<PAGE>
The Legends Fund, Inc.
Annual Report
June 30, 1999
Contents
President's Letter........................................................ 1
Report of Independent Auditors.............................................2
Financial Statements, Financial Highlights, and Schedules of
Investments:
Harris Bretall Sullivan & Smith Equity Growth Portfolio............ 3
Scudder Kemper Value Portfolio..................................... 7
Zweig Asset Allocation Portfolio...................................12
Zweig Equity (Small Cap) Portfolio.................................18
Notes to Financial Statements.............................................25
Portfolio Performance.....................................................31
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED
OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR ARM SECURITIES
CORPORATION, THE PRINCIPAL UNDERWRITER FOR FUND SHARES, IS A BANK AND FUND
SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY THE FEDERAL
DEPOSITORY INSURANCE CORPORATION.
<PAGE>
THE LEGENDS FUND, INC.
- --------------------------------------------------------------------------------
We are pleased to present the 1999 Annual Report for The Legends Fund, Inc. (the
"Fund"). Thanks to all of our current investors and we extend a special welcome
to all new investors who have joined us during the period.
Total returns for each of the Fund's portfolios for the fiscal years ended June
30, 1999 and 1998, respectively, are listed below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
PORTFOLIO 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Harris Bretall Sullivan & Smith Equity Growth 35.19% 29.11%
Scudder Kemper Value 18.09% 23.36%
Zweig Asset Allocation (3.73%) 21.38%
Zweig Equity (Small Cap) (9.24%) 23.72%
</TABLE>
Included in this Annual Report is detailed information of the investment
holdings of each portfolio as of June 30, 1999, as well as other financial
information.
The investment disciplines available within the Fund span a broad spectrum,
providing you with the choices and flexibility to plan for the long-term. The
Fund exists for the sole purpose of helping to provide you with valuable tools
for meeting your investment objectives.
If you have any questions or comments, please feel free to contact us at your
convenience.
Sincerely,
/s/ E.J. Haines
Edward J. Haines
President
The Legends Fund, Inc.
1
<PAGE>
Report of Independent Auditors
The Shareholders and Board of Directors
The Legends Fund, Inc.
We have audited the accompanying statements of assets and liabilities of The
Legends Fund, Inc. (the Fund) (comprised of the Harris Bretall Sullivan & Smith
Equity Growth, Scudder Kemper Value, Zweig Asset Allocation and Zweig Equity
(Small Cap) portfolios), including the schedules of investments, as of June 30,
1999, and the related statements of operations for the year then ended and
statements of changes in net assets for each of the two years in the period then
ended and financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at June 30, 1999, by correspondence with the custodian. As to
securities relating to uncompleted transactions, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios of the Fund at June 30, 1999, and the results of their
operations for the year then ended, changes in their net assets each of the two
years in the period then ended, and financial highlights for each of the five
years in the period then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Kansas City, Missouri
August 10, 1999,
except for Note 5, as to which the date is
August 20, 1999
2
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Assets and Liabilities
June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost $29,399,436)--See accompanying schedule $55,310,175
Dividends and interest receivable 16,565
Receivable for capital shares sold 132,322
-----------
Total assets 55,459,062
LIABILITIES
Accounts payable and accrued expenses 30,693
-----------
Total liabilities 30,693
-----------
NET ASSETS $55,428,369
-----------
-----------
Net Assets consist of:
Paid-in capital $28,676,226
Accumulated undistributed net realized gain on investments 841,404
Net unrealized appreciation on investments 25,910,739
-----------
NET ASSETS, for 2,132,236 shares outstanding $55,428,369
-----------
-----------
NET ASSET VALUE, offering and redemption price per share $ 26.00
-----------
-----------
Statement of Operations
Year Ended June 30, 1999
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 256,921
Interest 36,402
-----------
Total investment income 293,323
EXPENSES
Investment advisory and management fees 280,242
Custody and accounting fees 117,390
Professional fees 8,150
Directors' fees and expenses 4,898
Other expenses 8,746
-----------
Total expenses 419,426
-----------
Net investment loss (126,103)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,150,781
Change in net unrealized appreciation on investments 12,820,070
-----------
Net realized and unrealized gain on investments 13,970,851
-----------
Net increase in net assets resulting from operations $13,844,748
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998
------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss $ (126,103) $ (3,025)
Net realized gain on investments 1,150,781 3,870,031
Change in net unrealized appreciation on investments 12,820,070 4,234,149
------------- --------------
Net increase in net assets resulting from operations 13,844,748 8,101,155
Distributions to shareholders from:
Net investment income - (35,592)
Net realized gain (4,108,321) (2,143,586)
------------- --------------
Total distributions to shareholders (4,108,321) (2,179,178)
Capital share transactions:
Proceeds from sales of shares 13,015,410 12,618,333
Proceeds from reinvested distributions 4,108,321 2,179,178
Cost of shares redeemed (9,093,677) (11,872,273)
------------- --------------
Net increase in net assets resulting from share transactions 8,030,054 2,925,238
------------- --------------
Total increase in net assets 17,766,481 8,847,215
NET ASSETS
Beginning of period 37,661,888 28,814,673
------------- --------------
End of period $55,428,369 $ 37,661,888
------------- --------------
------------- --------------
OTHER INFORMATION
Shares:
Sold 575,275 650,111
Issued through reinvestment of distributions 180,671 118,950
Redeemed (407,703) (629,133)
------------- --------------
Net increase 348,243 139,928
------------- --------------
------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning
of period $ 21.11 $ 17.53 $ 14.49 $ 12.85 $ 9.36
Income from investment operations:
Net investment income (loss) (0.06) -(a) 0.02 -(a) 0.01
Net realized and unrealized
gain on investments 7.17 4.90 4.13 1.74 3.48
------------- -------------- ------------- ------------- -------------
Total from investment
operations 7.11 4.90 4.15 1.74 3.49
Less distributions:
From net investment income - (0.02) -(a) (0.01) -
From net realized gain (2.22) (1.30) (1.11) (0.09) -
------------- -------------- ------------- ------------- -------------
Total distributions (2.22) (1.32) (1.11) (0.10) -
------------- -------------- ------------- ------------- -------------
Net asset value, end of period $ 26.00 $ 21.11 $ 17.53 $ 14.49 $ 12.85
------------- -------------- ------------- ------------- -------------
------------- -------------- ------------- ------------- -------------
TOTAL RETURN 35.19% 29.11% 30.23% 13.59% 37.29%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $55,428 $ 37,662 $ 28,815 $ 23,810 $ 16,393
Ratio of expenses to average
net assets 0.96% 0.95% 1.03% 1.04% 1.05%
Ratio of net investment income
(loss) to average net assets (0.29%) (0.01%) 0.14% 0.03% 0.13%
Portfolio turnover rate 27% 57% 46% 58% 31%
</TABLE>
(a) Less than $0.01 per share.
5
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments
June 30, 1999
<TABLE>
<CAPTION>
Number
COMMON STOCKS (98.0%) of Shares Value
--------- -----------
<S> <C> <C>
BASIC CHEMICAL PLASTICS & SYNTHETICS (15.1%)
Abbott Laboratories 23,100 $ 1,051,050
Bristol-Myers Squibb Company 14,600 1,028,388
Colgate-Palmolive Company 9,300 918,375
Merck & Company, Inc. 15,400 1,139,600
Pfizer, Inc. 9,600 1,053,600
Schering-Plough 22,000 1,166,000
The Proctor & Gamble Company 10,000 892,500
Warner-Lambert Company 15,500 1,075,313
-----------
8,324,826
BUSINESS SERVICES (14.7%)
America Online, Inc.* 15,600 1,723,800
Automatic Data Processing, Inc. 23,000 1,012,000
Microsoft Corporation* 22,000 1,982,750
Sun Microsystems, Inc.* 14,600 1,006,031
The Interpublic Group of Companies, Inc.* 13,800 1,195,425
Yahoo! Inc.* 6,900 1,188,309
-----------
8,108,315
COMMUNICATIONS (2.5%)
MCI WorldCom, Inc.* 16,000 1,376,500
DEPOSITORY INSTITUTIONS (5.2%)
BankAmerica Corporation 11,990 879,017
Citigroup, Inc. 23,000 1,092,500
Wells Fargo Company 21,000 897,750
-----------
2,869,267
ELECTRICAL & ELECTRONIC MACHINERY (7.7%)
General Electric Company 15,500 1,751,500
Intel Corporation 22,600 1,343,993
Lucent Technologies, Inc. 17,000 1,146,438
-----------
4,241,931
FABRICATED METAL PRODUCTS (2.1%)
Illinois Tool Works, Inc. 14,400 1,180,800
FOOD & KINDRED PRODUCTS (1.4%)
The Coca-Cola Company 12,500 781,250
GENERAL MERCHANDISE STORES (5.1%)
Dayton Hudson Corporation 19,700 1,280,500
Wal-Mart Stores, Inc. 32,200 1,553,650
-----------
2,834,150
INDUSTRIAL MACHINERY & EQUIPMENT (9.4%)
Applied Materials, Inc.* 17,700 1,307,033
Cisco Systems, Inc.* 31,500 2,028,797
Dell Computer Corporation* 24,000 887,250
EMC Corporation* 18,000 990,000
-----------
5,213,080
INSTRUMENTS & RELATED PRODUCTS (2.2%)
Medtronic, Inc. 15,800 1,230,425
INSURANCE CARRIERS (1.9%)
American International Group, Inc. 9,187 1,075,453
<CAPTION>
Number
COMMON STOCKS (CONTINUED) of Shares Value
--------- -----------
<S> <C> <C>
MISC. MANUFACTURING INDUSTRIES (2.5%)
Tyco International Ltd. 14,500 $ 1,373,875
MOTION PICTURES (1.2%)
The Walt Disney Company 22,000 677,875
PRINTING & PUBLISHING (2.3%)
Time Warner, Inc. 17,600 1,293,600
RETAIL-BUILDING MATERIAL HARDWARE (2.6%)
The Home Depot, Inc. 22,000 1,417,625
RETAIL-FOOD STORES (4.1%)
Starbucks Corporation* 35,600 1,333,888
The Kroger Co.* 33,200 927,525
-----------
2,261,413
RETAIL - MISCELLANEOUS (2.2%)
Walgreen Company 41,000 1,204,375
SECURITY & COMMODITY BROKERS (8.4%)
Morgan Stanley, Dean Witter,
Discover and Company 13,800 1,414,500
The Charles Schwab Corporation 18,000 1,977,750
The Goldman Sachs Group, Inc. 17,000 1,228,250
-----------
4,620,500
TRANSPORTATION BY AIR (1.3%)
AMR Corporation* 10,300 702,975
WATER TRANSPORTATION (2.3%)
Carnival Corporation 26,000 1,261,000
WHOLESALE TRADE-DURABLE GOODS (2.0%)
Johnson & Johnson 11,100 1,087,800
WHOLESALE TRADE-NONDURABLE GOODS (1.8%)
Safeway, Inc.* 19,600 970,200
-----------
TOTAL COMMON STOCKS (Cost $28,196,496) 54,107,235
<CAPTION>
Principal
SHORT-TERM SECURITIES (2.0%) Amount
---------
<S> <C> <C>
REPURCHASE AGREEMENT (2.0%)
State Street Bank, 3.50%, due 7/01/1999
(Dated 6/30/1999, collateralized by U.S.
Treasury Note, 6.375%, due 8/15/2027,
value $1,237,600) $1,202,940
1,202,940
-----------
TOTAL SHORT -TERM SECURITIES (Cost $1,202,940) 1,202,940
-----------
TOTAL INVESTMENTS (100.0%) (Cost $29,399,436) $55,310,175
-----------
-----------
</TABLE>
*Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1999, aggregated $14,467,358 and $10,367,401,
respectively. At June 30, 1999, net unrealized appreciation for tax purposes
aggregated $25,678,898, of which $25,836,810 related to appreciated
investments and $157,912 related to depreciated investments. The aggregate
cost of securities was $29,631,277 for tax purposes.
SEE ACCOMPANYING NOTES.
6
<PAGE>
Scudder Kemper Value Portfolio
Statement of Assets and Liabilities
June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $41,741,982)--See accompanying schedule $50,167,232
Dividends and interest receivable 60,751
Receivable for investments sold 141,706
Receivable for capital shares sold 1,520
-----------
Total assets 50,371,209
LIABILITIES
Payable for investments purchased 52,357
Accounts payable and accrued expenses 20,653
Redemptions payable 128,794
-----------
Total liabilities 201,804
-----------
NET ASSETS $50,169,405
------------
------------
Net Assets consist of:
Paid-in capital $34,393,967
Undistributed net investment income 723,270
Accumulated undistributed net realized gain on investments 6,626,918
Net unrealized appreciation on investments 8,425,250
-----------
NET ASSETS, for 2,274,720 shares outstanding $50,169,405
------------
------------
NET ASSET VALUE, offering and redemption price per share $ 22.06
------------
------------
Statement of Operations
Year Ended June 30, 1999
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $2,157) $ 1,019,161
Interest 147,779
------------
Total investment income 1,166,940
EXPENSES
Investment advisory and management fees 297,742
Custody and accounting fees 124,885
Professional fees 7,399
Directors' fees and expenses 4,898
Other expenses 8,746
------------
Total expenses 443,670
------------
Net investment income 723,270
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 6,626,918
Change in net unrealized appreciation on investments 407,796
------------
Net realized and unrealized gain on investments 7,034,714
------------
Net increase in net assets resulting from operations $ 7,757,984
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Scudder Kemper Value Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 723,270 $ 591,315
Net realized gain on investments 6,626,918 4,706,677
Change in net unrealized appreciation on investments 407,796 2,439,355
------------------ -----------------
Net increase in net assets resulting from operations 7,757,984 7,737,347
Distributions to shareholders from:
Net investment income (591,315) (408,549)
Net realized gain (4,706,677) (5,723,007)
------------------ -----------------
Total distributions to shareholders (5,297,992) (6,131,556)
Capital share transactions:
Proceeds from sales of shares 13,300,551 16,280,118
Proceeds from reinvested distributions 5,297,991 6,131,556
Cost of shares redeemed (17,325,011) (8,512,037)
------------------ -----------------
Net increase in net assets resulting from share transactions 1,273,531 13,899,637
------------------ -----------------
Total increase in net assets 3,733,523 15,505,428
NET ASSETS
Beginning of period 46,435,882 30,930,454
------------------ -----------------
End of period (including undistributed net investment income of $723,270
and $591,315, respectively) $ 50,169,405 $ 46,435,882
------------------ -----------------
------------------ -----------------
OTHER INFORMATION
Shares:
Sold 641,261 798,312
Issued through reinvestment of distributions 264,302 327,252
Redeemed (840,192) (415,791)
------------------ -----------------
Net increase 65,371 709,773
------------------ -----------------
------------------ -----------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Scudder Kemper Value Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning
of period $ 21.02 $20.63 $16.17 $12.59 $10.66
Income from investment operations:
Net investment income 0.33 0.26 0.26 0.18 0.26
Net realized and unrealized
gain on investments 3.22 4.08 5.04 3.70 1.85
-------------- --------------- ------------- ------------- ------------
Total from investment
operations 3.55 4.34 5.30 3.88 2.11
Less distributions:
From net investment income (0.28) (0.26) (0.19) (0.19) (0.14)
From net realized gain (2.23) (3.69) (0.65) (0.11) (0.04)
-------------- --------------- ------------- ------------- ------------
Total distributions (2.51) (3.95) (0.84) (0.30) (0.18)
-------------- --------------- ------------- ------------- ------------
Net asset value, end of period $ 22.06 $ 21.02 $ 20.63 $ 16.17 $ 12.59
-------------- --------------- ------------- ------------- ------------
-------------- --------------- ------------- ------------- ------------
TOTAL RETURN 18.09% 23.36% 33.78% 31.22% 19.98%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $50,169 $ 46,436 $ 30,930 $ 19,705 $ 10,877
Ratio of expenses to average
net assets 0.96% 0.94% 1.05% 1.06% 1.13%
Ratio of expenses to average net
assets before voluntary
expense reimbursement 0.96% 0.94% 1.05% 1.07% 1.13%
Ratio of net investment income
to average net assets 1.56% 1.58% 1.62% 1.65% 1.98%
Ratio of net investment income
to average net assets before
voluntary expense
reimbursement 1.56% 1.58% 1.62% 1.64% 1.98%
Portfolio turnover rate 50% 57% 88% 18% 29%
</TABLE>
9
<PAGE>
Scudder Kemper Value Portfolio
Schedule of Investments
June 30, 1999
<TABLE>
<CAPTION>
Number
COMMON STOCKS (92.0%) of Shares Value
---------- ------------
<S> <C> <C>
APPAREL & OTHER FINISHED PRODUCTS (3.2%)
Liz Claiborne, Inc. 14,400 $ 525,600
VF Corporation 25,600 1,094,400
------------
1,620,000
BASIC CHEMICAL PLASTICS & SYNTHETICS (5.3%)
Air Products and Chemicals, Inc. 21,800 877,450
Dow Chemical Company 2,900 367,938
International Flavors & Fragrances, Inc. 11,000 488,125
Praxair, Inc. 18,700 915,131
------------
2,648,644
DEPOSITORY INSTITUTIONS (15.0%)
Bank of America Corporation 22,616 1,658,035
First Union Corporation 29,400 1,381,800
KeyCorp 32,100 1,031,213
PNC Bank Corporation 19,210 1,106,975
Washington Mutual, Inc. 35,388 1,251,850
Wells Fargo Company 24,300 1,038,825
------------
7,468,698
ELECTRICAL & ELECTRONIC MACHINERY (1.1%)
Thomas & Belts Corporation 12,200 576,450
FABRICATED METAL PRODUCTS (0.9%)
Crown Cork & Seal Company, Inc. 16,000 456,000
FOOD AND KINDRED PRODUCTS (3.2%)
Campbell Soup Company 12,000 556,500
H.J. Heinz Company 10,600 531,325
Hershey Foods Corporation 9,000 534,375
------------
1,622,200
FORESTRY (3.0%)
Georgia Pacific Timber Group 60,000 1,515,000
FURNITURE AND FIXTURES (2.2%)
Newell Rubbermaid, Inc. 24,200 1,125,300
GENERAL MERCHANDISE STORES (6.3%)
J. C. Penney Company, Inc. 18,300 888,694
May Department Stores Company 30,000 1,226,250
Sears, Roebuck and Company 23,000 1,024,936
------------
3,139,880
INDUSTRIAL MACHINERY & EQUIPMENT (7.6%)
Diebold, Inc. 39,000 1,121,250
Minnesota Mining and Manufacturing Co. 23,100 2,008,256
Pitney Bowes, Inc. 10,500 674,625
------------
3,804,131
<CAPTION>
Number
COMMON STOCKS (CONTINUED) of Shares Value
---------- ------------
<S> <C> <C>
INSTRUMENTS & RELATED PRODUCTS (2.0%)
Raytheon Company 7,500 $ 527,813
Xerox Corporation 8,000 472,500
------------
1,000,313
INSURANCE CARRIERS (6.0%)
American General Corporation 16,500 925,575
The Allstate Corporation 25,800 1,243,688
The Chubb Corporation 12,300 854,850
------------
3,024,113
LUMBER &WOOD PRODUCTS (2.7%)
Louisiana-Pacific Corporation 56,700 1,346,625
MISC. MANUFACTURING INDUSTRIES (1.0%)
Tyco International Ltd. 5,542 525,105
NONDEPOSITORY INSTITUTIONS (8.7%)
Fannie Mae 31,600 2,160,650
Freddie Mac 37,800 2,192,400
------------
4,353,050
OIL & GAS EXTRACTION (2.5%)
Atlantic Richfield Company 15,000 1,253,438
PAPER & ALLIED PRODUCTS (3.3%)
Sonoco Products Company 55,700 1,667,519
PETROLEUM & COAL PRODUCTS (6.4%)
BP Amoco PLC 16,178 1,755,313
Chevron Corporation 5,000 475,938
Exxon Corporation 12,700 979,487
------------
3,210,738
RAILROAD TRANSPORTATION (1.8%)
Burlington Northern Santa Fe 12,600 390,600
CSX Corporation 11,300 512,031
------------
902,631
RETAIL-FOOD STORES (1.0%)
Albertson's Inc. 10,000 515,625
TEXTILE MILL PRODUCTS (1.0%)
Sara Lee Corporation 20,500 465,094
TOBACCO MANUFACTURERS OR CIGAR (4.0%)
Philip Morris Companies, Inc. 49,800 2,001,338
TRANSPORTATION EQUIPMENT (2.8%)
Ford Motor Company 25,000 1,410,938
WHOLESALE TRADE- NON DURABLE GOODS (1.0%)
Du Pont (E.I.) de Nemours and Company 7,200 491,850
------------
TOTAL COMMON STOCKS (COST $37,719,430) $46,144,680
</TABLE>
10
<PAGE>
Scudder Kemper Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
Principal
SHORT-TERM SECURITIES (8.0%) Amount Value
---------- ------------
<S> <C> <C>
REPURCHASE AGREEMENT (8.0%)
State Street Bank, 3.50%, due 7/1/1999
(Dated 6/30/1999, collateralized by U.S
Treasury Note, 6.375%, due 8/15/2027,
value $4,123,600) $4,022,552 $ 4,022,552
------------
TOTAL SHORT-TERM SECURITIES (Cost $4,022,552) 4,022,552
------------
TOTAL INVESTMENTS (100.0%) (Cost $41,741,982) $ 50,167,232
------------
------------
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1999, aggregated $21,214,099 and $17,014,579 respectively.
At June 30, 1999, net unrealized appreciation for tax purposes aggregated
$8,425,250 of which $9,038,626 related to appreciated investments and $613,376
related to depreciated investments. The aggregate cost of securities was the
same for book and tax purposes.
SEE ACCOMPANYING NOTES.
11
<PAGE>
Zweig Asset Allocation Portfolio
Statement of Assets and Liabilities
June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $28,404,713)--See accompanying schedule $31,053,568
Dividends and interest receivable 37,176
---------------
Total assets 31,090,744
LIABILITIES
Cash overdraft 315
Accounts payable and accrued expenses 35,951
Redemptions payable 44,908
---------------
Total liabilities 81,174
---------------
NET ASSETS $31,009,570
===============
Net Assets consist of:
Paid-in capital $21,938,751
Undistributed net investment income 411,239
Accumulated undistributed net realized gain on investments 5,999,328
Net unrealized appreciation on investments and futures contracts 2,660,252
---------------
NET ASSETS, for 2,216,983 shares outstanding $31,009,570
===============
NET ASSET VALUE, offering and redemption price per share $ 13.99
===============
Statement of Operations
Year Ended June 30, 1999
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $7,314) $ 478,001
Interest 378,557
--------------
Total investment income 856,558
EXPENSES
Investment advisory and management fees 324,109
Custody and accounting fees 98,372
Professional fees 9,194
Directors' fees and expenses 4,898
Other expenses 8,746
--------------
Total expenses 445,319
--------------
Net investment income 411,239
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on:
Investments 5,325,269
Futures contracts 629,759
--------------
Net realized gain 5,955,028
Change in net unrealized appreciation (depreciation) on:
Investment securities (8,994,160)
Futures contracts 55,697
--------------
Change in net unrealized appreciation (depreciation) (8,938,463)
--------------
Net realized and unrealized loss on investments (2,983,435)
--------------
Net decrease in net assets resulting from operations $(2,572,196)
==============
</TABLE>
SEE ACCOMPANYING NOTES.
12
<PAGE>
Zweig Asset Allocation Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998
------------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 411,239 $ 365,323
Net realized gain on investments 5,955,028 6,354,477
Change in net unrealized appreciation (depreciation) (8,938,463) 1,999,669
---------------- -------------
Net increase (decrease) in net assets resulting from operations (2,572,196) 8,719,469
Distributions to shareholders from:
Net investment income (365,323) (529,058)
Net realized gain (6,048,315) -
---------------- -------------
Total distributions to shareholders (6,413,638) (529,058)
Capital share transactions:
Proceeds from sales of shares 1,260,662 4,280,221
Proceeds from reinvested distributions 6,413,638 529,058
Cost of shares redeemed (15,129,106) (8,397,497)
---------------- -------------
Net decrease in net assets resulting from share transactions (7,454,806) (3,588,218)
---------------- -------------
Total increase (decrease) in net assets (16,440,640) 4,602,193
NET ASSETS
Beginning of period 47,450,210 42,848,017
---------------- -------------
End of period (including undistributed net investment income
of $411,239 and $365,323, respectively) $31,009,570 $ 47,450,210
================ =============
OTHER INFORMATION
Shares:
Sold 84,700 258,491
Issued through reinvestment of distributions 488,856 32,534
Redeemed (1,059,406) (517,480)
================ =============
Net decrease (485,850) (226,455)
================ =============
</TABLE>
SEE ACCOMPANYING NOTES.
13
<PAGE>
Zweig Asset Allocation Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning
of period $17.56 $ 14.63 $ 14.11 $ 13.02 $ 11.44
Income (loss) from investment operations:
Net investment income 0.21 0.14 0.19 0.21 0.33
Net realized and unrealized
gain (loss) on investments (1.04) 2.97 2.20 1.21 1.33
-------------- ------------- ------------- ------------- ------------
Total from investment
operations (0.83) 3.11 2.39 1.42 1.66
Less distributions:
From net investment income (0.16) (0.18) (0.22) (0.33) (0.08)
From net realized gain (2.58) - (1.65)
- -
-------------- ------------- ------------- ------------- ------------
Total distributions (2.74) (0.18) (1.87) (0.33) (0.08)
-------------- ------------- ------------- ------------- ------------
Net asset value, end of period $13.99 $ 17.56 $ 14.63 $ 14.11 $ 13.02
============== ============= ============ ============ ==============
TOTAL RETURN (3.73%) 21.38% 18.63% 11.06% 14.57%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $31,010 $47,450 $42,848 $40,222 $36,736
Ratio of expenses to average
net assets 1.23% 1.18% 1.28% 1.25% 1.20%
Ratio of net investment income
to average net assets 1.13% 0.80% 1.29% 1.55% 2.73%
Portfolio turnover rate 109% 65% 89% 105% 45%
</TABLE>
14
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments
June 30, 1999
<TABLE>
<CAPTION>
Number
COMMON STOCKS (55.8%) of Shares Value
---------- -----------
<S> <C> <C>
APPAREL & OTHER FINISHED PRODUCTS (0.3%)
Tommy Hilfiger Corporation (a) 800 $ 58,800
Jones Apparel Group, Inc. (a) 1,200 41,175
-----------
99,975
BASIC CHEMICAL PLASTICS & SYNTHETIC (0.5%)
Occidental Petroleum Corporation 800 16,900
Dow Chemical Company 600 76,125
MedImmune, Inc. (a) 700 47,534
The Valspar Corporation 600 22,800
-----------
163,359
BUSINESS SERVICES (1.6%)
American Management Systems, Inc. (a) 2,900 92,891
BMC Software, Inc. (a) 300 16,191
Citrix Systems, Inc. (a) 800 45,075
Computer Associates International, Inc. 500 27,500
DST Systems, Inc. (a) 900 56,588
Electronic Arts, Inc. (a) 100 5,413
Modis Professional Services, Inc. (a) 500 6,875
Rational Software Corporation (a) 600 19,781
SEI Investments Company 100 8,828
Siebel Systems, Inc. (a) 800 53,025
Sterling Software, Inc. (a) 6,600 176,136
-----------
508,303
COMMUNICATIONS (1.3%)
Telefonos de Venezuela 2,000 54,500
PT Telekomunikasi Indonesia 2,268 28,208
Telefonos de Mexico SA 3,800 307,088
-----------
389,796
DEPOSITORY INSTITUTIONS (3.2%)
Astoria Financial Corporation 1,000 43,906
Bank United Corporation 600 24,094
Citigroup, Inc. 2,750 130,625
Coast Federal (a) 1,000 1,094
Firstar Corporation 900 25,200
Golden State Bancorp, Inc. (a) 2,300 50,600
Golden State Bancorp, Inc. (a) 5,500 7,305
Golden West Financial Corporation 2,800 274,400
Providian Financial Corporation 400 37,400
Republic New York Corporation 600 40,913
The Chase Manhattan Corporation 4,000 346,498
-----------
982,035
EATING & DRINKING PLACES (2.1%)
Brinker International, Inc. (a) 11,800 320,812
Darden Restaurants, Inc. (b) 7,400 161,413
Foodmaker, Inc. (a) 6,000 170,250
-----------
652,475
ELECTRIC GAS & SANITARY SERVICE (4.0%)
Allegheny Energy, Inc. 2,700 86,569
Cinergy Corporation 1,300 41,600
DTE Energy Company (b) 3,600 144,000
Edison International 8,000 214,000
Energy East Corporation 2,800 72,800
Florida Progress Corporation 800 33,050
GPU, Inc. 6,800 286,875
OGE Energy Corporation 600 14,250
PECO Energy Company 2,000 83,750
PG&E Corporation 1,100 35,750
PP&L Resources, Inc. 2,777 85,393
Public Service Enterprise Group
Corporation, Inc. 700 28,613
Unicom Corporation 900 34,706
UtiliCorp United, Inc. 3,300 80,231
Westcoast Energy, Inc. 800 15,800
-----------
1,257,387
<CAPTION>
Number
COMMON STOCKS (CONTINUED) of Shares Value
---------- -----------
<S> <C> <C>
ELECTRICAL & ELECTRONIC MACHINERY (1.1%)
Lattice Semiconductor Corporation (a) 100 $ 6,211
Maytag Corporation 1,000 69,688
Nokia Oyj-Sponsored ADR 600 54,938
Sony Corporation 500 55,188
Texas Instruments, Inc. 400 58,000
Whirlpool Corporation 1,400 103,600
----------
347,625
FABRICATED METAL PRODUCTS (0.5%)
Ball Corporation 1,400 59,150
Fortune Brands, Inc. 2,200 91,025
----------
150,175
FOOD & KINDRED PRODUCTS (0.9%)
Adolph Coors Company 2,500 123,750
Anheuser-Busch Companies, Inc. 1,800 127,687
Quaker Oats Company 500 33,188
----------
284,625
FORESTRY (0.5%)
Georgia Pacific Company 1,400 66,325
Weyerhaeuser Company 1,300 89,375
----------
155,700
FURNITURE & FIXTURES (1.4%)
Furniture Brands International, Inc. (a) 10,700 298,263
Johnson Controls, Inc. 900 62,381
Lear Corporation (a) 800 39,800
Leggett & Platt, Inc. 1,300 36,156
----------
436,600
GENERAL BUILDING CONTRACTORS (1.5%)
Centex Corporation 11,600 435,725
Clayton Homes, Inc. 1,800 20,588
Lennar Corporation 1,000 24,000
----------
480,313
GENERAL MERCHANDISE STORES (2.4%)
Kmart Corporation (a) 12,200 200,538
Dayton Hudson Corporation 900 58,500
Dillard's, Inc. 700 24,588
Federated Department Stores, Inc. (a) 1,900 100,581
J.C. Penny Company, Inc. 500 24,281
Wal-Mart Stores, Inc. 7,000 337,750
----------
746,238
HOLDING & OTHER INVESTMENT OFFICES (1.6%)
Apartment Investment & Management Co. 1,200 51,300
CarrAmerica Realty Corporation 800 20,000
Cornerstone Properties, Inc. 1,500 23,813
Crescent Real Estate Equities Company 2,300 54,620
Duke-Weeks Realty Corporation 1,000 22,563
Equity Office Properties Trust 1,700 43,563
General Growth Properties 1,100 39,050
Kimco Realty Corporation 1,100 43,038
Liberty Property Trust 7,300 181,588
Spieker Properties, Inc. 600 23,325
----------
502,860
INDUSTRIAL MACHINERY & EQUIPMENT (2.5%)
Adaptec, Inc. (a) 800 28,225
Apple Computer (a) 2,400 111,300
Black & Decker Corporation 800 50,500
Briggs & Stratton Corporation 900 51,975
Cummins Engine Company, Inc. 600 34,275
Electronics for Imaging, Inc. (a) 300 15,355
Hewlett-Packard Company 300 30,150
Ingersoll-Rand Company 1,200 77,550
</TABLE>
15
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
Number
COMMON STOCKS (CONTINUED) of Shares Value
---------- -----------
<S> <C> <C>
INDUSTRIAL MACHINERY & EQUIPMENT (CONTINUED)
International Business Machines Corp. 1,900 $ 245,575
Lexmark International Group, Inc. (a) 1,000 66,063
New Holland N.V. 1,600 27,400
Pall Corporation 900 19,969
YORK International Corporation 700 29,969
-----------
788,306
INSTRUMENTS & RELATED PRODUCTS (0.8%)
Mallinckrodt, Inc. 2,700 98,213
Northrop Grumman Corporation 1,400 92,838
Waters Corporation (a) 1,100 58,438
-----------
249,489
INSURANCE CARRIERS (2.9%)
Aetna, Inc. 400 35,775
Ambac Financial Group, Inc. 4,200 239,925
Conseco, Inc. 800 24,350
Equitable Companies, Inc. 400 26,800
Everest Reinsurance Holdings, Inc. 1,800 58,725
Financial Security Assurance Holding Ltd. 1,200 62,400
Hartford Life, Inc. 500 26,313
Liberty Financial Companies, Inc. 1,400 40,775
Lincoln National Corporation 1,000 52,310
Nationwide Financial Services, Inc. 600 27,150
PacifiCare Health Systems, Inc. (a) 1,200 86,363
The Hartford Financial Services Group, Inc. 900 52,481
The PMI Group, Inc. 1,000 62,813
Travelers Property Casualty Corporation 800 31,300
Trigon Healthcare, Inc. (a) 1,300 47,288
United HealthCare Corporation 300 18,788
-----------
893,556
LUMBER & WOOD PRODUCTS EXCEPT (0.2%)
Louisiana-Pacific Corporation 2,500 59,375
-----------
MISC. MANUFACTURING INDUSTRIES (1.6%)
Tiffany & Company 1,100 106,150
Tyco International Ltd. 4,000 379,000
-----------
485,150
NONDEPOSITORY INSTITUTIONS (1.2%)
Countrywide Credit Industries, Inc. 1,000 42,750
Freddie Mac 5,000 290,000
The CIT Group, Inc. 900 25,988
The FINOVA Group, Inc. 400 21,050
-----------
379,788
OIL AND GAS EXTRACTION (0.6%)
Amerada Hess Corporation 1,500 89,250
Apache Corporation 600 23,400
Atlantic Richfield Company 300 25,069
Kerr McGee Corporation 500 25,090
USX-Marathon Group, Inc. 600 19,538
-----------
182,347
PAPER & ALLIED PRODUCTS (1.0%)
Kimberly-Clark Corporation 1,500 85,500
Temple-Inland, Inc. 1,200 81,900
The Mead Corporation 600 25,050
Westvaco Corporation 1,800 52,200
Willamette Industries, Inc. 1,700 78,306
-----------
322,956
PERSONAL SERVICES (0.2%)
H & R Block, Inc. 1,100 55,000
<CAPTION>
Number
COMMON STOCKS (CONTINUED) of Shares Value
---------- -----------
<S> <C> <C>
PETROLEUM & COAL PRODUCTS (0.5%)
ENI SpA 300 $ 18,000
Murphy Oil Corporation 500 24,406
Royal Dutch Petroleum Company 400 24,100
Shell Transport & Trading Company 1,200 55,650
The Coastal Corporation 500 20,000
-----------
142,156
PRIMARY METAL INDUSTRIES (0.1%)
CommScope, Inc. (a) 900 27,675
PRINTING & PUBLISHING (0.2%)
Knight Ridder, Inc. 1,100 60,431
RAILROAD TRANSPORTATION (0.1%)
Union Pacific Corporation 700 40,819
RETAIL-APPAREL & ACCESSORIES (2.9%)
American Eagle Outfitters, Inc. (a) 1,000 45,531
AnnTaylor Stores Corporation (a) 1,900 85,500
Claire's Stores, Inc. 2,100 53,813
Ross Stores, Inc. 9,200 462,588
The Gap, Inc. 3,450 173,794
The TJX Companies, Inc. 2,200 73,288
-----------
894,514
RETAIL-BUILDING MATERIALS (0.2%)
Lowe's Companies, Inc. 500 28,344
The Home Depot, Inc. 400 25,775
-----------
54,119
RETAIL-FURNITURE HOME FURNISH (0.2%)
Best Buy Co., Inc. (a) 400 27,000
Tandy Corporation 600 29,325
-----------
56,325
RETAIL-MISCELLANEOUS (0.6%)
CDW Computer Centers, Inc. (a) 300 13,219
Longs Drug Stores Corporation 1,600 55,300
Toys `R' Us, Inc. (a) 1,000 20,688
Zale Corporation (a) 2,500 100,000
-----------
189,207
RUBBER & MISC. PLASTICS PRODUCTS (1.1%)
Armstrong World Industries, Inc. 1,000 57,813
Cooper Tire & Rubber Company 2,200 51,975
Premark International, Inc. 6,000 225,000
-----------
334,788
SECURITY & COMMODITY (1.6%)
A.G. Edwards, Inc. 450 14,513
Legg Mason, Inc. 800 30,800
Lehman Brothers Holdings, Inc. 1,000 62,250
Merrill Lynch & Co., Inc. 1,000 79,938
Morgan Stanley, Dean Witter,
Discover and Company 1,600 164,000
Paine Webber Group, Inc. 1,100 51,425
T. Rowe Price Associates, Inc. 1,600 61,350
The Bear Stearns Companies, Inc. 1,000 46,750
-----------
511,026
SERVICES-AMUSEMENT EXCL MOTION PICTURES (0.2%)
Harrah's Entertainment, Inc. (a) 3,100 68,200
</TABLE>
16
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
Number
COMMON STOCKS (CONTINUED) of Shares Value
---------- -----------
<S> <C> <C>
SERVICES-HEALTH SERVICES (0.3%)
Columbia/HCA Healthcare Corporation 2,300 $ 52,469
Universal Health Services, Inc. (a) 700 33,425
-----------
85,894
STONE CLAY & GLASS PRODUCTS (3.3%)
Lafarge Corporation 4,000 141,750
Lone Star Industries, Inc. 1,900 71,369
Owens Corning 1,100 37,813
Southdown, Inc. 6,000 385,500
USG Corporation 7,200 403,200
-----------
1,039,632
TEXTILE MILL PRODUCTS (0.9%)
BJ's Wholesale Club, Inc. (a) 900 27,056
Mohawk Industries, Inc. (a) 7,950 241,481
-----------
268,537
TRANSIT & PASSENGER TRANSPORTATION (0.1%)
Canadian National Railway Company 400 26,800
TRANSPORTATION BY AIR (1.2%)
Delta Air Lines, Inc. (b) 3,400 195,925
KLM Royal Dutch Airlines N.V. 34 971
Southwest Airlines Company 5,200 161,850
-----------
358,746
TRANSPORTATION EQUIPMENT (7.0%)
Brunswick Corporation 13,200 367,950
Cordant Technologies, Inc. 6,800 307,275
DaimlerChrysler AG 1 44
FMC Corporation (a) 1,300 88,806
Ford Motor Company (b) 7,700 434,569
General Dynamics Corporation 1,000 68,500
Honda Motor Co., Ltd. 100 8,675
Navistar International Corporation (a) 8,000 400,000
PACCAR, Inc. 7,500 400,547
Rockwell International Corporation 900 54,675
TRW, Inc. 1,000 54,875
-----------
2,185,916
WHOLESALE TRADE-DURABLE GOODS (0.3%)
Borg-Warner Automotive, Inc. 1,600 88,000
WHOLESALE TRADE-NONDURABLE GOODS (1.1%)
Boise Cascade Corporation 5,200 222,950
Du Pont (E.I.) de Nemours & Co. 800 54,650
SUPERVALU, Inc. 2,300 59,081
-----------
336,681
TOTAL COMMON STOCKS (Cost $14,694,045) 17,342,899
<CAPTION>
Principal
SHORT-TERM SECURITIES (44.2%) Amount Value
---------- -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCY (42.5%)
Federal Home Loan Bank Consolidation
Discount Note, 4.75%, due 7/7/1999 $1,220,000 $1,219,034
Federal Home Loan Mortgage
Discount Note, 4.75%, due 7/9/1999 790,000 789,166
Federal Home Loan Mortgage
Discount Note, 4.75%, due 7/14/1999 780,000 778,663
Federal Home Loan Mortgage
Discount Note, 5.03%, due 8/14/1999 2,120,000 2,107,263
Federal National Mortgage
Association Discount Note, 4.79%,
due 7/19/1999 2,850,000 2,843,174
Federal National Mortgage
Association Discount Note, 5.01%,
due 7/28/1999 5,460,000 5,439,484
------------
13,176,784
U.S. GOVERNMENT OBLIGATIONS (0.3%)
U.S. Treasury Bills, 4.43%, due 8/19/1999 (b) 100,000 99,397
REPURCHASE AGREEMENT (1.4%)
State Street Bank, 3.50%, due 7/1/199
(Dated 6/30/1999, collateralized by
U.S. Treasury Note, 8.750%, due
8/15/2020, value $445,400) 434,488 434,488
-----------
TOTAL SHORT-TERM SECURITIES (Cost $ 13,710,668) 13,710,669
-----------
TOTAL INVESTMENTS (100.0%) (Cost $28,404,713) $31,053,568
=============
</TABLE>
(a) Non-income producing.
(b) Portion of the security was pledged to cover margin
requirements for futures contracts. At the period end,
the value of the securities pledged amounted
to $1,035,304.
FUTURES CONTRACTS
<TABLE>
Expiration Contract Unrealized
Date Amount Gain
------------- ------------- -------------
<S> <C> <C> <C>
2 S&P 500 Index
Futures Contracts-Long Sept. 1999 $690,850 $11,397
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for
the year ended June 30, 1999, aggregated $31,117,136 and $45,887,091,
respectively. At June 30, 1999, net unrealized appreciation for tax
purposes aggregated $2,648,855, of which $2,866,642 related to appreciated
investments and $237,787 related to depreciated investments. The aggregate
cost of securities was the same for book and tax purposes.
SEE ACCOMPANYING NOTES.
17
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Assets and Liabilities
June 30, 1999
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $10,205,577)--See accompanying schedule, $10,991,519
Dividends, interest and other receivables 9,712
Receivable for investments sold 1,514
Receivable for capital shares sold 13,650
-------------------
Total assets 11,016,395
LIABILITIES
Redemptions payable 22,019
-------------------
Total liabilities 22,019
-------------------
NET ASSETS $10,994,376
-------------------
-------------------
Net Assets consist of:
Paid-in capital 10,364,895
Undistributed net investment income 87,679
Accumulated net realized loss on investments (244,280)
Net unrealized appreciation on investments and futures contracts 786,082
-------------------
NET ASSETS, for 903,196 shares outstanding $10,994,376
-------------------
NET ASSET VALUE, offering and redemption price per share $ 12.17
-------------------
</TABLE>
Statement of Operations
Year Ended June 30, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $345) $ 133,215
Interest 145,776
-------------------
Total investment income 278,991
EXPENSES
Investment advisory and management fees 129,719
Custody and accounting fees 50,365
Professional fees 9,592
Directors' fees and expenses 4,898
Other expenses 8,745
-------------------
Total expenses before reimbursement 203,319
Less: expense reimbursement (12,007)
-------------------
Net expenses 191,312
-------------------
Net investment income 87,679
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on:
Investments (205,488)
Futures contracts (38,722)
-------------------
Net realized loss (244,210)
Change in net unrealized appreciation (depreciation) on investment securities:
Investments (1,560,913)
Futures contracts 140
-------------------
Change in net unrealized depreciation (1,560,773)
-------------------
Net realized and unrealized loss on investments (1,804,983)
-------------------
Net decrease in net assets resulting from operations $ (1,717,304)
-------------------
-------------------
SEE ACCOMPANYING NOTES.
</TABLE>
18
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 87,679 $ 34,791
Net realized gain (loss) on investments (244,210) 3,021,050
Change in net unrealized appreciation (depreciation) (1,560,773) (316,405)
----------------- -----------------
Net increase (decrease) in net assets resulting from operations (1,717,304) 2,739,436
Distributions to shareholders from:
Net investment income (34,791) (103,886)
Net realized gain (3,046,182) (473,364)
----------------- -----------------
Total distributions to shareholders (3,080,973) (577,250)
Capital share transactions:
Proceeds from sales of shares 2,936,546 4,519,161
Proceeds from reinvested distributions 3,080,973 577,250
Cost of shares redeemed (4,913,316) (3,731,320)
----------------- -----------------
Net increase in net assets resulting from share transactions 1,104,203 1,365,091
----------------- -----------------
Total increase (decrease) in net assets (3,694,074) 3,527,277
NET ASSETS
Beginning of period 14,688,450 11,161,173
----------------- -----------------
End of period (including undistributed net investment income of $87,679
and $34,791, respectively) $10,994,376 $14,688,450
----------------- -----------------
----------------- -----------------
OTHER INFORMATION
Shares:
Sold 192,871 281,798
Issued through reinvestment of distributions 257,324 35,368
Redeemed (382,755) (233,008)
----------------- -----------------
Net increase 67,440 84,158
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Zweig Equity (Small Cap) Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning $ 17.58 $ 14.85 $ 13.61 $ 11.62 $10.65
of period
Income from investment operations:
Net investment income 0.10 0.04 0.16 0.11 0.17
Net realized and unrealized
gain (loss) on investments (1.80) 3.48 2.41 2.04 0.93
--------------- ------------- -------------- ------------- --------------
Total from investment operations (1.70) 3.52 2.57 2.15 1.10
Less distributions:
From net investment income (0.04) (0.14) (0.14) (0.16) (0.06)
From net realized gain (3.67) (0.65) (1.19) - (0.07)
--------------- ------------- -------------- ------------- --------------
Total distributions (3.71) (0.79) (1.33) (0.16) (0.13)
--------------- ------------- -------------- ------------- --------------
Net asset value, end of period $ 12.17 $ 17.58 $ 14.85 $ 13.61 $11.62
--------------- ------------- -------------- ------------- --------------
--------------- ------------- -------------- ------------- --------------
TOTAL RETURN (9.24%) 23.72% 20.37% 18.69% 10.39%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $10,994 $14,688 $11,161 $11,698 $8,034
Ratio of expenses to average net assets 1.54% 1.52% 1.55% 1.55% 1.55%
Ratio of expenses to average net assets
before voluntary expense
Reimbursement 1.64% 1.56% 1.82% 1.83% 1.59%
Ratio of net investment income
to average net assets 0.71% 0.26% 0.97% 1.06% 1.54%
Ratio of net investment income to
average net assets before voluntary
expense reimbursement 0.61% 0.22% 0.70% 0.78% 1.50%
Portfolio turnover rate 76% 113% 59% 101% 67%
</TABLE>
20
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments
June 30, 1999
<TABLE>
<CAPTION>
NUMBER
COMMON STOCKS (61.4%) OF SHARES VALUE
---------- -----------
<S> <C> <C>
AGRICULTURAL SERVICES (0.1%)
Veterinary Centers of America, Inc. (a)
500 $ 6,766
APPAREL & OTHER FINISHED PRODUCTS (0.1%)
Oshkosh B'Gosh, Inc. 700 14,634
BASIC CHEMICAL PLASTICS & SYNTHETICS (1.8%)
Albemarle Corporation 3,200 74,000
Alpharma, Inc. 100 3,556
Church & Dwight, Inc. 300 13,050
Cytec Industries, Inc. (a) 300 9,563
H. B. Fuller Company 400 27,338
Lubrizol Corporation 100 2,725
Medicis Pharmaceutical Corporation (a) 500 12,687
Roberts Pharmaceutical Corporation (a) 500 12,125
The Scotts Company (a) 100 4,762
The Valspar Corporation 300 11,400
W.R. Grace & Company (a) 200 3,675
-----------
174,881
BUSINESS SERVICES (2.8%)
ADVO, Inc. (a) 400 8,300
American Management Systems, Inc. (a) 800 25,625
Avant! Corporation (a) 400 5,037
IMRglobal Corporation (a) 300 5,794
Interim Services, Inc. (a) 700 14,438
Jack Henry & Associates, Inc. 100 3,913
Lason, Inc. (a) 600 29,850
Mercury Interactive Corporation (a) 100 3,544
NCO Group, Inc. (a) 700 26,512
Orbotech Ltd. (a) 600 30,937
Personnel Group of America, Inc. (a) 700 7,000
Progress Software Corporation (a) 1,200 34,124
Rent-A-Center, Inc. (a) 800 19,175
Sterling Software, Inc. (a) 400 10,675
Symantec Corporation (a) 1,900 48,509
-----------
273,433
COMMUNICATIONS (0.1%)
Telefonos de Venezuela 300 8,175
DEPOSITORY INSTITUTIONS (3.8%)
Bank United Corporation 700 28,109
City National Corporation 200 7,487
Coast Federal (a) 300 328
Dime Community Bancshares 400 9,250
First Republic Bank (a) 200 5,788
FirstFed Financial Corporation (a) 2,000 38,500
Flagstar Bancorp, Inc. 1,100 27,705
Harbor Florida Bancorp, Inc. 1,200 14,663
MAF Bancorp, Inc. 1,275 30,879
Mid-America Bancorp 6 148
Oriental Financial Group, Inc. 300 7,237
PFF Bancorp, Inc.(a) 700 13,191
Queens County Bancorp, Inc. 700 22,641
Republic Bancorp, Inc. 2,125 32,405
Roslyn Bancorp, Inc. 5,360 92,292
U.S. Trust Corporation 300 27,750
Washington Federal, Inc. 570 $12,772
Webster Financial Corporation 400 10,875
----------
382,020
EATING & DRINKING PLACES (2.8%)
Applebee's International, Inc. 100 3,025
Bob Evans Farms, Inc. 900 17,859
Brinker International, Inc. (a) 1,900 51,656
CEC Entertainment, Inc. (a) 1,200 50,700
Foodmaker, Inc. (a) 3,000 85,125
Ruby Tuesday, Inc. 2,700 51,300
Ryan's Family Steak Houses, Inc. 1,500 17,391
----------
277,056
ELECTRIC GAS & SANITARY SERVICES (1.0%)
Aqua Alliance, Inc. (a) 1,400 1,400
Calpine Corporation (a) 500 27,000
OGE Energy Corporation 100 2,375
Rochester Gas & Electric Corporation 2,500 66,406
Safety-Kleen Corporation (a) 200 3,625
----------
100,806
ELECTRICAL & ELECTRONICS MACHINERY (1.5%)
CTS Corporation 700 49,000
Genlyte Group, Inc. (a) 1,400 31,456
Imation Corporation (a) 200 4,963
Moog, Inc. (a) 300 10,312
SLI, Inc. (a) 100 2,700
Standard Motor Products 400 9,800
The DII Group, Inc. (a) 100 3,719
TranSwitch Corporation (a) 650 30,773
Triumph Group, Inc. (a) 400 10,200
----------
152,923
FABRICATED METAL PRODUCTS (2.0%)
Ball Corporation 1,700 71,825
Mark IV Industries, Inc. 300 6,337
NCI Building Systems, Inc. (a) 700 14,963
Nortek, Inc. (a) 400 12,525
Tower Automotive, Inc. (a) 2,100 53,419
United Dominion Industries Ltd. 1,100 26,675
----------
185,744
FOOD & KINDRED PRODUCTS (1.4%)
Canandaigua Brands, Inc. (a) 1,200 62,887
Corn Products International, Inc. 100 3,044
IBP, Inc. 1,400 33,250
Imperial Holly Corporation 1 4
Smithfield Foods, Inc. (a) 1,300 43,266
----------
142,451
FURNITURE & FIXTURES (1.2%)
BE Aerospace, Inc.(a) 800 14,975
Ethan Allen Interiors, Inc. 150 5,662
Furniture Brands International, Inc. (a) 2,900 80,838
La-Z-Boy, Inc. 700 16,100
----------
117,575
</TABLE>
21
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
Number
of
COMMON STOCKS (CONTINUED) Shares Value
------------ -----------
<S> <C> <C>
GENERAL BUILDING CONTRACTORS (2.5%)
Clayton Home, Inc. 1,600 $ 18,300
Crossman Communities, Inc. (a) 600 17,381
Del Webb Corporation 700 16,713
Fairfield Communities, Inc. (a) 500 8,063
Kaufman & Broad Home Corporation 1,200 29,850
Lennar Corporation 300 7,200
M.D.C. Holdings, Inc. 400 8,600
McGrath Rentcorp 200 3,925
NVR, Inc. (a) 300 15,656
Pulte Corporation 3,200 73,800
Standard Pacific Corporation 1,300 16,819
The Ryland Group, Inc. 600 17,812
Toll Brothers, Inc. (a) 600 12,862
U.S. Home Corporation (a) 400 14,200
-----------
261,181
GENERAL MERCHANDISE STORES (1.0%)
99 Cents Only Stores (a) 200 9,988
Ames Department Stores, Inc. (a) 1,100 50,119
Shopko Stores, Inc. (a) 800 29,000
The Neiman Marcus Group, Inc. (a) 300 7,706
-----------
96,813
HEAVY CONSTRUCTION CONTRACTORS (0.1%)
Morrison Knudsen Corporation (a) 900 9,281
HOLDING & OTHER INVESTMENTS OFFICES (4.5%)
Bradley Real Estate, Inc. 500 10,375
Brandywine Realty Trust 600 11,888
Camden Property Trust 300 8,325
CarrAmerica Realty Corporation 500 12,500
CBL & Associates Properties, Inc. 2,500 65,938
Cornerstone Properties, Inc. 800 12,700
Developers Diversified Realty Corporation 600 9,975
Essex Property Trust, Inc. 400 14,150
General Growth Properties 1,600 56,800
Glenbourough Realty Trust, Inc. 600 10,500
Health Care REIT, Inc. 400 9,300
Liberty Property Trust 2,900 72,137
Mack-Cali Realty Corporation 400 12,375
MGI Properties, Inc. 300 8,475
Pacific Gulf Properties, Inc. 400 9,050
Pan Pacific Retail Properties, Inc. 400 7,750
Prentiss Properties Trust 400 9,400
Reckson Associates Realty Corporation 700 16,450
RFS Hotel Investors, Inc. 1,200 15,075
Taubman Centers, Inc. 3,000 39,562
The Rouse Company 500 12,687
TriNet Corporate Realty Trust, Inc. 400 11,075
Urban Shopping Centers, Inc. 300 9,450
-----------
445,937
HOTELS & OTHER LODGING (0.1%)
Extended Stay America, Inc. (a) 300 3,600
INDUSTRIAL MACHINERY & EQUIPMENT (3.8%)
Astec Industries, Inc. (a) 800 32,900
Briggs & Stratton Corporation 1,100 63,525
Donaldson Company, Inc. 500 12,250
Lincoln Electric Holdings 200 4,150
SPS Technologies, Inc. (a) 1,300 48,750
Tecumseh Products Company 300 18,159
Terex Corporation (a) 1,200 36,525
The Manitowoc Company, Inc. 2,225 $ 92,616
Xircom, Inc. (a) 1,400 42,131
YORK International Corporation 1,100 47,094
-----------
398,100
INSTRUMENTS & RELATED PRODUCTS (1.2%)
Fossil, Inc. (a) 2,250 108,563
ResMed, Inc. (a) 200 6,631
-----------
115,194
INSURANCE AGENTS BROKERS (0.2%)
E. W. Blanch Holdings, Inc. 300 20,456
INSURANCE CARRIERS (2.8%)
National Western Life Insurance Co. (a) 100 9,712
Everest Reinsurance Holdings, Inc. 400 13,050
FBL Financial Group, Inc. 700 13,650
Financial Security Assurance Holding Ltd. 1,300 67,600
Hartford Life, Inc. 100 5,263
HCC Insurance Holding, Inc. 400 9,075
Liberty Financial Companies, Inc. 1,200 34,950
Medical Assurance, Inc. (a) 293 8,277
Nationwide Financial Services, Inc. 400 18,100
Radian Group, Inc. 833 40,675
Stewart Information Services
Corporation 500 10,563
Triad Guaranty, Inc. (a) 1,200 21,525
Trigon Healthcare, Inc. (a) 600 21,825
UICI (a) 500 13,813
-----------
288,078
LEATHER & LEATHER PRODUCTS (0.2%)
The Timberland Company (a) 300 20,419
LIVESTOCK (0.5%)
Michael Foods, Inc. 1,300 30,388
Pilgrim's Pride Corporation 700 21,000
-----------
51,388
LUMBER & WOOD PRODUCTS (0.9%)
Champion Enteprises, Inc. (a) 1,200 22,350
MacMillan Bloedel Ltd. 1,200 21,713
TJ International, Inc. 1,400 43,225
-----------
87,288
MISC. MANUFACTURING INDUSTRIES (0.1%)
Callaway Golf Company 200 2,925
MOTION PICTURES (0.2%)
Hollywood Entertainment Corporation (a) 900 17,578
NONDEPOSITORY INSTITUTIONS (1.3%)
Doral Financial Corporation (b) 4,200 72,319
Healthcare Financial Partners, Inc. (a) 400 13,700
Metris Companies, Inc. 400 16,300
Resource Bancshares Mortgage Group, Inc. 3,100 31,581
-----------
133,900
OIL & GAS EXTRACTION (0.1%)
Equitable Resources, Inc. 100 3,775
PAPER & ALLIED PRODUCTS (0.3%)
Wausau-Mosinee Paper Corporation 1 11
Chesapeake Corporation 900 33,694
Domtar, Inc. 100 950
-----------
34,655
</TABLE>
22
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
Number
COMMON STOCKS (CONTINUED) of Shares Value
----------- ----------
<S> <C> <C>
PETROLEUM & COAL PRODUCTS (0.3%)
Elcor Corporation 300 $13,106
Murphy Oil Corporation 300 14,644
----------
27,750
PRIMARY METAL PRODUCTS (1.5%)
AFC Cable Systems, Inc. (a) 1,200 42,375
CommScope, Inc. (a) 1,200 36,900
Curtiss-Wright Corporation 200 7,775
General Cable Corporation (a) 800 12,800
Internet Corporation 1,200 18,075
Mueller Industries, Inc. (a) 200 6,788
Roanoke Electric Steel Corporation 50 867
Tredegar Industries, Inc. 1,050 22,837
----------
148,417
PRINTING & PUBLISHING (0.9%)
Merrill Corporation 1,500 21,282
Quebecor Printing, Inc. 300 6,506
World Color Press, Inc. (a) 2,200 60,500
----------
88,288
RAILROAD TRANSPORTATION (0.1%)
Florida East Coast Industries, Inc. 300 13,275
REAL ESTATE (0.4%)
Castle & Cooke, Inc. (a) 400 7,050
Catellus Development Corporation (a) 1,700 26,350
U.S. Restaurant Properties, Inc. 400 8,500
----------
41,900
RETAIL-APPAREL & ACCESSORIES (2.2%)
American Eagle Outfitters, Inc. (a) 1,400 63,744
Ann Taylor Stores Corporation (a) 1,600 72,000
The Buckle, Inc. (a) 650 18,688
The Cato Corporation 2,400 27,900
Claire's Stores, Inc. 1,300 33,313
Pacific Sunwear of California, Inc. (a) 1,200 29,287
The Talbot's, Inc. 100 3,812
----------
248,744
RETAIL-MISCELLANEOUS (1.4%)
Micro Warehouse, Inc. (a) 200 3,550
Trans World Entertainment Corporation (a) (b) 3,800 42,513
Zale Corporation (a) (b) 2,300 92,000
----------
138,063
RUBBER & MISC PLASTICS PRODUCTS (0.6%)
Cooper Tire & Rubber Company 1,700 40,162
Spartech Corporation 700 22,138
----------
62,300
SECURITY & COMMODITY BROKERS (0.2%)
Legg Mason, Inc. 400 15,400
SERVICES AMUSEMENT EXCL MOTION (0.3%)
Bally Total Fitness Holding Corporation (a) 1,200 34,050
SERVICES-AUTO REPAIR GARAGES (0.7%)
Avis Rent A Car, Inc. (a) 1,800 52,425
Rollins Truck Leasing Corporation 1,600 17,800
----------
70,225
SERVICES-ENGINEERING ACCOUNTING (0.4%)
Jacobs Engineering Group, Inc. (a) 400 15,200
URS Corporation (a) 700 20,519
----------
35,719
SERVICES-HEALTH SERVICES (0.5%)
Hooper Holmes, Inc. 1,100 22,413
Universal Health Services, Inc. (a) 500 23,875
----------
46,288
SPECIAL TRADE CONTRACTORS (0.8%)
Dycom Industries, Inc. (a)
1,450 $81,200
STONE CLAY & GLASS PRODUCTS (1.3%)
Centex Construction Products, Inc. 1,200 40,950
Cristalerias de Chile - ADR 300 4,631
Lone Star Industries, Inc. 2,300 86,394
-----------
131,975
TEXTILE MILL PRODUCTS (0.2%)
BJ's Wholsale Club, Inc. (a) 200 6,013
Mohawk Industries, Inc. (a) 400 12,150
Springs Industries, Inc. 100 4,362
-----------
22,525
TRANSPORTATION BY AIR (1.2%)
America West Holdings Corporation (a) 3,300 62,288
Midwest Express Holdings, Inc. (a) 250 8,500
Sky West, Inc. (b) 1,900 47,203
-----------
117,991
TRANSPORTATION EQUIPMENT (4.4%)
A.O. Smith Corporation 450 12,600
Arvin Industries, Inc. (b) 2,200 83,324
Avondale Industries, Inc. (a) 2,300 89,844
Cordant Technologies, Inc. 1,800 81,338
JLG Industries, Inc. 600 12,225
MotivePower Industries, Inc. (a) (b) 3,350 60,300
Newport News Shipbuilding Inc. 500 14,750
Thor Industires, Inc. 300 8,513
Varlen Corporation 1,450 58,453
Winnebago Industries 1,000 22,500
-----------
443,847
TRUCKING & WAREHOUSING (2.4%)
CNF Transportion, Inc. 100 3,838
M.S. Carriers, Inc. (a) 2,400 71,175
US Freightways Corporation 2,300 105,872
Werner Enterprises, Inc. 3,025 62,768
-----------
243,653
WATER TRANSPORTATION (0.3%)
Alexander & Baldwin, Inc. 500 11,094
Sea Containers, Ltd. 700 23,494
-----------
34,588
WHOLESALE TRADE - DURABLE GOOD (2.0%)
Action Performance Companies, Inc. (a) 400 13,188
Borg-Warner Automotive, Inc. 1,300 71,500
Crane Co. 200 6,288
Hughes Supply, Inc. 500 14,843
Insight Enterprises, Inc. (a) 3,075 76,010
Simpson Manufacturing Co., Inc. (a) 300 14,250
-----------
196,079
WHOLESALE TRADE - NONDURABLE GOOD (0.9%)
Fresh Del Monte Produce, Inc. (a) 700 9,888
Handleman Company (a) 1,200 14,175
Myers Industries, Inc. 700 14,000
The Men's Wearhouse, Inc. (a) 100 2,568
United Stationers, Inc. (a) 2,300 50,672
Valhi, Inc. 200 2,225
-----------
93,528
-----------
TOTAL COMMON STOCKS (Cost $5,376,895) 6,162,837
</TABLE>
23
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
----------- -----------
<S> <C> <C>
SHORT-TERM SECURITIES (38.6%)
U.S. GOVERNMENT OBLIGATIONS (34.5%)
U.S. Treasury Bill, 4.365%, due
7/29/1999 (b) $ 50,000 $ 49,830
Federal Home Loan Mortgage,
Discount Notes, 4.760% due 7/2/1999 500,000 499,934
Federal Home Loan Mortgage
Discount Notes, 5.030%, due 8/12/1999 1,330,000 1,322,195
Federal National Mortgage Association
Discount Notes, 4.790%, due 7/19/1999 1,560,000 1,556,264
Federal National Mortgage Association
Discount Notes, 5.010%, due 7/28/99 1,000,000 996,243
-----------
4,424,466
REPURCHASE AGREEMENT (4.1%)
State Street Bank, 3.50%, due 7/1/1999
(Dated 6/30/1999, collateralized by
U.S. Treasury Note, 7.875%,
due 2/15/2021, value $414,000) 404,216 404,216
-----------
TOTAL SHORT-TERM SECURITIES (Cost $4,828,682) 4,828,682
-----------
TOTAL INVESTMENTS (100.0%) (Cost $10,205,577) $10,991,519
===========
</TABLE>
(a) Non-income producing.
(b) A portion of the security was pledged to cover margin
requirements for futures contracts. At the period end,
the value of the securities pledged amounted to $413,943.
FUTURES CONTRACTS
<TABLE>
<CAPTION>
EXPIRATION CONTRACT UNREALIZED
DATE AMOUNT GAIN
----------- ----------- -----------
<S> <C> <C> <C>
1 S&P 500 Index
Futures Contract-Long Sept. 1999 $345,425 $140
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1999, aggregated $7,148,996 and $11,773,858, respectively.
At June 30, 1999, net unrealized appreciation for tax purposes aggregated
$781,696, of which $1,010,231 related to appreciated investments and $228,535
related to depreciated investments. The aggregate cost of securities was
$10,209,823 for tax purposes.
SEE ACCOMPANYING NOTES.
24
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements
June 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Legends Fund, Inc. (the "Fund") was formed on July 22, 1992. The Fund is
registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company. As of June 30, 1999, the Fund had four
investment portfolios (the "Portfolios"): Harris Bretall Sullivan & Smith Equity
Growth, Scudder Kemper Value, Zweig Asset Allocation, and Zweig Equity (Small
Cap). ARM Securities Corporation ("ARM Securities"), a registered broker-dealer
under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc., distributes shares of the Fund to a
variable annuity separate account of both Integrity Life Insurance Company
("Integrity") and its wholly owned subsidiary, National Integrity Life Insurance
Company ("National Integrity"). Integrity Capital Advisors, Inc. ("Integrity
Capital Advisors"), registered with the Securities and Exchange Commission as an
investment adviser, provides management services to the Fund pursuant to a
management agreement (the "Management Agreement") effective July 10, 1998.
ARM Financial Group, Inc. ("ARM") is the ultimate parent of Integrity Capital
Advisors, Integrity, National Integrity, and ARM Securities. ARM specializes in
the growing asset accumulation business with particular emphasis on retirement
savings and investment products. At June 30, 1999, ARM had approximately $10.4
billion of assets under management.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") for investment companies.
SECURITY VALUATION
Stocks that are traded on a national exchange are valued at the last sale price
on the exchange on which they are primarily traded, or, if there is no sale, at
the mean between the current bid and asked prices. Over-the-counter securities
for which market quotations are readily available are valued at the mean of the
current bid and asked prices.
25
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Short-term debt securities with remaining maturities of 61 days or more for
which reliable quotations are readily available are valued at current market
quotations. Short-term investments with remaining maturities of 60 days or less
are valued using the amortized cost method of valuation, which approximates
market value. Bonds and other fixed-income securities (other than short-term
securities described above) are valued using market quotations provided by a
pricing service under procedures approved by the Fund's Board of Directors.
Futures contracts and options thereon traded on a commodities exchange or board
of trade are valued at the closing settlement price. Futures and option
positions or any other securities or assets for which reliable market quotations
are not readily available or for which valuation cannot be provided by a pricing
service approved by the Board of Directors of the Fund are valued at fair value
as determined in good faith by the Board of Directors.
SECURITY TRANSACTIONS
Securities transactions are accounted for as of the trade date. Interest income
is accrued daily. Dividend income is recorded on the ex-dividend date. Premiums
and discounts on securities purchased are amortized using the effective interest
method. Realized gains and losses on sales of investments are determined on the
basis of nearest average for all of the Portfolios except Zweig Asset
Allocation, which uses the first-in, first-out method.
FEDERAL INCOME TAX MATTERS
The Fund complied with the requirements of the Internal Revenue Code applicable
to regulated investment companies and distributes its taxable net investment
income and net realized gains sufficient to relieve it from all, or
substantially all, federal income, excise and state income taxes. Therefore, no
provision for federal or state income tax is required. The Zweig Equity (Small
Cap) Portfolio has a capital loss carryforward of $239,894, which expires in
2007.
DIVIDEND DISTRIBUTIONS
Dividends from net investment income and distributions from net realized gains
are declared and distributed annually. Dividends and distributions are recorded
on the ex-dividend date. All dividends are reinvested in additional full and
fractional shares of the related Portfolios.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences, which may result in distribution reclassifications, are
primarily due to differing treatments for futures transactions, passive foreign
investment companies, capital losses, and losses deferred due to wash sales.
26
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURES CONTRACTS
Certain Portfolios may enter into futures contracts to protect against adverse
movement in the price of securities in the Portfolio or to enhance investment
performance. When entering into a futures contract, changes in the market price
of the contracts are recognized as unrealized gains or losses by marking each
contract to market at the end of each trading day through a variation margin
account. When a futures contract is closed, the Portfolios record a gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The face amount of the futures
contracts shown in the Schedule of Investments reflects each contract's value at
June 30, 1999.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the Statement of Assets and
Liabilities. The Portfolios bear the market risk that arises from any changes in
contract values.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with institutions that the Fund's
investment manager, Integrity Capital Advisors, has determined are creditworthy
pursuant to criteria adopted by the Board of Directors. Each repurchase
agreement is recorded at cost. The Fund requires that the securities purchased
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the Fund to obtain those securities in the event of a
default under the repurchase agreement. The value of the securities transferred
is monitored daily to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the Fund under each repurchase agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
27
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
Integrity Capital Advisors, the Fund's investment adviser, has entered into a
sub-advisory agreement with a registered investment adviser ("Sub-Adviser") for
each of the Portfolios. Integrity Capital Advisors, not the Fund, pays the
sub-advisory fee to each of the Sub-Advisers.
Listed below are management and sub-advisory fees payable as a percentage of
average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO MANAGEMENT FEE SUB-ADVISORY FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris Bretall Sullivan & Smith Equity Growth 0.65% 0.40%
Scudder Kemper Value 0.65% 0.40%
Zweig Asset Allocation 0.90% 0.65%
Zweig Equity (Small Cap) 1.05% 0.80%
</TABLE>
Under the Management Agreement, Integrity Capital Advisors provides certain
management services to the Fund, and the Fund is responsible for certain of its
direct operating expenses. Integrity Capital Advisors has voluntarily agreed to
reimburse each of the Portfolios for operating expenses (excluding management
fees) above an annual rate of 0.5% of average daily net assets. Integrity
Capital Advisors has reserved the right to withdraw or modify its policy of
expense reimbursement for the Portfolios.
Certain officers and directors of the Fund are also officers of ARM, ARM
Securities, Integrity Capital Advisors, Integrity, and National Integrity. The
Fund does not pay any amounts to compensate these individuals.
3. CAPITAL SHARES
At June 30, 1999, the Fund had authority to issue one billion (1,000,000,000)
shares of common stock, $.001 par value each, in any class or classes as
determined by the Board of Directors. At such date, four classes of shares
authorized by the Board of Directors were being offered as follows: 55,000,000
shares each for Harris Bretall Sullivan & Smith Equity Growth, Scudder Kemper
Value, Zweig Asset Allocation, and Zweig Equity (Small Cap).
At June 30, 1999, Integrity, through its variable annuity Separate Account II,
and National Integrity, through its variable annuity Separate Account II, were
the record owners of all the outstanding shares of the Fund.
28
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
4. SHAREHOLDER MEETINGS
A Special Meeting of Shareholders of the Zweig Asset Allocation Portfolio and
Zweig Equity (Small Cap) Portfolio was held on March 30, 1999. Each matter voted
upon at that meeting, as well as the number of votes cast for, against or
withheld, the number of abstentions, and the number of broker non-votes with
respect to such matters, are set forth below:
(1) The Zweig Asset Allocation Portfolio shareholders approved a new
sub-advisory agreement and a new sub-advisory servicing agreement
by and among Zweig/Glaser Advisors, certain of its affiliates and
Zweig Consulting LLC.
<TABLE>
<CAPTION>
Shares Shares Broker
Voted "For" Voted "Against" Abstentions Non-Votes
------------------------ --------------------- --------------------- ----------------------
<S> <C> <C> <C>
2,628,798.08 191,438.169 - -
</TABLE>
(2) The Zweig Equity (Small Cap) Portfolio shareholders approved a new
sub-advisory agreement and a new sub-advisory servicing agreement
by and among Zweig/Glaser Advisors, certain of its affiliates and
Zweig Consulting LLC.
<TABLE>
<CAPTION>
Shares Shares Broker
Voted "For" Voted "Against" Abstentions Non-Votes
------------------------ --------------------- --------------------- ----------------------
<S> <C> <C> <C>
923,814.47 124,537.706 - -
</TABLE>
5. SUBSEQUENT EVENTS RELATING TO ARM AND INTEGRITY
On July 29, 1999, ARM announced that it is restructuring its institutional
business and positioning its retail business and technology operations for the
sale of ARM. ARM's efforts to find a buyer have been unsuccessful. As a result,
ARM has sought protection with respect to its insurance subsidiary, Integrity,
from the Ohio Department of Insurance. Integrity is domiciled in Ohio. On August
20, 1999, Integrity consented to a Supervision Order issued by the Ohio
Department of Insurance. The Supervision Order will remain in effect for 60
days. Unless the Ohio Department of Insurance begins proceedings for the
appointment of a rehabilitator or liquidator, the Supervision Order may
automatically be extended for successive 60-day periods until written notice is
given to Integrity ending the supervision.
This regulatory action is intended to ensure an orderly process for addressing
the financial obligations of Integrity and to protect the interests of its
individual policyholders. ARM believes that Integrity has adequate assets to
meet its obligations to individual retail policyholders. Integrity will continue
payments of death benefits, previously scheduled systematic withdrawals,
previously scheduled immediate annuity payments, and agent commissions, but must
receive written consent from the Ohio Department of Insurance for other
payments. In particular, the Supervision Order suspends the processing of
surrenders of policies except in cases of approved
29
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
5. SUBSEQUENT EVENTS RELATING TO ARM AND INTEGRITY (CONTINUED)
hardship. Integrity intends to seek appropriate relief to the extent necessary
from the Securities and Exchange Commission to effectuate the suspension of
surrenders.
The possibility exists that National Integrity could be placed under
rehabilitation by the New York Department of Insurance if the New York
Department believes that such action is necessary or appropriate to protect the
interests of policyholders. New York is the domiciliary state of National
Integrity.
The Board of Directors of ARM is continuing to explore all strategic
alternatives, including the sale of ARM's subsidiaries or its businesses. There
can be no assurance that a transaction for the sale of ARM's insurance
subsidiaries or its businesses will be developed or consummated or as to the
price or value that might be obtained.
If ARM is unable to find a suitable buyer for its subsidiaries or its businesses
or receive a significant infusion of capital from an investor or investors, then
ARM's ability to continue as a going concern is in substantial doubt. Without
the financial strength of a buyer or investor, ARM will likely not have adequate
levels of capital to service its obligations, including the $38 million debt and
$75 million of preferred stock. There can be no assurance that ARM will be able
to obtain sufficient capital to meet its liquidity needs. Accordingly, ARM is
considering all of the options available to it, including a possible bankruptcy
filing at the holding company level.
Integrity Capital is a wholly owned subsidiary of ARM. Integrity Capital is
dependent on ARM for its employees, overhead and services provided. The Board of
Directors is monitoring the situation involving ARM. Pursuant to an Investment
Management Agreement, Integrity Capital's operations are administered and
managed by ARM. Following the July 29, 1999 announcement, certain of ARM's
insurance subsidiaries' ratings were lowered by four significant rating
agencies. If ARM were to liquidate under federal or state bankruptcy laws, there
can be no assurance that Integrity Capital would be able to provide services
under the agreement mentioned above.
30
<PAGE>
The Legends Fund, Inc.
Portfolio Performance
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Comparison of the change in value of $10,000 invested in the
Harris Bretall Sullivan & Smith Equity Growth Portfolio and the S&P 500
Index
[CHART]
<TABLE>
<CAPTION>
Date Harris Bretall S&P 500
Sullivan & Smith Index
Equity Growth Portfolio
<S> <C> <C>
12/8/92 $10,000 $10,000
Dec 92 $10,050 $10,088
Jun 93 $9,710 $10,579
Dec 93 $10,050 $11,102
Jun 94 $9,360 $10,727
Dec 94 $10,460 $11,248
Jun 95 $12,850 $13,519
Dec 95 $13,771 $15,471
Jun 96 $14,597 $17,032
Dec 96 $15,692 $19,021
Jun 97 $19,010 $22,939
Dec 97 $21,149 $25,142
Jun 98 $24,544 $29,593
Dec 98 $28,690 $32,327
Jun 99 $33,182 $36,328
</TABLE>
- - Average annual total return since inception: 20.06%
- - Total return for the year ended June 30, 1999: 35.19%
- - Total return for the five year period ended June 30, 1999: 28.80%
- - Performance relates to the Portfolio and does not reflect separate
account variable annuity contracts.
- - Portfolio commenced operations on December 8, 1992.
- - Past performance is not predictive of future performance.
31
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO (CONTINUED)
SUB-ADVISER'S DISCUSSION
For the fiscal year ended June 30, 1999, the portfolio finished up 35.2%. The
equity portfolio performed well again this past quarter, earning approximately
2.73%. The Harris Bretall Sullivan & Smith Equity Growth Fund enjoyed another
terrific return for the last 12-month period, beating the S&P 500 index
benchmark once again.
Since the end of 1995, we have stated our firm belief that the Dow Jones
Industrial Average would surpass the 10,000 level by the end of the year 2000.
In March, this goal was reached, around 18 months ahead of our prediction. As we
compare the current economic fundamentals to those of late 1995, we find
evidence that Dow 10,000 is just the beginning of the market records to come.
The last fiscal year ending June 30, 1999 was a very difficult investment
environment, filled with extreme volatility in the financial markets, which
makes last year's performance even more exciting to report. While the economic
situation in the United States was quite positive, Asian economies needed a
boost. From July to October 1998, world financial markets declined swiftly and
significantly. The cause for this volatility was primarily economic instability
in Russia, Asia, and Latin America. Additionally, some financial institutions
and hedge funds made the news because of some failed strategies, marking a sour
beginning for the first four months of the recent fiscal year.
Finance ministers around the world, and Federal Reserve Chairman Alan Greenspan
in particular, helped bring the slide to a halt through a series of interest
rate cuts. In late October 1998, stocks began to rise as interest rates fell. By
providing liquidity, finance ministers around the world signaled that the global
markets would have the capital needed to grow. Furthermore, this economic growth
occurred without inflationary pressure.
With lower interest rates and easier access to needed capital, international
economies began to show signs of economic recovery. The fundamental factors
remain very positive for large growth oriented companies. The economy continues
to grow here in the United States, and inflation remains tame. The Federal
Budget Surplus has increased, establishing the ease for fiscal stimulus if
needed down the road. Corporate revenues and earnings are advancing, driven by
global market opportunities, technology, and demographics.
In the last half of 1999, we are staying tuned to several issues which could add
to the market volatility, including the international economic recovery, the
Year 2000 issue, and the beginning of the U.S. Presidential election for 2000.
Some of these news events, as well as others, could trigger fears in short-term
traders and add volatility to the market. Should this occur, opportunities might
arise, and we will continue to focus on the long-term impact and take advantage
of any unfounded volatility.
32
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
SCUDDER KEMPER VALUE PORTFOLIO
Comparison of the change in value of $10,000 invested in
Scudder Kemper Value Portfolio and the S&P 500 Index
[CHART]
<TABLE>
<CAPTION>
Date Scudder Kemper S&P 500
Value Portfolio Index
<S> <C> <C>
12/14/92 $10,000 $10,000
Dec 92 $10,180 $10,088
Jun 93 $10,450 $10,579
Dec 93 $10,820 $11,102
Jun 94 $10,740 $10,727
Dec 94 $10,736 $11,248
Jun 95 $12,886 $13,519
Dec 95 $15,622 $15,471
Jun 96 $16,909 $17,032
Dec 96 $19,452 $19,021
Jun 97 $22,621 $22,939
Dec 97 $25,369 $25,142
Jun 98 $27,905 $29,593
Dec 98 $30,039 $32,327
Jun 99 $32,952 $36,328
</TABLE>
- - Average annual total return since inception: 20.00%
- - Total return for the fiscal year ended June 30, 1999: 18.09%
- - Total return for the five year period ended June 30, 1999: 25.13%
- - Performance relates to the Portfolio and does not reflect
separate account charges applicable to variable annuity contracts.
- - Portfolio commenced operations on December 14, 1992.
- - Past performance is not predictive of future performance.
33
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
SCUDDER KEMPER VALUE PORTFOLIO (CONTINUED)
SUB-ADVISER'S DISCUSSION
The U.S. equity market, as measured by the S&P 500, enjoyed another strong year
of returns, advancing approximately 22%. Globally, economic fundamentals have
remained positive for most of the last year, although U.S. interest rates have
edged higher recently, and signs of potential problem areas have become easier
to find. Domestically, positive economic fundamentals such as strong employment
and wage growth, modest inflation, and robust consumer confidence have kept the
general public investing in the stock market. Asia is beginning to improve,
while European markets struggle with the effects brought by the European Union.
Reflecting these issues, share prices in Asia have done well, in general, while
shares in Europe have been mixed over the last year.
Within U.S. markets, investors have seen a number of different investment themes
emerge over the last year. The latter half of calendar 1998 and the first months
of 1999 saw a continuation of the two tiered "Nifty Fifty/Growth" market. In the
first part of the second quarter of 1999, investors saw a "return to value" with
a tremendous up move within many depressed cyclicals and commodity oriented
companies. Of course, the "internet mania" and "Index" themes have been
constant, and Technology stocks have had several very good moves, both up and
down. In summary, it's been a very interesting, and for most, a profitable year
to be invested in the stock market.
More recently, the market has evolved into a tug of war between value and growth
as well as between active and passive management. It is this battle which helps
to explain the extreme nature of the shorter-term price movements in sectors,
industries and companies. Massive money flows from one area to another have
dramatically exaggerated the underlying fundamentals of the economy, sectors,
industries and companies, as perceptions and expectations have been mercurial.
This has been manifested in the extreme market rotation we have been
experiencing in the recent market. It is likely that this rotational market
behavior will continue for the foreseeable future until a new or clearer theme
emerges as a consensus.
In this context, we have made a larger than usual amount of changes to the
portfolio this year. The strong price action of many of our holdings
necessitated a scale back in some cases, as positions had grown too large to be
prudent. Other successful investments had seen their price-earnings ratio rise
to above market levels, thus triggering one of our sell disciplines. Moreover,
the two-tier market of last year had left most stocks behind, thus providing the
opportunity to buy quality companies which were very depressed in price and
valuation and indeed trading near 52 week lows while the market averages were
making new highs. This backdrop was our rationale for action in the first
quarter. During the second quarter, activity was accelerated as many of our
cyclical holdings experienced dramatic rises. This seemed to exhaust upside
potential and at the same time, the rotational nature of the market created
opportunities in other areas such as the foods, which were down in price over
20% and indeed were near 52 week lows with attractive
34
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1999
SCUDDER KEMPER VALUE PORTFOLIO (CONTINUED)
valuations and good longer-term fundamentals. Our activity level, while above
our norm, remains competitively low and has been in response to one of the most
extreme market environments in the last 25 years. The evolution from a two-tier
to a rotational market has entailed some tactical shifts while keeping our eye
on the longer-term objectives and principles of our investment philosophy.
Following a long period of strong performance, the portfolio has trailed the S&P
500 Index over the last year, but did far better than the comparable value
indices. Looking forward, we are confident that our holdings provide an
excellent risk/reward profile versus the overall market. In addition, our
transactions have served to improve the quality of the portfolio, while at the
same time improving growth prospects, and increasing diversity. Our earnings and
dividend growth are expected to exceed the market over the longer-term, but more
importantly as a value product, our price earnings ratio is well below the
market while our dividend yield is well above the market. Our portfolio
continues to favor the financial, consumer staples, consumer cyclicals and
capital goods sectors. We continue to underweight the technology, healthcare and
utility sectors.
35
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1999
ZWEIG ASSET ALLOCATION PORTFOLIO
Comparison of the change in value of $10,000 invested in the
Zweig Asset Allocation Portfolio and the S&P 500 Index
[CHART]
<TABLE>
<CAPTION>
Date Zweig Asset S&P 500
Allocation Index
Portfolio
<S> <C> <C>
12/14/92 $10,000 $10,000
Dec 92 $10,000 $10,088
Jun 93 $10,810 $10,579
Dec 93 $11,495 $11,102
Jun 94 $11,485 $10,727
Dec 94 $11,536 $11,248
Jun 95 $13,164 $13,519
Dec 95 $14,009 $15,471
Jun 96 $14,620 $17,032
Dec 96 $16,087 $19,021
Jun 97 $17,343 $22,939
Dec 97 $19,625 $25,142
Jun 98 $21,052 $29,593
Dec 98 $19,223 $32,327
Jun 99 $20,266 $36,328
</TABLE>
- - Average annual total return since inception: 11.41%
- - Total return for the year ended June 30, 1999: (3.73)%
- - Total return for the five year period ended June 30, 1999: 12.03%
- - Performance relates to the Portfolio and does not reflect separate
account charges applicable to variable annuity contracts.
- - Portfolio commenced operations on December 14, 1992.
- - Past performance is not predictive of future performance.
36
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1999
ZWEIG ASSET ALLOCATION PORTFOLIO (CONTINUED)
SUB-ADVISER'S DISCUSSION
The Zweig Asset Allocation fund lost 3.7% for the twelve months ended June
30,1999 compared to the S&P 500, which gained 22.8% during the period.
We began the period 84% in stocks, 16% in cash. As momentum deteriorated through
the summer, and the economic/political problems in Russia surfaced, we
systematically cut back exposure, reaching a low of 67% in early September. Once
the Federal Reserve moved to relieve the global financial strains brought on by
the Pacific Rim crises and the Russian default, we started increasing exposure.
When the Federal Reserve cut rates a second time in less than a month - an event
with extremely bullish historical tendencies - we increased exposure more
rapidly, reaching a peak equity allocation of 90% by late October. We ended 1998
approximately 86% invested.
We gradually reduced our investment exposure during the first six months of
1999, as our asset allocation models signaled higher stock market risk. Our
monetary indicators worsened as long bond yields rose over 6% and economic data
showed marginally higher inflation, reversing five-year trends and spurring the
Federal Reserve to raise short-term interest rates. The market reacted to the
changing environment with complacency. By the end of June, market momentum was
the only component of our research showing better-than-neutral readings. We
ended the period 56% invested in stocks.
Our results for the first three quarters of the twelve-month period were
severely impacted by the unprecedented extent to which large stocks outperformed
small stocks and growth stocks outperformed value stocks. The former is
exemplified by disparity in performance between the S&P 500, which was up 14.7%
during the nine months and the Russell 2000, which was down 12.2%. The latter
can be seen by comparing the returns of the S&P Growth Index (23.4%) and the S&P
Value Index (5.2%) during the nine months. Our stock selection, which employs a
valuation discipline and does not tend to favor stocks on the basis of size, was
punished during this period, and was the major reason for our fund's return
shortfall. The period since the end of March, however, has witnessed a return to
a more normal market environment and our results improved dramatically during
the final quarter of the twelve-month period.
37
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1999
ZWEIG EQUITY (SMALL CAP) PORTFOLIO
Comparison of the change in value of $10,000 invested in the
Zweig Equity (Small Cap) Portfolio and the Value Line Geometric
Index
[CHART]
<TABLE>
<CAPTION>
Date Zweig Equity Value Line
(Small Cap) Geometric Index
Portfolio
<S> <C> <C>
12/14/92 $10,000 $10,000
Dec 92 $10,000 $10,106
Jun 93 $10,110 $10,611
Dec 93 $10,864 $11,260
Jun 94 $10,763 $10,482
Dec 94 $10,797 $10,582
Jun 95 $11,881 $11,862
Dec 95 $13,076 $12,624
Jun 96 $14,102 $13,509
Dec 96 $15,500 $14,311
Jun 97 $16,975 $16,010
Dec 97 $19,388 $17,326
Jun 98 $20,989 $18,778
Dec 98 $19,270 $16,670
Jun 99 $19,051 $17,761
</TABLE>
- - Average annual total return since inception: 10.36%
- - Total return for the fiscal year ended June 30, 1999: (9.24%)
- - Total return for the five year period ended June 30, 1999: 12.10%
- - Performance relates to the Portfolio and does not reflect separate
account charges applicable to variable annuity contracts.
- - Portfolio commenced operations on December 14, 1992.
- - Past performance is not predictive of future performance.
38
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1999
ZWEIG EQUITY (SMALL CAP) PORTFOLIO (CONTINUED)
SUB-ADVISER'S DISCUSSION
The Zweig Equity (Small Cap) portfolio was down 9.2%, while the Value Line Index
fell 2.3% and the Russell 2000 gained 1.5%.
We began the period 84% in stocks, 16% in cash. As momentum deteriorated through
the summer, and the economic/political problems in Russia surfaced, we
systematically cut back exposure, reaching a low of 67% in early September. Once
the Federal Reserve moved to relieve the global financial strains brought on by
the Pacific Rim crises and the Russian default, we started increasing exposure.
When the Federal Reserve cut rates a second time in less than a month - an event
with extremely bullish historical tendencies - we increased exposure more
rapidly, reaching a peak equity allocation of 90% by late October. We ended 1998
approximately 86% invested.
We gradually reduced our investment exposure during the first six months of
1999, as our asset allocation models signaled higher stock market risk. Our
monetary indicators worsened as long bond yields rose over 6% and economic data
showed marginally higher inflation, reversing five-year trends and spurring the
Federal Reserve to raise short-term interest rates. The market reacted to the
changing environment with complacency. By the end of June, market momentum was
the only component of our research showing better-than-neutral readings. We
ended the period 56% invested in stocks.
Our stock selection style had a difficult year. Our approach of balancing growth
and value factors in our model in order to construct a portfolio with a
below-average price-earnings ratio and above-average earnings growth did not
hold up well in this particular market environment. Two strategies were rewarded
in the small company market over the past year. The first was to buy stocks with
the very highest earnings growth, regardless of price. The second was to be
willing to buy stocks with little or no history of being able to generate stable
earnings (the success of internet-related stocks contributed to this
phenomenon).
Though both of these strategies were essential techniques during the
twelve-month period ending June 30, 1999, we think both are unlikely to produce
long-term success in the small-cap arena. Their success over the last year has
been mostly a function of internet mania and the virtually unprecedented recent
bias in the market toward growth stocks. Our more balanced approach, however,
has led to above-average results over time, and we believe will come to the
forefront once we enter a more typical market environment.
39
