AMERICAN FIDELITY ASSURANCE COMPANY
Dual Strategy Fund, Inc.
June 30, 1999
<PAGE>
Dear Participant:
The U.S. equity markets railed to new record highs in the second quarter despite
continued weakness in the bond markets. American Fidelity Dual Strategy Fund,
Inc. also reported a gain for the first half. The net asset value on June 30,
1999 was up 13% from December 31, 1998.
The ongoing strength in the U.S. economy has been a major catalyst in helping to
ignite a global resurgence in economic growth. The strong economy reinforced
investor confidence in the outlook for corporate profits and continued
prosperity. However, with signs of growing momentum in U.S. economic activity,
investors became more concerned about the outlook for inflation and interest
rates. This concern was reflected in the bond market as long term U.S. Treasury
yields rose significantly during the first half of 1999.
Strong consumer spending continued to drive Real Gross Domestic Product growth
during the first half. Accelerated tax refunds, vigorous income growth and
healthy stock market gains were all contributing factors to the exceptional
levels of consumer spending the U.S. has experienced over the last few quarters.
We expect Real Gross Domestic Product growth to slow to a more moderate level in
the second half of the year.
Inflation rates, as measured by the Consumer Price index (OCPIO), were impacted
by the sharp rise in energy costs earlier this year. Core inflation rates, which
exclude food energy costs, remained relatively stable. Despite some isolated
inflationary pressures, the broader measures of inflation have yet to confirm
any signs of a sustained resurgence in the inflation rate. Labor costs, which
represent a key component of the price indices, have actually softened somewhat
over the past six months. However, we continue to expect a gradual upward trend
in the CPI as the global economy strengthens, the domestic labor market tightens
and commodity prices firm.
The yields on the 30 year U.S. Treasury Bond, rose to an eighteen month high,
touching 6.2% late in June versus a low of 5.4% in early April. Yields ended the
second quarter at 5.99%. A sharp increase in energy prices, growing evidence of
improving economic prospects in Asia and the emerging markets, and stronger than
expected U.S. economic growth were contributing factors in pushing interest
rates higher during the first half. Increased effort by corporate borrowers to
take advantage of lower interest rates led to a flood of new bond issues, which
added further pressure to the fixed income markets. With our near term outlook
for a moderation in economic growth, we believe long-term interest rates could
decline slightly over the near term. For the longer-term we would not be
surprised if interest rates come under increased pressure as the domestic and
global economies accelerate.
Looking to the longer-term, we continue to believe stocks are quite attractive.
Given the strong fundamental health of the U.S. economy, low interest rates, and
ample market liquidity, we believe stocks offer further upside potential. Equity
valuations, however, leave little margin for disappointment and could quickly
push stocks into a corrective phase should economic or inflationary developments
not meet investor expectations.
If you have any questions, please let us know.
Sincerely,
JOHN W. REX
John W. Rex, President
American Fidelity Dual Strategy Fund, Inc.
JWR:jl
<PAGE>
AMERICAN FIDELITY
DUAL STRATEGY FUND, INC.
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 1999
ASSETS:
Cash & investments at
market value $213,980,671
Accrued interest and dividends 198,424
Accounts Receivable for Securities Sold 0
___________
Total Assets 214,179,095
LIABILITIES:
Accounts Receivable for Securities
Purchased 0
Other accounts payable 0
Account payable-redemptions 0
___________
Total Liabilities 0
NET ASSETS $214,179,095
===========
ACCUMULATION UNITS
OUTSTANDING 18,957,815
===========
NET ASSET VALUE PER UNIT 11.2977
===========
STATEMENT OF CHANGES IN NET ASSETS
June 30, 1999
Net assets, beginning of year $0
Net investment income 1,002,422
Realized gain on investments (1,759,503)
Decrease in unrealized appreciation
of investments 25,046,296
Net purchase payments received 191,770,767
Withdrawal of funds (1,880,887)
___________
Net assets at end of June $214,179,095
===========
STATEMENT OF OPERATIONS
June 30, 1999
INVESTMENT INCOME:
Dividends $1,383,017
Interest 105,816
__________
1,488,833
EXPENSES:
Investment management fee 486,411
__________
NET INVESTMENT INCOME $1,002,422
==========
REALIZED GAIN ON
INVESTMENTS: (1,759,503)
==========
UNREALIZED DEPRECIATION
OF INVESTMENTS: $25,046,296
==========
<PAGE>
STATEMENT OF INVESTMENTS
June 30, 1999
Shares or Market
Principal Value
COMMON STOCKS: Amount Amount
Chemicals & Allied Products:
Abbott Laboratories 33,600 1,528,800
American Home Products Corporation 47,000 2,702,500
Avery-Dennison Corporation 55,800 3,368,925
Bristol-Myers Squibb Company 76,800 5,409,561
Dupont 14,400 983,693
Johnson & Johnson 44,000 4,312,000
Eil Lilly and Company 12,800 916,800
Merck & Company, Inc. 23,400 1,731,600
Pfizer, Inc. 35,800 3,929,050
----------
24,882,929
Electronic & Other Electric Equipment:
General Electric Company 61,600 6,960,800
Intel Corporation 90,400 5,378,800
Koninklijke Phillips Electronics** 34,040 3,433,785
Lucent Technologies 70,000 4,720,590
----------
20,493,975
Business Services:
Automatic Data Processing 68,000 2,992,000
Computer Associates International 25,800 1,419,000
Computer Sciences Corporation 36,000 2,490,732
Interpublic Group of Companies 25,500 2,208,938
Microsoft Corporation* 82,800 7,467,483
WPP Group PLC** 39,000 3,344,250
----------
19,922,403
Industrial Machinery & Equipment:
Cisco Systems, Inc.* 146,500 9,449,250
Hewlett-Packard Company 16,400 1,648,200
IBM Corporation 31,000 4,006,750
United Technologies 65,000 4,659,655
----------
19,763,855
Petroleum Refining & Related Industries:
Atlantic Richfield Company 13,000 1,086,306
Chevron Corporation 31,600 3,007,909
Mobile Corporation 21,000 2,079,000
Royal dutch Petroleum** 75,200 4,530,800
Texaco, Inc. 61,200 3,825,000
----------
14,529,015
Depository Institutions:
Bank of American Corporation 42,032 3,081,450
Chase Manhattan Bank 36,300 3,144,487
First Union Corporation 29,484 1,385,748
MBNA 87,750 2,687,344
J.P. Morgan & Company 10,000 1,405,000
Regions Financial Corporation 17,600 676,491
Wachovia Corporation 20,000 1,711,240
----------
14,091,760
Communications:
Ameritech 33,400 2,454,900
Bell Atlantic Corproration 31,792 2,078,402
Bellsouth Corporation 30,000 1,406,250
MCI Worldcom Inc.* 30,000 2,581,860
SBC Communications, Inc. 37,600 2,180,800
----------
10,702,212
Insurance Carriers:
AFLAC, Inc. 70,200 3,360,825
American International Group 29,250 3,424,064
MGIC 43,000 2,090,875
----------
8,875,764
Food & Kindred Products:
Anheuser-Busch Companies, Inc. 31,000 2,199,047
The Coca-Cola 53,600 3,350,000
Pepsico, Inc. 73,000 2,824,151
----------
8,373,198
Food Stores:
Albertson's Inc. 56,600 2,918,409
Safeway, Inc.* 97,700 4,836,150
----------
7,754,559
Electric, Gas & Sanitary Services:
Duke Energy Company 16,000 870,000
GTE 34,800 2,636,100
Northern States Power Company 38,000 919,106
Teco Energy, Inc. 55,500 1,262,625
Texas Utilities 34,500 1,423,125
----------
7,110,956
Home Furniture & Equipment Store:
Circuit City Stores 53,000 4,929,000
Non-Depository Institutions:
American Express Company 19,600 2,550,450
Federal National Mortgage
Association 34,400 2,352,100
----------
4,902,550
Miscellaneous Manufacturing Industries:
Tiffany & Company 47,200 4,554,800
Paper & Allied Products:
Kimberly Clark 41,000 2,337,000
Willamette Industries 47,000 2,164,914
----------
4,501,914
Transportation by Air:
Delta Airlines, Inc. 24,000 1,383,000
FDX Corporation* 50,000 2,712,500
----------
4,095,500
General Merchandise:
Dollar General 37,500 1,087,500
Wal-Mart Corporation 59,400 2,866,050
----------
3,953,550
Holding & Other Investment Offices:
Felcor Lodging Trust, Inc. 33,300 690,975
First Industrial Realty Trust 35,000 960,295
Mack-Cali Realty Corporation 31,400 971,422
Simon Property Group, Inc. 30,000 761,250
Spieker Properties, Inc. 12,000 466,500
----------
3,850,442
Instruments & Other Investment Offices:
Raytheon Company - A 37,500 2,582,813
Raytheon Company - B 16,000 1,126,000
----------
3,708,813
Transportation Equipment:
Allied Signal, Inc. 30,000 1,890,000
Ford Motor Company 28,000 1,580,236
----------
3,470,236
Miscellaneous Retail:
Costco Company, Inc.* 40,500 3,242,511
Security & Commodity Brokers:
Charles Schwab Corporation 29,500 3,241,313
Building Materials & Gardening Supplies:
Home Depot, Inc. 46,000 2,964,102
Personal Services:
H & R Block 39,300 1,965,000
Eating & Drinking Places:
McDonald's Corporation 32,000 1,321,984
Primary Metal Industries:
Englehard Corporation 58,000 1,312,250
Health Services:
HCR Manor Care* 35,000 846,545
-----------
Total Common Stocks
(Cost $184,314,840) 209,361,136
-----------
SHORT-TERM INVESTMENTS:
Associates Corporation of North America
Master Note Fltg
(4.71% at 6/30/99) 4,517,840 $4,517,840
---------- ------------
Total Short-Term Investments $4,517,840
------------
Total Investments: $213,878,976
============
* Presently not producing dividend income
** Foreign Investments
SAFEKEEPING OF SECURITIES INVESTMENT MANAGER
InvesTrust American Fidelity Assurance Company
Oklahoma City, OK Oklahoma City, OK
INVESTMENT SUB ADVISORS
Lawrence Kelly & Associates, Inc. Todd Investment Advisors
Los Angeles, CA Louisville, KY
<PAGE>
PARTICIPANT'S UNIT VALUE
June 1994 8.90
Dec. 1994 8.90
June 1995 10.60
Dec. 1995 12.20
June 1996 13.80
Dec. 1996 15.35
June 1997 17.75
Dec. 1997 19.40
June 1998 22.60
Dec. 1998 23.75
June 1999 27.40
SERVICES PROVIDED BY
AMERICAN FIDELITY
Services for Educators:
o Disability Income Plans
o Tax-Deferred Annuities
o Variable Annuities
o Fixed Annuities
o Universal Life Insurance
Cancer Protection
Pension and Profit-Sharing Plans for Corporations
HR-10 Retirement Plans for the Self-Employed
Individual Retirement Annuities
Simplified Employee Pension Plans
Group Life and Permanent Group Ordinary
Young Advantage Life
Association and Group Life Plans
Comprehensive Medical Plans
Individual Permanent and Term Life Insurance
HOME OFFICE:
2000 N.CLASSEN BLVD. o OKLAHOMA CITY, OKLA. 73106
Telephone: (405) 523-2000
GVA-276 (7/99)
