SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant X
Filed by a party other than the registrant
Check the appropriate box:
X Preliminary proxy statement
Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Rea-Graham Funds, Inc.
(Name of Registrant as Specified in Its Charter)
Rea-Graham Balanced Fund
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
$125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identifying the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the form
or schedule and the date of its filing.
<PAGE>
PRELIMINARY PROXY MATERIALS -- FOR SEC USE ONLY
REA-GRAHAM FUNDS, INC.
REA-GRAHAM BALANCED FUND
12100 Wilshire Blvd.
Suite 680
Los Angeles, California 90025
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held January 12, 1998 at 10:00 a.m.
A Special Meeting of the Shareholders of Rea-Graham Balanced Fund (the
"Fund"), a series of Rea-Graham Funds, Inc. (the "Company") will be held at the
offices of the Fund's transfer agent, PFPC, Inc., 400 Bellevue Parkway, Suite
108, Wilmington, Delaware 19809, on January 12, 1998 at 10:00 a.m. Eastern Time,
or at such adjourned time as may be necessary to vote (the "Meeting") for the
following purposes:
PROPOSAL 1. To approve a new Investment Advisory Agreement for the Fund;
PROPOSAL 2. To approve a new Sub-Investment Advisory Agreement for the Fund;
PROPOSAL 3. To elect Directors of the Fund; and
PROPOSAL 4. To transact such other business as may properly come before
the Meeting.
Shareholders of record of the Fund at the close of business on December
1, 1997 (the "Record Date") will be entitled to vote at the Meeting. Each share
of the Fund is entitled to one vote and fractional shares have pro-rata voting
rights.
We urge you to sign, date and return your proxy in the enclosed
addressed envelope, which requires no postage and is intended for your
convenience. Your prompt return of your proxy or proxies may save the Fund the
necessity and expense of further solicitations to ensure a quorum at the
Meeting. You may vote your shares in person at the Meeting.
By Order of the Board of Directors
James B. Rea, Jr.
Secretary
Los Angeles, California
December __, 1997
<PAGE>
PROXY STATEMENT
REA-GRAHAM FUNDS, INC.
REA-GRAHAM BALANCED FUND
12100 Wilshire Blvd.
Suite 680
Los Angeles, California 90025
SPECIAL MEETING OF SHAREHOLDERS
To be held January 12, 1998 at 10:00 a.m.
This Proxy Statement and enclosed form of proxy are furnished in
connection with the solicitation of proxies by and on behalf of the Directors of
the Fund to be used at a Special Meeting of Shareholders of the Fund to be held
at the offices of the Fund's transfer agent, PFPC, Inc., 400 Bellevue Parkway,
Suite 108, Wilmington, Delaware 19809, on January 12, 1998, at 10:00 a.m.
Eastern Time or at any adjournment or adjournments thereof (the "Meeting"), for
the purposes set forth in the accompanying Notice.
This Proxy Statement and the form of proxy are being mailed to
shareholders on or about December __, 1997. Any shareholder giving a proxy has
the power to revoke it by mail (addressed to the Secretary of the Fund at the
principal executive office of the Fund, 12100 Wilshire Blvd., Suite 680, Los
Angeles, California 90025) or in person at the Meeting, by executing a
superseding proxy or by submitting a notice of revocation to the Fund. All
properly executed and unrevoked proxies received in time for the Meeting will be
voted as specified in the proxy or, if no specification is made, for each
proposal referred to in the proxy statement.
Holders of record of the shares of common stock of the Fund at the
close of business on December 1, 1997 (the "Record Date") will be entitled to
one vote per share on each proposal presented at the Meeting and fractional
shares have pro-rata voting rights.
A copy of the Fund's most recent annual report and semi-annual report
is available upon request and without charge by calling the Fund at (800)
433-1998 at their principal executive office, 12100 Wilshire Blvd., Suite 680,
Los Angeles, California 90025.
James Buchanan Rea, Inc., 12100 Wilshire Blvd., Los Angeles, California
90025, currently serves as the Fund's investment adviser, principal underwriter
and administrator.
PROPOSAL 1
APPROVAL OF A NEW
INVESTMENT ADVISORY AGREEMENT
The Board of Directors of the Fund is proposing that shareholders of
the Fund approve a new Investment Advisory Agreement (the "New Agreement") to be
entered into between the Fund and American Diversified Securities, Inc. ("ADS"),
the entity that has proposed to acquire control of James Buchanan Rea, Inc.
("JBRI") through a merger transaction as more fully discussed below (the
"Transaction"). A form of the New Agreement is attached hereto as Exhibit A.
JBRI has served as investment manager and distributor for the Fund
since the Fund was established in 1982. JBRI serves as investment adviser
pursuant to the Fund's existing Investment Advisory Agreement with JBRI (the
"Current Agreement"). In connection with a proposed change in control of the
ownership of JBRI pursuant to which ADS intends to acquire all of the voting
shares of JBRI, this change of control of JBRI would constitute an assignment
(as that term is defined in the Investment Company Act of 1940 (the "1940 Act"))
of the Current Agreement. As required under the 1940 Act, the Current Agreement
provides for its automatic termination in the event of an "assignment."
Because the Current Agreement will be terminated upon the completion of
the change in control of JBRI, which is currently expected to occur on or about
January 12, 1998, it is necessary to adopt a new investment management agreement
for the Fund. Management of the Fund made a proposal to the Directors at a
meeting held on November 24, 1997, for the adoption of the New Agreement. The
New Agreement differs from the Current Agreement only with respect to the names
of the parties and the dates, and with respect to certain non-material changes
that have been made to reflect recent regulatory developments. The Directors at
this meeting accepted this recommendation for the adoption of the New Agreement
and the Directors are recommending that shareholders approve the New Agreement.
In addition, as more fully discussed below under Proposal 2, the Directors are
also recommending that shareholders approve of a new sub-investment advisory
agreement for the Fund pursuant to which a new sub-investment advisory firm,
Ladas & Hulings, Inc., would take on the day-to-day portfolio management
responsibilities for the Fund subject to the review and oversight of ADS.
The Directors were also advised that JBRI intends to rely on Section
15(f) of the 1940 Act which provides a non-exclusive safe harbor for an
investment adviser to an investment company, and any of the investment adviser's
affiliated persons (as defined in the 1940 Act) to receive any amount or benefit
in connection with a change in control of the investment adviser so long as two
conditions are met. First, for a period of three years after the Transaction, at
least 75% of the Directors must be persons who are not "interested persons" of
the predecessor or successor adviser. JBRI and ADS have indicated that they
intend to comply with this 75% requirement with respect to the Directors of the
Fund for the three year period following the Transaction. The second condition
of Section 15(f) is that, for a period of two years following an acquisition,
there must not be imposed on the funds any "unfair burden" as a result of the
acquisition or any express or implied terms, conditions or understandings
related to it. An "unfair burden" would include any arrangement whereby an
adviser, or any interested person of the adviser, would receive or be entitled
to receive any compensation, directly or indirectly, from the funds or their
shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the fund (other than bona
fide ordinary compensation as principal underwriter for the fund.) In this
regard, the Directors noted that no special compensation arrangements were
contemplated in connection with the Transaction.
1. The Proposed Change in Control of JBRI
Presently, the voting stock of JBRI is controlled by Mr. James B. Rea
Jr., and members of his immediate family. The following persons currently own
beneficially or of record 10% or more of the outstanding voting securities of
JBRI: Mr. James B. Rea, Jr.; Mrs. Frances L. Rea; and the Rea Community Property
Living Trust. The address of each such person is c/o JBRI, 12100 Wilshire Blvd.,
Suite 680, Los Angeles, California 90025.
It is proposed that as a result of the Transaction, which will be
effectuated as a merger, ADS will acquire all of the outstanding voting shares
of JBRI. It is also proposed that Mr. James B. Rea, Jr., who currently serves as
President of the Fund and Portfolio Manager of the Fund, will be retained by ADS
to continue to serve as President and Portfolio Manager for the Fund and
President, Chief Executive Officer and Chief Financial Officer of ADS.
ADS is a Nevada corporation organized in February 1997 for the purpose
of effectuating the Transaction and which does not yet have an operating history
and has not previously engaged in the investment management business or in the
operation and distribution of registered investment companies. ADS will succeed
to the business operations of JBRI and will operate as a broker-dealer and
registered investment adviser as successor to JBRI as a result of the
Transaction. ADS is a wholly-owned subsidiary of American Diversified Holdings,
Inc., a multinational corporation formed to manage a family of international
mutual funds in Europe and the United States. American Diversified Holdings,
Inc. is the parent company to American Diversified Holdings, AG, a German
provider of financial service products located in Berlin.
2. The Current Agreement
Under the terms of the Current Agreement, JBRI manages the Fund's
investments and the Fund pays JBRI annual investment management fees based on
the Fund's average daily net assets, calculated as follows: (i) 1.00% per annum
of the first $20 million of average daily net assets; (ii) .75% per annum of the
next $80 million of such assets; (iii) .50% per annum of the next $100 million
of such assets; and (iv) .45% of such assets in excess of $200 million. For the
fiscal year ended March 31, 1997, the Fund paid investment advisory fees to JBRI
in the amount of $115,095.
The Current Agreement has been previously approved by shareholders in
the ordinary course of obtaining shareholder approval of such agreement as
required by applicable law. The Current Agreement is dated July 15, 1988 and was
last submitted to a vote of shareholders on July 15, 1988.
The Fund is subject to a Plan of Distribution, and related agreements,
in accordance with Rule 12b-1 of the 1940 Act. Under the terms of such Plan of
Distribution, the Fund may make payments in connection with the distribution of
the Fund's shares at an annual rate of .35% of the net asset value of the Fund.
Such payments are designed to facilitate the sale of Fund shares. The Plan of
Distribution will remain in full force and effect for the Fund and will not be
changed or affected as a result of the matters addressed herein.
The investment advisory fee will not change under the New Agreement and
will remain the same fee as provided for in the Current Agreement. In addition,
ADS has voluntarily agreed for a period of two years following the approval of
the New Agreement, to limit the Fund's total operating expenses to 2.80% per
annum.
3. The Directors' Considerations and Recommendations
In approving the New Agreement and determining to submit it to
shareholders for approval, the Directors concluded that the compensation to be
paid by the Fund to ADS under the New Agreement is fair and reasonable. In
making this determination, the Directors considered several factors. The factors
considered by the Directors included: (1) the investment management fees payable
under the Current Agreement and those payable under the New Agreement; (2) the
efforts and expenses of JBRI in rendering its services to the Fund and the
proposed efforts and expenses of ADS in rendering services to the Fund; (3) the
nature, quality and extent of the services as currently provided by JBRI to the
Fund and as to be provided by ADS under the New Agreement; (4) the fees charged
by investment managers operating funds with similar investment objectives; (5)
the fact that Mr. James B. Rea, Jr., the current Portfolio Manager of the Fund
and President of JBRI will continue to serve as Portfolio Manager of the Fund
and will serve as President, Chief Executive Officer and Chief Financial Officer
of ADS; and (6) the proposed addition of a new sub-investment adviser for the
Fund which would have its fees paid directly by ADS without increasing the
Fund's investment advisory fees.
Required Vote
The approval of the New Investment Advisory Agreement requires the
affirmative vote of a majority of the Fund's outstanding voting securities,
which for these purposes means the vote (i) of 67 percent or more of the voting
securities present at the Meeting, if the holders of more than 50 percent of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) of more than 50 percent of the outstanding voting securities of the
Fund, whichever is less.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
NEW INVESTMENT ADVISORY AGREEMENT, AND ANY SIGNED BUT UNMARKED PROXIES WILL BE
SO VOTED.
PROPOSAL 2
APPROVAL OF A NEW
SUB-INVESTMENT ADVISORY AGREEMENT
The Board of Directors of the Fund is proposing that shareholders
approve a new Sub-Investment Advisory Agreement (the "Sub-Advisory Agreement")
to be entered into between ADS and Ladas & Hulings, Inc. ("Ladas & Hulings") a
registered investment adviser founded in 1970 and headquartered in Scottsdale,
Arizona with regional offices in Austin, Texas and Palm Beach, Florida which
currently has approximately $270 million in assets under management which
consists of $180 million in domestic managed accounts and $90 million in
non-domestic managed accounts. The sub-investment advisory fees payable to Ladas
& Hulings would be paid directly by ADS from its investment advisory fees and
would not be paid directly by the Fund. As provided for in the Sub-Advisory
Agreement (a copy of which is attached hereto as Exhibit B), ADS would pay Ladas
& Hulings sub-advisory fees based on the Fund's average daily net assets
calculated as follows: (i) .50% per annum of the first $20 million of average
daily net assets; (ii) .375% per annum of the next $80 million of such assets;
(iii) .25% per annum of the next $100 million of such assets; and (iv) .225%of
such assets in excess of $200 million.
Ladas & Hulings is being proposed as a new sub-investment adviser for
the Fund because their investment style is substantially similar to the
investment style followed by JBRI (and which will continue to be followed by ADS
following the Transaction) which involves the use of fundamental investment
analysis applied and adapted to the global equity markets. It is proposed that
Ladas & Hulings would take over the day-to-day portfolio investment management
decisionmaking process subject to the oversight and review of Mr. Rea and ADS.
Because Ladas & Hulings' fee will be paid by ADS out of its fees, the investment
advisory fees for the Fund will not be increased if the Sub-Advisory Agreement
is approved. Although Ladas & Hulings has not previously provided investment
advisory services to a registered investment company, Ladas & Hulings has been
providing investment advisory services to individuals and institutional clients,
including pension accounts, trusts and charitable organizations since 1970.
It is proposed that Ladas & Hulings will rely upon an investment
committee consisting of several of its investment analysts and professionals to
conduct the day-to-day investment management responsibilities of the Fund's
portfolio.
The Directors' Considerations and Recommendations
In approving the Sub-Advisory Agreement and determining to submit it to
shareholder for approval, the Directors concluded that the compensation to be
paid to Ladas & Hulings by ADS is fair and reasonable. In making this
determination, the Directors considered several factors. The factors considered
by the Board included: (1) the level of the sub-investment advisory fees under
the Sub-Advisory Agreement and the fees paid by other comparable funds for
similar sub-investment advisory services; (2) the fact that the payment of the
sub-advisory fees would not result in an increase in the Fund's total investment
advisory fees; and (3) the experience and qualifications of Ladas & Hulings as
investment advisers and their prior performance investing in a manner similar to
JBRI.
Required Vote
The approval of the Sub-Investment Advisory Agreement requires the
affirmative vote of a majority of the Fund's outstanding voting securities,
which for these purposes means the vote (i) of 67 percent or more of the voting
securities present at the Meeting, if the holders of more than 50 percent of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) of more than 50 percent of the outstanding voting securities of the
Fund, whichever is less.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
SUB-INVESTMENT ADVISORY AGREEMENT, AND ANY SIGNED BUT UNMARKED PROXIES WILL BE
SO VOTED.
PROPOSAL 3
ELECTION OF DIRECTORS
It is being proposed that all of the current Directors of the Fund
stand for election and in addition that Mr. Klaus Conradi stand for election as
a new Director. All Directors are elected to serve indefinitely until his or her
resignation or removal or until his or her successor is duly elected and
qualified.
Proxies which do not contain specific instructions to the contrary will
be voted in favor of the election of the nominees shown below. Set forth below
is certain information about each nominee:
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Occupation During
Name and Age Position with the Fund the Past Five Years
James B. Rea, Jr.* President, Secretary and President and Director of James Buchanan Rea,
12100 Wilshire Blvd. Chairman of the Board Inc., investment advisor, broker-dealer,
Los Angeles, CA 90025 (1982 to present) underwriter and distributor for the Fund.
Age: 42
Gerald M. Borden Director Orthodontic Specialist. President of Gerald H.
12100 Wilshire Blvd. (1982 to present) Borden, D.D.S., Inc. of Westlake Village,
Los Angeles, CA 90025 California.
Age: 75
John P. Shelton Director Professor Emeritus of Finance at Anderson
12100 Wilshire Blvd. (1988 to present) Graduate School of Management, UCLA. Chartered
Los Angeles, CA 90025 Financial Analyst, PH.D. in Economics and board
Age: 77 member of (1) Paramount Mutual Fund, Los Angeles,
CA., and (2)
Genisco
Technology
Corp.,
(electronics),
Cypress, CA.
J. Victor Monke Director Psychiatrist; Psychoanalyst. Recent President,
12100 Wilshire Blvd. (1983 to present) Southern California Psychoanalytic Institute,
Los Angeles, CA 90025 attending Psychiatrist Cedars-Sinai Medical
Age: 83 Center, Los Angeles, California; Associate
Clinical
Professor of
Psychiatry,
University of
California at
Los Angeles,
Formerly
General
Partner
Nebraska
Company, real
estate
management;
Trustee
American
Psychoanalytic
Association
and Southern
California
Psychoanalytic
Institute.
R. Paul Toeppen Director President, Toeppen and Company, Los Angeles,
12100 Wilshire Blvd. (1982 to present) California, management and financial consultants.
Los Angeles, CA 90025
Age: 76
James Tracy Director Managing partner, Tracsam Associates, real estate
12100 Wilshire Blvd. (1983 to present) developer and manager; formerly Secretary and
Los Angeles, CA 90025 Treasurer, Barber-Colman Company (capital goods
Age: 77 manufacturer), Rockford, Illinois.
Thomas Fitzgerald Director President, T.H. Fitzgerald & Co. (Registered
12100 Wilshire Blvd. (1988 to present) Investment Advisor), New York and Connecticut.
Los Angeles, CA 90025 Formerly Editor Money Market Directory of
Age: 65 Institutional Investors and their Money Managers.
Klaus Conradi* None Chief Executive Officer of American Diversified
Kurfurstendamm 225 Holdings AG, Berlin Germany; President, American
Berlin, 10719 Germany Diversified Corporation and a Director of Immofin
Age: 27 GMBH, Berlin, Germany.
</TABLE>
- ---------------------------
* Mr. Rea is currently an "interested person" of the Fund (as defined in the
Investment Company Act of 1940) due to his position with JBRI and, if elected,
and if Proposal 1 is approved, he would continue to be deemed an "interested
person" due to his proposed position with ADS.
* If elected, Mr. Conradi would be considered an "interested person" (as defined
in the Investment Company Act of 1940) in the event that the Transaction
discussed in Proposal 1 occurs and the New Investment Advisory Agreement is
approved due to his ownership interest in ADS.
Directors other than those affiliated with James Buchanan Rea, Inc.
("JBRI") receive a fee of $200 for each Board of Directors meeting attended and
$100 per Audit Committee attended, plus reimbursement of related expenses for
attendance at meetings. For the fiscal year ended March 31, 1997, such fees and
expenses aggregated $9,058 the unaffiliated Directors as a group. During the
fiscal year ended March 31, 1997, there were four meetings of the Board. During
this period two of the incumbent Directors, Mr. Fitzgerald and Mr. Toeppen,
attended less than 75% of the aggregate of the total number of Board meetings
and the total number of Committee meetings for the Committees on which that
Director serves.
The Fund has a Audit Committee, presently consisting of Drs. Borden and
Shelton and Mr. Tracy, none of whom are "interested persons" as defined in the
1940 Act. The Audit Committee reviews both the audit and non-audit work of the
Fund's independent public accountants, submits a recommendation to the Directors
as to the selection of independent public accountants, and reviews generally the
maintenance of the Fund's records and the safekeeping arrangements of the Fund's
custodian. The Audit Committee of the Fund held two meetings in the last fiscal
year.
For the fiscal year ended March 31, 1997, the Nominees (other than Mr.
Conradi who was not a Director during this period) received the following
compensation from the Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Est. Annual From All Funds
Compensation from As Part of Fund Benefits Upon Managed by JBRI
Name of Nominee the Fund Expenses Retirement
James Buchanan Rea, Jr. None N/A N/A None
Gerald M. Borden $1,000 N/A N/A $1,000
John P. Shelton $1,000 N/A N/A $1,000
J. Victor Monke $ 600 N/A N/A $ 600
R. Paul Toeppen $ 200 N/A N/A $ 200
James Tracy $ 800 N/A N/A $ 800
Thomas Fitzgerald $ 200 N/A N/A $ 200
</TABLE>
The following are the officers of the Fund who are not Directors. The
address of all such officers is 12100 Wilshire Blvd., Suite 680, Los Angeles,
California 90025.
Principal Occupation During
Name and Age Position with the Fund the Past Five Years
Frances L. Rea Treasurer Vice President, Secretary and
Age: 73 Director of James Buchanan
Rea, Inc., Director of
Counseling Center, Bel Air
Presbyterian Church.
As of the Record Date, the Directors and officers of the Fund as a
group owned ____% of the outstanding shares of common stock of the Fund. It is
anticipated that the Directors and officers will vote their shares in favor of
each of the Proposals.
Required Vote
The election of each of the above nominees requires the affirmative
vote of a majority of the votes cast at the Meeting by shareholders of the Fund.
OTHER INFORMATION
Share Ownership of the Fund
The following table sets forth the information concerning beneficial
ownership, as of the Record Date, of the Fund's shares by each person who
beneficially owns more than five percent of the voting securities of the Fund:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Beneficially Percentage of Outstanding
Name and Address of Shareholder Owned1 Shares Owned
James B. Rea, Jr.
12100 Wilshire Blvd.
Suite 680
Los Angeles, CA 90025
Mr. R. Paul Toeppen
12100 Wilshire Blvd.
Suite 680
Los Angeles, CA 90025
The Rea Community Property Living Trust
12100 Wilshire Blvd.
Suite 680
Los Angeles, CA 90025
The James Buchanan Rea, Inc.
Profit Sharing Plan
12100 Wilshire Blvd.
Suite 680
Los Angeles, CA 90025
</TABLE>
- ---------------------------
(1) Beneficial ownership is as defined under Section 13(d) of the Securities
Exchange Act of 1934.
Manner of Voting Proxies
All proxies received by the Management of the Fund will be voted on all
matters presented at the Meeting, and if not limited to the contrary, will be
voted FOR Proposals 1 through 3.
Management knows of no other matters to be brought before the Meeting.
If, however, any other matters properly come before the Meeting, it is
Management's intention that proxies not limited to the contrary will be voted in
accordance with the judgment of the persons named in the enclosed form of proxy.
Broker "non-votes" (that is, proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
have the same effect as abstentions in determining whether an issue has received
the requisite approval. Where the broker or nominee has no discretion to vote
the shares as to one or more proposals before the Meeting, the non-voted shares
will be excluded from the pool of shares voted on such issues. Thus, abstentions
and non-votes will have the same effect as a negative vote on issues requiring
the affirmative vote of a specified portion of the Fund's outstanding shares,
but will not be considered votes cast and thus will have no effect on matters
requiring approval of a specified percentage of votes cast.
In the event that at the time any session of the Meeting is called to
order a quorum is not present in person or by proxy, the persons named as
proxies may vote those proxies which have been received to adjourn the Meeting
to a later date. In the event that a quorum is present but sufficient votes in
favor of any of Proposals 1 through 3 set forth in the Notice of Meeting have
not been received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitations of proxies with
respect to those items. Any such adjournment will require the affirmative vote
of a majority of the shares present in person or by proxy at the session of the
Meeting to be adjourned. The persons named as proxies will vote those proxies
which they are entitled to vote for any such item in favor of such an
adjournment, and will vote those proxies required to be voted against any such
item against any such adjournment. A shareholder vote may be taken on one or
more of the items in this Proxy Statement prior to such adjournment if
sufficient votes for its approval have been received and it is otherwise
appropriate.
Submission of Certain Proposals
Proposals of shareholders which are intended to be presented at a
future shareholders' meeting must be received by the Fund by a reasonable time
prior to the Fund's solicitation of proxies relating to such future meeting.
Shareholder proposals must meet certain requirements and there is no guarantee
that any proposal will be presented at a Shareholder meeting.
Additional Information
The expense of the preparation, printing and mailing of the enclosed
form of proxy, this Notice and Proxy Statement and other expenses relating to
the Meeting will be borne jointly by JBRI and ADS. To obtain the necessary
representation at the Meeting, supplementary solicitations may be made by mail,
telephone, or interview by officers of the Funds and/or employees of JBRI.
It is the current intention of ADS, in the event that Proposals 1 and 2
are approved, to change the name of the Company from Rea-Graham Funds, Inc. to
American Diversified Funds, Inc. in order to better identify the role that ADS
will play with the Company in the future. It should be noted that ADS does not
intend to change the name of the Fund which will remain the Rea-Graham Balanced
Fund.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY
December __, 1997
<PAGE>
PRELIMINARY PROXY MATERIALS -- FOR SEC USE ONLY
PROXY
REA-GRAHAM BALANCED FUND OF
REA-GRAHAM FUNDS, INC.
SPECIAL MEETING OF SHAREHOLDERS
January 12, 1998
The undersigned hereby appoints _______________ and _______________ and
each of them, his attorneys and proxies with full power of substitution to vote
and act with respect to all shares of Rea-Graham Balanced Fund (the "Fund") held
by the undersigned at the Special Meeting of Shareholders of the Fund to be held
at 10:00 a.m., Eastern Time, on January 12, 1998, at the offices of the Fund's
transfer agent, PFPC, Inc., 400 Bellevue Parkway, Suite 108, Wilmington,
Delaware 19809, and at any adjournment thereof (the "Meeting"), and instructs
them to vote as indicated on the matters referred to in the Proxy Statement for
the Meeting, receipt of which is hereby acknowledged, with discretionary power
to vote upon such other business as may properly come before the Meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE FUND. The
Board of Directors recommends that you vote FOR each of the Nominees and FOR
each of the following proposals:
1. Approve a new Investment Advisory Agreement for the Fund.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
2. Approve a new Sub-Investment Advisory Agreement for the Fund.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
3. Election of Directors:
James Buchanan Rea, Jr. James Tracy Thomas Fitzgerald
Gerald M. Borden J. Victor Monke Klaus Conradi
John P. Shelton R. Paul Toeppen
[ ]FOR ALL [ ]AGAINST ALL [ ]FOR ALL EXCEPT
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(Only use to withhold authority to vote on individual Nominees)
This proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL OF THE NOMINEES AND FOR ALL OF THE PROPOSALS.
Receipt of the Notice of Special Meeting and Proxy Statement is hereby
acknowledged.
Dated _____________________, 1997
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Name of Shareholder(s) -- Please print or type
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Signature(s) of Shareholder(s)
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Signature(s) of Shareholder(s)
This proxy must be signed by the beneficial owner of Fund shares. If signing as
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add title as such.
PLEASE VOTE, SIGN AND DATE THIS PROXY AND RETURN IT IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of January, 1998, between REA-GRAHAM
FUNDS, INC. (hereinafter referred to as the "Fund") and AMERICAN DIVERSIFIED
SECURITIES, INC., a corporation organized under the laws of the State of Nevada
(hereinafter referred to as the "Investment Adviser").
1. The Investment Adviser agrees, during the life of
this Agreement, to furnish the Fund with investment
research, advice and supervision and will
continuously furnish the Fund with an investment
program for the assets of the Fund consistent with
the provisions of the Articles of Incorporation of
the Fund and the investment policies adopted and
declared by its Board of Directors.
2. The Investment Adviser is not required to furnish any
overhead items or facilities for the Fund including
trading desk facilities or daily pricing. In
rendering such advisory services to the Fund pursuant
to this Agreement, the Investment Adviser may employ,
retain or otherwise avail itself of the services or
facilities of other persons or organizations for the
purpose of providing itself or the Fund with such
statistical and other factual information, such
advice regarding economic factors and trends, such
advice as to occasional transactions in specific
securities and other properties and assets, or such
other information, advice or assistance as the
Adviser may deem necessary, appropriate or convenient
for the discharge of its overall responsibilities
with respect to the Fund and the other accounts which
it or its affiliates serve as investment adviser.
3. In addition to being responsible for supplying
recommendations regarding the purchase and sale of
securities by the Fund, the Adviser shall recommend
brokers and dealers for execution of the Fund's
portfolio transactions. The foremost consideration in
making such recommendations will be the Fund's
obtaining best price and execution. Secondarily, the
Adviser may take into account certain additional
services provided by broker-dealers to the Fund. The
Adviser and any person performing executive,
administrative or trading functions for the Fund,
whose services are made available to the Fund by the
Adviser, are specifically authorized to recommend to
the Fund that it allocate brokerage and principal
business to firms that provide such services or
facilities which, if accepted, might cause the Fund
to pay a member of a securities exchange or any other
securities broker or dealer an amount of commission
or "mark-up" for effecting the securities transaction
in excess of the amount of commission, or at a less
advantageous price another member of the exchange,
broker or dealer would have charged for effecting
that transaction, if the Adviser or such person
determine in good faith that such amount of
commission, or "mark-up", as the case may be, is
reasonable in relation to the value of the brokerage
and research (as such services are defined in Section
28(e) of the securities and Exchange Act of 1934)
provided by ouch member, broker or dealer, viewed in
terms of either that particular transaction or the
Adviser's evaluation of such person's overall
responsibilities with respect to accounts as to which
the Adviser or such person exercise investment
discretion (as that term is defined in Section
3(a)(35) of the Securities Exchange Act of 1934).
4. The Fund may purchase and/or sell many securities
which are also purchased or sold by the Investment
Adviser, or its affiliates or other investment
advisory clients. The orders for all such securities
transactions will be placed for execution by methods
so as to be impartial and fair for all parties.
5. In the absence of willful misfeasance, bad faith or
gross negligence on the part of the Investment
Adviser, or of reckless disregard of its obligations
hereunder, the Investment Adviser shall have no
liability to the Fund or any shareholder of the Fund
for any error of judgment, mistake of law, or any
loss arising out of any investment or for any other
act or omission in the performance by the Investment
Adviser of its duties under this Agreement.
6. The Fund agrees, during the life of this Agreement,
to pay to the investment Adviser as compensation for
such services a fee of 1/12th of 1% monthly
(equivalent to 1% annually) on the first $20,000,000
of the net assets of the Fund as of the close of
business on the last business day of each calendar
month during the Fund's fiscal year, reduced to
1/12th of .75% monthly (equivalent to .75% annually)
of such net assets in excess of $20,000,000 up to
$100,000,000, reduced to 1/12th of .5% monthly
(equivalent to .5% annually) of such not assets in
excess of $100,000,000 up to $200,000,000, and
reduced to 1/12th of .45% monthly (equivalent to .45%
annually) of all such net assets in excess of
$200,000,000.
7. This Agreement shall remain in full force and effect
until two years from the date hereof and thereafter
from year to year to the extent such continuance is
approved annually by the Board of Directors of the
Fund or by vote of a majority of the outstanding
voting securities of the Fund (as defined by the
Investment Company Act of 1940) and also, in either
event, approval by a majority of those Directors who
are not parties to the Contract or interested persons
of any such party.
8. This Agreement may be terminated by the Fund at any
time on sixty (60) day's written notice without
payment of penalty, provided that such termination by
the Fund shall be directed or approved by the vote of
a majority of the Directors of the Fund in office at
the time or by the vote of a majority of the
outstanding voting securities of the Fund (as defined
by the Investment Company Act of 1940).
9. This Agreement shall automatically and immediately
terminate in the event of its assignment.
10. The Investment Adviser will maintain its books and
records or duplicate copies thereof relating to the
Fund and will comply with Section 31 of the
Investment Company Act of 1940 and the rules
thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective corporate
seals to be hereunto duly affixed and attested.
REA-GRAHAM FUNDS, INC., on behalf of
Rea-Graham Balanced Fund
By __________________________________
James B. Rea, Jr., President
(Seal)
ATTEST:
- -------------------------------
(Secretary)
AMERICAN DIVERSIFIED SECURITIES, INC.
By __________________________________
James B. Rea, Jr., President
(Seal)
ATTEST:
- ------------------------------
(Secretary)
<PAGE>
SUB-ADVISORY AGREEMENT
AGREEMENT made this 1st day of January, 1998, between American Diversified
Securities, Inc. (the "Adviser") and Ladas & Hulings, Inc. (the "Sub-Adviser").
WHEREAS, Rea-Graham Funds, Inc. (the "Company") is registered as an
open-end, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, Rea-Graham Balanced Fund (the "Fund") is a separate investment
series of the Company; and
WHEREAS, the Adviser has been appointed investment adviser to the Fund; and
WHEREAS, the Adviser desires to retain the Sub-Adviser to assist it in the
provision of a continuous investment program for the Fund and the Sub-Adviser is
willing to do so upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints the Sub-Adviser to act as
sub-adviser to the Fund as permitted by the Adviser's Investment Advisory
Agreement with the Company pertaining to the Fund. Intending to be legally
bound, the Sub-Adviser accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of the Board of
Directors, the Sub-Adviser shall assist the Adviser in providing a continuous
investment program with respect to the Fund's portfolio, including investment
research and management with respect to all securities and investments and cash
equivalents in the Fund. The Sub-Adviser may, subject to the Adviser's review,
determine the securities and investments to be purchased, sold or retained by
the Fund, and the Sub-Adviser may place orders directly with the issuer or any
broker or dealer for such securities and investments. The Sub-Adviser will
provide services under this Agreement in accordance with the Fund's investment
objective, policies and restrictions as stated in the Fund's prospectus and
Statement of Additional Information, which shall be forwarded to the Sub-Adviser
by the Adviser from time to time, and resolutions of the Board of Directors
applicable to the Fund provided those resolutions are communicated to the
Sub-Adviser and a reasonable amount of time is provided in order for it to
comply.
Without limiting the generality of the foregoing, the Sub-Adviser further
agrees that it:
(a) will use the same skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(b) will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission under the 1940 Act
applicable to sub-advisers to registered investment companies
and in addition will conduct its activities under this
Agreement in accordance with any applicable regulations of any
governmental authority pertaining to the investment advisory
activities of the Sub-Adviser;
(c) will place or cause to be placed orders for the Fund
either directly with the issuer or with any broker or dealer.
In placing orders with brokers and dealers, the Sub-Adviser
will attempt to obtain prompt execution of orders in an
effective manner at the most favorable price. Consistent with
this obligation and to the extent permitted by the 1940 Act,
when the execution and price offered by two or more brokers or
dealers are comparable, the Sub-Adviser may, in its
discretion, purchase and sell portfolio securities to and from
brokers and dealers who provide the Sub-Adviser with research
advice and other services;
(d) will maintain or cause to be maintained all books and
records with respect to the securities transactions of the
Fund and will furnish the Board of Directors with such
periodic and special reports as the Board may request; and
(e) will treat confidentially and as proprietary information
of the Company all records and other information relative to
the Company and the Fund and prior, present, or potential
shareholders, and will not use such records and information
for any purpose other than performance of its responsibilities
and duties hereunder.
3. Services Not Exclusive. Except as provided herein, the services
furnished by the Sub-Adviser hereunder are deemed not to be exclusive, and the
Sub-Adviser shall be free to furnish similar services to others so long as its
services under this Agreement are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records which it
maintains for the Company are the property of the Company and further agrees to
surrender promptly to the Company any of such records upon the Company's
request. The Sub-Adviser further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
5. Expenses. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Fund.
6. Compensation. For the services provided and the expenses assumed with
respect to the Fund pursuant to this Agreement, the Sub-Adviser will be entitled
to a fee, computed daily and payable monthly by the Adviser, calculated as
follows: (i) .50% per annum of the first $20 million of the Fund's average daily
net assets; (ii) .375% per annum of the next $80 million of such assets; (iii)
.25% per annum of the next $100 million of such assets; and (iv) .225% of such
assets in excess of $200 million..
7. Limitation of Liability. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of this Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Sub-Adviser in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing herein shall in any way constitute a waiver or limitation of
any rights that the Company, the Fund or the Adviser may have under the United
States federal or State securities laws, which may impose liability on persons
who act in good faith.
8. Duration and Termination. Unless sooner terminated, this Agreement shall
continue until January 1, 2000, and thereafter shall continue automatically for
successive annual periods, provided such continuance is specifically approved at
least annually by the Company's Board of Directors or vote of the lesser of (a)
67% of the shares of the Fund represented at a meeting if holders of more than
50 % of the outstanding shares of the Fund are present in person or by proxy or
(b) more than 50 % of the outstanding shares of the Fund, provided that in
either event its continuance also is approved by a majority of the Directors who
are not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement (the "Independent Directors"), by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable
at any time without penalty, on 60 days' notice, by the Adviser, the Sub-Adviser
or by the Board of Directors or by vote of the lesser of (a) 67% of the shares
of the Fund represented at a meeting if holders of more than 50 % of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50 % of the outstanding shares of the Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
10. Governing Law. This Agreement shall be governed by and its provisions
shall be construed in accordance with the laws of the State of California.
11. Possession of Fund Assets. At all times the assets of the Fund
(consisting of all cash, securities and other instruments held by the Fund)
shall remain exclusively under the management and control of the Fund's
custodian. At no time will the Sub-Adviser have custody or possession of any
such assets of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
AMERICAN DIVERSIFIED SECURITIES, INC.
By:____________________________
Name:_________________________
Title:__________________________
LADAS & HULINGS, INC.
By:____________________________
Name:_________________________
Title:__________________________
