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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 Section 240.14a-11(c) or Section 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] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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.)
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4) Proposed maximum aggregate value of transaction:
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5) Total Fee Paid:
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[ ] 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:
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PRELIMINARY COPIES
THE LEGENDS FUND, INC.
515 West Market Street
Louisville, Kentucky 40202
---------------------------------------------
Notice of Special Meeting of Shareholders
---------------------------------------------
To the Shareholders of The Legends Fund, Inc.:
A special meeting of shareholders of The Legends Fund, Inc. (the "Fund"),
and of the Harris Bretall Sullivan & Smith Equity Growth Portfolio, Zurich
Kemper Value Portfolio (formerly, the Dreman Value Portfolio), Zweig Asset
Allocation Portfolio and Zweig Equity (Small Cap) Portfolio (each, a "Portfolio"
and collectively, the "Portfolios"), each a series of the Fund, will be held at
515 West Market Street, Louisville, Kentucky 40202, on October 30, 1997, at
3:00 p.m., Eastern Time. The purpose of the Meeting is:
(1) to approve or disapprove the management agreement (the "Management
Agreement") between the Fund and ARM Capital Advisers, Inc. (the "Manager")
and proposed amended sub-advisory agreements pertaining to:
(a) Harris Bretall Sullivan & Smith Equity Growth Portfolio between
the Manager and Harris Bretall Sullivan & Smith, Inc. ("HBSS");
(b) Zurich Kemper Value Portfolio (formerly, the Dreman Value
Portfolio) between the Manager and Zurich Kemper Value Advisors, Inc.
(formerly, Dreman Value Advisors, Inc.) ("ZKVA");
(c) Zweig Asset Allocation Portfolio between the Manager and
Zweig/Glaser Advisers; and
(d) Zweig Equity (Small Cap) Portfolio between the Manager and
Zweig/Glaser Advisers;
(2) for Harris Bretall Sullivan & Smith Equity Growth Portfolio, to approve
or disapprove the continuation of the proposed amended sub-advisory
agreement between HBSS and the Manager relating to the Portfolio following
the proposed change of control of HBSS;
(3) for the Fund, to elect a slate of five members to its Board of Directors
to hold office until their successors are duly elected and qualified;
<PAGE>
(4) for the Fund, to ratify or reject the selection of Ernst & Young LLP as
the Fund's independent accountants for the fiscal year ending June 30,
1998; and
(5) to transact such other matters as may properly come before the meeting
or any adjournment thereof.
The Board of Directors of the Fund has fixed the close of business on
September 22, 1997 as the record date for determining the number of shares
outstanding and the contract holders entitled to give voting instructions with
respect to the Fund.
By Order of the Board of Directors,
Kevin L. Howard
Secretary
September 30, 1997
EACH CONTRACT HOLDER IS URGED TO EXERCISE THE RIGHT TO GIVE VOTING INSTRUCTIONS
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF THE FUND BY FILLING IN, DATING AND
SIGNING THE ENCLOSED VOTING INSTRUCTIONS CARD AND RETURNING IT IN THE RETURN
ENVELOPE PROVIDED.
<PAGE>
PRELIMINARY COPIES
THE LEGENDS FUND, INC.
515 West Market Street
Louisville, Kentucky 40202
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Zurich Kemper Value Portfolio
Zweig Asset Allocation Portfolio
Zweig Equity (Small Cap) Portfolio
Morgan Stanley Asian Growth Portfolio
Morgan Stanley Worldwide High Income Portfolio
Renaissance Balanced Portfolio
Nicholas-Applegate Balanced Portfolio
Pinnacle Fixed Income Portfolio
ARM Capital Advisors Money Market Portfolio
(each, a "Portfolio" and collectively, the "Portfolios")
---------------------------------------------
PROXY STATEMENT
Special Meeting of Shareholders
October 30, 1997 at 3:00 p.m.
---------------------------------------------
THE BOARD OF DIRECTORS OF THE LEGENDS FUND, INC. (THE "FUND") SOLICITS YOUR
PROXY FOR USE AT A SPECIAL MEETING OF SHAREHOLDERS (THE "MEETING"). The Meeting
is scheduled to be held at 515 West Market Street, Louisville, Kentucky 40202,
on October 30, 1997 at 3:00 p.m. As described in more detail below, the Meeting
is being called for the following purposes:
PORTFOLIO(S) TO WHICH
SUMMARY OF PROPOSAL PROPOSAL APPLIES
1. (a) to approve or disapprove the management Harris Bretall Sullivan
agreement between the Fund (on behalf of the & Smith Equity Growth
Portfolio) and ARM Capital Advisors, Inc. (the Portfolio
Manager) and the proposed amended sub-advisory
agreement between the Manager and Harris Bretall
Sullivan & Smith, Inc. (HBSS) as sub-adviser for
the Portfolio.
(b) to approve or disapprove the management Zurich Kemper Value
agreement between the Fund (on behalf of the Portfolio (formerly, the
Portfolio) and the Manager and the proposed amended Dreman Value Portfolio)
sub-advisory agreement between the Manager and
Zurich Kemper Value Advisors, Inc. (formerly,
Dreman Value Advisors, Inc.) (ZKVA) as sub-adviser
for the Portfolio.
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(c) to approve or disapprove the management Zweig Asset Allocation
agreement between the Fund (on behalf of the Portfolio
Portfolio) and the Manager and the proposed amended
sub-advisory agreement between the Manager and
Zweig/Glaser Advisers as sub-adviser for the
Portfolio.
(d) to approve or disapprove the management Zweig Equity (Small Cap)
agreement between the Fund (on behalf of the Portfolio
Portfolio) and the Manager and the proposed
amended sub-advisory agreement between the Manager
and Zweig/Glaser Advisers as sub-adviser for the
Portfolio.
2. to approve or disapprove the continuation of Harris Bretall Sullivan &
the proposed amended sub-advisory agreement between Smith Equity Growth
HBSS and the Manager relating to the Portfolio Portfolio
following the proposed change of control of HBSS;
3. to elect a slate of five members to the Fund's All Portfolios
Board of Directors to hold office until their
successors are duly elected and qualified.
4. to ratify or reject the selection of Ernst & All Portfolios
Young LLP as the Fund's independent accountants for
the fiscal year ending June 30, 1998.
5. To transact such other matters as may properly All Portfolios
come before the meeting or any adjournment thereof.
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. Shares of the Portfolios are offered to separate
accounts ("Separate Accounts") of Integrity Life Insurance Company ("Integrity")
and National Integrity Life Insurance Company ("National Integrity"), a
wholly-owned subsidiary of Integrity, for the investment of contributions under
certain variable annuity contracts ("contracts") issued by Integrity and
National Integrity.
On July 23, 1997, Integrity and National Integrity (collectively, the
"Integrity Companies") filed an application with the Securities and Exchange
Commission for an order to approve a substitution (the "Substitution") of
Morgan Stanley Asian Growth Portfolio, Morgan Stanley Worldwide High Income
Portfolio, Renaissance Balanced Portfolio, Nicholas-Applegate Balanced
Portfolio, Pinnacle Fixed Income Portfolio and ARM Capital Advisors Money Market
Portfolio (the "Substituted Portfolios"). The Substitution would entail the
transfer of all of the assets of each Substituted Portfolio to a portfolio of a
separate registered investment company (each, a "New Portfolio") deemed to have
(i) substantially similar investment strategies to, and (ii) historically
stronger investment performance and/or (iii) lower expense ratios (after waivers
and reimbursements) than, the respective Substituted Portfolio. Shares of each
Substituted Portfolio held by the respective Separate Account would be exchanged
at net asset value for shares of equivalent value of the respective New
Portfolio. The costs of the Substitution will be borne by the Integrity
Companies, and no fees, transfer charges or sales charges to effect the
Substitution will be imposed on the Fund,
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the Substituted Portfolios, their shareholders, or ultimately, the variable
annuity contract holders. Prior to and immediately following the Substitution,
the account values of the variable annuity contract holders will be the same.
In addition, the Substitution will not alter the tax or insurance benefits to
contract holders or the contractual obligations of the Integrity Companies. The
Substitution is not a subject of the Meeting, and you are not being asked to
vote thereon.
This Proxy Statement is being furnished on or about September 30, 1997 on
behalf of the Board of Directors of the Fund to the shareholders of the Fund for
their use in obtaining voting instructions from the contract holders on the
proposals to be considered at the Meeting. The Board of Directors has fixed the
close of business on September 22, 1997 as the record date (the "Record Date")
for determining the number of shares outstanding and the contract holders
entitled to give voting instructions to Integrity and National Integrity.
At the Record Date, the total number of shares of the Portfolios
outstanding were as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
PERCENTAGE SHARES HELD BY PERCENTAGE HELD
TOTAL SHARES HELD BY HELD BY SEPARATE BY SEPARATE
NUMBER OF SEPARATE SEPARATE ACCOUNT II OF ACCOUNT II OF
SHARES ACCOUNT II OF ACCOUNT II OF NATIONAL NATIONAL
PORTFOLIO OUTSTANDING INTEGRITY INTEGRITY INTEGRITY INTEGRITY
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Harris Bretall
Sullivan &
Smith Equity % %
Growth
Zurich Kemper
Value % %
Zweig Asset
Allocation % %
Zweig Equity
(Small Cap) % %
Morgan Stanley
Asian Growth % %
Morgan Stanley
Worldwide High
Income % %
Renaissance
Balanced % %
Nicholas-
Applegate
Balanced % %
3
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Pinnacle Fixed
Income % %
ARM Capital
Advisors Money
Market % %
Total Fund % %
</TABLE>
Based upon information supplied to the Fund, as of the Record Date,
Integrity had allocated contributions under variable annuity contracts such that
upon the pass-through of voting rights by Integrity, it would have the right to
give voting instructions with respect to [ ] shares (approximately [
%]) of the Pinnacle Fixed Income Portfolio. Integrity will vote all of the
shares it owns for its own account in the Portfolio in the same proportion as
votes are cast by contract holders relating to the Portfolio. Other than the
foregoing, as of the Record Date, no person or "group" (as such term is defined
in the Securities Exchange Act of 1934, as amended, and the rules thereunder)
was known to the Fund to have allocated contributions under variable annuity
contracts such that, upon the pass-through of voting rights by Integrity and
National Integrity, such person or group would have the right to give voting
instructions with respect to more than 5% of the outstanding shares of any
Portfolio. The Directors and officers of the Fund, both individually and as a
group, own less than 1% of each Portfolio's outstanding shares.
The Fund expects that the solicitation of voting instructions from contract
holders will be made by mail, and solicitation also may be made by telephone
communications from employees of the Manager, the Fund's investment manager, or
its affiliates, who will not receive compensation for such services. All costs
of the meeting and soliciting proxies will be borne by the Manager or its
affiliates, except that ZKVA will bear all such costs relating to Proposal No. 2
and HBSS will bear all such costs relating to Proposal No. 3.
Integrity and National Integrity, the holders of record of shares of the
Portfolios, are required to "pass through" to their contract holders the right
to vote shares of the Portfolios. The Fund expects that Integrity and National
Integrity will solicit voting instructions from their contract holders and that
Integrity and National Integrity will vote 100% of the shares of the Portfolios
held by their respective Separate Accounts. Integrity and National Integrity
will vote shares of the Portfolios for which no instructions have been received
in the same proportion as they vote shares for which they have received
instructions. Abstentions will have the effect of a negative vote on a proposal.
Unmarked voting instructions from contract holders will be voted in favor of the
proposals and for the election of the proposed slate of directors. Integrity
and National Integrity, as record shareholders of the Portfolios, 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
contract holders. The cost of preparing and distributing to contract holders
additional proxy materials if required in connection with any adjournment will
be borne as set forth in the preceding paragraph.
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Proxies executed by shareholders may be revoked by a written instrument
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.
The Portfolios named in Proposal Nos. 1 and 2 respectively, vote separately
with respect to such Proposals. All Portfolios of the Fund vote together as a
single class with respect to Proposal Nos. 3 and 4.
All information in the Proxy Statement about HBSS has been provided by
HBSS; all information in the Proxy Statement about ZKVA has been provided by
ZKVA; all information in the Proxy Statement about Zweig/Glaser Advisers has
been provided by Zweig/Glaser Advisers; and all information in the Proxy
Statement about the Manager and ARM Financial Group, Inc. ("ARM") has been
provided by the Manager and ARM.
EACH CONTRACT HOLDER IS URGED TO EXERCISE THE RIGHT TO GIVE VOTING INSTRUCTIONS
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF THE PORTFOLIOS 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: THE MANAGEMENT AGREEMENT AND PROPOSED
AMENDED SUB-ADVISORY AGREEMENTS
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO
ZURICH KEMPER VALUE PORTFOLIO
ZWEIG ASSET ALLOCATION PORTFOLIO
ZWEIG EQUITY (SMALL CAP) PORTFOLIO
BACKGROUND
Pursuant to the management agreement between the Fund and the Manager (the
"Management Agreement"), the Manager serves as investment manager of the Fund
and each 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 Portfolios. Pursuant to such authority,
the Manager has entered into sub-advisory agreements (the "Current Sub-Advisory
Agreements") with each of HBSS, ZKVA and Zweig/Glaser Advisers (each, a
"Sub-Adviser" and collectively, the "Sub-Advisers") relating to the Harris
Bretall Sullivan & Smith Equity Growth Portfolio, the Zurich Kemper Value
Portfolio, the Zweig Asset Allocation Portfolio and the Zweig Equity (Small Cap)
Portfolio, respectively.
5
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The Management Agreement is dated November 26, 1993, and amended April 1,
1994 and February 1, 1996. The Management Agreement was last approved by
shareholders on November 15, 1993, in connection with the sale of the Fund's
previous investment adviser to ARM. Pursuant to the Management Agreement, the
Manager is responsible, among other things, for general supervision of the
respective Sub-Advisers, subject to general oversight by the Fund's Board of
Directors. In addition, the Manager is obligated to keep certain books and
records of the Fund and administers the Fund's corporate affairs. In connection
therewith, the Manager furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by the Fund's custodians or transfer and dividend disbursing agent. The
Management Agreement is attached hereto as Exhibit A.
The Manager assumed the duties and responsibilities of Integrity as
investment manager to the Fund on February 1, 1996, following an internal
reorganization. Both the Manager and Integrity are wholly-owned subsidiaries of
ARM. The transaction involving the transfer of duties and responsibilities to
the Manager did not result in a change in the actual management or control of
the investment manager of the Fund; there was no change in the management or
personnel actually providing advisory services to the Fund; and there was no
change in the terms of the Fund's Management Agreement, including no change in
the compensation received by the investment manager.
The Manager voluntarily limits the expenses of the Portfolios, other than
for brokerage commissions and the management fee, to .50% of average net assets
on an annualized basis. The Manager's reimbursement of Portfolio expenses
results in an increase to each Portfolio's yield and total return. The Manager
has reserved the right to withdraw or modify its policy of expense reimbursement
for the Portfolios.
Pursuant to the Management Agreement between the Fund, on behalf of the
Portfolios, and the Manager, the Portfolios pay the Manager a fee (the
"Management Fee") at the following annual rates, calculated as a percentage of
the net assets of each respective Portfolio:
PORTFOLIO MANAGEMENT FEE
Harris Bretall Sullivan & Smith .65%
Equity Growth Portfolio
Zurich Kemper Value Portfolio .65%
Zweig Asset Allocation Portfolio .90%
Zweig Equity (Small Cap) Portfolio 1.05%
The Manager compensates each Sub-Adviser out of the Management Fee received
from the respective Portfolio. The Manager is currently entitled to retain (on
an annual basis) .15% of average daily net assets of each Portfolio after
compensating the Sub-Advisers.
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The Current Sub-Advisory Agreements with Harris Bretall Sullivan and Smith,
Inc. and Zweig/Glaser Advisers are dated November 26, 1993, and were last
approved by shareholders on November 15, 1993 in connection with the sale of the
Fund's previous investment adviser to ARM. The Current Sub-Advisory Agreement
with ZKVA is dated November 7, 1995, and was last approved by shareholders on
October 27, 1995, following the reorganization of the predecessor company of
ZKVA and in anticipation of the purchase by Zurich Insurance Company of a
controlling interest in the parent company of ZKVA.
On August 15, 1997, the Board of Directors of the Fund approved the
proposed amended sub-advisory agreements (the "Proposed Amended Sub-Advisory
Agreements") between the Manager and the respective Sub-Advisers. Each Proposed
Amended Sub-Advisory Agreement reflects a reduction of the sub-advisory fee
payable thereunder by the Manager to the respective Sub-Adviser. The form of
the Proposed Amended Sub-Advisory Agreement for each of the Harris Bretall
Sullivan & Smith Equity Growth, Zweig Asset Allocation, and Zweig Equity (Small
Cap) Portfolios is attached hereto as Exhibit B. The form of the Proposed
Amended Sub-Advisory Agreement for the Zurich Kemper Value Portfolio is attached
hereto as Exhibit C. If Proposal No. 1 is approved with respect to a
Portfolio, the rate of compensation payable by the Manager to each Sub-Adviser
pursuant to the Proposed Amended Sub-Advisory Agreements (expressed as an annual
percentage of the average daily net assets of the respective Portfolio) will be
reduced by 0.10%. The following chart compares the current and proposed rates
of compensation payable by the Manager to each Sub-Adviser:
<TABLE>
<CAPTION>
CURRENT PROPOSED
SUB-ADVISORY SUB-ADVISORY
SUB-ADVISER PORTFOLIO FEE FEE
<S> <C> <C> <C>
Harris Bretall Sullivan & Harris Bretall Sullivan & Smith .50% .40%
Smith Equity Growth Portfolio
Zurich Kemper Value Zurich Kemper Value Portfolio .50% .40%
Advisors
Zweig/Glaser Advisers Zweig Asset Allocation Portfolio .75% .65%
Zweig/Glaser Advisers Zweig Equity (Small Cap) Portfolio .90% .80%
</TABLE>
The investment advisory fee rates payable by Portfolios to the Manager will not
be increased or decreased if the Proposed Amended Sub-Advisory Agreements are
approved.
Section 15(a) of the 1940 Act prohibits any person from serving as an
investment adviser to a registered investment company (such as the Fund) except
pursuant to a written contract that has been approved by a vote of a majority of
the outstanding voting securities of such registered investment company.
Accordingly, the Proposed Amended Sub-Advisory Agreements are being submitted to
shareholders for their approval. Other than the change in the sub-advisory fee
structure described above, the terms of each Proposed Amended Sub-Advisory
Agreement are
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identical in all material respects to the terms of each respective Current
Sub-Advisory Agreement. The Sub-Advisers and the advisory arrangements for the
Portfolios are described in more detail below.
Although there is no proposed change to the terms of the Management
Agreement, the annual rate of management fees the Manager will retain from each
Portfolio will increase from .15% to .25% if Proposal No. 1 is approved, as a
result of the decrease in the sub-advisory fee rates as described above.
Although there will be no increase in the advisory fee fate payable by any
Portfolio, because of the proposed increase in the compensation to the Manager
under the Management Agreement, the Board of Directors is submitting the
Management Agreement to shareholders for reapproval.
If approved by shareholders of the respective Portfolios, the Proposed
Amended Sub-Advisory Agreements will take effect on or about November 1, 1997.
If a Proposed Amended Sub-Advisory Agreement is not approved with respect to a
Portfolio, the Management Agreement and the respective Current Sub-Advisory
Agreement will remain in effect. Approval of this Proposal No. 1 with respect
to any Portfolio is not dependent on approval with respect to any other
Portfolio.
COMPARISON OF FEES PAYABLE UNDER THE MANAGEMENT AGREEMENT AND THE CURRENT AND
PROPOSED AMENDED SUB-ADVISORY AGREEMENTS
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO
For the fiscal year ended June 30, 1997, the total management fees paid by
the Portfolio to the Manager was $160,836. Of this amount, the Manager retained
$37,116, and paid a total of $123,720 in sub-advisory fees to HBSS. If the
proposed new fee structure under the Management Agreement and the Proposed
Amended Sub-Advisory Agreement had been in effect, the total management fees
paid by the Portfolio to the Manager would be unchanged, the Manager would have
retained $61,860, or an increase of 66.7%, and the sub-advisory fee payable by
the Manager to HBSS would have been approximately $98,976, or a decrease of
20.0%.
ZURICH KEMPER VALUE PORTFOLIO
For the fiscal year ended June 30, 1997, the total management fees
paid by the Portfolio to the Manager was $164,290. Of this amount, the Manager
retained $37,913, and paid a total of $126,377 in sub-advisory fees to Zurich
Kemper Value Advisors, Inc. If the proposed new fee structure under the
Management Agreement and the Proposed Amended Sub-Advisory Agreement had been in
effect, the total management fees payable by the Portfolio to the Manager would
be unchanged, the Manager would have retained $63,188, or an increase of 66.7%,
and the sub-advisory fee payable by the Manager to Zurich Kemper Value Advisors,
Inc. would have been approximately $101,102, or a decrease of 20%.
8
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ZWEIG ASSET ALLOCATION PORTFOLIO
For the fiscal year ended June 30, 1997, the total management fees paid by
the Portfolio to the Manager was $369,657. Of this amount, the Manager retained
$61,610, and paid a total of $308,047 in sub-advisory fees to Zweig/Glaser
Advisers. If the proposed new fee structure under the Management Agreement and
the Proposed Amended Sub-Advisory Agreement had been in effect, the total
management fees payable by the Portfolio to the Manager would be unchanged, the
Manager would have retained $102,683, or an increase of 66.7%, and the
sub-advisory fee payable by the Manager to Zweig/Glaser Advisers would have been
approximately $266,974, or a decrease of 13.3%.
ZWEIG EQUITY (SMALL CAP) PORTFOLIO
For the fiscal year ended June 30, 1997, the total management fees paid by
the Portfolio to the Manager was $112,524. Of this amount, the Manager retained
$16,075, and paid a total of $96,449 in sub-advisory fees to Zweig/Glaser
Advisers. If the proposed new fee structure under the Management Agreement and
the Proposed Amended Sub-Advisory Agreement had been in effect, the total
management fees payable by the Portfolio to the Manager would be unchanged, the
Manager would have retained $26,792, or an increase of 66.7%, and the
sub-advisory fee payable by the Manager to Zweig/Glaser Advisers would have been
approximately $85,732, or a decrease of 11.1%.
COMPARISON OF OTHER MATERIAL TERMS OF THE CURRENT AND PROPOSED AMENDED
SUB-ADVISORY AGREEMENTS
The terms of the Proposed Amended Sub-Advisory Agreements are the same in
all material respects as the terms of the Current Sub-Advisory Agreements except
for the reduction of the annual rate of the fee payable thereunder by 0.10% of
average net assets of each Portfolio. The following is a summary of the
material terms of both the Current and Proposed Amended Sub-Advisory Agreements:
ADVISORY SERVICES. The Sub-Adviser will provide a continuous investment
program for the Portfolio, including investment research with respect to all
securities and investments and cash equivalents in the Portfolio.
PAYMENT OF SUB-ADVISORY EXPENSES. The Sub-Adviser agrees to assume and pay
all of the costs and expenses of performing its obligations thereunder.
LIMITATION OF LIABILITY. The Sub-Adviser and any of its affiliated persons
will 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 the Sub-Adviser's duties, or by
reason of reckless disregard of the Sub-Adviser's obligations and duties
thereunder.
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TERM. The agreement will continue from year to year, provided that its
continuation is annually approved (an "annual approval") by a majority of the
Directors of the Fund, including a majority of the Directors who are not parties
to, or interested persons of any parties to, the agreement, cast in person at a
meeting called for the purpose of voting on such approval.
TERMINATION; ASSIGNMENT. The agreement may be terminated at any time
without penalty upon 60 days' written notice by the Sub-Adviser, the Manager,
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 agreement also provides that it will automatically terminate
in the event of their assignment (as defined in the 1940 Act) or termination of
the Management Agreement.
CONSIDERATIONS OF THE BOARD OF DIRECTORS
The Board of Directors, including all the Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) (the "Independent Directors"),
determined that the terms of the Management Agreement and each Proposed Amended
Sub-Advisory Agreement are fair and reasonable and that the approval of the
Management Agreement and the Proposed Amended Sub-Advisory Agreements on behalf
of the Fund and each Portfolio is in the best interests of the Fund and of each
respective Portfolio and its shareholders.
In determining to approve the Management Agreement and Proposed Amended
Sub-Advisory Agreements, the Board evaluated all factors they deemed relevant
with respect to each Portfolio. These factors included the nature and extent of
the services rendered by the Manager and each Sub-Adviser, the historical
unprofitability to the Manager of providing services under the Management
Agreement, and the difficulty and expense borne by the Manager of attracting and
retaining experienced personnel to oversee the operations of the Fund and the
Portfolios. The Board considered that any increase in the Manager's
compensation necessary to ensure that the Manager can continue to retain such
personnel and to provide a high quality of service to the Portfolios would be
borne by the respective Sub-Advisers, and not by the Portfolios or their
shareholders. In this regard, the Board considered the fact that the aggregate
Management Fees payable by the Portfolios, and ultimately by their shareholders,
would not change, and that the Manager and Sub-Advisers would continue to
provide the same services to the Fund and to the Portfolios under the Management
Agreement and Proposed Amended Sub-Advisory Agreements. The Directors
considered the Manager's representations that the Sub-Advisers had assured the
Manager that there would be no diminution in the nature or quality of services
rendered to the respective Portfolios by the Sub-Advisers following the decrease
in their fee rates. In addition, the Board considered comparative information
respecting fees and expenses incurred by other mutual funds with investment
objectives similar to those of each respective Portfolio.
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<PAGE>
AT ITS MEETING ON AUGUST 15, 1997, THE BOARD OF DIRECTORS, INCLUDING ALL OF
THE INDEPENDENT DIRECTORS, AFTER TAKING INTO ACCOUNT THE CONSIDERATIONS
DESCRIBED ABOVE, UNANIMOUSLY APPROVED THE MANAGEMENT AGREEMENT AND THE PROPOSED
AMENDED SUB-ADVISORY AGREEMENTS AND RECOMMENDED THAT SHAREHOLDERS VOTE FOR SUCH
MANAGEMENT AGREEMENT AND PROPOSED AMENDED SUB-ADVISORY AGREEMENTS.
INFORMATION ABOUT THE MANAGER
The Manager is a wholly-owned subsidiary of ARM Financial Group, Inc., 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, Dean Witter,
Discover & Co. Group, Inc. ("MSDW"), own approximately 53% of the outstanding
shares of voting common stock of ARM. The Manager currently provides investment
management services to institutional and individual clients, including ARM and
its subsidiaries, with combined assets of approximately $4.1 billion. The
address of the Manager is 200 Park Avenue, 20th Floor, New York, New York 10166.
The address of ARM is 515 West Market Street, Louisville, Kentucky 40202. The
address of each of each of MSDW and the investment funds sponsored by it is 1585
Broadway, New York, New York 10036.
On May 21, 1997, ARM entered into a purchase agreement pursuant to which
ARM has agreed to transfer substantially all of the assets and operations of the
Manager (excluding its management and administrative operations relating to the
Fund) to a newly formed subsidiary, ARM Capital Advisors, LLC, and to sell an
80% interest in such company to ARM Capital Advisors Holdings, LLC, an entity
controlled by Emad A. Zikry, the current President of the Manager. After
consummation of the pending sale, the Manager will be renamed Integrity Capital
Advisors, Inc., and will continue to serve as investment manager to the Fund.
The Manager will continue to have the personnel and resources necessary to
ensure that there will not be any diminution of the nature or quality of
services provided to the Fund. The transaction is expected to close during the
third quarter of 1997.
The following chart lists the name, address and principal occupation of the
principal executive officer and each director of the Manager:
Principal Occupation
(if other than officer or
Name Address director of the Manager)
- ---- ------- -------------------------
John Franco 515 West Market Street, Co-Chairman of the Board and Co-
Louisville, KY 40202 Chief Executive Officer, ARM
11
<PAGE>
Martin H. Ruby 515 West Market Street, Co-Chairman of the Board and Co-
Louisville, KY 40202 Chief Executive Officer, ARM
Emad A. Zikry 200 Park Avenue, 20th Floor,
New York, NY 10166
The following chart lists those officers and Directors of the Fund who are
also affiliated with ARM and/or the Manager, and sets forth the nature of those
affiliations:
<TABLE>
<CAPTION>
Name Position with the Fund Position with ARM and/or the Manager
- ---- ---------------------- ------------------------------------
<S> <C> <C>
John R. Lindholm Chairman and Director Executive Vice President-Chief Marketing Officer
of ARM
Edward J. Haines President Vice President, Marketing, ARM
Barry G. Ward Controller Controller, ARM and the Manager
Peter S. Resnik Treasurer Treasurer, ARM and the Manager
Kevin L. Howard Secretary Assistant General Counsel, ARM
</TABLE>
The principal occupation of each person listed above is his occupation with ARM.
The address of each of the above listed persons is 515 West Market Street,
Louisville, Kentucky 40202.
INFORMATION ABOUT THE SUB-ADVISERS
HARRIS BRETALL SULLIVAN & SMITH, INC., One Sansome Street, Suite 3300, San
Francisco, California 94104, serves as the Sub-Adviser to Harris Bretall
Sullivan & Smith Equity Growth Portfolio. HBSS was founded in 1971 and is owned
equally by W. Graeme Bretall, President, John J. Sullivan, Treasurer, and Henry
B. Dunlap Smith. The firm provides investment management services to
institutions and individuals, and at June 30, 1997, had assets under management
of approximately $2.7 billion. HBSS also serves as investment adviser to other
investment companies having similar investment objectives to the Portfolio as
indicated in Exhibit D.
12
<PAGE>
The following chart lists the name, address and principal occupation of
each director of HBSS:
Name Address Principal Occupation
- ---- ------- --------------------
W. Graeme Bretall One Sansome Street, Suite 3300 President, HBSS
San Francisco, CA 94104
Henry B. Dunlap Smith One Sansome Street, Suite 3300 Secretary, HBSS
San Francisco, CA 94104
John J. Sullivan One Sansome Street, Suite 3300 Treasurer, HBSS
San Francisco, CA 94104
For a description of the proposed change in control of HBSS, see Proposal
No. 2.
ZURICH KEMPER VALUE ADVISORS, INC., 280 Park Avenue, 40th Floor, New York,
New York 10017, serves as the Sub-Adviser to Zurich Kemper Value Portfolio. As
of June 30, 1997, ZKVA managed over $6 billion. Clients include public funds,
corporate benefit funds, college endowments and foundations, Taft-Hartley funds,
and other institutional accounts. ZKVA also serves as investment adviser to
other investment companies having similar investment objectives to the Portfolio
as indicated in Exhibit E.
ZKVA, a Delaware corporation, an indirect wholly owned subsidiary of Zurich
Insurance Company ("Zurich"), was formed in August, 1995 in order to purchase
substantially all of the assets of Dreman Value Management, L.P., ZKVA's
predecessor organization. Founded in 1872, Zurich is a multinational, public
corporation organized under the laws of Switzerland. Zurich's primary business
is as an insurer. Together with its predecessor organizations, ZKVA has been in
the investment management business since 1977.
Prior to September 1997, ZKVA was known as Dreman Value Advisors, Inc. In
connection with the name change of the Sub-Adviser to Zurich Kemper Value
Advisers, Inc., the Board of Directors of the Fund changed the name of Dreman
Value Portfolio to Zurich Kemper Value Portfolio, effective September 2, 1997.
Zurich has entered into a definitive agreement with Scudder, Stevens &
Clark, Inc. ("Scudder") pursuant to which Zurich will acquire approximately 70%
of Scudder (the "Scudder Transaction"). Upon completion of the Scudder
Transaction, which is subject to a number of contingencies, Scudder will change
its name to Scudder Kemper Investments, Inc. ("SKI"), and ZKVA will be operated
as part of SKI and will no longer be a separate entity. Scudder, a New
York-based investment adviser and the adviser for the Scudder and AARP Funds,
has approximately $120 billion under management.
13
<PAGE>
Consummation of the Scudder Transaction would constitute an assignment
under the 1940 Act of the Current or Proposed Amended Sub-Advisory Agreement
(collectively, the "ZKVA Agreements"), whichever is then in effect, between the
Manager and ZKVA. As required by the 1940 Act, the ZKVA Agreements provide for
their automatic termination in the event of their assignment. It is therefore
anticipated that SKI will seek approval of a new Sub-Advisory Agreement between
the Manager and SKI by the Fund's board and shareholders of the Zurich Kemper
Value Portfolio. Accordingly, it is expected that a proxy solicitation of
shareholders of the Portfolio will be held during the fourth quarter of 1997.
If the contingencies are timely met, the Scudder Transaction is expected to
close in the fourth quarter of 1997.
The following chart lists the name, address and principal occupation of the
principal executive officer and each director of ZKVA:
Name Address Principal Occupation
- ---- ------- --------------------
John E. Neal 222 S. Riverside Plaza President, Kemper Funds Group,
Chicago, IL a unit of Zurich Kemper
Investments, Inc. (ZKI);
Director, ZKI, ZKVA and Zurich
Kemper Distributors, Inc.
(ZKDI)
Jim R. Neel 280 Park Avenue President, Chief Executive
40th Floor Officer and Director, ZKVA.
New York, NY
Stephen B. Timbers 222 S. Riverside Plaza, President, Chief Executive
Chicago, IL Officer, Chief Investment
Officer and Director, ZKI;
Director, ZKDI, ZKVA and LTV
Corporation.
ZWEIG/GLASER ADVISERS, 900 Third Avenue, New York, New York 10022, serves
as the Sub-Adviser for Zweig Asset Allocation Portfolio and Zweig Equity (Small
Cap) Portfolio. Glaser Corp., a Delaware corporation formed by Eugene J.
Glaser, and Zweig Management Corp., a Delaware corporation controlled by Dr.
Martin E. Zweig, are the general partners of Zweig/Glaser. Dr. Zweig is also
Chairman of Zweig/Glaser. He has provided investment advisory and portfolio
management services for over 26 years and is currently affiliated with
investment advisers, which, as of June 30, 1997 managed over $6.5 billion in
assets. Dr. Zweig is also President and Director of The Zweig Fund, Inc. and
the Zweig Total Return Fund, Inc., closed-end funds traded on the NYSE with
combined assets of over $1 billion. Zweig/Glaser also serves as investment
adviser to other investment companies having similar investment objectives to
the respective Portfolios as indicated in Exhibit F.
AFFILIATED BROKERS
The Manager and certain of the Sub-Advisers are affiliated with registered
broker-dealers, including Morgan Stanley & Co. Incorporated ("Morgan Stanley").
From time to time, a portion of one or more Portfolios' brokerage transactions
may be conducted with such broker-dealers, subject
14
<PAGE>
to policies established by the Fund's Board to ensure that all brokerage
commissions paid to such broker-dealers by any Portfolio with which they are
affiliated are fair and reasonable. For the fiscal year ended June 30, 1997,
the Fund paid the following brokerage commissions with respect to each of the
four Portfolios discussed in Proposal No.1 to Morgan Stanley, an affiliated
person of such Portfolios. Also presented below for the fiscal year ended June
30, 1997 are the brokerage commissions paid to Morgan Stanley as a percentage of
the aggregate brokerage commissions paid by each Portfolio and as a percentage
of the aggregate dollar amount of portfolio transactions involving the payment
of commissions engaged in by such Portfolio.
<TABLE>
<CAPTION>
Brokerage Commissions paid to Morgan Stanley
--------------------------------------------
As a Percentage of As a Percentage of Portfolio
Aggregate Transactions Involving
Portfolio Paid ($) Commissions Commissions
--------- -------- ------------------ ----------------------------
<S> <C> <C> <C>
Zweig Asset Allocation
Portfolio 50,774 68% 84%
Zweig Equity (Small Cap)
Portfolio 8,051 51% 69%
Zurich Kemper Value
Portfolio 2,060 3% 4%
</TABLE>
VOTE REQUIRED FOR PROPOSAL NO. 1
Shareholders of each of the Portfolios named above vote separately on
whether to approve Proposal No. 1 with respect to that particular Portfolio.
Approval of Proposal No. 1 with respect to a Portfolio requires the affirmative
vote of a majority of the outstanding voting securities of that Portfolio.
"Majority" for this purpose under the 1940 Act means the lesser of (1) more than
50% of the outstanding shares of the Portfolio or (2) 67% or more of the shares
of the Portfolio represented at the meeting if more than 50% of such shares are
represented.
IF PROPOSAL NO. 1 IS NOT APPROVED BY THE SHAREHOLDERS OF ONE PORTFOLIO, THE
MANAGEMENT AGREEMENT AND CURRENT SUB-ADVISORY AGREEMENT FOR THAT PORTFOLIO WILL
CONTINUE IN EFFECT, BUT FAILURE TO APPROVE PROPOSAL NO. 1 BY THE SHAREHOLDERS OF
ONE PORTFOLIO WILL NOT AFFECT THE APPROVAL OF PROPOSAL NO. 1 WITH RESPECT TO ANY
OTHER PORTFOLIO.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL NO. 1.
---------------------
15
<PAGE>
PROPOSAL NO. 2 - CONTINUATION OF THE SUB-ADVISORY AGREEMENT BETWEEN THE
MANAGER AND HBSS FOLLOWING THE PROPOSED CHANGE OF CONTROL OF HBSS
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO
HBSS has entered into an agreement with Value Asset Management, Inc.
("VAM"), a Connecticut-based holding company 100%-owned by BancBoston Ventures,
Inc., to form a limited liability company to be called "Harris Bretall Sullivan
& Smith L.L.C." ("HBSS L.L.C.").
HBSS will transfer substantially all of its assets and business to HBSS
L.L.C. (the "VAM Transaction"). It is anticipated that all key personnel will
transfer to the new entity. Executive Vice Presidents John J. Sullivan and
Henry B. Dunlap Smith will continue their responsibilities and ownership roles.
W. Graeme Bretall, the current President of HBSS, who will also remain with the
new entity, will become a member of the Board of Directors of VAM. Co-Founder
Dave Harris also will continue in his role in Research for HBSS. VAM will be
the majority owner of the new entity.
VAM and HBSS have indicated that the new structure is designed to enable
the organization to retain and attract top industry talent, enhance returns and
offer additional services. Three current officers of HBSS will become equity
holders in HBSS L.L.C.: Susan Foley, Senior Vice President and portfolio
manager, Gordon Ceresino, Senior Vice President and Director of Marketing and
Client Service, and David S. Post, Director of Research. All of Messrs.
Bretall, Sullivan and Smith, as well as the three new equity holders, have
agreed to enter into five-year employment agreements with HBSS L.L.C.
Although VAM will obtain a majority equity interest in HBSS L.L.C., the
current managers of HBSS will maintain management autonomy in the new
organization. It is anticipated that the VAM Transaction will be consummated on
or about November 15, 1997.
Consummation of the VAM Transaction would constitute an "assignment," as
that term is defined in the 1940 Act, of the Sub-Advisory Agreement between the
Manager and HBSS because of the change of "control" (within the meaning of the
1940 Act) of HBSS. As required by the 1940 Act, the Current and Proposed
Amended Sub-Advisory Agreement (collectively, the "HBSS Sub-Advisory Agreement")
provide for their automatic termination in the event of its assignment. In
anticipation of the VAM Transaction, therefore, it is proposed that continuation
of the Proposed Amended Sub-Advisory Agreement following the VAM Transaction be
approved by shareholders of the Portfolio. In the event that the Proposed
Amended Sub-Advisory Agreement relating to the Portfolio is not approved by
shareholders in Proposal No. 1 at the Meeting, then this Proposal shall instead
relate to the continuation of the Current Sub-Advisory Agreement after the VAM
Transaction. The terms of the Proposed Amended Sub-Advisory Agreement, the form
of which is attached hereto as Exhibit B, as well as of the Current Sub-Advisory
Agreement, are summarized in Proposal No. 1, above.
16
<PAGE>
The 1940 Act requires that any advisory or sub-advisory agreement be
approved by the Board of Directors, including by the Independent Directors, at
an in-person meeting. Because the VAM Transaction was announced after the
Fund's in-person Board meeting on August 15, 1997, the Board has not yet had an
opportunity to vote at an in-person meeting on the continuation of the HBSS
Sub-Advisory Agreement following the VAM Transaction. However, during a special
telephonic Board meeting held on September 10, 1997, representatives from HBSS
and VAM provided information to the Board to the effect that the operations and
personnel of HBSS responsible for the actual management of the Portfolio would
not be affected by the VAM Transaction. The Board also received information
relating to the financial condition and resources of HBSS L.L.C. following the
transaction. The Board was assured that there would be no diminution in the
nature or quality of services to be rendered by HBSS following consummation of
the VAM Transaction. The Board discussed the VAM Transaction and determined
that it anticipated approving continuation of the HBSS Sub-Advisory Agreement at
the next in-person Board meeting scheduled to be held on November 14, 1997. The
Board also unanimously voted to submit the matter to the vote of the
shareholders of the Portfolio and to recommend its approval. Absent such
approval, the Proposed Amended Sub-Advisory Agreement will terminate
automatically upon consummation of the VAM Transaction.
VOTE REQUIRED FOR PROPOSAL NO. 2
Shareholders of Harris Bretall Sullivan & Smith Equity Growth Portfolio
vote separately on whether to approve Proposal No. 2. Such approval requires
the affirmative vote of a majority of the outstanding voting securities of the
Portfolio. "Majority" for this purpose under the 1940 Act means the lesser of
(1) more than 50% of the outstanding shares of the Portfolio or (2) 67% or more
of the shares of the Portfolio represented at the meeting if more than 50% of
such shares are represented.
IF PROPOSAL NO. 2 IS NOT APPROVED, THE SUB-ADVISORY AGREEMENT FOR THE
PORTFOLIO WILL TERMINATE AUTOMATICALLY UPON CONSUMMATION OF THE VAM TRANSACTION.
IN SUCH AN EVENT THE MANAGER AND THE BOARD OF DIRECTORS WOULD CONSIDER AVAILABLE
ALTERNATIVES.
BOARD RECOMMENDATION
AT ITS MEETING ON SEPTEMBER 10, 1997 THE BOARD OF DIRECTORS, INCLUDING ALL
OF THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDED THAT SHAREHOLDERS VOTE FOR
PROPOSAL NO. 2.
---------------------
17
<PAGE>
PROPOSAL NO. 3 - ELECTION OF DIRECTORS
ALL PORTFOLIOS
At the Meeting, a slate of five nominees, including four who are not
interested persons of the Fund, will be elected to serve as Directors of the
Fund, to hold office until their successors are duly elected and qualified. It
is the intention of the persons named in the accompanying form of proxy to vote
for the election of each of the nominees named below, each of whom has consented
to be a nominee. The nominees consist of the four incumbent Directors and one
other individual, Chris LaVictoire Mahai. Ms. Mahai has been nominated by the
Board to fill a vacancy created by an increase in the size of the Board from
four to five.
If any of the nominees would become unavailable for election as a Director
before the Meeting, proxies will be voted for the other persons that the
Directors recommend.
INFORMATION REGARDING NOMINEES
PRINCIPAL OCCUPATION AND OTHER INFORMATION
None of the following nominees owns any shares of any Portfolios.
Name, Age and Address Other Business Activities in Past 5 Years
- ---------------------- -----------------------------------------
John R. Lindholm(48)* President of Integrity and Vice President-Chief
515 West Market Street Marketing Officer of National Integrity since
Louisville, KY 40202 November 26, 1993; Executive Vice President-Chief
Marketing Officer of ARM Financial Group, Inc.
since July 27, 1993; since March 1992 Chief
Marketing Officer of Analytical Risk Management,
L.P. From June 1990 to February 1992, Chief
Marketing Officer and a Managing Director of the
ICH Capital Management Group, ICH Corporation,
Louisville, Kentucky; prior thereto, Chief
Marketing Officer and Managing Director for
Capital Holding Corporation's Accumulation and
Investment Group. Director of the mutual funds in
the State Bond Group of mutual funds from June
1995 to December 1996.
John Katz (58) Investment banker since January 1991; Chairman and
10 Hemlock Road Chief Executive Officer, Sam's Restaurant Group,
Hartsdale, NY Inc. (a restaurant holding company), from June
1991 to August 1992; Executive Vice President
(from January 1989 to January 1991) and Senior
Vice President (from December 1985 to January
1989), Equitable Investment Corporation (an
indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States,
through which it owns and manages its investment
operations). Director of the mutual funds in the
State Bond Group of mutual funds from June 1995 to
December 1996.
18
<PAGE>
Name, Age and Address Other Business Activities in Past 5 Years
- ---------------------- -----------------------------------------
Theodore S. Rosky (59) Retired since April 1992; Executive Vice
2304 Speed Avenue President, Capital Holding Corporation (from
Louisville, KY December 1991 to April 1992); prior thereto,
Executive Vice President and Chief Financial
Officer, Capital Holding Corporation. Director of
the mutual funds in the State Bond Group of mutual
funds from June 1995 to December 1996.
William B. Faulkner (69) President, William Faulkner & Associates, business
240 East Plato Blvd. and institutional adviser since 1986; Consultant
St. Paul, Minnesota 55107 to American Hoist & Derrick Company, construction
equipment manufacturer, from 1986 to 1989; prior
thereto, Vice President and Assistant to the
President, American Hoist & Derrick Company.
Director of the mutual funds in the State Bond
Group of mutual funds from June 1984 to December
1996.
Chris LaVictoire Mahai Senior Vice President, Markets & Products Unit,
425 Portland Avenue Star Tribune/Cowles Media Company, since August
Minneapolis, Minnesota 1995; Vice President, Marketing Director, Star
55488 Tribune, since September 1992; from 1990 to 1992,
self-employed consultant, marketing services;
prior thereto, Senior Vice President of Corporate
Relations and marketing, First Bank System, Inc.
Director of the funds in the State Bond Group of
mutual funds from January 1992 to December 1996.
- ---------------
* Mr. Lindholm is an INTERESTED PERSON, as defined in the 1940 Act, by virtue
of his positions with ARM Financial Group, Inc.
The Directors met four times during the fiscal year ended June 30, 1997.
The incumbents attended 100% of the aggregate number of meetings of the
Directors. The Board has an audit committee consisting of Messrs. Katz, Rosky
and Faulkner. The Board's audit committee, which selects and oversees the
Fund's independent accountants, met once during the fiscal year ended June 30,
1997 and all of the members attended. The Board has no standing nominating or
compensation committees.
EXECUTIVE OFFICERS OF THE FUND
POSITION WITH EXPERIENCE DURING
NAME (AGE) THE FUND THE PAST FIVE YEARS
- ---------- ------------- -------------------
Edward J. Haines (50) President Vice President, Marketing of ARM
Financial Group, Inc. since
December 16, 1993; Director of
Retail Marketing and Vice President
of the National Home Life Assurance
Company subsidiary of Capital
Holding Corporation from 1987 to
December 1993.
Barry G. Ward (36) Controller Controller of ARM Financial Group,
Inc. since April 1996. From
October 1993 to April 1996, Mr.
Ward was directly responsible for
the Company's financial reporting
function. From January 1989 to
October 1993, Mr. Ward served in
various positions within Ernst &
Young LLP's Insurance Industry
Accounting and Auditing Practice,
the last of which was Manager.
Controller of the mutual funds in
the State Bond Group of mutual
funds from May 1996 to December
1996.
19
<PAGE>
Peter S. Resnik (36) Treasurer Treasurer of ARM Financial Group,
Inc., Integrity and National
Integrity since December 1993;
employed in various financial and
operational capacities by
Analytical Risk Management Ltd.
since December 14, 1992; Assistant
Vice President of the Commonwealth
Life Insurance Company subsidiary
of Capital Holding Corporation from
1986 to December 1992. Treasurer of
the mutual funds in the State Bond
Group of mutual funds from June
1995 to December 1996.
Kevin L. Howard (33) Secretary Assistant General Counsel of ARM
Financial Group, Inc. since January
31, 1994; Assistant General Counsel
of Capital Holding Corporation from
April 1992 to January 1994;
Attorney Greenebaum Doll &
McDonald, 1989 to April 1992. Vice
President and Secretary of the
mutual funds in the State Bond
Group of mutual funds from June
1995 to December 1996.
All officers of the Fund have been elected to serve until their successors
are elected and qualified. Each officer's address is 515 West Market Street,
Louisville, KY.
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund pays Directors who are not INTERESTED PERSONS of the Fund fees for
serving as Directors. During the fiscal year ended June 30, 1997 the Fund paid
the Directors who are not interested persons of the Fund an aggregate of $43,500
exclusive of expenses. Because the Manager and the Sub-Advisers perform
substantially all of the services necessary for the operation of the Fund, the
Fund requires no employees. No officer, director or employee of the Manager,
Integrity, National Integrity or a Sub-Adviser receives any compensation from
the Fund for acting as a Director or officer.
The following table sets forth for the fiscal year ended June 30, 1997,
compensation paid by the Fund to the non-interested Directors. Directors who
are interested persons, as defined in the 1940 Act, receive no compensation from
the Fund.
20
<PAGE>
Name of Director Aggregate Compensation from Total Compensation from
- ---------------- --------------------------- -----------------------
Fund Fund Complex*
---- -------------
William B. Faulkner $14,500 $20,750
John Katz $14,500 $20,750
Theodore S. Rosky $14,500 $20,750
* Until December 1996, there were a total of seven funds in the fund complex.
REQUIRED VOTE. The nominees receiving the affirmative vote of a majority of the
votes cast for the election of Directors at the Meeting will be elected,
provided a quorum is present. Shares of all Portfolios of the Fund vote
together as a single class for the Directors of the Fund.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF
THE NOMINEES UNDER PROPOSAL NO. 3
---------------------
PROPOSAL NO. 4 - RATIFICATION OF THE SELECTION OF
INDEPENDENT ACCOUNTANTS
Under Proposal No. 4, shareholders of the Fund are being asked to ratify
the Board's selection of independent accountants for the Fund for the fiscal
year ending June 30, 1998. The firm of Ernst & Young LLP has extensive
experience in investment company accounting and auditing and has served as
independent accountants to the Fund since 1994. The financial statements
included in the Fund's Annual Report, dated June 30, 1997, have been examined by
Ernst & Young LLP. It is not expected that a representative of Ernst & Young
LLP will be present at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR PROPOSAL NO. 4
GENERAL INFORMATION
DISTRIBUTOR
Pursuant to a distribution agreement dated August 30, 1995, ARM Securities
Corporation ("ARM Securities") acts without remuneration as the Fund's agent for
distribution of the Portfolio's shares. ARM Securities is a wholly-owned
subsidiary of ARM. Shares of the Fund and the Portfolios are sold only to
separate accounts of Integrity and National Integrity. ARM Securities' address
is 100 North Minnesota Street, P.O. Box 69, New Ulm, Minnesota 56073-0069.
21
<PAGE>
TRANSFER AGENT, DIVIDEND AGENT AND RECORDKEEPING AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, acts as the Fund's transfer agent, dividend disbursing agent and
recordkeeping agent.
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 properly come before the
meeting, proxies will vote on such matters in their discretion.
REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS
The Fund's will furnish, without charge, a copy of the most recent Annual
Report to contract owners. Copies 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 1-800-325-8583.
SHAREHOLDER PROPOSALS
The Fund is not required to hold annual meetings of shareholders and
currently does 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: September 30, 1997
CONTRACT HOLDERS ARE REQUESTED TO FILL IN, DATE AND SIGN THE VOTING
INSTRUCTIONS CARD AND RETURN IT PROMPTLY IN THE ENCLOSED PREPAID ENVELOPE.
22
<PAGE>
EXHIBIT A
THE LEGENDS FUND. INC.
MANAGEMENT AGREEMENT
Agreement, made this ___ day of _________, 1997 between The Legends Fund,
Inc., a Maryland corporation (the FUND), and ARM Capital Advisors, Inc., an
Delaware corporation (the MANAGER).
W I T N E S S E T H
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the 1940 ACT); and
WHEREAS, the shares of beneficial interest of the Fund are divided into
separate series or portfolios (each, a PORTFOLIO), each of which is established
pursuant to a resolution of the Board of Directors of the Fund, and the Board of
Directors may from time to time terminate such Portfolios or establish and
terminate additional Portfolios; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the ADVISERS ACT); and
WHEREAS, the Fund desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory and-supervisory services to
the Fund and the Fund also desires to avail itself of the facilities available
from the Manager with respect to the administration of the Fund's day to day
business affairs, and the Manager is willing to render or contract for such
investment advisory, supervisory and administrative services;
NOW, THEREFORE, the parties agree as follows:
1. APPOINTMENT OF MANAGER. The Fund hereby appoints the Manager to act as
manager of the Fund and administrator of its business affairs for the
period and on the terms set forth in this Agreement. The Manager accepts
such appointment and agrees to render the services herein described, for
the compensation herein provided. The Manager is authorized to enter into
sub-advisory agreements (SUB-ADVISORY AGREEMENTS) with registered
investment advisers (each a SUB-ADVISER and collectively the SUB-ADVISERS)
pursuant to which the Manager delegates to the Sub-Advisers its obligations
for providing investment advisory and certain other services in connection
with one or more of the Portfolios; provided, that the Manager, and not the
Fund, shall be responsible for any compensation payable under the
Sub-Advisory Agreements. Any such Sub-Advisory Agreement may be entered
into by the Manager on such terms and in such manner as may be permitted by
the 1940 Act and the rules thereunder. For each Portfolio for which the
Manager has entered into a Sub-Advisory Agreement, the Sub-Adviser shall
have the primary responsibility for providing investment advisory services
as setforth in Section 2 and shall be responsible for broker-dealer
selection as set forth in Section
<PAGE>
3 and maintaining books and records as set forth in Section 4, and the
Manager will have supervisory responsibility for investment advisory
services furnished by the Sub-Adviser pursuant to the Sub-Advisory
Agreement. The Manager will review the performance of each Sub-Adviser and
make recommendations to the Board of Directors of the Fund with respect to
the retention and renewal of Sub-Advisory Agreements.
2. Investment Advisory Services. Subject to the supervision of the Fund's
Board of Directors, the Manager will provide a continuous investment
program for each Portfolio and determine the composition of the assets of
each Portfolio, including determination of the purchase, retention or sale
of the securities, cash, and other investments contained in such
Portfolio's holdings. The Manager will provide investment research and
conduct a continuous program of evaluation, investment, sales, and
reinvestment of each Portfolio's assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for such Portfolio, when these transactions should be executed,
and what portion of the assets of such Portfolio should be held in the
various securities and other investments in which it may invest, and the
Manager is hereby authorized to execute and perform such services, or to
arrange for execution and performance of such services, on behalf of each
Portfolio. To the extent, if any, permitted by the investment policies of a
Portfolio, the Manager shall make determinations as to and execute and
perform futures contracts and options on behalf of such Portfolio. The
Manager will provide the services under this Agreement in accordance with
each Portfolio's investment objective or objectives, policies, procedures
and restrictions as stated in the Fund's Registration Statement, as amended
from time to time (the REGISTRATION STATEMENT), filed with the Securities
and Exchange Commission (the SEC) and any other documents that set forth
investment policies, procedures or restrictions governing the Portfolio.
The Manager further agrees as follows:
(a) The Manager will manage each 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 such 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 Manager shall be
entitled to receive and act upon advice of counsel.
(b) In undertaking its duties under this Agreement, the Manager
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.
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<PAGE>
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of a Portfolio as well as
of the Manager's or the Manager's affiliates' other investment
advisory clients, the Manager 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 Manager 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
Manager's judgment in the exercise of the Manager's fiduciary
obligations to the Fund and to such other clients.
(d) In connection with the purchase and sale of securities for each
Portfolio, the Manager 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 confirmations, trade tickets (which shall state industry
classifications unless the Manager 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 each Portfolio and, with respect to mortgage
derivative and asset-backed securities purchased by the Manager
for a 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 such Portfolio. With respect to portfolio securities to be
purchased or sold through the Depository Trust Company, the
Manager will arrange for the automatic transmission of the
confirmation of such trades to the Fund's Agents.
(e) The Manager will monitor on a daily basis, by review of daily
pricing reports provided by the Agent to the Manager, the
determination by the Agent for the Fund of the valuation of
portfolio securities and other investments of each Portfolio.
The Manager 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 Manager's
duty to monitor such determinations. The Manager 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 each
Portfolio for which the Agent seeks assistance from or
identifies for review by the Manager.
3
<PAGE>
(f) The Manager will make available to the Fund, promptly upon
request, all of each Portfolio's investment records and ledgers
maintained by the Manager as are necessary to assist the Fund
to comply with requirements of the 1940 Act and the Advisers
Act, as well as other applicable laws. The Manager 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 Manager 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 each
Portfolio and the issuers and securities represented in each
Portfolio's securities holdings, including a schedule of the
investments and other assets held in such Portfolio and a
statement of all purchases and sales for the Portfolio since
the last such statement, and will furnish the Fund's Board of
Directors with periodic and special reports with respect to the
Portfolio as the Directors may reasonably request, including
statistical information with respect to the Portfolio's
securities.
3. BROKER-DEALER SELECTION. The Manager is responsible for decisions to buy or
sell securities and other investments for each Portfolio, broker-dealer and
futures commission merchants' selection, and negotiation of brokerage
commission and futures commission merchants' rates. As a general matter, in
executing portfolio transactions, the Manager may employ or deal with such
broker-dealers or futures commission merchants as may, in the Manager'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 Manager 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 Manager 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 Manager's having caused a 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 Manager 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 Manager's overall responsibilities with respect to such Portfolio
4
<PAGE>
and to the other clients as to which the Manager exercises investment
discretion. In accordance with Section 11(a) of the 1934 Act and Rule
lla2-2('I') thereunder, and subject to any other applicable laws and
regulations including Section 17(e) of the 1940 Act and Rule 17e-1
thereunder, the Manager may engage its affiliates, or any 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 a Portfolio.
4. BOOKS AND RECORDS. The Manager shall keep the Fund's books and records
required to be maintained by it pursuant to this Agreement, the 1940 Act or
otherwise. The Manager agrees that all records which it maintains for the
Fund are the property of the Fund and it will surrender promptly to the
Fund any such records upon the Fund's request, provided however that the
Manager may retain a copy of such records. The Manager further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by the Manager hereunder.
5. ADMINISTRATIVE AND SUPERVISORY SERVICES.
(a) The Manager will coordinate all matters relating to the functions of
the Portfolios' Sub-Advisers, Agents, accountants, attorneys, and
other parties performing services or operational functions for the
Portfolios.
(b) The Manager will furnish without cost to the Fund, or pay the cost of,
such office space, office equipment and office facilities as are
adequate for the Fund's needs.
(c) The Manager will provide, without remuneration from or other cost to
the Fund, the services of a sufficient number of individuals competent
to perform all of the Fund's executive, administrative and clerical
functions as are necessary to ensure compliance with federal
securities laws as well as other applicable laws and to provide
effective supervision and administration of the Portfolios and which
are not performed by employees or other agents engaged by the Fund or
by the Manager acting in some other capacity pursuant to a separate
agreement or arrangement with the Fund. The Manager shall authorize
and permit any of its directors, officers and employees who may be
elected as Directors or officers of the Fund to serve in the
capacities in which they are elected without any remuneration from the
Fund.
(d) The Manager will assist in the preparation of all periodic reports to
the shareholders of the Fund and all reports and filings required to
maintain the registration and qualification of the Fund's shares, or
to meet other regulatory or tax requirements applicable to the Fund,
under federal and state securities and tax laws.
(e) The Manager shall prepare and, after approval by the Fund, file and
arrange for the distribution of proxy materials and periodic reports
to Fund shareholders as required by applicable law.
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<PAGE>
(f) The Manager shall prepare, or cause the preparation of, and, after
approval by the Fund, arrange for the filing of such registration
statements and other documents with the SEC and other federal and
state regulatory authorities as may be required by applicable law.
(g) The Manager shall take such other action with respect to the
Portfolios, after approval by the Fund, as may bc required by
applicable law, including without limitation the rules and regulations
of the SEC and of state securities or insurance commissions and other
regulatory agencies.
(h) The Manager shall make its officers and employees available to the
Board of Directors and officers of the Fund and Sub-Advisers for
consultation and discussions regarding the supervision and
administration of the Portfolios.
6. EXPENSES.
(a) During the term of this Agreement, the Manager shall pay, or cause a
Sub-Adviser to pay, the-following expenses:
(i) The salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of Directors who are not
"interested persons" (within the meaning of the 1940 Act) of
the Fund, the Manager, National Integrity Life Insurance
Company ("National Integrity"), or any Sub-Adviser;
(ii) All expenses reasonably incurred by the Manager in connection
with providing the services described above, including the
provision of office space, office equipment, office facilities,
and executive, administrative and clerical personnel in
accordance with paragraph 2(i) hereof, but excluding the
expenses described below to be assumed by the Fund;
(iii) The fees of the Sub-Advisers pursuant to the Sub-Advisory
Agreements; and
(iv) The costs and expenses payable by the Sub-Advisers pursuant to
the Sub-Advisory Agreements.
(b) Each Portfolio is responsible for and bears all expenses incurred in
its operation that are not specifically assumed by the Manager or
Integrity Financial Services, Inc., the Fund's distributor, pursuant
to the Distribution Agreement with the Fund. General expenses of the
Fund not readily identifiable as belonging to one of the Portfolios
will be allocated among the Portfolios by or under the direction of
the Fund's Board of Directors in such manner as the Board shall
determine to be fair and equitable. Expenses borne by each Portfolio
include, but are not limited to, the following (or the Portfolio's
allocated share of the following):
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(i) The cost (including brokerage commissions, if any) of
securities purchased or sold by the Portfolio and any losses
incurred in connection therewith;
(ii) Investment management fees due hereunder (but not sub-advisory
fees, which are payable by the Manager);
(iii) Organizational expenses;
(iv) Filing fees and expenses relating to the registration and
qualification of the Fund or the shares of a Portfolio under
federal or state securities laws and maintenance of such
registrations and qualifications;
(v) Fees and expenses payable to the Directors who are not
"interested persons" of the Fund or the Manager, National
Integrity or any Sub-Adviser;
(vi) Taxes (including any income or franchise taxes) and
governmental fees;
(vii) Costs of any liability, directors' and officers', uncollectible
items of deposit and other insurance and fidelity bonds;
(viii) Legal, accounting and auditing expense;
(ix) Charges of custodians, transfer agents and other agents;
(x) Expenses of setting in type and providing a camera-ready copy
of prospectuses and supplements thereto, expenses of setting in
type and printing or otherwise reproducing statements of
additional information and supplements thereto and reports and
proxy materials for existing shareholders;
(xi) Any extraordinary expenses (including fees and disbursements of
counsel) incurred by the Fund or Portfolio;
(xii) Fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations;
and
(xiii) Costs of meetings of shareholders.
(c) In the event the expenses of the Fund for any fiscal year (including
the fees payable to the Manager but excluding interest, taxes,
brokerage commissions and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of
the Fund's business) exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statute or
regulations of any applicable jurisdictions, the compensation due the
Manager hereunder will be reduced
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<PAGE>
by the amount of such excess. If such excess amount exceeds the
compensation payable to the Manager hereunder, the Manager will not be
required to make any additional payments to the Fund in reimbursement
of such expenses.
7. COMPENSATION. For the services provided and the expenses assumed pursuant
to this Agreement, each Portfolio will pay to the Manager as full
compensation therefor a fee as set forth below. This fee will be deducted
from the assets of the respective Portfolio and paid to the Manager
monthly, but will be accrued daily for purposes of determining the value of
each Portfolio on each day the New York Stock Exchange is open for trading.
Any reduction in the fee payable pursuant to paragraph 6(c) shall be made
monthly, and will be subject to readjustment during the year.
Annual Percentage of
Average Net Assets Paid By
Name of Portfolio Portfolio to Manager
----------------- --------------------
Renaissance Balanced Portfolio .65%
Zweig Asset Allocation Portfolio .90%
Nicholas-Applegate Balanced Portfolio .65%
Harris Bretall Sullivan & Smith
Equity Growth Portfolio .65%
Zurich Kemper Value Portfolio .65%
Zweig Equity (Small Cap) Portfolio 1.05%
Morgan Stanley Asian Growth Portfolio 1.00%
Morgan Stanley Worldwide High Income Portfolio .85%
Pinnacle Fixed Income Portfolio .70%
ARM Capital Advisors Money Market Portfolio .50%
8. LIABILITY. Except as may otherwise be required by the 1940 Act and the
rules and regulations thereunder, the Manager, 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 Manager, 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 on the part of the
8
<PAGE>
Manager in the performance of its duties or from reckless disregard of its
duties and obligations under this Agreement.
9. TERM. Unless sooner terminated, this Agreement shall continue in effect for
two years and thereafter for successive one year periods, provided that
such continuance is specifically approved at least annually in conformity
with the requirements of the 1940 Act; provided, however, that this
Agreement may be terminated by the Fund or any Portfolio thereof (with
respect to such Portfolio) at any time, without the payment of any penalty,
by the Board of Directors of the Fund or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of a Portfolio,
or by the Manager at any time, without the payment of any penalty, upon not
less than 60 days' prior written notice to the other party. This Agreement
shall terminate automatically in the event of its assignment (as defined in
the 1940 Act).
10. NON-EXCLUSIVITY. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of the Manager who may also be a
Director, officer or employee of the Fund to engage in any other business
or to devote his or her time and attention in part to the management or
other aspects of any business, whether of a similar or dissimilar nature,
nor limit or restrict the right of the Manager to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
11. AMENDMENTS. This Agreement may be amended by mutual consent in writing, but
the consent of the Fund must be obtained in conformity with the
requirements of the 1940 Act.
12. NOTICES. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (I) to the Manager at 1325 Avenue of the
Americas, New York, New York 10019, Attention: President; or (2) to the
Fund at 1325 Avenue of the Americas, New York, New York 10019. Attention:
President.
13. CHOICE OF LAW. This Agreement is made and to be principally performed in
the State of New York, and except insofar as the 1940 Act or other federal
laws and regulations may be controlling, this Agreement shall be governed
by, and construed and enforced in accordance with, the internal laws of the
State of New York.
14. SEPARATE SERIES. The Fund is a corporation organized under the Maryland
General Corporation Law on July 22, 1992. The Fund is a corporation with
separate series, or Portfolios, and all debts, liabilities, obligations and
expenses of a particular Portfolio shall be enforceable only against the
assets of that Portfolio and not against the assets of any other Portfolio
or of the Fund as a whole.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
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<PAGE>
16. COUNTERPARTS. This Agreement may be executed in counterparts, and each
counterpart shall for all purposes be deemed an original, and all such
counterparts shall together constitute one and the same instrument.
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.
THE LEGENDS FUND, INC.
By -------------------------
ARM CAPITAL ADVISORS, INC.
By -------------------------
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EXHIBIT B
SUB-ADVISORY AGREEMENT
AGREEMENT, made this ___ day of __________, 199__, between ARM Capital Advisors,
Inc. (MANAGER), a Delaware corporation, and ___________________________________,
a _____________ corporation.
WHEREAS, Manager, a wholly-owned subsidiary of ARM Capital Advisors, 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 __________, 1997 (the
MANAGEMENT AGREEMENT), Manager 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, Manager desires to retain the Sub-Adviser to furnish investment
advisory services to the ________________________________ 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,
Manager and the Sub-Adviser agree as follows:
SECTION 1. INVESTMENT ADVISORY SERVICES.
Subject to the supervision of the Fund's Board of Directors and Manager, 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
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). Manager 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
<PAGE>
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 Manager or counsel to the Sub-Adviser, provided the
Sub-Adviser's counsel is acceptable to Manager.
(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 Manager, 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
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 Depository 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, Manager.
(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 Portfolios'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 Manager, 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 Manager 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
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<PAGE>
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 Fund's Board of
Directors with periodic and special reports with respect to the Portfolio as the
Directors and Manager may reasonably request, including statistical information
with respect to the Portfolio's securities. In 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 Manager 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 Manager as Manager
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, Manager 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.
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 Manager'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
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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.
Manager will pay to the Sub-Adviser a monthly sub-advisory fee (adjusted pro
rata for any shorter applicable period) at an annual rate of .___% of the
average daily net assets of the Portfolio from the management fee actually
received by Manager from the Fund; provided, however, that the sub-advisory fee
shall be reduced proportionately if the management fee actually paid to Manager
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 Manager 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 Manager 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 Manager against any
losses, expenses, claims, damages or liabilities (or actions or proceedings in
respect thereof), to which Manager 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 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 Manager and the Sub-Adviser
shall have concluded in a written opinion, that such loss, expense, claim,
damage or liability resulted primarily from Manager's willful misfeasance, bad
faith or gross negligence or by reason of the reckless disregard by Manager of
its duties. The foregoing indemnification shall be in addition to any rights
that Manager 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 Manager, be
controlled by Manager or be under common control with Manager and its
affiliates, directors, officers, employees and agents. The Sub-Adviser's
agreements in this paragraph shall also extend to any of Manager's successors or
the successors of the aforementioned affiliates, directors, officers, employees
or agents.
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SECTION 8. INDEMNIFICATION BY MANAGER.
Manager 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 Manager of any provisions of this
Agreement or the Management Agreement, or any wrongful action or alleged
wrongful action by Manager 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 Manager
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 Manager
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. Manager'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.
Manager'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 OR 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 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;
5
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(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 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;
(iv) The Sub-Adviser shall promptly notify Manager 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 Manager and the Fund promptly with respect to written material that has
been provided to the Fund or Manager 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 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
(v) If the Sub-Adviser is a partnership, the Sub-Adviser shall notify the Fund
and Manager 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 Life
Insurance Company (INTEGRITY)and National Integrity Life Insurance 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 Manager in
establishing the Portfolio and registering the Fund as an investment
6
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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 part by the Portfolio or (ii) ______________, 199__, 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 serves as 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 further acknowledges and agrees that the names THE LEGENDS FUND
and PINNACLE, and abbreviations or logos associated with those names, are the
valuable property of Manager and its affiliates; that the Fund, Manager 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.
Manager acknowledges that "_______________" (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 the Sub-Adviser's name in the name of the Portfolio is
understood to be used by the Fund with the Sub-Adviser's consent. The
Sub-Adviser hereby grants to the Fund a non-exclusive license to use 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 the
Sub-Adviser shall be retained as the investment sub-adviser of the Portfolio
pursuant to the terms of this Agreement. Any such use by the Fund shall in no
way prevent the Sub-Adviser or any of its successors or assigns from using or
permitting the use of the Sub-Adviser'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.
Manager acknowledges that the Fund shall use the Sub-Adviser's name in the
Portfolio for the period set forth herein in a manner not inconsistent with the
interests of the Sub-Adviser and that the Fund's rights in the Sub-Adviser's
name are limited to its use as a component of 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, then Fund at its own expense, upon the Sub-Adviser's written request:
(i) shall cease to use the Sub-Adviser's name, 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, 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; and
(ii) shall use its best efforts to cause the Fund's officers and directors to
take any all actions which may be necessary or desirable to effect the foregoing
and to reconvey to the Sub-Adviser all rights which the Fund may have to such
name. Manager agrees to take any all actions as may be necessary or desirable to
effect the foregoing.
7
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The Sub-Adviser hereby agrees and consents to the use of the Sub-Adviser's name
upon the foregoing terms and conditions.
SECTION 12. ENTIRE AGREEMENT; 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 signed 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 until November
___, 1995 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 Directors who are not
interested persons of the Sub-Adviser, Manager 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 Manager, 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 Manager, 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 Manager 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 given 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
8
<PAGE>
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 purposes be deemed an original and all such counterparts shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, authorized officers of Manager and the Sub-Adviser have
executed this Agreement as of the day and year first written above.
ARM CAPITAL ADVISORS, INC.
By:
-------------------------------------
Attest:
---------------------------------
- ----------------------------------------
By:
-------------------------------------
Attest:
---------------------------------
9
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EXHIBIT C
SUB-ADVISORY AGREEMENT
AGREEMENT, made this __th day of _____________, 1997, between ARM Capital
Advisors, Inc., a Delaware corporation, and Zurich Kemper Value Advisors, Inc.
(SUB-ADVISER), a Delaware corporation.
WHEREAS, Manager, 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 ____________, 1997 (the
MANAGEMENT AGREEMENT), Manager 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, Manager 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, Manager and the Sub-Adviser agree as follows:
SECTION 1. INVESTMENT ADVISORY SERVICES.
Subject to the supervision of the Fund's Board of Directors and Manager,
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
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). Manager 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
<PAGE>
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 Manager or counsel to the Sub-Adviser,
provided the Sub-Adviser's counsel is acceptable to Manager.
(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 Manager, 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 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, Manager.
<PAGE>
(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 Manager, 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
Manager 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 Manager may reasonably
request, including statistical information with respect to the
Portfolio's securities. In 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 Manager 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 Manager as
Manager 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
<PAGE>
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, Manager 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.
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 Manager'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.
Manager will pay to the Sub-Adviser a monthly sub-advisory fee (adjusted
pro rata for any shorter applicable period) at an annual rate of .40% of the
average daily net assets of the Portfolio from the management fee actually
received by Manager from the Fund; provided, however, that the sub-advisory fee
shall be reduced proportionately if the management fee actually paid to Manager
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 Manager pursuant to the
Management Agreement and as specified in the Fund's Registration Statement.
<PAGE>
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 Manager 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 Manager against any
losses, expenses, claims, damages or liabilities (or actions or proceedings in
respect thereof), to which Manager 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 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 Manager and the Sub-Adviser
shall have concluded in a written opinion, that such loss, expense, claim,
damage or liability resulted primarily from Manager's willful misfeasance, bad
faith or gross negligence or by reason of the reckless disregard by Manager of
its duties. The foregoing indemnification shall be in addition to any rights
that Manager 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 Manager, be
controlled by Manager or be under common control with Manager and its
affiliates, directors, officers, employees and agents. The Sub-Adviser's
agreements in this paragraph shall also extend to any of Manager's successors or
the successors of the aforementioned affiliates, directors, offices, employees
or agents.
SECTION 8. INDEMNIFICATION BY MANAGER.
Manager 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 Manager of any provisions of this
Agreement or the Management Agreement, or any wrongful action or alleged
wrongful action by Manager 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 Manager
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 Manager
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. Manager'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
<PAGE>
Sub-Adviser and to each of the Sub-Adviser's and each such person's respective
affiliates, directors, officers, employees and agents. Manager'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 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
<PAGE>
filing with the SEC, such Registration Statement contains,
as of its date, no untrue statement of any material fact 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 Manager 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
Manager and the Fund promptly with respect to written
material that has been provided to the Fund or Manager 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 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.
SECTION 11. EXCLUSIVITY OF SERVICES AND USE OF NAMES.
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 Manager and its affiliates; that the Fund, Manager 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.
Manager acknowledges that "Zurich Kemper" (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 the Sub-Adviser's name in the name of the Portfolio are
understood to be used by the Fund with the Sub-Adviser's consent. The
<PAGE>
Sub-Adviser hereby grants to the Fund a non-exclusive license to use 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 the
Sub-Adviser shall be retained as the investment sub-adviser of the Portfolio
pursuant to the terms of this Agreement. Any such use by the Fund shall in no
way prevent the Sub-Adviser or any of its successors or assigns from using or
permitting the use of the Sub-Adviser'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.
Manager acknowledges that the Fund shall use the Sub-Adviser's 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 that the Fund's rights in
the Sub-Adviser's name are limited to their use as a component of 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, then the Fund at its own expense, upon
the Sub- Adviser's written request:
(i) shall cease to use the Sub-Adviser's name 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 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; 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 all rights which the Fund may have to such name.
Manager 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 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
<PAGE>
Act by a majority of the Directors of the Fund, including a majority of the
Directors who are not interested persons of the Sub-Adviser, Manager 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 Manager, 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 Manager, 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.
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.
<PAGE>
IN WITNESS WHEREOF, authorized officers of Manager and the Sub-Adviser have
executed this Agreement as of the day and year first written above.
ARM CAPITAL ADVISORS, INC. ZURICH KEMPER VALUE
ADVISORS, INC.
By: By:
------------------------- -------------------------
Attest: Attest:
-------------------- ----------------------
<PAGE>
EXHIBIT D
OTHER MUTUAL FUNDS ADVISED BY HBSS WITH A SIMILAR INVESTMENT OBJECTIVE TO THE
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO'S
NET ASSETS OF OTHER
FUND ANNUAL
OTHER FUND (IN MILLIONS) FEE RATE
- ---------- ------------- --------
Saratoga Advantage Trust -
Large Cap Growth Fund $45 .65%
Jones Heward American
Fund $11.5 .45%
Harris Bretall Sullivan &
Smith Growth Equity Fund $ 5.6 .75%
HBSS has an arrangement with each of the above funds whereby HBSS will reimburse
such funds for expenses exceeding 1.29% of net assets.
23
<PAGE>
EXHIBIT E
OTHER MUTUAL FUNDS ADVISED BY ZKVA WITH A SIMILAR INVESTMENT OBJECTIVE TO THE
ZURICH KEMPER VALUE PORTFOLIO'S
NET ASSETS OF OTHER FUND ANNUAL
OTHER FUND (IN MILLIONS) FEE RATE
- ---------- ------------- --------
Kemper Contrarian
Fund $137.8 .75%
24
<PAGE>
EXHIBIT F
OTHER MUTUAL FUNDS ADVISED BY ZWEIG/GLASER WITH A SIMILAR INVESTMENT OBJECTIVE
TO THE ZWEIG ASSET ALLOCATION PORTFOLIO'S
NET ASSETS OF OTHER FUND ANNUAL
OTHER FUND (IN MILLIONS) FEE RATE
- ---------- ------------- --------
Zweig Strategy Fund $1,225.2 0.75%
OTHER MUTUAL FUNDS ADVISED BY ZWEIG/GLASER WITH A SIMILAR INVESTMENT OBJECTIVE
TO THE ZWEIG EQUITY (SMALL CAP) PORTFOLIO'S
NET ASSETS OF OTHER FUND ANNUAL
OTHER FUND (IN MILLIONS) FEE RATE
- ---------- ------------- --------
Zweig Appreciation Fund $544.4 1.00%
25
<PAGE>
INDICATE YOUR VOTE BY FILLING IN THE APPROPRIATE BOXES
IN THIS MANNER /X/ USING BLUE OR BLACK INK OR DARK PENCIL.
PLEASE DO NOT USE RED INK
- --------------------------------------------------------------------------------
THIS VOTING INSTRUCTION, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE CONTRACTHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL PROPOSALS, PLEASE REFER TO THE PROXY STATEMENT FOR A DISCUSSION
OF THE PROPOSALS.
<TABLE>
<CAPTION>
<S><C>
FOR AGAINST ABSTAIN
1. To approve or dissapprove the management agreement and the proposed sub-advisory agreement / / / / / /
as described in the Proxy Statement for (a) Harris Bretall Sullivan & Smith Equity Growth
Portfolio, (b) Zurich Kemper Value Portfolio, (c) Zweig Asset Allocation Portfolio or
(d) Zweig Equity (Small Cap) Portfolio.
2 to approve or disapprove the continuation of the proposed or amended sub-advisory agreement / / / / / /
between HBSS and the Manager following the proposed change of control of HBSS (Harris
Bretall Sullivan & Smith Equity Growth Portfolio only)
3 Election of Directors (all Portfolios)
FOR AGAINST ABSTAIN
NOMINEES: John R. Lindholm, John Katz, Theodore S. Rosky, William B. Faulkner and Chris L. / / / / / /
Mahai
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE OUT THE
NAME OF SUCH NOMINEE)
FOR AGAINST ABSTAIN
4 to ratify or reject the selection of Ernst & Young LLP as the Fund's independent accountants / / / / / /
for the fiscal year ending June 30, 1998 (all Portfolios)
5 To transact such other matters as may properly come before the meeting or any adjournment / / / / / /
thereof.
</TABLE>
<PAGE>
PLEASE MARK YOUR VOTING INSTRUCTIONS CARD, DATE AND SIGN IT WHERE INDICATED, AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. VOTING INSTRUCTIONS MUST BE RECEIVED BY OCTOBER
29, 1997 TO BE VOTED FOR THE MEETING TO BE HELD ON OCTOBER 30, 1997.
INTEGRITY LIFE INSURANCE COMPANY
THESE VOTING INSTRUCTIONS ARE SOLICITED BY INTEGRITY LIFE INSURANCE COMPANY IN
CONNECTION WITH A SOLICITATION OF PROXIES BY THE DIRECTORS OF THE LEGENDS FUND,
INC. A VOTING INSTRUCTIONS CARD IS PROVIDED FOR THE PORTFOLIOS IN WHICH YOUR
CONTRACT VALUES WERE INVESTED AS OF SEPTEMBER 22, 1997.
The undersigned hereby instructs Integrity Life Insurance Company to vote the
shares of The Legends Fund, Inc. (the "Fund") attributable to his or her
variable annuity contract at the Special Meeting of Shareholders to be held at
the Fund's offices, 515 West Market Street, Louisville, Kentucky 40202 at 3:00
p.m., Eastern Standard Time, October 30, 1997, and any adjournments thereof, as
indicated on the reverse side.
Dated:
PLEASE SIGN IN BOX BELOW
If a contract is held jointly, each contract owner should sign. If only one
signs, his or her signature will be binding. If the contract owner is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the contract owner is a partnership, a partner
should sign in his or her own name, indicating that he or she is a partner.
-----------------------
Signature(s)
Title(s), if applicable
<PAGE>
PLEASE MARK YOUR VOTING INSTRUCTIONS CARD, DATE AND SIGN IT WHERE INDICATED, AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. VOTING INSTRUCTIONS MUST BE RECEIVED BY OCTOBER
29, 1997 TO BE VOTED FOR THE MEETING TO BE HELD ON OCTOBER 30, 1997.
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
THESE VOTING INSTRUCTIONS ARE SOLICITED BY NATIONAL INTEGRITY LIFE INSURANCE
COMPANY IN CONNECTION WITH A SOLICITATION OF PROXIES BY THE DIRECTORS OF THE
LEGENDS FUND, INC. A VOTING INSTRUCTIONS CARD IS PROVIDED FOR THE PORTFOLIOS IN
WHICH YOUR CONTRACT VALUES WERE INVESTED AS OF SEPTEMBER 22, 1997.
The undersigned hereby instructs National Integrity Life Insurance Company to
vote the shares of The Legends Fund, Inc. (the "Fund") attributable to his or
her variable annuity contract at the Special Meeting of Shareholders to be held
at the Fund's offices, 515 West Market Street, Louisville, Kentucky 40202 at
3:00 p.m., Eastern Standard Time, October 30, 1997, and any adjournments
thereof, as indicated on the reverse side.
Dated:
PLEASE SIGN IN BOX BELOW
If a contract is held jointly, each contract owner should sign. If only one
signs, his or her signature will be binding. If the contract owner is a
corporation, the President or a Vice President should sign in his or her own
name, indicating title. If the contract owner is a partnership, a partner
should sign in his or her own name, indicating that he or she is a partner.
-----------------------
Signature(s)
Title(s), if applicable
