<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant:
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Sections 240.14a-11(c) or
Sections 240.14a-12
The Legends Fund, Inc.
(Name of Registrant as Specified In Its Charter)
The Legends Fund, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
--------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
<PAGE>
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------------------------
4) Date Filed:
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2
<PAGE>
THE LEGENDS FUND, INC.
515 West Market Street
Louisville, Kentucky 40202
-----------------------------------------
Notice of Special Meeting of Shareholders
-----------------------------------------
To the Shareholders of The Legends Fund, Inc.:
A special meeting (the "Meeting") of shareholders of the Scudder Kemper
Value Portfolio, Zweig Asset Allocation Portfolio and Zweig Equity (Small Cap)
Portfolio (each, a "Portfolio" and collectively, the "Portfolios"), each a
series of The Legends Fund, Inc. (the "Fund"), will be held at 515 West Market
Street, Louisville, Kentucky 40202, on October 19, 2000 at 3:00 p.m., Eastern
Time. The purpose of the Meeting is:
1. with respect to the Scudder Kemper Value Portfolio, to approve or
disapprove a new sub-advisory agreement between Touchstone Advisors, Inc.
(the "Manager") and EQSF Advisers, Inc. ("EQSF");
2. with respect to the Scudder Kemper Value Portfolio, to approve or
disapprove a proposal to amend the investment objective of the Scudder
Kemper Value Portfolio;
3. with respect to the Scudder Kemper Value Portfolio, to approve or
disapprove a proposal to change the Portfolio's status from diversified to
non-diversified;
4. with respect to the Zweig Asset Allocation Portfolio, to approve or
disapprove a new sub-advisory agreement between the Manager and Gabelli
Asset Management Company ("Gabelli");
5. with respect to the Zweig Equity (Small Cap) Portfolio, to approve or
disapprove a new sub-advisory agreement between the Manager and BAMCO, Inc.
("BAMCO"); and
6. to transact such other matters as may properly come before the Meeting or
any adjournment thereof.
3
<PAGE>
The Board of Directors of the Fund has fixed the close of business on September
6, 2000 as the record date for determining the number of shares outstanding and
the contract holders entitled to give voting instructions with respect to the
Portfolios.
By Order of the Board of Directors,
Kevin L. Howard
Secretary
September ___, 2000
EACH CONTRACT HOLDER IS URGED TO EXERCISE THE RIGHT TO GIVE VOTING INSTRUCTIONS
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF THE PORTFOLIOS BY FILLING IN, DATING
AND SIGNING THE ENCLOSED VOTING INSTRUCTIONS CARD AND RETURNING IT IN THE
RETURN ENVELOPE PROVIDED.
4
<PAGE>
THE LEGENDS FUND, INC.
515 West Market Street
Louisville, Kentucky 40202
-----------------------------------------
PROXY STATEMENT
Special Meeting of Shareholders
October 19, 2000 at 3:00 p.m.
-----------------------------------------
THE BOARD OF DIRECTORS OF THE LEGENDS FUND, INC. (THE "FUND") SOLICITS
YOUR PROXY FOR USE AT A SPECIAL MEETING OF SHAREHOLDERS (THE "MEETING"). The
Meeting is scheduled to be held at 515 West Market Street, Louisville, Kentucky
40202, on October 19, 2000 at 3:00 p.m. As described in more detail below, the
Meeting is being called for the following purposes:
<TABLE>
<CAPTION>
----------------------------------------------- --------------------------------------
PORTFOLIO(S) TO WHICH
SUMMARY OF PROPOSAL PROPOSAL APPLIES
----------------------------------------------- --------------------------------------
<S> <C>
1. to approve or disapprove a new Scudder Kemper Value Portfolio
sub-advisory agreement (a "New Sub-Advisory
Agreement") between the Manager and EQSF
Advisers, Inc. ("EQSF") as sub-adviser;
----------------------------------------------- --------------------------------------
2. to approve or disapprove a proposal to Scudder Kemper Value Portfolio
amend the investment objective of the Scudder
Kemper Value Portfolio;
----------------------------------------------- --------------------------------------
3. to approve or disapprove a proposal to Scudder Kemper Value Portfolio
change the Portfolio's status from diversified
to non-diversified;
----------------------------------------------- --------------------------------------
4. to approve or disapprove a new Zweig Asset Allocation Portfolio
sub-advisory agreement (a "New Sub-Advisory
Agreement") between the Manager and Gabelli
Asset Management Company ("Gabelli") as
sub-adviser; and
5
<PAGE>
----------------------------------------------- --------------------------------------
5. to approve or disapprove a new sub-advisory Zweig Equity (Small Cap) Portfolio
agreement (a "New Sub-Advisory Agreement")
between the Manager and BAMCO, Inc. ("BAMCO")
as sub-adviser.
----------------------------------------------- --------------------------------------
</TABLE>
The Fund was incorporated in Maryland on July 22, 1992, under the name
"Integrity Series Fund, Inc." and is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). It is a series-type investment company currently consisting of four
investment portfolios, including the Scudder Kemper Value Portfolio, Zweig
Asset Allocation Portfolio and Zweig Equity (Small Cap) Portfolio (each, a
"Portfolio" and collectively, the "Portfolios"), which are the subject of the
Meeting. Shares of the Portfolios are offered to separate accounts ("Separate
Accounts") of Integrity Life Insurance Company ("Integrity") and National
Integrity Life Insurance Company ("National Integrity"), a wholly-owned
subsidiary of Integrity, for the investment of contributions under certain
variable annuity contracts ("contracts") issued by Integrity and National
Integrity.
This Proxy Statement is being furnished on or about September ___, 2000 on
behalf of the Board of Directors of the Fund (the "Board of Directors," the
"Board" or the "Directors") to the shareholders of the Portfolios for their use
in obtaining voting instructions from the contract holders on the proposals to
be considered at the Meeting. The Board of Directors has fixed the close of
business on September 6, 2000 as the record date (the "Record Date") for
determining the number of shares outstanding and the contract holders entitled
to give voting instructions to Integrity and National Integrity. At the Record
Date, the total number of outstanding shares of the Portfolios were as follows:
<TABLE>
<CAPTION>
HOLDINGS BY SEPARATE
HOLDINGS BY SEPARATE ACCOUNT II OF
ACCOUNT II OF INTEGRITY NATIONAL INTEGRITY
TOTAL ------------------------- --------------------
NUMBER OF
SHARES APPROXIMATE APPROXIMATE
PORTFOLIO OUTSTANDING SHARES PERCENTAGE SHARES PERCENTAGE
--------- ----------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Scudder Kemper
Value ------- ------- ------% ------- -------%
Zweig Asset
Allocation ------- ------- ------% ------- -------%
Zweig Equity
(Small Cap) ------- ------- ------% ------- -------%
</TABLE>
6
<PAGE>
As of the Record Date, no person or "group" (as such term is defined in
the Securities Exchange Act of 1934, as amended, and the rules thereunder) was
known to the Fund to have allocated contributions under variable annuity
contracts such that, upon the pass-through of voting rights by Integrity and
National Integrity, such person or group would have the right to give voting
instructions with respect to more than 5% of the outstanding shares of any
Portfolio. The Directors and officers of the Fund, both individually and as a
group, own less than 1% of each Portfolio's outstanding shares.
The Fund expects that the solicitation of voting instructions from
contract holders will be made by mail. All costs of the Meeting and the
solicitation of voting instructions will be borne by Integrity and National
Integrity or one of their affiliates.
Integrity and National Integrity, the holders of record of shares of the
Portfolios, are required to "pass through" to their contract holders the right
to vote shares of the Portfolios. The Fund expects that Integrity and National
Integrity will solicit voting instructions from their contract holders and that
Integrity and National Integrity will vote 100% of the shares of the Portfolios
held by their respective Separate Accounts. Integrity and National Integrity
will vote shares of the Portfolios for which no instructions have been received
in the same proportion as they vote shares for which they have received
instructions. Abstentions will have the effect of a negative vote on a
Proposal. Unmarked voting instructions from contract holders will be voted in
favor of the proposals. Integrity and National Integrity, as record
shareholders of the Portfolios, may adjourn the meeting of shareholders for a
period or periods of not more than 60 days in the aggregate if necessary to
obtain additional voting instructions from contract holders. The cost of
preparing and distributing to contract holders additional proxy materials if
required in connection with any adjournment will be borne as set forth in the
preceding paragraph.
Proxies executed by shareholders may be revoked by a written instrument
received by the Secretary of the Fund at any time before they are exercised, by
the delivery of a later-dated proxy or by attendance at the Meeting and voting
in person. Pursuant to the Fund's Articles of Incorporation, the presence in
person or by proxy of the holders of record of one-third of the shares issued
and outstanding and entitled to vote at a meeting shall constitute a quorum for
the transaction of business at such meeting.
The shareholders of each of the Portfolios vote separately with respect to
each Proposal. Approval of each Proposal requires the affirmative vote of a
majority of the outstanding voting securities of the respective Portfolio.
"Majority" for this purpose under the 1940 Act means the lesser of (1) more
than 50% of the outstanding shares of the Portfolio or (2) 67% or more of the
shares of the Portfolio represented at the meeting if more than 50% of such
shares are represented.
All information in the Proxy Statement about the Manager has been provided
by the Manager; all information in the Proxy Statement about EQSF, Gabelli and
BAMCO (each a "New Sub-Adviser," and collectively, the "New Sub-Advisers") has
been provided by each respective New Sub-Adviser.
7
<PAGE>
EACH CONTRACT HOLDER IS URGED TO EXERCISE THE RIGHT TO GIVE VOTING INSTRUCTIONS
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF THE PORTFOLIOS BY FILLING IN, DATING
AND SIGNING THE VOTING INSTRUCTIONS CARD FOR THE PORTFOLIO(S) AND RETURNING THE
CARD IN THE RETURN ENVELOPE PROVIDED.
8
<PAGE>
BACKGROUND
ALL PORTFOLIOS
For purposes of carrying on the Fund's business of investing in
securities, the Fund has entered into a Management Agreement, dated April 4,
2000, with the Manager (the "Management Agreement"). The Management Agreement
was last approved by the Board of Directors, including all of the Independent
Directors, on February 18, 2000 and by shareholders on April 4, 2000, in
connection with a change in the investment manager. Under the terms of the
Management Agreement, the Manager is responsible for the management of the Fund
and the administration of its business affairs. The Manager is authorized to
enter into sub-advisory agreements with registered investment advisers pursuant
to which it may delegate its obligations for providing investment advisory and
certain other services in connection with the Portfolios. Pursuant to such
authority, the Manager has entered into the current sub-advisory agreements
(the "Current Sub-Advisory Agreements") for investment advisory services for
the Portfolios. Pursuant to the Current Sub-Advisory Agreements with the
Manager, the Scudder Kemper Value Portfolio is currently sub-advised by Scudder
Kemper Investments, Inc. ("SKI" or a "Current Sub-Adviser") and the Zweig Asset
Allocation and Zweig Equity (Small Cap) Portfolios are currently sub-advised by
Phoenix/Zweig Advisers ("Zweig" or a "Current Sub-Adviser"). The Board has
approved the termination of the Current Sub-Advisory Agreements and replacement
of the Current Sub-Advisers with the following New Sub-Advisers:
<TABLE>
<CAPTION>
PORTFOLIO NEW SUB-ADVISER
--------- ---------------
<S> <C>
Scudder Kemper Value Portfolio EQSF Advisers, Inc. ("EQSF")
Zweig Asset Allocation Portfolio Gabelli Asset Management Company ("Gabelli")
Zweig Equity (Small Cap) Portfolio BAMCO, Inc. ("BAMCO")
</TABLE>
The material terms of each New Sub-Advisory Agreement are substantially
similar to those of the respective Current Sub-Advisory Agreement with the
exception of the identity of the sub-adviser and the effective date.
The Manager will continue to be responsible, among other things, for
general supervision of and coordination of the services provided by the New
Sub-Advisers. Pursuant to the New Sub-Advisory Agreements, the Manager will
delegate to the respective New Sub-Advisers the responsibility, subject to the
Manager's supervision, to provide a continuous investment program for each
Portfolio and to determine the composition of the assets of the Portfolio. This
includes providing investment research, advice and supervision, and making and
executing decisions as to specific investments.
9
<PAGE>
The Manager, and not the Fund, will be responsible for compensating the New
Sub-Advisers.
The Manager's and each New Sub-Adviser's duties under the New Sub-Advisory
Agreements will be performed subject to general oversight by the Board of
Directors and in accordance with the investment objectives and policies of the
Fund and of the particular Portfolio.
Each Portfolio currently pays the Manager a fee (the "Management Fee") at
the annual rate set forth below, accrued daily and calculated as a percentage
of the net assets of each respective Portfolio. The Manager will compensate
each New Sub-Adviser out of the Management Fee received from the respective
Portfolio. The rates of the fees payable to the New Sub-Advisers are the same
as those currently payable to the Current Sub-Advisers, and are described below
under Proposals Nos. 1, 4 and 5. The Manager will retain (on an annual basis)
.25% of average daily net assets of each Portfolio after compensating the New
Sub-Advisers.
PORTFOLIO MANAGEMENT FEE PAYABLE BY
PORTFOLIO TO THE MANAGER
Scudder Kemper Value Portfolio .65%
Zweig Asset Allocation Portfolio .90%
Zweig Equity (Small Cap) Portfolio 1.05%
Under the Management Agreement, the Manager voluntarily limits its
expenses for each Portfolio, other than for brokerage commissions and the
investment management fee, to .50% of average net assets on an annualized
basis. The Manager presently intends to continue such expense limitation under
the Management Agreement but reserves the right to withdraw or modify this
policy.
10
<PAGE>
PROPOSAL NO. 1: APPROVAL OR DISAPPROVAL OF THE
NEW SUB-ADVISORY AGREEMENT BETWEEN THE MANAGER AND EQSF
ADVISERS, INC.
SCUDDER KEMPER VALUE PORTFOLIO
BACKGROUND
The Scudder Kemper Value Portfolio is currently sub-advised by SKI
under a Current Sub-Advisory Agreement between the Manager and SKI.
The Board has determined, based largely on the performance of the
Portfolio in comparison to similar funds, that it is in the best interest of
the shareholders of the Portfolio to replace the Current Sub-Adviser of the
Portfolio. In connection therewith, the Board has approved the termination of
the Current Sub-Advisory Agreement and replacement of SKI with EQSF pursuant to
a New Sub-Advisory Agreement between the Manager and EQSF. A form of the New
Sub-Advisory Agreement is annexed as Exhibit A. The material terms of the New
Sub-Advisory Agreement are substantially similar to the Current Sub-Advisory
Agreement, with the exception of the identity of the sub-adviser and the
effective date. Subject to approval by shareholders of the Portfolio, the New
Sub-Advisory Agreement will become effective on November 1, 2000 (the
"Effective Date").
THE CURRENT AND NEW SUB-ADVISORY AGREEMENTS
The Current Sub-Advisory Agreement between the Manager and SKI, dated
April 4, 2000, with respect to Scudder Kemper Value Portfolio was last approved
by the Board of Directors, including all of the Independent Directors, on
February 18, 2000 and by shareholders on April 4, 2000, in connection with a
change in the investment manager. The following is a summary of the material
terms of New Sub-Advisory Agreement, which are substantially similar to the
material terms of the Current Sub-Advisory Agreement, with the exception of the
identity of the New Sub-Adviser and effective date:
ADVISORY SERVICES. EQSF will provide a continuous investment program
for the Portfolio, including investment research with respect to all securities
and investments and cash equivalents in the Portfolio.
COMPENSATION FOR SERVICES. The Manager (and not the Fund) will pay
to EQSF a sub-advisory fee at the annual rate of .40%, calculated as a
percentage of the average daily net assets of the Portfolio. This rate is the
same as the rate in effect under the Current Sub-Advisory Agreement. The
sub-advisory fee for the fiscal year ended June 30, 2000 paid to SKI by the
Manager was $127,884.95 with respect to the Portfolio.
PAYMENT OF EXPENSES. EQSF agrees to assume and pay all of the costs
and expenses of performing its obligations under the New Sub-Advisory Agreement.
11
<PAGE>
LIMITATION OF LIABILITY. Under the New Sub-Advisory Agreement, except
as may otherwise be required under the 1940 Act, EQSF and any of its affiliated
persons and each person who, within the meaning of Section 15 of the Securities
Act of 1933, as amended, controls EQSF will not be liable for, or subject to
any damages, expenses, or losses in connection with, any act or omission
connected with or arising out of any services rendered thereunder, except by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of EQSF's duties, or by reason of reckless disregard of EQSF's
obligations and duties thereunder.
TERM. The New Sub-Advisory Agreement provides that it will continue in
effect for two years and thereafter from year to year, subject to approval at
least annually in accordance with the requirements of the 1940 Act ("Annual
Approval").
TERMINATION; ASSIGNMENT. The New Sub-Advisory Agreement may be
terminated at any time without penalty upon 60 days' written notice by EQSF,
the Manager, the Board of Directors, acting pursuant to a resolution adopted by
a majority of the Directors who are not "interested persons" of the Fund
("Independent Directors"), or by the affirmative vote of the holders of a
"majority of the outstanding voting securities" of the Portfolio (as defined in
the 1940 Act). The New Sub-Advisory Agreement also provides that it will
automatically terminate in the event of its assignment (as defined in the 1940
Act) or termination of the Management Agreement.
BOARD CONSIDERATIONS
At a meeting held on August 21, 2000, the Board of Directors,
including all the Independent Directors, unanimously approved the New
Sub-Advisory Agreement pursuant to which EQSF will serve as the Portfolio's new
sub-adviser in place of SKI. The Board took into account the fact that except
for the identity of the New Sub-Adviser and the effective date of the New
Sub-Advisory Agreement, the material terms of the New Sub-Advisory Agreement,
including the compensation payable thereunder, are substantially similar to
those of the Current Sub-Advisory Agreement with SKI. The Board determined that
the terms of the New Sub-Advisory Agreement are fair and reasonable and that
the approval of the New Sub-Advisory Agreement on behalf of the Portfolio is in
the best interests of the Portfolio and its shareholders. In conjunction with
the proposed change in sub-adviser, the Board also approved a change in the
name of the Scudder Kemper Value Portfolio to the "Third Avenue Value
Portfolio."
In approving the New Sub-Advisory Agreement, the Directors evaluated
the factors they deemed relevant with respect to the Portfolio. The Board
considered the Manager's recommendation that the New Sub-Advisory Agreement be
approved. In connection therewith, the Board considered that as part of the
Manager's oversight responsibilities pursuant to the Management Agreement, the
Manager (i) evaluates each Portfolio's performance in comparison to similar
mutual funds and other market information, (ii) conducts searches for a
replacement sub-adviser for each Portfolio when
12
<PAGE>
deemed necessary, (iii) selects, subject to the review and approval of the
Board, a new sub-adviser that has distinguished itself by superior performance
and (iv) oversees the continued performance of each sub-adviser.
The Board has determined, based largely on the performance of the
Portfolio in comparison to similar funds, that it is in the best interest of
the shareholders to replace SKI as sub-adviser for the Portfolio. In selecting
EQSF, the Board reviewed, among other things, EQSF's historical performance
record in managing similar investment companies and other client accounts, its
name recognition in the investment community, its financial condition, and its
overall commitment to the investment advisory business. In that regard, the
Board considered that EQSF has been an investment adviser for mutual funds
since its organization in 1986 and, as of June 30, 2000, managed approximately
$2 billion in assets.
In conjunction with the proposed change in sub-adviser, the Board has
approved a change in the investment objective of the Scudder Kemper Value
Portfolio. The investment objective of the Portfolio is a fundamental policy
and may not be changed without shareholder approval, which is being sought
under Proposal No. 2. The investment objective of the Portfolio is currently to
seek primarily long-term capital appreciation with a secondary objective of
current income. The proposed new investment objective of the Portfolio will be
to seek long-term capital appreciation.
In addition, to permit EQSF more flexibility in pursuing its
investment strategy, the Manager has recommended, and the Board has approved, a
change in the Portfolio's diversified status to that of a non-diversified
investment company under the 1940 Act. The Board determined that the
flexibility to concentrate the Portfolio's assets in a smaller number of
securities may enhance EQSF's ability to structure a portfolio that has a
greater potential to produce long-term capital appreciation. The diversified
status of the Portfolio is a fundamental policy that may be changed only with
shareholder approval, which is being sought under Proposal No. 3.
The Board also approved the Manager's recommendation that the
principal investment strategy of the Portfolio be modified in conjunction with
the retention of the New Sub-Adviser. The principal investment strategy of the
Portfolio is not a fundamental policy and may be changed by vote of the Board
without shareholder approval. EQSF proposes to manage the Portfolio in a manner
similar to a retail mutual fund currently managed by EQSF, the Third Avenue
Value Fund. As a result, the Portfolio's principal investment strategy will be
to seek to invest mainly by acquiring common stocks of well-financed companies
(meaning companies without significant debt in comparison to their cash
resources) at a substantial discount to what the sub-adviser believes is their
true value. The principal investment strategy of the Scudder Kemper Value
Portfolio is currently to invest primarily in equity securities considered by
its sub-adviser to be undervalued. Thus, the "value" orientation of the
Portfolio will not change. The Portfolio will also seek to acquire senior
securities, such as preferred stocks and debt instruments, that the New
Sub-Adviser believes are undervalued. In conjunction
13
<PAGE>
with the proposed change in sub-adviser, the Board has approved a change in the
name of the Scudder Kemper Value Portfolio to the "Third Avenue Value
Portfolio." The changes in the Portfolio's name, investment objective,
diversified status and principal investment strategy will become effective on
the Effective Date, subject to shareholder approval of Proposals Nos. 1, 2 and
3.
INFORMATION ABOUT EQSF
EQSF Advisers, Inc., 767 Third Avenue, New York, NY 10017-2023, has
been an investment adviser for mutual funds since its organization in 1986 and
is controlled by Martin J. Whitman and his adult children. This control is
based upon ownership in the aggregate of 75% of the outstanding common stock of
EQSF. Mr. Whitman is Chairman and Chief Executive Officer of EQSF. As of June
30, 2000, EQSF managed approximately $2 billion in assets. EQSF also serves as
investment adviser to other investment companies having similar investment
objectives to the Scudder Kemper Value Portfolio (as proposed to be amended) as
indicated in EXHIBIT B.
The following chart lists the names, addresses and principal
occupation of the principal officers and directors of EQSF. The address of
each, as it relates to his or her duties with EQSF, is the same as that of EQSF:
14
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Martin J. Chairman and CEO (3/90 to Present), President (1/91 to 5/98),
Whitman of Third Avenue Trust (the "Trust"); Chairman and CEO (3/90 to
Present), President (1/91 to 2/98), of EQSF Advisers, Inc.;
Chairman, CEO (1/1/95 to Present), President (1/1/95 to
6/29/95) and Chief Investment Officer (10/92 to Present),
President (1/1/95 to 6/29/95) and Chief Investment Officer
(10/92 to Present) of M.J. Whitman Advisers, Inc., a
subsidiary of MJWHC; Chairman, CEO (1/1/95 to Present) and
President (1/1/95 to 6/29/95) of MJWHC and of M.J. Whitman,
Inc., a subsidiary of MJWHC and the successor broker-dealer of
M.J. Whitman, L.P. (MJWLP), a Delaware limited partnership
which has been dissolved; Distinguished Management Fellow
(1972 to 2000) and Member of the Advisory Board (10/94 to
6/95) of the Yale School of Management at Yale University;
Director and Chairman (8/90 to Present), President (8/90 to
12/90), CEO (8/96 to Present) and Chief Investment Officer
(12/90 to 8/96) of Danielson Holding Corporation, and a
Director of its subsidiaries; Director (3/91 to Present) of
Nabors Industries, Inc., an international oil drilling
contractor; Director (8/97 to Present) of Tejon Ranch Co.;
President and CEO (10/74 to Present) of Martin J. Whitman &
Co., Inc., (formerly M.J. Whitman & Co., Inc.), a private
investment company; Chairman of the Board and Trustee of Third
Avenue Variable Series Trust (1999 to Present); Trustee or
Director of the Trust or its predecessor since its inception;
Chartered Financial Analyst.
David M. President (5/98 to Present), and Executive Vice President
Barse (4/95 to 5/98) of the Trust; President, Chief Operating
Officer and Director (7/96 to Present) of Danielson Holding
Corporation; Director (8/96 to Present) of National American
Insurance Company of California; President (2/98 to Present),
Executive Vice President (4/95 to 2/98), and Director (4/95 to
Present) of EQSF Advisers, Inc.; President (6/95 to Present),
Director, Chief Operating Officer (1/95 to Present), Secretary
(1/95 to 1/96) and Executive Vice President (1/95 to 6/95) of
MJWHC; President (6/95 to Present), Director and COO (1/95 to
Present), Secretary (1/95 to 1/96), Executive Vice President
(1/95 to 6/95) of M.J. Whitman, Inc.; President (6/95 to
Present), Director and COO (1/95 to Present), Executive Vice
President (1/95 to 6/95) and Corporate Counsel (10/92 to
12/95) of M.J. Whitman Advisers, Inc.; President (6/99 to
Present) of Third Avenue Variable Series Trust; Director (6/97
to Present) of CGA Group, Ltd.; Director (7/94 to 12/94),
Executive Vice President and Secretary (1/92 to 12/94) of
Whitman Securities Corp.
15
<PAGE>
Michael Treasurer and CFO of the Trust (3/90 to Present); Treasurer
Carney and CFO (6/99 to Present) of Third Avenue Variable Series
Trust; Director (1/1/95 to Present), Executive Vice President,
Chief Financial Officer (6/29/95 to Present) of MJWHC and of
M.J. Whitman, Inc.; Treasurer, Director (1/1/95 to Present),
Executive Vice President (6/29/95 to Present) and CFO (10/92
to Present) of M.J. Whitman Advisers, Inc.; Treasurer (12/93
to 4/96) of Longstreet Investment Corp.; CFO (3/26/93 to 6/95)
of Danielson Trust Company; Limited Partner (1/92 to 12/31/94)
of M.J. Whitman, L.P.; CFO of WHR Management Corporation (8/91
to Present), Danielson Holding Corporation (8/90 to Present)
and Carl Marks Strategic Investments, L.P., an investment
partnership (1/90 to 4/94); CFO (1/90 to 4/94) of Carl Marks &
Co., Inc., a broker-dealer; CFO (8/89 to 12/90) of Whitman
Advisors, Ltd.; CFO and Treasurer (5/89 to 4/94) of Equity
Strategies Fund, Inc.; CFO and Treasurer (5/89 to Present) of
EQSF Advisers, Inc.; CFO (5/89 to Present) of Whitman
Heffernan Rhein & Co., Inc., Martin J. Whitman & Co., Inc.,
(formerly M.J. Whitman & Co., Inc.) and WHR Management
Company, L.P., a firm managing investment partnerships.
W. James General Counsel and Secretary (6/00 to Present) of Danielson
Hall Holding Corporation; General Counsel and Secretary (6/00 to
Present) of MJWHC, M.J. Whitman, Inc., and M. J. Whitman
Advisers, Inc.; General Counsel and Secretary (6/00 to
Present) of the Trust; General Counsel and Secretary (6/00 to
Present) of EQSF Advisers, Inc.; General Counsel and Secretary
(6/00 to Present) of Third Avenue Variable Series Trust;
Associate (2/00 to 6/00) Paul, Weiss, Rifkind, Wharton &
Garrison; Associate (11/96 to 1/00), Morgan Lewis & Bockius;
Associate (12/91 to 6/96) Gibson, Dunn & Crutcher.
16
<PAGE>
Kerri Weltz Assistant Treasurer (5/96 to Present), Controller (1/96 to
Present), Assistant Controller (1/93 to 12/95) and Staff
Accountant (1/92 to 12/92) for the Trust; Controller (1/96 to
Present), Assistant Controller (1/93 to 12/95), and Staff
Accountant (1/92 to 12/92) of EQSF Advisers, Inc.; Assistant
Treasurer (6/99 to Present) of Third Avenue Variable Series
Trust; Controller (8/96 to Present), of Danielson Holding
Corp.; Controller (5/96 to Present) and Assistant Controller
(1/95 to 5/96) of Whitman Heffernan & Rhein Workout Fund II,
L.P. and Whitman Heffernan & Rhein Workout Fund II-A, L.P.;
Controller (5/96 to Present) of WHR Management Corp.;
Controller (5/96 to present), Assistant Controller (1/93 to
5/96) and Staff Accountant (5/91 to 12/92), of Whitman
Heffernan Rhein & Co., Inc.; Controller (5/96 to Present) of
Martin J. Whitman & Co., Inc.; Assistant Controller (10/94 to
4/96) of Longstreet Investment Corp and Emerald Investment
Partners, L.P.; Assistant Controller (1/93 to 4/94) and Staff
Accountant (1/92 to 12/92) of Equity Strategies Fund, Inc.;
Payroll manager (5/91 to 12/93) of M.J. Whitman, L.P.
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
At an in-person meeting held on August 21, 2000, the Board of
Directors, including all of the Independent Directors, voted unanimously to
approve the New Sub-Advisory Agreement with respect to the Scudder Kemper Value
Portfolio and to recommend that shareholders of the Portfolio vote "FOR" the
New Sub-Advisory Agreement.
IF PROPOSAL NO. 1 IS NOT APPROVED BY THE SHAREHOLDERS OF THE SCUDDER
KEMPER VALUE PORTFOLIO, THE BOARD WILL CONSIDER WHAT OTHER ACTION, IF ANY,
SHOULD BE TAKEN TO OBTAIN SUB-ADVISORY SERVICES WITH RESPECT TO SUCH PORTFOLIO.
FAILURE TO APPROVE PROPOSAL NO. 1 BY THE SHAREHOLDERS OF THE SCUDDER KEMPER
VALUE PORTFOLIO WILL NOT AFFECT THE APPROVAL OF PROPOSALS NOS. 4 AND 5 WITH
RESPECT TO THE OTHER PORTFOLIOS.
17
<PAGE>
PROPOSAL NO. 2: APPROVAL OR DISAPPROVAL OF THE PROPOSAL
TO AMEND THE INVESTMENT OBJECTIVE OF THE
SCUDDER KEMPER VALUE PORTFOLIO
SCUDDER KEMPER VALUE PORTFOLIO
BACKGROUND
The current investment objective of Scudder Kemper Value Portfolio is
to seek primarily long-term capital appreciation with a secondary objective of
current income. To permit the Portfolio's proposed New Sub-Adviser, EQSF, more
flexibility in pursuing its investment strategy, the Manager has recommended,
and the Board has approved, revising the Portfolio's investment objective to
eliminate a secondary objective of seeking current income. As revised, the
Portfolio's investment objective would be "to seek long-term capital
appreciation." The investment objective of the Portfolio is a fundamental
policy that may be changed only with shareholder approval.
In connection with the proposed change to the Scudder Kemper Value
Portfolio's investment objective, the Board has adopted, subject to shareholder
approval of this Proposal No. 2, a modification of the Portfolio's principal
investment strategy. The principal investment strategy of the Portfolio is not
a fundamental policy and may be changed by vote of the Board without
shareholder approval. EQSF proposes to manage the Portfolio in a manner similar
to a retail mutual fund currently managed by EQSF, the Third Avenue Value Fund.
As a result, the Portfolio's principal investment strategy will be to seek to
invest mainly by acquiring common stocks of well-financed companies (meaning
companies without significant debt in comparison to their cash resources) at a
substantial discount to what the sub-adviser believes is their true value. The
principal investment strategy of the Scudder Kemper Value Portfolio is
currently to invest primarily in equity securities considered by its
sub-adviser to be undervalued. Thus, the "value" orientation of the Portfolio
will not change. The Portfolio will also seek to acquire senior securities,
such as preferred stocks and debt instruments, that EQSF believes are
undervalued.
18
<PAGE>
BOARD CONSIDERATIONS
The Board believes that the flexibility to invest a greater percentage
of the Portfolio's assets without regard to the need to seek income will
enhance the EQSF's ability to structure a portfolio that has a greater
potential to produce long-term capital appreciation. The Board considered many
factors, including the Manager's recommendation that EQSF be permitted to
manage the Portfolio's assets in a manner similar to a retail mutual fund, the
Third Avenue Value Fund, which has an investment objective of long-term capital
appreciation. As the proposed New Sub-Adviser of the Portfolio, EQSF will seek
to achieve the Portfolio's objective of seeking long-term capital appreciation
by adhering to a strict value discipline in selecting securities, which means
it will invest in securities whose prices are low in relation to what it
believes is the true value of the securities. EQSF believes this discipline
both lowers risk and increases capital appreciation potential. In evaluating
potential investments which fit this discipline, current income from dividends
and income will generally not be an important consideration in selecting
portfolio securities. This generally means that the Portfolio will have fewer
income producing investments than a fund which has a secondary objective of
seeking current income. However, because the Portfolio will continue to have
the flexibility to invest a portion of its total assets in income producing
instruments, the Board has determined that the main risks of investing in the
Portfolio will not change substantially due to the elimination of the secondary
investment objective.
Subject to receipt of shareholder approval of the New Sub-Advisory
Agreement (see Proposal No. 1) and this proposal, the change in the Portfolio's
investment objective will take effect on November 1, 2000.
RECOMMENDATION OF THE BOARD OF DIRECTORS
At an in-person meeting held on August 21, 2000, the Board of
Directors, including all of the Independent Directors, voted unanimously to
approve the change in the investment objective of the Scudder Kemper Value
Portfolio and to recommend that shareholders of the Portfolio vote "FOR"
changing the investment objective of the Portfolio.
IF PROPOSAL NO. 2 IS NOT APPROVED BY THE SHAREHOLDERS OF THE SCUDDER
KEMPER VALUE PORTFOLIO, THE BOARD WILL CONSIDER WHAT OTHER ACTION, IF ANY,
SHOULD BE TAKEN TO CHANGE THE INVESTMENT OBJECTIVE WITH RESPECT TO SUCH
PORTFOLIO. FAILURE TO APPROVE PROPOSAL NO. 2 BY THE SHAREHOLDERS OF THE SCUDDER
KEMPER VALUE PORTFOLIO WILL NOT AFFECT THE APPROVAL OF PROPOSALS NOS. 1 OR 3
WITH RESPECT TO THE PORTFOLIO OR PROPOSALS NOS. 4 OR 5 WITH RESPECT TO THE
OTHER PORTFOLIOS.
19
<PAGE>
PROPOSAL NO. 3: APPROVAL OR DISAPPROVAL OF THE PROPOSAL
TO CHANGE THE PORTFOLIO'S STATUS FROM DIVERSIFIED TO NON-DIVERSIFIED
SCUDDER KEMPER VALUE PORTFOLIO
BACKGROUND
The Scudder Kemper Value Portfolio is currently a diversified
investment company under the 1940 Act. This means that with respect to 75% of
its total assets, the Portfolio is limited in its investment in any one issuer
(other than Government securities or securities of other investment companies)
to an amount not greater in value than 5% of the value of the Portfolio's total
assets and to not more than 10% of the outstanding voting securities of that
issuer. To permit the Portfolio's proposed New Sub-Adviser, EQSF, more
flexibility in pursuing its investment strategy, the Manager has recommended,
and the Board has approved, a change in the Portfolio's diversified status to
that of a non-diversified investment company under the 1940 Act. The
diversified status of the Portfolio is a fundamental policy that may be changed
only with shareholder approval.
BOARD CONSIDERATIONS
In conjunction with the Board's approval of the New Sub-Advisory
Agreement with EQSF with respect to the Portfolio, the Board has determined
that it is in the best interest of the Portfolio to change the status of the
Portfolio under the 1940 Act to that of a non-diversified investment company.
The Board considered many factors, including the Manager's recommendation that
EQSF be permitted to manage the Portfolio's assets in a manner similar to a
retail mutual fund currently managed by EQSF, the Third Avenue Value Fund,
which is non-diversified. The Board considered that, as a non-diversified fund,
the Portfolio will be permitted to invest more of its assets in the securities
of a single issuer than if it were a diversified fund. Overall, the Portfolio
may invest a relatively greater percentage of its assets in the securities of a
more limited number of issuers than if it were a diversified fund.
The Board considered that by concentrating in a smaller number of
issuers, the Portfolio's potential for higher returns may be increased because
positive developments affecting an individual issuer will tend to have a
greater impact on the Portfolio's overall performance. However, by
concentrating the Portfolio's assets in a smaller number of issuers, the Board
also considered that the Portfolio's risk may increase because adverse
business, economic, political or regulatory developments affecting a single
issuer may potentially have a greater adverse impact on the Portfolio's
performance than if the Portfolio's assets were invested in a greater number of
issuers.
The Board took into consideration the Portfolio's intention to satisfy
the diversification requirements necessary to qualify as a regulated investment
company
20
<PAGE>
under the Internal Revenue Code of 1986, as amended, which requires the
Portfolio to be diversified (i.e. not invest more than 5% of its assets in the
securities in any one issuer) as to 50% of its assets. After considering all
relevant factors, the Board concluded that the flexibility to concentrate the
Portfolio's assets in a smaller number of securities should enhance the New
Sub-Adviser's ability to structure a portfolio that has a greater potential to
produce long-term capital appreciation.
Subject to receipt of shareholder approval of the New Sub-Advisory
Agreement (see Proposal No. 1) and this proposal, the change in the Portfolio's
diversified status will take effect on November 1, 2000.
RECOMMENDATION OF THE BOARD OF DIRECTORS
At an in-person meeting held on August 21, 2000, the Board of
Directors, including all of the Independent Directors, voted unanimously to
approve the change in the diversified status of the Scudder Kemper Value
Portfolio and to recommend that shareholders of the Portfolio vote "FOR"
changing the investment objective of the Portfolio.
IF PROPOSAL NO. 3 IS NOT APPROVED BY THE SHAREHOLDERS OF THE SCUDDER
KEMPER VALUE PORTFOLIO, THE BOARD WILL CONSIDER WHAT OTHER ACTION, IF ANY,
SHOULD BE TAKEN TO CHANGE THE DIVERSIFIED STATUS WITH RESPECT TO SUCH
PORTFOLIO. FAILURE TO APPROVE PROPOSAL NO. 3 BY THE SHAREHOLDERS OF THE SCUDDER
KEMPER VALUE PORTFOLIO WILL NOT AFFECT THE APPROVAL OF PROPOSALS NOS. 1 OR 2
WITH RESPECT TO THE PORTFOLIO OR PROPOSALS NOS. 4 OR 5 WITH RESPECT TO THE
OTHER PORTFOLIOS.
21
<PAGE>
PROPOSAL NO. 4: APPROVAL OR DISAPPROVAL OF THE NEW
SUB-ADVISORY AGREEMENT BETWEEN THE MANAGER AND GABELLI
ASSET MANAGEMENT COMPANY
ZWEIG ASSET ALLOCATION PORTFOLIO
BACKGROUND
The Zweig Asset Allocation Portfolio is currently sub-advised by Zweig
under a Current Sub-Advisory Agreement between the Manager and Zweig.
The Board has determined, based largely on the performance of the
Portfolio in comparison to similar funds, that it is in the best interest of
the shareholders of the Portfolio to replace the Current Sub-Adviser of the
Portfolio. In connection therewith, the Board has approved the termination of
the Current Sub-Advisory Agreement and replacement of Zweig with Gabelli
pursuant to a New Sub-Advisory Agreement between the Manager and Gabelli. A
form of the New Sub-Advisory Agreement is annexed as EXHIBIT A. The material
terms of the New Sub-Advisory Agreement are substantially similar to the
Current Sub-Advisory Agreement, with the exception of the identity of the
sub-adviser and the effective date. Upon approval by shareholders of the
Portfolio, the New Sub-Advisory Agreement will become effective on November 1,
2000 (previously defined as the Effective Date).
THE CURRENT AND NEW SUB-ADVISORY AGREEMENTS
The Current Sub-Advisory Agreement between the Manager and Zweig,
dated April 4, 2000, with respect to Zweig Asset Allocation Portfolio was last
approved by the Board of Directors, including all of the Independent Directors,
on February 18, 2000 and by shareholders on April 4, 2000, in connection with a
change in the investment manager. The following is a summary of the material
terms of New Sub-Advisory Agreement, which are substantially similar to the
material terms of the Current Sub-Advisory Agreement, with the exception of the
identity of the sub-adviser and effective date:
ADVISORY SERVICES. Gabelli will provide a continuous investment
program for the Portfolio, including investment research with respect to all
securities and investments and cash equivalents in the Portfolio.
COMPENSATION FOR SERVICES. The Manager (and not the Fund) will pay to
Gabelli a sub-advisory fee at the annual rate of .65%, calculated as a
percentage of the average daily net assets of the Portfolio. This rate is the
same as the rate in effect under the Current Sub-Advisory Agreement. The
sub-advisory fee for the fiscal year ended June 30, 2000 paid to the Current
Sub-Adviser by the Manager was $128,198.25 with respect to the Portfolio.
PAYMENT OF EXPENSES. Gabelli agrees to assume and pay all of the costs
and expenses of performing its obligations under the New Sub-Advisory Agreement.
22
<PAGE>
LIMITATION OF LIABILITY. Under the New Sub-Advisory Agreement, except
as may otherwise be required under the 1940 Act, Gabelli and any of its
affiliated persons and each person who, within the meaning of Section 15 of the
Securities Act of 1933, as amended, controls Gabelli will not be liable for, or
subject to any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered thereunder,
except by reason of willful misfeasance, bad faith, or gross negligence in the
performance of Gabelli's duties, or by reason of reckless disregard of
Gabelli's obligations and duties thereunder.
TERM. The New Sub-Advisory Agreement provides that it will continue in
effect for two years and thereafter from year to year, subject to Annual
Approval.
TERMINATION; ASSIGNMENT. The New Sub-Advisory Agreement may be
terminated at any time without penalty upon 60 days' written notice by Gabelli,
the Manager, the Board of Directors, acting pursuant to a resolution adopted by
a majority of the Independent Directors, or by the affirmative vote of the
holders of a "majority of the outstanding voting securities" of the Portfolio
(as defined in the 1940 Act). The New Sub-Advisory Agreement also provides that
it will automatically terminate in the event of its assignment (as defined in
the 1940 Act) or termination of the Management Agreement.
BOARD CONSIDERATIONS
At a meeting held on August 21, 2000, the Board of Directors,
including all the Independent Directors, unanimously approved the New
Sub-Advisory Agreement pursuant to which Gabelli will serve as the Portfolio's
sub-adviser in place of Zweig. The Board took into account the fact that except
for the identity of the New Sub-Adviser and the effective date of the New
Sub-Advisory Agreement, the material terms of the New Sub-Advisory Agreement,
including the compensation payable thereunder, are substantially similar to
those of the Current Sub-Advisory Agreement with Zweig. The Board determined
that the terms of the New Sub-Advisory Agreement are fair and reasonable and
that the approval of the New Sub-Advisory Agreement on behalf of the Portfolio
is in the best interests of the Portfolio and its shareholders. In conjunction
with the proposed change in sub-adviser, the Board also approved a change in
the name of the Zweig Asset Allocation Portfolio to the "Gabelli Large Cap
Value Portfolio."
In approving the New Sub-Advisory Agreement, the Directors evaluated
the factors they deemed relevant with respect to the Portfolio. The Board
considered the Manager's recommendation that the New Sub-Advisory Agreement be
approved. In connection therewith, the Board considered that as part of the
Manager's oversight responsibilities pursuant to the Management Agreement, the
Manager (i) evaluates each Portfolio's performance in comparison to similar
mutual funds and other market information, (ii) conducts searches for a
replacement sub-adviser for each Portfolio when deemed necessary, (iii)
selects, subject to the review and approval of the Board, a new
23
<PAGE>
sub-adviser that has distinguished itself by superior performance and
(iv) oversees the continued performance of each sub-adviser.
The Board determined, based largely on the performance of the
Portfolio in comparison to similar funds, that it is in the best interest of
the shareholders to replace Zweig as sub-adviser for the Portfolio. In
selecting Gabelli, the Board reviewed, among other things, Gabelli's historical
performance record in managing similar investment companies and other client
accounts, its name recognition in the investment community, its financial
condition, and its overall commitment to the investment advisory business. The
Board also considered that Gabelli serves as an investment adviser to
investment companies and separate accounts, with aggregate assets in excess of
$9.6 billion as of June 30, 2000.
The Board also approved the Manager's recommendation that the
principal investment strategy of the Portfolio be changed in conjunction with
the retention of the New Sub-Advisor. The fundamental investment objective of
the Portfolio is to seek long-term capital appreciation. There is no proposal
to change this objective or any of the Fund's fundamental investment
restrictions. Gabelli proposes to manage the Portfolio in a manner similar to a
retail mutual fund currently managed by Gabelli, the Gabelli Blue Chip Value
Fund. As a result, the Portfolio's principal investment strategy will be to
seek to invest primarily in common stocks of large, well known, widely-held,
high quality companies that have a market capitalization of greater than $5
billion. Companies of this general type are often referred to as "Blue Chip"
companies. The principal investment strategy of the Zweig Asset Allocation
Portfolio is currently to invest primarily in mid-sized and large company
stocks that the portfolio manager considers to be comparable to the stocks
included in the S&P 500 that have a minimum of $400 million market
capitalization. Thus, the Portfolio's primary focus may move to larger
capitalization companies. In conjunction with the proposed change in
sub-adviser, the Board has approved a change in the name of the Zweig Asset
Allocation Portfolio to the "Gabelli Large Cap Value Portfolio." The changes in
the Portfolio's name and principal investment strategy will also become
effective on the Effective Date subject to shareholder approval of the New
Sub-Advisory Agreement.
INFORMATION ABOUT GABELLI
Gabelli Asset Management Company is located at One Corporate Center,
Rye, New York 10580-1434. Gabelli, a wholly-owned subsidiary of Gabelli Asset
Management Inc., acts as investment adviser for individuals, pension trusts,
profit-sharing trusts, endowments, charitable organizations and others, and had
assets of approximately $9.6 billion under its management as of June 30, 2000;
Gabelli serves as an investment adviser to other investment companies with
aggregate assets in excess of $1 billion as of June 30, 2000. Gabelli is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended. Mr. Mario J. Gabelli may be deemed a "controlling person" of Gabelli
on the basis of his controlling interest of the ultimate parent company of
Gabelli. Gabelli has several affiliates that provide investment advisory
24
<PAGE>
services: Gabelli Funds, LLC is a New York limited liability company organized
in 1999 and acts investment adviser to the Gabelli family of funds with assets
under management of approximately $12.6 billion as of June 30, 2000. Gabelli
Funds, LLC is a wholly owned subsidiary of Gabelli Asset Management Inc., a
publicly held company listed on the New York Stock Exchange. Gabelli Advisers,
Inc. acts as investment adviser to the Gabelli Westwood Funds with assets under
management of approximately $9.6 billion as of June 30, 2000; and Gabelli
Fixed Income LLC acts as investment adviser for the five portfolios of The
Treasurer's Fund, Inc. and separate accounts having assets under management of
approximately $1 billion as of June 30, 2000. Gabelli or its affiliates also
serves as investment adviser to other investment companies having similar
investment objectives to the Zweig Asset Allocation Portfolio (as proposed to
be amended) as indicated in EXHIBIT C.
The following chart lists the names and principal occupations of the
principal executive officers and shareholders of Gabelli. The address of each,
as it relates to his or her duties with Gabelli, is the same as that of Gabelli.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Mario J. Gabelli Chairman of the Board and Chief Investment Officer of
Gabelli Asset Management Inc. and Chief Investment
Officer of Gabelli Asset Management Company and
Gabelli Funds, LLC; Chairman of the Board of Lynch
Corporation (diversified manufacturing company) and
Chairman of the Board and Chief Executive Officer of
Lynch Interactive Corporation (multimedia and
services company); Director of Spinnaker Industries,
Inc. (manufacturing company); Director or Trustee of
18 other mutual funds advised by Gabelli and it
affiliates.
Douglas R. Executive Vice President, Managing Director and Chief
Jamieson Operating Officer of Gabelli Asset Management Company
since 1981.
Joseph R. Chairman of the Board and Managing Director of
Rindler, Jr. Gabelli Asset Management Company since 1986.
James E. McKee Vice President, Secretary and General Counsel of
Gabelli Asset Management Company since 1993, and of
Gabelli Asset Management Inc. since 1999; Secretary
of Gabelli Funds, LLC; Secretary of all mutual funds
advised by Gabelli Funds, LLC and Gabelli Advisers,
Inc. since August 1995.
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
At an in-person meeting held on August 21, 2000 the Board of
Directors, including all of the Independent Directors, voted unanimously to
approve the New
25
<PAGE>
Sub-Advisory Agreement with respect to the Zweig Asset Allocation Portfolio and
to recommend that shareholders of the Portfolio vote "FOR" the New Sub-Advisory
Agreement.
IF PROPOSAL NO. 4 IS NOT APPROVED BY THE SHAREHOLDERS OF THE ZWEIG
ASSET ALLOCATION PORTFOLIO, THE BOARD WILL CONSIDER WHAT OTHER ACTION, IF ANY,
SHOULD BE TAKEN TO OBTAIN SUB-ADVISORY SERVICES WITH RESPECT TO SUCH PORTFOLIO.
FAILURE TO APPROVE PROPOSAL NO. 4 BY THE SHAREHOLDERS OF THE ZWEIG ASSET
ALLOCATION PORTFOLIO WILL NOT AFFECT THE APPROVAL OF PROPOSALS NOS. 1, 2, 3 AND
5 WITH RESPECT TO THE OTHER PORTFOLIOS.
26
<PAGE>
PROPOSAL NO. 5: APPROVAL OR DISAPPROVAL OF THE NEW
SUB-ADVISORY AGREEMENT BETWEEN THE MANAGER AND BAMCO,
INC.
ZWEIG EQUITY (SMALL CAP) PORTFOLIO
BACKGROUND
The Zweig Equity (Small Cap) Portfolio is currently sub-advised by
Zweig under a Current Sub-Advisory Agreement between the Manager and Zweig.
The Board has determined, based largely on the performance of the
Portfolio in comparison to similar funds, that it is in the best interest of
the shareholders of the Portfolio to replace the Current Sub-Adviser of the
Portfolio. In connection therewith, the Board has approved the termination of
the Current Sub-Advisory Agreement and replacement of Zweig with BAMCO pursuant
to a New Sub-Advisory Agreement between the Manager and BAMCO. A form of the
New Sub-Advisory Agreement is annexed as EXHIBIT A. The material terms of the
New Sub-Advisory Agreement are substantially similar to the Current
Sub-Advisory Agreement, with the exception of the identity of the sub-adviser
and the effective date. Upon approval by shareholders of the Portfolio, the New
Sub-Advisory Agreement will become effective on November 1, 2000 (previously
defined as the Effective Date).
THE CURRENT AND NEW SUB-ADVISORY AGREEMENTS
The Current Sub-Advisory Agreement between the Manager and Zweig,
dated April 4, 2000, with respect to Zweig Equity (Small Cap) Portfolio was
last approved by the Board of Directors, including all of the Independent
Directors, on February 18, 2000 and by shareholders on April 4, 2000, in
connection with a change in the investment manager. The following is a summary
of the material terms of New Sub-Advisory Agreement, which are substantially
similar to the material terms of the respective Current Sub-Advisory Agreement,
with the exception of the identity of the New Sub-Adviser and effective date:
ADVISORY SERVICES. BAMCO will provide a continuous investment program
for the Portfolio, including investment research with respect to all securities
and investments and cash equivalents in the Portfolio.
COMPENSATION FOR SERVICES. The Manager (and not the Fund) will pay to
BAMCO a sub-advisory fee at the annual rate of .80%, calculated as a percentage
of the average daily net assets of the Portfolio. This rate is the same as the
rate in effect under the Current Sub-Advisory Agreement. The sub-advisory fee
for the fiscal year ended June 30, 2000 paid to Zweig by the Manager was
$64,347.11 with respect to the Portfolio.
27
<PAGE>
PAYMENT OF EXPENSES. BAMCO agrees to assume and pay all of the costs
and expenses of performing its obligations under the New Sub-Advisory Agreement.
LIMITATION OF LIABILITY. Under the New Sub-Advisory Agreement, except
as may otherwise be required under the 1940 Act, BAMCO and any of its
affiliated persons and each person who, within the meaning of Section 15 of the
Securities Act of 1933, as amended, controls BAMCO will not be liable for, or
subject to any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered thereunder,
except by reason of willful misfeasance, bad faith, or gross negligence in the
performance of BAMCO's duties, or by reason of reckless disregard of BAMCO's
obligations and duties thereunder.
TERM. The New Sub-Advisory Agreement provides that it will continue in
effect for two years and thereafter from year to year, subject to Annual
Approval.
TERMINATION; ASSIGNMENT. The New Sub-Advisory Agreement may be
terminated at any time without penalty upon 60 days' written notice by BAMCO,
the Manager, the Board of Directors, acting pursuant to a resolution adopted by
a majority of the Independent Directors, or by the affirmative vote of the
holders of a "majority of the outstanding voting securities" of the Portfolio
(as defined in the 1940 Act). The New Sub-Advisory Agreement also provides that
it will automatically terminate in the event of its assignment (as defined in
the 1940 Act) or termination of the Management Agreement.
BOARD CONSIDERATIONS
At a meeting held on August 21, 2000, the Board of Directors,
including all the Independent Directors, unanimously approved the New
Sub-Advisory Agreement pursuant to which BAMCO will serve as the Portfolio's
sub-adviser in place of Zweig. The Board took into account the fact that except
for the identity of the New Sub-Adviser and the effective date of the New
Sub-Advisory Agreement, the material terms of the New Sub-Advisory Agreement,
including the compensation payable thereunder, are substantially similar to
those of the Current Sub-Advisory Agreement with Zweig. The Board determined
that the terms of the New Sub-Advisory Agreement are fair and reasonable and
that the approval of the New Sub-Advisory Agreement on behalf of the Portfolio
is in the best interests of the Portfolio and its shareholders. In conjunction
with the proposed change in sub-adviser, the Board also approved a change in
the name of the Zweig Equity (Small Cap) Portfolio to the "Baron Small Cap
Portfolio."
In approving the New Sub-Advisory Agreement, the Directors evaluated
the factors they deemed relevant with respect to the Portfolio. The Board
considered the Manager's recommendation that the New Sub-Advisory Agreement be
approved. In connection therewith, the Board considered that as part of the
Manager's oversight responsibilities pursuant to the Management Agreement, the
Manager (i) evaluates each Portfolio's performance in comparison to similar
mutual funds and other market
28
<PAGE>
information, (ii) conducts searches for a replacement sub-adviser for each
Portfolio when deemed necessary, (iii) selects, subject to the review and
approval of the Board, a new sub-adviser that has distinguished itself by
superior performance and (iv) oversees the continued performance of each
sub-adviser.
The Board determined, based largely on the performance of the
Portfolio in comparison to similar funds, that it was in the best interest of
the shareholders to replace Zweig as sub-adviser for the Portfolio. In
selecting the BAMCO, the Board reviewed, among other things, BAMCO's historical
performance record in managing similar investment companies and other client
accounts, its name recognition in the investment community, its financial
condition, and its overall commitment to the investment advisory business. The
Board also considered that BAMCO was an investment adviser to other mutual
funds and, as of June 30, 2000, managed approximately $6.7 billion in assets.
The Board also approved the Manager's recommendation that the
principal investment strategy of the Portfolio be modified in conjunction with
the retention of the New Sub-Adviser. The fundamental investment objective of
the Portfolio is to seek long-term capital appreciation. There is no proposal
to change this objective or any of the Fund's fundamental investment
restrictions. BAMCO proposes to manage the Portfolio in a manner similar to a
retail mutual fund currently managed by BAMCO, the Baron Growth Fund. As a
result, the Portfolio's principal investment strategy will be to seek to invest
primarily in common stocks of smaller companies with market values under $2.0
billion selected for their capital appreciation potential. The principal
investment strategy of the Portfolio is currently to invest primarily in small
company stocks, which are stocks that have a market capitalization between $250
million and $1.5 billion. Thus, the Portfolio will retain its focus on small
capitalization companies. In conjunction with the proposed change in
sub-adviser, the Board has approved a change in the name of the Zweig Equity
(Small Cap) Portfolio to the "Baron Small Cap Portfolio." The changes in the
Portfolio's name and principal investment strategy will become effective on the
Effective Date subject to shareholder approval of the New Sub-Advisory
Agreement.
INFORMATION ABOUT BAMCO
BAMCO, Inc., a New York corporation with its principal offices at 767
Fifth Avenue, New York, N.Y. 10153, is a subsidiary of Baron Capital Group,
Inc. ("BCG"). Mr. Ronald Baron is the controlling stockholder of BCG and is
BAMCO's chief investment officer. Mr. Baron has over 30 years of experience as
a Wall Street analyst and has managed money for others for over 25 years. Baron
Capital, Inc., a registered broker-dealer is also a subsidiary of BCG. As of
June 30, 2000, BAMCO managed approximately $6.7 billion in assets. BAMCO also
serves as investment adviser to other investment companies having similar
investment objectives to the Zweig Equity (Small Cap) Portfolio (as proposed to
be amended) as indicated in EXHIBIT D.
29
<PAGE>
The following chart lists the names and principal occupations of the
principal executive officers and shareholders of BAMCO. The address of each, as
it relates to his or her duties with BAMCO, is the same as that of BAMCO.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Ronald Baron Chairman, CEO, and Director of: Baron Capital, Inc.
(1982-Present), Baron Capital Management, Inc.
(1983-Present), Baron Capital Group, Inc.
(1984-Present), BAMCO, Inc. (1987-Present).
Clifford Greenberg Vice President of: Baron Capital, Inc., Baron Capital
Group, Inc., BAMCO, Inc., (1997-Present); General
Partner, HPB Associates, LP (1984-1996) (investment
partnership).
Linda S. Martinson General Counsel, Vice President and Secretary of
Baron Capital, Inc. (1983-Present), BAMCO, Inc.
(1987-Present), Baron Capital Group, Inc.
(1984-Present), Baron Capital Management, Inc.
(1983-Present).
Morty Schaja President and Chief Operating Officer of Baron
Capital Inc. (1999-Present), Senior Vice President
and Chief Operating Officer of Baron Capital, Inc.
(1997-1999), Managing Director, Vice President, Baron
Capital, Inc. (1991-Present), and Director, Baron
Capital Group, Inc., Baron Capital Management, Inc.,
and BAMCO, Inc. (1997-Present).
Peggy C. Wong Treasurer and Chief Financial Officer of Baron
Capital, Inc., Baron Capital Group, Baron Capital,
Inc., Baron Capital Group, Inc., BAMCO, Inc. and
Baron Capital Management, Inc. (1987-Present).
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
At an in-person meeting held on August 21, 2000, the Board of
Directors, including all of the Independent Directors, voted unanimously to
approve the New Sub-Advisory Agreement with respect to the Zweig Equity (Small
Cap) Portfolio and to recommend that shareholders of the Portfolio vote "FOR"
the New Sub-Advisory Agreement.
IF PROPOSAL NO. 5 IS NOT APPROVED BY THE SHAREHOLDERS OF THE ZWEIG
EQUITY (SMALL CAP) PORTFOLIO, THE BOARD WILL CONSIDER WHAT OTHER ACTION, IF
ANY, SHOULD BE TAKEN TO OBTAIN SUB-ADVISORY SERVICES WITH RESPECT TO SUCH
PORTFOLIO. FAILURE TO APPROVE PROPOSAL NO. 5 BY THE SHAREHOLDERS OF THE ZWEIG
EQUITY (SMALL CAP) PORTFOLIO WILL NOT AFFECT THE APPROVAL OF PROPOSALS NOS. 1,
2, 3 AND 4 WITH RESPECT TO THE OTHER PORTFOLIOS.
30
<PAGE>
GENERAL INFORMATION
INFORMATION ABOUT THE MANAGER
Touchstone Advisors, Inc., 311 Pike Street, Cincinnati, Ohio 45202,
and its 111-year-old parent company, Western & Southern, 400 Broadway,
Cincinnati, Ohio 45202, are part of The Western-Southern Enterprise
-Registered Trademark- (the "Enterprise"), which is a family of companies
that provides life insurance, annuities, mutual funds, asset management and
other related financial services for millions of consumers nationwide.
(Touchstone Advisors, Inc. is 100% owned by IFS Financial Services, Inc., 311
Pike Street, Cincinnati, Ohio 45202, which is 100% owned by Western-Southern
Life Assurance Company, 400 Broadway, Cincinnati, Ohio 45202, a direct
subsidiary of Western & Southern.) Through its seven companies, more than
4,800 associates and more than 50,000 individuals who sell its products, the
Enterprise offers consumers a broad array of products and services to meet
their financial security needs. As of June 30, 2000, the Enterprise owned or
managed assets of approximately $25 billion and Touchstone Advisors, Inc.
managed assets of approximately $1.5 billion (on a consolidated basis).
The following chart lists the name, address and principal occupation
of the principal executive officers and each director of Touchstone Advisors.
The address of each, as it relates to his or her duties with respect to
Touchstone Advisors, is the same as that of Touchstone Advisors.
31
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Jill Tripp McGruder Director, President & Chief Executive Officer
Teresa Siegel Chief Financial Officer
Patricia Wilson Chief Compliance Officer
Donald J. Wuebbling Director, Secretary & Chief Legal Officer
William F. Ledwin Director
James N. Clark Director
Edwin S. Heenan Vice President & Comptroller
Richard K. Taulbee Vice President
James J. Vance Vice President & Treasurer
Robert F. Morand Assistant Secretary
David E. Dennison Assistant Treasurer
Robert A. Dressman Assistant Treasurer
Timothy D. Speed Assistant Treasurer
</TABLE>
None of the principal executive officers or Directors of the Manager
is an officer or director of the Fund.
AFFILIATED BROKERS
Zweig is affiliated with one or more registered broker-dealers. From
time to time, a portion of each of the Zweig Asset Allocation Portfolio and
Zweig Equity (Small Cap) Portfolio's brokerage transactions has been conducted
with such broker-dealers, subject to policies established by the Fund's Board
to ensure that all brokerage commissions paid to such broker-dealers by the
Portfolios with which they are affiliated are fair and reasonable. For the
fiscal year ended June 30, 2000, the Fund paid $_______ and $________ in
brokerage commissions with respect to the Zweig Asset Allocation Portfolio and
Zweig Equity (Small Cap) Portfolio to PXP Securities Corp. ("PXP Securities"),
a registered broker-dealer, which is under common control with Phoenix/Zweig
and, therefore, is an affiliated person of Phoenix/Zweig. For the fiscal year
ended June 30, 2000, the brokerage commissions paid to PXP Securities as a
percentage of the aggregate brokerage commissions paid by the Zweig Asset
Allocation Portfolio and Zweig Equity (Small Cap) Portfolio was approximately
____% and ___%, respectively.
32
<PAGE>
With respect to the Scudder Kemper Value Portfolio, EQSF intends to
use brokers affiliated with EQSF as brokers for the Portfolio where, in its
judgment, such firms will be able to obtain a price and execution at least as
favorable as other qualified brokers. Martin J. Whitman, David M. Barse,
Michael Carney and Ian M. Kirschner, who are executive officers of EQSF, are
also executive officers of M.J. Whitman, Inc. ("MJW") and M.J. Whitman Senior
Debt Corp., a broker of private debt instruments under common control with MJW.
DISTRIBUTOR
Touchstone Securities, 311 Pike Street, Cincinnati, Ohio 45202, is the
Fund's Distributor.
OTHER MATTERS
The Board of Directors does not know of any other business to be
brought before the meeting. If any other matters properly come before the
meeting, proxies will vote on such matters in their discretion.
REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE MOST RECENT
ANNUAL AND SEMI-ANNUAL REPORTS TO CONTRACT OWNERS. COPIES OF THE ANNUAL AND
SEMI-ANNUAL REPORTS MAY BE OBTAINED FROM THE FUND, WITHOUT CHARGE, BY
CONTACTING THE FUND IN WRITING AT THE ADDRESS ON THE COVER OF THIS PROXY
STATEMENT, OR BY CALLING 1-800-325-8583.
SHAREHOLDER PROPOSALS
The Fund is not required to hold annual meetings of shareholders and
currently does not intend to hold such meetings unless shareholder action is
required in accordance with the 1940 Act or the Fund's Articles of
Incorporation. A shareholder proposal to be considered for inclusion in the
proxy statement at any meeting of shareholders hereafter called must be
submitted a reasonable time before the proxy statement relating thereto is
mailed. Whether a proposal submitted will be included in the proxy statement
will be determined in accordance with applicable federal and state laws.
Respectfully Submitted,
Kevin L. Howard
Secretary
Dated: September ___, 2000
33
<PAGE>
CONTRACT HOLDERS ARE REQUESTED TO FILL IN, DATE AND SIGN THE VOTING INSTRUCTIONS
CARD AND RETURN IT PROMPTLY IN THE ENCLOSED PREPAID ENVELOPE.
34
<PAGE>
EXHIBIT A
---------
Form of Sub-Advisory Agreement
35
<PAGE>
SUB-ADVISORY AGREEMENT
AGREEMENT, made this day of _______, 2000, between Touchstone Advisors, Inc.
(MANAGER), a Delaware corporation, and _________________(SUB-ADVISER).
WHEREAS, Manager, an indirect wholly-owned subsidiary of The Western and
Southern Life Insurance Company, is an investment adviser registered under the
Investment Advisers Act of 1940, as amended (the ADVISERS ACT);
WHEREAS, the Sub-Adviser is an investment adviser registered under the
Advisers Act;
WHEREAS, pursuant to a Management Agreement dated April 4, 2000 (the MANAGEMENT
AGREEMENT), Manager acts as Investment Manager to The Legends Fund, Inc. (the
FUND), an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the 1940 ACT);
WHEREAS, the Fund is authorized to issue multiple series of shares, each such
series representing a separate portfolio of securities and investments; and
WHEREAS, Manager desires to retain the Sub-Adviser to furnish investment
advisory services to the Third Avenue Value Portfolio of the Fund (the
PORTFOLIO), and the Sub-Adviser is willing to accept such appointment on the
terms and conditions set forth herein.
NOW, THEREFORE, based on the premises and the consideration set forth herein,
Manager and the Sub-Adviser agree as follows:
SECTION 1. INVESTMENT ADVISORY SERVICES.
Subject to the supervision of the Fund's Board of Directors and Manager, the
Sub-Adviser will provide a continuous investment program for the Portfolio and
determine the composition of the assets of the Portfolio, including
determination of the purchase, retention or sale of the securities, cash, and
other investments contained in the Portfolio's holdings. The Sub-Adviser will
provide investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolio's assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Portfolio, when these transactions should be
executed, and what portion of the assets of the Portfolio should be held in the
various securities and other investments in which it may invest, and the
Sub-Adviser is hereby authorized to execute and perform such services on behalf
of the Portfolio. To the extent, if any, permitted by the investment policies of
the Portfolio, the Sub-Adviser shall make determinations as to and execute and
perform futures contracts and options on behalf of the Portfolio. The
Sub-Adviser will provide the services under this Agreement in accordance with
the Portfolio's investment objective or objectives, policies, and restrictions
as stated in the Fund's Registration Statement filed with the Securities and
Exchange Commission (SEC). Manager agrees to supply the Sub-Adviser with a copy
of the Registration Statement and each amendment thereto (the Registration
Statement as amended from time to time hereinafter referred to as the
REGISTRATION STATEMENT) and any other documents that set forth investment
policies, procedures or restrictions governing the Portfolio and to notify the
Sub-Adviser in writing of any changes in the investment objectives, policies,
procedures and restrictions governing the Portfolio.
36
<PAGE>
The Sub-Adviser further agrees as follows:
(a) The Sub-Adviser will manage the Portfolio (i) so that it will qualify as
a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the CODE), and (ii) so as to ensure compliance by
the Portfolio with the diversification requirements of Section 817(h) of the
Code and regulations issued thereunder. In managing the Portfolio in
accordance with these requirements, the Sub-Adviser shall be entitled to
receive and act upon advice of counsel to the Fund, counsel to Manager or
counsel to the Sub-Adviser, provided the Sub-Adviser's counsel is acceptable
to Manager.
(b) In undertaking its duties under this Agreement, the Sub-Adviser will
comply with the 1940 Act and all rules and regulations thereunder, all other
applicable federal and state laws and regulations, with any applicable
procedures adopted by the Fund's Board of Directors of which it has notice
and the provisions of the Registration Statement.
(c) On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as of the
Sub-Adviser's or the Sub-Adviser's affiliates' other investment advisory
clients, the Sub-Adviser may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be so
sold or purchased with those of its other clients where such aggregation is
not inconsistent with the policies set forth in the Registration Statement.
In such event, the Sub-Adviser will allocate the securities so purchased or
sold, as well as the expenses incurred in the transaction, in a manner that
is fair and equitable in the Sub-Adviser's judgment in the exercise of the
Sub-Adviser's fiduciary obligations to the Fund and to such other clients.
(d) In connection with the purchase and sale of securities for the Portfolio,
the Sub-Adviser, together with Manager, will arrange for the transmission to
the custodian, transfer agent, dividend disbursing agent and recordkeeping
agent for the Fund (such custodian and agent or agents hereinafter referred
to as the AGENT), on a daily basis, such confirmation, trade tickets (which
shall state industry classifications unless the Sub-Adviser has previously
furnished a list of classifications for portfolio securities), and other
documents and information, including (but not limited to) Cusip or other
numbers that identify securities to be purchased or sold on behalf of the
Portfolio and, with respect to mortgage derivative and asset-backed
securities purchased by the Sub-Adviser for the Portfolio, 1066Q reports and
supplemental information as required to be available pursuant to IRS
Publication 938, as may be reasonably necessary to enable the Agent to
perform its administrative and recordkeeping responsibilities with respect to
the Portfolio. With respect to portfolio securities to be purchased or sold
through the Depository Trust Company, the Sub-Adviser will arrange for the
automatic transmission of the confirmation of such trades to the Fund's
Agent, and if requested, Manager.
(e) The Sub-Adviser will monitor on a daily basis, by review of daily pricing
reports provided by the Agent to the Sub-Adviser, the determination by the
Agent for the Fund of the valuation of portfolio securities and other
investments of the Portfolio. The Sub-Adviser shall not be obligated to
independently verify the Agent's pricing determinations, and the Agent's
responsibility for accurate pricing determinations of the value of the
Portfolios's securities shall not be reduced by the Sub-Adviser's duty to
monitor such determinations. The Sub-Adviser will assist the Agent in
determining or confirming, consistent with the procedures and policies stated
in the Registration Statement, the value of any portfolio securities or other
assets of the Portfolio for which the Agent seeks assistance from or
identifies for review by the Sub-Adviser.
(f) The Sub-Adviser will make available to the Fund and Manager, promptly
upon request, all of the Portfolio's investment records and ledgers
maintained by the Sub-Adviser as are necessary to assist the Fund and Manager
to comply with requirements of the 1940 Act and the Advisers Act, as well as
other applicable laws. The Sub-Adviser will furnish to regulatory authorities
having the requisite authority any information or reports in connection with
its services
37
<PAGE>
which may be requested in order to ascertain whether the operations of the
Fund are being conducted in a manner consistent with applicable laws and
regulations.
(g) The Sub-Adviser will provide reports, which may be prepared by the Agent,
to the Fund's Board of Directors for consideration at meetings of the Board
on the investment program for the Portfolio and the issuers and securities
represented in the Portfolio's securities holdings, including a schedule of
the investments and other assets held in the Portfolio and a statement of all
purchases and sales for the Portfolio since the last such statement, and will
furnish the Fund's Board of Directors with periodic and special reports with
respect to the Portfolio as the Directors and Manager may reasonably request,
including statistical information with respect to the Portfolio's securities.
In addition, the Sub-Adviser will make available at each meeting of the Board
of Directors, either in person or by telephone conference call as instructed
by Manager on behalf of the Board of Directors of the Fund, an appropriate
person to discuss the investment performance of the Portfolio.
(h) The Sub-Adviser will provide information and reports to Manager as
Manager shall reasonably request to enable it to review the performance of
the Sub-Adviser under this Agreement.
SECTION 2. BROKER-DEALER SELECTION.
The Sub-Adviser is responsible for decisions to buy and sell securities and
other investments for the Portfolio, broker-dealer and futures commission
merchant selection, and negotiation of brokerage commission and futures
commission merchants' rates. As a general matter, in executing portfolio
transactions the Sub-Adviser may employ or deal with such broker-dealers or
futures commission merchants as may, in the Sub-Adviser's best judgment,
provide prompt and reliable execution of the transactions at favorable prices
and reasonable commission rates. In selecting such broker-dealers or futures
commission merchants, the Sub-Adviser shall consider all relevant factors,
including price (including the applicable brokerage commission, dealer spread
or futures commission merchant rate), the size of the order, the nature of
the market for the security or other investment, the timing of the
transaction, the reputation, experience and financial stability of the
broker-dealer or futures commission merchant involved, the quality of the
service, the difficulty of execution, and the execution capabilities and
operational facilities of the firm involved, and, in the case of securities,
the firm's risk in positioning a block of securities. Subject to such
policies as the Board of Directors may determine and consistent with Section
28(e) of the Securities Exchange Act of 1934, as amended (the 1934 ACT), the
Sub-Adviser shall not be deemed to have acted unlawfully or to have breached
any duty created by this Agreement or otherwise solely by reason of the
Sub-Adviser's having caused the Portfolio to pay a member of an exchange,
broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another member of an
exchange, broker or dealer would have charged for effecting that transaction,
if the Sub-Adviser determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research
services provided by such member of an exchange, broker or dealer, viewed in
terms of either that particular transaction or the Sub-Adviser's overall
responsibilities with respect to the Portfolio and to the Sub-Adviser's other
clients as to which the Sub-Adviser exercises investment discretion. In
accordance with Section 11(a) of the 1934 Act and Rule 11a2-2(T) thereunder,
and subject to any other applicable laws and regulations including Section
17(e) of the 1940 Act and Rule 17e-1 thereunder, the Sub-Adviser may engage
its affiliates, Manager and its affiliates or any other sub-adviser to the
Fund and its respective affiliates as broker-dealers or futures commission
merchants to effect portfolio transactions in securities and other
investments for the Portfolio.
38
<PAGE>
SECTION 3. RECORDS, REPORTS, ETC.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records which the Sub-Adviser maintains
for the Portfolio are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's or
Manager's request or upon termination of this Agreement, although the
Sub-Adviser may, at the Sub-Adviser's own expense, make and retain a copy of
such records. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act and to preserve the records
required by the Rule 204-2 under the Advisers Act for the period specified in
the Rule.
SECTION 4. PAYMENT OF EXPENSES.
The Sub-Adviser shall assume and pay all of the costs and expenses of
performing its obligations under this Agreement.
SECTION 5. COMPENSATION FOR SERVICES.
Manager will pay to the Sub-Adviser a monthly sub-advisory fee (adjusted pro
rata for any shorter applicable period) at an annual rate of .40% of the
average daily net assets of the Portfolio from the management fee actually
received by Manager from the Fund; provided, however, that the sub-advisory
fee shall be reduced proportionately if the management fee actually paid to
Manager by the Portfolio shall have been reduced as a result of applicable
state expense limitations or fee waivers agreed to in writing by the
Sub-Adviser. The sub-advisory fee shall be computed, accrue and be payable in
the same manner as the management fee which is payable by the Fund to Manager
pursuant to the Management Agreement and as specified in the Fund's
Registration Statement.
SECTION 6. LIABILITY FOR SERVICES.
Except as may otherwise be required by the 1940 Act or the rules thereunder
or other applicable law, and except as set forth in the next paragraph, the
Fund and Manager agree that the Sub-Adviser, any of its affiliated persons,
and each person, if any, who, within the meaning of Section 15 of the
Securities Act of 1933, as amended, controls the Sub-Adviser, shall not be
liable for, or subject to any damages, expenses, or losses in connection
with, any act or omission connected with or arising out of any services
rendered under this Agreement, except by reason of willful misfeasance, bad
faith, or gross negligence in the performance of the Sub-Adviser's duties, or
by reason of reckless disregard of the Sub-Adviser's obligations and duties
under this Agreement.
SECTION 7. INDEMNIFICATION BY SUB-ADVISER.
The Sub-Adviser agrees to indemnify and hold harmless Manager against any
losses, expenses, claims, damages or liabilities (or actions or proceedings
in respect thereof), to which Manager may become subject arising out of or
based on the breach or alleged breach by the Sub-Adviser of any provisions of
this Agreement; provided, however, that the Sub-Adviser shall not be liable
under this paragraph in respect of any loss, expense, claim, damage or
liability to the extent that a court having jurisdiction shall have
determined by a final judgment, or independent counsel agreed upon by Manager
and the Sub-Adviser shall have concluded in a written opinion, that such
loss, expense, claim, damage or liability resulted primarily from Manager's
willful misfeasance, bad faith or gross negligence or by reason of the
reckless disregard by Manager of its duties. The foregoing indemnification
shall be in addition to any rights that Manager may have at common law or
otherwise. The Sub-Adviser's agreements in this paragraph shall, upon the
same terms and conditions, extend to and inure to the benefit of each person
who may be deemed to control Manager, be controlled by
39
<PAGE>
Manager or be under common control with Manager and its affiliates,
directors, officers, employees and agents. The Sub-Adviser's agreements in
this paragraph shall also extend to any of Manager's successors or the
successors of the aforementioned affiliates, directors, officers, employees
or agents.
SECTION 8. INDEMNIFICATION BY MANAGER.
Manager agrees to indemnify and hold harmless the Sub-Adviser against any
losses, expenses, claims, damages or liabilities (or actions or proceedings
in respect thereof), to which the Sub-Adviser may become subject arising out
of or based on the breach or alleged breach by Manager of any provisions of
this Agreement or the Management Agreement, or any wrongful action or alleged
wrongful action by Manager or its affiliates in the distribution of the
Fund's shares, or any wrongful action or alleged wrongful action by the Fund
other than wrongful action or alleged wrongful action that was caused by the
breach by the Sub-Adviser of the provisions of this Agreement; provided,
however, that Manager shall not be liable under this paragraph in respect of
any loss, expense, claim, damage or liability to the extent that a court
having jurisdiction shall have determined by a final judgment, or independent
counsel agreed upon by Manager and the Sub-Adviser shall have concluded in a
written opinion, that such loss, expense, claim, damage or liability resulted
primarily from the Sub-Adviser's willful misfeasance, bad faith or gross
negligence or by reason of the reckless disregard by the Sub-Adviser of its
duties. The foregoing indemnification shall be in addition to any rights that
the Sub-Adviser may have at common law or otherwise. Manager's agreements in
this paragraph shall, upon the same terms and conditions, extend to and inure
to the benefit of each person who may be deemed to control the Sub-Adviser,
be controlled by the Sub-Adviser or be under common control with the
Sub-Adviser and to each of the Sub-Adviser's and each such person's
respective affiliates, directors, officers, employees and agents. Manager's
agreements in this paragraph shall also extend to any of the Sub-Adviser's
successors or the successors of the aforementioned affiliates, directors,
officers, employees or agents.
SECTION 9. NOTICE AND DEFENSE OR PROCEEDINGS, ETC.
Promptly after receipt by a party indemnified under paragraph 7 or 8 above of
notice of the commencement of any action, proceeding or investigation for
which indemnification will be sought, such indemnified party shall promptly
notify the indemnifying party in writing; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may
otherwise have to any indemnified party unless such omission results in
actual material prejudice to the indemnifying party. In case any action or
proceeding shall be brought against any indemnified party, and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, individually or jointly with
any other indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of any action or proceeding, the indemnifying party shall not be
liable to the indemnified party for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof
other than reasonable costs of investigation. If the indemnifying party does
not elect to assume the defense of any action or proceeding, the indemnifying
party on a monthly basis shall reimburse the indemnified party for the legal
fees and expenses incurred by the indemnified party for continuing its
defense thereof. Regardless of whether or not the indemnifying party shall
have assumed the defense of any action or proceeding, the indemnified party
shall not settle or compromise the action or proceeding without the prior
written consent of the indemnifying party.
SECTION 10. REPRESENTATIONS AND WARRANTIES; COVENANTS.
(a) The Sub-Adviser hereby represents and warrants as follows:
40
<PAGE>
(i) The Sub-Adviser is registered with the SEC as an investment adviser under
the Advisers Act, and such registration is current, complete and in full
compliance with all material applicable provisions of the Advisers Act and
the rules and regulations thereunder;
(ii) The Sub-Adviser has all requisite authority to enter into, execute,
deliver and perform the Sub-Adviser's obligations under this Agreement;
(iii) The Sub-Adviser's performance of its obligations under this Agreement
does not conflict with any law, regulation or order to which the Sub-Adviser
is subject; and
(iv) The Sub-Adviser has reviewed the Registration Statement for the Fund
filed with the SEC, and with respect to the disclosure about the Sub-Adviser
and the Portfolio or information relating, directly or indirectly, to the
Sub-Adviser or the Portfolio which was made in reliance upon and in
conformity with written information provided by the Sub-Adviser to the Fund
specifically for use therein or, if written information was not provided,
which the Sub-Adviser had the opportunity to review prior to filing with the
SEC, such Registration Statement contains, as of its date, no untrue
statement of any material fact and does not omit any statement of a material
fact which was required to be stated therein or necessary to make the
statements contained therein not misleading.
(b) The Sub-Adviser hereby covenants and agrees that, so long as this
Agreement shall remain in effect:
(i) The Sub-Adviser shall maintain the Sub-Adviser's registration as an
investment adviser under the Advisers Act, and such registration shall at all
times remain current, complete and in full compliance with all material
applicable provisions of the Advisers Act and the rules and regulations
thereunder;
(ii) The Sub-Adviser's performance of its obligations under this Agreement
shall not conflict with any law, regulation or order to which the Sub-Adviser
is then subject;
(iii) The Sub-Adviser shall at all times fully comply with the Advisers Act,
the 1940 Act, all applicable rules and regulations under such Acts and all
other applicable law;
(iv) The Sub-Adviser shall promptly notify Manager and the Fund upon the
occurrence of any event that might disqualify or prevent the Sub-Adviser from
performing its duties under this Agreement. The Sub-Adviser further agrees to
notify Manager and the Fund promptly with respect to written material that
has been provided to the Fund or Manager by the Sub-Adviser for inclusion in
the Registration Statement or prospectus for the Fund or any supplement or
amendment thereto, or, if written material has not been provided, with
respect to the information in the Registration Statement or Prospectus, or
any amendment or supplement thereto, reviewed by the Sub-Adviser, in either
case of any untrue statement of a material fact or of any omission of any
statement of a material fact which is required to be stated therein or is
necessary to make the statements contained therein not misleading; and
(v) If the Sub-Adviser is a partnership, the Sub-Adviser shall notify the
Fund and Manager of any change in membership within a reasonable time after
such change.
41
<PAGE>
SECTION 11. EXCLUSIVITY OF USE OF NAMES.
The Sub-Adviser acknowledges and agrees that the names THE LEGENDS FUND and
PINNACLE, and abbreviations or logos associated with those names, are the
valuable property of Manager and its affiliates; that the Fund, Manager and
its affiliates have the right to use such names, abbreviations and logos; and
that the Sub-Adviser shall use the names THE LEGENDS FUND and PINNACLE, and
associated abbreviations and logos, only in connection with the Sub-Adviser's
performance of its duties hereunder.
Manager acknowledges that "__________" (the SUB-ADVISER'S OPERATING NAME) is
distinctive in connection with investment advisory and related services
provided by the Sub-Adviser, the Sub-Adviser's name is a property right of
the Sub-Adviser, and the Sub-Adviser's name in the name of the Portfolio is
understood to be used by the Fund with the Sub-Adviser's consent. The
Sub-Adviser hereby grants to the Fund a non-exclusive license to use the
Sub-Adviser's name in the name of the Portfolio upon the conditions
hereinafter set forth; provided that the Fund may use such name only so long
as the Sub-Adviser shall be retained as the investment sub-adviser of the
Portfolio pursuant to the terms of this Agreement. Any such use by the Fund
shall in no way prevent the Sub-Adviser or any of its successors or assigns
from using or permitting the use of the Sub-Adviser's name along with any
other word or words, for, by or in connection with any other entity or
business, other than the Fund or its business, whether or not the same
directly competes or conflicts with the Fund or its business in any manner.
Manager acknowledges that the Fund shall use the Sub-Adviser's name in the
Portfolio for the period set forth herein in a manner not inconsistent with
the interests of the Sub-Adviser and that the Fund's rights in the
Sub-Adviser's name are limited to its use as a component of the Portfolio's
name and in connection with accurately describing the activities of the
Portfolio. In the event that the Sub-Adviser shall cease to be the investment
sub-adviser of the Portfolio, then Fund at its own expense, upon the
Sub-Adviser's written request:
(i) shall cease to use the Sub-Adviser's name, or any combination thereof as
part of the Portfolio's name or for any other commercial purpose (other than
the right to refer to the Portfolio's former name in the Fund's Registration
Statement, proxy materials and other Fund documents to the extent required
under the 1940 Act);
(ii) shall on all letterheads and other materials designed to be read or used
by salesmen, distributors or investors, state in a prominent position and
prominent type that the Sub-Adviser has ceased to be the investment
sub-adviser of the Portfolio; and
(ii) shall use its best efforts to cause the Fund's officers and directors to
take any all actions which may be necessary or desirable to effect the
foregoing and to reconvey to the Sub-Adviser all rights which the Fund may
have to such name. Manager agrees to take any all actions as may be necessary
or desirable to effect the foregoing.
The Sub-Adviser hereby agrees and consents to the use of the Sub-Adviser's
name upon the foregoing terms and conditions.
SECTION 12. ENTIRE AGREEMENT; AMENDMENT, WAIVER.
This Agreement supersedes all prior agreements between the parties and
constitutes the entire agreement by the parties. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, and no amendment of
this Agreement shall be effective with respect to the Portfolio until
approved as required by the 1940 Act.
42
<PAGE>
SECTION 13. EFFECTIVENESS AND DURATION OF AGREEMENT.
Unless sooner terminated, this Agreement shall continue in effect for two
years and thereafter for successive one year periods, provided that
continuation of this Agreement and the terms thereof are specifically
approved annually in accordance with the requirements of the 1940 Act by a
majority of the Directors of the Fund, including a majority of the Directors
who are not interested persons of the Sub-Adviser, Manager or the Fund, cast
in person at a meeting called for the purpose of voting on such approval.
SECTION 14. TERMINATION OF AGREEMENT, ASSIGNMENT.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Sub-Adviser or by Manager, upon sixty (60) days' written
notice from the terminating party to the other party and to the Fund, or by
the Fund, upon sixty (60) days written notice to the Sub-Adviser and Manager,
acting pursuant to a resolution adopted by a majority of the members of the
Board of Directors who are not interested persons or by a vote of the holders
of the lesser of (1) 67% of the Portfolio's voting shares present if the
holders of more than 50% of the outstanding shares are present in person or
by proxy, or (2) more than 50% of the outstanding shares of the Portfolio.
This Agreement shall automatically terminate in the event of its assignment
or the termination of the
Management Agreement pertaining to the Portfolio. Termination of this
Agreement shall not affect rights of the parties which have accrued prior
thereto.
The provisions of paragraphs 6, 7, 8, 9 and 11 shall survive the termination
of this Agreement.
SECTION 15. DEFINITIONS.
The terms ASSIGNMENT and INTERESTED PERSON when used in this Agreement shall
have the meanings given such terms in the 1940 Act and the rules and
regulations thereunder.
SECTION 16. CONCERNING APPLICABLE PROVISIONS OF LAW.
This Agreement shall be subject to all applicable provisions of law,
including, without limitation, the applicable provisions of the 1940 Act, and
to the extent that any provisions herein contained conflict with any such
applicable provisions of law, the latter shall control. This Agreement shall
be governed by the laws of the State of New York, without reference to
principles of conflicts of law.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in counterparts, and each counterpart shall
for all purposes be deemed an original and all such counterparts shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, authorized officers of Manager and the Sub-Adviser have
executed this Agreement as of the day and year first written above.
43
<PAGE>
TOUCHSTONE ADVISORS, INC.
By: ____________________________________
Attest:_________________________________
[SUB-ADVISER]
By: ____________________________________
Attest:_________________________________
44
<PAGE>
EXHIBIT B
---------
The following list describes other investment companies currently
advised by EQSF having a similar investment objective to the Scudder Kemper
Value Portfolio (as proposed to be amended):
<TABLE>
<CAPTION>
NAME OF SIMILAR FUND(S) ASSETS OF SUCH FUND(S) ADVISORY FEE RATE
----------------------- ---------------------- -----------------
<S> <C> <C>
Third Avenue Value Fund $1.8 billion 0.90%
Third Avenue Small-Cap Value Fund $138 million 0.90
</TABLE>
45
<PAGE>
EXHIBIT C
---------
The following list describes other investment companies currently
advised by Gabelli having a similar investment objective to the Zweig Asset
Allocation Portfolio (as proposed to be amended):
<TABLE>
<CAPTION>
NAME OF SIMILAR FUND(S) ASSETS OF SUCH FUND(S) ADVISORY FEE RATE*
----------------------- ---------------------- -----------------
<S> <C> <C>
Gabelli Blue Chip Value Fund $13.1 million 1.00%*
Gabelli Asset Fund $2.0 billion 1.00%
Gabelli Value Fund $1.2 billion 1.00%
Gabelli Equity Income Fund $83.9 million 1.00%
Gabelli Small Cap Growth Fund $345.4 million 1.00%
Gabelli Growth Fund $4.0 billion 1.00%
</TABLE>
* Gabelli has agreed to cap total expenses at 2.00% until December 31, 2000.
46
<PAGE>
EXHIBIT D
---------
The following list describes other investment companies currently
advised by BAMCO having a similar investment objective to the Zweig Equity
(Small Cap) Portfolio (as proposed to be amended):
<TABLE>
<CAPTION>
NAME OF SIMILAR FUND(S) ASSETS OF SUCH FUND(S) ADVISORY FEE RATE
----------------------- ---------------------- -----------------
<S> <C> <C>
Baron Growth Fund $552 million 1.00%
</TABLE>
47
