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. - -------------------------------- 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 ----------------------------------