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. 14 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 16 |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)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
|X| on September 30, 1999 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>
P R O S P E C T U S
September 30, 1999
The Reynolds Funds
The Reynolds Funds are a family of five no load mutual funds consisting
of:
Stock Funds Income Funds
----------- ------------
* Reynolds Fund * Reynolds U.S. Government
Bond Fund
* Reynolds Blue Chip Growth * Reynolds Money Market
Fund Fund
* Reynolds Opportunity Fund
Please read this Prospectus and keep it for future reference. It contains
important information, including information on how the Reynolds Funds invest
and the services they offer to shareholders.
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Reynolds Funds, Inc.
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
(800) 773-9665
(800)7REYNOLDS
TABLE OF CONTENTS
Questions Every Investor Should Ask
Before Investing in the Reynolds Funds
Investment Objectives and Strategies.......................
Management of the Funds....................................
The Funds' Share Price ....................................
Purchasing Shares..........................................
Redeeming Shares...........................................
Exchanging Shares..........................................
Dividends, Distributions and Taxes.........................
Management's Discussion of Fund Performance
Financial Highlights.......................................
<PAGE>
QUESTIONS EVERY INVESTOR SHOULD ASK BEFORE
INVESTING IN THE REYNOLDS FUNDS
The Reynolds Stock Funds
1. What are the Reynolds Stock Funds' Goals?
Reynolds Fund
Reynolds Fund seeks long-term capital appreciation.
Reynolds Blue Chip Growth Fund
Reynolds Blue Chip Growth Fund seeks long-term capital appreciation and,
to a lesser extent, current income.
Reynolds Opportunity Fund
Reynolds Opportunity Fund seeks long-term capital appreciation.
2. What are the Reynolds Stock Funds' Principal Investment Strategies?
Each of the Reynolds Stock Funds mainly invests in common stocks of
United States companies. Many of these companies are well-established growth
companies commonly referred to as "blue chip" companies. "Blue chip" companies
are important factors in their respective industries and their stocks are widely
held by individual and institutional investors. Also each of the Reynolds Stock
Funds, and particularly the Opportunity Fund, will invest in companies which are
not now "blue chip" companies, but which our investment adviser believes have
the potential to become "blue chip" companies. Finally each of the Reynolds
Stock Funds generally invests in "growth" companies. These are companies that
our investment adviser believes will have per share earnings growth faster than
the average publicly traded company.
Although, most of the time each of the Reynolds Stock Funds will hold
many of the same securities, they will have different portfolios and different
performance. The Reynolds Fund is a general stock fund. While it will generally
invest in "growth" companies, it may also invest in "value" stocks. The
percentage of its assets committed to common stocks of "blue chip" companies is
likely to vary more than the percentage of the assets of the Blue Chip Growth
Fund or the Opportunity Fund committed to common stocks of "blue chip"
companies. Under normal market conditions, the Blue Chip Growth Fund will have
at least 65% of its net assets invested in common stocks of "blue chip"
companies. The Opportunity Fund will normally have less of its net assets
invested in common stocks of "blue chip" companies than the Blue Chip Growth
Fund and more of its assets invested in those companies which are not now "blue
chip" companies but which our investment adviser believes have the potential to
become "blue chip" companies.
2
<PAGE>
3. What are the Principal Risks of Investing in the Reynolds Stock Funds?
Investors in the Reynolds Stock Funds may lose money. There are risks
associated with investments in the types of securities in which the
Reynolds Stock Funds invest. These risks include:
o Market Risk: The prices of the securities in which the Reynolds
Stock Funds invest may decline for a number of reasons. The price
declines of common stocks, in particular, may be steep, sudden
and/or prolonged.
o Smaller Capitalization Companies Risk: Each of the Reynolds Stock
Funds may invest in smaller capitalization companies. Smaller
capitalization companies typically have relatively lower revenues,
limited product lines and lack of management depth, and may have a
smaller share of the market for their products or services, than
larger capitalization companies. The stocks of smaller
capitalization companies tend to have less trading volume than
stocks of larger capitalization companies. Less trading volume may
make it more difficult for our investment adviser to sell
securities of smaller capitalization companies at quoted market
prices. Finally, there are periods when investing in smaller
capitalization stocks falls out of favor with investors and the
stocks of smaller capitalization companies underperform.
o Growth Investing Risk: Our investment adviser may be wrong in its
assessment of a company's potential for growth and the stocks we
hold do not grow as our investment adviser anticipates. From time
to time "growth" investing falls out of favor with investors.
During these periods, the Funds' relative performance may suffer.
Because of these risks the Funds are a suitable investment only for those
investors who have long-term investment goals. Prospective investors who
are uncomfortable with an investment that will increase and decrease in
value should not invest in the Funds.
4. How have the Reynolds Stock Funds Performed?
The bar charts and tables that follow provide some indication of the
risks of investing in the Reynolds Stock Funds by showing changes in the
performance from year to year of the Blue Chip Growth Fund and the
Opportunity Fund and how their average annual returns over various
periods compare to the performance of the Standard & Poor's Composite
Index of 500 Stocks. (The Reynolds Fund will commence operations on
September 30, 1999.) Please remember that each Fund's past performance is
not necessarily an indication of its future performance. It may perform
better or worse in the future.
3
<PAGE>
Reynolds Blue Chip Growth Fund
(Total return per calendar year)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60%
54.12%
50%
40% 35.86%
32.87%
31.48%
30% 28.22%
20.68%
20%
10%
0.11%
0.09%
0%
--------------------------------------------------------------------------------------------------------
-0.57%
-10% -5.23%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------
Note: During the ten year period shown on the bar chart, the Fund's highest
total return for a quarter was 31.39% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -14.44% (quarter ended
September 30, 1990).
The Fund's 1999 year to date total return is ____% (January 1, 1999
through the quarter ended September 30, 1999).
</TABLE>
Average Annual Total Returns
(for the periods ending December Past 10
31, 1998) Past Year Past 5 Years Years
- --------------------------------------------------------------------------------
Reynolds Blue Chip Growth Fund 54.12% 27.98% 18.25%
S&P 500* 28.75% 24.15% 19.22%
- ---------------
*The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a widely
recognized unmanaged index of common stock prices.
4
<PAGE>
Reynolds Opportunity Fund
(Total return per calendar year)
60%
59.14%
50%
40%
36.27%
30%
20%
14.13% 14.58%
10%
1.69%
0.10%
0%
- -------------------------------------------------------------------
-10%
1993 1994 1995 1996 1997 1998
- ---------------
Note: During the six year period shown on the bar chart, the Fund's highest
total return for a quarter was 32.59% (quarter ended December 31, 1998)
and the lowest total return for a quarter was -10.75% (quarter ended
March 31, 1993).
The Fund's 1999 year to date total return is ____% (January 1, 1999
through the quarter ended September 30, 1999).
<TABLE>
<CAPTION>
Average Annual Total Returns
(for the periods ending December Since the inception date of
31, 1998) Past Year Past 5 Years the Fund (January 30, 1992)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reynolds Opportunity Fund 59.14% 23.59% 16.65%
S&P 500 28.75% 24.15% 19.86%
</TABLE>
5
<PAGE>
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you
buy and hold shares of the Reynolds Stock Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Reynolds Blue Chip
Reynolds Fund Growth Fund Reynolds Opportunity Fund
------------- ----------- -------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price).................. No Sales Charge No Sales Charge No Sales Charge
Maximum Deferred Sales Charge (Load)............. No Deferred Sales
Charge No Deferred Sales Charge No Deferred Sales Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions.............................. No Sales Charge No Sales Charge No Sales Charge
Redemption Fee................................... None (1) None (1) None (1)
Exchange Fee..................................... None None None
- ---------------------
(1) Our transfer agent charges a fee of $12.00 for each wire redemption.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees.................................. 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees......... 0.25% 0.25% (1) 0.25%(1)
Other Expenses................................... 0.70%(2) 0.35% 0.48%
Total Annual Fund Operating Expenses............. 1.95% 1.60% 1.73%
- ---------------
(1) We have restated "Distribution and/or Service (12b-1) Fees" to reflect
the fact that the Blue Chip Growth Fund and the Opportunity Fund adopted
a 12b-1 Plan on September 23, 1998 that took effect on December 1, 1998.
(2) Based on our estimates for the fiscal year ending September 30, 2000.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Reynolds Stock Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
6
<PAGE>
1 Year 3 Years 5 Years 10 Years
Reynolds Fund $198 $612 $1,052 $2,275
Reynolds Blue Chip $163 $505 $ 871 $1,900
Growth Fund
Reynolds Opportunity $176 $545 $ 939 $2,041
Fund
The Reynolds Income Funds
- -------------------------
1. What are the Reynolds Income Funds' Goals?
Reynolds U.S. Government Bond Fund
Reynolds U.S. Government Bond Fund seeks a high level of current income.
Reynolds Money Market Fund
Reynolds Money Market Fund seeks to provide a high level of current
income, consistent with liquidity, the preservation of capital and a stable net
asset value.
2. What are the Reynolds Income Funds' Principal Investment Strategies?
Reynolds U.S. Government Bond Fund
The U.S. Government Bond Fund primarily invests in U.S. Government
securities, although it may also invest in other debt securities rated at least
AA by a nationally recognized rating agency. The average maturity of the
obligations held by the U.S. Government Bond Fund generally ranges from one to
ten years. When our investment adviser believes interest rates will decline, the
U.S. Government Bond Fund will likely hold securities having a longer maturity
than when our investment adviser believes interest rates will rise.
The U.S. Government Bond Fund may also invest in money market instruments
such as commercial paper, commercial paper master demand notes and United States
Treasury Bills during periods when our investment adviser expects interest rates
to rise, and to pay expenses or satisfy redemption requests.
Reynolds Money Market Fund
The Money Market Fund invests exclusively in high quality
dollar-denominated debt obligations with remaining maturities of 397 days or
less (as determined in accordance
7
<PAGE>
with the rules of the Securities and Exchange Commission). The Money Market Fund
will maintain an average portfolio maturity of 90 days or less.
The Money Market Fund will invest only in securities which are rated in
the highest category by at least two nationally recognized rating agencies.
The money market instruments that the Money Market Fund may purchase
include:
* commercial paper and commercial paper master demand notes;
* bank obligations, including certificates of deposit, time deposits
and bankers' acceptances;
* U.S. Government securities and repurchase agreements secured by
U.S. Government securities.
3. What are the Principal Risks of Investing in the Reynolds Income Funds?
Reynolds U.S. Government Bond Fund
Investors in the U.S. Government Bond Fund may lose money. There are
risks associated with investments in the types of securities in which the U.S.
Government Bond Fund invests. These risks include:
* Market Risk: The prices of the securities in which the U.S.
Government Bond Fund invests may decline for a number of reasons.
* Interest Rate Risk: In general, the value of bonds and other debt
securities rises when interest rates fall and fall when interest
rates rise. Longer term obligations are usually more sensitive to
interest rate changes than shorter term obligations. The U.S.
Government Bond Fund may invest in zero coupon U.S. Treasury
securities which are generally subject to greater fluctuation in
value due to changing interest rates than debt obligations which
pay interest currently. While bonds and other debt securities
normally fluctuate less in price than common stocks, there have
been extended periods of increases in interest rates that have
caused significant declines in bond prices.
* Credit Risk: The issuers of the bonds and other debt securities
held by the U.S. Government Bond Fund may not be able to make
interest or principal payments. Even if these issuers are able to
make interest or principal payments, they may suffer adverse
changes in financial condition that would lower the credit quality
of the security, leading to greater volatility in the price of the
security.
8
<PAGE>
* Prepayment Risk: Issuers of securities held by the U.S. Government
Bond Fund may be able to prepay principal due on securities,
particularly during periods of declining interest rates.
Securities subject to prepayment risk generally offer less
potential for gain when interest rates decline, and may offer a
greater potential for loss when interest rates rise. Rising
interest rates may cause prepayments to occur at a slower than
expected rate thereby increasing the average life of the security
and making the security more sensitive to interest rate changes.
Prepayment risk is a major risk of mortgage-backed securities.
Reynolds Money Market Fund
An investment in the Reynolds Money Market Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Money Market Fund.
* Varying Income Risk: The rate of income earned on shares of the
Money Market Fund will vary from day to day depending on
short-term interest rates.
* Loss of Principal Risk: It is possible that a major change in
interest rates or a default on a security or repurchase agreement
could cause the value of your investment to decline.
4. How have the Reynolds Income Funds Performed?
The bar charts and tables that follow provide some indication of the
risks of investing in the Reynolds Income Funds by showing changes in each
Fund's performance from year to year and by showing how the average annual
returns of the U.S. Government Bond Fund over various periods compares to the
performance of the Lehman Government Bond Index. Please remember that each
Fund's past performance is not necessarily an indication of its future
performance. It may perform better or worse in the future.
9
<PAGE>
Reynolds U.S. Government Bond Fund
(Total return per calendar year)
15%
12.24%
10% 9.22%
5.41% 5.51%
5%
3.56%
0%
- -------------------------------------------------------------------
-5%
-5.52%
-10%
1993 1994 1995 1996 1997 1998
- -------------
Note: During the six year period shown on the bar chart, the Fund's highest
total return for a quarter was 4.12% (quarter ended June 30, 1995) and
the lowest total return for a quarter was -3.69% (quarter ended March 31,
1994).
The Fund's 1999 year to date total return is ____% (January 1, 1999
through the quarter ended September 30, 1999).
<TABLE>
<CAPTION>
Average Annual Total Returns
(for the periods ending December 31, Since the inception date of
1998) Past Year Past 5 Years the Fund (January 30, 1992)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reynolds U.S. Government Bond Fund 5.51% 4.08% 5.14%
Lehman Government Bond Index* 9.85% 7.18% 8.02%
- -------------------
*The Lehman Government Bond Index is made up of the Treasury Bond Index (all
public obligations of 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.
</TABLE>
10
<PAGE>
Reynolds Money Market Fund
(Total return per calendar year)
10%
5.33%
5% 3.61% 4.82% 4.92% 4.94%
3.20%
2.54%
0%
- ------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998
Note: During the seven year period shown on the bar chart, the Fund's highest
total return for a quarter was 1.36% (quarter ended June 30, 1995) and
the lowest total return for a quarter was 0.61% (quarter ended June 30,
1993).
The Fund's 1999 year to date total return is ____% (January 1, 1999
through the quarter ended September 30, 1999).
<TABLE>
<CAPTION>
Average Annual Total Returns
(for the periods ending December 31, Since the inception date of
1998) Past Year Past 5 Years the Fund (January 30, 1991)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reynolds Money Market Fund 4.94% 4.72% 4.32%
*The Money Market Fund's 7-day yield for the period ended December 31, 1998 was
4.62%. Figures reflect past performance. Yields will vary. You may call
1-800-773-9665 to obtain the Money Market Fund's current 7-day yield.
</TABLE>
FEES AND EXPENSES
The table below describes the fees and expenses that you may pay if you
buy and hold shares of the Reynolds Income Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Reynolds U.S. Government
Bond Fund Reynolds Money Market Fund
--------- --------------------------
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price).................. No Sales Charge No Sales Charge
Maximum Deferred Sales Charge (Load)............. No Deferred Sales Charge No Deferred Sales Charge
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
And Distributions.............................. No Sales Charge No Sales Charge
Redemption Fee................................... None (1) None (1)
Exchange Fee..................................... None None
- ---------------------
(1) Our transfer agent charges a fee of $12.00 for each wire redemption.
</TABLE>
11
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees.................................. 0.75% 0.50%
Distribution and/or Service (12b-1) Fees......... None None
Other Expenses................................... 1.62% 1.46%
Total Annual Fund Operating Expenses............. 2.37% 1.96%
- ---------------
(1) Both the U.S. Government Bond Fund and the Money Market Fund had actual
Total Annual Fund Operating Expenses for the most recent fiscal year that
were less than the amounts shown. Our investment adviser reimbursed each
Fund to the extent necessary to insure that Total Annual Fund Operating
Expenses did not exceed the following amounts:
Reynolds U.S. Government Bond Fund 0.90%
Reynolds Money Market Fund 0.65%
Our investment adviser may discontinue these reimbursements at any time,
but will not do so prior to September 30, 2000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Reynolds Income Funds with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
1 Year 3 Years 5 Years 10 Years
Reynolds U.S. Government Bond Fund $240 $739 $1,265 $2,706
Reynolds Money Market Fund $199 $615 $1,057 $2,285
INVESTMENT OBJECTIVES AND STRATEGIES
The Reynolds Stock Funds
Each of the Reynolds Stock Funds seeks long-term capital appreciation.
The Blue Chip Growth Fund also, to a lesser extent, seeks current income. Each
Fund may change its investment objective without obtaining shareholder approval.
Please remember that an investment objective is not a guarantee. An investment
in the Reynolds Stock Funds might not appreciate and investors could lose money.
The Reynolds Stock Funds mainly invest in common stocks of United States
companies. However, each may, in response to adverse market, economic, political
or other
12
<PAGE>
conditions, take temporary defensive positions. This means a Fund will invest
some or all of its assets in money market instruments (such as U.S. Treasury
Bills, commercial paper or repurchase agreements). The Reynolds Stock Funds will
not be able to achieve their investment objective of capital appreciation to the
extent that they invest in money market instruments since these securities earn
interest but do not appreciate in value. When a Fund is not taking a temporary
defensive position, it still will hold some cash and money market instruments so
that it can pay its expenses, satisfy redemption requests or take advantage of
investment opportunities.
The Adviser takes a "bottom-up" investment approach when selecting
investments for the Reynolds Stock Funds. This means he bases investment
decisions on company specific factors not general economic conditions. When
purchasing "blue chip" companies for the Reynolds Stock Funds our Adviser looks
for companies that have some or all of the following attributes:
o a long history of profitability
o a potential for above-average unit and earnings growth
o leadership positions in its markets
o a superior and pragmatic growth strategy
o a presence in expanding industries
o proprietary products, processes or services
o a strong balance sheet
o an above-average record of dividend consistency and growth
o a high return on equity
When purchasing companies that are not now "blue chip" companies, but
which have the potential to become "blue chip" companies, our Adviser looks for
companies that may be:
o leading companies in smaller industries
o lesser known companies moving from a lower to a higher market
share position within their industry group
Our 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
13
<PAGE>
valuing the company's stock at a higher price. Our Adviser also believes that if
a company pays dividends, it should be able to increase its dividend as its
long-term earnings grow.
Each of the Reynolds Stock Funds is diversified. Our Adviser will try to
have each of the Funds invest in a number of industries. Our Adviser also
believes in investing in a number of companies in each industry if the companies
meet his investment criteria.
Our Adviser is a patient investor. The Reynolds Stock Funds do not
attempt to achieve their investment objectives by active and frequent trading of
common stocks. When making investment decisions, our Adviser considers the tax
consequences of the Funds' portfolio transactions. For example, once our Adviser
has determined that a particular company warrants inclusion in the portfolios of
one or more of the Reynolds Stock Funds, he may have the Fund(s) hold that
company's stock even if the stock is temporarily underperforming.
Reynolds Income Funds
The U.S. Government Bond Fund seeks a high level of current income and
the Money Market Fund seeks a high level of current income, consistent with
liquidity, the preservation of capital and a stable net asset value. Each Fund
may change its investment objective without obtaining shareholder approval.
Please remember that an investment objective is not a guarantee. An investment
in the Reynolds Income Funds might not appreciate and investors could lose
money.
Under normal market conditions at least 65% of the U.S. Government Bond
Fund's net assets will be invested in U.S. Government securities. The U.S.
Government Bond Fund invests both in U.S. Treasury obligations and in
obligations, such as mortgage-backed securities, issued by agencies or
instrumentalities of the U.S. Government. Not all obligations issued by agencies
or instrumentalities of the U.S. Government are backed by the full faith and
credit of the U.S. Treasury. The remainder of the U.S. Government Bond Fund's
assets will be invested in corporate debt securities rated at least AA by a
nationally recognized rating agency or money market instruments.
The U.S. Government Bond Fund may, in response to adverse market,
economic, political or other conditions, take a temporary defensive position.
This means it will invest some or all of its assets in money market instruments
(like U.S. Treasury Bills, commercial paper or repurchase agreements). These
investments may result in a lower yield than would be available from investments
with a lower quality or longer term and may prevent the U.S. Government Bond
Fund from achieving its investment objective.
The Reynolds U.S. Government Bond Fund does not attempt to achieve its
investment objective by active and frequent trading of securities.
The Adviser takes a "top down" investment approach when selecting
investments for the U.S. Government Bond Fund. He reviews the economic outlook,
and the direction in which inflation and interest rates are expected to move
before selecting individual
14
<PAGE>
securities for the U.S. Government Bond Fund. The average maturity of the
obligations held by the U.S. Government Bond Fund generally ranges from one to
ten years. When the Adviser believes interest rates will decline, the U.S.
Government Bond Fund will likely hold securities having a longer maturity than
when he believes interest rates will rise.
The Adviser also takes a "top down" investment approach when selecting
investments for the Money Market Fund. He reviews the economic outlook, and the
direction in which inflation and interest rates are expected to move before
selecting individual securities for the Money Market Fund. The Money Market Fund
will maintain an average portfolio maturity of 90 days or less. Once the Adviser
has determined the desired average portfolio maturity, he will select available
money market instruments that have the highest yield but which are rated in the
highest category by at least two nationally recognized rating agencies.
MANAGEMENT OF THE FUNDS
Reynolds Capital Management manages the Funds' investments.
Reynolds Capital Management (the "Adviser") is the investment adviser to
each of the Reynolds Funds. The Adviser's address is:
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, CA 94939
As the investment adviser to the Funds, the Adviser manages the
investment portfolio of each Fund. The Adviser makes the decisions as to which
securities to buy and which securities to sell. During the last fiscal year, the
Blue Chip Growth Fund, the Opportunity Fund, the U.S. Government Bond Fund and
the Money Market Fund paid the Adviser an annual investment advisory fee equal
to the following percentages of average net assets:
Reynolds Blue Chip Growth Fund 1.00%
Reynolds Opportunity Fund 1.00%
Reynolds U.S. Government Bond Fund 0.75%
Reynolds Money Market Fund 0.50%
The Reynolds Fund (which will commence operations on September 30, 1999) will
pay the Adviser an annual advisory fee equal to 1.00% of its average net assets.
Frederick L. Reynolds is primarily responsible for the day-to-day
management of the portfolios of the Funds and has been so since their inception.
He is their portfolio manager. Mr. Reynolds is the sole proprietor of the
Adviser and has been conducting an investment advisory business as Reynolds
Capital Management since 1985.
15
<PAGE>
Year 2000
The Funds are addressing 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, their
administrator, transfer agent and 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. The Year
2000 issue could also have a negative impact on the companies in which the Funds
invest, which could hurt the Funds' investment returns.
Distribution Fees
Each of the Reynolds Stock Funds (but neither of the Reynolds Income
Funds) has adopted a distribution plan pursuant to Rule 12b-1 under the
Investment Company Act. This Plan allows each of the Reynolds Stock Funds to use
up to 0.25% of its average daily net assets to pay sales, distribution and other
fees for the sale of its shares and for services provided to investors. Because
these fees are paid out of a Fund's assets, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
THE FUNDS' SHARE PRICE
The price at which investors purchase shares of each Fund and at which
shareholders redeem shares of each Fund is called its net asset value. Each Fund
calculates its net asset value as of the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is closed on
holidays and weekends. Each Fund calculates its net asset value based on the
market prices of the securities (other than money market instruments) it holds.
Each Fund values most money market instruments it holds at their amortized cost.
Since the Money Market Fund holds only money market instruments, all securities
it holds are valued at their amortized cost. Each Fund will process purchase
orders that it receives and accepts and redemption orders that it receives prior
to the close of regular trading on a day that the New York Stock Exchange is
open at the net asset value determined later that day. It will process purchase
orders that it receives and accepts and redemption orders that it receives after
the close of regular trading at the net asset value determined at the close of
regular trading on the next day the New York Stock Exchange is open. If an
investor sends a purchase order or redemption request to the Funds' corporate
address, instead of to its transfer agent, the Funds
16
<PAGE>
will forward it to the transfer agent and the effective date of the purchase
order or redemption request will be delayed until the purchase order or
redemption request is received by the transfer agent.
PURCHASING SHARES
How to Purchase Shares from the Funds
1. Read this Prospectus carefully.
2. Determine how much you want to invest keeping in mind the
following minimums:
a. New accounts
* All accounts $1,000
b. Existing accounts
* Dividend reinvestment No Minimum
* Automatic Investment Plan $ 50
* All other accounts $ 100
3. Complete the Purchase Application accompanying this
Prospectus, carefully following the instructions. For
additional investments, complete the remittance form
attached to your individual account statements. (The Funds
have additional Purchase Applications and remittance forms
if you need them.) If you have any questions, please call
1-800-773-9665 or 1-414-765-4124.
4. Make your check payable to the full name of the Reynolds
Fund you intend to purchase. All checks must be drawn on
U.S. banks. The Funds will not accept cash or third party
checks. Firstar Mutual Fund Services, LLC, the Funds'
transfer agent, will charge a $25 fee against a
shareholder's account for any payment check returned for
insufficient funds. The shareholder will also be
responsible for any losses suffered by a Fund as a result.
5. Send the application and check to:
BY FIRST CLASS MAIL
Reynolds Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
17
<PAGE>
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Reynolds Funds
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters by overnight delivery service or express mail to the
Post Office Box address.
If you wish to open an account by wire, please call 1-800-773-9665 or
1-414-765-4124 prior to wiring funds in order to obtain a confirmation number
and to ensure prompt and accurate handling of funds. You should wire Funds to:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, WI 53202
ABA #075000022
Credit:
Firstar Mutual Fund Services, LLC
Account #112-952-137
Further Credit:
(name of Fund to be purchased)
(shareholder registration)
(shareholder account number, if known)
You should then send a properly signed Purchase Application marked
"FOLLOW-UP" to either of the addresses listed above. Please remember that
Firstar Bank Milwaukee, N.A. must receive your wired funds prior to the close of
regular trading on the New York Stock Exchange for you to receive same day
pricing. The Funds and Firstar Bank Milwaukee, N.A. are not responsible for the
consequences of delays resulting from the banking or Federal Reserve Wire
system, or from incomplete wiring instructions.
Purchasing Shares from Broker-dealers, Financial Institutions and Others
Some broker-dealers may sell shares of the Reynolds Funds. These
broker-dealers may charge investors a fee either at the time of purchase or
redemption. The fee, if charged, is retained by the broker-dealer and not
remitted to the Funds or the Adviser. Some broker-dealers may purchase and
redeem shares on a T+3 settlement basis.
18
<PAGE>
The Funds may enter into agreements with broker-dealers, financial
institutions or other service providers ("Servicing Agents") that may include
the Funds as investment alternatives in the programs they offer or administer.
Servicing agents may:
* Become shareholders of record of the Funds. This means all
requests to purchase additional shares and all redemption requests
must be sent through the Servicing Agent. This also means that
purchases made through Servicing Agents are not subject to the
Funds' minimum purchase requirements.
* Use procedures and impose restrictions that may be in addition to,
or different from, those applicable to investors purchasing shares
directly from the Funds.
* Charge fees to their customers for the services they provide them.
Also, the Funds and/or the Adviser may pay fees to Servicing
Agents to compensate them for the services they provide their
customers.
* Be allowed to purchase shares by telephone with payment to follow
the next day. If the telephone purchase is made prior to the close
of regular trading on the New York Stock Exchange, it will receive
same day pricing.
* Be authorized to accept purchase orders on behalf of the Funds.
This means that a Fund will process the purchase order at the net
asset value which is determined following the Servicing Agent's
acceptance of the customer's order.
If you decide to purchase shares through Servicing Agents, please
carefully review the program materials provided to you by the Servicing Agent.
When you purchase shares of the Funds through a Servicing Agent, it is the
responsibility of the Servicing Agent to place your order with the Fund on a
timely basis. If the Servicing Agent does not, or if it does not pay the
purchase price to the Funds within the period specified in its agreement with
the Funds, it may be held liable for any resulting fees or losses.
Other Information about Purchasing Shares of the Funds
The Funds may reject any Purchase Application for any reason. The Funds
will not accept purchase orders made by telephone unless they are from a
Servicing Agent which has an agreement with the Fund. Shares of the Money Market
Fund and the U.S. Government Bond Fund are not available to residents in certain
states.
The Funds will not issue certificates evidencing shares purchased.
Instead, the Funds will send investors a written confirmation for all purchases
of shares.
19
<PAGE>
The Funds offer an automatic investment plan allowing shareholders to
make purchases on a regular and convenient basis. The Funds also offer the
following retirement plans:
o Traditional IRA
o Roth IRA
o Education IRA
o SEP-IRA
o Simple IRA
o 401(k) Plan
o 403 (b)(7) Custodial Accounts
Investors can obtain further information about the automatic investment
plan and the retirement plans by calling the Funds at 1-800-773-9655. The
Reynolds Funds recommend that investors consult with a competent financial and
tax advisor regarding the retirement plans before investing through them.
REDEEMING SHARES
How to Redeem (Sell) Shares by Mail
1. Prepare a letter of instruction containing:
o the name of the Fund(s)
o account number(s)
o the amount of money or number of shares being redeemed
o the name(s) on the account
o daytime phone number
o additional information that the Funds may require for redemptions
by corporations, executors, administrators, trustees, guardians,
or others who hold shares in a fiduciary or representative
capacity. Please contact the Funds' transfer agent, Firstar Mutual
Fund Services, LLC, in advance, at 1-800-773-9655 or
1-414-765-4124 if you have any questions.
2. Sign the letter of instruction exactly as the shares are registered.
Joint ownership accounts must be signed by all owners.
3. Have the signatures 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 in the following situations:
20
<PAGE>
o The redemption request exceeds $25,000
o The redemption proceeds are to be sent to a person other than the
person in whose name the shares are registered
o The redemption proceeds are to be sent to an address other than
the address of record
A notarized signature is not an acceptable substitute for a signature
guarantee.
4. Send the letter of instruction to:
BY FIRST CLASS MAIL
Reynolds Funds
c/o Firstar Mutual Fund Services, LLC
Shareholder Services Center
P. O. Box 701
Milwaukee, WI 53201-0701
BY OVERNIGHT DELIVERY SERVICE
OR EXPRESS MAIL
Reynolds Funds
c/o Firstar Mutual Fund Services, LLC
3rd Floor
615 East Michigan Street
Milwaukee, WI 53202-5207
Please do not send letters of instruction by overnight delivery service or
express mail to the Post Office Box address.
How to Redeem (Sell) Shares by Telephone
1. Instruct Firstar Mutual Fund Services, LLC that you want the
option of redeeming shares by telephone. This can be done by
completing the appropriate section on the Purchase Application. If
you have already opened an account, you may write to Firstar
Mutual Fund Services, LLC requesting this option. When you do so,
please sign the request exactly as your account is registered and
have the signatures guaranteed. Shares held in retirement plans
cannot be redeemed by telephone.
2. Assemble the same information that you would include in the letter
of instruction for a written redemption request.
21
<PAGE>
3. Call Firstar Mutual Fund Services, LLC at 1-800-773-9665 or
1-414-765-4124. Please do not call the Fund or the Adviser.
4. Telephone redemptions must be in amounts of $1,000 or more.
How to Redeem (Sell) Shares through Servicing Agents
If your shares are held by a Servicing Agent, you must redeem your shares
through the Servicing Agent. Contact the Servicing Agent for instructions on how
to do so.
How to Redeem (Sell) Shares by Writing Checks
(Money Market Fund only)
1. Instruct Firstar Mutual Fund Services, LLC that you want the
option of redeeming shares of the Money Market Fund by writing
checks on your account. This can be done by completing the
appropriate section on the Purchase Application. If you have
already opened an account, you may write to Firstar Mutual Fund
Services, LLC requesting this option. When you do so, please sign
the request exactly as your account is registered.
2. You must make your check payable in an amount equal to or larger
than $500. Shares redeemed by check will continue earning interest
until the check clears. Because dividends on the Money Market Fund
accrue daily, you should not try to close your Money Market Fund
account by writing a check.
3. You will be charged the following fees when exercising the check
writing privilege:
* Checks No Charge
* Stop Payment $25 per request
* Insufficient Funds $25 per check
4. The Money Market Fund may modify or terminate the check writing
privilege at any time. Please call Firstar Mutual Fund Services,
LLC at 1-800-773-9665 if you have any questions.
Redemption Price
The redemption price per share you receive for redemption requests is the
next determined net asset value after:
* Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
22
<PAGE>
* Firstar Mutual Fund Services, LLC receives your authorized
telephone request with all required information.
* A Servicing Agent that has been authorized to accept redemption
requests on behalf of the Funds receives your request in
accordance with its procedures.
Payment of Redemption Proceeds
* For those shareholders who redeem shares by mail, Firstar Mutual
Fund Services, LLC will mail a check in the amount of the
redemption proceeds no later than the seventh day after it
receives the redemption request in proper form with all required
information.
* For those shareholders who redeem by telephone, Firstar Mutual
Fund Services, LLC will either mail a check in the amount of the
redemption proceeds no later than the seventh day after it
receives the redemption request, or transfer the redemption
proceeds to your designated bank account if you have elected to
receive redemption proceeds by either Electronic Funds Transfer or
wire. An Electronic Funds Transfer generally takes up to 3
business days to reach the shareholder's account whereas Firstar
Mutual Fund Services, LLC generally wires redemption proceeds on
the business day following the calculation of the redemption
price. However, the Funds may direct Firstar Mutual Fund Services,
LLC to pay the proceeds of a telephone redemption on a date no
later than the seventh day after the redemption request.
* For those shareholders who redeem shares through Servicing Agents,
the Servicing Agent will transmit the redemption proceeds in
accordance with its redemption procedures.
Other Redemption Considerations
When redeeming shares of the Funds, shareholders should consider the
following:
* The redemption may result in a taxable gain.
* Shareholders who redeem shares held in an IRA must indicate on
their redemption request whether or not to withhold federal income
taxes. If not, 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.
* The Funds may delay the payment of redemption proceeds for up to
seven days in all cases.
23
<PAGE>
* If you purchased shares by check, the Funds may delay the payment
of redemption proceeds until they are reasonably satisfied the
check has cleared (which may take up to 15 days from the date of
purchase).
* Firstar Mutual Fund Services, LLC will send the proceeds of
telephone redemptions to an address or account other than that
shown on its records only if the shareholder has sent in a written
request with signatures guaranteed.
* The Funds reserve the right to refuse a telephone redemption
request if they believe it is advisable to do so. The Funds and
Firstar Mutual Fund Services, LLC may modify or terminate their
procedures for telephone redemptions at any time. Neither the
Funds nor Firstar Mutual Fund Services, LLC will be liable for
following instructions for telephone redemption transactions that
they reasonably believe to be genuine, provided they use
reasonable procedures to confirm the genuineness of the telephone
instructions. They 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, you may
find telephone redemptions difficult to implement. If a
shareholder cannot contact Firstar Mutual Fund Services, LLC by
telephone, he or she should make a redemption request in writing
in the manner described earlier.
* Firstar Mutual Fund Services, LLC currently charges a fee of $12
when transferring redemption proceeds to your designated bank
account by wire but does not charge a fee when transferring
redemption proceeds by Electronic Funds Transfer.
* If your account balance falls below $500 because you redeem
shares, you will be given 60 days to make additional investments
so that your account balance is $500 or more. If you do not, the
Funds may close your account and mail the redemption proceeds to
you.
* The Funds may pay redemption requests "in kind." This means that
the Funds may pay redemption requests entirely or partially with
securities rather than with cash.
EXCHANGING SHARES
Shares of any of the Reynolds Funds may be exchanged for shares of any
other Reynolds Fund at their relative net asset values. You may have a taxable
gain or loss as a result of an exchange because the Internal Revenue Code treats
an exchange as a sale of shares.
24
<PAGE>
How to Exchange Shares
1. Read this Prospectus carefully.
2. Determine the number of shares you want to exchange keeping in
mind that exchanges are subject to a $1,000 minimum.
3. Call Firstar Mutual Fund Services, LLC at 1-800-773-9665. You may
also make an exchange by writing to Reynolds Funds, c/o Firstar
Mutual Fund Services, LLC, 3rd Floor, P. O. Box 701, Milwaukee,
Wisconsin 53201-0701.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each of the Reynolds Stock Funds distributes substantially all of its net
investment income and substantially all of its capital gains annually. Each of
the Reynolds Income Funds distributes substantially all of its net investment
income monthly and substantially all of its capital gains annually. It is very
unlikely that the Money Market Fund would distribute any capital gains. You have
four distribution options:
o All Reinvestment Option - Both dividend and capital gains
distributions will be reinvested in additional Fund shares.
o Partial Reinvestment Option - Dividends will be paid in cash and
capital gains distributions will be reinvested in additional Fund
shares. o Partial Reinvestment Option - Dividends will be
reinvested in additional Fund shares and capital gains
distributions will be paid in cash.
o All Cash Option - Both dividend and capital gains distributions
will be paid in cash.
You may make this election on the Purchase Application. You may change your
election by writing to Firstar Mutual Fund Services, LLC or by calling
1-800-773-9665.
Although the U.S. Government Bond Fund and the Money Market Fund pay
income dividends monthly, they declare daily as a dividend their net investment
income for that day. When you purchase shares of either of these Funds, you will
begin to earn dividends the first business day following your purchase. When you
redeem your shares, you will receive the dividend these Funds declare on the
redemption date. If you redeem less than all of the shares in your account, you
will receive any unpaid dividend on the next monthly payment date. If you redeem
all of the shares in your account, you will receive any unpaid dividends with
the redemption proceeds. These Funds include income earned on weekends and
holidays in the dividend declared on the preceding business day.
25
<PAGE>
Each Fund's distributions, whether received in cash or additional shares
of the Fund, may be subject to federal and state income tax. These distributions
may be taxed as ordinary income and capital gains (which may be taxed at
different rates depending on the length of time the Fund holds the assets
generating the capital gains). The Reynolds Fund and the Opportunity Fund expect
that their distributions will consist primarily of long-term capital gains. The
Blue Chip Growth Fund expects that its distributions will consist of both
ordinary income and long-term capital gains. The Reynolds Income Funds expect
that their distributions will consist primarily of ordinary income.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Reynolds Blue Chip Growth Fund
The Blue Chip Growth 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 Growth 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
AVERAGE ANNUAL TOTAL RETURN
1-Year +17.0%
5-Year +22.4%
10-Year +15.1%
Date Reynolds Blue Chip Growth Fund S&P 500
---- ------------------------------ -------
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
26
<PAGE>
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
AVERAGE ANNUAL TOTAL RETURN
1-Year +12.3%
5-Year +17.5%
Since Inception (1/30/92) +12.5%
Date Reynolds Opportunity Fund S&P 500
---- ------------------------- -------
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
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 U.S. Government 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
AVERAGE ANNUAL TOTAL RETURN
1-Year +6.1%
5-Year +3.7%
Since Inception (1/30/92) +5.2%
27
<PAGE>
Reynolds U.S. Goverment Bond Lehman Goverment Bond
Date Fund 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
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand a
Fund's financial performance for the past five fiscal years of operations and
for the period from October 1, 1998 through March 31, 1999. Certain information
reflects financial results for a single Fund share. The total returns in the
tables represent the rate that an investor would have earned on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information (other than the information for the period from October 1, 1998
through March 31, 1999) has been audited by PricewaterhouseCoopers LLP, whose
report, along with the Funds' financial statements, are included in the Annual
Report which is available upon request. The information for the period from
October 1, 1998 through March 31, 1999 is unaudited. The Reynolds Fund will
commence operations on September 30, 1999.
28
<PAGE>
<TABLE>
<CAPTION>
Reynolds Blue Chip Growth Fund
- --------------------------------------------- ------------ ------------------------------------------------------
For the Years Ended September 30,
- --------------------------------------------- ------------ ------------------------------------------------------
10-1-98
thru
3-31-99 1998 1997 1996 1995 1994
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................................... $ 36.95 $ 32.00 $ 22.69 $ 19.25 $ 14.46 $ 14.22
Income from investment operations:
Net investment income (loss) ............... 0.03 (0.12) (0.01) (0.03) 0.02 0.09
Net realized and unrealized gain
on investments ............................ 17.97 5.46 9.67 3.52 5.00 0.28
-------- ------- ------- ------- ------- -------
Total from investment operations............ 18.00 5.34 9.66 3.49 5.02 0.37
Less distributions:
Dividends from net investment
income..................................... - - (0.01) - - (0.02) (0.06) (0.13)
Distributions from net
realized gains ............................ (0.65) (0.38) (0.35) (0.03) (0.17) - --
-------- ------- ------- ------- ------- -------
Total from distributions.................... (0.65) (0.39) (0.35) (0.05) (0.23) (0.13)
-------- ------- ------- ------- ------- -------
Net asset value, end of period ............. $ 54.30 $ 36.95 $ 32.00 $ 22.69 $ 19.25 $ 14.46
======== ======= ======= ======= ======= =======
Total investment return .................... 49.4%(1) 17.0% 43.2% 18.1% 35.3% 2.6%
Supplemental data and ratios:
Net assets, end of period (000s)............ $321,985 $89,533 $62,294 $30,807 $29,357 $24,771
Ratio of expenses to average
net assets................................. 1.5%(2) 1.4% 1.4% 1.5% 1.5% 1.5%
Ratio of net investment (loss)
income to average net assets.............. (0.5%)(2) (0.4%) (0.1%) (0.1%) 0.1% 0.5%
Portfolio turnover rate .................... 0.5% 35.5% 25.0% 21.5% 49.2% 43.3%
- ---------------
(1) Not annualized.
(2) Annualized.
</TABLE>
<PAGE>
Reynolds Opportunity Fund
<TABLE>
<CAPTION>
For the Years Ended September 30,
---------------------------------
10-1-98
thru
3-31-99
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................................... $ 21.88 $ 19.49 $ 15.64 $ 14.17 $ 10.09 $ 9.78
Income from investment operations:
Net investment income (loss)................ 0.18 (0.09)(1) (0.13) (0.06) (0.11) (0.09)
Net realized and unrealized gain
on investments ............................ 12.22 2.48 3.98 1.53 4.19 0.40
------- ------- ------- ------- ------- ------
Total from investment operations............ 12.40 2.39 3.85 1.47 4.08 0.31
Less distributions:
Dividend from net investment
income..................................... - - - - - - - - - - - -
Distributions from net
realized gains ............................ (0.50) -.- -.- -.- -.- -.-
------- ------- ------- ------- ------- ------
Total from distributions.................... (0.50) -.- -.- -.- -.- -.-
------- ------- ------- ------- ------- ------
Net asset value, end of period ............. $ 33.78 $ 21.88 $ 19.49 $ 15.64 $ 14.17 $10.09
======= ======= ======= ======= ======= ======
Total investment return .................... 57.9%(2) 12.3% 24.6% 10.4% 40.4% 3.2%
Supplemental data and ratios:
Net assets, end of period (000s)............ $85,813 $29,154 $22,702 $17,104 $10,983 $6,132
Ratio of expenses (after reimbursement)
to average net assets(4).................... 1.6%(3) 1.5% 1.5% 1.5% 1.9% 2.0%
Ratio of net investment (loss) income
to average net assets(5)................... (1.0%)(3) (0.8%) (0.9%) (1.1%) (1.5%) (1.6%)
Portfolio turnover rate .................... 10.4% 39.4% 60.2% 11.8% 38.4% 16.8%
- ---------------
(1) Net investment loss per share is calculated using ending balances prior
to consideration of adjustments for permanent book and tax differences.
(2) Not annualized.
(3) Annualized.
(4) Computed after giving effect to the Adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratio would
have been 2.1% for the year ended September 30, 1994.
(5) The ratio of net investment loss to average net assets prior to the
Adviser's expense limitation undertaking for the year ended September 30,
1994 would have been (1.7%).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Reynolds U.S. Government Bond Fund
- --------------------------------------------- ------------ ---------------------------------------------------------------------
For the Years Ended September 30,
---------------------------------
10-1-98
thru
3-31-99
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................................... $ 9.81 $ 9.76 $ 9.75 $ 9.85 $ 9.61 $10.76
Income from investment operations:
Net investment income ...................... 0.23 0.53 0.53 0.53 0.54 0.56
Net realized and unrealized (loss)
gain on investments ........................ (0.07) 0.05 0.01 (0.10) 0.24 (1.14)
------ ------ ------ ------ ------ ------
Total from investment operations............ 0.16 0.58 0.54 0.43 0.78 (0.58)
Less distributions:
Dividends from net investment
income..................................... (0.23) (0.53) (0.53) (0.53) (0.54) (0.56)
Distribution from net
realized gains ............................ -.- -.- -.- -.- -.- (0.01)
------ ------ ------ ------ ------ ------
Total from distributions.................... (0.23) (0.53) (0.53) (0.53) (0.54) (0.57)
------ ------ ------ ------ ------ ------
Net asset value, end of period ............. $ 9.74 $ 9.81 $ 9.76 $ 9.75 $ 9.85 $ 9.61
====== ====== ====== ====== ====== ======
Total investment return .................... 1.66%(1) 6.08% 5.70% 4.49% 8.42% (5.54%)
Supplemental data and ratios:
Net assets, end of period (000s)............ $3,651 $3,074 $2,626 $2,766 $2,799 $4,367
Ratio of expenses (after reimbursement)
to average net assets(3)................... 0.90%(2) 0.90% 0.90% 0.90% 0.91% 0.86%
Ratio of net investment income
to average net assets(4)................... 4.73%(2) 5.40% 5.45% 5.43% 5.59% 5.42%
Portfolio turnover rate .................... - -% - -% 25.28% 28.65% - -% 19.59%
- ---------------
(1) Not annualized.
(2) Annualized.
(3) Computed after giving effect to the Adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would
have been 2.2% (annualized) , 2.4%, 2.3%, 2.2%, 2.0% and 1.5% for the six
months ending March 31, 1999 and for the for the years ended September
30, 1998, 1997, 1996, 1995 and 1994, respectively.
(4) The ratio of net investment income to average net assets prior to the
Adviser's expense limitation undertaking for the six months ended March
31, 1999 and for the years ended September 30, 1998, 1997, 1996, 1995 and
1994 would have been 3.4% (annualized), 3.9%, 4.0%, 4.1%, 4.5% and 4.8%,
respectively.
</TABLE>
<PAGE>
Reynolds Money Market Fund
<TABLE>
<CAPTION>
For the Years Ended September 30,
- --------------------------------------------- ------------ ---------------------------------------------------------------------
10-1-98
thru
3-31-99
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income ...................... 0.02 0.05 0.05 0.05 0.05 0.03
Less distributions:
Dividends from net investment
income..................................... (0.02) (0.05) (0.05) (0.05) (0.05) (0.03)
------- ------ ------ ------ ------ ------
Net asset value, end of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ====== ====== ====== ======
Total investment return .................... 2.2%(1) 5.0% 4.9% 4.9% 5.2% 3.1%
Supplemental data and ratios:
Net assets, end of period (000s)............ $10,863 $4,879 $3,032 $3,980 $3,743 $3,192
Ratio of expenses (after reimbursement)
to average net assets(3)................... 0.65%(2) 0.65% 0.65% 0.65% 0.65% 0.63%
Ratio of net investment income
to average net assets(4)................... 4.38%(2) 4.88% 4.77% 4.78% 5.08% 2.84%
- ---------------
(1) Not annualized.
(2) Annualized.
(3) Computed after giving effect to the Adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would
have been 1.54% (annualized), 1.96%, 2.02%, 1.39%, 1.95% and 1.47% for
the six months ending March 31, 1999 and for the years ended September
30, 1998, 1997, 1996, 1995 and 1994, respectively.
(4) If the Fund had paid all of its expenses, the ratios of net investment
income to average net assets would have been 3.49% (annualized), 3.57%,
3.39%, 4.05%, 3.79% and 2.01% for the six months ending March 31, 1999
and for the years ended September 30, 1998, 1997, 1996, 1995 and 1994,
respectively.
</TABLE>
<PAGE>
To learn more about the Reynolds Funds you may want to read the Reynolds
Funds' Statement of Additional Information (or "SAI") which contains additional
information about the Funds. The Reynolds Funds have incorporated by reference
the SAI into the Prospectus. This means that you should consider the contents of
the SAI to be part of the Prospectus.
You also may learn more about the Reynolds Funds' investments by reading
the Reynolds Funds' annual and semi-annual reports to shareholders. The annual
report includes a discussion of the market conditions and investment strategies
that significantly affected the performance of the Funds during their last
fiscal year.
The SAI and the annual and semi-annual reports are all available to
shareholders and prospective investors without charge, simply by calling
1-800-773-9665.
Prospective investors and shareholders who have questions about the
Reynolds Funds may also call the above number or write to the following address:
The Reynolds Funds, Inc.
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, CA 94939
The general public can review and copy information about the Reynolds
Funds (including the SAI) at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. (Please call 1-800-SEC-0330 for information
on the operations of the Public Reference Room.) Reports and other information
about the Reynolds Funds are also available at the Securities and Exchange
Commission's Internet site at http://www.sec.gov and copies of this information
may be obtained, upon payment of a duplicating fee, by writing to:
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
Please refer to the Reynolds Funds' Investment Company Act File No.
811-5549, when seeking information about the Reynolds Funds from the Securities
and Exchange Commission.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION September 30, 1999
for the REYNOLDS FUNDS
Reynolds Stock Fund Reynolds Income Funds
- ------------------- ---------------------
Reynolds Fund Reynolds U.S. Government Bond Fund
Reynolds Blue Chip Growth Fund Reynolds Money Market Fund
Reynolds Opportunity Fund
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Reynolds Funds, Inc. dated
September 30, 1999. 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 1-800-773-9665.
The following audited financial statements are incorporated by reference
to the Annual Report, dated September 30, 1998 of Reynolds Funds, Inc. (File No.
811-05549) as filed with the Securities and Exchange Commission on November 12,
1998:
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 Operation
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
The following unaudited financial statements are incorporated by
reference to the Semiannual Report dated March 31, 1999 of Reynolds Funds, Inc.
(File No. 811-05549) as filed with the Securities and Exchange Commission on
April 28, 1999:
Statements of Net Assets
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
REYNOLDS FUNDS, INC.
Wood Island, Third Floor
80 East Sir Francis Drake Blvd.
Larkspur, California 94939
<PAGE>
REYNOLDS FUNDS
Table of Contents
-----------------
Page No.
--------
FUND HISTORY AND CLASSIFICATION................................................1
INVESTMENT RESTRICTIONS........................................................1
INVESTMENT CONSIDERATIONS......................................................4
DIRECTORS AND OFFICERS OF THE COMPANY.........................................16
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS............................17
INVESTMENT ADVISER AND ADMINISTRATOR..........................................20
DETERMINATION OF NET ASSET VALUE..............................................23
DISTRIBUTION OF SHARES........................................................24
RETIREMENT PLANS..............................................................25
AUTOMATIC INVESTMENT PLAN.....................................................28
SYSTEMATIC WITHDRAWAL PLAN....................................................28
SYSTEMATIC EXCHANGE PLAN......................................................29
ALLOCATION OF PORTFOLIO BROKERAGE.............................................29
PERFORMANCE AND YIELD INFORMATION.............................................30
CUSTODIAN.....................................................................35
TAXES ........................................................................35
CAPITAL STRUCTURE.............................................................36
SHAREHOLDER MEETINGS..........................................................37
INDEPENDENT ACCOUNTANTS.......................................................38
DESCRIPTION OF SECURITIES RATINGS.............................................39
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 September 30, 1999 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>
FUND HISTORY AND CLASSIFICATION
Reynolds Funds, Inc. (the "Company") is an open-end management investment
company consisting of five diversified portfolios, Reynolds Fund, Reynolds Blue
Chip Growth Fund (the "Blue Chip Fund"), Reynolds Opportunity Fund (the
"Opportunity Fund"), Reynolds U.S. Government Bond Fund (the "Bond Fund") and
Reynolds Money Market Fund (the "Money Market Fund"). (The Reynolds Fund, the
Blue Chip Fund, the Opportunity Fund, the Bond Fund and the Money Market Fund
are sometimes collectively referred to as the "Funds"). The Company is
registered under the Investment Company Act of 1940 (the "Act"). The Company was
incorporated as a Maryland corporation on April 28, 1988.
INVESTMENT RESTRICTIONS
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 Reynolds Fund, 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 Reynolds Fund, the
Opportunity Fund and the Bond Fund only, to obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities.
3. None of the Funds will make investments for the purpose of exercising
control or management of any company. As a result, none of the Funds will invest
in securities of any single issuer if, as a result of such investment, such Fund
would own more than 10% of the outstanding voting securities of such issuer.
4. None of the Funds, except the Reynolds Fund, 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, except the Reynolds
Fund, 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, except
<PAGE>
the Reynolds Fund, will purchase securities while it has any outstanding
borrowings. The Reynolds Fund may borrow money to the extent permitted by the
Act, and may pledge or hypothecate its assets to secure 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 the total assets of the Blue Chip Fund, the Opportunity Fund, the Bond Fund
and the Money Market Fund, and will not exceed 15% of the total assets of the
Reynolds Fund) or, except for the Reynolds Fund, 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.
The Reynolds Fund may make loans of portfolio securities to the extent permitted
by the Act.
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 the 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; (b) the Opportunity Fund may invest up to 5% of its assets
in rights and warrants to purchase equity securities; and (c) the Reynolds Fund
may purchase warrants, sell securities short, and write or purchase put or call
options to the extent permitted by the Act.
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:
-2-
<PAGE>
1. None of the Funds will invest more than 5% of such Fund's total assets
in securities of issuers which have a record of less than three (3) years of
continuous operation, including the operation of any predecessor business of a
company which came into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of such
predecessor business.
2. None of the Funds will purchase securities of foreign issuers on
foreign markets; however, the Blue Chip Fund may invest not more than 15% of its
total assets, and the Opportunity Fund and the Reynolds 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
Concentration
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.
Money Market Instruments
The Reynolds Stock Funds and the Bond Fund may invest in cash and money
market securities. These Funds may do so when taking a temporary defensive
position or to have assets available to pay expenses, satisfy redemption
requests or take advantage of investment opportunities. The money market
securities in which they invest include U.S. Treasury Bills, commercial paper,
commercial paper master notes and repurchase agreements. (The Money Market Fund
invests at all times in cash and securities that are permitted investments to
money market funds under Rule 2a-7 under the Act.)
The Funds may invest in commercial paper or commercial paper master notes
rated, at the time of purchase, within the highest rating category by a
nationally recognized statistical rating organization (NRSRO). Commercial paper
master notes are demand instruments without a fixed maturity bearing interest at
rates that are fixed to known lending rates and automatically adjusted when such
lending rates change.
The Funds may enter into repurchase agreements with banks that are
Federal Reserve Member banks and non-bank dealers of U.S. government securities
which, at the time of purchase, are on the Federal Reserve Bank of New York's
list of primary dealers with a capital base greater than $100 million. When
entering into repurchase agreements, a Fund will
-4-
<PAGE>
hold as collateral an amount of cash or government securities at least equal to
the market value of the securities that are part of the repurchase agreement. A
repurchase agreement involves the risk that a seller may declare bankruptcy or
default. In such event a Fund may experience delays, increased costs and a
possible loss.
Investment Grade Investments
The Reynolds Stock Funds may invest in U.S. government securities and
publicly distributed corporate bonds and debentures to generate current income
(with respect to the Blue Chip Fund) and possible capital gains at those times
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 Reynolds Stock Funds will
limit their investments in non-convertible bonds and debentures to those which
have been assigned one of the two highest ratings of either Standard & Poor's
Corporation (AAA and AA) or Moody's Investors Service, Inc. (Aaa and Aa). In the
event a non-convertible bond or debenture is downgraded after investment, the
Fund may retain such security unless it is rated less than investment grade
(i.e., less than BBB by Standard & Poor's or Baa by Moody's). If a bond or
debenture is downgraded below investment grade, the Reynolds Stock Funds will
promptly dispose of such bond or debenture, unless the Fund's investment adviser
(the "Adviser") believes it disadvantageous to the Fund to do so.
Convertible Securities
Each of the Reynolds Stock Funds may also invest in convertible
securities (debt securities or preferred stocks of corporations which are
convertible into or exchangeable for common stocks). The Adviser will select
only those convertible securities for which it believes (a) the underlying
common stock is a suitable investment for the Fund and (b) a greater potential
for total return exists by purchasing the convertible security because of its
higher yield and/or favorable market valuation. Each of the Reynolds Stock Funds
may invest up to 5% of its net assets in convertible debt securities rated less
than investment grade. Debt securities rated less than investment grade are
commonly referred to as "junk bonds."
Investments in convertible securities rated less than investment grade
("high yield convertible securities") are subject to a number of risk factors.
The market for high yield convertible securities is subject to substantial
volatility. Issuers of high yield convertible securities may be of low
creditworthiness and high yield convertible securities are likely to be
subordinated to the claims of senior lenders. The secondary market for high
yield convertible debt securities may at times become less liquid or respond to
adverse publicity or investor perceptions making it more difficult for the Funds
to value accurately such securities or dispose of them.
Government Obligations
Each of the Funds may invest in a variety of U.S. Treasury obligations,
including bills, notes and bonds. These obligations differ only in terms of
their interest rates,
-5-
<PAGE>
maturities and time of issuance. The Funds may also invest in other securities
issued or guaranteed by the U.S. government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury. Others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; and others, such as those of the Federal
National Mortgage Association ("FNMA"), 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 agency or instrumentality that issues them. There is
no guarantee that the U.S. Government will provide financial support to its
agencies or instrumentalities, now or in the future, if it is not obligated to
do so by law.
Zero Coupon Treasury Securities
Each of the Funds 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, each of the Funds 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, each of the Funds 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.
Mortgage-Backed and Asset-Backed Securities
Each of the Funds may purchase residential and commercial mortgage-backed
as well as other asset-backed securities (collectively called "asset-backed
securities") that are secured or backed by automobile loans, installment sale
contracts, credit card receivables, mortgages or other assets and are issued by
entities such as Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), commercial banks, trusts, financial companies, finance subsidiaries
of industrial companies, savings and loan associations, mortgage banks and
investment banks. These securities represent interests in pools of assets in
which periodic payments of interest and/or principal on the securities are made,
thus, in effect passing through periodic payments made by the individual
borrowers on the assets that underlie the securities, net of any fees paid to
the issuer or guarantor of the securities. The average life of these
-6-
<PAGE>
securities varies with the maturities and the prepayment experience of the
underlying instruments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-backed securities issued by FNMA include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States, but are supported by the right of the
issuer to borrow from the Treasury. FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-backed securities issued
by the FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress. Freddie Macs are not guaranteed
by the United States or by any Federal Home Loan Bank and do not constitute a
debt or obligation of the United States or of any Federal Home Loan Bank.
Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
Each of the Funds may also purchase mortgage-backed securities structured
as CMOs. CMOs are issued in multiple classes and their relative payment rights
may be structured in many ways. In many cases, however, payments of principal
are applied to the CMO classes in order of their respective maturities, so that
no principal payments will be made on a CMO class until all other classes having
an earlier maturity date are paid in full. The classes may include accrual
certificates (also known as "Z-Bonds"), which do not accrue interest at a
specified rate until other specified classes have been retired and are converted
thereafter to interest-paying securities. They may also include planned
amortization classes ("PACs") which generally require, within certain limits,
that specified amounts of principal be applied to each payment date, and
generally exhibit less yield and market volatility than other classes. The
classes may include "IOs", which pay distributions consisting solely or
primarily of all or a portion of the interest in an underlying pool of mortgages
or mortgage-backed securities, "POs", which pay distributions consisting solely
or primarily of all or a portion of principal payments made from the underlying
pool of mortgages or mortgage-backed securities, and "inverse floaters", which
have a coupon rate that moves in the reverse direction to an applicable index.
-7-
<PAGE>
Investments in CMO certificates can expose the Funds to greater
volatility and interest rate risk than other types of mortgage-backed
obligations. Among tranches of CMOs, inverse floaters are typically more
volatile than fixed or adjustable rate tranches of CMOs. Investments in inverse
floaters could protect a Fund against a reduction in income due to a decline in
interest rates. A Fund would be adversely affected by the purchase of an inverse
floater in the event of an increase in interest rates because the coupon rate
thereon will decrease as interest rates increase, and like other mortgage-backed
securities, the value of an inverse floater will decrease as interest rates
increase. The cash flows and yields on IO and PO classes are extremely sensitive
to the rate of principal payments (including prepayments) on the related
underlying pool of mortgage loans or mortgage-backed securities. For example, a
rapid or slow rate of principal payments may have a material adverse effect on
the yields to maturity of IOs or POs, respectively. If the underlying assets
experience greater than anticipated prepayments of principal, the holder of an
IO may incur substantial losses irrespective of its rating. Conversely, if the
underlying assets experience slower than anticipated prepayments of principal,
the yield and market value for the holders of a PO will be affected more
severely than would be the case with a traditional mortgage-backed security.
Prepayments on mortgage-backed securities generally increase with falling
interest rates and decrease with rising interest rates. Prepayments are also
influenced by a variety of other economic and social factors.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans. Like other fixed income
securities, when interest rates rise the value for an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed incomes securities.
Asset-backed securities may involve certain risks that are not presented
by mortgage-backed securities. These risks arise primarily from the nature of
the underlying assets (i.e., credit card and automobile loan receivables as
opposed to real estate mortgages). Non-mortgage asset-backed securities do not
have the benefit of the same security interest in the collateral as
mortgage-backed securities. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which have given debtors the right to reduce the
balance due on the credit cards. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is the risk that
the purchaser would acquire an interest superior to that of the holders of
related
-8-
<PAGE>
automobile receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have an effective
security interest in all of the obligations backing such receivables. Therefore,
there is a possibility that payments on the receivables together with recoveries
on repossessed collateral may not, in some cases, be able to support payments on
these securities.
Asset-backed securities may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, while the secondary
market for asset-backed securities is ordinarily quite liquid, in times of
financial stress the secondary market may not be as liquid as the market for
other types of securities, which could cause a Fund to experience difficulty in
valuing or liquidating such securities.
Foreign Bank Obligations
The Money Market Fund may invest in instruments issued or supported by
the credit of foreign banks or foreign branches of domestic banks. These
investments 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.
Put and Call Options
The Blue Chip Fund and the Opportunity Fund may purchase stock index
options and the Reynolds Fund may purchase and write options on securities
including stock indexes. By purchasing a put option, a Fund obtains the right
(but not the obligation) to sell the option's underlying security at a fixed
strike price. In return for this right, the Fund pays the current market price
for the option (known as the option premium). A Fund may terminate its position
in a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If a Fund exercises the option, it completes the sale of the
underlying security at the strike price. A Fund may also terminate a put option
position by closing it out in the secondary market at its current price, if a
liquid secondary market exists. The buyer of a put option can expect to realize
a gain if security prices fall substantially. However, if the underlying
security's price does not fall enough to offset the cost of purchasing the
option, a put buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).
The feature of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying security at the option's strike
price. A call buyer attempts to participate in potential
-9-
<PAGE>
price increases of the underlying instrument with risk limited to the cost of
the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Stock index options are put options and call options on various stock
indexes. In most respects, they are identical to listed options on common
stocks. The primary difference between stock options and index options occurs
when index options are exercised. In the case of stock options the underlying
security, common stock, is delivered. However, upon the exercise of an index
option, settlement does not occur by delivery of the securities comprising the
index. The option holder who exercises the index option receives an amount of
cash if the closing level of the stock index upon which the option is based is
greater than in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and 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 any of the Reynolds Stock Funds 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 any of the Reynolds Stock Funds in order to participate in an
anticipated increase in stock market prices. Each of the Blue Chip Fund and the
Opportunity Fund will sell put and call options only to close out positions in
put and call options, as the case may be, which such Fund has purchased.
When the Reynolds Fund writes a call option, it receives a premium and
agrees to sell the related investments to a purchaser of the call during the
call period (usually not more than nine months) at a fixed exercise price (which
may differ from the market price of the related investments) regardless of
market price changes during the call period. If the call is exercised, the Fund
forgoes any gain from an increase in the market price over the exercise price.
To terminate its obligations on a call which it has written, the Fund may
purchase a call in a "closing purchase transaction." (As discussed above, the
Fund may also purchase calls other than as part of such closing transactions.) A
profit or loss will be realized depending on the amount of option transaction
costs and whether the premium previously received is more or less than the price
of the call purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the premium received. Any such profits are
considered short-term gains for federal income tax purposes and, when
distributed, are taxable as ordinary income.
-10-
<PAGE>
Generally writing calls is a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying security in return for the strike price, even
if its current value is greater, a call writer gives up some ability to
participate in security price increases.
When the Reynolds Fund writes a put option, it takes the opposite side of
the transaction from the option's purchaser. In return for receipt of a premium,
the Fund assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
The Fund may only write covered puts. For a put to be covered, the Fund must
maintain in a segregated account cash or liquid assets equal to the option
price. A profit or loss will be realized depending on the amount of option
transaction costs and whether the premium previously received is more or less
than the put purchased in a closing purchase transaction. A profit may also be
realized if the put lapses unexercised because the Fund retains the premium
received. Any such profits are considered short-term gains for federal income
tax purposes and, when distributed, are taxable as ordinary income.
The ability of each Reynolds Stock 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 the Funds 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.
Options prices can also diverge from the prices of the underlying
investment, even if the underlying investment matches the applicable Fund's
investments well. Options prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
investment, and the time remaining until expiration of the contract, which may
not affect security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and the securities markets, from
structural differences in how options and securities are traded, or from
imposition of daily price fluctuation limits or trading halts. Successful use of
these techniques requires skills different from those needed to select portfolio
securities.
There is no assurance a liquid secondary market will exist for any
particular option at any particular time. Options may have relatively low
trading volume and liquidity if their strike prices are not close to the
underlying investment's current price. In addition, exchanges may establish
daily price fluctuation limits for options contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is
-11-
<PAGE>
imposed, it may be impossible for a Fund to enter into new positions or close
out existing positions. If the secondary market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, a Fund's access to other assets held to cover its
options positions could also be impaired.
When it writes options the Reynolds Fund will comply with guidelines
established by the Securities and Exchange Commission with respect to coverage
of options strategies by mutual funds, and if the guidelines so require will set
aside cash or liquid securities in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
option strategy is outstanding, unless they are replaced with other suitable
assets. As a result, there is a possibility that segregation of a portion of the
Reynolds Fund's assets could impede portfolio management or such Fund's ability
to meet redemption requests or other current obligations.
American Depository Receipts
Each of the Reynolds Stock Funds may invest in American Depository
Receipts ("ADRs"). 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.
The Reynolds Stock Funds may invest in ADRs which are "sponsored" or
"unsponsored". While similar, distinctions exist relating to the rights and
duties of ADR holders and market practices. A depository may establish an
unsponsored facility without the participation by, or consent of, the issuer of
the deposited securities, although a letter of non-objection from the issuer is
often requested. Holders of unsponsored ADRs generally bear all the costs of
such facility, which can include deposit and withdrawal fees, currency
conversion fees and other service fees. The depository of an unsponsored
facility may be under no duty to distribute shareholder communications from the
issuer or to pass through voting rights. Issuers of unsponsored ADRs are not
obligated to disclose material information in the U.S. and, therefore, there may
not be a correlation between such information and the market value
-12-
<PAGE>
of the ADR. Sponsored facilities enter into an agreement with the issuer that
sets out rights and duties of the issuer, the depository and the ADR holder.
This agreement also allocates fees among the parties. Most sponsored agreements
also provide that the depository will distribute shareholder notices, voting
instruments and other communications.
Warrants
The Reynolds Fund and the Opportunity Fund may 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. Rights
and warrants involve the risk that a Fund could lose the purchase value of the
warrant if the warrant is not exercised prior to its expiration. They also
involve the risk that the effective price paid for the warrant added to the
subscription price of the related security may be greater than the value of the
subscribed security's market price.
Short Sales
The Reynolds Fund may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities exchanges,
or in unlisted securities. Short selling involves the sale of borrowed
securities. At the time a short sale is effected, the Fund incurs an obligation
to replace the security borrowed at whatever its price may be at the time the
Fund purchases it for delivery to the lender. The price at such time may be more
or less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay the lender amounts equal to
any dividend or interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed.
No short sales will be effected which will, at the time of making such
short sale transaction and giving effect thereto, cause the aggregate market
value of all securities sold short to exceed 10% of the value of the Reynolds
Fund's net assets. Until a Fund closes its short position or replaces the
borrowed security, the Fund will: (a) maintain a segregated account containing
cash or liquid securities at such a level that the amount deposited in the
account plus the amount deposited with the broker as collateral will equal the
current value of the security sold short; or (b) otherwise cover the Fund's
short position.
-13-
<PAGE>
Illiquid Securities
Each Fund may invest up to 10% (15% with respect to the Reynolds Fund) of
its net assets in securities for which there is no readily available market
("illiquid securities"). Because an active market may not exist for illiquid
securities, the Funds may experience delays and additional costs when trying to
sell illiquid securities. The applicable percentage limitation includes certain
securities whose disposition would be subject to legal restrictions ("restricted
securities"). However certain restricted securities that may be resold pursuant
to Rule 144A under the Securities Act may be considered liquid. Rule 144A
permits certain qualified institutional buyers to trade in privately placed
securities not registered under the Securities Act. Institutional markets for
restricted securities have developed as a result of Rule 144A, providing both
readily ascertainable market values for Rule 144A securities and the ability to
liquidate these securities to satisfy redemption requests. However an
insufficient number of qualified institutional buyers interested in purchasing
certain Rule 144A securities held by a Fund could adversely affect their
marketability, causing the Fund to sell the securities at unfavorable prices.
The Board of Directors of the Company will delegate to the Adviser the
day-to-day determination of the liquidity of a security although it has retained
oversight and ultimate responsibility for such determinations. The Adviser will
consider such factors as (i) the nature of the market for a security, (including
the institutional private resale markets); (ii) the terms of the securities or
other instruments allowing for the disposition to a third party or the issuer
thereof (e.g. certain repurchase obligations and demand instruments); (iii) the
availability of market quotations; and (iv) other permissible factors in
determining the liquidity of a security.
Restricted securities may be sold in privately negotiated or other exempt
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. When registration is required,
a Fund may be obligated to pay all or part of the registration expenses and a
considerable time may elapse between the decision to sell and the sale date. If,
during such period, adverse market conditions were to develop, a Fund might
obtain a less favorable price than the price which prevailed when it decided to
sell. Restricted securities, if considered to be illiquid, will be priced at
fair value as determined in good faith by the Board of Directors.
Lending of Portfolio Securities
The Reynolds Fund may lend portfolio securities constituting up to 30% of
its total assets to unaffiliated broker-dealers, banks or other recognized
institutional borrowers of securities, provided that the borrower at all times
maintains cash, U.S. government securities or equivalent collateral or provides
an irrevocable letter of credit in favor of the Fund equal in value to at least
100% of the value of the securities loaned. During the time portfolio securities
are on loan, the borrower pays the Fund an amount equivalent to any dividends or
interest paid on such securities, and the Fund may receive an agreed-upon amount
of interest income from the borrower who delivered equivalent collateral or
provided a letter of credit. Loans are subject to termination at the option of
the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan of portfolio securities
-14-
<PAGE>
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not have
the right to vote securities on loan, but could terminate the loan and regain
the right to vote if that were considered important with respect to the
investment.
The primary risk in securities lending is a default by the borrower
during a sharp rise in price of the borrowed security resulting in a deficiency
in the collateral posted by the borrower. The Reynolds Fund will seek to
minimize this risk by requiring that the value of the securities loaned be
computed each day and additional collateral be furnished each day if required.
Borrowing
The Reynolds Fund may borrow money for investment purposes. Borrowing for
investment purposes is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of the Reynolds Fund's assets will fluctuate in value, whereas
the interest obligations on borrowings may be fixed, the net asset value per
share of the Reynolds Fund when it leverages its investments will increase more
than the Reynolds Fund's assets increase in value and decrease more when the
portfolio assets decrease in value than would otherwise be the case. Interest
costs on borrowings may partially offset or exceed the returns on the borrowed
funds. Under adverse conditions, the Reynolds Fund might have to sell portfolio
securities to meet interest or principal payments at a time investment
considerations would not favor such sales. As required by the Act, the Reynolds
Fund must maintain continuous asset coverage (total assets, including assets
acquired with borrowed funds, less liabilities exclusive of borrowings) of 300%
of all amounts borrowed. If, at any time, the value of the Reynolds Fund's
assets should fail to meet this 300% coverage test, the Reynolds Fund within
three business days will reduce the amount of the Reynolds Fund's borrowings to
the extent necessary to meet this 300% coverage. Maintenance of this percentage
limitation may result in the sale of portfolio securities as a time when
investment considerations otherwise indicate that it would be disadvantageous to
do so.
Portfolio Turnover
The Funds do not trade actively for short-term profits. However, if the
objectives of the Funds would be better served, short-term profits or losses may
be realized from time to time. The annual portfolio turnover rate indicates
changes in a 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 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 transaction costs (such
as brokerage commissions or mark-ups or mark-downs) which the Fund must pay and
increased realized gains (or losses) to investors. Distributions to stockholders
of
-15-
<PAGE>
realized gains, to the extent that they consist of net short-term capital gains,
will be considered ordinary income for federal income tax purposes.
DIRECTORS AND OFFICERS OF THE COMPANY
As a Maryland corporation, the business and affairs of the Company are
managed by its officers under the direction of its Board of Directors. 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 57, is the sole proprietor of Reynolds Capital
Management, an investment advisory firm organized in April, 1985.
ROBERT E. SNADER
P.O. Box 8444
San Rafael, California 94912-8444
(A DIRECTOR OF THE COMPANY)
Mr. Snader, age 59, 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 69, 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
- ---------------
* Mr. Reynolds is the only director who is an "interested person" of the
Company as that term is defined in the Investment Company Act 1940. Messrs.
Snader and Stauder are not "interested persons" of the Company.
-16-
<PAGE>
Vice President of that firm from 1968 to 1986. He was also a member of the Board
of Directors of that firm from 1981 to 1991. Mr. Stauder is a past member of the
Board of Directors of Architects and Engineers Insurance Company, a risk
retention insurance company.
CAMILLE F. WILDES
225 East Mason Street
Milwaukee, Wisconsin 53202
(SECRETARY OF THE COMPANY)
Ms. Wildes, age 47, 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 $2,000 for each
meeting of the Board of Directors attended. During the fiscal year ended
September 30, 1998 the Company's standard method of compensating directors was
to pay each director who was not an interested person of the Company a fee of
$550 for each meeting of the Board of Directors attended, and 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:
COMPENSATION TABLE
<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 June 30, 1999 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. (The
Reynolds Fund will commence operations on September 30, 1999.)
-17-
<PAGE>
<TABLE>
<CAPTION>
Reynolds Blue Chip Growth Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
<S> <C> <C>
Charles Schwab & Co., Inc. 2,296,250 (1) 32.98%
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corporation 739,386 (1) 10.62%
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
Donaldson Lufkin & Jenrette 390,717 (1) 5.61%
Securities Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052
National Investor Services 388,668 (1) 5.58%
55 Water Street
New York, NY 10041-3299
Officers and Directors as a Group 97,462 (2) 0.87%
(4 Persons)
<CAPTION>
Reynolds Opportunity Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
<S> <C> <C>
Frederick L. Reynolds 276,510 (2) 7.65%
Wood Island, Third Floor
80 East Sir Francis Drake Blvd.
Larkspur, CA 94939
National Financial Services Corporation 204,432 (1) 7.31%
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
Richard J. Thalheimer 170,464 6.10%
110 Pacific Avenue #194
San Francisco, CA 94111-1900
-18-
<PAGE>
<CAPTION>
<S> <C> <C>
Charles Schwab & Co., Inc. 151,192(1) 5.41%
101 Montgomery Street
San Francisco, CA 94104-4122
Officers and Directors as a Group 298,466(2) 10.68%
(4 Persons)
<CAPTION>
Reynolds U.S. Government Bond Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
<S> <C> <C>
The Joel W. Renbaum, M.D., Inc. 56,660 13.71%
Profit-Sharing Trust
1145 Bush Street
San Francisco, CA 94109
Jean S. Chambers & 28,922 7.00%
Charles G. Stephenson, Trustees
Chambers Family Insurance Trust
U/A Dated 10/07/88 235
Montgomery Street, Suite 1810
San Francisco, CA 94104-3105
William A. Gleason & 26,873 6.50%
Victor E. Rice, Trustees
FBO Forest Resources
Profit-Sharing Plan
200 Tamal Plaza #200
Corte Madera, CA 94925
William B. Stewart 23,443 5.67%
47 Starbuck Drive
Muir Beach, CA 94965
Officers and Directors as a Group 1,480 0.36%
(4 Persons)
-19-
<PAGE>
<CAPTION>
Reynolds Money Market Fund
Name and Address
of Beneficial Owner Number of Shares Percent of Class
- ------------------- ---------------- ----------------
<S> <C> <C>
Officers and Directors as a Group 97,642 0.87%
(4 Persons)
- -------------------
1. All of such shares owned by Charles Schwab & Co., Inc., National
Financial Services Corporation, National Investor Services 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.
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
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. 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
payments made by a Fund pursuant to the distribution plan adopted pursuant to
Rule 12b-1 under the Act and 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 Reynolds Fund a monthly fee of 1/12 of 1.0% (1.0% per annum) of such Fund's
daily net assets; 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. 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,
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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 Reynolds Funds will commence operations on
September 30, 1999.
The Funds pay all of their own expenses, including, without limitation,
the cost of preparing and printing their registration statements required under
the Securities Act of 1933 and the Investment Company Act of 1940 and any
amendments thereto, the expense of registering their shares with the Securities
and Exchange Commission and in the various states, the printing and distribution
costs of prospectuses mailed to existing shareholders, reports to shareholders,
reports to government authorities and proxy statements, fees paid to directors
who are not interested persons of the Adviser, interest charges, taxes, legal
expenses, association membership dues, auditing services, insurance premiums,
brokerage commissions and expenses in connection with portfolio transactions,
fees and expenses of the custodian of the Funds' assets, printing and mailing
expenses and charges and expenses of dividend disbursing agents, registrars and
stock transfer agents.
The Adviser has undertaken to reimburse each Fund to the extent that the
aggregate annual operating expenses, including investment advisory fees and
administration fees but excluding interest, taxes, brokerage commissions and
other costs incurred in connection with the purchase or sale of portfolio
securities, and extraordinary items, exceed that percentage of the average net
assets of such Fund for such year, as determined by valuations made as of the
close of each business day of the year, which is the most restrictive percentage
provided by the state laws of the various states in which the shares of such
Fund are qualified for sale or, if the states in which the shares of such Fund
are qualified for sale impose no such restrictions, 2%. 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. During the fiscal years ended September 30, 1998, 1997 and 1996, the
Adviser reimbursed the Money Market Fund $49,346, $43,094 and $36,875,
(including the waiver of its advisory fee), respectively, for excess expenses.
Notwithstanding the most restrictive 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 Bond Fund for
expenses in excess of 0.90% of such Fund's average net assets. During the fiscal
years ended September 30, 1998, 1997 and 1996, the Adviser reimbursed the Bond
Fund $40,349, $37,573 and $34,556 (including the waiver of its advisory fees),
respectively, for excess expenses. The Reynolds Fund will commence operations on
September 30, 1999.
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The Advisory Agreement between the Adviser and each of the Reynolds Fund,
the Blue Chip Fund, the Opportunity Fund, the Money Market Fund and the Bond
Fund will remain in effect as long as its continuance is specifically approved
at least annually by (i) the Board of Directors of the Company, or by the vote
of a majority (as defined in the Investment Company Act of 1940) of the
outstanding shares of the applicable Fund, and (ii) by the vote of a majority of
the directors of the Company who are not parties to the Advisory Agreements or
interested persons of the Adviser, cast in person at a meeting called for the
purpose of voting on such approval. Each of the Advisory Agreements provides
that it may be terminated at any time without the payment of any penalty, by the
Board of Directors of the Company or by vote of the majority of the shares of
the applicable Fund, on sixty (60) days' written notice to the Adviser, and by
the Adviser on the same notice to the applicable Fund, and that it shall be
automatically terminated if it is assigned.
The administrator to each of the Funds is Fiduciary Management, Inc. (the
"Administrator"), 225 East Mason Street, Milwaukee, Wisconsin 53202. As
administrator, the Administrator prepares and maintains the books, accounts and
other documents required by the Act, calculates each Fund's net asset value,
responds to shareholder inquiries, prepares each Fund's financial statements and
excise 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 Reynolds Fund, 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.
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 their
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Administration Agreements. The Reynolds Fund will commence operations on
September 30, 1999.
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
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.
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.
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. In calculating the
net asset value of the Reynolds Fund, 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
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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 1/2
of 1% or more, the Board of Directors will promptly consider what action, if
any, should be taken.
DISTRIBUTION OF SHARES
Each of the Reynolds Fund, 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 provides that each Fund adopting it
may incur certain costs which may not exceed a maximum amount equal to 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 none of the Reynolds Fund, the Blue Chip Fund or the Opportunity
Fund 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.
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 shareholders 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
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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. The Reynolds Fund will commence operations on
September 30, 1999.
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 reduce
their income taxes:
Individual Retirement Accounts
Individual shareholders may establish their own 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-l/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
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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 1999 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 1999 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
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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, N.A., Milwaukee, Wisconsin, serves as trustee or
custodian of the retirement plans. Firstar Bank Milwaukee, N.A. 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 taxpayer 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. The fee
schedule of Firstar Bank Milwaukee, N.A. 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
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adverse tax consequences. Consultation with a competent financial and tax
adviser regarding the retirement plans is recommended.
AUTOMATIC INVESTMENT PLAN
The Company offers an Automatic Investment Plan whereby a shareholder may
automatically make purchases of shares of any 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 is 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 share 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.
SYSTEMATIC WITHDRAWAL PLAN
To accommodate the current cash needs of shareholders, the Funds offer a
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 Systematic Withdrawal Plan does not apply to
shares of any Fund held in individual retirement accounts or in retirement
plans.
The minimum amount of a withdrawal payment is $100. These payments will
be made from the proceeds of periodic redemption of shares in the account at net
asset value. Redemptions will be made monthly or quarterly on any day a
shareholder chooses. If that day is a weekend or holiday, such redemption will
be made on the next business day. Establishment of a Systematic Withdrawal Plan
constitutes an election by the shareholder to reinvest in additional shares of
the applicable Fund, at net asset value, all income dividends and capital gains
distributions payable by such Fund on shares held in such account, and shares so
acquired will be added to such account. The shareholder may deposit additional
Fund shares in his account at any time.
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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
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 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.
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 (i.e., "markups"
when the market maker sells a security and "markdowns" when the market maker
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buys a security). 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 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. The Reynolds Fund will commence
operations on September 30, 1999.
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
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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.
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 total return and/or its average annual compounded rate of
return. Total return is the cumulative rate of investment growth which assumes
that income dividends and capital gains are reinvested. 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.
Any total rate of return quotation for the Reynolds Fund, 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 Reynolds Fund, the Blue Chip Fund, the
Opportunity Fund or the Bond Fund will be calculated by dividing the net change
in value of a hypothetical shareholder account established by an initial payment
of $1,000 at the beginning of the period by 1,000. The net change in the value
of a shareholder account is determined by subtracting $1,000 from the product
obtained by multiplying the net asset value per share at the end of the period
by the sum obtained by adding (A) the number of shares purchased at the
beginning of the period plus (B) the number of shares purchased during the
period with reinvested dividends and distributions. Any average annual
compounded total rate of return quotation of the Reynolds Fund, 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:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
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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
1998 54,149 +441.5
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, 1998,
assuming reinvestment of all dividends and distributions.
Value of
$10,000 Cumulative
December 31, Investment % Change
------------ --------- --------
1992 $ 10,051 +0.5%
1993 10,061 +0.6
1994 10,231 +2.3
1995 13,942 +39.4
1996 15,912 +59.1
1997 18,232 +82.3
1998 29,015 +190.2
The Blue Chip Fund's average annual compounded rate of return for the one
year, five year and 10 year periods ended March 31, 1999 were 49.9%, 32.8% and
19.6%, respectively. The Opportunity Fund's average annual compounded rate of
return for the one year period ended March 31, 1999, for the five year period
ended March 31, 1999, and for the period from the Fund's commencement of
operations (January 30, 1992) through March 31, 1999 were 61.8%, 28.9% and
18.9%, respectively. The Bond Fund's average annual
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compounded rate of return for the one year period ended March 31, 1999, for the
five year period ended March 31, 1999, and for the period from the Fund's
commencement of operations (January 30, 1992) were 4.8%, 5.0% and 5.1%,
respectively. The Reynolds Fund will commence operations on September 30, 1999.
The foregoing performance results are based on historical earnings and
should not be considered as representative of the performance of the Blue Chip
Fund, the Opportunity Fund or the Bond 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%, 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%, and during
the period from January 30, 1992 through March 31, 1999 to keep the Bond Fund's
total fund operating expenses at or below 0.90%.
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:
YIELD =
a-b
2[(----- + 1)]6 - 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 March 31, 1999 was 4.57%. Such
yield reflects reimbursements made by the Adviser. Yield fluctuations may
reflect changes in the Bond Fund's net income, and portfolio changes resulting
from net purchases or net redemptions of the Bond Fund's shares may affect the
yield. Accordingly, the Bond Fund's yield may vary from day to day, and the
yield stated for a particular past period is not necessarily representative of
its future yield. The Bond Fund's yield is not guaranteed and its principal is
not insured.
The Money Market Fund may quote a "Yield" or "Effective Yield" from time
to time. The Yield is an annualized yield based on the actual total return for a
seven-day period. The Effective Yield is an annualized yield based on a
compounding of the Yield. The Effective Yield will be slightly higher than the
Yield because of the compounding effect.
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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
Effective Yield = (1 + Total Dividend for 7 days) 365/7 - 1
The Money Market Fund's Yield and Effective Yield for the seven-day
period ended March 31, 1999 were 4.18% and 4.27%, respectively. Such yields
reflect reimbursements made by the Adviser to keep the Money Market Fund's total
fund operating expenses at or below 0.65%. 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.
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, Investor's Business Daily 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
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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 and money market deposit 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 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. Bank
passbook savings accounts normally offer a fixed rate of interest and their
principal and interest are also insured. Bank certificates of deposit offer
fixed or variable rates for a set term. Principal and interest are insured.
There is no fluctuation in principal value. Withdrawal of these deposits prior
to maturity will normally be subject to penalty.
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 agent and dividend disbursing agent.
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 of 1986, as amended, (the "Code"). Each of the Funds has
so qualified in each of its fiscal years. If a Fund fails to qualify as a
regulated investment company under Subchapter M in any fiscal year, it will be
treated as a corporation for federal income tax purposes. As such, the Fund
would be required to pay income taxes on its net investment income and net
realized capital gains, if any, at the rates generally applicable to
corporations. Shareholders of a Fund that did not qualify as a regulated
investment company under Subchapter M would not be liable for income tax on the
Fund's net investment income or net realized capital gains in their individual
capacities. Distributions to shareholders, whether from the Fund's net
investment income or net realized capital gain, would be treated as taxable
dividends to the extent of accumulated earnings and profits of the Fund. The
Bond Fund has $231,245, $19,651 and
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$2,405 of net capital loss carryovers which expire September 30, 2003, 2004 and
2005, respectively.
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 long-term capital gains are taxable as long-term capital gains
regardless of the shareholder's holding period for the shares. Such dividends
and distributions are taxable to shareholders, whether received in cash or
additional shares of a Fund. A portion of the income distributions of the
Reynolds Fund, the Blue Chip Fund and the 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 of a Fund (other than the Money Market Fund) 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 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.
This section is not intended to be a complete discussion of present or
proposed federal income tax laws and the effect of such laws on an investor.
Investors may also be subject to state and local taxes. Investors are urged to
consult with their respective advisers for a complete review of the tax
ramifications of an investment in a Fund.
CAPITAL STRUCTURE
The Company's authorized capital consists of 760,000,000 shares of Common
Stock, $.01 par value, of which 40,000,000 shares have been allocated to
Reynolds Fund, 40,000,000 shares to Reynolds Blue Chip Growth Fund, 40,000,000
shares to Reynolds Opportunity Fund, 20,000,000 shares to Reynolds U.S.
Government Bond Fund, 500,000,000 shares to Reynolds Money Market Fund and
120,000,000 shares remain unallocated. Each share outstanding entitles the
holder to one vote. Generally shares are voted in the aggregate
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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 to 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 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.
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, at its discretion, not 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.
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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 Company's
Secretary in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to a request for a meeting as
described above and accompanied by a form of communication and request which
they wish to transmit, the Secretary shall within five business days after such
application either: (1) afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the books of the Company; or
(2) inform such applicants as to the approximate number of shareholders of
record and the approximate cost of mailing to them the proposed communication
and form of request.
If the Secretary elects to follow the course specified in clause (2) of
the last sentence of the preceding paragraph, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all shareholders of record at their addresses as recorded
on the books unless within five business days after such tender the Secretary
shall mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may, and if
demanded by the Board of Directors or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the Securities and Exchange Commission shall enter an order refusing to
sustain any of such objections, or if, after the entry of an order sustaining
one or more of such objections, the Securities and Exchange Commission shall
find, after notice and opportunity for hearing, that all objections so sustained
have been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all shareholders with reasonable promptness after the
entry of such order and the renewal of such tender.
INDEPENDENT ACCOUNTANTS
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.
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DESCRIPTION OF SECURITIES RATINGS
The Reynolds Fund, 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 IBCA, Inc. ("Fitch") and Thompson Bankwatch ("TBW").
A brief description of the ratings symbols and their meanings follows.
Standard & Poor's Debt Ratings. A Standard & Poor's corporate debt rating
is a current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors such
as guarantors, insurers of lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform any audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
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AA- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
Moody's Bond Ratings.
---------------------
Aaa- Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large, or by an exceptionally stable, margin, and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
Moody's applies numerical modifiers 1, 2 and 3 in each of the foregoing
generic rating classifications. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Duff & Phelps, Inc. Bond Ratings. D&P ratings concern only credit quality
(i.e., the likelihood of timely payment of principal and interest). They are not
affected by market conditions. All ratings are regularly reviewed by the Credit
Rating Committee at quarterly intervals, or more frequently, if required.
Rating determination is a matter of judgment based on the qualitative and
quantitative factors, which vary according to the basic economic and financial
characteristics of the industry.
Ratings of fixed income securities maturing beyond one year are expressed
numerically in a range of 1 (highest-grade) to 17 (lowest-grade). The first 10
ratings fall within the definition of investment-grade securities, according to
typical classifications of bank and insurance supervisory authorities. Ratings
11 to 17 are used for issues below investment-grade. Additional ratings up to
level 20 will be added as the need arises. Numerical ratings are grouped in
seven categories, with gradations within the categories.
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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 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".
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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:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o 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.
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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.
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".
-43-
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 23. Exhibits
(a.) Registrant's Articles of Incorporation, as amended and
supplemented. (1)
(a)(i) Articles Supplementary
(b) Registrant's Bylaws, as amended. (1)
(c) None
(d)(i) Investment Advisory Agreement between Reynolds Blue Chip
Growth Fund and Reynolds Capital Management, as amended.
(1)
(d)(ii) Investment Advisory Agreement between Reynolds Money
Market Fund and Reynolds Capital Management. (1)
(d)(iii) Investment Advisory Agreement between Reynolds
Opportunity Fund and Reynolds Capital Management. (1)
(d)(iv) Investment Advisory Agreement between Reynolds U.S.
Government Bond Fund and Reynolds Capital Management.
(1)
(d)(v) Investment Advisory Agreement between Reynolds Fund and
Reynolds Capital Management.
(e) None
(f) None
(g)(i) Custodian Agreement between Reynolds Blue Chip Growth
Fund and First Wisconsin Trust Company (predecessor to
Firstar Bank Milwaukee, NA). (1)
(g)(ii) Custodian Agreement between Reynolds Money Market Fund
and First Wisconsin Trust Company (predecessor to
Firstar Bank Milwaukee, NA). (1)
(g)(iii) Custodian Agreement between Reynolds Opportunity Fund
and First Wisconsin Trust Company (predecessor to
Firstar Bank Milwaukee, NA). (1)
(g)(iv) Custodian Agreement between Reynolds U.S. Government
Bond Fund and First Wisconsin Trust Company (predecessor
to Firstar Bank Milwaukee, NA). (1)
S-1
<PAGE>
(g)(v) Custodian Agreement between Reynolds Fund and Firstar
Bank Milwaukee, N.A.
(h)(i) Administration Agreement between Reynolds Blue Chip
Growth Fund and Fiduciary Management, Inc. (1)
(h)(ii) Administration Agreement between Reynolds Money Market
Fund and Fiduciary Management, Inc. (1)
(h)(iii) Administration Agreement between Reynolds Opportunity
Fund and Fiduciary Management, Inc. (1)
(h)(iv) Administration Agreement between Reynolds U.S.
Government Bond Fund and Fiduciary Management, Inc. (1)
(h)(v) Administration Agreement between Reynolds Fund and
Fiduciary Management, Inc.
(i) Opinion of Foley & Lardner, counsel for Registrant.
(j) Consent of PricewaterhouseCoopers LLP.
(k) None
(l) Subscription Agreement for shares of Reynolds Blue Chip
Growth Fund. (1)
(m) Reynolds Funds 12b-1 Plan. (2)
(n) Financial Data Schedule
(o) 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. 13 to the
Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 13 was filed on November 30, 1998 and its
accession number is 0000897069-98-000585.
S-2
<PAGE>
Item 24. 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 25. Indemnification
Pursuant to the authority of the Maryland General Corporation Law,
particularly Section 2-418 thereof, Registrant's Board of Directors has adopted
the following Bylaw which is in full force and effect and has not been modified
or cancelled:
Article VI
GENERAL PROVISIONS
Section 7.Indemnification.
A. The corporation shall indemnify all of its corporate representatives
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with the
defense of any action, suit or proceeding, or threat or claim of such action,
suit or proceeding, whether civil, criminal, administrative, or legislative, no
matter by whom brought, or in any appeal in which they or any of them are made
parties or a party by reason of being or having been a corporate representative,
if the corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation and
with respect to any criminal proceeding, if he had no reasonable cause to
believe his conduct was unlawful provided that the corporation shall not
indemnify corporate representatives in relation to matters as to which any such
corporate representative shall be adjudged in such action, suit or proceeding to
be liable for gross negligence, willful misfeasance, bad faith, reckless
disregard of the duties and obligations involved in the conduct of his office,
or when indemnification is otherwise not permitted by the Maryland General
Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that indemnification of
the corporate representative is proper because he has met the applicable
standard of conduct set forth in paragraph A. Such determination shall be made:
(i) by the board of directors, by a majority vote of a quorum which consists of
directors who were not parties to the action, suit or proceeding, or if such a
quorum cannot be obtained, then by a majority vote of a committee of the board
consisting solely of two or more directors, not, at the time, parties to the
action, suit or proceeding and who were duly designated to act in the matter by
the full board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel selected by
the board of directors or a committee of the board by vote as set forth in (i)
of this paragraph, or, if the requisite quorum of the full board cannot be
obtained therefor and the committee cannot be established, by a majority vote of
the full board in which directors who are parties to the action, suit or
proceeding may participate.
S-3
<PAGE>
C. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall create a rebuttable presumption that the person was guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard to the duties and
obligations involved in the conduct of his or her office, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation of
and/or presentation of the defense of a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding as authorized in the manner provided in Section
2-418(F) of the Maryland General Corporation Law upon receipt of: (i) an
undertaking by or on behalf of the corporate representative to repay such amount
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the corporation as authorized in this bylaw; and (ii) a written
affirmation by the corporate representative of the corporate representative's
good faith belief that the standard of conduct necessary for indemnification by
the corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
these bylaws, any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person subject
to the limitations imposed from time to time by the Investment Company Act of
1940, as amended.
F. This corporation shall have power to purchase and maintain insurance
on behalf of any corporate representative against any liability asserted against
him or her and incurred by him or her in such capacity or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under this bylaw provided that no
insurance may be purchased or maintained to protect any corporate representative
against liability for gross negligence, willful misfeasance, bad faith or
reckless disregard of the duties and obligations involved in the conduct of his
or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or served
another corporation, partnership, joint venture, trust or other enterprise in
one of these capacities at the request of the corporation and who, by reason of
his or her position, is, was, or is threatened to be made, a party to a
proceeding described herein.
Insofar as indemnification for and with respect to liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses
S-4
<PAGE>
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 26. Business and Other Connections of Investment Adviser
Information with respect to Mr. Reynolds is incorporated by reference to
pages 16 through 23 of the Statement of Additional Information pursuant to Rule
411 under the Securities Act of 1933.
Item 27. Principal Underwriters
Registrant has no principal underwriters.
Item 28. 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 29. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
Registrant undertakes to provide its Annual Report to shareholders upon
request without charge to each person to whom a prospectus is delivered.
S-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 12th day
of July, 1999.
REYNOLDS FUNDS, INC.
(Registrant)
By:/s/ Frederick L. Reynolds
Frederick L. Reynolds, President
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Name Title Date
/s/ Frederick L. Reynolds Principal Executive, July 12, 1999
- ----------------------------
Frederick L. Reynolds Financial and
Accounting Officer
and Director
/s/ Robert E. Snader Director July 12, 1999
- ----------------------------
Robert E. Snader
Director July __, 1999
- -----------------------------
Robert E. Stauder
S-6
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
(a) Registrant's Articles of Incorporation, as amended and
supplemented*
(a)(i) Articles Supplementary
(a)(ii) Registrant's Bylaws, as amended*
(b) None
(d)(i) Investment Advisory Agreement between Reynolds Blue Chip
Growth Fund and Reynolds Capital Management, as amended*
(d)(ii) Investment Advisory Agreement between Reynolds Money Market
Fund and Reynolds Capital Management*
(d)(iii) Investment Advisory Agreement between Reynolds Opportunity
Fund and Reynolds Capital Management*
(d)(iv) Investment Advisory Agreement between Reynolds U.S. Government
Bond Fund and Reynolds Capital Management*
(d)(v) Investment Advisory Agreement between Reynolds Fund and
Reynolds Capital Management
(e) None
(f) None
(g)(i) Custodian Agreement between Reynolds Blue Chip Growth Fund and
First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
(g)(ii) Custodian Agreement between Reynolds Money Market Fund and
First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
(g)(iii) Custodian Agreement between Reynolds Opportunity Fund and
First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
(g)(iv) Custodian Agreement between Reynolds U.S. Government Bond Fund
<PAGE>
and First Wisconsin Trust Company (predecessor to Firstar Bank
Milwaukee, NA)*
(g)(v) Custodian Agreement between Reynolds Fund and Firstar Bank
Milwaukee, N.A.
(h)(i) Administration Agreement between Reynolds Blue Chip Growth
Fund and Fiduciary Management, Inc.*
(h)(ii) Administration Agreement between Reynolds Money Market Fund
and Fiduciary Management, Inc.*
(h)(iii) Administration Agreement between Reynolds Opportunity Fund and
Fiduciary Management, Inc.*
(h)(iv) Administration Agreement between Reynolds U.S. Government Bond
Fund and Fiduciary Management, Inc.*
(h)(v) Administration Agreement between Reynolds Fund and Fiduciary
Management, Inc.
(i) Opinion of Foley & Lardner Counsel for Registrant
(j) Consent of PricewaterhouseCoopers LLP
(k) None
(l) Subscription Agreement for shares of Reynolds Blue chip Growth
Fund*
(m) Reynolds Funds 12b-1 Plan*
(n) Financial Data Schedule
(o) None
- ---------------------------
*Incorporated by reference.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
REYNOLDS FUNDS, INC.
Pursuant to Section 2-208 of the Maryland General Corporation Law (the
"MGCL"), Reynolds Funds, Inc., a Maryland corporation having its registered
office in Baltimore, Maryland (the "Company"), does hereby certify to the State
Department of Assessments and Taxation of Maryland (the "Department") that:
FIRST: The Company is registered as an open-end investment company under
the Investment Company Act of 1940.
SECOND: Pursuant to Section 2-105(a)(9) of the MGCL and Article IV of the
Company's Articles of Incorporation, the Board of Directors of the Company duly
adopted on May 4, 1999 resolutions: (a) designating 80,000,000 shares of the
Company's previously undesignated Common Stock, $.01 par value, as follows:
Class Shares
----- ------
A 20,000,000
C 20,000,000
E 40,000,000
and (b) authorizing and directing the filing of these Articles Supplementary for
record with the Department.
THIRD: The respective preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of each class of the Company's Common Stock, $.01 par
value, are as set forth in Section B of Article IV of the Company's Articles of
Incorporation.
FOURTH: These Articles Supplementary shall become effective as of the
time they are accepted by the Department for record.
IN WITNESS WHEREOF, the Company has caused these Articles Supplementary
to be signed in its name and on its behalf by its President and attested by its
Secretary as of the 12th day of July, 1999.
REYNOLDS FUNDS, INC.
By: /s/ Frederick L. Reynolds
Frederick L. Reynolds, President
Attest:/s/ Camille F. Wildes
Camille F. Wildes, Secretary
<PAGE>
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
REYNOLDS FUNDS, INC.
Pursuant to Section 2-208.1 of the Maryland General Corporation Law (the
"MGCL"), Reynolds Funds, Inc., having its registered office in Baltimore,
Maryland (the "Company"), does hereby certify to the State Department of
Assessments and Taxation of Maryland (the "Department") that:
FIRST: The Company is registered as an open-end investment company under
the Investment Company Act of 1940.
SECOND: Pursuant to Section 2-105(c) of the MGCL and Article IV of the
Company's Articles of Incorporation, the Board of Directors of the Company duly
adopted on May 4, 1999 resolutions: (a) increasing the total number of shares of
Common Stock, $0.01 par value, that the Company has authority to issue pursuant
to Article IV of the Company's Articles of Incorporation from 560,000,000 shares
to 760,000,000 shares; and (b) authorizing and directing the filing of these
Articles Supplementary for record with the Department.
THIRD: (a) The total number of shares of stock which the Company was
heretofore authorized to issue was 560,000,000 shares of Common Stock, $0.01 par
value, all of which were designated as follows:
Class Shares
----- ------
A 20,000,000
B 500,000,000
C 20,000,000
D 20,000,000
(b) The total number of shares of stock which the Company shall be
authorized to issue upon the filing of these Articles Supplementary for record
with the Department is 760,000,000 shares of Common Stock, $0.01 par value, of
which 560,000,000 shares shall be designated as follows:
Class Shares
----- ------
A 20,000,000
B 500,000,000
C 20,000,000
D 20,000,000
and 200,000,000 shares shall be undesignated.
<PAGE>
FOURTH: These Articles Supplementary shall become effective as of the
time they are accepted by the Department for record.
IN WITNESS WHEREOF, the Company has caused these Articles Supplementary
to be signed in its name and on its behalf by its President and attested by its
Secretary as of the 12th day of July, 1999.
REYNOLDS FUNDS, INC.
By: /s/ Frederick L. Reynolds
Frederick L. Reynolds, President
Attest:/s/ Camille F. Wildes
Camille F. Wildes, Secretary
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of October, 1999 between Reynolds Funds,
Inc., a Maryland corporation (the "Company"), and Reynolds Capital Management
(the "Adviser").
W I T N E S S E T H:
WHEREAS, the Company is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company comprising a series of five mutual funds, the
Reynolds Blue Chip Growth Fund, the Reynolds Opportunity Fund, the Reynolds U.S.
Government Bond Fund, and the Reynolds Money Market Fund, and the Reynolds Fund;
and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940, as the
investment adviser for the Reynolds Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise and agree
as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Reynolds Fund for the period
and on the terms set forth in this Agreement. The Adviser hereby accepts such
employment for the compensation herein provided and agrees during such period to
render the services and to assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and manage the
investment portfolio of the Reynolds Fund, and, subject to such policies as the
board of directors of the Company may determine, direct the purchase and sale of
investment securities in the day to day management of the Reynolds Fund. The
Adviser shall for all purposes herein be deemed to be an independent contractor
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Company in any way or otherwise be deemed an agent
of the Company. However, one or more shareholders, officers, directors or
employees of the Adviser may serve as directors and/or officers of the Company,
but without compensation or reimbursement of expenses for such services from the
Company. Nothing herein contained shall be deemed to require the Company to take
any action contrary to its Articles of Incorporation, as amended or
supplemented, or any applicable statute or regulation, or to relieve or deprive
the board of directors of the Company of its responsibility for and control of
the affairs of the Company.
3. Expenses. The Adviser, at its own expense and without reimbursement
from the Company, shall furnish office space, and all necessary office
facilities, equipment and executive personnel for managing the investments of
the
<PAGE>
Reynolds Fund. The Adviser shall not be required to pay any expenses of the
Reynolds Fund except as provided herein if the total expenses borne by the
Reynolds Fund, including the Adviser's fee and the fees paid to the Reynolds
Fund's Administrator but excluding all federal, state and local taxes, interest,
reimbursement payments to securities lenders for dividend and interest payments
on securities sold short, brokerage commissions and extraordinary items, in any
year exceed that percentage of the average net asset value of the Reynolds Fund
for such year, as determined by valuations made as of the close of each business
day, which is the most restrictive percentage provided by the state laws of the
various states in which the Reynolds Fund's shares are qualified for sale or, if
the states in which the Reynolds Fund's shares are qualified for sale impose no
such restrictions, 1.95%. The expenses of the Reynolds Fund's operations borne
by the Reynolds Fund include by way of illustration and not limitation,
directors fees paid to those directors who are not officers of the Company, the
costs of preparing and printing registration statements required under the
Securities Act of 1933 and the Act (and amendments thereto), the expense of
registering its shares with the Securities and Exchange Commission and in the
various states, payments made pursuant to the Reynolds Funds 12b-1 Plan, the
printing and distribution cost of prospectuses mailed to existing shareholders,
the cost of stock certificates (if any), director and officer liability
insurance, reports to shareholders, reports to government authorities and proxy
statements, interest charges, reimbursement payments to securities lenders for
dividend and interest payments on securities sold short, taxes, legal expenses,
salaries of administrative and clerical personnel, association membership dues,
auditing and accounting services, insurance premiums, brokerage and other
expenses connected with the execution of portfolio securities transactions, fees
and expenses of the custodian of the Reynolds Fund's assets, expenses of
calculating the net asset value and repurchasing and redeeming shares, printing
and mailing expenses, charges and expenses of dividend disbursing agents,
registrars and stock transfer agents and the cost of keeping all necessary
shareholder records and accounts.
The Reynolds Fund shall monitor its expense ratio on a monthly basis. If
the accrued amount of the expenses of the Reynolds Fund exceeds the expense
limitation established herein, the Reynolds Fund shall create an account
receivable from the Adviser in 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 the Reynolds
Fund's fiscal year if accrued expenses thereafter fall below the expense
limitation.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser hereunder, the Company through the Reynolds Fund shall pay to the
Adviser an advisory fee, paid monthly, based on the average net asset value of
the Reynolds Fund, as determined by valuations made as of the close of each
business day of the month. The advisory fee shall be 1/12 of 1.00% of such net
asset value. For any month in which this Agreement is not in effect for the
entire month, such fee shall be reduced proportionately on the basis of the
number of calendar days during which it
2
<PAGE>
is in effect and the fee computed upon the average net asset value of the
business days during which it is so in effect.
5. Ownership of Shares of the Reynolds Fund. The Adviser shall not take
an ownership position in the Reynolds Fund, and shall not permit any of its
shareholders, officers, directors or employees to take a long or short position
in the shares of the Reynolds Fund, except for the purchase of shares of the
Reynolds Fund for investment purposes at the same price as that available to the
public at the time of purchase or in connection with the initial capitalization
of the Company.
6. Exclusivity. The services of the Adviser to the Reynolds Fund
hereunder are not to be deemed exclusive and the Adviser shall be free to
furnish similar services to others as long as the services hereunder are not
impaired thereby. Although the Adviser has agreed to permit the Company to use
the name "Reynolds", if it so desires, it is understood and agreed that the
Adviser reserves the right to use and permit other persons, firms or
corporations, including investment companies, to use such name. During the
period that this Agreement is in effect, the Adviser shall be the Reynolds
Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Reynolds
Fund or to any shareholder of the Reynolds Fund for any act or omission in the
course of, or connected with, rendering services hereunder, or for any losses
that may be sustained in the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser may cause the Reynolds Fund to pay
a broker-dealer which provides brokerage and research services, as such services
are defined in Section 28(e) of the Securities Exchange Act of 1934 (the
"Exchange Act"), to the Adviser a commission for effecting a securities
transaction in excess of the amount another broker-dealer would have charged for
effecting such 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-dealer viewed in terms of
either that particular transaction or his overall responsibilities with respect
to the accounts as to which he exercises investment discretion (as defined in
Section 3(a)(35) of the Exchange Act).
9. Amendments. This Agreement may be amended by the mutual consent of the
parties; provided, however, that in no event may it be amended without the
approval of the board of directors of the Company in the manner required by the
Act, and, if required by the Act, by the vote of the majority of the outstanding
voting securities of the Reynolds Fund, as defined in the Act.
10. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by the board of directors of the Company or by a
vote of the majority of the outstanding voting securities of the Reynolds Fund,
as
3
<PAGE>
defined in the Act, upon giving sixty (60) days' written notice to the Adviser.
This Agreement may be terminated by the Adviser at any time upon the giving of
sixty (60) days' written notice to the Company. This Agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the Act). Subject to prior termination as hereinbefore provided, this Agreement
shall continue in effect for an initial period beginning as of the date hereof
and ending September 30, 2001 and indefinitely thereafter, but only so long as
the continuance after such initial period is specifically approved annually by
(i) the board of directors of the Company or by the vote of the majority of the
outstanding voting securities of the Reynolds Fund, as defined in the Act, and
(ii) the board of directors of the Company in the manner required by the Act,
provided that any such approval may be made effective not more than sixty (60)
days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
REYNOLDS CAPITAL MANAGEMENT
(the "Adviser")
By:
Sole Proprietor
REYNOLDS FUNDS, INC.
(the "Company")
By: _________________________
President
By:________________________________
Secretary
CUSTODIAN AGREEMENT
THIS AGREEMENT made on October 1, 1999, between Reynolds Fund, a
Wisconsin corporation (hereinafter called the ("Fund"), and FIRSTAR BANK
MILWAUKEE, NA, a corporation organized under the laws of the State of Wisconsin
(hereinafter called "Custodian"),
WHEREAS, the Fund desires that its securities and cash shall be hereafter
held and administered by Custodian pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund and Custodian agree as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors.
The word "Board" shall mean Board of Directors of Reynolds Fund.
2. Names, Titles, and Signatures of the Fund's Officers
An officer of the Fund will certify to Custodian the names and signatures
of those persons authorized to sign the officers' certificates described in
Section 1 hereof, and the names of the members of the Board of Directors,
together with any changes which may occur from time to time.
3. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate account or accounts in
the name of the Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund. Custodian shall make payments of cash to, or for the
account of, the Fund from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the
name of the Fund or of the nominee of Custodian referred to in
Section 7 or in proper form for transfer;
<PAGE>
(b) for the purchase or redemption of shares of the common stock of
the Fund upon delivery thereof to Custodian, or upon proper
instructions from the Reynolds Fund;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and
custodian services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by
or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Board of Directors of the Fund.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile instructions to Custodian and an appropriate officers' certificate is
received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Fund.
C. Custodian shall, upon receipt of proper instructions, make federal
funds available to the Fund as of specified times agreed upon from time to time
by the Fund and the custodian in the amount of checks received in payment for
shares of the Fund which are deposited into the Fund's account.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the portfolio, into which
account(s) may be transferred cash and/or securities.
2
<PAGE>
5. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall have sole power to release or deliver any securities of
the Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b), (d),
(e), (f), and (g), securities or cash receivable in exchange therefore shall be
deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Fund issues appropriate oral or
facsimile
3
<PAGE>
instructions to Custodian and an appropriate officers' certificate is received
by Custodian within two business days thereafter.
6. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Fund, all necessary ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States Treasury Department or
under the laws of any state now or hereafter in effect, inserting the Fund's
name on such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers' certificate, Custodian shall
register all securities, except such as are in bearer form, in the name of a
registered nominee of Custodian as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued hereunder or in any provision of
any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall use its best efforts to the end that the
specific securities held by it hereunder shall be at all times identifiable in
its records.
The Fund shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
8. Voting and Other Action
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
4
<PAGE>
9. Transfer Tax and Other Disbursements
The Fund shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection with
securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptable transfers and/or deliveries of any such securities.
10. Concerning Custodian
Custodian shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in writing
between the two parties. Until modified in writing, such compensation shall be
as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon any
certificate herein described or certified copy of any resolution of the Board,
and may rely on the genuineness of any such document which it may in good faith
believe to have been validly executed.
The Fund agrees to indemnify and hold harmless Custodian and its nominee
from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the Fund for such
items.
In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Fund, or in the event that
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefore.
Custodian agrees to indemnify and hold harmless Fund from all charges,
expenses, assessments, and claims/liabilities (including counsel fees) incurred
or assessed against it in connection with the performance of this agreement,
except such as may arise from the Fund's own negligent action, negligent failure
to act, or willful misconduct.
5
<PAGE>
11. Subcustodians
Custodian is hereby authorized to engage another bank or trust company as
a Subcustodian for all or any part of the Fund's assets, so long as any such
bank or trust company is a bank or trust company organized under the laws of any
state of the United States, having an aggregate capital, surplus and undivided
profit, as shown by its last published report, of not less than Two Million
Dollars ($2,000,000) and provided further that, if the Custodian utilizes the
services of a Subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Fund by the Subcustodian as fully as if
the Custodian was directly responsible for any such losses under the terms of
the Custodian Agreement.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Subcustodians for the safekeeping and/or clearing
of assets, the Fund agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such Subcustodian in regard to the Fund's assets, except as may
arise from its own negligent action, negligent failure to act or willful
misconduct.
12. Reports by Custodian
Custodian shall furnish the Fund periodically as agreed upon with a
statement summarizing all transactions and entries for the account of the Fund.
Custodian shall furnish to the Fund, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Fund.
13. Termination or Assignment
This Agreement may be terminated by the Fund, or by Custodian, on ninety
(90) days notice, given in writing and sent by registered mail to Custodian at
Firstar Bank Milwaukee, NA, 615 East Michigan Street, Milwaukee, Wisconsin
53202, or to the Fund at Wood Island, Third Floor, 80 East Sir Francis Drake
Boulevard, Larkspur, California 94939, as the case may be. Upon any termination
of this Agreement, pending appointment of a successor to Custodian or a vote of
the shareholders of the Fund to dissolve or to function without a custodian of
its cash, securities and other property, Custodian shall not deliver cash,
securities or other property of the Fund to the Fund, but may deliver them to a
bank or trust company of its own selection, having an aggregate capital, surplus
and undivided profits, as shown by its last published report of not less than
Two Million Dollars ($2,000,000) as a Custodian for the Fund to be held under
terms similar to those of this Agreement, provided, however, that Custodian
shall not be required to make any such delivery or payment until full payment
shall have been made by the Fund of all liabilities constituting a charge on or
against the properties then held by Custodian or on or against Custodian, and
until full payment shall have been made to Custodian of all its fees,
compensation, costs and expenses, subject to the provisions of Section 10 of
this Agreement.
6
<PAGE>
This Agreement may not be assigned by Custodian without the consent of
the Fund, authorized or approved by a resolution of its Board of Directors.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
15. Records
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Fund pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder, Custodian agrees to make any such records
available to the Fund upon request and to preserve such records for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.
16. Notices
Notices of any kind to be given by either party to the other party shall
be in writing and shall be duly given if mailed or delivered to the address set
forth above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Attest: FIRSTAR BANK MILWAUKEE, NA
By___________________________________
__________________________________ Vice President
Assistant Secretary
Attest: REYNOLDS FUND
_____________________________________ By___________________________________
7
ADMINISTRATION AGREEMENT
AGREEMENT made this 1st day of October, 1999, between Reynolds Funds,
Inc., a Maryland corporation (the "Company"), and Fiduciary Management, Inc., a
Wisconsin corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Company is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company comprising a series of five mutual funds, the
Reynolds Blue Chip Growth Fund, the Reynolds Opportunity Fund, the Reynolds U.S.
Government Bond Fund the Reynolds Money Market Fund and the Reynolds Fund; and
WHEREAS, the Company desires to retain the Administrator to perform the
following management-related services for the Reynolds Fund (the "Fund") and the
Administrator desires to perform such services for the Fund.
NOW, THEREFORE, the Company and the Administrator do mutually promise and
agree as follows:
1. Employment. The Company hereby employs the Administrator to be the
Fund's Administrator for the period and on the terms set forth in this
Agreement. The Administrator hereby accepts such employment for the compensation
herein provided and agrees during such period to render the services and to
assume the obligations herein set forth.
2. Authority and Duties of the Administrator. The Administrator shall
perform the following management-related services for the Fund:
(a) Prepare and maintain the books, accounts and other documents
specified in Rule 31a-1, under the Act in accordance with the requirements of
Rule 31a-1 and Rule 31a-2 under the Act;
(b) Calculate the Fund's net asset value in accordance with the
provisions of the Company's Articles of Incorporation and its Registration
Statement;
(c) Respond to stockholder inquiries forwarded to it by the Company;
(d) Prepare the financial statements contained in reports to stockholders
of the Fund;
(e) Prepare for execution by the Fund and file all of the Fund's federal
and state tax returns;
(f) Prepare reports to and filings with the Securities and Exchange
Commission (other than the Company's Registration Statement on Form N-1A);
<PAGE>
(g) Prepare reports to and filings with state Blue Sky authorities;
(h) Furnish statistical and research data, clerical, accounting and
bookkeeping services and stationery and office supplies; and
(i) Keep and maintain the Fund's financial accounts and records, and
generally assist in all aspects of the Fund's operations to the extent agreed to
by the Administrator and the Company.
The Administrator shall not act, and shall not be required to act, as an
investment adviser to the Fund and shall not have any authority to supervise the
investment or reinvestment of the cash, securities or other property comprising
the Fund's assets or to determine what securities or other property may be
purchased or sold by the Fund. The Administrator shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Company in
any way or otherwise be deemed an agent of the Company.
3. Expenses. The Administrator, at its own expense and without
reimbursement from the Company, shall furnish office space, and all necessary
office facilities, equipment and executive personnel for performing the services
required to be performed by it under the Agreement. The Administrator shall not
be required to pay any expenses of the Fund. The expenses of the Fund's
operations borne by the Fund include by way of illustration and not limitation,
directors fees paid to those directors who are not interested persons of the
Company, as defined in the Act, the professional costs of preparing and the
costs of printing registration statements required under the Securities Act of
1933 and the Act (and amendments thereto), the expense of registering its shares
with the Securities and Exchange Commission and in the various states, the
printing and distribution cost of prospectuses mailed to existing shareholders,
the cost of stock certificates (if any), director and officer liability
insurance, the printing and distribution costs of reports to stockholders,
reports to government authorities and proxy statements, interest charges, taxes,
legal expenses, association membership dues, auditing services, insurance
premiums, brokerage and other expenses connected with the execution of portfolio
securities transactions, fees and expenses of the custodian of the Fund's
assets, printing and mailing expenses and charges and expenses of dividend
disbursing agents, registrars and stock transfer agents.
4. Compensation of the Administrator. For the services to be rendered by
the Administrator hereunder, the Company through the Fund shall pay to the
Administrator an administration fee, paid monthly, based on the average net
asset value of the Fund, as determined by valuations made as of the close of
each business day of the month. The administration fee shall be 1/12 of 0.2% of
such net asset value up to and including $30,000,000 and 1/12 of 0.1% of the
average net asset value of the Fund in excess of $30,000,000. For any month in
which this Agreement is not in effect for the entire month, such fee shall be
reduced proportionately on the basis of the number of calendar days during which
it is in effect and the fee computed upon the average net asset value of the
business days during which it is so in effect.
2
<PAGE>
5. Exclusivity. The services of the Administrator to the Fund hereunder
are not to be deemed exclusive and the Administrator shall be free to furnish
similar services to others as long as the services hereunder are not impaired
thereby. During the period that this Agreement is in effect, the Administrator
shall be the Fund's sole administrator.
6. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Administrator, the Administrator shall not be subject to liability to the
Fund or to any shareholder of the Fund for any act or omission in the course of,
or connected with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
7. Amendments and Termination. This Agreement may be amended by the
mutual consent of the parties. This Agreement 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. This
Agreement may be terminated by the Administrator at any time upon the giving of
ninety (90) days' written notice to the Company. Upon termination of the
Agreement the Administrator shall deliver to the Company all books, accounts and
other documents then maintained by it pursuant to Section 2 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
FIDUCIARY MANAGEMENT, INC.
(the "Administrator")
By:
President
By:
Secretary
REYNOLDS FUNDS, INC.
(the "Company")
By:
President
By:
Secretary
3
<PAGE>
October 1, 1999
Fiduciary Management, Inc.
225 East Mason Street
Milwaukee, WI 53202
Gentlemen:
Pursuant to Section 2(f) of the Administration Agreement dated October 1,
1999 you are hereby authorized to perform the following ministerial services in
connection with the Reynolds Fund's (the "Fund") investment in commercial paper
master notes and repurchase agreements purchased through Firstar Bank Milwaukee,
N.A. Prior to 10:30 a.m. on each day the New York Stock Exchange is open for
trading you will review the activity account statement for the Fund for the
previous business day provided to you by Firstar Bank Milwaukee, N.A. and a list
of the securities transactions to be settled by the Fund on such date. Such list
of securities transactions will be compiled by you from information supplied to
you by the Fund's investment adviser.
After reviewing such list and statement you will subtract (the sum
obtained by adding [the purchase price and related commissions and expenses to
be paid by the Fund in connection with all purchases of securities by the Fund
to be settled on such date) to (the amounts to be paid to honor redemption
requests, if any, received by Firstar Mutual Fund Services, LLC on the previous
business day)] from [the sum obtained by adding (the proceeds to be received
from all sales of securities of the Fund to be settled on such date) to the
amounts received pursuant to all purchase orders, if any, received by Firstar
Mutual Fund Services, LLC on the previous business day)].
The Fund's investment adviser has determined that if the result of such
subtraction is a positive number, the remainder shall be invested to the extent
allowed by the Fund's prospectus in the commercial paper master notes or
repurchase agreements then offered by Firstar Bank Milwaukee, N.A. bearing the
highest rates of interest. In the event that one or more commercial paper master
notes bear the same rate of interest, the order of preference in investing shall
be based on the assets of the issuers, with the issuer having the most assets
being given the highest preference. Investments in the commercial paper master
notes of any issuer may not exceed 5% of such Fund's total assets on the date of
purchase.
The Fund's investment adviser has determined that if the result of such
subtractions is a negative number, the deficiency shall be obtained by selling
the commercial paper master notes or repurchase agreement then held by the Fund
bearing the lowest rates of interest. In the event that one or more commercial
paper master notes bear the same rate of interest, the order of preference in
selling shall be the inverse of the order set forth in the preceding paragraph.
<PAGE>
You are instructed to notify Firstar Bank Milwaukee, N.A. each day prior
to 10:30 a.m. of the commercial paper master notes or repurchase agreement to be
purchased and sold by the Fund as determined above.
If the amount to be invested exceeds the amount which can be invested as
provided above, you will so inform the Fund's investment adviser who will tell
you how the excess should be invested.
These instructions will remain in effect unless and until you are
notified by the Fund's investment adviser to the contrary.
Very truly yours,
REYNOLDS FUND
By _______________________
Accepted and agreed to
__________________________
FIDUCIARY MANAGEMENT, INC.
By ________________________
FOLEY & LARDNER
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] 016658/0101
July 15, 1999
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 of this
Post-Effective Amendment No. 14 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 and Reynolds Money Market Fund
(four of five portfolios constituting Reynolds Funds, Inc.), portions of which
are incorporated by reference in to the Registration Statement. We also consent
to the reference to us under the heading "Independent Accountants" in the
Statement of Additional Information.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF REYNOLDS FUNDS, INC. AS OF AND FOR THE SIX MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000832574
<NAME> REYNOLDS FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> REYNOLDS BLUE CHIP GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 222844
<INVESTMENTS-AT-VALUE> 326909
<RECEIVABLES> 265
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 327174
<PAYABLE-FOR-SECURITIES> 4770
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 419
<TOTAL-LIABILITIES> 5189
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 218180
<SHARES-COMMON-STOCK> 5929
<SHARES-COMMON-PRIOR> 2423
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (260)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 104065
<NET-ASSETS> 321985
<DIVIDEND-INCOME> 547
<INTEREST-INCOME> 331
<OTHER-INCOME> 0
<EXPENSES-NET> 1319
<NET-INVESTMENT-INCOME> (441)
<REALIZED-GAINS-CURRENT> (85)
<APPREC-INCREASE-CURRENT> 65129
<NET-CHANGE-FROM-OPS> 64603
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1651
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4265
<NUMBER-OF-SHARES-REDEEMED> 797
<SHARES-REINVESTED> 38
<NET-CHANGE-IN-ASSETS> 232452
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1476
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1319
<AVERAGE-NET-ASSETS> 181079
<PER-SHARE-NAV-BEGIN> 36.95
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 17.97
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.65
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 54.30
<EXPENSE-RATIO> 1.46
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF REYNOLDS FUNDS, INC. AS OF AND FOR THE SIX MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000832574
<NAME> REYNOLDS FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> REYNOLDS MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 10867
<INVESTMENTS-AT-VALUE> 10867
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10867
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 4
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10863
<SHARES-COMMON-STOCK> 10863
<SHARES-COMMON-PRIOR> 4879
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 10863
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 205
<OTHER-INCOME> 0
<EXPENSES-NET> 26
<NET-INVESTMENT-INCOME> 179
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 179
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 179
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25519
<NUMBER-OF-SHARES-REDEEMED> 19690
<SHARES-REINVESTED> 155
<NET-CHANGE-IN-ASSETS> 5984
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63
<AVERAGE-NET-ASSETS> 8187
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.02
<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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF REYNOLDS FUNDS, INC. AS OF AND FOR THE SIX MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000832574
<NAME> REYNOLDS FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> REYNOLDS OPPORTUNITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 53757
<INVESTMENTS-AT-VALUE> 87066
<RECEIVABLES> 96
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87162
<PAYABLE-FOR-SECURITIES> 1230
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119
<TOTAL-LIABILITIES> 1349
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52802
<SHARES-COMMON-STOCK> 2540
<SHARES-COMMON-PRIOR> 1333
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (298)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33309
<NET-ASSETS> 85813
<DIVIDEND-INCOME> 125
<INTEREST-INCOME> 27
<OTHER-INCOME> 0
<EXPENSES-NET> 394
<NET-INVESTMENT-INCOME> (242)
<REALIZED-GAINS-CURRENT> (280)
<APPREC-INCREASE-CURRENT> 21849
<NET-CHANGE-FROM-OPS> 21327
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 689
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1384
<NUMBER-OF-SHARES-REDEEMED> 204
<SHARES-REINVESTED> 27
<NET-CHANGE-IN-ASSETS> 56659
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 671
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 394
<AVERAGE-NET-ASSETS> 50498
<PER-SHARE-NAV-BEGIN> 21.88
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 12.22
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.50
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 33.78
<EXPENSE-RATIO> 1.57
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF REYNOLDS FUNDS, INC. AS OF AND FOR THE SIX MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000832574
<NAME> REYNOLDS FUNDS, INC
<SERIES>
<NUMBER> 4
<NAME> REYNOLDS U.S. GOVERMENT BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 3644
<INVESTMENTS-AT-VALUE> 3638
<RECEIVABLES> 15
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3653
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 2
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3919
<SHARES-COMMON-STOCK> 375
<SHARES-COMMON-PRIOR> 313
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (262)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6)
<NET-ASSETS> 3651
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 95
<OTHER-INCOME> 0
<EXPENSES-NET> 15
<NET-INVESTMENT-INCOME> 80
<REALIZED-GAINS-CURRENT> (9)
<APPREC-INCREASE-CURRENT> (16)
<NET-CHANGE-FROM-OPS> 55
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 80
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 96
<NUMBER-OF-SHARES-REDEEMED> 41
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 577
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (253)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 37
<AVERAGE-NET-ASSETS> 3393
<PER-SHARE-NAV-BEGIN> 9.81
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> (0.07)
<PER-SHARE-DIVIDEND> 0.23
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.74
<EXPENSE-RATIO> 0.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
