PROSPECTUS AND
PURCHASE APPLICATION
SEPTEMBER 30, 1999
REYNOLDS FUNDS
NO-LOAD MUTUAL FUNDS
REYNOLDS
FUND
SEEKING LONG-TERM CAPITAL APPRECIATION
REYNOLDS
BLUE CHIP GROWTH FUND
SEEKING LONG-TERM CAPITAL APPRECIATION,
WITH CURRENT INCOME A SECONDARY OBJECTIVE
REYNOLDS
OPPORTUNITY FUND
SEEKING LONG-TERM CAPITAL APPRECIATION
REYNOLDS
U.S. GOVERNMENT BOND FUND
SEEKING A HIGH LEVEL OF CURRENT INCOME
REYNOLDS
MONEY MARKET FUND
SEEKING A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH A STABLE NET ASSET VALUE
1-800-773-9665
PROSPECTUS SEPTEMBER 30, 1999
REYNOLDS FUNDS
The Reynolds Funds are a family of five no load mutual funds consisting of:
STOCK FUNDS INCOME FUNDS
----------- ------------
o REYNOLDS FUND o REYNOLDS U.S. GOVERNMENT BOND FUND
o REYNOLDS BLUE CHIP GROWTH FUND o REYNOLDS MONEY MARKET FUND
o 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.
TABLE OF CONTENTS
Questions Every Investor Should Ask Before Investing in the Reynolds Funds 1
Investment Objectives and Strategies 11
Management of the Funds 12
The Funds' Share Price 13
Purchasing Shares 14
Redeeming Shares 16
Exchanging Shares 18
Dividends, Distributions and Taxes 19
Management's Discussion of Fund Performance 20
Financial Highlights 23
Purchase Application Centerfold
(800) 773-9665
(800) 7REYNOLDS
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
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. Many of these companies are
smaller capitalization 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. Our investment 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.
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 invested in common stocks of "blue chip" companies
is likely to vary more than that of the Blue Chip Growth Fund or the Opportunity
Fund. 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.
In seeking to achieve its secondary objective of current income, the Blue Chip
Growth Fund primarily will invest in dividend- paying common stocks. 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.
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.
REYNOLDS BLUE CHIP GROWTH FUND
(TOTAL RETURN PER CALENDAR YEAR)
1989 20.68%
1990 0.09%
1991 35.86%
1992 0.11%
1993 -5.23%
1994 -0.57%
1995 32.87%
1996 28.22%
1997 31.48%
1998 54.12%
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 13.07% (January 1, 1999
through the quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING
DECEMBER 31, 1998) PAST YEAR PAST 5 YEARS PAST 10 YEARS
- ------------------------------ --------- ------------ -------------
Reynolds Blue Chip Growth Fund 54.12% 27.98% 18.25%
S&P 500*<F1> 28.75% 24.15% 19.22%
*<F1> The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a
widely recognized unmanaged index of common stock prices.
REYNOLDS OPPORTUNITY FUND
(TOTAL RETURN PER CALENDAR YEAR)
1993 0.10%
1994 1.69%
1995 36.27%
1996 14.13%
1997 14.58%
1998 59.14%
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 20.66% (January 1, 1999
through the quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURNS SINCE THE INCEPTION
(FOR THE PERIODS ENDING DATE OF THE FUND
DECEMBER 31, 1998) PAST YEAR PAST 5 YEARS (JANUARY 30, 1992)
- ----------------------------- --------- ------------ ------------------
Reynolds Opportunity Fund 59.14% 23.59% 16.65%
S&P 500 28.75% 24.15% 19.86%
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>
REYNOLDS REYNOLDS
REYNOLDS BLUE CHIP OPPORTUNITY
FUND GROWTH FUND FUND
-------- ----------- -----------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases No Sales No Sales No Sales
(as a percentage of offering price) Charge Charge Charge
Maximum Deferred Sales Charge (Load) No Deferred No Deferred No Deferred
Sales Charge Sales Charge Sales Charge
Maximum Sales Charge (Load) Imposed on No Sales No Sales No Sales
Reinvested Dividends And Distributions Charge Charge Charge
Redemption Fee None(1)<F2> None(1)<F2> None(1)<F2>
Exchange Fee None None None
(1)<F2> 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)<F3> 0.25%(1)<F3>
Other Expenses 0.70%(2)<F4> 0.35% 0.48%
Total Annual Fund Operating Expenses 1.95% 1.60% 1.73%
</TABLE>
(1)<F3> 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)<F4> Based on our estimates for the fiscal year ending September 30, 2000.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Reynolds Fund $198 $612
Reynolds Blue Chip Growth Fund $163 $505 $871 $1,900
Reynolds Opportunity Fund $176 $545 $939 $2,041
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. Our investment adviser takes a "top-down" investment
approach when selecting investments for the U.S. Government Bond Fund.
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 with the rules of the Securities and Exchange
Commission). The Money Market fund will maintain an average portfolio
maturity of 90 days or less. Our investment adviser takes a "top-down"
investment approach when selecting investments for the Money Market Fund.
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:
o commercial paper and commercial paper master demand notes;
o bank obligations, including certificates of deposit, time deposits
and bankers' acceptances;
o 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:
o MARKET RISK: The prices of the securities in which the U.S.
Government Bond Fund invests may decline for a number of reasons.
o 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.
o 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.
o 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.
o 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.
o 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.
REYNOLDS U.S. GOVERNMENT BOND FUND
(TOTAL RETURN PER CALENDAR YEAR)
1993 9.22%
1994 -5.52%
1995 12.24%
1996 3.56%
1997 5.41%
1998 5.51%
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 2.20% (January 1, 1999
through the quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURNS SINCE THE INCEPTION
(FOR THE PERIODS ENDING DATE OF THE FUND
DECEMBER 31, 1998) PAST YEAR PAST 5 YEARS (JANUARY 30, 1992)
- ----------------------------- --------- ------------ ------------------
Reynolds U.S. Government Bond Fund 5.51% 4.08% 5.14%
Lehman Government Bond Index*<F5> 9.85% 7.18% 8.02%
*<F5> 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.
REYNOLDS MONEY MARKET FUND
(TOTAL RETURN PER CALENDAR YEAR)
1992 3.20%
1993 2.54%
1994 3.61%
1995 5.33%
1996 4.82%
1997 4.92%
1998 4.94%
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 3.21% (January 1, 1999
through the quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURNS SINCE THE INCEPTION
(FOR THE PERIODS ENDING DATE OF THE FUND
DECEMBER 31, 1998) PAST YEAR PAST 5 YEARS (JANUARY 30, 1991)
---------------------------- --------- ------------ ------------------
Reynolds Money Market Fund 4.94% 4.72% 4.32%
*<F6> 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.
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)
REYNOLDS REYNOLDS
U.S. GOVERNMENT MONEY MARKET
BOND FUND FUND
--------------- ------------
Maximum Sales Charge (Load) Imposed on Purchases No Sales No Sales
(as a percentage of offering price) Charge Charge
Maximum Deferred Sales Charge (Load) No Deferred No Deferred
Sales Charge Sales Charge
Maximum Sales Charge (Load) Imposed on Reinvested No Sales No Sales
Dividends And Distributions Charge Charge
Redemption Fee None(1)<F7> None(1)<F7>
Exchange Fee None None
(1)<F7> 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 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)<F8> 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 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 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 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 among those 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.
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 national 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 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
o All accounts $1,000
B. EXISTING ACCOUNTS
o Dividend reinvestment No Minimum
o Automatic Investment
Plan $ 50
o All other accounts $ 100
3. Complete the Purchase Application within 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.
4. 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
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
three day settlement basis.
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:
o 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.
o Use procedures and impose restrictions that may be in addition to, or
different from, those applicable to investors purchasing shares directly
from the Funds.
o 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.
o 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.
o 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.
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:
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.
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:
o Checks No Charge
o Stop Payment $25 per request
o 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:
o Firstar Mutual Fund Services, LLC receives your written request in
proper form with all required information.
o Firstar Mutual Fund Services, LLC receives your authorized telephone
request with all required information.
o 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
o 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.
o 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.
o 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:
o The redemption may result in a taxable gain.
o 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.
o The Funds may delay the payment of redemption proceeds for up to seven
days in all cases.
o 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).
o 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.
o 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.
o 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.
o 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.
o 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.
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.
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. Throughout the fiscal year ended September 30, 1998 much of the
gains in the equity markets were attributable to a relatively small group of
larger capitalization growth companies. Many of these stocks were held by the
Blue Chip Growth Fund as its principal investment strategy is to invest in "blue
chip" companies like these market lenders. The Blue Chip Growth Fund was also
positively affected by the continuing economic recovery and by declining
inflation and interest rates which positively influenced equity markets during
the fiscal year.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS BLUE CHIP GROWTH FUND AND S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
------ ------ -------
+17.0% +22.4% +15.1%
DATE REYNOLDS BLUE CHIP GROWTH FUND S&P 500 INDEX
---- ------------------------------ -------------
9/30/88 $10,000 $10,000
9/30/89 $11,990 $13,270
9/30/90 $11,391 $12,036
9/30/91 $14,455 $15,815
9/30/92 $15,611 $17,571
9/30/93 $14,908 $19,855
9/30/94 $15,296 $20,570
9/30/95 $20,696 $26,699
9/30/96 $24,441 $32,146
9/30/97 $35,000 $45,229
9/30/98 $40,940 $49,368
Past performance is not predictive of future performance.
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. Throughout the fiscal year
ended September 30, 1998 much of the gains in the equity markets were
attributable to a relatively small group of larger capitalization growth
companies. Many of these stocks were held by the Opportunity Fund as one of its
principal investment strategies is to invest in "blue chip" companies like these
market leaders. The Opportunity Fund also invested in stocks of smaller
capitalization companies that generally did not perform as well as the market
leaders during the fiscal year. In addition, the Opportunity Fund was
positively affected by the continuing economic recovery and by declining
inflation and interest rates which positively influenced equity markets during
the fiscal year.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS OPPORTUNITY FUND AND S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-YEAR 5-YEAR 1/30/92
------ ------ ---------------
+12.3% +17.5% +12.5%
DATE REYNOLDS OPPORTUNITY FUND S&P 500 INDEX
---- ------------------------- -------------
1/30/92*<F9> $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
*<F9> inception date
Past performance is not predictive of future performance.
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 its expected average maturity.
Throughout the fiscal year ended September 30, 1998 the yield curve was
relatively flat. Consequently by keeping its average maturity short the U.S.
Government Bond Fund reduced portfolio risk without sacrificing significant
total return.
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
Since Inception
1-YEAR 5-YEAR 1/30/92
------ ------ ---------------
+6.1% +3.7% +5.2%
DATE REYNOLDS U.S. GOVERNMENT BOND FUND LEHMAN GOVERNMENT BOND INDEX
---- ---------------------------------- ----------------------------
1/30/92*<F10> $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
*<F10> inception date
Past performance is not predictive of future performance.
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.
REYNOLDS BLUE CHIP GROWTH FUND
<TABLE>
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)<F11> 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)<F12> 1.4% 1.4% 1.5% 1.5% 1.5%
Ratio of net investment (loss)
income to average net assets (0.5%)(2)<F12> (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%
</TABLE>
(1)<F11> Not annualized.
(2)<F12> Annualized.
REYNOLDS OPPORTUNITY FUND
<TABLE>
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)<F13> (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)<F14> 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)<F16> 1.6%(3)<F15> 1.5% 1.5% 1.5% 1.9% 2.0%
Ratio of net investment (loss)
income to average net assets(5)<F17> (1.0%)(3)<F15> (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%
</TABLE>
(1)<F13> Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
(2)<F14> Not annualized.
(3)<F15> Annualized.
(4)<F16> 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)<F17> 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%).
REYNOLDS U.S. GOVERNMENT BOND FUND
<TABLE>
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)<F18> 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)<F20> 0.90%(2)<F19> 0.90% 0.90% 0.90% 0.91% 0.86%
Ratio of net investment income
to average net assets(4)<F21> 4.73%(2)<F19> 5.40% 5.45% 5.43% 5.59% 5.42%
Portfolio turnover rate -- -- 25.28% 28.65% -- 19.59%
</TABLE>
(1)<F18> Not annualized.
(2)<F19> Annualized.
(3)<F20> 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)<F21> 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.
REYNOLDS MONEY MARKET FUND
<TABLE>
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)<F22> 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)<F24> 0.65%(2)<F23> 0.65% 0.65% 0.65% 0.65% 0.63%
Ratio of net investment income
to average net assets(4)<F25> 4.38%(2)<F23> 4.88% 4.77% 4.78% 5.08% 2.84%
</TABLE>
(1)<F22> Not annualized.
(2)<F23> Annualized.
(3)<F24> 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)<F25> 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.
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.
