<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
THE LEGENDS FUND, INC.
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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 0-11.
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 (Set forth the amount on which
the filing fee is calculated and state how it was determined.)
_______________________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
5) Total Fee Paid:
_______________________________________________________________
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify 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.
1) Amount Previously Paid:
______________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________
3) Filing Party:
______________________________________________________________
4) Date Filed:
_____________________________________________________________
<PAGE>
PRELIMINARY COPY
THE LEGENDS FUND, INC.
239 S. Fifth Street
Louisville, Kentucky 40202-3271
DREMAN VALUE PORTFOLIO
____________________________________
Notice of Special Meeting of Shareholders
____________________________________
To the Shareholders of the Dreman Value Portfolio of The Legends Fund, Inc.:
A special meeting of shareholders of the Dreman Value Portfolio (the
"Portfolio") of the Legends Fund, Inc. (the "Fund") will be held at 239 S. Fifth
Street, Louisville, Kentucky 40202-3271, on October 27, at 3:00 p.m., Eastern
Time, for the following purposes:
1. To approve or disapprove a Sub-Advisory Agreement between Integrity Life
Insurance Company ("Integrity") as investment manager and Dreman Value
Advisors, Inc. ("Dreman Advisors") as sub-adviser for the Portfolio.
2. To approve or disapprove a new Sub-Advisory Agreement between Integrity and
Dreman Advisors, effective upon the purchase by Zurich Insurance Company of
a controlling interest in the parent company of Dreman Advisors.
3. To transact such other matters as may properly come before the meeting or
any adjournment thereof.
By Order of the Board of Directors
Kevin L. Howard
Secretary
[Date]
<PAGE>
PRELIMINARY COPY
THE LEGENDS FUND, INC.
239 S. Fifth Street
Louisville, Kentucky 40202-3271
DREMAN VALUE PORTFOLIO
____________________________________
PROXY STATEMENT
Special Meeting of Shareholders
October 27, 1995, 3:00 p.m.
____________________________________
The Legends Fund, Inc. (the "Fund") was incorporated in Maryland on
July 22, 1992 under the name "Integrity Series Fund, Inc." and is an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). It is a series-type investment company
currently consisting of ten investment portfolios, including the Dreman Value
Portfolio (the "Portfolio"). Shares of the Portfolio are offered to Separate
Account SF ("Separate Account SF") of Integrity Life Insurance Company
("Integrity") and Separate Account SFN ("Separate Account SFN") of National
Integrity Life Insurance Company ("National Integrity"), a wholly-owned
subsidiary of Integrity, for the investment of contributions under certain
variable annuity contracts and certificates ("certificates") issued by Integrity
and National Integrity.
Integrity and National Integrity, the holders of record of shares of
the Portfolio, are required to "pass through" to their certificate holders the
right to vote shares of the Portfolio. The Fund expects that Integrity and
National Integrity will solicit voting instructions from their certificate
holders and that Integrity and National Integrity will vote 100% of the shares
of the Portfolio held by their respective Separate Accounts in the same
proportion as indicated in the voting instructions received from certificate
holders.
This proxy statement is being furnished on behalf of the Board of
Directors of the Fund to the shareholders of the Portfolio for their use in
obtaining voting instructions from the certificate holders on the proposals to
be considered at the special meeting of shareholders of the Portfolio scheduled
to be held at 239 S. Fifth Street, Louisville, Kentucky 40202-3271, on
October 27, 1995 at 3:00 p.m. The Board of Directors has fixed the close of
business on September 21, 1995 as the record date (the "Record Date") for
determining the number of shares outstanding and the certificate holders
entitled to give voting instructions to Integrity and National Integrity.
This Proxy Statement is being provided to shareholders on or about
___________ for mailing to certificate holders. The Fund expects that the
solicitation of voting instructions from certificate holders will be made
primarily by mail, but solicitation also may be made by
1
<PAGE>
telephone communications from Integrity employees who will not receive
compensation for such services. The costs of the meeting will be paid by Dreman
Advisors.
The purpose of the meeting is to seek shareholder approval of the
proposed sub-advisory agreement (the "Sub-Advisory Agreement") pertaining to the
Portfolio between Integrity, as investment manager of the Portfolio, and Dreman
Value Advisors, Inc. ("Dreman Advisors"), which approval is being sought in
connection with the termination of the sub-advisory agreement between Integrity
and Dreman Value Management, L.P.("DVM, L.P."), the predecessor to the
investment advisory operations of Dreman Advisors, as explained in detail in
Proposal No. 1. In addition, the meeting has been called to seek shareholder
approval of a proposed new sub-advisory agreement (the "New Sub-Advisory
Agreement") pertaining to the Portfolio between Integrity and Dreman Advisors,
which will become effective in the event of the proposed purchase (the "Zurich
Transaction") by Zurich Insurance Company ("Zurich") of a controlling interest
in Kemper Corporation ("Kemper"), the ultimate parent company of Dreman
Advisors, as explained in detail in Proposal No. 2. The information contained
in this proxy statement concerning Dreman Advisors, Kemper Financial Services,
Inc., Kemper and Zurich has been provided by those respective entities for use
in this proxy statement, and such entities are solely responsible for the
accuracy and completeness thereof.
At the Record Date, the total number of shares outstanding in the
Portfolio was _________ of which ___________ shares (___%) were held by Separate
Account SF and _________ shares (___%) were held by Separate Account SFN.
Proxies executed by shareholders may be revoked by a written
revocation received by the Secretary of the Fund at any time before they are
exercised by the delivery of a later-dated proxy or by attendance at the meeting
and voting in person. Pursuant to the Fund's Articles of Incorporation, the
presence in person or by proxy of the holders of record of one-third of the
shares issued and outstanding and entitled to vote at a meeting shall constitute
a quorum for the transaction of business at such meeting. Approval of Proposals
Nos. 1 and 2 will require the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the securities entitled to vote, or (2) 67% or
more of the shares entitled to vote present at the meeting, in person or by
proxy.
EACH CERTIFICATE HOLDER IS URGED TO EXERCISE THE RIGHT TO GIVE VOTING
INSTRUCTIONS FOR THE MEETING OF SHAREHOLDERS OF THE PORTFOLIO BY FILLING IN,
DATING AND SIGNING THE VOTING INSTRUCTIONS CARD FOR THE PORTFOLIO AND RETURNING
THE CARD IN THE RETURN ENVELOPE PROVIDED.
PROPOSAL NO. 1: APPROVAL OR DISAPPROVAL OF PROPOSED
SUB-ADVISORY AGREEMENT FOR THE PORTFOLIO
Pursuant to the management agreement (the "Management Agreement")
between the Fund and Integrity dated November 26, 1993, Integrity acts as
manager of the Fund and each
2
<PAGE>
investment portfolio thereof (including the Portfolio), and in connection
therewith is authorized to enter into sub-advisory agreements with registered
investment advisers pursuant to which it may delegate its obligations for
providing investment advisory and certain other services in connection with one
or more of such investment portfolios. The Management Agreement was last
submitted to shareholders of the Fund at a meeting held November 3, 1993.
Information concerning Integrity is contained below under "Information About
Integrity."
In the case of the Portfolio, Integrity entered into a sub-advisory
agreement with DVM, L.P. dated November 26, 1993 (the "Old Sub-Advisory
Agreement"), which was submitted to the shareholders of the Portfolio for their
approval at a meeting held November 3, 1993. Pursuant to the Old Sub-Advisory
Agreement and its predecessor sub-advisory agreement, DVM, L.P. has advised the
Portfolio since the Portfolio's inception.
On August 24, 1995, DVM, L.P. sold substantially all of its assets to
Dreman Advisors, a wholly owned subsidiary of Kemper Financial Services, Inc.
("KFS") (the "Acquisition"). As a result of the Acquisition, pursuant to the
requirements of the 1940 Act and the terms of the Old Sub-Advisory Agreement
between Integrity and DVM, L.P., the Old Sub-Advisory Agreement automatically
terminated. In connection with the Acquisition, however, Dreman Advisors, as
successor to DVM L.P., agreed with Integrity to continue to provide investment
advisory services to the Portfolio on an interim basis until such time as a sub-
advisory agreement in respect of the Portfolio is approved by the Portfolio's
shareholders. Dreman Advisors has agreed with Integrity to provide such interim
services without compensation. In addition, Dreman Advisors has agreed to pay
the expenses of soliciting shareholder approval of the proposed Sub-Advisory
Agreement.
Dreman Advisors is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). Dreman
Advisors was established as a wholly owned subsidiary of KFS in order to
purchase substantially all of the assets of DVM, L.P., and thereafter conduct
the investment advisory business previously conducted by DVM, L.P. Dreman
Advisors has had no operating activity prior to August 24, 1995; however, since
the Acquisition, Dreman Advisors has assumed the investment advisory operations
of DVM, L.P. under which it serves as investment adviser to three mutual fund
series, including one having an investment strategy similar to the Portfolio, as
well as to private accounts. The mutual fund series having a similar investment
strategy to that of the Portfolio is the Kemper-Dreman High Return Fund, which
had assets of $44.8 million on June 30, 1995. Dreman Advisors receives an
investment advisory fee to manage the Kemper-Dreman High Return Fund of 0.75% of
average daily net assets, reduced at net asset value levels above $250 million;
this fee is currently subject to a temporary expense limitation.
As consideration for the purchase of its assets, DVM, L.P. received
approximately $22.5 million, subject to certain adjustments made at the time of
the closing. In connection with the Acquisition, David N. Dreman, Chairman and
Chief Investment Officer of DVM,
3
<PAGE>
L.P., entered into a three-year employment agreement with Dreman Advisors
pursuant to which Mr. Dreman will be paid $1 million per year. Pursuant to the
employment contract, Mr. Dreman, who is required only to devote a portion of his
time to the business of Dreman Advisors, will continue as a member of the
Investment Committee of Dreman Advisors, which will manage all of the clients of
Dreman Advisors including the Portfolio. In addition, Dreman Advisors entered
into a licensing and non-competition agreement with a company controlled by Mr.
Dreman pursuant to which such company has been paid $5 million, and will receive
more than $1 million per year in the second through seventh years, subject to
certain conditions. The principal members of the management team of DVM, L.P.
have accepted employment with Dreman Advisors. Dreman Advisors intends to
continue to follow the value investment philosophy espoused by David N. Dreman
that was previously followed by DVM, L.P.
KFS, which will provide ongoing administrative and financial support
to Dreman `Advisors, has been managing mutual funds for over 45 years. KFS is
an indirect wholly owned subsidiary of Kemper, a publicly owned financial
services holding company. Currently KFS manages 24 open-end mutual funds and 7
closed-end funds, together offering 60 portfolios. KFS and its affiliates have
approximately $60 billion in assets under management and constitute one of the
nation's largest asset management complexes.
Further information concerning Dreman Advisors is contained below
under "Information About Dreman Advisors."
COMPARISON OF THE OLD SUB-ADVISORY AGREEMENT AND THE SUB-ADVISORY AGREEMENT
The terms of the Sub-Advisory Agreement are substantially identical to
the terms of the Old Sub-Advisory Agreement with DVM, L.P., differing only in
the adviser named therein, the effective and termination dates and the deletion
of certain outdated provisions. The Form of Sub-Advisory Agreement is attached
to this proxy statement as Appendix A. The following is a comparison of the
material terms of the two agreement:
Advisory Services. The Old Sub-Advisory Agreement provided that DVM,
L.P. would provide a continuous investment program for the Portfolio, including
investment research with respect to all securities and investments and cash
equivalents in the Portfolio. The Sub-Advisory Agreement contains identical
provisions with respect to Dreman Advisors.
Fees and Expenses. Pursuant to the Management Agreement, Integrity
receives a management fee at an annual rate of .65% of average daily net assets
of the Portfolio as compensation for serving as investment manager of the
Portfolio. The Old Sub-Advisory Agreement provided for Integrity, and not the
Fund, to pay a monthly sub-advisory fee to DVM, L.P. at the annual rate of 0.50%
of the Portfolio's average daily net assets. During the Portfolio's fiscal year
ended June 30, 1995, Integrity paid DVM, L.P. $47,931. The Sub-Advisory
Agreement provides that Integrity, and not the Fund, shall pay Dreman Advisors
compensation at the same rate.
4
<PAGE>
Payments of Expenses and Transaction Charges. Under the Old Sub-
Advisory Agreement, DVM, L.P. agreed to assume and pay all of the costs and
expenses of performing its obligations thereunder. The Sub-Advisory Agreement
contains identical provisions.
Expense Limitation. The Old Sub-Advisory Agreement provided for the
sub-advisory fee paid to DVM, L.P. to be reduced proportionally if the
management fee paid to Integrity by the Portfolio was required to be reduced as
a result of applicable state expense limitations or fee waivers agreed to in
writing by DVM, L.P. The Sub-Advisory Agreement contains identical provisions
with respect to Dreman Advisors. The Fund believes that the most restrictive
state expense limitation currently in effect would require that such operating
expenses not exceed 2.5% of the first $30 million of average daily net assets,
2% of the next $70 million and 1.5% of average daily net assets over $100
million.
Limitation of Liability. The Old Sub-Advisory Agreement provided that
DVM, L.P. and any of its affiliated persons would not be liable for, or subject
to any damages, expenses, or losses in connection with, any act or omission
connected with or arising out of any services rendered thereunder, except by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of DVM, L.P.'s duties, or by reason of reckless disregard of DVM, L.P.'s
obligations and duties under the Agreement. The Sub-Advisory Agreement contains
identical provisions with respect to Dreman Advisors.
Term. The Old Sub-Advisory Agreement provided that it would continue
from year to year, provided that its continuation is annually approved by a
majority of the Directors of the Fund, including a majority of the Directors who
are not interested persons (as defined in the 1940 Act) of DVM, L.P., Integrity
of the Fund, cast in person at a meeting called for the purpose of voting on
such approval. The Sub-Advisory Agreement contains identical provisions with
respect to Dreman Advisors. The Sub-Advisory Agreement will become effective on
the day the shareholders of the Portfolio approve the Agreement.
Termination; Assignment. The Old Sub-Advisory Agreement provided that
it may be terminated at any time without penalty upon 60 days' written notice by
DVM, L.P., Integrity, the Directors of the Fund, or by the affirmative vote of
the holders of a "majority of the outstanding voting securities" of the
Portfolio (as defined in the 1940 Act). The Old Sub-Advisory Agreement also
provided that it would automatically terminate in the event of its assignment
(as defined in the 1940 Act) or termination of the Management Agreement. The
Sub-Advisory Agreement contains identical provisions as to termination and
assignment with respect to Dreman Advisors.
Corporate Name. The Old Sub-Advisory Agreement provided that the Fund
would take any and all necessary action to remove the "Dreman" name from the
Portfolio's name and related Fund material if DVM, L.P. ceased to be the sub-
advisor of the Portfolio. The Fund agreed to use the name "Dreman" only in
connection with the Portfolio and that DVM, L.P. shall not be prevented from
using the name "Dreman" in connection with any other
5
<PAGE>
business. The Sub-Advisory Agreement contains identical provisions with respect
to Dreman Advisors. In addition, the Old Sub-Advisory Agreement contained
provisions regarding the use of the name "Dreman" in the event Mr. Dreman ceased
to be affiliated with DVM, L.P. These latter provisions have been removed from
the Sub-Advisory Agreement.
EVALUATION OF THE DIRECTORS
The Directors of the Fund believe that approval of the Sub-Advisory
Agreement with Dreman Advisors is in the best interests of the shareholders of
the Portfolio.
At a special meeting held on August 30, 1995, the Directors considered
and unanimously approved the Sub-Advisory Agreement and directed that it be
submitted to shareholders for approval. In considering the approval of the Sub-
Advisory Agreement, the Directors, including the Directors who are not
interested persons of the Fund (as defined in the 1940 Act) (the "Disinterested
Directors"), were provided information they deemed necessary to enable them to
consider whether the Sub-Advisory Agreement was in the best interests of the
Portfolio and its shareholders. The Directors considered, among other factors:
the similarity of the terms of the Sub-Advisory Agreement to the terms of the
Old Sub-Advisory Agreement; the fact that there would be no change in the fee
payable under the Sub-Advisory Agreement from that under the Old Sub-Advisory
Agreement; the continuity of services to be provided by Dreman Advisors as
successor to the investment advisory operations of DVM, L.P., especially in
light of the quality of investment services rendered by DVM, L.P. to the
Portfolio since the Portfolio's inception and the Portfolio's performance during
that period; the continued role of David N. Dreman and the other former DVM,
L.P. personnel in the operations of Dreman Advisors; the financial condition of
Dreman Advisors, KFS and Kemper; and the overall commitment of KFS and Kemper to
the operations of Dreman Advisors and the investment advisory businesses of
Dreman and KFS.
If the Sub-Advisory Agreement is not approved by shareholders,
Integrity intends to make such arrangements as it deems appropriate for the
management of the Portfolio, and the Board of Directors will consider what
further actions to take, which may include the resubmission of the proposed Sub-
Advisory Agreement with Dreman Advisors to shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL NO. 1.
PROPOSAL NO. 2: APPROVAL OR DISAPPROVAL OF THE
NEW SUB-ADVISORY AGREEMENT TO BECOME EFFECTIVE
UPON CONSUMMATION OF THE ZURICH TRANSACTION
Subject to shareholder approval of Proposal No. 1, Dreman Advisors
will enter into the Sub-Advisory Agreement with Integrity. In addition to the
approval sought in Proposal No. 1, the Board of Directors is also seeking
approval of a proposed new sub-advisory
6
<PAGE>
agreement between Integrity and Dreman Advisors (the "New Sub-Advisory
Agreement") to take effect in connection with the proposed acquisition of
Kemper, a publicly owned financial services holding company and the parent
corporation of KFS, by Zurich. Upon the acquisition of Kemper by Zurich, the
Sub-Advisory Agreement will terminate pursuant to the requirements of the 1940
Act and the terms of the Sub-Advisory Agreement.
THE NEW SUB-ADVISORY AGREEMENT
The New Sub-Advisory Agreement is identical to the Sub-Advisory
Agreement except for its effective date. The fees thereunder, to be paid by
Integrity, not the Fund, to Dreman Advisors are identical under both agreements.
The form of New Sub-Advisory Agreement is attached to this proxy statement as
Appendix A.
INFORMATION CONCERNING ZURICH AND THE ZURICH TRANSACTION
KFS's and Dreman Advisor's indirect parent company, Kemper, has
entered into an Agreement and Plan of Merger dated as of May 15, 1995 (the
"Merger Agreement"), with Zurich, Insurance Partners, L.P. ("IP"), Insurance
Partners Offshore (Bermuda), L.P. ("IP Bermuda" and, together with IP,
"Insurance Partners") and ZIP Acquisition Corp. ("ZIP"), whereby ZIP will be
merged with and into Kemper and Kemper will continue as the surviving
corporation (the "Kemper merger"). In connection with the Kemper merger, Kemper
has agreed to sell KFS to KFS Acquisition Corp., a wholly-owned, indirect
subsidiary of Zurich, by merging KFS and KFS Acquisition Corp. (the "KFS Sale"),
with the surviving corporation ("New KFS") continuing with the name "Kemper
Financial Services, Inc." The terms of the KFS Sale are set forth in a separate
Agreement and Plan of Merger among Kemper, KFS, and KFS Acquisition Corp. dated
May 15, 1995 (the "KFS Merger Agreement"). It is currently contemplated that
the KFS Sale will occur immediately before or immediately after the Kemper
merger, although it is possible that the KFS Sale could be deferred until a
later date. (The Kemper merger and related KFS Sale are hereinafter referred to
together as the "Merger.")
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mytheoquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of the
Zurich Insurance Group. Zurich and the Zurich Insurance Group provide an
extensive range of insurance products and services, while having branch offices
and subsidiaries in more than 40 countries throughout the world. Zurich
Insurance Group is particularly strong in the insurance of international
companies and organizations. Over the past few years, Zurich's global presence,
particularly in the United States, has been strengthened by means of selective
acquisitions. IP and IP Bermuda are parallel investment partnerships
established to participate jointly in acquisitions, recapitalizations,
demutualizations and other structured transactions in the insurance industry.
Insurance Partners was formed by Centre Reinsurance Holding Limited (a
subsidiary of Zurich), Keystone, Inc. (formerly the Robert M. Bass Group, Inc.)
and The Chase Manhattan
7
<PAGE>
Corporation. IP is located at 201 Main Street, Fort Worth, TX 76102 and IP
Bermuda is located at 41 Cedar Avenue, Hamilton HM-EX, Bermuda. ZIP is a newly-
formed majority-owned subsidiary of Zurich. ZIP is approximately 80% owned by
Zurich Holding Company of America, Inc. (which, in turn, is a wholly-owned
subsidiary of Zurich) and 13.274% and 6.726% owned by IP and IP Bermuda,
respectively. ZIP is located at 1400 American Lane, Schaumburg, IL 60196. KFS
Acquisition Corp. is a newly-formed wholly-owned subsidiary of Zurich Holding
Company of America, Inc. Prior to consummation of the KFS Sale, New KFS will be
registered as an investment adviser under the Advisers Act. KFS Acquisition
Corp., a Delaware corporation, and Zurich Holding Company of America, Inc., a
Delaware corporation, are both located at 1400 American Lane, Schaumberg, IL
60196.
In the Zurich Transaction, ZIP will merge with and into Kemper, with
Kemper as the surviving corporation. Each share of Kemper common stock will be
converted in the Zurich Transaction into the right to receive $49.50 cash, for
an aggregate acquisition price of approximately $2.1 billion. The closing of
the Kemper merger will take place on the third business day after all the
closing conditions are satisfied, but not later than February 28, 1996. It is
expected that the Kemper merger will close in the fourth quarter of 1995.
However, if the closing conditions are satisfied prior to January 4, 1996, ZIP
may elect to delay the closing of the Kemper merger to a later date (not later
than January 4, 1996). It is currently contemplated that contemporaneously with
the Kemper merger closing (either immediately before or immediately after)
Kemper will sell KFS to Zurich by merging KFS and KFS Acquisition Corp., with
the surviving corporation ("New KFS") continuing with the name "Kemper Financial
Services, Inc." It is possible, however, that the Kemper merger could be
consummated, but that the KFS Sale could be deferred until a later date (not
later than January 4, 1996). Immediately prior to the KFS Sale, KFS will cause
those of its wholly-owned subsidiaries designated by Zurich to be merged with
and into, direct or indirect wholly-owned subsidiaries of New KFS (each of which
may later be referred to as the successor to such KFS subsidiaries). The
consideration for the KFS Sale is $900 million although, at the election of
Zurich, it may be increased to $1 billion.
It is further contemplated that prior to the Zurich Transaction (1)
KFS will transfer the net cash proceeds from the sale of State Street Boston
Corporation stock owned by KFS (approximately $105 million) to Kemper; (2) KFS
will transfer $50 million in cash to Kemper; (3) KFS will transfer to Kemper the
proceeds of its sale of Supervised Services Company (approximately $23 million);
and (4) at the written request of ZIP, KFS or any of its subsidiaries will
dividend or otherwise transfer cash to Kemper in such amounts as ZIP may
reasonably request.
To confirm and clarify certain contractual relationships between
Kemper and Lumbermens Mutual Casualty Company ("Lumbermens"), prior to, as a
result of and following the Merger, Lumbermens, Zurich, Insurance Partners, ZIP,
Kemper and KFS entered into a letter agreement dated May 15, 1995 (the
"Lumbermens Agreement'). The Lumbermens Agreement, among other things, (1)
permits the continued use of the "Kemper" name by Kemper and KFS (or its
successor) and (2) obligates New KFS to reimburse
8
<PAGE>
Lumbermens for certain amounts that may be due to Lumbermens by Kemper, if
Kemper has not paid such amounts. As of March 31, 1995, the total potential
liability was $35.2 million.
The Lumbermens Agreement provides that, to the extent permitted by
law, Lumbermens intends to continue to engage KFS (or its successor), or its
subsidiaries, for at least three years to provide investment management services
for not less than 80% of the investment assets of Lumbermens (excluding benefit
plan assets held in trust) managed by KFS or its subsidiaries as of May 15,
1995. In connection therewith, the Lumbermens Agreement permits Lumbermens, and
Lumbermens intends, contemporaneously with the KFS Sale to invest in New KFS an
aggregate amount of up to $100 million or such lesser amount as is necessary to
purchase (1) either 9.9% of the shares of common stock of New KFS or an amount
of convertible preferred stock of New KFS that is convertible into 9.9% of the
shares of New KFS and (2) pro rata with Zurich, all other equity and debt
securities purchased from New KFS by Zurich. In the event of such investment,
Lumbermens will receive representation on the Board of Directors of New KFS that
is proportionate to Lumbermens' equity interest in New KFS; but in any event, at
least one individual designated by Lumbermens will be elected to the Board of
Directors of New KFS. It is currently contemplated that Lumbermens would
designate Mr. David B. Mathis for election to the Board of Directors of New KFS.
The address of Lumbermens is: One Kemper Drive, Long Grove, Illinois 60049. If
the percentage of Lumbermens' investment assets managed by New KFS drops below
50% of Lumbermens' investment assets (excluding benefit plan assets held in
trust), then Zurich or New KFS may purchase Lumbermens' investment in New KFS at
fair market value. On the seventh anniversary of the closing of the KFS Sale,
Lumbermens will have the right to demand that all its shares of New KFS be
registered under the Securities Act of 1933, as amended.
Zurich has informed KFS that as of May 31, 1995, no stockholder of
Zurich, either individually or as a "group" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended), is known to beneficially own more
than 10% of the outstanding shares of Zurich's voting securities. As of May 31,
1995, KFS shared power to vote and dispose of 189,980 preferred shares of Centre
Reinsurance Holdings Limited, a Zurich affiliate, which were held by various
non-investment company clients of KFS.
The common stockholders of Kemper will be voting on the Kemper merger.
The merger is subject to various conditions such as governmental and insurance
regulatory approvals and filings. Neither the Kemper merger nor the KFS Sale is
subject to financing, although each may involve financing. Zurich has
guaranteed the obligations of ZIP and Insurance Partners to consummate the
Kemper merger and has guaranteed the obligations of KFS Acquisition Corp. to
consummate the KFS Sale.
It is a condition of the closing of the Zurich Transaction that all
directors and officers of Kemper and its subsidiaries (including KFS), whose
resignations have been requested by ZIP, not less than ten days prior to the
closing, shall have resigned or been removed from
9
<PAGE>
office, effective as of the closing. No such resignations have been requested
nor are currently contemplated for KFS and its subsidiaries.
The Zurich Transaction also provides as a condition to the closing of
the Merger that the shareholders of registered investment companies for which
Kemper or any subsidiary acts as investment adviser or sub-adviser (the "KFS
Advised Funds") representing at least 90% of the total net assets of the KFS
Advised Funds as of April 30, 1995 shall have approved a new investment advisory
agreement (the "90% condition"). At meetings held on September 19, 1995, the
shareholders of the KFS Advised Funds approved new investment advisory
agreements sufficient to satisfy the 90% condition
EVALUATION OF THE DIRECTORS
The Directors of the Fund believe that approval of the New Sub-
Advisory Agreement is in the best interests of the shareholders of the
Portfolio.
At a special meeting held on August 30, 1995, the Directors considered
and unanimously approved the New Sub-Advisory Agreement and directed that it be
submitted to shareholders for approval. In considering the approval of the New
Sub-Advisory Agreement, the Directors, including the Disinterested Directors,
were provided the information they deemed necessary to enable them to consider
whether the New Sub-Advisory Agreement was in the best interests of the
Portfolio and its shareholders. The Directors considered, among other factors:
the fact that the terms of the New Sub-Advisory Agreement are substantially
identical to the terms of Sub-Advisory Agreement; the fact that there would be
no change in the fee payable under the New Sub-Advisory Agreement from that
under the Sub-Advisory Agreement; the proposed continuity of services to be
provided by Dreman Advisors if the acquisition by Zurich takes place and the
continued role of David N. Dreman; the financial condition of Zurich, and the
likely financial conditions of Dreman Advisors, KFS and Kemper if the
acquisition by Zurich takes place; and representations by Zurich as to its
overall commitment to the continuation of the business of Dreman Advisors, KFS
and Kemper and their respective investment advisory businesses.
If the shareholders of the Portfolio do not approve the New Sub-
Advisory Agreement, Kemper, Zurich and Insurance Partners nevertheless intend to
proceed with the Merger (assuming all conditions precedent have been satisfied
or waived, including the 90% condition). In that event, Integrity and the Board
of the Fund would take such action as they then deem to be in the best interests
of the Portfolio's shareholders, including resubmitting the New Sub-Advisory
Agreement to shareholders. If the Merger is not consummated for any reason,
then the Sub-advisory Agreement with the Portfolio will continue, assuming that
the Sub-Advisory Agreement is approved by shareholders at the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL NO. 2
10
<PAGE>
INFORMATION ABOUT DREMAN ADVISORS
Dreman Advisors is located at 10 Exchange Place, 20th Floor, Jersey
City, NJ 07301. The address of KFS is 120 LaSalle Street, Chicago, Illinois
60603. The address of Kemper Financial Companies, Inc. and Kemper, which is a
publicly owned company, is One Kemper Drive, Long Grove, Illinois 60049.
The names, position with Dreman Advisors, and principal occupations of
the principal executive officer and the directors of Dreman Advisors are as
follows:
<TABLE>
<CAPTION>
POSITION WITH DREMAN
NAME ADVISORS PRINCIPAL OCCUPATION
---- -------------------- --------------------
<S> <C> <C>
Stephen B. Timbers Director President, Chief Operating Officer and
Director, Kemper Corporation; Chairman,
Chief Executive Officer, Chief Investment
Officer and Director, KFS
David N. Dreman Chairman and Director Chairman, Dreman Advisors
John E. Neal Director President, Chief Operating Officer and
Director, KFS
James R. Neel President, Chief Executive President, Chief Executive Officer,
Officer and Director Dreman Advisors
John E. Peters Director Senior Executive Vice President and
Director, KFS; President and Director,
Kemper Distributors, Inc.
</TABLE>
INFORMATION ABOUT INTEGRITY
Integrity Life Insurance Company is an indirectly wholly-owned
subsidiary of ARM Financial Group, Inc. ("ARM"), a Delaware corporation. ARM is
a financial services company providing retail and institutional products and
services to the long-term savings and retirement market. The Morgan Stanley
Leveraged Equity Fund II, L.P., Morgan Stanley Capital Partners III, L.P.,
Morgan Stanley Capital Investors, L.P. and MSCP III 892 Investors, L.P.,
investment funds sponsored by Morgan Stanley Group, Inc. ("Morgan Stanley"), own
approximately 91% of the outstanding shares of voting stock of ARM. The Manager
currently provides investment management services to institutional and
individual clients, including ARM and its subsidiaries, with combined assets in
excess of $4.0 billion. The address of each of Integrity and ARM is 239 S.
Fifth Street, Louisville, Kentucky
11
<PAGE>
40202. The address of each of each of Morgan Stanley and the investment funds
sponsored by it is 1221 Avenue of the Americas, New York, New York 10020.
The following chart lists those officers and directors of the Fund who
are also affiliated with ARM and/or Integrity, and sets forth the nature of
those affiliations:
<TABLE>
<CAPTION>
Name Position with the Fund Position with ARM and/or Integrity
- ---- ---------------------- ----------------------------------
<S> <C> <C>
John R. Lindholm Chairman and Director President of Integrity; Executive Vice
President-Chief Marketing Officer of ARM
Edward J. Haines President Vice President, Marketing, ARM
Don W. Cummings Controller Controller, Integrity and ARM
Peter S. Resnick Treasurer Treasurer, Integrity and ARM
Kevin L. Howard Secretary Assistant General Counsel, ARM
</TABLE>
The principal occupation of each person listed above is his occupation with
Integrity and/or ARM, as applicable. The address of each of the above listed
persons is 239 S. Fifth Street, Louisville, Kentucky 40202. The Directors and
officers of the Fund, both individually and as a group, own less than 1% of the
Portfolio's outstanding shares.
The fees paid to Integrity by the Fund under the Management Agreement
during the fiscal year ended June 30, 1995 were $1,218,396, of which $62,310 was
paid by the Portfolio. Of these amounts, $240,593 and $14,379 were retained by
Integrity; the rest was paid to all of the sub-advisers for the Fund's
investment portfolios and to DVM, L.P., respectively.
DISTRIBUTOR
Pursuant to a distribution agreement dated August 30, 1995, SBM
Financial Services, Inc. ("SBM") acts without remuneration as the Fund's agent
for distribution of the Portfolio's shares. SBM is a wholly-owned subsidiary of
ARM, and has no obligation to sell any stated number of shares. Shares of the
Fund and the Portfolio are sold only to separate accounts of Integrity and
National Integrity. SBM's address is 8400 Normandale Lake Boulevard, Suite 1150
Minneapolis, Minnesota 55437-3807.
12
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the Fund's Board of Directors, each
investment portfolio's sub-adviser, and accordingly Dreman Advisors in the case
of the Portfolio (the "Sub-Adviser"), is responsible for the execution of
portfolio transactions and the allocation of
brokerage transactions for the respective portfolio. As a general matter, in
executing portfolio transactions, the Sub-Adviser employs or deals with such
brokers or dealers as may, in its best judgment, provide prompt and reliable
execution of the transaction at favorable security prices and reasonable
commission rates. In selecting brokers or dealers, the Sub-Adviser considers
all relevant factors, including the price (including the applicable brokerage
commission or dealer spread), size of the order, nature of the market for the
security, timing of the transaction, the reputation, experience and financial
stability of the broker-dealer, the quality of service, difficulty of execution
and execution capabilities and operational facilities of the firm involved and
in the case of securities, the firm's risk in positioning a block of securities.
Prices paid to dealers in principal transactions, on which no brokerage
commission is paid, through which most debt securities and some equity
securities are traded, generally include a spread, which is the difference
between the prices at which the dealer is willing to purchase and sell a
specific security at that time. To the extent the Portfolio invests in
securities traded in the OTC markets, it engages primarily in transactions with
the dealers who make markets in such securities, unless a better price or
execution can be obtained by using a broker. The Fund has no obligation to deal
with any broker or group of bankers in the execution of portfolio transactions.
Brokerage arrangements may take into account the distribution of certificates by
broker-dealers, subject to best price and execution.
The Sub-Adviser may select broker-dealers which provide it with
research services and may cause the Portfolio to pay such broker-dealers
commissions which exceed those other broker-dealers may have charged, if in its
view the commissions are reasonable in relation to the value of the brokerage
and/or research services provided by the broker-dealer. Research services
furnished by brokers through which the Portfolio effects securities transactions
may be used by the Sub-Adviser in advising other funds or accounts and,
conversely, research services furnished to the Sub-Adviser by brokers in
connection with other funds or accounts it advises may be used in advising the
Portfolio. Information and research received from such brokers will be in
addition to, and not in lieu of, the services required to be performed by the
Sub-Adviser under the Sub-Advisory Agreement and New Sub-Advisory Agreement.
Portfolio transactions will not be directed to dealers solely on the basis of
research services provided.
Investment decisions for the Portfolio and for other investment
accounts managed by the Sub-Adviser are made independently of each other in
light of differing considerations for the various accounts. However, the same
investment decision may be made for the Portfolio and one or more of such
accounts. In such cases, simultaneous transactions are inevitable. Purchases
or sales are then allocated between the Portfolio and such other account(s) as
to amount according to a formula deemed equitable to the Portfolio and such
account(s). While
13
<PAGE>
in some cases this practice could have a detrimental effect upon the price or
value of the security as far as the Portfolio is concerned, or upon its ability
to complete its entire order, in other cases it is believed that coordination
and the ability to participate in volume transactions will be beneficial to the
Portfolio.
Transactions in futures contracts are executed through futures
commission merchants ("FCMs") who receive brokerage commissions for their
services. The procedures in selecting FCMs to execute the Portfolio's
transactions in futures contracts, including procedures permitting the use of
certain broker-dealers that are affiliated with the Sub-Adviser, are similar to
those in effect with respect to brokerage transactions in securities.
To the extent consistent with Rule 17e-1 under the 1940 Act and the
interpretations of the staff of the Securities and Exchange Commission
thereunder, the Portfolio may enter into transactions with broker-dealers that
are affiliated persons, or affiliated persons of such affiliated persons, of the
Portfolio. The Fund's Board of Directors has adopted procedures pursuant to
Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to
such broker-dealers that are affiliated persons, or affiliated persons of such
persons, of the Portfolio are fair and reasonable. No transactions may be
affected by a portfolio with an affiliate of Integrity, National Integrity or
Morgan Stanley, or of the Sub-Adviser, acting as principal for its own account.
[During the fiscal year ended June 30, 1995, the Portfolio did not effect
portfolio transactions using brokers or dealers who were affiliated persons, or
affiliated persons of affiliated persons, of the Portfolio, Integrity, National
Integrity, Morgan Stanley or the Sub-Adviser.]
OTHER MATTERS
The Board of Directors of the Fund does not know of any other business
to be brought before the meeting. If any other matters come before the meeting,
the shareholders will vote on such matters in their discretion.
National Integrity and Integrity, as record shareholders of the
Portfolio, may adjourn the meeting of shareholders for a period or periods of
not more than 60 days in the aggregate if necessary to obtain additional voting
instructions from certificate holders. The cost or preparing and distributing
to certificate holders additional proxy materials if required in connection with
any adjournment will be borne by Dreman Advisors.
As of the Record Date, the following persons were known to the Fund to
have allocated contributions under their variable annuity contacts such that,
upon the pass-through of voting rights by Integrity and National Integrity, they
have the right to give voting instructions with respect to more than 5% of the
outstanding shares of the Portfolio:
[Add 5% holders.]
REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS
14
<PAGE>
The Annual Report to shareholders of the Fund, including the audited
financial statements of the Portfolio for the fiscal year ended June 30, 1995,
is available from the Fund. The Annual Report should be read in conjunction
with this Proxy Statement, but is not part of the proxy soliciting material. A
copy of the Annual Report may be obtained from the Fund, without charge, by
contacting the Fund in writing at the address on the cover of this Proxy
Statement, or by calling 1-800-___-____.
SHAREHOLDER PROPOSALS
The Fund is not required to hold annual meetings of shareholders and
the Directors currently do not intend to hold such meetings unless shareholder
action is required in accordance with the 1940 Act or the Fund's Articles of
Incorporation. A shareholder proposal to be considered for inclusion in the
proxy statement at any meeting of shareholders hereafter called must be
submitted a reasonable time before the proxy statement relating thereto is
mailed. Whether a proposal submitted will be included in the proxy statement
will be determined in accordance with applicable federal and state laws.
Respectfully Submitted,
Kevin L. Howard
Secretary
Dated: ________, 1995
SHAREHOLDERS WHO ARE UNABLE TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO
FILL IN, DATE AND SIGN THE PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
PREPAID ENVELOPE.
15
<PAGE>
APPENDIX A
FORM OF SUB-ADVISORY AGREEMENT AND NEW SUB-ADVISORY AGREEMENT
[Deletions are shown with strikethrough, insertions with double
underscore.]
AGREEMENT, made this 26th____ day of November, 1993______ 1995, between
Integrity Life Insurance Company (Integrity), an Arizona corporation, and Dreman
Value Management, L.P Advisors, Inc. (Sub-Adviser), a New York limited
partnership Delaware corporation.
WHEREAS, Integrity, an indirect wholly-owned subsidiary of ARM Financial
Group, Inc., is an investment adviser registered under the Investment Advisers
Act of 1940, as amended (the Advisers Act);
WHEREAS, the Sub-Adviser is an investment adviser registered under the
Advisers Act;
WHEREAS, pursuant to a Management Agreement dated November 26, 1993 (the
Management Agreement), Integrity acts as Investment Manager to The Legends Fund,
Inc. (the Fund), an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the 1940 Act);
WHEREAS, the Fund is authorized to issue multiple series of shares, each
such series representing a separate portfolio of securities and investments; and
WHEREAS, Integrity desires to retain the Sub-Adviser to furnish investment
advisory services to the Dreman Value Portfolio of the Fund (the Portfolio),
and the Sub-Adviser is willing to accept such appointment on the terms and
conditions set forth herein.
NOW, THEREFORE, based on the premises and the consideration set forth
herein, Integrity and the Sub-Adviser agree as follows:
SECTION 1. INVESTMENT ADVISORY SERVICES.
Subject to the supervision of the Funds' Board of Directors and Integrity,
the Sub-Adviser will provide a continuous investment program for the Portfolio
and determine the composition of the assets of the Portfolio, including
determination of the purchase, retention or sale of the securities, cash, and
other investments contained in the Portfolio's holdings. The Sub-Adviser will
provide investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolio's assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Portfolio, when these transactions should be
executed, and what portion of the assets of the Portfolio should be held in the
various securities and other investments in which it may invest, and the Sub-
Adviser is hereby authorized to execute and perform such services on behalf of
the Portfolio. To the extent, if any, permitted by the investment policies of
the Portfolio, the Sub-Adviser shall make determinations as to and execute and
perform futures contracts and options on behalf of the Portfolio. The
<PAGE>
Sub-Adviser will provide the services under this Agreement in accordance with
the Portfolio's investment objective or objectives, policies, and restrictions
as stated in the Fund's Registration Statement filed with the Securities and
Exchange Commission (SEC). Integrity agrees to supply the Sub-Adviser with a
copy of the Registration Statement and each amendment thereto (the Registration
Statement as amended from time to time hereinafter referred to as the
Registration Statement) and any other documents that set forth investment
policies, procedures or restrictions governing the Portfolio and to notify the
Sub-Adviser in writing of any changes in the investment objectives, policies,
procedures and restrictions governing the Portfolio.
The Sub-Adviser further agrees as follows:
(a) The Sub-Adviser will manage the Portfolio (i) so that it will qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code), and (ii) so as to ensure
compliance by the Portfolio with the diversification requirements of
Section 817(h) of the Code and regulations issued thereunder. In
managing the Portfolio in accordance with these requirements, the Sub-
Adviser shall be entitled to receive and act upon advice of counsel to
the Fund, counsel to Integrity or counsel to the Sub-Adviser, provided
the Sub-Adviser's counsel is acceptable to Integrity.
(b) In undertaking its duties under this Agreement, the Sub-Adviser will
comply with the 1940 Act and all rules and regulations thereunder, all
other applicable federal and state laws and regulations, with any
applicable procedures adopted by the Fund's Board of Directors of
which it has notice and the provisions of the Registration Statement.
(c) On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as of the
Sub-Adviser's or the Sub-Adviser's affiliates' other investment
advisory clients, the Sub-Adviser may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to,
aggregate the securities to be so sold or purchased with those of its
other clients where such aggregation is not inconsistent with the
policies set forth in the Registration Statement. In such event, the
Sub-Adviser will allocate the securities so purchased or sold, as well
as the expenses incurred in the transaction, in a manner that is fair
and equitable in the Sub-Adviser's judgment in the exercise of the
Sub-Adviser's fiduciary obligations to the Fund and to such other
clients.
(d) In connection with the purchase and sale of securities for the
Portfolio, the Sub-Adviser, together with Integrity, will arrange for
the transmission to the custodian, transfer agent, dividend disbursing
agent and recordkeeping agent for the Fund (such custodian and agent
or agents hereinafter referred to as the Agent), on a daily basis,
such confirmation, trade tickets (which shall state
2
<PAGE>
industry classifications unless the Sub-Adviser has previously
furnished a list of classifications for portfolio securities), and
other documents and information, including (but not limited to) CUSIP
or other numbers that identify securities to be purchased or sold on
behalf of the Portfolio and, with respect to mortgage derivative and
asset-backed securities purchased by the Sub-Adviser for the
Portfolio, 1066Q reports and supplemental information as required to
be available pursuant to IRS Publication 938, as may be reasonably
necessary to enable the Agent to perform its administrative and
recordkeeping responsibilities with respect to the Portfolio. With
respect to portfolio securities to be purchased or sold through the
Depositary Trust Company, the Sub-Adviser will arrange for the
automatic transmission of the confirmation of such trades to the
Fund's Agent, and if requested, Integrity.
(e) The Sub-Adviser will monitor on a daily basis, by review of daily
pricing reports provided by the Agent to the Sub-Adviser, the
determination by the Agent for the Fund of the valuation of portfolio
securities and other investments of the Portfolio. The Sub-Adviser
shall not be obligated to independently verify the Agent's pricing
determinations, and the Agent's responsibility for accurate pricing
determinations of the value of the Portfolio's securities shall not be
reduced by the Sub-Adviser's duty to monitor such determinations. The
Sub-Adviser will assist the Agent in determining or confirming,
consistent with the procedures and policies stated in the Registration
Statement, the value of any portfolio securities or other assets of
the Portfolio for which the Agent seeks assistance from or identifies
for review by the Sub-Adviser.
(f) The Sub-Adviser will make available to the Fund and Integrity,
promptly upon request, all of the Portfolio's investment records and
ledgers maintained by the Sub-Adviser as are necessary to assist the
Fund and Integrity to comply with requirements of the 1940 Act and the
Advisers Act, as well as other applicable laws. The Sub-Adviser will
furnish to regulatory authorities having the requisite authority any
information or reports in connection with its services which may be
requested in order to ascertain whether the operations of the Fund are
being conducted in a manner consistent with applicable laws and
regulations.
(g) The Sub-Adviser will provide reports, which may be prepared by the
Agent, to the Fund's Board of Directors for consideration at meetings
of the Board on the investment program for the Portfolio and the
issuers and securities represented in the Portfolio's securities
holdings, including a schedule of the investments and other assets
held in the Portfolio and a statement of all purchases and sales for
the Portfolio since the last such statement, and will furnish the
Funds' Board of Directors with periodic and special reports with
respect to the Portfolio as the Directors and Integrity may reasonably
request, including statistical information with respect to the
Portfolio's securities. In
3
<PAGE>
addition, the Sub-Adviser will make available at each meeting of the
Board of Directors, either in person or by telephone conference call
as instructed by Integrity on behalf of the Board of Directors of the
Fund, an appropriate person to discuss the investment performance of
the Portfolio.
(h) The Sub-Adviser will provide information and reports to Integrity as
Integrity shall reasonably request to enable it to review the
performance of the Sub-Adviser under this Agreement.
SECTION 2. BROKER-DEALER SELECTION.
The Sub-Adviser is responsible for decisions to buy and sell securities and
other investments for the Portfolio, broker-dealer and futures commission
merchant selection, and negotiation of brokerage commission and futures
commission merchants' rates. As a general matter, in executing portfolio
transactions the Sub-Adviser may employ or deal with such broker-dealers or
futures commission merchants as may, in the Sub-Adviser's best judgment, provide
prompt and reliable execution of the transactions at favorable prices and
reasonable commission rates. In selecting such broker-dealers or futures
commission merchants, the Sub-Adviser shall consider all relevant factors,
including price (including the applicable brokerage commission, dealer spread or
futures commission merchant rate), the size of the order, the nature of the
market for the security or other investment, the timing of the transaction, the
reputation, experience and financial stability of the broker-dealer or futures
commission merchant involved, the quality of the service, the difficulty of
execution, and the execution capabilities and operational facilities of the firm
involved, and, in the case of securities, the firm's risk in positioning a block
of securities. Subject to such policies as the Board of Directors may determine
and consistent with Section 28(e) of the Securities Exchange Act of 1934, as
amended (the 1934 Act), the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of the Sub-Adviser's having caused the Portfolio to pay a
member of an exchange, broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
if the Sub-Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such member of an exchange, broker or dealer, viewed in terms of
either that particular transaction or the Sub-Adviser's overall responsibilities
with respect to the Portfolio and to the Sub-Adviser's other clients as to which
the Sub-Adviser exercises investment discretion. In accordance with Section
11(a) of the 1934 Act and Rule 11a2-2(T) thereunder, and subject to any other
applicable laws and regulations including Section 17(e) of the 1940 Act and Rule
17e-1 thereunder, the Sub-Adviser may engage its affiliates, Integrity and its
affiliates or any other sub-adviser to the Fund and its respective affiliates as
broker-dealers or futures commission merchants to effect portfolio transactions
in securities and other investments for the Portfolio.
SECTION 3. RECORDS, REPORTS, ETC.
4
<PAGE>
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records which the Sub-Adviser maintains for
the Portfolio are the property of the Fund and further agrees to surrender
promptly to the Fund any of such records upon the Fund's or Integrity's request
or upon termination of this Agreement, although the Sub-Adviser may, at the Sub-
Adviser's own expense, make and retain a copy of such records. 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
and to preserve the records required by the Rule 204-2 under the Advisers Act
for the period specified in the Rule.
SECTION 4. PAYMENT OF EXPENSES.
The Sub-Adviser shall assume and pay all of the costs and expenses of
performing its obligations under this Agreement.
SECTION 5. COMPENSATION FOR SERVICES.
Integrity will pay to the Sub-Adviser a monthly sub-advisory fee (adjusted
pro rata for any shorter applicable period) at an annual rate of .50% of the
average daily net assets of the Portfolio from the management fee actually
received by Integrity from the Fund; provided, however, that the sub-advisory
fee shall be reduced proportionately if the management fee actually paid to
Integrity by the Portfolio shall have been reduced as a result of applicable
state expense limitations or fee waivers agreed to in writing by the Sub-
Adviser. The sub-advisory fee shall be computed, accrue and be payable in the
same manner as the management fee which is payable by the Fund to Integrity
pursuant to the Management Agreement and as specified in the Fund's Registration
Statement.
SECTION 6. LIABILITY FOR SERVICES.
Except as may otherwise be required by the 1940 Act or the rules thereunder
or other applicable law, and except as set forth in the next paragraph, the Fund
and Integrity agree that the Sub-Adviser, any of its affiliated persons, and
each person, if any, who, within the meaning of Section 15 of the Securities Act
of 1933, as amended, controls the Sub-Adviser, shall not be liable for, or
subject to any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Sub-Adviser's duties, or by reason of
reckless disregard of the Sub-Adviser's obligations and duties under this
Agreement.
SECTION 7. INDEMNIFICATION BY SUB-ADVISER.
The Sub-Adviser agrees to indemnify and hold harmless Integrity against any
losses, expenses, claims, damages or liabilities (or actions or proceedings in
respect thereof), to which Integrity may become subject arising out of or based
on the breach or alleged breach by the Sub-Adviser of any provisions of this
Agreement; provided, however, that the
5
<PAGE>
Sub-Adviser shall not be liable under this paragraph in respect of any loss,
expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by Integrity and the Sub-Adviser shall have concluded in a written
opinion, that such loss, expense, claim, damage or liability resulted primarily
from Integrity's willful misfeasance, bad faith or gross negligence or by reason
of the reckless disregard by Integrity of its duties. The foregoing
indemnification shall be in addition to any rights that Integrity may have at
common law or otherwise. The Sub-Adviser's agreements in this paragraph shall,
upon the same terms and conditions, extend to and inure to the benefit of each
person who may be deemed to control Integrity, be controlled by Integrity or be
under common control with Integrity and its affiliates, directors, officers,
employees and agents. The Sub-Adviser's agreements in this paragraph shall also
extend to any of Integrity's successors or the successors of the aforementioned
affiliates, directors, offices, employees or agents.
SECTION 8. INDEMNIFICATION BY INTEGRITY.
Integrity agrees to indemnify and hold harmless the Sub-Adviser against any
losses, expenses, claims, damages or liabilities (or actions or proceedings in
respect thereof), to which the Sub-Adviser may become subject arising out of or
based on the breach or alleged breach by Integrity of any provisions of this
Agreement or the Management Agreement, or any wrongful action or alleged
wrongful action by Integrity or its affiliates in the distribution of the Fund's
shares, or any wrongful action or alleged wrongful action by the Fund other than
wrongful action or alleged wrongful action that was caused by the breach by the
Sub-Adviser of the provisions of this Agreement; provided, however, that
Integrity shall not be liable under this paragraph in respect of any loss,
expense, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment, or independent counsel
agreed upon by Integrity and the Sub-Adviser shall have concluded in a written
opinion, that such loss, expense, claim, damage or liability resulted primarily
from the Sub-Adviser's willful misfeasance, bad faith or gross negligence or by
reason of the reckless disregard by the Sub-Adviser of its duties. The
foregoing indemnification shall be in addition to any rights that the Sub-
Adviser may have at common law or otherwise. Integrity's agreements in this
paragraph shall, upon the same terms and conditions, extend to and inure to the
benefit of each person who may be deemed to control the Sub-Adviser, be
controlled by the Sub-Adviser or be under common control with the Sub-Adviser
and to each of the Sub-Adviser's and each such person's respective affiliates,
directors, officers, employees and agents. Integrity's agreements in this
paragraph shall also extend to any of the Sub-Adviser's successors or the
successors of the aforementioned affiliates, directors, officers, employees or
agents.
SECTION 9. NOTICE AND DEFENSE OF PROCEEDINGS, ETC.
Promptly after receipt by a party indemnified under paragraph 7 or 8 above
of notice of the commencement of any action, proceeding or investigation for
which indemnification will be sought, such indemnified party shall promptly
notify the indemnifying party in writing; but the omission so to notify the
indemnifying party shall not relieve it from any
6
<PAGE>
liability which it may otherwise have to any indemnified party unless such
omission results in actual material prejudice to the indemnifying party. In
case any action or proceeding shall be brought against any indemnified party,
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, individually or
jointly with any other indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of any action or proceeding, the indemnifying party shall not be liable
to the indemnified party for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. If the indemnifying party does not elect to
assume the defense of any action or proceeding the indemnifying party on a
monthly basis shall reimburse the indemnified party for the legal fees and
expenses incurred by the indemnified party for continuing its defense thereof.
Regardless of whether or not the indemnifying party shall have assumed the
defense of any action or proceeding the indemnified party shall not settle or
compromise the action or proceeding without the prior written consent of the
indemnifying party.
SECTION 10. REPRESENTATIONS AND WARRANTIES; COVENANTS.
(a) The Sub-Adviser hereby represents and warrants as follows:
(i) The Sub-Adviser is registered with the SEC as an investment
adviser under the Advisers Act, and such registration is
current, complete and in full compliance with all material
applicable provisions of the Advisers Act and the rules and
regulations thereunder;
(ii) The Sub-Adviser has all requisite authority to enter into,
execute, deliver and perform the Sub-Adviser's obligations
under this Agreement;
(iii) The Sub-Adviser's performance of its obligations under this
Agreement does not conflict with any law, regulation or order
to which the Sub-Adviser is subject; and
(iv) The Sub-Adviser has reviewed the Registration Statement for
the Fund filed with the SEC, and with respect to the
disclosure about the Sub-Adviser and the Portfolio or
information relating, directly or indirectly, to the Sub-
Adviser or the Portfolio which was made in reliance upon
and in conformity with written information provided by the
Sub-Adviser to the Fund specifically for use therein or, if
written information was not provided, which the Sub-Adviser
had the opportunity to review prior to filing with the SEC,
such Registration Statement contains, as of its date, no
untrue statement of any material fact
7
<PAGE>
and does not omit any statement of a material fact which
was required to be stated therein or necessary to make the
statements contained therein not misleading.
(b) The Sub-Adviser hereby covenants and agrees that, so long as this
Agreement shall remain in effect:
(i) The Sub-Adviser shall maintain the Sub-Adviser's
registration as an investment adviser under the Advisers
Act, and such registration shall at all times remain
current, complete and in full compliance with all material
applicable provisions of the Advisers Act and the rules and
regulations thereunder;
(ii) The Sub-Adviser's performance of its obligations under this
Agreement shall not conflict with any law, regulation or
order to which the Sub-Adviser is then subject;
(iii) The Sub-Adviser shall at all times fully comply with the
Advisers Act, the 1940 Act, all applicable rules and
regulations under such Acts and all other applicable law; and
(iv) The Sub-Adviser shall promptly notify Integrity and the
Fund upon the occurrence of any event that might disqualify
or prevent the Sub-Adviser from performing its duties under
this Agreement. The Sub-Adviser further agrees to notify
Integrity and the Fund promptly with respect to written
material that has been provided to the Fund or Integrity by
the Sub-Adviser for inclusion in the Registration Statement
or prospectus for the Fund or any supplement or amendment
thereto, or, if written material has not been provided,
with respect to the information int he in the Registration
Statement or Prospectus, or any amendment or supplement
thereto, reviewed by the Sub-Adviser, in either case of any
untrue statement of a material fact or of any omission of
any statement of a material fact which is required to be
stated therein or is necessary to make the statements
contained therein not misleading; and
If the Sub-Adviser is a partnership, the Sub-Adviser shall notify the Fund and
Integrity of any change in membership within a reasonable time after such
change.
SECTION 11. EXCLUSIVITY OF SERVICES AND USE OF NAMES.
The Sub-Adviser acknowledges that a fundamental marketing feature of the
variable annuity contracts and certificates offered through Integrity and
National Integrity Life Insurance
8
<PAGE>
Company (National Integrity), a wholly-owned subsidiary of Integrity, under
which contributions may be allocated to separate accounts of Integrity and
National Integrity for the purchase of shares of the Portfolio is the fact that
the Sub-Adviser provides investment advisory services to the Portfolio. In
recognition thereof and of the costs incurred by the Fund and Integrity in
establishing the Portfolio and registering the Fund as an investment company,
the Sub-Adviser agrees that from the date of this Agreement until the earlier of
(i) six months after the date Integrity and National Integrity begin offering to
the public variable annuity contracts and certificates funded in whole or in
party by the Portfolio or (ii) May 31, 1993, the Sub-Adviser and the Sub-
Adviser's affiliates shall not provide investment advisory services to any
registered investment company or portfolio thereof which has investment
objectives and policies substantially similar to those of the Portfolio and
which services a funding vehicle for any variable annuity product (excluding
advisory arrangements in existence on the date of this Agreement) without the
prior written approval of the Fund, Integrity and National Integrity. The Sub-
Adviser acknowledges that a breach of this provision may irreparably harm the
Fund, Integrity or National Integrity. In the event of a breach of this
provision, the Fund, Integrity or National Integrity shall be entitled to
injunctive relief, to enforcement by specific performance of this Agreement, and
to actual and punitive damages.
The Sub-Adviser acknowledges and agrees that the names The Legends Fund
and Pinnacle, and abbreviations or logos associated with those names, are the
valuable property of Integrity and its affiliates; that the Fund, Integrity and
its affiliates have the right to use such names, abbreviations and logos; and
that the Sub-Adviser shall use the names The Legends Fund and Pinnacle, and
associated abbreviations and logos, only in connection with the Sub-Adviser's
performance of its duties hereunder.
Integrity acknowledges that "Dreman" (the Sub-Adviser's name) is
distinctive in connection with investment advisory and related services provided
by the Sub-Adviser, the Sub-Adviser's name is a property right of the Sub-
Adviser and/or the individual whose name is part of the Sub-Adviser's name (the
principal), and the Sub-Adviser's and the principal's name in the name of the
Portfolio are understood to be used by the Fund with the Sub-Adviser's name in
the name of the Portfolio upon the conditions hereinafter set forth; provided
that the Fund may use such name only so long as (i) the Sub-Adviser shall be
retained as the investment sub-adviser of the Portfolio pursuant to the terms of
this Agreement, and (ii) the principal shall continued to be affiliated with the
Sub-Adviser. Any such use by the Fund shall in no way prevent the Sub-Adviser
or its principal or any of its or his successors or assigns from using or
permitting the use of the Sub-Adviser's or the principal's name along with any
other word or words, for, by or in connection with any other entity or business,
other than the Fund or its business, whether or not the same directly competes
or conflicts with the Fund or its business in any manner, except for the six
month period as described in the first paragraph of this Section.
Integrity acknowledges that the Fund shall use the Sub-Adviser's and
principal's names name in the name of the Portfolio for the period set forth
herein in a manner not inconsistent with the interests of the Sub-Adviser and
its principal and that the Fund's rights in the Sub-Adviser's and principal's
names name are limited to their use as a component of
9
<PAGE>
the Portfolio's name and in connection with accurately describing the activities
of the Portfolio. In the event that the Sub-Adviser shall cease to be the
investment sub-adviser of the Portfolio or the principal shall cease to be
affiliated with the Sub-Adviser, then the Fund at its own expense, upon the Sub-
Adviser;s or the principal's Adviser's written request:
(i) shall cease to use the Sub-Adviser's or principal's name,
as the case may be, or any combination thereof as part of
the Portfolio's name or for any other commercial purpose
(other than the right to refer to the Portfolio's former
name in the Fund's Registration Statement, proxy materials
and other Fund documents to the extent required under the
1940 Act);
(ii) shall on all letterheads and other materials designed to be
read or used by salesmen salespersons, distributors or
investors, state in a prominent position and prominent type
that the Sub-Adviser has ceased to be the investment sub-
adviser of the Portfolio or that the principal has ceased
to be affiliated with the Sub-Adviser, as the case may be;
and
(iii) shall use its best efforts to cause the Fund's officers and
directors to take any and all actions which may be necessary or
desirable to effect the foregoing and to reconvey to the Sub-
Adviser or the principal all rights which the Fund may have to
such name. Integrity agrees to take any and all actions as may
be necessary or desirable to effect the foregoing.
The Sub-Adviser hereby agrees and consents to the use of the Sub-Adviser's
name and that of its principal upon the foregoing terms and conditions.
SECTION 12. ENTIRE AGREEMENTS; AMENDMENT, WAIVER.
This Agreement supersedes all prior agreements between the parties and
constitutes the entire Agreement by the parties. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing singed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no amendment of this
Agreement shall be effective with respect to the Portfolio until approved as
required by the 1940 Act.
SECTION 13. EFFECTIVENESS AND DURATION OF AGREEMENT.
Unless sooner terminated, this Agreement shall continue in effect for one
year and thereafter for successive one year periods, provided that continuation
of this Agreement and the terms thereof are specifically approved annually in
accordance with the requirements of the 1940 Act by a majority of the Directors
of the Fund, including a majority of the
10
<PAGE>
Directors who are not interested persons of the Sub-Adviser, Integrity or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval.
SECTION 14. TERMINATION OF AGREEMENT, ASSIGNMENT.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Sub-Adviser or by Integrity, upon sixty (60) days' written
notice from the terminating party to the other party and to the Fund, or by the
Fund, upon sixty (60) days written notice to the Sub-Adviser and Integrity,
acting pursuant to a resolution adopted by a majority of the members of the
Board of Directors who are not interested persons or by a vote of the holders of
the lesser of (1)67% of the Portfolio's voting shares present if the holders of
more than 50% of the outstanding shares are present in person or by proxy, or
(2) more than 50% of the outstanding shares of the Portfolio.
This Agreement shall automatically terminate in the event of its assignment
or the termination of the Management Agreement pertaining to the Portfolio.
Termination of this Agreement shall not affect rights of the parties which have
accrued prior thereto.
The provisions of paragraphs 6,7,8,9, and 11 shall survive the termination
of this Agreement, except that if Integrity or the Fund terminates the
Agreement, the first paragraph of Section 11 shall not survive termination.
SECTION 15. DEFINITIONS.
The terms assignment and interested person when used in this Agreement
shall have the meanings give such terms in the 1940 Act and the rules and
regulations thereunder.
SECTION 16. CONCERNING APPLICABLE PROVISIONS OF LAW.
This Agreement shall be subject to all applicable provisions of law,
including, without limitation, the applicable provisions of the 1940 Act, and to
the extent that any provisions herein contained conflict with any such
applicable provisions of law, the latter shall control.
This Agreement shall be governed by the laws of the State of New York,
without reference to principles of conflicts of law.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in counterparts, and each counterpart shall
for all purposed be deemed an original, and all such counterparts shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, authorized officers of Integrity and the Sub-Adviser
have executed this Agreement as of the day and year first written above.
11
<PAGE>
INTEGRITY LIFE INSURANCE DREMAN VALUE ADVISORS,
COMPANY INC. MANAGEMENT, L.P
By:________________________ By:__________________________
Attest:____________________ Attest:______________________
12
<PAGE>
PRELIMINARY COPY
PROXY
THE LEGENDS FUND, INC.
239 S. FIFTH STREET
LOUISVILLE, KENTUCKY 40202-3271
DREMAN VALUE PORTFOLIO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ________ and _______ as proxies, each with the
power to appoint his substitute, and hereby authorizes each of them acting
singly or jointly to represent and to vote, as designated below, all shares of
the Dreman Value Portfolio (the "Portfolio") of The Legends Fund, Inc. Fund I
(the "Fund") held of record by the undersigned on September 21, 1995 at the
meeting of shareholders to be held on October 27, 1995, or any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2.
BY SIGNING AND DATING THIS CARD YOU AUTHORIZE THE PROXIES TO VOTE THE PROPOSALS
AS MARKED OR, IF NOT MARKED, TO VOTE "FOR" THE PROPOSALS, AND TO USE THEIR
DISCRETION TO VOTE ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
If you do not intend to personally attend the meeting, please complete and
return this card at once in the enclosed envelope.
1. To approve the Sub-Advisory Agreement between Integrity Life Insurance
Company ("Integrity") as investment manager and Dreman Value Advisors, Inc.
("Dreman Advisors") as sub-adviser for the Portfolio.
FOR [X] AGAINST [X] ABSTAIN [X]
2. To approve the New Sub-Advisory Agreement between Integrity and Dreman
Advisors, to become effective upon the purchase by Zurich Insurance Company of a
controlling interest in the parent company of Dreman Advisors.
FOR [X] AGAINST [X] ABSTAIN [X]
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING
AS ATTORNEY OR AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
-----------------------------------------------------
SIGNATURE DATE SIGNATURE (IF HELD JOINTLY)
Please mark boxes [X] in blue or black ink.
<PAGE>
PRELIMINARY COPY
VOTING INSTRUCTIONS CARD
FOR PROXY SOLICITED BY THE LEGENDS FUND, INC.
FOR THE DREMAN VALUE PORTFOLIO
The undersigned instructs [National] Integrity Life Insurance Company (the
"Company") to vote, as shown below, all shares of the Dreman Value Portfolio of
The Legends Fund, Inc. (the "Portfolio") attributable as of September 21, 1995
to the undersigned's variable annuity contract, as the Special Meeting of
shareholders of the Portfolio scheduled to be held on October 27, 1995 at
3 p.m., and at any adjournment thereof, and to vote, in its sole discretion, on
such other matters as may properly come before the Meeting. Receipt of the
Portfolio's Notice of Special Meeting and accompanying Proxy Statement is hereby
acknowledged. IF THIS SHEET IS SIGNED AND RETURNED WITHOUT DIRECTION, THE
COMPANY WILL VOTE FOR ALL PROPOSALS. If this sheet is not returned or is
returned unsigned, the Company will vote shares attributable to your contract in
the same proportion as it votes shares for which it has received instructions.
Please return this voting instruction card promptly in the envelope provided.
1. Approval of Sub-Advisory Agreement
between Integrity Life Insurance
Company ("Integrity") as Dreman
Value Advisors, Inc. ("Dreman
Advisors"): [_] FOR [_] AGAINST [_] ABSTAIN
2. Approval of New Sub-Advisory Agreement
between Integrity and Dreman Advisors
to become effective upon the purchase
by Zurich Insurance Company of a
controlling interest in the parent
company of Dreman Advisors: [_] FOR [_] AGAINST [_] ABSTAIN
Sign below exactly as your name (or
names for joint owners) appears on this
card and give your full title when
signing as executor, trustee or in any
other fiduciary capacity.
Owner:
-----------------------------------
Joint Owner:
-----------------------------
Date:
------------------------------------
IMPORTANT: SIGN AND DATE THIS CARD
