ANNUAL REPORT
SEPTEMBER 30, 1998
(Reynolds Funds Logo)
NO-LOAD MUTUAL FUNDS
REYNOLDS BLUE CHIP GROWTH FUND
SEEKING LONG-TERM CAPITAL APPRECIATION,
WITH CURRENT INCOME A SECONDARY OBJECTIVE
REYNOLDS OPPORTUNITY FUND
SEEKING LONG-TERM CAPITAL APPRECIATION
REYNOLDS U.S. GOVERNMENT BOND FUND
SEEKING A HIGH LEVEL OF CURRENT INCOME
REYNOLDS MONEY MARKET FUND
SEEKING A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH A STABLE NET ASSET VALUE
1-800-773-9665
(Reynolds Funds Logo)
Dear Fellow Shareholders: October 27, 1998
Frederick Reynolds, the portfolio manager of the Reynolds Funds, will appear
as a special guest on Wall $treet Week with Louis Rukeyser on Friday, December
11, 1998. The program airs at 8:30 p.m. Eastern/Pacific time and 7:30 p.m.
Central time on the PBS Television Network. (Times may vary. Please check your
local listings for station and time.)
The new web site for the Reynolds Funds is on line. It is
www.reynoldsfunds.com.
The Reynolds Blue Chip and Opportunity Funds had strong appreciation for
the nine months ended September 30, 1998:
December 31, 1997 through September 30, 1998
REYNOLDS BLUE CHIP GROWTH FUND +17.3%
REYNOLDS OPPORTUNITY FUND +20.0%
The Blue Chip and Opportunity Funds also had strong appreciation for the
three years ended September 30, 1998:
Average Annual Total Returns
October 1, 1995 through September 30, 1998
REYNOLDS BLUE CHIP GROWTH FUND +25.6%
REYNOLDS OPPORTUNITY FUND +15.6%
The Blue Chip and Opportunity Funds also had strong appreciation for the
five years ended September 30, 1998:
Average Annual Total Returns
October 1, 1993 through September 30, 1998
REYNOLDS BLUE CHIP GROWTH FUND +22.4%
REYNOLDS OPPORTUNITY FUND +17.5%
The Blue Chip Fund has received many awards for its recent performance
including:
(1) America Online - Featured on Sage Online - September 3, 1998.
(2) CBS MarketWatch - Featured on September 28, 1998.
(3) CNBC - Featured on July 31, 1998 and February 5, 1998.
(4) CNNfn - Featured on October 8, 1998 and July 30, 1998.
(5)Investor's Business Daily - Featured on October 15, 1998. The Blue Chip
Fund has received an A+ ranking from Investor's Business Daily.
Investor's Business Daily ranks mutual funds on the basis of a moving 36-
month performance. The top 5% of all mutual funds receive an A+ ranking.
Investor's Business Daily considered 4,093 mutual funds for the three
years ended September 30, 1998 in determining this ranking.
(6) Louis Rukeyser's Mutual Funds - Featured in August 1998.
(7) Louis Rukeyser's Wall Street - Featured in June 1998.
THE REYNOLDS BLUE CHIP GROWTH FUND
The Blue Chip Fund has investments in many of the premier larger worldwide
growth companies. These companies have proven management, strong financials
including low debt and high return on equity, leading research and development,
and dominant worldwide products with good unit growth. In addition, many of
these companies are not significantly affected by economic fluctuations. The
probabilities highly favor that the diversified group of industry leading
companies held in the Blue Chip Fund will remain industry leaders over the long-
term, continue to strongly increase their earnings, and continue to
significantly increase future shareholder wealth.
The Blue Chip Fund's return was +17.0% for the year ended September 30, 1998.
The Blue Chip Fund's return was +174.8% for the five years ended September 30,
1998 and +309.7% for the ten years ended September 30, 1998. These were average
annual compounded rates of return of +22.4% and +15.1%, respectively. The Blue
Chip Fund increased +312.1% from August 12, 1988 (effective date of the Fund's
registration statement) through September 30, 1998. This was an average annual
compounded rate of return of +15.0%.
The Board of Directors declared a distribution of $0.568030 from net long-
term realized gains and $0.081512 from net short-term realized gains on October
26, 1998. These distributions were paid on October 27, 1998 to shareholders of
record on October 23, 1998.
THE REYNOLDS OPPORTUNITY FUND
The Opportunity Fund generally invests in medium and large size high quality
companies that have proven themselves in the marketplace and are leaders in
their industries. These well-managed companies usually have sales of more than
$500 million and are demonstrating strong earnings growth from proprietary
innovative products.
A long-term investment in the Reynolds Opportunity Fund should be a good
complement to a long-term investment in the Reynolds Blue Chip Growth Fund. We
are making a high probability bet with the companies in the Opportunity Fund,
just as we are with the companies in the Blue Chip Fund, that the majority of
the companies within a well diversified group of proven worldwide leading
companies will continue to be leaders and strongly increase their earnings and
shareholder wealth in the future.
The Opportunity Fund increased +12.3% for the one-year ended September 30,
1998. The Opportunity Fund increased +123.7% for the five years ended September
30, 1998. This was an average annual compounded rate of return of +17.5%. The
Opportunity Fund increased +118.8% from January 30, 1992 (effective date of the
Fund's registration statement) through September 30, 1998. This was an average
annual compounded rate of return of +12.5%.
The Board of Directors declared a distribution of $0.503550 from net long-
term realized gains on October 26, 1998. This distribution was paid on October
27, 1998 to shareholders of record on October 23, 1998.
THE REYNOLDS U.S. GOVERNMENT BOND FUND
The Reynolds U.S. Government Bond Fund emphasizes high quality investments in
U.S. Treasury Bonds, Treasury Notes and Treasury Bills of varying maturities.
As of September 30, 1998, the assets were invested approximately 57% in U.S.
Treasury Securities and 43% in high quality cash equivalents.
The Reynolds U.S. Government Bond Fund is designed to satisfy many of the
fixed income objectives of investors. For example, the Bond Fund is actively
managed and is invested in bonds of many different maturities, which reduces the
risk that a large percentage of the bonds in the Fund mature at an inopportune
time for reinvestment. The Bond Fund had a dollar weighted average maturity of
less than one year on September 30, 1998. The average maturity of the bonds in
the Fund is continually reevaluated and adjusted based on short and long-term
economic, inflation and interest rate forecasts.
THE REYNOLDS MONEY MARKET FUND
The Reynolds Money Market Fund is designed to provide for investor's short-
term cash management needs. For ease of redemption, the Money Market Fund
offers: (1) free check writing (in amounts of $500 or more); or (2) telephone
redemption where either a check is mailed to the shareholder, or money may be
wired to the shareholder's bank account ($12.00 wiring charge). As of September
30, 1998, the assets of the Reynolds Money Market Fund were invested
approximately 63% in high quality commercial paper, 12% in Federal Agencies, and
25% in high quality cash equivalents. As of September 30, 1998, the dollar
weighted average days to maturity of the Money Market Fund was 45 days.
The Reynolds Money Market Fund's yield should vary with the rate of inflation
over the years. Its yield is usually higher than inflation and higher than or
approximately the same as most brokerage-firm sponsored money market funds.
Brokerage-firm sponsored money market funds typically have higher expense
structures due to their higher marketing costs. The Reynolds Money Market
Fund's yield is almost always higher than rates paid by most short-term bank
accounts. The rates paid by banks are lower because banks typically have higher
overhead.
ECONOMIC DISCUSSION
THE WORLD ECONOMY
Economic growth has slowed in several regions of the world. However, these
economies should improve in the future. Over the long-term, there are more than
1.5 billion people in the world who will be experiencing a higher standard of
living and using and consuming many products as capitalism grows and Communism
declines in many countries such as China and Eastern Europe. Many other
countries, such as India and Latin America, have rapidly emerging middle
classes, which desire western goods and services and governments that are
encouraging foreign investment.
Worldwide inflation remains low. There are many reasons for this including:
the current slowdown in worldwide growth; committed central bankers; fiscal
restraint by governments; worldwide competition for products and labor is
keeping costs low; and the collapse of Communism is making economic systems more
efficient. In addition, cost cutting and restructuring is spreading to many
countries, more efficient private-sector operations are replacing inefficient
state-run enterprises, excess capacity exists in many markets and advances in
technology are helping to improve efficiency. The Blue Chip and Opportunity
Funds are well positioned to participate in these long-term worldwide growth
trends through their investments in U.S. headquartered and foreign headquartered
companies.
THE U.S. ECONOMY
The majority of government and private sector data indicate that the U.S.
economy will continue to have moderate, but not excessive, broad based growth.
Gross Domestic Product (GDP) is forecast to increase 2.5% in 1998 and 1.0% in
1999 after increasing 3.8% in 1997. The U.S. economy is affected by the
strengths and weaknesses of other economies, but not as much as is sometimes
implied in the financial press. For example, exports are only 14% of U.S. GDP.
U.S. inflation is at its lowest level since the 1960s due to slowing
worldwide growth and good decisions made by the Federal Reserve. The current
absence of widespread worldwide labor and raw materials shortages and the
slowdown in many countries should keep inflation in check. U.S. inflation is
estimated to increase at a manageable 1.5% rate in 1998 and 1% in 1999, after
increasing at a 1.7% rate in 1997.
INVESTMENT OUTLOOK
There are many investment positives. Among them are: (1) the current
environment of moderate U.S. economic growth, inflation and interest rates is a
strong positive; (2) U.S. industry is more competitive than at any time in the
past quarter century; (3) U.S. companies are the leaders in the majority of
industries worldwide; and (4) the U.S. budget is running a surplus versus a
deficit in the early 1990s. The recent lowering of short-term interest rates by
the Federal Reserve is an important positive.
INFORMATION ABOUT THE REYNOLDS FUNDS
FOR AUTOMATIC CURRENT DAILY NET ASSET VALUES: Call 1-800-773-9665 (1-800-
7REYNOLDS) twenty-four hours-a-day, seven days a week and press "1" then "2".
The updated current net asset values for all of the Reynolds Funds are usually
available each business day after 5 P.M. (PST).
FOR REYNOLDS MONEY MARKET FUND CURRENT ONE AND SEVEN DAY YIELDS: Call 1-800-
773-9665 and press "1" then "2".
FOR SHAREHOLDERS TO AUTOMATICALLY ACCESS THEIR CURRENT ACCOUNT INFORMATION:
Call 1-800-773-9665 (twenty-four hours-a-day, seven days a week) and press "1"
then "3" and enter your 16 digit account number which appears at the top of your
statement.
TO SPEAK TO A FUND REPRESENTATIVE REGARDING QUESTIONS, CURRENT DAILY NET
ASSET VALUES AND CURRENT ACCOUNT INFORMATION: Call 1-800-773-9665 and press "1"
then "0" during normal business hours.
SHAREHOLDER STATEMENT FREQUENCY: Consolidated statements summarizing all
Reynolds Funds held by a shareholder are sent quarterly. In addition,
individual Fund statements are sent whenever a transaction occurs. These
transactions are: (1) Reynolds Money Market and U.S. Government Bond Fund
statements are sent monthly when each month's accrued dividends are posted; (2)
Reynolds Blue Chip and Opportunity Fund statements are sent twice a year when
any ordinary income or capital gains are distributed; and (3) statements are
sent for any of the Funds when a shareholder purchases or redeems shares.
TAX REPORTING: Individual 1099 forms, which summarize any dividend income
and any long- or short-term capital gains, are sent annually to shareholders
each January. The percentage of income earned from various government
securities, if any, for the Reynolds Funds are also reported in January.
NEWSPAPER LISTING OF NET ASSET VALUE: The Blue Chip and Opportunity Funds
are listed in many major daily newspapers including Investor's Business Daily,
The New York Times, The Wall Street Journal and USA Today. Many newspapers have
a separate heading listed alphabetically for the Reynolds Funds. The Blue Chip
Fund and Opportunity Fund appear under that heading. The Blue Chip Fund has the
symbol Reynolds BC, Reynolds BCG, Rey BC, ReynBlCh, ReynBluCh or Blue Chip. The
Opportunity Fund has the symbol Reynolds Opport, Reynolds Opp or Opportunity.
The U.S. Government Bond Fund will be listed in newspapers once it has either
$25 million of net assets or 1,000 shareholders.
NASDAQ SYMBOLS: Reynolds Blue Chip Growth Fund - RBCGX, Reynolds Opportunity
Fund - ROPPX, Reynolds U.S. Government Bond Fund - RUSGX, Reynolds Money Market
Fund - REYXX.
MINIMUM INVESTMENT: $1,000 for regular and retirement accounts. ($100 for
additional investments for all accounts - except for the Automatic Investment
Plan, which is $50 for regular and retirement plan accounts).
PROTOTYPE PLANS FOR RETIREMENT PLANS: All types are offered including the
Roth IRA, Education IRA and SIMPLE IRA Plan.
AUTOMATIC INVESTMENT PLAN: There is no charge to automatically debit your
checking account or your account in any of the Reynolds Funds at periodic
intervals to make automatic purchases in any of the Reynolds Funds. This is
useful for dollar cost averaging.
SYSTEMATIC WITHDRAWAL PLAN: For shareholders with a $10,000 minimum starting
balance, there is no charge to automatically redeem shares ($100 minimum) in any
of the Reynolds Funds as often as monthly and send a check to you or wire to
your bank account.
EXCHANGES OR REGULAR REDEMPTIONS: As often as desired - no charge.
PORTFOLIO MANAGER: Frederick Reynolds is the portfolio manager of each of the
Reynolds Funds.
CUSTODIAN: Firstar Bank Milwaukee is the custodian of the Reynolds Funds'
assets.
WEB SITE: www.reynoldsfunds.com.
THE REYNOLDS FUNDS ARE NO-LOAD: No front-end sales commissions or redemption
fees "loads" are charged. Over 40% of all mutual funds impose these marketing
charges that are ultimately paid by the shareholder. These marketing charges
are either: (1) a front-end fee or "load" in which up to 5% of a shareholder's
assets are deducted from the original investment (some funds even charge a fee
when a shareholder reinvests capital gains or dividends); or (2) a back-end
penalty fee or "load" which is typically deducted from a shareholder's account
if a shareholder redeems within five years of the original investment. These
fees reduce a shareholder's return. The Reynolds Funds are No-Load as they do
not have these extra charges.
One hundred percent of our company's pension plan is invested in the Reynolds
Funds. We appreciate your continued confidence in the Reynolds Funds and would
like to welcome our new shareholders. We look forward to strong results in the
future.
Sincerely,
/s/ Frederick L. Reynolds
Frederick L. Reynolds
President
80 East Sir Francis Drake Blvd. o Larkspur, CA 94939 o 415-461-7860
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Reynolds Funds unless accompanied or preceded by
the Funds' current prospectus. Past performance is not indicative of future
performance. Investment return and principal value of an investment may
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Reynolds Funds, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
(PricewaterhouseCoopers Logo)
October 27, 1998
To the Shareholders and Board of Directors
of Reynolds Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities,
schedule of investments, statements of net assets and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Reynolds Blue Chip
Growth Fund, Reynolds Opportunity Fund, Reynolds U.S. Government Bond Fund and
Reynolds Money Market Fund (constituting Reynolds Funds, Inc., hereafter
referred to as the "Funds") at September 30, 1998, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for each of the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Reynolds Blue Chip Growth Fund
STATEMENT OF NET ASSETS
September 30, 1998
QUOTED
SHARES MARKET VALUE
------ ------------
LONG-TERM INVESTMENTS -- 97.9% (A)<F2>
COMMON STOCKS -- 97.9% (A)<F2>
AIRLINES -- 0.4%
2,000 AMR Corp.*<F1> $ 110,876
1,500 Delta Air Lines, Inc. 145,875
2,000 UAL Corp.*<F1> 129,626
-----------
386,377
AUTOMOTIVE -- 0.1%
1,000 General Motors Corp. 54,688
BANKS -- 1.1%
4,000 BankAmerica Corp. 240,500
1,000 The Chase Manhattan Corp. 43,250
500 Citicorp 46,469
2,500 J.P. Morgan & Co. Inc. 211,562
1,000 NationsBank Corp. 53,500
1,000 Wells Fargo & Co. 355,000
-----------
950,281
BEVERAGES -- 4.1%
1,000 Anheuser-Busch Companies, Inc. 54,000
40,000 The Coca-Cola Co. 2,305,000
44,000 PepsiCo, Inc. 1,295,272
-----------
3,654,272
BIOTECHNOLOGY -- 0.1%
1,000 Biogen, Inc.*<F1> 65,813
BUILDING -- 1.8%
39,500 The Home Depot, Inc. 1,560,250
2,000 Lowe's Companies, Inc. 63,626
-----------
1,623,876
CHEMICALS -- 0.3%
2,000 E.I. du Pont de Nemours & Co. 112,250
2,500 Minnesota Mining & Manufacturing Co. 184,220
-----------
296,470
COMPUTER NETWORKING -- 5.6%
7,000 3Com Corp.*<F1> 210,441
4,000 Ascend Communications, Inc.*<F1> 182,000
74,250 Cisco Systems Inc.*<F1> 4,589,615
1,000 Legato Systems, Inc.*<F1> 51,375
-----------
5,033,431
COMPUTER & PERIPHERALS -- 5.8%
3,000 Apple Computer, Inc.*<F1> 114,375
22,500 Compaq Computer Corp. 711,562
22,500 Dell Computer Corp.*<F1> 1,479,375
3,000 EMC Corporation (Mass.)*<F1> 171,564
1,000 Gateway 2000, Inc.*<F1> 52,125
11,500 Hewlett-Packard Co. 608,787
14,000 International Business Machines Corp. 1,792,000
5,500 Sun Microsystems, Inc.*<F1> 273,972
-----------
5,203,760
COMPUTER SOFTWARE & SERVICES -- 9.9%
3,000 Automatic Data Processing, Inc. 224,250
4,000 BMC Software, Inc.*<F1> 240,252
23,625 Computer Associates International, Inc. 874,125
9,000 Computer Sciences Corp.*<F1> 490,500
1,000 Computer Task Group, Inc. 29,313
1,000 Intuit Inc.*<F1> 46,563
55,000 Microsoft Corp.*<F1> 6,053,465
10,312 Oracle Corp.*<F1> 300,337
16,000 PeopleSoft, Inc.*<F1> 522,000
1,000 Siebel Systems, Inc.*<F1> 28,688
-----------
8,809,493
DRUGS -- 21.5%
15,600 Bristol-Myers Squibb Co. 1,620,450
27,000 Eli Lilly & Co. 2,114,451
30,100 Merck & Co., Inc. 3,899,846
41,500 Pfizer Inc. 4,396,427
38,000 Schering-Plough Corp. 3,935,394
43,500 Warner-Lambert Co. 3,284,250
-----------
19,250,818
ELECTRICAL EQUIPMENT -- 1.8%
3,000 Emerson Electric Co. 186,750
18,000 General Electric Co. (U.S.) 1,432,134
-----------
1,618,884
ELECTRONICS -- 0.1%
3,000 Teradyne, Inc.*<F1> 54,750
ENERGY -- 1.1%
1,500 Mobil Corp. 113,907
2,000 Royal Dutch Petroleum Co. ADR 95,250
13,000 Schlumberger Ltd. 654,069
3,000 Smith International, Inc.*<F1> 82,314
-----------
945,540
FINANCIAL SERVICES -- 1.9%
10,500 American Express Co. 815,062
262 Associates First Capital Corp. 17,096
1,000 DST Systems, Inc.*<F1> 52,750
4,000 Fannie Mae 257,000
1,000 First Data Corp. 23,500
4,000 Merrill Lynch & Co., Inc. 189,500
1,000 Morgan Stanley, Dean Witter & Co. 43,063
3,000 Charles Schwab Corp. 118,125
1,000 State Street Corp. 54,563
4,000 The Travelers Group, Inc. 150,000
-----------
1,720,659
FOODS -- 0.7%
1,000 Campbell Soup Co. 50,188
1,000 General Mills, Inc. 70,000
1,000 H.J. Heinz Co. 51,125
2,000 Kellogg Co. 65,876
6,000 Philip Morris Companies Inc. 276,378
2,500 Sara Lee Corp. 135,000
450 Vlasic Foods International, Inc.*<F1> 8,410
-----------
656,977
GROCERY STORES -- 0.4%
1,000 Albertson's, Inc. 54,125
5,000 Safeway Inc.*<F1> 231,875
1,000 Whole Foods Market, Inc.*<F1> 42,125
-----------
328,125
HEALTH MAINTENANCE ORGANIZATIONS -- 0.1%
7,500 Oxford Health Plans, Inc.*<F1> 77,813
HOUSEHOLD PRODUCTS -- 7.2%
23,000 American Home Products Corp. 1,204,625
4,000 Clorox Co. 330,000
26,000 Colgate-Palmolive Co. 1,781,000
18,000 Gillette Co. 688,500
1,000 Newell Co. 46,063
33,500 Procter & Gamble Co. 2,376,423
-----------
6,426,611
INSURANCE -- 1.4%
14,437 American International Group, Inc. 1,111,649
1,000 At Home Corporation - Series A*<F1> 47,875
500 General Re Corp. 101,500
-----------
1,261,024
INTERNET -- 4.8%
2,000 Amazon.com, Inc.*<F1> 223,250
23,500 America Online Inc.*<F1> 2,614,375
1,000 CNET, Inc.*<F1> 45,750
3,000 EarthLink Network, Inc.*<F1> 123,750
6,000 Excite, Inc.*<F1> 244,878
3,000 Infoseek Corp.*<F1> 73,875
500 Inktomi Corp.*<F1> 37,625
9,000 Lycos, Inc.*<F1> 304,317
3,000 MindSpring Enterprises, Inc.*<F1> 124,500
1,000 Netscape Communications Corp.*<F1> 21,875
4,000 Yahoo! Inc.*<F1> 518,000
-----------
4,332,195
MACHINERY -- 0.1%
1,000 Caterpillar Inc. 44,563
MEDICAL SERVICES -- 0.6%
3,000 Boston Scientific Corp.*<F1> 154,125
1,000 Cardinal Health, Inc. 103,250
2,000 McKesson Corp. 183,250
1,500 Shared Medical Systems Corp. 79,782
-----------
520,407
MEDICAL SUPPLIES -- 6.8%
59,000 Abbott Laboratories 2,562,842
44,000 Johnson & Johnson 3,443,000
2,000 Medtronic, Inc. 115,750
1,000 St. Jude Medical, Inc.*<F1> 23,125
-----------
6,144,717
OFFICE EQUIPMENT & SUPPLIES -- 0.9%
10,000 Office Depot, Inc.*<F1> 224,380
4,000 Pitney Bowes Inc. 210,252
1,000 Staples, Inc.*<F1> 29,375
4,000 Xerox Corp. 339,000
-----------
803,007
PUBLISHING -- 0.1%
2,000 Gannett Co., Inc. 107,126
RECREATION -- 1.5%
49,147 Walt Disney Co. 1,244,058
1,000 Time Warner Inc. 87,563
-----------
1,331,621
RESTAURANTS -- 1.5%
16,000 McDonald's Corp. 955,008
9,000 Tricon Global Restaurants, Inc.*<F1> 351,000
-----------
1,306,008
RETAIL-SPECIALTY -- 1.0%
3,000 Barnes & Noble, Inc.*<F1> 81,000
2,000 Bed Bath & Beyond Inc.*<F1> 46,750
8,000 Best Buy Co., Inc.*<F1> 332,000
1,000 Borders Group, Inc.*<F1> 22,250
3,000 NIKE, Inc. Class B 110,439
2,000 Rite Aid Corp. 71,000
2,000 Starbucks Corp.*<F1> 72,376
4,000 Walgreen Co. 176,252
-----------
912,067
RETAIL STORES -- 5.0%
7,000 Costco Companies, Inc.*<F1> 331,625
13,000 Dayton Hudson Corp. 464,750
19,500 Gap, Inc. 1,028,625
4,000 Kohl's Corp.*<F1> 156,000
1,000 The Neiman Marcus Group, Inc.*<F1> 21,625
19,000 Nordstrom, Inc. 470,250
37,000 Wal-Mart Stores, Inc. 2,021,125
-----------
4,494,000
SEMICONDUCTORS -- 5.0%
5,500 Altera Corp.*<F1> 193,188
40,500 Intel Corp. 3,472,875
2,000 Level One Communications Inc.*<F1> 40,250
3,000 Micron Technology, Inc.*<F1> 91,314
11,000 Texas Instruments Inc. 580,250
3,000 Xilinx, Inc.*<F1> 105,000
-----------
4,482,877
SEMICONDUCTOR CAPITAL SPENDING -- 0.3%
8,000 Applied Materials, Inc.*<F1> 202,000
2,000 KLA-Tencor Corp.*<F1> 49,750
1,000 Novellus Systems, Inc.*<F1> 26,250
-----------
278,000
TELECOMMUNICATIONS -- 4.3%
1,000 AirTouch Communications, Inc.*<F1> 57,000
6,000 L.M. Ericsson Telephone Co. ADR 110,250
12,000 Lucent Technologies Inc. 828,756
17,000 Motorola, Inc. 725,696
4,000 NEXTEL Communications, Inc.*<F1> 80,752
11,500 Nokia Corp. "A" ADR 902,037
5,000 Northern Telecom Limited 160,000
16,000 Tellabs, Inc.*<F1> 637,008
3,000 Vodafone Group plc ADR 338,250
-----------
3,839,749
TELEPHONE SERVICES -- 0.6%
1,000 BellSouth Corp. 75,250
7,000 MCI WorldCom Inc.*<F1> 342,125
2,000 Sprint Corp. 144,000
-----------
561,375
TRANSPORTATION -- 0.0%
1,000 Boeing Co. 34,313
-----------
Total common stocks
(cost $48,676,438) 87,611,687
PREFERRED STOCKS -- 0.0% (A)<F2>
205 Aetna Inc., 6.25%, Class C,
07/19/00 Series, Voting Preferred 14,363
-----------
Total preferred stocks
(cost $13,386) 14,363
-----------
Total long-term investments
(cost $48,689,824) 87,626,050
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS -- 2.9% (A)<F2>
VARIABLE RATE DEMAND NOTE
$2,643,783 Firstar Bank U.S.A., N.A. 2,643,783
-----------
Total short-term investments
(cost $2,643,783) 2,643,783
-----------
Total investments
(cost $51,333,607) 90,269,833
Liabilities, less cash and
receivables -- (0.8%) (A)<F2> (736,626)
-----------
NET ASSETS $89,533,207
-----------
-----------
Net Asset Value Per Share
($0.01 par value, 20,000,000
shares authorized), offering
and redemption price
($89,533,207 / 2,423,109
shares outstanding) $36.95
------
------
*<F1> Non-income producing security.
(a)<F2>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Blue Chip Growth Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1998
INCOME:
Dividends $603,477
Interest 56,986
----------
Total income 660,463
----------
EXPENSES:
Management fee 728,520
Administrative services 102,851
Transfer agent fees 29,749
Professional fees 27,583
Custodian fees 27,466
Registration fees 24,155
Printing and postage expense 22,962
Board of Directors fees 2,500
Other expenses 18,185
----------
Total expenses 983,971
----------
NET INVESTMENT LOSS (323,508)
----------
NET REALIZED GAIN ON INVESTMENTS 2,116,406
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 7,045,499
----------
NET GAIN ON INVESTMENTS 9,161,905
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,838,397
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1998 and 1997
1998 1997
----------- -----------
OPERATIONS:
Net investment loss $ (323,508) $ (44,311)
Net realized gain on investments 2,116,406 466,891
Net increase in unrealized
appreciation on investments 7,045,499 15,989,698
----------- -----------
Net increase in net assets
resulting from operations 8,838,397 16,412,278
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividend from net investment income
($0.008 per share) (15,315) --
Distributions from net realized gains
($0.3781 and $0.3475 per share, respectively) (722,590) (472,452)
----------- -----------
Total distributions (737,905)*<F3> (472,452)
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(1,609,369 and 1,528,496 shares,
respectively) 61,280,880 43,146,360
Net asset value of shares issued
in distributions (23,530 and 20,696
shares, respectively) 699,554 465,659
Cost of shares redeemed
(1,156,569 and 960,289 shares, respectively) (42,842,077) (28,064,790)
----------- -----------
Net increase in net assets
derived from Fund share activities 19,138,357 15,547,229
----------- -----------
TOTAL INCREASE 27,238,849 31,487,055
NET ASSETS AT THE BEGINNING OF THE YEAR 62,294,358 30,807,303
----------- -----------
NET ASSETS AT THE END OF THE YEAR $89,533,207 $62,294,358
----------- -----------
----------- -----------
*<F3> See Note 7.
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Blue Chip Growth Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
<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.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Opportunity Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
ASSETS:
Investments in securities, at value (cost $17,881,411) $ 29,341,744
Receivable for investments sold 1,848,954
Dividends and interest receivable 18,278
Cash 1,560
------------
Total assets $ 31,210,536
------------
------------
LIABILITIES:
Payable to brokers for investments purchased $ 2,009,350
Payable to adviser for management fees 23,582
Other liabilities 23,385
------------
Total liabilities 2,056,317
------------
NET ASSETS:
Capital Stock, $0.01 par value;
20,000,000 shares authorized;
1,332,528 shares outstanding 17,022,750
Net unrealized appreciation on investments 11,460,333
Accumulated net realized gains on investments 671,136
------------
Net assets 29,154,219
------------
Total liabilities and net assets $ 31,210,536
------------
------------
CALCULATION OF NET ASSET VALUE:
Offering and redemption price per share
($29,154,219 / 1,332,528 shares outstanding) $ 21.88
------------
------------
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Opportunity Fund
SCHEDULE OF INVESTMENTS
September 30, 1998
QUOTED
SHARES MARKET VALUE
------ ------------
LONG-TERM INVESTMENTS -- 98.7% (A)<F7>
COMMON STOCKS -- 98.7% (A)<F7>
APPAREL -- 0.2%
2,000 Jones Apparel Group, Inc.*<F6> $ 45,876
AIRLINES -- 0.2%
1,000 AMR Corp.*<F6> 55,438
BEVERAGES -- 3.6%
13,500 The Coca-Cola Co. 777,937
9,000 PepsiCo, Inc. 264,942
-----------
1,042,879
BUILDING -- 1.7%
11,598 The Home Depot, Inc. 458,121
1,000 Lowe's Companies, Inc. 31,813
-----------
489,934
CABLE TV/BROADCASTING -- 0.4%
2,400 Clear Channel Communications, Inc.*<F6> 114,000
CHEMICAL -- 0.2%
1,000 Minnesota Mining & Manufacturing Co. 73,688
COMPUTER-NETWORKING -- 7.3%
6,995 3Com Corp.*<F6> 210,291
30,150 Cisco Systems Inc.*<F6> 1,863,662
1,000 Citrix Systems, Inc.*<F6> 71,000
-----------
2,144,953
COMPUTER & PERIPHERALS -- 9.4%
1,500 Compaq Computer Corp. 47,437
29,600 Dell Computer Corp.*<F6> 1,946,200
1,000 EMC Corporation (Mass.)*<F6> 57,188
3,500 Gateway 2000, Inc.*<F6> 182,437
2,800 Hewlett-Packard Co. 148,226
1,700 International Business Machines Corp. 217,600
8,800 Iomega Corp.*<F6> 33,000
2,800 Sun Microsystems, Inc.*<F6> 139,476
-----------
2,771,564
COMPUTER SOFTWARE & SERVICES -- 12.6%
3,000 BMC Software, Inc.*<F6> 180,189
7,187 Computer Associates International, Inc. 265,919
1,000 Computer Sciences Corp.*<F6> 54,500
1,200 Compuware Corp.*<F6> 70,650
23,000 Microsoft Corp.*<F6> 2,531,449
7,725 Oracle Corp.*<F6> 224,991
6,000 Parametric Technology Corp.*<F6> 60,378
9,600 PeopleSoft, Inc.*<F6> 313,200
-----------
3,701,276
DRUGS -- 18.6%
3,000 Bristol-Myers Squibb Co. 311,625
9,000 Eli Lilly & Co. 704,817
10,022 Merck & Co., Inc. 1,298,480
12,000 Pfizer Inc. 1,271,256
12,000 Schering-Plough Corp. 1,242,756
8,200 Warner-Lambert Co. 619,100
-----------
5,448,034
ELECTRICAL EQUIPMENT -- 0.7%
2,500 General Electric Co. (U.S.) 198,908
ELECTRONICS -- 0.1%
1,500 Teradyne, Inc.*<F6> 27,375
ENERGY -- 1.0%
1,500 Halliburton Co. 42,844
4,500 Schlumberger Ltd. 226,409
500 Smith International, Inc.*<F6> 13,719
-----------
282,972
FINANCIAL SERVICES -- 3.3%
5,000 American Express Co. 388,125
1,025 Banc One Corp. 43,691
1,000 Diebold, Inc. 22,000
500 DST Systems, Inc.*<F6> 26,375
2,000 Fannie Mae 128,500
900 Franklin Resources, Inc. 27,000
1,000 Morgan Stanley, Dean Witter & Co. 43,063
1,200 T. Rowe Price Associates, Inc. 35,250
6,125 Charles Schwab Corp. 241,172
-----------
955,176
FOODS -- 0.5%
1,000 Quaker Oats Co. 59,000
100 Vlasic Foods International, Inc.*<F6> 1,869
1,000 Wm. Wrigley Jr. Co. 75,938
-----------
136,807
HEALTH MAINTENANCE ORGANIZATIONS -- 0.2%
6,000 Oxford Health Plans, Inc.*<F6> 62,250
HOUSEHOLD PRODUCTS -- 5.4%
10,000 American Home Products Corp. 523,750
1,000 Clorox Co. 82,500
7,000 Colgate-Palmolive Co. 479,500
5,000 Gillette Co. 191,250
4,500 Procter & Gamble Co. 319,221
-----------
1,596,221
INSURANCE -- 0.3%
1,125 American International
Group, Inc. 86,625
INTERNET -- 4.3%
500 Amazon.com, Inc.*<F6> 55,812
6,000 America Online Inc.*<F6> 667,500
1,000 CMG Information Services, Inc.*<F6> 53,250
5,000 Excite, Inc.*<F6> 204,065
2,000 Lycos, Inc.*<F6> 67,626
1,500 MindSpring Enterprises, Inc.*<F6> 62,250
1,000 Netscape Communications Corp.*<F6> 21,875
1,000 Yahoo! Inc.*<F6> 129,500
-----------
1,261,878
MEDICAL SERVICES -- 2.6%
2,849 Boston Scientific Corp.*<F6> 146,367
2,000 Cardinal Health, Inc. 206,500
4,800 HBO & Co. 138,600
3,000 McKesson Corp. 274,875
-----------
766,342
MEDICAL SUPPLIES -- 6.2%
23,000 Abbott Laboratories 999,074
800 Guidant Corp. 59,400
9,676 Johnson & Johnson 757,147
-----------
1,815,621
OFFICE EQUIPMENT & SUPPLIES -- 0.8%
2,000 CompUSA Inc.*<F6> 34,626
1,000 Corporate Express, Inc.*<F6> 11,938
4,000 Staples, Inc.*<F6> 117,500
1,000 Xerox Corp. 84,750
-----------
248,814
PUBLISHING -- 0.3%
1,000 The McGraw-Hill Companies, Inc. 79,250
RECREATION -- 1.4%
16,000 Walt Disney Co. 405,008
RESTAURANTS -- 1.5%
7,000 McDonald's Corp. 417,816
900 Tricon Global Restaurants, Inc.*<F6> 35,100
-----------
452,916
RETAIL-SPECIALTY -- 1.6%
4,000 Best Buy Co., Inc.*<F6> 166,000
3,000 Borders Group, Inc.*<F6> 66,750
1,000 Dollar Tree Stores, Inc.*<F6> 31,313
1,500 NIKE, Inc. Class B 55,220
3,000 Rite Aid Corp. 106,500
1,000 Saks Inc.*<F6> 22,438
500 Starbucks Corp.*<F6> 18,094
-----------
466,315
RETAIL STORES -- 3.4%
1,000 Costco Companies, Inc.*<F6> 47,375
3,000 Dayton Hudson Corp. 107,250
6,250 Gap, Inc. 329,688
8,000 Nordstrom, Inc. 198,000
6,000 Wal-Mart Stores, Inc. 327,750
-----------
1,010,063
SEMICONDUCTORS -- 6.5%
2,100 Altera Corp.*<F6> 73,762
14,300 Intel Corp. 1,226,225
1,500 Lattice Semiconductor Corp.*<F6> 37,125
600 Linear Technology Corp. 30,000
1,500 LSI Logic Corp.*<F6> 18,938
1,600 Maxim Integrated Products Inc.*<F6> 44,600
7,000 Texas Instruments Inc. 369,250
3,000 Xilinx, Inc.*<F6> 105,000
-----------
1,904,900
SEMICONDUCTOR CAPITAL SPENDING -- 1.0%
6,000 Applied Materials, Inc.*<F6> 151,500
2,600 KLA-Tencor Corp.*<F6> 64,675
1,600 Novellus Systems, Inc.*<F6> 42,000
1,600 Sanmina Corp.*<F6> 45,000
-----------
303,175
SERVICES -- 0.1%
1,000 Cendant Corp.*<F6> 1,625
600 Corrections Corp. of America*<F6> 8,138
-----------
19,763
TELECOMMUNICATIONS -- 3.3%
2,000 L.M. Ericsson Telephone Co. ADR 36,750
3,500 Lucent Technologies Inc. 241,721
3,000 Motorola, Inc. 128,064
4,000 Nokia Corp. "A" ADR 313,752
5,000 Tellabs, Inc.*<F6> 199,065
500 Vodafone Group plc ADR 56,375
-----------
975,727
-----------
Total common stocks
(cost $17,483,896) 28,943,748
PREFERRED STOCKS -- 0.0% (A)<F7>
101 Aetna Inc., 6.25%, Class C,
07/19/00 Series, Voting Preferred 7,076
-----------
Total preferred stock
(cost $6,595) 7,076
-----------
Total long-term investments
(cost $17,490,491) 28,950,824
PREFERRED STOCKS -- 0.0% (A)<F7>
101 Aetna Inc., 6.25%, Class C,
07/19/00 Series, Voting Preferred 7,076
-----------
Total preferred stock
(cost $6,595) 7,076
-----------
Total long-term investments
(cost $17,490,491) 28,950,824
PRINCIPAL
AMOUNT
----------
SHORT-TERM INVESTMENTS -- 1.3% (A)<F7>
VARIABLE RATE DEMAND NOTE
$390,920 Firstar Bank U.S.A., N.A. 390,920
-----------
Total short-term investments
(cost $390,920) 390,920
-----------
TOTAL INVESTMENTS (100%)
(cost $17,881,411) $29,341,744
-----------
-----------
*<F6> Non-income producing security.
(a)<F7>Percentages for the various classifications relate to total investments.
The accompanying notes to financial statements are an integral part of this
schedule.
Reynolds Opportunity Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1998
INCOME:
Dividends $ 150,721
Interest 21,157
----------
Total income 171,878
----------
EXPENSES:
Management fees 249,623
Administrative services 49,882
Professional fees 26,005
Registration fees 12,453
Transfer agent fees 11,958
Custodian fees 9,913
Printing and postage expense 4,516
Board of Directors fees 750
Other expenses 5,154
----------
Total expenses 370,254
----------
NET INVESTMENT LOSS (198,376)
----------
NET REALIZED GAIN ON INVESTMENTS 1,014,034
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,850,126
----------
NET GAIN ON INVESTMENTS 2,864,160
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,665,784
----------
----------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1998 and 1997
1998 1997
----------- -----------
OPERATIONS:
Net investment loss $ (198,376) $ (178,090)
Net realized gain on investments 1,014,034 94,586
Net increase in unrealized
appreciation on investments 1,850,126 4,387,125
----------- -----------
Net increase in net assets
resulting from operations 2,665,784 4,303,621
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(490,190 and 214,277 shares, respectively) 10,516,157 3,736,722
Cost of shares redeemed
(322,195 and 143,246 shares, respectively) (6,729,286) (2,443,205)
----------- -----------
Net increase in net assets derived
from Fund share activities 3,786,871 1,293,517
----------- -----------
TOTAL INCREASE 6,452,655 5,597,138
NET ASSETS AT THE BEGINNING OF THE YEAR 22,701,564 17,104,426
----------- -----------
NET ASSETS AT THE END OF THE YEAR $29,154,219 $22,701,564
----------- -----------
----------- -----------
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Opportunity Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
FOR THE
PERIOD FROM
JANUARY 30, 1992+<F8>
FOR THE YEARS ENDED SEPTEMBER 30, TO SEPTEMBER 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<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)++<F9> (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%)*<F10>
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***<F12> 1.5% 1.5% 1.5% 1.9% 2.0% 2.0% 2.0%**<F11>
Ratio of net investment (loss) income
to average net assets****<F13> (0.8%) (0.9%) (1.1%) (1.5%) (1.6%) (1.3%) 0.0%**<F11>
Portfolio turnover rate 39.4% 60.2% 11.8% 38.4% 16.8% 67.6% 30.1%
</TABLE>
+<F8> Commencement of operations.
++<F9> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
*<F10> Not annualized.
**<F11> Annualized.
***<F12> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
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%**<F11>,
respectively.
****<F13> The ratios 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%)**<F11>, respectively.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds U.S. Government Bond Fund
STATEMENT OF NET ASSETS
September 30, 1998
PRINCIPAL QUOTED
AMOUNT MARKET VALUE
-------- -------------
LONG-TERM INVESTMENTS -- 30.8% (A)<F14>
U.S. TREASURY SECURITIES -- 20.6%
$300,000 U.S. Treasury Notes, 6.00%, due 08/15/00 $ 308,578
300,000 U.S. Treasury Notes, 8.50%, due 11/15/00 324,750
-----------
Total U.S. treasury securities
(cost $635,854) 633,328
FEDERAL AGENCIES -- 10.2%
300,000 Federal Farm Credit, 6.28%, due 6/20/01
(cost $300,134) 311,691
-----------
Total long-term investments
(cost $935,988) 945,019
SHORT-TERM INVESTMENTS -- 68.5% (A)<F14>
U.S. TREASURY SECURITIES -- 26.2%
200,000 U.S. Treasury Notes, 7.125%, due 10/15/98 200,134
200,000 U.S. Treasury Notes, 6.75%, due 05/31/99 202,625
400,000 U.S. Treasury Notes, 6.375%, due 7/15/99 405,125
-----------
Total U.S. treasury securities
(cost $807,345) 807,884
COMMERCIAL PAPER -- 22.0%
130,000 Norwest Financial, Inc., 5.50%,
due 11/05/98 129,305
145,000 Associates Corp., 5.49%, due 11/18/98 143,939
145,000 IBM Credit Corp., 5.48%, due 11/18/98 143,940
130,000 General Electric Capital Corp.,
5.50%, due 11/20/98 129,007
130,000 American Express Credit Corp.,
5.45%, due 12/10/98 128,622
-----------
Total commercial paper
(cost $674,813) 674,813
-----------
VARIABLE RATE DEMAND NOTES -- 20.3%
125,001 American Family Financial Services 125,001
150,000 Firstar Bank U.S.A., N.A. 150,000
50,944 Pitney Bowes Credit Corp. 50,944
150,000 Warner-Lambert Co. 150,000
148,000 Wisconsin Electric Power Co. 148,000
-----------
Total variable rate demand notes
(cost $623,945) 623,945
-----------
Total short-term investments
(cost $2,106,103) 2,106,642
-----------
Total investments
(cost $3,042,091) 3,051,661
Cash and receivables, less
liabilities 0.7% (A)<F14> 22,030
-----------
NET ASSETS $3,073,691
-----------
-----------
Net Asset Value Per Share
($0.01 par value, 20,000,000
shares authorized), offering
and redemption price
($3,073,691 / 313,165
shares outstanding) $ 9.81
-----------
-----------
(a)<F14>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds U.S. Government Bond Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1998
INCOME:
Interest $ 172,661
---------
EXPENSES:
Professional fees 21,039
Management fees 20,562
Transfer agent fees 11,123
Registration fees 3,313
Administrative services 2,742
Printing and postage expense 1,488
Board of Directors fees 750
Custodian fees 686
Other expenses 3,320
---------
Total expenses before reimbursement
and management fee waiver 65,023
Less expenses assumed by adviser (40,349)
---------
Net expenses 24,674
---------
NET INVESTMENT INCOME 147,987
---------
NET REALIZED GAIN ON INVESTMENTS --
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 15,938
---------
NET GAIN ON INVESTMENTS 15,938
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 163,925
---------
---------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1998 and 1997
1998 1997
---------- ----------
OPERATIONS:
Net investment income $147,987 $143,167
Net realized gain on investments -- 264
Net increase in unrealized
appreciation on investments 15,938 4,176
---------- ----------
Net increase in net assets
resulting from operations 163,925 147,607
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
($0.5281 and $0.5322 per share, respectively) (147,987) (143,167)
---------- ----------
Total distributions (147,987) (143,167)
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(71,430 and 39,516 shares, respectively) 697,445 385,277
Net asset value of shares issued
in distributions (13,420 and
12,071 shares, respectively) 131,107 117,814
Cost of shares redeemed
(40,601 and 66,239 shares, respectively) (396,565) (647,293)
---------- ----------
Net increase (decrease) in net assets
derived from Fund share activities 431,987 (144,202)
---------- ----------
TOTAL INCREASE (DECREASE) 447,925 (139,762)
NET ASSETS AT THE BEGINNING OF THE YEAR 2,625,766 2,765,528
---------- ----------
NET ASSETS AT THE END OF THE YEAR $3,073,691 $2,625,766
---------- ----------
---------- ----------
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds U.S. Government Bond Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
FOR THE
PERIOD FROM
JANUARY 30, 1992+<F15>
FOR THE YEARS ENDED SEPTEMBER 30, TO SEPTEMBER 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<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 gain (loss)
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%*<F16>
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***<F18> 0.90% 0.90% 0.90% 0.91% 0.86% 0.83% 0.75%**<F17>
Ratio of net investment income
to average net assets****<F19> 5.40% 5.45% 5.43% 5.59% 5.42% 5.34% 4.95%**<F17>
Portfolio turnover rate -- 25.28% 28.65% -- 19.59% 6.34% --
</TABLE>
+<F15> Commencement of operations.
*<F16> Not annualized.
**<F17> Annualized.
***<F18> 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%**<F17> for the period ended September 30, 1992.
****<F19> 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%**<F17>, respectively.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Money Market Fund
STATEMENT OF NET ASSETS
September 30, 1998
<TABLE>
PRINCIPAL
AMOUNT RATING VALUE
-------- ------ -----
<C> <C> <C> <C>
COMMERCIAL PAPER -- 62.9% (A)<F20>
$220,000 Sears Roebuck Acceptance Corp., 5.48%, due 10/22/98 A2P1 $ 219,297
230,000 Prudential Funding Corp., 5.45%, due 11/12/98 A1P1 228,538
215,000 Texaco Inc., 5.46%, due 11/12/98 A1P1 213,631
235,000 American Express Credit Corp., 5.40%, due 11/16/98 A1P1 233,378
235,000 John Deere Capital Corp., 5.41%, due 11/16/98 A1P1 233,375
235,000 General Electric Capital Corp., 5.42%, due 11/16/98 A1+P1 233,372
200,000 CIT Group Holdings, Inc., 5.49%, due 11/17/98 A1P1 198,566
200,000 Household Finance Corp., 5.48%, due 11/17/98 A1P1 198,569
200,000 IBM Credit Corp., 5.46%, due 11/17/98 A1P1 198,574
220,000 General Motors Acceptance Corp., 5.46%, due 11/23/98 A1P1 218,232
230,000 Norwest Financial, Inc., 5.42%, due 12/08/98 A1+P1 227,645
225,000 Associates Corp., 5.33%, due 12/11/98 A1+P1 222,635
220,000 American General Corp., 5.46%, due 12/23/98 A1P1 217,231
230,000 Merrill Lynch & Co., Inc., 5.40%, due 01/15/99 A1+P1 226,343
----------
Total commercial paper 3,069,386
FEDERAL AGENCIES -- 12.2% (A)<F20>
300,000 Federal Home Loan Bank, 5.28%, due 11/12/98 298,152
300,000 Federal National Mortgage Association, 5.27%, due 12/31/98 296,004
----------
Total federal agencies 594,156
----------
VARIABLE RATE DEMAND NOTES -- 25.2% (A)<F20>
240,000 American Family Financial Services A1+P1 240,000
245,000 Firstar Bank U.S.A., N.A A1P1 245,000
200,000 General Mills, Inc. A1P1 200,000
65,675 Pitney Bowes Credit Corp. A1+P1 65,675
240,000 Warner-Lambert Co. A1+P1 240,000
240,000 Wisconsin Electric Power Co. A1+P1 240,000
----------
Total variable rate demand notes 1,230,675
----------
Total investments (amortized cost $4,894,217) 4,894,217
Liabilities, less cash and receivables (0.3%) (A)<F20> (14,948)
----------
NET ASSETS $4,879,269
----------
----------
Net Asset Value Per Share ($0.01 par value, 500,000,000
shares authorized), offering and redemption price
($4,879,269 / 4,879,269 shares outstanding) $ 1.00
----------
----------
</TABLE>
(a)<F20> Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Money Market Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1998
INCOME:
Interest $209,113
---------
EXPENSES:
Professional fees 21,799
Management fees 18,916
Transfer agent fees 12,717
Registration fees 4,959
Printing and postage expense 4,735
Administrative services 3,783
Custodian fees 2,003
Board of Directors fees 1,500
Other expenses 3,525
---------
Total expenses before reimbursement
and management fee waiver 73,937
Less expenses assumed by adviser (49,346)
---------
Net expenses 24,591
---------
NET INVESTMENT INCOME 184,522
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $184,522
---------
---------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1998 and 1997
1998 1997
----------- -----------
OPERATIONS:
Net investment income $ 184,522 $ 149,477
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
($0.0488 and $0.0477 per share, respectively) (184,522) (149,477)
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(10,462,294 and 9,021,337 shares, respectively) 10,462,294 9,021,337
Net asset value of shares issued in distributions
(172,920 and 145,723 shares, respectively) 172,920 145,723
Cost of shares redeemed
(8,788,422 and 10,115,042 shares, respectively) (8,788,422) (10,115,042)
----------- -----------
Net increase (decrease) in net asset
derived from Fund share activities. 1,846,792 (947,982)
----------- -----------
TOTAL INCREASE (DECREASE) 1,846,792 (947,982)
NET ASSETS AT THE BEGINNING OF THE YEAR 3,032,477 3,980,459
----------- -----------
NET ASSETS AT THE END OF THE YEAR $ 4,879,269 $ 3,032,477
----------- -----------
----------- -----------
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Money Market Fund
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991+<F21>
------- ------- ------- ------- ------- ------- ------- -------
<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%*<F22>
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***<F24> 0.65% 0.65% 0.65% 0.65% 0.63% 0.67% 0.64% 0.61%**<F23>
Ratio of net investment
income to
average net assets****<F25> 4.88% 4.77% 4.78% 5.08% 2.84% 2.62% 3.53% 5.43%**<F23>
</TABLE>
+<F21> For the period from January 30, 1991 (commencement of operations) to
September 30, 1991.
*<F22> Not annualized.
**<F23> Annualized.
***<F24> 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%**<F23> for the period ended September
30, 1991.
****<F25> 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%**<F23> for the period ended September 30,
1991.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Funds, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
Reynolds Funds, Inc. (the "Company"), which is registered as a diversified,
open-end management investment company under the Investment Company Act of
1940. This Company consists of a series of four funds: the Reynolds Blue
Chip Growth Fund ("Blue Chip Fund"), the Reynolds Money Market Fund ("Money
Market Fund"), the Reynolds Opportunity Fund ("Opportunity Fund") and the
Reynolds U.S. Government Bond Fund ("Government Bond Fund") (collectively
the "Funds"). The assets and liabilities of each Fund are segregated and a
shareholder's interest is limited to the Fund in which the shareholder owns
shares. The Company was incorporated under the laws of Maryland on April
28,1988.
The investment objective of the Blue Chip Fund is to produce long-term
growth of capital, with current income as a secondary objective, by
investing in common stocks of well-established growth companies commonly
referred to as "blue chip" companies; the investment objective of the Money
Market Fund is to provide a high level of current income, consistent with
liquidity, the preservation of capital and a stable net asset value, by
investing in a diversified portfolio of high-quality, highly liquid money
market instruments; the investment objective of the Opportunity Fund is to
produce long-term growth of capital by investing in a diversified portfolio
of common stocks of companies having above average growth characteristics;
and the investment objective of the Government Bond Fund is to provide a
high level of current income by investing primarily in a diversified
portfolio of securities issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities.
(a) Each security for the Blue Chip Fund, Opportunity Fund and Government
Bond Fund, excluding short-term investments, is valued at the last sale
price reported by the principal security exchange on which the issue is
traded, or if no sale is reported, the latest bid price. Securities which
are traded over-the-counter are valued at the latest bid price. Short-term
investments with maturities of 60 days or less held by these Funds and all
instruments held by the Money Market Fund are valued at amortized cost
which approximates quoted market value. Securities for which quotations
are not readily available are valued at fair value as determined by the
investment adviser under the supervision of the Board of Directors. For
financial reporting purposes, investment transactions are recorded on trade
date. Cost amounts for the Blue Chip Fund and the Opportunity Fund, as
reported on the statement of net assets and the schedule of investments,
respectively, are substantially the same for Federal income tax purposes.
Cost amounts, as reported on the statements of net assets for the
Government Bond Fund and the Money Market Fund, are the same for Federal
income tax purposes.
(b) Net realized gains and losses on common stock of the Blue Chip Fund
and the Opportunity Fund are computed on the identified cost basis.
(c) Provision has not been made for Federal income taxes since the Funds
have elected to be taxed as "regulated investment companies" and intend to
distribute substantially all income to shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies. The Opportunity Fund utilized $173,120 of capital
loss carryovers to offset current year net capital gains. The Government
Bond Fund has $231,245, $19,651 and $2,405 of net capital losses which
expire September 30, 2003, 2004 and 2005, respectively.
(d) The Blue Chip Fund and the Opportunity Fund record dividend income on
the ex-dividend date and interest income on the accrual basis. The
Government Bond Fund and the Money Market Fund record interest income on
the accrual basis.
(e) The Funds have investments in short-term variable rate demand notes,
which are unsecured instruments. The Funds may be susceptible to credit
risk with respect to these notes to the extent the issuer defaults on its
payment obligation. The Funds' policy is to monitor the creditworthiness
of the issuer and the Funds do not anticipate nonperformance by these
counterparties.
(f) Generally accepted accounting principles require that permanent
differences between income for financial reporting and tax purposes be
reclassified in the capital accounts.
(g) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
The Funds have management agreements with Reynolds Capital Management
("RCM"), with whom certain officers and directors of the Funds are
affiliated, to serve as investment adviser and manager. Under the terms of
the agreements, the Blue Chip Fund and the Opportunity Fund will pay RCM a
monthly management fee at the annual rate of 1% of such Funds' daily net
assets; from the Government Bond Fund a monthly fee of 0.75% of such Fund's
daily net assets; and from the Money Market Fund a monthly fee of 0.5% of
such Fund's daily net assets. For the year ended September 30, 1998, RCM
voluntarily waived $20,562 and $18,916 of the management fees due from the
Government Bond Fund and the Money Market Fund, respectively, under the
agreements. Additionally, RCM assumed $19,787 and $30,430 of other expenses
of the Government Bond Fund and the Money Market Fund, respectively.
In addition to the reimbursement required under the management agreements,
RCM has voluntarily reimbursed the Government Bond Fund and the Money
Market Fund for expenses over 0.90% and 0.65% of the daily net assets of
the Funds, respectively. These voluntary reimbursements to the Government
Bond Fund and the Money Market Fund may be modified or discontinued at any
time by RCM.
The Funds have administrative agreements with Fiduciary Management, Inc.
("FMI"), with whom certain officers of the Funds are affiliated, to
supervise all aspects of the Funds' operations except those performed by
RCM pursuant to the management agreements. Under the terms of the
agreements, the Blue Chip Fund and the Opportunity Fund will pay FMI a
monthly administrative fee at the annual rate of 0.2% of such Funds' daily
net assets up to and including $30,000,000 and 0.1% of such Funds' daily
net assets in excess of $30,000,000; and the Government Bond Fund and the
Money Market Fund will pay FMI a monthly administrative fee at the annual
rate of 0.1% of such Funds' daily net assets.
(3) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed to
shareholders. The distributions were declared on October 26, 1998, and
were paid on October 27, 1998 to shareholders of record on October 23,
1998.
<TABLE> Blue Chip Opportunity
Fund Fund
------------ ------------
<S> <C> <C>
Dividend from net investment income $ -- $ --
$ per share -- --
Short-term gains 207,260 --
$ per share 0.081512 --
Long-term capital gains taxed at 20% 1,444,322 689,248
$ per share 0.568030 0.503550
</TABLE>
(4) INVESTMENT TRANSACTIONS --
For the year ended September 30, 1998, purchases and proceeds of sales of
investment securities of the Blue Chip Fund (excluding short-term
securities) were $41,795,530 and $25,281,293, respectively; purchases and
proceeds of sales of investment securities of the Opportunity Fund
(excluding short-term securities) were $13,168,780 and $9,625,396,
respectively; there were no purchases or sales of long-term investment
securities for the Government Bond Fund.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 1998, liabilities of the Funds included the following:
<TABLE>
Blue Chip Money Market Opportunity Government
Fund Fund Fund Bond Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Payable to brokers for investments purchased $ 2,593,212 $ -- $ 2,009,350 $ --
Payable to RCM for management fees 70,287 -- 23,582 --
Other liabilities 29,982 1,287 23,385 962
</TABLE>
(6) SOURCES OF NET ASSETS --
As of September 30, 1998, the sources of net assets were as follows:
<TABLE>
Blue Chip Money Market Opportunity Government
Fund Fund Fund Bond Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fund shares issued and outstanding $49,120,494 $ 4,879,269 $17,022,750 $ 3,317,422
Net unrealized appreciation on investments 38,936,226 -- 11,460,333 9,570
Accumulated net realized gain
(loss) on investments 1,476,487 -- 671,136 (253,301)
------------ ------------ ------------ ------------
$89,533,207 $ 4,879,269 $29,154,219 $ 3,073,691
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Aggregate net unrealized appreciation for the Funds as of September 30,
1998 consisted of the following:
<TABLE>
Blue Chip Opportunity Government
Fund Fund Bond Fund
------------ ------------ ------------
<S> <C> <C> <C>
Aggregate gross unrealized appreciation $42,646,190 $12,515,063 $ 29,632
Aggregate gross unrealized depreciation (3,709,964) (1,054,730) (20,062)
------------ ------------ ------------
Net unrealized appreciation $38,936,226 $11,460,333 $ 9,570
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(7) REQUIRED FEDERAL INCOME TAX DISCLOSURES (UNAUDITED) --
In early 1998, shareholders received information regarding all
distributions paid to them by the Funds during the fiscal year ended
September 30, 1998. The Funds hereby designate the following amounts as
long-term capital gains distributions.
Blue Chip
Fund
------------
Capital gains taxed at 20% $ 689,463
Capital gains taxed at 28% 33,127
------------
Total long-term capital gains $ 722,590
------------
------------
For the Blue Chip Fund, the percentage of ordinary income which is eligible
for the corporate dividend received deduction for the fiscal year ended
September 30, 1998, was 100%.
(8) MATTERS SUBMITTED TO A SHAREHOLDER VOTE (UNAUDITED) --
During fiscal 1998, a special shareholders meeting was held and the
following matters were approved by at least 79% of the voting shares of the
Blue Chip Fund and 89% of the voting shares of the Opportunity Fund: (a)
Election of Directors and (b) with respect to the Blue Chip Fund and the
Opportunity Fund, approve the Reynolds Funds 12b-1 Plan.
REYNOLDS FUNDS
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
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, LLP
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-773-9665
OR 1-800-7REYNOLDS
1-414-765-4124
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
