013096-1 Registration No. 33-21718
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [_]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12 [X]
(Check appropriate box or boxes.)
REYNOLDS FUNDS, INC.
(Exact name of Registrant as Specified in Charter)
Wood Island, Third Floor
80 East Sir Francis Drake Blvd.
Larkspur, California 94939 94939
(Address of Principal Executive Offices) (Zip Code)
(415) 461-7860
(Registrant's Telephone Number, Including Area Code)
Frederick L. Reynolds Copy to:
Reynolds Capital Management Richard L. Teigen
Wood Island, Third Floor Foley & Lardner
80 East Sir Francis Drake Blvd. 777 East Wisconsin Avenue
Larkspur, California 94939 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Registrant has registered an indefinite number or amount of its four
classes of common stock under the Securities Act of 1940, and filed its
required Rule 24f-2 Notices for the Registrant's fiscal year ended
September 30, 1995 on November 30, 1995.
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2), of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
________________________________________________________________________
The Exhibit Index is located at page ____ of the sequential numbering
system.
Page 1 of ____ Pages
<PAGE>
REYNOLDS BLUE CHIP GROWTH FUND, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the items of
Parts A and B of Form N-1A.)
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
Part A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Financial Highlights; Performance
Information Information
4. General Description Introduction; Investment Objectives
of Registrant and Policies
5. Management of the Management of the Funds; Brokerage
Fund Transactions; General Information
About the Company and the Funds
5A. Management's Discussion Management's Discussion of
of Fund Performance Performance of the Funds
6. Capital Stock and Dividends, Distributions and Taxes;
Other Securities General Information About the Company
and the Funds; Shareholder Reports
7. Purchase of Securities Determination of Net Asset Value;
Being Offered Purchase of Shares; Additional
Shareholder Services; Retirement
Plans
8. Redemption or Repurchase Redemption of Shares; Exchange
Privilege; Additional Shareholder
Services
9. Pending Legal Proceedings*
Part B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and *
History
13. Investment Objectives Investment Restrictions; Investment
and Policies Considerations; Performance and
Yield Information
14. Management of the Directors and Officers of the Company
Fund
15. Control Persons and Ownership of Management and Principal
Principal Holders Shareholders
16. Investment Advisory Investment Adviser and Administrator;
and Other Services Custodian; Independent Accountants
17. Brokerage Allocation Allocation of Portfolio Brokerage
and Other Practices
18. Capital Stock and Included in Prospectus under "General
Other Securities Information About the Company and the
Funds"; Shareholder Meetings
19. Purchase, Redemption Included in Prospectus under
and Pricing of "Determination of Net Asset Value";
Securities Being "Additional Shareholder Services;
Offered "Retirement Plans" and Determination
of Net Asset Value, Systematic
Withdrawal Plan
20. Tax Status Taxes
21. Underwriters *
22. Calculation of Performance and Yield Information
Performance Data
23. Financial Statements Financial Statements
PROSPECTUS
REYNOLDS FUNDS
100% No-Load Mutual Funds
REYNOLDS
BLUE CHIP GROWTH FUND
Seeking Long-Term Capital Appreciation, With Current Income A Secondary
Objective
REYNOLDS
OPPORTUNITY FUND
Seeking Long-Term Capital Appreciation
REYNOLDS
U.S. GOVERNMENT BOND FUND
Seeking A High Level Of Current Income
REYNOLDS
MONEY MARKET FUND
Seeking A High Level Of Current Income Consistent With A Stable Net Asset Value
PROSPECTUS January 31, 1996
REYNOLDS FUNDS
WOOD ISLAND, THIRD FLOOR
80 EAST SIR FRANCIS DRAKE BOULEVARD
LARKSPUR, CALIFORNIA 94939
1-415-461-7860
Reynolds Funds, Inc. (the ''Company'') is an open-end, diversified management
investment company consisting of four mutual funds, the Reynolds Blue Chip
Growth Fund (the ''Blue Chip Fund''), the Reynolds Opportunity Fund (the
''Opportunity Fund''), the Reynolds U.S. Government Bond Fund (the ''Bond
Fund'') and the Reynolds Money Market Fund (the ''Money Market Fund'')
(collectively the''Reynolds Funds'' or ''Funds''), offering distinct
investment choices.
REYNOLDS BLUE CHIP GROWTH FUND
The investment objective of the Blue Chip Fund is to produce long-term growth of
capital, with current income as a secondary objective, by investing in a
diversified portfolio of common stocks issued by well-established growth
companies commonly known as ''blue chip'' companies. This Fund is designed for
long-term investors who desire capital appreciation, with reasonable current
income potential.
REYNOLDS OPPORTUNITY FUND
The investment objective of the Opportunity Fund is to produce long-term growth
of capital by investing in a diversified portfolio of common stocks having above
average growth characteristics. This Fund is designed for long-term investors
who desire capital appreciation.
REYNOLDS U.S. GOVERNMENT BOND FUND
The investment objective of the Bond Fund is to provide a high level of current
income by investing in a diversified portfolio of securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities. This Fund is designed for long-term investors desiring a
combination of high income, safety and quality.
REUNOLDS MONEY MARKET FUND
The investment objective of the Money Market Fund is to provide a high level of
current income, consistent with liquidity, the preservation of capital and a
stable net asset value, by investing in a diversified portfolio of high-quality,
highly liquid money market instruments. This Fund is designed for investors who
desire income without any fluctuation in their principal. AN INVESTMENT IN THE
MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT SUCH FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
The foregoing descriptions are designed to help investors choose the Fund that
best fits their investment objectives. An investor may wish to pursue more than
one objective by investing in more than one of the Reynolds Funds. No assurance
can be given that the respective investment objectives of the Funds will be
realized. The Funds are 100% ''NO-LOAD'' FUNDS; THERE ARE NO SALES COMMISSIONS,
REDEMPTION CHARGES OR ONGOING MARKETING (RULE 12B-1) DISTRIBUTION FEES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about the Funds that
prospective investors should know before investing. Investors are advised to
read this Prospectus and retain it for future reference. This Prospectus does
not set forth all of the information included in the Registration Statement and
Exhibits thereto which the Company has filed with the Securities and Exchange
Commission. A Statement of Additional Information, dated January 31, 1996, which
is a part of such Registration Statement, is incorporated by reference in this
Prospectus. Copies of the Statement of Additional Information will be provided
without charge to each person to whom a Prospectus is delivered upon written or
oral request made by writing to the address, or calling the telephone number,
stated above. All such requests should be directed to the attention of the
Corporate Secretary.
REYNOLDS FUNDS
TABLE OF CONTENTS
Page
----
EXPENSE INFORMATION 1
FINANCIAL HIGHLIGHTS 2
INTRODUCTION 6
INVESTMENT OBJECTIVES AND POLICIES 6
MANAGEMENT OF THE FUNDS 14
PURCHASE APPLICATION Centerfold
DETERMINATION OF NET ASSET VALUE 15
HOW TO PURCHASE SHARES 16
HOW TO REDEEM SHARES 18
EXCHANGE PRIVILEGE 21
ADDITIONAL SHAREHOLDER SERVICES 22
RETIREMENT PLANS 23
DIVIDENDS, DISTRIBUTIONS AND TAXES 24
SHAREHOLDER REPORTS 25
BROKERAGE TRANSACTIONS 25
GENERAL INFORMATION ABOUT THE
COMPANY AND THE FUNDS 25
PERFORMANCE INFORMATION 26
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUNDS 27
<TABLE>
EXPENSE INFORMATION
<CAPTION>
REYNOLDS REYNOLDS REYNOLDS REYNOLDS
BLUE CHIP OPPORTUNITY U.S. GOVERNMENT MONEY MARKET
GROWTH FUND FUND BOND FUND FUND
----------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases or Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fee None*<F1> None*<F1> None*<F1> None*<F1>
Exchange Fee None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00% 1.00% 0.75% 0.50%
12b-1 Fees None None None None
Other Expenses (after reimbursements) 0.53% 0.86% 0.16%**<F2> 0.15%**<F2>
------ ------ ------- -------
Total Fund Operating Expenses
(after reimbursements) 1.53% 1.86% 0.91%**<F2> 0.65%**<F2>
------ ------ ------ ------
------ ------ ------ ------
* <F1>A fee of $7.50 is charged for each wire redemption.
**<F2>Other Expenses and Total Fund Operating Expenses (without expense
reimbursements) for the fiscal year ended September 30, 1995, for the Bond Fund
would have been 1.25% and 2.00%, respectively, and for the Money Market Fund
would have been 1.45% and 1.95%, respectively.
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Reynolds Blue Chip Growth Fund $16 $48 $83 $182
Reynolds Opportunity Fund $19 $58 $101 $218
Reynolds U.S. Government
Bond Fund $9 $29 $50 $112
Reynolds Money Market Fund $7 $21 $36 $81
The purpose of the preceding table is to assist investors in understanding
the various costs that an investor in a particular Fund will bear, directly or
indirectly. They should not be considered to be a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown. The
Annual Fund Operating Expenses for each Fund are based on actual expenses
incurred for the year ended September 30, 1995. The example assumes a 5% annual
rate of return pursuant to requirements of the Securities and Exchange
Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of any of the Funds.
FINANCIAL HIGHLIGHTS
(Selected Data for a share of each Fund outstanding throughout each period)
The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is incorporated by
reference into the Statement of Additional Information. The Financial Highlights
should be read in conjunction with the financial statements and notes thereto
also incorporated by reference in the Statement of Additional Information.
<TABLE>
REYNOLDS BLUE CHIP GROWTH FUND
Years Ended September 30,
----------------------------------------------------------------
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988*<F3>
------ ------ ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $14.46 $14.22 $14.98 $13.96 $11.14 $11.92 $10.06 $10.00
Income from investment operations:
Net investment income 0.02 0.09 0.12 0.09 0.14 0.07 0.25 0.03
Net realized and unrealized
gain (loss) on investments 5.00 0.28 (0.79) 1.02 2.83 (0.65) 1.73 0.03
------ ------ ----- ------ ------ ------ ------ ------
Total from investment operations 5.02 0.37 (0.67) 1.11 2.97 (0.58) 1.98 0.06
Less distributions:
Dividends from net investment
income (0.06) (0.13) (0.09) (0.09) (0.15) (0.15) (0.12) -
Distributions from net realized gains (0.17) - - - - (0.05) - -
------ ------ ----- ------ ------ ------ ------ ------
Total from distributions (0.23) (0.13) (0.09) (0.09) (0.15) (0.20) (0.12) -
------ ------ ----- ------ ------ ------ ------ ------
Net asset value, end of period $ 19.25 $ 14.46 $ 14.22 $ 14.98 $ 13.96 $ 11.14 $ 11.92 $ 10.06
------ ------ ----- ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 35.3% 2.6% (4.5%) 8.0% 26.9% (5.0%) 19.9% 4.6%**<F4>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 29,357 24,771 38,929 40,580 27,735 10,009 5,260 366
Ratio of expenses (after reimbursement)
to average net assets***<F5> 1.5% 1.5% 1.4% 1.5% 1.7% 2.1% 2.0% 2.0%**<F4>
Ratio of net investment income
to average net assets****<F6> 0.1% 0.5% 0.8% 0.6% 1.2% 0.8% 2.7% 4.5%**<F4>
Portfolio turnover rate 49.2% 43.3% 38.1% 0.2% 0.9% 66.2% 32.5% -
*<F3>For the period from August 10, 1988 (commencement of operations) to
September 30, 1988.
**<F4>Annualized.
***<F5>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have
been 2.7% for the year ended September 30, 1989.
****<F6>If the Fund had paid all of its expenses, the ratio would have been 2.0%
for the year ended September 30, 1989.
</TABLE>
<TABLE>
REYNOLDS OPPORTUNITY FUND
<CAPTION>
For the
Period From
For the Years January 30, 1992*<F7>
Ended September 30, to September 30,
------------------------------- -----------------
1995 1994 1993 1992
----- ----- ----- ------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.09 $9.78 $8.85 $10.00
Income from investment operations:
Net investment (loss) income (0.11) (0.09) (0.10) 0.00
Net realized and unrealized
gain (loss) on securities 4.19 0.40 1.03 (1.15)
----- ----- ----- ------
Total from investment operations 4.08 0.31 0.93 (1.15)
Less distributions:
Dividend from net investment income - - 0.00 -
----- ----- ----- ------
Net asset value, end of period $14.17 $10.09 $9.78 $8.85
------ ------ ------ ------
------ ------ ------ ------
TOTAL INVESTMENT RETURN 40.4% 3.2% 10.5% (16.8%)**<F8>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 10,983 6,132 3,834 1,844
Ratio of expenses (after reimbursement)
to average net assets***<F9> 1.9% 2.0% 2.0% 2.0%**<F8>
Ratio of net investment (loss) income
to average net assets****<F10> (1.5%) (1.6%) (1.3%) 0.0%**<F8>
Portfolio turnover rate 38.4% 16.8% 67.6% 30.1%
*<F7>Commencement of Operations.
**<F8>Annualized.
***<F9>Computed after giving effect to adviser's limitation undertaking. If the
Fund had paid all of its expenses, the ratio would have been, for the years
ended September 30, 1994 and 1993 and for the period ended September 30, 1992,
2.1%, 2.4% and 3.8%**, respectively.
****<F10>The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended September 30,
1994 and 1993 and for the period ended September 30, 1992 would have been
(1.7%), (1.7%) and (1.8%)**, respectively.
</TABLE>
<TABLE>
REYNOLDS U.S. GOVERNMENT BOND FUND
<CAPTION>
For the
Period From
For the Years January 30, 1992*<F11>
Ended September 30, to September 30,
------------------------ ----------------
1995 1994 1993 1992
------ ------- ------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $9.61 $10.76 $10.36 $10.00
Income from investment operations:
Net investment income 0.5350 0.5609 0.5498 0.2979
Net realized and unrealized gain (loss)
on investments 0.2491 (1.1432) 0.4001 0.3602
------ ------- ------ ------
Total from investment operations 0.7841 (0.5823) 0.9499 0.6581
Less distributions:
Dividends from net investment income (0.5441) (0.5607) (0.5499) (0.2981)
Distribution from net realized gains - (0.0070) - -
Total from distributions (0.5441) (0.5677) (0.5499) (0.2981)
------ ------- ------ ------
Net asset value, end of period $9.85 $ 9.61 $10.76 $10.36
------ ------- ------ ------
------ ------ ------ ------
TOTAL INVESTMENT RETURN 8.42% (5.54%) 9.48% 10.20%**<F12>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 2,799 4,367 6,376 3,223
Ratio of expenses (after reimbursement)
to average net assets***<F13> 0.91% 0.86% 0.83% 0.75%**<F12>
Ratio of net investment income
to average net assets****<F14> 5.6% 5.4% 5.3% 5.0%**<F12>
Portfolio turnover rate 0.0% 19.6% 6.3% -
*<F11>Commencement of Operations.
**<F12>Annualized.
***<F13>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have been
2.0%, 1.5% and 1.5% for the years ended September 30, 1995, 1994 and 1993,
respectively, and 2.8%** for the period ended September 30, 1992.
****<F14>The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended September 30,
1995, 1994 and 1993 and the period ended September 30, 1992 would have been ,
4.5%, 4.8%, 4.6% and 2.9%**, respectively.
</TABLE>
<TABLE>
REYNOLDS MONEY MARKET FUND
<CAPTION>
Years ended September 30,
----------------------------------
1995 1994 1993 1992 1991*<F15>
----- ----- ----- ------ -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income 0.0510 0.0304 0.0255 0.0364 0.0358
Less distributions:
Dividends from net investment income (0.0510) (0.0304) (0.0255) (0.0364) (0.0358)
------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 5.2% 3.1% 2.6% 3.6% 5.5%**<F16>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 3,743 3,192 6,798 6,166 3,617
Ratio of expenses (after reimbursement)
to average net assets***<F17> 0.65% 0.63% 0.67% 0.64% 0.61%**<F16>
Ratio of net investment income to
average net assets****<F18> 5.08% 2.84% 2.62% 3.53% 5.43%**<F16>
*<F15>For the period from January 30, 1991 (commencement of operations) to
September 30, 1991.
**<F16>Annualized.
***<F17>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have been
1.95%, 1.47%, 1.22% and 1.73% for the years ended September 30, 1995, 1994, 1993
and 1992, respectively, and 1.85%** for the period ended September 30, 1991.
****<F18>If the Fund had paid all of its expenses, the ratio would have been
3.79%, 2.01%, 2.08% and 2.44% for the years ended September 30, 1995, 1994, 1993
and 1992, respectively, and 4.18%** for the period ended September 30, 1991.
</TABLE>
INTRODUCTION
The Company is a no-load, open-end, diversified management investment
company, better known as a mutual fund, registered under the Investment Company
Act of 1940 (the ''Act''). It was incorporated under the laws of Maryland on
April 28, 1988. The Company consists of a series of four funds: Reynolds Blue
Chip Growth Fund, Reynolds Opportunity Fund, Reynolds U.S. Government Bond Fund
and Reynolds Money Market Fund. Each of the Funds obtains its assets by
continuously selling its shares to individual and institutional investors.
Proceeds from such sales are invested by the particular Fund in securities of
other issuers. In this way, each Fund:
Combines the resources of many investors, with each individual investor
having an interest in every one of the securities owned by such Fund;
Provides each individual investor with diversification by investing in the
securities of many different issuers;
Reduces transaction costs by buying and selling larger blocks of securities;
and
Furnishes professional portfolio management to select and watch over its
investments. See ''MANAGEMENT OF THE FUNDS'' for a discussion of the Funds'
Adviser.
Each of the Funds which make up the Company will redeem any of its
outstanding shares on demand of the owner at their next determined net asset
value. Registration of the Company under the Act does not involve supervision of
the Company's management or policies by the Securities and Exchange Commission.
INVESTMENT OBJECTIVES AND POLICIES
REYNOLDS BLUE CHIP GROWTH FUND
The investment objective of the Blue Chip Fund is to produce long-term growth
of capital, with current income as a secondary objective, by investing in common
stocks of well-established growth companies commonly referred to as ''blue
chip''companies. Reynolds Capital Management (the ''Adviser'') will, under
normal circumstances, maintain a diversified portfolio in which at least 65% of
the Blue Chip Fund's assets are invested in common stocks of blue chip
companies. Blue chip companies are defined as those companies which have a
market capitalization of at least $300,000,000 and are included in the Standard
and Poor's Daily Stock Price Index of 500 Common Stocks (the ''S&P 500'') or the
Dow Jones Industrial Average. Standard & Poor's Corporation (''Standard &
Poor's'') selects stocks for inclusion in the S&P 500 based upon the following
criteria: size, as measured by aggregate market value; position within a given
industry classification; nature and extent of capitalization; trading volume;
prospects for the company in particular and/or industry as a whole; and
responsiveness of stock price to changes in industry affairs. The thirty
industrial stocks used to compute the Dow Jones Industrial Average are selected
because they are representative of the breadth of American industry. These
companies are important factors in their respective industries and their stocks
are widely held by individuals and institutional investors. Examples of blue
chip companies include Caterpillar Inc., The Coca-Cola Company, General Electric
Co., Merck & Co., Inc., Microsoft Corp., Motorola, Inc., Procter & Gamble Co.,
Wal-Mart Stores, Inc. and Walt Disney Co. These companies are mentioned for
illustrative purposes only and do not necessarily reflect the present portfolio
composition of the Blue Chip Fund.
The blue chip companies in which the Blue Chip Fund will invest generally
exhibit superior fundamental characteristics, as determined by the Adviser,
which may include:
a long history of profitability
potential for above-average earnings growth
leadership positions in its markets
a superior and pragmatic growth strategy
participation in expanding industries
proprietary products, processes or services
an experienced and tested management
a strong balance sheet
an above-average record of dividend consistency and growth
a high return on equity
In determining that the above characteristics are present with respect to
specific investments, the Adviser will study the financial statements of the
issuing corporations and other companies in the same industry, the issuing
corporations' reports to shareholders and analysts, and general economic and
industry reports of brokers.
In seeking long-term growth of capital, the Adviser will generally purchase
stocks of those blue chip companies that it expects to have potential earnings
per share growth greater than the average company included in the S&P 500. The
Adviser believes that when a company's earnings grow faster than the economy in
general, the market will eventually recognize this successful long-term record
by valuing that company's stock at a higher price. In addition, the company
should be able to increase its dividend as its long-term earnings grow. The
Adviser will evaluate blue chip stocks as follows. Initially, the Adviser will
determine the strongest sectors (i.e., industry groups) of the market by
comparing the performance of various sectors to the general economic forecast.
The Adviser will then seek to identify those companies within the strongest
sectors with favorable earnings prospects and, finally, select the most
attractive values on the basis of such factors as price-earnings ratios.
Although sector emphasis will shift as the Adviser's outlook for earnings among
market sectors changes, the Blue Chip Fund will maintain representation in as
many industries as possible.
In addition to investing in blue chip stocks the Blue Chip Fund may invest up
to 35% of its assets in common stocks of issuers which are not blue chip
companies but which have proven records of profitability and strong earnings
momentum. Such companies are likely to be (1) leading companies in smaller
industries or (2) lesser known companies moving from a lower to a higher market
share position within their industry groups rather than the largest and best
known companies in such groups. The Blue Chip Fund may also invest not more than
15% of its total assets in U.S. dollar-denominated securities of foreign issuers
in the form of American Depository Receipts (''ADRs'') that are regularly traded
on recognized U.S. exchanges or in the U.S. over-the-counter (''OTC'') market.
No more than 35% of the Blue Chip Fund's portfolio will, under normal
circumstances, be invested in securities other than common stocks of blue chip
companies. However, when, in the opinion of the Adviser, market conditions
appear unfavorable, the Blue Chip Fund may seek to preserve capital by
temporarily shifting a high proportion of its assets to short-term debt
securities and money market instruments such as United States Treasury Bills,
certificates of deposit of U.S. banks, commercial paper and commercial paper
master notes (which are demand instruments without a fixed maturity bearing
interest at rates which are fixed to known lending rates and automatically
adjusted when such lending rates change) rated A-1 or better by Standard &
Poor's or Prime-1 by Moody's Investors Service, Inc. (''Moody's''). The Blue
Chip Fund may also invest in such instruments in amounts as the Adviser believes
are reasonable to satisfy anticipated redemption requests. In addition, the Blue
Chip Fund will invest in preferred stocks, U.S. Government securities and high-
quality publicly distributed corporate bonds and debentures when the Adviser
believes such securities offer opportunities for long-term growth of capital,
such as during periods of declining interest rates when the market value of such
securities generally rises. The Blue Chip Fund will limit its investment in non-
convertible bonds and debentures to those which have been assigned one of the
two highest ratings of either Standard & Poor's (AAA and AA) or Moody's (Aaa and
Aa). A description of the foregoing ratings is set forth in the Statement of
Additional Information. Finally the Blue Chip Fund may invest in securities
convertible into blue chip stocks.
The Blue Chip Fund may purchase stock index put options to hedge against a
loss in its stock portfolio caused by a general decline in the stock market. If
the index declines over the life of the option contract, the put option becomes
more valuable and the Blue Chip Fund will enter into a closing contract. The
realized gain would offset the presumed unrealized loss in the Blue Chip Fund's
portfolio. If the index rises over the life of the option contract, the option
will become worthless and expire unexercised. In such event the Blue Chip Fund's
loss on the option contract will be limited to the premium paid. The Blue Chip
Fund may purchase stock index call options in order to participate in an
anticipated increase in stock market prices (i.e. a ''long'' or ''anticipatory''
hedge). An ''anticipatory hedge'' assumes the Blue Chip Fund will have a
projected source of incoming cash to commit to going to a ''long'' position. If
the index rises over the life of the option contract, the call option becomes
more valuable and the Blue Chip Fund will enter into a closing contract. The
realized gain would in effect allow the Blue Chip Fund to benefit from stock
market appreciation even though it may not have had sufficient cash to purchase
the underlying stocks. If the index declines over the life of the option
contract, the option will become worthless and expire unexercised and the Blue
Chip Fund's loss will be limited to the premium paid. The value of options
purchased by the Blue Chip Fund will not exceed 5% of the Blue Chip Fund's total
assets.
In investing for long-term growth of capital, the Blue Chip Fund does not
intend to place emphasis on short-term trading profits. The sale of a particular
issuer's securities will be based upon factors such as a change in the national
political or economic climate, actual or potential deterioration of the issuer's
earning power, increases in the price of the security that are considered
excessive relative to the issuer's earning power, and investment opportunities
in other securities. The Blue Chip Fund anticipates that its annual portfolio
turnover rate will not exceed 100%. The annual portfolio turnover rate indicates
changes in the Blue Chip Fund's portfolio and is calculated by dividing the
lesser of purchases or sales of portfolio securities (excluding securities
having maturities at acquisition of one year or less) for the fiscal year by the
monthly average of the value of the portfolio securities (excluding securities
having maturities at acquisition of one year or less) owned by the Blue Chip
Fund during the fiscal year. The annual portfolio turnover rate may vary widely
from year to year depending upon market conditions and prospects. However, the
Blue Chip Fund intends to limit turnover so that realized short-term gains on
securities held for less than three months do not exceed 30% of adjusted gross
income in order to derive the benefits of favorable tax treatment available to
regulated investment companies under the Internal Revenue Code (the `Code'').
Increased portfolio turnover necessarily results in correspondingly heavier
brokerage costs which the Blue Chip Fund must pay and increased realized gains
(or losses) to shareholders.
Risks are inherent in any investment. As a consequence, there can be no
assurance that the objective of the Blue Chip Fund will be realized. Nor can
there be any assurance that the Blue Chip Fund's portfolio will not decline in
value. Nevertheless, the Adviser believes that its investment philosophy is best
suited to deal with the continually changing conditions of the economy and
financial and securities markets. Although corporate earnings can be expected to
suffer during periods of recession, the Adviser believes that, in the long run,
the earnings of blue chip growth companies generally will not be adversely
affected by unfavorable economic conditions to the same extent as the earnings
of smaller companies. Additionally, blue chip stocks typically have a high
degree of liquidity, as they usually have a large number of publicly-held shares
and a high trading volume. During periods of market instability, blue chip
stocks should be less volatile than stocks with less liquidity. However, since
the major portion of the Blue Chip Fund's portfolio will generally consist of
common stocks, it may be expected that its net asset value will be subject to
greater fluctuation than a portfolio containing a substantial amount of fixed
income securities.
REYNOLDS OPPORTUNITY FUND
The investment objective of the Opportunity Fund is to produce long-term
growth of capital by investing in a diversified portfolio of common stocks of
companies having above average growth characteristics. Securities are selected
for the Opportunity Fund on the basis of their potential for capital
appreciation; current income is not a significant consideration.
The Opportunity Fund generally invests in securities of growth companies
without regard to size that the Adviser believes to be well-managed and to have
attractive fundamental financial characteristics. Attractive fundamental
financial characteristics may include, among other factors, a low debt to equity
ratio, a return on equity above the market average, and consistent revenue and
earnings per share growth over the prior three to five years or current or
projected increasing earnings momentum. Such investments may be in equity
securities of well-known, established companies as well as smaller, less well-
known companies.
In selecting stocks for the Opportunity Fund, the Adviser employs a ''bottom-
up''security analysis. ''Bottom-up'' security analysis refers to an analytical
approach to securities selection which first focuses on the company and company-
related matters. This is in contrast to a ''top-down'' analysis, which first
focuses on general economic conditions or a particular industry. The Adviser
believes that a ''bottom-up'' approach is more likely to identify undervalued
growth companies.
Securities of unseasoned companies, i.e., companies with less than three
years' continuous operations, may be acquired from time to time by the
Opportunity Fund when the Adviser believes such investments offer possibilities
of attractive capital appreciation. However, the Opportunity Fund will not
invest more than 5% of the value of its total assets in the securities of
unseasoned companies. Securities of such companies present risks considerably
greater than do securities of more established companies.
In seeking its investment objective, the Opportunity Fund may invest up to
25% of its total assets in ADRs that are regularly traded on recognized U.S.
exchanges or in the U.S. OTC market. See ''Reynolds Blue Chip Growth Fund''
above. The Opportunity Fund will not purchase securities of foreign issuers on
foreign markets.
The Opportunity Fund may also acquire preferred stocks and obligations, such
as bonds, debentures and notes, that in the opinion of the Adviser present
opportunities for capital appreciation. In addition, the Opportunity Fund may
invest in securities convertible into common stock, such as certain bonds and
preferred stocks, and may invest up to 5% of its net assets in other types of
securities having common stock characteristics, such as rights and warrants to
purchase equity securities.
When, in the opinion of the Adviser, market conditions appear unfavorable,
the Opportunity Fund may seek to preserve capital by temporarily shifting a high
proportion of its assets to short-term debt securities and money market
instruments such as United States Treasury Bills, certificates of deposit of
U.S. Banks, commercial paper and commercial paper master notes rated A-l or
better by Standard & Poor's or Prime-l by Moody's. The Opportunity Fund may also
invest in such instruments in amounts as the Adviser believes are reasonable to
satisfy anticipated redemption requests. In addition, the Opportunity Fund will
invest in United States Government securities and high-quality publicly
distributed corporate bonds and debentures when the Adviser believes such
securities offer opportunities for long-term growth of capital, such as during
periods of declining interest rates when the market value of such securities
generally rises. The Opportunity Fund will limit its investment in non-
convertible bonds and debentures to those which have been assigned one of the
two highest ratings of either Standard & Poor's (AAA and AA) or Moody's (Aaa and
Aa). A description of the foregoing ratings is set forth in the Statement of
Additional Information.
The Opportunity Fund may purchase stock index put options to hedge against a
loss in its stock portfolio caused by a general decline in the stock market. In
addition, the Opportunity Fund may purchase stock index call options in order to
participate in an anticipated increase in stock market prices. For a complete
discussion of such options, see ''Reynolds Blue Chip Growth Fund'' above. The
value of options purchased by the Opportunity Fund will not exceed 5% of the
Opportunity Fund's total assets.
In investing for long-term growth of capital, the Opportunity Fund does not
intend to place emphasis on short-term trading profits. The sale of a particular
issuer's securities will be based upon factors such as a change in the national
political or economic climate, actual or potential deterioration of the issuer's
earning power, increases in the price of the security that are considered
excessive relative to the issuer's earning power, and investment opportunities
in other securities. The Opportunity Fund anticipates that its annual portfolio
turnover rate will not exceed 100%. The annual portfolio turnover rate indicates
changes in the Opportunity Fund's portfolio and is calculated by dividing the
lesser of purchases or sales of portfolio securities (excluding securities
having maturities at acquisition of one year or less) for the fiscal year by the
monthly average of the value of the portfolio securities (excluding securities
having maturities at acquisition of one year or less) owned by the Opportunity
Fund during the fiscal year. The annual portfolio turnover rate may vary widely
from year to year depending upon market conditions and prospects. However, the
Opportunity Fund intends to limit turnover so that realized short-term gains on
securities held for less than three months do not exceed 30% of adjusted gross
income in order to derive the benefits of favorable tax treatment available to
regulated investment companies under the Code. Increased portfolio turnover
necessarily results in correspondingly heavier brokerage costs which the
Opportunity Fund must pay and increased realized gains (or losses) to
shareholders.
Risks are inherent in any investment. For example, the smaller companies in
which the Opportunity Fund may invest may have limited product lines, markets,
or financial resources, or may be dependent upon a small management group. In
addition, their securities may be subject to more abrupt or erratic market
movements than those of larger, more established companies, both because their
securities typically are traded in lower volume and because such issuers
typically are subject to greater fluctuation in earnings and prospects. As a
consequence, there can be no assurance that the objective of the Opportunity
Fund will be realized. Nor can there be any assurance that such Fund's portfolio
will not decline in value. In view of the nature of the Opportunity Fund's
investment activities, investment in its shares may be suitable only for those
investors who are prepared to invest without concern for current income.
REYNOLDS U.S. GOVERNMENT BOND FUND
The investment objective of the Bond Fund is to provide a high level of
current income by investing in a diversified portfolio of securities issued or
guaranteed as to principal by the U.S. Government, its agencies or
instrumentalities (collectively, ''U.S. Government Obligations''). It is the
Bond Fund's policy to invest at least 65% of the total value of its assets in
U.S. Government Obligations. Examples of the types of U.S. Government
Obligations that may be held by the Bond Fund include, in addition to U.S.
Treasury Bonds, Notes and Bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks and Maritime
Administration. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as those of the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration and the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as the Federal
Home Loan Banks, Federal Intermediate Credit Banks and the Tennessee Valley
Authority, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
While the U.S. Government currently provides financial support to such U.S.
Government-sponsored instrumentalities, no assurance can be given that it
always will do so. The U.S. Government, its agencies and instrumentalities do
not guarantee the market value of their securities, and consequently, the value
of such securities may fluctuate.
The Bond Fund may invest in zero coupon treasury securities which consist of
Treasury Notes and Bonds that have been stripped of their unmatured interest
coupons by the Federal Reserve Bank. A zero coupon treasury security pays no
interest to its holders during its life and its value to an investor consists of
the difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount much less than its face
value. Zero coupon treasury securities are generally subject to greater
fluctuations in value in response to changing interest rates than debt
obligations that pay interest currently. In addition to zero coupon treasury
securities, the Bond Fund may invest in zero coupon bonds issued directly by
federal agencies and instrumentalities. Such issues of zero coupon bonds are
originated in the form of a zero coupon bond and are not created by stripping an
outstanding bond. Finally, the Bond Fund may invest in U.S. Government
Obligations that have been stripped of their unmatured interest coupons by
dealers. Dealers deposit such stripped U.S. Government Obligations with
custodians for safekeeping and then separately sell the principal and interest
payments generated by the security.
Among the U.S. Government Obligations in which the Bond Fund may invest are
securities representing an interest in mortgages or securities collateralized by
an interest in mortgages (collectively, ''mortgage securities''). Interest and
principal payments (including prepayments) on the mortgages underlying mortgage
securities are passed-through to the holders of mortgage securities. As a result
of this pass-through of payments, mortgage securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and the price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate and the
Bond Fund would be required to reinvest the proceeds at the lower interest rate
then available. In addition, prepayments of mortgages which underlie mortgage
securities purchased at a premium may not have been fully amortized at the time
the obligation is repaid. As a result of these principal payment features,
mortgage securities are generally more volatile investments than other U.S.
Government Obligations.
In addition, the Bond Fund may invest in high quality corporate obligations.
The Bond Fund will limit its investment in corporate bonds and debentures to
those which have been assigned one of the two highest ratings of either Standard
& Poor's (AAA and AA) or Moody's (Aaa and Aa). A description of the foregoing
ratings is set forth in the Statement of Additional Information.
The average maturity of the obligations held in the Bond Fund is currently
expected to be between one and ten years, but will vary depending on the
Adviser's forecast for interest rates. When the Adviser believes interest rates
will decline, the Bond Fund will emphasize longer-term maturities. Conversely,
when the Adviser believes interest rates will rise, the Bond Fund will shorten
maturities and/or maintain a larger than normal position in money market
instruments. Some factors which the Adviser considers important in determining
the interest rate outlook and, thus, the average maturity of the Fund are
current and expected: (l) economic forecasts; (2) Federal Reserve policies; (3)
inflation rates; (4) real rates of return (yields minus expected inflation); and
(5) shapes of the yield curve.
The money market instruments the Bond Fund may hold during periods in which
the Adviser expects rising interest rates include United States Treasury Bills,
certificates of deposit of U.S. Banks, commercial paper and commercial paper
master notes rated A-l or better by Standard & Poor's or Prime-l by Moody's. The
Bond Fund will also invest in such instruments in such amounts as the Adviser
believes are reasonable to satisfy anticipated redemption requests.
REYNOLDS MONEY MARKET FUND
The investment objective of the Money Market Fund is to provide a high level
of current income, consistent with liquidity, the preservation of capital and a
stable net asset value, by investing in a diversified portfolio of high-quality,
highly liquid money market instruments. In pursuing its investment objective,
the Money Market Fund will invest, during normal market conditions, all of its
assets in U.S. dollar-denominated debt obligations with remaining maturities of
thirteen months or less (as determined in accordance with the rules of the
Securities and Exchange Commission) and will maintain an average portfolio
maturity of no more than 90 days. The Money Market Fund may purchase a broad
range of government, bank and commercial obligations that are available in the
money markets. The following discussion illustrates the types of instruments in
which the Money Market Fund may invest:
The Money Market Fund may invest in U.S. Government Obligations. For a
complete discussion of such securities, see ''Reynolds U.S. Government Bond
Fund''above.
The Money Market Fund may purchase bank obligations, such as certificates of
deposit, bankers' acceptances and time deposits (i.e., non-negotiable deposits
maintained in a banking institution for a specific period of time, not to exceed
7 days, at a stated interest rate), issued by banks with a short-term CD rating
in the highest category of at least two nationally recognized rating agencies
(or of one agency if only one agency has issued a rating) (the ''required rating
agencies'). The required rating agencies may consist of Standard & Poor's,
Moody's, Duff & Phelps, Inc. (''D&P''), Fitch Investors Service Inc. (''Fitch'')
and Thompson Bankwatch (''TBW''). A description of the highest rating categories
of each of these rating agencies is set forth in the Statement of Additional
Information.
The bank obligations which the Money Market Fund may purchase include U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. Investments by the Money Market Fund in the
obligations of foreign banks, U.S. branches of foreign banks and foreign
branches of domestic banks will not exceed 25% of the value of the Money Market
Fund's total assets at the time of investment. The Money Market Fund may also
make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of its total assets.
Instruments issued or supported by the credit of foreign banks or foreign
branches of domestic banks entail risks that are different from those of
investments in domestic obligations of U.S. banks. Such risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on such instruments, the possible
establishment of exchange controls, the possible seizure or nationalization of
foreign deposits and the adoption of other foreign government restrictions which
might affect adversely the payment of principal and interest of such
instruments. In addition, foreign banks and foreign branches of U.S. banks are
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
The Money Market Fund may purchase high-quality commercial paper issued by
corporations rated (at the time of purchase) in the highest category by the
required rating agencies and high-quality corporate bonds with remaining
maturities of thirteen months or less which are rated (at the time of purchase)
in the highest category by the required rating agencies.
The Money Market Fund may purchase commercial paper master demand notes rated
in the highest category by the required rating agencies. Such notes are
unsecured instruments that permit the indebtedness thereunder to vary in
addition to providing for periodic adjustments in the interest rate. An active
secondary market usually will not exist with respect to commercial paper master
demand notes. The absence of a secondary market could make it difficult for the
Money Market Fund to dispose of such a note if the issuer defaulted on its
payment obligation, and the Money Market Fund would, for this or other reasons,
suffer a loss with respect to such instrument.
The Money Market Fund also may agree to purchase U.S. Government Obligations
or other debt securities rated in the highest category by the required rating
agencies from financial institutions, such as banks and broker-dealers, subject
to the seller's agreement to repurchase them at an agreed upon price usually not
more than 7 days after their purchase (''repurchase agreements''). The Money
Market Fund will enter into repurchase agreements only with financial
institutions determined to be creditworthy by the Adviser. During the term of
any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller, and the seller will be required to maintain the
value of the securities subject to the agreement at not less than the repurchase
price. Default or bankruptcy of the seller would, however, expose the Money
Market Fund to possible delay in connection with the disposition of the
underlying securities or loss to the extent that the proceeds from a sale of the
underlying securities were less than the repurchase price under the agreement.
Securities subject to repurchase agreements are held by the Money Market Fund's
custodian (or sub-custodian) or in the Federal Reserve/Treasury Book-Entry
System and, because of the seller's repurchase obligation, may have remaining
maturities of longer than one year.
GENERAL CONSIDERATIONS
Under certain circumstances, each of the Funds may (a) temporarily borrow
money from banks for emergency or extraordinary borrowings, (b) pledge its
assets to secure borrowings, (c) purchase securities of other investment
companies, (d) enter into repurchase agreements, and (e) purchase American
Depository Receipts (the Blue Chip Fund and Opportunity Fund only). A more
complete discussion of the circumstances in which each of the Funds may engage
in these activities is included in the Statement of Additional Information. The
investment objectives and, except as provided in the Statement of Additional
Information, other policies described under this caption are not fundamental
policies and may be changed without shareholder approval. Since each Fund's
investment objectives are not fundamental policies, they may be changed without
a vote of the applicable Fund's shareholders. Such changes may result in a Fund
having investment objectives different from the objectives which the shareholder
considered appropriate at the time of investment in such Fund. At least 30 days
prior to any change by a Fund in its investment objectives, such Fund will
provide written notice to its shareholders regarding such proposed change.
MANAGEMENT OF THE FUNDS
As a Maryland corporation, the business and affairs of the Company are
managed by its Board of Directors. Each of the Funds has entered into an
investment advisory agreement (the ''Advisory Agreements'') with the Adviser,
Reynolds Capital Management (Frederick L. Reynolds, sole proprietor), 80 East
Sir Francis Drake Boulevard, Larkspur, California 94939. Under such Advisory
Agreements the Adviser furnishes continuous investment advisory services to each
of the Funds. The Adviser does not advise any other mutual funds, but does act
as the investment adviser to individuals and institutional clients with
investment portfolios aggregating as of December 31, 1995 approximately
$75,000,000, including the Funds. The Adviser was organized in April, 1985. Mr.
Frederick L. Reynolds, the sole proprietor of the Adviser, had previously
managed portfolios of a registered investment company.
The Adviser supervises and manages the investment portfolio of each of the
Funds and, subject to such policies as the Board of Directors of the Company may
determine, directs the purchase or sale of investment securities in the day-to-
day management of the Funds. Under the Advisory Agreements, the Adviser, at its
own expense and without reimbursement from any of the Funds, furnishes office
space and all necessary office facilities, equipment and executive personnel for
managing the investments of each Fund, bears all sales and promotional expenses
of the Funds, other than expenses incurred in complying with laws regulating the
issue or sale of securities, and pays salaries and fees of all officers and
directors of the Company (except the fees paid to directors who are not
interested persons of the Adviser). For the foregoing, the Adviser receives from
the Blue Chip Fund a monthly fee of 1/12 of 1.0% (1.0% per annum) of such Fund's
daily net assets; from the Opportunity Fund a monthly fee of 1/12 of 1.0% (1.0%
per annum) of such Fund's daily net assets; from the Bond Fund a monthly fee of
1/12 of 0.75% (0.75% per annum) of such Fund's daily net assets; and from the
Money Market Fund a monthly fee of 1/12 of 0.5% (0.5% per annum) of such Fund's
daily net assets. The rate of the annual advisory fee paid by the Blue Chip Fund
and the Opportunity Fund is higher than that paid by most mutual funds. The
advisory fees paid by the Blue Chip Fund, the Opportunity Fund, the Bond Fund
and the Money Market Fund in the fiscal year ended September 30, 1995 were equal
to 1.00%, 1.00%, 0.75% (0% after reimbursement) and 0.50% (0% after
reimbursement), respectively, of such Fund's average net assets. See ''PER SHARE
INCOME AND CAPITAL CHANGES.''
Frederick L. Reynolds, sole proprietor of the Adviser since he founded the
firm in 1985, is primarily responsible for the day-to-day management of each
Fund's portfolio. He has held this responsibility since each Fund commenced
operations. Mr. Reynolds also has served as Chairman, President, Treasurer and a
Director of the Company since it was organized in April, 1988.
Each of the Funds also has entered into an administration agreement (the
''Administration Agreements'') with Fiduciary Management, Inc. (the
''Administrator''), 225 East Mason Street, Milwaukee, Wisconsin 53202. Under the
Administration Agreements the Administrator prepares and maintains the books,
accounts and other documents required by the Act, determines each Fund's net
asset value, responds to shareholder inquiries, prepares each Fund's financial
statements and tax returns, prepares certain reports and filings with the
Securities and Exchange Commission and with state Blue Sky authorities,
furnishes statistical and research data, clerical, accounting and bookkeeping
services and stationery and office supplies, keeps and maintains each Fund's
financial and accounting records and generally assists in all aspects of the
Funds' operations. The Administrator, at its own expense and without
reimbursement from any of the Funds, furnishes office space and all necessary
office facilities, equipment and executive personnel for performing the services
required to be performed by it under the Administration Agreements. For the
foregoing, the Administrator receives from the Blue Chip Fund and the
Opportunity Fund a monthly fee of 1/12 of 0.2% (0.2% per annum) on the first
$30,000,000 of the daily net assets of each of such Funds and 1/12 of 0.1% (0.1%
per annum) on the daily net assets of each of such Funds in excess of
$30,000,000; and from the Bond Fund and the Money Market Fund a monthly fee of
1/12 of 0.1% (0.1% per annum) on the daily net assets of each of such Funds.
DETERMINATION OF NET ASSET VALUE
The per share net asset value of each Fund is determined by dividing the
total value of such Fund's net assets (meaning its assets less its liabilities
excluding capital and surplus) by the total number of its shares outstanding at
that time. Except as otherwise noted below, each Fund's net asset value is
determined as of the close of regular trading (currently 4:00 p.m. Eastern time)
on the New York Stock Exchange on each day the New York Stock Exchange is open
for trading. This determination is applicable to all transactions in shares of
such Fund prior to that time and after the previous time as of which net asset
value was determined. Accordingly, purchase orders accepted or shares tendered
for redemption prior to the close of regular trading on a day the New York Stock
Exchange is open for trading will be valued as of the close of trading, and
purchase orders accepted or shares tendered for redemption after that time will
be valued as of the close of the next trading day. Notwithstanding the
foregoing, the net asset value of the Bond Fund and the Money Market Fund also
will not be determined on days when the Federal Reserve is closed.
In calculating the net asset value of the Blue Chip Fund, the Opportunity
Fund and the Bond Fund, portfolio securities traded on any national securities
exchange or quoted on the Nasdaq National Market System will ordinarily be
valued on the basis of the last sale price on the date of valuation, or in the
absence of any sales on that date, the most recent bid price. Other securities
will generally be valued at the most recent bid price if market quotations are
readily available. Any securities for which there are no readily available
market quotations and other assets will be valued at their fair value as
determined in good faith by the Company's Board of Directors, except that debt
securities having maturities of less than 60 days may be valued using the
amortized cost method.
Securities held by the Money Market Fund are valued at amortized cost. Under
this method of valuation, a security is initially valued at its acquisition
cost, and thereafter, a constant amortization of any discount or premium is
assumed each day regardless of the impact of fluctuating interest rates on the
market value of the security. While this method provides certainty in valuation,
it may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Money Market Fund would receive if it sold
the instrument. The Money Market Fund attempts to maintain its per share net
asset value at $1.00. Under most conditions, the Adviser believes this will be
possible. Calculations are made periodically to compare the value of the Money
Market Fund's portfolio at amortized cost to current market values. In the event
the per share net asset value (calculated by reference to market value) should
deviate from $1.00 by l1/42 of 1% or more, the Board of Directors will promptly
consider what action, if any, should be taken.
HOW TO PURCHASE SHARES
Shares of the Funds may be purchased directly from the Company. The price per
share of each Fund is its next determined per share net asset value after
receipt of an application in proper form. A purchase application is included in
the center of this Prospectus. Additional purchase applications may be obtained
from the Company. The Board of Directors of the Company has established $1,000
as the minimum initial purchase for each Fund ($100 for an initial purchase
through an Employee Benefit Profit Sharing or Retirement Plan such as a 401(k)
Plan) and $100 as the minimum for any subsequent purchase (except for the
Automatic Investment Plan and through dividend reinvestment), which minimum
amounts are subject to change at any time. Shareholders of the Funds will be
advised at least 30 days in advance of any increases in such minimum amounts.
TO PURCHASE BY MAIL
Purchase applications should be mailed directly to Reynolds Funds, c/o
Firstar Trust Company, Mutual Fund Services, 3rd Floor, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. All applications must be accompanied by payment in the
form of a check made payable to the full name of the Fund whose shares are being
purchased. All purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks. No cash will be accepted. Firstar Trust Company will charge a $15
fee against a shareholder's account for any payment check returned to the
custodian. The shareholder will also be responsible for any losses suffered by
any Fund as a result. When a purchase is made by check (other than a cashiers or
certified check) and a redemption is made shortly thereafter, the Company may
delay the mailing of a redemption check until it is satisfied that the check has
cleared. (It will normally take up to 3 days to clear local personal or
corporate checks and up to 7 days to clear other personal and corporate checks.)
To avoid redemption delays, purchases may be made by cashiers or certified check
or by direct wire transfers. Note: Different forms are used for establishing
Reynolds Funds-sponsored Individual Retirement Accounts, defined contribution,
401(k) and 403(b)(7) plans. Please call Firstar Trust Company at 1-800-773-9665
or 1-414-765-4124 to obtain such forms.
TO PURCHASE BY OVERNIGHT OR EXPRESS MAIL
Purchase applications also may be sent by overnight or express mail. Please
use the following address to insure proper delivery: Reynolds Funds, c/o Firstar
Trust Company, Mutual Fund Services, 3rd Floor, 615 E. Michigan Street,
Milwaukee, Wisconsin 53202.
TO PURCHASE BY WIRE
The establishment of a new account by wire transfer should be preceded by a
telephone call to Firstar Trust Company at 1-800-773-9665 or
1-414-765-4124 to provide information for the setting up of the account. A
completed purchase application also must be sent to Reynolds Funds at the above
address immediately following the investment.
A purchase request for any of the Funds should be wired through the Federal
Reserve System as follows:
Firstar Bank Milwaukee, NA
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA Number 0750-00022
For credit to Firstar Trust Company
Account Number 112-952-137
For further credit to:
---------------------------------------
(Insert full name of appropriate Fund)
Shareholder name:
------------------------
Shareholder account number:
----------------
TO MAKE ADDITIONAL INVESTMENTS
Shareholders of any Fund may add to their account at any time by purchasing
shares by mail ($100 minimum) or by wire ($500 minimum) according to the
aforementioned wiring instructions. Shareholders should notify Firstar Trust
Company at 1-800-773-9665 or 1-414-765-4124 prior to sending their wire. The
remittance form which is attached to a shareholder's individual account
statement should, if possible, accompany any investment made through the mail.
Every purchase request must include a shareholder's account registration number
in order to assure that funds are credited properly.
AUTOMATIC INVESTMENT PLAN
The Company offers an Automatic Investment Plan whereby a shareholder may
automatically make purchases of shares of any Reynolds Fund on a regular,
convenient basis ($50 minimum per transaction). Under the Automatic Investment
Plan, a shareholder's designated bank or other financial institution debits a
preauthorized amount on the shareholder's account on any date specified by the
shareholder each month or calendar quarter and applies the amount to the
purchase of the appropriate Reynolds Fund shares. If such date is a weekend or
holiday, such purchase shall be madeon the next business day. The Automatic
Investment Plan must be implemented with a financial institution that is a
member of the Automated Clearing House (''ACH''). No service fee is currently
charged by the Company for participating in the Automatic Investment Plan. A $15
fee will be imposed by the transfer agent if sufficient funds are not available
in the shareholder's account at the time of the automatic transaction. An
application to establish the Automatic Investment Plan is included as part of
the purchase application. Shareholders may change the date or amount of
investments at any time by writing to or calling Firstar Trust Company at 1-800-
773-9665. In the event an investor discontinues participation in the Automatic
Investment Plan, the Company reserves the right to redeem the investor's account
involuntarily, upon 60 days' notice, if the account's value is $750 or less.
GENERAL INFORMATION
As no-load mutual funds, the Funds impose no sales commissions and,
therefore, the entire amount of an investment in any Fund is used to purchase
shares of such Fund. All shares purchased will be credited to the shareholder's
account and confirmed by a statement mailed to the shareholder's address. The
Company does not issue stock certificates for shares purchased. Applications are
subject to acceptance by the Company and are not binding until so accepted. The
Funds do not, except as indicated in the following sentence, accept telephone
orders for the purchase of shares, and they reserve the right to reject
applications in whole or in part. The Funds may accept telephone orders from
broker-dealers who have been previously approved by the Funds. It is the
responsibility of such broker-dealers promptly to forward purchase or redemption
orders to the appropriate Fund. Although there is no sales charge levied
directly by any Fund, such broker-dealers may charge the investor a fee for
their services at either the time of purchase or the time of redemption. Such
charges may vary among broker-dealers but in all cases will be retained by the
broker-dealer and not remitted to the Funds or the Adviser.
HOW TO REDEEM SHARES
Investors who purchase shares directly from any Fund may redeem all or part
of their shares in accordance with any of the procedures described below.
REGULAR REDEMPTION
A shareholder may require the Company to redeem his shares of any Fund in
whole or part at any time during normal business hours. Redemption requests must
be made in writing and directed to Reynolds Funds, c/o Firstar Trust Company,
Mutual Fund Services, 3rd Floor, P.O. Box 701, Milwaukee, Wisconsin 53201-0701.
Redemption requests sent by overnight or express mail should be directed to
Reynolds Funds, c/o Firstar Trust Company, Mutual Fund Services, 3rd Floor, 615
E. Michigan Street, Milwaukee, Wisconsin 53202. If a redemption request is
inadvertently sent to the Company at its corporate address, it will be forwarded
to Firstar Trust Company, and the effective date of redemption will be delayed
until the request is received by Firstar Trust Company. Requests for redemption
by telephone or telegram cannot be honored by the Blue Chip Fund, the
Opportunity Fund or the Bond Fund, and requests which are subject to any special
conditions or which specify an effective date other than as provided herein
cannot be honored by any Fund.
Redemption requests should specify the name of the appropriate Fund, the
number of shares or dollar amount to be redeemed, shareholder's name, account
number, and the additional requirements listed below that apply to the
particular account.
TYPE OF REGISTRATION REQUIREMENTS
- -------------------- -------------
Individual, Joint Ten- Redemption request signed
ants, Sole Proprietor, by all person(s) required to
Custodial (Uniform sign for the account, exact-
Gift to Minors Act), ly as it is registered.
General Partners
Corporations, Redemption request and a
Associations corporate resolution,
signed by person(s)
required to sign for the
account, accompanied
by signature guarantee(s).
Trusts Redemption request signed
by the Trustee(s) with a
signature guarantee. (If the
Trustee's name is not
registered on the account,
a copy of the trust docu-
ment certified within the
last sixty (60) days is also
required.)
Redemption requests from shareholders in an Individual Retirement Account
must include instructions regarding federal income tax withholding. Unless
otherwise indicated, these redemptions, as well as redemptions of other
retirement plans not involving a direct rollover to an eligible plan, will be
subject to federal income tax withholding. If a shareholder is not included in
any of the above registration categories (e.g., executors, administrators,
conservators or guardians), the shareholder should call the transfer agent,
Firstar Trust Company, at 1-800-773-9665 or 1-414-765-4124 for further
instructions.
Signatures need not be guaranteed unless otherwise indicated above, the
redemption request exceeds $25,000, or the proceeds of the redemption are
requested to be sent by wire transfer, to a person other than the registered
holder or holders of the shares to be redeemed, or to be mailed to other than
the address of record, in which cases each signature on the redemption request
must be guaranteed by a commercial bank or trust company in the United States, a
member firm of the New York Stock Exchange or other eligible guarantor
institution. Redemptions will not be effective or complete until all of the
foregoing conditions, including receipt of all required documentation by Firstar
Trust Company in its capacity as transfer agent, have been satisfied.
TELEPHONE REDEMPTION
Shareholders may redeem shares of only the Money Market Fund by telephone. To
redeem shares by telephone, an investor must check the appropriate box on the
purchase application. Once this feature has been requested, shares may be
redeemed by phoning Firstar Trust Company at 1-800-773-9665 or 1-414-765-4124
and giving the account name, account number and amount of redemption. Proceeds
redeemed by telephone will be mailed or wired only to an investor's address or
bank of record as shown on the records of the transfer agent. Telephone
redemptions must be in amounts of $1,000 or more.
If an investor redeems shares of the Money Market Fund by telephone and
requests wire payment, payment of the redemption proceeds will normally be made
in federal funds on the next business day. As stated above, the transfer agent
will wire redemption proceeds only to the bank and account designated on the
purchase application or in written instructions subsequently received by the
transfer agent, and only if the investor's bank is a commercial bank located
within the United States. The transfer agent currently charges a $7.50 fee for
each payment made by wire of redemption proceeds, which will be deducted from
the shareholder's account.
In order to arrange for telephone redemptions after a Money Market Fund
account has been opened or to change the bank, account or address designated to
receive redemption proceeds, a written request must be sent to Firstar Trust
Company at the address listed above under ''Regular Redemption.'' The request
must be signed by each shareholder of the account with the signatures guaranteed
as described above. Further documentation may be requested from corporations,
executors, administrators, trustees and guardians.
The Money Market Fund reserves the right to refuse a telephone redemption if
it believes it is advisable to do so. Procedures for redeeming shares of the
Money Market Fund by telephone may be modified or terminated by the Fund at any
time. Neither the Money Market Fund nor its transfer agent will be liable for
following instructions for telephone redemption transactions that they
reasonably believe to be genuine, provided reasonable procedures are used to
confirm the genuineness of the telephone instructions, but may be liable for
unauthorized transactions if they fail to follow such procedures. These
procedures include requiring some form of personal identification prior to
acting upon the telephone instructions and recording all telephone calls.
During periods of substantial economic or market change, telephone
redemptions may be difficult to implement. If an investor is unable to contact
the transfer agent by telephone, shares of the Money Market Fund may also be
redeemed by delivering the redemption request to the transfer agent in person or
by mail as described above under ''Regular Redemption.''
CHECKWRITING
An investor may request on the purchase application that the Money Market
Fund provide redemption checks drawn on the Money Market Fund. Checks may be in
amounts of $500 or more. There is no charge for this privilege. The shares
redeemed by check will continue earning dividends until the check clears. Checks
will not be returned. Checks are supplied free of charge and additional checks
will be sent to the shareholder upon request. In order to establish this
checkwriting option after an account has been opened, the shareholder must send
a written request to the Reynolds Money Market Fund. This request must be signed
by each shareholder whose name appears on the account. Shareholders may place
stop payment requests on checks by calling the Money Market Fund at 1-800-773-
9665. A $15 fee will be charged for each stop payment request. If there are
insufficient shares in the shareholder's account to cover the amount of the
redemption by check, the check will be returned marked ''insufficient funds,''
and a fee of $15 will be charged to the shareholder's account. Because dividends
on the Money Market Fund accrue daily, checks may not be used to close an
account, as a small balance is likely to result. The checkwriting option is not
available to shareholders of the Blue Chip Fund, the Opportunity Fund or the
Bond Fund.
OTHER REDEMPTION INFORMATION
The redemption price per share for each Fund is the next determined net asset
value per share for such Fund after receipt by Firstar Trust Company in its
capacity as transfer agent of the written request in proper form with all
required documentation. The amount received will depend on the market value of
the investments in the appropriate Fund's portfolio at the time of determination
of net asset value, and may be more or less than the cost of the shares
redeemed. A check in payment for shares redeemed will be mailed to the holder
typically within one or two days, but no later than the seventh day after
receipt of the redemption request in proper form and of all required
documentation except as indicated in ''HOW TO PURCHASE SHARES'' for certain
redemptions of shares purchased by check. Wire transfers may be arranged through
Firstar Trust Company, which will assess a nominal wiring charge (currently
$7.50, but subject to change without notice) directly against the shareholder's
account.
The Company reserves the right to redeem the shares held in any account if at
the time of any transfer or redemption of shares in the account, the value of
the remaining shares in the account falls below $1,000. Shareholders of any Fund
will be notified in writing when the value of the account is less than the
minimum and allowed at least 60 days to make an additional investment in such
Fund. The receipt of proceeds from the redemption of shares held in an
Individual Retirement Account will constitute a taxable distribution of benefits
from the IRA unless a qualifying rollover contribution is made. Involuntary
redemptions will not be made because the value of shares in an account falls
below $1,000 solely because of a decline in such Fund's net asset value.
The right to redeem shares of any Fund will be suspended for any period
during which the New York Stock Exchange is closed because of financial
conditions or any other extraordinary reason and may be suspended for any period
during which (a) trading on the New York Stock Exchange is restricted pursuant
to rules and regulations of the Securities and Exchange Commission, (b) the
Securities and Exchange Commission has by order permitted such suspension or (c)
an emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
Company to dispose of such Fund's securities or fairly to determine the value of
its net assets.
EXCHANGE PRIVILEGE
The Company generally permits shareholders to exchange shares of one of the
Reynolds Funds for shares of any other. A written request to exchange shares of
one Reynolds Fund for shares of another may be made at no cost to the
shareholder. Signatures required are the same as previously explained under
''HOW TO REDEEM SHARES.'' A shareholder wishing to use the telephone exchange
privilege must check the appropriate box on the purchase application. The
telephone exchange option may also be added to an existing account by submitting
the request in writing to Reynolds Funds, c/o Firstar Trust Company, Mutual Fund
Services, 3rd Floor, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Exchange
requests should be directed to Firstar Trust Company at 1-800-773-9665 or 1-414-
765-4124. In order to request an exchange by telephone, an investor must give
the account name, account number and the amount or number of shares to be
exchanged.
Procedures for telephone exchanges may be modified or terminated at any time
by the Company or its transfer agent. Neither the Company nor its transfer agent
will be liable for following instructions for telephone exchanges that they
reasonably believe to be genuine, provided reasonable procedures are used to
confirm the genuineness of the telephone instructions, but may be liable for
unauthorized transactions if they fail to follow such procedures. These
procedures include requiring some form of personal identification prior to
acting upon the telephone instructions and recording all telephone calls.
During periods of significant economic or market change, telephone exchanges may
be difficult to implement. If an investor is unable to contact Firstar Trust
Company by telephone, an investor may also deliver the exchange request by mail
at the address listed above.
There is currently no limitation on the number of exchanges a shareholder may
make. However, shares subject to an exchange must have a current value of at
least $1,000. Furthermore, in establishing a new account in another Reynolds
Fund through this privilege, the exchanged shares must have a value at least
equal to the minimum investment required by the Fund into which the exchange is
being made. A completed purchase application also must be sent to Reynolds Funds
at the above address immediately after establishing a new account through this
privilege.
The exchange privilege is available only in states where the exchange may be
legally made. Exchange requests may be subject to other limitations, including
those relating to frequency, that may be established from time to time to ensure
that the exchanges do not disadvantage any Fund or its shareholders.
Shareholders will be notified at least 60 days in advance of any changes in such
limitations and may obtain the terms of any such limitations by writing to
Reynolds Funds, c/o Firstar Trust Company, Mutual Fund Services, 3rd Floor, P.O.
Box 701, Milwaukee, Wisconsin 53201-0701. No exchange fee is currently imposed
by the Company on exchanges; however, the Company reserves the right to impose
a service charge in the future.
An exchange involves a redemption of all or a portion of the shares in one
Fund and the investment of the redemption proceeds in shares of another Fund and
is subject to any applicable adjustments in connection with such redemption and
investment. The redemption will be made at the per share net asset value of the
shares to be redeemed next determined after the exchange request is received as
described above. The shares of the Fund to be acquired will be purchased
(subject to any applicable adjustment) at the per share net asset value of those
shares next determined coincident with or after the time of redemption.
Investors may find the exchange privilege useful if their investment
objectives should change after they invest in the Reynolds Funds. For federal
income tax purposes, an exchange of shares (except an exchange from the Money
Market Fund to another Reynolds Fund) is a taxable event and, accordingly, a
capital gain or loss may be realized by an investor. Before making an exchange
request, an investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange.
ADDITIONAL SHAREHOLDER SERVICES
DIVIDEND REINVESTMENT PLAN
Shareholders of any Fund may elect to have all income dividends and capital
gains distributions reinvested in such Fund or paid in cash. See the purchase
application included in the center of this Prospectus for further information.
If the shareholder does not specify an election, all income dividends and
capital gains distributions will automatically be reinvested in full and
fractional shares of the appropriate Fund, calculated to the nearest 1,000th of
a share. With respect to the Blue Chip Fund and the Opportunity Fund, shares are
purchased at the net asset value in effect on the business day after the
dividend record date and are credited to the shareholder's account on such date.
With respect to the Bond Fund and the Money Market Fund, shares are purchased at
the net asset value in effect on the dividend payment date and are credited to
the shareholder's account on such date. As in the case of normal purchases,
stock certificates will not be issued. Shareholders will be advised of the
number of shares purchased and the price following each reinvestment. An
election to reinvest or receive dividends and distributions in cash will apply
to all shares of a Fund registered in the same name, including those previously
purchased.
A shareholder may change an election at any time by notifying the appropriate
Fund in writing or, subject to certain limited exceptions, by calling Firstar
Trust Company at 1-800-773-9665. If such a notice is received between a dividend
declaration date and payment date, it will become effective on the day following
the payment date. The Funds may modify or terminate the dividend reinvestment
program at any time on 30 days' notice to participants.
SYSTEMATIC WITHDRAWAL PLAN
To accommodate the current cash needs of investors, the Funds offer a
Systematic Withdrawal Plan, pursuant to which a shareholder who owns shares of
any Fund worth at least $10,000 at current net asset value may provide that a
fixed sum will be distributed to him at regular intervals. In electing to
participate in the Systematic Withdrawal Plan, investors should realize that
within any given period the appreciation of their investment in a particular
Fund may not be as great as the amount withdrawn. A shareholder may vary the
amount or frequency of withdrawal payments or temporarily discontinue them by
notifying Firstar Trust Company in writing or by telephone at 1-800-773-9665 or
1-414-765-4124. A more complete discussion of the Systematic Withdrawal Plan is
included in the Funds' Statement of Additional Information. The Systematic
Withdrawal Plan does not apply to shares of any Fund held in Individual
Retirement Accounts or defined contribution retirement plans. An application for
participation in the Systematic Withdrawal Plan is included as part of the
purchase application.
SYSTEMATIC EXCHANGE PLAN
The Company offers a Systematic Exchange Plan whereby a shareholder may
automatically exchange shares (in increments of $100 or more) of one Reynolds
Fund into another on any day, either monthly or quarterly, the shareholder
chooses. If that day is a weekend or holiday, such exchange will be made on the
next business day. An application to establish the Systematic Exchange Plan is
included as part of the purchase application. In order to participate, a
shareholder must meet the minimum initial investment requirement for the
receiving Fund. No service fee is currently charged by the Company for
participating in the Systematic Exchange Plan; however, the Company reserves the
right to impose a service charge in the future.
The Systematic Exchange Plan is available only in states where the desired
exchanges may be legally made. For federal income tax purposes, each exchange of
shares (except an exchange from the Money Market Fund to another Reynolds Fund)
is a taxable event and, accordingly, a capital gain or loss may be realized by
an investor. Before participating in the Systematic Exchange Plan, an investor
should consult a tax or other financial adviser to determine the tax
consequences of participation.
RETIREMENT PLANS
Each of the Funds offers the following retirement plans that may be funded
with purchases of shares of such Fund and may allow investors to shelter some of
their income from taxes:
INDIVIDUAL RETIREMENT ACCOUNT (''IRA''). Individuals who receive compensation or
earned income, even if they are active participants in a qualified retirement
plan (or certain similar retirement plans), may establish their own tax-
sheltered Individual Retirement Account (''IRA''). Each of the Funds offers a
prototype IRA plan which may be adopted by individuals. There is currently no
charge for establishing an account although there is an annual maintenance fee.
Earnings on amounts held in an IRA are not taxed until withdrawal. However,
for tax years beginning January 1, 1987, the amount of deduction, if any,
allowed for IRA contributions is limited for individuals who are active
participants in an employer maintained retirement plan and whose incomes exceed
specific limits.
SIMPLIFIED EMPLOYEE PENSION PLAN (''SEP/IRA''). Each of the Funds also offers a
prototype simplified employee pension (SEP) plan for employers, including self-
employed individuals, who wish to purchase shares of any Fund with tax-
deductible contributions not exceeding annually for any one participant the
lesser of $30,000 or 15% of earned income. Under the SEP plan, employer
contributions are made directly to the IRA accounts of eligible participants.
DEFINED CONTRIBUTION RETIREMENT PLAN (KEOGH OR CORPORATE PROFIT-SHARING AND
MONEY-PURCHASE PLANS). A prototype defined contribution retirement plan is
available for employers, including self-employed individuals, who wish to
purchase shares of any Fund with tax-deductible contributions not exceeding
annually for any one participant the lesser of $30,000 or 25% of earned income.
CASH OR DEFERRED 401(K) PLAN. A prototype cash or deferred 401(k) plan is
available for employers who wish to allow employees to elect to reduce their
compensation and have such amounts contributed to the plan, not to exceed $9,500
annually (as adjusted for cost-of-living increases).
MODEL 403(B)(7) PLAN. A model 403(b)(7) plan is available for employees of
certain charitable, educational and governmental entities.
A description of applicable service fees and certain limitations on
contributions and withdrawals, as well as application forms, are available from
the Funds upon request. The IRA documents contain a disclosure statement which
the Internal Revenue Service requires to be furnished to individuals who are
considering adopting an IRA. Because a retirement program involves commitments
covering future years, it is important that the investment objective of the
appropriate Fund be consistent with the participant's retirement objectives.
Premature withdrawals from a retirement plan will result in adverse tax
consequences.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Funds will endeavor to qualify annually for and elect tax
treatment applicable to a regulated investment company under Subchapter M of the
Code. Pursuant to the requirements of the Code, each of the Funds intends
normally to distribute substantially all of its net investment income and net
realized capital gains, if any, less any available capital loss carryover, to
its shareholders at least annually. Capital gains, if any, on either the Bond
Fund or the Money Market Fund also may be paid with the daily dividend. These
distributions will be made in such a manner as to avoid each Fund paying income
tax on its net investment income and net realized capital gains or being subject
to a federal excise tax on undistributed net investment income and net realized
capital gains. For federal income tax purposes, distributions by the Funds,
whether invested in additional shares of the Funds or received in cash, will be
taxable to the Funds' shareholders except those shareholders that are not
subject to tax on their income.
The daily net investment income of both the Bond Fund and the Money Market
Fund is declared as a dividend each day to shareholders of record. Shares
purchased in either the Bond Fund or the Money Market Fund will begin earning
dividends the first business day following the day the purchase becomes
effective. Redeemed shares will participate in the dividend declared on the day
of redemption. If all shares in an account are redeemed, dividends credited to
the account since the beginning of the dividend period through the date of
redemption will be paid with the redemption proceeds. If less than all such
shares are redeemed, all dividends accrued but unpaid on those shares will be
distributed on the next payment date. For the purpose of calculating dividends
in either the Bond Fund or Money Market Fund, net income consists of income
accrued on portfolio assets, less accrued expenses. Income earned on weekends,
holidays and other days on which the net asset value is not calculated will be
declared as a dividend in advance on the preceding business day.
Shareholders will be notified annually as to the federal tax status of
dividends and distributions. For federal income tax purposes, a shareholder's
cost for his shares is his basis and on redemption his gain or loss is the
difference between such basis and the redemption price. Distributions and
redemptions may also be taxed under state and local tax laws which may differ
from the Code.
SHAREHOLDER REPORTS
Shareholders of each Fund will be provided at least semiannually with a
report showing such Fund's portfolio and other information. After the close of
the Company's fiscal year, which ends September 30, each Fund will provide its
shareholders with an annual report containing audited financial statements. An
individual account statement will be sent to shareholders by Firstar Trust
Company after each purchase, including reinvestment of dividends, or redemption
of shares of any Fund. Each shareholder will also receive an annual statement
after the end of the calendar year listing all transactions in shares of the
Funds during such year.
Shareholder who have questions about their respective accounts should call
Firstar Trust Company at 1-800-773-9665 or 1-414-765-4124. Investors who have
general questions about the Funds or desire additional information should write
to Reynolds Funds, Wood Island, Third Floor, 80 East Sir Francis Drake
Boulevard, Larkspur, California 94939, Attention: Corporate Secretary, or call
1-415-461-7860.
BROKERAGE TRANSACTIONS
The Advisory Agreements authorize the Adviser to select the brokers or
dealers that will execute the purchases and sales of the Funds' portfolio
securities. In placing purchase and sale orders for the Funds, it is the policy
of the Adviser to seek the best execution of orders at the most favorable price
in light of the overall quality of brokerage and research services provided.
The Advisory Agreements permit the Adviser to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting
securities transactions in excess of the amount another broker would have
charged for executing the transaction, provided the Adviser believes this to be
in the best interests of the applicable Fund. Although the Funds do not intend
to market their shares through intermediary broker-dealers, the Blue Chip Fund,
the Opportunity Fund and the Bond Fund may place portfolio orders with broker-
dealers who recommend the purchase of their shares to clients, if the Adviser
believes the commissions and transaction quality are comparable to that
available from other brokers, and may allocate portfolio brokerage on that
basis.
GENERAL INFORMATION ABOUT THE
COMPANY AND THE FUNDS
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Company's authorized capital consists of 20,000,000 Reynolds Blue Chip
Growth Fund shares, 20,000,000 Reynolds Opportunity Fund shares, 20,000,000
Reynolds U.S. Government Bond Fund shares and 500,000,000 Reynolds Money Market
Fund shares. Each share outstanding entitles the holder to one vote. Generally
shares are voted in the aggregate and not by each Fund, except where class
voting by each Fund is required by Maryland law or the Act (e.g. change in
investment policy or approval of an investment advisory agreement).
The shares of each Fund have the same preferences, limitations and rights,
except that all consideration received from the sale of shares of each Fund,
together with all income, earnings, profits and proceeds thereof, belong to that
Fund and are charged with the liabilities in respect of that Fund and of that
Fund's share of the general liabilities of the Company in the proportion that
the total net assets of the Fund bears to the total net assets of all the Funds.
The net asset value pershare of each Fund is based on the assets belonging to
that Fund less the liabilities charged to that Fund, and dividends are paid on
shares of each Fund only out of lawfully available assets belonging to that
Fund. In the event of liquidation or dissolution of the Company, the
shareholders of each Fund will be entitled, out of the assets of the Company
available for distribution, to the assets belonging to such Fund.
There are no conversion or sinking fund provisions applicable to the shares
of any Fund, and the holders have no preemptive rights and may not cumulate
their votes in the election of directors. Consequently the holders of more than
50% of the Company's shares voting for the election of directors can elect the
entire Board of Directors, and in such event, the holders of the remaining
shares voting for the election of directors will not be able to elect any person
or persons to the Board of Directors. The Maryland General Corporation Law
permits registered investment companies, such as the Company, to operate without
an annual meeting of shareholders under specified circumstances if an annual
meeting is not required by the Act. The Company has adopted the appropriate
provisions in its Bylaws and does not anticipate holding an annual meeting in
any year in which the election of directors is not required to be acted on by
shareholders under the Act. The Company also has adopted provisions in its
Bylaws for the removal of directors by its shareholders.
The shares of each Fund are redeemable and are transferable. All shares
issued and sold by the Company will be fully paid and nonassessable. Fractional
shares of each Fund entitle the holder to the same rights as whole shares of
such Fund.
The Company will not issue certificates evidencing the Funds' shares. Each
shareholder's account will be credited with the number of shares purchased,
relieving such shareholder of responsibility for safekeeping of certificates and
the need to deliver them upon redemption. Written confirmations are issued for
all purchases of shares of the Funds.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202,
is the custodian for all securities and cash of the Funds and serves as the
Company's transfer and dividend disbursing agent.
PERFORMANCE INFORMATION
Each of the Funds (except the Money Market Fund) may provide from time to
time in advertisements, reports to shareholders and other communications with
shareholders its average annual compounded rate of return. An average annual
compounded rate of return refers to the rate of return which, if applied to an
initial investment at the beginning of a stated period and compounded over the
period, would result in the redeemable value of the investment at the end of the
stated period assuming reinvestment of all dividends and distributions and
reflecting the effect of all recurring fees. An investor's principal in any of
such Funds and such Fund's return are not guaranteed and will fluctuate
according to market conditions.
The Bond Fund and the Money Market Fund may provide yield data from time to
time in advertisements, reports to shareholders and other communications with
shareholders. The yield of the Bond Fund is determined by dividing such Fund's
net investment income for a 30-day (or one month) period by the average number
of Bond Fund shares outstanding during the period, and expressing the result as
a percentage of the Fund's share price on the last day of the 30-day (or one
month) period. This percentage is then annualized. Capital gains and losses are
not included in the yield calculation.
The Money Market Fund may quote its current and effective yields. The
''current yield'' of the Money Market Fund refers to the income generated by an
investment in the Money Market Fund over a seven-day period. This income is then
''annualized.'' That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The ''effective yield'' is calculated
similarly but, when annualized, the income earned by an investment in the Money
Market Fund is assumed to be reinvested. The ''effective yield'' will be
slightly higher than the ''current yield'' because of the compounding effect of
this assumed reinvestment.
The yield of either the Bond Fund or the Money Market Fund will be affected
if such Fund experiences a net inflow of new money which is invested at interest
rates different from those being earned on its then-current investments. An
investor's principal in either the Bond Fund or the Money Market Fund and such
Fund's return are not guaranteed. Yield information may be useful in reviewing
the performance of both the Bond Fund and the Money Market Fund and for
providing a basis for comparison with other investment alternatives. However,
since net investment income of each of such Funds changes in response to
fluctuations in interest rates and such Fund's expenses, any given yield
quotation should not be considered representative of the applicable Fund's yield
for any future period. An investor should also be aware that there are
differences in investment other than yield.
Each of the Funds (except the Money Market Fund) may compare its performance
to other mutual funds with similar investment objectives and to the industry as
a whole, as reported by Lipper Analytical Services, Inc., Money, Forbes,
Business Week and Barron's magazines and The Wall Street Journal. (Lipper
Analytical Services, Inc. is an independent rating service that ranks over 1,000
mutual funds based upon total return performance.) Each of such Funds may also
compare its performance to the Dow Jones Industrial Average,Nasdaq Composite
Index, Nasdaq Industrials Index, Value Line Composite Index, the Standard &
Poor's 500 Stock Index and the Consumer Price Index. Such comparisons may be
made in advertisements, shareholder reports or other communications to
shareholders.
The Money Market Fund may compare its performance to the following income
producing alternatives: (i) money market funds (based on yields cited by
Donoghue's Money Fund Report and Lipper Analytical Services, Inc.); (ii) various
bank products (based on average rates of bank and thrift institution
certificates of deposit, money market deposit accounts and N.O.W. accounts as
reported by the Bank Rate Monitor); and (iii) United States Treasury Bills or
Notes. There are differences between these income producing alternatives and the
Money Market Fund other than their yields. Money market deposit accounts and
N.O.W. accounts are offered by banks and thrift institutions. Although their
yields will fluctuate, principal will not fluctuate and is insured by the
Federal Deposit Insurance Corporation. N.O.W. accounts generally offer unlimited
checking (no minimum per check) and money market deposit accounts generally
limit the number of checks that may be written. Bank passbook savings accounts
normally offer a fixed rate of interest and their principal and interest are
also guaranteed and insured. Bank certificates of deposit offer fixed or
variable rates for a set term. Principal and fixed rates are guaranteed and
insured. There is no fluctuation in principal value. Withdrawal of these
deposits prior to maturity will normally be subject to penalty.
MANAGEMENT'S DISCUSSION OF PERFORMANCE OF THE FUNDS
REYNOLDS BLUE CHIP GROWTH FUND
The Blue Chip Fund's performance was positively affected in the fiscal year
ended September 30, 1995 by the strong earnings growth of many of the stocks in
its portfolio. The Blue Chip Fund was also positively affected by the market
leadership of high quality growth companies. The Blue Chip Fund was positively
affected, as was the overall stock market, by declining interest rates.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
Reynolds Blue Chip Growth Fund and S&P 500 Index
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 35.3%
5-YEAR 12.7%
Since Inception 8/12/88 10.8%
date Reynolds Blue Chip Growth Fund S&P 500 Index
8/12/88 $10,000 $10,000
9/30/88*<F19> $10,060 $10,610
9/30/89 $12,065 $14,079
9/30/90 $11,465 $12,770
9/30/91 $14,552 $16,780
9/30/92 $15,714 $18,642
9/30/93 $15,000 $21,066
9/30/94 $15,392 $21,824
9/30/95 $20,823 $28,328
*<F19> August 12, 1988 inception date.
Past performance is not predictive of future performance.
REYNOLDS OPPORTUNITY FUND
The Opportunity Fund was positively affected by interest in emerging growth
stocks and the continuing economic recovery during the fiscal year ended
September 30, 1995. The Opportunity Fund was particularly helped by its
philosophy of investing in high quality growth companies.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
Reynolds Opportunity Fund and S&P 500 Index
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 40.4%
Since Inception 1/30/92 10.0%
date Reynolds Opportunity Fund S&P 500 Index
1/30/92*<F20> $10,000 $10,000
9/30/92 $8,850 $10,270
9/30/93 $9,781 $11,605
9/30/94 $10,091 $12,023
9/30/95 $14,172 $15,606
*<F20>inception date
Past performance is not predictive of future performance.
REYNOLDS U.S. GOVERNMENT BOND FUND
Lower levels of current and expected inflation caused the Federal Reserve to
lower interest rates during the fiscal year ended September 30, 1995. The Bond
Fund's portfolio of U.S. Government securities had a dollar weighted average
maturity of three years on September 30, 1995 which was toward the shorter end
of the 1-10 year average maturity stated in the Prospectus as the Bond Fund's
expected average maturity. The above factors were the main factors contributing
to the Bond Fund's performance.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
Reynolds U.S. Government Bond Fund and Lehman Government Bond Index
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 8.4%
Since Inception 1/30/92 5.0%
date Reynolds U.S. Government Bond Fund Lehman Government Bond Index
1/30/92*<F21> $10,000 $10,000
9/30/92 $10,668 $10,890
9/30/93 $11,679 $12,088
9/30/94 $11,032 $11,604
9/30/95 $11,962 $13,183
*<F20>inception date
Past performance is not predictive of future performance.
(REYNOLDS FUNDS LOGO)
Purchase Application
Mail completed application to: Reynolds Funds
Mutual Fund Services, 3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Express Mail to: Reynolds Funds
Mutual Fund Services, 3rd Floor
615 E Michigan St.
Milwaukee, WI 53202
Use this form for individual, custodial, trust, profit sharing or pension
plan accounts. Do not use this form for the Reynolds Funds sponsored IRA,
Defined Contribution (Keogh or Corporate Profit-Sharing and Money-Purchase),
401(k) or 403(b)(7) plans which require forms available from the Reynolds Funds.
For information please call 1-800-773-9665 or 1-800-7REYNOLDS.
- ------------------------------------------------------------------------------
INVESTMENT
The minimum initial investment is $1,000 for shares in any of the Reynolds
Funds.
Minimum additions to any Fund are $100 (except $50 for the Automatic Investment
Plan).
Wiring Instruction: Firstar Bank Milwaukee, NA, 777 E Wisconsin Ave., Milwaukee,
WI 53202,
ABA: 075000022, For credit to Firstar Trust Co., Account # 112-952-137,
For further credit (insert full name of Fund) (shareholders name & account
-------------------------------------------------------
number).
- --------
Payment by Check Wire AMOUNT
(035) Reynolds Opportunity Fund $
------------------------------------- ------------------------
(036) Reynolds US Government Bond Fund $
---------------------------------------- ------------------------
(037) Reynolds Blue Chip Fund $
-------------------------------- ------------------------
(038) Reynolds Money Market Fund $
------------------------------------ -------------------------
DISTRIBUTION OPTIONS:
Capital Gains & Dividends Reinvested
Capital Gains & Dividends In Cash
- ------------------------------------------------------------------------------
B. REGISTRATION
1. Individual
1.----------------------------------------------------------------------------
FIRST NAME M.I. LAST NAME SOCIAL SECURITY # BIRTH DATE (Mo/Dy/Yr)
1. Joint Owner
(Cannot be a minor)
1 .----------------------------------------------------------------------------
FIRST NAME M.I. LAST NAME SOCIAL SECURITY # BIRTH DATE (Mo/Dy/Yr)
*<F1>Registration will be Joint Tenancy with Rights of Survivorship (JTWROS),
unless otherwise specified.
2. Gift to Minor
2.
------------------------------------------------------------------------
CUSTODIAN'S FIRST NAME (ONLY ONE PERMITTED) M.I. LAST NAME
---------------------------------------------------------------------------
MINOR'S FIRST NAME (ONLY ONE PERMITTED) M.I. LAST NAME
---------------------------------------------------------------------------
MINOR'S SOCIAL SECURITY # MINOR'S BIRTH DATE (Mo/Dy/Yr) STATE OF RESIDENCE
3. Trust*<1>
Corporate**<F2>
Partnership
Other Entity
3.
------------------------------------------------------------------------
NAME OF TRUSTEE(S) (IF TO BE INCLUDED IN REGISTRATION)
------------------------------------------------------------------------
NAME OF TRUST / CORPORATION / PARTNERSHIP
---------------------------------------------------------------------------
SOCIAL SECURITY # / TAX ID # DATE OF AGREEMENT (Mo/Dy/Yr)
*<F1>Additional documentation and certification may be requested
**<F2>Corporate Resolution is required
- ------------------------------------------------------------------------------
C. ADDRESS
- ------------------------------------------------------------------------------
Mailing Address
- ------------------------------------------------------------------------------
STREET APT / SUITE
- ------------------------------------------------------------------------------
CITY STATE ZIP
- ------------------------------------------------------------------------------
DAYTIME PHONE # EVENING PHONE #
Duplicate Confirmation to:
- ------------------------------------------------------------------------------
FIRST NAME M.I. LAST NAME
- ------------------------------------------------------------------------------
STREET APT / SUITE
- ------------------------------------------------------------------------------
CITY STATE ZIP
- ------------------------------------------------------------------------------
D. TELEPHONE OPTIONS
TELEPHONE EXCHANGES. Allows exchanges between identically registered
accounts in Funds of the Reynolds Funds family. A $1,000 minimum applies to
exchanges. Please refer to the Prospectus for additional details, conditions
and limitations pertaining to the telephone exchange privilege.
TELEPHONE REDEMPTION. Permits the redemption of a minimum of $1,000 from
the Reynolds Money Market Fund only. The proceeds will be mailed to the address
above or sent to the bank account shown below as you instruct. To ensure proper
crediting of your bank account, please attach a voided check or a deposit slip.
- ------------------------------------------------------------------------------
NAME OF BANK ROUTING NUMBER
- ------------------------------------------------------------------------------
ADDRESS CITY
- ------------------------------------------------------------------------------
STATE ZIP ACCOUNT NUMBER
- ------------------------------------------------------------------------------
Do not write below this line, for Firstar Trust company use only.
E. SYSTEMATIC EXCHANGES
I authorize the monthly exchange of shares/dollars from my account
established by this application as follows. The account registration on the
account being exchanged into is/will be identical to that listed in Section B
of application. In addition, the minimum investment requirement for the
receiving Fund must have been met.
Reynolds Fund (exchange From)
----------------------------------------
Account #
------------------------------------------------------------
Reynolds Fund (exchange to)
-----------------------------------------
Account #
------------------------------------------------------------
I would like to have monthly exchanges between the accounts Or
I would like the following months that I have circled below for my
exchange to take place:
Jan. Feb. Mar. Apr. May June July
Aug. Sept. Oct. Nov. Dec.
Start date (month & year)
--------------------------------
Please indicate the following day of exchange (if not
-------------------
indicated then the 25th of each month will be selected)
Exchange shares in the amount of $ (minimum $100.00)
----------------
- ------------------------------------------------------------------------------
F. SYSTEMATIC WITHDRAWALS
I would like to withdraw from Reynolds Fund name
---------------------
Account Number $ ($100 minimum) as follows:
--------------- -----------
I would like to have payments made to me on or about the day of
-------------
each month, or
I would like to have payments made to me on or about the day
--------------
of the months that I have circled below:
Jan. Feb. Mar. Apr. May. June July
Aug. Sept. Oct. Nov. Dec.
To have payments automatically deposited to your bank account, complete bank
account information below and attach a copy of a voided check or savings deposit
slip. (A check will be mailed to the address from section C if this selection is
not marked).
NAME OF BANK ROUTING NUMBER
- -----------------------------------------------------------------------------
ADDRESS CITY
- -----------------------------------------------------------------------------
STATE ZIP ACCOUNT NUMBER
- ------------------------------------------------------------------------------
G. AUTOMATIC INVESTMENT PLAN
Attach an unsigned, voided check (for checking accounts) or a savings account
deposit slip and complete this form. I would like to establish an Automatic
Investment Plan for the Reynolds Funds as described in the Prospectus. Based on
these instructions, Firstar Trust Company as Transfer Agent for the Reynolds
Funds, will automatically transfer money directly from my bank account to
purchase shares in the Reynolds Fund of my choice. I understand if the
automatic purchase cannot be made due to insufficient funds or stop payment, a
$15 fee will be assessed.
Please indicate the day of debit from bank account (if not
--------
indicated then the 25th of the month will be selected)
Start Date (month & year) Monthly Quarterly Annually
------------
Reynolds Fund name
-----------------------------------------------
Account Number
----------------------------------------------------
Indicate amount to be withdrawn from my bank account $ (minimum $50)
------
I authorize you, via the ACH network, to honor all debit entries through
Firstar Bank on behalf of the Firstar Trust Company. All such Debits are
subject to sufficient collected funds in my account to pay the debit when
presented.
- ------------------------------------------------------------------------------
NAME OF BANK ROUTING #
- ------------------------------------------------------------------------------
ADDRESS CITY
- ------------------------------------------------------------------------------
STATE ZIP ACCOUNT NUMBER
- ------------------------------------------------------------------------------
SIGNATURE OF BANK ACCOUNT OWNER SIGNATURE OF JOINT OWNER (IF ANY)
- ------------------------------------------------------------------------------
H. CHECKWRITING Yes, I would like to establish free check redemption
privileges for the Reynolds Money Market Fund. For further explanation about
checkwriting please refer to page 20 of the prospectus.
By Signing Section I below, I/we authorize Firstar to honor checks drawn by
me on my Reynolds Money Market Fund account and to effect a redemption of
sufficient shares in my account to cover payment of such checks. I understand
that (1) this privilege may be terminated at any time by the Fund or by Firstar
Bank and neither shall incur any liability for loss expense or cost to me for
honoring such checks, or for effecting redemptions to pay such checks, or for
returning checks which have not been accepted; (2) checks drawn on a joint
account will require the signature of one registered owner; (3) share purchases
by check will not be redeemed by checkwriting for 12 calendar days.
- ------------------------------------------------------------------------------
I. Acknowledgment and Signature
I am a citizen of: U.S. Other (Please Specify)
--------------------
I am (we are) of legal age, have received and read the Prospectus(es) and
agree to the terms therein. I (we) certify (1) that the Social Security or
Taxpayer Identification Number provided above is correct and (2) that the IRS
has never notified me (us) that I am (we are) subject to 31% backup withholding.
- ------------------------------------------------------------------------------
SIGNATURE OF OWNER, TRUSTEE, OR CUSTODIAN PLEASE PRINT NAME(AND TITLE, IF
APPLICABLE) DATE (Mo/Dy/Yr)
- ------------------------------------------------------------------------------
SIGNATURE OF JOINT OWNER OR CO-TRUSTEE PLEASE PRINT NAME (AND TITLE, IF
APPLICABLE) DATE (Mo/Dy/Yr)
REYNOLDS FUNDS
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
1-415-461-7860
BOARD OF DIRECTORS
FREDERICK L. REYNOLDS
ROBERT E. SNADER
ROBERT E. STAUDER
INVESTMENT ADVISER
REYNOLDS CAPITAL MANAGEMENT
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-773-9665
1-414-765-4124
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
STATEMENT OF ADDITIONAL INFORMATION January 31, 1996
REYNOLDS FUNDS
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of the Reynolds Funds,
dated January 31, 1996. Requests for copies of the Prospectus should be
made in writing to Reynolds Funds, Inc., Wood Island, Third Floor, 80 East
Sir Francis Drake Boulevard, Larkspur, California 94939, Attention:
Corporate Secretary, or by calling (415) 461-7860. The name of Reynolds
Funds, Inc. was changed from Reynolds Blue Chip Growth Fund, Inc. on
December 13, 1991.
REYNOLDS FUNDS, INC.
Wood Island, Third Floor
80 East Sir Francis Drake Blvd.
Larkspur, California 94939
REYNOLDS FUNDS
Table of Contents
Page No.
Investment Restrictions . . . . . . . . . . . . . . . . . . . . 1
Investment Considerations . . . . . . . . . . . . . . . . . . . 4
Directors and Officers of the Company . . . . . . . . . . . . . 7
Ownership of Management and Principal Shareholders . . . . . . 9
Investment Adviser and Administrator . . . . . . . . . . . . . 11
Determination of Net Asset Value . . . . . . . . . . . . . . . 14
Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . . 14
Allocation of Portfolio Brokerage . . . . . . . . . . . . . . . 15
Performance and Yield Information . . . . . . . . . . . . . . . 16
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder Meetings . . . . . . . . . . . . . . . . . . . . . 21
Independent Accountants . . . . . . . . . . . . . . . . . . . . 23
Description of Securities Ratings . . . . . . . . . . . . . . . 23
Financial Statements . . . . . . . . . . . . . . . . . . . . . 28
No person has been authorized to give any information or to make
any representations other than those contained in this Statement of
Additional Information and the Prospectus dated January 31, 1996 and, if
given or made, such information or representations may not be relied upon
as having been authorized by Reynolds Funds, Inc.
The Statement of Additional Information does not constitute an
offer to sell securities.
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated January 31, 1996 of Reynolds
Funds, Inc. (the "Company") under the caption "INVESTMENT OBJECTIVES AND
POLICIES," the investment objective of the Reynolds Blue Chip Growth Fund
(the "Blue Chip Fund") is to produce long-term growth of capital, with
current income as a secondary objective, by investing in a diversified
portfolio of common stocks issued by well-established growth companies
commonly known as "blue chip" companies; the investment objective of the
Reynolds Opportunity Fund (the "Opportunity Fund") is to produce long-term
growth of capital by investing in a diversified portfolio of common stocks
having above average growth characteristics; the investment objective of
the Reynolds U.S. Government Bond Fund (the "Bond Fund") is to provide a
high level of current income by investing in a diversified portfolio of
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities; and the investment
objective of the Reynolds Money Market Fund (the "Money Market Fund") is
to provide a high level of current income, consistent with liquidity, the
preservation of capital and a stable net asset value, by investing in a
diversified portfolio of high-quality, highly liquid money market
instruments. (The Blue Chip Fund, the Opportunity Fund, the Bond Fund and
the Money Market Fund are sometimes hereinafter referred to as the
"Funds.") Consistent with these investment objectives, each of the Funds
has adopted the following investment restrictions which are matters of
fundamental policy. Each Fund's fundamental investment policies cannot be
changed without approval of the holders of the lesser of: (i) 67% of that
Fund's shares present or represented at a shareholders' meeting at which
the holders of more than 50% of such shares are present or represented; or
(ii) more than 50% of the outstanding shares of that Fund.
1. None of the Funds will concentrate 25% or more of its total
assets in any one industry. This restriction does not apply: (a) for the
Blue Chip Fund and the Money Market Fund only, to obligations issued and
guaranteed by the United States Government or its agencies; (b) for the
Opportunity Fund and the Bond Fund only, to obligations issued and
guaranteed by the United States Government, its agencies or
instrumentalities; and (c) for the Money Market Fund only, to obligations
issued by domestic branches of U.S. banks.
2. Each of the Funds will diversify its assets in different
issuers and will not invest more than 5% of its assets in any one issuer
(except that up to 25% of the value of each Fund's total assets may be
invested without regard to this limitation). This restriction does not
apply: (a) for the Blue Chip Fund and the Money Market Fund only, to
obligations issued or guaranteed by the United States Government or its
agencies; and (b) for the Opportunity Fund and the Bond Fund only, to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
3. None of the Funds will make investments for the purpose of
exercising control or management of any company. As a result, none of the
Funds will invest in securities of any single issuer if, as a result of
such investment, such Fund would own more than 10% of the outstanding
voting securities of such issuer.
4. None of the Funds will borrow money, except for temporary bank
borrowings (not in excess of 20% of the value of such Fund's net assets
taken at acquisition cost or market value, whichever is lower) for
extraordinary or emergency purposes, and none of the Funds will pledge any
of its assets except to secure borrowings and only to an extent not
greater than 10% of the value of such Fund's net assets taken at
acquisition cost or market value, whichever is lower. None of the Funds
will purchase securities while it has any outstanding borrowings.
5. None of the Funds will lend money (except by purchasing
publicly-distributed debt securities or entering into repurchase
agreements, provided that repurchase agreements will not exceed 5% of
either the Blue Chip Fund's or the Opportunity Fund's net assets and
repurchase agreements maturing in more than seven days plus all other
illiquid securities will not exceed 10% of any Fund's total assets) or
will lend its portfolio securities. The Funds will only invest in
repurchase agreements which are fully collateralized and will monitor, on
a continuous basis, the value of the underlying securities to ensure that
the value always equals or exceeds the repurchase price. In addition, the
Company's Board of Directors will monitor, on a continuous basis, the
creditworthiness of the issuing broker, dealer or bank.
6. None of the Funds will purchase securities on margin, purchase
warrants, participate in a joint-trading account, sell securities short,
or write or purchase put or call options; provided, however, that (a) the
Blue Chip Fund's or Opportunity Fund's purchase of stock index options may
account for up to 5% of the applicable Fund's assets, and each of such
Funds may enter into closing transactions; and (b) the Opportunity Fund
may invest up to 5% of its assets in rights and warrants to purchase
equity securities.
7. None of the Funds will act as an underwriter or distributor of
securities other than shares of the Company (except to the extent that any
Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended, in the disposition of restricted
securities).
8. None of the Funds will purchase any interest in any oil, gas
or any other mineral exploration or development program.
9. None of the Funds will purchase or sell real estate or real
estate mortgage loans.
10. None of the Funds will purchase or sell commodities or
commodities contracts, including futures contracts.
11. The Money Market Fund will not purchase common stocks,
preferred stocks, warrants or other equity securities.
Each of the Funds has adopted several other investment restrictions
which are not fundamental policies and which may be changed by the
Company's Board of Directors without shareholder approval. These
additional restrictions are as follows:
1. None of the Funds will invest more than 5% of such Fund's
total assets in securities of issuers which have a record of less than
three (3) years of continuous operation, including the operation of any
predecessor business of a company which came into existence as a result of
a merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor business.
2. None of the Funds will purchase securities of foreign issuers
on foreign markets; however, the Blue Chip Fund may invest not more than
15% of its total assets, and the Opportunity Fund may invest not more than
25% of its total assets, in securities of foreign issuers in the form of
American Depository Receipts ("ADRs") and the Money Market Fund may invest
not more than 25% of its total assets in dollar-denominated obligations of
foreign banks and foreign branches of domestic banks.
3. None of the Funds will purchase securities of other investment
companies except (a) as part of a plan of merger, consolidation or
reorganization approved by the shareholders of such Fund or (b) securities
of registered closed-end investment companies on the open market where no
commission or profit results, other than the usual and customary broker's
commission, and where no more than 5% of the value of such Fund's total
assets would be invested in such securities. All assets of any Fund
invested in securities of registered closed-end investment companies will
be included in the daily net assets of such Fund for purposes of
calculating the monthly advisory fee payable to the Adviser. In such
event, shareholders of the applicable Fund will in effect pay two advisory
fees on the assets invested in closed-end investment companies.
4. None of the Funds will acquire or retain any security issued
by a company, an officer or director of which is an officer or director of
the Company or an officer, director or other affiliated person of the
Funds' investment adviser.
5. None of the Funds will acquire or retain any security issued
by a company if any of the directors or officers of the Company or
directors, officers or other affiliated persons of the Funds' investment
adviser beneficially own more than 1/2% of such company's securities and
all of the above persons owning more than 1/2% own together more than 5%
of its securities.
6. Neither the Bond Fund nor the Opportunity Fund will invest
more than 2% of its net assets in warrants not listed on either the New
York Stock Exchange or the American Stock Exchange.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions are adhered to at the time an investment is
made, and such percentage subsequently changes as a result of changing
market values or some similar event, no violation of the Funds'
fundamental restrictions will be deemed to have occurred. Any changes in
the Funds' investment restrictions made by the Board of Directors of the
Company will be communicated to shareholders of the appropriate Fund(s)
prior to their implementation.
INVESTMENT CONSIDERATIONS
As set forth above under the caption "INVESTMENT RESTRICTIONS,"
none of the Funds (subject to certain exceptions) may concentrate 25% or
more of its total assets in any one industry. The Company will use the
industry classifications of The Value Line Investment Survey ("Value
Line") for purposes of determining whether a Fund has concentrated its
investments in a particular industry.
As set forth above under the caption "INVESTMENT RESTRICTIONS," the
Money Market Fund may concentrate more than 25% of its total assets in
obligations issued by domestic branches of U.S. banks. Domestic
commercial banks organized under Federal law are supervised and examined
by the Comptroller of the Currency and are required to be members of the
Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In addition, state
banks whose certificates of deposit ("CDs") may be purchased by the Money
Market Fund are insured by the FDIC (although such insurance may not be of
material benefit to the Money Market Fund, depending upon the principal
amount of the CDs of each bank held by such Fund) and are subject to
Federal examination and to a substantial body of Federal law and
regulation. As a result of Federal and state laws and regulations,
domestic branches of domestic banks, among other things, are generally
required to maintain specified levels of reserves, and are subject to
other supervision and regulation designed to promote financial soundness.
As set forth above under the caption "INVESTMENT RESTRICTIONS," the
Blue Chip Fund and the Opportunity Fund have the limited ability to
purchase stock index options and American Depository Receipts ("ADRs").
An option on a stock index gives the holder (buyer) the right to receive
an amount of cash equal to the product obtained by multiplying the amount
by which the closing price of the stock exceeds, in the case of a call
option, or is less than, in the case of a put option, the exercise price
of the option expressed in dollars times a specified multiple. A stock
index fluctuates with changes in the market values of the stocks included
in the index. For example, some stock index options are based on a broad
market index such as the S&P 500 or the Value Line Composite Index, or a
narrower market index such as the S&P 100. Indexes may also be based on
an industry or market segment such as the AMEX Oil and Gas Index or the
Computer and Business Equipment Index. Options on stock indexes are
currently traded on the following exchanges: The Chicago Board Options
Exchange, New York Stock Exchange, American Stock Exchange, Pacific Stock
Exchange and the Philadelphia Stock Exchange.
Put options may be purchased by either the Blue Chip Fund or the
Opportunity Fund in order to hedge against an anticipated decline in stock
market prices that might adversely affect the value of such Fund's
portfolio securities. Call options may be purchased by either the Blue
Chip Fund or the Opportunity Fund in order to participate in an
anticipated increase in stock market prices. Each of the Blue Chip Fund
and the Opportunity Fund will sell put and call options only to close out
positions in put and call options, as the case may be, which such Fund has
purchased.
The ability of either the Blue Chip Fund or the Opportunity Fund
effectively to hedge all or a portion of the securities in its portfolio
in anticipation of or during a market decline through transactions in put
options on stock indexes depends on the degree to which price movements in
the underlying index correlate with the price movements in such Fund's
portfolio securities. Inasmuch as the portfolio securities of either the
Blue Chip Fund or the Opportunity Fund will not duplicate the components
of an index, the correlation will not be perfect. Consequently, the
applicable Fund will bear the risk that the prices of its portfolio
securities being hedged will not move in the same amount as the prices of
such Fund's put options on the stock indexes. It is also possible that
there may be a negative correlation between the index and such Fund's
portfolio securities which would result in a loss on both such portfolio
securities and the options on stock indexes acquired by such Fund.
All options purchased by either the Blue Chip Fund or the
Opportunity Fund will be listed and traded on an exchange. However, there
is no assurance that a liquid secondary market on an options exchange will
exist for any particular option, or at any particular time, and for some
options no secondary market may exist. If either the Blue Chip Fund or
the Opportunity Fund is unable to effect a closing sale transaction with
respect to options that it has purchased, it would have to exercise the
options in order to realize any profit.
The hours of trading for options may not conform to the hours
during which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
markets that cannot be reflected in the options markets. The purchase of
options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary
portfolio securities transactions. The purchase of stock index options
involves the risk that the premium and transaction costs paid by either
the Blue Chip Fund or the Opportunity Fund in purchasing an option will be
lost as a result of unanticipated movements (i.e., upward for a put option
and downward for a call option) in prices of the securities comprising the
stock index on which the option is based. In the event of such
unanticipated movements in prices, the applicable Fund would be better off
if it had not hedged.
The premium paid by the Blue Chip Fund or the Opportunity Fund when
purchasing an option will be recorded as an asset in such Fund's statement
of assets and liabilities. This asset will be adjusted daily to the
option's current market value, which will be the latest sale price at the
time at which the net asset value per share of such Fund is computed, or
in the absence of such sale, the latest bid price. The asset will be
extinguished upon expiration of the option, the selling of an identical
option in a closing transaction or upon the exercise of the option.
ADRs are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer.
ADRs may be listed on a national securities exchange or may trade in the
over-the-counter market. ADR prices are denominated in United States
dollars; the underlying security may be denominated in a foreign currency.
The underlying security may be subject to foreign government taxes which
would reduce the yield on such securities. Investments in such securities
also involve certain inherent risks, such as political or economic
instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition
of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are
not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to domestic companies. With
respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, or diplomatic developments which
could affect investment in those countries.
As set forth above under the caption "INVESTMENT RESTRICTIONS," the
Opportunity Fund also has the limited ability to purchase rights and
warrants to purchase equity securities. Investments in rights and
warrants are pure speculation in that they have no voting rights, pay no
dividends and have no rights with respect to the assets of the corporation
issuing them. Rights and warrants basically are options to purchase
equity securities at a specific price valid for a specific period of time.
They do not represent ownership of the securities, but only the right to
buy them. Rights and warrants differ from call options in that rights and
warrants are issued by the issuer of the security which may be purchased
on their exercise, whereas call options may be written or issued by
anyone. The prices of rights (if traded independently) and warrants do
not necessarily move parallel to the prices of the underlying securities.
DIRECTORS AND OFFICERS OF THE COMPANY
The name, address, principal occupation(s) during the past five (5)
years and other information with respect to each of the directors and
officers of the Company are as follows:
FREDERICK L. REYNOLDS*
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
(CHAIRMAN, PRESIDENT, TREASURER AND A DIRECTOR OF THE COMPANY)
Mr. Reynolds, age 53, is the sole proprietor of Reynolds Capital
Management, an investment advisory firm organized in April, 1985.
* Mr. Reynolds is the only director who is an "interested person" of the
Company as that term is defined in the Investment Company Act of 1940.
Messrs. Snader and Stauder are not "interested persons" of the Company.
ROBERT E. SNADER
475 Gate Five Road
Sausalito, California 94965
(A DIRECTOR OF THE COMPANY)
Mr. Snader, age 55, has been the President of R.E. Snader &
Associates, a distributor of professional, industrial and broadcast video
and computer/video equipment, since May 1975. He presently serves on the
board of directors of The San Francisco Film/Tape Council.
ROBERT E. STAUDER
5 Marsh Drive
Mill Valley, California 94941
(A DIRECTOR OF THE COMPANY)
Mr. Stauder, age 65, has been a principal of Robinson Mills +
Williams, an architectural and interior design firm, since 1991. He is
also a member of the Board of Directors of such firm. Prior to joining
that firm, Mr. Stauder was associated with Hellmuth Obata & Kassabaum,
Inc., an architectural and engineering firm, for over thirty years. Mr.
Stauder served as Vice Chairman of Hellmuth Obata & Kassabaum, Inc. from
1986 to 1991. Prior to assuming that position, he was a Senior Vice
President of that firm from 1968 to 1986. He was also a member of the
Board of Directors of that firm from 1981 to 1991. Mr. Stauder is a past
member of the Board of Directors of Architects and Engineers Insurance
Company, a risk retention insurance company.
CAMILLE F. WILDES
225 East Mason Street
Milwaukee, Wisconsin 53202
(SECRETARY OF THE COMPANY)
Ms. Wildes, age 43, is a Vice President of Fiduciary Management,
Inc., the Funds' Administrator, and has been employed by such firm in
various capacities since December, 1982.
The Company's standard method of compensating directors is to pay
each director who is not an interested person of the Company a fee of $550
for each meeting of the Board of Directors attended. During the fiscal
year ended September 30, 1995 the Company paid a total of $4,400 in
directors' fees to such directors.
The table below sets forth the compensation paid by the Fund to
each of the directors of the Fund during the fiscal year ended September
30, 1995:
COMPENSATION TABLE
Pension or
Retirement
Benefits Estimated Total
Accrued Annual Compensation
Aggregate As Part of Benefits from Company
Compensation Company Upon Paid to
Name of Person From Company Expenses Retirement Directors
Frederick L. $0 $0 $0 $0
Reynolds
Robert E. Snader $2,200 $0 $0 $2,200
Robert E. Stauder $2,200 $0 $0 $2,200
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Set forth below are the names and addresses of all holders of each
Fund's shares who as of December 31, 1995 beneficially owned more than 5%
of such Fund's then outstanding shares, as well as the number of shares of
such Fund beneficially owned by all officers and directors of the Company
as a group.
Reynolds Blue Chip Growth Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
Leroy E. Hood & Valerie
L. Hood, Joint Tenants 89,693 5.5%
5534 55th Avenue NE
Seattle, WA 98105
Officers and Directors as a Group
(4 Persons) 64,026(1) 3.9%
Reynolds Opportunity Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
Frederick L. Reynolds 229,915(1) 27.5%
Wood Island, Third Floor
80 East Sir Francis Drake Blvd.
Larkspur, CA 94939
Leroy E. Hood & Valerie
L. Hood, Joint Tenants 56,204 6.7%
5534 55th Avenue NE
Seattle, WA 98105
Allen B. Cooper
334 San Rafael Avenue 42,043 5.0%
Belvedere, CA 94920
Officers and Directors as a Group
(4 Persons) 248,962(1) 29.8%
Reynolds U.S. Government Bond Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
The Joel W. Renbaum, M.D., Inc. 73,324 27.9%
Profit-Sharing Trust
1145 Bush Street
San Francisco, CA 94109
William A. Gleason & 19,710 7.5%
Victor E. Rice, Trustees
FBO Forest Resources
Profit-Sharing Plan
200 Tamal Plaza #200
Corte Madera, CA 94925
Firstar Trust Company, Custodian
Jorgen Carlsen IRA 17,867 6.8%
2 College Ct.
Larkspur, CA 94939
Trustees, Albert O.J. Landucci
DDS Inc. Profit Sharing Trust 13,987 5.3%
476 West 25th Avenue
San Mateo, California 94403
Officers and Directors as a Group
(4 Persons) 1,231 0.5%
Reynolds Money Market Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
Thomas H. Tornga 1,256,414(2) 21.4%
c/o W.G. Swanson Inc.
131 Stuart Street
Suite 205
San Francisco, California 94105
William A. Gleason &
Victor E. Rice, Trustees 1,089,424 18.6%
FBO Forest Resources
Profit-Sharing Plan
200 Tamal Plaza #200
Corte Madera, CA 94925
Lynn M. Sedway
Three Embarcadero Center #1150 452,249(3) 7.7%
San Francisco, CA 94111
Officers and Directors as a Group
(4 persons) 8,540 0.1%
___________________
(1) Includes shares held in the Reynolds Capital Management
401(k) plan and custodial accounts for minor children.
(2) Includes 500,000 shares held in the Thomas H. Tornga, Jr.
Generation Skipping Trust.
(3) Includes shares held in joint tenancy with spouse and trusts or
custodial accounts for minor children.
At December 31, 1995, Charles Schwab & Co., Inc., 101 Montgomery Street,
San Francisco, California 94104, owned of record 243,614 shares of the
Blue Chip Fund, or 14.9% of such Fund's then outstanding shares. All of
the shares owned by Charles Schwab & Co., Inc. were owned of record only.
By virtue of their respective stock ownership, Frederick L.
Reynolds is deemed to control the Opportunity Fund and The Joel W.
Renbaum, M.D., Inc. Profit-Sharing Trust is deemed to control the Bond
Fund. In combination with the holder(s) of more than 22.5% of the
Opportunity Fund's outstanding shares, Mr. Reynolds owns sufficient shares
of the Opportunity Fund to approve or disapprove all matters (other than
the election of directors of the Company or the approval of auditors)
brought before such Fund's shareholders. Similarly, the Joel W. Renbaum,
M.D., Inc. Profit-Sharing Trust owns sufficient shares of the Bond Fund to
approve or disapprove all matters (other than the election of directors of
the Company or the approval of auditors) brought before such Fund's
shareholders. The Blue Chip Fund, the Money Market Fund and the Company
are not controlled by any person, and the Company does not control any
person.
INVESTMENT ADVISER AND ADMINISTRATOR
As set forth in the Prospectus under the caption "MANAGEMENT OF THE
FUNDS," the investment adviser to the Funds is Reynolds Capital Management
(Frederick L. Reynolds, sole proprietor) (the "Adviser"). Pursuant to
investment advisory agreements entered into between the respective Funds
and the Adviser (the "Advisory Agreements"), the Adviser furnishes
continuous investment advisory services to the Funds. During the fiscal
years ended September 30, 1995, 1994 and 1993, the Blue Chip Fund paid the
Adviser advisory fees of $251,568, $321,502 and $423,417, respectively.
During the fiscal years ended September 30, 1995, 1994 and 1993, the
Adviser waived 100% of the advisory fees of $16,033, $23,533 and $37,262,
respectively, otherwise payable by the Money Market Fund. During the
fiscal years ended September 30, 1995, 1994 and 1993 the Opportunity Fund
paid the Adviser advisory fees of $80,078, $47,600 and $29,827,
respectively. During the fiscal years ended September 30, 1995, 1994 and
1993, the Bond Fund paid the Adviser advisory fees of $0, $5,080 and
$2,239, respectively. The Adviser waived advisory fees of $22,543,
$35,987 and $36,023 otherwise payable by the Bond Fund during such years,
respectively.
The Funds pay all of their own expenses, including, without
limitation, the cost of preparing and printing their registration
statements required under the Securities Act of 1933 and the Investment
Company Act of 1940 and any amendments thereto, the expense of registering
their shares with the Securities and Exchange Commission and in the
various states, the printing and distribution costs of prospectuses mailed
to existing shareholders, reports to shareholders, reports to government
authorities and proxy statements, fees paid to directors who are not
interested persons of the Adviser, interest charges, taxes, legal
expenses, association membership dues, auditing services, insurance
premiums, brokerage commissions and expenses in connection with portfolio
transactions, fees and expenses of the custodian of the Funds' assets,
printing and mailing expenses and charges and expenses of dividend
disbursing agents, registrars and stock transfer agents.
The Adviser has undertaken to reimburse each Fund to the extent
that the aggregate annual operating expenses, including investment
advisory fees and administration fees but excluding interest, taxes,
brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities, and extraordinary items, exceed
that percentage of the average net assets of such Fund for such year, as
determined by valuations made as of the close of each business day of the
year, which is the most restrictive percentage provided by the state laws
of the various states in which the shares of such Fund are qualified for
sale or, if the states in which the shares of such Fund are qualified for
sale impose no such restrictions, 2%. Although state requirements are
subject to change, the percentage currently applicable to each of the
Funds is 2-1/2% on the first $30,000,000 of its average net assets, 2% on
the next $70,000,000 of its average net assets and 1-1/2% on net assets in
excess of $100,000,000. Each Fund monitors its expense ratio on a monthly
basis. If the accrued amount of the expenses of a Fund exceeds the
expense limitation, such Fund creates an account receivable from the
Adviser for the amount of such excess. In such a situation the monthly
payment of the Adviser's fee will be reduced by the amount of such excess,
subject to adjustment month by month during the balance of such Fund's
fiscal year if accrued expenses thereafter fall below this limit. No
expense reimbursement was required for the Blue Chip Fund during the
fiscal years ended September 30, 1995, September 30, 1994 or September 30,
1993. Notwithstanding the most restrictive applicable expense limitation
of state securities commissions described above, during the fiscal years
ended September 30, 1995, 1994 and 1993, the Adviser voluntarily
reimbursed the Money Market Fund for expenses in excess of 0.65%, 0.63%
and 0.67%, respectively, of such Fund's average net assets. The Adviser
reimbursed the Money Market Fund $38,567, $40,823 and $40,650,
respectively (including the waiver of its advisory fee), for excess
expenses during each period. During the fiscal years ended September 30,
1995, 1994 and 1993, the Adviser reimbursed (including the waiver of their
advisory fees) the Opportunity Fund $0, $2,872 and $12,132, respectively,
and the Bond Fund $33,236, $35,987 and $36,023, respectively, for excess
expenses during such periods.
The Advisory Agreement between the Adviser and each of the Blue
Chip Fund, the Opportunity Fund, the Money Market Fund and the Bond Fund
will remain in effect as long as its continuance is specifically approved
at least annually by (i) the Board of Directors of the Company, or by the
vote of a majority (as defined in the Investment Company Act of 1940) of
the outstanding shares of the applicable Fund, and (ii) by the vote of a
majority of the directors of the Company who are not parties to the
Advisory Agreements or interested persons of the Adviser, cast in person
at a meeting called for the purpose of voting on such approval. Each of
the Advisory Agreements provides that it may be terminated at any time
without the payment of any penalty, by the Board of Directors of the
Company or by vote of the majority of the shares of the applicable Fund,
on sixty (60) days' written notice to the Adviser, and by the Adviser on
the same notice to the applicable Fund, and that it shall be automatically
terminated if it is assigned.
As set forth in the Prospectus under the caption "MANAGEMENT OF THE
FUNDS," the administrator to each of the Funds is Fiduciary Management,
Inc. (the "Administrator"). The administration agreement entered into
between each of the Funds and the Administrator (the "Administration
Agreements") will remain in effect until terminated by either party. Each
of the Administration Agreements may be terminated at any time, without
the payment of any penalty, by the Board of Directors of the Company upon
the giving of ninety (90) days' written notice to the Administrator, or by
the Administrator upon the giving of ninety (90) days' written notice to
the applicable Fund. During the fiscal years ended September 30, 1995,
1994 and 1993, the Blue Chip Fund paid the Administrator $50,313, $60,586
and $72,340, respectively, pursuant to its Administration Agreement.
During the fiscal years ended September 30, 1995, 1994 and 1993, the Money
Market Fund paid the Administrator $3,207, $4,706 and $7,690,
respectively, pursuant to its Administration Agreement. During the fiscal
years ended September 30, 1995, 1994 and 1993, the Opportunity Fund paid
the Administrator $17,363, $9,520 and $5,966, respectively, and the Bond
Fund paid the Administrator $3,006, $5,476 and $5,173, respectively,
pursuant to their Administrative Agreements.
The Advisory Agreements and the Administration Agreements provide
that the Adviser and Administrator, as the case may be, shall not be
liable to any of the Funds or the Company's shareholders for anything
other than willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations or duties. The Advisory Agreements and the
Administration Agreements also provide that the Adviser and Administrator,
as the case may be, and their officers, directors and employees may engage
in other businesses, devote time and attention to any other business
whether of a similar or dissimilar nature, and render services to others.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "DETERMINATION OF
NET ASSET VALUE," the net asset value of each Fund will be determined
(except as otherwise noted in the succeeding paragraph) as of the close of
regular trading (currently 4:00 P.M. Eastern time) on each day the New
York Stock Exchange is open for trading. The New York Stock Exchange is
open for trading Monday through Friday except New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays fall on a Saturday, the New York Stock Exchange
will not be open for trading on the preceding Friday and when any such
holiday falls on a Sunday, the New York Stock Exchange will not be open
for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
Notwithstanding the preceding paragraph, the net asset value of the
Bond Fund and the Money Market Fund also will not be determined on days
when the Federal Reserve is closed. In addition to the days on which the
New York Stock Exchange is not open for trading, the Federal Reserve is
closed on Martin Luther King, Jr. Day, Columbus Day and Veterans Day.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder who owns shares of any Fund worth at least $10,000 at
the current net asset value may, by completing an application included as
part of the purchase application, create a Systematic Withdrawal Plan from
which a fixed sum will be paid to the shareholder at regular intervals.
To establish the Systematic Withdrawal Plan, the shareholder deposits
shares of the applicable Fund with the Company and appoints it as agent to
effect redemptions of shares of such Fund held in the account for the
purpose of making monthly or quarterly withdrawal payments of a fixed
amount to the shareholder out of the account.
The minimum amount of a withdrawal payment is $100. These payments
will be made from the proceeds of periodic redemption of shares in the
account at net asset value. Redemptions will be made monthly or quarterly
on any day a shareholder chooses. If that day is a weekend or holiday,
such redemption will be made on the next business day. Establishment of a
Systematic Withdrawal Plan constitutes an election by the shareholder to
reinvest in additional shares of the applicable Fund, at net asset value,
all income dividends and capital gains distributions payable by such Fund
on shares held in such account, and shares so acquired will be added to
such account. The shareholder may deposit additional Fund shares in his
account at any time.
Withdrawal payments cannot be considered as yield or income on the
shareholder's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of
the disbursements requested, and the fluctuation in the value of the
applicable Fund's portfolio, redemptions for the purpose of making such
disbursements may reduce or even exhaust the shareholder's account.
The shareholder may vary the amount or frequency of withdrawal
payments, temporarily discontinue them, or change the designated payee or
payee's address, by notifying First Wisconsin Trust Company in writing
prior to the fifteenth day of the month preceding the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Funds are made by the
Adviser subject to review by the Company's Board of Directors. In placing
purchase and sale orders for portfolio securities for each Fund, it is the
policy of the Adviser to seek the best execution of orders at the most
favorable price in light of the overall quality of brokerage and research
services provided, as described in this and the following paragraph. In
selecting brokers to effect portfolio transactions, the determination of
what is expected to result in best execution at the most favorable price
involves a number of largely judgmental considerations. Among these are
the Adviser's evaluation of the broker's efficiency in executing and
clearing transactions, block trading capability (including the broker's
willingness to position securities) and the broker's financial strength
and stability. The most favorable price to a Fund means the best net
price without regard to the mix between purchase or sale price and
commission, if any. Over-the-counter securities are generally purchased
and sold directly with principal market makers who retain the difference
in their cost in the security and its selling price. In some instances,
the Adviser feels that better prices are available from non-principal
market makers who are paid commissions directly. None of the Funds
intends to market its shares through intermediary broker-dealers.
However, each of the Funds (except the Money Market Fund) may place
portfolio orders with broker-dealers who recommend the purchase of such
Fund's shares to clients (if the Adviser believes the commissions and
transaction quality are comparable to that available from other brokers)
and may allocate portfolio brokerage on that basis.
In allocating brokerage business for the Funds, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreements. Other clients of the Adviser
may indirectly benefit from the availability of these services to the
Adviser, and the Funds may indirectly benefit from services available to
the Adviser as a result of transactions for other clients. The Advisory
Agreements provide that the Adviser may cause the Funds to pay a broker
which provides brokerage and research services to the Adviser a commission
for effecting a securities transaction in excess of the amount another
broker would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Funds and the
other accounts as to which he exercises investment discretion. Brokerage
commissions paid by the Blue Chip Fund during the fiscal years ended
September 30, 1995, 1994 and 1993, respectively, totaled $42,032 on
transactions having a total market value of $27,195,962, $89,097 on
transactions having a total market value of $40,137,091 and $82,400 on
transactions having a total market value of $32,787,330. During the
fiscal years ended September 30, 1995, 1994 and 1993, the Money Market
Fund did not pay any brokerage commissions. During the fiscal years ended
September 30, 1995, 1994 and 1993, the Opportunity Fund paid brokerage
commissions of $14,803 on transactions having a total market value of
$8,049,724, $8,222 on transactions having a total market value of
$3,611,811 and $8,525 on transactions having a total market value of
$5,837,136, respectively. During the fiscal years ended September 30,
1995, 1994 and 1993, the Bond Fund paid brokerage commissions of $0 on
transactions having a total market value of $1,483,557, $70 on
transactions having a total market value of $3,419,961 and $245 on
transactions having a total market value of $3,560,207, respectively. All
of the brokers to whom commissions were paid provided research services to
the Adviser.
PERFORMANCE AND YIELD INFORMATION
For illustrative purposes only, the Blue Chip Fund may use the
names of companies in its advertising literature as examples of blue chip
companies. Such companies will only be mentioned if their securities
reflect the overall quality and other characteristics of the Blue Chip
Fund's portfolio and are held by such Fund as of the date of publication
of the advertising literature. However, due to the delay often associated
with the dissemination of advertising literature and to the possibility of
changing circumstances in the interim, these companies will not
necessarily reflect the portfolio composition of the Blue Chip Fund at any
time after such date of publication and the mention of their names will
not constitute a recommendation to purchase their stock.
Any total rate of return quotation for the Blue Chip Fund, the
Opportunity Fund or the Bond Fund will be for a period of three or more
months and will assume the reinvestment of all dividends and capital gains
distributions which were made by such Fund during that period. Any period
total rate of return quotation of the Blue Chip Fund, the Opportunity Fund
or the Bond Fund will be calculated by dividing the net change in value of
a hypothetical shareholder account established by an initial payment of
$1,000 at the beginning of the period by 1,000. The net change in the
value of a shareholder account is determined by subtracting $1,000 from
the product obtained by multiplying the net asset value per share at the
end of the period by the sum obtained by adding (A) the number of shares
purchased at the beginning of the period plus (B) the number of shares
purchased during the period with reinvested dividends and distributions.
Any average annual compounded total rate of return quotation of the Blue
Chip Fund, the Opportunity Fund or the Bond Fund will be calculated by
dividing the redeemable value at the end of the period (i.e., the product
referred to in the preceding sentence) by $1,000. A root equal to the
period, measured in years, in question is then determined and 1 is
subtracted from such root to determine the average annual compounded total
rate of return.
The foregoing computation may also be expressed by the following
formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the stated periods at
the end of the stated periods.
The results below show the value of an assumed initial investment
in the Blue Chip Fund of $10,000 made on August 12, 1988 through December
31, 1995, assuming reinvestment of all dividends and distributions.
Value of
$10,000 Cumulative
December 31, Investment % Change
1988 $10,132 +1.3%
1989 12,227 +22.3
1990 12,237 +22.4
1991 16,626 +66.3
1992 16,645 +66.5
1993 15,775 +57.8
1994 15,685 +56.9
1995 20,840 +108.4
The results below show the value of an assumed initial investment
in the Opportunity Fund of $10,000 made on January 30, 1992 through
December 31, 1995, assuming reinvestment of all dividends and
distributions.
Value of
$10,000 Cumulative
December 31, Investment % Change
1992 $ 10,051 +0.5%
1993 10,061 +0.6
1994 10,231 +2.3
1995 13,942 +39.4
The foregoing performance results are based on historical earnings
and should not be considered as representative of the performance of the
Blue Chip Fund or the Opportunity Fund in the future. Such performance
results also reflect reimbursements made by the Adviser during the fiscal
year ended September 30, 1989 to keep the Blue Chip Fund's total fund
operating expenses at or below 2.0% and during the fiscal years ended
September 30, 1994 and 1993 and the period from January 30, 1992 to
September 30, 1992 to keep the Opportunity Fund's total fund operating
expenses at or below 2.0%. An investment in the Blue Chip Fund or the
Opportunity Fund will fluctuate in value and at redemption its value may
be more or less than the initial investment.
The Bond Fund may cite its yield in advertisements, sales
literature or information to shareholders. The Bond Fund's yield is based
on a 30-day period and is computed by dividing the net investment income
per share earned during the period by the net asset value per share on the
last day of the period, according to the following formula:
a-b 6
YIELD = 2[(---- +1) -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the net asset value per share on the last day of the
period.
The Bond Fund's yield for the thirty days ended September 30, 1995 was
5.08%. Yield fluctuations may reflect changes in the Bond Fund's net
income, and portfolio changes resulting from net purchases or net
redemptions of the Bond Fund's shares may affect the yield. Accordingly,
the Bond Fund's yield may vary from day to day, and the yield stated for a
particular past period is not necessarily representative of its future
yield. The Bond Fund's yield is not guaranteed and its principal is not
insured.
The Money Market Fund may quote a "Yield" or "Effective Yield" from
time to time. The Yield is an annualized yield based on the actual total
return for a seven-day period. The Effective Yield is an annualized yield
based on a compounding of the Yield. These yields are each computed by
first determining the "Net Change in Account Value" for a hypothetical
account having a share balance of one share at the beginning of a
seven-day period ("Beginning Account Value"), excluding capital changes.
The Net Change in Account Value will always equal the total dividends
declared with respect to the account.
The yields are then computed as follows:
Net Change in Account Value
Yield = ___________________________ x 365/7
Beginning Account Value
Effective Yield = (1 + Total Dividend for 7 days) 365/7 - 1
The Money Market Fund's Yield and Effective Yield for the seven-day
period ended September 30, 1995 were 4.90% and 5.02%, respectively. Yield
fluctuations may reflect changes in the Money Market Fund's net income.
Additionally, portfolio changes resulting from net purchases or net
redemptions of such Fund's shares may affect the yield. Accordingly, the
Money Market Fund's yield may vary from day to day, and the yield stated
for a particular past period is not necessarily representative of future
yield. Since the Money Market Fund uses the amortized cost method of net
asset value computation, it does not anticipate any change in yield
resulting from any unrealized gains or losses or unrealized appreciation
or depreciation not reflected in the yield computation, or change in net
asset value during the period used for computing yield. If any of these
conditions should occur, yield quotations would be suspended. The Money
Market Fund's yield is not guaranteed, and its principal is not insured.
However, the Money Market Fund uses its best efforts to maintain its net
asset value at $1.00 per share.
Yield information may be useful in reviewing the performance of the
Money Market Fund and for providing a basis for comparison with other
investment alternatives. However, since net investment income of the
Money Market Fund changes in response to fluctuations in interest rates
and such Fund's expenses, any given yield quotation should not be
considered representative of its yield for any future period. An investor
should also be aware that there are differences in investments other than
yield.
Furthermore, the Money Market Fund's yield will be affected if it
experiences a net inflow of new money which is invested at interest rates
different from those being earned on its then-current investments. An
investor's principal in the Money Market Fund and such Fund's return are
not guaranteed.
CUSTODIAN
Firstar Trust Company, Mutual Fund Services, 3rd Floor, 615 East
Michigan Street, Milwaukee, Wisconsin 53202, acts as custodian for the
Funds. As such, Firstar Trust Company holds all securities and cash of
the Funds, delivers and receives payment for securities sold, receives and
pays for securities purchased, collects income from investments and
performs other duties, all as directed by officers of the Company.
Firstar Trust Company does not exercise any supervisory function over the
management of the Funds, the purchase and sale of securities or the
payment of distributions to shareholders. Firstar Trust Company also acts
as the Funds' transfer agents and dividend disbursing agents.
TAXES
As set forth in the Prospectus under the caption "DIVIDENDS,
DISTRIBUTIONS AND TAXES," each of the Fund's will endeavor to qualify
annually for and elect tax treatment applicable to a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986.
Dividends from each Fund's net investment income and distributions
from each Fund's net realized capital gains are taxable to shareholders as
ordinary income, whether received in cash or in additional shares. The
70% dividends-received deduction for corporations may apply to such
dividends and distributions of each of the Funds (except the Money Market
Fund), subject to proportionate reductions if the aggregate dividends
received by a Fund from domestic corporations in any year are less than
100% of such Fund's gross income.
Any dividend or capital gains distribution paid shortly after a
purchase of shares will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares immediately after a
dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the
shareholder even though it results in a return of capital to him.
Shareholders may realize a capital gain or capital loss in any year
in which they redeem shares. The gain or loss is the difference between
the shareholder's basis (cost) and the redemption price of the shares
redeemed.
Each Fund may be required to withhold Federal income tax at a rate
of 31% ("backup withholding") from dividend payments and redemption
proceeds if a shareholder fails to furnish such Fund with his social
security number or other tax identification number and certify under
penalty of perjury that such number is correct and that he is not subject
to backup withholding due to the underreporting of income. The
certification form is included as part of the share purchase application
and should be completed when the account is opened.
SHAREHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Company, to operate without an annual meeting of
shareholders under specified circumstances if an annual meeting is not
required by the Investment Company Act of 1940. The Company has adopted
the appropriate provisions in its Bylaws and may not, at its discretion,
hold an annual meeting of shareholders in any year in which the election
of directors is not required to be acted on by shareholders under the
Investment Company Act of 1940.
The Company's Bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Company shall promptly call a special
meeting of shareholders for the purpose of voting upon the question of
removal of any director. Whenever ten or more shareholders of record who
have been such for at least six months preceding the date of application,
and who hold in the aggregate either shares having a net asset value of at
least $25,000 or at least one percent (1%) of the total outstanding
shares, whichever is less, shall apply to the corporation's Secretary in
writing, stating that they wish to communicate with other shareholders
with a view to obtaining signatures to a request for a meeting as
described above and accompanied by a form of communication and request
which they wish to transmit, the Secretary shall within five business days
after such application either: (1) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the
books of the Company; or (2) inform such applicants as to the approximate
number of shareholders of record and the approximate cost of mailing to
them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause
(2) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all shareholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may,
and if demanded by the Board of Directors or by such applicants shall,
enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all shareholders with reasonable promptness
after the entry of such order and the renewal of such tender.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202 currently serves as the independent accountants
for the Company and has so served since the fiscal year ended September
30, 1989.
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "INVESTMENT OBJECTIVES
AND POLICIES," the Blue Chip Fund, the Opportunity Fund and the Bond Fund
may invest in publicly-distributed debt securities assigned one of the
highest two (2) ratings of either Standard & Poor's Corporation ("Standard
& Poor's") or Moody's Investors Service, Inc. ("Moody's"). Each of such
Funds may also invest in commercial paper and commercial paper master
notes rated A-1 or better by Standard & Poor's or Prime-1 by Moody's. As
also set forth therein, the Money Market Fund may purchase high-quality
commercial paper issued by corporations rated (at the time of purchase) in
the highest category of at least two nationally recognized rating agencies
(or of one agency if only one agency has issued a rating) (the "required
rating agencies"), and high-quality corporate bonds with remaining
maturities of thirteen months or less which are rated (at the time of
purchase) in the highest category by the required rating agencies. The
required rating agencies may consist of Standard & Poor's, Moody's, Duff &
Phelps, Inc. ("D&P"), Fitch Investors Service, Inc. ("Fitch") and Thompson
Bankwatch ("TBW"). A brief description of the ratings symbols and their
meanings follows.
Standard & Poor's Debt Ratings. A Standard & Poor's corporate debt
rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers of lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform any audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in,
or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
AAA - Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the
higher rated issues only in small degree.
Moody's Bond Ratings.
Aaa - Bonds which are rated Aaa are judged to be the
best quality. They carry the smallest degree of
investment risk and are generally referred to as
"gilt edged." Interest payments are protected by
a large, or by an exceptionally stable, margin,
and principal is secure. While the various
protective elements are likely to change, such
changes as can be visualized are most unlikely to
impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are generally known as
high-grade bonds. They are rated lower than the
best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude,
or there may be other elements present which make
the long-term risks appear somewhat larger than in
Aaa securities.
Moody's applies numerical modifiers 1,2 and 3 in each of the foregoing
generic rating classifications. The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the
company ranks in the lower end of its generic rating category.
Duff & Phelps, Inc. Bond Ratings. D&P ratings concern only credit
quality (i.e., the likelihood of timely payment of principal and
interest). They are not affected by market conditions. All ratings are
regularly reviewed by the Credit Rating Committee at quarterly intervals,
or more frequently, if required.
Rating determination is a matter of judgment based on the qualitative
and quantitative factors, which vary according to the basic economic and
financial characteristics of the industry.
Ratings of fixed income securities maturing beyond one year are
expressed numerically in a range of 1 (highest-grade) to 17 (lowest-
grade). The first 10 ratings fall within the definition of investment-
grade securities, according to typical classifications of bank and
insurance supervisory authorities. Ratings 11 to 17 are used for issues
below investment-grade. Additional ratings up to level 20 will be added
as the need arises. Numerical ratings are grouped in seven categories,
with gradations within the categories.
D&P Generic
Rating Category Description
1 Triple A Highest credit quality. The risk factors
are negligible, being only slightly more
than for risk-free U.S. Treasury debt.
Fitch Investors Service, Inc. Bond Ratings. The Fitch Bond Rating
provides a guide to investors in determining the investment risk attached
to a security. The rating represents its assessment of the issuer's
ability to meet the obligations of a specific debt issue. The rating
takes into consideration special features of the issuer, its relationship
to other obligations of the issuer, the record of the issuer and of any
guarantor, as well as the political and economic environment that might
affect the future financial strength of the issuer.
Bonds which have the same rating are of similar, but not necessarily
identical, investment quality since the limited number of rating
categories cannot fully reflect small differences in the degree of risk.
Moreover, the character of the risk factor varies from industry to
industry and between corporate, health care, and municipal obligations.
In assessing credit risk, Fitch relies on current information furnished
by the issuer and/or guarantor and other sources which it considers
reliable. Fitch does not perform an audit of the financial statements
used in assigning a rating.
Ratings may be changed, withdrawn, or suspended at any time to reflect
changes in the financial condition of the issuer, the status of the issue
relative to other debt of the issuer, or any other circumstances that
Fitch considers to have a material effect on the credit of the obligor.
AAA rated bonds are considered to be investment-grade and of the
highest quality. The obligor has an extraordinary ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from A-1 for the
highest quality obligations to D for the lowest. These categories are as
follows:
A-1. This highest category indicates that the degree of safety regarding
timely payment is strong. Those issuers determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However the relative degree of safety is not as high as for
issuers designated "A-1".
A-3. Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying a higher designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt ratings are
opinions of the ability of issuers to repay punctually senior debt
obligations which have an original maturity not exceeding one year.
Obligations relying upon support mechanisms such as letters-of-credit and
bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Duff & Phelps, Inc. Commercial Paper Ratings.
Category 1: Top Grade
Duff 1 plus Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection
factors. Risk factors are minor.
Duff 1 minus High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. Commercial Paper Rating. Fitch
Commercial Paper Ratings are assigned at the request of an issuer to debt
obligations with an original maturity not in excess of 270 days. The
ratings reflect Fitch's current appraisal of the degree of assurance of
timely payment of such debt. Fitch is compensated for this service by an
annual fee paid by the issuer under a contractual agreement which
specifies among other things that ratings may be changed or withdrawn at
any time if, in Fitch's sole judgment, changing circumstances warrant such
action.
Fitch-1 (Highest Grade) Commercial paper assigned this rating is
regarded as having the strongest degree of assurance for
timely payment.
Thompson Bankwatch (TBW) Short-Term Ratings. The TBW Short-Term
Ratings apply to commercial paper, other senior short-term obligations and
deposit obligations of the entities to which the rating has been assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that
have a maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a timely basis.
TBW-2. The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
FINANCIAL STATEMENTS
The following financial statements are incorporated by reference to the
Annual Report, dated September 30, 1995, of The Reynolds Funds (File No.
811-5549), as filed with the Securities and Exchange Commission.
Reynolds Funds, Inc. (Reynolds Blue Chip Growth Fund, Reynolds
Opportunity Fund, Reynolds U.S. Government Bond Fund and Reynolds Money
Market Fund)
Report of Independent Accountants
Statements of Net Assets
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statements (Financial Highlights included in Part A and
all incorporated by reference to the Annual Report, dated
September 30, 1995 (File No. 811-5549), of Reynolds Funds, Inc.
(as filed with the Securities and Exchange Commissions))
Reynolds Funds, Inc. (Reynolds Blue Chip Growth Fund, Reynolds
Opportunity Fund, Reynolds U.S. Government Bond Fund and Reynolds
Money Market Fund)
Report of Independent Accountants
Statements of Net Assets
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(b.) Exhibits
(1.1) Registrant's Articles of Incorporation; Exhibit 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(1.2) Articles Supplementary to Registrant's Articles of
Incorporation; Exhibit 1.2 to Post-Effective Amendment No.
3 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(1.3) Articles Supplementary to Registrant's Articles of
Incorporation; Exhibit 1.3 to Post-Effective Amendment No.
3 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(1.4) Articles Supplementary to Registrant's Articles of
Incorporation; Exhibit 1.4 to Post-Effective Amendment No.
5 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(1.5) Articles Supplementary to Registrant's Articles of
Incorporation; Exhibit 1.5 to Post-Effective Amendment No.
5 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(1.6) Articles of Amendment to Registrant's Articles of
Incorporation; Exhibit 1.6 to Post-Effective Amendment No.
5 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(2) Registrant's Bylaws; Exhibit 2 to Registrant's
Registration Statement on Form N-1A; Exhibit 2.2 to
Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A and Exhibit 2.3 to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on
Form N-1A are incorporated by reference pursuant to Rule
411 under the Securities Act of 1933.
(3) None
(4) None
(5.1) Investment Advisory Agreement between Reynolds Blue Chip
Growth Fund and Reynolds Capital Management; Exhibit 5 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(5.2) Amendment No. 1 to Investment Advisory Agreement between
Reynolds Blue Chip Growth Fund and Reynolds Capital
Management; Exhibit 5.2 to Post-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(5.3) Investment Advisory Agreement between Reynolds Money
Market Fund and Reynolds Capital Management; Exhibit 5.3
to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(5.4) Investment Advisory Agreement between Reynolds Opportunity
Fund and Reynolds Capital Management; Exhibit 5.4 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(5.5) Investment Advisory Agreement between Reynolds U.S.
Government Bond Fund and Reynolds Capital Management;
Exhibit 5.5 to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company (formerly
First Wisconsin Trust Company); Exhibit 8 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(9.1) Administration Agreement between Reynolds Blue Chip Growth
Fund and Fiduciary Management, Inc.; Exhibit 9 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(9.2) Administration Agreement between Reynolds Money Market
Fund and Fiduciary Management, Inc.; Exhibit 9.2 to Post-
Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A is incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933.
(9.3) Administration Agreement between Reynolds Opportunity Fund
and Fiduciary Management, Inc.; Exhibit 9.3 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(9.4) Administration Agreement between Reynolds U.S. Government
Bond Fund and Fiduciary Management, Inc.; Exhibit 9.4 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(10) Opinion of Foley & Lardner, counsel for Registrant;
Exhibit 10 to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(11) Consent of Price Waterhouse LLP
(12) None
(13.1) Subscription Agreement for shares of Reynolds Blue Chip
Growth Fund; Exhibit 13 to Registrant's Registration
Statement on Form N-1A is incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933.
(14.1) Individual Retirement Custodial Account; Exhibit 14.1 to
Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(14.2) Simplified Employee Pension Plan; Exhibit 14.2 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(14.3) Defined Contribution Retirement Plan; Exhibit 14.3 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act of
1933.
(14.4) Model 403(b)(7) Plan; Exhibit 14.4 to Post-Effective
Amendment No. 7 to Registrant's Registration Statement on
Form N-1A is incorporated by reference pursuant to Rule
411 under the Securities Act of 1933.
(14.5) Amendments to Defined Contribution Retirement Plan
(15) None
(16) Schedule for Computation of Performance Quotations;
Exhibit 16 to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933.
(17) Financial Data Schedule
(18) None
Item 25. Persons Controlled by or under Common Control with Registrant
As of December 31, 1995, the Reynolds Opportunity Fund was
controlled by Frederick L. Reynolds, who owned 27.5% of such Fund's voting
securities. As of such date, the Reynolds U.S. Government Bond Fund was
controlled by The Joel W. Renbaum, M.D., Inc. Profit-Sharing Trust, which
owned 27.9% of such Fund's voting securities. The Reynolds Blue Chip
Growth Fund and the Registrant are not controlled by any person.
Registrant does not control any person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of December 31, 1995
Class A Common Stock, 451
$.01 par value (Reynolds
Blue Chip Growth Fund)
Class B Common Stock, 152
$.01 par value (Reynolds
Money Market Fund)
Class C Common Stock, 189
$.01 par value (Reynolds
Opportunity Fund)
Class D Common Stock, 61
$.01 par value (Reynolds
U.S. Government Bond Fund)
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation Law,
particularly Section 2-418 thereof, Registrant's Board of Directors has
adopted the following Bylaw which is in full force and effect and has not
been modified or cancelled:
Article VI
GENERAL PROVISIONS
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate
representatives against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation of
and/or presentation of the defense of a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Information with respect to Mr. Reynolds is incorporated by
reference to pages 7 through 11 of the Statement of Additional Information
pursuant to Rule 411 under the Securities Act of 1933.
Item 29. Principal Underwriters
Registrant has no principal underwriters.
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are in the physical possession of either
Registrant's Treasurer, at Registrant's corporate offices, Wood Island,
Third Floor, 80 East Sir Francis Drake Blvd., Larkspur, California 94939,
or Fiduciary Management, Inc. at its offices at 222 East Mason Street,
Milwaukee, Wisconsin 53202.
Item 31. Management Services
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Amended Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amended Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Larkspur and
State of California on the 30th day of January, 1996.
REYNOLDS FUNDS, INC.
(Registrant)
By: /s/ Frederick L. Reynolds
Frederick L. Reynolds, President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Name Title Date
/s/ Frederick L. Reynolds Principal Executive, January 30, 1996
Frederick L. Reynolds Financial and
Accounting Officer
and Director
/s/ Robert E. Snader Director January 30, 1996
Robert E. Snader
/s/ Robert E. Stauder Director January 30, 1996
Robert E. Stauder
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1.1) Registrant's Articles of
Incorporation*
(1.2) Articles Supplementary to
Registrant's Articles of
Incorporation*
(1.3) Articles Supplementary to
Registrant's Articles of
Incorporation*
(1.4) Articles Supplementary to
Registrant's Articles of
Incorporation*
(1.5) Articles Supplementary to
Registrant's Articles of
Incorporation*
(1.6) Articles of Amendment to
Registrant's Articles of
Incorporation*
(2.1) Registrant's Bylaws*
(2.2) Unanimous Consent Action of
Board of Directors adopting
Amendment to Registrant's
Bylaws*
(2.3) Unanimous Consent Action of
Board of Directors adopting
Amendment to Registrant's
Bylaws*
(3) None
(4) None
(5.1) Investment Advisory Agreement
between Reynolds Blue Chip
Growth Fund and Reynolds Capital
Management*
(5.2) Amendment No. 1 to Investment
Advisory Agreement between
Reynolds Blue Chip Growth Fund
and Reynolds Capital Management*
(5.3) Investment Advisory Agreement
between Reynolds Money Market
Fund and Reynolds Capital
Management*
(5.4) Investment Advisory Agreement
between Reynolds Opportunity
Fund and Reynolds Capital
Management*
(5.5) Investment Advisory Agreement
between Reynolds U.S. Government
Bond Fund and Reynolds Capital
Management*
(6) None
(7) None
(8) Custodian Agreement with Firstar
Trust Company (formerly First
Wisconsin Trust Company)*
(9.1) Administration Agreement between
Reynolds Blue Chip Growth Fund
and Fiduciary Management, Inc.*
(9.2) Administration Agreement between
Reynolds Money Market Fund and
Fiduciary Management, Inc.*
(9.3) Administration Agreement between
Reynolds Opportunity Fund and
Fiduciary Management, Inc.*
(9.4) Administration Agreement between
Reynolds U.S. Government Bond
Fund and Fiduciary Management, Inc.*
(10) Opinion of Foley & Lardner
Counsel for Registrant*
(11) Consent of Price Waterhouse LLP
(13.1) Subscription Agreement for shares
of Reynolds Blue Chip Growth Fund*
(14.1) Individual Retirement Custodial Account*
(14.2) Simplified Employee Pension Plan*
(14.3) Defined Contribution Retirement Plan*
(14.4) Model 403(b)(7) Plan*
(14.5) Amendments to Defined Contribution
Retirement Plan
(15) None
(16) Schedule for Computation of
Performance Quotations*
(17) Financial Data Schedule
(18) None
_________________
* Incorporated by reference
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated October 25, 1995, relating to the financial
statements and financial highlights appearing in the September 30, 1995 Annual
Report to Shareholders of Reynolds Blue Chip Growth Fund, Reynolds Opportunity
Fund, Reynolds U.S. Government Bond Fund and Reynolds Money Market Fund
(constituting Reynolds Funds, Inc.), portions of which are incorporated
by reference into the Registration Statement. We also consent to the
reference to us under the heading "Financial Highlights" in the Prospectus
and to the reference to us under the heading "Independent Accountants" in the
Statement of Additional Information.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 31, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE FUND DATED SEPTEMBER 30, 1995 AND PARTS A AND B OF THE FUND'S
REGISTRATION STATEMENT ON FORM N-1A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT AND REGISTRATION STATEMENT.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> REYNOLDS BLUE CHIP GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 17,804,088
<INVESTMENTS-AT-VALUE> 29,359,906
<RECEIVABLES> 37,332
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 29,397,239
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,470
<TOTAL-LIABILITIES> 40,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,804,111
<SHARES-COMMON-STOCK> 1,525,125
<SHARES-COMMON-PRIOR> 1,712,844
<ACCUMULATED-NII-CURRENT> 28,529
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (31,689)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,555,818
<NET-ASSETS> 29,356,769
<DIVIDEND-INCOME> 404,557
<INTEREST-INCOME> 14,926
<OTHER-INCOME> 0
<EXPENSES-NET> 384,330
<NET-INVESTMENT-INCOME> 35,153
<REALIZED-GAINS-CURRENT> 47,749
<APPREC-INCREASE-CURRENT> 7,502,425
<NET-CHANGE-FROM-OPS> 7,585,327
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 106,402
<DISTRIBUTIONS-OF-GAINS> 284,893
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 243,750
<NUMBER-OF-SHARES-REDEEMED> 458,419
<SHARES-REINVESTED> 26,950
<NET-CHANGE-IN-ASSETS> 4,585,291
<ACCUMULATED-NII-PRIOR> 99,320
<ACCUMULATED-GAINS-PRIOR> 198,919
<OVERDISTRIB-NII-PRIOR> 7,082
<OVERDIST-NET-GAINS-PRIOR> 85,974
<GROSS-ADVISORY-FEES> 251,568
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 384,330
<AVERAGE-NET-ASSETS> 25,146,444
<PER-SHARE-NAV-BEGIN> 14.46
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 5.00
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.25
<EXPENSE-RATIO> 1.5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE FUND DATED SEPTEMBER 30, 1995 AND PARTS A AND B OF THE FUND'S
REGISTRATION STATEMENT ON FORM N-1A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT AND REGISTRATION STATEMENT.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> REYNOLDS MONEY MARKET FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 3,956,624
<INVESTMENTS-AT-VALUE> 3,956,624
<RECEIVABLES> 2,015,624
<ASSETS-OTHER> 1,991
<OTHER-ITEMS-ASSETS> (1)
<TOTAL-ASSETS> 3,960,629
<PAYABLE-FOR-SECURITIES> 200,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,473
<TOTAL-LIABILITIES> 217,473
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,743,156
<SHARES-COMMON-STOCK> 3,743,156
<SHARES-COMMON-PRIOR> 3,192,088
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,743,156
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 170,894
<OTHER-INCOME> 0
<EXPENSES-NET> 19,482
<NET-INVESTMENT-INCOME> 151,412
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 151,412
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 151,412
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,565,456
<NUMBER-OF-SHARES-REDEEMED> 6,160,428
<SHARES-REINVESTED> 146,040
<NET-CHANGE-IN-ASSETS> 551,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,033
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 58,049
<AVERAGE-NET-ASSETS> 2,980,028
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE FUND DATED SEPTEMBER 30, 1995 AND PARTS A AND B OF THE FUND'S
REGISTRATION STATEMENT ON FORM N-1A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT AND REGISTRATION STATEMENT.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> REYNOLDS OPPORTUNITY FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 7,339,434
<INVESTMENTS-AT-VALUE> 11,004,526
<RECEIVABLES> 2,705
<ASSETS-OTHER> 3,901
<OTHER-ITEMS-ASSETS> 34
<TOTAL-ASSETS> 11,011,166
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,349
<TOTAL-LIABILITIES> 28,349
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,616,944
<SHARES-COMMON-STOCK> 775,250
<SHARES-COMMON-PRIOR> 607,447
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (299,219)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,665,092
<NET-ASSETS> 10,982,817
<DIVIDEND-INCOME> 28,157
<INTEREST-INCOME> 3,646
<OTHER-INCOME> 0
<EXPENSES-NET> 148,963
<NET-INVESTMENT-INCOME> (117,160)
<REALIZED-GAINS-CURRENT> (125,223)
<APPREC-INCREASE-CURRENT> 3,122,966
<NET-CHANGE-FROM-OPS> 2,880,583
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 265,966
<NUMBER-OF-SHARES-REDEEMED> 98,163
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,851,001
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (113,096)
<OVERDISTRIB-NII-PRIOR> (4)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 80,078
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 148,963
<AVERAGE-NET-ASSETS> 8,005,967
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 4.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.17
<EXPENSE-RATIO> 1.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE FUND DATED SEPTEMBER 30, 1995 AND PARTS A AND B OF THE FUND'S
REGISTRATION STATEMENT ON FORM N-1A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT AND REGISTRATION STATEMENT.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> REYNOLDS U.S. GOVERNMENT BOND FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2,759,249
<INVESTMENTS-AT-VALUE> 2,765,408
<RECEIVABLES> 45,961
<ASSETS-OTHER> 3,901
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 2,815,273
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,652
<TOTAL-LIABILITIES> 16,652
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,043,358
<SHARES-COMMON-STOCK> 284,149
<SHARES-COMMON-PRIOR> 454,483
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (250,896)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,159
<NET-ASSETS> 2,798,621
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 194,085
<OTHER-INCOME> 0
<EXPENSES-NET> 27,099
<NET-INVESTMENT-INCOME> 166,986
<REALIZED-GAINS-CURRENT> (144,952)
<APPREC-INCREASE-CURRENT> 203,951
<NET-CHANGE-FROM-OPS> 225,985
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 169,574
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,454
<NUMBER-OF-SHARES-REDEEMED> 201,217
<SHARES-REINVESTED> 16,429
<NET-CHANGE-IN-ASSETS> (1,568,592)
<ACCUMULATED-NII-PRIOR> 26
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (108,639)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22,543
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60,335
<AVERAGE-NET-ASSETS> 2,986,803
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.25
<PER-SHARE-DIVIDEND> 0.54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
