<PAGE>
[LOGO of REA REA-GRAHAM BALANCED FUND
GRAHAM FUND
INC.] 10966 Chalon Road, Los Angeles, California 90077
(800) 433-1998 (310) 442-2660
- -------------------------------------------------------------------------------
June 5, 1996
Dear Shareholders:
It is a pleasure to present this Annual Report for the year ended March 31,
1996. From inception, June 30, 1976, the Fund is UP +440.05%, a compound
growth rate* of +8.91% per year. For calendar year 1995 the Fund gained*
+15.60%. For 1996 year-to-date (June 5, 1996) the Fund is up +2.09%. These
results were achieved with low risk and low volatility.
We have included two Charts which illustrate Fund performance versus broad-
based indexes. Chart I illustrates information on four indexes which we
believe represent the components and investment strategy of the Rea-Graham
Balanced Fund. Chart II provides a comparison of Fund performance to a
weighted composite of the indexes.
Today, with domestic equity markets at record high levels, our Fund holds
approximately 25% of assets in common stocks, 33% in medium-term U.S.
Government Treasury Notes, and 42% in liquid cash instruments. We have
maintained a strong margin of safety and broad diversification among 15
investment categories.
Market conditions today require us to review a basic concept of Benjamin
Graham, who was an initial investor and founding partner of Rea-Graham
Balanced Fund. In the fourth edition of THE INTELLIGENT INVESTOR, Graham said:
"Basically, price fluctuations have only one significant meaning for the true
investor. They provide him with an opportunity to buy wisely when prices fall
sharply and to SELL wisely when they advance a great deal."
The stock market has advanced a great deal in the past year and a half, and
consequently we have taken profits and reduced equity allocation. Currently
all but two of our stocks have strong gains, and more than half of our equity
holdings have gains of 15% to 30%. We believe the current allocation will
provide both a high degree of safety and the growth associated with buying and
holding stocks long-term.
As evidence of our policy to select value, the portfolio has a low price-to-
earnings ratio of 13.2, compared to 25.7 for equity funds and a low price-to-
book value ratio of 2.3, compared to 4.5 for equity funds. We continue to
select stocks with high reward-to-risk ratios, solid fundamentals, and with
demonstrated superior earnings growth and profitability.
We appreciate your investment in the Rea-Graham Balanced Fund and welcome
your comments.
Sincerely,
/s/ JAMES B. REA, JR.
James B. Rea, Jr.
President
Rea-Graham Balanced Fund
*Performance information is based on total return including reinvestment of
dividend distributions and excluding sales charges.
<PAGE>
CHART I
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN REA-GRAHAM BALANCED
FUND AND BENCHMARK INDEXES
[A Line Chart Appears Here]
Pursuant to Rule 304(a) of Regulation S-T, the following narrative
description replaces the chart that appears on this page of the Annual Report:
Chart I depicts the ending values of a $10,000 investment in the Rea-Graham
Balanced Fund and the four benchmark indexes as follows:
1. Morgan Stanley World Index . . . . . $60,972.74
2. Value Line Composite . . . . . . . . $53,268.88
3. Rea-Graham Fund . . . . . . . . . . $51,445.19
4. Two-year U.S. Treasury Notes . . . . $49,028.17
5. Three-month U.S. Treasury Bills . . $39,756.98
The beginning date for each such $10,000 investment is April 29, 1982.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR INCEPT.
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REA-GRAHAM FUND +11.83% +4.43% +4.62% +8.91%
EXCLUDING SALES LOAD
------------------------------------------------------------------------
REA-GRAHAM FUND +6.55% +3.42% +4.12% +8.65%
INCLUDING 4.75% SALES LOAD
------------------------------------------------------------------------
</TABLE>
Chart I illustrates the value of $10,000 investment in Rea-Graham Balanced
Fund, INCLUDING all expenses and the effect of the maximum sales load of 4.75%
(resulting in a net investment of $9,525) versus four benchmark indexes: (1)
Value Line Composite (an equal-weighted index of 1700 broad-based U.S.
stocks); (2) Morgan Stanley World Index (a sample of stocks from 21 European,
Pacific Rim and North American countries); (3) Two-year Treasury Notes; and
(4) Three-month Treasury Bills. These are unmanaged indexes, and EXCLUDE
expenses such as brokerage, custody, and overhead which would be charged if
actual investments were made. The Morgan Stanley World Index had 6 loss years
and the Value Line Composite had 5 loss years, while Rea-Graham Balanced Fund
had only 1.
2
<PAGE>
CHART II
REA-GRAHAM BALANCED FUND VS. COMPOSITE INDEX
Illustration of an assumed investment of $10,000* with net investment income
and capital gains distributions reinvested.
[A Mountain Chart Appears Here]
Pursuant to Rule 304(a) of Regulation S-T, the following narrative description
replaces the chart that appears on this page of the Annual Report:
Chart II is a "mountain chart" that depicts the cumulative change in value of
a $10,000 investment made as of June 30, 1976, assuming the reinvestment of net
investment income and capital gains distributions, for the Rea-Graham Balanced
Fund and a weighted composite index of the benchmark indexes used in Chart I.
For the period ended March 31, 1996, the ending value for the Fund was
$54,004.83 and the ending value for the Composite Index was $49,601.11. In the
case of the Fund, this represents a cumulative total return of 440.05% measured
from June 30, 1976.
The following chart is depicted in conjunction with Chart II:
Period Composite Rea-Graham
Ended Value Value
06/30/76 $10,000 $10,000
12/31/76 $10,408 $10,846
12/31/77 $12,053 $11,194
12/31/78 $12,843 $12,355
12/31/79 $15,180 $14,362
12/31/80 $17,552 $15,837
12/31/81 $18,076 $18,391
08/19/82** $17,477 $18,856
03/31/83 $21,999 $23,035
03/31/84 $23,311 $23,797
03/31/85 $25,274 $26,931
03/31/86 $30,095 $34,378
03/31/87 $33,575 $37,626
03/31/88 $32,528 $38,308
03/31/89 $35,233 $41,211
03/31/90 $36,147 $43,037
03/31/91 $37,175 $43,502
03/31/92 $39,206 $46,834
03/31/93 $41,807 $49,705
03/31/94 $43,426 $48,213
03/31/95 $43,884 $48,291
03/31/96 $49,601 $54,005
Chart II illustrates Rea-Graham Balanced Fund performance* versus a weighted
composite of the benchmark indexes used in Chart I. From inception Rea-Graham
Balanced Fund has averaged 25% allocation to Three-month Treasury Bills, 25%
to Two-year Treasury Notes, 40% to broad-based U.S. stocks and 10% to
established market foreign stocks. Each index was weighted accordingly, to
demonstrate the performance of a composite of the investment components
historically found in the Fund. As evidenced by Charts I and II, Rea-Graham
Balanced Fund has provided the advantages of long-term stock investment, with
very low risk and low volatility.
* Includes Fund expenses, but excludes sales load.
** Pro Forma information through April 29, 1982, the date the Fund succeeded
to the business of Rea, Graham-Plan Fund. Initial public offering date was
August 19, 1982.
3
<PAGE>
REA-GRAHAM BALANCED FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
NUMBER
NAME OF ISSUER OF SHARES VALUE
- -------------- --------- ----------
<S> <C> <C>
COMMON STOCKS -- 23.39%
BANKS -- 6.58%
Barnett Banks........................................... 3,500 $ 217,875
Fleet Financial......................................... 4,000 162,000
Keycorp (U.S.A.)........................................ 5,386 208,034
Norwest Corp. .......................................... 6,000 220,500
----------
808,409
----------
BEEF -- SLAUGHTER/
PRODUCTS -- 0.84%
IBP, Inc. .............................................. 4,000 102,500
----------
FINANCIAL SERVICES -- 0.85%
Advanta Corp. CL A...................................... 2,000 104,000
----------
FLEET MANAGEMENT/
LEASING -- 0.68%
Rollins Truck Lease (U.S.A.)............................ 8,000 83,000
----------
INDUSTRIALS -- 3.74%
AUTO/PARTS
Excel Industries Inc. ................................. 13,000 147,875
----------
SPRING MANUFACTURING
Leggett & Platt........................................ 8,000 183,000
----------
TIRES
Cooper Tire, Inc. ..................................... 5,000 128,750
----------
TOTAL INDUSTRIALS 459,625
----------
<CAPTION>
NUMBER
NAME OF ISSUER OF SHARES VALUE
- -------------- --------- ----------
<S> <C> <C>
INSURANCE/SERVICES -- 1.53%
MBIA, Inc. (U.S.A.)...................................... 2,500 $ 187,500
----------
JET FUEL/OIL RECOVERY -- 0.97%
World Fuel............................................... 7,000 119,000
----------
RESTAURANTS -- 0.57%
Cracker Barrel........................................... 3,000 69,750
----------
STORES (RETAIL/WHOLESALE)-- 0.61%
Cash American International.............................. 14,000 75,250
----------
TECHNOLOGY/ENERGY -- 1.42%
Wheelabrator Tech........................................ 10,500 174,563
----------
TIMBER RESOURCES -- 0.71%
IP-Timber LP Class A..................................... 4,000 87,000
----------
UTILITIES -- 4.89%
Delmarva Power & Light Co. .............................. 7,500 159,375
KCS Energy............................................... 9,500 147,250
NY State Electric & Gas.................................. 3,000 70,500
Nipsco Industries (U.S.A.)............................... 6,000 223,500
----------
600,625
----------
TOTAL COMMON STOCKS (Cost $2,727,940)..................... $2,871,222
----------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
REA-GRAHAM BALANCED FUND
STATEMENT OF INVESTMENTS, CONTINUED
MARCH 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
NAME OF ISSUER AMOUNT VALUE
- -------------- ---------- -----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 76.24%
LONG-TERM U.S. GOVERNMENT OBLIGATIONS -- 32.28%
U.S. Treasury Notes, 5.75%, 09/30/97.................... $1,000,000 $1,000,936
U.S. Treasury Notes, 5.375%, 11/30/97................... 1,000,000 994,061
U.S. Treasury Notes, 5.00%, 01/31/98.................... 1,000,000 987,500
U.S. Treasury Notes, 5.125%, 12/31/98................... 1,000,000 980,936
-----------
3,963,433
-----------
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS -- 43.96%
U.S. Treasury Bills, 4.85%, 04/04/96.................... 150,000 149,939
U.S. Treasury Bills, 5.00%, 04/04/96.................... 200,000 199,917
U.S. Treasury Bills, 4.98%, 04/11/96.................... 900,000 898,755
U.S. Treasury Bills, 4.70%, 04/25/96.................... 2,500,000 2,492,167
<CAPTION>
PRINCIPAL
NAME OF ISSUER AMOUNT VALUE
- -------------- ---------- -----------
<S> <C> <C>
U.S. Treasury Bills, 4.67%, 05/02/96.................... $ 175,000 $ 174,296
U.S. Treasury Bills, 4.75%, 05/02/96.................... 425,000 423,261
U.S. Treasury Bills, 5.15%, 05/30/96.................... 1,067,000 1,058,221
-----------
5,396,556
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $9,392,488)...... 9,359,989
-----------
OTHER SHORT-TERM
INVESTMENTS -- 0.21%
Chase Institutional Money Market (Cost $25,764)......... 25,764
-----------
TOTAL INVESTMENTS -- 99.84% (Cost $12,146,192+).......... 12,256,975
OTHER ASSETS LESS LIABILITIES -- 0.16%................... 20,111
-----------
TOTAL NET ASSETS -- 100%................................. $12,277,086
===========
</TABLE>
+ Aggregate cost for federal income tax purposes is identical.
See Notes to Financial Statements.
5
<PAGE>
REA-GRAHAM BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments at value (cost $12,146,192).................... $12,256,975
Dividends and interest receivable.......................... 73,156
Other...................................................... 6,864
-----------
TOTAL ASSETS............................................... 12,336,995
-----------
LIABILITIES:
Payable for capital shares redeemed........................ 5,116
Accrued expenses........................................... 54,793
-----------
TOTAL LIABILITIES.......................................... 59,909
-----------
NET ASSETS:
Net assets, equivalent to $14.36 per share on 854,705
shares outstanding (Note 4)............................... $12,277,086
===========
Computation of public offering price:
Net asset value per share.................................. $14.36
======
Offering price per share (100/95.25 x $14.36).............. $15.08
======
</TABLE>
REA-GRAHAM BALANCED FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends....................................................... $ 104,786
Interest........................................................ 523,362
-----------
TOTAL INCOME..................................................... 628,148
-----------
Expenses:
Investment advisory fee (Note 3)................................ 133,298
Distribution fee (Note 3)....................................... 47,005
Custodian fees.................................................. 21,612
Transfer agency fees and expenses............................... 19,074
Administrative expenses......................................... 30,188
Registration and filing fees.................................... 22,310
Legal........................................................... 6,500
Audit and accounting............................................ 29,000
Recordkeeping and pricing fees.................................. 23,602
Directors' fees and meeting expenses............................ 7,297
Printing and postage............................................ 10,623
Other........................................................... 6,265
-----------
TOTAL EXPENSES................................................... 356,774
-----------
NET INVESTMENT INCOME............................................ 271,374
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.................................. 1,056,147
Unrealized appreciation of investments for the year............... 212,662
-----------
NET GAIN ON INVESTMENTS.......................................... 1,268,809
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $ 1,540,183
===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
REA-GRAHAM BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets From Operations:
Net investment income............................... $ 271,374 $ 172,912
Net realized gain (loss) on investments............. 1,056,147 (755,227)
Unrealized appreciation for the year................ 212,662 585,283
----------- -----------
Net increase in net assets from operations.......... 1,540,183 2,968
Dividends paid to shareholders from net investment
income.............................................. (285,223) (115,583)
Capital share transactions (Note 4).................. (3,219,767) (3,522,172)
----------- -----------
Total decrease...................................... (1,964,807) (3,634,787)
NET ASSETS:
Beginning of year................................... 14,241,893 17,876,680
----------- -----------
End of year (including undistributed net investment
income of $58,333 and $72,182)..................... $12,277,086 $14,241,893
=========== ===========
</TABLE>
See Notes to Financial Statements.
REA-GRAHAM BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Rea-Graham Balanced Fund (the Fund) is the only series of shares of Rea-
Graham Funds, Inc., a diversified open-end management investment company
registered under the Investment Company Act of 1940. It was organized in 1982
to succeed to the business of Rea, Graham-Plan Fund, an investment company
organized as a limited partnership which commenced operations June 30, 1976
for the purpose of investing the partners' capital in securities under
professional investment management. This succession occurred on April 29, 1982
when the partnership's net assets aggregating $3,436,275 were transferred to
the Fund in exchange for 300,000 shares of the Fund's capital stock. The Fund
seeks as its investment objectives medium-term capital growth, income and
safety through balanced investments in common stocks, preferred stocks, U.S.
government securities and money market instruments.
The selected financial information, for the periods prior to April 29, 1982
(Note 6), gives effect to the assumed issuance of shares for partners' capital
contributions based upon the 300,000 shares issued on April 29, 1982 as
described above.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
(a) Valuation of securities. Investments are stated at value based on
latest sales prices reported on national securities exchanges on the
last business day of the period. Investments for which no sale is
reported, or which are traded over the counter, are valued at the mean
between bid and asked prices.
(b) Income taxes. The Fund intends to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Therefore
no provision has been made for federal income taxes.
(c) Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles 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 increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
(d) Other. Securities transactions are recorded on the trade date basis.
Interest is accrued as earned and dividend income is recorded on the
ex-dividend date, except that certain dividends from foreign securities
are recorded as soon as information is available to the Fund. Dividends
and capital gain distributions to shareholders are recorded on the ex-
dividend date.
7
<PAGE>
REA-GRAHAM BALANCED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund retains James Buchanan Rea, Inc. (Adviser) as its investment
adviser. Under the terms of the agreement the Adviser receives a monthly fee
of 1/12 of 1% of the first $20,000,000 of the Fund's net assets on the last
business day of the month, 1/12 of .75% of the next $80,000,000, 1/12 of .5%
of the next $100,000,000, and 1/12 of .45% of monthly net assets in excess of
$200,000,000. The Adviser has agreed to reduce its advisory fee for all
expenses (excluding certain defined expenses) in excess of limitations set
under applicable state securities laws. No reduction in fee was required for
the year ended March 31, 1996.
Pursuant to a Plan of Distribution the Fund pays monthly to James Buchanan
Rea, Inc., as Principal Underwriter, a distribution fee equal on an annual
basis to 0.35% of the Fund's average daily net assets. There were no
additional expenses borne by the Fund pursuant to the Plan of Distribution.
Commissions earned by James Buchanan Rea, Inc. for services rendered as a
registered broker-dealer in securities transactions of the Fund for the year
ended March 31, 1996 were $13,835 (0.10% of average net assets), net of $8,174
allocated to clearing brokers. During this period, James Buchanan Rea, Inc.
earned commissions of $585 as principal underwriter and authorized dealer in
Fund shares.
4. CAPITAL STOCK
At March 31, 1996, there were 20,000,000 shares of capital stock ($1 par
value) authorized and capital paid-in amounted to $13,741,845. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold....................... 8,496 $ 119,521 11,138 $ 144,351
Issued on reinvestment of
dividends................. 18,700 266,474 8,388 105,850
Redeemed................... (258,015) (3,605,762) (288,532) (3,772,373)
-------- ----------- -------- -----------
Net decrease............... (230,819) $(3,219,767) (269,006) $(3,522,172)
======== =========== ======== ===========
</TABLE>
5. INVESTMENT TRANSACTIONS
During the year ended March 31, 1996, purchases and sales of investment
securities, excluding short-term obligations, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS OF
PURCHASES SALES
----------- -----------
<S> <C> <C>
U.S. Government Obligations...................... $10,981,068 $ 8,036,406
Other securities................................. 3,358,072 6,440,022
----------- -----------
$14,339,140 $14,476,428
=========== ===========
</TABLE>
The aggregate portfolio turnover of the Fund for the year ended March 31,
1996 was 223%. Portfolio turnover on stocks was 88%. Portfolio turnover on
U.S. Government Obligations was 310%.
Realized gains and losses are reported on an identified cost basis.
Accumulated undistributed net realized losses at March 31, 1996 were
$1,633,875. Such amount represents tax basis capital losses which may be
carried forward to offset future capital gains. Such losses expire in varying
amounts from March 31, 1999 to March 31, 2003.
At March 31, 1996, the aggregate gross unrealized appreciation and
(depreciation) of portfolio securities, based on cost for federal income tax
purposes, was as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $243,103
Unrealized depreciation......................................... (132,320)
--------
$110,783
========
</TABLE>
8
<PAGE>
REA-GRAHAM BALANCED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE (FOR A SHARE
OUTSTANDING THROUGHOUT
THE PERIOD)
Net asset value, begin-
ning of period.......... $ 13.12 $ 13.20 $ 13.68 $ 13.14 $ 12.84 $ 13.56 $ 13.90 $ 13.83 $ 15.56 $ 16.45 $ 13.65
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income... 0.31 0.15 0.07 0.21 0.59 0.75 0.90 0.78 0.66 0.43 0.50
Net realized and
unrealized gain (loss)
on investments......... 1.24 (0.13) (0.47) 0.59 0.37 (0.65) (0.27) 0.25 (0.46) 0.98 3.06
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.............. 1.55 0.02 (0.40) 0.80 0.96 0.10 0.63 1.03 0.20 1.41 3.56
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income...... (0.31) (0.10) (0.08) (0.26) (0.66) (0.82) (0.96) (0.68) (1.03) (0.47) (0.53)
Dividends from net
realized gains......... 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) (0.28) (0.90) (1.83) (0.23)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions...... (0.31) (0.10) (0.08) (0.26) (0.66) (0.82) (0.97) (0.96) (1.93) (2.30) (0.76)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period.................. $ 14.36 $ 13.12 $ 13.20 $ 13.68 $ 13.14 $ 12.84 $ 13.56 $ 13.90 $ 13.83 $ 15.56 $ 16.45
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's).......... $12,277 $14,242 $17,877 $24,771 $28,281 $34,758 $43,386 $50,554 $49,287 $48,141 $31,531
Ratios to average net
assets:
Expenses................ 2.65% 2.52% 2.37% 2.16% 2.06% 2.04% 1.60% 1.43% 1.41% 1.48% 1.50%
Net investment income... 2.02% 1.08% 0.49% 1.45% 4.05% 5.27% 5.82% 5.46% 4.82% 3.54% 4.78%
Aggregate portfolio
turnover rate........... 223% 93% 106% 87% 109% 100% 125% 88% 226% 111% 208%
Portfolio turnover rate
on stocks**............. 88% 36%
Net asset value adjusted
for reinvestment of
dividends and distribu-
tions:
Beginning of period..... $ 29.14 $ 29.09 $ 29.97 $ 28.24 $ 26.23 $ 25.95 $ 24.85 $ 23.10 $ 22.69 $ 20.73 $ 16.24
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
End of period.......... $ 32.58 $ 29.14 $ 29.09 $ 29.97 $ 28.24 $ 26.23 $ 25.95 $ 24.85 $ 23.10 $ 22.69 $ 20.73
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (excluding
sales charge) .......... 11.81% 0.17% (2.94)% 6.13% 7.66% 1.08% 4.43% 7.58% 1.81% 9.45% 27.65%
</TABLE>
- -----
** Provided for additional information. Portfolio turnover rate on stocks for
periods prior to 1995 not available.
9
<PAGE>
REA-GRAHAM BALANCED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PRO FORMA INFORMATION + (UNAUDITED)
--------------------------------------------------------------
JUNE 30, 1976
YEAR YEAR APRIL 30, (COMMENCEMENT
ENDED ENDED 1982 TO JANUARY 1, YEAR ENDED DECEMBER 31, OF OPERATIONS)
MARCH 31, MARCH 31, MARCH 31, TO APRIL 29, -------------------------------------- TO DECEMBER 31,
1985 1984 1983 1982 1981 1980 1979 1978 1977 1976
--------- --------- --------- ------------ ------ ------ ------ ------ ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE (FOR A SHARE
OUTSTANDING THROUGHOUT
THE PERIOD)
Net asset value, begin-
ning of period.......... $ 13.09 $13.89 $11.45 $11.09 $ 9.55 $ 8.66 $ 7.45 $ 6.75 $ 6.54 $ 6.03
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income... 0.46 0.72 0.43 0.05 0.59 0.56 0.30 0.12 0.18 0.00
Net realized and
unrealized gain (loss)
on investments.......... 1.12 (.27) 2.01 0.31 0.95 0.33 0.91 0.58 0.03 0.51
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.............. 1.58 0.45 2.44 0.36 1.54 0.89 1.21 0.70 0.21 0.51
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income...... (0.74) (0.33) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Dividends from net
realized gains......... (0.28) (0.92) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...... (1.02) (1.25) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period.................. $ 13.65 $13.09 $13.89 $11.45 $11.09 $ 9.55 $ 8.66 $ 7.45 $ 6.75 $ 6.54
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000's).......... $13,627 $9,842 $6,863 $3,436 $3,200 $2,631 $3,063 $2,169 $1,458 $1,093
Ratios to average net
assets:
Expenses................ 2.28% 2.45% 1.50%* 3.62%* 2.70% 3.10% 3.07% 2.90% 2.77% 4.92%*
Net investment income... 4.68% 6.46% 5.49%* 2.90%* 6.48% 3.85% 4.63% 2.72% 2.98% --
Portfolio turnover rate.. 196% 261% 187% 9% 135% 151% 101% 135% 148% 22%
Net asset value adjusted
for reinvestment of
dividends and
distributions:
Beginning of period..... $ 14.35 $13.89 $11.45 $11.09 $ 9.55 $ 8.66 $ 7.45 $ 6.75 $ 6.54 $ 6.03
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
End of period........... $ 16.24 $14.35 $13.89 $11.45 $11.09 $ 9.55 $ 8.66 $ 7.45 $ 6.75 $ 6.54
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (excluding
sales charge)........... 13.17% 3.31% 21.31% 3.25% 16.13% 10.28% 16.24% 10.37% 3.21% 8.46%
</TABLE>
- ----
* Annualized
+ Prepared as if the predecessor partnership (Note 1) had been organized as a
corporation on June 30, 1976, the date of commencement of its operations,
and had initially issued capital stock at a net asset value of $6.03 per
share.
10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders of
Rea-Graham Balanced Fund
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Rea-Graham Balanced Fund as of
March 31, 1996, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the selected financial information for each of the
thirteen years in the period then ended and the period from April 30, 1982 to
March 31, 1983. These financial statements and selected financial information
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 1996, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of Rea-Graham Balanced Fund as of March 31, 1996, the results of its
operations, the changes in its net assets and the selected financial
information for the periods indicated, in conformity with generally accepted
accounting principles.
[Auditor's signature]
New York, New York
April 19, 1996
11
<PAGE>
PLEASE CONTACT US
[LOGO of REA-GRAHAM FUND, INC.]
REA-GRAHAM FUNDS, INC. ------------------
10966 Chalon Road
Los Angeles, California 90077
(800) 433-1998
Transfer Agent REA-
PFPC, Inc. GRAHAM
400 Bellevue Parkway BALANCED FUND
Wilmington, DE 19809
(800) 348-5032
Principal Underwriter
JAMES BUCHANAN REA, INC. ANNUAL REPORT
10966 Chalon Road
Los Angeles, California 90077 March 31, 1996
(310) 442-2660
- --------------------------------
This report must be preceded or
accompanied by the Prospectus of
Rea-Graham Balanced Fund.
