UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number
811-05549
Reynolds Funds, Inc.
--------------------
(Exact name of registrant as specified in charter)
Wood Island, 3rd Floor
80 East Sir Francis Drake Blvd.
Larkspur, CA 94939
-------------------
(Address of principal executive offices) (Zip code)
Frederick L. Reynolds
Reynolds Capital Management
Wood Island, Third Floor
80 East Sir Francis Drake Blvd.
Larkspur, California 94939
---------------------------
(Name and address of agent for service)
(415) 461-7860
--------------
Registrant's telephone number, including area code:
Date of fiscal year end: September 30
Date of reporting period: 09/30/2004
ITEM 1. REPORTS TO STOCKHOLDERS.
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ANNUAL REPORT
SEPTEMBER 30, 2004
REYNOLDS FUNDS
NO-LOAD MUTUAL FUNDS
REYNOLDS
BLUE CHIP GROWTH FUND
SEEKING LONG-TERM CAPITAL APPRECIATION
REYNOLDS
OPPORTUNITY FUND
SEEKING LONG-TERM CAPITAL APPRECIATION
REYNOLDS
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
WWW.REYNOLDSFUNDS.COM
REYNOLDS FUNDS
November 15, 2004
Dear Fellow Shareholders:
The U.S. economy continues in a strong expansion. Gross Domestic Product
(GDP) grew at a 3.9% rate in the nine months ended September 30, 2004. GDP is
estimated to increase 4.4% in calendar 2004 after increasing 3.0% in calendar
2003. This growth rate is almost ideal. Inflation increased 2.7% in the nine
months ended September 30, 2004. Inflation is estimated to increase 2.7% in
calendar 2004 after increasing 2.3% in 2003. Spending by consumers and capital
spending by companies have been some of the strongest sectors of the economy. In
the nine months ended September 30, 2004 nearly two million jobs have been
created.
The Federal Reserve has raised short term interest rates four times starting
in June 2004. However, interest rates are still at 43 year lows. We believe that
raising interest rates is the correct thing for the Federal Reserve to do.
Previously they reduced interest rates to an artificially low level to stimulate
the economy. Now that the economy is strong and jobs are being created the Fed
should move toward a more normal level of interest rates to protect against
future economic imbalances. Another problem has been recent negative
geopolitical news including terrorism, negative events in Iraq and attempts to
slow down China's strong growth, which has been a key driver of Asian and
worldwide growth.
Oil prices have recently risen. This is a tax on consumers in terms of higher
fuel prices. However, the U.S economy is now more service oriented and is not as
dependent on oil as it was twenty years ago when it was more heavily industrial
oriented. Oil consumption currently accounts for 12% of GDP. Twenty years ago it
accounted for 18% of GDP. Alan Greenspan, the Chairman of the Federal Reserve
Board, recently estimated that these higher oil prices would make the GDP growth
rate 1/2% less than it would have been.
In the long run, the strength of the economy and the level of corporate
profitability have been key factors in determining the valuations of common
stocks. We believe that these factors, which are currently positive, are the
more important factors at the present time. Over the long term, interest rates
have typically risen during economic expansions and typically the stock market
has appreciated. If interest rates do not go up too rapidly from here (the
Federal Reserve has indicated that it will raise rates slowly) or too far, it
should not be a significant negative for stocks.
INVESTING IN GOOD COMPANIES IN GOOD INDUSTRIES
There are approximately seventy-five industries that one can invest in. One
hundred years ago we might have talked very positively about the strong outlook
for such industries as railroads, steels and public utilities. In the 1960's we
might have talked about the strong outlook for such industries as chemicals and
color televisions. However, these industries are now mature and have poorer
growth prospects. We do not mind investing in good companies in poor industries.
However, we have found that these good companies usually have a tough job
overcoming the fact that their industry is not helping them. The Reynolds Stock
Funds have an investment emphasis on good companies in good industries. We
believe that some of the industries with the best long-term outlooks currently
are: (1) communications; (2) consumer non-durables; (3) defense; (4) energy; (5)
financial services; (6) health - including biotechnology and services; (7) the
Internet; (8) leisure time; (9) retailing - including discount and specialty;
and (10) technology.
OPPORTUNISTIC INVESTING IN COMPANIES OF VARIOUS SIZES
The three Reynolds Stock Funds invest in companies of various sizes as
classified by their market capitalizations. A company's market capitalization
is calculated by taking the number of shares the company has outstanding
multiplied by its current market price. This is one way that the Reynolds Stock
Funds differentiate their investment styles. Other considerations in selecting
companies for the portfolios include revenue growth rates, product innovations,
financial strength, management's knowledge and experience plus the overall
economic and geopolitical environments and interest rates.
REYNOLDS BLUE CHIP GROWTH FUND
Portfolio as of September 30, 2004
- ----------------------------------
Medium 29.08%
Giant 20.43%
Small 12.31%
Micro 4.49%
Large 33.69%
REYNOLDS OPPORTUNITY FUND
Portfolio as of September 30, 2004
- ----------------------------------
Micro 25.11%
Small 25.64%
Large 13.77%
Giant 6.26%
Medium 29.22%
REYNOLDS FUND
Portfolio as of September 30, 2004
- ----------------------------------
Small 31.72%
Medium 22.50%
Large 6.73%
Giant 1.09%
Micro 37.96%
Giant-cap stocks are defined as the group that accounts for the top
40% of the capitalization of the Morningstar domestic stock universe
which as of September 30, 2004 included companies with total market
capitalization exceeding approximately $44.8 billion; large-cap stocks
represent the next 30% with market capitalizations exceeding
approximately $8.5 billion; medium-cap stocks represent the next 20%
with market capitalizations exceeding approximately $1.5 billion; and
small-cap stocks represent the balance with market capitalizations
exceeding approximately $420 million. Micro is defined as market
capitalizations that are smaller than the minimum for small company
designation.
OPPORTUNISTIC INVESTING IN MEDIUM TO SMALL SIZE COMPANIES
Many medium to small size quality companies declined appreciably in price
over the last few years and we feel they have significant price appreciation
potential. We have taken the opportunity to purchase many of these companies as
investments in the Reynolds Stock Funds.
LOW INTEREST RATES BY HISTORICAL STANDARDS ARE
A SIGNIFICANT POSITIVE FOR STOCK VALUATIONS
Since January 2001, the Federal Reserve Board lowered short-term interest
rates twelve times to help stimulate the economy. Although interest rates have
been rising, they should remain at historically low levels. Low interest rates
usually result in higher stock valuations for many reasons including:
(1) Borrowing costs of corporations are lower resulting in higher business
confidence and profits.
(2) Borrowing costs of individuals are lower which increases consumer
confidence and spending.
(3) Cash is not as attractive as an alternative investment to stocks.
(4) A company's stock is usually valued by placing a present value on that
company's future stream of earnings and dividends. The present value
should be higher when interest and inflation rates are low.
THE REYNOLDS BLUE CHIP GROWTH FUND
The long-term strategy of the Reynolds Blue Chip Growth Fund is to emphasize
investment in growth companies. Occasionally, these companies go out of favor
for a while. However, these companies should continue to build value if their
earnings grow and their stocks should begin appreciating again when they return
to favor.
PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2004)
AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
------------ --------------
One Year -3.44% -3.44%
Five Years -50.01% -12.95%
Ten Years 98.84% 7.12%
Since inception (August 12, 1988) 206.05% 7.18%
The Reynolds Blue Chip Growth Fund increased 11.27% in the 45 day period
ended November 15, 2004.
THE REYNOLDS OPPORTUNITY FUND
The Reynolds Opportunity Fund usually invests in medium to smaller size
growth companies. A long-term investment in the Reynolds Opportunity Fund should
be a good complement to a long-term investment in the Reynolds Blue Chip Growth
Fund and the Reynolds Fund.
PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2004)
AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
------------ --------------
One Year -4.29% -4.29%
Five Years -47.67% -12.15%
Ten Years 81.55% 6.15%
Since inception (January 30, 1992) 83.21% 4.90%
The Reynolds Opportunity Fund increased 12.38% in the 45 day period ended
November 15, 2004.
The Board of Directors declared a distribution of $1.3048 from long-term
realized gains on October 28, 2004. The distribution was paid on October 29,
2004 to shareholders of record on October 27, 2004.
THE REYNOLDS FUND
The Reynolds Fund is a general stock fund and is intended to be a long-term
investment holding. The Fund may own common stocks of all types and sizes and
will mainly invest in common stocks of U.S. headquartered companies. While the
Fund will generally invest in "growth" stocks, it may also invest in "value"
stocks.
PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2004)
AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
------------ --------------
One year -10.17% -10.17%
Five years -46.10% -11.63%
Since inception (October 1, 1999) -46.10% -11.63%
The Reynolds Fund increased 16.70% in the 45 day period ended November 15,
2004.
THE REYNOLDS U.S. GOVERNMENT BOND FUND
The Reynolds U.S. Government Bond Fund emphasizes high quality investments in
U.S. Treasury and Federal Agency Bonds (issued by the Federal Home Loan Bank -
FHLB, Federal Home Loan Mortgage Corp. - FHLMC and Federal National Mortgage
Association - FNMA), Treasury Notes and Treasury Bills of varying maturities. As
of September 30, 2004, the assets were invested 91.9% in long and medium-term
Federal Agency securities and 8.1% in short-term Federal Agency securities and
high quality cash equivalents. The Reynolds U.S. Government Bond Fund is
designed to satisfy many of the fixed income objectives of investors. For
example, the Bond Fund is actively managed and is invested in bonds having
different maturities, which reduces the risk that a large percentage of the
bonds in the Fund mature at an inopportune time for reinvestment. The average
maturity of the bonds in the Fund is continually reevaluated and adjusted based
on short- and long-term economic, inflation, and interest rate forecasts. The
Bond Fund had a dollar weighted average maturity of 5.31 years on September 30,
2004.
PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2004)
AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
------------ --------------
One Year 1.48% 1.48%
Five Years 16.45% 3.09%
Ten Years 52.63% 4.32%
Since inception (January 30, 1992) 68.39% 4.20%
REYNOLDS U.S. GOVERNMENT BOND FUND
Portfolio as of September 30, 2004
- ----------------------------------
FNMA (credit rating AAA) 21.50%
FHLMC (credit rating AAA) 10.60%
Cash 8.13%
FHLB (credit rating AAA) 59.77%
REYNOLDS MONEY MARKET FUND
Portfolio as of September 30, 2004
- ----------------------------------
U.S. Treasury Bills 89.11%
Cash 10.89%
Credit Rating corresponds to the ratings assigned these issuers as of
September 30, 2004 by Standard and Poor's .
THE REYNOLDS MONEY MARKET FUND
The Reynolds Money Market Fund offers unlimited check writing with no minimum
amount per check. The Reynolds Money Market Fund is designed to provide for
investor's short-term cash management needs. For ease of redemption, the Money
Market Fund offers: (1) check writing ($0.20 printing charge per check); or (2)
telephone redemption where either a check is mailed to the shareholder, or money
may be wired to the shareholder's bank account ($15.00 wiring charge - no charge
if part of the Systematic Withdrawal Plan which has a $100 minimum withdrawal).
The Reynolds Money Market Fund's yield should vary with the rate of inflation
over the years. As of September 30, 2004, the dollar weighted average days to
maturity of the Money Market Fund was 22.5 days.
PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2004)
AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
------------ --------------
One Year 0.22% 0.22%
Five Years 11.65% 2.23%
Ten Years 41.71% 3.55%
Since inception (January 30, 1991) 61.06% 3.55%
ECONOMIC DISCUSSION
THE WORLD ECONOMY
There are more than 1.5 billion people in the world who will be experiencing
a higher standard of living and using and consuming more products as capitalism
grows in China, Eastern Europe and Russia. Many other countries, such as India
and the democratic countries in Latin America, have rapidly emerging middle
classes that desire western goods and services and governments that are
encouraging foreign investment. Worldwide inflation remains low. There are many
reasons for this, including: (1) committed central bankers; (2) fiscal restraint
by governments; (3) economic systems are more efficient; (4) cost cutting and
restructuring is spreading to many countries; (5) more efficient private-sector
operations are replacing inefficient state-run enterprises; and (6) excess
capacity exists in many markets.
The Blue Chip, Opportunity and Reynolds Funds are well positioned to
participate in these long-term worldwide growth trends through their investments
in U.S. headquartered and foreign headquartered companies whose stocks or
American Depository Receipts (ADRs) trade in the United States. We have some
investments in foreign headquartered companies such as in China in the Reynolds
Stock Funds at the present time. We are planning on increasing our investments
in foreign headquartered companies in the future where we believe that the long-
term fundamentals are positive and their stock prices are attractive.
THE U.S. ECONOMY
The U.S. economy continues positive. The efficiencies of the economy
resulting from such things as technology enhancements and productivity increases
are impressive.
Consumer spending represents approximately 65% of GDP and has been a
positive. GDP increased 3.0% in 2003, 1.9% in 2002, 0.8% in 2001, 3.7% in 2000,
4.4% in 1999 and 4.2% in 1998. GDP is estimated to increase 4.4% in 2004.
U.S. inflation is low relative to the last thirty-five years due to such
factors as global competition, advances in technology resulting in increasing
productivity and technology innovations that are helping to lower production and
distribution costs. U.S. inflation increased 2.3% in 2003, 1.6% in 2002, 2.8% in
2001, 3.4% in 2000, 2.2% in 1999 and 1.6% in 1998. U.S. inflation is estimated
to increase 2.7% in 2004.
INVESTMENT OUTLOOK
There are many investment positives. Among them are: (1) corporate profits
are stronger than expected; (2) job growth is strong; (3) even though interest
rates are probably going to climb, they are increasing from a very low level, so
there's room for them to go up and not slow down the economy in a dangerous way;
(4) U.S. industry is more competitive than at any time in the past quarter
century and U.S. companies are the leaders in the majority of industries
worldwide; (5) U. S. productivity continues to increase; (6) the Internet is
beginning to produce efficiencies; (7) consumer spending has remained high; (8)
most indicators in the economy are positive; and (9) corporate cost cutting has
been very successful.
Some possible investment negatives, which we are closely watching are: (1)
higher inflation resulting in such things as higher interest rates; (2) high
energy prices; (3) large federal spending and federal deficits;
(4) possible terrorist attacks; (5) dollar weakness; (6) Iraq; and (7) efforts
to slow China's economic boom.
INFORMATION ABOUT THE REYNOLDS FUNDS
REYNOLDSFUNDS.COM WEB SITE: You can now access current information about your
investment holdings via our web site, reynoldsfunds.com. You must first request
a personal identification number (PIN) by calling our shareholder service
representatives at (800) 773-9665. You will be able to view your account list,
account detail (including balances), transaction history, distributions, and
current Fund prices. Additional information available includes quarterly updates
of the returns of the Reynolds Funds, top ten holdings of each equity portfolio,
and industry percentages. Also detailed statistics and graphs of past
performances with a link to Quicken.com for the various Reynolds Funds.
FOR AUTOMATIC CURRENT DAILY NET ASSET VALUES: Call 1-800-773-9665
(1-800-7REYNOLDS) twenty-four hours-a-day, seven days a week and press "any key"
then "1". The updated current net asset values for all of the Reynolds Funds are
usually available each business day after 5 P.M. (PST).
FOR REYNOLDS MONEY MARKET FUND AND U.S. GOVERNMENT BOND FUND CURRENT ONE AND
SEVEN DAY YIELDS: Call 1-800-773-9665 and press "any key" then "1".
FOR SHAREHOLDERS TO AUTOMATICALLY ACCESS THEIR CURRENT ACCOUNT INFORMATION:
Call 1-800-773-9665 (twenty-four hours-a-day, seven days a week), press "any
key" then "2" and enter your 16 digit account number which appears at the top
right of your statement.
TO SPEAK TO A FUND REPRESENTATIVE REGARDING QUESTIONS, CURRENT ACCOUNT
INFORMATION AND CURRENT DAILY NET ASSET VALUES: Call 1-800-773-9665 and press
"0" from 6 A.M. to 5 P.M. (PST).
SHAREHOLDER STATEMENT FREQUENCY: Consolidated statements summarizing all
Reynolds Funds held by a shareholder are sent quarterly. In addition, individual
Fund statements are sent whenever a transaction occurs. These transactions are:
(1) Blue Chip, Opportunity and Reynolds Fund statements are sent twice a year if
and when any ordinary income or capital gains are distributed; and (2)
statements are sent for any of the Funds when a shareholder purchases or redeems
shares.
TAX REPORTING: Individual 1099 forms, which summarize any dividend income and
any long- or short-term capital gains, are sent annually to shareholders each
January. The percentage of income earned from various government securities, if
any, for the Reynolds Funds are also reported in January.
MINIMUM INVESTMENT: $1,000 for regular and retirement accounts ($100 for
additional investments for all accounts - except for the Automatic Investment
Plan, which is $50 for regular and retirement plan accounts).
PROTOTYPE PLANS FOR RETIREMENT PLANS: All types are offered including the
Roth IRA, Coverdell Education Savings Account, SIMPLE IRA Plan, 401k, SEP IRA,
403b and Fund Sponsored Qualified Retirement Plans.
AUTOMATIC INVESTMENT PLAN: There is no charge to automatically debit your
checking account or your account in any of the Reynolds Funds ($50 minimum) at
periodic intervals to make automatic purchases in any of the Reynolds Funds.
This is useful for dollar cost averaging.
SYSTEMATIC WITHDRAWAL PLAN: For shareholders with a $10,000 minimum starting
balance, there is no charge to automatically redeem shares ($100 minimum) in any
of the Reynolds Funds as often as monthly and send a check to you or transfer
funds to your bank account.
EXCHANGES OR REGULAR REDEMPTIONS: As often as desired - no charge.
NASDAQ SYMBOLS: Reynolds Blue Chip Growth Fund - RBCGX, Reynolds Opportunity
Fund - ROPPX, Reynolds Fund - REYFX, Reynolds U.S. Government Bond Fund - RUSGX,
Reynolds Money Market Fund - REYXX.
PORTFOLIO MANAGER: Frederick Reynolds is the portfolio manager of each of the
Reynolds Funds.
THE REYNOLDS FUNDS ARE NO-LOAD: No front-end sales commissions or deferred
sales charges ("loads") are charged. Over 40% of all mutual funds impose these
marketing charges that are ultimately paid by the shareholder. These marketing
charges are either: (1) a front-end fee or "load" in which up to 5% of a
shareholder's assets are deducted from the original investment (some funds even
charge a fee when a shareholder reinvests capital gains or dividends); or (2) a
back-end penalty fee or "load" which is typically deducted from a shareholder's
account if a shareholder redeems within five years of the original investment.
These fees reduce a shareholder's return. The Reynolds Funds are No-Load as they
do not have these extra charges.
We appreciate your continued confidence in the Reynolds Funds and would like
to welcome our new shareholders. One hundred percent of our Company's pension
plan is invested in the Reynolds Funds. We look forward to strong results in
the future.
Sincerely,
/s/Frederick L. Reynolds
Frederick L. Reynolds
President
80 East Sir Francis Drake Blvd. o Larkspur, CA 94939 o 415-461-7860
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Reynolds Funds unless accompanied or preceded by
the Funds' current prospectus. Performance data quoted represents past
---------------------------------------
performance; past performance does not guarantee future results. The investment
- ---------------------------------------------------------------
return and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Current performance of the Funds may be lower or higher than the performance
quoted. Performance data current to the most recent month end may be obtained
by visiting www.reynoldsfunds.com.
Reynolds Funds, Inc.
COST DISCUSSION
As a shareholder of the Reynolds Funds, you do not incur (except as described
below) transaction costs, including sales charges (loads) on purchase payments,
reinvested dividends, or other distributions; redemption fees; and exchange
fees, but do incur ongoing costs, including management fees; distribution
[and/or service] (12b-1) fees; and other Fund expenses. This example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Reynolds Funds and to compare these costs with the ongoing costs of investing in
other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period from March 31, 2004 through September
30, 2004.
ACTUAL EXPENSES
The first line of each Fund in the table below provides information about actual
account values and actual expenses for that particular Reynolds Fund. You may
use the information in this line, together with the amount you invested, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
In addition to the costs highlighted and described below, the only Reynolds
Funds transaction costs you might currently incur would be wire fees ($15 per
wire), if you choose to have proceeds from a redemption wired to your bank
account instead of receiving a check. Additionally, U.S. Bank charges an annual
processing fee ($15) if you maintain an IRA account with a Reynolds Fund. To
determine your total costs of investing in a Reynolds Fund, you would need to
add any applicable wire or IRA processing fees you've incurred during the period
to the costs provided in the example below.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on a particular Reynolds Fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in a Reynolds Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption or exchange fees. Therefore, the second line of the
table is useful in comparing ongoing costs only, and will not help you determine
the relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning Account Ending Account Expenses Paid During
Value 3/31/04 Value 9/30/04 Period*<F1> 3/31/04-9/30/04
----------------- ------------- ---------------------------
Reynolds Blue Chip Growth Fund Actual $1,000 $1,000.00 $853.00 $6.85
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $7.49
Reynolds Opportunity Fund $1,000.00 $773.00 $8.60
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $9.82
Reynolds Fund Actual $1,000 $1,000.00 $701.80 $11.02
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $13.11
Reynolds U.S. Government Bond Fund Actual $1,000 $1,000.00 $1,004.70 $4.51
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $4.55
Reynolds Money Market Fund Actual $1,000 $1,000.00 $1,001.60 $3.40
Hypothetical (5% return before expenses) $1,000.00 $1,025.00 $3.44
*<F1> Expenses are equal to the Funds' annualized expense ratio of 1.48%,
1.94%, 2.59%, 0.90% and 0.68%, respectively, multiplied by the average
account value over the period, multiplied by 183/366 (to reflect the
one-half year period between March 31, 2004 and September 30, 2004).
Reynolds Blue Chip Growth Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Reynolds Blue Chip Fund's performance was positively affected in the
first half of its fiscal year ended September 30, 2004 by the strengthening
economy (including business investment), stronger earnings and a shift in
leadership to growth stocks. The Blue Chip Fund was particularly helped by its
emphasis on growth stocks in industries with stronger long-term outlooks such
as: (1) communications, (2) financial services - including discount brokerage
firms, (3) health - including biotechnology and services, (4) the Internet, (5)
leisure, (6) retailers - including discount and specialty, and (7) technology -
including application software and semiconductors. The Reynolds Blue Chip Growth
Fund's performance was negatively affected during the second half of its fiscal
year ended September 30, 2004 by investor's emphasis on perceived negative
external events such as a perception that there were signs of a slowing growth
rate in the economy (particularly slow business investment), a modest increase
of interest rates by the Federal Reserve, problems in Iraq, terrorism and the
uncertain outcome of the upcoming Presidential election. During this period many
investors didn't fully appreciate that the fundamentals for many companies,
particularly the ones owned or subsequently purchased by the Blue Chip Fund were
improving due to such things as cost cutting, improved efficiencies and new
products.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS BLUE CHIP GROWTH FUND AND S&P 500 INDEX(1)<F2>
Date Reynolds Blue Chip Growth Fund S&P 500 Index
---- ------------------------------ -------------
9/30/94 $10,000 $10,000
9/30/95 $13,530 $12,980
9/30/96 $15,979 $15,628
9/30/97 $22,882 $21,988
9/30/98 $26,765 $24,000
9/30/99 $39,762 $30,673
9/30/00 $49,042 $34,747
9/30/01 $21,902 $25,497
9/30/02 $14,447 $20,274
9/30/03 $20,576 $25,220
9/30/04 $19,869 $28,719
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
------ ------ -------
-3.44% -12.95% 7.12%
Past performance is not predictive of future performance. The graph and the
table do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(1)<F2> The Standard & Poor's 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The
Standard & Poor's Ratings Group designates the stocks to be included
in the Index on a statistical basis. A particular stock's weighting
in the Index is based on its relative total market value (i.e., its
market price per share times the number of shares outstanding).
Stocks may be added or deleted from the Index from time to time.
Reynolds Blue Chip Growth Fund
STATEMENT OF NET ASSETS
September 30, 2004
SHARES VALUE
------ -----
LONG-TERM INVESTMENTS -- 101.0% (A)<F4>
COMMON STOCKS -- 100.5% (A)<F4>
ADVERTISING -- 0.4%
21,000 DoubleClick Inc.*<F3> $ 124,110
15,000 ValueClick, Inc.*<F3> 141,600
-----------
265,710
AIRLINES/AEROSPACE -- 0.5%
2,000 Boeing Co. 103,240
3,500 United Technologies Corp. 326,830
-----------
430,070
APPLICATION SOFTWARE -- 3.8%
11,000 Adobe Systems Inc. 544,170
45,000 Novell, Inc.*<F3> 283,950
32,000 SAP AG SP-ADR 1,246,400
23,000 Siebel Systems, Inc.*<F3> 173,420
52,000 VERITAS Software Corp.*<F3> 925,600
-----------
3,173,540
AUTOMOTIVE -- 0.2%
14,000 Ford Motor Co. 196,700
BANKS -- 0.5%
3,000 Bank of America Corp. 129,990
4,000 Citigroup Inc. 176,480
2,000 J.P. Morgan Chase & Co. 79,460
-----------
385,930
BEVERAGES -- 0.2%
2,000 The Coca-Cola Co. 80,100
2,000 PepsiCo, Inc. 97,300
-----------
177,400
BIOTECHNOLOGY -- 2.2%
2,000 Amgen Inc.*<F3> 113,360
2,000 Chiron Corp.*<F3> 88,400
38,000 Elan Corp. PLC - SP-ADR*<F3> 889,200
5,000 Genentech, Inc.*<F3> 262,100
3,500 ImClone Systems Inc.*<F3> 184,975
12,000 Protein Design Labs, Inc.*<F3> 234,960
1,500 Sepracor Inc.*<F3> 73,170
-----------
1,846,165
BUILDING -- 0.4%
4,000 Home Depot, Inc. 156,800
3,000 Lowe's Companies, Inc. 163,050
-----------
319,850
BUSINESS SOFTWARE & SERVICES -- 3.7%
65,000 Akamai Technologies, Inc.*<F3> 913,250
22,000 Comverse Technology, Inc.*<F3> 414,260
50,000 E.piphany, Inc.*<F3> 201,500
26,000 Manugistics Group, Inc.*<F3> 61,880
6,000 Monster Worldwide Inc.*<F3> 147,840
32,000 Sonic Solutions*<F3> 522,240
119,000 Sonus Networks, Inc.*<F3> 669,970
8,000 TIBCO Software Inc.*<F3> 68,080
16,000 webMethods, Inc.*<F3> 85,120
-----------
3,084,140
CABLE TV/BROADCASTING -- 2.2%
97,000 Sirius Satellite Radio Inc.*<F3> 310,400
15,000 TiVo Inc.*<F3> 99,300
4,000 Viacom Inc. Cl B 134,240
42,000 XM Satellite Radio Holdings Inc.*<F3> 1,302,840
-----------
1,846,780
COMMUNICATION EQUIPMENT -- 6.3%
80,000 Corning Inc.*<F3> 886,400
69,000 L.M. Ericsson Telephone Co. ADR*<F3> 2,155,560
68,500 JDS Uniphase Corp.*<F3> 230,845
45,500 QUALCOMM Inc. 1,776,320
42,000 Westell Technologies, Inc.*<F3> 217,140
-----------
5,266,265
COMMUNICATIONS SERVICES -- 0.2%
20,000 Aspect Communications Corp.*<F3> 198,600
COMPUTER NETWORKING -- 6.6%
88,000 Cisco Systems Inc.*<F3> 1,592,800
22,000 Citrix Systems, Inc.*<F3> 385,440
25,000 Extreme Networks, Inc.*<F3> 111,250
22,000 Foundry Networks, Inc.*<F3> 208,780
66,000 Juniper Networks, Inc.*<F3> 1,557,600
41,000 Sierra Wireless, Inc.*<F3> 729,800
46,000 WebEx Communications, Inc.*<F3> 1,003,720
-----------
5,589,390
COMPUTER & PERIPHERALS -- 5.2%
2,000 Apple Computer, Inc.*<F3> 77,500
27,000 Dell Inc.*<F3> 961,200
15,000 Hewlett-Packard Co. 281,250
9,900 International Business
Machines Corp. 848,826
31,000 Network Appliance, Inc.*<F3> 713,000
371,000 Sun Microsystems, Inc.*<F3> 1,498,840
-----------
4,380,616
DRUGS -- 0.7%
3,500 Eli Lilly & Co. 210,175
4,000 Merck & Co. Inc. 132,000
7,000 Pfizer Inc. 214,200
-----------
556,375
ELECTRICAL EQUIPMENT -- 0.9%
6,000 General Electric Co. 201,480
32,000 PerkinElmer, Inc. 551,040
-----------
752,520
ELECTRONICS -- 1.3%
35,000 Agilent Technologies, Inc.*<F3> 754,950
13,000 Micrel, Inc.*<F3> 135,330
14,000 Vishay Intertechnology, Inc.*<F3> 180,600
-----------
1,070,880
ENERGY-SERVICES -- 1.6%
6,000 Baker Hughes Inc. 262,320
2,000 BJ Services Co. 104,820
2,000 Noble Energy, Inc. 116,480
5,500 Schlumberger Ltd. 370,205
5,500 Smith International, Inc.*<F3> 334,015
5,000 Transocean Inc.*<F3> 178,900
-----------
1,366,740
ENTERTAINMENT/MEDIA -- 0.3%
8,754 The Walt Disney Co. 197,403
5,000 Time Warner Inc.*<F3> 80,700
-----------
278,103
FINANCIAL SERVICES -- 3.8%
2,000 American Express Co. 102,920
57,000 Ameritrade Holding Corp.*<F3> 684,570
43,000 E*TRADE Financial Corp.*<F3> 491,060
30,000 HomeStore, Inc.*<F3> 69,300
40,000 Knight Trading Group, Inc.*<F3> 369,200
3,000 MarketWatch Inc.*<F3> 37,470
7,000 Merrill Lynch & Co., Inc. 348,040
22,000 Morgan Stanley 1,084,600
-----------
3,187,160
GOLD & SILVER -- 0.8%
6,380 AngloGold Ashanti - SP-ADR 248,182
12,000 Bema Gold Corp.*<F3> 38,280
11,000 Durban Roodepoort
Deep Ltd. SP-ADR*<F3> 22,121
13,000 Kinross Gold Corp.*<F3> 88,140
2,000 Newmont Mining Corp. 91,060
6,000 Pan American Silver Corp.*<F3> 102,180
6,000 Placer Dome Inc. 119,280
-----------
709,243
HOTEL -- 0.6%
16,000 Hilton Hotels Corp. 301,440
4,000 Starwood Hotels &
Resorts Worldwide, Inc. 185,680
-----------
487,120
HOUSEHOLD PRODUCTS -- 0.2%
3,000 Avon Products, Inc. 131,040
5,000 Revlon, Inc.*<F3> 12,600
-----------
143,640
INTERNET INFORMATION PROVIDERS -- 4.6%
49,000 Ask Jeeves, Inc.*<F3> 1,602,790
50,000 chinadotcom corp.*<F3> 249,000
30,000 CNET Networks, Inc.*<F3> 274,500
2,000 Sohu.com Inc.*<F3> 33,260
50,000 Yahoo! Inc.*<F3> 1,695,500
-----------
3,855,050
INTERNET SERVICE PROVIDERS -- 0.7%
17,000 EarthLink, Inc.*<F3> 175,100
15,000 SINA Corp.*<F3> 382,350
-----------
557,450
INTERNET SOFTWARE & SERVICES -- 0.6%
65,000 CMGI Inc.*<F3> 78,650
21,000 Red Hat, Inc.*<F3> 257,040
100,000 Safeguard Scientifics, Inc.*<F3> 187,000
-----------
522,690
MACHINERY -- 0.1%
1,500 Caterpillar Inc. 120,675
MEDICAL SERVICES -- 0.1%
1,500 UnitedHealth Group Inc. 110,610
MEDICAL SUPPLIES -- 0.4%
2,000 Abbott Laboratories 84,720
4,000 Johnson & Johnson 225,320
-----------
310,040
OFFICE EQUIPMENT & SUPPLIES -- 0.2%
17,000 Danka Business
Systems PLC - SP-ADR*<F3> 64,600
5,000 Xerox Corp.*<F3> 70,400
-----------
135,000
PHOTOGRAPHY -- 0.3%
34,000 Lexar Media, Inc.*<F3> 285,260
RESTAURANTS -- 0.4%
8,000 Luby's, Inc.*<F3> 52,800
3,000 McDonald's Corp. 84,090
2,000 Panera Bread Co.*<F3> 75,080
2,000 Papa John's International, Inc.*<F3> 61,360
2,000 Yum! Brands, Inc. 81,320
-----------
354,650
RETAIL-SPECIALTY -- 7.3%
4,000 Abercrombie & Fitch Co. 126,000
11,000 Amazon.com, Inc.*<F3> 449,460
5,000 American Eagle Outfitters, Inc. 184,250
3,000 AnnTaylor Stores Corp.*<F3> 70,200
3,000 bebe stores, inc. 63,360
4,000 Bed Bath & Beyond Inc.*<F3> 148,440
11,000 Best Buy Co., Inc. 596,640
8,000 Charming Shoppes, Inc.*<F3> 56,960
2,000 Chico's FAS, Inc.*<F3> 68,400
66,000 Circuit City Stores, Inc. 1,012,440
2,000 Coach, Inc.*<F3> 84,840
10,500 eBay Inc.*<F3> 965,370
2,000 Linens 'n Things, Inc.*<F3> 46,340
3,000 Office Depot, Inc.*<F3> 45,090
2,000 Pacific Sunwear
of California, Inc.*<F3> 42,100
40,000 PC Connection, Inc.*<F3> 274,800
21,000 Pep Boys-Manny, Moe & Jack 294,000
2,000 PETCO Animal Supplies, Inc.*<F3> 65,320
2,000 PETsMART, Inc. 56,780
18,000 Pier 1 Imports, Inc. 325,440
14,000 Priceline.com Inc.*<F3> 310,380
40,000 Rite Aid Corp.*<F3> 140,800
2,000 Ross Stores, Inc. 46,880
3,000 Saks Inc. 36,150
2,000 Sharper Image Corp.*<F3> 42,900
2,000 Staples, Inc. 59,640
4,000 Starbucks Corp.*<F3> 181,840
2,000 Talbots, Inc. 49,580
6,000 TJX Companies, Inc. 132,240
5,000 Tommy Hilfiger Corp.*<F3> 49,350
4,000 Urban Outfitters, Inc.*<F3> 137,600
-----------
6,163,590
RETAIL STORES -- 1.6%
10,500 Costco Wholesale Corp. 436,380
17,000 The Gap, Inc. 317,900
2,000 Kohl's Corp.*<F3> 96,380
2,000 Neiman Marcus Group, Inc. 115,000
3,000 Nordstrom, Inc. 114,720
2,000 Target Corp. 90,500
3,500 Wal-Mart Stores, Inc. 186,200
-----------
1,357,080
SECURITY SOFTWARE & SERVICES -- 3.0%
17,000 Check Point Software
Technologies Ltd.*<F3> 288,490
27,000 Internet Security Systems, Inc.*<F3> 459,000
25,000 Netegrity, Inc.*<F3> 187,750
44,000 RSA Security Inc.*<F3> 849,200
37,000 VeriSign, Inc.*<F3> 735,560
-----------
2,520,000
SEMICONDUCTOR CAPITAL SPENDING -- 4.5%
37,000 Applied Materials, Inc.*<F3> 610,130
20,000 ASML Holding N.V. - NYS*<F3> 257,400
25,000 Asyst Technologies, Inc.*<F3> 127,750
15,000 KLA-Tencor Corp.*<F3> 622,200
80,000 Kulicke and Soffa Industries, Inc.*<F3> 452,000
69,000 LTX Corp.*<F3> 373,290
18,000 Novellus Systems, Inc.*<F3> 478,620
52,000 Teradyne, Inc.*<F3> 696,800
129,000 TranSwitch Corp.*<F3> 162,540
-----------
3,780,730
SEMICONDUCTORS -- 13.5%
37,000 Altera Corp.*<F3> 724,090
35,000 Applied Micro Circuits Corp.*<F3> 109,550
60,000 Atmel Corp.*<F3> 217,200
30,000 Broadcom Corp.*<F3> 818,700
64,000 Cirrus Logic, Inc.*<F3> 305,280
53,000 Conexant Systems, Inc.*<F3> 85,330
25,000 Cypress Semiconductor Corp.*<F3> 221,000
30,000 ESS Technology, Inc.*<F3> 205,500
45,000 Flextronics International Ltd.*<F3> 596,250
41,000 Integrated Device
Technology, Inc.*<F3> 390,730
40,380 Intel Corp. 810,023
34,000 Lam Research Corp.*<F3> 743,920
17,000 Lattice Semiconductor Corp.*<F3> 83,470
7,000 Linear Technology Corp. 253,680
76,000 LSI Logic Corp.*<F3> 327,560
45,000 Mattson Technology, Inc.*<F3> 346,050
11,000 Maxim Integrated Products, Inc. 465,190
20,000 Micron Technology, Inc.*<F3> 240,600
7,000 Pixelworks, Inc.*<F3> 70,070
60,000 PMC-Sierra, Inc.*<F3> 528,600
7,500 QLogic Corp.*<F3> 222,075
12,000 Rambus Inc.*<F3> 188,280
90,000 Sanmina-SCI Corp.*<F3> 634,500
73,000 Solectron Corp.*<F3> 361,350
11,000 STMicroelectronics N.V. 190,080
23,000 Texas Instruments Inc. 489,440
65,000 TriQuint Semiconductor, Inc.*<F3> 253,500
150,000 Vitesse Semiconductor Corp.*<F3> 409,500
41,000 Xilinx, Inc. 1,107,000
-----------
11,398,518
SERVICES -- 0.5%
1,500 FedEx Corp. 128,535
3,000 Korn/Ferry International*<F3> 54,690
4,000 Taser International, Inc.*<F3> 150,200
1,500 United Parcel Service, Inc. Cl B 113,880
-----------
447,305
SYSTEM SOFTWARE -- 1.2%
16,000 Autodesk, Inc. 778,080
6,000 Mercury Interactive Corp.*<F3> 209,280
-----------
987,360
TELECOMMUNICATIONS -- 4.5%
72,000 Agere Systems Inc.*<F3> 75,600
55,000 Avaya Inc.*<F3> 766,700
101,000 CIENA Corp.*<F3> 199,980
177,750 Lucent Technologies Inc.*<F3> 563,467
350,600 Nortel Networks Corp.*<F3> 1,192,040
18,000 Qiao Xing
Universal Telephone, Inc.*<F3> 148,320
93,000 Tellabs, Inc.*<F3> 854,670
-----------
3,800,777
TELEPHONE SERVICES -- 0.1%
25,000 Time Warner Telecom Inc.*<F3> 120,000
WIRELESS COMMUNICATION -- 14.3%
280,925 Motorola, Inc. 5,067,887
51,000 Nextel Communications, Inc.*<F3> 1,215,840
30,000 Nextel Partners, Inc.*<F3> 497,400
14,000 Nokia Corp. "A" - SP-ADR 192,080
47,000 Research In Motion Ltd.*<F3> 3,587,980
21,000 Sprint Corp. (FON Group) 422,730
42,000 Western Wireless Corp.*<F3> 1,079,820
-----------
12,063,737
-----------
Total common stocks
(cost $82,931,344) 84,603,459
-----------
MUTUAL FUNDS -- 0.5% (A)<F4>
3,000 Biotech HOLDRs Trust 433,500
-----------
Total mutual funds
(cost $410,973) 433,500
-----------
Total long-term
investments
(cost $83,342,317) 85,036,959
-----------
PRINCIPAL AMOUNT
- ----------------
SHORT-TERM INVESTMENTS -- 0.0% (A)<F4>
VARIABLE-RATE DEMAND NOTE -- 0.0%
$446 U.S. Bank, N.A., 1.59% 446
-----------
Total short-term
investments (cost $446) 446
-----------
Total investments
(cost $83,342,763) 85,037,405
Liabilities, less cash and
receivables -- (1.0%) (A)<F4> (827,754)
-----------
NET ASSETS $84,209,651
-----------
-----------
Net Asset Value Per Share
($0.01 par value, 40,000,000
shares authorized), offering
and redemption price
($84,209,651 / 3,121,306
shares outstanding) $ 26.98
-----------
-----------
*<F3> Non-income producing security.
(a)<F4> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipt
N.V. - Netherlands Antilles Limited Liability Corporation
NYS - New York Registered Shares
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Blue Chip Growth Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Dividends $ 344,634
Interest 11,312
-----------
Total income 355,946
-----------
EXPENSES:
Management fees 1,183,169
Transfer agent fees 196,442
Administrative services 153,355
Distribution fees 115,630
Printing and postage expense 80,020
Custodian fees 65,879
Professional fees 60,791
Registration fees 27,719
Insurance expense 18,930
Board of Directors fees 5,500
Other expenses 472
-----------
Total operating expenses before interest expense 1,907,907
Interest expense 17,668
-----------
Total expenses 1,925,575
-----------
NET INVESTMENT LOSS (1,569,629)
-----------
NET REALIZED GAIN ON INVESTMENTS 667,155
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,230,289
-----------
NET GAIN ON INVESTMENTS 1,897,444
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 327,815
-----------
-----------
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Blue Chip Growth Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2004 and 2003
2004 2003
-------- --------
OPERATIONS:
Net investment loss $ (1,569,629) $ (855,528)
Net realized gain (loss) on investments 667,155 (1,735,336)
Net change in unrealized appreciation on investments 1,230,289 34,019,632
------------- ------------
Net increase in net assets resulting from operations 327,815 31,428,768
------------- ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,748,524 and 4,347,940 shares, respectively) 54,718,743 112,162,453
Cost of shares redeemed (3,599,902 and 3,456,834 shares, respectively) (109,740,156) (84,720,688)
------------- ------------
Net (decrease) increase in net assets derived from Fund share activities (55,021,413) 27,441,765
------------- ------------
TOTAL (DECREASE) INCREASE (54,693,598) 58,870,533
NET ASSETS AT THE BEGINNING OF THE YEAR 138,903,249 80,032,716
------------- ------------
NET ASSETS AT THE END OF THE YEAR $ 84,209,651 $138,903,249
------------- ------------
------------- ------------
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each year)
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 27.93 $ 19.61 $ 29.73 $ 66.57 $ 53.98
Income from investment operations:
Net investment loss*<F5> (0.40) (0.22) (0.25) (0.38) (0.51)
Net realized and unrealized
(loss) gain on investments (0.55)**<F6> 8.54 (9.87) (36.46) 13.11
------- ------- ------- ------- -------
Total from investment operations (0.95) 8.32 (10.12) (36.84) 12.60
Less distributions:
Dividend from net investment income -- -- -- -- --
Distribution from net realized gains -- -- -- -- (0.01)
------- ------- ------- ------- -------
Total from distributions -- -- -- -- (0.01)
------- ------- ------- ------- -------
Net asset value, end of year $ 26.98 $ 27.93 $ 19.61 $ 29.73 $ 66.57
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (3.44%) 42.43% (34.04%) (55.34%) 23.34%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 84,210 138,903 80,033 182,742 583,884
Ratio of operating expenses before interest expense
to average net assets 1.61% 1.72% 1.49% 1.34% 1.29%
Ratio of interest expense to average net assets 0.02% 0.02% 0.02% 0.01% 0.00%
Ratio of net investment loss to average net assets (1.33%) (0.88%) (0.82%) (0.82%) (0.84%)
Portfolio turnover rate 94.0% 83.7% 67.0% 35.8% 17.3%
*<F5> In 2004, 2003, 2002 and 2001, net investment loss per share is
calculated using average shares outstanding. In 2000 net investment
loss per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.
**<F6> The amount shown may not correlate with the aggregate gains and losses
of portfolio securities due to the timing of subscriptions and
redemptions of Fund shares.
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Opportunity Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Reynolds Opportunity Fund's performance was positively affected in the
first half of its fiscal year ended September 30, 2004 by a strengthening
economy (including business investment), stronger earnings and a shift in
leadership to growth stocks. The Opportunity Fund was particularly helped by
its emphasis on growth stocks in industries with stronger long-term outlooks
such as: (1) communications, (2) financial services - including discount
brokerage firms, (3) health - including biotechnology and services, (4) the
Internet, (5) leisure, (6) retailers - including discount and specialty, and (7)
technology - including application software and semiconductors. The Reynolds
Opportunity Fund was also helped by its emphasis on medium to smaller size
companies. The Reynolds Opportunity Fund's performance was negatively affected
in the second half of its fiscal year ended September 30, 2004 by investor's
emphasis on perceived negative external events such as a perception that there
were signs of a slowing growth rate in the economy (particularly slow business
investment), a modest increase of interest rates by the Federal Reserve,
problems in Iraq, terrorism and the uncertain outcome of the upcoming
Presidential election. During this period many investors didn't fully appreciate
that the fundamentals for many companies, particularly the ones owned or
subsequently purchased by the Opportunity Fund were improving due to such things
as cost cutting, improved efficiencies and new products.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS OPPORTUNITY FUND AND S&P 500 INDEX(1)<F7>
Date Reynolds Opportunity Fund S&P 500 Index
---- ------------------------- -------------
9/30/94 $10,000 $10,000
9/30/95 $14,040 $12,980
9/30/96 $15,500 $15,628
9/30/97 $19,313 $21,988
9/30/98 $21,681 $24,000
9/30/99 $34,685 $30,673
9/30/00 $44,023 $34,747
9/30/01 $17,414 $25,497
9/30/02 $11,663 $20,274
9/30/03 $18,968 $25,220
9/30/04 $18,154 $28,719
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
------ ------ -------
-4.29% -12.15% 6.15%
Past performance is not predictive of future performance. The graph and the
table do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(1)<F7> The Standard & Poor's 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The
Standard & Poor's Ratings Group designates the stocks to be included
in the Index on a statistical basis. A particular stock's weighting
in the Index is based on its relative total market value (i.e., its
market price per share times the number of shares outstanding).
Stocks may be added or deleted from the Index from time to time.
Reynolds Opportunity Fund
STATEMENT OF NET ASSETS
September 30, 2004
SHARES VALUE
------ -----
LONG-TERM INVESTMENTS -- 98.4% (A)<F9>
COMMON STOCKS -- 98.4% (A)<F9>
ADVERTISING -- 0.3%
7,000 ValueClick, Inc.*<F8> $ 66,080
APPLICATION SOFTWARE -- 1.4%
4,000 Business Objects S.A. - SP-ADR*<F8> 93,240
7,000 Compuware Corp.*<F8> 36,050
9,000 Corio, Inc.*<F8> 14,040
10,000 Novell, Inc.*<F8> 63,100
3,000 Siebel Systems, Inc.*<F8> 22,620
2,000 VERITAS Software Corp.*<F8> 35,600
-----------
264,650
AUTOMOTIVE -- 0.1%
9,000 Tower Automotive, Inc.*<F8> 18,810
BIOTECHNOLOGY -- 7.6%
43,000 Aastrom Biosciences, Inc.*<F8> 39,990
16,000 Altair Nanotechnologies, Inc.*<F8> 24,320
4,000 Applera Corp. - Celera Genomics
Group (Tracking Stock)*<F8> 46,760
22,000 AVANIR Pharmaceuticals*<F8> 62,480
12,000 AVANT Immunotherapeutics, Inc.*<F8> 20,520
6,000 AVI BioPharma, Inc.*<F8> 12,300
30,000 Biomira, Inc.*<F8> 43,500
4,000 Dendreon Corp.*<F8> 33,640
12,000 Elan Corp. PLC - SP-ADR*<F8> 280,800
6,000 Epoch Biosciences Inc.*<F8> 11,640
9,000 Genaera Corp.*<F8> 35,190
6,000 GlycoGenesys, Inc.*<F8> 2,700
35,000 The Immune Response Corp.*<F8> 42,000
10,000 Incyte Corp.*<F8> 96,300
5,000 Insmed Inc.*<F8> 8,400
7,800 Orchid Biosciences, Inc.*<F8> 62,634
16,000 Peregrine Pharmaceuticals, Inc.*<F8> 25,760
21,000 Pharmos Corp.*<F8> 60,480
7,000 PRAECIS Pharmaceuticals Inc.*<F8> 15,400
3,000 Protein Design Labs, Inc.*<F8> 58,740
11,000 Senetek PLC - SP-ADR*<F8> 2,970
2,000 Sepracor Inc.*<F8> 97,560
5,000 Serologicals Corp.*<F8> 116,650
4,000 StemCells, Inc.*<F8> 6,160
5,000 Transkaryotic Therapies, Inc.*<F8> 88,650
16,000 V.I. Technologies, Inc.*<F8> 14,240
30,000 Vion Pharmaceuticals, Inc.*<F8> 126,300
-----------
1,436,084
BUSINESS SOFTWARE & SERVICES -- 9.2%
16,000 Akamai Technologies, Inc.*<F8> 224,800
10,000 Answerthink Inc.*<F8> 53,500
6,000 Aspen Technology, Inc.*<F8> 41,940
5,000 CheckFree Corp.*<F8> 138,350
18,000 Commtouch Software Ltd.*<F8> 5,760
7,000 Comverse Technology, Inc.*<F8> 131,810
3,000 Digital River, Inc.*<F8> 89,340
6,000 E.piphany, Inc.*<F8> 24,180
24,000 I-many, Inc.*<F8> 23,280
13,000 Manugistics Group, Inc.*<F8> 30,940
3,000 Monster Worldwide Inc.*<F8> 73,920
3,000 NetIQ Corp.*<F8> 32,100
18,000 OpenTV Corp.*<F8> 54,900
4,000 Radiant Systems, Inc.*<F8> 16,080
63,000 Radview Software Ltd.*<F8> 11,970
70,000 Ramp Corp.*<F8> 2,800
20,000 Sapient Corp.*<F8> 152,600
15,000 SeeBeyond Technology Corp.*<F8> 46,200
6,000 Sonic Solutions*<F8> 97,920
46,000 Sonus Networks, Inc.*<F8> 258,980
2,610 STATS ChipPAC Ltd. ADR*<F8> 15,608
8,000 TIBCO Software Inc.*<F8> 68,080
29,000 Verso Technologies, Inc.*<F8> 27,550
22,000 Viewpoint Corp.*<F8> 50,600
3,000 Viisage Technology, Inc.*<F8> 17,250
8,000 webMethods, Inc.*<F8> 42,560
-----------
1,733,018
CABLE TV/BROADCASTING -- 3.3%
26,000 Charter Communications, Inc.*<F8> 69,160
9,000 Crown Media Holdings, Inc.*<F8> 75,150
24,000 Sirius Satellite Radio Inc.*<F8> 76,800
3,840 UnitedGlobalCom, Inc.*<F8> 28,685
12,000 XM Satellite Radio Holdings Inc.*<F8> 372,240
-----------
622,035
CHEMICALS-SPECIALTY -- 0.3%
5,000 W.R. Grace & Co.*<F8> 47,250
8,000 Isonics Corp.*<F8> 10,472
-----------
57,722
COMMUNICATION EQUIPMENT -- 6.4%
22,000 ANADIGICS, Inc.*<F8> 74,140
7,000 Brocade Communications
Systems, Inc.*<F8> 39,550
15,000 C-COR Inc.*<F8> 126,750
3,000 CalAmp Corp.*<F8> 21,360
10,000 Concurrent Computer Corp.*<F8> 16,800
21,000 Corning Inc.*<F8> 232,680
6,000 Digital Lightwave, Inc.*<F8> 6,786
18,000 Eagle Broadband, Inc.*<F8> 12,960
3,000 Endwave Corp.*<F8> 38,820
8,000 L.M. Ericsson
Telephone Co. ADR*<F8> 249,920
22,000 Finisar Corp.*<F8> 28,600
12,000 FOCUS Enhancements, Inc.*<F8> 18,360
20,000 Harmonic Inc.*<F8> 133,000
27,000 Proxim Corp.*<F8> 21,600
4,000 QUALCOMM Inc. 156,160
3,000 REMEC, Inc.*<F8> 14,130
4,000 Terayon Communication
Systems, Inc.*<F8> 8,480
-----------
1,200,096
COMMUNICATIONS SERVICES -- 0.4%
6,000 Aspect Communications Corp.*<F8> 59,580
10,000 Metro One
Telecommunications, Inc.*<F8> 16,100
-----------
75,680
COMPUTER NETWORKING -- 5.7%
8,000 3Com Corp.*<F8> 33,760
11,000 Adaptec, Inc.*<F8> 83,600
12,000 BroadVision, Inc.*<F8> 35,160
3,000 CIBER, Inc.*<F8> 22,560
12,600 Cisco Systems Inc.*<F8> 228,060
28,000 Corvis Corp.*<F8> 22,400
10,000 Extreme Networks, Inc.*<F8> 44,500
11,000 Foundry Networks, Inc.*<F8> 104,390
12,000 Glenayre Technologies, Inc.*<F8> 21,600
3,000 Juniper Networks, Inc.*<F8> 70,800
9,000 Lantronix, Inc.*<F8> 9,270
25,000 MRV Communications, Inc.*<F8> 62,500
7,000 Sierra Wireless, Inc.*<F8> 124,600
9,000 Sycamore Networks, Inc.*<F8> 34,020
8,000 WebEx Communications, Inc.*<F8> 174,560
-----------
1,071,780
COMPUTER & PERIPHERALS -- 2.0%
6,000 Authentidate Holding Corp.*<F8> 36,360
7,000 McDATA Corp.*<F8> 35,210
5,000 Network Appliance, Inc.*<F8> 115,000
1,350 PalmOne, Inc.*<F8> 41,094
6,000 Quantum Corp.*<F8> 13,860
4,000 Western Digital Corp.*<F8> 35,160
96,000 Xybernaut Corp.*<F8> 107,520
-----------
384,204
COMPUTER SOFTWARE & SERVICES -- 0.9%
58,000 Futuremedia PLC - SP-ADR*<F8> 50,460
3,000 Lawson Software, Inc.*<F8> 16,800
31,000 Silicon Graphics, Inc.*<F8> 44,330
6,000 VA Software Corp.*<F8> 11,760
15,000 Wave Systems Corp.*<F8> 13,650
3,000 Wind River Systems, Inc.*<F8> 36,600
-----------
173,600
DIVERSIFIED -- 0.8%
15,000 Crown Holdings, Inc.*<F8> 154,650
DRUGS -- 1.4%
8,000 Alteon Inc.*<F8> 7,600
17,000 ARIAD Pharmaceuticals, Inc.*<F8> 113,730
13,000 Axonyx Inc.*<F8> 73,450
7,000 Geron Corp.*<F8> 41,930
40,000 Questcor Pharmaceuticals, Inc.*<F8> 18,000
-----------
254,710
ELECTRICAL EQUIPMENT -- 0.7%
18,000 Arotech Corp.*<F8> 27,900
6,000 FuelCell Energy, Inc.*<F8> 61,500
2,000 PerkinElmer, Inc. 34,440
-----------
123,840
ELECTRONICS -- 1.2%
3,000 Agilent Technologies, Inc.*<F8> 64,710
3,000 Brightpoint, Inc.*<F8> 51,600
48,000 GigaMedia Ltd.*<F8> 60,000
3,000 Powerwave Technologies, Inc.*<F8> 18,480
3,000 Vishay Intertechnology, Inc.*<F8> 38,700
-----------
233,490
ENERGY -- 0.1%
8,000 Capstone Turbine Corp.*<F8> 12,240
3,000 Ivanhoe Energy Inc.*<F8> 6,345
-----------
18,585
ENERGY-SERVICES -- 0.1%
5,000 Parker Drilling Co.*<F8> 18,350
15,000 Trico Marine Services, Inc.*<F8> 2,250
-----------
20,600
ENTERTAINMENT/MEDIA -- 0.8%
29,000 BAM! Entertainment, Inc.*<F8> 10,730
2,000 The Walt Disney Co. 45,100
3,000 Gemstar-TV Guide
International, Inc.*<F8> 16,950
4,000 Lions Gate Entertainment Corp.*<F8> 34,800
4,000 Roxio, Inc.*<F8> 20,560
14,000 WorldGate Communications, Inc.*<F8> 23,520
-----------
151,660
FINANCIAL SERVICES -- 2.7%
7,000 Ameritrade Holding Corp.*<F8> 84,070
15,000 E*TRADE Financial Corp.*<F8> 171,300
26,000 HomeStore, Inc.*<F8> 60,060
7,000 Knight Trading Group, Inc.*<F8> 64,610
5,000 MarketWatch Inc.*<F8> 62,450
4,000 Providian Financial Corp.*<F8> 62,160
-----------
504,650
GOLD & SILVER -- 3.0%
6,000 Bema Gold Corp.*<F8> 19,140
18,000 Cambior Inc.*<F8> 55,440
15,000 Coeur d'Alene Mines Corp.*<F8> 71,100
5,000 Durban Roodepoort
Deep Ltd. - SP-ADR*<F8> 10,055
11,000 Golden Star Resources Ltd.*<F8> 57,970
3,000 Gold Fields Ltd. SP-ADR 40,950
9,000 Miramar Mining Corp.*<F8> 11,430
8,000 Northgate Minerals Corp.*<F8> 15,280
15,000 Pacific Rim Mining Corp.*<F8> 10,800
8,000 Pan American Silver Corp.*<F8> 136,240
3,000 Silver Standard Resources Inc.*<F8> 49,560
29,000 Wheaton River Minerals Ltd.*<F8> 91,350
-----------
569,315
HOTEL -- 0.7%
10,000 Prime Hospitality Corp.*<F8> 121,700
12,000 Wyndham International, Inc.*<F8> 9,840
-----------
131,540
HOUSEHOLD PRODUCTS -- 0.1%
6,000 Revlon, Inc.*<F8> 15,120
INSTRUMENTS -- 0.3%
4,000 Input/Output, Inc.*<F8> 41,240
20,000 SmarTire Systems Inc.*<F8> 840
6,000 Transgenomic, Inc.*<F8> 6,960
-----------
49,040
INSURANCE -- 0.1%
9,000 SCOR - SP-ADR 13,950
INTERNET INFORMATION PROVIDERS -- 4.3%
6,000 Ask Jeeves, Inc.*<F8> 196,260
29,000 BackWeb Technologies Ltd.*<F8> 11,600
15,812 chinadotcom corp.*<F8> 78,744
6,000 CNET Networks, Inc.*<F8> 54,900
26,000 Critical Path, Inc.*<F8> 16,900
2,000 InfoSpace, Inc.*<F8> 94,780
40,000 iVillage Inc.*<F8> 240,000
7,000 On2 Technologies, Inc.*<F8> 4,620
32,000 theglobe.com, inc.*<F8> 16,640
48,000 Verticalnet, Inc.*<F8> 57,120
7,000 WebMD Corp.*<F8> 48,720
-----------
820,284
INTERNET SERVICE PROVIDERS -- 0.6%
10,000 EarthLink, Inc.*<F8> 103,000
6,000 Internap Network Services Corp.*<F8> 4,020
12,000 Provo International Inc.*<F8> 1,560
-----------
108,580
INTERNET SOFTWARE & SERVICES -- 3.3%
3,126 Ariba, Inc.*<F8> 29,197
31,000 Art Technology Group, Inc.*<F8> 27,900
24,000 CMGI Inc.*<F8> 29,040
3,000 Digitas Inc.*<F8> 23,190
1,600 Internet Capital Group, Inc.*<F8> 10,336
10,000 IONA Technologies
PLC - SP-ADR*<F8> 41,000
3,000 IPIX Corp.*<F8> 22,020
6,000 Kana Software, Inc.*<F8> 10,140
15,000 LookSmart, Ltd.*<F8> 22,050
17,000 Loudeye Corp.*<F8> 18,360
10,000 Openwave Systems Inc.*<F8> 88,200
41,000 ProsoftTraining*<F8> 15,170
3,000 RealNetworks, Inc.*<F8> 13,980
13,000 Red Hat, Inc.*<F8> 159,120
19,000 Safeguard Scientifics, Inc.*<F8> 35,530
12,000 SAFLINK Corp.*<F8> 31,200
7,000 SonicWALL, Inc.*<F8> 47,320
1,250 Teleglobe International
Holdings Ltd.*<F8> 4,337
-----------
628,090
MACHINERY -- 0.2%
4,000 Presstek, Inc.* 38,680
MEDICAL SERVICES -- 0.3%
10,000 EntreMed, Inc.*<F8> 17,300
7,000 Quidel Corp.*<F8> 31,710
-----------
49,010
MEDICAL SUPPLIES -- 0.6%
9,000 Aradigm Corp.*<F8> 11,520
29,000 Cardima, Inc.*<F8> 12,760
8,000 Celsion Corp.*<F8> 4,000
3,000 Escalon Medical Corp.*<F8> 36,060
9,000 HearUSA, Inc.*<F8> 11,160
17,000 LifePoint, Inc.*<F8> 4,760
10,000 Palatin Technologies, Inc.*<F8> 29,100
-----------
109,360
METALS -- 0.5%
3,000 Metals USA, Inc.*<F8> 53,220
4,000 North American Palladium Ltd.*<F8> 33,320
-----------
86,540
PHOTOGRAPHY -- 0.2%
3,000 Komag, Inc.*<F8> 41,700
RETAIL-SPECIALTY -- 4.1%
62,000 Ableauctions.com, Inc.*<F8> 29,140
2,000 Best Buy Co., Inc. 108,480
14,000 Bombay Company, Inc.*<F8> 102,620
8,000 Circuit City Stores, Inc. 122,720
8,000 iParty Corp.*<F8> 5,760
13,000 Navarre Corp.*<F8> 188,370
10,000 PC Connection, Inc.*<F8> 68,700
3,000 Pep Boys-Manny, Moe & Jack 42,000
14,000 Rite Aid Corp.*<F8> 49,280
6,000 Tommy Hilfiger Corp.*<F8> 59,220
-----------
776,290
RETAIL STORES -- 0.2%
2,000 The Gap, Inc. 37,400
SECURITY SOFTWARE & SERVICES -- 3.6%
4,000 Check Point Software
Technologies Ltd.*<F8> 67,880
4,000 Internet Security Systems, Inc.*<F8> 68,000
10,000 McAfee, Inc.*<F8> 201,000
22,000 Netegrity, Inc.*<F8> 165,220
1,122 SafeNet, Inc.*<F8> 29,598
7,000 VeriSign, Inc.*<F8> 139,160
11,000 Vignette Corp.*<F8> 14,630
-----------
685,488
SEMICONDUCTOR CAPITAL SPENDING -- 2.2%
3,000 Applied Materials, Inc.*<F8> 49,470
13,000 ASML Holding N.V. - NYS*<F8> 167,310
19,000 eMagin Corp.*<F8> 19,000
17,000 ISCO International Inc.*<F8> 4,760
4,000 Kulicke and Soffa Industries, Inc.*<F8> 22,600
10,000 Semitool, Inc.*<F8> 75,900
4,000 Teradyne, Inc.*<F8> 53,600
24,000 TranSwitch Corp.*<F8> 30,240
-----------
422,880
SEMICONDUCTORS -- 13.5%
7,000 Alliance Semiconductor Corp.*<F8> 24,220
6,000 Altera Corp.*<F8> 117,420
3,000 Amkor Technology, Inc.*<F8> 10,950
2,000 Applied Micro Circuits Corp.*<F8> 6,260
27,000 Atmel Corp.*<F8> 97,740
4,000 Avanex Corp.*<F8> 8,160
6,000 Axcelis Technologies, Inc.*<F8> 49,680
4,000 Broadcom Corp.*<F8> 109,160
10,000 Cirrus Logic, Inc.*<F8> 47,700
30,000 Conexant Systems, Inc.*<F8> 48,300
10,000 Cypress Semiconductor Corp.*<F8> 88,400
4,000 EMCORE Corp.*<F8> 7,840
4,000 Flextronics International Ltd.*<F8> 53,000
10,000 Integrated Device
Technology, Inc.*<F8> 95,300
10,200 Intel Corp. 204,612
4,000 Lam Research Corp.*<F8> 87,520
14,000 Mattson Technology, Inc.*<F8> 107,660
9,666 Mindspeed Technologies Inc.*<F8> 19,332
10,000 MIPS Technologies, Inc.*<F8> 57,000
3,000 NVIDIA Corp.*<F8> 43,560
16,000 Pixelworks, Inc.*<F8> 160,160
15,000 PLX Technology, Inc.*<F8> 108,150
21,000 PMC-Sierra, Inc.*<F8> 185,010
10,000 Rambus Inc.*<F8> 156,900
10,000 Sanmina-SCI Corp.*<F8> 70,500
8,000 Silicon Storage Technology, Inc.*<F8> 50,960
3,000 SIPEX Corp.*<F8> 15,750
23,000 Solectron Corp.*<F8> 113,850
10,000 Texas Instruments Inc. 212,800
10,000 TriQuint Semiconductor, Inc.*<F8> 39,000
18,000 Vitesse Semiconductor Corp.*<F8> 49,140
4,000 Xilinx, Inc. 108,000
-----------
2,554,034
SERVICES -- 0.4%
17,000 Envoy Communications
Group Inc.*<F8> 6,800
10,000 EVCI Career Colleges
Holding Corp.*<F8> 70,650
-----------
77,450
SYSTEM SOFTWARE -- 0.7%
26,000 Insignia Solutions, Inc. ADR*<F8> 17,680
21,000 Parametric Technology Corp.*<F8> 110,880
-----------
128,560
TELECOMMUNICATION SERVICES -- 0.2%
10,000 Qwest Communications
International Inc.*<F8> 33,300
TELECOMMUNICATIONS -- 3.9%
19,000 ADC Telecommunications, Inc.*<F8> 34,390
6,000 Agere Systems Inc.*<F8> 6,300
14,000 Avaya Inc.*<F8> 195,160
40,000 DSL.net, Inc.*<F8> 7,600
5,000 Level 3 Communications, Inc.*<F8> 12,950
44,000 Lucent Technologies Inc.*<F8> 139,480
2,000 Macromedia, Inc.*<F8> 40,160
25,000 McLeodUSA Inc.*<F8> 10,750
36,000 Nortel Networks Corp.*<F8> 122,400
9,000 Qiao Xing Universal
Telephone, Inc.*<F8> 74,160
11,000 Tellabs, Inc.*<F8> 101,090
-----------
744,440
TELEPHONE SERVICES -- 0.5%
9,000 Cable & Wireless
PLC - SP-ADR 47,340
10,000 Primus Telecommunications
Group, Inc.*<F8> 14,700
6,000 Time Warner Telecom Inc.*<F8> 28,800
-----------
90,840
UTILITIES -- 0.1%
28,000 Beacon Power Corp.*<F8> 14,840
WIRELESS COMMUNICATION -- 9.4%
14,000 FiberNet Telecom Group, Inc.*<F8> 10,360
8,800 GoAmerica, Inc.*<F8> 2,904
13,500 Motorola, Inc. 243,540
9,000 Nextel Communications, Inc.*<F8> 214,560
3,000 Nextel Partners, Inc.*<F8> 49,740
9,000 Research In Motion Ltd.*<F8> 687,060
6,000 Sprint Corp. (FON Group) 120,780
13,000 Telesystem International
Wireless Inc.*<F8> 122,980
8,000 Tumbleweed
Communications Corp.*<F8> 20,240
15,000 UbiquiTel Inc.*<F8> 60,000
9,000 Western Wireless Corp.*<F8> 231,390
-----------
1,763,554
-----------
Total common stocks
(cost $15,426,246) 18,556,229
-----------
Total long-term investments
(cost $15,426,246) 18,556,229
-----------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS -- 2.0% (A)<F9>
VARIABLE RATE DEMAND NOTE -- 2.0%
$375,353 U.S. Bank, N.A., 1.59% 375,353
-----------
Total short-term investments
(cost $375,353) 375,353
-----------
Total investments
(cost $15,801,599) 18,931,582
Liabilities, less cash and
receivables -- (0.4%) (A)<F9> (76,232)
-----------
NET ASSETS $18,855,350
-----------
-----------
Net Asset Value Per Share
($0.01 par value, 40,000,000
shares authorized), offering
and redemption price
($18,855,350 / 1,116,276
shares outstanding) $ 16.89
-----------
-----------
*<F8> Non-income producing security.
(a)<F9> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipt
N.V. - Netherlands Antilles Limited Liability Corporation
NYS - New York Registered Shares
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Opportunity Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Dividends $ 26,607
Interest 2,669
-----------
Total income 29,276
-----------
EXPENSES:
Management fees 302,789
Administrative services 62,203
Professional fees 57,571
Transfer agent fees 47,024
Registration fees 36,660
Distribution fees 22,565
Custodian fees 20,228
Printing and postage expense 19,330
Insurance expense 5,579
Board of Directors fees 5,500
Other expenses 1,137
-----------
Total operating expenses before interest expense 580,586
Interest expense 15,414
-----------
Total expenses 596,000
-----------
NET INVESTMENT LOSS (566,724)
-----------
NET REALIZED GAIN ON INVESTMENTS 2,004,803
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (2,992,834)
-----------
NET LOSS ON INVESTMENTS (988,031)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,554,755)
-----------
-----------
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Opportunity Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2004 and 2003
2004 2003
-------- --------
OPERATIONS:
Net investment loss $ (566,724) $ (269,051)
Net realized gain on investments 2,004,803 1,639,500
Net change in unrealized appreciation on investments (2,992,834) 6,651,242
----------- -----------
Net (decrease) increase in net assets resulting from operations (1,554,755) 8,021,691
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains ($0.73628 per share) (1,226,731)*<F10> --
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (1,920,545 and 624,888 shares, respectively) 40,315,699 10,818,505
Net asset value of shares issued in distributions reinvested (57,761 shares) 1,193,946 --
Cost of shares redeemed (2,308,497 and 429,865 shares, respectively) (46,318,679) (6,459,337)
----------- -----------
Net (decrease) increase in net assets derived from Fund share activities (4,809,034) 4,359,168
----------- -----------
TOTAL (DECREASE) INCREASE (7,590,520) 12,380,859
NET ASSETS AT THE BEGINNING OF THE YEAR 26,445,870 14,065,011
----------- -----------
NET ASSETS AT THE END OF THE YEAR $18,855,350 $26,445,870
----------- -----------
----------- -----------
*<F10> See Note 7
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each year)
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 18.28 $ 11.24 $ 16.82 $ 43.31 $ 34.23
Income from investment operations:
Net investment loss*<F11> (0.38) (0.23) (0.23) (0.37) (0.56)
Net realized and unrealized
(loss) gain on investments (0.27) 7.27 (5.31) (25.47) 9.74
------- ------- ------- ------- -------
Total from investment operations (0.65) 7.04 (5.54) (25.84) 9.18
Less distributions:
Dividend from net investment income -- -- -- -- --
Distributions from net realized gains (0.74) -- (0.04) (0.65) (0.10)
------- ------- ------- ------- -------
Total from distributions (0.74) -- (0.04) (0.65) (0.10)
------- ------- ------- ------- -------
Net asset value, end of year $ 16.89 $ 18.28 $ 11.24 $ 16.82 $ 43.31
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (4.29%) 62.63% (33.02%) (60.44%) 26.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 18,855 26,446 14,065 27,794 104,610
Ratio of operating expenses before interest expense
to average net assets 1.91% 1.98% 1.84% 1.69% 1.31%
Ratio of interest expense to average net assets 0.05% 0.04% 0.03% 0.05% 0.00%
Ratio of net investment loss to average net assets (1.87%) (1.56%) (1.33%) (1.29%) (0.97%)
Portfolio turnover rate 65.7% 88.4% 195.0% 74.0% 8.8%
*<F11> In 2004, 2003, 2002 and 2001, net investment loss per share is
calculated using average shares outstanding. In 2000 net investment
loss per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Reynolds Fund's performance was positively affected in the first half of
its fiscal year ended September 30, 2004 by a strengthening economy (including
business investment), stronger earnings and a shift in leadership to growth
stocks. The Reynolds Fund was particularly helped by its emphasis on growth
stocks in industries with stronger long-term outlooks such as: (1)
communications, (2) financial services - including discount brokerage firms, (3)
health - including biotechnology and services, (4) the Internet, (5) leisure,
(6) retailers - including discount and specialty, and (7) technology - including
application software and semiconductors. The Reynolds Fund was also helped by
its emphasis on medium to smaller size companies. The Reynolds Fund's
performance was negatively affected in the second half of its fiscal year ended
September 30, 2004 by investor's emphasis on perceived negative external events
such as a perception that there were signs of a slowing growth rate in the
economy (particularly slow business investment), a modest increase of interest
rates by the Federal Reserve, problems in Iraq, terrorism and the uncertain
outcome of the upcoming Presidential election. During this period many investors
didn't fully appreciate that the fundamentals for many companies, particularly
the ones owned or subsequently purchased by the Reynolds Fund were improving due
to such things as cost cutting, improved efficiencies and new products.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS FUND AND S&P 500 INDEX(1)<F12>
Date Reynolds Fund S&P 500 Index
---- ------------- -------------
10/1/99*<F28> $10,000 $10,000
9/30/00 $13,140 $11,328
9/30/01 $4,350 $8,313
9/30/02 $3,010 $6,610
9/30/03 $6,000 $8,223
9/30/04 $5,390 $9,364
AVERAGE ANNUAL TOTAL RETURN
Since Inception
1-YEAR 5-YEAR 10/1/99
------ ------ ---------------
-10.17% -11.63% -11.63%
*<F28> inception date
Past performance is not predictive of future performance. The graph and the
table do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(1)<F12> The Standard & Poor's 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The
Standard & Poor's Ratings Group designates the stocks to be included
in the Index on a statistical basis. A particular stock's weighting
in the Index is based on its relative total market value (i.e., its
market price per share times the number of shares outstanding).
Stocks may be added or deleted from the Index from time to time.
Reynolds Fund
STATEMENT OF NET ASSETS
September 30, 2004
SHARES VALUE
------ -----
LONG-TERM INVESTMENTS -- 138.2% (A)<F14>
COMMON STOCKS -- 137.5% (A)<F14>
ADVERTISING -- 1.1%
10,000 DoubleClick Inc.* <F13> $ 59,100
34,000 ValueClick, Inc.*<F13> 320,960
-----------
380,060
AIRLINES/AEROSPACE -- 0.1%
3,500 The Fairchild Corp.* <F13> 13,930
3,000 MAIR Holdings, Inc.* <F13> 24,600
-----------
38,530
APPAREL -- 0.1%
5,000 Candie's, Inc.* <F13> 23,700
APPLICATION SOFTWARE -- 2.2%
100,000 Commerce One, Inc.* <F13> 18,000
7,000 Compuware Corp.* <F13> 36,050
22,000 Corio, Inc.* <F13> 34,320
9,550 EMC Corp. (Mass.)* <F13> 110,207
45,000 Novell, Inc.* <F13> 283,950
2,000 SAP AG SP-ADR 77,900
6,000 ScanSoft, Inc.* <F13> 24,480
9,000 Siebel Systems, Inc.* <F13> 67,860
5,000 VERITAS Software Corp.* <F13> 89,000
-----------
741,767
BIOTECHNOLOGY -- 8.7%
91,000 Aastrom Biosciences, Inc.* <F13> 84,630
4,000 Abgenix, Inc.* <F13> 39,440
35,000 Altair Nanotechnologies, Inc.* <F13> 53,200
2,000 Anika Therapeutics, Inc.* <F13> 27,600
44,000 AVANIR Pharmaceuticals*<F13> 124,960
41,000 AVANT Immunotherapeutics, Inc.* <F13> 70,110
11,000 AVI BioPharma, Inc.* <F13> 22,550
55,000 Biomira, Inc.* <F13> 79,750
3,000 Crucell N.V. ADR*<F13> 24,330
16,000 Elan Corp. PLC - SP-ADR*<F13> 374,400
6,000 Encysive Pharmaceuticals Inc.* <F13> 54,180
3,000 Enzon Pharmaceuticals, Inc.* <F13> 47,850
10,000 Epoch Biosciences Inc.* <F13> 19,400
35,000 Genaera Corp.* <F13> 136,850
54,000 Genesis Bioventures, Inc.* <F13> 11,340
31,000 GlycoGenesys, Inc.* <F13> 13,950
41,000 The Immune Response Corp.* <F13> 49,200
55,000 Incyte Corp.* <F13> 529,650
2,000 Ligand Pharmaceuticals Inc. Cl B*<F13> 20,040
3,000 Millennium Pharmaceuticals, Inc.* <F13> 41,130
13,800 Orchid Biosciences, Inc.* <F13> 110,814
42,000 Peregrine Pharmaceuticals, Inc.* <F13> 67,620
40,000 Pharmos Corp.* <F13> 115,200
19,000 PRAECIS Pharmaceuticals Inc.* <F13> 41,800
5,000 Protein Design Labs, Inc.* <F13> 97,900
5,000 Serologicals Corp.* <F13> 116,650
9,000 Transkaryotic Therapies, Inc.* <F13> 159,570
41,000 V.I. Technologies, Inc.* <F13> 36,490
85,000 Vion Pharmaceuticals, Inc.* <F13> 357,850
-----------
2,928,454
BUSINESS SOFTWARE & SERVICES -- 12.1%
25,000 Akamai Technologies, Inc.* <F13> 351,250
15,000 Answerthink Inc.* <F13> 80,250
22,000 Aspen Technology, Inc.* <F13> 153,780
6,000 BEA Systems, Inc.* <F13> 41,460
6,000 Comverse Technology, Inc.* <F13> 112,980
3,000 Copart, Inc.* <F13> 56,790
15,000 CyberSource Corp.* <F13> 72,450
3,000 Electronic Clearing House, Inc.* <F13> 26,403
5,000 Embarcadero Technologies, Inc.* <F13> 42,300
30,000 E.piphany, Inc.* <F13> 120,900
137,000 I-many, Inc.* <F13> 132,890
3,000 Kforce Inc.* <F13> 25,140
60,000 Manugistics Group, Inc.* <F13> 142,800
3,000 NetIQ Corp.* <F13> 32,100
58,466 OpenTV Corp.* <F13> 178,321
2,000 Quest Software, Inc.* <F13> 22,240
37,000 Radiant Systems, Inc.* <F13> 148,740
14,000 RadiSys Corp.* <F13> 195,300
67,000 Sapient Corp.* <F13> 511,210
43,000 SeeBeyond Technology Corp.* <F13> 132,440
12,000 Sonic Solutions*<F13> 195,840
87,000 Sonus Networks, Inc.* <F13> 489,810
1,740 STATS ChipPAC Ltd. ADR*<F13> 10,405
56,000 TIBCO Software Inc.* <F13> 476,560
24,000 Verso Technologies, Inc.* <F13> 22,800
50,000 Viewpoint Corp.* <F13> 115,000
6,000 Viisage Technology, Inc.* <F13> 34,500
36,467 Visual Data Corp.* <F13> 54,336
21,000 webMethods, Inc.* <F13> 111,720
-----------
4,090,715
CABLE TV/BROADCASTING -- 4.1%
69,000 Charter Communications, Inc.* <F13> 183,540
9,000 Crown Media Holdings, Inc.* <F13> 75,150
3,000 Liberty Media Corp.* <F13> 26,160
67,000 Sirius Satellite Radio Inc.* <F13> 214,400
23,000 TiVo Inc.* <F13> 152,260
43,640 UnitedGlobalCom, Inc.* <F13> 325,991
13,000 XM Satellite Radio Holdings Inc.* <F13> 403,260
-----------
1,380,761
CHEMICALS-SPECIALTY -- 0.4%
19,000 Isonics Corp.* <F13> 24,871
5,000 Mace Security International, Inc.* <F13> 16,100
7,000 Star Scientific, Inc.* <F13> 41,440
4,000 Terra Industries Inc.* <F13> 34,640
-----------
117,051
COMMUNICATION EQUIPMENT -- 12.2%
20,000 8x8, Inc.* <F13> 75,000
4,000 American Tower Corp.* <F13> 61,400
75,000 ANADIGICS, Inc.* <F13> 252,750
3,000 Anaren, Inc.* <F13> 40,380
3,000 Andrew Corp.* <F13> 36,720
27,000 Brocade Communications
Systems, Inc.* <F13> 152,550
55,000 C-COR Inc.* <F13> 464,750
5,000 CalAmp Corp.* <F13> 35,600
44,000 Concurrent Computer Corp.* <F13> 73,920
34,000 Corning Inc.* <F13> 376,720
100,000 Digital Lightwave, Inc.* <F13> 113,100
102,000 Eagle Broadband, Inc.* <F13> 73,440
9,000 Endwave Corp.* <F13> 116,460
3,000 L.M. Ericsson
Telephone Co. ADR*<F13> 93,720
70,000 Finisar Corp.* <F13> 91,000
60,000 FOCUS Enhancements, Inc.* <F13> 91,800
3,000 Globecomm Systems Inc.* <F13> 19,890
85,000 Harmonic Inc.* <F13> 565,250
47,000 JDS Uniphase Corp.* <F13> 158,390
6,000 NETGEAR, Inc.* <F13> 73,320
23,000 Network Equipment
Technologies, Inc.* <F13> 152,030
3,000 NMS Communications Corp.* <F13> 14,640
20,000 Plexus Corp.* <F13> 220,800
5,000 Polycom, Inc.* <F13> 99,100
131,000 Proxim Corp.* <F13> 104,800
25,000 REMEC, Inc.* <F13> 117,750
11,000 RF Monolithics, Inc.* <F13> 77,330
1,000 Seagate Technology 13,520
6,000 Spectrum Signal
Processing Inc.* <F13> 11,340
38,000 Superconductor
Technologies Inc.* <F13> 41,420
40,000 Terayon Communication
Systems, Inc.* <F13> 84,800
4,000 Visual Networks, Inc.* <F13> 10,440
68,700 Zhone Technologies, Inc.* <F13> 210,909
-----------
4,125,039
COMMUNICATION SERVICES -- 0.8%
12,000 Aspect Communications Corp.* <F13> 119,160
5,000 Crown Castle International Corp.* <F13> 74,400
2,000 Global Crossing Ltd.* <F13> 33,040
30,000 Metro One
Telecommunications, Inc.* <F13> 48,300
-----------
274,900
COMPUTER NETWORKING -- 6.1%
25,000 3Com Corp.* <F13> 105,500
35,000 Adaptec, Inc.* <F13> 266,000
35,000 BroadVision, Inc.* <F13> 102,550
15,000 CIBER, Inc.* <F13> 112,800
3,000 Citrix Systems, Inc.* <F13> 52,560
25,000 Computer Network
Technology Corp.* <F13> 101,725
120,000 Corvis Corp.* <F13> 96,000
6,000 Enterasys Networks, Inc.* <F13> 9,600
30,000 Extreme Networks, Inc.* <F13> 133,500
8,000 Foundry Networks, Inc.* <F13> 75,920
45,000 Glenayre Technologies, Inc.* <F13> 81,000
5,000 Juniper Networks, Inc.* <F13> 118,000
10,000 Lantronix, Inc.* <F13> 10,300
62,000 MRV Communications, Inc.* <F13> 155,000
13,000 Sierra Wireless, Inc.* <F13> 231,400
21,200 Socket Communications, Inc.* <F13> 50,456
11,000 Sycamore Networks, Inc.* <F13> 41,580
15,000 WebEx Communications, Inc.* <F13> 327,300
-----------
2,071,191
COMPUTER & PERIPHERALS -- 4.1%
3,000 Advanced Digital Information Corp.* <F13> 26,100
20,000 Authentidate Holding Corp.* <F13> 121,200
10,000 Gateway, Inc.* <F13> 49,500
4,000 Immersion Corp.* <F13> 21,320
20,000 McDATA Corp.* <F13> 100,600
10,000 Network Appliance, Inc.* <F13> 230,000
6,710 PalmOne, Inc.* <F13> 204,252
25,000 Quantum Corp.* <F13> 57,750
7,000 SimpleTech, Inc.* <F13> 25,620
74,000 Sun Microsystems, Inc.* <F13> 298,960
9,000 Symbol Technologies, Inc. 113,760
5,000 Western Digital Corp.* <F13> 43,950
84,000 Xybernaut Corp.* <F13> 94,080
-----------
1,387,092
COMPUTER SOFTWARE & SERVICES -- 3.4%
5,000 Activision, Inc.* <F13> 69,350
11,000 Borland Software Corp.* <F13> 91,850
200,000 Futuremedia PLC - SP-ADR*<F13> 174,000
3,000 Interwoven, Inc.* <F13> 21,720
20,000 Lawson Software, Inc.* <F13> 112,000
106,000 Silicon Graphics, Inc.* <F13> 151,580
42,000 VA Software Corp.* <F13> 82,320
37,000 Wind River Systems, Inc.* <F13> 451,400
-----------
1,154,220
DIVERSIFIED -- 0.6%
20,000 Crown Holdings, Inc.* <F13> 206,200
DRUGS -- 2.3%
3,000 Alexion Pharmaceuticals, Inc.* <F13> 54,000
99,000 Alteon Inc.* <F13> 94,050
36,000 ARIAD Pharmaceuticals, Inc.* <F13> 240,840
2,000 Axonyx Inc.* <F13> 11,300
4,000 BioMarin Pharmaceutical Inc.* <F13> 20,760
5,000 Cellegy Pharmaceuticals, Inc.* <F13> 21,500
2,000 CYTOGEN Corp.* <F13> 21,080
18,000 DOR BioPharma, Inc.* <F13> 10,080
10,000 Geron Corp.* <F13> 59,900
8,000 InKine Pharmaceutical Co.* <F13> 40,640
30,000 InSite Vision Inc.* <F13> 17,100
2,000 Noven Pharmaceuticals, Inc.* <F13> 41,680
2,000 Nutraceutical International Corp.* <F13> 28,180
3,000 Pharmacyclics, Inc.* <F13> 30,930
68,000 Questcor Pharmaceuticals, Inc.* <F13> 30,600
3,000 Reliv' International, Inc. 22,350
3,000 Santarus Inc.* <F13> 27,210
3,000 Sirna Therapeutics, Inc.* <F13> 9,180
3,000 SONUS Pharmaceuticals, Inc.* <F13> 11,130
-----------
792,510
ELECTRICAL EQUIPMENT -- 0.7%
80,000 Arotech Corp.* <F13> 124,000
8,000 FuelCell Energy, Inc.* <F13> 82,000
3,000 GrafTech International Ltd.* <F13> 41,850
-----------
247,850
ELECTRONICS -- 2.7%
69,000 Alanco Technologies, Inc.* <F13> 71,753
15,000 Artesyn Technologies, Inc.* <F13> 149,700
4,000 Evergreen Solar, Inc.* <F13> 11,440
36,000 GigaMedia Ltd.* <F13> 45,000
18,000 Micrel, Inc.* <F13> 187,380
25,000 Powerwave Technologies, Inc.* <F13> 154,000
30,000 RF Micro Devices, Inc.* <F13> 190,200
13,000 SRS Labs, Inc.* <F13> 69,160
3,000 Vishay Intertechnology, Inc.* <F13> 38,700
-----------
917,333
ENERGY -- 0.9%
4,000 Abraxas Petroleum Corp.* <F13> 8,520
15,000 Calpine Corp.* <F13> 43,500
50,000 Capstone Turbine Corp.* <F13> 76,500
4,000 Dynegy Inc.* <F13> 19,960
60,000 Harken Energy Corp.* <F13> 30,600
13,000 Ivanhoe Energy Inc.* <F13> 27,495
3,000 Petrohawk Energy Corp.* <F13> 25,200
18,000 TransGlobe Energy Corp.* <F13> 58,500
-----------
290,275
ENERGY-SERVICES -- 0.8%
10,000 Boots & Coots
International Well Control*<F13> 7,900
3,000 Global Industries, Ltd.* <F13> 18,540
39,000 Parker Drilling Co.* <F13> 143,130
4,000 Veritas DGC Inc.* <F13> 91,120
-----------
260,690
ENTERTAINMENT/MEDIA -- 1.6%
3,000 Entravision
Communications Corp.* <F13> 22,830
7,000 Gemstar-TV Guide
International, Inc.* <F13> 39,550
25,000 Lions Gate Entertainment Corp.* <F13> 217,500
3,000 Magna Entertainment Corp.* <F13> 16,350
5,000 Midway Games Inc.* <F13> 49,600
7,000 Roxio, Inc.* <F13> 35,980
90,000 WorldGate Communications, Inc.* <F13> 151,200
-----------
533,010
FINANCIAL SERVICES -- 4.5%
20,000 Ameritrade Holding Corp.* <F13> 240,200
20,000 E*TRADE Financial Corp.* <F13> 228,400
50,000 HomeStore, Inc.* <F13> 115,500
25,000 Knight Trading Group, Inc.* <F13> 230,750
33,000 MarketWatch Inc.* <F13> 412,170
10,000 NetBank, Inc. 100,100
10,000 Providian Financial Corp.* <F13> 155,400
3,000 The Charles Schwab Corp. 27,570
-----------
1,510,090
FOODS -- 0.1%
6,000 Rica Foods, Inc.* <F13> 31,800
GOLD & SILVER -- 6.0%
51,000 Bema Gold Corp.* <F13> 162,690
40,000 Cambior Inc.* <F13> 123,200
31,000 Canyon Resources Corp.* <F13> 117,800
42,000 Coeur d'Alene Mines Corp.* <F13> 199,080
15,000 Crystallex International Corp.* <F13> 50,550
10,000 Eldorado Gold Corp.* <F13> 32,600
10,000 Gold Fields Ltd. SP-ADR 136,500
13,000 Golden Star Resources Ltd.* <F13> 68,510
13,000 Kinross Gold Corp.* <F13> 88,140
80,000 Northgate Minerals Corp.* <F13> 152,800
23,000 Pan American Silver Corp.* <F13> 391,690
9,000 Silver Standard Resources Inc.* <F13> 148,680
115,000 Wheaton River Minerals Ltd.* <F13> 362,250
-----------
2,034,490
HOTEL -- 0.6%
6,000 Prime Hospitality Corp.* <F13> 73,020
139,000 Wyndham International, Inc.* <F13> 113,980
-----------
187,000
HOUSEHOLD PRODUCTS -- 0.3%
6,000 Applica Inc.* <F13> 24,240
3,000 Jacuzzi Brands, Inc.* <F13> 27,900
14,000 Revlon, Inc.* <F13> 35,280
3,000 Royal Group Technologies Ltd.* <F13> 26,160
-----------
113,580
INSTRUMENTS -- 1.0%
50,000 American Bio Medica Corp.* <F13> 49,000
5,000 Clinical Data, Inc. 80,000
3,280 Diomed Holdings, Inc.* <F13> 6,298
7,000 Input/Output, Inc.* <F13> 72,170
28,000 Therma-Wave Inc.* <F13> 95,200
33,000 Transgenomic, Inc.* <F13> 38,280
-----------
340,948
INSURANCE -- 0.3%
7,000 Danielson Holding Corp.* <F13> 42,630
35,000 SCOR SP-ADR 54,250
-----------
96,880
INTERNET -- 0.2%
4,000 Aclara Biosciences Inc.* <F13> 15,800
3,000 Jupitermedia Corp.* <F13> 53,400
-----------
69,200
INTERNET INFORMATION PROVIDERS -- 5.6%
5,000 Ask Jeeves, Inc.* <F13> 163,550
20,000 Autobytel Inc.* <F13> 179,400
40,000 BackWeb Technologies Ltd.* <F13> 16,000
40,320 chinadotcom corp.* <F13> 200,794
30,000 CNET Networks, Inc.* <F13> 274,500
88,000 Critical Path, Inc.* <F13> 57,200
3,000 InfoSpace, Inc.* <F13> 142,170
55,000 iVillage Inc.* <F13> 330,000
3,000 Sohu.com Inc.* <F13> 49,890
63,000 theglobe.com, inc.* <F13> 32,760
111,000 Verticalnet, Inc.* <F13> 132,090
31,000 WebMD Corp.* <F13> 215,760
3,000 Yahoo! Inc.* <F13> 101,730
-----------
1,895,844
INTERNET SERVICE PROVIDERS -- 1.7%
3,000 Corillian Corp.* <F13> 13,830
31,000 EarthLink, Inc.* <F13> 319,300
120,000 Internap Network
Services Corp.* <F13> 80,400
4,000 RAE Systems Inc.* <F13> 22,320
9,000 SAVVIS Communications Corp.* <F13> 11,250
5,000 SINA Corp.* <F13> 127,450
-----------
574,550
INTERNET SOFTWARE & SERVICES -- 6.3%
25,400 24/7 Real Media, Inc.* <F13> 97,282
20,500 Ariba, Inc.* <F13> 191,470
80,000 Art Technology Group, Inc.* <F13> 72,000
101,000 CMGI Inc.* <F13> 122,210
14,000 Digitas Inc.* <F13> 108,220
3,000 Instinet Group Inc.* <F13> 15,090
5,350 Internet Capital Group, Inc.* <F13> 34,561
10,000 IONA Technologies
PLC - SP-ADR*<F13> 41,000
4,000 IPIX Corp.* <F13> 29,360
27,000 Kana Software, Inc.* <F13> 45,630
80,000 LookSmart, Ltd.* <F13> 117,600
90,000 Loudeye Corp.* <F13> 97,200
6,000 NIC Inc.* <F13> 32,160
26,333 Openwave Systems Inc.* <F13> 232,257
4,000 Opsware, Inc.* <F13> 22,440
148,000 ProsoftTraining*<F13> 54,760
14,000 RealNetworks, Inc.* <F13> 65,240
15,000 Red Hat, Inc.* <F13> 183,600
7,000 Redback Networks Inc.* <F13> 36,540
7,000 Retek Inc.* <F13> 31,920
110,000 Safeguard Scientifics, Inc.* <F13> 205,700
6,000 SkyTerra Communications, Inc.* <F13> 41,580
29,000 SonicWALL, Inc.* <F13> 196,040
4,000 Teleglobe International
Holdings Ltd.* <F13> 13,880
20,000 Youbet.com, Inc.* <F13> 55,200
-----------
2,142,940
MACHINERY -- 0.2%
6,000 Presstek, Inc.* <F13> 58,020
MEDICAL SERVICES -- 0.5%
21,000 Delcath Systems Inc.* <F13> 44,751
2,000 Eclipsys Corp.* <F13> 31,200
8,000 EntreMed, Inc.* <F13> 13,840
20,000 Genaissance
Pharmaceuticals, Inc.* <F13> 63,400
4,000 Quidel Corp.* <F13> 18,120
-----------
171,311
MEDICAL SUPPLIES -- 1.4%
40,000 Aradigm Corp.* <F13> 51,200
77,000 Celsion Corp.* <F13> 38,500
3,000 Cytyc Corp.* <F13> 72,450
4,000 Endologix, Inc.* <F13> 27,120
57,000 HearUSA, Inc.* <F13> 70,680
53,000 LifePoint, Inc.* <F13> 14,840
7,000 Orthovita, Inc.* <F13> 31,325
15,000 Palatin Technologies, Inc.* <F13> 43,650
5,000 QLT Inc.* <F13> 83,250
3,000 Sonic Innovations, Inc.* <F13> 13,680
26,000 Vasomedical, Inc.* <F13> 27,560
-----------
474,255
METALS -- 0.5%
7,000 North American Palladium Ltd.* <F13> 58,310
6,000 NS Group, Inc.* <F13> 111,000
-----------
169,310
OFFICE EQUIPMENT & SUPPLIES -- 0.5%
15,000 Danka Business Systems
PLC - SP-ADR*<F13> 57,000
8,000 Xerox Corp.* <F13> 112,640
-----------
169,640
PHOTOGRAPHY -- 0.7%
10,000 Komag, Inc.* <F13> 139,000
9,000 Lexar Media, Inc.* <F13> 75,510
9,000 Pinnacle Systems, Inc.* <F13> 37,530
-----------
252,040
RESTAURANTS -- 0.3%
16,000 Luby's, Inc.* <F13> 105,600
RETAIL-SPECIALTY -- 2.7%
129,000 Ableauctions.com, Inc.* <F13> 60,630
22,000 Bombay Company, Inc.* <F13> 161,260
23,000 Charming Shoppes, Inc.* <F13> 163,760
5,000 Circuit City Stores, Inc. 76,700
15,000 Navarre Corp.* <F13> 217,350
9,000 PC Connection, Inc.* <F13> 61,830
32,000 Rite Aid Corp.* <F13> 112,640
3,000 Stein Mart, Inc.* <F13> 45,660
4,000 Wilsons The Leather Experts Inc.* <F13> 20,720
-----------
920,550
SECURITY SOFTWARE & SERVICES -- 4.9%
3,000 Aladdin Knowledge Systems*<F13> 67,203
5,000 Check Point Software
Technologies Ltd.* <F13> 84,850
9,000 Internet Security Systems, Inc.* <F13> 153,000
9,000 McAfee, Inc.* <F13> 180,900
20,000 Netegrity, Inc.* <F13> 150,200
17,000 RSA Security Inc.* <F13> 328,100
9,350 SafeNet, Inc.* <F13> 246,653
10,000 Secure Computing Corp.* <F13> 75,900
4,000 VASCO Data Security
International, Inc.* <F13> 8,680
12,000 VeriSign, Inc.* <F13> 238,560
96,000 Vignette Corp.* <F13> 127,680
-----------
1,661,726
SEMICONDUCTOR CAPITAL SPENDING -- 3.8%
4,000 Applied Materials, Inc.* <F13> 65,960
5,000 ASML Holding N.V. - NYS*<F13> 64,350
25,000 Asyst Technologies, Inc.* <F13> 127,750
10,000 ChipMOS TECHNOLOGIES LTD.* <F13> 69,900
44,000 eMagin Corp.* <F13> 44,000
23,000 Genus, Inc.* <F13> 50,600
102,000 ISCO International Inc.* <F13> 28,560
3,000 Ixia*<F13> 29,160
25,000 Kulicke and Soffa Industries, Inc.* <F13> 141,250
25,000 LTX Corp.* <F13> 135,250
22,000 Semitool, Inc.* <F13> 166,980
6,000 Tegal Corp.* <F13> 7,560
12,000 Teradyne, Inc.* <F13> 160,800
138,000 TranSwitch Corp.* <F13> 173,880
-----------
1,266,000
SEMICONDUCTORS -- 15.6%
6,000 Alliance Semiconductor Corp.* <F13> 20,760
35,000 Applied Micro Circuits Corp.* <F13> 109,550
7,000 ATI Technologies Inc.* <F13> 107,310
37,000 Atmel Corp.* <F13> 133,940
45,000 Avanex Corp.* <F13> 91,800
3,000 Axcelis Technologies, Inc.* <F13> 24,840
2,000 Broadcom Corp.* <F13> 54,580
30,000 Cirrus Logic, Inc.* <F13> 143,100
105,336 Conexant Systems, Inc.* <F13> 169,591
10,000 Cypress Semiconductor Corp.* <F13> 88,400
18,000 EMCORE Corp.* <F13> 35,280
20,000 ESS Technology, Inc.* <F13> 137,000
10,000 Flextronics International Ltd.* <F13> 132,500
12,000 Integrated Device
Technology, Inc.* <F13> 114,360
25,000 Lattice Semiconductor Corp.* <F13> 122,750
35,000 LSI Logic Corp.* <F13> 150,850
50,000 Mattson Technology, Inc.* <F13> 384,500
5,000 Micron Technology, Inc.* <F13> 60,150
58,666 Mindspeed Technologies Inc.* <F13> 117,332
16,000 MIPS Technologies, Inc.* <F13> 91,200
3,000 Monolithic System
Technology, Inc.* <F13> 13,020
4,000 NVIDIA Corp.* <F13> 58,080
16,000 ON Semiconductor Corp.* <F13> 50,080
70,000 Oplink Communications, Inc.* <F13> 125,300
13,000 Pixelworks, Inc.* <F13> 130,130
22,000 PLX Technology, Inc.* <F13> 158,620
35,000 PMC-Sierra, Inc.* <F13> 308,350
4,000 Rambus Inc.* <F13> 62,760
45,000 Sanmina-SCI Corp.* <F13> 317,250
25,000 Silicon Storage Technology, Inc.* <F13> 159,250
46,000 SIPEX Corp.* <F13> 241,500
18,000 Skyworks Solutions, Inc.* <F13> 171,000
57,000 Solectron Corp.* <F13> 282,150
2,000 STMicroelectronics N.V. 34,560
3,000 Texas Instruments Inc. 63,840
15,000 Tripath Technology Inc.* <F13> 25,500
66,000 TriQuint Semiconductor, Inc.* <F13> 257,400
19,321 United Microelectronics
Corp. - SP-ADR*<F13> 65,305
113,000 Vitesse Semiconductor Corp.* <F13> 308,490
6,000 Xilinx, Inc. 162,000
-----------
5,284,378
SERVICES -- 1.3%
5,000 Acacia Research-CombiMatrix
(Tracking Stock)* <F13> 17,125
102,000 Envoy Communications
Group Inc.* <F13> 40,800
30,000 EVCI Career Colleges
Holding Corp.* <F13> 211,950
20,000 Home Solutions of America, Inc.* <F13> 32,000
4,000 The Management
Network Group, Inc.* <F13> 8,000
4,000 Stewart Enterprises, Inc.* <F13> 27,800
25,000 Velocity Express Corp.* <F13> 11,500
5,000 Ventiv Health, Inc.* <F13> 84,750
-----------
433,925
SYSTEM SOFTWARE -- 0.8%
15,000 Evolving Systems, Inc.* <F13> 46,485
44,000 Insignia Solutions, Inc. ADR*<F13> 29,920
35,000 Parametric Technology Corp.* <F13> 184,800
-----------
261,205
TELECOMMUNICATION SERVICES -- 0.1%
11,000 Qwest Communications
International Inc.* <F13> 36,630
TELECOMMUNICATIONS -- 4.7%
85,000 ADC Telecommunications, Inc.* <F13> 153,850
104,000 Agere Systems Inc.* <F13> 109,200
5,000 Avaya Inc.* <F13> 69,700
22,000 CIENA Corp.* <F13> 43,560
7,000 Level 3 Communications, Inc.* <F13> 18,130
180 Liberty Media International, Inc.* <F13> 6,005
41,000 Lucent Technologies Inc.* <F13> 129,970
90,000 McLeodUSA Inc.* <F13> 38,700
14,000 McLeodUSA Inc. ESCROW SHRS*<F13> 0
134,400 Nortel Networks Corp.* <F13> 456,960
24,000 Qiao Xing Universal
Telephone, Inc.* <F13> 197,760
40,000 Tellabs, Inc.* <F13> 367,600
-----------
1,591,435
TELEPHONE SERVICES -- 1.0%
20,000 Cable & Wireless PLC - SP-ADR 105,200
9,000 Net2Phone, Inc.* <F13> 28,980
27,000 Primus Telecommunications
Group, Inc.* <F13> 39,690
33,000 Time Warner Telecom Inc.* <F13> 158,400
-----------
332,270
TIRE & RUBBER -- 1.4%
48,000 Titan International, Inc. 460,800
TRANSPORTATION -- 0.0%
4,200 MC Shipping, Inc.* <F13> 15,372
UTILITIES -- 0.3%
4,000 Aquila, Inc.* <F13> 12,480
128,000 Beacon Power Corp.* <F13> 67,840
4,000 PetroQuest Energy, Inc.* <F13> 20,760
-----------
101,080
WIRELESS COMMUNICATION -- 5.2%
25,000 Aether Systems, Inc.* <F13> 83,000
4,000 Airspan Networks Inc.* <F13> 21,720
2,000 Motorola, Inc. 36,080
5,000 Nextel Communications, Inc.* <F13> 119,200
14,000 Nextel Partners, Inc.* <F13> 232,120
6,000 Nokia Corp. "A" SP-ADR 82,320
5,000 Research In Motion Ltd.* <F13> 381,700
6,000 Sprint Corp. (FON Group) 120,780
26,000 TeleCommunication
Systems, Inc.* <F13> 83,460
8,000 Telesystem International
Wireless Inc.* <F13> 75,680
43,000 Tumbleweed
Communications Corp.* <F13> 108,790
41,000 UbiquiTel Inc.* <F13> 164,000
9,000 Western Wireless Corp.* <F13> 231,390
-----------
1,740,240
-----------
Total common stocks
(cost $53,383,083) 46,464,457
-----------
MUTUAL FUNDS -- 0.6% (A)<F14>
14,000 iShares MSCI Japan Index Fund 135,800
6,000 iShares MSCI Taiwan Index Fund 64,200
-----------
Total mutual funds
(cost $226,602) 200,000
-----------
REITS -- 0.1%(A)<F14>
10,000 First Union Real Estate Equity &
Mortgage Investments*<F13> 31,100
-----------
Total REITS (cost $33,880) 31,100
-----------
Total long-term investments
(cost $53,643,565) 46,695,557
-----------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS -- 0.0% (A)<F14>
VARIABLE RATE DEMAND NOTE -- 0.0%
$969 U.S. Bank, N.A., 1.59% 969
-----------
Total short-term investments
(cost $969) 969
-----------
Total investments
(cost $53,644,534) 46,696,526
Liabilities, less cash and
receivables -- (38.2%) (A)<F14> (12,902,663)
-----------
NET ASSETS $33,793,863
-----------
-----------
Net Asset Value Per Share
($0.01 par value, 40,000,000
shares authorized), offering
and redemption price
($33,793,863 / 6,271,794
shares outstanding) $ 5.39
-----------
-----------
*<F13> Non-income producing security.
(a)<F14> Percentages for the various classifications relate to net assets.
ADR - American Depository Receipt
N.V. - Netherlands Antilles Limited Liability Corporation
NYS - New York Registered Shares
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Dividends $ 26,694
Interest 327
------------
Total income 27,021
------------
EXPENSES:
Management fees 561,027
Administrative services 91,643
Transfer agent fees 58,011
Custodian fees 55,188
Professional fees 54,743
Registration fees 53,546
Distribution fees 45,310
Printing and postage expense 25,196
Insurance expense 9,866
Board of Directors fees 5,500
Other expenses 4,406
------------
Total operating expenses before interest expense 964,436
Interest expense 321,909
------------
Total expenses 1,286,345
------------
NET INVESTMENT LOSS (1,259,324)
------------
NET REALIZED LOSS ON INVESTMENTS (4,840,330)
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (10,266,707)
------------
NET LOSS ON INVESTMENTS (15,107,037)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(16,366,361)
------------
------------
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Fund
STATEMENT OF CASH FLOWS
For the Year Ended September 30, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets from operations $ (16,366,361)
Adjustments to reconcile net decrease in net assets from
operations to net cash used in operating activities:
Unrealized depreciation on securities 10,266,707
Net realized loss from investments 4,840,330
Purchase of investment securities (73,584,115)
Purchase of short-term investment securities, net (766)
Proceeds from disposition of investment securities 51,475,558
Increase in receivables for securities sold (107,615)
Change in receivables/payables related to operations, net 37,653
-------------
Net cash used in operating activities (23,438,609)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loan payable 7,286,000
Proceeds from shares sold 133,660,433
Payment on shares redeemed (116,856,033)
Decrease in amount due to custodian (651,791)
-------------
Net cash provided by financing activities 23,438,609
-------------
NET CHANGE IN CASH --
CASH:
Beginning balance --
-------------
Ending balance $ --
-------------
-------------
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2004 and 2003
2004 2003
-------- --------
OPERATIONS:
Net investment loss $ (1,259,324) $ (396,013)
Net realized loss on investments (4,840,330) (1,992,061)
Net change in unrealized appreciation on investments (10,266,707) 11,616,672
------------- -----------
Net (decrease) increase in net assets resulting from operations (16,366,361) 9,228,598
------------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (17,693,276 and 5,958,116 shares, respectively) 133,527,947 32,585,294
Cost of shares redeemed (16,871,426 and 3,992,252 shares, respectively) (116,096,075) (19,566,072)
------------- -----------
Net increase in net assets derived from Fund share activities 17,431,872 13,019,222
------------- -----------
TOTAL INCREASE 1,065,511 22,247,820
NET ASSETS AT THE BEGINNING OF THE YEAR 32,728,352 10,480,532
------------- -----------
NET ASSETS AT THE END OF THE YEAR $ 33,793,863 $32,728,352
------------- -----------
------------- -----------
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each year)
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
2004 2003 2002 2001 2000+<F15>
---- ---- ---- ---- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 6.01 $ 3.01 $ 4.35 $ 13.14 $ 10.00
Income from investment operations:
Net investment loss (0.16) (0.11) (0.06) (0.09) (0.12)
Net realized and unrealized
(loss) gain on investments (0.46) 3.11 (1.28) (8.70) 3.26
------- ------- ------- ------- -------
Total from investment operations (0.62) 3.00 (1.34) (8.79) 3.14
Less distributions:
Dividend from net investment income -- -- -- -- --
Distribution from net realized gains -- -- -- -- --
------- ------- ------- ------- -------
Total from distributions -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year $ 5.39 $ 6.01 $ 3.01 $ 4.35 $ 13.14
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN (10.17%) 99.67% (30.80%) (66.89%) 31.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 33,794 32,728 10,481 20,136 69,255
Ratio of operating expenses before interest expense
(after reimbursement) to average net assets*<F16> 1.72% 1.93% 1.85% 1.51% 1.45%
Ratio of interest expense to average net assets 0.57% 0.89% 0.22% 0.15% 0.00%
Ratio of net investment loss to average net assets**<F17> (2.24%) (2.41%) (1.41%) (0.89%) (1.16%)
Portfolio turnover rate 79.5% 119.9% 408.5% 275.5% 23.6%
+<F15> Commencement of operations October 1, 1999.
*<F16> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses for the year
ended September 30, 2003, the ratio would have been 1.99%.
**<F17> If the Fund had paid all of its expenses for the year ended September
30, 2003, the ratio would have been (2.47%).
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds U.S. Government Bond Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
With interest rates on U. S. Government securities at 43 year lows and
inflation at modest levels the portfolio maintained a short to intermediate
maturity schedule throughout the fiscal year ended September 30, 2004. The
Reynolds U.S. Government Bond Fund's average maturity during this period
remained unchanged. Several of the Fund's investments in debt securities
provide for increases in interest payments (step-ups) if general interest rates
rise in future years. The Bond Fund's portfolio of U.S. Government securities
had an average maturity of approximately 5.3 years on September 30, 2004, which
was at the upper end of its expected average maturity. The portfolio was
managed to protect principle values while receiving a reasonable interest rate
and secondarily to protect the bonds values if and when interest rates rise as
they did in mid-year 2004 or in future years.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
REYNOLDS U.S. GOVERNMENT BOND FUND AND LEHMAN GOVERNMENT BOND INDEX(1)<F18>
Date Reynolds U.S. Government Bond Fund Lehman Government Bond Index
---- ---------------------------------- ----------------------------
9/30/94 $10,000 $10,000
9/30/95 $10,842 $11,360
9/30/96 $11,329 $11,860
9/30/97 $11,975 $12,951
9/30/98 $12,703 $14,711
9/30/99 $13,107 $14,461
9/30/00 $13,742 $15,499
9/30/01 $14,594 $17,554
9/30/02 $14,845 $19,317
9/30/03 $14,963 $20,003
9/30/04 $15,263 $20,508
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
------ ------ -------
1.48% 3.09% 4.32%
Past performance is not predictive of future performance. The graph and the
table do not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(1)<F18> The Lehman Government Bond Index is made up of the Treasury Bond Index
(all public obligations at the U.S. Treasury, excluding flower bonds
and foreign-targeted issues) and the Agency Bond Index (all publicly
issued debt of U.S. Government agencies and quasi-federal
corporations, and corporate debt guaranteed by the U.S. Government).
All issues have at least one year to maturity and an outstanding par
value of at least $100 million.
Reynolds U.S. Government Bond Fund
STATEMENT OF NET ASSETS
September 30, 2004
PRINCIPAL
AMOUNT VALUE
- --------- -----
LONG-TERM INVESTMENTS -- 91.9% (A)<F19>
FEDERAL AGENCIES -- 91.9%
$200,000 Federal Home Loan Bank,
3.00%, due 02/10/05 (b)<F20> $ 199,055
200,000 Federal Home Loan Bank,
2.50%, due 03/24/05 (b)<F20> 199,896
300,000 Federal Home Loan Mortgage
Corp., 3.25%, due 03/26/05 (b)<F20> 297,495
300,000 Federal Home Loan Bank,
3.00%, due 06/17/05 (b)<F20> 292,540
200,000 Federal Home Loan Bank,
3.00%, due 09/24/05 (b)<F20> 199,164
300,000 Federal Home Loan Bank,
3.00%, due 12/10/05 (b)<F20> 293,824
200,000 Federal Home Loan Bank,
3.00%, due 03/30/06 (b)<F20> 197,168
300,000 Federal National Mortgage
Association, 3.875%,
due 07/28/08 (b)<F20> 301,048
300,000 Federal Home Loan Bank,
3.30%, due 12/18/08 296,533
300,000 Federal National Mortgage
Association, 5.625%,
due 08/12/13 302,484
----------
Total long-term investments
(cost $2,597,941) 2,579,207
SHORT-TERM INVESTMENTS -- 7.8% (A)<F19>
VARIABLE RATE DEMAND NOTES -- 7.8%
135,000 U.S. Bank, N.A., 1.59% 135,000
83,084 Wisconsin Corporate
Central Credit Union, 1.51% 83,084
----------
Total short-term investments
(cost $218,084) 218,084
----------
Total investments
(cost $2,816,025) 2,797,291
Cash and receivables, less
liabilities -- 0.3% (A)<F19> 10,265
----------
NET ASSETS $2,807,556
----------
----------
Net Asset Value Per Share
($0.01 par value, 20,000,000
shares authorized), offering
and redemption price
($2,807,556 / 291,396
shares outstanding) $ 9.63
----------
----------
(a)<F19> Percentages for the various classifications relate to net assets.
(b)<F20> Variable Rate Security - the rate reported is the rate in effect as of
September 30, 2004. The date shown is the next interest adjustment
date.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds U.S. Government Bond Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Interest $ 96,699
--------
EXPENSES:
Professional fees 36,241
Management fees 22,703
Transfer agent fees 18,719
Registration fees 8,025
Administrative services 4,859
Printing and postage expense 1,913
Board of Directors fees 1,375
Custodian fees 770
Insurance expense 447
Other expenses 1,513
--------
Total expenses before reimbursement and management fee waiver 96,565
Less expenses assumed by adviser (69,322)
--------
Net expenses 27,243
--------
NET INVESTMENT INCOME 69,456
--------
NET REALIZED LOSS ON INVESTMENTS (4,459)
NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS (7,757)
--------
NET LOSS ON INVESTMENTS (12,216)
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 57,240
--------
--------
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds U.S. Government Bond Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2004 and 2003
2004 2003
-------- --------
OPERATIONS:
Net investment income $ 69,456 $ 55,669
Net realized loss on investments (4,459) (2,621)
Net change in unrealized appreciation on investments (7,757) (21,844)
---------- ----------
Net increase in net assets resulting from operations 57,240 31,204
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.2202 and $0.1489 per share, respectively) (69,456) (55,669)
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (60,298 and 49,933 shares, respectively) 578,789 484,893
Net asset value of shares issued in distributions reinvested
(7,168 and 5,607 shares, respectively) 68,728 54,380
Cost of shares redeemed (115,953 and 99,643 shares, respectively) (1,109,783) (965,959)
---------- ----------
Net decrease in net assets derived from Fund share activities (462,266) (426,686)
---------- ----------
TOTAL DECREASE (474,482) (451,151)
NET ASSETS AT THE BEGINNING OF THE YEAR 3,282,038 3,733,189
---------- ----------
NET ASSETS AT THE END OF THE YEAR $2,807,556 $3,282,038
---------- ----------
---------- ----------
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds U.S. Government Bond Fund
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each year)
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 9.66 $ 9.72 $ 9.77 $ 9.62 $ 9.65
Income from investment operations:
Net investment income 0.22 0.15 0.22 0.43 0.49
Net realized and unrealized
(loss) gain on investments (0.03) (0.06) (0.05) 0.15 (0.03)
------- ------- ------- ------- -------
Total from investment operations 0.19 0.09 0.17 0.58 0.46
Less distributions:
Dividends from net investment income (0.22) (0.15) (0.22) (0.43) (0.49)
Distribution from net realized gains -- -- -- -- --
------- ------- ------- ------- -------
Total from distributions (0.22) (0.15) (0.22) (0.43) (0.49)
------- ------- ------- ------- -------
Net asset value, end of year $ 9.63 $ 9.66 $ 9.72 $ 9.77 $ 9.62
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN 1.48% 0.80% 1.72% 6.19% 4.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 2,808 3,282 3,733 4,586 4,575
Ratio of expenses (after reimbursement)
to average net assets*<F21> 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of net investment income
to average net assets**<F22> 2.29% 1.55% 2.24% 4.50% 5.04%
Portfolio turnover rate 46.1% 190.0% 138.1% 18.6% 17.0%
*<F21> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
would have been 3.19%, 2.21%, 2.00%, 2.09% and 1.93% for the years
ended September 30, 2004, 2003, 2002, 2001 and 2000, respectively.
**<F22> The ratios of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended
September 30, 2004, 2003, 2002, 2001 and 2000 would have been 0.00%,
0.24%, 1.14%, 3.31% and 4.01%, respectively.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Money Market Fund
STATEMENT OF NET ASSETS
September 30, 2004
PRINCIPAL
AMOUNT VALUE
- --------- -----
SHORT-TERM INVESTMENTS -- 100.1% (A)<F23>
U.S. TREASURY SECURITIES -- 89.1%
$1,000,000 U.S. Treasury Bills, 1.23%, due 10/07/04 $ 999,795
1,000,000 U.S. Treasury Bills, 1.41%, due 10/14/04 999,491
1,000,000 U.S. Treasury Bills, 1.42%, due 10/21/04 999,211
1,000,000 U.S. Treasury Bills, 1.42%, due 10/28/04 998,935
1,000,000 U.S. Treasury Bills, 1.37%, due 11/04/04 998,706
1,000,000 U.S. Treasury Bills, 1.40%, due 11/12/04 998,367
----------
Total U.S. treasury securities
(amortized cost $5,994,505) 5,994,505
VARIABLE RATE DEMAND NOTES -- 11.0%
198,367 American Family Financial Services, 1.45% 198,367
270,000 U.S. Bank, N.A., 1.59% 270,000
270,000 Wisconsin Corporate Central Credit Union, 1.51% 270,000
----------
Total variable rate demand notes
(cost $738,367) 738,367
----------
Total investments (amortized cost $6,732,872) 6,732,872
Liabilities, less cash and
receivables -- (0.1%) (A)<F23> (6,048)
----------
NET ASSETS $6,726,824
----------
----------
Net Asset Value Per Share ($0.01 par value,
500,000,000 shares authorized), offering and
redemption price ($6,726,824 / 6,726,824
shares outstanding) $ 1.00
----------
----------
(a)<F23> Percentages for the various classifications relate to net
assets.
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Money Market Fund
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
INCOME:
Interest $ 49,844
--------
EXPENSES:
Professional fees 37,496
Management fees 27,505
Transfer agent fees 20,902
Registration fees 18,084
Administrative services 10,773
Board of Directors fees 4,125
Printing and postage expense 3,252
Custodian fees 2,260
Insurance expense 735
Other expenses 2,199
--------
Total operating expenses before interest
expense, reimbursement and management fee waiver 127,331
Interest expense 1,796
--------
Total expenses before reimbursement and management fee waiver 129,127
Less expenses assumed by adviser (91,573)
--------
Net expenses 37,554
--------
NET INVESTMENT INCOME 12,290
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 12,290
--------
--------
The accompanying notes to financial statements are an integral part of this
statement.
Reynolds Money Market Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 2004 and 2003
2004 2003
-------- --------
OPERATIONS:
Net investment income $ 12,290 $ 30,805
Net realized loss on investments -- (523)
------------ ------------
Net increase in net assets resulting from operations 12,290 30,282
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.0022 and $0.0039 per share, respectively) (12,290) (30,282)
------------ ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued (11,742,156 and 23,349,807 shares, respectively) 11,742,156 23,349,807
Net asset value of shares issued in distributions reinvested
(9,169 and 33,829 shares, respectively) 9,169 33,829
Cost of shares redeemed (10,212,049 and 27,911,906 shares, respectively) (10,212,049) (27,911,906)
------------ ------------
Net increase (decrease) in net assets derived from Fund share activities 1,539,276 (4,528,270)
------------ ------------
TOTAL INCREASE (DECREASE) 1,539,276 (4,528,270)
NET ASSETS AT THE BEGINNING OF THE YEAR 5,187,548 9,715,818
------------ ------------
NET ASSETS AT THE END OF THE YEAR $ 6,726,824 $ 5,187,548
------------ ------------
------------ ------------
FINANCIAL HIGHLIGHTS
(Selected data for each share of the Fund outstanding throughout each year)
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.00*<F24> 0.00*<F24> 0.01 0.04 0.05
Less distributions:
Dividends from net investment income (0.00)*<F24> (0.00)*<F24> (0.01) (0.04) (0.05)
------- ------- ------- ------- -------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN 0.22% 0.38% 1.03% 4.29% 5.34%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's $) 6,727 5,188 9,716 15,467 28,210
Ratio of operating expenses before interest expense
(after reimbursement) to average net assets**<F25> 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of interest expense to average net assets 0.03% 0.03% 0.02% 0.01% 0.01%
Ratio of net investment income
to average net assets***<F26> 0.22% 0.42% 1.08% 4.29% 5.24%
*<F24> Less than $0.005 per share.
**<F25> Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios
would have been 2.34%, 1.72%, 1.22%, 1.09% and 1.16% for the years
ended September 30, 2004, 2003, 2002, 2001 and 2000, respectively.
***<F26> If the Fund had paid all of its expenses, the ratios would have been
(1.44%), (0.62%), 0.51%, 3.85% and 4.74% for the years ended
September 30, 2004, 2003, 2002, 2001 and 2000, respectively.
The accompanying notes to financial statements are an integral part of these
statements.
Reynolds Funds, Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
The following is a summary of significant accounting policies of the
Reynolds Funds, Inc. (the "Company"), which is registered as a diversified,
open-end management investment company under the Investment Company Act of
1940, as amended. This Company consists of a series of five funds: the
Reynolds Blue Chip Growth Fund ("Blue Chip Fund"), the Reynolds Opportunity
Fund ("Opportunity Fund"), the Reynolds Fund ("Reynolds Fund"), the
Reynolds U.S. Government Bond Fund ("Government Bond Fund") and the
Reynolds Money Market Fund ("Money Market Fund") (collectively the
"Funds"). The assets and liabilities of each Fund are segregated and a
shareholder's interest is limited to the Fund in which the shareholder owns
shares. The Company was incorporated under the laws of Maryland on April
28,1988.
The investment objective of the Blue Chip Fund is to produce long-term
growth of capital by investing in a diversified portfolio of common stocks
issued by well-established growth companies commonly referred to as "blue
chip" companies; the investment objective of the Opportunity Fund is to
produce long-term growth of capital by investing in a diversified portfolio
of common stocks having above average growth characteristics; the
investment objective of the Reynolds Fund is to produce long-term growth of
capital; the investment objective of the Government Bond Fund is to provide
a high level of current income by investing in a diversified portfolio of
securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities; and the investment objective
of the Money Market Fund is to provide a high level of current income,
consistent with liquidity, the preservation of capital and a stable net
asset value, by investing in a diversified portfolio of high-quality,
highly liquid money market instruments.
(a) Each security for the Blue Chip Fund, Opportunity Fund, Reynolds Fund
and Government Bond Fund, excluding short-term investments, is valued at
the last sale price reported by the principal security exchange on which
the issue is traded, or if no sale is reported, the latest bid price.
Securities which are traded on the Nasdaq National Market or the Nasdaq
SmallCap Market are valued at the Nasdaq Official Closing Price, or if no
sale is reported, the latest bid price. Short-term investments with
maturities of 60 days or less held by these Funds and all instruments held
by the Money Market Fund are valued at amortized cost which approximates
value. Securities for which quotations are not readily available are
valued at fair value as determined by the investment adviser under the
supervision of the Board of Directors. The fair value of a security is the
amount which the Fund might receive upon a current sale. The fair value of
a security may differ from the last quoted price and the Fund may not be
able to sell a security at the fair value. Market quotations may not be
available, for example, if trading in particular securities was halted
during the day and not resumed prior to the close of trading on the New
York Stock Exchange. For financial reporting purposes, investment
transactions are recorded on the trade date.
(b) Net realized gains and losses on sales of securities are computed on
the identified cost basis.
(c) The Funds record dividend income on the ex-dividend date and interest
income on an accrual basis.
(d) The Funds have investments in short-term variable rate demand notes,
which are unsecured instruments. The Funds may be susceptible to credit
risk with respect to these notes to the extent the issuer defaults on its
payment obligation. The Funds' policy is to monitor the creditworthiness
of the issuer and nonperformance by these counterparties is not
anticipated.
(e) Accounting principles generally accepted in the United States of
America ("GAAP") require that permanent differences between income for
financial reporting and tax purposes be reclassified in the capital
accounts.
(f) The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
(g) No provision has been made for Federal income taxes since the Funds
have elected to be taxed as "regulated investment companies" and intend to
distribute substantially all income to shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES --
The Funds have management agreements with Reynolds Capital Management
("RCM"), with whom certain officers and directors of the Funds are
affiliated, to serve as investment adviser and manager. Under the terms of
the agreements, the Blue Chip Fund, the Opportunity Fund and the Reynolds
Fund will pay RCM a monthly management fee at the annual rate of 1% of such
Funds' daily net assets; from the Government Bond Fund a monthly fee of
0.75% of such Fund's daily net assets; and from the Money Market Fund a
monthly fee of 0.50% of such Fund's daily net assets. For the year ended
September 30, 2004, RCM voluntarily waived $22,703 and $27,505 of the
management fees due from the Government Bond Fund and the Money Market
Fund, respectively, under the agreements.
In addition, RCM has voluntarily reimbursed the Government Bond Fund and
the Money Market Fund for expenses over 0.90% and 0.65%, respectively, of
the daily net assets of such Fund totaling $46,619 and $64,068.
Reimbursements to the Government Bond Fund and the Money Market Fund are
voluntary and may be modified or discontinued at any time by RCM.
The Funds have administrative agreements with Fiduciary Management, Inc.
("FMI"), with whom certain officers of the Funds are affiliated, to
supervise all aspects of the Funds' operations except those per#formed by
RCM pursuant to the management agreements. Under the terms of the
agreements, the Blue Chip Fund, the Opportunity Fund and the Reynolds Fund
will pay FMI a monthly administrative fee at the annual rate of 0.20% of
such Funds' daily net assets up to and including $30,000,000 and 0.10% of
such Funds' daily net assets in excess of $30,000,000; and the Government
Bond Fund and the Money Market Fund will pay FMI a monthly administrative
fee at the annual rate of 0.10% of such Funds' daily net assets.
The Blue Chip Fund, Opportunity Fund and the Reynolds Fund have adopted a
Service and Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940. 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.
In the normal course of business the Funds enter into contracts with
service providers that contain general indemnification clauses. The Funds'
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Funds that have not yet
occurred. However, based on experience, the Funds expect the risk of loss
to be remote.
(3) CREDIT FACILITY --
U.S. Bank, N.A. has made available to the Blue Chip Fund, Opportunity Fund,
Reynolds Fund and Money Market Fund a credit facility pursuant to the
respective Credit Agreements dated August 7, 2000 for the purpose of having
cash available to cover incoming redemptions. The Reynolds Fund can also
use the credit facility to purchase securities. The Credit Agreements
expire July 31, 2005. The terms of the respective agreements are as
follows:
BLUE CHIP OPPORTUNITY REYNOLDS MONEY MARKET
FUND FUND FUND FUND
--------------- --------------- --------------- ---------------
Payment Terms Due in 45 days Due in 45 days Due in 90 days Due in 45 days
Interest Prime Rate - 1% Prime Rate - 1% Prime Rate - 1% Prime Rate - 1%
Unused Line Fees 0.10% 0.10% 0.10% 0.10%
Credit Limit $5,000,000 $3,000,000 $15,000,000 $600,000
Average Daily Balance Outstanding $370,719 $407,874 $9,988,590 $0
Maximum Amount Outstanding $5,000,000 $3,000,000 $14,997,000 $0
Interest Expense $17,668 $15,414 $321,909 $1,796
(4) DISTRIBUTION TO SHAREHOLDERS --
Net investment income and net realized gains, if any, are distributed to
shareholders at least annually. On October 28, 2004, the Opportunity Fund
distributed $1,432,482 from long-term realized gains ($1.3048 per share).
The distribution was paid on October 29, 2004 to shareholders of record on
October 27, 2004.
(5) INVESTMENT TRANSACTIONS --
For the year ended September 30, 2004, purchases and proceeds of sales of
investment securities (excluding short-term securities) were as follows:
PURCHASES SALES
--------- -----
Blue Chip Fund $109,267,179 $152,502,652
Opportunity Fund 19,506,650 24,775,476
Reynolds Fund 73,584,115 51,475,558
Government Bond Fund 1,300,250 1,694,375
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES --
As of September 30, 2004, liabilities of the Funds included the following:
BLUE CHIP OPPORTUNITY REYNOLDS GOVERNMENT MONEY MARKET
FUND FUND FUND BOND FUND FUND
------------ ------------ ------------ ------------ ------------
Payable to RCM for management fees $ 69,082 $15,962 $ 27,184 $ -- $ --
Payable to FMI for administrative fees 9,367 3,192 5,177 230 468
Payable to shareholders for redemptions 10,636 5,968 8,107 -- --
Due to custodian -- 4,666 210,382 -- --
Interest payable 772 407 41,337 N/A 50
Other liabilities 81,642 61,029 47,089 379 3,324
Loan payable 794,000 -- 12,771,000 N/A --
(7) SOURCES OF NET ASSETS --
As of September 30, 2004, the sources of net assets were as follows:
BLUE CHIP OPPORTUNITY REYNOLDS GOVERNMENT MONEY MARKET
FUND FUND FUND BOND FUND FUND
------------ ------------ ------------ ------------ ------------
Fund shares issued and outstanding $185,675,281 $14,583,391 $85,337,308 $2,864,320 $6,726,824
Net unrealized appreciation (depreciation)
on investments 1,694,642 3,129,983 (6,948,008) (18,734) --
Accumulated net realized (loss) gains
on investments (103,159,912) 1,154,430 (44,578,450) (38,030) --
Accumulated net investment loss (360) (12,454) (16,987) -- --
------------ ----------- ----------- ---------- ----------
$ 84,209,651 $18,855,350 $33,793,863 $2,807,556 $6,726,824
------------ ----------- ----------- ---------- ----------
------------ ----------- ----------- ---------- ----------
(8) INCOME TAX INFORMATION --
The following information for the Funds is presented on an income tax basis
as of September 30, 2004:
NET UNREALIZED
GROSS GROSS (DEPRECIATION) DISTRIBUTABLE DISTRIBUTABLE
COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM
INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS
----------- ------------ ------------ -------------- ------------- -------------
Blue Chip Fund $86,638,505 $19,711,871 $21,312,971 $(1,601,100) $ -- $ --
Opportunity Fund 16,079,653 6,233,245 3,381,315 2,851,930 -- 1,432,482
Reynolds Fund 54,698,168 8,275,275 16,276,917 (8,001,642) -- --
Government Bond Fund 2,816,025 3,532 22,266 (18,734) -- --
Money Market Fund 6,732,872 -- -- -- -- --
The difference, if any, between the cost amount for financial statement and
federal income tax purposes is due primarily to timing differences in
recognizing certain gains and losses in security transactions and for mark
to market for Passive Foreign Investment Companies ("PFICs").
The tax components of dividends paid during the year ended September 30,
2004, capital loss carryovers, which may be used to offset future capital
gains, subject to Internal Revenue Code limitations (expiring in varying
amounts through 2012), as of September 30, 2004, and tax basis post-October
losses as of September 30, 2004, which are not recognized for tax purposes
until the first day of the following fiscal year are:
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
----------------------------------------------------------- -----------------------------
ORDINARY LONG-TERM NET CAPITAL ORDINARY LONG-TERM
INCOME CAPITAL GAINS LOSS POST-OCTOBER INCOME CAPITAL GAINS
DISTRIBUTIONS DISTRIBUTIONS CARRYOVERS LOSSES DISTRIBUTIONS DISTRIBUTIONS
------------- ------------- ---------- ------------ ------------- -------------
Blue Chip Fund $ -- $ -- $92,835,683 $7,028,488 $ -- $ --
Opportunity Fund -- 1,226,731 -- -- -- --
Reynolds Fund -- -- 37,924,836 5,599,986 -- --
Government Bond Fund 69,456 -- 33,570 4,459 55,669 --
Money Market Fund 12,290 -- -- -- 30,282 --
The Blue Chip Fund, Reynolds Fund and Government Bond Fund have utilized
$2,128,294, $525,443 and $2,622, respectively, of their post-October losses
from the prior year to increase current year net capital losses or reduce
any net capital gains. The Government Bond Fund had capital loss
carryovers of $19,651 which expired September 30, 2004.
Since there were no ordinary distributions paid for the year ended
September 30, 2004 for the Blue Chip, Opportunity or Reynolds Funds, there
are no distributions designated as qualifying for the dividends received
deduction for corporate shareholders nor as qualified dividend income under
the Jobs and Growth Tax Relief Act of 2003.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of Reynolds Funds, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations, of changes in net assets, of cash flows (Reynolds Fund
only) and the financial highlights present fairly, in all material respects, the
financial position of Reynolds Blue Chip Growth Fund, Reynolds Opportunity Fund,
Reynolds Fund, Reynolds U.S. Government Bond Fund and Reynolds Money Market Fund
(constituting Reynolds Funds, Inc., hereafter referred to as the "Funds") at
September 30, 2004, the results of each of their operations, the changes in each
of their net assets, the cash flows (Reynolds Fund only) and their financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with standards
of the Public Company Accounting Oversight Board (United States). These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2004 by
correspondence with the custodian, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 29, 2004
Reynolds Funds, Inc.
DIRECTORS AND OFFICERS
# OF FUNDS OTHER
TERM OF IN COMPLEX DIRECTORSHIPS
POSITION OFFICE AND OVERSEEN HELD BY
NAME, AGE HELD WITH LENGTH OF PRINCIPAL OCCUPATION BY DIRECTOR DIRECTOR
AND ADDRESS THE FUNDS TIME SERVED DURING PAST FIVE YEARS OR OFFICER OR OFFICER
- ----------- --------- ----------- ---------------------- ----------- -------------
"DISINTERESTED PERSONS" OF THE FUNDS:
Dennis N. Moser, 62 Director Indefinite Term Mr. Moser is an independent consultant. From 5 None
77 Stockbridge Since January 2000 to 2001 he was the Chief Information
Atherton, CA 94026 2002 Officer of Schoolpop, Inc., a fund raising firm.
Prior to that time he was a Senior Vice
President of Visa International, Inc.
Robert E. Stauder, 74 Director Indefinite Term Mr. Stauder is retired. He was a principal of 5 None
5 Marsh Drive Since 1988 Robinson Mills + Williams, an architectural
Mill Valley, CA 94941 and interior design firm, from 1991 until 1996.
"INTERESTED PERSONS" OF THE FUNDS:
Frederick L. Reynolds,*<F27> 62 Director, Indefinite Term Mr. Reynolds is the sole proprietor of 5 None
Wood Island, Third Floor Since 1988 Reynolds Capital Management, the Funds'
80 East Sir Francis President One Year Term investment adviser, organized in April, 1985.
Drake Boulevard and since 1988
Larkspur, CA 94939 Treasurer
Donald O. Jesberg, 49 Chief At Discretion Mr. Jesberg is an employee of Reynolds 5 None
Wood Island, Third Floor Compliance of Board Since Capital Management. Employment with the
80 East Sir Francis Officer September, investment adviser commenced in September
Drake Boulevard 2004 2000. Prior to joining the adviser, Mr. Jesberg
Larkspur, CA 94939 Vice One Year Term was a Vice President of Acquisitions for Westrec
President since 2003 Marina Management since 1998.
Assistant One Year Term
Secretary since 2002
Camille F. Wildes, 52 Secretary One Year Term Ms. Wildes is a Vice President of Fiduciary 5 None
100 E. Wisconsin Ave. since 1988 Management, Inc., the Funds' administrator,
Suite 2200 and has been employed by such firm in
Milwaukee, WI 53202 various capacities since December, 1982.
*<F27> Mr. Reynolds is the only director who is an "interested person" of the
Company as that term is defined in the Investment Company Act of 1940.
Mr. Reynolds is an "interested person" of the Company by reason of his
being on officer of the Company and the sole proprietor of the
investment adviser.
For additional information about the Directors and Officers or for a description
of the policies and procedures that the Funds use to determine how to vote
proxies relating to portfolio securities, please call (800) 773-9665 and request
a Statement of Additional Information. One will be mailed to you free of charge.
The Statement of Additional Information is also available on the website of the
Securities and Exchange Commission (the "Commission") at http://www.sec.gov.
------------------
Information on how the Funds voted proxies relating to portfolio securities
during the twelve month period ending June 30, 2004 is available on the Funds'
website at http://www.reynoldsfunds.com or the website of the Commission. The
----------------------------
Funds' file their complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q; (ii) the
Funds' Form N-Q is available on the Commission's website; and (iii) the Funds'
Form N-Q may be reviewed and copied at the Commission's Public Reference Room in
Washington, DC, and that information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
REYNOLDS FUNDS
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
www.reynoldsfunds.com
BOARD OF DIRECTORS
DENNIS N. MOSER
FREDERICK L. REYNOLDS
ROBERT E. STAUDER
INVESTMENT ADVISER
REYNOLDS CAPITAL MANAGEMENT
Wood Island, Third Floor
80 East Sir Francis Drake Boulevard
Larkspur, California 94939
ADMINISTRATOR
FIDUCIARY MANAGEMENT, INC.
100 East Wisconsin Avenue, Suite 2200
Milwaukee, Wisconsin 53202
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
U.S. BANCORP FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-773-9665
OR 1-800-7REYNOLDS
1-414-765-4124
CUSTODIAN
U.S. Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PRICEWATERHOUSECOOPERS LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
FOLEY & LARDNER LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ITEM 2. CODE OF ETHICS.
- -----------------------
Registrant has adopted a code of ethics. See attached Exhibit 11 (a).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- -----------------------------------------
Registrant's Board of Directors has determined that it does not have an "audit
committee financial expert" serving on its audit committee. While Registrant
believes that each of the members of its audit committee has sufficient
knowledge of accounting principles and financial statements to serve on the
audit committee, none has the requisite experience to qualify as an "audit
committee financial expert" as such term is defined by the Securities and
Exchange Commission.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
(a) Audit Fees
$50,050 (FY 2004) and $47,650 (FY 2003) are the aggregate fees billed for each
of the last two fiscal years for professional services rendered by the principal
accountant to the registrant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Audit-Related Fees
There were no fees billed in each of the last two fiscal years for Audit-Related
Fees.
(c) Tax Fees
$24,125 (FY 2004) and $25,000 (FY 2003) are the aggregate fees billed in each of
the last two fiscal years for professional services rendered by the principal
accountant to the registrant for tax compliance, tax advice, tax planning and
tax return preparation.
There were no fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant to registrant's investment adviser
for tax compliance, tax advice and tax planning that were required to be
approved by the audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X.
(d) All Other Fees
There were no fees billed in each of the last two fiscal years for products and
services provided by the principal accountant to the registrant, other than the
services reported in paragraphs (a) - (c) of this Item 4.
There were no fees billed in each of the last two fiscal years for products and
services provided by the principal accountant to registrant's investment
adviser, which were required to be approved by the audit committee pursuant to
paragraph (c)(7)(ii) or Rule 2-01 or Regulation S-X.
(e) (1) None
(e) (2) None
(f) Not applicable.
(g) See the tax fees disclosed in paragraph (c) of this Item 4.
(h) Not applicable, as no non-audit services were provided to registrant's
investment adviser.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES
- -------------------------------
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ---------------------------------
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None.
ITEM 10. CONTROLS AND PROCEDURES.
- ---------------------------------
(a) The disclosure controls and procedures of the Reynolds Funds, Inc. are
periodically evaluated. As of October 26, 2004, the date of the last
evaluation, we concluded that our disclosure controls and procedures are
adequate.
(b) The internal controls of the Reynolds Funds, Inc. are periodically
evaluated. Since, October 26, 2004, the date of the last evaluation, there
have been no significant changes in the Reynolds Funds' internal controls
or in other factors that could have had a significant effect on such
controls. There have also been no significant deficiencies or material
weaknesses identified since the last evaluation that required any
corrective action.
ITEM 11. EXHIBITS.
- -----------------
(a) Any code of ethics or amendment thereto. Filed herewith.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Reynolds Funds, Inc.
--------------------
Registrant
By /s/Frederick L. Reynolds
--------------------------------------------------
Frederick L. Reynolds, Principal Executive Officer
Date November 30, 2004
----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Reynolds Funds, Inc.
--------------------
Registrant
By /s/Frederick L. Reynolds
--------------------------------------------------
Frederick L. Reynolds, Principal Financial Officer
Date November 30, 2004
----------------------------------