<PAGE> 1
As filed with the Securities and Exchange Commission on January 8, 1999
File Nos. 333-59185 and 811-08873
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 1 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 2 |X|
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
2000 N. CLASSEN BOULEVARD
OKLAHOMA CITY, OKLAHOMA 73106
(Address of Principal Executive Offices) Registrant's Telephone Number: (405) 523-2000
Stephen P. Garrett Copy to:
Senior Vice President
Law and Government Affairs Connie S. Stamets, Esq.
American Fidelity Assurance Company McAfee & Taft
2000 N. Classen Boulevard A Professional Corporation
Oklahoma City, Oklahoma 73106 10th Floor, Two Leadership Square
(Name and Address of Agent for Service) Oklahoma City, Oklahoma 73102
Approximate Date of Proposed Public Offering: As soon as practicable after effectiveness of
the Registration Statement
</TABLE>
It is proposed that this filing will become effective (check appropriate box)
|X| immediately upon filing pursuant to paragraph (b)
| | on (date) pursuant to paragraph (b)
| | 60 days after filing pursuant to paragraph (a)(1)
| | on (date) pursuant to paragraph (a)(1)
| | 75 days after filing pursuant to paragraph (a)(2)
| | on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Title of Securities Being Registered: common stock, par value $0.001
<PAGE> 2
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495
<TABLE>
<CAPTION>
N-1A
Item No. Item Caption
- -------- ---- -------
<S> <C> <C>
PART A INFORMATION REQUIRED IN PROSPECTUS
1 Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
2 Synopsis . . . . . . . . . . . . . . . . . . . . . Not Applicable
3 Condensed Financial Information. . . . . . . . . . Financial Highlights
4 General Description of Registrant. . . . . . . . . Description of the Fund; Other Information
5 Management of the Fund . . . . . . . . . . . . . . Management
5A Management's Discussion of Fund Performance. . . . Not Applicable
6 Capital Stock and Other Securities . . . . . . . . Dividends, Distributions and Taxes; Other
Information
7 Purchase of Securities Being Offered . . . . . . . Offering, Purchase and Redemption of
Shares
8 Redemption or Repurchase . . . . . . . . . . . . . Offering, Purchase and Redemption of Shares
9 Pending Legal Proceedings. . . . . . . . . . . . . Not Applicable
PART B INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
10 Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
11 Table of Contents. . . . . . . . . . . . . . . . . Table of Contents
12 General Information and History. . . . . . . . . . Introduction; Capital Stock
13 Investment Objectives and Policies . . . . . . . . Investment Objectives and Policies; Portfolio
Transactions
14 Management of the Fund . . . . . . . . . . . . . . Management
15 Control Persons and Principal
Holders of Securities. . . . . . . . . . . . . . . Management
16 Investment Advisory and Other Services . . . . . . Investment Advisory and Other Services;
Custodian, Independent Accountants and
Counsel
17 Brokerage Allocation and Other
Practices. . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
18 Capital Stock and Other Securities . . . . . . . . Capital Stock
19 Purchase, Redemption and Pricing
of Securities Being Offered. . . . . . . . . . . . Capital Stock
20 Tax Status . . . . . . . . . . . . . . . . . . . . Federal Tax Matters
21 Underwriters . . . . . . . . . . . . . . . . . . . Not Applicable
22 Calculation of Performance Data. . . . . . . . . . Calculation of Performance Data
23 Financial Statements . . . . . . . . . . . . . . . Financial Statements
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration
Statement.
<PAGE> 3
The Prospectus and Statement of Additional Information for American Fidelity
Dual Strategy Fund, Inc., included as part of Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form N-1A (File No. 333-59185), filed
with the Securities and Exchange Commission on October 16, 1998 pursuant to the
Securities Act of 1933, are hereby incorporated by reference as if set forth
fully herein. The attached financial statements of American Fidelity Variable
Annuity Fund A and the notes thereto will be added to the Statement of
Additional Information.
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
Board of Managers and Contract Owners
American Fidelity Variable Annuity Fund A:
We have audited the accompanying statements of assets and liabilities of
American Fidelity Variable Annuity Fund A (the Fund) as of December 31, 1997 and
1996, and the related statements of operations and changes in net assets for the
years then ended, the financial highlights for each of the years in the
five-year period ended December 31, 1997, and the Schedule of Portfolio
Investments as of December 31, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 and 1996, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
American Fidelity Variable Annuity Fund A as of December 31, 1997 and 1996, the
results of its operations and changes in its net assets for the years then
ended, and the financial highlights for each of the years in the five-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Oklahoma City, Oklahoma
January 16, 1998
KPMG LLP
B-1
<PAGE> 5
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Investments, at market value (cost $85,275,367 and
$66,094,445 in 1997 and 1996, respectively)............... $136,542,104 $98,234,687
Cash........................................................ 327,520 469,711
Accrued interest and dividends.............................. 220,927 191,430
------------ -----------
Total assets...................................... 137,090,551 98,895,828
LIABILITIES
Payable to broker........................................... -- 66,429
------------ -----------
Total liabilities................................. -- 66,429
------------ -----------
Net assets.................................................. $137,090,551 $98,829,399
============ ===========
Accumulation units outstanding.............................. 7,043,575 6,443,056
============ ===========
Net asset value per unit.................................... $ 19.4632 $ 15.3389
============ ===========
</TABLE>
See accompanying notes to financial statements.
B-2
<PAGE> 6
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Investment income:
Income:
Dividends.............................................. $ 1,954,633 1,538,540
Interest............................................... 271,265 201,294
----------- ----------
2,225,898 1,739,834
----------- ----------
Expenses:
Mortality and expense guaranty fees (note 3)........... 1,148,308 809,048
Investment management fees (note 3).................... 598,077 353,001
----------- ----------
1,746,385 1,162,049
----------- ----------
Net investment income............................. 479,513 577,785
----------- ----------
Realized gains on investments:
Proceeds from sales....................................... 31,160,087 31,697,825
Cost of securities sold................................... 23,009,137 27,483,951
----------- ----------
Net realized gains................................ 8,150,950 4,213,874
----------- ----------
Unrealized appreciation on investments:
End of year............................................... 51,266,737 32,140,242
Beginning of year......................................... 32,140,242 17,459,492
----------- ----------
Increase in unrealized appreciation............... 19,126,495 14,680,750
----------- ----------
Net increase in net assets resulting from
operations..................................... $27,756,958 19,472,409
=========== ==========
</TABLE>
See accompanying notes to financial statements.
B-3
<PAGE> 7
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Increase in net assets from operations:
Net investment income..................................... $ 479,513 577,785
Net realized gains on investments......................... 8,150,950 4,213,874
Increase in unrealized appreciation on investments........ 19,126,495 14,680,750
------------ ----------
Net increase in net assets resulting from
operations...................................... 27,756,958 19,472,409
------------ ----------
Changes from principal transactions:
Net purchase payments received (note 3)................... 21,031,010 15,914,163
Withdrawal of funds....................................... (10,526,816) (9,709,707)
------------ ----------
Increase in net assets derived from principal
transactions.................................... 10,504,194 6,204,456
------------ ----------
Increase in net assets............................ 38,261,152 25,676,865
Net assets:
Beginning of year......................................... 98,829,399 73,152,534
------------ ----------
End of year............................................... $137,090,551 98,829,399
============ ==========
Accumulation units:
Outstanding, beginning of year............................ 6,443,056 5,996,795
Increase for payments received......................... 1,190,147 1,159,575
Decrease for withdrawal of funds....................... (589,628) (713,314)
------------ ----------
Outstanding, end of year.................................. 7,043,575 6,443,056
============ ==========
</TABLE>
See accompanying notes to financial statements.
B-4
<PAGE> 8
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
--------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
---------- ------------ ----------
<S> <C> <C> <C>
Common stocks:
Chemicals and Allied Products:
Avery-Dennison Corporation....................... 84,400 $ 3,776,900
Pfizer, Inc...................................... 43,800 3,265,816
Johnson & Johnson................................ 44,000 2,898,500
Novartis AG-ADR**................................ 23,000 1,863,000
Proctor & Gamble Company......................... 22,600 1,803,751
Merck & Company, Inc............................. 11,700 1,243,125
American Home Products Corporation............... 16,000 1,224,000
Abbott Laboratories.............................. 16,800 1,101,442
Eli Lilly and Company............................ 12,800 891,200
DuPont........................................... 14,400 864,893
------------
18,932,627 13.81%
------------
Business Services:
Interpublic Group of Companies................... 66,450 3,310,007
Cisco Systems, Inc.*............................. 59,250 3,303,188
Automatic Data Processing........................ 34,000 2,086,750
Computer Associates.............................. 25,800 1,364,175
Reuters Holdings PLC ADR**....................... 13,000 861,250
Microsoft Corporation*........................... 5,500 710,875
------------
11,636,245 8.49%
------------
Depository Institutions:
Citicorp......................................... 16,500 2,086,210
MBNA............................................. 67,500 1,843,560
BankAmerica Corporation.......................... 20,000 1,460,000
CoreStates Financial Corporation................. 18,200 1,457,128
Nationsbank Corporation.......................... 19,400 1,179,753
J.P. Morgan & Company............................ 10,000 1,128,750
Wachovia Corporation............................. 13,500 1,095,188
Regions Financial Corporation.................... 17,600 742,491
------------
10,993,080 8.02%
------------
Insurance Carriers:
American International Group..................... 39,150 4,257,562
AFLAC, Inc....................................... 59,775 3,055,997
Allstate Corporation............................. 21,000 1,908,375
------------
9,221,934 6.73%
------------
</TABLE>
See accompanying notes to financial statements.
B-5
<PAGE> 9
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
SCHEDULE OF PORTFOLIO INVESTMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
--------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
---------- ------------ ----------
<S> <C> <C> <C>
Petroleum and Coal Products:
Royal Dutch Petroleum............................ 61,200 $ 3,316,244
Texaco, Inc...................................... 55,200 3,001,500
Exxon Corporation................................ 36,000 2,202,732
------------
8,520,476 6.22%
------------
Electronic and Other Electric Equipment:
General Electric Company......................... 72,500 5,319,687
Intel Corporation................................ 41,600 2,922,400
------------
8,242,087 6.01%
------------
Food and Kindred Products:
The Coca-Cola Company............................ 49,200 3,277,950
Sara Lee Corporation............................. 44,000 2,477,728
Ralston Purina................................... 23,900 2,221,194
------------
7,976,872 5.82%
------------
Holding and Other Investment Offices:
Wells Fargo & Company............................ 7,100 2,410,003
First Industrial Realty Trust.................... 28,000 1,011,500
Mack-Cali Realty Corporation..................... 20,400 836,400
Meditrust........................................ 18,744 686,499
Felcor Suite Hotels, Inc......................... 17,300 614,150
Federal Realty Investment Trust.................. 22,300 574,225
------------
6,132,777 4.47%
------------
Industrial Machinery and Equipment:
Hewlett-Packard Company.......................... 36,600 2,287,500
International Business Machines Corporation...... 14,000 1,463,868
Baker Hughes, Inc................................ 32,200 1,404,725
United Technologies.............................. 10,000 728,120
------------
5,884,213 4.29%
------------
Communications:
Bell Atlantic Corporation........................ 16,896 1,537,536
SBC Communications, Inc.......................... 18,800 1,377,100
Ameritech........................................ 16,700 1,344,350
Bellsouth Corporation............................ 15,000 844,680
------------
5,103,666 3.72%
------------
Electric, Gas and Sanitary Services:
GTE.............................................. 34,800 1,818,300
Teco Energy, Inc................................. 37,500 1,054,688
Duke Energy Company.............................. 16,000 886,000
Texas Utilities.................................. 19,500 810,459
------------
4,569,447 3.33%
------------
</TABLE>
See accompanying notes to financial statements.
B-6
<PAGE> 10
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
SCHEDULE OF PORTFOLIO INVESTMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
--------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
---------- ------------ ----------
<S> <C> <C> <C>
Oil & Gas Extraction:
Diamond Offshore*................................ 47,400 $ 2,281,125
Schlumbereger, LTD............................... 26,000 2,093,000
------------
4,374,125 3.19%
------------
Food Stores:
Safeway, Inc.*................................... 68,600 4,338,950
------------
4,338,950 3.16%
------------
Personal Services:
Loewen Group, Inc.**............................. 71,000 1,832,652
H & R Block...................................... 34,300 1,537,052
------------
3,369,704 2.46%
------------
Railroad Transportation:
Burlington Northern/Santa Fe..................... 31,000 2,881,047
------------
2,881,047 2.10%
------------
Miscellaneous Retail:
Costco, Inc. *................................... 57,700 2,574,862
------------
2,574,862 1.88%
------------
Transportation Equipment:
Allied Signal, Inc............................... 30,000 1,168,110
Chrysler Corporation............................. 24,000 844,488
------------
2,012,598 1.47%
------------
Non-Depository Institutions:
Federal National Mortgage Association............ 34,400 1,962,933
------------
1,962,933 1.43%
------------
Motion Pictures:
Disney (Walt) Company............................ 19,200 1,901,990
------------
1,901,990 1.39%
------------
Radio, TV and Computer Stores:
Circuit City Stores.............................. 53,000 1,884,786
------------
1,884,786 1.37%
------------
Miscellaneous Manufacturing Industries:
Tiffany & Company................................ 47,200 1,702,126
------------
1,702,126 1.24%
------------
Hotels and Other Lodging Places:
Mirage Resorts, Inc. *........................... 61,800 1,405,950
------------
1,405,950 1.03%
------------
Fabricated Metal Products:
The Gillette Company............................. 13,800 1,386,031
------------
1,386,031 1.01%
------------
</TABLE>
See accompanying notes to financial statements.
B-7
<PAGE> 11
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
SCHEDULE OF PORTFOLIO INVESTMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
--------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
---------- ------------ ----------
<S> <C> <C> <C>
Primary Metal Industries:
Englehard Corporation............................ 58,000 $ 1,007,750
------------
1,007,750 0.73%
------------
Health Services:
Phycor, Inc...................................... 19,000 513,000
MedPartners, Inc.*............................... 21,000 469,875
------------
982,875 0.72%
------------
Eating and Drinking Places:
McDonald's Corporation........................... 16,000 764,000
------------
764,000 0.56%
------------
General Merchandise:
Wal-Mart Corporation............................. 16,200 638,879
------------
638,879 0.47%
------------
Building Materials and Gardening Supplies:
Home Depot, Inc.................................. 10,500 618,188
------------
618,188 0.45%
------------
Paper & Allied Products:
Kimberly Clark Corporation....................... 3,300 162,730
------------
162,730 0.12%
------------ ------
Total common stocks (cost $79,916,211)...... 131,182,948 95.69%
------------ ------
Short-term investments:
Associates Corporation of North America Master Note
Fltg (5.57% at December 31, 1997)................ $4,395,744 4,395,744
U.S. Treasury Bill (5.2% maturing December 10,
1998)............................................ $ 500,000 475,083
U.S. Treasury Bill (5.2% maturing June 11, 1998).... $ 500,000 488,329
------------
Total short-term investments................ 5,359,156 3.91%
------------ ------
Total investments (cost $85,275,367)........ 136,542,104 99.60%
Other assets and liabilities, net........... 548,447 0.40%
------------ ------
Total net assets............................ $137,090,551 100.00%
============ ======
</TABLE>
- ---------------
* Presently not producing dividend income
** Foreign investments
See accompanying notes to financial statements.
B-8
<PAGE> 12
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
--------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment income and expenses:
Investment income.............. $ .3284 $ .2817 $ .2163 $ .2105 $ .2113
Operating expenses............. .2576 .1882 .1364 .1193 .1180
---------- ---------- ---------- ---------- ----------
Net investment
income............... .0708 .0935 .0799 .0912 .0933
Capital changes:
Net realized and unrealized
gains (losses) from
securities.................. 4.0535 3.0468 3.0251 (.7066) .5074
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
accumulation unit value..... 4.1243 3.1403 3.1050 (.6154) .6007
Accumulation unit value,
beginning of period......... 15.3389 12.1986 9.0936 9.7090 9.1083
---------- ---------- ---------- ---------- ----------
Accumulation unit
value,
end of period........ $ 19.4632 $ 15.3389 $ 12.1986 $ 9.0936 $ 9.7090
========== ========== ========== ========== ==========
Number of accumulation units
outstanding, end of period..... 7,043,575 6,443,056 5,996,795 5,615,645 5,113,999
========== ========== ========== ========== ==========
Ratios:
Ratio of expenses to average
net assets.................. 1.4603% 1.3777% 1.2880% 1.2826% 1.2783%
Ratio of net investment income
to average net assets....... .4042% .6850% .7542% .9797% 1.0110%
Portfolio turnover rate........ 26.6% 36.9% 66.1% 43.5% 51.2%
Average commission rate paid... $ .0619 $ .0636 $ .0551
</TABLE>
See accompanying notes to financial statements.
B-9
<PAGE> 13
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
American Fidelity Variable Annuity Fund A (the Fund) is a separate account
of American Fidelity Assurance Company (AFA). The Fund is registered as an
open-end, diversified management investment company under the Investment Company
Act of 1940, as amended. The purpose of the Fund is to provide a means of
investing for supplemental retirement income. Shares are only available in
connection with variable annuity policies issued by AFA.
The Fund's investment objectives are primarily long-term growth of capital
and secondarily the production of income. In order to achieve these investment
objectives, the Fund normally invests in a diversified portfolio consisting
primarily of common stocks.
Investments
Investments in corporate stocks are valued by Merrill Lynch Pricing
Service. Securities for which published quotations are not available are valued
at the quotation obtained from the Fund's primary broker. Short-term investments
are valued on the basis of amortized cost, which approximates market, and
include all investments with maturities less than one year.
The Fund's portfolio of investments is diversified such that not more than
five percent (5%) of the value of the total assets of the Fund are invested in
any one issuer and not more than twenty-five percent (25%) are invested in any
one industry or group of industries. Management does not believe the Fund has
any significant concentrations of credit risk.
Realized gains and losses from investment transactions and unrealized
appreciation or depreciation of investments are determined on the
specific-identification basis.
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the daily accrual basis. For certain securities in which the exact
dividend is unknown on the ex-dividend date, such as stock in foreign companies,
an estimate of the dividend is recorded on the ex-dividend date, and any
necessary adjustments are added to the Fund's investment income on the date the
dividend is received by the Fund. Any taxes withheld by foreign governments or
any foreign exchange expenses (gains or losses) incurred by investment in such
securities are paid by the Fund. The Fund does not expect these costs to be
significant.
Income Taxes
The Fund is not taxed separately because the operations of the Fund are
part of the total operations of AFA. AFA files its federal income tax returns
under sections of the Internal Revenue Code applicable to life insurance
companies. The Fund's net increase in net assets from operations is not expected
to result in taxable income under present regulations. The Fund will not be
taxed as a "Regulated Investment Company" under Subchapter "M" of the Internal
Revenue Code.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
B-10
<PAGE> 14
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) INVESTMENTS
The aggregate dollar amount of investment purchases (exclusive of
short-term investments) was $39,825,220 and $34,924,178 for the years ended
December 31, 1997 and 1996, respectively. At December 31, 1997, net unrealized
appreciation on investments of $51,266,737, was composed of gross appreciation
of $52,797,920 and gross depreciation of $1,531,183.
(3) VARIABLE ANNUITY CONTRACTS
Net purchase payments received represent gross payments less deductions of
$803,592 and $578,837 for the years ended December 31, 1997 and 1996,
respectively. The deductions are comprised of sales and administrative expenses,
minimum death benefits, administrative charges, and certificate issuance fees.
These deductions were paid to AFA.
AFA acts as the Fund's investment manager and assumes certain mortality and
expense risks under the variable annuity contracts. Investment management fees
are equal to .0013698% of the Fund's daily net assets (.5% per annum). Mortality
and expense guaranty fees are equal to .0026308% of the Fund's daily net assets
(.96025% per annum). Such fees were paid to AFA.
During the accumulation period, contract owners may partially or totally
withdraw from the Fund by surrendering a portion or all of their accumulation
units. The Internal Revenue Code may limit certain withdrawals based upon age,
disability, and other factors. When contract owners withdraw, they receive the
current value of their accumulation units.
(4) ANNUITY RESERVES
Annuity reserves are computed for currently payable contracts according to
the Progressive Annuity Mortality Table. The assumed interest rate is 3.5
percent unless the annuitant elects otherwise, in which case the rate may vary
from zero to 5 percent, as regulated by the laws of the respective states.
Charges to annuity reserves for mortality and expense risks experience are
reimbursed to AFA if the reserves required are less than originally estimated.
If additional reserves are required, AFA reimburses the Fund. At December 31,
1997 and 1996, there were no contract owners who had elected the variable
annuity method of payout. Accordingly, the Fund held no annuity reserves at
December 31, 1997 and 1996.
(5) SUBSEQUENT EVENT
In 1998, AFA and the Fund intend to implement a reorganization plan whereby
the Fund will become a unit investment trust and exchange its assets solely for
shares of a new management investment company formed by AFA. The reorganization
is subject to approval by contract owners of the Fund and to regulatory
approvals.
B-11
<PAGE> 15
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 436,290 $ 327,520
Investments, at market value (Cost $99,940,636 168,710,314 136,542,104
and $85,275,367 at June 30, 1998 and December 31, 1997,
respectively)
Accrued interest and dividends 167,157 220,927
Accounts Receivable for Securities Sold 0 0
------------ ------------
Total Assets 169,313,761 137,090,551
LIABILITIES:
Accounts Payable for Securities Purchased 1,527,718 0
Accounts Payable 0 0
------------ ------------
NET ASSETS $167,786,043 $137,090,551
============ ============
ACCUMULATION UNITS
OUTSTANDING 7,393,375 7,043,575
============ ============
NET ASSET VALUE PER UNIT $ 22.6941 $ 19.4632
</TABLE>
See accompanying notes to financial statements.
B-12
<PAGE> 16
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 1,041,793 $ 971,185
Interest 125,870 123,773
------------ -------------
1,167,663 1,094,958
------------ -------------
EXPENSES:
Mortality and expense guaranty fees (note 3) 730,347 516,526
Investment management fee (note 3) 380,389 269,024
------------ -------------
1,110,736 785,550
------------ -------------
Net Investment Income 56,927 309,408
------------ -------------
Realized gains on investments:
Proceeds from sales 25,138,032 14,337,480
Costs of securities sold 19,491,914 10,485,430
------------ -------------
Net realized gains 5,646,118 3,852,050
------------ -------------
Unrealized appreciation on investments:
End of year 68,769,678 44,749,689
Beginning of year 51,266,737 32,140,242
------------ -------------
Increase in unrealized appreciation 17,502,941 12,609,447
------------ -------------
Net increase in net assets resulting
from operations $ 23,205,986 $ 16,770,905
============ =============
</TABLE>
See accompanying notes to financial statements.
B-13
<PAGE> 17
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Increase in net assets from operations:
Net investment income $ 56,927 $ 309,408
Net realized gain on investments 5,646,118 3,852,050
Increase in unrealized appreciation
of investments 17,502,941 12,609,447
------------- -------------
Net increase in net assets resulting from
operations 23,205,986 16,770,905
------------- -------------
Changes from principal transactions:
Net purchase payments received (note 3) 13,776,632 9,609,924
Withdrawal of funds (6,287,125) (4,052,418)
------------- -------------
Increase in net assets derived from
principal transactions 7,489,507 5,557,506
------------- -------------
Increase in net assets 30,695,493 22,328,411
Net Assets:
Beginning of year 137,090,551 98,829,399
------------- -------------
End of year $ 167,786,044 $ 121,157,810
============= =============
Accumulation units:
Outstanding, beginning of year 7,043,575 6,443,056
Increase for payments received 646,189 585,521
Decrease for withdrawal of funds (296,389) (246,432)
------------- -------------
Outstanding, end of year 7,393,375 6,782,145
============= =============
</TABLE>
See accompanying notes to financial statements.
B-14
<PAGE> 18
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
SCHEDULE OF PORTFOLIO INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
------------ ------------ -------------
<S> <C> <C> <C>
COMMON STOCKS:
CHEMICALS & ALLIED PRODUCTS
Pfizer, Inc. 43,800 $ 4,760,491
Avery-Dennison Corporation 84,400 4,536,500
Johnson & Johnson 44,000 3,245,000
Proctor & Gamble Company 22,600 2,058,001
Novartis AG-ADR ** 24,700 2,047,012
Bristol-Meyers Squibb Company 14,200 1,632,105
Merck & Company, Inc. 11,700 1,564,875
Abbott Laboratories 33,600 1,373,400
Dupont 14,400 1,074,600
Eli Lilly and Company 12,800 845,594
------------
23,137,578 13.79%
ELECTRONIC & OTHER ELECTRIC EQUIPMENT
General Electric Company 72,500 6,597,500
Lucent Technologies 39,400 3,277,568
Intel Corporation 43,600 3,231,850
Philips Electronics NV 30,000 2,550,000
------------
15,656,918 9.33%
BUSINESS SERVICES
Cisco Systems, Inc. * 59,250 5,454,674
Microsoft Corporation * 38,400 4,161,600
Automatic Data Processing 34,000 2,477,750
Interpublic Group of Companies 25,500 1,547,518
Computer Associates 25,800 1,433,500
------------
15,075,042 8.98%
DEPOSITORY INSTITUTIONS
MBNA 67,500 2,227,500
Chase Manhattan Bank 27,600 2,083,800
Bank America Corporation 20,000 1,728,740
First Union Corporation 29,484 1,717,443
Wachovia Corporation 20,000 1,690,000
Nationsbank Corporation 19,400 1,484,100
J. P. Morgan & Company 10,000 1,171,250
Regions Financial Corporation 17,600 722,691
------------
12,825,524 7.64%
</TABLE>
See accompanying notes to financial statements.
B-15
<PAGE> 19
<TABLE>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
------------ ------------ -------------
<S> <C> <C> <C>
PETROLEUM & COAL PRODUCTS
Royal Dutch Petroleum 61,200 3,354,494
Texaco, Inc. 55,200 3,294,722
Exxon Corporation 36,000 2,567,232
Chevron Corporation 25,000 2,076,550
------------
11,292,998 6.73%
INSURANCE CARRIERS
American International Group 39,150 5,715,900
AFLAC, Inc. 70,200 2,127,902
Allstate Corporation 21,000 1,922,802
------------
9,766,604 5.82%
ELECTRIC, GAS & SANITARY SERVICES
Williams Companies, Inc. 62,900 2,122,875
GTE 34,800 1,935,750
Teco Energy, Inc. 55,500 1,488,066
Texas Utilities 34,500 1,436,063
Duke Energy Company 16,000 948,000
------------
7,930,754 4.73%
INDUSTRIAL MACHINERY & EQUIPMENT
United Technologies 30,500 2,821,250
Applied Materials * 62,000 1,829,000
International Business Machines Corporation 14,000 1,607,368
Hewlett-Packard Company 16,400 981,950
------------
7,239,568 4.31%
HOLDING & OTHER INVESTMENT OFFICES
Wells Fargo & Company 7,100 2,619,900
First Industrial Realty Trust 28,000 890,736
Mack-Cali Realty Corporation 25,400 873,125
Felcor Suite Hotels, Inc. 23,300 731,038
Simon Debartolo Group, Inc. 20,000 650,000
Meditrust 18,744 523,651
------------
6,288,450 3.75%
FOOD & KINDRED PRODUCTS
The Coca-Cola Company 49,200 4,206,600
Sara Lee Corporation 36,500 2,041,701
------------
6,248,301 3.72%
FOOD STORES
Safeway, Inc. * 137,200 5,582,256 3.33%
COMMUNICATIONS
SBC Communications, Inc. 37,600 1,504,000
Ameritech 33,400 1,498,825
Bell Atlantic Corporation 31,792 1,450,510
Bellsouth Corporation 15,000 1,006,875
------------
5,460,210 3.25%
OIL & GAS EXTRACTION
Schlumbereger, LTD 27,500 1,878,580
Diamond Offshore 44,400 1,776,000
R & B Falcon Company 71,000 1,606,375
------------
5,260,955 3.14%
</TABLE>
See accompanying notes to financial statements.
B-16
<PAGE> 20
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
------------ ------------ -------------
<S> <C> <C> <C>
NON-DEPOSITORY INSTITUTIONS
American Express Company 19,600 2,234,400
Federal National Mortgage Association 34,400 2,089,800
------------
4,324,200 2.58%
MISCELLANEOUS RETAIL
Costco Company, Inc. * 57,700 3,638,677 2.17%
GENERAL MERCHANDISE
Wal-Mart Corporation 29,700 1,804,275
Sears Roebuck & Company 16,800 1,025,842
------------
2,830,117 1.69%
TRANSPORTATION EQUIPMENT
Chrysler Corporation 24,000 1,353,000
Allied Signal, Inc. 30,000 1,331,250
------------
2,684,250 1.60%
RADIO, TV & COMPUTER STORES
Circuit City Stores 53,000 2,484,375 1.48%
MISCELLANEOUS MANUFACTURING INDUSTRIES
Tiffany & Company 47,200 2,265,600 1.35%
MOTION PICTURES
Disney (Walt) Company 19,200 2,017,190 1.20%
WHOLESALE TRADE-NONDURABLE GOODS
Unilever NV ** 25,000 1,973,425 1.18%
BUILDING MATERIALS & GARDENING SUPPLIES
Home Depot, Inc. 23,000 1,910,426 1.14%
FABRICATED METAL PRODUCTS
The Gillette Company 30,500 1,728,954 1.03%
PERSONAL SERVICES
H & R Block 39,300 1,655,513 0.99%
TRANSPORTATION BY AIR
Delta Airlines, Inc. 12,000 1,551,000 0.92%
EATING & DRINKING PLACES
McDonald's Corporation 16,000 1,104,000
Norrell Corporation 20,000 398,740
------------
1,502,740 0.90%
PRIMARY METAL INDUSTRIES
Englehard Corporation 58,000 1,174,500 0.70%
HEALTH SERVICES
Phycor, Inc. * 39,000 645,918 0.38%
------------
Total Common Stocks (Cost $95,382,365) 164,152,043 97.83%
------------
</TABLE>
See accompanying notes to financial statements.
B-17
<PAGE> 21
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
------------ ------------ -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS:
Associates Corporation of North America
Master Note Fltg (5.57% @ 06/30/98) 3,583,239 $ 3,583,239
U.S Treasury Bill (5.2% maturing Dec. 10, 1998) 500,000 488,061
U.S Treasury Bill (4.9% maturing Jan. 7, 1999) 500,000 486,971
------------ ------------
Total Short-Term Investments 4,558,271 2.72%
------------
TOTAL INVESTMENTS: (COST $99,940,636) $168,710,314 100.55%
Other assets and liabilities, net $ (924,271) -0.55%
------------
Total net assets $167,786,044 100.00%
============
</TABLE>
* Presently not producing dividend income.
** Foreign Investments
See accompanying notes to financial statements.
B-18
<PAGE> 22
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
Per Accumulation Unit Income and Capital Changes
---------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------------------
Six Months Ended
June 30, 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment income and expenses:
Investment Income $ 0.162 $ 0.328 $ 0.282 $ 0.216 $ 0.210
Operating expenses 0.154 0.257 0.188 0.136 0.119
----------- ----------- ----------- ----------- -----------
Net investment income 0.008 0.071 0.094 0.080 0.091
Capital changes:
Net realized and unrealized
gains (losses) from securities 3.223 4.053 3.046 3.025 (0.706)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
accumulation unit value 3.231 4.124 3.140 3.105 (0.615)
Accumulation unit value,
beginning of period 19.463 15.339 12.199 9.094 9.709
----------- ----------- ----------- ----------- -----------
Accumulation unit value,
end of period $ 22.694 $ 19.463 $ 15.339 $ 12.199 $ 9.094
=========== =========== =========== =========== ===========
Number of accumulation units
outstanding, end of period 7,393,375 7,043,575 6,443,056 5,996,795 5,113,999
=========== =========== =========== =========== ===========
Ratios
Ratio of expenses to average
net assets 0.72% 1.46% 1.38% 1.29% 1.28%
Ratio of net investment income
to average net assets 0.37% 0.40% 0.69% 0.75% 0.98%
Portfolio turnover rate 13.10% 26.60% 36.90% 66.10% 43.50%
Average commission rate paid $ .0627 $ .0619 $ .0636 $ .0551
</TABLE>
See accompanying notes to financial statements.
B-19
<PAGE> 23
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
American Fidelity Variable Annuity Fund A (the Fund) is a separate
account of American Fidelity Assurance Company (AFA). The Fund is
registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended. The purpose of
the Fund is to provide a means of investing for supplemental retirement
income. Shares are only available in connection with variable annuity
policies issued by AFA.
The Fund's investment objectives are primarily long-term growth of
capital and secondarily the production of income. In order to achieve
these investment objectives, the Fund normally invests in a diversified
portfolio consisting primarily of common stocks.
INVESTMENTS
Investments in corporate stocks are valued by Merrill Lynch Pricing
Service. Securities for which published quotations are not available
are valued at the quotation obtained from the Fund's primary broker.
Short-term investments are valued on the basis of amortized cost, which
approximates market, and include all investments with maturities less
than one year.
The Fund's portfolio of investments is diversified such that not more
than five percent (5%) of the value of the total assets of the Fund are
invested in any one issuer and not more than twenty-five percent (25%)
are invested in any one industry or group of industries. Management
does not believe the Fund has any significant concentrations of credit
risk.
Realized gains and losses from investment transactions and unrealized
appreciation or depreciation of investments are determined on the
average cost basis.
Dividend income is recorded on the ex-dividend date, and interest
income is recorded on the daily accrual basis. For certain securities
in which the exact dividend is unknown on the ex-dividend date, such as
stock in foreign companies, an estimate of the dividend is recorded on
the ex-dividend date, and any necessary adjustments are added to the
Fund's investment income on the date the dividend is received by the
Fund. Any taxes withheld by foreign governments or any foreign exchange
expenses (gains or losses) incurred by investment in such securities
are paid by the Fund. The Fund does not expect these costs to be
significant.
INCOME TAXES
The Fund is not taxed separately because the operations of the Fund are
part of the total operations of AFA. AFA files its federal income tax
returns under sections of the Internal Revenue Code applicable to life
insurance companies. The Fund's net increase in net assets from
operations is not expected to result in taxable income under present
regulations. The Fund will not be taxed as a "Regulated Investment
Company" under Subchapter "M" of the Internal Revenue Code.
B-20
<PAGE> 24
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS, CONTINUED (UNAUDITED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of increase
and decrease in net assets from operations during the period. Actual
results could differ from those estimates.
(2) INVESTMENTS
The aggregate dollar amount of investment purchases (exclusive of
short-term investments) was $34,958,068 and $19,642,622 for the six
months ended June 30, 1998 and 1997, respectively. At June 30, 1998,
net unrealized appreciation on investments of $68,769,678, was
composed of gross appreciation of $69,791,836 and gross depreciation
of $1,022,158.
(3) VARIABLE ANNUITY CONTRACTS
Net purchase payments received represent gross payments less deductions
of $513,252 and $364,642 for the six months ended June 30, 1998 and
1997, respectively. The deductions are comprised of sales and
administrative expenses, minimum death benefits, administrative
charges, and certificate issuance fees. These deductions were paid to
AFA.
AFA acts as the Fund's investment manager and assumes certain mortality
and expense risks under the variable annuity contracts. Investment
management fees are equal to .0013698% of the Fund's daily net assets
(.5% per annum). Mortality and expense guaranty fees are equal to
.0026308% of the Fund's daily net assets (.96025% per annum). Such fees
were paid to AFA.
During the accumulation period, contract owners may partially or
totally withdraw from the Fund by surrendering a portion or all of
their accumulation units. The Internal Revenue Code may limit certain
withdrawals based upon age, disability, and other factors. When
contract owners withdraw, they receive the current value of their
accumulation units.
(4) ANNUITY RESERVES
Annuity reserves are computed for currently payable contracts
according to the Progressive Annuity Mortality Table. The assumed
interest rate is 3.5 percent unless the annuitant elects otherwise, in
which case the rate may vary from zero to 5 percent, as regulated by
the laws of the respective states. Charges to annuity reserves for
mortality and expense risks experience are reimbursed to AFA if the
reserves required are less than originally estimated. If additional
reserves are required, AFA reimburses the Fund. At June 30, 1998 and
December 31, 1997, there were no contract owners who had elected the
variable annuity method of payout. Accordingly, the Fund held no
annuity reserves at June 30, 1998 and December 31, 1997.
B-21
<PAGE> 25
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS, CONTINUED (UNAUDITED)
(5) SUBSEQUENT EVENT
On January 1, 1999, the Fund was converted to a unit investment trust
separate account and transferred its investment portfolio to American
Fidelity Dual Strategy Fund, Inc., a new management investment company
formed by AFA, in exchange for shares of American Fidelity Dual
Strategy Fund, Inc.
B-22
<PAGE> 26
PART C
OTHER INFORMATION
ITEM 24 -- FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Item 23 of Part B of
this Registration Statement:
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Independent Auditors' Report
Statements of Assets and Liabilities as of December 31, 1997
and 1996
Statements of Operations for the Years Ended December 31, 1997
and 1996
Statements of Changes in Net Assets for the Years Ended
December 31, 1997 and 1996
Schedule of Portfolio Investments as of December 31, 1997
Financial Highlights for the Five Years Ended
December 31, 1997
Notes to Financial Statements
Statements of Assets and Liabilities as of June 30, 1998
(unaudited) and December 31, 1997
Statements of Operations for the Six Months Ended June 30, 1998
and 1997 (unaudited)
Statements of Changes in Net Assets for the Six Months Ended
June 30, 1998 and 1997 (unaudited)
Schedule of Portfolio Investments as of June 30, 1998
(unaudited)
Financial Highlights for the Six Months Ended June 30, 1998
(unaudited) and the Five Years Ended December 31, 1997
Notes to Financial Statements (unaudited)
(b) Exhibits
Exhibit
Number
- -------
<TABLE>
<CAPTION>
<S> <C> <C>
1* - Articles of Incorporation of Registrant.
2* - Bylaws of Registrant.
3 - Not applicable.
4 - Not applicable.
5.1** - Management and Investment Advisory Agreement dated December 22, 1998 between
Registrant and American Fidelity Assurance Company (the "Company").
5.2** - Investment Sub-Advisory Agreement dated December 8, 1998 between the Company and
Lawrence W. Kelly & Associates, Inc.
5.3** - Investment Sub-Advisory Agreement dated December 3, 1998 between the Company and Todd
Investment Advisors, Inc.
6** - Fund Participation Agreement dated December 22, 1998 between Registrant and the Company.
7 - Not applicable.
</TABLE>
C-1
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C> <C>
8** - Corporate Custodial Agreement dated September 30, 1998 between Registrant and InvesTrust, N.A.
9 - Not applicable.
10*** - Opinion and Consent of Counsel.
11** - Consent of Independent Auditors.
12 - Not applicable.
13* - Agreement and Plan of Reorganization dated October 13, 1998 among Registrant, the Company
and American Fidelity Variable Annuity Fund A.
14 - Not applicable.
15 - Not applicable.
16** - Schedule for computation of performance quotations.
17 - Not applicable.
18 - Not applicable.
24* - Power of Attorney
99** - Organization chart of the Company
</TABLE>
- ---------------
* Filed with the initial registration statement on July 16, 1998.
** Filed herewith.
*** Filed with pre-effective amendment no. 1 to this registration statement
on October 16, 1998.
ITEM 25 -- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT
The Registrant is controlled by American Fidelity Assurance Company, an
Oklahoma corporation and a wholly-owned subsidiary of American Fidelity
Corporation, a Nevada corporation. American Fidelity Corporation is controlled
by a family investment partnership, Cameron Enterprises, a Limited Partnership,
whose managing partners are William M. Cameron, William E. Durrett, Edward C.
Joullian, III, John W. Rex and Theodore M. Elam. The organization chart filed
herewith as Exhibit 99 shows the affiliated entities.
ITEM 26 -- NUMBER OF HOLDERS OF SECURITIES
As of the date of this Registration Statement, American Fidelity
Assurance Company was the sole holder of common stock of Registrant.
ITEM 27 -- INDEMNIFICATION
Article Eighth, Section 2 of the Registrant's Articles of Incorporation
provides as follows:
The corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further
extent as is consistent with law. The Board of Directors
C-2
<PAGE> 28
may, through a by-law, resolution or agreement, make further provisions
for indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation Law.
The By-Laws of Registrant provide in Article VIII as follows:
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation
shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by law. The corporation shall
indemnify its officers to the same extent as its directors and to such
further extent as is consistent with law. The corporation shall
indemnify its directors and officers who while serving as directors or
officers also serve at the request of the corporation as a director,
officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan to the same extent as its directors and, in the
case of officers, to such further extent as is consistent with law. The
indemnification and other rights provided by this Article shall
continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators
of such a person. This Article shall not protect any such person
against any liability to the corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office ("disabling conduct").
2. ADVANCES. Any current or former director or officer of the
corporation seeking indemnification within the scope of this Article
shall be entitled to advances from the corporation for payment of the
reasonable expenses incurred by him in connection with the matter as to
which he is seeking indemnification in the manner and to the fullest
extent permissible under the General Corporation Law. The person
seeking indemnification shall provide to the corporation a written
affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the corporation has been met and a
written undertaking to repay any such advance if it should ultimately
be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be
met: (a) the person seeking indemnification shall provide security in
form and amount acceptable to the corporation for his undertaking; (b)
the corporation is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of directors of the corporation
who are neither "interested persons" as defined in Section 2(a)(19) of
the Investment Company Act of 1940, as amended, nor parties to the
proceeding ("disinterested non-party directors"), or independent legal
counsel, in a written opinion, shall have determined, based on a review
of facts readily available to the corporation at the time the advance
is proposed to be made that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
3. PROCEDURE. At the request of any person claiming
indemnification under this Article, the Board of Directors shall
determine, or cause to be determined, in a manner consistent with the
General Corporation Law, whether the standards required by this Article
have been met. Indemnification shall be made only following: (a) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable
by reason of disabling conduct or (b) in the absence of such a
decision, a reasonable determination, based upon a review of the facts,
that the person to be indemnified was not liable by reason of disabling
conduct by (i) the vote of a majority of a quorum of disinterested
non-party directors or (ii) an independent legal counsel in a written
opinion.
4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents
who are not officers or directors of the corporation may be indemnified
and reasonable expenses may be advanced to such employees or agents, as
may be provided by action of the Board of Directors or by contract,
subject to any limitations imposed by the Investment Company Act of
1940, as amended.
5. OTHER RIGHTS. The Board of Directors may make further
provision consistent with law for indemnification and advance of
expenses to directors, officers, employees and agents by resolution,
C-3
<PAGE> 29
agreement or otherwise. The indemnification provided by this Article
shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking indemnification
may be entitled under any insurance or other agreement or resolution of
stockholders or disinterested non-party directors or otherwise.
6. AMENDMENTS. References in this Article are to the General
Corporation Law and to the Investment Company Act of 1940 as from time
to time amended. No amendment of the by-laws shall affect any right of
any person under this Article based on any event, omission or
proceeding prior to the amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
In accordance with Section 17(h) of the Investment Company Act of 1940
(the "1940 Act"), the members of the Board of Directors of Registrant do hereby
waive any provision for indemnification to the extent such provision violates
Section 17(h). The members of the Board of Directors and the officers signing
this Registration Statement agree that indemnification of any of them is
precluded for any liability, whether or not there is an adjudication of
liability, arising by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of their respective
offices ("disabling conduct") unless (1) there is a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct; (2) a
reasonable determination that the person to be indemnified was not liable by
reason of disabling conduct by the vote of a majority of a quorum of directors
who are neither "interested persons" of the Registrant nor parties to the
proceeding; or (3) such a determination by an independent legal counsel in a
written opinion.
ITEM 28 -- BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
American Fidelity Assurance Company (the "Company") is primarily
engaged in writing life, accident and health and annuity business. Set forth
below are the names of each of the directors and executive officers of the
Company, their positions and offices with the Company and any other business,
profession, vocation or employment of a substantial nature in which each is or
has been, during the past two fiscal years, engaged for his or her own account
or in the capacity of director, officer, employer, partner or trustee:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with the Company Other Affiliations
- ------------------ --------------------- ------------------
<S> <C> <C>
Lynda L. Cameron Director President, Cameron Equestrian
Centers, Inc.
2000 Classen Center
Oklahoma City, OK 73106
William M. Cameron Chairman and Chief Chairman, President and Chief
Executive Officer, Director Executive Officer (January
1998 to present); Vice
Chairman and Senior Vice
President (prior to 1998),
American Fidelity Corporation;
Director, ASC Holding, L.L.C.;
Chairman, First Fidelity Bank,
N.A. and First Fidelity
BanCorp, Inc.
3535 N.W. 58th, Suite 200
Oklahoma City, OK 73112
</TABLE>
C-4
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C>
David R. Carpenter Senior Vice President, Senior Vice President,
Treasurer American Fidelity Corporation;
Chairman, President, Chief
Executive Officer, Treasurer,
and Chief Financial Officer,
American Fidelity Securities,
Inc.
William E. Durrett Senior Chairman, Director Senior Chairman (January 1998
to present); Chairman, President
and Chief Executive Officer
(prior to 1998), American
Fidelity Corporation; Director,
Bank Oklahoma Financial
Corporation
Bank Oklahoma Tower
P. O. Box 2300
Tulsa, OK 74192;
Director,
Integris Health, Inc.
3366 N.W. Expressway
Oklahoma City, OK 73112;
Director,
OGE Energy Corporation
P. O. Box 321
Oklahoma City, OK 73101
Stephen P. Garrett Senior Vice President, Senior Vice President and
Secretary Secretary, American Fidelity
Corporation; Director, First
Fidelity Bank, N.A. and First
Fidelity BanCorp, Inc.
3535 N.W. 58th, Suite 200
Oklahoma City, OK 73112
William A. Hagstrom Director Chairman and President,
UroCor, Inc.
800 Research Parkway
Oklahoma City, OK 73104
</TABLE>
C-5
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
Edward C. Joullian, III Director Chairman and Chief Executive
Officer,
Mustang Fuel Corporation
2000 N. Classen,
Suite 800 East
Oklahoma City, OK 73106;
Director,
Fleming Companies, Inc.
6301 Waterford Blvd.
Oklahoma City, OK 73118;
Director,
The LTV Corporation
200 Public Square
P. O. Box 655003
Cleveland, Ohio 44115
Kenneth D. Klehm Senior Vice President Senior Vice President,
Treasurer, Controller and Chief
Financial Officer, American
Fidelity Corporation; Director,
ASC Holding, L.L.C.;
Director, First Fidelity Bank
and First Fidelity BanCorp, Inc.
3535 N.W. 58th, Suite 200
Oklahoma City, OK 73112
Alfred L. Litchenburg Senior Vice President Director,
Southwest Bancorp, Inc.
608 South Main Street
Stillwater, OK 74074
David R. Lopez Director Vice President-National/Local
Regulatory,
SWBC Corporation
175 East Houston
Room 4-K-03
San Antonio, TX 78205
Paula Marshall-Chapman Director Chief Executive Officer,
The Bama Companies, Inc.
2745 East 11th Street
Tulsa, OK 74104;
Director,
Public Service Company
212 East 6th Street
Tulsa, OK 74119
John W. Rex President, Chief Operating Executive Vice President and
Officer, Director Director, American Fidelity
Corporation
</TABLE>
C-6
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C> <C>
Galen P. Robbins, M.D. Director Physician and, prior to 1998,
Director,
Cardiovascular Clinic
3433 N.W. 56th
Oklahoma City, OK 73112
John D. Smith Director President, John D. Smith
Developments, Inc.
3400 Peach Tree Road,
Suite 831
Atlanta, GA 30326
</TABLE>
- -------------------
* Principal business address is 2000 N. Classen Boulevard, Oklahoma City,
Oklahoma 73106 or, if applicable, the address set forth under "Other
Affiliations."
A description of the other investment advisory activities of the
Sub-Advisers is included in the Prospectus under "Management."
Lawrence W. Kelly and Janice M. Kelly are the majority shareholders and
directors of Lawrence W. Kelly & Associates, Inc., 200 South Los Robles Avenue,
Suite 510, Pasadena, California 91101. The officers of Kelly and the positions
they have held since January 1, 1996 or earlier are as follows:
<TABLE>
<CAPTION>
Name Positions
---- ---------
<S> <C>
Lawrence W. Kelly Chairman, Chief Executive Officer and
Treasurer
Nicholas J. Welsh Executive Vice President (1996-
present); Senior Vice President
(1995-1996)
H. James Darcey Executive Vice President (1996-
present); Chairman, President and
Chief Executive Officer, First
Security Investment Management,
Inc., Salt Lake City, UT (1988-
1995)
Maria Alejandra Tescher Executive Vice President - Senior
Trader & Operations Manager
(1996-present); Vice President
(1995-1996)
Catherin M. Oaks Vice President-Operations and
Compliance (1997-present); Registered
Sales Assistant, Morgan Stanley
Dean Witter (1996-1997); Branch
Administrative Assistant, Dean Witter
(1994-1996)
Janice M. Kelly Secretary
</TABLE>
C-7
<PAGE> 33
Todd Investment Advisors, Inc., 101 South Fifth Street, Suite 3160,
Louisville, Kentucky 40202, is a wholly-owned subsidiary of Stifel Asset
Management Corp. ("SAMC"), which is a wholly-owned subsidiary of Stifel
Financial Corporation ("SFC"). The address of both SAMC and SFC is 500 North
Broadway, St. Louis, Missouri 63102. Stifel, Nicolaus & Company ("Stifel"), a
registered broker-dealer and investment adviser, is another wholly-owned
subsidiary of SFC. Todd Investment is managed by the following persons, who have
held the positions indicated since January 1, 1996 or earlier:
<TABLE>
<CAPTION>
Name Positions
---- ---------
<S> <C>
Bosworth M. Todd Chairman; Director, First Capital Bank of
Kentucky, Louisville, KY (1996-
present); Director of SAMC
Robert P. Bordogna President and Chief Executive Officer;
Director of SAMC
George Herbert Walker, III Chairman of SFC and SAMC
Richard A. Loebig Executive Vice President (1996-
present); Vice President, Chandler
Liquid Asset Management, San
Diego, CA (1996); Vice President,
PNC Bank, Kentucky, Louisville,
KY (1991-1996)
Gayle S. Dorsey Executive Vice President (1997-
present); Vice President,
J.J.B. Hilliard, W.L. Lyons, Inc.,
Louisville, KY (1976-1997)
Sam C. Ellington Vice President (1996-present); Vice
President, PNC Bank, Kentucky,
Louisville, KY (1993-1996)
Curtiss M. Scott, Jr. Vice President (1996-present); Partner
and Managing Director, Executive
Investment Advisors, Inc., Louisville,
KY (1993-1996)
Margaret C. Bell Vice President of Marketing
C. Kevin Blair Vice President, Business Development
(1997-Present); Vice President, PNC Bank,
Kentucky, Louisville, KY (1992-1997)
</TABLE>
Directors of Todd Investment are also employees of Stifel.
C-8
<PAGE> 34
ITEM 29 -- PRINCIPAL UNDERWRITERS
(a) American Fidelity Securities, Inc. ("AFS"), a wholly-owned
subsidiary of the Company, is the sole underwriter for the Fund. AFS is also the
underwriter for American Fidelity Separate Account A and American Fidelity
Separate Account B.
(b) AFS director and officer information is as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and
Business Address with Underwriter Offices with Fund
- ------------------ --------------------- -----------------
<S> <C> <C>
David R. Carpenter Director, Chairman, President, None
P. O. Box 25523 Chief Executive Officer,
Oklahoma City, OK 73125 Treasurer, Chief Financial
Officer and Registered Limited
Principal
Marvin R. Ewy Director, Vice President, None
P. O. Box 25523 Secretary, Chief Compliance
Oklahoma City, OK 73125 Officer and Registered
Limited Principal
Nancy K. Steeber Director, Vice President, None
P. O. Box 25523 Operations Officer and
Oklahoma City, OK 73125 Registered Limited Principal
</TABLE>
(c) Not applicable.
ITEM 30 -- LOCATION OF ACCOUNTS AND RECORDS
All records relating to the Fund required by Section 31(a) of the 1940
Act are kept by the Registrant or its custodian at the following addresses:
American Fidelity Dual Strategy Fund, Inc.
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
or
InvesTrust, N.A.
6301 N. Western, Suite 210
Oklahoma City, Oklahoma 73118
ITEM 31 -- MANAGEMENT SERVICES
See -- "Investment Advisory and Other Services" in Part B of this
Registration Statement.
ITEM 32 -- UNDERTAKINGS
The Fund hereby undertakes to:
(a) not applicable;
(b) file a post-effective amendment, using financial statements of
the Fund which need not be certified, within four to six
months from the effective date of the Fund's 1933 Act
registration statement; and
(c) to furnish each person to whom a prospectus is delivered with
a copy of its most recent annual report to shareholders, upon
request and without charge.
C-9
<PAGE> 35
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940 the Registrant has duly caused this Post-Effective Amendment No. 1
to Registration Statement to be signed on its behalf, in the City of Oklahoma
City, and State of Oklahoma on this 8th day of January, 1999.
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
By /s/ John W. Rex
------------------------------------------------
John W. Rex, Chairman of the Board and President
As required by the Securities Act of 1933, this Post-Effective
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities indicated on January 8, 1999.
<TABLE>
<S> <C>
/s/ John W. Rex /s/ Gregory M. Love*
- ----------------------------------------------- -----------------------------------------------
John W. Rex, Chairman of the Board, Gregory M. Love, Director
President and Treasurer
/s/ Daniel D. Adams, Jr.* /s/ J. Dean Robertson*
- ----------------------------------------------- -----------------------------------------------
Daniel D. Adams, Jr., Director and Secretary J. Dean Robertson, Director
/s/ Jean G. Gumerson* /s/ G. Rainey Williams, Jr.*
- ----------------------------------------------- -----------------------------------------------
Jean G. Gumerson, Director G. Rainey Williams, Jr., Director
/s/ Edward C. Joullian, III*
- -----------------------------------------------
Edward C. Joullian, III, Director
*By /s/ John W. Rex
-------------------------------------------
John W. Rex, Attorney-in-Fact
</TABLE>
<PAGE> 36
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
8 Corporate Custodial Agreement
11 Consent of Independent Auditors
</TABLE>
MANAGEMENT AND INVESTMENT
ADVISORY AGREEMENT
AGREEMENT dated as of the 22nd day of December, 1998, between
AMERICAN FIDELITY ASSURANCE COMPANY, an insurance corporation organized
under the laws of the State of Oklahoma and having its principal place of
business in Oklahoma City, Oklahoma (the "Manager"), and AMERICAN FIDELITY
DUAL STRATEGY FUND, INC., a Maryland corporation, having its principal
place of business in Oklahoma City, Oklahoma (the "Fund").
WHEREAS, the Fund proposes to engage in business as an open-end
management investment company registered under the Investment Company Act
of 1940;
WHEREAS, the Manager proposes to engage in the business of acting
as manager and investment adviser for one or more investment companies;
WHEREAS, the Fund desires to retain the Manager to render such
services in the manner and on the terms and conditions hereinafter set
forth; and
WHEREAS, the Manager desires to perform such services in the
manner and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
In consideration of the foregoing and of the mutual covenants
hereinafter contained, it is agreed as follows:
1. The Fund hereby employs the Manager to provide investment
advisory, statistical and research facilities and services, to supervise
the composition of the Fund's portfolio and to determine the nature and
timing of changes therein and the manner of effectuating such changes,
subject to supervision of the Fund's Board of Directors and for the period
and on the terms set forth in this agreement. The Manager hereby accepts
such employment and agrees to render the services and to assume the
obligations herein set forth, for the compensation herein provided.
2. The Manager shall:
(a) Furnish to the Fund research and statistical and other
factual information and reports with respect to
securities held by the Fund or which the Fund might
purchase. It will also furnish to the Fund such
information as may be appropriate concerning
developments which may affect issuers of securities
held by the Fund or which the Fund might purchase or
the business in which such issuers may be engage. Such
statistical and other factual information and reports
shall include information and reports on industries,
business, corporations and all types of securities,
whether or not the Fund has at any time any holdings in
such industries, business, corporations or securities.
The Manager reserves the right, in its discretion, to
purchase statistical information and other services
from other sources, including affiliated persons of the
Manager.
(b) Furnish to the Fund, from time to time, advice,
information and recommendations with respect to the
acquisition, holding, or disposal by the Fund of
securities.
(c) Furnish to the Fund necessary assistance in:
(i) The preparation of all reports now or hereafter
required by Federal or other laws.
(ii) The preparation of prospectuses, registration
statements and amendments thereto that may be
required by Federal or other laws or by the rules
or regulations of any duly authorized commission
or administrative body.
(d) Furnish to the Fund at the Manager's expense, office
space in the offices of the manager or in such other
place or places as may be agreed upon from time to
time, and all necessary office facilities, business
equipment, supplies, utilities and telephone service
for managing the affairs and investments and keeping
the general accounts of the Fund (exclusive of the
necessary records of any dividend disbursing agent,
transfer agent, registrar or custodian). Manager shall
compensate all personnel, officers, and directors of
the Fund if such persons are also employees of the
Manager or its affiliates. The Manager agrees to pay
those legal and other expenses incident to organization
of the Fund and to registration with Federal and state
authorities of the initial offering of the Fund's
shares. Registration fees, legal and accounting fees
and other costs and expenses incurred in connection
with subsequent Federal and other registrations of Fund
shares and all amendments and supplements to the
initial registration of Fund shares shall be paid by
the Manager.
(e) Provide and maintain a bond issued by a reputable
insurance company authorized to do business in the
place where the bond is issued, against larceny and
embezzlement covering each officer and employee of the
Fund, who may singly or jointly with others have access
to securities of the Fund, with direct or indirect
authority to draw upon such funds or to direct
generally the disposition of such funds. The bond
shall be in such reasonable amount as a majority of the
Board of Directors of the Fund who are not officers or
employees of the Fund shall determine with due
consideration to the aggregate assets of the Fund to
which any such officer or employee may have access.
3. In connection with the management of the investment and
reinvestment of the assets of the Fund, the Manager acting by its own
officers, directors or employees or by duly authorized subcontractor is
authorized to select the brokers or dealers that will execute purchase and
sale transactions for the Fund and is directed to use its best efforts to
obtain the best available price and most favorable execution with respect
to all such purchases and sales of portfolio securities for the Fund.
Subject to this primary requirement, and maintaining as its first
consideration the benefits to the Fund and its shareholders, the Manager
shall have the right, subject to the control of the Board of Directors, to
follow a policy of selecting brokers and dealers who furnish statistical,
research and other services to the Fund or to the Manager.
4. For the services to be rendered and the charges and expenses
assumed and to be paid by the Manager, the Fund shall pay the Manager as a
basic advisory and service fee as soon as practical after the last day of
each week and at the close of each calendar week an amount equal to
.0013698% (.50% on an annual basis) of the current value of the Fund for
each day of the valuation period for investment services.
5. The Fund shall cause its books and accounts to be audited at
least once each year by a reputable, independent public accountant or
organization of public accountants who shall render a report to the Fund.
6. This Agreement shall continue in full force and effect from
year to year, provided that it shall not continue for more than two years
from the date hereof unless such continuance is specifically approved, at
least annually by the Board of Directors of the Fund, which affirmative
vote shall include a majority of the members of the Board of Directors of
the Fund who are not interested persons of the Manager or of the Fund.
"Interested persons" are those persons defined in Section 2(a)(19) of the
Investment Company Act of 1940.
7. This Agreement shall automatically terminate in the event of
its assignment, within the meaning of the Investment Company Act of 1940,
as amended, unless an order of the Securities and Exchange Commission is
issued exempting such assignment. This Agreement may be terminated at any
time, on 60 days' written notice to the Manager, without payment of any
penalty, by the Board of Directors of the Fund or by shareholders casting a
majority of the votes which may be cast by all shareholders. This
Agreement may not be terminated by the Manager without the approval of a
new investment advisory agreement by the shareholders casting a majority of
the votes which may be cast by all shareholders.
8. This Agreement may be amended at any time by mutual consent
of the parties provided that such consent on the part of the Fund shall
have been approved by the shareholders casting a majority of the votes
which may be cast by all shareholders.
9. No provision of this Agreement shall be deemed to protect
the Manager against any liability to the Fund or its shareholders to which
it might otherwise be subject by reason of any willful misfeasance, bad
faith or gross negligence in the performance of its duties or the reckless
disregard of its obligations under this Agreement. Nor shall any provision
hereof be deemed to protect any director or officer of the Fund against any
such liability to which he or she might otherwise be subject by reason of
any willful misfeasance, bad faith or gross negligence in the performance
of his or her duties or the reckless disregard of his or her obligations.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
AMERICAN FIDELITY DUAL AMERICAN FIDELITY ASSURANCE
STRATEGY FUND, INC. COMPANY
By JOHN W. REX By JOHN W. REX
John W. Rex, President John W. Rex, President
INVESTMENT SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT (the "Agreement") is made
and entered into on the date hereafter set forth between AMERICAN FIDELITY
ASSURANCE COMPANY (the "Client"), which is the investment adviser to
American Fidelity Dual Strategy Fund, Inc. (the "Fund"), and LAWRENCE W.
KELLY & ASSOCIATES, INC. (the "Investment Sub-Adviser").
1. APPOINTMENT OF INVESTMENT SUB-ADVISER. Effective on the Effective
Date, the Client hereby appoints Investment Sub-Adviser to serve as
investment adviser to the Client in respect of those assets of the Fund
specified in writing on or before the Effective Date and from time to time
thereafter by the Client to be subject to this Agreement (which assets,
together with any assets which are added at a subsequent date or which are
received as a result of the sale, exchange, or transfer of any of such
assets are herein collectively referred to as the "Investment Assets").
The "Effective Date" shall be the Closing Date of the Reorganization, as
such terms are defined in that certain Agreement and Plan of Reorganization
dated October 13, 1998 among the Client, the Fund and American Fidelity
Variable Annuity Fund A.
The Investment Sub-Adviser hereby accepts such appointment and agrees
to render the services and to assume the obligations herein set forth, for
the compensation herein provided.
2. THE INVESTMENT ASSETS. The Investment Assets shall consist of such
cash, stocks, bonds and other securities which, from time to time, the
Client places under the investment supervision of the Investment Sub-
Adviser and/or which shall become part of the Investment Assets as a result
of transactions therein or otherwise. The Client may make additions to or
withdrawals from the Investment Assets in such amounts as the Client shall
determine.
3. CUSTODIANSHIP OF THE INVESTMENT ASSETS. The Investment Assets have
been deposited with InvesTrust, N.A. (the "Custodian") and are maintained
by the Custodian in safekeeping on its premises, in a recognized clearing
corporation, or in the Federal Reserve book-entry system, in the name of
the Fund, the Custodian or the clearing corporation, or in the nominee name
of any of the foregoing. The Investment Sub-Adviser is hereby authorized
to give instructions to the Custodian with respect to the consummation of
transactions on behalf of the Client in the Investment Assets, and the
Custodian is hereby authorized to act in response to instructions given by
the Investment Sub-Adviser. The Client agrees to take any other action and
deliver any certificates reasonably necessary to confirm the foregoing
authorization to the Custodian. The Client shall advise the Investment
Sub-Adviser if any other entity is appointed to serve as Custodian for the
Investment Assets prior to the date such entity succeeds the Custodian.
The term "Custodian" includes all successors to the presently serving
Custodian.
4. MANAGEMENT OF INVESTMENT ASSETS.
4.1 GENERAL POWERS AND DUTIES. So long as the Investment Sub-
Adviser's appointment under Section 1 hereof remains in effect, the
Investment Sub-Adviser shall, subject to the provisions of Section 4.2
hereof, have complete discretion and authority in the investment and
reinvestment of the Investment Assets and shall determine what securities
or other property shall be acquired, held, or disposed of and, subject to
the provisions of Section 4.4 hereof, what portion of the Investment Assets
shall be held uninvested. The Investment Sub-Adviser's investment and
reinvestment authority shall include, without limitation, authority to
purchase, sell, exchange, convert, trade, and generally to deal in the
Investment Assets. The Investment Sub-Adviser shall have authority to
direct the Custodian with respect to the investment and management of the
Investment Assets.
The Investment Sub-Adviser's authority shall include the exercise of
all voting rights pertaining to the Investment Assets. However, the
Investment Sub-Adviser shall have no obligation to exercise any particular
voting rights unless the Custodian or the Client shall have furnished the
pertinent proxies to the Investment Sub-Adviser a reasonable time prior to
the deadline before which such proxies are required to be submitted. The
Investment Sub-Adviser has the duty to maintain accurate records as to any
vote or action taken with respect to any stock or other securities which
are part of the Investment Assets and to take such further action as may be
necessary for the Fund to participate fully in any transaction undertaken
by issuers of Investment Assets.
4.2 INVESTMENT POLICY. Investment objectives, policies and other
guidelines for the management of Investment Assets, including requirements
as to diversification are set forth in Exhibit A to this Agreement. The
Investment Sub-Adviser shall discharge its duties hereunder in accordance
with said investment guidelines as the same may be revised or supplemented
from time to time by the Client.
4.3 PRUDENCE AND DIVERSIFICATION. The Investment Sub-Adviser shall
discharge its duties hereunder at all times with the care, skill, prudence,
and diligence under the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.
4.4 MINIMUM LIQUIDITY REQUIREMENTS. The Client shall give the
Investment Sub-Adviser reasonable advance notice of any cash requirements
from the Investment Assets, and the Investment Sub-Adviser shall maintain
in cash or cash equivalents sufficient assets to meet such cash
requirements.
4.5 INSTRUCTIONS TO SECURITIES BROKERS AND DEALERS. The Investment
Sub-Adviser is hereby empowered to issue orders for the purchase, sale or
exchange of securities with respect to the Investment Assets directly to a
broker or dealer. The Investment Sub-Adviser shall give the Custodian and
the Client prompt written notification of each such execution in accordance
with the provisions of Section 5.1 hereof, and the Investment Sub-Adviser
shall instruct the broker or dealer concerned to forward a copy of the
confirmation of the execution of such order to the Custodian and the
Client.
4.6 SELECTION OF SECURITIES BROKERS AND DEALERS. The Investment Sub-
Adviser may select and employ securities brokers and dealers to effect any
securities transactions concerning the investment management of the
Investment Assets. In the selection of such brokers and dealers by the
Investment Sub-Adviser and the placing of orders with them, the Investment
Sub-Adviser shall use its best efforts to obtain for the Investment Assets
the most favorable net price and execution available except to the extent
otherwise provided by Section 28(e) of the Securities Exchange Act of 1934,
as amended, or by other applicable law. Notwithstanding anything in this
Section 4.6 to the contrary, the Client may instruct the Investment Sub-
Adviser in writing to engage securities brokers and dealers specified by
the Client to effect, with respect to the Investment Assets, securities
transactions, or particular securities transactions, and the Investment
Sub-Adviser shall act in accordance with such instructions. The Investment
Sub-Adviser shall not be responsible or liable for any acts or omissions by
any broker or dealer selected pursuant to this Section 4.6 provided the
Investment Sub-Adviser has acted reasonably in the exercise of due care in
the selection of such broker or dealer and has not otherwise participated
in, directly or indirectly, such acts or omissions by such broker or
dealer.
4.7 OTHER ACCOUNTS OF THE INVESTMENT SUB-ADVISER. It is understood
that the Investment Sub-Adviser performs investment advisory services for
various clients and accounts other than the Client. The Investment Sub-
Adviser may give advice and take action in the performance of its duties
with respect to any of such other clients or accounts which may be the same
as or differ from the timing or nature of action taken with respect to the
Investment Assets, provided that the Investment Sub-Advisor allocates to
the Investment Assets, to the extent practicable, opportunities to acquire
or dispose of investments over a period of time on a basis no less
favorable than its allocation of such opportunities to such other clients
and accounts and seeks over a period of time to obtain comparable execution
of similar transactions among its clients. It is understood that the
Investment Sub-Adviser shall not have any obligation to purchase or sell,
or to recommend for purchase or sale, for the Fund any security which the
Investment Sub-Adviser, its principals, affiliates or employees may
purchase or sell for its or their own accounts or for the account of any
other client, if in the opinion of the Investment Sub-Adviser such
transaction or investment appears unsuitable, impractical or undesirable
for the Fund.
4.8 LIMIT OF LIABILITY. The Investment Sub-Adviser shall act in good
faith and shall not be liable for any error of judgment or loss incurred by
the Fund in connection with recommendations or investments made by the
Investment Sub-Adviser in its management of the Investment Assets.
5. INFORMATION AND REPORTS.
5.1 REPORTS TO CLIENT. Initially, the Investment Sub-Adviser shall
submit a daily written report to the Client promptly following the close of
regular trading on the New York Stock Exchange detailing the actions taken
by the Investment Sub-Adviser under this Agreement during such day. The
report shall contain such information in such form as the Client has
specified, or from time to time shall specify, to the Investment Sub-
Adviser. In addition, the Investment Sub-Adviser shall provide such other
reports on the performance of the Investment Assets at such times, for such
periods and in such form as the Client shall reasonably request, taking
into account the Investment Sub-Adviser's ability to produce such reports
without undue burden to the Investment Sub-Adviser.
5.2 RECORDS AND ACCOUNTS. The Investment Sub-Adviser shall keep
accurate and detailed records and accounts of the Investment Assets and of
all receipts, disbursements, and other transactions hereunder affecting the
Investment Assets. All such records and accounts, and all documents
relating thereto shall be open at all reasonable times and under reasonable
conditions to inspection and audit by any person or persons designated by
the Client.
5.3 EXCHANGE OF INFORMATION. The Client and the Investment Sub-
Adviser agree to provide to each other such information as the Investment
Adviser or the Client, as the case may be, may reasonably request to enable
it to carry out its duties, obligations, and responsibilities under this
Agreement or applicable law.
5.4 INFORMATION TO BE CONFIDENTIAL. All information and advice
furnished to or obtained by the Client or the Investment Sub-Adviser under
or in connection with this Agreement shall be treated as confidential and
shall not be disclosed to third parties except as required by law,
including the disclosure obligations of an investment company to its
securities holders under the federal securities laws.
6. FEE PAYABLE TO INVESTMENT SUB-ADVISER. For services under this
Agreement, the Investment Sub-Adviser shall be entitled to receive from the
Client a fee in an amount equal to .075% of the current value of the
Investment Assets as of the close of the last trading day of March, June,
September and December (.30% on an annual basis). Such fee shall be
payable in arrears as soon as practicable, but not more than 10 business
days, after the last day of each calendar quarter.
7. REPRESENTATIONS BY CLIENT. The Client hereby represents and warrants
to the Investment Sub-Adviser that:
(a) MARYLAND CORPORATION. The Fund is a corporation formed
under the Maryland General Corporation Law.
(b) INVESTMENT COMPANY. The Fund is registered with the
Securities and Exchange Commission (the "Commission") as an open-end
diversified management investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act").
(c) INVESTMENT ADVISER. The Client has been duly appointed to
serve as the investment adviser of the Fund.
(d) DELIVERY OF INFORMATION. The Client will deliver to the
Investment Sub-Adviser, in writing, all of the information, documents and
instruments which the Investment Sub-Adviser may reasonably request in
order that it shall be able to perform its duties hereunder.
(e) APPROVAL OF AGREEMENT. This Agreement has been approved by
the Investment Committee of the Client, by the Board of Directors of the
Fund, including a majority of the members of the Fund's Board of Directors
who are not Interested Persons of the Investment Sub-Adviser or the Fund
and, prior to the Effective Date, will be approved by a Majority Vote of
Shareholders. "Majority Vote of Shareholders" means, in accordance with
Section 2(a)(42) of the Investment Company Act, the vote, at an annual or a
special meeting of shareholders of the Fund, duly called, (a) of 67% or
more of the voting securities present at such meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present
or represented by proxy, or (b) of more than 50% of the outstanding voting
securities of the Fund, whichever is less. "Interested persons" are those
persons defined in Section 2(a)(19) of the Investment Company Act.
(f) OWNER OF INVESTMENT ASSETS. As of the Effective Date, the
Fund will be the owner of all Investment Assets which are the subject of
this Agreement.
(g) RECEIPT BY CLIENT OF PART II OF FORM ADV. The Client
acknowledges that it has received from the Investment Sub-Adviser prior to
or contemporaneously with the Client's execution of this Agreement a copy
of Part II of the Investment Sub-Adviser's Form ADV as currently on file
with the Commission under the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act").
8. REPRESENTATIONS BY INVESTMENT SUB-ADVISER. The Investment Sub-Adviser
hereby represents and warrants to and agrees with the Client that:
(a) REGISTRATION AS INVESTMENT ADVISER. The Investment Sub-
Adviser is and will be duly registered as an "investment adviser" in
accordance with the Investment Advisers Act and with any other regulatory
authorities pursuant to any other applicable laws. The Investment Sub-
Adviser is not subject to any order of the Commission or any other
regulatory authority restricting its activities.
(b) AFFILIATED BROKERS. Unless authorized in writing by the
Client, neither the Investment Sub-Adviser nor any parent, subsidiary or
related firm, individual or other entity related to the Investment Sub-
Adviser shall act as a securities broker with respect to any purchases or
sales of securities which may be made on behalf of the Fund.
(c) MEETINGS WITH CLIENT AND FUND. A representative of the
Investment Sub-Adviser shall personally meet with the Investment Committee
of the Client or its designated representative as reasonably requested by
the Client to explain the investment and management activities of the
Investment Sub-Adviser, and any reports related thereto, at such times as
may be mutually agreed by the Investment Sub-Adviser and the Client. In
addition, a representative of the Investment Sub-Adviser shall attend the
Fund's annual Board of Directors meetings and shall be prepared to discuss
the Investment Sub-Adviser's economic outlook, investment strategy,
individual holdings included in the Investment Assets and such other
related matters as the Board of Directors shall request.
(d) COMPLIANCE WITH LAWS. Nothing in this Agreement shall be
deemed to authorize the Investment Sub-Adviser to effect any transactions
in contravention of its fiduciary obligations, duties or responsibilities
under the Investment Advisers Act, this Agreement or any other applicable
federal or state laws or regulations (including all applicable securities
laws and regulations) or the rules of any national securities exchange.
The Investment Sub-Adviser shall at all times in the performance of its
duties hereunder comply with the Investment Advisers Act and such other
laws, regulations and rules.
(e) INDEMNIFICATION. In addition to any other rights which the
Client or the Fund may have against the Investment Sub-Adviser, the
Investment Sub-Adviser shall indemnify the Client and the Fund and hold
them harmless with respect to any loss or damage, or costs or expenses
suffered by them as a result of (i) a breach by the Investment Sub-Adviser
of this Agreement, or (ii) the willful misfeasance, bad faith or gross
negligence of the Investment Sub-Adviser or any of its employees or agents
acting under its supervision or control to perform any of its obligations
and duties, or by reason of its reckless disregard of its obligations and
duties, under this Agreement, the Investment Advisers Act or any other
applicable law or regulation; provided, the Investment Sub-Adviser shall
have no responsibility or liability for any loss incurred by reason of any
act or omission of the Client, a custodian or any broker-dealer.
9. MISCELLANEOUS.
9.1 AMENDMENT. This Agreement may be amended at any time by mutual
agreement of the Client and the Investment Sub-Adviser, provided that any
material amendment shall have been approved by a Majority Vote of
Shareholders, by the Fund's Board of Directors and by the vote of a
majority of the members of the Fund's Board of Directors who are not
Interested Persons of the Investment Sub-Adviser or the Fund cast in person
at a meeting called for the purpose of voting on such approval.
9.2 TERM. This Agreement shall have an initial term of one year from
the Effective Date and thereafter shall continue from year to year if
continuance is approved at least annually by (a) the Fund's Board of
Directors or a Majority Vote of Shareholders and (b) the vote of a majority
of the members of the Fund's Board of Directors who are not Interested
Persons of the Investment Sub-Adviser or of the Fund cast in person at a
meeting called for the purpose of voting on such approval.
9.3 TERMINATION. This Agreement shall automatically terminate in the
event of its assignment, within the meaning of Section 15(a) of the
Investment Company Act, unless an order of the Commission is issued
exempting such assignment. This Agreement may be terminated at any time,
on 30 days' written notice to the Investment Sub-Adviser, without payment
of any penalty, by the Client, the Board of Directors of the Fund or by a
Majority Vote of Shareholders. If at any time the representation contained
in Section 8(a) hereof ceases to be true, this Agreement shall terminate
forthwith without penalty or payment of any kind by the Client. The
Investment Sub-Adviser may terminate this Agreement at any time upon 30
days' prior written notice to the Client. If this Agreement shall
terminate at any time other than at the end of a calendar quarter, the
Investment Sub-Adviser shall be entitled to receive the fee set forth in
Section 6 hereof for the portion of the quarter elapsed prior to the date
of termination, prorated on a daily basis.
9.4 ERRORS AND OMISSIONS POLICY. The Investment Sub-Adviser agrees
that, at its sole expense, it will maintain an errors and omissions
insurance policy that covers the acts, errors and omissions by the
Investment Sub-Adviser, its employees or agents during the term of this
Agreement. Upon request of the Client, the Investment Sub-Adviser shall
provide evidence of such insurance.
9.5 GOVERNING LAW; SEVERABILITY. This Agreement and its performance
shall be governed by and construed in accordance with the applicable laws
of the United States and, to the extent permitted by such laws, with the
laws of the State of Oklahoma. In case any provision of this Agreement
shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Agreement but
shall be fully severable, and the Agreement shall be construed and enforced
as if such illegal or invalid provision had not been included herein.
9.6 NOTICES. Unless the parties otherwise agree, all notices,
instructions and advice with respect to matters contemplated by this
Agreement shall be in writing and effective when received, and delivery
shall be made personally, by registered or certified mail, return receipt
requested, overnight courier or confirmed facsimile and addressed as
follows:
Client: American Fidelity Assurance Company
2000 Classen Boulevard
Oklahoman City, Oklahoma 73106
Attention: Mark Hayton
Telephone: (405) 523-5398
Facsimile: (405) 523-5573
Investment
Sub-Adviser: Lawrence W. Kelly & Associates, Inc.
200 S. Los Robles Avenue, Suite 510
Pasadena, California 91101
Attention: Lawrence W. Kelly
Telephone: (818) 449-9500
Facsimile: (818) 449-9566
Either party may change any of the above information by providing notice to
the other party in the manner set forth above. All reports required to be
delivered by the Investment Sub-Adviser to the Client pursuant to Section
5.1 of this Agreement shall be delivered in the manner specified from time
to time by the Client. Any communications from the Investment Sub-Adviser
of a routine nature may be delivered by U.S. mail to the person(s)
specified by the Client.
In recognition of their acceptance of the terms and conditions of this
Agreement, the Client and the Investment Sub-Adviser hereby execute this
Agreement by their duly authorized representatives this 8th day of
December, 1998.
CLIENT: AMERICAN FIDELITY ASSURANCE COMPANY
By JOHN W. REX
Name: John W. Rex
Title: President
INVESTMENT SUB-ADVISER: LAWRENCE W. KELLY & ASSOCIATES, INC.
By LAWRENCE W. KELLY
Name: Lawrence W. Kelly
Title: President
<PAGE>
EXHIBIT A
AMERICAN FIDELITY ASSURANCE COMPANY
AMERICAN FIDELITY DUAL STRATEGY FUND
INVESTMENT GUIDELINES
I. INVESTMENT OBJECTIVES:
The Fund's investment objectives are, primarily, long-term growth of
capital and, secondarily, the production of income. Such objectives
do not preclude infrequent investments for short-term capital
appreciation.
The Fund normally invests in a diversified portfolio consisting
primarily of common stocks based upon an assessment of particular
industries or companies. The Fund attempts to maintain sufficient
cash balances to meet variable annuity contract payments. The Fund's
assets may be held in cash or cash equivalents or in United States
Government securities for this purpose. The Fund does not engage in
the purchase or sale of puts, calls or other options or in writing
such options.
The Investment Sub-Adviser, after consulting with the Client and
obtaining Client approval, may determine that prevailing market and
economic conditions indicate investments in other than common stocks
may be advantageous, in which event investments may be made on a
short-term basis in United States Government securities, bonds, notes
or other evidences of indebtedness, issued publicly, of a type
customarily purchased for investment by institutional investors.
II. FUNDAMENTAL POLICIES:
The Investment Sub-Adviser must comply with the following Investment
Guidelines:
A. Not more than 5% of the value of the Investment Assets placed
with the Investment Sub-Adviser will be invested in securities of
any one issuer, except obligations of the United States
Government and instrumentalities thereof.
B. Not more than 10% of the voting securities of any one issuer will
be acquired.
C. Not more than 25% of the value of the Investment Assets placed
with the Investment Sub-Adviser will be invested in any one
industry.
D. No borrowings will be made.
E. The Investment Sub-Adviser will ensure that the Fund does not act
as an underwriter of securities of other issuers.
F. Investment in real estate will be limited to shares of real
estate investment trusts investing in equity real estate, up to
7.0% of Investment Assets placed with the Investment Sub-Adviser.
Investment in private placements and other illiquid assets will
not be made.
G. No purchase of commodities or commodity contracts will be
effected.
H. The Fund will not engage in the purchase or sale of puts, calls
or other options or in writing such options.
I. Loans will not be made except through the acquisition of publicly
traded bonds, debentures or other evidences of indebtedness of a
type customarily purchased by institutional investors.
J. Investment will not be made in the securities of a company
for the purpose of exercising management or control.
K. Investment in securities of other investment companies will
not be made except for money market funds. Up to 10% of
Investment Assets placed with the Investment Sub-Adviser may
be invested in money market funds, provided that not more
than 3% of the total outstanding voting stock of any one
investment company may be held.
L. Although the Fund does not intend to engage to a large
extent in short-term trading, the Investment Sub-Adviser may
make investments for the purpose of seeking short-term
capital appreciation.
M. Investments in repurchase agreements will be limited to the
top 35 U.S. banks, by deposits, that are rated at least
"B/C" by Keefe, Bruyette, Woods, a national bank rating
agency or a comparable rating from a similar bank rating
service. Additionally, there must be an appropriate amount
of excess collateralization depending upon the length of the
agreement, to protect against downward market fluctuation
and the Fund must take delivery of the collateral. The
market value of the securities held as collateral will be
valued daily. In the event the market value of the
collateral falls below the repurchase price, the bank
issuing the repurchase agreement will be required to provide
additional collateral sufficient to cover the repurchase
price.
N. Short sales of securities will not be made.
O. Purchases will not be made on margin, except for such short-
term credits necessary for the clearance of transactions.
P. Investments in high-yield or non-investment grade bonds will
not be made.
Q. Investments in the equity securities of foreign corporations
will be limited to American Depositary Receipts ("ADRs"),
other depositary receipts and ordinary shares which are
denominated in U.S. dollars and publicly traded in the
United States. Not more than 35% of the Investment Assets
placed with the Investment Sub-Adviser will be invested in
foreign issuers. In addition, not more than 20% of the
Investment Assets placed with the Investment Sub-Adviser
will be invested in issuers from any one foreign country.
ADRs or other depositary receipts must be issued by the Bank
of New York, Morgan Guaranty or Citibank. Depositary
receipts issued by other institutions must be approved in
advance by the Client.
III. OTHER INVESTMENT GUIDELINES:
The following Guidelines are additional rules which must be followed
by the Investment Sub-Adviser:
A. The Investment Sub-Adviser should generally conform to these
issuer guidelines with exceptions noted at the time of purchase
and variances reviewed annually with the Board of Directors of
the Fund.
1. $150,000,000 or more in assets.
2. Operational for at least 10 years.
3. $50,000,000 or more in stockholders equity.
B. Lending of securities will not be permitted.
C. The Fund will not invest in the securities of tobacco-producing
companies.
D. InvesTrust, N.A., or another custodian chosen by the Client,
shall be the Custodian of all Investment Assets placed with the
Investment Sub-Adviser. Duplicate brokerage confirmations of all
transactions must be sent to the Custodian and the Client.
E. All money market funds used by the Investment Sub-Adviser for a
portion of Investment Assets placed with the Investment Sub-
Adviser must be approved in advance by the Client.
F. The money market funds (cash) used by the Investment Sub-Adviser
for a portion of Investment Assets must have a balance at all
times equal to at least 3.0% of the market value of Investment
Assets placed with the Investment Sub-Adviser.
G. All brokers used by the Investment Sub-Adviser to execute
transactions for the Fund must have a commercial paper rating of
A1/P1 by Moody's and Standard & Poor's unless approved in advance
by the Client.
INVESTMENT SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT (the "Agreement") is made
and entered into on the date hereafter set forth between AMERICAN FIDELITY
ASSURANCE COMPANY (the "Client"), which is the investment adviser to
American Fidelity Dual Strategy Fund, Inc. (the "Fund"), and TODD
INVESTMENT ADVISORS, INC. (the "Investment Sub-Adviser").
1. APPOINTMENT OF INVESTMENT SUB-ADVISER. Effective on the Effective
Date, the Client hereby appoints Investment Sub-Adviser to serve as
investment adviser to the Client in respect of those assets of the Fund
specified in writing on or before the Effective Date and from time to time
thereafter by the Client to be subject to this Agreement (which assets,
together with any assets which are added at a subsequent date or which are
received as a result of the sale, exchange, or transfer of any of such
assets are herein collectively referred to as the "Investment Assets").
The "Effective Date" shall be the Closing Date of the Reorganization, as
such terms are defined in that certain Agreement and Plan of Reorganization
dated October 13, 1998 among the Client, the Fund and American Fidelity
Variable Annuity Fund A.
The Investment Sub-Adviser hereby accepts such appointment and agrees
to render the services and to assume the obligations herein set forth, for
the compensation herein provided.
2. THE INVESTMENT ASSETS. The Investment Assets shall consist of such
cash, stocks, bonds and other securities which, from time to time, the
Client places under the investment supervision of the Investment Sub-
Adviser and/or which shall become part of the Investment Assets as a result
of transactions therein or otherwise. The Client may make additions to or
withdrawals from the Investment Assets in such amounts as the Client shall
determine.
3. CUSTODIANSHIP OF THE INVESTMENT ASSETS. The Investment Assets have
been deposited with InvesTrust, N.A. (the "Custodian") and are maintained
by the Custodian in safekeeping on its premises, in a recognized clearing
corporation, or in the Federal Reserve book-entry system, in the name of
the Fund, the Custodian or the clearing corporation, or in the nominee name
of any of the foregoing. The Investment Sub-Adviser is hereby authorized
to give instructions to the Custodian with respect to the consummation of
transactions on behalf of the Client in the Investment Assets, and the
Custodian is hereby authorized to act in response to instructions given by
the Investment Sub-Adviser. The Client agrees to take any other action and
deliver any certificates reasonably necessary to confirm the foregoing
authorization to the Custodian. The Client shall advise the Investment
Sub-Adviser if any other entity is appointed to serve as Custodian for the
Investment Assets prior to the date such entity succeeds the Custodian.
The term "Custodian" includes all successors to the presently serving
Custodian.
4. MANAGEMENT OF INVESTMENT ASSETS.
4.1 GENERAL POWERS AND DUTIES. So long as the Investment Sub-
Adviser's appointment under Section 1 hereof remains in effect, the
Investment Sub-Adviser shall, subject to the provisions of Section 4.2
hereof, have complete discretion and authority in the investment and
reinvestment of the Investment Assets and shall determine what securities
or other property shall be acquired, held, or disposed of and, subject to
the provisions of Section 4.4 hereof, what portion of the Investment Assets
shall be held uninvested. The Investment Sub-Adviser's investment and
reinvestment authority shall include, without limitation, authority to
purchase, sell, exchange, convert, trade, and generally to deal in the
Investment Assets. The Investment Sub-Adviser shall have authority to
direct the Custodian with respect to the investment and management of the
Investment Assets.
The Investment Sub-Adviser's authority shall include the exercise of
all voting rights pertaining to the Investment Assets. However, the
Investment Sub-Adviser shall have no obligation to exercise any particular
voting rights unless the Custodian or the Client shall have furnished the
pertinent proxies to the Investment Sub-Adviser a reasonable time prior to
the deadline before which such proxies are required to be submitted. The
Investment Sub-Adviser has the duty to maintain accurate records as to any
vote or action taken with respect to any stock or other securities which
are part of the Investment Assets and to take such further action as may be
necessary for the Fund to participate fully in any transaction undertaken
by issuers of Investment Assets.
4.2 INVESTMENT POLICY. Investment objectives, policies and other
guidelines for the management of Investment Assets, including requirements
as to diversification are set forth in Exhibit A to this Agreement. The
Investment Sub-Adviser shall discharge its duties hereunder in accordance
with said investment guidelines as the same may be revised or supplemented
from time to time by the Client.
4.3 PRUDENCE AND DIVERSIFICATION. The Investment Sub-Adviser shall
discharge its duties hereunder at all times with the care, skill, prudence,
and diligence under the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.
4.4 MINIMUM LIQUIDITY REQUIREMENTS. The Client shall give the
Investment Sub-Adviser reasonable advance notice of any cash requirements
from the Investment Assets, and the Investment Sub-Adviser shall maintain
in cash or cash equivalents sufficient assets to meet such cash
requirements.
4.5 INSTRUCTIONS TO SECURITIES BROKERS AND DEALERS. The Investment
Sub-Adviser is hereby empowered to issue orders for the purchase, sale or
exchange of securities with respect to the Investment Assets directly to a
broker or dealer. The Investment Sub-Adviser shall give the Custodian and
the Client prompt written notification of each such execution in accordance
with the provisions of Section 5.1 hereof, and the Investment Sub-Adviser
shall instruct the broker or dealer concerned to forward a copy of the
confirmation of the execution of such order to the Custodian and the
Client.
4.6 SELECTION OF SECURITIES BROKERS AND DEALERS. The Investment Sub-
Adviser may select and employ securities brokers and dealers to effect any
securities transactions concerning the investment management of the
Investment Assets. In the selection of such brokers and dealers by the
Investment Sub-Adviser and the placing of orders with them, the Investment
Sub-Adviser shall use its best efforts to obtain for the Investment Assets
the most favorable net price and execution available except to the extent
otherwise provided by Section 28(e) of the Securities Exchange Act of 1934,
as amended, or by other applicable law. Notwithstanding anything in this
Section 4.6 to the contrary, the Client may instruct the Investment Sub-
Adviser in writing to engage securities brokers and dealers specified by
the Client to effect, with respect to the Investment Assets, securities
transactions, or particular securities transactions, and the Investment
Sub-Adviser shall act in accordance with such instructions. The Investment
Sub-Adviser shall not be responsible or liable for any acts or omissions by
any broker or dealer selected pursuant to this Section 4.6 provided the
Investment Sub-Adviser has acted reasonably in the exercise of due care in
the selection of such broker or dealer and has not otherwise participated
in, directly or indirectly, such acts or omissions by such broker or
dealer.
4.7 OTHER ACCOUNTS OF THE INVESTMENT SUB-ADVISER. It is understood
that the Investment Sub-Adviser performs investment advisory services for
various clients and accounts other than the Client. The Investment Sub-
Adviser may give advice and take action in the performance of its duties
with respect to any of such other clients or accounts which may be the same
as or differ from the timing or nature of action taken with respect to the
Investment Assets, provided that the Investment Sub-Advisor allocates to
the Investment Assets, to the extent practicable, opportunities to acquire
or dispose of investments over a period of time on a basis no less
favorable than its allocation of such opportunities to such other clients
and accounts and seeks over a period of time to obtain comparable execution
of similar transactions among its clients. It is understood that the
Investment Sub-Adviser shall not have any obligation to purchase or sell,
or to recommend for purchase or sale, for the Fund any security which the
Investment Sub-Adviser, its principals, affiliates or employees may
purchase or sell for its or their own accounts or for the account of any
other client, if in the opinion of the Investment Sub-Adviser such
transaction or investment appears unsuitable, impractical or undesirable
for the Fund.
4.8 LIMIT OF LIABILITY. The Investment Sub-Adviser shall act in good
faith and shall not be liable for any error of judgment or loss incurred by
the Fund in connection with recommendations or investments made by the
Investment Sub-Adviser in its management of the Investment Assets.
5. INFORMATION AND REPORTS.
5.1 REPORTS TO CLIENT. Initially, the Investment Sub-Adviser shall
submit a daily written report to the Client promptly following the close of
regular trading on the New York Stock Exchange detailing the actions taken
by the Investment Sub-Adviser under this Agreement during such day. The
report shall contain such information in such form as the Client has
specified, or from time to time shall specify, to the Investment Sub-
Adviser. In addition, the Investment Sub-Adviser shall provide such other
reports on the performance of the Investment Assets at such times, for such
periods and in such form as the Client shall reasonably request, taking
into account the Investment Sub-Adviser's ability to produce such reports
without undue burden to the Investment Sub-Adviser.
5.2 RECORDS AND ACCOUNTS. The Investment Sub-Adviser shall keep
accurate and detailed records and accounts of the Investment Assets and of
all receipts, disbursements, and other transactions hereunder affecting the
Investment Assets. All such records and accounts, and all documents
relating thereto shall be open at all reasonable times and under reasonable
conditions to inspection and audit by any person or persons designated by
the Client.
5.3 EXCHANGE OF INFORMATION. The Client and the Investment Sub-
Adviser agree to provide to each other such information as the Investment
Adviser or the Client, as the case may be, may reasonably request to enable
it to carry out its duties, obligations, and responsibilities under this
Agreement or applicable law.
5.4 INFORMATION TO BE CONFIDENTIAL. All information and advice
furnished to or obtained by the Client or the Investment Sub-Adviser under
or in connection with this Agreement shall be treated as confidential and
shall not be disclosed to third parties except as required by law,
including the disclosure obligations of an investment company to its
securities holders under the federal securities laws.
6. FEE PAYABLE TO INVESTMENT SUB-ADVISER. For services under this
Agreement, the Investment Sub-Adviser shall be entitled to receive from the
Client a fee in an amount equal to the greater of (a) .095% of the current
value of the Investment Assets as of the close of the last trading day of
March, June, September and December (.38% on an annual basis) or (b)
$12,500 per quarter ($50,000 on an annual basis). Such fee shall be
payable in arrears as soon as practicable, but not more than 10 business
days, after the last day of each calendar quarter.
7. REPRESENTATIONS BY CLIENT. The Client hereby represents and warrants
to the Investment Sub-Adviser that:
(a) MARYLAND CORPORATION. The Fund is a corporation formed
under the Maryland General Corporation Law.
(b) INVESTMENT COMPANY. The Fund is registered with the
Securities and Exchange Commission (the "Commission") as an open-end
diversified management investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act").
(c) INVESTMENT ADVISER. The Client has been duly appointed to
serve as the investment adviser of the Fund.
(d) DELIVERY OF INFORMATION. The Client will deliver to the
Investment Sub-Adviser, in writing, all of the information, documents and
instruments which the Investment Sub-Adviser may reasonably request in
order that it shall be able to perform its duties hereunder.
(e) APPROVAL OF AGREEMENT. This Agreement has been approved by
the Investment Committee of the Client, by the Board of Directors of the
Fund, including a majority of the members of the Fund's Board of Directors
who are not Interested Persons of the Investment Sub-Adviser or the Fund
and, prior to the Effective Date, will be approved by a Majority Vote of
Shareholders. "Majority Vote of Shareholders" means, in accordance with
Section 2(a)(42) of the Investment Company Act, the vote, at an annual or a
special meeting of shareholders of the Fund, duly called, (a) of 67% or
more of the voting securities present at such meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present
or represented by proxy, or (b) of more than 50% of the outstanding voting
securities of the Fund, whichever is less. "Interested persons" are those
persons defined in Section 2(a)(19) of the Investment Company Act.
(f) OWNER OF INVESTMENT ASSETS. As of the Effective Date, the
Fund will be the owner of all Investment Assets which are the subject of
this Agreement.
(g) RECEIPT BY CLIENT OF PART II OF FORM ADV. The Client
acknowledges that it has received from the Investment Sub-Adviser prior to
or contemporaneously with the Client's execution of this Agreement a copy
of Part II of the Investment Sub-Adviser's Form ADV as currently on file
with the Commission under the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act").
8. REPRESENTATIONS BY INVESTMENT SUB-ADVISER. The Investment Sub-Adviser
hereby represents and warrants to and agrees with the Client that:
(a) REGISTRATION AS INVESTMENT ADVISER. The Investment Sub-
Adviser is and will be duly registered as an "investment adviser" in
accordance with the Investment Advisers Act and with any other regulatory
authorities pursuant to any other applicable laws. The Investment Sub-
Adviser is not subject to any order of the Commission or any other
regulatory authority restricting its activities.
(b) AFFILIATED BROKERS. Unless authorized in writing by the
Client, neither the Investment Sub-Adviser nor any parent, subsidiary or
related firm, individual or other entity related to the Investment Sub-
Adviser shall act as a securities broker with respect to any purchases or
sales of securities which may be made on behalf of the Fund.
(c) MEETINGS WITH CLIENT AND FUND. A representative of the
Investment Sub-Adviser shall personally meet with the Investment Committee
of the Client or its designated representative as reasonably requested by
the Client to explain the investment and management activities of the
Investment Sub-Adviser, and any reports related thereto, at such times as
may be mutually agreed by the Investment Sub-Adviser and the Client. In
addition, a representative of the Investment Sub-Adviser shall attend the
Fund's annual Board of Directors meetings and shall be prepared to discuss
the Investment Sub-Adviser's economic outlook, investment strategy,
individual holdings included in the Investment Assets and such other
related matters as the Board of Directors shall request.
(d) COMPLIANCE WITH LAWS. Nothing in this Agreement shall be
deemed to authorize the Investment Sub-Adviser to effect any transactions
in contravention of its fiduciary obligations, duties or responsibilities
under the Investment Advisers Act, this Agreement or any other applicable
federal or state laws or regulations (including all applicable securities
laws and regulations) or the rules of any national securities exchange.
The Investment Sub-Adviser shall at all times in the performance of its
duties hereunder comply with the Investment Advisers Act and such other
laws, regulations and rules.
(e) INDEMNIFICATION. In addition to any other rights which the
Client or the Fund may have against the Investment Sub-Adviser, the
Investment Sub-Adviser shall indemnify the Client and the Fund and hold
them harmless with respect to any loss or damage, or costs or expenses
suffered by them as a result of (i) a breach by the Investment Sub-Adviser
of this Agreement, or (ii) the willful misfeasance, bad faith or gross
negligence of the Investment Sub-Adviser or any of its employees or agents
acting under its supervision or control to perform any of its obligations
and duties, or by reason of its reckless disregard of its obligations and
duties, under this Agreement, the Investment Advisers Act or any other
applicable law or regulation; provided, the Investment Sub-Adviser shall
have no responsibility or liability for any loss incurred by reason of any
act or omission of the Client, a custodian or any broker-dealer.
9. MISCELLANEOUS.
9.1 AMENDMENT. This Agreement may be amended at any time by mutual
agreement of the Client and the Investment Sub-Adviser, provided that any
material amendment shall have been approved by a Majority Vote of
Shareholders, by the Fund's Board of Directors and by the vote of a
majority of the members of the Fund's Board of Directors who are not
Interested Persons of the Investment Sub-Adviser or the Fund cast in person
at a meeting called for the purpose of voting on such approval.
9.2 TERM. This Agreement shall have an initial term of one year from
the Effective Date and thereafter shall continue from year to year if
continuance is approved at least annually by (a) the Fund's Board of
Directors or a Majority Vote of Shareholders and (b) the vote of a majority
of the members of the Fund's Board of Directors who are not Interested
Persons of the Investment Sub-Adviser or of the Fund cast in person at a
meeting called for the purpose of voting on such approval.
9.3 TERMINATION. This Agreement shall automatically terminate in the
event of its assignment, within the meaning of Section 15(a) of the
Investment Company Act, unless an order of the Commission is issued
exempting such assignment. This Agreement may be terminated at any time,
on 30 days' written notice to the Investment Sub-Adviser, without payment
of any penalty, by the Client, the Board of Directors of the Fund or by a
Majority Vote of Shareholders. If at any time the representation contained
in Section 8(a) hereof ceases to be true, this Agreement shall terminate
forthwith without penalty or payment of any kind by the Client. The
Investment Sub-Adviser may terminate this Agreement at any time upon 30
days' prior written notice to the Client. If this Agreement shall
terminate at any time other than at the end of a calendar quarter, the
Investment Sub-Adviser shall be entitled to receive the fee set forth in
Section 6 hereof for the portion of the quarter elapsed prior to the date
of termination, prorated on a daily basis.
9.4 ERRORS AND OMISSIONS POLICY. The Investment Sub-Adviser agrees
that, at its sole expense, it will maintain an errors and omissions
insurance policy that covers the acts, errors and omissions by the
Investment Sub-Adviser, its employees or agents during the term of this
Agreement. Upon request of the Client, the Investment Sub-Adviser shall
provide evidence of such insurance.
9.5 GOVERNING LAW; SEVERABILITY. This Agreement and its performance
shall be governed by and construed in accordance with the applicable laws
of the United States and, to the extent permitted by such laws, with the
laws of the State of Oklahoma. In case any provision of this Agreement
shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Agreement but
shall be fully severable, and the Agreement shall be construed and enforced
as if such illegal or invalid provision had not been included herein.
9.6 NOTICES. Unless the parties otherwise agree, all notices,
instructions and advice with respect to matters contemplated by this
Agreement shall be in writing and effective when received, and delivery
shall be made personally, by registered or certified mail, return receipt
requested, overnight courier or confirmed facsimile and addressed as
follows:
Client: American Fidelity Assurance Company
2000 Classen Boulevard
Oklahoman City, Oklahoma 73106
Attention: Mark Hayton
Telephone: (405) 523-5398
Facsimile: (405) 523-5573
Investment
Sub-Adviser: Todd Investment Advisors, Inc.
101 South Fifth Street, Suite 3160
Louisville, Kentucky 40202
Attention: Robert P. Bordogna
Telephone: (502) 585-3121
Facsimile: (502) 585-4203
Either party may change any of the above information by providing notice to
the other party in the manner set forth above. All reports required to be
delivered by the Investment Sub-Adviser to the Client pursuant to Section
5.1 of this Agreement shall be delivered in the manner specified from time
to time by the Client. Any communications from the Investment Sub-Adviser
of a routine nature may be delivered by U.S. mail to the person(s)
specified by the Client.
In recognition of their acceptance of the terms and conditions of this
Agreement, the Client and the Investment Sub-Adviser hereby execute this
Agreement by their duly authorized representatives this 3rd day of
December, 1998.
CLIENT: AMERICAN FIDELITY ASSURANCE COMPANY
By JOHN W. REX
Name: John W. Rex
Title: President
INVESTMENT SUB-ADVISER: TODD INVESTMENT ADVISORS, INC.
By ROBERT P. BORDOGNA
Name: Robert P. Bordogna
Title: President and Chief
Executive Officer
<PAGE>
EXHIBIT A
AMERICAN FIDELITY ASSURANCE COMPANY
AMERICAN FIDELITY DUAL STRATEGY FUND
INVESTMENT GUIDELINES
I. INVESTMENT OBJECTIVES:
The Fund's investment objectives are, primarily, long-term growth of
capital and, secondarily, the production of income. Such objectives
do not preclude infrequent investments for short-term capital
appreciation.
The Fund normally invests in a diversified portfolio consisting
primarily of common stocks based upon an assessment of particular
industries or companies. The Fund attempts to maintain sufficient
cash balances to meet variable annuity contract payments. The Fund's
assets may be held in cash or cash equivalents or in United States
Government securities for this purpose. The Fund does not engage in
the purchase or sale of puts, calls or other options or in writing
such options.
The Investment Sub-Adviser, after consulting with the Client and
obtaining Client approval, may determine that prevailing market and
economic conditions indicate investments in other than common stocks
may be advantageous, in which event investments may be made on a
short-term basis in United States Government securities, bonds, notes
or other evidences of indebtedness, issued publicly, of a type
customarily purchased for investment by institutional investors.
II. FUNDAMENTAL POLICIES:
The Investment Sub-Adviser must comply with the following Investment
Guidelines:
A. Not more than 5% of the value of the Investment Assets placed
with the Investment Sub-Adviser will be invested in securities of
any one issuer, except obligations of the United States
Government and instrumentalities thereof.
B. Not more than 10% of the voting securities of any one issuer will
be acquired.
C. Not more than 25% of the value of the Investment Assets placed
with the Investment Sub-Adviser will be invested in any one
industry.
D. No borrowings will be made.
E. The Investment Sub-Adviser will ensure that the Fund does not act
as an underwriter of securities of other issuers.
F. Investment in real estate will be limited to shares of real
estate investment trusts investing in equity real estate, up to
7.0% of Investment Assets placed with the Investment Sub-Adviser.
Investment in private placements and other illiquid assets will
not be made.
G. No purchase of commodities or commodity contracts will be
effected.
H. The Fund will not engage in the purchase or sale of puts, calls
or other options or in writing such options.
I. Loans will not be made except through the acquisition of publicly
traded bonds, debentures or other evidences of indebtedness of a
type customarily purchased by institutional investors.
J. Investment will not be made in the securities of a company
for the purpose of exercising management or control.
K. Investment in securities of other investment companies will
not be made except for money market funds. Up to 10% of
Investment Assets placed with the Investment Sub-Adviser may
be invested in money market funds, provided that not more
than 3% of the total outstanding voting stock of any one
investment company may be held.
L. Although the Fund does not intend to engage to a large
extent in short-term trading, the Investment Sub-Adviser may
make investments for the purpose of seeking short-term
capital appreciation.
M. Investments in repurchase agreements will be limited to the
top 35 U.S. banks, by deposits, that are rated at least
"B/C" by Keefe, Bruyette, Woods, a national bank rating
agency or a comparable rating from a similar bank rating
service. Additionally, there must be an appropriate amount
of excess collateralization depending upon the length of the
agreement, to protect against downward market fluctuation
and the Fund must take delivery of the collateral. The
market value of the securities held as collateral will be
valued daily. In the event the market value of the
collateral falls below the repurchase price, the bank
issuing the repurchase agreement will be required to provide
additional collateral sufficient to cover the repurchase
price.
N. Short sales of securities will not be made.
O. Purchases will not be made on margin, except for such short-
term credits necessary for the clearance of transactions.
P. Investments in high-yield or non-investment grade bonds will
not be made.
Q. Investments in the equity securities of foreign corporations
will be limited to American Depositary Receipts ("ADRs"),
other depositary receipts and ordinary shares which are
denominated in U.S. dollars and publicly traded in the
United States. Not more than 35% of the Investment Assets
placed with the Investment Sub-Adviser will be invested in
foreign issuers. In addition, not more than 20% of the
Investment Assets placed with the Investment Sub-Adviser
will be invested in issuers from any one foreign country.
ADRs or other depositary receipts must be issued by the Bank
of New York, Morgan Guaranty or Citibank. Depositary
receipts issued by other institutions must be approved in
advance by the Client.
III. OTHER INVESTMENT GUIDELINES:
The following Guidelines are additional rules which must be followed
by the Investment Sub-Adviser:
A. The Investment Sub-Adviser should generally conform to these
issuer guidelines with exceptions noted at the time of purchase
and variances reviewed annually with the Board of Directors of
the Fund.
1. $150,000,000 or more in assets.
2. Operational for at least 10 years.
3. $50,000,000 or more in stockholders equity.
B. Lending of securities will not be permitted.
C. The Fund will not invest in the securities of tobacco-producing
companies.
D. InvesTrust, N.A., or another custodian chosen by the Client,
shall be the Custodian of all Investment Assets placed with the
Investment Sub-Adviser. Duplicate brokerage confirmations of all
transactions must be sent to the Custodian and the Client.
E. All money market funds used by the Investment Sub-Adviser for a
portion of Investment Assets placed with the Investment Sub-
Adviser must be approved in advance by the Client.
F. The money market funds (cash) used by the Investment Sub-Adviser
for a portion of Investment Assets must have a balance at all
times equal to at least 3.0% of the market value of Investment
Assets placed with the Investment Sub-Adviser.
G. All brokers used by the Investment Sub-Adviser to execute
transactions for the Fund must have a commercial paper rating of
A1/P1 by Moody's and Standard & Poor's unless approved in advance
by the Client.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made as of the 22nd day of December, 1998,
between AMERICAN FIDELITY DUAL STRATEGY FUND, INC., an open-end management
investment company organized as a Maryland corporation (the "Fund"), and
AMERICAN FIDELITY ASSURANCE COMPANY, a life insurance company organized and
domiciled under the laws of the State of Oklahoma (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company
which may be set forth on Schedule A as attached hereto, as amended from
time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Fund has filed a registration statement with the
Securities and Exchange Commission to register itself as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and to register the offer and sale of its shares
under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Fund desires to act as an investment vehicle for
separate accounts established for variable annuity contracts to be offered
by insurance companies that have entered into participation agreements with
the Fund (the "Participating Insurance Companies"); and
WHEREAS, American Fidelity Securities, Inc. (the "Underwriter")
is registered as a broker-dealer with the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD") and acts as principal
underwriter of the shares of the Fund; and
WHEREAS, the Company is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and any applicable
state securities law, and acts as the Fund's investment adviser; and
WHEREAS, the Company has registered or will register under the
1933 Act certain variable annuity contracts funded or to be funded through
one or more of the Accounts (the "Contracts"); and
WHEREAS, the Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Fund (the
"Shares") on behalf of the Accounts to fund the Contracts, and the Fund
intends to sell such Shares to the relevant Accounts at such Shares' net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the
parties agree as follows:
ARTICLE 1
SALE OF THE FUND SHARES
1.1 Subject to Section 1.3 of this Agreement, the Fund shall
cause the Underwriter to make Shares available to the Accounts at such
Shares' most recent net asset value provided to the Company prior to
receipt of such purchase order by the Fund (or the Underwriter as its
agent), in accordance with the operational procedures mutually agreed to by
the Underwriter and the Company from time to time and the provisions of the
then-current prospectus of the Fund. Shares of the Fund shall be ordered
in such quantities and at such times as determined by the Company to be
necessary to meet the requirements of the Contracts. The Directors of the
Fund (the "Directors") may refuse to sell Shares of the Fund to any person
(including the Company and the Accounts), or suspend or terminate the
offering of Shares if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of
the shareholders of the Fund.
1.2 Subject to Section 1.3 of this Agreement, the Fund will
redeem any full or fractional Shares when requested by the Company on
behalf of an Account at such Shares' most recent net asset value provided
to the Company prior to receipt by the Fund (or the Underwriter as its
agent) of the request for redemption, as established in accordance with the
operational procedures mutually agreed to by the Underwriter and the
Company from time to time and the provisions of the then-current prospectus
of the Fund. The Fund shall make payment for such Shares in the manner
established from time to time by the Fund, but in no event shall payment be
delayed for a greater period than is permitted by the 1940 Act (including
any rule or order of the SEC thereunder).
1.3 The Fund shall accept purchase and redemption orders
resulting from investment in and payments under the Contracts on each
Business Day, provided that such orders are received prior to 9:00 a.m. on
such Business Day and reflect instructions received by the Company from
Contract holders in good order prior to the time the net asset value of the
Fund is priced in accordance with its prospectus (the "valuation time") on
the prior Business Day. Any purchase or redemption order for Shares
received, on any Business Day, after the valuation time on such Business
Day shall be deemed received prior to 9:00 a.m. on the next succeeding
Business Day. "Business Day" shall mean any day on which the Company is
open for business and on which the Fund calculates its net asset value
pursuant to the rules of the SEC. Purchase and redemption orders shall be
provided by the Company to the Underwriter as agent for the Fund in such
written or electronic form (including facsimile) as may be mutually
acceptable to the Company and the Underwriter. The Underwriter may reject
purchase and redemption orders that are not in proper form. In the event
that the Company and the Underwriter agree to use a form of written or
electronic communication which is not capable of recording the time, date
and recipient of any communication and confirming good transmission, the
Company agrees that it shall be responsible (i) for confirming with the
Underwriter that any communication sent by the Company was in fact received
by the Underwriter in proper form, and (ii) for the effect of any delay in
the Underwriter's receipt of such communication in proper form. The Fund
and its agents shall be entitled to rely, and shall be fully protected from
all liability in acting, upon the instructions of the persons named in the
list of authorized individuals attached hereto as Schedule B, or any
subsequent list of authorized individuals provided to the Fund or its
agents by the Company in such form, without being required to determine the
authenticity of the authorization or the authority of the persons named
therein.
1.4 Purchase orders that are transmitted to the Fund in
accordance with Section 1.3 of this Agreement shall be paid for no later
than 12:00 noon on the same Business Day that the Fund receives notice of
the order. Payments shall be made in federal funds transmitted by wire
and/or a credit for any Shares purchased the same day as a redemption. In
the event that the Company shall fail to pay in a timely manner for any
purchase order validly received by the Underwriter on behalf of the Fund
pursuant to Section 1.3 of this Agreement (whether or not such failure is
the fault of the Company), the Company shall hold the Fund harmless from
any losses reasonably sustained by the Fund as the result of acting in
reliance on such purchase order.
1.5 Issuance and transfer of the Fund's Shares will be by book
entry only. Stock certificates will not be issued to the Company or to any
Account. Shares ordered from the Fund will be recorded in the appropriate
title for each Account.
1.6 The Fund shall furnish prompt notice to the Company of any
income, dividends or capital gain distribution payable on Shares. The
Company hereby elects to receive all such income, dividends and capital
gain distributions as are payable on Shares in additional Shares of the
Fund. The Fund shall notify the Company of the number of Shares so issued
as payment of such dividends and distributions.
1.7 The Fund shall make the net asset value per share for the
Fund available to the Company on a daily basis as soon as reasonably
practical after such net asset value per share is calculated and shall use
its best efforts to make such net asset value per share available by 6:30
p.m., New York time.
1.8 The Company agrees that it will not take any action to
operate any Account as a management investment company under the 1940 Act
without the Fund's and the Underwriter's prior written consent.
1.9 The Fund agrees that its Shares will be sold only to
Participating Insurance Companies and their separate accounts. No Shares
will be sold directly to the general public. The Company agrees that Fund
Shares will be used only for the purposes of funding the Contracts and
Accounts listed in Schedule A, as such schedule may be amended from time to
time.
1.10 The Fund agrees that all Participating Insurance Companies
shall have the obligations and responsibilities regarding pass-through
voting and conflicts of interest corresponding to those contained in
Section 2.9 and Article 4 of this Agreement.
ARTICLE 2
OBLIGATION OF THE PARTIES
2.1 The Fund shall prepare and be responsible for filing with
the SEC and any state securities regulators requiring such filing, all
shareholder reports, notices, proxy materials (or similar materials such as
voting instruction solicitation materials), prospectuses and statements of
additional information of the Fund. Except as the Company and the Fund
have otherwise agreed, the Company shall bear the costs of registration and
qualification of the Fund's Shares, preparation and filing of the documents
listed in this Section 2.1 and all taxes to which an issuer is subject on
the issuance and transfer of its shares.
2.2 At least annually, the Fund or its designee shall provide
the Company, at the Company's expense, with as many copies of the current
prospectus for the Shares as the Company may reasonably request for
distribution to existing Contract owners whose Contracts are funded by such
Shares. The Fund or its designee shall provide the Company, at the
Company's expense, with as many copies of the current prospectus for the
Shares as the Company may reasonably request for distribution to
prospective purchasers of Contracts. If requested by the Company in lieu
thereof, the Fund or its designee shall provide such documentation
(including a "camera ready" copy of the new prospectus as set in type) and
other assistance as is reasonably necessary in order for the parties hereto
once each year (or more frequently if the prospectus for the Shares is
supplemented or amended) to have the prospectus for the Contracts and the
prospectus for the Shares printed together in one document; the expenses of
such printing to be borne by the Company. In the event that the Company
requests that the Fund or its designee provide the Fund's prospectus in a
"camera ready" format, the Fund shall be responsible solely for providing
the prospectus in the format in which it is accustomed to formatting
prospectuses, and the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses.
2.3 The prospectus for the Shares shall state that the statement
of additional information for the Shares is available from the Fund or its
designee. The Fund or its designee, at the Company's expense, shall print
and provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Contract funded by the Shares. The Fund or
its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to any prospective purchaser
who requests such statement.
2.4 The Fund or its designee shall provide the Company, at the
Company's expense, copies, if and to the extent applicable to the Shares,
of the Fund's proxy materials, reports to shareholders and other
communications to shareholders in such quantity as the Company shall
reasonably require for distribution to Contract owners.
2.5 The Company shall furnish, or cause to be furnished, to the
Fund or its designee, a copy of each prospectus for the Contracts or
statement of additional information for the Contracts in which the Fund or
its investment adviser is named prior to the filing of such document with
the SEC. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser is named, at least
five Business Days prior to its use. No such prospectus, statement of
additional information or material shall be used if the Fund or its
designee reasonably objects to such use within five Business Days after
receipt of such material.
2.6 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund
or its investment adviser in connection with the sale of the Contracts
other than information or representations contained in and accurately
derived from the registration statement or prospectus for the Fund Shares
(as such registration statement and prospectus may be amended or
supplemented from time to time), reports of the Fund, Fund-sponsored proxy
statement, or in sales literature or other promotional material approved by
the Fund or its designee, except with the written permission of the Fund or
its designee.
2.7 The Fund shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement
and prospectus may by amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales
literature or other promotional materials, except with the written
permission of the Company.
2.8 The Company shall amend the registration statement of the
Contracts under the 1933 Act and registration statement for each Account
under the 1940 Act from time to time as required in order to effect the
continuous offering of the Contracts or as may otherwise be required by
applicable law. The Company shall register and qualify the Contracts for
sale to the extent required by applicable securities laws and insurance
laws of the various states.
2.9 Solely with respect to Contracts and Accounts that are
subject to the 1940 Act, so long as, and to the extent that, the SEC
interprets the 1940 Act to require pass-through voting privileges: (a) the
Company will provide pass-through voting privileges to owners of Contracts,
through the Accounts, in Shares of the Fund; (b) the Fund shall require all
Participating Insurance Companies to calculate voting privileges in the
same manner and the Company shall be responsible for assuring that the
Accounts calculate voting privileges in the manner established by the Fund;
(c) with respect to each Account, the Company will vote Shares of the Fund
held by the Account and for which no timely voting instructions from
Contract owners are received, as well as Shares held by the Account that
are owned by the Company for its general account, in the same proportion as
the Company votes Shares held by the Account for which timely voting
instructions are received from Contract owners; and (d) the Company and its
agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Fund Shares held by Contract owners without the
prior written consent of the Fund, which consent may be withheld in the
Fund's sole discretion.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the State of
Oklahoma and has established each Account as a segregated asset account
under such law.
3.2 The Company represents and warrants that it has registered
or, prior to any issuance or sale of the Contracts, will register each
Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
3.3 The Company represents and warrants that the issuance of the
Contracts will be registered under the 1933 Act prior to any issuance or
sale of the Contracts; the Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws; and
the sale of the Contracts shall comply in all material respects with state
insurance suitability requirements.
3.4 The Company represents and warrants that the Contracts are
currently and at the time of issuance will be treated as annuity contracts
under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company shall make every effort to maintain such
treatment and shall notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
3.5 The Fund represents and warrants that it is duly organized
and validly existing under the laws of the State of Maryland.
3.6 The Fund represents and warrants that the sale of the Fund
Shares offered and sold pursuant to this Agreement will be registered under
the 1933 Act and that the Fund is registered under the 1940 Act. The Fund
shall use its best efforts to amend its registration statement under the
1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Company shall advise the Fund
of any state requirements to register Shares for sale in such states. If
the Fund determines registration is appropriate, the Fund shall use its
best efforts to register and qualify its Shares for sale in accordance with
the laws of such jurisdictions reasonably requested by the Company.
3.7 The Fund represents and warrants that its investments will
comply with the diversification requirements set forth in section 817(h) of
the Code and the rules and regulations thereunder.
ARTICLE 4
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Fund's Shares may be made
available for investment to other Participating Insurance Companies. In
such event, the Directors will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all Participating Insurance Companies. An irreconcilable
material conflict may arise for a variety of reasons, including: (a) an
action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities decision in any relevant proceeding; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract; or (f) a decision by an
insurer to disregard the voting instructions of contract owners. The
Directors shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or
existing conflicts of which it is aware to the Directors. The Company will
assist the Directors in carrying out their responsibilities by providing
the Directors with all information reasonably necessary for the Directors
to consider any issues raised including, but not limited to, information as
to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Directors, or a
majority of the Fund's Directors who are not affiliated with the Company or
the Underwriter (the "Disinterested Directors"), that a material
irreconcilable conflict exists that affects the interests of Contract
owners, the Company shall, in cooperation with other Participating
Insurance Companies whose contract owners are also affected, at its expense
and to the extent reasonably practicable (as determined by the Directors)
take whatever steps are necessary to remedy or eliminate the irreconcilable
material conflict, which steps could include: (a) withdrawing the assets
allocable to some or all of the Accounts from the Fund and reinvesting such
assets in a different investment medium, or submitting the question of
whether or not such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners or variable contract
owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Contract owners the
option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Fund's election, to withdraw the
affected Account's (or Accounts') investment in the Fund and terminate this
Agreement with respect to such Account(s); provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of
the Disinterested Directors. Any such withdrawal and termination must take
place within 30 days after the Fund gives written notice that this
provision is being implemented. Until the end of such 30 day-period, the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of Shares of the Fund.
4.5 If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company
will withdraw the affected Account's (or Accounts') investment in the Fund
and terminate this Agreement with respect to such Account(s) within 30 days
after the Fund informs the Company in writing that it has determined that
such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as
determined by a majority of the Disinterested Directors. Until the end of
such 30-day period, the Fund shall continue to accept and implement orders
by the Company for the purchase and redemption of Shares of the Fund.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement,
a majority of the Disinterested Directors shall determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Company be required to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of
a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Directors
determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
affected Account's (or Accounts') investment in the Fund and terminate this
Agreement with respect to such Account(s) within 30 days after the
Directors inform the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict as
determined by a majority of the Disinterested Directors.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Fund and each of its Directors, officers,
employees and agents and each person, if any, who controls the Fund within
the meaning of Section 15 of the 1933 Act (collectively the "Indemnified
Parties" for purposes of this Article 5) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which such Indemnified Parties may become
subject under any statute or regulation, or common law or otherwise,
insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved
by the Company on behalf of the Contracts or Accounts (or any
amendment or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article 5), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived
from written information furnished to the Company by or on behalf
of the Fund for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Shares; or
(b) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Fund Documents (as
defined in Section 5.2(a) below) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Fund
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived from
written information furnished to the Fund by or on behalf of the
Company; or
(d) arise out of or result from any failure by the Company
to provide the services or furnish the materials required under
the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
5.2 Indemnification by the Fund. The Fund agrees to indemnify
and hold harmless the Company and each of its directors, officers,
employees and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Article 5) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which such Indemnified
Parties may become subject under any statute or regulation, or at common
law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statement of any material fact contained in the
registration statement or prospectus for the Fund (or any
amendment or supplement thereto) or in sales literature approved
by the Fund (but solely with respect to statements regarding the
Fund), (collectively, "Fund Documents" for the purposes of this
Article 5), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to
any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Fund
by or on behalf of the Company for use in Fund Documents or
otherwise for use in connection with the sale of the Contracts or
Shares; or
(b) arise out of or result from statement or representations
(other than statements or representations contained in and
accurately derived from Company Documents) or wrongful conduct of
the Fund or persons under its control, with respect to the sale
or acquisition of the Contracts or Shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of
the Fund; or
(d) arise out of or result from any failure by the Fund to
provide the services or furnish the materials required under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund.
5.3 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with
respect to any Losses incurred or assessed against any Indemnified Party to
the extent such Losses arise out of or result from such Indemnified Party's
willful misfeasance, bad faith or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
5.4 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the party against whom
indemnification is sought in writing within five business days after the
summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any
such claim shall not relieve that party from any liability that it may have
to the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified
Parties, the indemnifying party shall be entitled to participate, at its
own expense, in the defense of such action. The indemnifying party also
shall be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the
indemnifying party to the Indemnified Party of an election to assume such
defense, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be
liable to the Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
ARTICLE 6
TERMINATION
6.1 This Agreement may be terminated by either party for any
reason by six (6) months' advance written notice to the other party, and
may be terminated by the Fund pursuant to Sections 6.2 through 6.4 below
upon written notice to the Company.
6.2 This Agreement may be terminated at the option of the Fund
upon any finding or ruling against the Company by a court or the NASD, the
SEC, the insurance department of any state, or any other regulatory body
regarding the Company's duties under this Agreement or related to the sale
of the Contracts, the operation of the Account, the administration of the
Contracts or the purchase of the Shares, or any settlement of any
proceedings or undertaking to any regulatory body that would, in the Fund's
reasonable judgment, materially impair the Company's ability to meet and
perform the Company's obligations and duties hereunder.
6.3 This Agreement may be terminated at the option of the Fund
if the Contracts cease to qualify as annuity contracts under the Code, or
if the Fund reasonably believes that the Contracts may fail to so qualify.
6.4 This Agreement may be terminated by the Fund, at its option,
if the Fund shall reasonably determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material
adverse change in its business or financial condition or (2) the Company
shall have been the subject of material adverse publicity that is likely to
have a material adverse impact upon the business and operations of either
the Fund or the Underwriter.
6.5 This Agreement may be terminated at the option of the
Company if (A) the Internal Revenue Service determines that the Fund fails
to qualify as a "Regulated Investment Company" under the Code or fails to
comply with the diversification requirements of Section 817(h) of the Code,
or (B) the Company shall reasonably determine, in its sole judgment
exercised in good faith, that either (1) the Fund or the Underwriter shall
have been the subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of the Company,
or (2) the Fund breaches any obligation under this Agreement in a material
respect and such breach shall continue unremedied for thirty (30) days
after receipt of notice from the Company of such breach.
6.6 Notwithstanding any termination of this Agreement pursuant
to this Article 6, the Fund and the Underwriter may, at the option of the
Fund, continue to make available additional Fund Shares for so long after
the termination of this Agreement as the Fund desires pursuant to the terms
and conditions of this Agreement as provided in Section 6.7 below, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if the Fund or Underwriter so elects to make additional Shares
available, the owners of the Existing Contracts or the Company, whichever
shall have legal authority to do so, shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest in
the Fund upon the making of additional purchase payments under the Existing
Contracts.
6.7 In the event of a termination of this Agreement pursuant to
this Article 6, the Fund and the Underwriter shall promptly notify the
Company whether the Underwriter and the Fund will continue to make Shares
available after such termination; if the Underwriter and the Fund will
continue to make Shares so available, the provisions of this Agreement
shall remain in effect except for Section 6.1 hereof and thereafter either
the Fund or the Company may terminate the Agreement, as so continued
pursuant to this Section 6.7, upon prior written notice to the other party,
such notice to be for a period that is reasonable under the circumstances
but, if given by the Fund, need not be greater than six months.
6.8 The provisions of Article 5 shall survive the termination of
this Agreement, and the provisions of Article 4 and Sections 2.4 and 2.9
shall survive the termination of this Agreement so long as Shares of the
Fund are held on behalf of Contract owners in accordance with Section 6.6.
ARTICLE 7
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
American Fidelity Dual Strategy Fund, Inc.
2000 Classen Center
Oklahoma City, Oklahoma 73106
Attention:
Daniel D. Adams, Secretary
If to the Company:
American Fidelity Assurance Company
2000 Classen Boulevard, 5 North
Oklahoma City, Oklahoma 73106-6092
Attention: Derrick P. Owens, Annuity Product Manager
Strategic Development Division
ARTICLE 8
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
8.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Oklahoma,
shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and
the rules, regulations and rulings thereunder, including such exemptions
from those statutes, rules and regulations as the SEC may grant and the
terms hereof shall be interpreted and construed in accordance therewith.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Fund and that no Director, officer, agent, or
holder of shares of beneficial interest of the Fund shall be personally
liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Each party shall use its best efforts to provide the
other party with reasonable notice of any governmental investigation or
inquiry relating to this Agreement or the transactions contemplated hereby
of which it has knowledge.
8.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
8.8 The parties to this Agreement acknowledge and agree that
this Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior written
approval of the other party.
8.10 No provisions of this Agreement may be amended or modified
in any manner except by a written agreement properly authorized and
executed by both parties.
8.11 No failure or delay by a party in exercising any right or
remedy under this Agreement will operate as a waiver thereof and no single
or partial exercise of rights shall preclude a further or subsequent
exercise. The rights and remedies provided in this Agreement are
cumulative and not exclusive of any rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and
year first above written.
AMERICAN FIDELITY ASSURANCE COMPANY
By: JOHN W. REX
Name: John W. Rex
Title: President
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
By: JOHN W. REX
Name: John W. Rex
Title: Chairman of the Board and President
<PAGE>
SCHEDULE A
Segregated Accounts of American Fidelity Assurance Company Participating in
American Fidelity Dual Strategy Fund, Inc.
Name of Separate Account Effective Date of Participation
American Fidelity January 1, 1999
Separate Account A
<PAGE>
SCHEDULE B
Persons Authorized to Act on Behalf of American Fidelity Assurance Company
The Fund, the Underwriter and their respective agents are
authorized to rely on instructions from the following individuals on behalf
of American Fidelity Assurance Company on its own behalf and on behalf of
each Account:
Name Signature
<PAGE> 1
EXHIBIT 8
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
CORPORATE CUSTODIAL AGREEMENT
--------------------------------------------------------
ARTICLE I
CREATION OF CUSTODIAL RELATIONSHIP
1.01 AMERICAN FIDELITY DUAL STRATEGY FUND, INC. (hereinafter referred
to as "Principal"), wishes to provide for the safekeeping of certain assets of
Principal, including certificated securities and uncertificated securities as
defined in paragraphs (a) and (b) of subsection (1) of 12A O.S. ss.8-102 and by
federal laws and regulations (hereinafter collectively referred to as
"Securities"), cash and short-term liquid investments, and other assets
(hereinafter referred to as the "Account"). Principal hereby appoints
INVESTRUST, N.A. as custodian (hereinafter referred to as "Custodian") of the
Account in accordance with the terms of this Custodial Agreement (the
"Agreement') and agrees to deliver to Custodian all Securities, cash, assets,
and similar investments comprising the Account.
ARTICLE II
AUTHORIZED PERSONS OF PRINCIPAL
2.01 Principal shall, from time to time, authorize and terminate the
authority of individuals who are either officers or responsible employees of
Principal who shall be empowered to act on behalf of Principal with respect to
the Account by appropriate resolutions of Principal's Board of Directors.
Principal shall designate such individuals as "Authorized Employees" or
"Authorized Signatories" for the purposes specified herein, but in no event
shall Principal designate more than five (5) individuals as being so authorized.
Principal hereby warrants that all persons so designated shall have authority to
act for Principal as further provided in this Agreement. Attached hereto as
Exhibit "A" and Exhibit "B" of this Agreement are individuals currently
designated as Authorized Employees and Authorized Signatories, respectively.
2.02 Custodian shall permit access, during Custodian's regular business
hours, to assets of the Account held on Custodian's premises and to Custodian's
official records regarding the Account, by Authorized Employees or Authorized
Signatories of Principal as further provided herein. Access shall be had only by
two (2) or more authorized persons jointly, at least one of whom must be an
officer, provided that such authorized individuals shall be accompanied by an
employee of Custodian during the period of access.
<PAGE> 2
2.03 Access to assets of the Account shall also be provided to properly
authorized officers and employees of Custodian.
2.04 At least three (3) times a year, access to assets of the Account
shall be provided to an independent public accountant retained by Principal.
2.05 Principal may, from time to time, authorize and terminate the
authority of advisors or sub-advisors empowered to act on behalf of Principal
with respect to buy and sell decisions from and to the Account by appropriate
resolutions of Principal's Board of Directors. Principal shall designate such
advisors or sub-advisors as "Authorized Advisors" for the purposes specified
herein. Principal hereby warrants that all persons so designated shall have
authority to act for Principal in buy and sell decisions, subject to limitations
provided in Paragraph 5.03 of this Agreement. Attached hereof as Exhibit "C" of
this Agreement are entities currently designated as Authorized Advisors.
ARTICLE III
SAFEKEEPING OF SECURITIES
3.01 Custodian shall in all instances maintain Principal's Securities
and similar investments in accordance with governing law including, but not
limited to, the Oklahoma Insurance Code, as amended from time to time. Custodian
shall maintain Securities in safe-keeping on Custodian's premises, in a
recognized clearing corporation, or in the Federal Reserve book-entry system.
3.02 Certificated Securities deposited by Principal and held by the
Custodian shall be held separate and physically segregated from the Securities
of the Custodian and of all of its other customers and shall be in the name of
the Principal or a nominee of the Principal or, if in a clearing corporation, in
the name of the clearing corporation or its nominee.
3.03 Securities held in a fungible bulk by the Custodian as part of a
Filing of Securities by Issue (FOSBI) arrangement and Securities deposited in a
clearing corporation or in the Federal Reserve book-entry system shall be
deposited in an account that includes only assets held by Custodian for its
customers and shall be separately identified on the Custodian's official records
as being owned by the Principal. The Custodian may deposit the Securities
directly or through one or more agents which are also qualified to act as
custodian for investment companies. Custodian's records shall identify which
Securities are held by Custodian or by its agent and which Securities are in a
clearing corporation or in the Federal Reserve book-entry system. If the
Securities are in a clearing corporation or in the Federal Reserve book-entry
system, the records shall also identify where the Securities are and, if in a
clearing corporation, the name of the clearing corporation and, if through an
agent, the name of the agent. Custodian shall send
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<PAGE> 3
Principal a confirmation of any transfers to or from the account of Principal.
Where Securities are transferred to that account, Custodian shall also, by book
entry or otherwise, identify as belonging to Principal a quantity of securities
in a fungible bulk of securities (i) registered in the name of Custodian (or its
nominee) or (ii) shown on Custodian's account on the books of the clearing
agency, the book entry system, or Custodian's agent.
ARTICLE IV
SAFEKEEPING OF ACCOUNT CASH, SHORT-TERM INVESTMENTS, AND OTHER ASSETS
4.01 Custodian shall establish for Principal separate income and cash
accounts in Principal's name which shall be held separate and physically
segregated from other income and cash accounts and shall be invested in such
short-term investment media (such as money market funds, Custodian's deposit
accounts, master notes, registered mutual funds and the like) as agreed to from
time to time by Principal and Custodian. In the event that cash available in
such cash accounts is insufficient to enable Custodian to execute any
instruction made by Principal under this Agreement, Custodian, in its sole
discretion, may treat the instruction as null and void without any liability for
doing so; provided, however, that Custodian shall promptly orally notify
Principal of such insufficiency and shall confirm such notification by writing
mailed within five (5) business days.
4.02 Custodian shall maintain Principal's assets other than Securities,
cash, and short-term investments, separate and physically segregated from other
assets in safekeeping on Custodian's premises subject to such additional
agreements as Principal and Custodian shall make from time to time.
ARTICLE V
DEPOSITS AND WITHDRAWALS
5.01 Principal may, from time to time, deposit or withdraw Securities
and similar investments, or instruct Custodian to effect such deposits and
withdrawals (including transfers to third persons), by written instructions
signed by at least two (2) Authorized Signatories. Any such deposits,
withdrawals, or instructions to deposit or withdraw Securities or other
investments, shall be documented and signed by each of the Authorized Employees
or Authorized Signatories making such deposit, withdrawal, or request, and, at
the minimum, shall state (a) the date and time of the deposit or withdrawal, (b)
the title and amount of the Securities or similar investments to be deposited or
withdrawn, including identification by certificate numbers or otherwise, (c) the
manner of acquisition of the securities or similar investments deposited or the
purpose of the withdrawal, and (d) the identity of the person to whom the assets
are to be transferred, or from whom they are to be received, as the case may be.
Such documentation shall be on serially numbered
-3-
<PAGE> 4
forms and shall be presented in duplicate to the Custodian, who shall note
thereon the time of receipt and shall mail one (1) copy to an officer or
director of Principal who is not a person designated as an Authorized Employee
or Authorized Signatory within two (2) business days, to serve as a confirmation
of receipt of such instructions. Custodian shall preserve the other copy (in the
original or by microfilm) for not less than five (5) years.
5.02 Principal may, from time to time, instruct Custodian to effect a
deposit of assets to the Account, or a withdrawal of assets from the Account for
transfer (including purchase, sale, or exchange transactions) solely to or for
Principal's account at a federally insured depository institution or a
recognized securities broker, upon oral instructions of any Authorized Employee.
Principal shall confirm such deposit or withdrawal by written confirmation
mailed to Custodian within two (2) business days of the withdrawal. Such
confirmation shall state (a) the date and time of the deposit or withdrawal, (b)
the title and amount of the Securities or similar investments to be deposited or
withdrawn, including identification by certificate numbers or otherwise, (c) the
manner of acquisition of the securities or similar investments deposited or the
purpose of the withdrawal, and (d) the identity of the person to whom the assets
are to be transferred, or from whom they are to be received, as the case may be.
Custodian shall preserve a copy of such confirmation (in the original or by
microfilm) for not less than five (5) years.
5.03 Custodian shall be authorized to act in response to instructions
given by any Authorized Advisor as to buy/sell decisions regarding Principal's
Securities and similar investments, provided that, in connection with any
buy/sell transaction, Custodian shall release cash from the Account only upon
receipt of purchased securities, and shall release Securities only upon receipt
of funds in payment.
5.04 Custodian is authorized, as provided further herein, to effect
deposits of assets to the Account, and withdrawals of assets from the Account
(including transfers to third persons) which are of a routine or ministerial
nature not requiring the exercise of discretion, as further described herein.
Custodian shall notify Principal of any such deposit or withdrawal by written
notification or account statement.
A. Custodian shall collect and deposit to the Account any assets
(such as stock dividends) received as income, interest,
dividends, distributions and the like on payable date,
respecting assets held in the Account. Custodian shall
promptly notify Principal of any such amounts due but not
paid. For all stocks held in the Account, Custodian shall
specifically notify Principal of all dividends and capital
changes (e.g. stock splits, spin-offs) on or before the "Ex"
date, and to the extent reasonably possible, tax refunds on
foreign issues. In addition, Custodian or its agent shall
timely file all the necessary forms with the appropriate
foreign governments, or agencies thereof, in order to minimize
the taxes or withholding taxes on dividend, interest or other
income from Principal's investment in foreign issues of stock
or bonds held by Custodian or agent thereof. Custodian or its
agent shall also timely file
-4-
<PAGE> 5
the necessary forms with the appropriate foreign governments,
or agencies thereof in order to obtain all dividend
withholding tax rebates allowable under the current tax
treaties with the United States, or in the absence of a tax
treaty, the minimum permitted by the laws of the respective
foreign government of the issuer.
B. Custodian shall charge the Account for all expenses incurred
in carrying out Principal's instructions (including, but not
limited to, brokerage commissions, wire charges, postage,
etc.) and for Custodian's fees.
C. Custodian is authorized to surrender assets upon maturity and
in other situations where such transfer is mandatory. Should
any Securities held in any central depository or in bulk by
Custodian be called for partial redemption by the issuer,
Custodian is authorized in its sole discretion to allot (or
consent to the allotment of) the called portion to the
respective holders in any manner deemed by the Custodian to be
fair and equitable. Custodian shall deposit the proceeds of
any such transaction to the Account.
D. Custodian is authorized to sell any fractional shares received
as a result of a stock split or stock dividend affecting
Securities. Custodian shall deposit the proceeds of any such
transaction to the Account.
5.05 Custodian shall send written confirmation to Principal of all
deposits of assets to the Account and all withdrawals of assets from the Account
(including purchase, sale or exchange transactions) within one (1) business day
of each respective deposit or withdrawal.
5.06 Securities used to meet the deposit requirements set forth in the
Oklahoma Insurance Code (36 O.S. ss.101 et seq.) (the "Code") shall, to the
extent required by the Code, be under the control of the Insurance Commissioner
of the State of Oklahoma or his authorized representative (hereinafter
collectively referred to as the "Commissioner"), and shall not be withdrawn by
Principal without the approval of the Commissioner.
ARTICLE VI
CUSTODIAN'S DUTIES
6.01 Custodian's duties with respect to the Account are intended to be
ministerial only, and Custodian may rely upon, and shall not be liable for the
propriety, prudence, or correctness of, any instruction made by Principal in
accordance with this Agreement. Custodian further agrees that it shall have no
ownership interest in the Account or any assets or Securities or funds which
comprise the Account, or earnings received by it from any Securities or assets
held in the Account, nor does Custodian have any right of offset
-5-
<PAGE> 6
or other means of exercising any ownership interest over the Account and
Securities, except and only in its capacity as Custodian and a bailee for the
benefit of the Principal. Custodian shall forward to Principal or Authorized
Advisor, if applicable, all prospectuses, proxies, official reports, notices and
other materials concerning discretionary management of assets which are received
by Custodian as holder of such assets. Custodian shall not vote proxies, act on
tender offers, or perform other discretionary acts not specifically authorized
by this Agreement without specific instructions from Principal or Authorized
Advisor and shall take whatever action necessary to ensure that Principal has
the opportunity to exercise its voting rights as a shareholder. Custodian shall
be entitled to request instructions from Principal concerning any matter
involving the Account, and Principal agrees to promptly respond to any such
request.
6.02 Custodian shall not assign, hypothecate, pledge, or otherwise
dispose of Securities or other assets deposited by Principal, except pursuant to
instructions by Principal.
6.03 Custodian shall from time to time employ one or more
sub-custodians on behalf of Principal located in the United States, but only
upon being so instructed by Principal's Board of Directors, and provided that
the Custodian shall have no more or less responsibility or liability to
Principal on account of any actions or omissions of any sub-custodian so
employed than any such sub-custodian has to the Custodian.
6.04 Upon receiving instruction from Principal's Board of Directors to
do so, Custodian may employ as sub-custodian for Principal's foreign securities
and other investments, foreign banking institutions and foreign securities
depositories designated by Principal, provided that Principal's Board of
Directors determines that it is reasonable to rely on Custodian to employ such
sub-custodian and Custodian provides written reports notifying Principal's Board
of Directors of the placement of the Account's Securities and similar
investments and of any material change in the Account's arrangements. Custodian
shall exercise reasonable care, prudence, and diligence, such as a person having
responsibility for the safekeeping of Principal's Securities and similar
investments would exercise, or to adhere to a higher standard of care, in
employing such foreign sub-custodian.
6.05 Prior to employing a foreign sub-custodian in accordance with
Section 6.04 above, Custodian shall determine that Principal's assets will be
subject to reasonable care, based on the standards applicable to custodians in
the relevant market, if maintained with the Custodian, after considering all
factors relevant to the safekeeping of Principal's Securities and similar
investments, including, without limitation (a) the foreign sub-custodian's
practices, procedures, and internal controls, (b) whether the foreign
sub-custodian has the requisite financial strength to provide reasonable care
for Account assets, (c) sub-custodian's general reputation and standing and, in
the case of a Securities Depository, as defined in Rule 17f-5 of the Investment
Company Act of 1940, the
-6-
<PAGE> 7
depository's operating history and number of participants, and (d) whether
Principal will have jurisdiction over and be able to enforce judgments against
the foreign sub-custodian.
6.06 Prior to employing a foreign sub-custodian in accordance with
Section 6.04 above, Custodian shall enter into a written contract with the
designated foreign sub-custodian that Custodian has determined will provide
reasonable care for Principal's Securities and similar investments. In the case
of a Securities Depository, Custodian's agreement with any sub-custodians shall
be governed by written contract, rules and established practices or procedures
of the depository, or any combination thereof.
6.07 Any contract entered into pursuant to Section 6.06 above, shall
include provisions that provide:
A. For indemnification or insurance arrangements (or any
combination thereof) such that Principal will be adequately
protected against the risk of loss of assets held in
accordance with such contract;
B. That Principal's Securities and similar investments will not
be subject to any right, charge, security interest, lien or
claim of any kind in favor of Custodian or sub-custodian or
their creditors, except a claim of payment for safe custody or
administration, or, in the case of cash deposits, liens or
rights in favor of creditors of Custodian or sub-custodian
arising under bankruptcy, insolvency, or similar laws;
C. That beneficial ownership of the Account's assets will be
freely transferable without the payment of money or value
other than for safe custody or administration;
D. That adequate records will be maintained identifying the
assets as belonging to Principal or as being held by a third
party for the benefit of Principal;
E. That Principal's independent public accountants will be given
access to those records for confirmation of the contents of
those records; and
F. That Principal will receive periodic reports with respect to
the safekeeping of Principal's assets, including, but not
limited to, notification of any transfer to or from
Principal's account or a third party account containing assets
held for the benefit of Principal.
Such contract may contain, in lieu of any or all of the provisions specified in
this Section 6.07, such other provisions that Custodian determines will provide,
in their entirety, the same or a greater level of care and protection for
Principal's assets as the specified provisions, in their entirety.
-7-
<PAGE> 8
6.08 Custodian must establish a system to monitor the appropriateness
of maintaining Principal's assets with a foreign sub-custodian as set forth
above, and the sub-custodial contract governing the Principal's arrangements.
ARTICLE VII
RECORD KEEPING
7.01 Custodian agrees to cooperate with Principal in maintaining
records and supplying reports to Principal, as reasonably needed by Principal in
order to meet Principal's accounting, reporting and regulatory obligations,
including the following obligations:
A. Custodian and its agents shall be required to send to
Principal:
(1) on the first business day of each month a report of
all the transactions in the Account during the
preceding month and a listing of all assets held in
the Account at the end of the preceding month;
(2) all reports which they receive from a clearing
corporation or the Federal Reserve book-entry system
on their respective systems of internal accounting
control; and
(3) any reports prepared by outside auditors on
Custodian's or its agents' internal accounting
control of Securities that Principal may reasonably
request.
B. Custodian shall maintain records sufficient to determine and
verify information relating to Securities that may be reported
in Principal's annual statement and supporting schedules and
information required in any audit of the financial statements
of Principal.
C. Custodian shall provide, upon written request from any of the
Authorized Signatories of the Principal, the appropriate
affidavits, substantially in the form provided in Exhibits
"D", "E" and "F", attached hereto, and made a part hereof,
with respect to the Securities.
-8-
<PAGE> 9
ARTICLE VIII
LIABILITY FOR SAFEKEEPING
8.01 Custodian shall be responsible only for assets actually received
by it hereunder. Custodian shall indemnify Principal for any loss of assets
occasioned by the negligence or dishonesty of Custodian's officers and
employees, or burglary, robbery, holdup, theft or mysterious disappearance,
including any loss by damage or destruction. Custodian shall not be liable in
any manner for loss occasioned by failure of Principal or its officers or
employees to comply with this Agreement, by negligence or dishonesty of
Principal or its officers or employees. Custodian will not be liable for any
failure to take any action required to be taken under this Agreement in the
event and to the extent that the taking of such action is prevented or delayed
by war (whether declared or not and including existing wars), revolution,
insurrection, riot, civil commotion, or act of God, accident, fire, explosion,
stoppage of labor, strikes or other differences with employees, laws,
regulations, orders or other acts of any governmental authority or any other
cause whatever beyond its reasonable control. In the event that there is a loss
of Securities, Custodian shall promptly replace the Securities or the value
thereof, and the value of any loss of rights or privileges resulting from said
loss of Securities. In the event that Custodian obtains entry in a clearing
corporation or in the Federal Reserve book-entry system through an agent,
Custodian shall agree with such agent that the agent shall be subject to the
same liability for loss of Securities as Custodian. Custodian's responsibility
for any asset shall be terminated upon compliance with Principal's instructions
regarding withdrawal, in compliance with procedures established under this
Agreement.
ARTICLE IX
EFFECTIVE PERIOD, TERMINATION, & AMENDMENT
9.01 This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that Principal shall not amend or terminate this Agreement in
contravention of any applicable federal or state regulations, or any provision
of Principal's Articles of Incorporation, and further provided, that Principal
may at any time by action of its Board of Directors (a) substitute another bank
or trust company for Custodian by giving notice as described above to Custodian,
or (b) immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for Custodian by the Comptroller of the Currency or upon
the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
-9-
<PAGE> 10
Upon termination of this Agreement, Principal shall pay to Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse Custodian for its costs, expenses and disbursements.
9.02 Custodian shall not be permitted to assign this Agreement without
the express consent of Principal's Board of Directors.
9.03 If a successor custodian is appointed by Principal's Board of
Directors, Custodian shall, upon termination, deliver to such successor
custodian at the office of Custodian, duly endorsed and in the form for
transfer, all Securities and similar investments of the Account then held by it
hereunder and shall transfer to an account of the successor custodian all such
Securities and similar investments.
9.04 In the event this Agreement is terminated and no successor
custodian appointed, Custodian shall, in like manner, upon receipt of a
certified copy of a vote of Principal's Board of Directors, deliver at the
office of Custodian and transfer such Securities and similar investments in
accordance with such vote.
9.05 In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Directors shall have been
delivered to Custodian on or before the date when termination of this Agreement
shall become effective, then Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, of its own selection, having aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $25,000,000,
all Securities, funds and other properties held by Custodian on behalf of
Principal and to transfer to an account of such successor custodian all of the
Securities of the Account. Thereafter, such bank or trust company shall be the
successor of Custodian under this Agreement.
9.06 In the event that Securities, funds, and other properties remain
in the possession of Custodian after the date of termination of the Agreement
owing to failure of Principal to procure the certified copy of the vote referred
to in Section 9.04 above or of the Board of Directors to appoint a successor
custodian, Custodian shall be entitled to fair compensation for its services
during such period as Custodian retains possession of such Securities, funds and
other properties and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect.
ARTICLE X
Miscellaneous
10.01 WARRANTY. Principal warrants that it has authority to enter into
this Agreement and that it has title to and authority to deliver any property
which will be
-10-
<PAGE> 11
delivered to Custodian, and that all instructions provided to Custodian
hereunder will be within Principal's authority.
10.02 FEES. Custodian's charges for services provided hereunder shall
be such reasonable compensation as is mutually agreed upon from time to time by
Principal and Custodian.
10.03 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Oklahoma.
10.04 SEVERABILITY. In the event that any provision of this Agreement
is held invalid or unenforceable, the remaining provisions shall be construed to
be valid and enforceable nonetheless.
10.05 CAPTIONS. Captions employed in this Agreement are for ease of
reference only and shall not be employed in determining the meaning of any
provision.
10.06 NOTICE. Except where otherwise more specifically provided herein,
notice shall be made in writing by delivery or mail as follows:
If to Principal:
American Fidelity Dual Strategy Fund, Inc.
Attention: Investment Department
2000 Classen Center
P.O. Box 25523
Oklahoma City, Oklahoma 73125
If to Custodian:
Attention: Carol Hopper
InvesTrust, N.A.
6301 North Western Avenue, Suite 210
Oklahoma City, Oklahoma 73118
IN WITNESS WHEREOF, the parties hereby cause their names to be signed
herein and their seals to be affixed and duly attested by their duly authorized
officers, this 30th day of September, 1998.
-11-
<PAGE> 12
"PRINCIPAL"
AMERICAN FIDELITY DUAL STRATEGY
FUND, INC.
By: /s/ JOHN W. REX
--------------------------------------
John W. Rex, Chairman of the Board and
President
"CUSTODIAN"
INVESTRUST, N.A.
By: /s/ ILLEGIBLE
--------------------------------------
-12-
<PAGE> 13
EXHIBIT "A"
AUTHORIZED EMPLOYEES
NAME TITLE
---- -----
Jo Ann Anderson Vice President
Lucy Fritts Vice President
David R. Carpenter Senior Vice President
Kenneth D. Klehm Senior Vice President
Daniel D. Adams, Jr. Vice President
-13-
<PAGE> 14
EXHIBIT "B"
AUTHORIZED SIGNATORIES
NAME SIGNATURE
---- ---------
Jo Ann Anderson /s/ JO ANN ANDERSON
--------------------------------
Lucy Fritts /s/ LUCY FRITTS
--------------------------------
David R. Carpenter /s/ DAVID R. CARPENTER
--------------------------------
Kenneth D. Klehm /s/ KENNETH D. KLEHM
--------------------------------
Daniel D. Adams, Jr. /s/ DANIEL D. ADAMS, JR.
--------------------------------
-14-
<PAGE> 15
EXHIBIT "C"
AUTHORIZED ADVISORS
Lawrence Kelly & Associates
200 S. Los Robles, Suite 510
Pasadena, CA 91101
(818) 449-9500
Todd Investment Advisors
3160 National City Tower
Louisville, KY 40202
(502) 585-3121
-15-
<PAGE> 16
EXHIBIT "D"
FORM A
CUSTODIAN AFFIDAVIT
-----------------------
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
________________________________, being duly sworn deposes and says
that he is _________________________________ of INVESTRUST, N.A., a special
purpose bank chartered by the Office of the Comptroller of the Currency with the
principal place of business at ___________________________ (hereinafter called
the "Bank").
That his duties involve supervision of activities of the Bank as
custodian and records relating thereto.
That the Bank is custodian for certain securities of AMERICAN FIDELITY
DUAL STRATEGY FUND, INC., having a place of business at Oklahoma City, Oklahoma
(hereinafter called the "Fund"), pursuant to an agreement between the Bank and
the Fund.
That the schedule attached hereto is a true and complete statement of
securities (other than those caused to be deposited with The Depository Trust
Company or like entity or a Federal Reserve Bank under the Federal Reserve
book-entry procedure) which were in the custody of the Bank for the account of
the Fund as of the close of business on ________________________; that, unless
otherwise indicated on the schedule, the next maturing and all subsequent
coupons were then either attached to coupon bonds or in the process of
collection; and that, unless otherwise shown on the schedule, all such
securities were in bearer form or in registered form in the name of the Fund or
its nominee or of the Bank or its nominee, or were in the process of being
registered in such form.
-16-
<PAGE> 17
That the Bank as custodian has the responsibility for the safekeeping
of such securities as that responsibility is specifically set forth in the
agreement between the Bank as custodian and the Fund; and
That, to the best of his knowledge and belief, unless otherwise shown
on the schedule, said securities were the property of said Fund and were free of
all liens, claims or encumbrances whatsoever.
INVESTRUST, N.A.
By:
--------------------------------
Subscribed and sworn to before me this _______ day of
___________________, 19___.
--------------------------------
Notary Public
My Commission Expires:
----------
-17-
<PAGE> 18
EXHIBIT "E"
FORM B
CUSTODIAN AFFIDAVIT
-----------------------
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
________________________________, being duly sworn deposes and says
that he is _________________________________ of INVESTRUST, N.A., a special
purpose bank chartered by the Office of the Comptroller of the Currency with the
principal place of business at ___________________________ (hereinafter called
the "Bank").
That his duties involve supervision of activities of the Bank as
custodian and records relating thereto.
That the Bank is custodian for certain securities of AMERICAN FIDELITY
DUAL STRATEGY FUND, INC., having a place of business at Oklahoma City, Oklahoma
(hereinafter called the "Fund"), pursuant to an agreement between the Bank and
the Fund.
That the Bank has caused certain of such securities to be deposited
with _________________________________ and that the schedule attached hereto is
a true and complete statement of the securities of the Fund of which the Bank
was custodian as of the close of business on ________________________, 19____,
and which were so deposited on such date.
That the Bank as custodian has the responsibility for the safekeeping
of such securities both in the possession of the Bank or deposited with
______________________________ as is specifically set forth in the agreement
between the Bank as custodian and the Fund; and
-18-
<PAGE> 19
That, to the best of his knowledge and belief, unless otherwise shown
on the schedule, said securities were the property of said Fund and were free of
all liens, claims or encumbrances whatsoever.
INVESTRUST, N.A.
By:
--------------------------------
Subscribed and sworn to before me this _______ day of
___________________, 19___.
--------------------------------
Notary Public
My Commission Expires:
----------
-19-
<PAGE> 20
EXHIBIT "F"
FORM C
CUSTODIAN AFFIDAVIT
-----------------------
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
________________________________, being duly sworn deposes and says
that he is _________________________________ of INVESTRUST, N.A., a special
purpose bank chartered by the Office of the Comptroller of the Currency with the
principal place of business at ___________________________ (hereinafter called
the "Bank").
That his duties involve supervision of activities of the Bank as
custodian and records relating thereto.
That the Bank is custodian for certain securities of AMERICAN FIDELITY
DUAL STRATEGY FUND, INC., having a place of business at Oklahoma City, Oklahoma
(hereinafter called the "Fund"), pursuant to an agreement between the Bank and
the Fund.
That it has caused certain securities to be credited to its book-entry
account with the Federal Reserve Bank of ___________________________ under the
Federal Reserve book-entry procedure; and that the schedule attached hereto is a
true and complete statement of the securities of the Fund of which the Bank was
custodian as of the close of business on _______________________, 19___, which
were in a "General" book-entry account maintained in the name of the Bank on the
books and records of the Federal Reserve Bank of ________________________ at
such date;
That the Bank has the responsibility for the safekeeping of such
securities both in the possession of the Bank or said "General" book-entry
account as is specifically set forth in the agreement between the Bank and the
Fund; and
-20-
<PAGE> 21
That, to the best of his knowledge and belief, unless otherwise shown
on the schedule, said securities were the property of said Fund and were free of
all liens, claims or encumbrances whatsoever.
INVESTRUST, N. A.
By:
--------------------------------
Subscribed and sworn to before me this _______ day of
___________________, 19___.
--------------------------------
Notary Public
My Commission Expires:
----------
-21-
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Board of Managers and Contract Owners
American Fidelity Variable Annuity Fund A:
We consent to the use of our reports included herein, the reference to our name
under the heading "Financial Highlights" in the Prospectus, and the reference
to our name under the heading "Custodian, Independent Accountants and Counsel"
in the Statement of Additional Information.
KPMG LLP
Oklahoma City, Oklahoma
January 8, 1999
<TABLE>
Schedule of Computations for Each Performance Quotation Provided
in the Registration Statement
<CAPTION>
ONE YEAR FIVE YEAR TEN YEAR
(1) TOTAL RETURN TOTAL RETURN TOTAL RETURN TOTAL RETURN
<S> <C> <C> <C>
(A) NET INITIAL INVESTMENT $1,000.00 $1,000.00 $1,000.00
divided by / / /
NET ASSET VALUE ON
PURCHASE DATE $19.7243 $9.5717 $5.0215
equals = = =
NUMBER OF SHARES PURCHASED 50.70 104.47 199.14
(B) NET ASSET VALUE AT THE
END OF TIME PERIOD $25.3499 $25.3499 $25.3499
multiplied by x x x
NUMBER OF SHARES PURCHASED 50.7 104.47 199.14
equals = = =
ENDING VALUE $1,285.24 $2,648.30 $5,048.18
(C) ENDING VALUE $1,285.24 $2,648.30 $5,048.18
minus - - -
INITIAL INVESTMENT $1,000.00 $1,000.00 $1,000.00
equals = = =
TOTAL DOLLAR RETURN $285.24 $1,648.30 $4,048.18
(D) TOTAL DOLLAR RETURN $285.24 $1,648.30 $4,048.18
divided by / / /
INITIAL INVESTMENT $1,000.00 $1,000.00 $1,000.00
multiplied by 100 x x x
equals 100 100 100
TOTAL RETURN FOR THE PERIOD
EXPRESSED = = =
AS A PERCENTAGE 28.52% 164.83% 404.82%
</TABLE>
(2) AVERAGE ANNUAL TOTAL RETURN
Average annual total return quotations for the one, five and ten
year periods ending 30-Jun-98 are computed using the formula below:
P (1+T)**n = ERV
Where: P = a hypothectical initial investment of $1,000
T = average annual total return
** = to the power of
n = number of years
ERV = ending value of a hypothetical $1,000 investment as of
the end of the one, five and ten year periods computed
in accordance with the formula shown in (1) above.
Thus:
<TABLE>
<CAPTION>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
<S> <C> <C>
$1,000 (1+T)**1 = $1,285.24 $1,000(1+T)**5 = $2,648.30 $1,000(1+T)**10 = $5,048.18
T = 28.52% T = 21.50% T = 17.57%
</TABLE>
CAMERON ENTERPRISES, A LIMITED PARTNERSHIP (CELP) - OK<F2>
73-1267299
<TABLE>
<S> <C> <C> <C> <C>
CELP Ltd. Agency, Inc.
100% - OK
73-1369092
North American
Ins. Agency, Inc.
(NAIA)
91.5% - OK
73-0687265
Shade Works, LLC Agar Ins. Agency, Inc. North American Ins.
33.33% - OK 95.4% - OK Agency of
73-1475654 73-0675989 Colorado, Inc.
100% - CO
84-0599059
N.A.I.A. of North American North American
Louisiana, Inc. Insurance Agency of Ins. Agency of
100% - LA New Mexico, Inc. Tulsa, Inc.
72-0761691 100% - NM 100% - OK
85-0441542 73-0778755
North American N.A.I.A. Ins. Agency,
Ltd. Agency, Inc. Inc.
100% - OK 100% - OK
73-1356772 73-1527682
National Ins.
Marketers Agency,
Inc.
100% - OK
73-1437538
American Fidelity Corp.
(AFC)
94.0% - NV
73-0966202
Market Place Realty American Mortgage Security General
Corp. (MPRC) & Investment Co. Life Ins. Co.
100% - OK (AMICO) (SGL)<F1>
73-1160212 98.7% - OK 100% - OK
73-1232134 73-0741925
NAIC #68691
Holliday Mortgage Corp.
100% - OK
73-1284635
Concourse C, Inc. American Fidelity Cimarron
100% - OK Property Co. (AFPC) Investment
73-1505641 100% - OK Co., Inc.
73-1290496 100% - KS
48-0759023
Home Rentals, Inc.
100% - OK
73-1364226
Western Partners, L.L.C.
100% - OK
73-1544275
Shade Works, LLC
16.67% - OK
73-1475634
American Fidelity
Assurance Co.<F1>
(AFA)
100% - OK
73-0714500
NAIC #60410
AF Apartments, Inc. American Fidelity American Fidelity
100% - OK Securities, Inc. Ltd. Agency, Inc.
73-1512985 (AFS) (AFLA)
100% - OK 100% - OK
73-0783902 73-1352430
American
Fidelity
General
Agency, Inc.
(AFGA)
100% - OK
73-1352431
Balliet's, L.L.C. Apple Creek
75% - OK Apartments, Inc.
73-1529608 100% - OK
73-1408485
ASC Holding, L.L.C.
75% - OK
73-1528120
InvesTrust, N.A. Asset Services Co.,
100% - OK L.L.C.
73-1546867 100% - OK
73-1547246
American Fidelity
International
Holdings, Inc.
100% - OK
73-1421879
American Fidelity American Fidelity
Offshore Care, LLC
Investments, Ltd. 33% - OK
100% - Bermuda 73-1424864
NAIC #20400
Reg. #EC20754
American Fidelity American Fidelity Covenant
(Cypress) Ltd.<F3> (China), Ltd.<F3> Underwriters
99% - Republic of 93% - Bermuda (Bermuda) Ltd.<F3>
Cypress 33.33% - Bermuda
Soyuznik Insurance
Co.<F3>
34% - Russian
Federation
Mari El Development Pacific World
Corporation Limited Holdings, Ltd.<F3>
51.3% - Republic of 55% - Labuan
Cyprus
Reg. #7035
_______________
<FN>
<F1> Insurance Company
<F2> A Limited Partnership
<F3> No tax or registration numbers
</FN>
</TABLE>
NOTE: All of the above organizations are corporations that have
the word Company, Inc., or Corp. The above organizations
which have the letters L.L.C. or L.C. are limited
liability companies.