to pass through to
you your pro rata share of foreign taxes paid by the Fund. If this election is
made, you must include in your gross income your proportionate share of foreign
taxes paid by the Fund, and accordingly such Fund may report more taxable income
to you than it actually distributes. You will then be entitled either to deduct
your share of these foreign taxes in computing your taxable income, or to claim
a foreign tax credit for these taxes against your federal income tax (subject to
limitations for certain shareholders). A Fund will provide you with the
information necessary to claim this deduction or credit on your income tax
return if the Fund makes this election. Your tax reporting of any foreign
dividends designated by a Fund as qualified dividend income subject to taxation
at long-term capital gain rates may reduce the otherwise available foreign tax
credits on your federal income tax return. Shareholders in these circumstances
should talk with their personal tax advisors about their foreign tax credits and
the procedures that they should follow to claim these credits on their income
tax returns.
PFIC
Securities.
The Funds may invest in securities of foreign entities that could be deemed for
tax purposes to be passive foreign investment companies (“PFICs”). In general, a
PFIC is any foreign corporation if 75% or more of its gross income for its
taxable year is passive income or 50% or more of its average assets (by value)
produce or are held for the production of passive income. When investing in PFIC
securities, each Fund intends to elect to mark-to-market these securities and
recognize any unrealized gains at the end of the Fund’s fiscal and excise tax
years. Deductions for unrealized losses are allowable only to the extent of any
current or previously recognized gains. These gains (reduced by allowable
losses) are treated as ordinary income that a Fund is required to distribute,
even though it has not sold the securities or received any dividends therefrom.
Dividends paid by PFICs to the Funds are not qualified dividend income, and the
Fund will not be able to designate distributions to you of PFIC dividends as
qualified dividend income, which is currently eligible for the reduced rates of
federal income tax applicable to long-term capital gains. In addition, if a Fund
is unable to identify an investment as a PFIC and thus does not make a
mark-to-market election, the Fund may be subject to federal income tax on a
portion of any “excess distribution” or gain from the disposition of such shares
even if such income is distributed by the Fund to its shareholders. Additional
charges in the nature of non-deductible interest may be imposed on a Fund in
respect of deferred taxes arising from such distributions or gains.
MLPs.
The
Funds may invest in MLPs that will be treated for federal income tax purposes as
“qualified publicly traded partnerships.” The income derived from such
investments constitutes “good income” for purposes of satisfying the source of
income requirement for the Funds to maintain their status as a RIC. However, if
an MLP in which a Fund invests does not qualify as a qualified publicly traded
partnership (and the MLP is otherwise not treated as a corporation for federal
income tax purposes), the Fund must look through to the character of income
generated by the MLP. Such income may not qualify as “good income,” and
therefore, could adversely affect the Fund’s status as a RIC.
The
MLPs in which the Funds intend to invest are expected to be treated as
partnerships for federal income tax purposes, and accordingly, the cash
distributions received by a Fund from an MLP may not correspond to the amount of
income allocated to the Funds by the MLP in any given taxable year. If the
amount of income allocated to a Fund by an MLP exceeds the amount of cash
received by a Fund from such MLP, the Fund may have difficulty making
distributions to its shareholders in the amounts necessary to satisfy the
distribution requirements for maintaining the Fund’s status as a RIC and
avoiding any federal income and excise taxes at the Fund level. Accordingly, a
Fund may have to dispose of its portfolio investments under disadvantageous
circumstances in order to generate sufficient cash to satisfy the distribution
requirements.
Information
on the Amount and Tax Character of Distributions.
The Funds will inform you of the amount and character of your distributions at
the time they are paid, and will report to you the federal income tax status of
such distributions shortly after the close of each calendar year. If you have
not held Fund shares for a full year, a Fund may designate and distribute to you
amounts of investment company taxable income or net capital gain that are not
equal to the actual amount of such income earned during the period of your
investment in the Fund. Taxable distributions declared by a Fund in October,
November or December to shareholders of record, but paid in January of the
following calendar year, are taxable to you as if they were received on December
31.
Election
to be Taxed as a Regulated Investment Company.
Each Fund intends to qualify and elect to be treated as a RIC under Subchapter M
of the Code. As a RIC, a Fund generally pays no federal income tax on the
investment company taxable income and net capital gain it distributes to you.
The Board of Trustees reserves the right not to distribute a Fund’s net capital
gain or not to maintain the qualification of a Fund as a RIC if it determines
such a course of action to be beneficial to shareholders. If a Fund retains any
net capital gain and pays federal income tax on such gain, it may elect to treat
all or a portion of such gain as having been distributed to shareholders. Each
shareholder who holds Fund shares at the end of the Fund’s taxable year (i) will
be taxed on such deemed net capital gain distributions, (ii) will be entitled to
a credit or refund for such shareholder’s pro rata share of the federal income
taxes paid by the Fund with respect to its undistributed net capital gain, and
(iii) will be entitled to a corresponding increase to the adjusted basis of such
shareholder’s Fund shares.
If
a Fund fails to qualify as a RIC and fails to obtain relief from such failure,
the Fund would be subject to federal, and possibly state, corporate taxes on its
taxable income and gains, and distributions to you would generally be taxed as
dividend income to the extent of such Fund’s then-current and accumulated
earnings and profits. In the event that a Fund fails to qualify as a RIC and
does not obtain relief from such failure, shareholders will generally earn lower
after-tax returns than if the Fund had been taxed as a RIC.
In
order to qualify as a RIC for federal income tax purposes, each Fund must meet
certain specific requirements, including:
(i) A
Fund must maintain a diversified portfolio of securities, such that at the close
of each quarter of the Fund’s taxable year, (i) at least 50% of the value of the
Fund’s total assets consists of cash, cash equivalents, U.S. government
securities, securities of other RICs, and other acceptable securities, with such
other securities limited, in respect to any one issuer, to an amount not greater
in value than 5% of the value of the Fund’s total assets and to not more than
10% of the outstanding voting securities of such issuer; and (ii) no more than
25% of the value of the Fund’s assets may be invested in the securities of any
one issuer (other than U.S. government securities or securities of other RICs),
or of any two or more issuers that are controlled, as determined under
applicable Code rules, by the Fund and that are engaged in the same, similar or
related trades or businesses, or of certain qualified publicly traded
partnerships;
(ii) A
Fund must derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or disposition of
stock, securities or foreign currencies, or other income derived with respect to
its business of investing in such stock, securities, or currencies, and net
income derived from an interest in a qualified publicly traded partnership;
and
(iii) A
Fund must distribute to its shareholders at least 90% of its investment company
taxable income and net tax-exempt income for its taxable year.
Excise
Tax Distribution Requirements.
As a RIC, each Fund is required to distribute its ordinary income and capital
gain net income on a calendar year basis, regardless of the Fund’s fiscal year
end as follows:
Required
distributions.
To
avoid a federal excise tax of 4.0%, the Code requires a Fund to distribute to
you by December 31 of each year, at a minimum, the following amounts: 98% of its
taxable ordinary income earned during the calendar year; 98.2% of its capital
gain net income earned during the twelve-month period ending October 31; and
100% of any undistributed amounts from the prior year. The Funds intend to
declare and pay these distributions in December (or to pay them in January, in
which case you must treat them as received on December 31) but can give no
assurances that their distributions will be sufficient to eliminate all taxes at
the Fund level.
Post-October
losses.
Because the periods for measuring a RIC’s income are different for federal
excise and income tax purposes, special rules are required to protect the amount
of earnings and profits needed to support excise tax distributions. For
instance, if a RIC that uses October 31 as the measurement period for
distributing capital gain net income realizes a net capital loss after October
31 and before the close of its taxable year, the RIC likely would have
insufficient earnings and profits for that taxable year to support the treatment
of its required distributions for that calendar year. Accordingly, a Fund is
permitted to elect to treat certain net capital losses realized between November
1 and its fiscal year end of March 31 (‘‘post-October loss”) as occurring on the
first day of the following tax year (i.e.,
April 1). Each Fund generally intends to make such election to defer
post-October losses.
Sales,
Exchanges and Redemption of Fund Shares.
Sales, exchanges and redemptions (including redemptions in kind) of Fund shares
are taxable transactions for federal income tax purposes. If you held your
shares as a capital asset, the gain or loss that you realize will be a capital
gain or loss and will be long-term or short-term, generally depending on how
long you have held your shares. Gain or loss realized upon a sale, exchange or
redemption of Fund shares will generally be treated as long-term capital gain or
loss if the shares have been held for more than one year, and as short-term
capital gain or loss if the shares have been held for one year or
less.
Sales,
Exchanges or Redemptions at a loss within six months of purchase.
Any loss incurred on a sale, exchange or redemption of shares held for six
months or less will be treated as long-term capital loss to the extent of any
net capital gain distributed to you or deemed to be distributed to you by the
Fund on those shares. In determining the holding period of shares for this
purpose, any period during which your risk of loss is offset by means of
options, short sales, or similar transactions is not counted.
Wash
sales.
All or a portion of any loss that you realize on a sale, exchange or redemption
of your Fund shares will be disallowed to the extent that you buy other shares
in the same Fund (through reinvestment of distributions or otherwise) within 30
days before or after your share sale, exchange or redemption. Any loss
disallowed under these rules will be added to your tax basis in the new
shares.
U.S.
Government Securities.
Income earned on certain U.S. government obligations is generally exempt from
state and local income taxes if earned directly by you. States generally grant
tax-free status to distributions paid by a Fund attributable to interest earned
on direct obligations of the U.S. Government, subject in some states to minimum
investment or reporting requirements that must be met by a Fund. Income earned
on investments in certain other obligations, such as repurchase agreements
collateralized by U.S. government obligations, commercial paper and federal
agency-backed obligations (e.g.,
GNMA or FNMA obligations), generally does not qualify for tax-free treatment at
the state level. The rules on exclusion of this income are generally different
for corporations.
Net
Investment Income Tax Imposed on Certain Income.
Certain individuals, trusts and estates may be subject to a net investment
income (“NII”) tax of 3.8% (in addition to the regular income tax). The NII tax
is imposed on the lesser of (i) a taxpayer’s investment income, net of
deductions properly allocable to such income, or (ii) the amount by which the
taxpayer’s modified adjusted gross income exceeds certain thresholds ($250,000
for married individuals filing jointly, $200,000 for unmarried individuals and
$125,000 for married individuals filing separately). Investment income generally
consists of passive income, including interest, dividends, annuities, royalties,
rents and capital gains. Each Fund’s distributions are includable in a
shareholder’s investment income for purposes of this NII tax. In addition, any
capital gain realized upon the sale, exchange or redemption of Fund shares is
includable in a shareholder’s investment income for purposes of this NII
tax.
REITs.
In
general, qualified REIT dividends that an investor receives directly from a REIT
are automatically eligible for the 20% qualified business income deduction. The
IRS has issued final Treasury Regulations that permit a dividend or part of a
dividend paid by a RIC and reported as a “section 199A dividend” to be treated
by the recipient as a qualified REIT dividend for purposes of the 20% qualified
business income deduction, if certain holding period and other requirements have
been satisfied by the recipient with respect to its Fund shares. The final
Treasury Regulations do not extend such conduit treatment to qualified publicly
traded partnership income, as defined under Section 199A of the Code, earned by
a RIC. Therefore, non-corporate shareholders may not include any qualified
publicly traded partnership income earned through a Fund in their qualified
business income deduction. The IRS and Treasury Department may be continuing to
evaluate whether it is appropriate to provide such conduit
treatment.
Investment
in Complex Securities.
The Funds may invest in complex securities that could be subject to numerous
special and complex tax rules. These rules could accelerate the recognition of
income by a Fund (possibly causing a Fund to sell securities to raise the cash
for necessary distributions), defer a Fund’s ability to recognize a loss, and,
in limited cases, subject a Fund to federal income tax. These rules could also
affect whether gain or loss recognized by a Fund is treated as ordinary or
capital, or as interest or dividend income. These rules could, therefore, affect
the amount, timing or character of Fund distributions.
Cost
Basis Reporting.
Each Fund is required to report to certain shareholders and the IRS the cost
basis of Fund shares acquired by such shareholders on or after January 1, 2012
(“covered shares”) when they redeem such shares. These requirements do not apply
to shares held through a tax-deferred arrangement, such as a 401(k) plan or an
IRA, or to shares held by tax-exempt organizations, financial institutions,
corporations (other than S corporations), banks, credit unions, and certain
other entities and governmental bodies (“non-covered shares”). Shares acquired
before January 1, 2012 (“non-covered shares”) are treated as if held in a
separate account from covered shares. The Funds are not required to determine or
report your cost basis in non-covered shares and are not responsible for the
accuracy or reliability of any information provided for non-covered
shares.
The
cost basis of a share is generally its purchase price adjusted for
distributions, returns of capital, and other corporate actions. Cost basis is
used to determine whether the sale, exchange or redemption of a share results in
a capital gain or loss. If you sell, exchange or redeem covered shares during
any year, then the Funds will report the gain or loss, cost basis, and holding
period of such shares to the IRS and you on Form 1099.
A
cost basis method is the method by which a Fund determines which specific
covered shares are deemed to be sold, exchanged or redeemed when you sell,
exchange or redeem less than your entire holding of the Fund shares and have
made multiple purchases of Fund shares on different dates at differing net asset
values.
If you do not affirmatively elect an IRS-approved cost basis method, the Funds
will use the average cost method, which averages the basis of all Fund shares in
your account regardless of holding period, and shares sold, exchanged or
redeemed are deemed to be those with the longest holding period first. You may
elect in writing (and not over the telephone) any alternate IRS-approved cost
basis method to calculate the cost basis in your Fund shares. The default cost
basis method applied by a Fund or the alternate method elected by you may not be
changed after the settlement date of a sale, exchange or redemption of Fund
shares.
If
you hold shares of a Fund through a financial intermediary or another nominee,
please contact that broker or nominee with respect to the reporting of cost
basis and available elections for your account.
You
are encouraged to consult your tax advisor regarding the application of these
cost basis reporting rules and, in particular, which cost basis calculation
method you should elect.
Backup
Withholding.
By law, a Fund must withhold a portion of your distributions and sales proceeds
unless you:
• provide
your correct Social Security or other taxpayer identification
number,
• certify
that this number is correct,
• certify
that you are not subject to backup withholding, and
• certify
that you are a U.S. person (including a U.S. resident alien).
A
Fund also must withhold if the IRS instructs it to do so. When backup
withholding is required, the amount withheld will be 24% of any distributions or
proceeds paid (such backup withholding rate may change if federal income tax
rates change). The special U.S. tax certification requirements applicable to
non-U.S. investors are described under the “Non-U.S. Investors” heading
below.
Non-U.S.
Investors.
Non-U.S. investors (shareholders who, as to the U.S., are nonresident alien
individuals, foreign trusts or estates, foreign corporations, or foreign
partnerships) may be subject to U.S. withholding and estate tax and are subject
to special U.S. tax certification requirements. Non-U.S. investors should
consult their tax advisors about the applicability of U.S. tax withholding and
the use of the appropriate forms to certify their status.
In
general.
The U.S. imposes a flat 30% withholding tax (or a withholding tax at a lower
treaty rate) on U.S.-source dividends, including on distributions of investment
company taxable income paid to you by a Fund, subject to exemptions for net
capital gain, as described below. However, notwithstanding such exemption from
U.S. withholding at the source, any distributions of investment company taxable
income and net capital gain, including the proceeds from the sale of your Fund
shares, will be subject to backup withholding at a rate of 24% if you fail to
properly certify that you are not subject to backup withholding (such backup
withholding rate may change if federal income tax rates change).
If
you hold your Fund shares in connection with a U.S. trade or business, your
income and gains will be considered effectively connected income and taxed in
the U.S. on a net basis, in which case you may be required to file a nonresident
U.S. income tax return.
Distributions
of Net Capital Gain.
In general, for non-U.S. investors, exemptions from U.S. withholding tax are
generally provided for capital gains realized on the sales of Fund shares, and
if properly reported by the Fund, capital gain dividends paid by the Fund from
net long-term capital gains and short-term capital gain dividends paid by the
Fund from net short-term capital gains (other than gain realized on disposition
of U.S. real property interests), unless you are a nonresident alien individual
present in the
U.S.
for a period or periods aggregating 183 days or more (as calculated pursuant to
a special formula) during the taxable year. It may not be practical in every
case for the Fund to report to shareholders, and the Fund reserves the right in
these cases to not report, short-term capital gain dividends. Additionally, the
Fund’s reporting of short-term capital gain dividends may not, in turn, be
passed through to shareholders by intermediaries who have assumed tax reporting
responsibilities for this income in managed or omnibus accounts due to systems
limitations or operational constraints.
U.S.
estate tax.
An
individual who, at the time of death, is a non-U.S. investor will nevertheless
be subject to U.S. federal estate tax with respect to Fund shares at the
graduated rates applicable to U.S. citizens and residents, unless a treaty
exemption applies. If a treaty exemption is available, a decedent’s estate may
nonetheless need to file a U.S. estate tax return to claim the exemption in
order to obtain a U.S. federal transfer certificate. The transfer certificate
will identify the property (i.e.,
Fund shares) as to which the U.S. federal estate tax lien has been released. In
the absence of a treaty, there is a $13,000 statutory estate tax credit (which
effectively exempts the first $60,000 of U.S. situs assets). For estates with
U.S. situs assets of not more than $60,000, the Fund may accept, in lieu of a
transfer certificate, an affidavit from an appropriate individual evidencing
that decedent’s U.S. situs assets are below this threshold amount. Transfers by
gift of shares of a Fund by a non-U.S. shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax. The tax consequences to
a non-U.S. shareholder entitled to claim the benefits of an applicable tax
treaty may be different from those described herein. Non-U.S. shareholders are
urged to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund, including the applicability of
foreign tax.
U.S.
tax certification rules.
Special
U.S. tax certification requirements apply to non-U.S. shareholders both to avoid
U.S. backup withholding imposed at a rate of 24% (such backup withholding rate
may change if federal income tax rates change) and to obtain the benefits of any
treaty between the U.S. and the shareholder’s country of residence. In general,
a non-U.S. shareholder must provide a Form W-8BEN or W-8BEN-E (or other
applicable Form W-8) to establish that he or she is not a U.S. person, to claim
that he or she is the beneficial owner of the income and, if applicable, to
claim a reduced rate of, or exemption from, withholding as a resident of a
country with which the U.S. has an income tax treaty. A Form W-8BEN or W-8BEN-E
will remain in effect for a period beginning on the date signed and ending on
the last day of the third succeeding calendar year unless an earlier change of
circumstances makes the information on the form incorrect.
Withholding
under FATCA.
Under the Foreign Account Tax Compliance Act (“FATCA”), a Fund may be required
to withhold a generally nonrefundable 30% tax on (i) distributions of investment
company taxable income and (ii) distributions of net capital gain and the gross
proceeds of a sale, exchange or redemption of Fund shares paid to (A) certain
“foreign financial institutions” unless such foreign financial institution
agrees to verify, monitor, and report to the IRS the identity of certain of its
accountholders, among other items (or unless such entity is otherwise deemed
compliant under the terms of an intergovernmental agreement between the United
States and the entity’s country of residence), and (B) certain “non-financial
foreign entities” unless such entity certifies to the Fund that it does not have
any substantial U.S. owners or provides the name, address, and taxpayer
identification number of each substantial U.S. owner, among other items. In
December 2018, the IRS and Treasury Department released proposed Treasury
Regulations that would eliminate FATCA withholding on Fund distributions of net
capital gain and the gross proceeds from a sale, exchange or redemption of Fund
shares. Although taxpayers are entitled to rely on these proposed Treasury
Regulations until final Treasury Regulations are issued, these proposed Treasury
Regulations have not been finalized, may not be finalized in their proposed
form, and are potentially subject to change. This FATCA withholding tax could
also affect a Fund’s return on its investments in foreign securities or affect a
shareholder’s return if the shareholder holds its Fund shares through a foreign
intermediary. You are urged to consult your tax adviser regarding the
application of this FATCA withholding tax to your investment in a Fund and the
potential
certification,
compliance, due diligence, reporting, and withholding obligations to which you
may become subject in order to avoid this withholding tax.
Capital
Loss Carryforward.
Each
Fund may carry forward its net capital losses, if any, indefinitely and net
capital losses generally retain their character as short-term or long-term. If
future capital gains are offset by carried forward capital losses, such future
capital gains are not subject to Fund-level federal income taxation, regardless
of whether they are distributed to shareholders. Accordingly, no Fund expects to
distribute any such offsetting capital gains. A Fund cannot carry back or carry
forward any net operating losses. As of March 31, 2023, the Buffalo Funds had
the following capital loss carryovers available to offset future taxable capital
gains:
|
|
|
|
|
|
|
|
|
|
|
| |
| Name
of Fund |
Short
Term Capital Loss Carryover |
Long
Term Capital Loss Carryover |
Total
Capital Loss Carryover |
| Discovery
Fund |
$43,330,896 |
$— |
$43,330,896 |
| Dividend
Focus Fund |
64,682 |
84,795 |
149,477 |
| Early
Stage Growth Fund |
2,115,525 |
3,143,942 |
5,259,467 |
| Flexible
Income Fund |
— |
— |
— |
| Growth
Fund |
— |
— |
— |
| High
Yield Fund |
1,024,491 |
7,420,144 |
8,444,635 |
| International
Fund |
— |
— |
— |
| Large
Cap Fund |
3,944,397 |
— |
3,944,397 |
| Mid
Cap Fund |
— |
— |
— |
| Small
Cap Fund |
76,108,768 |
28,220,217 |
104,328,985 |
This
discussion of “Distributions and Taxes” is not intended or written to be used as
tax advice and does not purport to deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. This section is based on the Code, Treasury Regulations, judicial
decisions, and IRS guidance on the date hereof, all of which are subject to
change, and possibly with retroactive effect. No assurance can be given that
legislative, judicial, or administrative changes will not be forthcoming which
could affect the accuracy of any statements made in this section. You should
consult your own tax advisor regarding your particular circumstances before
making an investment in a Fund.
FINANCIAL
STATEMENTS
The
audited financial statements of each of the Buffalo Funds, which are contained
in the March 31, 2023 Annual
Report to Shareholders,
are incorporated herein by reference. Unaudited reports to shareholders will be
published at least semi-annually.
APPENDIX
A
RATINGS
DEFINITIONS
S
& P Global Ratings Issue Credit Rating Definitions
An
S&P Global Ratings (“S&P”) issue credit rating is a forward-looking
opinion about the creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial obligations, or a specific
financial program (including ratings on medium-term note programs and commercial
paper programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation and takes into
account the currency in which the obligation is denominated. The opinion
reflects S&P’s view of the obligor’s capacity and willingness to meet its
financial commitments as they come due, and this opinion may assess terms, such
as collateral security and subordination, which could affect ultimate payment in
the event of default.
Issue
credit ratings can be either long-term or short-term. Short-term ratings are
generally assigned to those obligations considered short-term in the relevant
market, typically with an original maturity of no more than 365 days. Short-term
ratings are also used to indicate the creditworthiness of an obligor with
respect to put features on long-term obligations. A long-term issue credit
rating is typically assigned to an obligation with an original maturity of
greater than 365 days. However, the ratings assigned to certain instruments may
diverge from these guidelines based on market practices. Medium-term notes are
assigned long-term ratings.
Dual
ratings may be assigned to debt issues that have a put option or demand feature.
The first component of the rating addresses the likelihood of repayment of
principal and interest as due, and the second component of the rating addresses
only the demand feature. S&P may also assign qualifiers to ratings when
appropriate. These qualifiers limit the scope of a rating. A qualifier appears
as a suffix and is part of the rating.
S&P’s
Short-Term Issue Credit Ratings
|
|
|
|
|
| |
| A-1 |
A
short-term obligation rated ‘A-1’ is rated in the highest category by
S&P. The obligor’s capacity to meet its financial commitments on the
obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor’s
capacity to meet its financial commitments on these obligations is
extremely strong. |
| A-2 |
A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity
to meet its financial commitments on the obligation is
satisfactory. |
| A-3 |
A
short-term obligation rated ‘A-3’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to weaken an obligor’s capacity to meet its financial commitments
on the obligation. |
| B |
A
short-term obligation rated ‘B’ denotes weak protection parameters and is
vulnerable to adverse business, financial or economic
conditions. |
| C |
A
short-term obligation rated ‘C’ denotes doubtful capacity for
payment. |
|
|
|
|
|
| |
| D |
A
short-term obligation rated ‘D’ is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the ‘D’ rating category is
used when payments on an obligation are not made on the date due, unless
S&P believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days
will be treated as five business days. The ‘D’ rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action
and where default on an obligation is a virtual certainty, for example due
to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if
it is subject to a distressed exchange
offer. |
S&P’s
Municipal Short-Term Note Ratings
An
S&P U.S. municipal note rating reflects S&P’s opinion about the
liquidity factors and market access risks unique to the notes. Notes due in
three years or less will likely receive a note rating. Notes with an original
maturity of more than three years will most likely receive a long-term debt
rating. In determining which type of rating, if any, to assign, S&P’s
analysis will review the following considerations:
•Amortization
schedule-the larger the final maturity relative to other maturities, the more
likely it will be treated as a note; and
•Source
of payment-the more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note.
S&P’s
municipal short-term note rating symbols are as follows:
|
|
|
|
|
| |
| SP-1 |
Strong
capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+)
designation |
| SP-2 |
Satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes. |
| SP-3 |
Speculative
capacity to pay principal and interest. |
| D |
‘D’
is assigned upon failure to pay the note when due, completion of a
distressed debt restructuring, or the filing of a bankruptcy petition or
the taking of similar action and where default on an obligation is a
virtual certainty, for example due to automatic stay
provisions. |
S&P’s
Long-Term Issue Credit Ratings
Issue
credit ratings are based, in varying degrees, on S&P’s analysis of the
following considerations:
•Likelihood
of payment - the capacity and willingness of the obligor to meet its financial
commitments on an obligation in accordance with the terms of the
obligation;
•Nature
and provisions of the financial obligation and the promise S&P imputes;
and
•Protection
afforded by, and relative position of, the financial obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors’ rights.
An
issue rating is an assessment of default risk but may incorporate an assessment
of relative seniority or ultimate recovery in the event of default. Junior
obligations are typically rated lower than
senior
obligations, to reflect lower priority in bankruptcy, as noted above. (Such
differentiation may apply when an entity has both senior and subordinated
obligations, secured and unsecured obligations, or operating company and holding
company obligations.)
|
|
|
|
|
| |
| AAA |
An
obligation rated ‘AAA’ has the highest rating assigned by S&P. The
obligor’s capacity to meet its financial commitment on the obligation is
extremely strong. |
| AA |
An
obligation rated ‘AA’ differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on
the obligation is very strong. |
| A |
An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is still strong. |
| BBB |
An
obligation rated ‘BBB’ exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
weaken the obligor’s capacity to meet its financial commitment on the
obligation. |
| BB;
B; CCC; CC; and C |
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant
speculative characteristics. ‘BB’ indicates the least degree of
speculation and ‘C’ the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions. |
| BB |
An
obligation rated ‘BB’ is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor’s inadequate capacity to meet its financial
commitment on the obligation. |
| B |
An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations
rated ‘BB’, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s capacity or
willingness to meet its financial commitment on the
obligation. |
| CCC |
An
obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation. |
| CC |
An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The
‘CC’ rating is used when a default has not yet occurred, but S&P
expects default to be a virtual certainty, regardless of the anticipated
time to default. |
| C |
An
obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared with obligations that are rated higher. |
| D |
An
obligation rated ‘D’ is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless S&P
believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace
period or the next 30 calendar days. The ‘D’ rating also will be used upon
the filing of a bankruptcy petition or the taking of similar action and
where default on an obligation is a virtual certainty, for example due to
automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it
is subject to a distressed exchange offer. |
| NR |
This
indicates that a rating has not been assigned or is no longer
assigned. |
*The
ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating
categories.
Moody’s
Investors Service, Inc.’s (“Moody’s”) Credit Rating Definitions
Ratings
assigned on Moody’s global long-term and short-term rating scales are
forward-looking opinions of the relative credit risks of financial obligations
issues by non-financial corporates, financial institutions, structured finance
vehicles, project finance vehicles, and public sector entities. Long-term
ratings are assigned to issuers or obligations with an original maturity of
eleven months or more and reflect both on the likelihood of a default or
impairment on contractual financial obligations and the expected financial loss
suffered in the event of default or impairment. Short-term ratings are assigned
to obligations with an original maturity of thirteen months or less and reflect
both on the likelihood of a default or impairment on contractual financial
obligations and the expected financial loss suffered in the event of default or
impairment.
Moody’s
Short-Term Obligation Ratings
Moody’s
employs the following designations to indicate the relative repayment ability of
rated issuers:
|
|
|
|
|
| |
| Prime
Scale |
| P-1 |
Issuers
(or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations. |
| P-2 |
Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations. |
| P-3 |
Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations. |
| NP |
Issuers
(or supporting institutions) rated Not Prime do not fall within any of the
Prime rating categories. |
The
global short-term Prime rating scale (the “Prime Scale”), immediately above, is
used for commercial paper issued by U.S. Municipalities and nonprofits. These
commercial paper programs may be backed by external letters of credit or
liquidity facilities, or by an issuer’s self-liquidity. For other short-term
municipal obligations, Moody’s uses one of two other short-term rating scales,
the Municipal Investment Grade (MIG) and Variable Municipal Investment Grade
(VMIG) scales discussed below.
Moody’s
U.S. Municipal Short-Term Obligation Ratings
The
MIG scale is used for U.S. municipal cash flow notes, bond anticipation notes
and certain other short-term obligations, which typically mature in three years
or less. Under certain circumstances, Moody’s uses the MIG scale for bond
anticipation notes with maturities of up to five years.
|
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| |
| MIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for
refinancing. |
| MIG
2 |
This
designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group. |
| MIG
3 |
This
designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to
be less well-established. |
| SG |
This
designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of
protection. |
Moody’s
Demand Obligation Ratings
In
the case of variable rate demand obligations (VRDOs), a two-component rating is
assigned: a long-term rating and a short-term payment obligation rating. The
long-term rating addresses the issuer’s ability to meet scheduled principal and
interest payments. The short-term payment obligation rating addresses the
ability of the issuer or the liquidity provider to meet any purchase price
payment obligation resulting from optional tenders (“on demand”) and/or
mandatory tenders of the VRDO. The short-term payment obligation rating uses the
VMIG scale. Transitions of VMIG ratings of demand obligations with conditional
liquidity support differ from transitions on the Prime Scale to reflect the risk
that external liquidity support will terminate if the issuer’s long-term rating
drops below investment grade.
The
VMIG short-term demand obligation rating is typically assigned if the frequency
of the demand feature is less than every three years. If the frequency of the
demand feature is less than three years but the purchase price is payable only
with remarketing proceeds, the short-term demand obligation rating is
“NR.”
|
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| |
| VMIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity
provider and structural and legal protections. |
| VMIG
2 |
This
designation denotes strong credit quality. Good protection is afforded by
the strong short-term credit strength of the liquidity provider and
structural and legal protections. |
| VMIG
3 |
This
designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections. |
| SG |
This
designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does
not have a sufficiently strong short-term rating or may lack the
structural or legal protections. |
Moody’s
Long-Term Obligation Ratings
|
|
|
|
|
| |
| Aaa |
Obligations
rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk. |
| Aa |
Obligations
rated Aa are judged to be of high quality and are subject to very low
credit risk. |
| A |
Obligations
rated A are considered upper-medium grade and are subject to low credit
risk. |
| Baa |
Obligations
rated Baa are judged to be medium-grade and subject to moderate credit
risk and as such may possess certain speculative
characteristics. |
| Ba |
Obligations
rated Ba are judged to be speculative and are subject to substantial
credit risk. |
| B |
Obligations
rated B are considered speculative and are subject to high credit
risk. |
| Caa |
Obligations
rated Caa are judged to be speculative of poor standing and are subject to
very high credit risk. |
| Ca |
Obligations
rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and interest. |
| C |
Obligations
rated C are the lowest rated and are typically in default, with little
prospect for recovery of principal or
interest. |
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
Hybrid
Indicator (hyb)
The
hybrid indicator (hyb) is appended to all ratings of hybrid securities issued by
banks, insurers, finance companies, and securities firms. By their terms, hybrid
securities allow for the omission of scheduled dividends, interest, or principal
payments, which can potentially result in impairment if such an omission occurs.
Hybrid securities may also be subject to contractually allowable write-downs of
principal that could result in impairment. Together with the hybrid indicator,
the long-term obligation rating assigned to a hybrid security is an expression
of the relative credit risk associated with that security.
Fitch’s
National Credit Ratings
National
scale ratings express creditworthiness across the full range of the credit
rating scale, using similar symbols to those used for international ratings.
However, to assure differentiation between the two scales, a two- or
three-letter suffix (the ISO international country code) is appended to the
national rating to reflect the specific nature of the national scale to the
country concerned. For ease of reference, Fitch uses the suffix of (xxx) to
indicate a national rating.
Fitch’s
National Short-Term Credit Ratings
|
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|
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| |
| F1(xxx)* |
Indicates
the strongest capacity for timely payment of financial commitments
relative to other issuers or obligations in the same country. This rating
is assigned to the lowest default risk relative to others in the same
country or monetary union. Where the liquidity profile is particularly
strong, a “+” is added to the assigned rating. |
| F2(xxx) |
Indicates
a good capacity for timely payment of financial commitments relative to
other issuers or obligations in the same country or monetary union.
However, the margin of safety is not as great as in the case of the higher
ratings. |
| F3(xxx) |
Indicates
an adequate capacity for timely payment of financial commitments relative
to other issuers or obligations in the same country or monetary
union. |
| B(xxx) |
Indicates
an uncertain capacity for timely payment of financial commitments relative
to other issuers or obligations in the same country or monetary
union. |
| C(xxx) |
Indicates
a highly uncertain capacity for timely payment of financial commitments
relative to other issuers or obligations in the same country or monetary
union. |
| RD(xxx) |
Restricted
default:
Indicates an entity that has defaulted on one or more of its financial
commitments, although it continues to meet other financial obligations.
Applicable to entity ratings only. |
| D(xxx) |
Indicates
a broad-based default event for an entity, or the default of a short-term
obligation. |
*Note:
A
“+” may be appended to the ‘F1(xxx)’ Short-Term National Rating category to
denote relative status within the category
Fitch’s
National Long-Term Credit Ratings*
|
|
|
|
|
| |
| AAA(xxx) |
Denotes
the highest rating assigned by the ratings scale for that country. This
rating is assigned to issuers or obligations with the lowest expectation
of default risk relative to all other issuers or obligations in the same
country or monetary union. |
| AA(xxx) |
Denotes
expectations of a very low level of default risk relative to other issuers
or obligations in the same country or monetary union. The default risk
inherent differs only slightly from that of the country’s highest rated
issuers or obligations. |
| A(xxx) |
Denotes
expectations of a low level of default risk relative to other issuers or
obligations in the same country or monetary union. |
| BBB(xxx) |
Denotes
a moderate default risk relative to other issuers or obligations in the
same country or monetary union. |
| BB(xxx) |
Denotes
an elevated default risk relative to other issuers or obligations in the
same country or monetary union. |
| B(xxx) |
Denotes
a significantly elevated level of default risk relative to other issuers
or obligations in the same country or monetary union. |
| CCC(xxx) |
Denotes
very high level of default risk relative to other issuers or obligations
in the same country or monetary union. |
|
|
|
|
|
| |
| CC(xxx) |
Denotes
the level of default risk is among the highest relative to other issuers
or obligations in the same country or monetary union. |
| C(xxx) |
A
default or default-like process has begun. |
| RD(xxx) |
Restricted
default: ‘RD’
ratings indicate an issuer that, in Fitch Ratings’ opinion, has
experienced an uncured payment default on a bond, loan or other material
financial obligation but which has not entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up
procedure, and has not otherwise ceased business. |
| D(xxx) |
Denotes
an issuer that has entered into bankruptcy filings, administration,
receivership, liquidation or other formal winding-up procedure or that has
otherwise ceased business. |
*Note:
“+”
or “-” may be appended to a National Rating to denote relative status within a
major rating category. Such suffixes are not added to the ‘AAA(xxx)’ Long-Term
National Rating category or to categories below ‘CCC(xxx).’
