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REA-GRAHAM FUNDS, INC.
SUPPLEMENT DATED
APRIL 1, 1998 TO THE
PROSPECTUS DATED JULY 31, 1997
As of March 31, 1998, James Buchanan Rea, Inc. ("JBRI") the investment
adviser and distributor of Rea-Graham Balanced Fund (the "Fund"), completed a
merger transaction (the "Transaction"), resulting in a change in control of JBRI
and pursuant to which all of the outstanding voting securities of JBRI were
acquired by American Diversified Asset Management, Inc. ("ADAM"), a Nevada
corporation organized in October 1997 for the purpose of effectuating the
Transaction. ADAM has succeeded to the business operations of JBRI and will
operate as a broker-dealer and registered investment adviser as successor to
JBRI. ADAM is a wholly-owned subsidiary of American Diversified Holdings, Inc.,
a corporation formed to manage mutual funds in the United States and Europe.
American Diversified Holdings, Inc. is the parent company to American
Diversified Holdings, AG, a German financial services firm located in Berlin.
In connection with the Transaction, shareholders of the Fund voting at a
Special Meeting of Shareholders held on January 12, 1998 approved a new
Investment Advisory Agreement (the "New Advisory Agreement") with ADAM which is
substantially similar to the Fund's previous Investment Advisory Agreement with
JBRI and provides for the same investment advisory fee schedule. ADAM has
voluntarily agreed for a period of two years following the approval of the New
Advisory Agreement to limit the Fund's total operating expenses to 2.80% per
annum. In addition, at the Special Meeting shareholders of the Fund also
approved a new Sub-Investment Advisory Agreement for the Fund with Ladas &
Hulings, Inc., a registered investment advisory firm headquartered in
Scottsdale, Arizona. The sub-investment advisory fees payable to Ladas & Hulings
are to be paid directly by ADAM from its investment advisory fees and therefore
the investment advisory fees for the fund will not be increased as a result of
the implementation of the Sub-Investment Advisory Agreement. Mr. James B. Rea,
Jr., who currently serves as President and portfolio manager of the Fund will
continue to serve as President and portfolio manager of the Fund and will serve
as President of ADAM. Mr. Rea will oversee the investment management activities
of Ladas & Hulings who will take over the primary day-to-day portfolio
investment management decision making process for the Fund. Ladas & Hulings
relies 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. Ladas & Hulings began actively carrying out their
duties under the terms of the Sub-Investment Advisory Agreement on April 1,
1998.
