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: September 30, 2005 ITEM 1. REPORTS TO STOCKHOLDERS. - -------------------------------- ANNUAL REPORT SEPTEMBER 30, 2005 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 BALANCED FUND (F/K/A/ REYNOLDS U.S. GOVERNMENT BOND FUND) SEEKING CAPITAL APPRECIATION AND INCOME REYNOLDS MONEY MARKET FUND SEEKING A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL AND A STABLE NET ASSET VALUE 1-800-773-9665 WWW.REYNOLDSFUNDS.COM REYNOLDS FUNDS November 14, 2005 Dear Fellow Shareholders: This past year can be characterized as a period of many crosscurrents for the U.S. economy including rising interest rates, natural disasters, volatile energy prices and a growing domestic economy. The four Reynolds Stock Funds all provided positive returns during the 12 month period ended September 30, 2005. We continue to emphasize ownership of high quality companies in growth industries with excellent prospects for enhancing shareholder value. As of February 1, 2005, the Reynolds U. S. Government Bond Fund has a new name and new investment objectives. It is now the Reynolds Balanced Fund and its new investment objectives are "Seeking Capital Appreciation and Income". The Balanced Fund will invest in both fixed income securities and common stocks, most of which provide dividend income. The Balanced Fund's portfolio will consist of 20% to 80% fixed income securities and 20% to 80% equity securities at any given time. As of September 30, 2005 its investments were 53.6% fixed income securities (bonds), 44.8% equity securities and 1.6% short-term money market instruments and receivables. The Fund's new NASDAQ symbol is RBALX. The Reynolds Funds have offered the Reynolds Money Market Fund since 1991 as a way to provide current income, consistent liquidity and preservation of capital. As of September 30, 2005, the Reynolds Money Market Fund had assets of $4.8 million. This level of assets is too small to operate this Fund efficiently. As a result, we are in the process of closing the Reynolds Money Market Fund and offering the First American Treasury Obligations Fund, a money market fund offered by an affiliate of our transfer agent, U.S. Bancorp Fund Services, LLC as a money market alternative to our shareholders. This Fund will offer many free shareholder conveniences including automatic investment and withdrawal plans and check writing access to your funds and will also be linked to any holdings you have in the Reynolds Funds. This Fund will also be included on your quarterly statements. The U.S. economy continues in an expansionary mode. Gross Domestic Product (GDP) grew at a 3.6% rate in the nine months ended September 30, 2005. GDP is estimated to increase 3.5% in calendar 2005 and 3.4% in 2006 after increasing 4.2% in calendar 2004. Inflation increased at a rate of 2.7% in the nine months ended September 30, 2005 as measured by the GDP Deflator. Inflation is estimated to increase 2.4% in calendar 2005 and 2.9% in 2006 after increasing 2.6% in 2004. 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, 2005 nearly 1.6 million jobs have been created. The Federal Reserve has raised short-term interest rates twelve times starting in June 2004 through November 2005. However, long-term interest rates are still at 40 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 including inflation. Other investment considerations have recently included negative geopolitical news including terrorism, hurricane damage, 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 risen during the past 9 months. Higher oil prices are 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, estimated that these higher oil prices would make the GDP growth rate 0.5% 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. OPPORTUNISTIC INVESTING IN COMPANIES OF VARIOUS SIZES Three of the 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, 2005 ---------------------------------- Giant 26.75% Large 37.09% Medium 26.65% Small 7.98% Micro 1.53% REYNOLDS OPPORTUNITY FUND Portfolio as of September 30, 2005 ---------------------------------- Giant 6.48% Large 9.57% Medium 37.85% Small 36.91% Micro 9.19% REYNOLDS FUND Portfolio as of September 30, 2005 ---------------------------------- Giant 5.84% Large 12.09% Medium 30.27% Small 33.68% Micro 18.12% Source: Morningstar web site and Morningstar Market Cap Breakpoints Giant-cap stocks are defined as the group that accounts for the top 40% of the capitalization of the Morningstar domestic stock universe; large-cap stocks represent the next 30%; medium-cap stocks represent the next 20%; and small-cap stocks represent the balance. Micro is defined as smaller than the "small" breakpoint. Market caps are the minimum in each cap group; therefore, the minimum large market cap is the large-medium breakpoint and medium is the medium-small breakpoint. As of September 30, 2005 the minimums in each cap group are as follows: (in millions) Giant $43,753.77 Large $8,917.94 Medium $1,586.15 Small $455.42 Micro <$455.42 LOW INTEREST RATES BY HISTORICAL STANDARDS ARE A SIGNIFICANT POSITIVE FOR STOCK VALUATIONS Since June 2004, the Federal Reserve Board has raised short-term interest rates twelve times to stabilize the economy. Although interest rates have been rising, they remain at 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. The Blue Chip Fund's total return was 9.27 % for the twelve months ended September 30, 2005. PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2005) CUMULATIVE TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN ----------------------- --------------------------- One Year 9.27% 9.27% Three years 50.33% 14.56% Five Years -55.72% -15.03% Ten Years 60.60% 4.85% Since inception (August 12, 1988) 234.41% 7.30% 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. The Reynolds Opportunity Fund's total return was 8.68 % for the twelve months ended September 30, 2005. PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2005) CUMULATIVE TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN ---------------------- --------------------------- One Year 8.68% 8.68% Three years 69.16% 19.15% Five Years -55.18% -14.83% Ten Years 40.50% 3.46% Since inception (January 30, 1992) 99.12% 5.17% 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. The Reynolds Fund's total return was 6.86% for the twelve months ended September 30, 2005. PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2005) CUMULATIVE TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN ----------------------- --------------------------- One Year 6.86% 6.86% Three years 91.36% 24.15% Five Years -56.16% -15.21% Since inception (October 1, 1999) -42.40% -8.78% THE REYNOLDS BALANCED FUND The Reynolds Balanced Fund is the successor to the Reynolds U. S. Government Bond Fund and its new investment objectives are "Seeking Capital Appreciation and Income". The Balanced Fund is designed to satisfy many of the income objectives of our investors. The Balanced Fund will invest in both fixed income securities and common stocks, most of which provide dividend income. Most of the time, the Balanced Fund's portfolio will consist of 20% to 80% fixed income securities and 20% to 80% equity securities. The fixed income portion of the portfolio emphasizes 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. The Balanced Fund is actively managed and the fixed income portion of the Fund 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. Common stocks will be evaluated based on current earnings and dividends and the future earnings prospects for the companies. The portfolio will be diversified by industry and generally include companies with larger market capitalizations. As of September 30, 2005 the Fund's investments were 53.6% fixed income securities (bonds), 44.8% equity securities and 1.6% short-term money market instruments and receivables. The Fund's total return was 2.15% for the twelve months ended September 30, 2005. PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2005) CUMULATIVE TOTAL AVERAGE ANNUAL RETURN*<F1> TOTAL RETURN*<F1> ----------- ----------------- One Year 2.15% 2.15% Three Years 5.03% 1.65% Five Years 13.46% 2.56% Ten Years 43.81% 3.70% Since inception (January 30, 1992) 72.01% 4.05% *<F1> Prior to January 31, 2005, the Balanced Fund was known as the Reynolds U.S. Government Bond Fund and it invested primarily in U.S. Government securities. REYNOLDS BALANCED FUND Portfolio as of September 30, 2005 ---------------------------------- Stocks 44.79% Bonds 53.64% Cash & Cash Equivalents 1.57% THE REYNOLDS MONEY MARKET FUND The Reynolds Money Market Fund is designed to provide for investor's short- term cash management needs. As of September 30, 2005 the Fund's total net assets were $4,818,393. The dollar weighted average days to maturity of the Fund was 10.88 days. PERFORMANCE HIGHLIGHTS (AS OF SEPTEMBER 30, 2005) CUMULATIVE TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN ----------------------- --------------------------- One Year 1.72% 1.72% Three Years 2.33% 0.77% Five Years 7.82% 1.52% Ten Years 36.99% 3.20% Since inception (January 30, 1991) 63.83% 3.42% MONEY MARKET FUND Portfolio as of September 30, 2005 ---------------------------------- U.S. Treasury Bills 89.17% Cash & Cash Equivalents 10.83% ECONOMIC DISCUSSION THE WORLD ECONOMY There are more than 1.3 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 and the equity portion of the Balanced Fund 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 in the Reynolds Stock Funds and the Reynolds Balanced Fund 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 in a positive mode. 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 4.2% in 2004 compared to 3.0% in 2003, 1.9% in 2002, 0.8% in 2001, 3.7% in 2000 and 4.4% in 1999. GDP is estimated to increase 3.5% in 2005 and 3.4% in 2006. 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 2.6% in 2004 after increasing 2.3% in 2003, 1.6% in 2002, 2.8% in 2001, 3.4% in 2000 and 2.2% in 1999. U.S. inflation is estimated to increase 2.4% in 2005 and 2.9% in 2006. INVESTMENT OUTLOOK There are many investment positives. Among them are: (1) the economy is growing; (2) corporate profits are rising; (3) job growth is strong; (4) even though interest rates are probably going to climb, they are increasing from a low level, so there's room for them to go up and not slow down the economy in a dangerous way; (5) 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; (6) U. S. productivity continues to increase; (7) the Internet is beginning to produce efficiencies; (8) consumer spending has remained high; (9) most indicators in the economy are positive; (10) corporate cost cutting has been very successful; and (11) price-earnings ratios are in line with historical averages. Some possible investment negatives, which we are watching are: (1) the possibility of 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) U. S. dollar weakness; (6) Iraq; (7) efforts to slow China's economic boom; and (8) natural disasters such as hurricanes and earthquakes. 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 (PIN number not needed) includes quarterly updates of the returns of the Reynolds Funds and the First American Treasury Obligations Fund, top ten holdings of each portfolio, and industry percentages. Also, detailed statistics and graphs of past performances from a link to MSN Money for the various Reynolds Funds and the First American Treasury Obligations Fund. 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 FIRST AMERICAN TREASURY OBLIGATIONS FUND AND REYNOLDS MONEY MARKET FUND (UNTIL IT IS CLOSED) 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 and First American Treasury Obligations Fund accounts held by a shareholder are sent quarterly. In addition, individual Fund statements are sent whenever a transaction occurs. These transactions are: (1) statements are sent for any of the Funds when a shareholder purchases or redeems shares; (2) Blue Chip, Opportunity and Reynolds Fund statements are sent twice a year if and when any ordinary income or capital gains are distributed; (3) Balanced Fund statements are sent quarterly when dividends are paid; and (4) First American Treasury Obligations Fund statements are sent quarterly. 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 and the First American Treasury Obligations Fund 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 to invest in any of the Reynolds Funds or the First American Treasury Obligations Fund ($50 minimum for any of these Funds) at periodic intervals to make automatic purchases in any of these 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 or the First American Treasury Obligations Fund as often as monthly and send a check to you or transfer funds to your bank account. EXCHANGES OR REGULAR REDEMPTIONS BETWEEN THE REYNOLDS FUNDS AND/OR THE FIRST AMERICAN TREASURY OBLIGATIONS FUND: As often as desired - no charge. NASDAQ SYMBOLS: Reynolds Blue Chip Growth Fund - RBCGX, Reynolds Opportunity Fund - ROPPX, Reynolds Fund - REYFX, Reynolds Balanced Fund - RBALX, Reynolds Money Market Fund - REYXX, and First American Treasury Obligations Fund - FATXX. 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 April 1, 2005 through September 30, 2005. 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 4/1/05 Value 9/30/05 Period*<F2> 4/1/05-9/30/05 ------------ ------------ -------------------------- Reynolds Blue Chip Growth Fund Actual $1,000.00 $1,054.00 $8.60 Hypothetical (5% return before expenses) $1,000.00 $1,016.70 $8.44 Reynolds Opportunity Fund Actual $1,000.00 $1,071.10 $10.69 Hypothetical (5% return before expenses) $1,000.00 $1,014.70 $10.40 Reynolds Fund Actual $1,000.00 $1,072.60 $16.26 Hypothetical (5% return before expenses) $1,000.00 $1,009.40 $15.77 Reynolds Balanced Fund Actual $1,000.00 $1,032.20 $6.37 Hypothetical (5% return before expenses) $1,000.00 $1,018.80 $6.33 Reynolds Money Market Fund Actual $1,000.00 $1,011.00 $3.33 Hypothetical (5% return before expenses) $1,000.00 $1,021.80 $3.34 *<F2> Expenses are equal to the Funds' annualized expense ratio of 1.67%, 2.06%, 3.13%, 1.25% and 0.66%, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period between April 1, 2005 and September 30, 2005). Reynolds Blue Chip Growth Fund MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The Reynolds Blue Chip Growth Fund's performance was positively affected in its fiscal year ended September 30, 2005 by, among other things, the strengthening economy and stronger corporate earnings. The Fund's performance was negatively affected by, among other things, higher interest rates and energy costs, problems in Iraq and natural disasters such as hurricanes. The Fund increased 3.67% and the S&P 500 Index increased 6.88% during the first half of the fiscal year (six months ended March 31, 2005). The Fund increased 5.40% and the S&P 500 increased 5.02% during the second half of the fiscal year (six months ended September 30, 2005). The S&P 500 increased 12.25% during the twelve months ended September 30, 2005. The Blue Chip Fund was particularly helped by its emphasis on growth stocks in industries with stronger long-term outlooks, including: (1) Communications such as Motorola, Inc.; (2) Energy Services such as Schlumberger Ltd.; (3) Financial Services including discount brokerage companies such as Ameritrade Holding Corp.; (4) Medical including Biotechnology such as Genentech, Inc. and Health Maintenance Organizations such as United Health Group Inc.; (5) Internet such as Google Inc.; (6) Computer and Peripherals with leisure products and services such as Apple Computer, Inc.; and (7) Retail Stores such as Nordstrom, Inc. and Specialty Retailers such as Urban Outfitters, Inc. The Fund underperformed the S&P 500 Index in the first six months of the fiscal year mainly due to its overweighting in Technology including Semiconductors such as Intel Corp. and Semiconductor Capital Spending such as Applied Materials, Inc. The Fund outperformed the S&P 500 Index in the second half of the fiscal year mainly due to its overweighting in: (1) Energy Services such as Schlumberger Ltd.; (2) Integrated Oil and Gas such as Burlington Resources Inc.; (3) Oil and Gas Refining and Marketing such as Valero Energy Corp.; and (4) Technology such as Apple Computer, Inc. and Google Inc. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN REYNOLDS BLUE CHIP GROWTH FUND AND S&P 500 INDEX(1)<F3> DATE REYNOLDS BLUE CHIP GROWTH FUND S&P 500 INDEX ---- ------------------------------ ------------- 9/30/95 $10,000 $10,000 9/30/96 $11,810 $12,040 9/30/97 $16,912 $16,940 9/30/98 $19,782 $18,490 9/30/99 $29,388 $23,631 9/30/2000 $36,247 $26,770 9/30/2001 $16,188 $19,643 9/30/2002 $10,678 $15,619 9/30/2003 $15,208 $19,430 9/30/2004 $14,685 $22,125 9/30/2005 $16,046 $24,836 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. AVERAGE ANNUAL TOTAL RETURN 1-YEAR 5-YEAR 10-YEAR ------ ------ ------- 9.27% -15.03% 4.85% (1)<F3> 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 SCHEDULE OF INVESTMENTS September 30, 2005 SHARES VALUE ------ ----- LONG-TERM INVESTMENTS -- 97.0% (A)<F5> COMMON STOCKS -- 95.1% (A)<F5> ADVERTISING -- 0.8% 26,000 ValueClick, Inc.*<F4> $ 444,340 AIRLINES/AEROSPACE -- 0.7% 2,000 Boeing Co. 135,900 1,000 General Dynamics Corp. 119,550 2,000 United Technologies Corp. 103,680 ----------- 359,130 APPAREL -- 0.6% 8,000 Gildan Activewear Inc.*<F4> 305,840 APPLICATION SOFTWARE -- 1.1% 5,000 Compuware Corp.*<F4> 47,500 6,000 SAP AG SP-ADR 259,980 12,863 Symantec Corp.*<F4> 291,476 ----------- 598,956 AUTOMOTIVE -- 0.4% 6,000 Advance Auto Parts, Inc.*<F4> 232,080 BEVERAGES -- 0.2% 2,500 Hansen Natural Corp.*<F4> 117,700 BIOTECHNOLOGY -- 2.5% 3,000 Amgen Inc.*<F4> 239,010 9,500 Genentech, Inc.*<F4> 799,995 1,500 Gilead Sciences, Inc.*<F4> 73,140 2,500 Sepracor Inc.*<F4> 147,475 6,000 ViroPharma Inc.*<F4> 124,800 ----------- 1,384,420 BUILDING -- 1.6% 10,000 Home Depot, Inc. 381,400 8,000 Lowe's Companies, Inc. 515,200 ----------- 896,600 BUSINESS SOFTWARE & SERVICES -- 0.4% 1,500 MICROS Systems, Inc.*<F4> 65,625 2,500 Rockwell Automation Inc. 132,250 ----------- 197,875 CABLE TV/BROADCASTING -- 3.1% 5,000 Grupo Televisa S.A. SP-ADR 358,550 50,000 Sirius Satellite Radio Inc.*<F4> 327,500 28,500 XM Satellite Radio Holdings Inc.*<F4> 1,023,435 ----------- 1,709,485 COMMUNICATION EQUIPMENT -- 3.9% 11,575 American Tower Corp.*<F4> 288,796 22,000 Corning Inc.*<F4> 425,260 17,500 L.M. Ericsson Telephone Co. ADR 644,700 16,000 McDATA Corp.*<F4> 83,840 4,000 NETGEAR, Inc.*<F4> 96,240 4,500 QUALCOMM Inc. 201,375 38,000 Tellabs, Inc.*<F4> 399,760 ----------- 2,139,971 COMMUNICATIONS SERVICES -- 0.3% 6,500 Crown Castle International Corp.*<F4> 160,095 COMPUTER & PERIPHERALS -- 4.0% 19,500 Apple Computer, Inc.*<F4> 1,045,395 3,000 Hewlett-Packard Co. 87,600 9,900 International Business Machines Corp. 794,178 6,000 Komag, Inc.*<F4> 191,760 3,000 Palm, Inc.*<F4> (Formerly PalmOne, Inc.) 84,990 ----------- 2,203,923 COMPUTER NETWORKING -- 0.8% 4,500 Juniper Networks, Inc.*<F4> 107,055 12,500 WebEx Communications, Inc.*<F4> 306,375 ----------- 413,430 COMPUTER SOFTWARE & SERVICES -- 0.5% 4,500 Autodesk, Inc. 208,980 1,000 Macromedia, Inc.*<F4> 40,670 ----------- 249,650 DRUGS -- 0.2% 3,000 Amylin Pharmaceuticals, Inc.*<F4> 104,370 ENERGY-SERVICES -- 6.6% 1,000 Baker Hughes Inc. 59,680 7,000 BJ Services Co. 251,930 1,000 Cooper Cameron Corp.*<F4> 73,930 8,000 Diamond Offshore Drilling, Inc. 490,000 2,000 Halliburton Co. 137,040 6,000 Helmerich & Payne, Inc. 362,340 2,000 Nabors Industries, Ltd.*<F4> 143,660 2,000 Noble Corp. 136,920 2,500 Rowan Companies, Inc. 88,725 10,000 Schlumberger Ltd. 843,800 11,000 Smith International, Inc. 366,410 8,500 Transocean Inc.*<F4> 521,135 3,500 Veritas DGC Inc.*<F4> 128,170 ----------- 3,603,740 FINANCIAL SERVICES -- 2.6% 1,500 American Express Co. 86,160 500 Bear Stearns Companies Inc. 54,875 9,000 E*TRADE Financial Corp.*<F4> 158,400 2,500 Goldman Sachs Group, Inc. 303,950 2,500 Lehman Brothers Holdings Inc. 291,200 5,000 Merrill Lynch & Co., Inc. 306,750 3,000 Paychex, Inc. 111,240 8,000 Charles Schwab Corp. 115,440 ----------- 1,428,015 FOODS -- 0.1% 2,000 Dean Foods Co.*<F4> 77,720 GOLD & SILVER -- 0.5% 5,000 Barrick Gold Corp. 145,250 2,000 Newmont Mining Corp. 94,340 3,000 Placer Dome Inc. 51,450 ----------- 291,040 GROCERY STORES -- 0.1% 2,000 Safeway Inc. 51,200 HEALTH MAINTENANCE ORGANIZATIONS -- 5.0% 6,000 Aetna Inc. 516,840 2,000 CIGNA Corp. 235,720 8,000 HCA, Inc. 383,360 4,000 Humana Inc.*<F4> 191,520 11,000 UnitedHealth Group Inc. 618,200 8,000 Universal Health Services, Inc. Cl B 381,040 5,000 WellPoint Inc.*<F4> 379,100 ----------- 2,705,780 HOME BUILDERS -- 0.8% 3,000 KB Home, Inc. 219,600 2,000 Pulte Homes, Inc. 85,840 2,000 Ryland Group, Inc. 136,840 ----------- 442,280 HOTEL -- 2.6% 3,500 Harrah's Entertainment, Inc. 228,165 4,000 Marriott International, Inc. 252,000 8,000 MGM MIRAGE*<F4> 350,160 10,000 Starwood Hotels & Resorts Worldwide, Inc. 571,700 ----------- 1,402,025 HOUSEHOLD PRODUCTS -- 0.3% 1,000 Gillette Co. 58,200 1,500 Procter & Gamble Co. 89,190 ----------- 147,390 INDUSTRIAL METALS & MINERALS -- 1.5% 1,000 Arch Coal, Inc. 67,500 2,000 Peabody Energy Corp. 168,700 500 Phelps Dodge Corp. 64,965 13,500 Titanium Metals Corp.*<F4> 534,060 ----------- 835,225 INSURANCE -- 0.1% 1,500 AFLAC INC. 67,950 INTEGRATED OIL & GAS -- 4.9% 1,000 Amerada Hess Corp. 137,500 1,500 Anadarko Petroleum Corp. 143,625 9,000 Burlington Resources Inc. 731,880 1,000 Chevron Corp. (Formerly ChevronTexaco Corp.) 64,730 1,000 EnCana Corp. 58,310 1,000 Exxon Mobil Corp. 63,540 2,500 Imperial Oil Ltd. 287,650 1,500 Kerr-McGee Corp. 145,665 2,000 Marathon Oil Corp. 137,860 12,000 Noble Energy, Inc. 562,800 1,500 Occidental Petroleum Corp. 128,145 1,000 Total SA SP-ADR 135,820 1,000 Vintage Petroleum, Inc. 45,660 ----------- 2,643,185 INTERNET INFORMATION PROVIDERS -- 3.0% 3,500 Google Inc.*<F4> 1,107,610 8,000 WebMD Corp.*<F4> 88,640 13,500 Yahoo! Inc.*<F4> 456,840 ----------- 1,653,090 INTERNET SOFTWARE & SERVICES -- 0.2% 3,000 Red Hat, Inc.*<F4> 63,570 3,000 Redback Networks Inc.*<F4> 29,760 ----------- 93,330 MACHINERY -- 0.4% 4,000 Caterpillar Inc. 235,000 MEDICAL SERVICES -- 0.8% 1,000 Cerner Corp.*<F4> 86,930 1,000 Express Scripts, Inc.*<F4> 62,200 1,500 Omnicare, Inc. 84,345 1,000 Psychiatric Solutions, Inc.*<F4> 54,230 2,000 Quality Systems, Inc. 138,180 ----------- 425,885 MEDICAL SUPPLIES -- 1.1% 2,000 Bausch & Lomb Inc. 161,360 9,500 McKesson Corp. 450,775 ----------- 612,135 NATURAL GAS -- 4.7% 1,000 Cabot Oil & Gas Corp. 50,510 3,500 Devon Energy Corp. 240,240 8,500 EOG Resources, Inc. 636,650 9,000 Equitable Resources, Inc. 351,540 2,000 Kinder Morgan, Inc. 192,320 1,000 Newfield Exploration Co.*<F4> 49,100 3,000 Questar Corp. 264,360 7,500 Southwestern Energy Co.*<F4> 550,500 3,500 Williams Companies, Inc. 87,675 3,000 XTO Energy, Inc. 135,960 ----------- 2,558,855 OIL & GAS REFINING & MARKETING -- 4.3% 8,000 Frontier Oil Corp. 354,800 6,500 Holly Corp. 415,870 7,000 Sunoco, Inc. 547,400 5,000 Tesoro Corp. 336,200 6,000 Valero Energy Corp. 678,360 ----------- 2,332,630 RESTAURANTS -- 3.3% 1,500 Darden Restaurants, Inc. 45,555 36,000 Luby's, Inc.*<F4> 470,160 2,000 McDonald's Corp. 66,980 3,000 P.F. Chang's China Bistro, Inc.*<F4> 134,490 4,000 Panera Bread Co.*<F4> 204,720 8,000 Papa John's International, Inc.*<F4> 400,960 2,500 Wendy's International, Inc. 112,875 7,500 Yum! Brands, Inc. 363,075 ----------- 1,798,815 RETAIL-SPECIALTY -- 10.4% 10,500 Abercrombie & Fitch Co. 523,425 14,500 American Eagle Outfitters, Inc. 341,185 4,750 bebe stores, inc. 83,125 5,000 Bed Bath & Beyond Inc.*<F4> 200,900 19,500 Best Buy Co., Inc. 848,835 16,500 Chico's FAS, Inc.*<F4> 607,200 3,000 Coach, Inc.*<F4> 94,080 15,000 eBay Inc.*<F4> 618,000 3,500 Michaels Stores, Inc. 115,710 4,000 NIKE, Inc. Cl B 326,720 3,000 Office Depot, Inc.*<F4> 89,100 6,750 Staples, Inc. 143,910 6,000 Starbucks Corp.*<F4> 300,600 6,000 Tiffany & Co. 238,620 25,000 Urban Outfitters, Inc.*<F4> 735,000 2,500 Walgreen Co. 108,625 2,000 Whole Foods Market, Inc. 268,900 ----------- 5,643,935 RETAIL STORES -- 5.2% 12,500 Costco Wholesale Corp. 538,625 1,500 J.C. Penney Company, Inc. (Holding Co.) 71,130 3,000 Kohl's Corp.*<F4> 150,540 6,500 Longs Drug Stores Corp. 278,785 27,000 Nordstrom, Inc. 926,640 7,500 Target Corp. 389,475 10,500 Wal-Mart Stores, Inc. 460,110 ----------- 2,815,305 SECURITY SOFTWARE & SERVICES -- 0.4% 1,500 Check Point Software Technologies Ltd.*<F4> 36,480 3,500 McAfee, Inc.*<F4> 109,970 2,000 SafeNet, Inc.*<F4> 72,620 ----------- 219,070 SEMICONDUCTOR CAPITAL SPENDING -- 1.1% 4,500 KLA-Tencor Corp. 219,420 26,000 Kulicke and Soffa Industries, Inc.*<F4> 188,500 6,000 Novellus Systems, Inc.*<F4> 150,480 3,000 Teradyne, Inc.*<F4> 49,500 ----------- 607,900 SEMICONDUCTORS -- 5.8% 8,000 Advanced Micro Devices, Inc.*<F4> 201,600 16,000 Broadcom Corp.*<F4> 750,560 5,500 Lam Research Corp.*<F4> 167,585 26,000 LSI Logic Corp.*<F4> 256,100 2,500 Marvell Technology Group Ltd.*<F4> 115,275 4,000 MEMC Electronic Materials, Inc.*<F4> 91,160 15,500 National Semiconductor Corp. 407,650 1,500 SanDisk Corp.*<F4> 72,375 31,500 Texas Instruments Inc. 1,067,850 ----------- 3,130,155 SERVICES -- 3.0% 17,000 Administaff, Inc. 675,580 4,500 FedEx Corp. 392,085 6,500 United Parcel Service, Inc. Cl B 449,345 2,500 Weight Watchers International, Inc.*<F4> 128,950 ----------- 1,645,960 TELECOMMUNICATIONS -- 0.2% 12,000 Lucent Technologies Inc.*<F4> 39,000 17,000 Nortel Networks Corp.*<F4> 55,420 ----------- 94,420 TELEPHONE SERVICES -- 0.1% 8,000 Time Warner Telecom Inc.*<F4> 62,400 UTILITIES -- 1.1% 2,000 Chesapeake Energy Corp. 76,500 2,000 Chesapeake Utilities Corp. 70,300 5,500 Edison International 260,040 1,000 Energen Corp. 43,260 1,500 FPL Group, Inc. 71,400 1,500 PG&E Corp. 58,875 ----------- 580,375 WIRELESS COMMUNICATION -- 3.8% 3,000 Brightpoint, Inc.*<F4> 57,420 40,000 Motorola, Inc. 883,600 11,500 Nextel Partners, Inc.*<F4> 288,650 7,500 Research In Motion Ltd.*<F4> 513,000 10,745 Sprint Nextel Corp. 255,516 1,000 United States Cellular Corp.*<F4> 53,420 ----------- 2,051,606 ----------- Total common stocks (cost $41,107,088) 51,774,281 ----------- MUTUAL FUNDS -- 1.9% (A)<F5> 4,000 Biotech HOLDRs Trust 762,880 2,000 Oil Service HOLDRs Trust 248,000 ----------- Total mutual funds (cost $868,127) 1,010,880 ----------- Total long-term investments (cost $41,975,215) 52,785,161 PRINCIPAL AMOUNT ------ SHORT-TERM INVESTMENTS -- 0.3% (A) VARIABLE-RATE DEMAND NOTE -- 0.3% $189,373 U.S. Bank, N.A., 3.59% 189,373 ----------- Total short-term investments (cost $189,373) 189,373 ----------- Total investments -- 97.3%(A)<F5> (cost $42,164,588) 52,974,534 Cash and receivables, less liabilities -- 2.7% (A)<F5> 1,466,896 ----------- Net Assets -- 100% $54,441,430 ----------- ----------- *<F4> Non-income producing security. (A)<F5> Percentages for the various classifications relate to net assets. ADR - American Depository Receipt The accompanying notes to financial statements are an integral part of this schedule. STATEMENT OF ASSETS AND LIABILITIES September 30, 2005 ASSETS: Investments in securities, at value (cost $42,164,588) $ 52,974,534 Receivable from investments sold 4,068,468 Dividends and interest receivable 23,447 Receivable from shareholders for purchases 50 ------------ Total assets $ 57,066,499 ------------ ------------ LIABILITIES: Payable to brokers for securities purchased $ 2,463,728 Payable to adviser for management fees 44,877 Due to custodian 25,410 Payable to administrator for administrative fees 6,953 Payable to shareholders for redemptions 2,000 Interest payable 417 Other liabilities 81,684 ------------ Total liabilities 2,625,069 ------------ NET ASSETS: Capital Stock, $0.01 par value; 40,000,000 shares authorized; 1,846,741 shares outstanding 148,046,381 Net unrealized appreciation on investments 10,809,946 Accumulated net realized loss on investments (104,414,897) ------------ Net assets 54,441,430 ------------ Total liabilities and net assets $ 57,066,499 ------------ ------------ CALCULATION OF NET ASSET VALUE PER SHARE: Net asset value, offering and redemption price per share ($54,441,430 / 1,846,741 shares outstanding) $ 29.48 ------------ ------------ 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, 2005 INCOME: Dividends $ 366,418 Interest 62,611 ----------- Total income 429,029 ----------- EXPENSES: Management fees 694,884 Transfer agent fees 155,370 Administrative services 102,192 Printing and postage expense 67,887 Distribution fees 56,025 Custodian fees 54,687 Professional fees 32,585 Registration fees 25,067 Insurance expense 23,106 Board of Directors fees 5,000 Other expenses 30,412 ----------- Total expenses 1,247,215 ----------- NET INVESTMENT LOSS (818,186) ----------- NET REALIZED LOSS ON INVESTMENTS (1,254,985) NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 9,115,304 ----------- NET GAIN ON INVESTMENTS 7,860,319 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,042,133 ----------- ----------- 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, 2005 and 2004 2005 2004 ---- ---- OPERATIONS: Net investment loss $ (818,186) $ (1,569,629) Net realized (loss) gain on investments (1,254,985) 667,155 Net change in unrealized appreciation on investments 9,115,304 1,230,289 ------------ ------------ Net increase in net assets resulting from operations 7,042,133 327,815 ------------ ------------ FUND SHARE ACTIVITIES: Proceeds from shares issued (326,996 and 1,748,524 shares, respectively) 9,250,294 54,718,743 Cost of shares redeemed (1,601,561 and 3,599,902 shares, respectively) (46,060,648) (109,740,156) ------------ ------------ Net decrease in net assets derived from Fund share activities (36,810,354) (55,021,413) ------------ ------------ TOTAL DECREASE (29,768,221) (54,693,598) NET ASSETS AT THE BEGINNING OF THE YEAR 84,209,651 138,903,249 ------------ ------------ NET ASSETS AT THE END OF THE YEAR (Includes accumulated net investment loss of $0 and ($360), respectively) $ 54,441,430 $ 84,209,651 ------------ ------------ ------------ ------------ FINANCIAL HIGHLIGHTS (Selected data for each share of the Fund outstanding throughout each year) FOR THE YEARS ENDED SEPTEMBER 30, --------------------------------------------------------------------- 2005 2004 2003 2002 2001 ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $ 26.98 $ 27.93 $ 19.61 $ 29.73 $ 66.57 Income from investment operations: Net investment loss*<F6> (0.34) (0.40) (0.22) (0.25) (0.38) Net realized and unrealized gains (losses) on investments 2.84 (0.55)**<F7> 8.54 (9.87) (36.46) ------- ------- ------- ------- ------- Total from investment operations 2.50 (0.95) 8.32 (10.12) (36.84) Less distributions: Dividend from net investment income -- -- -- -- -- Distribution from net realized gains -- -- -- -- -- ------- ------- ------- ------- ------- Total from distributions -- -- -- -- -- ------- ------- ------- ------- ------- Net asset value, end of year $ 29.48 $ 26.98 $ 27.93 $ 19.61 $ 29.73 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- TOTAL RETURN 9.27% (3.44%) 42.43% (34.04%) (55.34%) RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's $) 54,441 84,210 138,903 80,033 182,742 Ratio of expenses to average net assets 1.80% 1.63% 1.74% 1.51% 1.35% Ratio of net investment loss to average net assets (1.18%) (1.33%) (0.88%) (0.82%) (0.82%) Portfolio turnover rate 167.6% 94.0% 83.7% 67.0% 35.8% *<F6> Net investment loss per share is calculated using average shares outstanding. **<F7> 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 Opportunity Fund's performance was positively affected in its fiscal year ended September 30, 2005 by, among other things, the strengthening economy and stronger corporate earnings. The Fund's performance was negatively affected by, among other things, higher interest rates and energy costs, problems in Iraq and natural disasters such as hurricanes. The Fund increased 1.47% and the S&P 500 Index increased 6.88% during the first half of the fiscal year (six months ended March 31, 2005). The Fund increased 7.11% and the S&P 500 increased 5.02% during the second half of the fiscal year (six months ended September 30, 2005). The S&P 500 increased 12.25% during the twelve months ended September 30, 2005. The Opportunity Fund was particularly helped by its emphasis on growth stocks in industries with stronger long-term outlooks, including: (1) Communications such as L.M. Ericsson Telephone Co.; (2) Energy Services such as Parker Drilling Co.; (3) Financial Services including discount brokerage companies such as E*Trade Financial Corp.; (4) Medical including Biotechnology such as Transkaryotic Therapies, Inc.; (5) Internet such as Openwave Systems Inc.; (6) Computer and Peripherals with leisure products and services such as Apple Computer, Inc.; and (7) Retail Stores such as Nordstrom, Inc. and Specialty Retailers such as Best Buy Co. The Fund underperformed the S&P 500 Index in the first half of its fiscal year mainly due to its overweighting in Technology, including Semiconductors such as Intel Corp. and Semiconductor Capital spending such as Teradyne, Inc. The Fund outperformed the S&P 500 Index in the second half of its fiscal year mainly due to its overweighting in Technology such as Apple Computer, Inc., Corning Inc. and Red Hat, Inc. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN REYNOLDS OPPORTUNITY FUND AND S&P 500 INDEX(1)<F8> DATE REYNOLDS OPPORTUNITY FUND S&P 500 INDEX ---- ------------------------- ------------- 9/30/95 $10,000 $10,000 9/30/96 $11,040 $12,040 9/30/97 $13,756 $16,940 9/30/98 $15,442 $18,490 9/30/99 $24,705 $23,631 9/30/2000 $31,355 $26,770 9/30/2001 $12,403 $19,643 9/30/2002 $8,307 $15,619 9/30/2003 $13,510 $19,430 9/30/2004 $12,930 $22,125 9/30/2005 $14,053 $24,836 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. AVERAGE ANNUAL TOTAL RETURN 1-YEAR 5-YEAR 10-YEAR ------ ------ ------- 8.68% -14.83% 3.46% 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)<F8> 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, 2005 SHARES VALUE ------ ----- LONG-TERM INVESTMENTS -- 98.4% (A)<F10> COMMON STOCKS -- 98.1 (A)<F10> ADVERTISING -- 0.5% 4,000 ValueClick, Inc.*<F9> $ 68,360 AIRLINES/AEROSPACE -- 0.6% 4,000 Kaman Corp. 81,800 APPLICATION SOFTWARE -- 1.5% 10,000 Compuware Corp.*<F9> 95,000 3,000 Novell, Inc.*<F9> 22,350 2,000 Sybase, Inc.*<F9> 46,840 1,686 Symantec Corp.*<F9> 38,205 ----------- 202,395 AUTOMOTIVE -- 0.4% 2,000 Accuride Corp.*<F9> 27,620 4,000 Amerigon Inc.*<F9> 23,400 ----------- 51,020 BIOTECHNOLOGY -- 4.8% 3,000 Elan Corp. PLC - SP-ADR*<F9> 26,580 3,000 Encysive Pharmaceuticals Inc.*<F9> 35,340 4,500 Protein Design Labs, Inc.*<F9> 126,000 5,000 Savient Pharmaceuticals Inc.*<F9> 18,850 2,000 Sepracor Inc.*<F9> 117,980 3,000 Serologicals Corp.*<F9> 67,680 8,000 StemCells, Inc.*<F9> 44,160 9,000 ViroPharma Inc.*<F9> 187,200 ----------- 623,790 BUSINESS SOFTWARE & SERVICES -- 10.1% 3,000 Akamai Technologies, Inc.*<F9> 47,850 7,000 BEA Systems, Inc.*<F9> 62,860 5,000 CheckFree Corp.*<F9> 189,100 9,000 Comverse Technology, Inc.*<F9> 236,430 1,000 Digital River, Inc.*<F9> 34,850 1,500 MICROS Systems, Inc.*<F9> 65,625 3,000 Monster Worldwide Inc.*<F9> 92,130 10,000 Radiant Systems, Inc.*<F9> 103,200 12,000 Sapient Corp.*<F9> 75,000 11,000 Sonic Solutions*<F9> 236,500 23,000 Sonus Networks, Inc.*<F9> 133,400 3,000 TIBCO Software Inc.*<F9> 25,080 10,000 Viewpoint Corp.*<F9> 14,400 2,000 webMethods, Inc.*<F9> 14,140 ----------- 1,330,565 CABLE TV/BROADCASTING -- 3.6% 21,000 Charter Communications, Inc.*<F9> 31,500 23,000 Sirius Satellite Radio Inc.*<F9> 150,650 8,000 XM Satellite Radio Holdings Inc.*<F9> 287,280 ----------- 469,430 CHEMICALS-SPECIALTY -- 0.3% 5,000 W.R. Grace & Co.*<F9> 44,750 COMMUNICATION EQUIPMENT -- 6.9% 2,000 American Tower Corp.*<F9> 49,900 4,000 Arris Group Inc.*<F9> 47,440 10,000 Corning Inc.*<F9> 193,300 5,000 L.M. Ericsson Telephone Co. ADR 184,200 6,000 Harmonic Inc.*<F9> 34,920 8,000 JDS Uniphase Corp.*<F9> 17,760 22,200 McDATA Corp.*<F9> 116,328 2,000 NETGEAR, Inc.*<F9> 48,120 6,000 Plexus Corp.*<F9> 102,540 11,000 Tellabs, Inc.*<F9> 115,720 ----------- 910,228 COMPUTER & PERIPHERALS -- 4.4% 1,500 Apple Computer, Inc.*<F9> 80,415 7,500 Komag, Inc.*<F9> 239,700 5,000 Network Appliance, Inc.*<F9> 118,700 3,350 Palm, Inc.*<F9>(Formerly PalmOne, Inc.) 94,905 4,000 Symbol Technologies, Inc. 38,720 ----------- 572,440 COMPUTER NETWORKING -- 5.2% 6,600 Cisco Systems Inc.*<F9> 118,338 10,000 Foundry Networks, Inc.*<F9> 127,000 16,000 Glenayre Technologies, Inc.*<F9> 57,440 3,000 Juniper Networks, Inc.*<F9> 71,370 15,000 Sierra Wireless Inc.*<F9> 170,400 5,500 WebEx Communications, Inc.*<F9> 134,805 ----------- 679,353 COMPUTER SOFTWARE & SERVICES -- 1.3% 3,000 Scientific Games Corp.*<F9> 93,000 6,000 Wind River Systems, Inc.*<F9> 77,580 ----------- 170,580 DIVERSIFIED -- 2.1% 17,000 Crown Holdings, Inc.*<F9> 270,980 DRUGS -- 2.1% 3,000 Alkermes, Inc.*<F9> 50,400 4,000 ARIAD Pharmaceuticals, Inc.*<F9> 29,720 2,000 Cubist Pharmaceuticals, Inc.*<F9> 43,080 4,000 Geron Corp.*<F9> 41,080 4,000 Ligand Pharmaceuticals Inc. Cl B*<F9> 40,600 5,000 Perrigo Co. 71,550 ----------- 276,430 ELECTRICAL EQUIPMENT -- 0.1% 4,000 Capstone Turbine Corp.*<F9> 14,200 ELECTRONICS -- 3.3% 2,000 Avnet, Inc.*<F9> 48,900 500 Garmin Ltd. 33,915 12,000 Kopin Corp.*<F9> 83,400 2,000 Lamson & Sessions Co.*<F9> 36,640 9,000 Micrel, Inc.*<F9> 101,070 10,000 Powerwave Technologies, Inc.*<F9> 129,900 ----------- 433,825 ENERGY-SERVICES -- 2.9% 3,000 Brigham Exploration Co.*<F9> 38,550 500 CARBO Ceramics Inc. 32,995 12,000 Parker Drilling Co.*<F9> 111,240 3,000 Patterson-UTI Energy, Inc. 108,240 2,000 Pioneer Drilling Co.*<F9> 39,040 1,500 Veritas DGC Inc.*<F9> 54,930 ----------- 384,995 ENTERTAINMENT/MEDIA -- 0.2% 10,000 WorldGate Communications, Inc.*<F9> 25,200 FINANCIAL SERVICES -- 1.7% 7,000 Ameritrade Holding Corp.*<F9> 150,360 4,000 E*TRADE Financial Corp.*<F9> 70,400 ----------- 220,760 GOLD & SILVER -- 1.3% 8,000 Cambior Inc.*<F9> 17,040 10,000 Canyon Resources Corp.*<F9> 7,100 13,000 Coeur d'Alene Mines Corp.*<F9> 54,990 3,500 Goldcorp Inc. 70,140 5,000 Golden Star Resources Ltd.*<F9> 16,700 ----------- 165,970 HOUSEHOLD PRODUCTS -- 1.3% 2,000 Jarden Corp.*<F9> 82,140 3,000 Parlux Fragrances, Inc.*<F9> 87,420 ----------- 169,560 INSTRUMENTS -- 0.8% 2,000 Itron, Inc.*<F9> 91,320 5,000 RAE Systems Inc.*<F9> 17,200 ----------- 108,520 INTEGRATED OIL & GAS -- 1.2% 5,000 Dynegy Inc.*<F9> 23,550 2,000 Swift Energy Co.*<F9> 91,500 6,000 TransGlobe Energy Corp.*<F9> 37,740 ----------- 152,790 INTERNET INFORMATION PROVIDERS -- 1.0% 200 Google Inc.*<F9> 63,292 10,000 iVillage Inc.*<F9> 72,600 ----------- 135,892 INTERNET SERVICE PROVIDERS -- 0.2% 5,000 Opsware, Inc.*<F9> 25,950 INTERNET SOFTWARE & SERVICES -- 5.5% 4,000 24/7 Real Media, Inc.*<F9> 28,160 8,000 Internet Capital Group, Inc.*<F9> 70,480 12,000 Openwave Systems Inc.*<F9> 215,760 3,000 PalmSource, Inc.*<F9> 54,150 11,000 Red Hat, Inc.*<F9> 233,090 12,000 Redback Networks Inc.*<F9> 119,040 ----------- 720,680 MACHINERY -- 0.4% 1,500 JLG Industries, Inc. 54,885 MEDICAL SERVICES -- 0.3% 500 Quality Systems, Inc. 34,545 NATURAL GAS -- 0.9% 2,000 El Paso Corp. 27,800 1,000 Questar Corp. 88,120 ----------- 115,920 RETAIL-SPECIALTY -- 3.0% 3,000 Best Buy Co., Inc. 130,590 8,000 Charming Shoppes, Inc.*<F9> 85,360 3,000 Circuit City Stores, Inc. 51,480 10,000 Navarre Corp.*<F9> 57,900 4,000 Rite Aid Corp.*<F9> 15,520 1,500 Williams-Sonoma, Inc.*<F9> 57,525 ----------- 398,375 RETAIL STORES -- 0.8% 3,000 Nordstrom, Inc. 102,960 SECURITY SOFTWARE & SERVICES - 3.9% 4,000 Check Point Software Technologies Ltd.*<F9> 97,280 2,000 Entrust, Inc.*<F9> 11,200 4,500 McAfee, Inc.*<F9> 141,390 4,000 RSA Security Inc.*<F9> 50,840 1,000 SafeNet, Inc.*<F9> 36,310 3,000 VASCO Data Security International, Inc.*<F9> 27,210 5,000 VeriSign, Inc.*<F9> 106,850 3,000 Vignette Corp.*<F9> 47,730 ----------- 518,810 SEMICONDUCTOR CAPITAL SPENDING -- 0.5% 4,000 Kulicke and Soffa Industries, Inc.*<F9> 29,000 5,000 Semitool, Inc.*<F9> 39,750 ----------- 68,750 SEMICONDUCTORS -- 14.0% 4,000 Broadcom Corp.*<F9> 187,640 4,000 Cirrus Logic, Inc.*<F9> 30,360 8,000 Conexant Systems, Inc.*<F9> 14,320 7,000 Cypress Semiconductor Corp.*<F9> 105,350 8,000 EMCORE Corp.*<F9> 48,960 2,200 Intel Corp. 54,230 5,500 Lam Research Corp.*<F9> 167,585 18,000 LSI Logic Corp.*<F9> 177,300 1,500 Marvell Technology Group Ltd.*<F9> 69,165 11,000 Mattson Technology, Inc.*<F9> 82,610 4,500 MEMC Electronic Materials, Inc.*<F9> 102,555 4,000 Micron Technology, Inc.*<F9> 53,200 6,000 Mindspeed Technologies Inc.*<F9> 14,460 1,500 Multi-Fineline Electronix, Inc.*<F9> 43,905 2,000 Netlogic Microsystems Inc.*<F9> 43,180 4,000 NVIDIA Corp.*<F9> 137,120 4,000 ON Semiconductor Corp.*<F9> 20,680 12,000 PLX Technology, Inc.*<F9> 100,080 11,000 PMC-Sierra, Inc.*<F9> 96,910 16,000 RF Micro Devices, Inc.*<F9> 90,400 9,000 Sanmina-SCI Corp.*<F9> 38,610 5,000 Solectron Corp.*<F9> 19,550 4,000 Texas Instruments Inc. 135,600 ----------- 1,833,770 SERVICES -- 1.2% 4,000 Administaff, Inc. 158,960 SYSTEM SOFTWARE -- 0.7% 1,500 Mercury Interactive Corp.*<F9> 59,400 4,000 Parametric Technology Corp.*<F9> 27,880 ----------- 87,280 TELECOMMUNICATION SERVICES -- 0.1% 4,000 Qwest Communications International Inc.*<F9> 16,400 TELECOMMUNICATIONS -- 0.4% 18,000 CIENA Corp.*<F9> 47,520 TELEPHONE SERVICES -- 0.9% 15,000 Time Warner Telecom Inc.*<F9> 117,000 UTILITIES -- 0.2% 11,000 Calpine Corp.*<F9> 28,490 WIRELESS COMMUNICATION -- 7.5% 3,000 Alamosa Holdings, Inc.*<F9> 51,330 4,500 Brightpoint, Inc.*<F9> 86,130 7,000 Dobson Communications Corp.*<F9> 53,760 11,500 Motorola, Inc. 254,035 4,000 Research In Motion Ltd.*<F9> 273,600 3,000 Sprint Nextel Corp. 71,340 22,000 UbiquiTel Inc.*<F9> 192,280 ----------- 982,475 ----------- Total common stocks (cost $8,138,324) 12,876,603 MUTUAL FUNDS -- 0.3% (A)<F10> 3,000 iShares MSCI Japan Index Fund 36,570 ----------- Total mutual funds (cost $37,090) 36,570 ----------- Total long-term investments (cost $8,175,414) 12,913,173 PRINCIPAL AMOUNT ------ SHORT-TERM INVESTMENTS -- 1.2% (A)<F10> VARIABLE RATE DEMAND NOTE -- 1.2% $150,122 U.S. Bank, N.A., 3.59% 150,122 ----------- Total short-term investments (cost $150,122) 150,122 ----------- Total investments (cost $8,325,536) 13,063,295 Cash and receivables, less liabilities -- 0.4% (A)<F10> 54,507 ----------- NET ASSETS $13,117,802 ----------- ----------- Net Asset Value Per Share ($0.01 par value, 40,000,000 shares authorized), offering and redemption price ($13,117,802 / 770,163 shares outstanding) $ 17.03 ----------- ----------- *<F9> Non-income producing security. (A)<F10> Percentages for the various classifications relate to net assets. ADR - American Depository Receipt 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, 2005 INCOME: Dividends $ 25,665 Interest 26,470 ---------- Total income 52,135 ---------- EXPENSES: Management fees 158,498 Transfer agent fees 35,001 Administrative services 34,204 Professional fees 27,046 Distribution fees 26,700 Custodian fees 16,575 Registration fees 16,023 Printing and postage expense 14,659 Insurance expense 5,268 Board of Directors fees 5,000 Other expenses 12,706 ---------- Total expenses before reimbursement 351,680 Less expenses reimbursed by adviser (24,049) ---------- Net expenses 327,631 ---------- NET INVESTMENT LOSS (275,496) ---------- NET REALIZED GAIN ON INVESTMENTS 190,428 NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 1,607,776 ---------- NET GAIN ON INVESTMENTS 1,798,204 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,522,708 ---------- ---------- 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, 2005 and 2004 2005 2004 ---- ---- OPERATIONS: Net investment loss $ (275,496) $ (566,724) Net realized gain on investments 190,428 2,004,803 Net change in unrealized appreciation on investments 1,607,776 (2,992,834) ----------- ----------- Net increase (decrease) in net assets resulting from operations 1,522,708 (1,554,755) ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net realized gains ($1.3048 and $0.73628 per share, respectively) (1,432,499)*<F11> (1,226,731)*<F11> ----------- ----------- FUND SHARE ACTIVITIES: Proceeds from shares issued (345,706 and 1,920,545 shares, respectively) 5,983,960 40,315,699 Net asset value of shares issued in distributions reinvested (82,940 and 57,761 shares, respectively) 1,389,237 1,193,946 Cost of shares redeemed (774,759 and 2,308,497 shares, respectively) (13,200,954) (46,318,679) ----------- ----------- Net decrease in net assets derived from Fund share activities (5,827,757) (4,809,034) ----------- ----------- TOTAL DECREASE (5,737,548) (7,590,520) NET ASSETS AT THE BEGINNING OF THE YEAR 18,855,350 26,445,870 ----------- ----------- NET ASSETS AT THE END OF THE YEAR (Includes accumulated net investment loss of $0 and ($12,454), respectively) $13,117,802 $18,855,350 ----------- ----------- ----------- ----------- *<F11> See Note 8 FINANCIAL HIGHLIGHTS (Selected data for each share of the Fund outstanding throughout each year) FOR THE YEARS ENDED SEPTEMBER 30, --------------------------------- 2005 2004 2003 2002 2001 ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $ 16.89 $ 18.28 $ 11.24 $ 16.82 $ 43.31 Income from investment operations: Net investment loss*<F12> (0.29) (0.38) (0.23) (0.23) (0.37) Net realized and unrealized gains (losses) on investments 1.73 (0.27) 7.27 (5.31) (25.47) ------- ------- ------- ------- ------- Total from investment operations 1.44 (0.65) 7.04 (5.54) (25.84) Less distributions: Dividend from net investment income -- -- -- -- -- Distributions from net realized gains (1.30) (0.74) -- (0.04) (0.65) ------- ------- ------- ------- ------- Total from distributions (1.30) (0.74) -- (0.04) (0.65) ------- ------- ------- ------- ------- Net asset value, end of year $ 17.03 $ 16.89 $ 18.28 $ 11.24 $ 16.82 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- TOTAL RETURN 8.68% (4.29%) 62.63% (33.02%) (60.44%) RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's $) 13,118 18,855 26,446 14,065 27,794 Ratio of expenses (after reimbursement) to average net assets**<F13> 2.07% 1.96% 2.02% 1.87% 1.74% Ratio of net investment loss to average net assets***<F14> (1.74%) (1.87%) (1.56%) (1.33%) (1.29%) Portfolio turnover rate 97.5% 65.7% 88.4% 195.0% 74.0% *<F12> Net investment loss per share is calculated using average shares outstanding. **<F13> 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, 2005, the ratio would have been 2.22%. ***<F14> If the Fund had paid all of its expenses for the year ended September 30, 2005, the ratio would have been (1.89%). 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 its fiscal year ended September 30, 2005 by, among other things, the strengthening economy and stronger corporate earnings. The Fund's performance was negatively affected by, among other things, higher interest rates and energy costs, problems in Iraq and natural disasters such as hurricanes. The Fund decreased 0.37% and the S&P 500 Index increased 6.88% during the first half of the fiscal year (six months ended March 31, 2005). The Fund increased 7.26% and the S&P 500 increased 5.02% during the second half of the fiscal year (six months ended September 30, 2005). The S&P 500 increased 12.25% during the twelve months ended September 30, 2005. The Reynolds Fund was particularly helped by its emphasis on growth stocks in industries with stronger long-term outlooks, including: (1) Communications such as L.M. Ericsson Telephone Co.; (2) Energy Services such as Parker Drilling Co.; (3) Financial Services including discount brokerage companies such as Ameritrade Holding Corp.; (4) Medical including Biotechnology such as Transkaryotic Therapies, Inc.; (5) Internet such as Red Hat, Inc.; and (6) Specialty Retailers such as Circuit City Stores, Inc. The Fund underperformed the S&P 500 Index in the first six months of the fiscal year mainly due to: (1) overweighting in Technology including Semiconductors such as Vitesse Semiconductor Corp. and Semiconductor Capital Spending such as Teradyne, Inc.; and (2) the negative effect of leveraging. The Fund outperformed the S&P 500 Index in the second half of its fiscal year mainly due to overweighting in: (1) Technology including Apple Computers, Inc., Corning Inc. and Red Hat, Inc.; and (2) the positive effect of leveraging. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN REYNOLDS FUND AND S&P 500 INDEX(1)<F16> DATE REYNOLDS FUND S&P 500 INDEX ---- ------------ ------------- 10/1/99*<F15> $10,000 $10,000 9/30/2000 $13,140 $11,328 9/30/2001 $4,350 $8,313 9/30/2002 $3,010 $6,610 9/30/2003 $6,000 $8,223 9/30/2004 $5,390 $9,364 9/30/2005 $5,760 $10,511 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. AVERAGE ANNUAL TOTAL RETURN Since Inception 1-YEAR 5-YEAR 10/1/99*<F15> ------ ------- ------------ 6.86% -15.21% -8.78% *<F15> 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)<F16> 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, 2005 SHARES VALUE ------ ----- LONG-TERM INVESTMENTS -- 121.7% (A)<F18> COMMON STOCKS -- 120.9% (A)<F18> ADVERTISING -- 1.0% 11,000 ValueClick, Inc.*<F17> $ 187,990 AIRLINES/AEROSPACE -- 0.6% 6,000 Kaman Corp. 122,700 APPAREL -- 0.9% 2,000 Charlotte Russe Holding Inc.*<F17> 26,640 2,000 Gildan Activewear Inc.*<F17> 76,460 2,500 Phillips-Van Heusen Corp. 77,550 ----------- 180,650 APPLICATION SOFTWARE -- 2.6% 2,000 Business Objects S.A. SP-ADR*<F17> 69,520 18,000 Compuware Corp.*<F17> 171,000 4,000 Micromuse Inc.*<F17> 31,520 2,000 Sybase, Inc.*<F17> 46,840 8,304 Symantec Corp.*<F17> 188,168 ----------- 507,048 AUTOMOTIVE -- 0.6% 8,000 Amerigon Inc.*<F17> 46,800 9,000 Unisys Corp.*<F17> 59,760 ----------- 106,560 BIOTECHNOLOGY -- 6.1% 10,000 AVANT Immunotherapeutics, Inc.*<F17> 13,000 11,000 BioCryst Pharmaceuticals, Inc.*<F17> 107,580 2,000 Crucell N.V. ADR*<F17> 53,620 7,000 Elan Corp. PLC - SP-ADR*<F17> 62,020 3,000 Encysive Pharmaceuticals Inc.*<F17> 35,340 500 Genentech, Inc.*<F17> 42,105 3,000 Incyte Corp.*<F17> 14,100 6,000 LifeCell Corp.*<F17> 129,780 8,000 Omnicell, Inc.*<F17> 77,840 4,000 Protein Design Labs, Inc.*<F17> 112,000 8,000 Savient Pharmaceuticals Inc.*<F17> 30,160 3,000 Serologicals Corp.*<F17> 67,680 4,000 Sinovac Biotech Ltd.*<F17> 19,080 7,000 StemCells, Inc.*<F17> 38,640 18,000 ViroPharma Inc.*<F17> 374,400 ----------- 1,177,345 BUSINESS SOFTWARE & SERVICES -- 5.7% 11,000 Aspen Technology, Inc.*<F17> 68,750 7,000 BEA Systems, Inc.*<F17> 62,860 1,000 Comverse Technology, Inc.*<F17> 26,270 2,000 CSG Systems International, Inc.*<F17> 43,420 1,500 Digital River, Inc.*<F17> 52,275 1,000 Intergraph Corp.*<F17> 44,710 1,500 Intrado Inc.*<F17> 27,045 8,000 Manugistics Group, Inc.*<F17> 15,760 1,500 Monster Worldwide Inc.*<F17> 46,065 4,000 NetIQ Corp.*<F17> 48,960 6,500 PAR Technology Corp.*<F17> 149,500 13,500 Radiant Systems, Inc.*<F17> 139,320 7,000 Sonic Solutions*<F17> 150,500 21,000 Sonus Networks, Inc.*<F17> 121,800 5,000 TIBCO Software Inc.*<F17> 41,800 21,000 Viewpoint Corp.*<F17> 30,240 4,000 webMethods, Inc.*<F17> 28,280 ----------- 1,097,555 CABLE TV/BROADCASTING -- 2.6% 24,000 Sirius Satellite Radio Inc.*<F17> 157,200 9,500 XM Satellite Radio Holdings Inc.*<F17> 341,145 ----------- 498,345 COMMUNICATION EQUIPMENT -- 6.6% 13,000 8x8, Inc.*<F17> 26,390 2,500 ADC Telecommunications, Inc.*<F17> 57,150 1,862 American Tower Corp.*<F17> 46,457 8,000 Concurrent Computer Corp.*<F17> 13,520 13,000 Corning Inc.*<F17> 251,290 2,500 Endwave Corp.*<F17> 32,250 2,000 L.M. Ericsson Telephone Co. ADR 73,680 10,000 Finisar Corp.*<F17> 13,700 39,000 JDS Uniphase Corp.*<F17> 86,580 45,100 McDATA Corp.*<F17> 236,324 5,000 NETGEAR, Inc.*<F17> 120,300 10,000 Plexus Corp.*<F17> 170,900 9,000 Tellabs, Inc.*<F17> 94,680 8,000 Terayon Communication Systems, Inc.*<F17> 31,200 3,000 Wireless Facilities, Inc.*<F17> 17,400 ----------- 1,271,821 COMMUNICATION SERVICES -- 0.7% 5,500 Crown Castle International Corp.*<F17> 135,465 COMPUTER & PERIPHERALS -- 2.1% 7,500 Komag, Inc.*<F17> 239,700 3,000 Sigma Designs, Inc.*<F17> 32,940 9,000 Sun Microsystems, Inc.*<F17> 35,280 7,000 Symbol Technologies, Inc. 67,760 2,000 Western Digital Corp.*<F17> 25,860 ----------- 401,540 COMPUTER NETWORKING -- 3.8% 10,000 Extreme Networks, Inc.*<F17> 44,500 14,000 Foundry Networks, Inc.*<F17> 177,800 8,000 Glenayre Technologies, Inc.*<F17> 28,720 1,500 Juniper Networks, Inc.*<F17> 35,685 21,000 Sierra Wireless Inc.*<F17> 238,560 8,500 WebEx Communications, Inc.*<F17> 208,335 ----------- 733,600 COMPUTER SOFTWARE & SERVICES -- 0.8% 1,500 Macromedia, Inc.*<F17> 61,005 7,000 Wind River Systems, Inc.*<F17> 90,510 ----------- 151,515 DIVERSIFIED -- 0.5% 6,500 Crown Holdings, Inc.*<F17> 103,610 DRUGS -- 1.6% 3,500 Amylin Pharmaceuticals, Inc.*<F17> 121,765 4,000 ARIAD Pharmaceuticals, Inc.*<F17> 29,720 2,000 Cubist Pharmaceuticals, Inc.*<F17> 43,080 7,000 Geron Corp.*<F17> 71,890 1,500 Kendle International Inc.*<F17> 42,210 ----------- 308,665 ELECTRICAL EQUIPMENT -- 0.3% 12,000 Capstone Turbine Corp.*<F17> 42,600 2,000 FuelCell Energy, Inc.*<F17> 21,940 ----------- 64,540 ELECTRONICS -- 3.4% 1,500 Avnet, Inc.*<F17> 36,675 3,500 Essex Corp.*<F17> 75,845 1,000 Garmin Ltd. 67,830 16,000 GigaMedia Ltd.*<F17> 29,280 23,000 Kopin Corp.*<F17> 159,850 20,000 Powerwave Technologies, Inc.*<F17> 259,800 5,000 SRS Labs, Inc.*<F17> 32,200 ----------- 661,480 ENERGY-SERVICES -- 6.3% 1,500 Cooper Cameron Corp.*<F17> 110,895 3,000 Diamond Offshore Drilling, Inc. 183,750 6,000 Global Industries, Ltd.*<F17> 88,440 1,000 Nabors Industries, Ltd.*<F17> 71,830 500 Noble Corp. 34,230 18,000 Parker Drilling Co.*<F17> 166,860 2,000 Schlumberger Ltd. 168,760 2,000 Smith International, Inc. 66,620 7,000 Veritas DGC Inc.*<F17> 256,340 2,000 W&T Offshore, Inc. 64,860 ----------- 1,212,585 ENTERTAINMENT/MEDIA -- 0.4% 2,000 Netflix Inc.*<F17> 51,980 7,000 WorldGate Communications, Inc.*<F17> 17,640 ----------- 69,620 FINANCIAL SERVICES -- 1.0% 5,000 E*TRADE Financial Corp.*<F17> 88,000 20,022 HomeStore, Inc.*<F17> 87,096 4,000 NISSIN CO., LTD. ADR 22,840 ----------- 197,936 FOODS -- 0.4% 5,000 Rocky Mountain Chocolate Factory, Inc. 73,000 GOLD & SILVER -- 2.7% 20,000 Bema Gold Corp.*<F17> 53,800 10,000 Coeur d'Alene Mines Corp.*<F17> 42,300 17,000 DRDGOLD Ltd. SP-ADR 23,630 5,000 Eldorado Gold Corp.*<F17> 17,750 3,000 Gold Fields Ltd. SP-ADR 43,590 6,000 Goldcorp Inc. 120,240 11,000 Kinross Gold Corp.*<F17> 84,480 10,000 Northgate Minerals Corp.*<F17> 13,600 2,000 Pan American Silver Corp.*<F17> 35,320 3,000 Randgold Resources Ltd. ADR*<F17> 47,160 3,000 Silver Standard Resources Inc.*<F17> 41,100 ----------- 522,970 GROCERY STORES -- 0.2% 3,000 Pathmark Stores, Inc.*<F17> 33,810 HOME BUILDERS -- 0.2% 500 KB Home, Inc. 36,600 HOTEL -- 0.4% 500 Marriott International, Inc. 31,500 1,000 MGM MIRAGE*<F17> 43,770 ----------- 75,270 HOUSEHOLD PRODUCTS -- 0.5% 3,000 Parlux Fragrances, Inc.*<F17> 87,420 INDUSTRIAL METALS & MINING -- 2.0% 1,500 Companhia Vale do Rio Doce ADR 65,790 2,000 Empire Resources, Inc. 15,660 1,000 Tenaris S.A. ADR 137,840 4,000 Titanium Metals Corp.*<F17> 158,240 ----------- 377,530 INSTRUMENTS -- 0.9% 4,000 GSI Group Inc.*<F17> 41,800 1,000 Itron, Inc.*<F17> 45,660 5,000 RAE Systems Inc.*<F17> 17,200 2,000 SiRF Technology Holdings, Inc.*<F17> 60,260 4,000 Therma-Wave Inc.*<F17> 7,160 ----------- 172,080 INSURANCE -- 0.2% 500 WellChoice Inc.*<F17> 37,950 INTEGRATED OIL & GAS -- 4.7% 500 Burlington Resources Inc. 40,660 11,000 CanArgo Energy Corp.*<F17> 20,790 1,500 Carrizo Oil & Gas, Inc.*<F17> 43,950 6,000 CREDO Petroleum Corp.*<F17> 162,600 12,000 Dynegy Inc.*<F17> 56,520 25,000 Harken Energy Corp.*<F17> 19,750 1,000 Marathon Oil Corp. 68,930 1,000 Nexen Inc. 47,660 2,000 Noble Energy, Inc. 93,800 2,000 Swift Energy Co.*<F17> 91,500 2,000 Syntroleum Corp.*<F17> 29,120 2,000 TETRA Technologies, Inc.*<F17> 62,440 28,000 TransGlobe Energy Corp.*<F17> 176,120 ----------- 913,840 INTERNET INFORMATION PROVIDERS -- 2.6% 9,000 CNET Networks, Inc.*<F17> 122,130 500 Google Inc.*<F17> 158,230 9,000 iVillage Inc.*<F17> 65,340 16,000 Verticalnet, Inc.*<F17> 9,600 3,000 WebMD Corp.*<F17> 33,240 3,500 Yahoo! Inc.*<F17> 118,440 ----------- 506,980 INTERNET SERVICE PROVIDERS -- 0.1% 1,000 aQuantive, Inc.*<F17> 20,130 INTERNET SOFTWARE & SERVICES -- 8.2% 29,000 24/7 Real Media, Inc.*<F17> 204,160 19,000 CMGI Inc.*<F17> 31,730 10,000 Internet Capital Group, Inc.*<F17> 88,100 10,000 LookSmart, Ltd.*<F17> 8,300 15,000 NIC Inc.*<F17> 98,250 11,000 Openwave Systems Inc.*<F17> 197,780 17,000 Red Hat, Inc.*<F17> 360,230 28,000 Redback Networks Inc.*<F17> 277,760 10,000 Safeguard Scientifics, Inc.*<F17> 17,300 1,500 Shanda Interactive Entertainment Ltd.-ADS*<F17> 40,575 1,500 SkyTerra Communications, Inc.*<F17> 52,125 10,000 SonicWALL, Inc.*<F17> 63,500 1,000 Websense, Inc.*<F17> 51,210 16,000 Youbet.com, Inc.*<F17> 91,680 ----------- 1,582,700 MACHINERY -- 1.2% 1,500 Columbus McKinnon Corp.*<F17> 35,490 3,000 JLG Industries, Inc. 109,770 6,000 Presstek, Inc.*<F17> 77,880 ----------- 223,140 MEDICAL SERVICES -- 1.7% 8,000 BioScrip, Inc.*<F17> 52,000 1,000 Cerner Corp.*<F17> 86,930 7,000 Ventiv Health, Inc.*<F17> 183,470 ----------- 322,400 MEDICAL SUPPLIES -- 1.6% 1,000 CNS, Inc. 26,070 2,500 Mentor Corp. 137,525 4,000 NationsHealth, Inc.*<F17> 31,800 3,500 Neurometrix Inc.*<F17> 104,195 ----------- 299,590 NATURAL GAS -- 3.3% 2,000 Cabot Oil & Gas Corp. 101,020 4,000 El Paso Corp. 55,600 1,000 Kinder Morgan, Inc. 96,160 1,500 Newfield Exploration Co.*<F17> 73,650 1,000 Questar Corp. 88,120 3,000 Southwestern Energy Co.*<F17> 220,200 ----------- 634,750 OFFICE EQUIPMENT & SUPPLIES -- 0.1% 5,000 Danka Business Systems PLC - SP-ADR*<F17> 13,350 OIL & GAS REFINING & MARKETING -- 4.2% 6,500 Frontier Oil Corp. 288,275 1,500 Holly Corp. 95,970 2,000 Sunoco, Inc. 156,400 1,500 Tesoro Corp. 100,860 1,500 Valero Energy Corp. 169,590 ----------- 811,095 REAL ESTATE -- 0.1% 500 Toll Brothers, Inc.*<F17> 22,335 RESTAURANTS -- 3.5% 2,000 Darden Restaurants, Inc. 60,740 28,000 Luby's, Inc.*<F17> 365,680 5,000 Papa John's International, Inc.*<F17> 250,600 ----------- 677,020 RETAIL-SPECIALTY -- 5.0% 1,000 Bed Bath & Beyond Inc.*<F17> 40,180 2,250 Best Buy Co., Inc. 97,942 2,000 Carter's, Inc.*<F17> 113,600 21,000 Charming Shoppes, Inc.*<F17> 224,070 4,000 eBay Inc.*<F17> 164,800 3,000 The Men's Wearhouse, Inc.*<F17> 80,100 4,000 Navarre Corp.*<F17> 23,160 1,500 Office Depot, Inc.*<F17> 44,550 8,000 Rite Aid Corp.*<F17> 31,040 1,500 Tiffany & Co. 59,655 4,000 Wet Seal, Inc.*<F17> 18,000 500 Whole Foods Market, Inc. 67,225 ----------- 964,322 RETAIL STORES -- 0.3% 1,500 Costco Wholesale Corp. 64,635 SECURITY SOFTWARE & SERVICES -- 4.0% 3,000 Check Point Software Technologies Ltd.*<F17> 72,960 2,000 Entrust, Inc.*<F17> 11,200 6,500 Internet Security Systems, Inc.*<F17> 156,065 5,500 McAfee, Inc.*<F17> 172,810 7,000 RSA Security Inc.*<F17> 88,970 6,000 Secure Computing Corp.*<F17> 68,100 22,500 VASCO Data Security International, Inc.*<F17> 204,075 ----------- 774,180 SEMICONDUCTOR CAPITAL SPENDING -- 1.4% 4,000 Asyst Technologies, Inc.*<F17> 18,640 1,000 KLA-Tencor Corp. 48,760 13,500 Kulicke and Soffa Industries, Inc.*<F17> 97,875 4,000 LTX Corp.*<F17> 16,880 4,000 Teradyne, Inc.*<F17> 66,000 9,000 TranSwitch Corp.*<F17> 15,480 ----------- 263,635 SEMICONDUCTORS -- 14.6% 2,000 Advanced Micro Devices, Inc.*<F17> 50,400 5,000 Applied Micro Circuits Corp.*<F17> 15,000 2,000 ATI Technologies Inc.*<F17> 27,880 2,500 Broadcom Corp.*<F17> 117,275 8,000 Cirrus Logic, Inc.*<F17> 60,720 45,000 Conexant Systems, Inc.*<F17> 80,550 3,000 Cypress Semiconductor Corp.*<F17> 45,150 22,000 EMCORE Corp.*<F17> 134,640 3,500 Lam Research Corp.*<F17> 106,645 12,000 LSI Logic Corp.*<F17> 118,200 3,500 Marvell Technology Group Ltd.*<F17> 161,385 22,000 Mattson Technology, Inc.*<F17> 165,220 7,500 MEMC Electronic Materials, Inc.*<F17> 170,925 2,000 Micron Technology, Inc.*<F17> 26,600 38,000 Mindspeed Technologies Inc.*<F17> 91,580 16,000 MIPS Technologies, Inc.*<F17> 109,280 5,000 National Semiconductor Corp. 131,500 4,000 Netlogic Microsystems Inc.*<F17> 86,360 4,000 NVIDIA Corp.*<F17> 137,120 19,000 ON Semiconductor Corp.*<F17> 98,230 14,000 PLX Technology, Inc.*<F17> 116,760 16,000 PMC-Sierra, Inc.*<F17> 140,960 2,000 Rambus Inc.*<F17> 24,200 24,000 RF Micro Devices, Inc.*<F17> 135,600 1,000 SanDisk Corp.*<F17> 48,250 5,000 Sanmina-SCI Corp.*<F17> 21,450 5,000 Silicon Storage Technology, Inc.*<F17> 26,900 6,000 SIPEX Corp.*<F17> 11,700 8,000 Skyworks Solutions, Inc.*<F17> 56,160 20,000 Solectron Corp.*<F17> 78,200 5,000 Texas Instruments Inc. 169,500 14,058 United Microelectronics Corp. ADR 50,609 ----------- 2,814,949 SERVICES -- 0.4% 2,000 Access Integrated Technologies Inc.*<F17> 20,060 8,000 EVCI Career Colleges Holding Corp.*<F17> 51,040 3,000 Velocity Express Corp.*<F17> 9,750 ----------- 80,850 SYSTEM SOFTWARE -- 0.2% 4,000 Parametric Technology Corp.*<F17> 27,880 TELECOMMUNICATIONS -- 0.3% 15,000 CIENA Corp.*<F17> 39,600 14,000 McLeodUSA Inc. ESCROW SHRS*<F17> 0 5,000 Nortel Networks Corp.*<F17> 16,300 ----------- 55,900 TELEPHONE SERVICES -- 1.2% 5,000 Primus Telecommunications Group, Inc.*<F17> 5,100 29,000 Time Warner Telecom Inc.*<F17> 226,200 ----------- 231,300 TIRE & RUBBER -- 0.5% 7,000 Titan International, Inc. 96,110 UTILITIES -- 2.0% 17,000 Calpine Corp.*<F17> 44,030 2,000 Chesapeake Energy Corp. 76,500 1,000 Energen Corp. 43,260 2,000 OGE Energy Corp. 56,200 2,000 PPL Corp. 64,660 2,500 SCANA Corp. 105,600 ----------- 390,250 WIRELESS COMMUNICATION -- 4.6% 7,500 Brightpoint, Inc.*<F17> 143,550 4,000 Dobson Communications Corp.*<F17> 30,720 5,000 Lightbridge, Inc.*<F17> 40,400 13,000 Motorola, Inc. 287,170 3,500 Research In Motion Ltd.*<F17> 239,400 3,000 Tumbleweed Communications Corp.*<F17> 12,750 16,000 UbiquiTel Inc.*<F17> 139,840 ----------- 893,830 ----------- Total common stocks (cost $18,815,649) 23,292,371 ----------- MUTUAL FUNDS -- 0.8% (A)<F18> 2,000 Broadband HOLDRs Trust 37,540 9,000 iShares MSCI Japan Index Fund 109,710 ----------- Total mutual funds (cost $144,434) 147,250 ----------- RIGHTS -- 0.0% 6,800 Monogram Biosciences, Inc. CVR*<F17> (Formerly Virologic, Inc. CVR) 2,380 ----------- Total rights (cost $0) 2,380 ----------- Total long-term investments (cost $18,960,083) 23,442,001 PRINCIPAL AMOUNT ------ SHORT-TERM INVESTMENTS -- 0.0% (A)<F18> VARIABLE RATE DEMAND NOTE -- 0.0% $906 U.S. Bank, N.A., 3.59% 906 ----------- Total short-term investments (cost $906) 906 ----------- Total investments (cost $18,960,989) 23,442,907 Liabilities, less cash and receivables -- (21.7%) (A)<F18> (4,178,235) ----------- NET ASSETS $19,264,672 ----------- ----------- Net Asset Value Per Share ($0.01 par value, 40,000,000 shares authorized), offering and redemption price ($19,264,672 / 3,342,935 shares outstanding) $ 5.76 ----------- ----------- *<F17> Non-income producing security. (A)<F18> Percentages for the various classifications relate to net assets. ADR - American Depository Receipt ADS - American Depository Shares CVR - Contingent Value Right N.V. - Netherlands Antilles Limited Liability Corporation The accompanying notes to financial statements are an integral part of this statement. Reynolds Fund STATEMENT OF OPERATIONS For the Year Ended September 30, 2005 INCOME: Dividends $ 36,958 Interest 35,154 ----------- Total income 72,112 ----------- EXPENSES: Interest expense 368,119 Management fees 266,335 Administrative services 54,082 Custodian fees 47,544 Transfer agent fees 38,184 Professional fees 26,266 Registration fees 22,653 Printing and postage expense 18,717 Distribution fees 16,450 Insurance expense 9,059 Board of Directors fees 5,000 Other expenses 4,923 ----------- Total expenses 877,332 ----------- NET INVESTMENT LOSS (805,220) ----------- NET REALIZED LOSS ON INVESTMENTS (8,227,893) NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 11,429,926 ----------- NET GAIN ON INVESTMENTS 3,202,033 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,396,813 ----------- ----------- 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, 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net increase in net assets from operations $ 2,396,813 Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities: Unrealized appreciation on securities (11,429,926) Net realized loss from investments 8,240,538 Purchase of investment securities (47,925,729) Increase in payable for securities purchased 627,239 Sale of short-term investment securities, net 63 Proceeds from disposition of investment securities 74,368,674 Increase in receivables for securities sold (1,105,075) Change in receivables/payables related to operations, net (48,515) ------------ Net cash provided by operating activities 25,124,082 ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in loan payable (8,088,000) Proceeds from shares sold 10,088,200 Payment on shares redeemed (26,913,900) Decrease in amount due to custodian (210,382) ------------ Net cash used in financing activities (25,124,082) ------------ 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, 2005 and 2004 2005 2004 ---- ---- OPERATIONS: Net investment loss $ (805,220) $ (1,259,324) Net realized loss on investments (8,227,893) (4,840,330) Net change in unrealized appreciation on investments 11,429,926 (10,266,707) ----------- ------------ Net increase (decrease) in net assets resulting from operations 2,396,813 (16,366,361) ----------- ------------ FUND SHARE ACTIVITIES: Proceeds from shares issued (1,667,540 and 17,693,276 shares, respectively) 9,988,700 133,527,947 Cost of shares redeemed (4,596,399 and 16,871,426 shares, respectively) (26,914,704) (116,096,075) ----------- ------------- Net (decrease) increase in net assets derived from Fund share activities (16,926,004) 17,431,872 ----------- ------------- TOTAL (DECREASE) INCREASE (14,529,191) 1,065,511 NET ASSETS AT THE BEGINNING OF THE YEAR 33,793,863 32,728,352 ----------- ------------- NET ASSETS AT THE END OF THE YEAR (Includes accumulated net investment loss of $0 and ($16,987), respectively) $19,264,672 $ 33,793,863 ----------- ------------- ----------- ------------- FINANCIAL HIGHLIGHTS (Selected data for each share of the Fund outstanding throughout each year) FOR THE YEARS ENDED SEPTEMBER 30, -------------------------------------------------------------- 2005 2004 2003 2002 2001 ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $ 5.39 $ 6.01 $ 3.01 $ 4.35 $ 13.14 Income from investment operations: Net investment loss*<F19> (0.17) (0.16) (0.11) (0.06) (0.09) Net realized and unrealized gains (losses) on investments 0.54 (0.46) 3.11 (1.28) (8.70) ------- ------- ------ ------- ------- Total from investment operations 0.37 (0.62) 3.00 (1.34) (8.79) Less distributions: Dividend from net investment income -- -- -- -- -- Distribution from net realized gains -- -- -- -- -- ------- ------- ------ ------- ------- Total from distributions -- -- -- -- -- ------- ------- ------ ------- ------- Net asset value, end of year $ 5.76 $ 5.39 $ 6.01 $ 3.01 $ 4.35 ------- ------- ------ ------- ------- ------- ------- ------ ------- ------- TOTAL RETURN 6.86% (10.17%) 99.67% (30.80%) (66.89%) RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's $) 19,265 33,794 32,728 10,481 20,136 Ratio of expenses to average net assets**<F20> 3.29% 2.29% 2.82% 2.07% 1.66% Ratio of net investment loss to average net assets***<F21> (3.02%) (2.24%) (2.41%) (1.41%) (0.89%) Portfolio turnover rate 142.9% 79.5% 119.9% 408.5% 275.5% *<F19> Net investment loss per share is calculated using average shares outstanding. **<F20> 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 2.88%. ***<F21> 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 Balanced Fund MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The Reynolds Balanced Fund was managed as the Reynolds U.S. Government Bond Fund for the first four months of the fiscal year ended September 30, 2005. During this period the Fund's portfolio consisted 100% of fixed income investments. As of February 1, 2005, the Bond Fund changed its objectives from "Seeking A High Level of Current Income" to "Seeking Capital Appreciation and Income", its name was changed to the Reynolds Balanced Fund and the Fund began investing in a mixture of fixed income instruments and equities. With long-term interest rates on U. S. Government securities at 40-year lows and inflation at modest levels, the fixed income portion of the portfolio maintained a short- to intermediate-maturity schedule throughout the fiscal year ended September 30, 2005. The equity portion of the Reynolds Balanced Fund was positively affected in its fiscal year ended September 30, 2005 by, among other things, the strengthening economy and stronger corporate earnings. The equity portion of the Balanced Fund was negatively affected by, among other things, higher interest rates and energy costs, problems in Iraq and natural disasters such as hurricanes. The Fund's return was -1.03% during the first half of the fiscal year (six months ended March 31, 2005). The Fund's return was 3.22% during the second half of the fiscal year (six month period ended September 30, 2005). The Reynolds Balanced Fund had a one-year return of 2.15% compared to the Lehman Government Bond Index, of 2.47%. The Fund underperformed this bond index largely due to the average maturity of the bonds in the portfolio having a shorter average maturity than the bonds represented in this Index. The S&P 500 Index had a return of 12.25% during the twelve months ended September 30, 2005. Ownership of common stocks in addition to bonds had a positive effect on the returns during the second half of the fiscal year ended September 30, 2005 as bonds generally declined in value as interest rates increased while the stock market generally had gains during that period. Two of the reasons the Fund underperformed the S&P 500 Index during the twelve months ended September 30, 2005 were; (1) during the first four months of the fiscal year the Fund's objectives did not allow for investment in common stocks and (2) during the last eight months of the fiscal year the percentage of equities in the portfolio was too low. As of September 30, 2005 the portfolio consisted of 44.8% common stocks, 53.6% bonds and 1.6% cash and equivalents. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN REYNOLDS BALANCED FUND*<F22>, S&P 500 INDEX(1)<F23> AND LEHMAN GOVERNMENT BOND INDEX(2)<F24> Reynolds Balanced Lehman Government DATE Fund*<F22> S&P 500 Index Bond Index ---- ---------- ------------- ---------- 9/30/95 $10,000 $10,000 $10,000 9/30/96 $10,449 $12,040 $10,440 9/30/97 $11,044 $16,940 $11,400 9/30/98 $11,716 $18,490 $12,950 9/30/99 $12,088 $23,631 $12,730 9/30/2000 $12,675 $26,770 $13,644 9/30/2001 $13,460 $19,643 $15,453 9/30/2002 $13,692 $15,619 $17,004 9/30/2003 $13,801 $19,430 $17,608 9/30/2004 $14,078 $22,125 $18,052 9/30/2005 $14,381 $24,836 $18,498 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. AVERAGE ANNUAL TOTAL RETURN 1-YEAR 5-YEAR 10-YEAR ----- ------ ------- 2.15% 2.56% 3.70% 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. *<F22> Prior to January 31, 2005, the Balanced Fund was known as the Reynolds U.S. Government Bond Fund and it invested primarily in U.S. Government securities. (1)<F23> 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. (2)<F24> 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 Balanced Fund STATEMENT OF NET ASSETS September 30, 2005 SHARES VALUE ------ ----- LONG-TERM INVESTMENTS -- 98.4% (A)<F25> COMMON STOCKS -- 44.8% (A)<F25> BANKS -- 2.6% 400 Citigroup Inc. $ 18,208 500 JPMorgan Chase & Co. 16,965 200 Wells Fargo & Co. 11,714 ---------- 46,887 BEVERAGES -- 1.3% 300 The Coca-Cola Co. 12,957 200 PepsiCo, Inc. 11,342 ---------- 24,299 DRUGS -- 1.4% 300 Bristol-Myers Squibb Co. 7,218 400 Merck & Co. Inc. 10,884 300 Pfizer Inc. 7,491 ---------- 25,593 ELECTRICAL EQUIPMENT -- 0.9% 500 General Electric Co. 16,835 FINANCIAL SERVICES -- 2.8% 200 PNC Financial Services Group, Inc. 11,604 500 U.S. Bancorp 14,040 200 Wachovia Corp. 9,518 400 Washington Mutual, Inc. 15,688 ---------- 50,850 FOODS -- 2.2% 300 Altria Group, Inc. 22,113 300 H.J. Heinz Co. 10,962 400 Sara Lee Corp. 7,580 ---------- 40,655 GROCERY STORES -- 0.4% 300 Albertson's, Inc. 7,695 HOUSEHOLD PRODUCTS -- 3.8% 200 Gillette Co. 11,640 600 Newell Rubbermaid Inc. 13,590 200 Procter & Gamble Co. 11,892 300 The Stanley Works 14,004 800 Tupperware Corp. 18,224 ---------- 69,350 INTEGRATED OIL & GAS -- 7.8% 300 BP PLC - SP-ADR 21,255 400 Chevron Corp. 25,892 300 ConocoPhillips 20,973 400 Exxon Mobil Corp. 25,416 500 Marathon Oil Corp. 34,465 200 Royal Dutch Shell PLC - ADR 13,128 ---------- 141,129 NATURAL GAS -- 1.1% 200 Kinder Morgan, Inc. 19,232 OFFICE EQUIPMENT & SUPPLIES -- 1.0% 1,200 Standard Register Co. 17,940 PAPER & FOREST PRODUCTS -- 0.8% 200 Weyerhaeuser Co. 13,750 TELEPHONE SERVICES -- 2.5% 300 BellSouth Corp. 7,890 400 SBC Communications Inc. 9,588 900 Telefonos de Mexico SA de CV - SP-ADR L 19,143 300 Verizon Communications Inc. 9,807 ---------- 46,428 UTILITIES -- 15.8% 600 American Electric Power Company, Inc. 23,820 300 Consolidated Edison, Inc. 14,565 500 Duke Energy Corp. 14,585 600 Edison International 28,368 600 Energy East Corp. 15,114 300 Exelon Corp. 16,032 500 FPL Group, Inc. 23,800 300 Hawaiian Electric Industries, Inc. 8,364 600 ONEOK, Inc. 20,412 700 PG&E Corp. 27,475 300 Pinnacle West Capital Corp. 13,224 600 PPL Corp. 19,398 600 Puget Energy, Inc. 14,088 500 Southern Co. 17,880 500 UGI Corp. 14,075 800 Xcel Energy, Inc. 15,688 ---------- 286,888 WIRELESS COMMUNICATION -- 0.4% 300 Vodafone Group PLC - SP-ADR 7,791 ---------- Total common stocks (cost $784,986) 815,322 FEDERAL AGENCIES -- 53.6% (A)<F25> $300,000 Federal Home Loan Bank, 3.00%, due 12/10/05 (b)<F26> 293,724 200,000 Federal Home Loan Mortgage Corp., 197,007 3.50%, due 3/26/06 (b)<F26> 200,000 Federal Home Loan Bank, 3.00%, due 3/30/06 (b)<F26> 196,196 300,000 Federal Home Loan Bank, 3.30%, due 12/18/08 289,577 ---------- Total federal agencies (cost $998,681) 976,504 ---------- Total long-term investments (cost $1,783,667) 1,791,826 PRINCIPAL AMOUNT ------ SHORT-TERM INVESTMENTS -- 1.2% (A)<F25> VARIABLE RATE DEMAND NOTE -- 1.2% $ 22,196 U.S. Bank, N.A., 3.59% 22,196 ---------- Total short-term investments (cost $22,196) 22,196 ---------- Total investments (cost $1,805,863) 1,814,022 Cash and receivables, less liabilities -- 0.4% (A)<F25> 6,470 ---------- NET ASSETS $1,820,492 ---------- ---------- Net Asset Value Per Share ($0.01 par value, 20,000,000 shares authorized), offering and redemption price ($1,820,492 / 189,077 shares outstanding) $ 9.63 ---------- ---------- (A)<F25> Percentages for the various classifications relate to net assets. (b)<F26> Variable Rate Security- the rate reported is the rate in effect as of September 30, 2005. The date shown is the next interest adjustment date. ADR - American Depository Receipt The accompanying notes to financial statements are an integral part of this statement. Reynolds Balanced Fund STATEMENT OF OPERATIONS For the Year Ended September 30, 2005 INCOME: Dividends $ 11,553 Interest 49,283 -------- Total income 60,836 -------- EXPENSES: Professional fees 28,981 Transfer agent fees 19,876 Management fees 14,050 Registration fees 6,235 Administrative services 3,864 Printing and postage expense 1,903 Custodian fees 1,823 Board of Directors fees 1,250 Insurance expense 520 Other expenses 2,798 -------- Total expenses before reimbursement and management fee waiver 81,300 Less expenses reimbursed and waived by adviser (60,484) -------- Net expenses 20,816 -------- NET INVESTMENT INCOME 40,020 -------- NET REALIZED LOSS ON INVESTMENTS (28,267) NET CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 26,893 -------- NET LOSS ON INVESTMENTS (1,374) -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 38,646 -------- -------- The accompanying notes to financial statements are an integral part of this statement. Reynolds Balanced Fund STATEMENTS OF CHANGES IN NET ASSETS For the Years Ended September 30, 2005 and 2004 2005 2004 ---- ---- OPERATIONS: Net investment income $ 40,020 $ 69,456 Net realized loss on investments (28,267) (4,459) Net change in unrealized appreciation on investments 26,893 (7,757) ---------- ---------- Net increase in net assets resulting from operations 38,646 57,240 ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income ($0.2044 and $0.2202 per share, respectively) (40,020)* (69,456)* <F27> <F27> ---------- ---------- FUND SHARE ACTIVITIES: Proceeds from shares issued (25,047 and 60,298 shares, respectively) 239,676 578,789 Net asset value of shares issued in distributions reinvested (4,649 and 7,168 shares, respectively) 44,589 68,728 Cost of shares redeemed (132,015 and 115,953 shares, respectively) (1,269,955) (1,109,783) ---------- ---------- Net decrease in net assets derived from Fund share activities (985,690) (462,266) ---------- ---------- TOTAL DECREASE (987,064) (474,482) NET ASSETS AT THE BEGINNING OF THE YEAR 2,807,556 3,282,038 ---------- ---------- NET ASSETS AT THE END OF THE YEAR (Includes Accumulated net investment income of $0 and $0, respectively) $1,820,492 $2,807,556 ---------- ---------- ---------- ---------- *<F27> Note 8 FINANCIAL HIGHLIGHTS (Selected data for each share of the Fund outstanding throughout each year) FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------------------------------------ 2005+<F28> 2004 2003 2002 2001 ---------- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $ 9.63 $ 9.66 $ 9.72 $ 9.77 $ 9.62 Income from investment operations: Net investment income 0.20 0.22 0.15 0.22 0.43 Net realized and unrealized gains (losses) on investments (0.00)*** (0.03) (0.06) (0.05) 0.15 -------- <F31> -------- -------- -------- -------- Total from investment operations 0.20 0.19 0.09 0.17 0.58 Less distributions: Dividends from net investment income (0.20) (0.22) (0.15) (0.22) (0.43) Distribution from net realized gains -- -- -- -- -- -------- -------- -------- -------- -------- Total from distributions (0.20) (0.22) (0.15) (0.22) (0.43) -------- -------- -------- -------- -------- Net asset value, end of year $ 9.63 $ 9.63 $ 9.66 $ 9.72 $ 9.77 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- TOTAL RETURN 2.15% 1.48% 0.80% 1.72% 6.19% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's $) 1,820 2,808 3,282 3,733 4,586 Ratio of expenses (after reimbursement) to average net assets*<F29> 1.11% 0.90% 0.90% 0.90% 0.90% Ratio of net investment income to average net assets**<F30> 2.14% 2.29% 1.55% 2.24% 4.50% Portfolio turnover rate 53.0% 46.1% 190.0% 138.1% 18.6% +<F28> Prior to January 31, 2005, the Balanced Fund was known as the Reynolds U.S. Government Bond Fund and it invested primarily in U.S. Government securities. *<F29> Computed after giving effect to adviser's expense limitation undertaking. If the Fund had paid all of its expenses, the ratios would have been 4.34%, 3.19%, 2.21%, 2.00% and 2.09% for the years ended September 30, 2005, 2004, 2003, 2002 and 2001, respectively. **<F30> The ratios of net investment income prior to adviser's expense limitation undertaking to average net assets for the years ended September 30, 2005, 2004, 2003, 2002 and 2001 would have been (1.09%), 0.00%, 0.24%, 1.14% and 3.31%, respectively. ***<F31> Less than $0.005 per share. The accompanying notes to financial statements are an integral part of these statements. Reynolds Money Market Fund STATEMENT OF NET ASSETS September 30, 2005 PRINCIPAL AMOUNT VALUE ------ ----- SHORT-TERM INVESTMENTS -- 100.3% (A)<F32> U.S. TREASURY SECURITIES -- 89.2% $1,000,000 U.S. Treasury Bills, 2.20%, due 10/06/05 $ 999,694 800,000 U.S. Treasury Bills, 2.44%, due 10/06/05 799,729 500,000 U.S. Treasury Bills, 3.01%, due 10/06/05 499,791 500,000 U.S. Treasury Bills, 3.16%, due 10/06/05 499,781 500,000 U.S. Treasury Bills, 3.20%, due 10/13/05 499,466 500,000 U.S. Treasury Bills, 3.23%, due 10/20/05 499,148 500,000 U.S. Treasury Bills, 3.21%, due 10/27/05 498,841 ---------- Total U.S. treasury securities (amortized cost $4,296,450) 4,296,450 VARIABLE RATE DEMAND NOTES -- 11.1% 54,494 American Family Financial Services, 3.44% 54,494 240,000 U.S. Bank, N.A., 3.59% 240,000 240,000 Wisconsin Corporate Central Credit Union, 3.51% 240,000 ---------- Total variable rate demand notes (cost $534,494) 534,494 ---------- Total investments (amortized cost $4,830,944) 4,830,944 Liabilities, less cash and receivables -- (0.3%) (A)<F32> (12,551) ---------- NET ASSETS $4,818,393 ---------- ---------- Net Asset Value Per Share ($0.01 par value, 500,000,000 shares authorized), offering and redemption price (4,818,393 / 4,818,393 shares outstanding) $ 1.00 ---------- ---------- (A)<F32> 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, 2005 INCOME: Interest $ 116,539 --------- EXPENSES: Professional fees 27,780 Management fees 24,977 Transfer agent fees 21,373 Registration fees 17,570 Administrative services 8,000 Printing and postage expense 4,009 Board of Directors fees 3,750 Custodian fees 2,048 Insurance expense 1,486 Other expenses 3,236 --------- Total expenses before reimbursement and management fee waiver 114,229 Less expenses reimbursed and waived by adviser (81,168) --------- Net expenses 33,061 --------- NET INVESTMENT INCOME 83,478 NET REALIZED LOSS ON INVESTMENTS (37) --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 83,441 --------- --------- 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, 2005 and 2004 2005 2004 ---- ---- OPERATIONS: Net investment income $ 83,478 $ 12,290 Net realized loss on investments (37) -- ----------- ----------- Net increase in net assets resulting from operations 83,441 12,290 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income ($0.0171 and $0.0022 per share, respectively) (83,441)* (12,290)* <F33> <F33> ----------- ----------- FUND SHARE ACTIVITIES: Proceeds from shares issued (6,604,084 and 11,742,156 shares, respectively) 6,604,084 11,742,156 Net asset value of shares issued in distributions reinvested (71,771 and 9,169 shares, respectively) 71,771 9,169 Cost of shares redeemed (8,584,286 and 10,212,049 shares, respectively) (8,584,286) (10,212,049) ----------- ----------- Net (decrease) increase in net assets derived from Fund share activities (1,908,431) 1,539,276 ----------- ----------- TOTAL (DECREASE) INCREASE (1,908,431) 1,539,276 NET ASSETS AT THE BEGINNING OF THE YEAR 6,726,824 5,187,548 ----------- ----------- NET ASSETS AT THE END OF THE YEAR (Includes Undistributed net investment income of $0 and $0, respectively) $ 4,818,393 $ 6,726,824 ----------- ----------- ----------- ----------- *<F33> Note 8 FINANCIAL HIGHLIGHTS (Selected data for each share of the Fund outstanding throughout each year) FOR THE YEARS ENDED SEPTEMBER 30, --------------------------------------------------------------- 2005 2004 2003 2002 2001 ---- ---- ---- ---- ---- 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 0.02 0.00*<F34> 0.00*<F34> 0.01 0.04 Less distributions: Dividends from net investment income (0.02) (0.00)*<F34> (0.00)*<F34> (0.01) (0.04) ------ ------ ------ ------ ------ Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 1.72% 0.22% 0.38% 1.03% 4.29% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (in 000's $) 4,818 6,727 5,188 9,716 15,467 Ratio of expenses (after reimbursement) to average net assets**<F35> 0.66% 0.68% 0.68% 0.67% 0.66% Ratio of net investment income to average net assets***<F36> 1.67% 0.22% 0.42% 1.08% 4.29% *<F34> Less than $0.005 per share. **<F35> Computed after giving effect to adviser's expense limitation undertaking. If the Fund had paid all of its expenses, the ratios would have been 2.28%, 2.34%, 1.72%, 1.24% and 1.10% for the years ended September 30, 2005, 2004, 2003, 2002 and 2001, respectively. ***<F36> If the Fund had paid all of its expenses, the ratios would have been 0.05%, (1.44%), (0.62%), 0.51% and 3.85% for the years ended September 30, 2005, 2004, 2003, 2002 and 2001, respectively. The accompanying notes to financial statements are an integral part of these statements. Reynolds Funds, Inc. NOTES TO FINANCIAL STATEMENTS September 30, 2005 (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 Balanced Fund ("Balanced 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 Balanced Fund is to seek capital appreciation and income by investing in common stocks and fixed income securities; 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 Balanced 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 a director 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 Balanced 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, 2005, RCM voluntarily waived $5,538 and $24,977 of the management fees due from the Balanced Fund and the Money Market Fund, respectively, under the agreements. In addition, RCM has voluntarily reimbursed the Opportunity Fund for expenses over 2.00% of the daily net assets of the Fund totaling $24,049 and the Money Market Fund for expenses over 0.65%, of the daily net assets of the Fund totaling $56,191. Prior to January 31, 2005, RCM voluntarily reimbursed the Balanced Fund (f/k/a Reynolds U.S. Government Bond Fund) for expenses over 0.90% and effective January 31, 2005, RCM has agreed to reimburse the Balanced Fund to the extent necessary to insure that total annual fund operating expenses do not exceed 2.00%. In addition to the reimbursement required under the terms of the agreement, RCM voluntarily reimbursed the Balanced Fund to the extent necessary to insure that total annual fund operating expenses did not exceed 1.25% for the fiscal year ending September 30, 2005. For the year ended September 30, 2005, RCM has voluntarily reimbursed the Balanced Fund $54,946. Reimbursements to the Balanced 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 an officer of the Funds is 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, the Reynolds Fund and the Balanced 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; subject to a fiscal year minimum of twenty thousand dollars. FMI has voluntarily waived the minimum for the fiscal year ended September 30, 2005. Prior to January 31, 2005, the Balanced Fund paid FMIa monthly administrative fee at the annual rate of 0.10% of daily net assets. The Money Market Fund will pay FMI a monthly administrative fee at the annual rate of 0.10% of 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, 2006. 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 10/1/04-7/31/05 $5,000,000 $3,000,000 $15,000,000 $600,000 Credit Limit 8/1/05-9/30/05 $5,000,000 $975,000 $10,000,000 $500,000 Variable Limit Average Daily Balance Outstanding $229,978 $91,132 $8,074,507 $0 Maximum Amount Outstanding $4,786,000 $902,000 $15,000,000 $0 Interest Expense $14,493 $6,621 $368,119 $628 (4) DISTRIBUTIONS TO SHAREHOLDERS -- Net investment income, if any, for the Blue Chip, Opportunity and Reynolds Funds are distributed to shareholders at least annually. The Balanced Fund distributes substantially all of its net investment income quarterly and the Money Market Fund distributes substantially all of its net investment income monthly. All Funds will distribute net realized gains, if any, to shareholders at least annually. LONG-TERM RECORD DISTRIBUTION PAYABLE CAPITAL GAINS DATE DATE DATE DISTRIBUTION ---- ---- ---- ------------ Opportunity Fund 10/26/05 10/27/05 10/28/05 $0.03002 (5) INVESTMENT TRANSACTIONS -- For the year ended September 30, 2005, purchases and proceeds of sales of investment securities (excluding short-term securities) were as follows: PURCHASES SALES --------- ----- Blue Chip Fund $112,323,630 $152,389,424 Opportunity Fund 14,435,490 21,736,794 Reynolds Fund 47,925,729 74,368,674 Balanced Fund 914,147 1,700,399 (6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES -- As of September 30, 2005, liabilities of the Funds included the following: BLUE CHIP OPPORTUNITY REYNOLDS BALANCED MONEY MARKET FUND FUND FUND FUND FUND ---- ---- ---- ---- ---- Payable to brokers for securities purchased $2,463,728 $492,904 $ 627,239 $45,094 $ -- Payable to RCM for management fees 44,877 10,779 15,811 1,126 -- Payable to FMI for administrative fees 6,953 2,156 3,162 284 393 Payable to shareholders for redemptions 2,000 1,286 8,911 -- -- Due to custodian 25,410 3,318 -- -- -- Interest payable 417 83 19,039 -- 42 Other liabilities 81,684 47,711 38,092 133 3,479 Loan payable -- -- 4,683,000 -- -- (7) SOURCES OF NET ASSETS -- As of September 30, 2005, the sources of net assets were as follows: BLUE CHIP OPPORTUNITY REYNOLDS BALANCED MONEY MARKET FUND FUND FUND FUND FUND ---- ---- ---- ---- ---- Fund shares issued and outstanding $148,046,381 $ 8,474,914 $67,591,456 $1,876,225 $4,818,393 Net unrealized appreciation on investments 10,809,946 4,737,759 4,481,918 8,159 -- Accumulated net realized loss on investments (104,414,897) (94,871) (52,808,702) (63,892) -- ------------ ----------- ----------- ---------- ---------- $ 54,441,430 $13,117,802 $19,264,672 $1,820,492 $4,818,393 ------------ ----------- ----------- ---------- ---------- ------------ ----------- ----------- ---------- ---------- (8) INCOME TAX INFORMATION -- The following information for the Funds is presented on an income tax basis as of September 30, 2005: GROSS GROSS NET UNREALIZED DISTRIBUTABLE DISTRIBUTABLE COST OF UNREALIZED UNREALIZED APPRECIATION ORDINARY LONG-TERM INVESTMENTS APPRECIATION DEPRECIATION ON INVESTMENTS INCOME CAPITAL GAINS ----------- ------------ ------------ -------------- ------ ------------- Blue Chip Fund $42,374,337 $11,228,675 $628,478 $10,600,197 $ -- $-- Opportunity Fund 8,441,603 4,778,132 156,440 4,621,692 -- 21,195 Reynolds Fund 19,208,165 4,783,708 548,966 4,234,742 -- -- Balanced Fund 1,805,863 45,684 37,525 8,159 -- -- Money Market Fund 4,830,944 -- -- -- -- -- 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. The tax components of dividends paid during the year ended September 30, 2005, capital loss carryovers, which may be used to offset future capital gains, subject to Internal Revenue Code limitations (expiring in varying amounts through 2013), as of September 30, 2005, and tax basis post-October losses as of September 30, 2005, which are not recognized for tax purposes until the first day of the following fiscal year are: SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 ----------------------------------------------------------- ---------------------------------- 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 $ -- $ -- $104,205,149 $ -- $ -- $ -- Opportunity Fund -- 1,432,499 -- -- -- 1,226,731 Reynolds Fund -- -- 43,507,952 9,053,580 -- -- Balanced Fund 40,020 -- 35,624 28,267 69,456 -- Money Market Fund 83,441 -- 2,935 37 12,290 -- The Blue Chip Fund, Reynolds Fund and Balanced Fund have utilized $7,028,488, $5,599,986 and $4,459, respectively, of their post-October losses from the prior year to increase current year net capital losses. The Balanced Fund had capital loss carryovers of $2,405 which expired September 30, 2005. For corporate shareholders in the Balanced Fund, the percentage of dividend income distributed for the year ended September 30, 2005 which is designated as qualifying for the dividends received deduction is 23% (unaudited). For shareholders in the Balanced Fund, the percentage of dividend income distributed for the year ended September 30, 2005 which is designated as qualified dividend income under the Jobs and Growth Tax Relief Act of 2003 is 23% (unaudited). Since there were no ordinary distributions paid for the year ended September 30, 2005 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. (9) LIQUIDATION OF MONEY MARKET FUND -- On September 21, 2005, the Board of Directors of Reynolds Funds, Inc. determined that it is in the best interests of the shareholders of the Reynolds Money Market Fund to liquidate the Fund. In connection with this decision, the Money Market Fund stopped accepting orders to purchase shares of the Money Market Fund effective October 31, 2005. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Reynolds Funds, Inc. In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments (Reynolds Blue Chip Fund only), 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 Balanced Fund (f/k/a Reynolds U.S. Government Bond Fund) and Reynolds Money Market Fund (constituting Reynolds Funds, Inc., hereafter referred to as the "Funds") at September 30, 2005, 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 the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/PricewaterhouseCoopers LLP Milwaukee, Wisconsin November 11, 2005 Reynolds Funds, Inc. DIRECTORS AND OFFICERS OTHER TERM OF # OF FUNDS DIRECTORSHIPS POSITION OFFICE AND IN COMPLEX HELD BY NAME, AGE HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN DIRECTOR AND ADDRESS THE FUNDS TIME SERVED DURING PAST FIVE YEARS BY DIRECTOR OR OFFICER - ----------- --------- ----------- ---------------------- ----------- ---------- NON-INTERESTED DIRECTORS: Dennis N. Moser, 63 Director Indefinite Term Mr. Moser is an independent consultant. 5 None 77 Stockbridge Since January From 2000 to 2001 he was the Chief Atherton, CA 94026 2002 Information Officer of Schoolpop, Inc., a fund raising firm. Robert E. Stauder, 75 Director Indefinite Term Mr. Stauder is retired. He was a principal 5 None 5 Marsh Drive Since 1988 of Robinson Mills + Williams, an Mill Valley, CA 94941 architectural and interior design firm, from 1991 until 1996. INTERESTED DIRECTOR: Frederick L. Reynolds,* 63 Director, Indefinite Term Mr. Reynolds is the sole proprietor of 5 None <F37> 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 OTHER OFFICERS: Donald O. Jesberg, 50 Chief At Discretion Mr. Jesberg is an employee of Reynolds N/A 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. Larkspur, CA 94939 Vice One Year Term President since 2003 Assistant One Year Term Secretary since 2002 Camille F. Wildes, 53 Secretary One Year Term Ms. Wildes is a Vice President of Fiduciary N/A 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. - ------------ *<F37> Mr. Reynolds is the only interested director of the Company as that term is defined in the Investment Company Act of 1940. Mr. Reynolds is an interested director 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, 2005 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. The Funds' Form N-Q is available on the Commission's website. 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 1800 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 12 (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 $53,500 (FY 2005) and $50,050 (FY 2004) 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 $25,800 (FY 2005) and $24,125 (FY 2004) 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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. - ------------------------------------------------------------------------- Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT - --------------------------------------------------------------------------- COMPANY AND AFFILIATED PURCHASERS. - ---------------------------------- Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------- None. ITEM 11. CONTROLS AND PROCEDURES. - ---------------------------------- (a) The disclosure controls and procedures of the Reynolds Funds, Inc. are periodically evaluated. As of October 7, 2005, 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. There were no changes to Reynolds Funds' internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, such controls. ITEM 12. 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 28, 2005 ----------------- 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 28, 2005 -----------------