<PAGE>
[LOGO OF REA-GRAHAM FUND, INC.]
REA-GRAHAM BALANCED FUND
10966 Chalon Road, Los Angeles, California 90077
(800) 433-1998 (310) 442-2660
- -------------------------------------------------------------------------------
June 12, 1997
Dear Shareholders:
I am pleased to present this Annual Report for the Rea-Graham Balanced Fund
for the year ended March 31, 1997. From inception, June 30, 1976, the Fund has
returned to investors a gain* of 474.7%, a compound growth rate of 8.8% per
year. For calendar-year 1996, the Fund gained 6.8%. For 1997 year-to-date
(June 12, 1997) the Fund is up 2.5%. 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.
The investment master, Benjamin Graham, a founding partner of our Fund, said
it better than I can. In the fourth edition of THE INTELLIGENT INVESTOR, in
the chapter entitled "The Investor and Market Fluctuations," Graham said:
"A substantial rise in the market is at once a legitimate reason for
satisfaction and a cause for prudent concern, but it may also bring a
strong temptation toward imprudent action. Your shares have advanced,
good! You are richer than you were, good! But has the price risen TOO
high, and should you think of selling? Or should you kick yourself for
not having bought more shares when the level was lower? Or--worst
thought of all--should you now give way to the bull-market atmosphere,
become infected with the enthusiasm, the overconfidence and the greed
of the great public (of which, after all, you are a part), and make
larger and dangerous commitments? Presented thus in print, the answer
to the last question is a self-evident NO, but even the intelligent
investor is likely to need considerable will power to keep from
following the crowd."
Today, the Dow Jones Industrial Average set a record high, closing at
7,711.47. Our Fund holds approximately 26% of assets in common stocks, 30% in
medium-term U.S. Government Treasury Notes, and 44% in liquid cash
instruments. We continue to maintain a strong margin of safety and
diversification among 14 investment categories.
As evidence of our policy to select value investments, the portfolio has a
low price-to-earnings ratio of 14.7, compared to 24.3 for domestic stock
mutual funds and a low price-to-book value ratio of 2.2, compared to 4.5 for
equity funds. Our stocks have an average dividend yield of 2.2%, compared to
0.7% for domestic stock funds. We continue to select stocks with high reward-
to-risk ratios, solid fundamentals, and with demonstrated superior earnings,
growth and profitability.
Our track record indicates that investors can achieve the superior long-term
performance of equity ownership with significantly reduced risk and
volatility. The recent seven-year bull market has led many people away from
"investment," where safety of principal coupled with adequate return are
sought, and into "speculation." We are dedicated to intelligent investing,
which takes patience, fortitude, and commitment.
We thank you for your continued confidence in the Rea-Graham Balanced Fund.
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 th Rea-Graham
Balanced Fund and the four benchmark indexes as follows:
1. Morgan Stanley World Index............... $66,387.12
2. Value Line Composite..................... $57,258.72
3. Rea-Graham Fund.......................... $54,743.90
4. Two-year U.S. Treasury Notes............. $51,984.57
5. Three-month U.S. Treasury Bills.......... $41,760.73
The beginning date for each such $10,000 investment is June 30, 1976. Past
performance is not predicitive of future performance.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
-----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR INCEPT.
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
REA-GRAHAM FUND +6.41% +4.19% +4.33% +8.79%
EXCLUDING SALES LOAD
-----------------------------------------------------------------------
REA-GRAHAM FUND +1.33% +3.18% +3.82% +8.54%
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 cahart 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, 1997, the ending value for the Fund was
$57,467.45 and the ending value for the Composite Index was $52,977.35. In the
case of the Fund, this represents a cumulative total return of 474.67% 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
03/31/97 $52,977 $57,467
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, 1997
<TABLE>
<CAPTION>
NUMBER
NAME OF ISSUER OF SHARES VALUE
- -------------- --------- --------
<S> <C> <C>
COMMON STOCKS -- 23.87%
BANKS -- 2.09%
Bank of New York........................................ 3,000 $110,250
Citicorp................................................ 1,000 108,250
--------
218,500
--------
AIRLINES -- 0.84%
Southwest Airlines Co. ................................. 4,000 88,500
--------
BEEF -- SLAUGHTER/
PRODUCTS -- 0.94%
IBP, Inc. .............................................. 4,000 98,500
--------
COMMUNICATIONS -- 1.93%
Century Telephone....................................... 3,000 88,500
Sprint Corp. ........................................... 2,500 113,750
--------
202,250
--------
FINANCIAL SERVICES -- 2.75%
Advanta Corp. CL A...................................... 3,000 80,625
American Express........................................ 2,000 119,750
Lehman Brothers Holdings Inc. .......................... 3,000 87,375
--------
287,750
--------
FLEET MANAGEMENT/
LEASING -- 1.26%
Rollins Truck Lease (U.S.A.)............................ 10,000 132,500
--------
INDUSTRIALS -- 4.27%
AUTO/PARTS
Chrysler Corp.......................................... 3,000 90,000
Excel Industries Inc. ................................. 13,000 264,875
--------
354,875
--------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
NAME OF ISSUER OF SHARES VALUE
- -------------- --------- ----------
<S> <C> <C>
TIRES
Cooper Tire, Inc. ....................................... 5,000 92,500
----------
TOTAL INDUSTRIALS 447,375
----------
JET FUEL/OIL RECOVERY -- 1.19%
World Fuel................................................ 7,000 124,250
----------
RESTAURANTS -- 2.28%
Cracker Barrel............................................ 6,000 156,750
Wendy's International..................................... 4,000 82,500
----------
239,250
----------
STORES (RETAIL/WHOLESALE)-- 0.42%
Cash American International............................... 4,506 43,934
----------
TECHNOLOGY/ENERGY -- 1.31%
Wheelabrator Tech......................................... 10,500 137,813
----------
UTILITIES -- 4.59%
Delmarva Power & Light Co. ............................... 7,500 137,812
NY State Electric & Gas................................... 5,000 108,125
Nipsco Industries (U.S.A.)................................ 6,000 235,500
----------
481,437
----------
TOTAL COMMON STOCKS (Cost $2,483,135)...................... $2,502,059
----------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
REA-GRAHAM BALANCED FUND
STATEMENT OF INVESTMENTS, CONTINUED
MARCH 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
NAME OF ISSUER AMOUNT VALUE
- -------------- ---------- ---------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 79.50%
LONG-TERM U.S.
GOVERNMENT
OBLIGATIONS -- 28.32%
U.S. Treasury Notes, 5.375%, 11/30/97.................... $1,000,000 $ 996,562
U.S. Treasury Notes, 5.03%, 01/31/98..................... 1,000,000 991,250
U.S. Treasury Notes, 5.125%, 12/31/98.................... 1,000,000 980,000
---------
2,967,812
---------
SHORT-TERM U.S. GOVERNMENT
OBLIGATIONS -- 51.18%
U.S. Treasury Bills, 4.88%, 05/01/97..................... 275,000 273,882
U.S. Treasury Bills, 4.95%, 05/01/97..................... 275,000 273,865
U.S. Treasury Bills, 5.00%, 05/01/97..................... 825,000 821,562
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
NAME OF ISSUER AMOUNT VALUE
- -------------- --------- -----------
<S> <C> <C>
U.S. Treasury Bills, 5.00%, 05/22/97.................... 3,125,000 3,102,865
U.S. Treasury Bills, 5.03%, 06/05/97.................... 900,000 891,598
-----------
5,363,772
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $8,361,879)...... 8,331,584
-----------
OTHER SHORT-TERM
INVESTMENTS -- 0.27%
Chase Institutional Money Market (Cost $28,063)......... 28,063
-----------
TOTAL INVESTMENTS -- 103.64% (Cost $10,873,077+)......... 10,861,706
OTHER ASSETS LESS LIABILITIES -- (3.64%)................. (381,005)
-----------
TOTAL NET ASSETS -- 100%................................. $10,480,701
===========
</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, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments at value (cost $10,873,077).................... $10,861,706
Cash....................................................... 425
Receivables:
Securities sold............................................ 3,930
Dividends and interest..................................... 39,860
Other...................................................... 5,673
-----------
TOTAL ASSETS............................................... 10,911,594
-----------
LIABILITIES:
Payables:
Securities purchased....................................... 328,670
Capital shares redeemed.................................... 49,256
Accrued expenses........................................... 52,967
-----------
TOTAL LIABILITIES.......................................... 430,893
-----------
NET ASSETS:
Net assets, equivalent to $14.99 per share on 699,004
shares outstanding (Note 4)............................... $10,480,701
===========
Computation of public offering price:
Net asset value per share.................................. $14.99
======
Offering price per share (100/95.25 x $14.99).............. $15.74
======
</TABLE>
REA-GRAHAM BALANCED FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................ $ 354,641
Interest......................................................... 176,746
-----------
TOTAL INCOME.................................................... 531,387
-----------
Expenses:
Investment advisory fee (Note 3)................................. 115,095
Distribution fee (Note 3)........................................ 40,521
Custodian fees................................................... 20,541
Transfer agency fees and expenses................................ 18,998
Administrative expenses.......................................... 29,831
Registration and filing fees..................................... 20,775
Legal............................................................ 15,302
Audit and accounting............................................. 26,999
Recordkeeping and pricing fees................................... 17,395
Directors' fees and meeting expenses............................. 9,058
Printing and postage............................................. 14,379
Other............................................................ 6,176
-----------
TOTAL EXPENSES.................................................. 335,070
-----------
NET INVESTMENT INCOME........................................... 196,317
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................. 663,263
Unrealized depreciation of investments for the year.............. (122,154)
-----------
NET GAIN ON INVESTMENTS......................................... 541,109
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS....................... $ 737,426
===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
REA-GRAHAM BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations:
Net investment income............................... $ 196,317 $ 271,374
Net realized gain on investments.................... 663,263 1,056,147
Unrealized appreciation (depreciation) for the year. (122,154) 212,662
----------- -----------
Net increase in net assets from operations.......... 737,426 1,540,183
Dividends paid to shareholders from net investment
income.............................................. (219,505) (285,223)
Capital share transactions (Note 4).................. (2,314,306) (3,219,767)
----------- -----------
Total decrease...................................... (1,796,385) (1,964,807)
NET ASSETS:
Beginning of year................................... 12,277,086 14,241,893
----------- -----------
End of year (including undistributed net investment
income of $35,145 and $58,333)..................... $10,480,701 $12,277,086
=========== ===========
</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.
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.
During the year ended March 31, 1997, James Buchanan Rea, Inc. earned
commissions of $302 as principal underwriter and authorized dealer in Fund
shares.
4.CAPITAL STOCK
At March 31, 1997, there were 20,000,000 shares of capital stock ($1 par
value) authorized and capital paid-in amounted to $11,427,539. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold....................... 13,094 $ 195,810 8,496 $ 119,521
Issued on reinvestment of
dividends................. 13,765 205,795 18,700 266,474
Redeemed................... (182,560) (2,715,911) (258,015) (3,605,762)
-------- ----------- -------- -----------
Net decrease............... (155,701) $(2,314,306) (230,819) $(3,219,767)
======== =========== ======== ===========
</TABLE>
5.INVESTMENT TRANSACTIONS
During the year ended March 31, 1997, purchases and sales of investment
securities, excluding short-term obligations, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES OF SALES
---------- ----------
<S> <C> <C>
U.S. Government Obligations........................ $ -- $ 999,688
Other securities................................... 1,116,112 1,929,085
---------- ----------
$1,116,112 $2,928,773
========== ==========
</TABLE>
The aggregate portfolio turnover of the Fund for the year ended March 31,
1997 was 19%. Portfolio turnover on stocks was 45%. Portfolio turnover on U.S.
Government Obligations was 0%.
Realized gains and losses are reported on an identified cost basis.
Accumulated undistributed net realized losses at March 31, 1997 were $970,612.
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, 1997, 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........................................ $192,334
Unrealized depreciation........................................ (203,705)
--------
$(11,371)
========
</TABLE>
8
<PAGE>
REA-GRAHAM BALANCED FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<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.......... $ 14.36 $ 13.12 $ 13.20 $ 13.68 $ 13.14 $ 12.84 $ 13.56 $ 13.90 $ 13.83 $ 15.56 $ 16.45
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income.. 0.27 0.31 0.15 0.07 0.21 0.59 0.75 0.90 0.78 0.66 0.43
Net realized and
unrealized gain (loss)
on
investments............ 0.65 1.24 (0.13) (0.47) 0.59 0.37 (0.65) (0.27) 0.25 (0.46) 0.98
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.............. 0.92 1.55 0.02 (0.40) 0.80 0.96 0.10 0.63 1.03 0.20 1.41
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net in-
vestment income........ (0.29) (0.31) (0.10) (0.09) (0.26) (0.66) (0.82) (0.96) (0.68) (1.03) (0.47)
Dividends from net re-
alized gains........... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.01) (0.28) (0.90) (1.83)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... (0.29) (0.31) (0.10) (0.09) (0.26) (0.66) (0.82) (0.97) (0.96) (1.93) (2.30)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period.................. $ 14.99 $ 14.36 $ 13.12 $ 13.19 $ 13.68 $ 13.14 $ 12.84 $ 13.56 $ 13.90 $ 13.83 $ 15.56
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DA-
TA:
Net assets, end of pe-
riod (000's)............ $10,481 $12,277 $14,242 $17,877 $24,771 $28,281 $34,758 $43,386 $50,554 $49,287 $48,141
Ratios to average net
assets:
Expenses............... 2.89% 2.65% 2.52% 2.37% 2.16% 2.06% 2.04% 1.60% 1.43% 1.41% 1.48%
Net investment income.. 1.70% 2.02% 1.08% 0.49% 1.45% 4.05% 5.27% 5.82% 5.46% 4.82% 3.54%
Aggregate portfolio
turnover rate........... 19% 223% 93% 106% 87% 109% 100% 125% 88% 226% 111%
Portfolio turnover rate
on stocks**............. 45% 88% 36%
Net asset value adjusted
for reinvestment of
dividends and distribu-
tions:
Beginning of period.... $ 32.58 $ 29.14 $ 29.09 $ 29.97 $ 28.24 $ 26.23 $ 25.95 $ 24.85 $ 23.10 $ 22.69 $ 20.73
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
End of period.......... $ 34.67 $ 32.58 $ 29.14 $ 29.09 $ 29.97 $ 28.24 $ 26.23 $ 25.95 $ 24.85 $ 23.10 $ 22.69
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (excluding
sales charge) .......... 6.41% 11.81% 0.17% (2.94)% 6.13% 7.66% 1.08% 4.43% 7.58% 1.81% 9.45%
Average commission rate
paid.................... $0.0537
</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
APRIL 30, (COMMENCEMENT
YEAR ENDED MARCH 31, 1982 TO JANUARY 1, YEAR ENDED DECEMBER 31, OF OPERATIONS)
------------------------ MARCH 31, TO APRIL 29, -------------------------------------- TO DECEMBER 31,
1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976
------- ------- ------ --------- ------------ ------ ------ ------ ------ ------ ---------------
<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, be-
ginning of period... $ 13.65 $ 13.09 $13.89 $11.45 $11.09 $ 9.55 $ 8.66 $ 7.45 $ 6.75 $ 6.54 $ 6.03
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from invest-
ment operations:
Net investment in-
come............... 0.50 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........ 3.06 1.12 (0.27) 2.01 0.31 0.95 0.33 0.91 0.58 0.03 0.51
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from invest-
ment operations..... 3.56 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.. (0.53) (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..... (0.23) (0.28) (0.92) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions. (0.76) (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........... $ 16.45 $ 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)...... $31,531 $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........... 1.50% 2.28% 2.45% 1.50%* 3.62%* 2.70% 3.10% 3.07% 2.90% 2.77% 4.92%*
Net investment in-
come............... 4.78% 4.68% 6.46% 5.49%* 2.90%* 6.48% 3.85% 4.63% 2.72% 2.98% --
Portfolio turnover
rate................ 208% 196% 261% 187% 9% 135% 151% 101% 135% 148% 22%
Net asset value
adjusted for
reinvestment of
dividends and
distributions:
Beginning of peri-
od................. $ 16.24 $ 14.35 $13.89 $11.45 $11.09 $ 9.55 $ 8.66 $ 7.45 $ 6.75 $ 6.54 $ 6.03
======= ======= ====== ====== ====== ====== ====== ====== ====== ====== ======
End of period...... $ 20.73 $ 16.24 $14.35 $13.89 $11.45 $11.09 $ 9.55 $ 8.66 $ 7.45 $ 6.75 $ 6.54
======= ======= ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (ex-
cluding sales
charge)............. 27.65% 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, 1997, 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
fourteen 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, 1997, 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, 1997, 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.
McGladrey & Pullen, LLP
New York, New York
April 25, 1997
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, 1997
(310) 442-2660
- --------------------------------
This report must be preceded or
accompanied by the Prospectus of
Rea-Graham Balanced Fund.
