Registration Nos. 33-21718
811-05549
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. 13 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 15 |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
(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)
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):
[ ] immediately upon filing pursuant to paragraph (b)
|X| on November 30, 1998 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.
<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.)
Prospectus Caption or Subheading
Item No. on Form N-1A in Prospectus or Statement of
--------------------- Additional Information
Part A - INFORMATION REQUIRED IN PROSPECTUS ----------------------------------
- -------------------------------------------
1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of
Registrant Introduction; Investment
Objectives and Policies
5. Management of the Fund Management of the Funds; Brokerage
Transactions; General Information
About the Company and the Funds
5A. Management's Discussion of Fund Management's Discussion of
Performance Performance of the Funds
6. Capital Stock and Other
Securities Dividends, Distributions and
Taxes; General Information About
the Company and the Funds;
Shareholder Reports
7. Purchase of Securities
Being Offered Distribution Plan; Determination
of Net Asset Value; How to
Purchase Shares; Additional
Shareholder Services; Retirement
Plans
8. Redemption or Repurchase How to Redeem Shares; Exchange
Privilege; Additional Shareholder
Services
9. Pending Legal Proceedings *
Part B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
- ------------------
* Answer negative or inapplicable.
<PAGE>
11. Table of Contents Table of Contents
12. General Information and History *
13. Investment Objectives and Policies
Investment Restrictions;
Investment Considerations;
Performance and Yield Information
14. Management of the Fund Directors and Officers of the
Company
15. Control Persons and Principal Ownership of Management and
Holders of Securities Principal Shareholders
16. Investment Advisory and Other Investment Adviser and
Services Administrator; Custodian;
Independent Accountants
17. Brokerage Allocation and Other
Practices Allocation of Portfolio Brokerage
18. Capital Stock and Other Securities Included in Prospectus under
"General Information About the
Company and the Funds";
Shareholder Meetings
19. Purchase, Redemption Included in Prospectus under
and Pricing of "Determination of Net Asset
Securities Being Offered Value"; "Additional Shareholder
Services"; and "Retirement
Plans"; Determination of Net Asset
Value; Distribution of Shares;
Systematic Withdrawal Plan
20. Tax Status Taxes
21. Underwriters *
22. Calculation of Performance Data Performance and Yield Information
23. Financial Statements Financial Statements
<PAGE>
PROSPECTUS AND
PURCHASE APPLICATION
NOVEMBER 30, 1998
REYNOLDS FUNDS
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
PROSPECTUS NOVEMBER 30, 1998
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.
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. 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 "NO-LOAD" FUNDS; THERE ARE NO SALES COMMISSIONS OR
REDEMPTION CHARGES.
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 November 30, 1998,
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
DISTRIBUTION PLAN 15
DETERMINATION OF NET ASSET VALUE 15
HOW TO PURCHASE SHARES 16
PURCHASE APPLICATION CENTERFOLD
HOW TO REDEEM SHARES 19
EXCHANGE PRIVILEGE 22
ADDITIONAL SHAREHOLDER SERVICES 23
RETIREMENT PLANS 24
DIVIDENDS, DISTRIBUTIONS AND TAXES 27
SHAREHOLDER REPORTS 27
BROKERAGE TRANSACTIONS 27
GENERAL INFORMATION ABOUT THE COMPANY AND THE FUNDS 27
YEAR 2000 28
PERFORMANCE INFORMATION 29
MANAGEMENT'S DISCUSSION OF PERFORMANCE OF THE FUNDS 30
EXPENSE INFORMATION
<TABLE>
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 0.25%**<F2> 0.25%**<F2> None None
Other Expenses (after reimbursements) 0.35% 0.48% 0.15%***<F3> 0.15%***<F3>
------ ------ ------ ------
Total Fund Operating Expenses
(after reimbursements) 1.60% 1.73% 0.90%***<F3> 0.65%***<F3>
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
*<F1> A fee of $12.00 is charged for each wire redemption.
**<F2> 12b-1 fees have been restated to reflect the 12b-1 plan adopted on
September 23, 1998 taking effect December 1, 1998. No 12b-1 fees were
paid for the fiscal year ended September 30, 1998. The maximum level of
distribution expenses is 0.25% per annum of such Fund's average net
assets. See "Distribution Plan" for further information. The
distribution expenses for long-term shareholders may total more than
the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
***<F3> Other Expenses and Total Fund Operating Expenses (without expense
reimbursements) for the fiscal year ended September 30, 1998, for the
Bond Fund would have been 1.62% and 2.37%, respectively, and for the
Money Market Fund would have been 1.46% and 1.96%, respectively.
EXAMPLE
You would pay the following expenses on a $10,000 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 $163 $505 $871 $1,900
Reynolds Opportunity Fund $176 $545 $939 $2,041
Reynolds U.S. Government
Bond Fund $ 92 $287 $498 $1,108
Reynolds Money Market Fund $ 66 $208 $362 $ 810
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 the Reynolds U.S. Government Bond Fund and
the Reynolds Money Market Fund are based on actual expenses incurred for the
year ended September 30, 1998. The Annual Fund Operating Expenses for the
Reynolds Blue Chip Growth Fund and the Reynolds Opportunity Fund are based on
the actual expenses incurred for the fiscal year ended September 30, 1998, but
have been restated to reflect the adoption of the 12b-1 plan taking effect
December 1, 1998. 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 Financial Highlights of the Funds should be read in conjunction with the
Funds' audited financial statements and notes thereto, included in the Funds'
Annual Report to Shareholders. The Funds' audited financial statements, notes
thereto and auditor's report thereon contained in the Funds' Annual Report to
Shareholders are incorporated by reference into the Statement of Additional
Information. The Financial Highlights of each Fund set forth below have been
audited. Further information about the performance of the Funds is also
contained in the Funds' Annual Report to Shareholders, copies of which may be
obtained, without charge, upon request.
REYNOLDS BLUE CHIP GROWTH FUND
<TABLE>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of year $32.00 $ 22.69 $ 19.25 $ 14.46 $ 14.22 $ 14.98 $ 13.96 $ 11.14 $ 11.92 $ 10.06
Income from investment
operations:
Net investment (loss)
income (0.12) (0.01) (0.03) 0.02 0.09 0.12 0.09 0.14 0.07 0.25
Net realized and
unrealized gain (loss)
on investments 5.46 9.67 3.52 5.00 0.28 (0.79) 1.02 2.83 (0.65) 1.73
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.34 9.66 3.49 5.02 0.37 (0.67) 1.11 2.97 (0.58) 1.98
Less distributions:
Dividends from net
investment income (0.01) -- (0.02) (0.06) (0.13) (0.09) (0.09) (0.15) (0.15) (0.12)
Distributions from
net realized gains (0.38) (0.35) (0.03) (0.17) -- -- -- -- (0.05) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (0.39) (0.35) (0.05) (0.23) (0.13) (0.09) (0.09) (0.15) (0.20) (0.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end
of year $36.95 $ 32.00 $ 22.69 $ 19.25 $ 14.46 $ 14.22 $ 14.98 $ 13.96 $ 11.14 $ 11.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 17.0% 43.2% 18.1% 35.3% 2.6% (4.5%) 8.0% 26.9% (5.0%) 19.9%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's $) 89,533 62,294 30,807 29,357 24,771 38,929 40,580 27,735 10,009 5,260
Ratio of expenses
(after reimbursement)
to average net assets 1.4% 1.4% 1.5% 1.5% 1.5% 1.4% 1.5% 1.7% 2.1% 2.0%*<F4>
Ratio of net investment
(loss) income to average
net assets (0.4%) (0.1%) (0.1%) 0.1% 0.5% 0.8% 0.6% 1.2% 0.8% 2.7%**<F5>
Portfolio turnover rate 35.5% 25.0% 21.5% 49.2% 43.3% 38.1% 0.2% 0.9% 66.2% 32.5%
</TABLE>
*<F4> 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.
**<F5> If the Fund had paid all of its expenses, the ratio would have been
2.0% for the year ended September 30, 1989.
REYNOLDS OPPORTUNITY FUND
<TABLE>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992+<F6>
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $19.49 $15.64 $14.17 $10.09 $ 9.78 $ 8.85 $10.00
Income from investment operations:
Net investment (loss) income (0.09)++<F7>(0.13) (0.06) (0.11) (0.09) (0.10) 0.00
Net realized and unrealized
gain (loss) on securities 2.48 3.98 1.53 4.19 0.40 1.03 (1.15)
------ ------ ------ ------ ------ ------ ------
Total from investment operations 2.39 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 $21.88 $19.49 $15.64 $14.17 $10.09 $ 9.78 $ 8.85
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 12.3% 24.6% 10.4% 40.4% 3.2% 10.5% (11.5%)*<F8>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 29,154 22,702 17,104 10,983 6,132 3,834 1,844
Ratio of expenses (after reimbursement)
to average net assets*** 1.5% 1.5% 1.5% 1.9% 2.0% 2.0% 2.0%**<F9>
Ratio of net investment (loss) income
to average net assets**** (0.8%) (0.9%) (1.1%) (1.5%) (1.6%) (1.3%) 0.0%**<F9>
Portfolio turnover rate 39.4% 60.2% 11.8% 38.4% 16.8% 67.6% 30.1%
</TABLE>
+<F6> For the period from January 30, 1992 (commencement of operations) to
September 30, 1992.
++<F7> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
*<F8> Not annualized.
**<F9> Annualized.
***<F10> Computed after giving effect to adviser's expense 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%**<F9>,
respectively.
****<F11> 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%)**<F9>,
respectively.
REYNOLDS U.S. GOVERNMENT BOND FUND
<TABLE>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992+<F11>
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period $ 9.76 $ 9.75 $ 9.85 $ 9.61 $10.76 $10.36 $10.00
Income from investment operations:
Net investment income 0.53 0.53 0.53 0.54 0.56 0.55 0.30
Net realized and unrealized
(loss) gain on investments 0.05 0.01 (0.10) 0.24 (1.14) 0.40 0.36
------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.58 0.54 0.43 0.78 (0.58) 0.95 0.66
Less distributions:
Dividends from net investment income (0.53) (0.53) (0.53) (0.54) (0.56) (0.55) (0.30)
Distribution from net realized gains -- -- -- -- (0.01) -- --
------ ------ ------ ------ ------ ------ ------
Total from distributions (0.53) (0.53) (0.53) (0.54) (0.57) (0.55) (0.30)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $ 9.81 $ 9.76 $ 9.75 $ 9.85 $ 9.61 $10.76 $10.36
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 6.08% 5.70% 4.49% 8.42% (5.54%) 9.48% 6.68%*<F12>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 3,074 2,626 2,766 2,799 4,367 6,376 3,223
Ratio of expenses (after reimbursement)
to average net assets***<F14> 0.90% 0.90% 0.90% 0.91% 0.86% 0.83% 0.75%**<F13>
Ratio of net investment income
to average net assets****<F15> 5.40% 5.45% 5.43% 5.59% 5.42% 5.34% 4.95%**<F13>
Portfolio turnover rate -- 25.28% 28.65% -- 19.59% 6.34% --
</TABLE>
+<F11> For the period from January 30, 1992 (commencement of operations) to
September 30, 1992.
*<F12> Not annualized
**<F13> Annualized.
***<F14> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
would have been 2.4%, 2.3%, 2.2%, 2.0%, 1.5% and 1.5% for the years
ended September 30, 1998, 1997, 1996, 1995, 1994 and 1993,
respectively, and 2.8%**<F13> for the period ended September 30, 1992.
****<F15>The ratios of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended
September 30, 1998, 1997, 1996, 1995, 1994 and 1993 and the period
ended September 30, 1992 would have been 3.9%, 4.0%, 4.1%, 4.5%, 4.8%,
4.6% and 2.9%**<F13>, respectively.
REYNOLDS MONEY MARKET FUND
<TABLE>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991+<F16>
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <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 $ 1.00
Income from investment operations:
Net investment income 0.05 0.05 0.05 0.05 0.03 0.03 0.04 0.04
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN 5.0% 4.9% 4.9% 5.2% 3.1% 2.6% 3.6% 3.6%*<F17>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's $) 4,879 3,032 3,980 3,743 3,192 6,798 6,166 3,617
Ratio of expenses (after reimbursement)
to average net assets***<F19> 0.65% 0.65% 0.65% 0.65% 0.63% 0.67% 0.64% 0.61%**<F18>
Ratio of net investment income to
average net assets****<F20> 4.88% 4.77% 4.78% 5.08% 2.84% 2.62% 3.53% 5.43%**<F18>
</TABLE>
+<F16> For the period from January 30, 1991 (commencement of operations) to
September 30, 1991.
*<F17> Not annualized.
**<F18> Annualized.
***<F19> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the
ratios would have been 1.96%, 2.02%, 1.39%, 1.95%, 1.47%, 1.22% and
1.73% for the years ended September 30, 1998, 1997, 1996, 1995, 1994,
1993 and 1992, respectively, and 1.85%**<F18> for the period ended
September 30, 1991.
****<F20> If the Fund had paid all of its expenses, the ratios would have been
3.57%, 3.39%, 4.05%, 3.79%, 2.01%, 2.08% and 2.44% for the years ended
September 30, 1998, 1997, 1996, 1995, 1994, 1993 and 1992,
respectively, and 4.18%**<F18> for the period ended
September 30, 1991.
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:
o Combines the resources of many investors, with each individual investor
having an interest in every one of the securities owned by such Fund;
o Provides each individual investor with diversification by investing in the
securities of many different issuers;
o Reduces transaction costs by buying and selling larger blocks of
securities; and
o 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 $1 billion (or $1,000,000,000) 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 The Coca-Cola Company, General Electric Co., Intel Corp.,
Johnson & Johnson, Merck & Co., Inc., Microsoft Corp., 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:
o a long history of profitability
o potential for above-average earnings growth
o leadership positions in its markets
o a superior and pragmatic growth strategy
o participation in expanding industries
o proprietary products, processes or services
o an experienced and tested management
o a strong balance sheet
o an above-average record of dividend consistency and growth
o 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-l 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. 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 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. 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 under normal market conditions 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 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 IBCA, 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.
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 October 31, 1998 approximately
$175,000,000, 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 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, 1998 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
"FINANCIAL HIGHLIGHTS."
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.
DISTRIBUTION PLAN
Each of the Blue Chip Fund and the Opportunity Fund has adopted a
distribution plan (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that each Fund may incur certain costs which may not exceed a maximum
amount equal to 1/12 of 0.25% (0.25% per annum) of such Fund's average daily net
assets. Payments made pursuant to the Plan may only be used to pay distribution
expenses incurred in the current year. Amounts paid under the Plan by a Fund may
be spent by such Fund on any activities or expenses primarily intended to result
in the sale of shares of such Fund, including but not limited to, advertising,
compensation for sales and sales marketing activities of financial institutions
and others, such as dealers or distributors, shareholder account servicing, the
printing and mailing of prospectuses to other than current shareholders, and the
printing and mailing of sales literature. Distribution expenses will be
authorized by the officers of the Company as the Blue Chip Fund and Opportunity
Fund do not employ a distributor. To the extent any activity financed by the
Plan is one which a Fund may finance without a 12b-1 plan, such Fund may also
make payments to finance such activity outside of the Plan and not be subject to
its limitations.
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)
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 Stock Market 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 l/2 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 Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-
0701. The U.S. Postal Service is not an agent of the Funds. Therefore, deposit
in the mail does not constitute receipt by Firstar Mutual Fund Services, LLC or
the Funds. Please DO NOT MAIL LETTERS BY OVERNIGHT COURIER TO THE POST OFFICE
BOX. All applications must be accompanied by payment in the form of a check
which should be 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 Mutual Fund Services, LLC will
charge a $25 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 Mutual
Fund Services, LLC 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
Mutual Fund Services, LLC, 3rd Floor, 615 E. Michigan Street, Milwaukee,
Wisconsin 53202. The U.S. Postal Service and other independent delivery services
are not agents of the Fund. Therefore, deposit of purchase applications with
such services does not constitute receipt by Firstar Mutual Fund Services, LLC
or the Funds.
TO PURCHASE BY WIRE
THE ESTABLISHMENT OF A NEW ACCOUNT BY WIRE TRANSFER SHOULD BE PRECEDED BY A
TELEPHONE CALL TO FIRSTAR MUTUAL FUND SERVICES, LLC AT 1-800-773-9665 OR 1-414-
765-4124 IN ORDER TO PROVIDE INFORMATION FOR THE SETTING UP OF THE ACCOUNT,
OBTAIN A CONFIRMATION NUMBER AND TO ENSURE PROMPT AND ACCURATE HANDLING OF
FUNDS. THE FUNDS AND THEIR TRANSFER AGENT ARE NOT RESPONSIBLE FOR THE
CONSEQUENCES OF DELAYS RESULTING FROM THE BANKING OR FEDERAL RESERVE WIRE
SYSTEM, OR FROM INCOMPLETE WIRING INSTRUCTIONS. 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 Mutual Fund Services, LLC
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 ($100 minimum).
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 made on 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 $25
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 Mutual Fund Services,
LLC 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 $500 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. Investors may purchase shares of the Funds
through programs or services offered or administered by broker-dealers,
financial institutions or other service providers ("Processing Intermediaries").
Such Processing Intermediaries may become shareholders of record and may use
procedures and impose restrictions in addition to or different from those
applicable to shareholders who invest directly in the Funds. Certain services of
the Funds may not be available or may be modified in connection with the
programs provided by Processing Intermediaries. The Funds may accept requests to
purchase additional shares into an account in which the Processing Intermediary
is the shareholder of record only from the Processing Intermediary. Processing
Intermediaries may charge fees or assess other charges for the services they
provide to their customers. Any such fee or charge is retained by the Processing
Intermediary and is not remitted to the Funds or the Adviser. Additionally, the
Adviser and/or the Fund may pay fees to Processing Intermediaries to compensate
them for the services they provide. Program materials provided by the Processing
Intermediary should be read in conjunction with the Prospectus before investing
in this manner. Shares of the Funds may be purchased through Processing
Intermediaries without regard to the Funds' minimum purchase requirements.
The Funds may authorize one or more Processing Intermediaries (and other
Processing Intermediaries properly designated thereby) to accept purchase orders
on the Funds' behalf. In such event, the Funds will be deemed to have received a
purchase order when the Processing Intermediary accepts the customer order, and
the order will be priced at such Fund's net asset value next computed after it
is accepted by the Processing Intermediary.
Certain Processing Intermediaries that have entered into agreements with the
Funds may enter purchase orders by telephone, with payment to follow the next
business day as specified in the agreement. The Funds may effect such purchase
orders at the net asset value next determined after receipt of the telephone
purchase order. It is the responsibility of the Processing Intermediary to place
the order with the Funds on a timely basis. If payment is not received within
the time period specified in the agreement, the Processing Intermediary could be
held liable for any resulting fees or losses.
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 Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. The U.S. Postal
Service and other independent delivery services are not agents of the Funds.
Therefore, deposit of redemption requests in the mail or with such delivery
services does not constitute receipt by Firstar Mutual Fund Services, LLC or the
Funds. Please DO NOT MAIL LETTERS BY OVERNIGHT COURIER TO THE POST OFFICE BOX
ADDRESS. Redemption requests sent by overnight or express mail should be
directed to Reynolds Funds, c/o Firstar Mutual Fund Services, LLC, 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 Mutual Fund Services, LLC, and the effective date of redemption will
be delayed until the request is received by Firstar Mutual Fund Services, LLC.
Requests for redemption by telegram cannot be honored 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 by all person(s)
ants, Sole Proprietor, required to Custodial (Uniform sign for the
Gift to Minors Act), account, exactly as it is registered.
General Partners
Corporations, Redemption request and a corporate resolution,
Associations 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
document 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 Mutual Fund Services, LLC, 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
Mutual Fund Services, LLC have been satisfied.
TELEPHONE REDEMPTION
Shareholders may redeem shares of the Funds 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 Mutual Fund Services, LLC 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, wired or sent via Electronic Funds
Transfer ("EFT") only to an investor's address or bank of record as shown on the
records of the transfer agent. (Transfers via EFT generally take up to 3
business days to reach the investor's bank account.) Telephone redemptions must
be in amounts of $1,000 or more.
If an investor redeems shares of a 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 $12.00 fee for each
payment made by wire of redemption proceeds, which will be deducted from the
shareholder's account.
If an investor redeems shares of a Fund by telephone and requests EFT, money
will be automatically moved from the investor's Fund account to the investor's
bank account according to the bank and account designated on the purchase
application or in written instructions subsequently received by the transfer
agent. Transfers via EFT generally take up to 3 business days to reach your bank
account. There is not a charge for a payment made via EFT.
In order to arrange for telephone redemptions after a 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 Mutual Fund
Services, LLC 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 Funds reserve the right to refuse a telephone redemption if they believe
it is advisable to do so. Procedures for redeeming shares of the Funds by
telephone may be modified or terminated by the Funds at any time. Neither the
Funds nor their 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 Funds 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 $25 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 $25 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 Mutual Fund Services, LLC
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. Proceeds for
shares redeemed will be mailed, wired or forwarded via EFT 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 Mutual Fund Services, LLC, which will assess a nominal wiring charge
(currently $12.00, but subject to change without notice) directly against the
investor's account. Redemptions via EFT generally will take up to 3 business
days to reach the investor's bank account.
Shares of the Funds purchased through programs or services offered or
administered by Processing Intermediaries that have entered into agreements with
the Funds may be required to be redeemed through such programs. Such Processing
Intermediaries may become shareholders of record and may use procedures and
impose restrictions in addition to or different from those applicable to
shareholders who redeem shares directly through the Funds. The Funds may accept
redemption requests for an account in which the Processing Intermediary is the
shareholder of record only from the Processing Intermediary. The Funds may
authorize one or more Processing Intermediaries (and other Processing
Intermediaries properly designated thereby) to accept redemption requests on the
Funds' behalf. In such event, that Fund will be deemed to have received a
redemption request when the Processing Intermediary accepts the shareholder's
request, and the redemption price will be such Fund's net asset value next
computed after the shareholder's redemption request is accepted by the
Processing Intermediary.
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 $500. 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 $500 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 Mutual Fund Services, LLC,
3rd Floor, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. Exchange requests
should be directed to Firstar Mutual Fund Services, LLC 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 Mutual
Fund Services, LLC 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 Mutual Fund Services, LLC, 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 or paid in cash, or to have income dividends
reinvested and capital gains distributions paid in cash or capital gains
distributions reinvested and income dividends paid in cash. Shareholders having
dividends and/or capital gains distributions paid in cash may choose to have
such amounts mailed or forwarded via EFT. Transfers via EFT generally will take
up to 3 business days to reach the shareholder's bank account. 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/or distributions in cash will
apply to all shares of a Fund registered in the same name, including those
previously purchased. See "DIVIDENDS, DISTRIBUTIONS AND TAXES" for tax
consequence.
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
Mutual Fund Services, LLC 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 Mutual Fund Services, LLC 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 ACCOUNTS
Individual shareholders may establish their own tax-sheltered Individual
Retirement Accounts ("IRA"). Each of the Funds currently offers three types of
IRAs that can be adopted by executing the appropriate Internal Revenue Service
("IRS") Form.
Traditional IRA. In a Traditional IRA, amounts contributed to the IRA may be
tax deductible at the time of contribution depending on whether the shareholder
is an "active participant" in an employer-sponsored retirement plan and the
shareholder's income. Distributions from a Traditional IRA will be taxed at
distribution except to the extent that the distribution represents a return of
the shareholder's own contributions for which the shareholder did not claim (or
was not eligible to claim) a deduction. Distributions prior to age 59-1/2 may be
subject to an additional 10% tax applicable to certain premature distributions.
Distributions must commence by April 1 following the calendar year in which the
shareholder attains age 70-1/2. Failure to begin distributions by this date (or
distributions that do not equal certain minimum thresholds) may result in
adverse tax consequences.
Roth IRA. In a Roth IRA, amounts contributed to the IRA are taxed at the time
of contribution, but distributions from the IRA are not subject to tax if the
shareholder has held the IRA for certain minimum periods of time (generally,
until age 59-1/2). Shareholders whose incomes exceed certain limits are
ineligible to contribute to a Roth IRA. Distributions that do not satisfy the
requirements for tax-free withdrawal are subject to income taxes (and possibly
penalty taxes) to the extent that the distribution exceeds the shareholder's
contributions to the IRA. The minimum distribution rules applicable to
Traditional IRAs do not apply during the lifetime of the shareholder. Following
the death of the shareholder, certain minimum distribution rules apply.
For Traditional and Roth IRAs, the maximum annual contribution generally is
equal to the lesser of $2,000 or 100% of the shareholder's compensation (earned
income). An individual may also contribute to a Traditional IRA or Roth IRA on
behalf of his or her spouse provided that the individual has sufficient
compensation (earned income). Contributions to a Traditional IRA reduce the
allowable contribution under a Roth IRA, and contributions to a Roth IRA reduce
the allowable contribution to a Traditional IRA.
Education IRA. In an Education IRA, contributions are made to an IRA
maintained on behalf of a beneficiary under age 18. The maximum annual
contribution is $500 per beneficiary. The contributions are not tax deductible
when made. However, if amounts are used for certain educational purposes,
neither the contributor nor the beneficiary of the IRA are taxed upon
distribution. The beneficiary is subject to income (and possibly penalty taxes)
on amounts withdrawn from an Education IRA that are not used for qualified
educational purposes. Shareholders whose income exceeds certain limits are
ineligible to contribute to an Education IRA.
Under current IRS regulations, an IRA applicant must be furnished a
disclosure statement containing information specified by the IRS. The applicant
generally has the right to revoke his account within seven days after receiving
the disclosure statement and obtain a full refund of his contributions. The
custodian may, in its discretion, hold the initial contribution uninvested until
the expiration of the seven-day revocation period. The custodian does not
anticipate that it will exercise its discretion but reserves the right to do so.
SIMPLIFIED EMPLOYEE PENSION PLAN
A Traditional IRA may also be used in conjunction with a Simplified Employee
Pension Plan ("SEP-IRA"). A SEP-IRA is established through execution of Form
5305-SEP together with a Traditional IRA established for each eligible employee.
Generally, a SEP-IRA allows an employer (including a self-employed individual)
to purchase shares with tax deductible contributions, which may not exceed
annually for any one participant 15% of compensation (disregarding for this
purpose compensation in excess of $160,000 per year). The $160,000 compensation
limit applies for 1998 and is adjusted periodically for cost of living
increases. A number of special rules apply to SEP Plans, including a requirement
that contributions generally be made on behalf of all employees of the employer
(including for this purpose a sole proprietorship or partnership) who satisfy
certain minimum participation requirements.
SIMPLE IRA
An IRA may also be used in connection with a SIMPLE Plan established by the
shareholder's employer (or by a self-employed individual). When this is done,
the IRA is known as a SIMPLE IRA, although it is similar to a Traditional IRA
with the exceptions described below. Under a SIMPLE Plan, the shareholder may
elect to have his or her employer make salary reduction contributions of up to
$6,000 per year to the SIMPLE IRA. The $6,000 limit applies for 1998 and is
adjusted periodically for cost of living increases. In addition, the employer
will contribute certain amounts to the shareholder's SIMPLE IRA, either as a
matching contribution to those participants who make salary reduction
contributions or as a non-elective contribution to all eligible participants
whether or not making salary reduction contributions. A number of special rules
apply to SIMPLE Plans, including (1) a SIMPLE Plan generally is available only
to employers with fewer than 100 employees; (2) contributions must be made on
behalf of all employees of the employer (other than bargaining unit employees)
who satisfy certain minimum participation requirements; (3) contributions are
made to a special SIMPLE IRA that is separate and apart from the other IRAs of
employees; (4) the distribution excise tax (if otherwise applicable) is
increased to 25% on withdrawals during the first two years of participation in a
SIMPLE IRA; and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into another SIMPLE IRA (and not
to a Traditional IRA or to a Roth IRA). A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for each eligible employee.
403(B)(7) CUSTODIAL ACCOUNT
A 403(b)(7) Custodial Account is available for use in conjunction with the
403(b)(7) program established by certain educational organizations and other
organizations that are exempt from tax under 501(c)(3) of the Internal Revenue
Code as amended (the "Code"). Amounts contributed to the custodial account in
accordance with the employer's 403(b)(7) program will be invested on a tax-
deductible basis in shares of any Fund. Various contribution limits apply with
respect to 403(b)(7) arrangements.
DEFINED CONTRIBUTION RETIREMENT PLAN (401(K))
A prototype defined contribution plan is available for employers who wish to
purchase shares of any Fund with tax deductible contributions. The plan consists
of both profit sharing and money purchase pension components. The profit sharing
component includes a Section 401(k) cash or deferred arrangement for employers
who wish to allow eligible employees to elect to reduce their compensation and
have such amounts contributed to the plan. The limit on employee salary
reduction contributions is $10,000 annually (as adjusted for cost-of-living
increases) although lower limits may apply as a result of non-discrimination
requirements incorporated into the plan. The Company has received an opinion
letter from the IRS holding that the form of the prototype defined contribution
retirement plan is acceptable under Section 401 of the Code. The maximum annual
contribution that may be allocated to the account of any participant is
generally the lesser of $30,000 or 25% of compensation (earned income).
Compensation in excess of $160,000 (as periodically indexed for cost-of-living
increases) is disregarded for this purpose. The maximum amount that is
deductible by the employer depends upon whether the employer adopts both the
profit sharing and money purchase components of the plan, or only one component.
RETIREMENT PLAN FEES
Firstar Bank Milwaukee, Milwaukee, Wisconsin, serves as trustee or custodian
of the retirement plans. Firstar Bank Milwaukee invests all cash contributions,
dividends and capital gains distributions in shares of the appropriate Fund. For
such services, the following fees are charged against the accounts of
participants; $12.50 annual maintenance fee per participant account ($25.00
maximum per tax payer identification number); $15 for transferring to a
successor trustee or custodian; $15 for distribution(s) to a participant; and
$15 for refunding any contribution in excess of the deductible limit. Firstar
Bank Milwaukee's fee schedule may be changed upon written notice.
Requests for information and forms concerning the retirement plans should be
directed to the Company. Because a retirement program may involve commitments
covering future years, it is important that the investment objective of the
Funds be consistent with the participant's retirement objectives. Premature
withdrawal from a retirement plan will result in adverse tax consequences.
Consultation with a competent financial and tax adviser regarding the retirement
plans is recommended.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Funds will endeavor to qualify as a "regulated investment
company" under Subchapter M of the Code. Each Fund is taxed as a separate entity
under Subchapter M and qualifies on a separate basis. Pursuant to the
qualification requirements of Subchapter M, each Fund intends to distribute
substantially all of its net investment income to its shareholders
annually.
Each of the Funds also intends to distribute substantially all of its net
capital gains less available capital loss carryovers annually and other income
to reduce or avoid federal income and excises taxes. For federal income tax
purposes, distributions by a Fund, whether invested in additional shares of
Common Stock or received in cash, will be taxable to such Fund's shareholders
unless exempt from federal taxation. Shareholders will be notified annually as
to the federal tax status of dividends and distributions.
Distributions and redemptions may also be taxed under state and local tax
laws. Investors are advised to consult their tax adviser concerning the
application of state and local taxes.
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 Mutual Fund
Services, LLC 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 Mutual Fund Services, LLC 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. 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 per share 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 Bank Milwaukee, 615 East Michigan Street, Milwaukee, Wisconsin 53202,
is the custodian for all securities and cash of the Funds and Firstar Mutual
Fund Services, LLC serves as the Company's transfer and dividend disbursing
agent.
YEAR 2000
The Funds are aware of the "Year 2000" issue. The "Year 2000" issue stems
from the use of a two-digit format to define the year in certain date-sensitive
computer application systems rather than the use of a four-digit format. As a
result, date-sensitive software programs could recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems or
process failures or the generation of erroneous data, which would lead to
disruptions in the Funds' business operations.
The Funds have no application systems of their own and are entirely dependent
on their service providers' systems and software. The Funds are working with
their service providers (including the Adviser, the Administrator, their
transfer agent and their custodian) to identify and remedy any Year 2000 issues.
However, the Funds cannot guarantee that all Year 2000 issues will be identified
and remedied, and the failure to successfully identify and remedy all Year 2000
issues could result in an adverse impact on the Funds.
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 ranking 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, 1998 by the strong earnings growth of many of the stocks in
its portfolio and by the market leadership of high quality growth companies. The
Blue Chip Fund was also positively affected by the continuing economic recovery
and by declining inflation and interest rates.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS BLUE CHIP GROWTH FUND AND S&P 500 INDEX(1)<F21>
AVERAGE ANNUAL TOTAL RETURN
1-YEAR +17.0%
5-YEAR +22.4%
10-YEAR +15.1%
REYNOLDS BLUE CHIP
DATE GROWTH FUND S&P 500 INDEX
9/30/88 $10,000 $10,000
9/30/89 $11,990 $13,270
9/30/90 $11,391 $12,036
9/30/91 $14,455 $15,815
9/30/92 $15,611 $17,571
9/30/93 $14,908 $19,855
9/30/94 $15,296 $20,570
9/30/95 $20,696 $26,699
9/30/96 $24,441 $32,146
9/30/97 $35,000 $45,229
9/30/98 $40,940 $49,368
(1)<F21> The Standard & Poor's 500 Index consists of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The Standard
& Poor's Ratings Group designates the stocks to be included in the
Index on a statistical basis. A particular stock's weighting in the
Index is based on its relative total market value (i.e., its market
price per share times the number of shares outstanding). Stocks may be
added or deleted from the Index from time to time.
REYNOLDS OPPORTUNITY FUND
The Opportunity Fund's performance was positively affected by the strong
earnings growth of many of the stocks in its portfolio in its fiscal year ended
September 30, 1998. The Opportunity Fund was also positively affected by the
market leadership of high quality growth companies. In addition, the Opportunity
Fund was positively affected by the continuing economic recovery and by
declining inflation and interest rates.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS OPPORTUNITY FUND AND S&P 500 INDEX(1)<F22>
AVERAGE ANNUAL TOTAL RETURN
1-YEAR +12.3%
5-YEAR +17.5%
10-YEAR +12.5%
REYNOLDS
DATE OPPORTUNITY FUND S&P 500 INDEX
1/30/92 $10,000 $10,000
9/30/92 $8,850 $10,270
9/30/93 $9,779 $11,605
9/30/94 $10,092 $12,023
9/30/95 $14,169 $15,606
9/30/96 $15,643 $18,789
9/30/97 $19,491 $26,436
9/30/98 $21,881 $28,855
(1)<F22> The Standard & Poor's 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The
Standard & Poor's Ratings Group designates the stocks to be included
in the Index on a statistical basis. A particular stock's weighting in
the Index is based on its relative total market value (i.e., its
market price per share times the number of shares outstanding). Stocks
may be added or deleted from the Index from time to time.
REYNOLDS U.S. GOVERNMENT BOND FUND
Moderate economic growth accompanied by declining inflation and interest
rates were the main factors contributing to the Bond Fund's performance in the
fiscal year ended September 30, 1998. The Bond Fund's portfolio of U.S.
Government securities had an average maturity of approximately one year on
September 30, 1998, which was at the short end of the 1-10 year average
maturity stated in the Prospectus as the Bond Fund's expected average
maturity.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS U.S. GOVERNMENT BOND FUND AND LEHMAN GOVERNMENT BOND INDEX(1)<F23>
AVERAGE ANNUAL TOTAL RETURN
1-YEAR +6.1%
5-YEAR +3.7%
10-YEAR +5.2%
REYNOLDS U.S. LEHMAN GOVERNMENT
DATE GOVERNMENT BOND FUND BOND INDEX
1/30/92 $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 $11,961 $13,183
9/30/96 $12,498 $13,763
9/30/97 $13,211 $15,029
9/30/98 $14,014 $17,071
(1)<F23> The Lehman Government Bond Index is made up of the Treasury Bond Index
(all public obligations at the U.S. Treasury, excluding flower bonds
and foreign-targeted issues) and the Agency Bond Index (all publicly
issued debt of U.S. Government agencies and quasi-federal
corporations, and corporate debt guaranteed by the U.S. Government).
All issues have at least one year to maturity and an outstanding par
value of at least $100 million.
REYNOLDS FUNDS
www.reynoldsfunds.com
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
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-773-9665
OR 1-800-7REYNOLDS
1-414-765-4124
CUSTODIAN
FIRSTAR BANK MILWAUKEE
615 East Michigan Street
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
REYNOLDS FUNDS
PURCHASE APPLICATION
- --- This is a follow-up application to an investment by wire transfer.
Mail completed application to:
Reynolds Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Express Mail to:
Reynolds Funds
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202-5207
Use this form for individual, custodial, trust, profit sharing or pension plan
accounts. Do not use this form for REYNOLDS FUNDS-SPONSORED IRA, SEP
IRA, SIMPLE 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
(1-800-7REYNOLDS) or 414-765-4124.
- ------------------------------------------------------------------------------
A. 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 instructions: Firstar Bank Milwaukee, NA, 777 E. Wisconsin Ave.,
Milwaukee, WI 53202,
ABA: 075000022, For credit to Firstar Mutual Fund Services, LLC, Account #
112-952-137,
For further credit (insert full name of Fund) (shareholders name) & (account
------------------------ ----------------- -------
number).
- ------
Please notify Firstar Mutual Fund Services, LLC at 1-800-773-9665 or
414-765-4124 prior to sending the wire.
PAYMENT by --- Check --- Wire AMOUNT
- --- (037) Reynolds Blue Chip Fund $--------------
- --- (035) Reynolds Opportunity Fund $--------------
- --- (036) Reynolds US Government Bond Fund $--------------
- --- (038) Reynolds Money Market Fund $--------------
- ------------------------------------------------------------------------------
B. REGISTRATION
1. --- Individual
1.------------------------ -------------------- Citizen of --- U.S. --- Other
NAME SOCIAL SECURITY #
1. --- Joint Owner*<F24> (Cannot be a minor)
1.------------------------ -------------------- Citizen of --- U.S. --- Other
NAME SOCIAL SECURITY #
*<F24>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
2.-------------------------------------------- --- -----------------------
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, Estate or Guardianship**<F25>
3.----------------------------------------------------------------------------
NAME OF TRUSTEE(S) (if to be included in registration)**<F25>
- --- Corporate***<F26> (including Corporate Pension Plans)
3.----------------------------------------------------------------------------
NAME OF TRUST**<F25> / CORPORATION***<F26> / PARTNERSHIP
- --- Partnership**<F25> --- Other Entity**<F25>
- ---------------------------------- -----------------------------------------
SOCIAL SECURITY # / TAX ID # DATE OF AGREEMENT (Mo/Dy/Yr)
**<F25>Additional documentation and certification may be requested
***<F26>Corporate Resolution is required
- ------------------------------------------------------------------------------
C. ADDRESS
Mailing Address
- -------------------------------------------------------- -------------------
STREET APT / SUITE
- ------------------------------------------ --------------- ---------------
CITY STATE ZIP
- --------------------------------------- ------------------------------------
DAYTIME PHONE # EVENING PHONE #
- --- Duplicate Confirmation (if desired) 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
any of the Reynolds Funds.
--- The proceeds will be mailed to the address in Section C.
--- The proceeds of any redemption may be wired to your bank (complete
bank information below). A wire fee of $12.00 will be charged.
--- The proceeds of any redemption may be transferred via Electronic Funds
Transfer ("EFT"). This transfer may take up to 3 business days to reach your
bank (please complete bank information below).
- ------------------------------------------- -----------------------------------
NAME(S) ON BANK ACCOUNT ABA NUMBER 0R ROUTING NUMBER
- ---------------------------------------------- ------------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application.Your signed application must be received
at least 15 business days prior to the initial redemption transaction.
- ------------------------------------------------------------------------------
E. DISTRIBUTION OPTIONS
Capital gains & dividends will be reinvested if no option is selected.
--- Capital Gains & --- Capital Gains &
Dividends Reinvested Dividends in Cash
--- Capital Gains in Cash & --- Capital Gains Reinvested &
Dividends Reinvested Dividends in Cash
If the distribution is to be paid in cash, specify payment method below:
--- Send check to mailing address in Section C.
--- Automatic deposit to my bank account via EFT. This transfer may take up
to 3 business days to reach your bank account (please complete bank
information below).
- ------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- ---------------------------------------------- -----------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application.Your signed application must be received
at least 15 business days prior to the initial distribution transaction.
- ------------------------------------------------------------------------------
F. SYSTEMATIC EXCHANGES
I authorize the 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)
- ------------------------------------------------------------------------------
G. 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(S) ON BANK ACCOUNT
- ---------------------------------------------- -----------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application.
- ------------------------------------------------------------------------------
H. AUTOMATIC INVESTMENT PLAN
Your signed Application must be received at least 15 business days prior to
initial transaction. 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 Mutual Fund
Services, LLC as Transfer Agent for the Reynolds Funds, will automatically
transfer money directly from my checking, NOW or savings account to purchase
shares in the Reynolds Fund of my choice. I understand if the automatic
purchase cannot be made due to insufficient funds, stop payment or any other
reason, a $25 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)
- ------------------------------------------------------------------------------
NAME(S) ON BANK ACCOUNT
- ---------------------------------------------- -----------------------------
BANK NAME ACCOUNT NUMBER
- ------------------------------------------------------------------------------
BANK ADDRESS
- ------------------------------------- --------------------------------------
SIGNATURE OF BANK ACCOUNT OWNER SIGNATURE OF JOINT OWNER (if any)
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your application.
- ------------------------------------------------------------------------------
I. 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 J below, I/we authorize Firstar Mutual Fund Services, LLC
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 Reynolds Money Market Fund or by Firstar Bank Milwaukee 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 until the Reynolds Money Market Fund is
satisfied that the check has cleared (see page 17 of the Prospectus).
- ------------------------------------------------------------------------------
J. SIGNATURE AND CERTIFICATION REQUIRED BY THE INTERNAL REVENUE SERVICE
Neither the Fund nor its transfer agent will be responsible for the
authenticity of transaction instructions received by telephone, provided that
reasonable security procedures have been followed.
By selecting the options in Section (G or H), I hereby authorize the Fund to
initiate debits/credits to my account at the bank indicated and for the bank
to debit/credit the same to such account through the Automated Clearing House
("ACH") system.
UNDER THE PENALTY OF PERJURY, I CERTIFY THAT (1) THE SOCIAL SECURITY NUMBER
OR TAXPAYER IDENTIFICATION NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER
IDENTIFICATION NUMBER, AND (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER
AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. THE IRSDOES
NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
- ----------------------- ----------------------------------------------------
DATE (Mo/Dy/Yr) SIGNATURE OF OWNER*
<F27>
- ----------------------- ----------------------------------------------------
DATE (Mo/Dy/Yr) SIGNATURE OF JOINT OWNER, if any
*<F27>If shares are to be registered in (1) joint names, both persons should
sign, (2) a custodian for a minor, the custodian should sign, (3) a trust, the
trustee(s) should sign, or (4) a corporation or other entity, an officer should
sign and print name and title on space provided below.
- ------------------------------------------------------------------------------
PRINT NAME AND TITLE OF OFFICER SIGNING FOR A CORPORATION OR OTHER ENTITY.
STATEMENT OF ADDITIONAL INFORMATION November 30, 1998
- -----------------------------------
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
November 30, 1998. 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
<PAGE>
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..........................8
INVESTMENT ADVISER AND ADMINISTRATOR.......................................11
DETERMINATION OF NET ASSET VALUE...........................................13
DISTRIBUTION OF SHARES.....................................................14
SYSTEMATIC WITHDRAWAL PLAN.................................................14
ALLOCATION OF PORTFOLIO BROKERAGE..........................................15
PERFORMANCE AND YIELD INFORMATION..........................................16
CUSTODIAN..................................................................20
TAXES......................................................................20
SHAREHOLDER MEETINGS.......................................................21
INDEPENDENT ACCOUNTANTS....................................................22
DESCRIPTION OF SECURITIES RATINGS..........................................22
FINANCIAL STATEMENTS.......................................................27
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 November 30, 1998 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.
<PAGE>
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated November 30, 1998 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.
<PAGE>
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
-2-
<PAGE>
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. The Opportunity Fund will not 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.
-3-
<PAGE>
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
-4-
<PAGE>
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 could result in a loss on both the
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.
-5-
<PAGE>
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.
-6-
<PAGE>
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 56, is the sole proprietor of Reynolds Capital
Management, an investment advisory firm organized in April, 1985.
ROBERT E. SNADER
- ----------------
475 Gate Five Road
Sausalito, California 94965
(A DIRECTOR OF THE COMPANY)
Mr. Snader, age 58, has been the President of R.E. Snader &
Associates, a distributor of professional, industrial and broadcast video and
computer/video equipment, since May 1975.
ROBERT E. STAUDER
- -----------------
5 Marsh Drive
Mill Valley, California 94941
(A DIRECTOR OF THE COMPANY)
Mr. Stauder, age 68, is retired. He was a principal of Robinson Mills
+ Williams, an architectural and interior design firm, from 1991 until 1996.
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.
- -----------------------
*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.
-7-
<PAGE>
CAMILLE F. WILDES
225 East Mason Street
Milwaukee, Wisconsin 53202
(SECRETARY OF THE COMPANY)
Ms. Wildes, age 46, 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, 1998 the Company paid a total of $5,500 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, 1998:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Pension or
Retirement
Benefits Accrued Total
Aggregate As Part of Estimated Annual Compensation
Compensation Company Benefits Upon from Company Paid
Name of Person From Company Expenses Retirement to Directors
-------------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Frederick L. Reynolds $0 $0 $0 $0
Robert E. Snader $2,750 $0 $0 $2,750
Robert E. Stauder $2,750 $0 $0 $2,750
</TABLE>
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 October 31, 1998 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.
-8-
<PAGE>
Reynolds Blue Chip Growth Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
Charles Schwab & Co., Inc. 761,446 (1) 29.26%
101 Montgomery Street
San Francisco, CA 94104-4122
Donaldson Lufkin & Jenrette 130,959 (1) 5.03%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052
Officers and Directors as a Group 72,189 (2) 2.77%
(4 Persons)
Reynolds Opportunity Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------ ---------------- ----------------
Frederick L. Reynolds 255,239 (2) 18.40%
Wood Island, Third Floor
80 East Sir Francis Drake Blvd.
Larkspur, CA 94939
Officers and Directors as a Group 277,196 (2) 19.99%
(4 Persons)
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. 59,953 18.39%
Profit-Sharing Trust
1145 Bush Street
San Francisco, CA 94109
-9-
<PAGE>
Reynolds U.S. Government Bond Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
Jean S. Chambers & 28,367 8.70%
Charles G. Stephenson, Trustees
Chambers Family Insurance Trust
U/A Dated 10/07/88
650 California Street, Floor 33
San Francisco, CA 94108-2702
William A. Gleason & 22,973 7.05%
Victor E. Rice, Trustees
FBO Forest Resources
Profit-Sharing Plan
200 Tamal Plaza #200
Corte Madera, CA 94925
William B. Stewart 19,409 5.95%
47 Starbuck Drive
Muir Beach, CA 94965
Barbara R. Renbaum, Trustee 18,716 5.74%
Louis Posner Test Trust
U/A Dated 04/17/89
P.O. Box 1077
Ross, CA 94957-1077
Trustees, Albert O.J. Landucci 16,303 5.00%
DDS Inc. Profit Sharing Trust
476 West 25th Avenue
San Mateo, CA 94403
Officers and Directors as a Group 1,435 0.44%
(4 Persons)
-10-
<PAGE>
Reynolds Money Market Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
Bernard Kramer, Trustee 1,226,013 18.86%
Bernard M. Kramer, MD, Inc.
Profit Sharing Plan
2740 Lyon Street
San Francisco, CA 94123
Peter H. Peracca 421,109 6.27%
1 Pomeroy Road
Ross, CA 94957
Officers and Directors as a Group 57,083 0.85%
(4 Persons)
- -------------------
1. All of such shares owned by Charles Schwab & Co., Inc. and Donaldson
Lufkin & Jenrette Securities Corp. were owned of record only.
2. Includes shares held in the Reynolds Capital Management 401(k) plan
and custodial accounts for minor children.
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, 1998, 1997
and 1996, the Blue Chip Fund paid the Adviser advisory fees of $728,520,
$487,874 and $298,941, respectively. During the fiscal years ended September 30,
1998, 1997 and 1996, the Adviser waived 100% of the advisory fees of $18,916,
$15,683 and $24,968, respectively, otherwise payable by the Money Market Fund
during such years. During the fiscal years ended September 30, 1998, 1997 and
1996 the Opportunity Fund paid the Adviser advisory fees of $249,623, $193,818
and $137,069, respectively. During the fiscal years ended September 30, 1998,
1997 and 1996, the Adviser waived 100% of the advisory fees of $20,562, $19,701
and $19,280, respectively, 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
-11-
<PAGE>
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%. As of the date hereof,
no such state law provision was applicable to any of the Funds. 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 or the Opportunity Fund during
the fiscal years ended September 30, 1998, September 30, 1997 or September 30,
1996. Notwithstanding the most restrictive applicable expense limitation of
state securities commissions described above, during each of the fiscal years
ended September 30, 1998, 1997 and 1996, the Adviser voluntarily reimbursed the
Money Market Fund for expenses in excess of 0.65% of such Fund's average net
assets. The Adviser reimbursed the Money Market Fund $49,346, $43,094 and
$36,875, respectively (including the waiver of its advisory fee), for excess
expenses during each period. During the fiscal years ended September 30, 1998,
1997 and 1996, the Adviser reimbursed the Bond Fund $40,349, $37,573 and $34,556
respectively, (including the waiver of its advisory fees) 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
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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, 1998, 1997 and 1996, the Blue Chip Fund paid the Administrator
$102,851, $82,182 and $59,223, respectively, pursuant to its Administration
Agreement. During the fiscal years ended September 30, 1998, 1997 and 1996, the
Money Market Fund paid the Administrator $3,783, $4,632 and $4,997,
respectively, pursuant to its Administration Agreement. During the fiscal years
ended September 30, 1998, 1997 and 1996, the Opportunity Fund paid the
Administrator $49,882, $40,158 and $27,414, respectively, and the Bond Fund paid
the Administrator $2,742, $3,822 and $2,571, respectively, pursuant to
Administration 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, Dr. Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Additionally, when 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. The New York Stock Exchange also may be closed on national
days of mourning.
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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 Columbus Day
and Veterans Day.
DISTRIBUTION OF SHARES
Both the Blue Chip Fund and the Opportunity Fund have adopted a Service and
Distribution Plan (the "Plan") in anticipation that these Funds will benefit
from the Plan through increased sales of shares, thereby reducing each Fund's
expense ratio and providing the Adviser with greater flexibility in management.
The Plan may be terminated by either Fund at any time by a vote of the directors
of the Company who are not interested persons of the Company and who have no
direct or indirect financial interest in the Plan or any agreement related
thereto (the "Rule 12b-1 Directors") or by a vote of a majority of the
outstanding shares of the Fund. Messrs. Snader and Stauder are currently the
Rule 12b-1 Directors. Any change in the Plan that would materially increase the
distribution expenses of a Fund provided for in the Plan requires approval of
the stockholders of that Fund and the Board of Directors, including the Rule
12b-1 Directors.
While the Plan is in effect, the selection and nomination of directors who
are not interested persons of the Company will be committed to the discretion of
the directors of the Company who are not interested persons of the Company. The
Board of Directors of the Company must review the amount and purposes of
expenditures pursuant to the Plan quarterly as reported to it by a distributor,
if any, or officers of the Company. The Plan will continue in effect for as long
as its continuance is specifically approved at least annually by the Board of
Directors, including the Rule 12b-1 Directors. Neither the Blue Chip Fund nor
the Opportunity Fund incurred any distribution costs during the fiscal year
ended September 30, 1998.
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
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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 Firstar Mutual Fund Services, LLC 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. 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
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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, 1998,
1997 and 1996, totaled $52,916 on transactions having a total market value of
$54,367,548, $42,148 on transactions having a total market value of $32,898,280
and $25,230 on transactions having a total market value of $12,520,178,
respectively. During the fiscal years ended September 30, 1998, 1997 and 1996,
the Money Market Fund did not pay any brokerage commissions. During the fiscal
years ended September 30, 1998, 1997 and 1996, the Opportunity Fund paid
brokerage commissions of $16,679 on transactions having a total market value of
$17,445,529, $26,330 on transactions having a total market value of $16,060,388
and $15,214 on transactions having a total market value of $4,701,608,
respectively. During the fiscal years ended September 30, 1998, 1997 and 1996,
the Bond Fund did not pay any brokerage commissions. During the fiscal year
ended September 30, 1998, the Blue Chip Fund paid commissions of $39,331 on
transactions having a total market value of $36,565,369 to brokers who provided
research services to the Adviser, and the Opportunity Fund paid commissions of
$9,750 on transactions having a total market value of $10,164,687 to brokers who
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
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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, 1997,
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
1996 26,722 +167.2
1997 35,134 +251.3
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, 1997,
assuming reinvestment of all dividends and distributions.
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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
1996 15,912 +59.1
1997 18,232 +82.3
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, 1998 was 4.33%.
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.
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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:
Yield = Net Change in Account Value
--------------------------- X 365/7
Beginning Account Value
365/7
Effective Yield = (1 + Total Dividend for 7 days) - 1
The Money Market Fund's Yield and Effective Yield for the seven-day period
ended September 30, 1998 were 4.83% and 4.94%, 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.
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CUSTODIAN
Firstar Bank Milwaukee, NA, 615 East Michigan Street, Milwaukee, Wisconsin
53202, acts as custodian for the Funds. As such, Firstar Bank Milwaukee, NA
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 Bank Milwaukee, NA 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 Mutual Fund Services, LLC, an
affiliate of Firstar Bank Milwaukee, NA, 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 Funds will endeavor to qualify annually for and elect
tax treatment applicable to a regulated investment company under Subchapter M of
the Internal Revenue Code, as amended, (the "Code").
Each of the Funds intends to distribute substantially all of its net
investment income and net capital gains each fiscal year. Dividends from each
Fund's net investment income, including short-term capital gains, are taxable to
shareholders as ordinary income, while distributions from each Fund's net
realized capital gains are taxable as long-term capital gains regardless of the
shareholder's holding period for the shares. Distributions from each of the
Funds are taxable to shareholders, whether received in cash or additional shares
of a Fund. A portion of the income distributions of the Blue Chip Fund and
Opportunity Fund (but not the Bond Fund or Money Market Fund) may be eligible
for the 70% dividends-received deduction for domestic corporate shareholders.
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.
Redemptions of shares will generally result in a capital gain or loss for
income tax purposes. Such capital gain or loss will be long term or short term,
depending upon the holding period. However, if a loss is realized on shares held
for six months or less, and the shareholder received a capital gain distribution
during that period, then such loss is treated as a long-term capital loss to the
extent of the capital gain distribution received.
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
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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
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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
PricewaterhouseCoopers 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 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.
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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.
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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 IBCA, 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
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<PAGE>
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. i Broad margins in earnings coverage
of fixed financial charges and high internal cash generation.
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<PAGE>
* 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 IBCA, 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.
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<PAGE>
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, 1998, of The Reynolds Funds (File No.
811-5549), as filed with the Securities and Exchange Commission on November 12,
1998.
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 (Reynolds Blue Chip Growth Fund,
Reynolds U.S. Government Bond Fund and Reynolds Money Market
Fund only)
Statement of Assets and Liabilities (Reynolds Opportunity Fund
only)
Schedule of Investments (Reynolds Opportunity Fund only)
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
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<PAGE>
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,
1998 (File No. 811-5549), of Reynolds Funds, Inc. (as filed with the
Securities and Exchange Commission on November 12, 1998))
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 (Reynolds Blue Chip Growth Fund,
Reynolds U.S.Government Bond Fund and Reynolds Money Market Fund
only)
Statement of Assets and Liabilities (Reynolds Opportunity Fund
only)
Schedule of Investments (Reynolds Opportunity Fund only)
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
b. Exhibits
(1) Registrant's Articles of Incorporation, as amended and
supplemented. (1)
(2) Registrant's Bylaws, as amended. (1)
(3) None
(4) None
(5.1) Investment Advisory Agreement between Reynolds Blue
Chip Growth Fund and Reynolds Capital Management, as
amended. (1)
(5.2) Investment Advisory Agreement between Reynolds Money
Market Fund and Reynolds Capital Management. (1)
(5.3) Investment Advisory Agreement between Reynolds Opportunity
Fund and Reynolds Capital Management. (1)
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<PAGE>
(5.4) Investment Advisory Agreement between Reynolds U.S.
Government Bond Fund and Reynolds Capital Management. (1)
(6) None
(7) None
(8.1) Custodian Agreement between Reynolds Blue Chip Growth
Fund and First Wisconsin Trust Company (predecessor
to Firstar Bank Milwaukee, NA). (1)
(8.2) Custodian Agreement between Reynolds Money Market Fund
and First Wisconsin Trust Company (predecessor to Firstar
Bank Milwaukee, NA). (1)
(8.3) Custodian Agreement between Reynolds Opportunity Fund
and First Wisconsin Trust Company (predecessor to Firstar
Bank Milwaukee, NA). (1)
(8.4) Custodian Agreement between Reynolds U.S. Government Bond
Fund and First Wisconsin Trust Company (predecessor to
Firstar Bank Milwaukee, NA). (1)
(9.1) Administration Agreement between Reynolds Blue Chip
Growth Fund and Fiduciary Management, Inc. (1)
(9.2) Administration Agreement between Reynolds Money Market Fund
and Fiduciary Management, Inc. (1)
(9.3) Administration Agreement between Reynolds Opportunity Fund
and Fiduciary Management, Inc. (1)
(9.4) Administration Agreement between Reynolds U.S. Government
Bond Fund and Fiduciary Management, Inc. (1)
(10) Opinion of Foley & Lardner, counsel for Registrant.
(11) Consent of PricewaterhouseCoopers LLP.
(12) None
(13.1) Subscription Agreement for shares of Reynolds Blue Chip
Growth Fund. (1)
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<PAGE>
(14.1) Individual Retirement Custodial Accounts. (1)
(14.2) Simplified Employee Pension Plan. (1)
(14.3) Defined Contribution Retirement Plan. (1)
(14.4) Model 403(b)(7) Plan. (1)
(15) Reynolds Funds 12b-1 Plan
(16) Schedule for Computation of Performance Quotations. (2)
(17) Financial Data Schedule
(18) None
- ----------------
(1) Previously filed as an exhibit to Post-Effective Amendment No. 12
to the Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 12 was filed on January 29, 1998 and
its accession number is 0000897069-98-000019.
(2) Previously filed as an exhibit to Post-Effective Amendment No. 10
to the Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 10 was filed on January 31, 1998 and
its accession number is 0000897069-96-000017.
Item 25. Persons Controlled by or under Common Control with Registrant
None of the Funds or the Registrant is 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 October 31, 1998
-------------- ----------------------
Class A Common Stock, 1,927
$.01 par value (Reynolds
Blue Chip Growth Fund)
Class B Common Stock, 271
$.01 par value (Reynolds
Money Market Fund)
Class C Common Stock, 386
$.01 par value (Reynolds
Opportunity Fund)
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<PAGE>
Class D Common Stock, 66
$.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,
S-4
<PAGE>
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
S-5
<PAGE>
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 225 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.
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<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 23 day of November, 1998.
REYNOLDS FUNDS, INC.
(Registrant)
By: /S/Frederick L. Reynolds, President
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, November 23, 1998
Frederick L. Reynolds Financial and
Accounting Officer
and Director
Director November __, 1998
Robert E. Snader
/S/Robert E. Stauder Director November 23, 1998
Robert E. Stauder
S-7
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ---------- -------
(1) Registrant's Articles of Incorporation, as amended and
supplemented*
(2) Registrant's Bylaws, as amended*
(3) None
(4) None
(5.1) Investment Advisory Agreement between Reynolds Blue Chip
Growth Fund and Reynolds Capital Management, as amended*
(5.2) Investment Advisory Agreement between Reynolds Money Market
Fund and Reynolds Capital Management*
(5.3) Investment Advisory Agreement between Reynolds Opportunity
Fund and Reynolds Capital Management*
(5.4) Investment Advisory Agreement between Reynolds U.S. Government
Bond Fund and Reynolds Capital Management*
(6) None
(7) None
(8.1) Custodian Agreement between Reynolds Blue Chip Growth Fund and
First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
(8.2) Custodian Agreement between Reynolds Money Market Fund and
First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
(8.3) Custodian Agreement between Reynolds Opportunity Fund and
First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
<PAGE>
(8.4) Custodian Agreement between Reynolds U.S. Government Bond Fund
and First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
(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 PricewaterhouseCoopers LLP
(13.1) Subscription Agreement for shares of Reynolds Blue Chip Growth
Fund*
(14.1) Individual Retirement Custodial Accounts*
(14.2) Simplified Employee Pension Plan*
(14.3) Defined Contribution Retirement Plan*
(14.4) Model 403(b)(7) Plan*
(15) Reynolds Funds 12b-1 Plan
(16) Schedule for Computation of Performance Quotations*
(17) Financial Data Schedule
(18) None
- --------
* Incorporated by reference.
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
WRITER'S DIRECT LINE
414/297-5660
EMAIL ADDRESS CLIENT/MATTER NUMBER
[email protected] 012156/0101
November 30, 1998
Reynolds Funds, Inc.
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
Gentlemen:
We have acted as counsel for Reynolds Funds, Inc. in connection with
the preparation of an amendment to your Registration Statement on Form N-1A
relating to the sale by you of an indefinite amount of Reynolds Funds, Inc.
Common Stock (such Common Stock being hereinafter referred to as the "Stock") in
the manner set forth in the Amended Registration Statement to which reference is
made. In this connection we have examined: (a) the Amended Registration
Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws, as
amended to date; (c) corporate proceedings relative to the authorization for
issuance of the Stock; and (d) such other proceedings, documents and records as
we have deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable
We hereby consent to the use of this opinion as an exhibit to the Form
N-1A Registration Statement. In giving this consent, we do not admit that we are
experts within the meaning of Section 11 of the Securities Act of 1933, as
amended, or within the category of persons whose consent is required by Section
7 of said Act.
Very truly yours,
/s/ Foley & Lardner
Foley & Lardner
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. 13 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated October 27, 1998, relating to the financial
statements and financial highlights appearing in the September 30, 1998 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 "Independent Accountants" in the Statement of Additional
Information.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
November 24, 1998
REYNOLDS FUNDS 12b-1 PLAN
WHEREAS, the Reynolds Funds, Inc. (the "Company") is registered with
the Securities and Exchange Commission as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "Act"), having
four series, the Reynolds Money Market Fund, the Reynolds Opportunity Fund, the
Reynolds U.S. Government Bond Fund and the Reynolds Blue Chip Growth Fund (each
a "Fund" and collectively the "Funds"), and certain of the above-referenced
Funds have approved the adoption of this Plan (as hereinafter defined) (each an
"Approving Fund" and collectively the "Approving Funds");
WHEREAS, each Approving Fund intends to act as a distributor of shares
of its respective stock, as defined in Rule 12b-1 under the Act, and desires to
adopt a distribution plan pursuant to such Rule, and the Board of Directors of
the Company has determined that there is a reasonable likelihood that adoption
of this Plan will benefit the respective Approving Fund and its shareholders;
and
WHEREAS, the Company, on behalf of each Approving Fund, may enter into
agreements with dealers and other financial service organizations to obtain
various distribution-related and/or shareholder services for the respective
Approving Fund, all as permitted and contemplated by Rule 12b-1 under the Act;
it being understood that to the extent any activity is one which the respective
Approving Fund may finance without a Rule 12b-1 plan, such Approving Fund may
also make payments to finance such activity outside such a plan and not be
subject to its limitations.
NOW, THEREFORE, the Approving Funds hereby adopt this Reynolds Funds
12b-1 Plan (the "Plan") in accordance with Rule 12b-1 under the Act on the
following terms and conditions:
1. Distribution and Service Fee. Each Approving Fund may charge a
distribution expense and service fee on an annualized basis of up to 0.25% of
the Fund's average daily net assets. Such fee shall be calculated and accrued
daily and paid at such intervals as the Board of Directors of the Company shall
determine, subject to any applicable restriction imposed by rules of the
National Association of Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph 1 of this
Plan shall be paid for services or expenses primarily intended to result in the
sale of the respective Approving Fund's shares. Each Approving Fund may pay all
or a portion of this fee to any securities dealer, financial institution or any
other person (the "Shareholder Organization(s)") who renders personal service to
shareholders, assists in the maintenance of shareholder accounts or who renders
assistance in distribution or promoting the sale of the respective Approving
Fund's shares pursuant to a written agreement approved by the Board of Directors
of the Company (the "Related Agreement"). To the extent such fee is not paid to
such persons, each Approving Fund may use the fee to pay expenses of
distribution of its shares
<PAGE>
including, but not limited to, payment by the respective Approving Fund of the
cost of preparing, printing and distributing Prospectuses and Statements of
Additional Information to prospective investors and of implementing and
operating the Plan as well as payment of capital or other expenses of associated
equipment, rent, salaries, bonuses, interest and other overhead costs.
3. Effective Date of the Plan. This Plan shall not take effect, with
respect to a particular Approving Fund, until it has been approved (together
with any related agreements) by votes of a majority of (i) the outstanding
voting securities of the respective Approving Fund as defined in the Act, if
such approval is required by the Act, (ii) the Board of Directors of the Company
and (iii) those Directors of the Company who are not "interested persons" of the
Company (as defined in the Act) and have no direct or indirect financial
interest in the operating of this Plan or any agreements related to it (the
"Rule 12b-1 Directors"), cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to paragraph 6
below, with respect to a particular Approving Fund, this Plan shall continue in
effect for as long as such continuance is specifically approved at least
annually by votes of a majority of the Board of Directors of the Company and the
Rule 12b-1 Directors in the manner provided in paragraph 3 hereof.
5. Reports. Any person authorized to direct the disposition of monies
paid or payable by any of the Approving Funds pursuant to this Plan or any
related agreement shall provide to the Board of Directors of the Company and
said Board shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
6. Termination. With regard to a particular Approving Fund, this Plan
may be terminated at any time by vote of a majority of the Rule 12b-1 Directors,
or by a vote of a majority of the outstanding voting securities of the
respective Approving Fund as defined in the Act.
7. Amendments. This Plan may not be amended to increase materially the
amount of payments provided for in paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 3 hereof, or,
in the case of a material amendment not related to increasing the amount of
payments, by votes of a majority of the Board of Directors and Rule 12b-1
Directors in the manner provided in paragraph 3 hereof
8. Selection of Directors. While this Plan is in effect, the selection
and nomination of Directors who are not interested persons (as defined in the
Act) of the Company shall be committed to the discretion of the Rule 12b-1
Directors. However, nothing contained herein shall prevent the participation of
other persons in the selection and nomination process, provided that a final
decision on any such selection or nomination is within the discretion of, and
approved by, a majority of the Rule 12b-1 Directors.
9. Records. Each Approving Fund shall preserve copies of this Plan and
any related agreements and all reports made pursuant to paragraph 5 hereof for a
period of not less than six years from the date of this Plan, or the agreements
or any such reports or minutes, as the case may be, the first two years in an
easily accessible place.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REYNOLDS BLUE CHIP FUND AS OF AND FOR THE YEAR
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Reynolds Blue Chip Fund
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 51,334
<INVESTMENTS-AT-VALUE> 90,270
<RECEIVABLES> 1,956
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92,226
<PAYABLE-FOR-SECURITIES> 2,593
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100
<TOTAL-LIABILITIES> 2,693
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,121
<SHARES-COMMON-STOCK> 2,423
<SHARES-COMMON-PRIOR> 1947
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,476
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 38,936
<NET-ASSETS> 89,533
<DIVIDEND-INCOME> 604
<INTEREST-INCOME> 57
<OTHER-INCOME> 0
<EXPENSES-NET> 984
<NET-INVESTMENT-INCOME> (323)
<REALIZED-GAINS-CURRENT> 2,116
<APPREC-INCREASE-CURRENT> 7,045
<NET-CHANGE-FROM-OPS> 8,838
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15
<DISTRIBUTIONS-OF-GAINS> 723
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,609
<NUMBER-OF-SHARES-REDEEMED> 1,157
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> 27,239
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 421
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 729
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 984
<AVERAGE-NET-ASSETS> 72,818
<PER-SHARE-NAV-BEGIN> 32.00
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> 5.46
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .38
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.95
<EXPENSE-RATIO> 1.4
<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
FINANCIAL STATEMENTS OF REYNOLDS MONEY MARKET FUND AS OF AND FOR THE YEAR
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Reynolds Money Market Fund
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 4,875
<INVESTMENTS-AT-VALUE> 4,875
<RECEIVABLES> 5
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,880
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 1
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,879
<SHARES-COMMON-STOCK> 4,879
<SHARES-COMMON-PRIOR> 3,032
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,879
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 209
<OTHER-INCOME> 0
<EXPENSES-NET> 24
<NET-INVESTMENT-INCOME> 185
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 185
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 185
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,462
<NUMBER-OF-SHARES-REDEEMED> 8,788
<SHARES-REINVESTED> 173
<NET-CHANGE-IN-ASSETS> 1,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74
<AVERAGE-NET-ASSETS> 3,782
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .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
FINANCIAL STATEMENTS OF REYNOLDS OPPORTUNITY FUND AS OF AND FOR THE YEAR
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> Reynolds Opportunity Fund
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 17,882
<INVESTMENTS-AT-VALUE> 29,342
<RECEIVABLES> 1,867
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31,210
<PAYABLE-FOR-SECURITIES> 2,009
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47
<TOTAL-LIABILITIES> 2,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,023
<SHARES-COMMON-STOCK> 1,333
<SHARES-COMMON-PRIOR> 1,165
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 671
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,460
<NET-ASSETS> 29,154
<DIVIDEND-INCOME> 151
<INTEREST-INCOME> 21
<OTHER-INCOME> 0
<EXPENSES-NET> 370
<NET-INVESTMENT-INCOME> (198)
<REALIZED-GAINS-CURRENT> 1,014
<APPREC-INCREASE-CURRENT> 1,850
<NET-CHANGE-FROM-OPS> 2,666
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 490
<NUMBER-OF-SHARES-REDEEMED> 322
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,452
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (187)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 250
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 370
<AVERAGE-NET-ASSETS> 24,953
<PER-SHARE-NAV-BEGIN> 19.49
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> 2.48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.88
<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
FINANCIAL STATEMENTS OF REYNOLDS U.S. GOVERNMENT BOND FUND AS OF AND FOR
THE YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Reynolds U.S. Government Bond Fund
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 3,042
<INVESTMENTS-AT-VALUE> 3,052
<RECEIVABLES> 23
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3075
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 1
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,317
<SHARES-COMMON-STOCK> 313
<SHARES-COMMON-PRIOR> 269
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (253)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10
<NET-ASSETS> 3074
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 173
<OTHER-INCOME> 0
<EXPENSES-NET> 25
<NET-INVESTMENT-INCOME> 148
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 16
<NET-CHANGE-FROM-OPS> 164
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 148
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 72
<NUMBER-OF-SHARES-REDEEMED> 41
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> 448
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (253)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 21
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 65
<AVERAGE-NET-ASSETS> 2,741
<PER-SHARE-NAV-BEGIN> 9.76
<PER-SHARE-NII> .5
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> .53
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.81
<EXPENSE-RATIO> 0.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
