<PAGE> 1
As filed with the Securities and Exchange Commission on April 28, 2000
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. 5 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 6 |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 Jerry A. Warren
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 73107
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)
| | immediately upon filing pursuant to paragraph (b)
|X| on May 1, 2000 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:
|X| 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
Explanatory Note
This Post-Effective Amendment designates a later effective date for
Post-Effective Amendment Nos. 2, 3 and 4 to the Registrant's Registration
Statement on Form N-1A filed on February 18, 1999, April 16, 1999 and April 30,
1999, respectively.
<PAGE> 3
AMERICAN FIDELITY
DUAL STRATEGY FUND, INC.
A DUAL STRATEGY OF INVESTING IN VALUE AND
GROWTH STOCKS FOR LONG-TERM CAPITAL APPRECIATION
PROSPECTUS
MAY 1, 2000
The Securities and
Exchange Commission
has not approved
or disapproved these
securities or determined if
this prospectus
is truthful or
complete. Any
representation to the
contrary is a criminal offense.
<PAGE> 4
CONTENTS
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<TABLE>
<S> <C>
About the Fund.............................................. 3
Past Performance............................................ 5
Investment Goals and Strategies............................. 6
Management's Discussion of Fund Results..................... 7
1999 Results........................................ 7
10-Year Results..................................... 8
Principal Risks of Investment............................... 9
The Fund's Management....................................... 10
Fund Operations............................................. 11
Buying and Selling Shares........................... 11
Pricing Shares...................................... 11
Distributions and Taxes..................................... 12
Dividends and Other Distributions................... 12
Tax Information..................................... 12
Financial Highlights........................................ 13
For More Information................................. Back Cover
</TABLE>
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<PAGE> 5
ABOUT THE FUND
INVESTMENT GOAL Long-term capital growth
DUAL INVESTMENT
STRATEGIES The fund invests primarily in common stocks of
U.S. companies. The fund's two sub-advisers
independently manage a portion of the fund's
portfolio using different investment strategies.
One sub-adviser focuses on high quality
companies with healthy earnings growth and
strong product leadership in their markets. The
other focuses on undervalued, high quality
equity securities with large capitalizations.
PRINCIPAL RISKS OF
INVESTING IN DUAL
STRATEGY FUND The fund's shares will rise and fall in value.
You can lose money on your investment in the
fund, or the fund could underperform other
investments if any of the following occurs:
- The stock market as a whole goes down.
- Either value stocks or growth stocks fall
out of favor with investors, causing part
of the portfolio to underperform the other.
The fund's dual strategy potentially lowers
risk, but it may produce more modest gains
than funds using only one investment
strategy.
- Companies in which the fund invests do not
grow as rapidly as expected.
- Value stocks may never reach what the
manager believes is their true value.
- Investments in foreign securities carry
additional risks, such as changes in
currency exchange rates, a lack of adequate
company information and political
instability, which may result in loss of
value and wider price swings than U.S.
companies experience.
- Earnings of companies in which the fund
invests are not achieved, and income
available for interest or dividend payments
is reduced.
-3-
<PAGE> 6
INVESTORS IN THE FUND Only separate accounts of insurance companies
may purchase shares of the fund. You may invest
indirectly in the fund through your purchase of
a variable annuity contract issued by a separate
account or by participating in a contract
available through your employer's retirement
plan.
You should read the accompanying separate
account prospectus for information about:
- Purchasing a variable annuity contract or
participating in a group variable annuity
contract.
- Other investment options if there are any.
- The terms of your variable annuity
contract.
- Expenses related to purchasing a variable
annuity contract.
WHO MAY WANT TO INVEST The fund may be appropriate for you if you:
- Want a regular investment program for
retirement savings.
- Can benefit from deferred taxation of
capital appreciation and income.
- Are several years from retirement and can
pursue a long-term investment goal.
- Want to add an investment with growth
potential to diversify your other
retirement investments.
- Are willing to accept higher short-term
risk along with higher potential long-term
returns.
-4-
<PAGE> 7
PAST PERFORMANCE
The bar chart shows how the annual total return of the fund and its predecessor
has varied from year to year over a ten-year period. The table shows the fund's
performance over time compared with that of the Standard & Poor's 500 Composite
Stock Price Index, a widely recognized, unmanaged index of common stock prices.
This information may help you evaluate the fund's risks and potential rewards.
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
ARE THESE THE RETURNS
REALIZED BY SEPARATE
ACCOUNT CONTRACT OWNERS
AND PARTICIPANTS?
No. These returns are
calculated for the fund. They
do not reflect insurance, sales
and administrative charges
deducted by participating
separate accounts. Inclusion of
those charges would reduce the
total returns for all periods.
WHEN WAS THE FUND
CREATED?
On January 1, 1999, the fund
acquired all of the assets and
liabilities of American
Fidelity Variable Annuity Fund
A, which was a managed separate
account.
WHAT IS THE FUND'S PAST
PERFORMANCE?
The fund treats the past
performance of its predecessor
as its own for periods before
the acquisition. The
information to the right
reflects the performance of
American Fidelity Variable
Annuity Fund A through 1998 and
for American Fidelity Dual
Strategy Fund, Inc. for all
subsequent time periods.
- --------------------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31/EACH YEAR
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------ ----- ------ ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMERICAN FIDELITY DUAL STRATEGY FUND, INC. 28.73% 7.37% 29.35% 3.80% 7.72% -5.33% 35.62% 27.15% 28.35% 26.50%
</TABLE>
Highest Quarterly Return: 21.24%, 4th quarter 1998
Lowest Quarterly Return: -11.04%, 3rd quarter 1998
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
- --------------------------------------------------
<S> <C> <C> <C>
Fund 18.47% 27.10% 17.17%
S&P 500 Index 21.04% 28.54% 18.19%
</TABLE>
-5-
<PAGE> 8
INVESTMENT GOALS AND STRATEGIES
The fund's primary investment goal is long-term growth of capital. Its secondary
investment goal is the production of income.
To pursue these goals, the fund invests in a diversified portfolio of common
stocks. The fund may take temporary defensive positions inconsistent with its
investment goals in response to adverse market, economic or political
conditions. During these times, the fund may not achieve its investment goals.
Two sub-advisers with different investment strategies manage the fund's
portfolio. The portfolio is normally reallocated equally between the two
sub-advisers at the beginning of each year. Cash received by the fund, less
amounts used to pay withdrawals and expenses, is allocated equally between the
sub-advisers throughout the year.
Lawrence W. Kelly & Associates, Inc. selects stocks which it expects to have
superior long-term earnings growth rates relative to the U.S. economy. Kelly's
strategy is to invest in high-quality companies with strong earnings growth,
sound fundamentals and superior product leadership. Kelly emphasizes large
capitalization issues and attempts to identify positive fundamental changes in a
company's growth rate and appreciation potential. Kelly has a long-term
investment horizon with moderate portfolio turnover. Each security is
individually reviewed on a consistent basis as to its future appreciation
prospects and suitability relative to the entire portfolio.
Todd Investment Advisors, Inc. is a value-oriented manager. It emphasizes high-
quality, large capitalization companies that are undervalued. Todd Investment
attempts to achieve average-market returns in an up market and above-market
returns in a down market. A dividend discount model is used to identify
companies with the greatest potential for price appreciation (low price to
intrinsic value). Then fundamental analysis is used to determine which companies
have a catalyst for price appreciation. A stock is considered for sale when
either its price/value ratio rises above the median for large capitalization
stocks or the company's fundamentals weaken. The portion of the fund's portfolio
managed by Todd Investment typically holds 40-50 issues, and the average annual
turnover is usually 20-40%.
-6-
<PAGE> 9
MANAGEMENT'S DISCUSSION OF FUND RESULTS
1999 RESULTS
Internet and technology related stocks were the only domestic areas which did
well in 1999. The limited number of issues doing well in the market is a
particular concern for continuing market strength in 2000. The environment is
very similar to that of 1972 when the "nifty 50" were all the rage. Corporate
earnings rose at only a 1.4% rate following the earnings growth rate peak during
the 3rd quarter of 1997. While many issues did much better, the overall rise in
earnings was not at all exciting. This is a problem the market is dealing with
by severely marking down issues which come in under expectations. As these
events continue, confidence in the overall market may decline. Inflation
concerns and increases in short term rates by the Federal Reserve pushed longer
term rates up sharply from the lows of October 1998.
LAWRENCE W. KELLY & ASSOCIATES, INC., the fund's growth manager, had outstanding
investment results in 1999, significantly outpacing the S&P 500 Index, led by
the strong performance of large capitalization growth stocks. Kelly's portfolio
emphasis on larger technology and specialty retail issues easily overwhelmed the
relatively weaker returns of the pharmaceutical and food and beverage sectors of
the markets. In addition, Kelly also benefited from strength in select financial
holdings despite the backup in interest rates.
TODD INVESTMENT ADVISORS, INC., the fund's value manager, had competitive
investment results in 1999. Large capitalization value stocks significantly
underperformed large growth stocks for the second consecutive year. Todd's
investment performance exceeded the value index but trailed the S&P 500, which
is more of a growth index. The manager underweighted technology for the first
time in four years due to the extreme valuations in that sector, and
overweighted more attractively valued sectors, such as manufacturing, financial
services, and utilities.
-7-
<PAGE> 10
10-YEAR RESULTS
The graph below compares the initial and subsequent account values at the end of
each of the past 10 years, assuming a $10,000 initial investment on January 1,
1990 in the fund's predecessor and in the S&P 500 Index. The fund's performance
does not give effect to any charges at the separate account level. The S&P 500
Index returns assume the reinvestment of dividends but do not reflect
commissions or administrative and management costs. Past performance does not
predict future performance for the fund or the index.
performance graph
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99
- --------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
18.47% 27.10% 17.17%
</TABLE>
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMERICAN FIDELITY DUAL
STRATEGY FUND, INC. $12,873 $13,822 $17,878 $18,558 $19,991 $18,926 $25,667 $32,636 $41,889 $52,989
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
S&P 500 INDEX $13,161 $12,753 $16,630 $17,894 $19,690 $19,948 $27,435 $33,731 $44,984 $57,840
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
-8-
<PAGE> 11
PRINCIPAL RISKS OF INVESTMENT
Although stocks have a history of long-term growth, they fluctuate in price.
Prices go up or down based on changes in a company's financial condition and
results of operations as well as factors related to the economy. Such
fluctuations can be pronounced. Changes in the value of the fund's investments
will result in changes in the value of fund shares and thus the fund's total
return to investors. You could lose money directing your variable annuity
contract payments to the fund.
DUAL STRATEGY AND MARKET CYCLES. Different types of stocks (such as growth
stocks and value stocks) may shift in and out of favor depending on market and
economic conditions. As a result, the performance of the growth-stock portion of
the fund's portfolio may be higher or lower than the value-stock portion of the
fund's portfolio and vice versa. The fund's dual strategy may potentially limit
the downside risk of the fund, but it may also produce more modest gains over
the long run than a single investment strategy would.
GROWTH STOCKS. There is a risk that a stock selected for its growth potential
will not perform as expected and its price will decline or will not increase.
VALUE STOCKS. A value stock may never reach what the manager believes is its
full value, or it may not have been undervalued when purchased. Large company
value stocks tend to be less volatile than smaller cap stocks because large
companies often have the resources to withstand adverse conditions; however,
they may also be slower to react to change.
FOREIGN INVESTING. Investing in foreign securities poses unique risks such as
fluctuation in currency exchange rates, market illiquidity, price volatility,
high trading costs, difficulties in settlement, regulations on stock exchanges,
limits on foreign ownership, and less stringent accounting, reporting and
disclosure requirements. In the past, equity securities of foreign markets have
had more frequent and larger price changes than those of U.S. markets. The
fund's foreign investments have typically been in the form of American
Depositary Receipts of large foreign companies, reducing somewhat the general
risks of foreign investing. ADRs generally are securities issued by a U.S. bank
to U.S. buyers as a substitute for direct ownership of a foreign security and
are traded in the U.S. markets.
-9-
<PAGE> 12
THE FUND'S MANAGEMENT
AMERICAN FIDELITY ASSURANCE COMPANY, 2000 N. Classen Boulevard, Oklahoma City,
OK 73106, is the fund's investment adviser. American Fidelity is an Oklahoma
stock life insurance company and is registered as an investment adviser under
the Investment Advisers Act of 1940. It was the investment adviser of the fund's
predecessor from 1968 through 1998.
American Fidelity has engaged two sub-advisers to manage the fund's investment
portfolio. The board of directors of the fund reviews and must approve the sub-
adviser selections. American Fidelity is responsible for running all of the
operations of the fund, except for those subcontracted to the fund's
sub-advisers, custodian and pricing service. The fund pays American Fidelity an
annual management and investment advisory fee of 0.50% of the average daily net
assets of the fund. Out of this fee, American Fidelity pays each sub-adviser a
fee for its services.
The fund's sub-advisers make the day-to-day decisions to buy and sell securities
for the fund. Each manages a portion of the fund's portfolio using its own
investment strategy to achieve the fund's investment goals.
LAWRENCE W. KELLY & ASSOCIATES, INC., 199 South Los Robles Avenue, Suite 850,
Pasadena, CA 91101, had $1.8 billion of assets under management as of December
31, 1999. Kelly has provided investment advice since 1985 to American Fidelity
in the management of its investments, including those held by the fund's
predecessor. Kelly has been a sub-adviser to the fund and its predecessor since
the last quarter of 1995.
Lawrence W. Kelly has primary responsibility for the day-to-day management of
the portion of the fund portfolio managed by Kelly. He has 33 years of
experience as an investment adviser. He founded Kelly in 1985 and currently
serves as its Chairman and Chief Executive Officer.
TODD INVESTMENT ADVISORS, INC., 101 South Fifth Street, Suite 3160, Louisville,
KY 40202, had $3.3 billion of assets under management as of December 31, 1999.
Todd Investment has been a sub-adviser to the fund and its predecessor since the
last quarter 1995.
Robert P. Bordogna has primary responsibility for the day-to-day management of
the portion of the fund portfolio managed by Todd Investment. He has 31 years of
experience as an investment adviser. Bordogna is the President and Chief
Executive Officer of the firm and has been with Todd Investment since 1980.
-10-
<PAGE> 13
FUND OPERATIONS
BUYING AND SELLING SHARES
You cannot buy shares of the fund directly. You may invest indirectly in the
fund through your purchase of a variable annuity contract or your participation
in a variable annuity contract offered through your employer's retirement plan.
The contracts are issued by insurance company separate accounts, which buy fund
shares based on the instructions they receive from contract owners.
To meet various obligations under the contracts, the separate accounts may sell
fund shares to generate cash. For example, a separate account may sell fund
shares and use the proceeds to pay a contract owner or participant who has
requested a partial withdrawal or cancelled a contract.
PRICING SHARES
The fund's net asset value per share is determined once daily as of the close of
regular trading on the New York Stock Exchange, currently 4:00 p.m. Eastern
time, on each day American Fidelity is open for business. American Fidelity is
scheduled to be open Monday through Friday throughout the year, except for the
following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and the immediately following Friday, and Christmas Day. On any
day when American Fidelity is open for business and the New York Stock Exchange
is not (presently Martin Luther King, Jr. Day, Washington's Birthday and Good
Friday), the fund values its portfolio securities using the same prices included
in the last determined net asset value per share.
The fund calculates net asset value per share by dividing the total value of its
net assets by the number of its shares outstanding. Investing separate accounts
purchase shares at the net asset value per share next determined after American
Fidelity receives a purchase or sale order in proper form.
The fund's investments are valued based on market value, or where market
quotations are not readily available, based on fair value as determined in good
faith by the fund's board. Short-term debt securities having remaining
maturities of less than one year are valued by the amortized cost method, which
approximates market value.
-11-
<PAGE> 14
DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
The fund intends to distribute substantially all of its net investment income
and capital gains to American Fidelity Assurance Company, its sole shareholder.
The fund pays dividends annually and reinvests the proceeds in additional fund
shares at net asset value per share. Distributions of any net realized capital
gains are made at least annually.
TAX INFORMATION
Because you do not own shares of the fund directly, your tax situation is not
likely to be affected by the fund's distributions. The separate account and the
insurance company which issued your variable annuity contract, as the owner of
the fund's shares, may be affected.
You should consult the prospectus of the separate account for a discussion of
the federal income tax consequences to variable annuity contract owners.
-12-
<PAGE> 15
FINANCIAL HIGHLIGHTS
On January 1, 1999, the fund acquired the investment portfolio of its
predecessor, American Fidelity Variable Annuity Fund A, which was a managed
separate account. The 1999 information below relates to Dual Strategy Fund; all
other information relates to the fund's predecessor, American Fidelity Variable
Annuity Fund A, and is derived from its financial statements. Such financial
statements were audited by KPMG LLP, whose report, along with the financial
statements, are included in the Statement of Additional Information, which is
available upon request.
The financial highlights table is intended to help you understand the financial
performance of the fund and its predecessor for the past five years. Certain
information reflects financial results for a single Accumulation Unit of the
fund and American Fidelity Variable Annuity Fund A. Total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the fund, assuming reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997 1996 1995(A)
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation Unit value,
beginning of period $ 10.00 $ 19.463 $ 15.339 $12.199 $ 9.094
-------- -------- -------- ------- -------
Net investment income 0.1062 0.023 0.071 0.094 0.080
Net realized and unrealized gain
(loss) on securities 1.7406 4.847 4.053 3.046 3.025
-------- -------- -------- ------- -------
Total from investment operations 1.8468 4.870 4.124 3.140 3.105
-------- -------- -------- ------- -------
Accumulation Unit value,
end of period $11.8468 $ 24.333 $ 19.463 $15.339 $12.199
======== ======== ======== ======= =======
Total return(b) 18.47% 25.02% 26.89% 25.74% 34.14%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(000's omitted) $229,253 $184,548 $137,091 $98,829 $73,153
Ratio of expenses to
average net assets(b) 0.5% 1.46% 1.46% 1.38% 1.29%
Ratio of net income to average net
assets 0.9840% 0.11% 0.40% 0.69% 0.75%
Portfolio turnover rate 37.527% 40.10% 26.60% 36.90% 66.10%
</TABLE>
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(a) Investment management by the fund's two sub-advisers commenced October 2,
1995.
(b) In 1999 total return and ratio of expenses for the fund included management
fee only. Previous years included management, mortality and expense risk
fees under the fund's predecessor, American Fidelity Variable Annuity Fund
A.
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<PAGE> 16
FOR MORE INFORMATION
To obtain information:
- ------------------------------------------------------
BY TELEPHONE
Call 1-800-662-1106
BY MAIL Write to:
American Fidelity
Dual Strategy Fund, Inc.
P. O. Box 25520
Oklahoma City, OK 73125-0520
BY E-MAIL Send your request to:
[email protected]
ON THE INTERNET Text-only versions of fund documents can be viewed online or
downloaded from the SEC's web site: http://www.sec.gov
You may also obtain information about the fund, including the Statement of
Additional Information, by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC- 0330) or by paying a duplicating fee and
sending your request and fee to the SEC's Public Reference Section, Washington,
DC 20549-6009 or by electronic request to [email protected].
More information on the fund is available free upon request, including the
following:
ANNUAL/SEMIANNUAL REPORT
Additional information about the fund's investments is available in the fund's
annual and semiannual reports to shareholders. In the annual report, you will
find a discussion of market conditions and investment strategies that
significantly affected the fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information provides more details about the fund and
its policies. A current Statement of Additional Information is on file with the
Securities and Exchange Commission and is incorporated by reference into and is
legally a part of this prospectus.
SEC FILE NUMBER: 811-08873
AMERICAN FIDELITY
DUAL STRATEGY FUND, INC.
<PAGE> 17
AMERICAN FIDELITY
DUAL STRATEGY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
<PAGE> 18
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
This Statement of Additional Information is not a prospectus, but it relates to
the Prospectus of American Fidelity Dual Strategy Fund, Inc. dated May 1, 2000.
You may get a free copy of the Prospectus or the Fund's most recent annual and
semi-annual reports by contacting the Fund by mail, telephone or e-mail.
American Fidelity Dual Strategy Fund, Inc.
P.O. Box 25520
Oklahoma City, Oklahoma 73125-0520
1-800-662-1106
[email protected]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION................................................ 2
INVESTMENT GOALS AND POLICIES............................... 2
MANAGEMENT.................................................. 5
INVESTMENT ADVISORY AND OTHER SERVICES...................... 6
PORTFOLIO TRANSACTIONS...................................... 8
CAPITAL STOCK............................................... 9
FEDERAL TAX MATTERS......................................... 10
UNDERWRITER................................................. 13
PERFORMANCE DATA............................................ 13
CUSTODIAN, INDEPENDENT ACCOUNTANTS AND COUNSEL.............. 15
FINANCIAL STATEMENTS........................................ 15
</TABLE>
<PAGE> 19
INTRODUCTION
American Fidelity Dual Strategy Fund, Inc. is an open-end, diversified,
management investment company established as a Maryland corporation on March 18,
1998. The Fund is the successor to American Fidelity Variable Annuity Fund A
("Variable Annuity Fund A"), which was a separate account of American Fidelity
Assurance Company (the "Company") that managed its own investment portfolio. The
original inception date for Variable Annuity Fund A was January 1, 1970.
Variable Annuity Fund A was converted from a management investment company into
a unit investment trust ("Separate Account A") effective January 1, 1999, and
the assets of Variable Annuity Fund A were transferred intact to the Fund in
exchange for shares of the Fund.
Shares of the Fund are offered only to variable annuity separate accounts
established by insurance companies to fund variable annuity contracts.
The Company serves as the Fund's investment adviser. The Company has engaged
Lawrence W. Kelly & Associates, Inc. ("Kelly") and Todd Investment Advisors,
Inc. ("Todd Investment") to serve as sub-advisers (together, the "Sub-Advisers")
to the Fund and provide day-to-day portfolio management for the Fund.
INVESTMENT GOALS AND POLICIES
INVESTMENT GOALS
The Fund's primary investment goal is long-term capital growth. Its secondary
investment goal is the production of income.
FUND POLICIES
The Fund has adopted the fundamental policies listed below. These policies
cannot be changed without approval by the holders of a "majority of the
outstanding voting securities" of the Fund, which, as used in this Statement of
Additional Information and the Prospectus, and under the Investment Company Act
of 1940, means the lesser of (i) 67% or more of the outstanding voting
securities of the Fund present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund are present or represented by
proxy, or (ii) more than 50% of the outstanding voting securities of the Fund.
(1) Not more than 5% of the value of the Fund's assets will be
invested in securities of any one issuer, except obligations of the U.S.
Government and instrumentalities thereof.
(2) Not more than 10% of the voting securities of any one issuer will
be acquired.
2
<PAGE> 20
(3) Not more than 25% of the value of the Fund's assets will be
invested in any one industry.
(4) No borrowings will be made except that the right is reserved to
borrow from banks for emergency purposes, provided that such borrowings do
not exceed 5% of the value of the assets of the Fund and that there always
will be asset coverage of at least 300% for all outstanding borrowings of
the Fund.
(5) The Fund will not act as an underwriter of securities of other
issuers, except to the extent that the Fund might be construed to be a
statutory underwriter by virtue of its investment in restricted securities.
(6) Not more than 10% of the value of the assets of the Fund may be
invested in real estate (including shares of real estate investment
trusts), securities for which there is no established market, or securities
(including bonds, notes or other evidences of indebtedness) which are not
readily marketable without registration under Federal or state securities
laws.
(7) No purchase of commodities or commodity contracts will be
effected.
(8) The Fund may not engage in the purchase or sale of puts, calls or
other options or in writing such options.
(9) Loans will not be made except through the acquisition of bonds,
debentures or other evidences of indebtedness of a type customarily
purchased by institutional investors, whether or not publicly distributed.
(10) Investment will not be made in the securities of a company for
the purpose of exercising management or control.
(11) Although it is not intended that investments be made in
securities of other investment companies, the Fund may make such
investments up to a maximum of 10% of its assets, provided that not more
than 3% of the total outstanding voting stock of any one investment company
may be held.
(12) Investments in repurchase agreements will be limited to the top
thirty-five 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.
(13) Short sales of securities will not be made.
3
<PAGE> 21
(14) Purchases will not be made on margin, except for such short-term
credits as are necessary for the clearance of transactions.
(15) Investments in high-yield or non-investment grade bonds will not
be made.
(16) Investments in the equity securities of foreign issuers will be
limited to American Depositary Receipts ("ADRs"), other depository receipts
or ordinary shares if U.S. dollar denominated and publicly traded in the
United States. Not more than 35% of the Fund's assets will be invested in
foreign issuers. In addition, not more than 20% of the Fund's assets will
be invested in issuers of any one foreign country.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in the value of
assets will not constitute a violation of that restriction.
The Fund has also adopted the following non-fundamental investment policies:
(1) The Fund should generally conform to the issuer guidelines noted
below with exceptions noted at the time of recommendation and variances
reviewed annually:
(a) $150,000,000 or more in assets,
(b) Operational for at least 10 years, and
(c) $50,000,000 or more in stockholders' equity.
(2) Although the Fund does not intend to engage to a large extent in
short-term trading, it may make investments for the purpose of seeking
short-term capital appreciation.
(3) The Fund will not invest in the securities of tobacco-producing
companies.
TEMPORARY INVESTMENTS
A Sub-Adviser may determine that pursuing its investment strategy is
inconsistent with the best interest of the Fund's shareholders as a result of
current market and economic conditions. In this case, for temporary defensive
purposes, the Fund may invest its assets in securities which are a direct
obligation or guaranteed by the United States government, bonds, notes or other
evidences of indebtedness, issued publicly or privately, of a type customarily
purchased for investment by institutional investors.
4
<PAGE> 22
MANAGEMENT
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus captioned "The Fund's Management."
DIRECTORS AND OFFICERS
The Fund's board of directors is responsible for overseeing the management of
the Fund, including the establishment and supervision of the Fund's investment
goals and policies, reviewing and approving the Fund's contracts and other
arrangements, and monitoring the Fund's performance and operations. The officers
of the Fund supervise daily business operations.
Information about each director and officer of the Fund follows:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE* WITH FUND DURING PAST 5 YEARS
- ---------------------- ---------------- -----------------------
<S> <C> <C>
John W. Rex, 66 Chairman of the Board, Director (1982 to present), President and Chief
2000 N. Classen Boulevard President and Operating Officer (1992 to present), and
Oklahoma City, OK 73106 Treasurer(1) Treasurer (1972 to 1995) of the Company;
Director (1982 to present), Executive Vice
President (1990 to present) and Treasurer (1972
to 1995) of American Fidelity Corporation
Daniel D. Adams, Jr., 57 Director and Vice President and Investment Officer of the
2000 N. Classen Boulevard Secretary(1) Company and American Fidelity Corporation
Oklahoma City, OK 73106
Jean G. Gumerson, 77 Director President and Chief Executive Officer,
711 Stanton L. Young Blvd., Presbyterian Health Foundation
Suite 604
Oklahoma City, OK 73104
Gregory M. Love, 37 Director President and Chief Operating Officer (1995 to
10601 N. Pennsylvania Avenue present), Vice President -- Real Estate and
Oklahoma City, OK 73120 Development (1990 to 1995) of Love's Country
Stores, Inc.; Director, Affiliated Food Stores,
Inc.
J. Dean Robertson, D.D.S., Director Private practice in pediatric dentistry;
M.Ed., 82 Professor Emeritus, University of Oklahoma,
5222 North Portland College of Dentistry
Oklahoma City, OK 73112
G. Rainey Williams, Jr., 39 Director President and Chief Operating Officer, Marco
6301 N. Western Holding Corporation (1999); Managing Partner,
Suite 200 Marco Investment Company A Limited Partnership
Oklahoma City, OK 73118 (1988 to 1998); Director, Mustang Fuel
Corporation.
</TABLE>
- ---------------
* As of May 1, 2000.
(1) "Interested person" of the Fund under Section 2(a)(19) of the 1940 Act.
5
<PAGE> 23
Until January 1, 1999, all members of the Board of Directors were members of the
Board of Managers of the Fund's predecessor, Variable Annuity Fund A.
No officer or director of the Fund or the Company receives any remuneration from
the Fund. Members of the Fund's Board of Directors who are not employees of the
Company receive a fee, paid by the Company, of $500 for each meeting attended.
The Fund and its investment adviser and principal underwriter each adopted a
code of ethics under rule 17j-1 of the Investment Company Act. Each of these
codes of ethics permits personnel subject to the codes to invest in securities;
however, personnel subject to the codes are subject to certain restrictions when
purchasing securities that may be purchased or held by the fund.
CONTROL PERSONS
A shareholder that owns more than 25% of the Fund's voting securities may be
deemed to be a "control person," as defined in the 1940 Act, of the Fund. The
Company is the sole shareholder of record of the Fund. The only person known by
the Fund to own beneficially 5% or more of the Fund's shares is American
Fidelity Companies Employee Savings Plan Trust (7.06% as of April 5, 2000). Its
address is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106. The only
officers or directors of the Fund who beneficially own shares of the Fund are
Messrs. Rex, Carpenter, Klehm and Adams. They are participants in the Trust and
therefore beneficially own Fund shares. Their beneficial ownership percentage,
together, as of April 5, 2000, was .04%.
INVESTMENT ADVISORY AND OTHER SERVICES
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus captioned "The Fund's Management."
INVESTMENT ADVISER
The Company provides management services and serves as the investment adviser to
the Fund pursuant to a Management and Investment Advisory Agreement. Under this
Agreement, the Company assumes overall responsibility, subject to the
supervision of the Board of Directors, for administering all operations of the
Fund, including monitoring and evaluating the management of the Fund's portfolio
by the Sub-Advisers on an ongoing basis. The Company provides or arranges for
the provision of the overall business management and administrative services
necessary for the Fund's operations. The Company is also responsible for
overseeing the Fund's compliance with the requirements of applicable law and
conformity with the Fund's investment goals and policies, including oversight of
the Sub-Advisers.
6
<PAGE> 24
For its services to the Fund, the Company receives an annual management and
investment advisory fee of 0.50% of the average daily net assets of the Fund.
The Company supplies or pays for occupancy and office rental, clerical and
bookkeeping, accounting, stationery, supplies, the expenses of printing and
distributing any prospectuses, reports or sales literature in connection with
the sale of Fund shares, salaries and other compensation of the Fund's directors
and officers, costs of shareholder reports and meetings, costs of any
independent pricing service, the cost of any advertising, the Sub-Advisers'
fees, custodian fees, legal and auditing fees, registration and filing fees, and
all ordinary expenses incurred in the ordinary course of business.
The Company received investment and management fees from Variable Annuity Fund
A, the Fund's predecessor, of $598,100 in 1997, and $793,700 in 1998, and
$1,024,035 in 1999, from the Fund, pursuant to a management and investment
advisory agreement having the same fee arrangement as the Agreement with the
Fund from and after July 1, 1996 (previously provided for an annual fee of .325%
of average daily net assets).
The Management and Investment Advisory Agreement was approved for the Fund by
the Board of Directors, including a majority of the directors who are not
"interested persons," as defined in the 1940 Act, on September 18, 1998 and by
the Fund's sole shareholder on December 22, 1998. The Agreement will remain in
effect from year to year, provided that it will not continue for more than two
years unless such continuance is approved at least annually by the Fund's Board
of Directors, including a majority of the members of the Board of Directors who
are not interested persons by vote cast in person at a meeting called for the
purpose of voting on such approval. The Agreement is terminable without penalty,
on 60 days' notice, by the Fund's Board of Directors or by the vote of the
holders of a majority of the Fund's shares. The Company may not terminate the
Agreement without the approval of a new investment advisory agreement by a
majority of the Fund's shares. The Agreement will terminate automatically in the
event of its "assignment," as defined in the 1940 Act.
American Fidelity Corporation is the parent of the Company. American Fidelity
Corporation is itself controlled by Cameron Enterprises, A Limited Partnership
("CELP"), a family investment partnership. William M. Cameron, an individual,
and Lynda L. Cameron, an individual, each own 50% of the Common Stock of Cameron
Associates, Inc., the sole general partner of Cameron Enterprises a Limited
Partnership.
SUB-ADVISERS
The Company has contracted with the Sub-Advisers to provide day-to-day portfolio
investment management services to the Fund. The fees of the Sub-Advisers are
paid by the Company. Kelly receives an annual fee of .30% of Fund assets under
its management. Todd Investment receives an annual fee of .38% of Fund assets
under its management or $50,000, whichever is greater. The Sub-Advisers' fees
are
7
<PAGE> 25
payable quarterly and, when based on Fund assets, are calculated on the value of
Fund assets on the last trading day of each calendar quarter.
Kelly and Todd served as investment sub-advisers to Variable Annuity Fund A, the
Fund's predecessor, from October 1995 to December 31, 1998 when they became
sub-advisers to the Fund. Pursuant to the Variable Annuity Fund A sub-advisory
agreements which contained the same fee arrangements as are in the Sub-Advisers'
Agreements with respect to the Fund, in 1997, 1998 and 1999, the Company paid
Kelly $182,050, $246,200 and $325,680, respectively, and Todd Investment
$234,600, $315,500 and $387,625, respectively.
The Investment Sub-Advisory Agreement for each of the Sub-Advisers was approved
for the Fund by the Board of Directors, including a majority of the directors
who are not "interested persons," as defined in the 1940 Act, on September 18,
1998 and by the sole shareholder of the Fund on December 22, 1998. Each
Agreement will remain in effect from year to year provided such continuance is
approved at least annually by the Fund's Board of Directors, including a
majority of the members of the Board of Directors who are not interested persons
by vote cast in person at a meeting called for the purpose of voting on such
approval. Each Agreement is terminable without penalty, on 30 days' notice, by
the Company, the Fund's Board of Directors or by the vote of the holders of a
majority of the Fund's shares or, upon 30 days' notice, by the Sub-Adviser. Each
Agreement will terminate automatically in the event of its "assignment," as
defined in the 1940 Act.
Lawrence W. Kelly and his wife, Janice M. Kelly, are the principal shareholders
of Kelly, each holding 48.8% of Kelly's outstanding stock. Todd Investment is a
wholly-owned subsidiary of Fort Washington Investment Advisors, Inc., which is a
wholly-owned subsidiary of The Western and Southern Life Insurance Company.
PORTFOLIO TRANSACTIONS
Each of the Sub-Advisers is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers to effect transactions and the
negotiation of brokerage commissions, in each case with respect to Fund
securities under its management. Neither Sub-Adviser nor any of their respective
affiliates may act as a broker for Fund securities transactions.
In selecting a broker to execute portfolio transactions, Kelly's objective is to
obtain the best execution, while at the same time obtaining research used to
service its clients. The selection of a broker takes into account the quality of
brokerage services, including such factors as execution capability, financial
stability and clearance and settlement capability. Research furnished by brokers
may be used in serving any or all of Kelly's clients, including clients which
have not paid commissions to the broker providing the research. Kelly evaluates
the reasonableness of brokerage commissions on an on-going basis in light of the
general level of commissions being paid from time to time and the value of
research services received. In order to obtain lower commission rates for
clients, Kelly engages from time to time in block trades, i.e.,
8
<PAGE> 26
grouping orders with a single broker. Accounts involved in such transactions
receive the average executed price, except that brokers may charge smaller
accounts a minimum commission resulting in smaller accounts paying slightly more
in commissions per share than larger accounts.
In selecting brokers to effect portfolio transactions, Todd Investment uses its
best efforts to obtain for its clients the most favorable price and execution
available except to the extent that it determines that clients should pay a
higher brokerage commission for brokerage and research services. In evaluating
the overall reasonableness of brokerage commissions paid, Todd Investment
reviews the type and quality of the execution services rendered and the quantity
and nature of the portfolio transactions effected and compares generally the
commissions paid to brokers with the commissions believed to be charged by other
brokers for effecting similar transactions as well as with commissions generally
charged by brokers prior to the introduction of negotiated commission rates. In
addition, it takes into account the quality and usefulness of the brokerage and
research services, if any, that may be furnished by such brokers. Research
services provided by brokers may be used by Todd Investment in advising all of
its clients and not all such services may be used by the clients which paid the
commissions. Conversely, however, a client of Todd Investment may benefit from
research services provided by brokers whose commissions are paid by other
clients. As a result, Todd Investment may cause clients to pay a broker which
provides brokerage and research services to Todd Investment a higher brokerage
commission than would have been charged by another broker which was not
providing such services.
Research services provided by brokers may include research reports on companies,
industries and securities; economic and financial data, including reports on
macro-economic trends and monetary and fiscal policy; financial publications;
computer data bases; quotation equipment and services; and research-oriented
computer hardware, software and services.
For the years 1997 and 1998, the Fund's predecessor, Variable Annuity Fund A,
paid brokerage commissions of $90,500 and $152,900, and in 1999, $177,452 was
paid by the Fund.
CAPITAL STOCK
Each issued and outstanding share of the Fund is entitled to participate equally
in dividends and distributions declared for the Fund's stock and, upon
liquidation or dissolution, in the Fund's net assets remaining after
satisfaction of outstanding liabilities. The outstanding shares of the Fund are
fully paid and non-assessable and have no preemptive or conversion rights.
Under normal circumstances, subject to the reservation of rights explained
below, the Fund will redeem shares in cash within seven days. However, the right
of a shareholder to redeem shares and the date of payment by the Fund may be
suspended for more than seven days for any period during which the New York
9
<PAGE> 27
Stock Exchange is closed, other than customary weekends or holidays, or when
trading on such Exchange is restricted as determined by the SEC; or during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or fairly to
determine the value of its net assets; or for such other period as the SEC may
by order permit for the protection of shareholders.
Under Maryland law, the Fund is not required to hold annual shareholder meetings
and does not intend to do so. At any special meeting, shareholders present or
represented by proxy at the meeting are entitled to one vote for each share
held.
FEDERAL TAX MATTERS
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus captioned "Distributions and Taxes."
The following is a general and abbreviated summary of the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code") and Treasury
Regulations currently in effect. It is not intended to be a complete explanation
or a substitute for consultation with individual tax advisers. For the complete
provisions, reference should be made to the pertinent Code sections and the
Treasury Regulations promulgated thereunder. The Code and Treasury Regulations
are subject to change.
FEDERAL INCOME TAX STATUS
Regulated Investment Company
The Fund intends to qualify and to continue to qualify as a regulated investment
company under the Code. If the Fund qualifies as a regulated investment company,
the Fund will not be subject to U.S. federal income tax on its investment
company taxable income and net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, that it distributes
to shareholders.
To qualify as a regulated investment company under the Code for a taxable year,
the Fund must (i) be registered under the 1940 Act at all times during the
taxable year (see "Registration" below), (ii) have in effect an election to be a
regulated investment company at all times during the taxable year (see
"Election" below), (iii) derive at least 90% of its gross income from certain
sources (see "Sources of Gross Income" below), and (iv) diversify its assets in
accordance with certain requirements (see "Diversification of Assets" below).
To be treated as a regulated investment company under the Code for a taxable
year, the Fund must (i) distribute dividends to its shareholders in accordance
with certain requirements (see "Distribution of Dividends" below), and (ii)
have, at the close of such taxable year, no earnings and profits accumulated in
any taxable year to which
10
<PAGE> 28
the provisions of the Code pertaining to regulated investment companies did not
apply (see "Earnings and Profits" below).
This disclosure assumes that the Fund will qualify and be treated as a regulated
investment company under the Code for each taxable year.
Registration
The Fund can qualify as a regulated investment company under the Code if it is
registered under the 1940 Act as a management company. The Fund is currently
registered under the 1940 Act as a management company and intends to continue
such registration in future tax years.
Election
To qualify as a regulated investment company under the Code, the Fund must file
with its federal income tax return an election to be a regulated investment
company. The Fund intends to file such an election with its federal income tax
return for the tax year ended December 31, 1999 and intends to maintain such
election for future tax years.
Sources of Gross Income
To qualify as a regulated investment company under the Code for a taxable year,
the Fund must generally derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities or foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies. The Fund expects that at least 90% of its gross income for each
taxable year will be derived from these types of income.
Diversification of Assets
To qualify as a regulated investment company under the Code for a taxable year,
the Fund must have:
(1) at the close of each quarter of the Fund's taxable year, at least 50%
of the value of its total assets represented by cash, cash items (including
receivables), United States Government securities, securities of other
regulated investment companies, and other securities which, in respect of
any one issuer, do not exceed 5% of the value of the Fund's total assets
and do not represent more than 10% of the outstanding voting securities of
such issuer; and
(2) not more than 25% of the value of the Fund's total assets invested in
the securities (other than United States Government securities or the
securities of
11
<PAGE> 29
other regulated investment companies) of any one issuer, or of two or more
issuers which the Fund controls and which are determined, under the
Treasury Regulations, to be engaged in the same or similar trades or
businesses or related trades or businesses.
Distribution of Dividends
To be treated as a regulated investment company for a taxable year, the Fund
must pay dividends equal to at least 90% of its investment company taxable
income and 90% of its net tax-exempt income.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by the Fund in October, November or December with a
record date in such a month and paid by the Fund during January of the following
calendar year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received.
Earnings and Profits
To be treated as a regulated investment company for a taxable year, the Fund
must not have, as of the close of such taxable year, earnings and profits
accumulated in any taxable year to which the provisions under the Code relating
to regulated investment companies did not apply.
STATE INCOME TAX STATUS
The Fund is organized as a Maryland corporation. Under Maryland tax law, the
Fund is not liable for any income or franchise tax in the State of Maryland if
the Fund qualifies as a regulated investment company under the Code and does not
have taxable income for federal income tax purposes.
TAXATION OF VARIABLE ANNUITY CONTRACTS
For a discussion of the tax consequences of variable annuity contracts, you
should refer to the accompanying separate account prospectus.
UNDERWRITER
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.
AFS receives no compensation for the sale of Fund shares.
12
<PAGE> 30
PERFORMANCE DATA
The following information supplements and should be read in conjunction with the
section in the Fund's Prospectus captioned "Past Performance."
From time to time, the Fund may include quotations of its performance in
advertisements, shareholder reports or sales literature, if accompanied by the
performance of your separate account.
The Fund's total return for the twelve months ended December 31, 1999 and
average annual total returns over the one, five and ten year periods ended
December 31, 1999 were 18.47%, 27.10% and 17.17%, respectively. Average annual
total return quotations are computed by finding the average annual compounded
rates of return over one, five and ten year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)(n)=ERV
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV= ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the one, five or ten-year period at the end
of the one, five and ten-year periods.
The Fund may also disclose cumulative total returns in conjunction with the
standardized returns described above. The Fund's cumulative total returns for
the one, five and ten year time periods ended December 31, 1999 were 18.47%,
231.69% and 387.65%, respectively. Total return is calculated by subtracting the
initial investment from the value at the end of the period, and dividing the
result by the initial investment.
Any performance data quoted for the Fund will represent historical performance
and should not be considered representative of the performance of the Fund in
the future. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost.
As the successor to Variable Annuity Fund A, the Fund treats the historical
performance data of Variable Annuity Fund A as its own for periods prior to
January 1, 1999. In computing returns for these periods, the Fund deducts only
the type of charge currently imposed by the Fund (i.e., the management and
investment advisory fee). The Fund's performance data, both before January 1,
1999 and from that date forward, do not reflect any sales, insurance or other
charges imposed under the annuity contracts supported by the Fund. These factors
and possible differences in the methods used to calculate total return should be
considered when comparing
13
<PAGE> 31
the total return of the Fund to total returns published for other investment
companies or other investment vehicles.
In communicating with current or prospective shareholders, the Fund may also
compare its performance to the performance of
- - other mutual funds tracked by mutual fund rating services,
- - various indices and
- - investments for which reliable performance data are available.
The performance figures of unmanaged indices may assume reinvestment of
dividends but generally do not reflect deductions for commissions or
administrative and management costs. The performance of the Fund may be compared
to averages, performance rankings or other information prepared by recognized
mutual fund statistical services. Evaluations of the Fund's performance made by
independent sources may also be used in advertisements concerning the Fund.
CUSTODIAN, INDEPENDENT ACCOUNTANTS AND COUNSEL
InvesTrust, N.A., 6301 N. Western, Suite 210, Oklahoma City, Oklahoma 73118,
holds cash, securities and other assets of the Fund as required by the 1940 Act.
Under its agreement with the Fund, InvesTrust, N.A., which is an indirect
subsidiary of American Fidelity Corporation, holds the Fund's portfolio
securities and keeps all necessary accounts and records. As compensation for its
services as custodian, InvesTrust receives a monthly fee of $2.50 for each
depository-eligible issue ($6.00 for each non-eligible issue), transaction fees
ranging from $18.00 to $100.00 per transaction for depository-eligible issues
($34.00 to $100.00 for physical issues), a $10.00 fee for each wire transfer,
and an annual fee of $950.
This Statement of Additional Information contains financial statements for the
Fund and the Fund's predecessor, Variable Annuity Fund A. KPMG LLP, 700 Oklahoma
Tower, 210 Park Avenue, Oklahoma City, Oklahoma 73102 serves as independent
public accountants for the Fund.
McAfee & Taft A Professional Corporation, 10th Floor, Two Leadership Square, 211
North Robinson, Oklahoma City, Oklahoma 73102-7103, serves as counsel to the
Fund.
FINANCIAL STATEMENTS
Following are the financial statements of the Fund and its predecessor.
14
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
American Fidelity Dual Strategy Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of American
Fidelity Dual Strategy Fund, Inc. (the Fund), including the schedule of
portfolio investments, as of December 31, 1999, and the related statements of
operations, changes in net assets, and the financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit 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, 1999, by
correspondence with the custodian. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Fidelity Dual Strategy
Fund, Inc. as of December 31, 1999, and the results of its operations, changes
in its net assets, and its financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
January 17, 2000
15
<PAGE> 33
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<S> <C>
Cash $ --
Investments, at market value (cost $196,949,647) 229,013,021
Accrued interest and dividends 240,391
------------
Total assets 229,253,412
Total liabilities --
------------
Net assets $229,253,412
============
Composition of net assets:
Net capital paid in on shares of capital stock $194,288,069
Undistributed net investment income 2,012,121
Accumulated net realized gains 889,848
Unrealized appreciation on investments 32,063,374
------------
Net assets (equivalent to $11.847 per share based on
19,351,516 shares of capital stock outstanding) $229,253,412
============
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 34
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Statement of Operations
Year ended December 31, 1999
<TABLE>
<S> <C>
Investment income:
Income:
Dividends $ 2,783,854
Interest 252,302
-----------
3,036,156
Expenses:
Investment management fees (note 2) 1,024,035
-----------
Net investment income 2,012,121
-----------
Realized gains on investments:
Proceeds from sales 73,672,594
Cost of securities sold 72,782,746
-----------
Net realized gains 889,848
-----------
Unrealized appreciation on investments:
End of year 32,063,374
Beginning of year --
-----------
Increase in unrealized appreciation 32,063,374
-----------
Net increase in net assets resulting
from operations $34,965,343
===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 35
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Statement of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<S> <C>
Increase in net assets from operations:
Net investment income $ 2,012,121
Net realized gains on investments 889,848
Increase in unrealized appreciation on investments 32,063,374
-------------
Net increase in net assets resulting from operations 34,965,343
-------------
Changes from capital stock transactions:
Shares sold 199,004,011
Shares issued in reinvestment of dividends
and distributions --
Shares redeemed (4,715,942)
-------------
Increase in net assets derived from capital
stock transactions 194,288,069
-------------
Increase in net assets 229,253,412
Net assets:
Beginning of year --
-------------
End of year $ 229,253,412
=============
Capital stock shares:
Shares sold 19,791,437
Shares issued in reinvestment of dividends
and distribution --
Shares redeemed (439,921)
-------------
Outstanding, end of year 19,351,516
=============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 36
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Financial Highlights
December 31, 1999
<TABLE>
<S> <C>
Investment income and expenses:
Investment income $ .1603
Operating expenses .0541
-----------------
Net investment income .1062
Capital changes:
Net realized and unrealized gains (losses) from securities 1.7406
-----------------
Net increase (decrease) in net asset unit value 1.8468
Net asset unit value, beginning of period 10.0000
-----------------
Net assets unit value, end of period $ 11.8468
=================
Net assets outstanding end of period $ 229,253,412
=================
Ratios:
Ratio of expenses to average net assets 0.5000%
Ratio of net investment income to average net assets 0.9840%
Portfolio turnover rate 37.5%
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 37
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Schedule of Portfolio Investments
December 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ---------- ----------
<S> <C> <C> <C>
Common stocks:
Business Services:
Automatic Data Processing 68,000 $3,663,500
Computer Associates International, Inc. 25,800 1,804,375
Computer Sciences Corporation * 36,000 3,406,500
Compuware Corporation * 30,000 1,117,500
Interpublic Group Companies, Inc. 112,000 6,460,944
Microsoft Corporation * 81,800 9,550,150
Sungard Data Systems * 45,000 1,068,750
Sterling Commerce, Inc. 30,000 1,021,860
WPP Group PLC ** 71,000 5,901,875
----------
33,995,454 14.83%
----------
Electronic and Other Electric Equipment:
General Electric Company 61,600 9,532,600
Intel Corporation 90,400 7,441,005
Koninklijke Philips Electronics, N.V. ** 34,040 4,595,400
Lucent Technologies 67,000 5,012,404
Nokia Corporation ** 12,000 2,280,000
----------
28,861,409 12.59%
----------
Chemicals and Allied Products:
Abbott Laboratories 33,600 1,220,083
Avery Dennison Corporation 55,800 4,066,425
Bristol-Myers Squibb Company 76,800 4,929,562
Eli Lilly & Company 63,800 4,242,700
Merck & Company, Inc. 23,400 1,569,250
Pfizer, Inc. 43,800 1,420,741
----------
17,448,761 7.61%
----------
Petroleum Refining and Related Industries:
Chevron Corporation 31,600 2,737,350
Coastal Corporation 46,000 1,630,102
Conoco, Inc. - Class B 38,688 962,364
Exxon Mobil Corporation 27,723 2,233,420
Royal Dutch Petroleum ** 68,200 4,121,803
Texaco, Inc. 75,700 4,111,418
----------
15,796,457 6.89%
----------
</TABLE>
See accompanying notes to financial statements.
20 (Continued)
<PAGE> 38
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Schedule of Portfolio Investments
December 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ---------- ----------
<S> <C> <C> <C>
Common stocks, continued:
Insurance Carriers:
AFLAC, Inc. 84,800 $4,001,458
American General Corporation 42,000 3,186,750
American International Group 36,562 3,953,266
MGIC Investment Corporation 43,000 2,588,041
----------
13,729,515 5.99%
----------
Depository Institutions:
Bank of America Corporation 62,032 3,113,200
The Chase Manhattan Corporation 36,300 2,820,038
Citigroup, Inc. 61,000 3,389,282
First Union Corporation 29,484 967,429
J.P. Morgan & Company, Inc. 10,000 1,266,250
Regions Financial Corporation 17,600 442,200
Wachovia Corporation 20,000 1,360,000
----------
13,358,399 5.83%
----------
Industrial Machinery and Equipment:
Cisco Systems, Inc. * 52,400 5,613,350
Hewlett-Packard Company 16,400 1,868,567
United Technologies Corporation 76,000 4,940,000
----------
12,421,917 5.42%
----------
General Merchandise Stores:
Dayton Hudson Corporation 108,000 7,931,196
Dollar General 47,500 1,080,625
----------
9,011,821 3.93%
----------
Communications:
Bell Atlantic Corporation 31,792 1,957,179
GTE Corporation 34,800 2,455,558
MCI Worldcom, Inc. * 28,500 1,512,267
SBC Communications, Inc. 59,182 2,885,122
----------
8,810,126 3.84%
----------
</TABLE>
See accompanying notes to financial statements.
21 (Continued)
<PAGE> 39
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Schedule of Portfolio Investments
December 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ---------- ----------
<S> <C> <C> <C>
Common stocks, continued:
Non-Depository Institutions:
American Express Company 19,600 $3,258,500
FNMA 34,400 2,147,833
MBNA Corporation 87,750 2,391,187
----------
7,797,520 3.40%
----------
Miscellaneous Manufacturing Industries:
Tiffany & Company 56,400 5,033,700
Tyco International, Ltd.** 58,000 2,254,750
----------
7,288,450 3.18%
----------
Food and Kindred Products:
Anheuser-Busch Companies, Inc. 31,000 2,197,125
The Coca-Cola Company 32,800 1,910,600
Pepsico, Inc. 73,000 2,573,250
----------
6,680,975 2.91%
----------
Paper & Allied Products:
Kimberly-Clark Corporation 45,000 2,936,250
Willamette Industries 47,000 2,182,539
----------
5,118,789 2.23%
----------
Electric, Gas, Sanitary Services:
Duke Energy Corporation 37,000 1,854,625
Northern States Power Company 45,000 877,500
Teco Energy, Inc. 55,500 1,030,191
Texas Utilities Company 34,500 1,226,889
----------
4,989,205 2.18%
----------
Holding Companies and Other Investment Offices:
Archstone Communities Trust 40,000 820,000
Duke-Weeks Realty corporation 30,000 585,000
First Industrial Realty Trust 35,000 960,295
Mack-Cali Realty Corporation 31,400 818,347
Simon Property Group, Inc. 30,000 688,110
Spieker Properties, Inc. 24,000 874,488
----------
4,746,240 2.07%
----------
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 40
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Schedule of Portfolio Investments
December 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ---------- -----------
<S> <C> <C> <C>
Common stocks, continued:
Nondurable Goods-Wholesale:
Cardinal Health, Inc. 97,700 $1,196,875
Safeway, Inc.* 25,000 3,474,407
----------
4,671,282 2.04%
----------
Transportation Equipment:
Ford Motor Company 28,000 1,496,236
Honeywell International, Inc. 53,000 3,057,411
----------
4,553,647 1.99%
----------
Miscellaneous Retail:
Costco Wholesale Corporation* 48,900 4,462,125
----------
4,462,125 1.95%
----------
Durable Goods, Wholesale
Johnson & Johnson 44,000 4,097,500
----------
4,097,500 1.79%
----------
Building Material, Hardware and Gardening Supplies:
Home Depot, Inc. 54,000 3,702,348
----------
3,702,348 1.61%
----------
Home Furniture and Equipment Store:
Circuit City Stores - Circuit City Group 56,000 2,523,472
----------
2,523,472 1.10%
----------
Rubber and Miscellaneous Plastic Products:
Sealed Air Corporation 42,000 2,176,104
----------
2,176,104 0.95%
----------
Personal Services:
H & R Block, Inc. 39,300 1,719,375
----------
1,719,375 0.75%
----------
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 41
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Schedule of Portfolio Investments
December 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
---------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ------------ -----------
<S> <C> <C> <C>
Common stocks, continued:
Security and Commodity Brokers:
The Charles Schwab Corporation 41,000 1,573,375
------------
1,573,375 0.69%
------------
Eating and Drinking Places:
McDonald's Corporation 32,000 1,289,984
------------
1,289,984 0.56%
------------
Transportation by Air:
Delta Air Lines, Inc. 24,000 1,195,488
------------
1,195,488 0.52%
------------
Oil and Gas Extraction:
Atlantic Richfield Company 13,000 1,124,500
------------
1,124,500 0.49%
------------
Primary Metal Industries:
Engelhard Corporation 58,000 1,094,750
------------
1,094,750 0.48%
------------
------------ ------
Total common stocks (cost $192,175,615) $224,238,989 97.82%
------------ ------
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 42
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Schedule of Portfolio Investments
December 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
-------------------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
------------ ------------ ---------------
<S> <C> <C> <C>
Short-term investments:
Associates Corporation of
North America Master Note
(5.01% at December 31, 1999) 4,774,032 $ 4,774,032
------------ ------------
Total short-term investments 4,774,032 2.08%
------------
Total investments (cost $196,949,647) 229,013,021 99.90%
Other assets and liabilities, net 240,391 0.10%
------------ ------
Total net assets $229,253,412 100.00%
============ ======
</TABLE>
* Presently not producing dividend income
** Foreign investments
See accompanying notes to financial statements.
25
<PAGE> 43
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Notes to Financial Statements
December 31 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
American Fidelity Dual Strategy Fund, Inc. (the Fund) is
registered as an open-end, diversified management investment
company under the Investment Company Act of 1940, as amended. The
assets of the Fund were formerly held by American Fidelity
Variable Annuity Fund A (Variable Annuity Fund A), which operated
as an open-end diversified management investment company from 1968
to 1998, and was a separate account of American Fidelity Assurance
Company (AFA). Effective January 1, 1999, Variable Annuity Fund A
was converted to a unit investment trust, known as American
Fidelity Separate Account A (Account A), a separate account of
AFA. Also effective January 1, 1999, the Fund was established and
Account A transferred its investment portfolio to the Fund in
exchange for shares of the Fund.
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.
Shares of the Fund are only available to separate accounts of AFA
or other insurance companies to fund the benefits of variable
annuity contracts.
(b) 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 Bloomberg L.P.
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 using the specific identification method on a first in,
first out basis. Security transactions are accounted for on a
trade 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 experience (gains
or losses) incurred by investment in such securities are paid by
the Fund and are recorded as reductions of dividend income. The
Fund does not expect these costs to be significant.
The Fund intends to make income and capital gains distributions,
if any, on an annual basis. All distributions will be reinvested
in additional shares of the portfolio at net assets value.
26 (Continued)
<PAGE> 44
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Notes to Financial Statements
December 31 1999
In 1999, the cost of purchases and proceeds from sales of
securities, other than short-term securities, were $264,958,361
and $73,672,594, respectively.
At December 31, 1999, the cost basis of investments for financial
reporting purposes equaled the cost basis for federal income tax
purposes. The gross unrealized appreciation and depreciation on
investments at December 31, 1999, were $42,760,541 and
($10,697,167), respectively.
(c) INCOME TAXES
Management of the Fund believes that the Fund will continue to
qualify as a "regulated investment company" under subchapter M of
the Internal Revenue Code. Qualification as a regulated investment
company relieves the Fund of any liability for federal income
taxes to the extent its earnings are distributed in accordance
with the applicable provisions of the Code.
(d) 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) TRANSACTIONS WITH AFFILIATES
The Fund receives investment management and advisory services under a
management agreement with AFA that provides for fees to be paid to AFA at
an annual rate of 0.50% of the Fund's average daily net assets. AFA has
engaged two sub-advisors who receive fees equal to 0.30% and 0.38%,
respectively, of the Fund's daily net assets. The sub-advisors' fees are
paid by AFA.
AFA pays all other expenses of the Fund except investment advisory fees
and investment transactions costs. The Fund will not reimburse AFA at a
later time for any such amounts.
Certain officers and directors of the Fund are also officers and
directors of AFA.
(3) YEAR 2000 RISKS (UNAUDITED)
Like other variable annuity funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if
the computer systems used by AFA and the Fund's other service providers
do not properly process and calculate date-related information and data
from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." AFA has had a formal project team (including 22 information
systems professionals) working to correct the problem since 1996. In the
briefest terms, the correction is to change all date-related fields in
AFA's computer systems to four digits instead of two digits. At the same
time, all
27 (Continued)
<PAGE> 45
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
Notes to Financial Statements
December 31 1999
relationships with systems outside AFA must be checked for the same
change and all must be tested to determine that relationships continue to
be compatible. Conversion efforts were complete at December 31, 1999. AFA
and the Fund have not experienced any significant difficulties to-date
relating to Year 2000 issues, and management does not expect Year 2000
issues to have a significant impact on AFA's or the Fund's operations
subsequent to December 31, 1999.
28
<PAGE> 46
[LOGO] [KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Managers and Contract Owners
American Fidelity Variable Annuity Fund A:
We have audited the accompanying statement of assets and liabilities of American
Fidelity Variable Annuity Fund A (the Fund), including the schedule of portfolio
investments, as of December 31, 1998, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1998, by correspondence with the custodian. 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.
As discussed in note 3 to the financial statements, effective January 1, 1999,
the Fund was converted to a unit investment trust separate account.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Fidelity Variable
Annuity Fund A as of December 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the years in the
five-year period then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
January 12, 1999
29
<PAGE> 47
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<S> <C>
Cash 116,675
Investments, at market value (cost $108,296,970) 184,206,599
Accrued interest and dividends 225,175
-------------
Total assets 184,548,449
Total liabilities --
-------------
Net assets $ 184,548,449
=============
Accumulation units outstanding 7,584,332
=============
Net asset value per unit $ 24.3329
=============
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 48
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Statement of Operations
Year ended December 31, 1998
<TABLE>
<S> <C>
Investment income:
Income:
Dividends $ 2,248,472
Interest 237,909
-----------
2,486,381
Expenses:
Mortality and expense guaranty fees (note 2) 1,523,825
Investment management fees (note 2) 793,659
-----------
2,317,484
Net investment income 168,897
-----------
Realized gains on investments:
Proceeds from sales 63,452,797
Cost of securities sold 52,493,327
-----------
Net realized gains 10,959,470
-----------
Unrealized appreciation on investments:
End of year 75,909,629
Beginning of year 51,266,737
-----------
Increase in unrealized appreciation 24,642,892
-----------
Net increase in net assets resulting
from operations $35,771,259
===========
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 49
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Statements of Changes in Net Assets
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Increase in net assets from operations:
Net investment income $ 168,897 479,513
Net realized gains on investments 10,959,470 8,150,950
Increase in unrealized appreciation on investments 24,642,892 19,126,495
------------- -----------
Net increase in net assets resulting from operations 35,771,259 27,756,958
------------- -----------
Changes from principal transactions:
Net purchase payments received (note 2) 27,107,727 21,031,010
Withdrawal of funds (15,421,088) (10,526,816)
------------- -----------
Increase in net assets derived from principal transactions 11,686,639 10,504,194
------------- -----------
Increase in net assets 47,457,898 38,261,152
Net assets:
Beginning of year 137,090,551 98,829,399
------------- -----------
End of year $ 184,548,449 137,090,551
============= ===========
Accumulation units:
Outstanding, beginning of year 7,043,575 6,443,056
Increase for payments received 1,258,128 1,190,147
Decrease for withdrawal of funds (717,371) (589,628)
------------- -----------
Outstanding, end of year 7,584,332 7,043,575
============= ===========
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 50
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Financial Highlights
<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
------------------------------------------------------------------
YEARS ENDED DECEMBER 31
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment income and expenses:
Investment income $ .3370 $ .3284 $ .2817 $ .2163 $ .2105
Operating expenses .3141 .2576 .1882 .1364 .1193
---------- ---------- ---------- ---------- ----------
Net investment income .0229 .0708 .0935 .0799 .0912
Capital changes:
Net realized and unrealized
gains (losses) from securities 4.8468 4.0535 3.0468 3.0251 (0.7066)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
accumulation unit value 4.8697 4.1243 3.1403 3.1050 (.6154)
Accumulation unit value,
beginning of period 19.4632 15.3389 12.1986 9.0936 9.7090
---------- ---------- ---------- ---------- ----------
Accumulation unit value,
end of period $ 24.3329 $ 19.4632 $ 15.3389 $ 12.1986 $ 9.0936
========== ========== ========== ========== ==========
Number of accumulation units
outstanding, end of period 7,584,332 7,043,575 6,443,056 5,996,795 5,615,645
========== ========== ========== ========== ==========
Ratios:
Ratio of expenses to average
net assets 1.4603% 1.4603% 1.3777% 1.2880% 1.2826%
Ratio of net investment income
to average net assets 0.1070% 0.4042% 0.6850% 0.7542% 0.9797%
Portfolio turnover rate 40.1% 26.6% 36.9% 66.1% 43.5%
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 51
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Schedule of Portfolio Investments
December 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
Common stocks:
Chemicals and Allied Products:
Abbott Laboratories 33,600 $ 1,646,400
American Home Products Corporation 47,000 2,646,664
Avery-Dennison Corporation 84,400 3,803,233
Bristol-Myers Squibb Company 28,900 3,867,167
Dupont 14,400 764,093
Johnson & Johnson 44,000 3,690,500
Lilly Eli & Company 12,800 1,137,600
Merck & Company 11,700 1,727,938
Pfizer, Inc. 35,800 4,490,644
-----------
23,774,239 12.88%
-----------
Business Services:
Automatic Data Processing 34,000 2,726,358
Cisco Systems, Inc.* 80,250 7,448,162
Computer Associates International 25,800 1,099,725
Interpublic Group of Companies 25,500 2,033,625
Microsoft Corporation* 41,400 5,741,642
WPP Group PLC** 39,000 2,408,250
-----------
21,457,762 11.63%
-----------
Electronic and Other Electric Equipment:
General Electric Company 61,600 6,287,018
Intel Corporation 45,200 5,359,003
Lucent Technologies 35,000 3,850,000
Phillips Electronics NV 37,000 2,504,419
-----------
18,000,440 9.75%
-----------
Petroleum and Coal Products:
Chevron Corporation 31,600 2,620,809
Exxon Corporation 26,000 1,901,250
Kerr-McGee Corporation 44,000 1,683,000
Royal Dutch Petroleum 61,200 2,929,950
Texaco, Inc. 55,200 2,918,700
-----------
12,053,709 6.53%
-----------
</TABLE>
See accompanying notes to financial statements.
(Continued)
34
<PAGE> 52
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Schedule of Portfolio Investments
December 31,1998
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
Common stocks, continued:
Food and Kindred Products:
Anheuser-Busch Companies, Inc. 31,000 2,034,375
The Coca-Cola Company 53,600 3,584,500
Pepsico, Inc. 58,000 2,374,346
Sara Lee Corporation 103,000 2,903,261
-----------
10,896,482 5.91%
-----------
Industrial Machinery and Equipment:
Compaq Computer Corporation 80,000 3,354,960
Hewlett-Packard Company 16,400 1,120,317
IBM Corporation 11,800 2,180,050
United Technologies 32,500 3,534,375
-----------
10,189,702 5.52%
-----------
Depository Institutions:
First Union Corporation 29,484 1,792,981
MBNA 87,750 2,188,222
Mellon Bank Corporation 35,000 2,406,250
J.P. Morgan & Company, Inc. 10,000 1,050,620
Regions Financial Corporation 17,600 709,491
Wachovia Corporation 20,000 1,748,740
-----------
9,896,304 5.36%
-----------
Insurance Carriers:
AFLAC, Inc. 70,200 3,088,800
American International Group 58,725 5,674,303
-----------
8,763,103 4.75%
-----------
Food Stores:
Albertson's, Inc. 23,600 1,503,013
Safeway, Inc.* 105,200 6,410,572
-----------
7,913,585 4.29%
-----------
</TABLE>
See accompanying notes to financial statements.
(Continued)
35
<PAGE> 53
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Schedule of Portfolio Investments
December 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
Common stocks, continued:
Electric, Gas and Sanitary Services:
Duke Energy Company 16,000 $ 1,024,992
GTE 34,800 2,262,000
Northern States Power Company 38,000 1,054,500
Teco Energy, Inc. 55,500 1,564,379
Texas Utilities 34,500 1,610,702
-----------
7,516,573 4.07%
-----------
Communications:
Ameritech 33,400 2,116,725
Bell Atlantic Corporation 31,792 1,684,976
Bellsouth Corporation 30,000 1,496,250
SBC Communications, Inc. 37,600 2,016,300
-----------
7,314,251 3.96%
-----------
Holding and Other Investment Offices:
BankAmerica Corporation 42,032 2,527,174
Flecor Lodging Trust, Inc. 23,300 537,345
First Industrial Realty Trust 28,000 750,736
Mack-Cali Realty Corporation 25,400 784,225
Simon Property Group, Inc. 20,000 570,000
-----------
5,169,480 2.80%
-----------
Non-Depository Institutions:
American Express Company 19,600 2,004,100
FNMA 34,400 2,545,600
-----------
4,549,700 2.47%
-----------
Personal Services:
H & R Block 39,300 1,768,500
Service Corp International 64,000 2,435,968
-----------
4,204,468 2.28%
-----------
</TABLE>
See accompanying notes to financial statements.
(Continued)
36
<PAGE> 54
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Schedule of Portfolio Investments
December 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
Common stocks, continued:
General Merchandise:
Sears Roebuck & Company 16,800 714,000
Wal-Mart Stores, Inc. 29,700 2,418,679
---------
3,132,679 1.70%
---------
Miscellaneous Retail:
Costco, Inc.* 40,500 2,923,574
---------
2,923,574 1.58%
---------
Building Materials and Gardening Supplies:
Home Depot, Inc. 46,000 2,814,602
---------
2,814,602 1.53%
---------
Transportation Equipment:
Allied Signal, Inc. 30,000 1,329,360
DaimlerChrysler* 14,964 1,437,472
---------
2,766,832 1.50%
---------
Home Furniture and Equipment Stores:
Circuit City Stores 53,000 2,646,661
---------
2,646,661 1.43%
---------
Nondurable Goods-Wholesale:
Unilever NV 31,000 2,571,047
---------
2,571,047 1.39%
---------
Miscellaneous Manufacturing Industries:
Tiffany & Company 47,200 2,448,500
---------
2,448,500 1.33%
---------
Motion Pictures:
Disney (Walt) Company 57,600 1,728,000
---------
1,728,000 0.94%
---------
</TABLE>
See accompanying notes to financial statements.
(Continued)
37
<PAGE> 55
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Schedule of Portfolio Investments
December 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------
SHARES OR PERCENTAGE
PRINCIPAL OF NET
AMOUNT AMOUNT ASSETS
--------- ----------- ----------
<S> <C> <C> <C>
Common stocks, continued:
Security and Commodity Brokers:
Charles Schwab Corporation 29,500 1,657,517
-----------
1,657,517 0.90%
-----------
Eating and Drinking Places:
McDonald's Corporation 16,000 1,226,000
Norrell Corporation 20,000 295,000
-----------
1,521,000 0.82%
-----------
Air Transportation:
Delta Airlines, Inc. 24,000 1,248,000
-----------
1,248,000 0.68%
-----------
Primary Metal Industries:
Englehard Corporation 58,000 1,131,000
-----------
1,131,000 0.61%
-----------
Oil and Gas Extraction:
Diamond Offshore* 44,400 1,051,703
-----------
1,051,703 0.57%
-----------
Instruments and Related Products:
Raytheon Company 16,000 852,000
-----------
852,000 0.46%
-----------
Health Services:
Phycor, Inc. 39,000 265,668
-----------
265,668 0.14%
----------- ------
Total common stocks (cost $104,548,952) 180,458,581 97.78%
</TABLE>
See accompanying notes to financial statements.
(Continued)
38
<PAGE> 56
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Schedule of Portfolio Investments
December 31, 1998
<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
(4.71% at December 31, 1998) 3,748,018 2.03%
------------ ------
Total investments (cost $108,296,970) $184,206,599 99.81%
Other assets and liabilities, net 341,850 0.19%
------------ ------
Total net assets $184,548,449 100.00%
============ ======
</TABLE>
* Presently not producing dividend income
** Foreign investments
See accompanying notes to financial statements.
39
<PAGE> 57
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Notes to Financial Statements
December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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.
(b) 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 experience (gains
or losses) incurred by investment in such securities are paid by
the Fund and are recorded as reductions of dividend income. The
Fund does not expect these costs to be significant.
(Continued)
40
<PAGE> 58
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Notes to Financial Statements
December 31, 1998
(c) 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 is not taxed
as a "Regulated Investment Company" under Subchapter "M" of the
Internal Revenue Code.
(d) 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, 1998, there were no contract
owners who had elected the variable annuity method of payout.
Accordingly, the Fund held no annuity reserves at December 31,
1998.
(e) 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) VARIABLE ANNUITY CONTRACTS AND TRANSACTIONS WITH AFFILIATES
Net purchase payments received represent gross payments less deductions
of $1,021,967 and $803,592 for the years ended December 31, 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.
(Continued)
41
<PAGE> 59
AMERICAN FIDELITY VARIABLE ANNUITY FUND A
Notes to Financial Statements
December 31, 1998
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.
Certain officers and directors of the Fund are also officers and
directors of AFA.
(3) SUBSEQUENT EVENT
Effective January 1, 1999, the Fund was converted to a unit investment
trust separate account (known as American Fidelity Separate Account A),
and it transferred its investment portfolio to American Fidelity Dual
Strategy Fund, Inc. (Dual Strategy Fund) in exchange for shares of Dual
Strategy Fund. There was no impact on the net assets or net asset value
per unit as a result of this transfer.
(4) YEAR 2000 RISKS
Like other variable annuity funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if
the computer systems used by AFA and the Fund's other service providers
do not properly process and calculate date-related information and data
from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." AFA has had a formal project team (including 22 information
systems professionals) working to correct the problem since 1996. In the
briefest terms, the correction is to change all date related fields in
AFA's computer systems to four digits instead of two digits. At the same
time, all relationships with systems outside AFA must be checked for the
same change and all must be tested to determine that relationships
continue to be compatible. Those systems were tested on December 31, 1997
and went through year-end processing without incident. The final test of
all systems will be run in 1999. Even though management of AFA is
expending considerable resources in a concerted effort to meet this
technology-related threat, there is no guarantee that there will be no
adverse impact on the Fund of some sort as January 1, 2000 passes.
42
<PAGE> 60
PART C
OTHER INFORMATION
ITEM 23 -- EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
- -------
<S> <C> <C>
a - Articles of Incorporation of Registrant. Incorporated herein
by reference to Exhibit 1 to Registrant's registration
statement on Form N-1A filed on July 16, 1998.
b - Bylaws of Registrant. Incorporated herein by reference to
Exhibit 2 to Registrant's registration statement on Form
N-1A filed on July 16, 1998.
d.1 - Management and Investment Advisory Agreement dated December
22, 1998 between Registrant and American Fidelity Assurance
Company (the "Company"). Incorporated herein by reference to
Exhibit 5.1 to Post-Effective Amendment No. 1 to Registrant's
registration statement on Form N-1A filed on January 8, 1999.
d.2 - Investment Sub-Advisory Agreement dated December 8, 1998
between the Company and Lawrence W. Kelly & Associates, Inc.
Incorporated herein by reference to Exhibit 5.2 to
Post-Effective Amendment No. 1 to Registrant's registration
statement on Form N-1A filed on January 8, 1999.
d.3 - Investment Sub-Advisory Agreement dated April 8, 1999 between
the Company and Todd Investment Advisors, Inc. Incorporated
herein by reference to Exhibit A to Registrant's definitive
proxy statement filed on April 9, 1999.
</TABLE>
C-1
<PAGE> 61
<TABLE>
<S> <C> <C>
g - Corporate Custodial Agreement dated September 30, 1998
between Registrant and InvesTrust, N.A. Incorporated herein
by reference to Exhibit 8 to Post-Effective Amendment
No. 1 to Registrant's registration statement on Form N-1A
filed on January 8, 1999.
g.1 - Schedule of remuneration for Corporate Custodial Agreement.
Incorporated herein by reference to Exhibit g.1 to
Registrant's registration statement filed on February 18,
1999.
h - Fund Participation Agreement dated December 22, 1998 between
Registrant and the Company. Incorporated herein by reference
to Exhibit 6 to Post-Effective Amendment No. 1 to Registrant's
registration statement on Form N-1A filed on January 8, 1999.
i* - Opinion and Consent of Counsel.
j* - Consent of Independent Auditors.
p.1* - Code of Ethics of the Fund.
p.2* - Code of Ethics of Underwriter.
p.3* - Code of Ethics of Investment Adviser
99.1* - Organization chart of the Company.
99.2* - Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
ITEM 24 -- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
American Fidelity Assurance Company, an Oklahoma corporation and a
wholly-owned subsidiary of American Fidelity Corporation, a Nevada corporation,
is the sole holder of record of the Fund's shares. American Fidelity
Corporation is controlled by a family investment partnership, Cameron
Enterprises, a Limited Partnership. William M. Cameron, an individual, and Lynda
L. Cameron, an individual, each own 50% of the common stock of Cameron
Associates, Inc., the sole general partner of Cameron Enterprises a Limited
Partnership. The organization chart filed herewith as Exhibit 99 shows the
affiliated entities.
ITEM 25 -- INDEMNIFICATION
Article Eighth, Section 2 of the Fund'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> 62
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 the Fund 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> 63
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.
ITEM 26 -- BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
American Fidelity Assurance Company (the "Company") is primarily
engaged in writing life, accident and health insurance and annuity contracts.
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, employee, 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 N. Classen Boulevard
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.
5101 N. Classen, Suite 500
Oklahoma City, OK 73118
</TABLE>
C-4
<PAGE> 64
<TABLE>
<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.; Senior Vice President,
American Fidelity Dual
Strategy Fund, 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
Charles R. Eitel Director Chairman, Chief Executive
Officer and Director,
Simmons Company
Stephen P. Garrett Senior Vice President, Senior Vice President and
Secretary Secretary, American Fidelity
Corporation
William A. Hagstrom Director Chairman and Chief Executive Officer
The Women's Care Network
204 N. Robinson, Suite 1300
Oklahoma City, OK 73102
</TABLE>
C-5
<PAGE> 65
<TABLE>
<CAPTION>
<S> <C> <C>
Kenneth D. Klehm Senior Vice President Senior Vice President,
Treasurer, Controller and Chief
Financial Officer, American
Fidelity Corporation; Senior
Vice President, American
Fidelity Dual Strategy Fund, Inc.;
Director, ASC Holding, L.L.C.;
Director, First Fidelity Bank
and First Fidelity BanCorp, Inc.
5101 N. Classen, Suite 500
Oklahoma City, OK 73118
Alfred L. Litchenburg Senior Vice President Director,
Southwest Bancorp, Inc.
608 South Main Street
Stillwater, OK 74074
David R. Lopez Director Texas Operations
Southwestern Bell Telephone
1616 Guadalupe, Room 630
Austin, TX 78701
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> 66
<TABLE>
<S> <C> <C>
Galen P. Robbins, M.D. Director Physician and, prior to 1998,
Director, Cardiovascular Clinic
11901 Quail Creek Road
Oklahoma City, OK 73120
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."
The officers and directors of Lawrence W. Kelly & Associates, Inc., and
the positions they have held since January 1, 1997 or earlier are as follows:
<TABLE>
<CAPTION>
Name Positions with Sub-Adviser and Other Affiliations
---- -------------------------------------------------
<S> <C>
Lawrence W. Kelly Director, Chairman, Chief Executive Officer,
Treasurer
Nicholas J. Welsh Executive Vice President
H. James Darcey Executive Vice President
Maria Alejandra Tescher Executive Vice President - Senior
Trader & Operations Manager
Janice M. Kelly Vice President (1998-Present);
Director, Secretary
Scott M. Kelly Vice President (1998-Present);
Portfolio Manager, Capital Consultants, Inc.
(1997-1998)
</TABLE>
C-7
<PAGE> 67
Todd Investment Advisors, Inc. is managed by the following persons,
who have held the positions indicated since January 1, 1998 or earlier:
<TABLE>
<CAPTION>
Name Positions with Sub-Adviser and Other Affiliations
---- -------------------------------------------------
<S> <C>
Bosworth M. Todd Chairman; Director, First Capital Bank of
Kentucky, Louisville, KY (1996-present)
Robert P. Bordogna President and Chief Executive Officer
Richard A. Loebig Executive Vice President
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
Curtiss M. Scott, Jr. Executive Vice President
Margaret C. Bell Vice President of Marketing
</TABLE>
C-8
<PAGE> 68
ITEM 27 -- 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) AFS receives no compensation for the sale of Fund shares.
ITEM 28 -- LOCATION OF ACCOUNTS AND RECORDS
All records relating to the Fund required by Section 31(a) of the 1940
Act are kept by the Fund 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 29 -- MANAGEMENT SERVICES
Not applicable
ITEM 30 -- UNDERTAKINGS
Not applicable
C-9
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment No. 5 to Registration Statement
under rule 485(b) under the Securities Act and has duly caused this
Post-Effective Amendment No. 5 to Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City of Oklahoma City, and
State of Oklahoma on the day of April 18, 2000.
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
By /s/ John W. Rex
------------------------------------------------
John W. Rex, Chairman of the Board and President
Pursuant to the requirements of the Securities Act, this
Post-Effective Amendment No. 5 to Registration Statement has been signed below
by the following persons in the capacities indicated on April 18, 2000.
<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
</TABLE>
<PAGE> 70
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
i Opinion and Consent of Counsel
j Consent of Independent Auditors
p.1 Code of Ethics of the Fund
p.2 Code of Ethics of Underwriter
p.3 Code of Ethics of Investment Adviser
99.1 Organization chart of the Company
99.2 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT i
April 28, 2000
American Fidelity Dual Strategy Fund, Inc.
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
Re: Post-Effective Amendment No. 5 to Registration Statement on Form N-1A
(File Nos. 333-59185 and 811-08873)
Ladies and Gentlemen:
You have requested our opinion in connection with the filing with the
Securities and Exchange Commission of Post-Effective Amendment No. 5 to the
above-referenced Registration Statement on Form N-1A of American Fidelity Dual
Strategy Fund, Inc. (the "Fund").
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
Based upon the foregoing, we are of the opinion that:
(1) The Fund is a corporation validly existing under the laws of the State
of Maryland.
(2) The shares of the Fund to be issued, if issued and sold in accordance
with the Fund's Articles of Incorporation and Bylaws and for the consideration
described in the Post-Effective Amendment, will be legally issued, fully paid
and non-assessable.
You may use this opinion letter as an exhibit to the Registration
Statement. We consent to the reference to our firm under the caption
"Custodian, Independent Accountants and Counsel" contained in the Statement of
Additional Information which forms a part of the Registration Statement.
Very truly yours,
/s/ MCAFEE & TAFT
A PROFESSIONAL CORPORATION
<PAGE> 1
EXHIBIT j
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
American Fidelity Assurance Company:
We consent to the use of our reports included herein, the reference to our firm
under the heading "Financial Highlights" in the Prospectus, and the reference to
our firm under the heading "Custodian, Independent Accountants and Counsel" in
the Statement of Additional Information.
/s/ KPMG LLP
Oklahoma City, Oklahoma
April 21, 2000
<PAGE> 1
EXHIBIT p.1
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
CODE OF ETHICS
American Fidelity Dual Strategy Fund, Inc. ("the Fund") has long
maintained a policy against certain personal trading activities as part of its
general business ethics. The Fund's Code of Ethics (the "Code") elaborates on
this policy in conformity with the rules and regulations promulgated by the
Securities and Exchange Commission.
The implementation and enforcement of the Code furthers the Fund's
primary objective, that is, to place the interests of the Fund's shareholders
first. The Code also ensures that all personal securities transactions will be
conducted with integrity and distinction, in such a manner so as to avoid any
actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility. Finally, the Code underscores the Fund's
fundamental concern that our personnel should avoid the appearance of
impropriety and should not take advantage of their positions. Persons covered by
the Code must adhere to these general principles as well as comply with the
Code's specific provisions.
Violation of the Code may result in civil and criminal liability, or
both, under the Federal Securities Laws. In addition, any transaction that is
considered to have been improper, or that appears improper in light of
subsequent developments, even though proper when made, is subject to reversal.
Your compliance with the Code is a condition of employment, and willful
violation of the Code may be cause for termination of employment.
Please take the time to read carefully the Code. Please direct any
questions you may have to the Compliance Committee. Please return a signed copy
of the Code to the designated recipient as indicated on the signature page.
Please retain a copy of the Code for your records.
I. TO WHOM DOES THE CODE APPLY?
Where indicated, certain parts of the Code apply to all of the
Fund's employees. Generally, the Code applies to "ACCESS PERSONS" and
their immediate families as defined in the Investment Company Act of
1940. You are an "Access Person" if you are:
o a member of the board of directors;
o an officer; or
o an employee who participates in the selection of the Fund's
portfolio securities or if you have access to information
regarding the Fund's impending purchase or sales of
portfolio securities.
If you are an Access Person, the Code also applies to your
immediate family that shares the same household with you and the Code
also applies to trust accounts over which an Access Person has
influence or control.
In addition, the Code further restricts certain activities
with respect to subgroups of Access Persons, specifically:
<PAGE> 2
INVESTMENT PERSONNEL, who are (1) employees of the Fund who,
in connection with regular functions or duties, make or
participate in making recommendations regarding the purchase
or sale of securities by the Fund or (2) any natural person
who controls the Fund and who obtains information concerning
recommendations made to the Fund regarding the purchase or
sale of securities by the Fund.
II. WHAT ACTIVITIES ARE RESTRICTED?
A. Restrictions on Participation in Initial Public Offerings and
Private Placements
INVESTMENT PERSONNEL may acquire securities for personal benefit
in an initial public offering or in a private placement ONLY upon the
receipt of approval from the Compliance Committee. Any investment
personnel who has acquired securities in either an initial public
offering or in a private placement must disclose his or her position if
he or she plays a material role in the Fund's subsequent investment
decision regarding the same issuer. After disclosure, the Fund will
provide for an independent review of the Fund's investment decision by
the Compliance Committee.
B. Receipts of Certain Gifts, Favors, or Preferential Treatment from
Participants in the Securities Industry
INVESTMENT PERSONNEL may not receive gifts, favors or preferential
treatment from anyone in the securities industry that is
reasonably valued in excess of $50.00 annually, where such payment
or gratuity is in relation to the business of the employer of the
recipient of the payment or gratuity.
C. Service as a Director or Trustee on the Board of Another Company
INVESTMENT PERSONNEL may serve as directors or trustees on the
board of another company upon prior approval from the Fund's
Board.
III. WHAT OTHER RESTRICTIONS APPLY?
A. Mandatory Blackout Period for Personal Security Transactions
The investment department will maintain a list of Fund securities
that shall be deemed "Restricted Securities."
An ACCESS PERSON who has actual knowledge or who has reason to
believe that the Fund has a pending "buy" or "sell" in a
Restricted Security may not execute a transaction in that same
security until that order is executed or withdrawn.
B. Reporting Requirements
Access Persons who are also "interested persons" must comply with various
reporting requirements. You are an "interested person" if you are an affiliated
person or a member of the
2
<PAGE> 3
immediate family of an affiliated person, or if you serve or have served in one
of various capacities (e.g., legal counsel or broker). Being a director alone
will not subject you to all reporting requirements. Please confirm with a
Compliance Committee member whether or not you are an interested person. PLEASE
NOTE THAT YOU MAY BE AN "INTERESTED PERSON" FOR A DISCRETE TRANSACTION. SUCH AN
EVENT WILL TRIGGER THE QUARTERLY TRANSACTIONS REPORTING REQUIREMENTS DESCRIBED
BELOW AND THE ANNUAL HOLDINGS REPORT AS DESCRIBED BELOW.
If you are not a interested person, you do not have to prepare an
Initial Holdings Report or an annual holdings report as described
below in Sections III B.1 and III B.2.
1. Initial Holdings Reports. All Access Persons who are also
interested persons must submit an Initial Holdings Report
within ten (10) days of becoming an Access Person. The
Compliance Committee will notify you and supply you with the
requisite form.
2. Annual Holdings Reports. If you are an interested Access
Person, you must also complete an Annual Holdings Report. The
Compliance Committee will notify you and supply you with the
requisite form.
3. Quarterly Transaction Reports. All Access Persons who are also
interested persons must complete a Quarterly Transaction
Report within ten (10) days of the end of the calendar
quarter. The Compliance Committee will notify you and supply
you with the requisite form.
PLEASE NOTE THAT IF YOU ARE A DIRECTOR WHO HAD ACTUAL OR IMPUTED
KNOWLEDGE DURING THE 15-DAY PERIOD BEFORE OR AFTER YOUR
TRANSACTION IN A SECURITY THAT THE FUND PURCHASED OR SOLD THAT
SECURITY OR CONSIDERED PURCHASING OR SELLING THAT SECURITY YOU
MUST COMPLETE A QUARTERLY REPORT REGARDING THAT TRANSACTION.
PLEASE NOTE THAT YOU NEED NOT COMPLETE A QUARTERLY REPORT IF YOUR
BROKER TRADE CONFIRMATIONS AND/OR ACCOUNT STATEMENTS THAT THE FUND
RECEIVES WOULD PROVIDE DUPLICATE INFORMATION REGARDING THE
RELEVANT TRANSACTIONS. PLEASE CONFIRM THE ADEQUACY OF YOUR BROKER
TRADE CONFIRMATIONS AND/OR ACCOUNT STATEMENTS WITH A COMPLIANCE
COMMITTEE MEMBER.
CERTAIN EXEMPTIONS PLEASE NOTE, the above preclearance restrictions of
Section III.A and the reporting requirements of Section III.B. do NOT
apply to money market instruments, certificates of deposit, U.S.
government securities and shares of mutual funds. In addition, personal
transactions that involve securities of a company with a capitalization
of at least $1 billion are also EXEMPT from this restriction.
3
<PAGE> 4
IV. WHAT OTHER COMPLIANCE PROCEDURES APPLY?
A. The Fund will engage in post-trade monitoring procedures to
monitor personal investment activity by Access Persons after
preclearance has been granted.
B. Certification of Compliance with the Code - ALL EMPLOYEES
You will be asked to certify, on an annual basis, that you have read
and that you understand the Code and you recognize you are subject to
the Code. The Fund will require you to certify annually that you have
complied with the Code's requirements and that you have disclosed or
reported all personal securities transactions required to be disclosed
or reported pursuant to the Code.
C. The Fund's management will prepare an annual report to the Fund's
Board of Directors that will:
1. summarize existing procedures concerning personal investing
and any changes in the procedures made during the past year;
2. identify any violation(s) requiring significant remedial
action during the past year; and
3. identify any recommended changes in existing restrictions or
procedures based upon the Fund's experience under the Code,
evolving industry practices or developments in applicable laws
or regulations.
4
<PAGE> 5
ACKNOWLEDGMENT
I certify that I have read and understand the Fund's Code of Ethics and
I recognize that I am subject to the Code. I have and will comply in
all respects with the Code's requirements and I have disclosed or
reported all personal securities transactions required to be disclosed
or reported pursuant to the Code's requirements.
-----------------------------------------
(signature)
-----------------------------------------
(print name)
-----------------------------------------
(date)
PLEASE RETURN ONE EXECUTED COPY OF THE CODE OF ETHICS TO THE
FUND'S LEGAL DEPARTMENT, ATTENTION: STEVE GARRETT. PLEASE
RETAIN THE ADDITIONAL COPY OF THE CODE FOR YOUR REFERENCE.
5
<PAGE> 1
EXHIBIT p.2
AMERICAN FIDELITY SECURITIES, INC.
CODE OF ETHICS
American Fidelity Securities, Inc. ("the Company") has long maintained
a policy against certain personal trading activities as part of its general
business ethics. The Company's Code of Ethics (the "Code") elaborates on this
policy in conformity with the rules and regulations promulgated by the
Securities and Exchange Commission.
The implementation and enforcement of the Code furthers the Company's
primary objective, that is, to place the interests of the Company's clients
first. The Code also ensures that all personal securities transactions will be
conducted with integrity and distinction, in such a manner so as to avoid any
actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility. Finally, the Code underscores the
Company's fundamental concern that our personnel should avoid the appearance of
impropriety and should not take advantage of their positions. Persons covered by
the Code must adhere to these general principles as well as comply with the
Code's specific provisions.
Violation of the Code may result in civil and criminal liability, or
both, under the Federal Securities Laws. In addition, any transaction that is
considered to have been improper, or that appears improper in light of
subsequent developments, even though proper when made, is subject to reversal.
Your compliance with the Code is a condition of employment, and willful
violation of the Code may be cause for termination of employment.
Please take the time to read carefully the Code. Please direct any
questions you may have to the Compliance Committee. Please return a signed copy
of the Code to the designated recipient as indicated on the signature page.
Please retain a copy of the Code for your records.
I. TO WHOM DOES THE CODE APPLY?
Generally, the Code applies to "ACCESS PERSONS" and their
immediate families as defined in the Investment Company Act of 1940.
You are an "Access Person" if you are:
o a member of the board of directors;
o an officer;
o or an employee who participates in the selection of the
Company's portfolio securities or if you have access to
information regarding the Company's impending purchase or
sales of portfolio securities.
If you are an Access Person, the Code also applies to your
immediate family that shares the same household with you and the Code
also applies to trust accounts over which an Access Person has
influence or control.
In addition, the Code further restricts certain activities
with respect to subgroups of Access Persons, specifically:
INVESTMENT PERSONNEL, who are (1) employees of the Company
who, in connection with regular functions or duties, make or
participate in making
<PAGE> 2
recommendations regarding the purchase or sale of securities
by the Company or (2) any natural person who controls the
Company and who obtains information concerning recommendations
made to the Company regarding the purchase or sale of
securities by the Fund.
II. WHAT ACTIVITIES ARE RESTRICTED?
A. Restrictions on Participation in Initial Public Offerings and
Private Placements
INVESTMENT PERSONNEL may acquire securities in a private placement
for personal benefit only upon the receipt of approval from the
Compliance Committee. Any Investment Personnel who has acquired
securities in a private placement must disclose his or her position if
he or she plays a material role in the Company's subsequent investment
decision regarding the same issuer. After disclosure, the Company will
provide for an independent review of the Company's investment decision
by the Compliance Committee.
B. Receipts of Certain Gifts, Favors, or Preferential Treatment from
Participants in the Securities Industry
INVESTMENT PERSONNEL may not receive gifts, favors or preferential
treatment from anyone in the securities industry that is
reasonably valued in excess of $50.00 annually, where such payment
or gratuity is in relation to the business of the employer of the
recipient of the payment or gratuity.
C. Service as a Director or Trustee on the Board of Another Company
INVESTMENT PERSONNEL may serve as directors or trustees on the
board of another company upon prior approval from the Company's
Board.
III. WHAT OTHER RESTRICTIONS APPLY?
A. Mandatory Blackout Period for Personal Security Transactions
The investment department will maintain a list of its clients'
securities that shall be deemed "Restricted Securities."
An ACCESS PERSON who has actual knowledge or who has reason to
believe that a client has a pending "buy" or "sell" in a security
may not execute a transaction in that same security until that
order is executed or withdrawn.
B. Reporting Requirements
2
<PAGE> 3
Access Persons who are also "interested persons" must comply with
various reporting requirements. You are an "interested person" if
you are an affiliated person or a member of the immediate family
of an affiliated person, or if you serve or have served in one of
various capacities. Being a director alone will not subject you to
all reporting requirements. Please confirm with a Compliance
Committee member whether or not you are an interested person.
If you are not a interested person, you do not have to prepare an
Initial Holdings Report or an annual holdings report as described
below in Sections III B.1 and III B.2.
1. Initial Holdings Reports. All Access Persons who are also interested
persons must submit an Initial Holdings Report within ten (10) days of
becoming an Access Person. The Compliance Committee will notify you and
supply you with the requisite form.
2. Annual Holdings Reports. If you are an interested Access Person, you
must also complete an Annual Holdings Report. The Compliance Committee
will notify you and supply you with the requisite form.
3. Quarterly Transaction Reports. All Access Persons who are also
interested persons must complete a Quarterly Transaction Report within
ten (10) days of the end of the calendar quarter. The Compliance
Committee will notify you and supply you with the requisite form.
PLEASE NOTE THAT IF YOU ARE A DIRECTOR WHO HAD ACTUAL OR IMPUTED
KNOWLEDGE DURING THE 15-DAY PERIOD BEFORE OR AFTER YOUR
TRANSACTION IN A SECURITY THAT THE FUND PURCHASED OR SOLD THAT
SECURITY OR CONSIDERED PURCHASING OR SELLING THAT SECURITY YOU
MUST COMPLETE A QUARTERLY REPORT REGARDING THAT TRANSACTION.
PLEASE NOTE THAT YOU NEED NOT COMPLETE A QUARTERLY REPORT IF YOUR
BROKER TRADE CONFIRMATIONS AND/OR ACCOUNT STATEMENTS THAT THE FUND
RECEIVES WOULD PROVIDE DUPLICATE INFORMATION REGARDING THE
RELEVANT TRANSACTIONS. PLEASE CONFIRM THE ADEQUACY OF YOUR BROKER
TRADE CONFIRMATIONS AND/OR ACCOUNT STATEMENTS WITH A COMPLIANCE
COMMITTEE MEMBER.
CERTAIN EXEMPTIONS PLEASE NOTE, the above preclearance restrictions of
Section III.A and the reporting requirements of Section III.B. do NOT
apply to money market instruments, certificates of deposit, U.S.
government securities and shares of mutual funds. In addition, personal
transactions that involve securities of a company with a capitalization
of at least $1 billion are also EXEMPT from this restriction.
3
<PAGE> 4
IV. WHAT OTHER COMPLIANCE PROCEDURES APPLY?
A. The Company will engage in post-trade monitoring procedures to
monitor personal investment activity by access persons after
preclearance has been granted.
B. Certification of Compliance with the Code - ACCESS PERSONS
You will be asked to certify, on an annual basis, that you have read
and that you understand the Code and you recognize you are subject to
the Code. The Company will require you to certify annually that you
have complied with the Code's requirements and that you have disclosed
or reported all personal securities transactions required to be
disclosed or reported pursuant to the Code's requirements.
C. The Company's management will prepare an annual report to the
Company's Board of Directors that will:
1. summarize existing procedures concerning personal investing
and any changes in the procedures made during the past year;
2. identify any violation(s) requiring significant remedial
action during the past year; and
3. identify any recommended changes in existing restrictions or
procedures based upon the Company's experience under the Code,
evolving industry practices or development in applicable laws
or regulations.
4
<PAGE> 5
ACKNOWLEDGMENT
I certify that I have read and understand the Company's Code of Ethics
and I recognize that I am subject to the Code. I have and will comply
in all respects with the Code's requirements and I have disclosed or
reported all personal securities transactions required to be disclosed
or reported pursuant to the Code's requirements.
-----------------------------------------
(signature)
-----------------------------------------
(print name)
-----------------------------------------
(date)
PLEASE RETURN ONE EXECUTED COPY OF THE CODE OF ETHICS TO THE
COMPANY'S LEGAL DEPARTMENT, ATTENTION: STEVE GARRETT. PLEASE
RETAIN THE ADDITIONAL COPY OF THE CODE FOR YOUR REFERENCE.
5
<PAGE> 1
EXHIBIT p.3
AMERICAN FIDELITY ASSURANCE COMPANY
CODE OF ETHICS
American Fidelity Assurance Company ("the Company") has long maintained
a policy against certain personal trading activities as part of its general
business ethics. The Company's Code of Ethics (the "Code") elaborates on this
policy in conformity with the rules and regulations promulgated by the
Securities and Exchange Commission.
The implementation and enforcement of the Code furthers the Company's
primary objective, that is, to place the interests of the Company's clients
first. The Code also ensures that all personal securities transactions will be
conducted with integrity and distinction, in such a manner so as to avoid any
actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility. Finally, the Code underscores the
Company's fundamental concern that our personnel should avoid the appearance of
impropriety and should not take advantage of their positions. Persons covered by
the Code must adhere to these general principles as well as comply with the
Code's specific provisions.
Violation of the Code may result in civil and criminal liability, or
both, under the Federal Securities Laws. In addition, any transaction that is
considered to have been improper, or that appears improper in light of
subsequent developments, even though proper when made, is subject to reversal.
Your compliance with the Code is a condition of employment, and willful
violation of the Code may be cause for termination of employment.
Please take the time to read carefully the Code. Please direct any
questions you may have to the Compliance Committee. Please return a signed copy
of the Code to the designated recipient as indicated on the signature page.
Please retain a copy of the Code for your records.
I. TO WHOM DOES THE CODE APPLY?
Generally, the Code applies to "ACCESS PERSONS" and their
immediate families as defined in the Investment Company Act of 1940.
You are an "Access Person" if you are:
o a member of the board of directors;
o an officer; or
o an employee who participates in the selection of the
Company's portfolio securities or if you have access
to information regarding the Company's impending
purchase or sales of portfolio securities.
If you are an Access Person, the Code also applies to your
immediate family that shares the same household with you and the Code
also applies to trust accounts over which an Access Person has
influence or control.
In addition, the Code further restricts certain activities
with respect to subgroups of Access Persons, specifically:
<PAGE> 2
INVESTMENT PERSONNEL, who are (1) employees of the Company
who, in connection with regular functions or duties, make or
participate in making recommendations regarding the purchase
or sale of securities by the Company or (2) any natural person
who controls the Company and who obtains information
concerning recommendations made to the Company regarding the
purchase or sale of securities by the Company.
II. WHAT ACTIVITIES ARE RESTRICTED?
A. Restrictions on Participation in Initial Public Offerings and
Private Placements
INVESTMENT PERSONNEL may acquire securities in a private
placement for personal benefit only upon the receipt of approval from
the Compliance Committee. Any Investment Personnel who has acquired
securities in a private placement must disclose his or her position if
he or she plays a material role in the Company's subsequent investment
decision for a client account regarding the same issuer. After
disclosure, the Company will provide for an independent review of the
Company's investment decision by the Compliance Committee.
B. Receipts of Certain Gifts, Favors, or Preferential Treatment
from Participants in the Securities Industry
INVESTMENT PERSONNEL may not receive gifts, favors or
preferential treatment from anyone in the securities industry
that is reasonably valued in excess of $50.00 annually, where
such payment or gratuity is in relation to the business of the
employer of the recipient of the payment or gratuity.
C. Service as a Director or Trustee on the Board of Another
Company
INVESTMENT PERSONNEL may serve as directors or trustees on the
board of another company upon prior approval from the
Company's Board.
III. WHAT OTHER RESTRICTIONS APPLY?
A. Mandatory Blackout Period for Personal Security Transactions
The investment department will maintain a list of securities
of client accounts that shall be deemed "Restricted
Securities."
An ACCESS PERSON who has actual knowledge or who has reason to
believe that the Company has a pending "buy" or "sell" in a
security for a client account may not execute a transaction in
that same security until that order is executed or withdrawn.
2
<PAGE> 3
B. Reporting Requirements
Access Persons who are also "interested persons" must comply with various
reporting requirements. You are an "interested person" if you are an affiliated
person or a member of the immediate family of an affiliated person, or if you
serve or have served in one of various capacities (e.g., legal counsel or
broker). Being a director alone will not subject you to all reporting
requirements. Please confirm with a Compliance Committee member whether or not
you are an interested person.
If you are not a interested person, you do not have to prepare
an Initial Holdings Report or an annual holdings report as
described below in Sections III B.1 and III B.2.
1. Initial Holdings Reports. All Access Persons who are
also interested persons must submit an Initial
Holdings Report within ten (10) days of becoming an
Access Person. The Compliance Committee will notify
you and supply you with the requisite form.
2. Annual Holdings Reports. If you are an interested
Access Person, you must also complete an Annual
Holdings Report. The Compliance Committee will notify
you and supply you with the requisite form.
3. Quarterly Transaction Reports. All Access Persons who
are also interested persons must complete a Quarterly
Transaction Report within ten (10) days of the end of
the calendar quarter. The Compliance Committee will
notify you and supply you with the requisite form.
PLEASE NOTE THAT IF YOU ARE A DIRECTOR WHO HAD ACTUAL OR
IMPUTED KNOWLEDGE DURING THE 15-DAY PERIOD BEFORE OR AFTER
YOUR TRANSACTION IN A SECURITY THAT THE COMPANY PURCHASED OR
SOLD THAT SECURITY OR CONSIDERED PURCHASING OR SELLING THAT
SECURITY YOU MUST COMPLETE A QUARTERLY REPORT REGARDING THAT
TRANSACTION.
PLEASE NOTE THAT YOU NEED NOT COMPLETE A QUARTERLY REPORT IF
YOUR BROKER TRADE CONFIRMATIONS AND/OR ACCOUNT STATEMENTS THAT
THE COMPANY RECEIVES WOULD PROVIDE DUPLICATE INFORMATION
REGARDING THE RELEVANT TRANSACTIONS. PLEASE CONFIRM THE
ADEQUACY OF YOUR BROKER TRADE CONFIRMATIONS AND/OR ACCOUNT
STATEMENTS WITH A COMPLIANCE COMMITTEE MEMBER.
CERTAIN EXEMPTIONS PLEASE NOTE, the above preclearance restrictions of
Section III.A and the reporting requirements of Section III.B. do NOT
apply to money market instruments, certificates of deposit, U.S.
government securities and shares of mutual
3
<PAGE> 4
Companies. In addition, personal transactions that involve securities
of a company with a capitalization of at least $1 billion are also
EXEMPT from this restriction.
IV. WHAT OTHER COMPLIANCE PROCEDURES APPLY?
A. The Company will engage in post-trade monitoring procedures to
monitor personal investment activity by access persons after
preclearance has been granted.
B. Certification of Compliance with the Code - ACCESS PERSONS.
You will be asked to certify, on an annual basis, that you
have read and that you understand the Code and you recognize
you are subject to the Code. The Company will require you to
certify annually that you have complied with the Code's
requirements and that you have disclosed or reported all
personal securities transactions required to be disclosed or
reported pursuant to the Code's requirements.
C. The Company's management will prepare an annual report to the
Company's Board of Directors that will:
1. summarize existing procedures concerning personal
investing and any changes in the procedures made
during the past year;
2. identify any violation(s) requiring significant
remedial action during the past year; and
3. identify any recommended changes in existing
restrictions or procedures based upon the Company's
experience under the Code, evolving industry
practices or development in applicable laws or
regulations.
4
<PAGE> 5
ACKNOWLEDGMENT
I certify that I have read and understand the Company's Code of Ethics and I
recognize that I am subject to the Code. I have and will comply in all respects
with the Code's requirements and I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to the
Code's requirements.
-----------------------------------------
(signature)
-----------------------------------------
(print name)
-----------------------------------------
(date)
PLEASE RETURN ONE EXECUTED COPY OF THE CODE OF ETHICS TO THE
COMPANY'S LEGAL DEPARTMENT, ATTENTION: STEVE GARRETT. PLEASE
RETAIN THE ADDITIONAL COPY OF THE CODE FOR YOUR REFERENCE.
5
<PAGE> 1
EXHIBIT 99.1
WILLIAM M. CAMERON ("WMC")/LYNDA L. CAMERON ("LLC")
Cameron Associates, Inc.
50% WMC; 50% LLC - OK
73-1533495
**Cameron Enterprises,
A Limited Partnership (Celp) - OK
73-1267299
<TABLE>
<S> <C> <C> <C> <C>
American Fidelity Corp. (AFC)
94.0% - NV 73-0966202
- --------------------------------------------------------------------------------------------------------------------------
Market Place *Security General Shade Works, LLC American Fidelity American Mortgage
Realty Corp. Life Ins. Co. (SGL) 16.67% - OK Assurance Co. (AFA) & Investment Co.
(MPRC) 100% - OK 73-1475654 100% - OK (AMICO)
100% - OK 73-0741925 73-0714500 98.7% - OK
73-1160212 NAIC #68691 NAIC #60410 73-1232134
Education - Concourse C, Inc. American Fidelity ASC Holding, L.L.C. American Fidelity
World.Com, Inc. 100% - OK Property Co. (AFPC) 75% - OK International
100% - OK 73-1575531 100% - OK 73-1528120 Holdings, Inc.
73-1505641 73-1290496 100% - OK
73-1421879
==========================================================================================================================
*American Fidelity Assurance Co. (AFA)
100% - OK
73-0714500
NAIC #60410
- --------------------------------------------------------------------------------------------------------------------------
AF Apartments, Inc. Senior Partners, LLC American Fidelity Balliet's, L.L.C. Apple Creek American Fidelity
100% - OK 50% - OK Securities, Inc. 75% - OK Apartments, Inc. Ltd. Agency, Inc.
73-1512985 73-1559624 (AFS) 73-1529608 100% - OK (AFLA)
100% - OK 73-1408485 100% - OK
73-0783902 73-1352430
==========================================================================================================================
Concourse C, Inc.
100% - OK
73-1575531
- --------------------------------------------------------------------------------------------------------------------------
EnrollCom, Inc Concourse Two, Inc Concourse Three, Inc
100% - OK 100% - OK 100% - OK
(Tax ID) (Tax ID (Tax ID
(applied for) (applied for) (applied for)
==========================================================================================================================
American Fidelity Property Co. (AFPC)
100% - OK
73-1290496
- --------------------------------------------------------------------------------------------------------------------------
Home Rentals, Inc. Western Partners, LLC
100% - OK 100% - OK
73-1364266 73-1544275
==========================================================================================================================
ASC Holding, L.L.C.
75% - OK
73-1528120
- --------------------------------------------------------------------------------------------------------------------------
InvesTrust, N.A. Asset Services Co., L.L.C.
100% - OK 100% - OK
73-1546867 73-1547246
==========================================================================================================================
American Fidelity International Holdings, Inc.
100% - OK
73-1421879
- --------------------------------------------------------------------------------------------------------------------------
American Fidelity American Fidelity
Offshore Investments, Ltd. Care, LLC
100% - Bermuda 33% - OK
NAIC #20400 73-1424864
Reg. #EC20754
==========================================================================================================================
Senior Partners, LLC
50% - OK
73-1559624
- --------------------------------------------------------------------------------------------------------------------------
Bordeaux, LLC Vineyard Cottages, LLC
75% - OK 66.7% - OK
73-1559626 73-1559625
==========================================================================================================================
American Fidelity Ltd. Agency, Inc. (AFLA)
100% - OK
73-1352430
- --------------------------------------------------------------------------------------------------------------------------
American Fidelity General Agency, Inc.
(AFGA) - 100% - OK
73-1352431
- --------------------------------------------------------------------------------------------------------------------------
American Fidelity General Agency of Alabama, Inc.
100% - AL
74-2945370
==========================================================================================================================
American Fidelity Offshore Investments, Ltd.
100% - Bermuda
NAIC #20400
Reg. #EC20754
- --------------------------------------------------------------------------------------------------------------------------
****American Fidelity ****Covenant ****Pacific World ****American Fidelity Mari El Development
(China), Ltd. Underwriters Holdings, Ltd. (Cypress) Ltd. Corporation Limited
93% - Bermuda (Bermuda) Ltd. 55% - Labuan 99% - Republic of 51.3% - Republic of
33.33% - Bermuda Cyprus Cyprus
Reg. #7035
- AFOI
==========================================================================================================================
****American Fidelity (Cypress) Ltd.
99% - Republic of
Cyprus
- --------------------------------------------------------------------------------------------------------------------------
****Soyuznik Insurance Co
34% - Russian Federation
</TABLE>
<PAGE> 2
WILLIAM M. CAMERON ("WMC")/LYNDA L. CAMERON ("LLC")
Cameron Associates, Inc.
50% WMC; 50% LLC - OK
73-1533495
**Cameron Enterprises,
A Limited Partnership (Celp) - OK
73-1267299
<TABLE>
<CAPTION>
==========================================================================================================================
<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. N.A.I.A. of Louisiana, Inc.
33.33% - OK 95.4% - OK Agency of Colorado, Inc. 100% - LA
73-1475654 73-0675989 100% - CO 72-0761691
84-0599059
North American North American North American N.A.I.A. Ins. Agency,
Insurance Agency of Ins. Agency of Ltd. Agency, Inc. Inc.
New Mexico, Inc. Tulsa, Inc. 100% - OK 100% - OK
100% - NM 100% - OK 73-1356772 73-1527682
85-0441542 73-0778755
==========================================================================================================================
</TABLE>
* Insurance Company
** A Limited Partnership
*** No tax or registration numbers
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.
<PAGE> 1
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-START] JAN-01-1999
[PERIOD-END] DEC-31-1999
[INVESTMENTS-AT-COST] 196,949,647
[INVESTMENTS-AT-VALUE] 229,013,021
[RECEIVABLES] 240,391
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 229,253,412
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 0
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 19,351,516
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 229,253,412
[DIVIDEND-INCOME] 2,783,854
[INTEREST-INCOME] 252,302
[OTHER-INCOME] 0
[EXPENSES-NET] 1,024,035
[NET-INVESTMENT-INCOME] 2,012,121
[REALIZED-GAINS-CURRENT] 889,848
[APPREC-INCREASE-CURRENT] 32,063,374
[NET-CHANGE-FROM-OPS] 34,965,343
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 19,791,437
[NUMBER-OF-SHARES-REDEEMED] 439,921
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 229,253,412
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,024,035
[AVERAGE-NET-ASSETS] 204,544,373
[PER-SHARE-NAV-BEGIN] 10.0000
[PER-SHARE-NII] 0.1062
[PER-SHARE-GAIN-APPREC] 1.7406
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.8468
[EXPENSE-RATIO] 0.5000
</TABLE>
