RETIREMENT SAVING OPTIONS FOR INDIVIDUALS

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1 RETIREMENT SAVING OPTIONS FOR INDIVIDUALS For Traditional, Rollover, SEP or Roth IRA BUFFALO FUNDS

2 We re pleased that you have chosen the Buffalo Funds for your retirement investment. These Funds are professionally managed no-load mutual funds that offer a variety of choices to match your investment style and financial goals. An Individual Retirement Account, or IRA, is one of the best investments you can make towards your future. And now, with recent changes in the tax law, it is even a better and more flexible instrument for retirement planning. Considering inflation and the rising cost of living, an IRA can also serve as a necessary supplement to Social Security benefits or an employer plan or pension. And, since your IRA investment may be tax deductible and tax deferred, it offers advantages other investments cannot. Because we want you to feel confident about the IRA decision you ve made, we ve reviewed some of the most commonly asked questions regarding the different Individual Retirement Accounts. If you are ready to establish your Buffalo IRA, you can turn directly to page 7 for easy enrollment instructions. What is an IRA? An Individual Retirement Account, or IRA, is one of the best investments you can make towards your future. An Individual Retirement Account (IRA) is an IRS-approved way for any working individual to set aside savings for retirement each year in a tax-deferred account. You are not taxed for accumulated earnings in your IRA until benefits are withdrawn usually after retirement when you may be in a lower income tax bracket. Furthermore, depending on the type of IRA, you may be allowed to deduct the contribution on your Federal income tax return, provided you or your spouse are not covered by an employer-sponsored retirement plan and you establish a Traditional IRA. Even if you are covered you may still be allowed to deduct all or part of your contribution if your income falls below specified limits. Remember, you still benefit from tax-deferred compounding even if you are not eligible for a deduction. What are the different types of IRAs? The different types of IRAs are Traditional, Rollover, SEP and Roth. Traditional IRA is available to anyone who receives compensation and has not reached their 70 1 /2 year. Contributions are made directly by the individual. (See page 3 for contribution limits.) Rollover IRA is a type of IRA designed for deferring taxes on eligible distributions received from a tax-qualified retirement plan. Effective in 2002, after-tax assets from a qualified retirement plan and assets held in a governmental 457 plan are eligible for rollover to a Traditional IRA. To protect the option of someday moving them to another employer plan, such assets are often best kept in a separate IRA that contains no other contributions. SEP IRA, or Simplified Employee Pension, is available to employees of companies who have established a SEP plan and comply with the plan s eligibility requirements. The employer makes contributions on behalf of the employees. 2

3 Roth IRA gives you tax-deferred growth, provides tax-free status for your earnings at retirement provided specific IRS guidelines are met and is available to anyone who receives compensation which does not exceed the threshold level ($95,000 for single filers and $150,000 for joint filers). Contributions are made directly by the individual, are always non-deductible and are not restricted by participation in employer-sponsored plans. Each year you may convert some or all of your money from a Traditional IRA to a Roth IRA. But you need to be sure of your AGI for the year before you make the conversion. Single individuals or married couples filing jointly whose AGI is less than $100,000 are allowed to convert their Traditional IRAs to Roth IRAs. (Married individuals who file separately will not be able to convert.) Conversion from a Traditional IRA to a Roth IRA is a taxable distribution, but there will not be a 10% early withdrawal penalty. What am I allowed to contribute to an IRA? For 2001, the annual contribution limit for a Traditional IRA and/or Roth IRA is $2,000 ($4,000 for married couple), or 100% of earned income, whichever is less. For years 2002 and beyond the contribution limits increase as follows: YEAR AMOUNT $3,000 ($6,000 for married couples) $4,000 ($8,000 for married couples) 2008 and beyond $5,000 ($10,000 for married couples) Any contribution you make beyond the limit is considered and excess contribution and is subject to tax penalties. What is an IRA catch-up contribution? Effective for tax years beginning January 1, 2002, individuals who attain age 50 before the end of the taxable year may be eligible to contribute an additional amount to a Traditional IRA and/or Roth IRA as a catch-up contribution as follows: YEAR AMOUNT $ and beyond $1,000 Is there a minimum investment? You can open a Buffalo IRA with as little as $250. Remember, any amount invested in your IRA is a positive step towards your retirement. And, you may reduce or eliminate your contributions at any time. Contributions can be made in a lump sum or several smaller investments. If regular monthly investments throughout the year work well in your budget, you may want to consider Automatic Monthly Investments with an initial minimum investment of only $100. Contributions of only $ each month will allow you to contribute the maximum annual investment. With regular monthly investments you will also benefit from one of the most effective investment techniques dollar-cost averaging. You can open a Buffalo IRA for as little as $250. 3

4 You ll purchase a greater number of shares when prices are lower and fewer shares when prices are high. Buffalo can deduct a minimum of $50 each month directly from your checking account towards your IRA. Complete the Automatic Monthly Investment section of the IRA Enrollment Form if this is how you wish to contribute to your IRA. ASSUMED INVESTMENT OF $ EACH MONTH ($3,000 ANNUALLY) COMPOUNDED FOR 30 YEARS. 10% Return 8% Return $600, , , , , ,000 $ INITIAL INVESTMENT TOTAL VALUE OF INVESTMENT AFTER 30 YEARS $569,831 (based on 10%) $415,977* $375,074 (based on 8%) $273,804* These are hypothetical investments and are for illustrative purposes only. It is not intended to predict or guarantee the performance of any Buffalo Fund. Since automatic monthly investing involves continuous investing regardless of fluctuating securities prices, you should consider your ability to continue to purchase over an extended period of time. While such a plan does not assure a profit or protect against loss in a declining market, many experts agree it is a sound way to invest. *These figures represent after-tax values assuming a 27% federal tax rate. Will I get a tax credit for my contribution? For tax years 2002 through 2006, certain individuals may receive a nonrefundable tax credit (not to exceed $1,000) for contributions made to a Traditional and/or Roth IRA. If you are eligible, the tax credit is equal to the applicable percentage on up to $2,000 or a qualified retirement savings contribution which includes an annual IRA contribution. To be eligible for the tax credit, you must have attained age 18 before the end of the taxable year; not be a dependent or full-time student and have adjusted gross income within the limits. The following indicates the income levels for eligibility for the tax credit and the applicable percentage used to calculate the tax credit. ADJUSTED GROSS INCOME JOINT RETURN HEAD OF HOUSEHOLD ALL OTHER CASES OVER NOT OVER OVER NOT OVER OVER NOT OVER APPLICABLE PERCENTAGE $0 $30,000 $0 $22,500 $0 $15, ,000 32,500 22,500 24,375 15,000 16, ,500 50,000 24,375 37,500 16,250 25, ,000 37,500 25,

5 Summary Comparison What is the difference between a Traditional IRA and the Roth IRA? Simply put, it is not if but when you pay your taxes either up front or at the time distributions are made. What s right for you? Take a look at these basic differences and then talk to a qualified professional to assess your personal financial situation. AM I ELIGIBLE? WHAT ARE THE BENEFITS? TRADITIONAL IRA You can make a tax-deductible contribution if you are an employed individual younger than age 70 1 /2 and: Not an active participant in an employer s retirement plan. Are an active participant in an employer s retirement plan and your Adjusted Gross Income is: Single: Up to $34,000 for 2002* Married (joint): Up to $54,000 for 2002* *Limit gradually increases in subsequent years. Earnings grow tax deferred. Contributions may be fully or partially deductible for certain individuals. ROTH IRA You can make non-deductible contributions no matter what your age if you are an employed individual and your Adjusted Gross Income is: Single: Up to $110,000 (Phases out starting at $95,000) Married (joint): Up to $160,000 (Phases out starting at $150,000) Earnings grow tax deferred.* Contributions are not deductible. WHAT ARE MY CONTRIBUTION LIMITS? DO I HAVE TO START TAKING MONEY OUT AT AGE 70 1 /2? $2,000 annually 2001 $3,000 annually $4,000 annually $5,000 annually 2008 Yes $2,000 annually 2001 $3,000 annually $4,000 annually $5,000 annually 2008 No *With a Roth IRA, you may withdraw earnings free of income tax and penalties, if the account is at least five years old and one of the following events occur: age 59 1 /2, disability, death or first home purchase. You may withdraw the contributions without tax and penalties at any time, unlike a Traditional IRA. Is my Traditional IRA contribution deductible? The deductibility of your Traditional IRA investment is determined by your IRS filing status, income and retirement plan participation. If neither you or your spouse is covered by an employer-sponsored retirement plan, you can both take up to the full $3,000 deduction. Refer to the chart below if either of you are covered by such a plan: FOR 2001 ADJUSTED GROSS INCOME JOINT FILING SINGLE FILING DEDUCTIBILITY Under $53,000 Under $33,000 Full Deduction $53,000 - $63,000 $33,000 - $43,000 Partial Deduction* Over $63,000 Over $43,000 No Deduction FOR 2002 JOINT FILING ADJUSTED GROSS INCOME SINGLE FILING DEDUCTIBILITY Under $54,000 Under $34,000 Full Deduction $54,000 - $64,000 $34,000 - $44,000 Partial Deduction* Over $64,000 Over $44,000 No Deduction *Please refer to the Traditional IRA Disclosure Statement. 5

6 If I already participate in a retirement plan at work, can I still have an IRA? Yes. Even if you participate in an employer-sponsored plan such as a pension, profit sharing or stock bonus plan, 401(k) or 403(b), you may still invest in a Traditional or Roth IRA. However, the amount of your Traditional IRA investment that is tax deductible will be affected. Although you may not be eligible to deduct your Traditional IRA contributions, you can still invest in a Traditional or Roth IRA and benefit from tax-deferred compounding. A tax-deferred investment grows much faster. AFTER TAX VALUES TAXABLE INVESTMENT VS. NON-DEDUCTIBLE IRA After 20 Years After 30 Years Taxable Investment $136,369 Taxable Investment $320,986 Non-Deductable IRA Upon Distribution $154,175 Non-Deductable IRA Upon Distribution $420,566 $500, , , , ,000 Assumes a $3,000 investment every year on January 1 that compounds annually at 10%. A 27% tax rate is applied annually on the taxable investment, and would be applied at withdrawal of the Traditional IRA. These are hypothetical investments and are for illustrative purposes only. It is not intended to predict or guarantee the performance of any Buffalo Fund. Can I exchange my IRA from one mutual fund to another? If your investment objectives change after you have established your IRA with Buffalo, you can exchange from one Buffalo Fund to another at no charge. Because assets in this type of transaction remain entirely within the IRA, the exchange is not taxable or reportable. You may authorize telephone exchange by completing the pre-authorization section of the IRA Enrollment Form. When can I start withdrawing money from my IRA? How are distributions paid? You may withdraw from your IRA at any time. Because an IRA is intended to be a long-term investment for your retirement, you will owe the IRS a 10% penalty tax on any money withdrawn from your Traditional IRA prior to turning 59 1 /2. You must begin withdrawing funds from your Traditional IRA at 70 1 /2. Distributions made from your Roth IRA will not be taxed or penalized if your account was opened for a minimum of five years and you withdraw the money because of one of the following reasons: age 59 1 /2, disability, death or first home purchase. You are not required to begin distributions at age 70 1 /2. Please refer to the Roth IRA Disclosure Statement for more detailed information. Payment for a total distribution of your IRA can be made to you in a single check or you may transfer your IRA shares to a personal non-ira account in one of the Buffalo Funds. There are also installment withdrawal options available. Please refer to either Disclosure Statement for more detailed information. Are there any fees associated with my IRA? The law requires that IRA assets be held by a bank trustee or other IRS-approved facility. Great Plains Trust Company serves as the trustee of your Buffalo IRA. The current schedule of trustee fees is set out below. SCHEDULE OF TRUSTEE FEES* Non-periodic withdrawal or termination charge $ *The trustee reserves the right to change the fee schedule upon sixty days written notice. In addition, the trustee may charge for additional services not contemplated by this schedule.

7 Establishing Your Buffalo IRA You are now ready to establish your Buffalo IRA. Simply follow the steps on the next page for the type of IRA that fits your situation. Congratulations on your decision to begin planning for your retirement today! To set up a traditional, rollover, SEP or Roth IRA: Carefully review the Buffalo Fund prospectus and the IRA information you have been provided. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Enrollment Form. If you are also establishing an IRA for your spouse, a separate Enrollment Form must be filled out. To establish your IRA using our Automatic Monthly Investment Plan, be sure to complete that section of the Enrollment Form and attach a voided check in the designated area. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Beneficiary Designation Form, if needed. Enclose a check for your initial contribution. If you are establishing a SEP IRA, a copy of your employer s SEP agreement or IRS Form 5305-SEP MUST be attached. To transfer an IRA from another institution: Carefully review the Buffalo Fund prospectus and the IRA information you have been provided. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Enrollment Form. If you are also transferring your spouse s IRA, a separate Enrollment Form must be filled out. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Transfer/Rollover Form. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Beneficiary Designation Form, if needed. If you are transferring a SEP IRA, a copy of your employer s SEP agreement or IRS Form 5305-SEP MUST be attached. To roll over a distribution from a qualified retirement plan or to convert from a Traditional IRA to a Roth IRA: Carefully review the Buffalo Fund prospectus and the IRA information you have been provided. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Enrollment Form. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Transfer/Rollover Form. Complete the Buffalo Traditional IRA/Roth IRA/SEP IRA Beneficiary Designation Form, if needed. Contact your employer for distribution requirements. We hope this information is helpful to you and illustrates the benefits of an IRA for your retirement years. If you have further questions, please refer to the Disclosure Statements or call a Buffalo IRA Representative at BUFFALO ( ). MAIL YOUR INITIAL This brochure must be preceded or accompanied by a current Buffalo Funds prospectus. INVESTMENT AND/OR THE The prospectus contains more complete information, including all annual fund charges and ENROLLMENT FORM AND OTHER REQUIRED FORMS TO: expenses. Please read it carefully before you invest or send money. Buffalo Funds P.O. Box Kansas City, MO

8 BUFFALO FUNDS JONES & BABSON, INC. DISTRIBUTORS P.O. Box Kansas City, Missouri BUFFALO ( ) JB10A 3/02