ANNUAL REPORT
SEPTEMBER 30, 1997
(REYNOLDS FUNDS LOGO)
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
1-800-773-9665
(REYNOLDS FUNDS LOGO)
Dear Fellow Shareholders: October 29, 1997
The Reynolds Blue Chip Growth and Opportunity Funds had strong appreciation
for the twelve months ended September 30, 1997:
October 1, 1996 through September 30, 1997
REYNOLDS BLUE CHIP GROWTH FUND +43.2%
REYNOLDS OPPORTUNITY FUND +24.6%
The Blue Chip and Opportunity Funds also had strong appreciation for the
three years ended September 30, 1997:
Average Annual Total Returns
October 1, 1994 through September 30, 1997
REYNOLDS BLUE CHIP GROWTH FUND +31.8%
REYNOLDS OPPORTUNITY FUND +24.5%
The Blue Chip Fund has received many awards for its recent performance
including:
(1) Barron's - The Blue Chip Fund was featured in the May 26, 1997 edition of
Barron's.
(2) CNBC - Featured on October 29, 1997 and May 12, 1997.
(3) Consumer Reports - Selected the Blue Chip Fund as one of 101 stock funds
that have demonstrated the best combination of safety and solid performance. In
making its selections Consumer Reports considers 3-year risk adjusted
performance, availability to retail investors, a fund's expense ratio and
excludes funds with sales loads and 12b-1 fees.
(4) Fortune - Selected the Blue Chip Fund as one of the very best mutual
funds for its Investor's Guide '97. In making its selections Fortune considers a
--------------------
fund's 3-year performance after sales, loads and taxes, fund manager turnover
and availability to retail investors.
(5) Investor's Business Daily - The Blue Chip Fund has received an A+ ranking
from Investor's Business Daily. Investor's Business Daily ranks mutual funds on
the basis of a moving 36 month performance. The top 5% of all mutual funds
receive an A+ ranking. Investor's Business Daily considered 3,584 mutual funds
for the three years ended October 20, 1997 in determining this ranking.
(6) Mutual Funds Magazine - Featured in the September 1997 edition.
INVESTMENT OUTLOOK
There are currently many investment positives. Among them are: (1) the U.S.
budget deficit has been cut in about half since the early 1990s and continuing
progress is being made, (2) U.S. industry is more competitive now than at any
time in the past quarter century, (3) U.S. companies are the leaders in the
majority of industries worldwide, (4) the three most important U.S. economic
statistics - economic growth, inflation and interest rates - are currently
positive, creating a solid foundation for the financial markets, (5) U.S.
consumer confidence is strong, and (6) valuations are reasonable.
THE REYNOLDS BLUE CHIP GROWTH FUND
The Blue Chip Fund has investments in many of the premier larger worldwide
growth companies. These companies have proven management, leading research,
outstanding products, strong financial structures and high profitability. In
addition, many of these companies are not significantly affected by economic
fluctuations and investors don't become overly concerned about them during
uncertain periods. The probabilities highly favor that the diversified group of
industry leading companies held in the Blue Chip Fund will remain industry
leaders, continue to strongly increase their earnings and continue to
significantly increase future shareholder wealth. The companies in the Blue Chip
Fund are estimated to be increasing their earnings at an average annual rate of
+17%.
The Blue Chip Fund's return was +31.9% for the nine months ended September
30, 1997. The Blue Chip Fund's return was +124.2% for the five years ended
September 30, 1997. This was an average annual compounded rate of return of
+17.5%. The Blue Chip Fund increased +252.3% from August 12, 1988 (effective
date of the Fund's registration statement) through September 30, 1997. This was
an average annual compounded rate of return of +14.8%.
The Board of Directors declared a distribution of $0.246067 from net long-
term realized gains on October 27, 1997. This distribution was paid on October
28, 1997 to shareholders of record on October 24, 1997.
THE REYNOLDS OPPORTUNITY FUND
Medium size growth companies are beginning to outperform the overall stock
market. In this environment, the Reynolds Opportunity Fund should have strong
performance. This Fund emphasizes investments in the best emerging growth
companies worldwide - the blue chips of tomorrow. The Opportunity Fund generally
invests in companies which already have proven themselves in the marketplace and
are leaders in their industries. These companies generally have sales of $100
million to $3 billion or more and are demonstrating strong earnings growth from
proprietary products. The companies in the Opportunity Fund are estimated to be
increasing their earnings at an average annual rate of +22%.
A long-term investment in the Reynolds Opportunity Fund should be a good
complement to a long-term investment in the Reynolds Blue Chip Growth Fund. We
are making a high probability bet with the companies in the Opportunity Fund,
just as we are with the companies in the Blue Chip Fund, that the majority of
the companies within a well diversified group of proven worldwide leading
companies will continue to be leaders and strongly increase their earnings and
shareholder wealth in the future.
The Opportunity Fund's return was +22.5% for the nine months ended September
30, 1997. The Opportunity Fund increased +120.2% for the five years ended
September 30, 1997. This was an average annual compounded rate of return of
+17.1%. The Opportunity Fund increased +94.9% from January 30, 1992 (effective
date of the Fund's registration statement) through September 30, 1997. This was
an average annual compounded rate of return of +12.5%.
THE REYNOLDS U.S. GOVERNMENT BOND FUND
The Reynolds U.S. Government Bond Fund emphasizes high quality investments in
U.S. Treasury Bonds, Treasury Notes and Treasury Bills of varying maturities. As
of September 30, 1997, the assets were invested approximately 93% in U.S.
Treasury Securities and 7% in high quality cash equivalents.
The Bond Fund had a dollar weighted average maturity of 1.9 years on
September 30, 1997. The average maturity of the bonds in the Fund is continually
reevaluated and adjusted based on short- and long-term economic, inflation and
interest rate forecasts.
THE REYNOLDS MONEY MARKET FUND
As of September 30, 1997, the assets of the Reynolds Money Market Fund were
invested 50% in high quality commercial paper, 39% in Federal Agencies, and 11%
in high quality cash equivalents. As of September 30, 1997, the dollar weighted
average days to maturity of the Money Market Fund was 76.5 days.
The Reynolds Money Market Fund's yield is usually higher than or
approximately the same as most brokerage firm sponsored money market funds
because those funds typically have higher expense structures due to their higher
marketing costs. The Reynolds Money Market Fund's yield is almost always higher
than rates paid by most bank accounts. The rates paid by banks are lower because
banks typically have higher overhead.
For ease of redemption, the Money Market Fund offers: (1) free check writing
(in amounts of $500 or more); or (2) telephone redemption where either a check
is mailed to the shareholder, or money may be wired to the shareholder's bank
account (currently a $10.00 wiring charge).
ECONOMIC DISCUSSION
THE WORLD ECONOMY
Most economies around the world are continuing to enjoy steady growth. It is
the first economic expansion that most of the world is sharing. Strong worldwide
growth patterns are forecast for many industries in the next few years. There
are more than 1.5 billion people in the world who will be experiencing a higher
standard of living as: (1) capitalism grows and Communism declines in China,
Eastern Europe and Russia and (2) many other countries, such as India and Latin
America, have rapidly emerging middle classes, which desire western goods and
services and governments that are encouraging foreign investments.
Worldwide inflation remains low. There are many reasons for this including:
(1) committed central bankers, (2) fiscal restraint by governments, (3)
worldwide competition for products and labor is keeping costs low, (4) the
collapse of Communism is making economic systems more efficient, (5) cost
cutting and restructuring are spreading to many countries, (6) more efficient
private-sector operations are replacing inefficient state-run enterprises, (7)
excess capacity exists in many markets, and (8) advances in technology are
helping to improve efficiency. The Blue Chip and Opportunity Funds are well
positioned to participate in these strong worldwide growth trends through their
investments in U.S. headquartered and foreign headquartered companies.
THE U.S. ECONOMY
Alan Greenspan, the Chairman of the Federal Reserve Board, recently stated
that "The existing economic expansion is about as solid as any I have seen." The
majority of government and private-sector data still indicate that the U.S.
economy will continue to have moderate, but not excessive, broad based growth.
Gross Domestic Product (GDP) is forecast to increase 3.5% in 1997 and 2.5% in
1998 after increasing 2.8% in 1996.
U.S. inflation is at its lowest level since the 1960s as the Federal Reserve
continues to do a good job of keeping inflationary pressures down. The Federal
Reserve has been willing to act at the first sign that a rise in inflation could
be near. This policy allows the Federal Reserve to use milder rather than
harsher remedies which often stop economic growth later on. The current absence
of widespread worldwide labor and raw materials shortages should keep inflation
in check. In addition, rising business investment in efficient plant and
equipment should help to prevent inflation from quickening its pace. U.S.
inflation is estimated to increase at a manageable 2.5% rate in 1997 and 2.5% in
1998, after increasing at a 3.0% rate in 1996.
INFORMATION ABOUT THE REYNOLDS FUNDS
TO SPEAK TO A FUND REPRESENTATIVE REGARDING QUESTIONS, CURRENT DAILY NET
ASSET VALUES AND CURRENT ACCOUNT INFORMATION: Call 1-800-773-9665 (1-800-
7REYNOLDS) and press "0" during normal business hours.
FOR AUTOMATIC CURRENT DAILY NET ASSET VALUES: Call 1-800-773-9665 (twenty-
four hours-a-day, seven days-a-week) and press "2". The updated current net
asset values for all of the Reynolds Funds are usually available each business
day after 5 P.M. (PST).
FOR SHAREHOLDERS TO AUTOMATICALLY ACCESS THEIR CURRENT ACCOUNT INFORMATION:
Call 1-800-773-9665 (twenty-four hours-a-day, seven days-a-week), press "3" and
enter your 16 digit account number which appears at the top of your statement.
FOR REYNOLDS MONEY MARKET FUND CURRENT ONE AND SEVEN DAY YIELDS: Call 1-800-
773-9665 and press "2".
SHAREHOLDER STATEMENT FREQUENCY: Consolidated statements summarizing all
Reynolds Funds held by a shareholder are sent quarterly. In addition, individual
Fund statements are sent whenever a transaction occurs. These transactions are:
(1) Reynolds Money Market and U.S. Government Bond Fund statements are sent
monthly when each months' accrued dividends are posted, (2) Reynolds Blue Chip
and Opportunity Fund statements are sent twice a year when any ordinary income
or long- or short-term capital gains are distributed, and (3) statements are
sent for any of the Funds when a shareholder purchases or redeems shares.
TAX BASIS REPORTING: Individual 1099 forms which summarize any dividend
income, and any long- or short-term capital gains are sent annually to
shareholders each January. The percentage of income earned from various
government securities, if any, for the Reynolds Funds are also reported in
January.
NEWSPAPER LISTING OF NET ASSET VALUE: The Blue Chip Fund is listed
alphabetically - with the symbol Reynolds BC, Reynolds BCG, Rey BC, ReynBlCh or
ReynBluCh - in many major daily newspapers including Investor's Business Daily,
The New York Times, The Wall Street Journal and USA Today. The Opportunity Fund
and the U.S. Government Bond Fund will be listed in newspapers once they have
either $25 million of net assets or 1,000 shareholders.
NASDAQ SYMBOLS: Reynolds Blue Chip Growth Fund - RBCGX, Reynolds Opportunity
Fund - ROPPX, Reynolds U.S. Government Bond Fund - RUSGX, Reynolds Money Market
Fund - REYXX.
MINIMUM INVESTMENT: $1,000 ($100 for additional investments - except for the
Automatic Investment Plan which is $50) for regular and retirement plan
accounts.
PROTOTYPE PLANS FOR RETIREMENT PLANS: All types are offered including the
new SIMPLE IRA Plan. The new Roth IRA and the Education IRA will be offered
beginning in January 1998.
AUTOMATIC INVESTMENT PLAN: There is no charge to automatically debit your
checking account or your account in any of the Reynolds Funds at periodic
intervals to make automatic purchases in any of the Reynolds Funds. This is
useful for dollar cost averaging.
SYSTEMATIC WITHDRAWAL PLAN: For shareholders with a $10,000 minimum starting
balance, there is no charge to automatically redeem shares ($100 minimum) in any
of the Reynolds Funds as often as monthly and send a check to you or wire to
your bank account (currently a $10.00 wiring charge).
EXCHANGES OR REGULAR REDEMPTIONS: As often as desired - no charge.
THE REYNOLDS FUNDS ARE 100% NO-LOAD: No front end sales commissions or
redemption fees "loads" are charged.
THE REYNOLDS FUNDS DO NOT HAVE A 12(b)-1 PLAN: No marketing fees are charged
to the Funds.
Over 65% of all mutual funds impose one or more marketing charges which are
ultimately paid by the shareholder. These marketing charges are either: (1) a
front-end fee or "load" in which up to 8% of a shareholder's assets are deducted
from the original investment (some funds even charge a fee when a shareholder
reinvests capital gains or dividends); or (2) a back-end penalty fee or "load"
which is typically deducted from a shareholder's account if a shareholder
redeems within five years of the original investment. In addition, many funds
charge against their assets an annual fee called a 12(b)-1 fee to pay for
marketing costs. This annual fee can be anywhere from .25% to 1.00% of assets.
All of these fees reduce a shareholder's return. The Reynolds Funds are 100% No-
Load as they do not have these extra charges.
One hundred percent of our company's pension plan is invested in the Reynolds
Funds. We appreciate your continued confidence in the Reynolds Funds and would
like to welcome our new shareholders. We look forward to strong results in the
future.
Sincerely,
/s/ Frederick L. Reynolds
Frederick L. Reynolds
President
80 East Sir Francis Drake Blvd. o Larkspur, CA 94939 o 415-461-7860
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Reynolds Funds unless accompanied or preceded by
the Funds' current prospectus. Past performance is not indicative of future
performance. Investment return and principal value of an investment may
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Reynolds Funds, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
(PRICE WATERHOUSE LLP LOGO)
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
October 27, 1997
To the Shareholders and Board of Directors
of Reynolds Funds, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Reynolds Blue Chip Growth Fund, Reynolds Opportunity Fund, Reynolds U.S.
Government Bond Fund and Reynolds Money Market Fund (constituting Reynolds
Funds, Inc., hereafter referred to as the "Funds") at September 30, 1997, the
results of each of their operations for the year then ended, the changes in each
of their net assets for each of the two years in the period then ended and the
financial highlights for each of the nine years in the period ended September
30, 1997 and for the period August 10, 1988 (commencement of operations) through
September 30, 1988 for Reynolds Blue Chip Growth Fund, for the six years ended
September 30, 1997 and for the period January 30, 1991 (commencement of
operations) through September 30, 1991 for Reynolds Money Market Fund and for
the five years ended September 30, 1997 and the period January 30, 1992
(commencement of operations) through September 30, 1992 for Reynolds Opportunity
Fund and Reynolds U.S. Government Bond Fund, all in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
Reynolds Blue Chip Growth Fund
STATEMENT OF NET ASSETS
September 30, 1997
QUOTED
SHARES MARKET VALUE
------- ------------
LONG-TERM INVESTMENTS -- 99.5% (A)<F2>
COMMON STOCKS -- 99.5% (A)<F2>
AUTOMOTIVE -- 0.1%
1,000 General Motors Corp. $66,938
BANKS -- 1.4%
3,000 BankAmerica Corp. 219,939
1,000 Bank of New York Co., Inc. 48,000
500 Citicorp 66,969
1,500 J.P. Morgan & Co. Inc. 170,437
500 Norwest Corp. 30,625
1,000 State Street Corp. 60,938
1,000 Wells Fargo & Co. 275,000
-----------
871,908
BEVERAGES -- 6.3%
1,000 Anheuser-Busch Companies, Inc. 45,125
30,500 The Coca-Cola Company 1,858,609
50,000 PepsiCo, Inc. 2,028,150
-----------
3,931,884
BUILDING -- 1.6%
19,250 The Home Depot, Inc. 1,003,406
CHEMICALS -- 0.8%
2,000 AlliedSignal Inc. 85,000
1,000 Dow Chemical Co. 90,688
1,500 E.I du Pont de Nemours & Co. 92,344
2,500 Minnesota Mining &
Manufacturing Co. 231,250
-----------
499,282
COMPUTER NETWORKING -- 6.2%
15,500 3Com Corp.*<F1> 794,375
5,200 Ascend Communications, Inc.*<F1> 168,350
9,000 Bay Networks, Inc.*<F1> 347,625
7,500 Cabletron Systems, Inc.*<F1> 240,000
32,000 Cisco Systems Inc.*<F1> 2,338,016
-----------
3,888,366
COMPUTER & PERIPHERALS -- 6.9%
18,750 Compaq Computer Corp.*<F1> 1,401,561
4,000 Dell Computer Corp.*<F1> 387,500
11,500 Hewlett-Packard Co. 799,975
11,000 International Business
Machines Corp. 1,165,318
2,000 Seagate Technology, Inc.*<F1> 72,250
10,500 Sun Microsystems, Inc.*<F1> 491,537
-----------
4,318,141
COMPUTER SOFTWARE & SERVICES -- 9.5%
3,000 BMC Software, Inc.*<F1> 194,250
11,750 Computer Associates
International, Inc. 843,803
3,000 Computer Sciences Corp.*<F1> 212,250
27,500 Microsoft Corp.*<F1> 3,638,607
15,312 Oracle Corp.*<F1> 557,939
7,500 PeopleSoft, Inc.*<F1> 448,125
-----------
5,894,974
DRUGS -- 17.0%
12,600 Bristol-Myers Squibb Co. 1,042,650
10,500 Eli Lilly & Co. 1,264,599
27,600 Merck & Co., Inc. 2,758,289
39,000 Pfizer Inc. 2,342,457
32,000 Schering-Plough Corp. 1,648,000
11,500 Warner-Lambert Co. 1,551,787
-----------
10,607,782
ELECTRICAL EQUIPMENT -- 2.0%
5,500 Emerson Electric Co. 316,937
14,000 General Electric Co. (U.S.) 952,882
-----------
1,269,819
ELECTRONICS -- 0.7%
500 Philips Electronics N.V. ADR 42,000
500 Sony Corp. ADR 46,969
6,000 Teradyne, Inc.*<F1> 322,878
-----------
411,847
ENERGY -- 4.0%
1,000 Amoco Corp. 96,375
1,000 Baker Hughes Inc. 43,750
2,500 Chevron Corp. 207,970
3,500 Exxon Corp. 224,220
1,500 Helmerich & Payne, Inc. 120,000
5,500 Mobil Corp. 407,000
4,500 Royal Dutch Petroleum Co. ADR 249,750
11,000 Schlumberger Ltd. 926,068
1,500 Smith International, Inc.*<F1> 116,532
2,000 Texaco Inc. 122,876
-----------
2,514,541
FINANCIAL SERVICES -- 1.4%
7,000 American Express Co. 573,125
3,500 Fannie Mae 164,500
1,500 Merrill Lynch & Co., Inc. 111,282
-----------
848,907
FOODS -- 3.1%
3,000 Campbell Soup Co. 147,000
1,000 CPC International Inc. 92,625
3,000 General Mills, Inc. 206,814
2,000 H.J. Heinz Co. 92,376
4,000 Kellogg Co. 168,500
15,500 Philip Morris Companies Inc. 644,226
3,500 Quaker Oats Co. 176,313
7,500 Sara Lee Corp. 386,250
-----------
1,914,104
GROCERY STORES -- 0.1%
1,000 Safeway Inc.*<F1> 54,375
HEALTH MAINTENANCE ORGANIZATIONS -- 0.9%
6,500 Oxford Health Plans, Inc.*<F1> 486,687
1,500 United HealthCare Corp. 75,000
-----------
561,687
HOUSEHOLD PRODUCTS -- 7.3%
9,500 American Home Products Corp. 693,500
1,500 Avon Products, Inc. 93,000
18,500 Colgate-Palmolive Co. 1,289,228
6,000 Gillette Company 517,878
28,000 Procter & Gamble Co. 1,933,764
-----------
4,527,370
INSURANCE -- 1.8%
7,625 American International Group, Inc. 786,808
500 General Re Corp. 99,250
3,000 The Travelers Group, Inc. 204,750
-----------
1,090,808
MACHINERY -- 0.7%
8,000 Caterpillar Inc. 431,504
500 Deere & Co. 26,875
-----------
458,379
MEDICAL SUPPLIES -- 5.6%
22,500 Abbott Laboratories 1,438,605
33,500 Johnson & Johnson 1,930,438
2,000 Medtronic, Inc. 94,000
-----------
3,463,043
OFFICE EQUIPMENT & SUPPLIES -- 0.8%
3,000 Office Depot, Inc.*<F1> 60,564
2,500 Pitney Bowes Inc. 207,970
3,000 Xerox Corp. 252,564
-----------
521,098
PAPER & FOREST PRODUCTS -- 0.7%
1,500 Georgia-Pacific Corp. 156,563
1,000 International Paper Co. 55,063
4,560 Kimberly-Clark Corp. 223,157
-----------
434,783
PUBLISHING -- 0.2%
1,000 Gannett Co., Inc. 107,938
RAILROADS -- 0.3%
1,500 Burlington Northern
Santa Fe Corp. 144,938
500 Norfolk Southern Corp. 51,625
-----------
196,563
RECREATION -- 1.5%
11,049 Walt Disney Co. 890,826
500 Time Warner Inc. 27,094
-----------
917,920
RESTAURANTS -- 0.8%
11,000 McDonald's Corp. 523,875
RETAIL-SPECIALTY -- 0.5%
3,000 NIKE, Inc. Class B 159,000
3,000 Toys 'R' Us, Inc.*<F1> 106,500
2,000 Walgreen Co. 51,250
-----------
316,750
RETAIL STORES -- 2.7%
4,000 Dayton Hudson Corp. 239,752
500 Dillard's Inc. 21,907
9,000 Gap, Inc. 450,567
500 Kohl's Corp.*<F1> 35,500
1,000 The May Department Stores Co. 54,500
1,000 Nordstrom, Inc. 63,750
22,000 Wal-Mart Stores, Inc. 805,750
-----------
1,671,726
SEMICONDUCTORS -- 7.8%
4,500 Altera Corp.*<F1> 230,625
4,000 Atmel Corp.*<F1> 145,752
36,000 Intel Corp. 3,323,268
7,000 Texas Instruments Inc. 945,875
4,000 Xilinx, Inc.*<F1> 202,500
-----------
4,848,020
SEMICONDUCTOR/CAPITAL SPENDING -- 1.3%
4,000 Applied Materials, Inc.*<F1> 381,000
4,000 KLA-Tencor Corp.*<F1> 270,252
1,000 Novellus Systems, Inc.*<F1> 126,000
-----------
777,252
SERVICES -- 0.1%
500 Federal Express Corp.*<F1> 40,000
TELECOMMUNICATIONS -- 4.9%
6,000 America Online Inc.*<F1> 452,628
3,000 L.M. Ericsson Telephone Co. ADR 143,814
1,500 Lucent Technologies Inc. 122,062
17,500 Motorola, Inc. 1,257,813
2,500 Nokia Corp. "A" ADR 234,533
16,000 Tellabs, Inc.*<F1> 824,000
-----------
3,034,850
TELEPHONE SERVICES -- 0.1%
1,000 AT&T Corp. 44,313
1,000 BellSouth Corp. 46,250
-----------
90,563
TRANSPORTATION -- 0.4%
2,500 Boeing Co. 136,095
1,500 United Technologies Corp. 121,500
-----------
257,595
-----------
Total common stock
(cost $30,048,333) 61,936,494
PREFERRED STOCKS -- 0.0%
205 Aetna Inc., 6.25% Class C,
07/19/00 Series, Voting Preferred 15,952
-----------
Total preferred stocks
(cost $13,386) 15,952
-----------
Total long-term investments
(cost $30,061,719) 61,952,446
PRINCIPAL
AMOUNT
--------
SHORT-TERM INVESTMENTS -- 0.6% (A)<F2>
VARIABLE RATE DEMAND NOTES
$399,410 Wisconsin Electric
Power Co. 399,410
-----------
Total short-term investments
(cost $399,410) 399,410
-----------
Total investments
(cost $30,461,129) 62,351,856
Liabilities, less cash and
receivables (0.1%) (A)<F2> (57,498)
-----------
NET ASSETS $62,294,358
===========
Net Asset Value Per Share
($0.01 par value 20,000,000
shares authorized), offering
and redemption price
($62,294,358 / 1,946,779
shares outstanding) $32.00
=======
*<F1>Non-income producing security.
(a)<F2>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Blue Chip Growth Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
INCOME:
Dividends $509,544
Interest. 118,681
-----------
Total income 628,225
-----------
EXPENSES:
Management fee 487,874
Administrative services 82,182
Professional fees 25,530
Transfer agent fees 25,432
Registration fees 24,429
Custodian fees 19,918
Other expenses 7,171
-----------
Total expenses 672,536
-----------
NET INVESTMENT LOSS (44,311)
-----------
NET REALIZED GAIN ON INVESTMENTS 466,891
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 15,989,698
-----------
NET GAIN ON INVESTMENTS 16,456,589
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,412,278
===========
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1997 and 1996
1997 1996
----- -----
OPERATIONS:
Net investment loss $(44,311) $(43,638)
Net realized gain on investments 466,891 502,046
Net increase in unrealized appreciation
on investments 15,989,698 4,345,211
----------- ----------
Net increase in net assets resulting from
operations 16,412,278 4,803,619
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distribution from net investment income
($0.01851 per share) -- (28,542)
Distributions from net realized gains
($0.3475 and $0.02704 per share, respectively) (472,452) (43,289)
----------- ----------
Total distributions (472,452) (71,831)*<F3>
----------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,528,496 and
501,004 shares, respectively) 43,146,360 9,970,902
Net asset value of shares issued in
distributions (20,696 and 3,629 shares,
respectively) 465,659 69,920
Cost of shares redeemed (960,289 and 671,882
shares, respectively) (28,064,790)(13,322,076)
----------- ----------
Net increase (decrease) in net assets derived
from Fund share activities 15,547,229 (3,281,254)
----------- ----------
TOTAL INCREASE 31,487,055 1,450,534
NET ASSETS AT THE BEGINNING OF THE YEAR 30,807,303 29,356,769
----------- ----------
NET ASSETS AT THE END OF THE YEAR $62,294,358 $30,807,303
=========== ==========
*<F3> Total distributions include $54,499 of ordinary income, of which 52% is
eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Blue Chip Growth Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988*<F4>
------ ------- ------ ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $22.69 $19.25 $14.46 $14.22 $14.98 $13.96 $11.14 $11.92 $10.06 $10.00
Income from investment
operations:
Net investment
(loss) income (0.01) (0.03) 0.02 0.09 0.12 0.09 0.14 0.07 0.25 0.03
Net realized and
unrealized gain (loss)
on investments 9.67 3.52 5.00 0.28 (0.79) 1.02 2.83 (0.65) 1.73 0.03
------ ------- ------ ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 9.66 3.49 5.02 0.37 (0.67) 1.11 2.97 (0.58) 1.98 0.06
Less distributions:
Dividends from net
investment income -- (0.02) (0.06) (0.13) (0.09) (0.09) (0.15) (0.15) (0.12) --
Distributions from net
realized gains (0.35) (0.03) (0.17) -- -- -- -- (0.05) -- --
------ ------- ------ ------- ------- ------- ------- ------- ------- -------
Total from distributions (0.35) (0.05) (0.23) (0.13) (0.09) (0.09) (0.15) (0.20) (0.12) --
------ ------- ------ ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $32.00 $22.69 $19.25 $14.46 $14.22 $14.98 $13.96 $11.14 $11.92 $10.06
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN 43.2% 18.1% 35.3% 2.6% (4.5%) 8.0% 26.9% (5.0%) 19.9% 4.6%**
<F5>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in 000's $) 62,294 30,807 29,357 24,771 38,929 40,580 27,735 10,009 5,260 366
Ratio of expenses (after
reimbursement) to average
net assets***<F6> 1.4% 1.5% 1.5% 1.5% 1.4% 1.5% 1.7% 2.1% 2.0% 2.0%**
Ratio of net investment (loss) <F5>
income to average
net assets****<F7> (0.1%) (0.1%) 0.1% 0.5% 0.8% 0.6% 1.2% 0.8% 2.7% 4.5%**
<F5>
Portfolio turnover rate 25.0% 21.5% 49.2% 43.3% 38.1% 0.2% 0.9% 66.2% 32.5% --
Average commission
rate paid*****<F8> $0.0728 $0.1047
*<F4>For the period from August 10, 1988 (commencement of operations) to
September 30, 1988.
**<F5>Annualized.
***<F6>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.
****<F7>If the Fund had paid all of its expenses, the ratio would have been 2.0%
for the year ended September 30, 1989.
*****<F8>Disclosure required for fiscal years beginning after September 1, 1995.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Opportunity Fund
STATEMENT OF NET ASSETS
September 30, 1997
QUOTED
SHARES MARKET VALUE
------- ------------
LONG-TERM INVESTMENTS -- 99.3% (A)<F10>
COMMON STOCKS -- 99.3% (A)<F10>
BANKS -- 0.1%
500 BankAmerica Corp. $36,656
BEVERAGES -- 3.5%
7,000 The Coca-Cola Company 426,566
9,000 PepsiCo, Inc. 365,067
----------
791,633
BIOTECHNOLOGY -- 0.2%
500 Quintiles Transnational, Corp.*<F9> 42,125
BUILDING -- 0.9%
3,799 The Home Depot, Inc. 198,023
CABLE TV/BROADCASTING -- 0.3%
1,200 Clear Channel
Communications, Inc.*<F9> 77,850
COMPUTER NETWORKING -- 8.2%
10,995 3Com Corp.*<F9> 563,494
5,240 Ascend Communications, Inc.*<F9> 169,645
2,000 Bay Networks, Inc.*<F9> 77,250
2,000 Cabletron Systems, Inc.*<F9> 64,000
13,400 Cisco Systems Inc.*<F9> 979,044
----------
1,853,433
COMPUTER & PERIPHERALS -- 11.4%
9,250 Compaq Computer Corp.*<F9> 691,438
5,400 Dell Computer Corp.*<F9> 523,125
500 EMC Corp. (Mass.)*<F9> 29,188
800 Gateway 2000, Inc.*<F9> 25,150
4,800 Hewlett-Packard Co. 333,902
5,700 International Business
Machines Corp. 603,847
4,400 Iomega Corp.*<F9> 114,950
1,000 Seagate Technology, Inc.*<F9> 36,125
4,800 Sun Microsystems, Inc.*<F9> 224,702
----------
2,582,427
COMPUTER SOFTWARE & SERVICES -- 13.6%
500 Adaptec, Inc.*<F9> 23,375
1,000 Aspen Technology, Inc.*<F9> 35,125
500 Autodesk, Inc. 22,687
500 Baan Company N.V.*<F9> 35,500
1,500 BMC Software, Inc.*<F9> 97,125
3,125 Computer Associates
International, Inc. 224,416
900 Computer Horizon Corp.*<F9> 32,625
600 Compuware Corp.*<F9> 36,300
1,800 Electronics for Imaging, Inc.*<F9> 91,800
500 Intuit Inc.*<F9> 16,000
1,462 McAffee Associates, Inc.*<F9> 77,486
11,500 Microsoft Corp.*<F9> 1,521,599
300 Netscape Communications Corp.*<F9> 10,800
10,725 Oracle Corp.*<F9> 390,798
3,000 Parametric Technology Corp.*<F9> 132,375
4,800 PeopleSoft, Inc.*<F9> 286,800
500 Remedy Corp.*<F9> 17,219
500 Siebel Systems, Inc.*<F9> 21,282
1,000 Topro, Inc.*<F9> 5,750
----------
3,079,062
DRUGS -- 13.2%
2,000 Bristol-Myers Squibb Co. 165,500
900 Jones Medical Industries, Inc. 28,350
4,000 Eli Lilly & Co. 481,752
9,022 Merck & Co., Inc. 901,641
13,000 Pfizer Inc. 780,819
6,000 Schering-Plough Corp. 309,000
2,400 Warner-Lambert Co. 323,851
----------
2,990,913
ELECTRICAL EQUIPMENT -- 0.6%
2,000 General Electric Co. (U.S.) 136,126
ELECTRONICS -- 0.6%
1,000 SCI Systems, Inc.*<F9> 49,563
1,500 Teradyne, Inc.*<F9> 80,719
----------
130,282
ENERGY -- 0.8%
500 Dresser Industries, Inc. 21,500
1,000 Halliburton Co. 52,000
500 Rowan Companies, Inc.*<F9> 17,813
1,000 Schlumberger Ltd. 84,188
----------
175,501
ENVIRONMENTAL -- 0.1%
500 United States Filter Corp.*<F9> 21,531
FINANCIAL SERVICES -- 3.3%
4,000 American Express Co. 327,500
932 Banc One Corp. 52,018
500 E*TRADE Group, Inc.*<F9> 23,500
600 Fair, Isaac and Co., Inc. 26,550
1,000 First Data Corp. 37,563
450 Franklin Resources, Inc. 41,906
500 Merrill Lynch & Co., Inc. 37,094
500 Paychex, Inc. 17,437
600 T. Rowe Price Associates, Inc. 40,350
4,125 Charles Schwab Corp. 147,469
----------
751,387
FOODS -- 0.8%
500 Hershey Foods Corp. 28,250
1,000 Kellogg Co. 42,125
2,000 Philip Morris Companies Inc. 83,126
500 Quaker Oats Co. 25,187
----------
178,688
HEALTH MAINTENANCE ORGANIZATIONS -- 2.3%
303 Aetna Inc. 24,676
6,000 Oxford Health Plans, Inc.*<F9> 449,250
1,000 United HealthCare Corp. 50,000
----------
523,926
HOTELS -- 0.3%
800 HFS Inc.*<F9> 59,550
HOUSEHOLD PRODUCTS -- 5.3%
5,000 American Home Products Corp. 365,000
1,000 Avon Products, Inc. 62,000
6,000 Colgate-Palmolive Co. 418,128
1,000 Gillette Company 86,313
4,000 Procter & Gamble Co. 276,252
----------
1,207,693
INSURANCE -- 0.3%
750 American International Group, Inc. 77,391
MACHINERY -- 0.1%
500 Caterpillar Inc. 26,969
MEDICAL SERVICES -- 1.9%
2,849 Boston Scientific Corp.*<F9> 157,231
500 Genesis Health Ventures, Inc.*<F9> 19,469
1,400 HBO & Co. 52,850
500 HealthCare COMPARE Corp.*<F9> 31,937
4,572 HEALTHSOUTH Corp.*<F9> 122,018
1,350 PhyCor, Inc.*<F9> 39,235
----------
422,740
MEDICAL SUPPLIES -- 5.3%
9,500 Abbott Laboratories 607,411
754 Cardinal Health, Inc. 53,534
800 Guidant Corp. 44,800
7,676 Johnson & Johnson 442,329
1,000 Medtronic, Inc. 47,000
----------
1,195,074
OFFICE EQUIPMENT & SUPPLIES -- 1.2%
2,000 CompUSA Inc.*<F9> 70,000
1,000 Corporate Express, Inc.*<F9> 21,125
500 Danka Business Systems PLC ADR 22,250
1,000 Office Depot, Inc.*<F9> 20,188
2,000 Staples, Inc.*<F9> 55,250
1,000 Xerox Corp. 84,188
----------
273,001
RECREATION -- 1.1%
3,000 Walt Disney Co. 241,875
700 Regal Cinemas, Inc.*<F9> 18,812
----------
260,687
RESTAURANTS -- 0.4%
1,500 McDonald's Corp. 71,438
900 Papa John's International, Inc.*<F9> 30,769
----------
102,207
RETAIL - SPECIALTY -- 1.2%
500 Amazon.com, Inc.*<F9> 26,031
500 Autozone, Inc.*<F9> 15,000
1,000 Bed Bath & Beyond Inc.*<F9> 35,125
1,000 Borders Group, Inc.*<F9> 27,500
2,500 NIKE, Inc. Class B 132,500
1,000 Polo Ralph Lauren Corporation*<F9> 26,188
500 Starbucks Corp.*<F9> 20,907
----------
283,251
RETAIL STORES -- 1.3%
2,500 Gap, Inc. 125,158
1,500 Nordstrom, Inc. 95,625
2,000 Wal-Mart Stores, Inc. 73,250
----------
294,033
SEMICONDUCTORS -- 11.5%
4,100 Altera Corp.*<F9> 210,125
500 Hadco Corp.*<F9> 27,078
12,800 Intel Corp. 1,181,606
1,500 Lattice Semiconductor Corp.*<F9> 97,688
600 Linear Technology Corp. 41,250
7,500 LSI Logic Corp.*<F9> 240,938
800 Maxim Integrated Products Inc.*<F9> 57,150
700 Microchip Technology Inc.*<F9> 31,609
2,000 Micron Technology, Inc.*<F9> 69,376
3,000 Texas Instruments Inc. 405,375
5,000 Xilinx, Inc.*<F9> 253,125
----------
2,615,320
SEMICONDUCTOR/CAPITAL SPENDING -- 4.4%
5,000 Applied Materials, Inc.*<F9> 476,250
2,600 KLA-Tencor Corp.*<F9> 175,664
600 Kulicke & Soffa Industries, Inc.*<F9> 27,788
1,000 Lam Research Corp.*<F9> 46,500
1,300 Novellus Systems, Inc.*<F9> 163,800
600 Photronics, Inc.*<F9> 36,338
800 Sanmina Corp.*<F9> 69,250
----------
995,590
SERVICES -- 0.4%
600 Corrections Corp. of America*<F9> 26,100
2,100 Gartner Group, Inc.*<F9> 63,000
----------
89,100
TELECOMMUNICATIONS -- 4.7%
2,000 America Online Inc.*<F9> 150,876
6,000 Motorola, Inc. 431,250
500 Nokia Corp. "A" ADR 46,907
5,100 PairGain Technologies, Inc.*<F9> 145,350
500 QUALCOMM Inc.*<F9> 31,844
5,000 Tellabs, Inc.*<F9> 257,500
----------
1,063,727
----------
Total common stocks
(cost $12,926,953) 22,535,896
PREFERRED STOCKS -- 0.0%
101 Aetna Inc., 6.25%, Class C,
07/19/00 Series, Voting Preferred 7,859
----------
Total preferred stock
(cost $6,595) 7,859
----------
Total long-term investments
(cost $12,933,548) 22,543,755
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS -- 1.8% (A)<F10>
VARIABLE RATE DEMAND NOTES
$ 34,240 Johnson Controls, Inc. 34,240
365,000 Wisconsin Electric Power Co. 365,000
----------
Total short-term investments
(cost $399,240) 399,240
----------
Total investments
(cost $13,332,788) 22,942,995
Liabilities, less cash and
receivables (1.1%) (A)<F10> (241,431)
----------
NET ASSETS $22,701,564
===========
Net Asset Value Per Share
($0.01 par value 20,000,000
shares authorized), offering
and redemption price
($22,701,564 / 1,164,533
shares outstanding) $19.49
=======
*<F9>Non-income producing security.
(a)<F10>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Opportunity Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
INCOME:
Dividends $97,523
Interest 14,318
----------
Total income 111,841
----------
EXPENSES:
Management fees 193,818
Administrative services 40,158
Professional fees 20,861
Custodian fees 16,500
Transfer agent fees 10,664
Registration fees 4,043
Amortization of organizational expenses 1,145
Other expenses 2,742
----------
Total expenses 289,931
----------
NET INVESTMENT LOSS (178,090)
----------
NET REALIZED GAIN ON INVESTMENTS 94,586
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 4,387,125
----------
NET GAIN ON INVESTMENTS 4,481,711
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,303,621
==========
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1997 and 1996
1997 1996
------ ------
OPERATIONS:
Net investment loss $(178,090) $(156,143)
Net realized gain on investments 94,586 18,753
Net increase in unrealized appreciation on
investments 4,387,125 1,557,990
----------- ----------
Net increase in net assets resulting
from operations 4,303,621 1,420,600
----------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (214,277 and 389,197
shares, respectively) 3,736,722 5,726,048
Cost of shares redeemed (143,246 and 70,945
shares, respectively) (2,443,205) (1,025,039)
----------- ----------
Net increase in net assets derived from Fund
share activities 1,293,517 4,701,009
----------- ----------
TOTAL INCREASE 5,597,138 6,121,609
NET ASSETS AT THE BEGINNING OF THE YEAR 17,104,426 10,982,817
----------- ----------
NET ASSETS AT THE END OF THE YEAR $22,701,564 $17,104,426
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Opportunity Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
FOR THE YEARS FOR THE
ENDED SEPTEMBER 30, PERIOD FROM
----------------------------------------------- JANUARY 30, 1992*<F11>
<CAPTION> TO SEPTEMBER 30,
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $15.64 $14.17 $10.09 $9.78 $8.85 $10.00
Income from investment operations:
Net investment (loss) income (0.13) (0.06) (0.11) (0.09) (0.10) 0.00
Net realized and unrealized
gain (loss) on securities 3.98 1.53 4.19 0.40 1.03 (1.15)
------- ------- ------- ------- ------- -------
Total from investment operations 3.85 1.47 4.08 0.31 0.93 (1.15)
Less distributions:
Dividend from net investment income -- -- -- -- 0.00 --
------- ------- ------- ------- ------- -------
Net asset value, end of period $19.49 $15.64 $14.17 $10.09 $9.78 $8.85
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN 24.6% 10.4% 40.4% 3.2% 10.5% (16.8%)**<F12>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 22,702 17,104 10,983 6,132 3,834 1,844
Ratio of expenses (after reimbursement)
to average net assets***<F13> 1.5% 1.5% 1.9% 2.0% 2.0% 2.0%**<F12>
Ratio of net investment (loss) income
to average net assets****<F14> (0.9%) (1.1%) (1.5%) (1.6%) (1.3%) 0.0%**<F12>
Portfolio turnover rate 60.2% 11.8% 38.4% 16.8% 67.6% 30.1%
Average commission rate paid*****<F15> $0.0791 $0.1269
*<F11>Commencement of Operations.
**<F12>Annualized.
***<F13>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%**<F12>, respectively.
****<F14>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%)**<F12>, respectively.
*****<F15>Disclosure required for fiscal years beginning after
September 1, 1995.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds U.S. Government Bond Fund
STATEMENT OF NET ASSETS
September 30, 1997
PRINCIPAL QUOTED
AMOUNT MARKET VALUE
--------- ------------
LONG-TERM INVESTMENTS -- 66.0% (A)<F16>
U.S. TREASURY SECURITIES -- 54.5%
$200,000 U.S. Treasury Notes,
7.125%, due 10/15/98 $202,875
200,000 U.S. Treasury Notes,
6.750%, due 05/31/99 202,969
400,000 U.S. Treasury Notes,
6.375%, due 07/15/99 403,937
300,000 U.S. Treasury Notes,
6.000%, due 08/15/00 301,125
300,000 U.S. Treasury Notes,
8.500%, due 11/15/00 321,844
----------
Total U.S. treasury securities
(cost $1,443,518) 1,432,750
FEDERAL AGENCIES -- 11.5%
300,000 Federal Farm Credit,
6.280%, due 06/20/01
(cost $300,185) 301,414
----------
Total long-term investments
(cost $1,743,703) 1,734,164
SHORT-TERM INVESTMENTS -- 32.9% (A)<F16>
U.S. TREASURY SECURITIES -- 26.8%
300,000 U.S. Treasury Notes,
6.250%, due 06/30/98 301,406
200,000 U.S. Treasury Notes,
6.125%, due 08/31/98 200,813
200,000 U.S. Treasury Notes,
6.000%, due 09/30/98 200,625
----------
Total government securities
(cost $699,673) 702,844
VARIABLE RATE DEMAND NOTES -- 6.1%
40,352 Johnson Controls, Inc. 40,352
120,000 Wisconsin Electric Power Co. 120,000
----------
Total variable rate demand notes
(cost $160,352) 160,352
-----------
Total short-term investments
(cost $860,025) 863,196
-----------
Total Investments
(cost $2,603,728) 2,597,360
Cash and receivables, less
liabilities -- 1.1% (A)<F16> 28,406
-----------
NET ASSETS $2,625,766
==========
Net Asset Value Per Share
($0.01 par value 20,000,000
shares authorized), offering
and redemption price
($2,625,766 / 268,916
shares outstanding) $9.76
======
(a)<F16>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds U.S. Government Bond Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
INCOME:
Interest $166,808
---------
EXPENSES:
Professional fees 20,326
Management fees 19,701
Transfer agent fees 10,586
Administrative services 3,822
Registration fees 3,117
Printing and postage expense 1,624
Amortization of organizational expenses 1,145
Custodian fees 588
Other expenses 305
---------
Total expenses before reimbursement 61,214
Less expenses assumed by adviser (37,573)
---------
Net expenses 23,641
---------
NET INVESTMENT INCOME 143,167
---------
NET REALIZED GAIN ON INVESTMENTS 264
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 4,176
---------
NET GAIN ON INVESTMENTS 4,440
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $147,607
=========
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1997 and 1996
1997 1996
------ ------
OPERATIONS:
Net investment income $143,167 $139,621
Net realized gain (loss) on investments 264 (2,669)
Net increase (decrease) in unrealized appreciation
on investments 4,176 (16,703)
---------- ----------
Net increase in net assets resulting
from operations 147,607 120,249
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.5322 and $0.5333 per share, respectively) (143,167) (139,621)
---------- ----------
Total distributions (143,167) (139,621)
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (39,516 and 61,092
shares, respectively) 385,277 595,638
Net asset value of shares issued in distributions
(12,071 and 12,488 shares, respectively) 117,814 123,166
Cost of shares redeemed (66,239 and 74,161 shares,
respectively) (647,293) (732,525)
---------- ----------
Net decrease in net assets derived from Fund
share activities (144,202) (13,721)
---------- ----------
TOTAL DECREASE (139,762) (33,093)
NET ASSETS AT THE BEGINNING OF THE YEAR 2,765,528 2,798,621
---------- ----------
NET ASSETS AT THE END OF THE YEAR $2,625,766 $2,765,528
========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds U.S. Government Bond Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS PERIOD FROM
ENDED SEPTEMBER 30, JANUARY 30, 1992*<F17>
----------------------------------------------- TO SEPTEMBER 30,
1997 1996 1995 1994 1993 1992
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $9.75 $9.85 $9.61 $10.76 $10.36 $10.00
Income from investment operations:
Net investment income 0.5322 0.5333 0.5350 0.5609 0.5498 0.2979
Net realized and unrealized gain (loss)
on investments 0.0100 (0.1000) 0.2491 (1.1432) 0.4001 0.3602
------- ------- ------- -------- ------- -------
Total from investment operations 0.5422 0.4333 0.7841 (0.5823) 0.9499 0.6581
Less distributions:
Dividends from net investment income (0.5322) (0.5333) (0.5441) (0.5607) (0.5499) (0.2981)
Distribution from net realized gains -- -- -- (0.0070) -- --
------- ------- ------- ------- ------- --------
Total from distributions (0.5322) (0.5333) (0.5441) (0.5677) (0.5499) (0.2981)
------- ------- ------- ------- ------- --------
Net asset value, end of period $9.76 $9.75 $9.85 $9.61 $10.76 $10.36
======= ======= ======= ======= ======= ========
TOTAL INVESTMENT RETURN 5.70% 4.49% 8.42% (5.54%) 9.48% 10.20%**<F18>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 2,626 2,766 2,799 4,367 6,376 3,223
Ratio of expenses (after reimbursement)
to average net assets***<F19> 0.90% 0.90% 0.91% 0.86% 0.83% 0.75%**<F18>
Ratio of net investment income
to average net assets****<F20> 5.45% 5.43% 5.6% 5.4% 5.3% 5.0%**<F18>
Portfolio turnover rate 25.3% 28.6% 0.0% 19.6% 6.3% --
*<F17>Commencement of Operations.
**<F18> Annualized.
***<F19> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would have been
2.3%, 2.2%, 2.0%, 1.5% and 1.5% for the years ended September 30, 1997, 1996,
1995, 1994 and 1993, respectively, and 2.8%**<F18> for the period ended
September 30, 1992.
****<F20>The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended
September 30, 1997, 1996, 1995, 1994 and 1993 and the period ended
September 30, 1992 would have been 4.0%, 4.1%, 4.5%, 4.8%, 4.6% and
2.9%**<F18>, respectively.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Money Market Fund
STATEMENT OF NET ASSETS
September 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATING VALUE
---------- ------- -------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 50.0% (A)<F21>
$165,000 IBM Credit Corporation, 5.54%, due 10/21/97 A1P1 $164,492
145,000 American General Corporation, 5.53%, due 11/19/97 A1+P1 143,908
165,000 Associates Corporation, 5.55%, due 11/20/97 A1+P1 163,728
140,000 The CIT Group Holdings, Inc., 5.50%, due 11/21/97 A1P1 138,909
125,000 Beneficial Corporation, 5.50%, due 12/16/97 A1P1 123,549
120,000 General Electric Capital Corp., 5.51%, due 01/05/98 A1+P1 118,237
120,000 Prudential Funding Corp., 5.50%, due 01/05/98 A1P1 118,240
125,000 Merrill Lynch & Co., Inc., 5.57%, due 01/09/98 A1+P1 123,066
155,000 John Deere Capital Corporation, 5.52%, due 01/15/98 A1P1 152,481
125,000 Norwest Financial, Inc., 5.50%, due 01/15/98 A1+P1 122,976
150,000 American Express Credit Corp, 5.51%, due 02/19/98 A1P1 146,763
-----------
Total commercial paper 1,516,349
FEDERAL AGENCIES -- 39.0% (A)<F21>
300,000 Federal National Mortgage Association, 5.34%, due 10/07/97 299,733
300,000 Federal Home Loan Bank, 5.39%, due 01/16/98 295,194
300,000 Federal Home Loan Bank, 5.25%, due 02/05/98 294,444
300,000 Federal Home Loan Bank, 5.32%, due 02/11/98 294,104
-----------
Total federal agencies 1,183,475
-----------
VARIABLE RATE DEMAND NOTES -- 11.3% (A)<F21>
62,880 American Family Financial Services A1+P1 62,880
140,000 Johnson Controls, Inc. A1P1 140,000
140,000 Wisconsin Electric Power Co. A1+P1 140,000
-----------
Total variable rate demand notes 342,880
-----------
Total investments (amortized cost $3,042,704) 3,042,704
-----------
Liabilities, less cash and receivables (0.3%) (A)<F21> (10,227)
-----------
NET ASSETS $3,032,477
===========
Net Asset Value Per Share ($0.01 par value 500,000,000 shares authorized),
offering and redemption price ($3,032,477 / 3,032,477 shares outstanding) $1.00
==========
(a)<F21>Percentages for the various classifications relate to net assets.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Money Market Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
INCOME:
Interest $169,865
----------
EXPENSES:
Professional fees 20,475
Management fees 15,683
Transfer agent fees 10,669
Printing and postage expenses 4,679
Administrative services 4,632
Registration fees 4,185
Custodian fees 1,649
Other expenses 1,510
----------
Total expenses before reimbursement 63,482
Less expenses assumed by adviser (43,094)
----------
Net expenses 20,388
----------
NET INVESTMENT INCOME 149,477
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $149,477
=========
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1997 and 1996
1997 1996
------ ------
OPERATIONS:
Net investment income $149,477 $239,109
---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($0.0477
and $0.0477 per share, respectively) (149,477) (239,109)
---------- ---------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (9,021,337 and
11,997,282 shares, respectively) 9,021,337 11,997,282
Net asset value of shares issued in
distributions (145,723 and 234,567 shares,
respectively) 145,723 234,567
Cost of shares redeemed (10,115,042 and 11,994,546
shares, respectively) (10,115,042)(11,994,546)
---------- ---------
Net (decrease) increase in net assets derived from
Fund share activities. (947,982) 237,303
---------- ---------
TOTAL (DECREASE) INCREASE (947,982) 237,303
NET ASSETS AT THE BEGINNING OF THE YEAR 3,980,459 3,743,156
---------- ---------
NET ASSETS AT THE END OF THE YEAR $3,032,477 $3,980,459
========== =========
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Money Market Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991*<F22>
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <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 $1.00 $1.00
Income from investment
operations:
Net investment income 0.0477 0.0477 0.0510 0.0304 0.0255 0.0364 0.0358
Less distributions:
Dividends from net
investment income (0.0477) (0.0477) (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 $1.00 $1.00
======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN 4.9% 4.9% 5.2% 3.1% 2.6% 3.6% 5.5%**<F23>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in 000's $) 3,032 3,980 3,743 3,192 6,798 6,166 3,617
Ratio of expenses (after
reimbursement)
to average net assets***<F24> 0.65% 0.65% 0.65% 0.63% 0.67% 0.64% 0.61%**<F23>
Ratio of net investment
income to
average net assets****<F25> 4.77% 4.78% 5.08% 2.84% 2.62% 3.53% 5.43%**<F23>
*<F22>For the period from January 30, 1991 (commencement of operations) to
September 30, 1991.
**<F23>Annualized.
***<F24>Computed after giving effect to adviser's expense limitation undertaking.
If the Fund had paid all of its expenses, the ratio would have been 2.02%, 1.39%,
1.95%, 1.47%, 1.22% and 1.73% for the years ended September 30, 1997, 1996,
1995, 1994, 1993 and 1992, respectively, and 1.85%**<F23> for the period ended
September 30, 1991.
****<F25>If the Fund had paid all of its expenses, the ratio would have been
3.39%, 4.05%, 3.79%, 2.01%, 2.08% and 2.44% for the years ended
September 30, 1997, 1996, 1995, 1994, 1993 and 1992, respectively, and
4.18%**<F23> for the period ended September 30, 1991.
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Funds, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the Reynolds
Funds, Inc. (the "Company"), which is registered as an open-end management
investment company under the Investment Company Act of 1940. This Company
consists of a series of four funds: the Reynolds Blue Chip Growth Fund ("Blue
Chip Fund"), the Reynolds Money Market Fund ("Money Market Fund"), the
Reynolds Opportunity Fund ("Opportunity Fund") and the Reynolds U.S.
Government Bond Fund ("Government Bond Fund") (collectively the "Funds").
The assets and liabilities of each Fund are segregated and a shareholder's
interest is limited to the Fund in which the shareholder owns shares. The
Company was incorporated under the laws of Maryland on April 28, 1988.
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; 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; 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; and the
investment objective of the Government 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.
(a) Each security for the Blue Chip Fund, Opportunity Fund and Government
Bond Fund, excluding short-term investments, is valued at the last sale price
reported by the principal security exchange on which the issue is traded, or
if no sale is reported, the latest bid price. Securities which are traded
over-the-counter are valued at the latest bid price. Short-term investments
held by these Funds and all instruments held by the Money Market Fund are
valued at amortized cost which approximates quoted market value. Securities
for which quotations are not readily available are valued at fair value as
determined by the investment adviser under the supervision of the Board of
Directors. Investment transactions are recorded no later than the first
business day after the trade date. The cost amounts of securities for
Federal income tax purposes aggregates $30,509,531 and $13,346,923,
respectively, for the Blue Chip Fund and the Opportunity Fund. The
differences between cost amounts for book purposes and tax purposes is due to
deferred wash losses. Cost amounts, as reported on the statements of net
assets for the Government Bond Fund and the Money Market Fund, are the same
for Federal income tax purposes.
(b) Net realized gains and losses on common stock of the Blue Chip Fund and
the Opportunity Fund are computed on the basis of the cost of specific
certificates.
(c) Provision has not been made for Federal income taxes since the Funds
have elected to be taxed as "regulated investment companies" and intend to
distribute substantially all income to shareholders and otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies. The Opportunity Fund has $16,468, $53,303 and $103,349
of net capital losses which expire September 30, 2002, 2003 and 2004,
respectively. The Opportunity Fund utilized $85,844 of capital loss
carryovers to offset current year net capital gains. The Government Bond Fund
has $231,244, $19,651 and $2,405 of net capital losses which expire September
30, 2003, 2004 and 2005, respectively.
(d) The Blue Chip Fund and the Opportunity Fund record dividend income on
the ex-dividend date and interest income on the accrual basis. The
Government Bond Fund and the Money Market Fund record interest income on the
accrual basis.
(e) The Funds have investments in short-term variable rate demand notes,
which are unsecured instruments. The Funds may be susceptible to credit risk
with respect to these notes to the extent the issuer defaults on its payment
obligation. The Funds' policy is to monitor the creditworthiness of the
issuer and does not anticipate nonperformance by these counterparties.
(f) Generally accepted accounting principles require that permanent
financial reporting and tax differences be reclassified to capital stock.
(g) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
The Funds have management agreements with Reynolds Capital Management
("RCM"), with whom certain officers and directors of the Funds are
affiliated, to serve as investment adviser and manager. Under the terms of
the agreements, the Blue Chip Fund and the Opportunity Fund will pay RCM a
monthly management fee at the annual rate of 1% of such Funds' daily net
assets; from the Government Bond Fund a monthly fee of 0.75% of such Fund's
daily net assets; and from the Money Market Fund a monthly fee of 0.5% of
such Fund's daily net assets. For the year ended September 30, 1997, RCM
voluntarily waived $19,701 and $15,683 of the management fees due from the
Government Bond Fund and the Money Market Fund, respectively, under the
agreements. Additionally, RCM assumed $17,872 and $27,411 of other expenses
of the Government Bond Fund and the Money Market Fund, respectively.
In addition to the reimbursement required under the management agreements,
RCM has voluntarily reimbursed the Government Bond Fund and the Money Market
Fund for expenses over 0.90% and 0.65% of the daily net assets of the Funds',
respectively. These voluntary reimbursements to the Government Bond Fund and
the Money Market Fund may be modified or discontinued at any time by RCM.
The Funds have administrative agreements with Fiduciary Management, Inc.
("FMI"), with whom certain officers of the Funds are affiliated, to supervise
all aspects of the Funds' operations except those performed by RCM pursuant
to the management agreements. Under the terms of the agreements, the Blue
Chip Fund and the Opportunity Fund will pay FMI a monthly administrative fee
at the annual rate of 0.2% of such Funds' daily net assets up to and
including $30,000,000 and 0.1% of such Funds' daily net assets in excess of
$30,000,000; and the Government Bond Fund and the Money Market Fund will pay
FMI a monthly administrative fee at the annual rate of 0.1% of such Funds'
daily net assets.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed to
shareholders. The Blue Chip Fund declared a distribution of $469,896 from
net long-term realized gains ($0.246067 per share) on October 27, 1997. The
distribution was paid on October 28, 1997, to shareholders of record on
October 24, 1997. Dividends from net investment income for the Government
Bond Fund and the Money Market Fund are declared daily and paid monthly.
Distributions of net realized gains, if any, will be declared at least once
each year.
(4) DEFERRED EXPENSES --
Organizational expenses were deferred and were amortized on a straight-line
basis over a period of five years. These expenses were advanced by RCM who
was reimbursed by the Funds. The unamortized organizational expenses at
September 30, 1997 were $- 0 - for both the Opportunity Fund and the
Government Bond Fund.
(5) INVESTMENT TRANSACTIONS --
For the year ended September 30, 1997, purchases and proceeds of sales of
investment securities of the Blue Chip Fund (excluding short-term securities)
were $26,456,240 and $11,574,400, respectively; purchases and proceeds of
sales of investment securities of the Opportunity Fund (excluding short-term
securities) were $12,624,972 and $11,463,433, respectively; purchases and
proceeds of sales of investment securities of the Government Bond Fund
(excluding short-term securities) were $599,855 and $800,031, respectively.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 1997, liabilities of the Funds included the following:
<TABLE>
<CAPTION> BLUE CHIP MONEY MARKET OPPORTUNITY GOVERNMENT
FUND FUND FUND BOND FUND
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Payable to brokers for investments purchased $378,258 $-- $532,379 $--
Payable to RCM for management fees 53,291 -- 18,466 --
Dividends payable -- 12,184 -- 11,064
Other liabilities 27,959 793 17,590 1,167
</TABLE>
(7) SOURCES OF NET ASSETS --
As of September 30, 1997, the sources of net assets were as follows:
<TABLE>
<CAPTION>
BLUE CHIP MONEY MARKET OPPORTUNITY GOVERNMENT
FUND FUND FUND BOND FUND
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Fund shares issued and outstanding $29,982,137 $3,032,477 $13,278,612 $2,885,435
Net unrealized appreciation (depreciation)
on investments 31,890,727 -- 9,610,207 (6,368)
Accumulated net realized gain (loss) on investments 421,494 -- (187,255) (253,301)
------------ ------------- ------------ ------------
$62,294,358 $3,032,477 $22,701,564 $2,625,766
=========== ============ ============ ===========
</TABLE>
<TABLE>
Aggregate net unrealized appreciation (depreciation) for the Funds as of September 30, 1997 consisted of the following:
<CAPTION>
BLUE CHIP OPPORTUNITY GOVERNMENT
FUND FUND BOND FUND
----------- ----------- -----------
<S> <C> <C> <C>
Aggregate gross unrealized appreciation $32,054,183 $9,750,436 $14,288
Aggregate gross unrealized depreciation (163,456) (140,229) (20,656)
----------- ----------- -----------
Net unrealized appreciation (depreciation) $31,890,727 $9,610,207 $(6,368)
============ ========== ===========
</TABLE>
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
or 1-800-7REYNOLDS
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
