American Fidelity
DUAL STRATEGY
FUND, INC.
2000
Semi-Annual
Report
Dear Participant:
The specter of higher inflation coupled with concerns over rising
short term interest rates and increased speculation pushed the
equity markets into a correction despite a thriving domestic
economy and record corporate profits. During the second quarter,
the S&P 500 Composite fell 11% and the NASDAQ declined over 40%
from their respective March highs before recovering toward the
end of the quarter. The net asset value for American Fidelity
Dual Strategy Fund, Inc. was down 1.8% for the first half of the
year.
Economic growth as measured by real Gross Domestic Product
appears to have moderated during the second quarter following an
exceptionally strong 5.5% rate of growth in the first quarter.
Retail sales, payroll growth and home sales all showed material
signs of slowing. Rapidly expanding personal income should
provide ample buying reserves for future consumer spending
notwithstanding this slowdown in retail sales and payroll growth.
In addition, unemployment claims have remained near record lows,
which indicates to us that the odds favor an acceleration in
employment growth and a further tightening in the labor markets
in the second half of the year.
Inflation rates, as measured by the Consumer Price Index ("CPI"),
remained steady during the second quarter at a 3.1% year-over-
year rate through May. A firming in "core" inflation data was
primarily offset by a temporary pullback in energy prices,
holding the overall CPI in check for the quarter. We are
continuing to closely monitor labor market trends for any further
signs of tightening which could put upward pressure on the CPI.
The yield on the 30-year U.S. Treasury Bond ended the quarter
essentially flat with the first quarter at 5.89%, after rising
nearly 50 basis points during early May to over 6.25%. Following
a strong showing for the economy earlier in the year, isolated
reports of slowing economic growth have increased investor
confidence that the Federal Reserve may be nearing the end of its
tightening phase. In addition, the declining new issuance and
aggressive buyback of U.S. treasury bonds by the Federal
Government continued to have a significant impact on Treasury
yield levels relative to high quality corporate bonds. Looking
ahead to the second half of the year, we continue to expect
interest rates to remain under pressure given our outlook for
increased economic growth, slightly higher inflation trends and a
tight labor market.
The financial markets are likely to remain quite volatile over
the near-term due to uncertainty over the direction of interest
rates and the rate of economic growth. The swift correction in
the technology laden NASDAQ has helped to mend the valuation
divergence with the broader market and has created excellent
buying opportunities for select issues. To ease inflation and
interest rate pressures, we believe the Federal Reserve must slow
economic growth. This will not only be healthy for the U.S.
economy, but also will be quite beneficial for both the equity
and fixed income markets. Over the near-term the financial
markets are expected to remain in a wide trading range as
investors await further direction from the Federal Reserve and
assess the political uncertainties associated with the upcoming
elections.
If you have any questions about your account please let us know.
Sincerely,
JOHN W. REX
John W. Rex, President
American Fidelity Dual Strategy Fund, Inc.
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
June 30, 2000
COMMON STOCKS Market Value
Shares or --------------------
Principal Percentage of
Amount Amount Net Assets
Building Material,
Hardware, and
Gardening Supplies:
Home Depot, Inc. 54,000 $2,696,598
------------------------------
2,696,598 1.18%
Business Services:
Automatic Data Processing 68,000 3,642,216
Computer Associates
International 35,800 1,832,495
Computer Sciences Corp.* 36,000 2,688,732
Interpublic Group Companies 51,000 2,193,000
Microsoft Corporation* 102,800 8,224,000
Sungard Data Systems* 45,000 1,395,000
WPP Group PLC** 71,000 5,156,375
------------------------------
25,131,818 10.99%
Chemicals and Allied Products:
Abbott Laboratories 33,600 1,497,283
Avery Dennison Corporation 55,800 3,745,575
Bristol-Myers Squibb Company 60,400 3,518,300
Merck & Company Inc. 23,400 1,793,025
Pfizer, Inc. 43,800 2,102,400
------------------------------
12,656,583 5.53%
Communications:
Bell Atlantic Corporation 31,792 1,615,415
GTE Corporation 34,800 2,166,300
SBC Communications, Inc. 59,182 2,559,621
Sprint Corporation 34,600 1,764,600
Vodafone Airtouch PLC ADR** 84,000 3,480,708
Worldcom, Inc. 80,000 3,670,000
------------------------------
15,256,644 6.67%
Depository Institutions:
Bank of America Corporation 62,032 2,667,376
The Chase Manhattan
Corporation 73,950 3,406,285
Citigroup, Inc. 61,000 3,675,250
First Union Corporation 29,484 731,557
J.P. Morgan & Company, Inc. 10,000 1,101,250
Wachovia Corporation 28,000 1,519,000
------------------------------
13,100,718 5.73%
Durable Goods Wholesale:
Johnson & Johnson 55,000 5,603,125
Visteon Corporation 3,666 44,450
------------------------------
5,647,575 2.47%
Electric, Gas, Sanitary Services:
Duke Energy Corporation 37,000 2,085,875
Northern States Power Company 45,000 908,415
Teco Energy, Inc. 55,500 1,113,441
------------------------------
4,107,731 1.80%
Electronic and Other Electric Equipment:
Emmerson Electric 38,000 2,294,250
General Electric Company 184,800 9,794,400
Intel Corporation 67,400 9,010,504
Koninklijke Philips
Electronics 136,160 6,467,600
Lucent Technologies, Inc. 76,000 4,503,000
Nokia Corporation** 76,000 3,795,212
------------------------------
35,864,966 15.68%
Food and Kindred Products:
Anheuser-Busch Companies, Inc. 31,000 2,315,297
Pepsico, Inc. 73,000 3,243,901
------------------------------
5,559,198 2.43%
General Merchandise Stores:
Dollar General 59,375 1,157,813
Target Corporation 51,000 2,958,000
------------------------------
4,115,813 1.80%
Holding Companies and Other Investment Offices:
Archstone Communities Trust 40,000 842,480
Duke-Weeks Realty Corporation 30,000 671,250
First Industrial Realty Trust 35,000 1,032,500
Mack-Cali Realty Corporation 31,400 806,572
Simon Property Group, Inc. 30,000 665,610
Spieker Properties, Inc. 24,000 1,104,000
------------------------------
5,122,412 2.24%
Home Furniture and Equipment Store:
Circuit City Stores-
Circuit City Group 56,000 1,858,472
------------------------------
1,858,472 0.81%
Industrial Machinery and Equipment:
Cisco Systems, Inc.* 96,800 6,152,802
Hewlett-Packard Company 14,000 1,748,250
IBM Corporation 10,000 1,095,620
United Technologies
Corporation 76,000 4,474,500
------------------------------
13,471,172 5.89%
Instruments and Related Products:
Agilent Technologies, Inc.* 5,339 393,751
------------------------------
393,751 0.17%
Insurance Carriers:
AFLAC, Inc. 84,800 3,895,458
American General Corporation 52,000 3,172,000
American International Group 36,562 4,296,035
MGIC Investment Corporation 43,000 1,956,500
Wellpoint Health Networks 17,000 1,231,429
------------------------------
14,551,422 6.36%
Miscellaneous Manufacturing Industries:
Tiffany & Company 56,400 3,807,000
Tyco International, Ltd.** 87,000 4,121,625
------------------------------
7,928,625 3.47%
Miscellaneous Retail:
Costco Wholesale Corporation* 97,800 3,227,400
------------------------------
3,227,400 1.41%
Non-Depository Institutions:
American Express Company 58,800 3,064,950
FNMA 40,400 2,108,355
Household International, Inc. 31,000 1,288,422
MBNA Corporation 97,750 2,651,469
------------------------------
9,113,196 3.99%
Nondurable Goods-Wholesale:
Cardinal Health, Inc. 73,000 5,402,000
Safeway, Inc.* 123,700 5,581,962
------------------------------
10,983,962 4.80%
Oil and Gas Extraction:
Schlumberger LTD. 50,000 3,731,250
------------------------------
3,731,250 1.63%
Paper & Allied Products:
Kimberly-Clark Corporation 68,000 3,901,500
Willamette Industries 69,000 1,880,250
------------------------------
5,781,750 2.53%
Personal Services:
H & R Block Inc. 39,300 1,272,337
------------------------------
1,272,337 0.56%
Petroleum Refining and Related Industries:
BP Amoco PLC** 21,320 1,205,902
Coastal Corporation 57,000 3,469,875
Conoco, Inc.- Class B 76,688 1,883,611
Exxon Mobil Corporation 27,723 2,176,255
Royal Dutch Petroleum** 68,200 4,198,528
Texaco, Inc. 29,600 1,576,200
------------------------------
14,510,371 6.35%
Primary Metal Industries:
Engelhard Corporation 58,000 989,596
------------------------------
989,596 0.43%
Rubber and Miscellaneous Plastic Products:
Sealed Air Corporation 50,000 2,618,750
------------------------------
2,618,750 1.15%
Transportation by Air:
Delta Air Lines, Inc. 24,000 1,213,488
------------------------------
1,213,488 0.53%
Transportation Equipment:
Ford Motor Company 28,000 1,204,000
Honeywell International, Inc. 61,000 2,054,907
------------------------------
3,258,907 1.43%
Total Common Stocks 4,333,923 $224,164,505 98.03%
(Cost $196,938,148) --------------------------------
Short Term Investments:
Associates Corporation of North America
Master Note (6.53% at
6/30/00) 4,761,622 4,761,622
--------------------------------
Total Short-Term Investments: $ 4,761,622 2.08%
Total Investments: $228,926,127 100.11%
--------------------------------
Other Assets and Liabilities, net: ($257,854) -0.11%
--------------------------------
Total Net Assets: $228,668,273 100.00%
================================
* Presently not producing dividend income
** Foreign Investments
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
-------------
ASSETS:
Cash $127,476
Investments at market value
(cost $201,699,770) 228,926,127
Accrued interest and dividends 201,722
Accounts Receivable for Securities Sold 5,033,960
------------
Total assets 234,289,285
LIABILITIES:
Accounts Payable for Securities Purchased 5,621,012
Other accounts payable 0
Accounts Payable - redemptions 0
------------
Total Liabilities: 5,621,012
------------
NET ASSETS $228,668,273
============
Composition of net assets:
Net capital paid in on shares
of capital stock $232,757,430
Undistributed net investment income 1,009,755
Accumulated net realized losses (261,895)
Unrealized depreciation on investments (4,837,017)
------------
Net assets (equivalent to $11.636 per share
based on 19,652,222 shares of capital
stock outstanding) $228,668,273
============
See accompanying notes to financial statements.
STATEMENT OF OPERATIONS
June 30, 2000
-------------
INVESTMENT INCOME:
Income:
Dividends $ 1,387,306
Interest 182,119
------------
1,569,425
Expenses:
Investment management fee 559,670
------------
NET INVESTMENT INCOME $ 1,009,755
REALIZED LOSS ON INVESTMENTS:
Proceeds from sales 36,792,740
Cost of securities sold 37,054,635
------------
NET REALIZED LOSSES ($261,895)
UNREALIZED DEPRECIATION ON INVESTMENTS: ($4,837,017)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($4,089,157)
============
See accompanying notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
June 30, 2000
-------------
Increase in net assets from operations:
Net investment income $ 1,009,755
Net realized loss on investments (261,895)
Decrease in unrealized appreciation of
investments (4,837,017)
Net decrease in net assets resulting
from operations (4,089,157)
Changes from capital stock transactions:
Shares sold 7,935,843
Shares issued in reinvestment of dividends
and distributions 0
Shares redeemed (4,431,825)
Increase in net assets derived from capital
stock transactions 3,504,018
Increase in net assets (585,139)
NET ASSETS:
Beginning of year 229,253,412
------------
End of year $228,668,273
============
CAPITAL STOCK SHARES:
Shares at beginning of year 19,351,516
Shares sold 687,485
Shares issued in reinvestment of dividends
and distributions 0
Shares redeemed (386,779)
------------
Outstanding, end of year 19,652,222
============
See accompanying notes to financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Per Accumulation Unit Income and Capital Changes Periods Ended,
June 30, Dec.31, Dec.31, Dec.31, Dec.31,
2000 1999 1998* 1997* 1996*
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME AND EXPENSES:
Investment Income $.0804 $.1603 $.3370 $.3284 $.2817
Operating Expenses .0287 .0541 .3141 .2576 .1882
------- ------- ------- ------- -------
Net Investment Income .0517 .1062 .0229 .0708 .0935
CAPITAL CHANGES:
Net realized and unrealized
gains (losses) from
securities (0.2628) 1.7406 4.8468 4.0535 3.0468
------- ------- ------- ------- -------
Net increase (decrease) in
net asset unit value (0.2111) 1.8468 4.8697 4.1242 3.1403
Net asset unit value,
beginning of period 11.8468 10.0000 19.4632 15.3389 12.1986
------- ------- ------- ------- -------
Net asset unit value,
end of period $11.6357 $11.8468 $24.3329 $19.4632 $15.3389
======== ======== ======== ======== ========
</TABLE>
<TABLE>
NUMBER OF ACCUMULATION UNITS OUTSTANDING,END OF PERIOD<F1>
<S> <C> <C> <C> <C> <C>
7,584,332 7,043,575 6,443,056
--------- --------- ---------
Net Assets outstanding
end of period 228,668,273 229,253,412
RATIOS:
Ratio of expenses to
average net assets .4947% .5000% 1.4603% 1.4603% 1.3777%
Ratio of net investment
income to average net
assets .8925% .9840% 0.1070% 0.4042% 0.6850%
Portfolio turnover rate 16.7% 37.5% 40.1% 26.6% 36.9%
See accompanying notes to financial statements.
<FN>
<F1> 1996-1998 reflects financial highlights of American Fidelity
Variable Annuity Fund A. (Note1)
</FN>
</TABLE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
-------
American Fidelity Dual Strategy Fund (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-ended
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 Separate
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.
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-date 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.
As of June 30, 2000, the cost of purchases and proceeds from
sales of securities, other than short-term securities, were
$41,817,168 and $36,792,740, respectively.
At June 30, 2000, 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 June 30, 2000, were $40,461,066 and ($13,234,709),
respectively.
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.
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.
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.
PARTICIPANTS' BENEFITS
As a participant of American Fidelity Dual Strategy Fund, Inc.,
you benefit from a number of valuable and helpful services which
help you meet your investment needs. Some of the services you
currently enjoy are the following:
RE-INVESTMENT WITHOUT CHARGE
Dividends and interest from investment income as well as
capital gain contributions are automatically re-invested
without charge.
PROFESSIONAL MANAGEMENT
Knowledgeable, full-time management constantly monitors
market opportunities for your fund.
CAPITAL FULLY INVESTED
Accumulation units are issued in full and fractional amounts
so that your net payments are immediately available for
investment purposes.
STATEMENT OF ACCOUNT
You will receive statements of account each year. These
statements are a valuable, permanent, personal record. In
the event that you should have occasion to redeem some of
your accumulation units, you are also provided with the
proper tax form for your convenience in filing your income
tax return.
SYSTEMATIC RETIREMENT OPTIONS
At your retirement, a range of pay out options is available
in order to tailor your retirement income payments as
closely as possible to your needs.
PERSONAL SERVICE
Continuous personal service is available to you through the
team of American Fidelity trained salaried representatives
or directly from the Annuity Services Department in our Home
Office.
Board of Directors JOHN W. REX, Chairman
American Fidelity President and Director
Dual Strategy American Fidelity Assurance
Fund, Inc. Company
DANIEL D. ADAMS, JR., Secretary
Vice President and Investment
Officer
American Fidelity Assurance
Company
JEAN G. GUMERSON
President and Chief Executive
Officer
Presbyterian Health Foundation
GREGORY M. LOVE
President and Chief Operating
Officer
Love's Country Stores, Inc.
J. DEAN ROBERTSON, DDS, M. Ed.
Pediatric Dentistry
Private Practice
G. RAINEY WILLIAMS, JR.
President and Chief Operating
Officer, Marco Holding
Corporation
Safekeeping of Securities InvestTrust, N.A.
Oklahoma City, Oklahoma
Independent Auditors KPMG, LLP
Oklahoma City, Oklahoma
Investment Manager American Fidelity Assurance Company
Oklahoma City, Oklahoma
Investment Sub-Advisors Lawrence W. Kelly & Associates,
Inc.
Pasadena, California
Todd Investment Advisors, Inc.
Louisville, Kentucky
Board of Directors LYNDA L. CAMERON
American Fidelity President
Assurance Company Cameron Equestrian Centers, Inc.
WILLIAM M. CAMERON
Chairman of the Board and Chief
Executive Officer
American Fidelity Assurance
Company
WILLIAM E. DURRETT
Senior Chairman of the Board
American Fidelity Assurance
Company
CHARLES R. EITEL
Chairman and Chief Executive
Officer
Simmons Company
THEODORE M. ELAM
Vice President and Attorney
McAfee and Taft
WILLIAM A. HAGSTROM
Chairman and Chief Executive
Officer
The Women's Care Network
DAVID R. LOPEZ
President, Texas Operations
Southwestern Bell Telephone
PAULA MARSHALL-CHAPMAN
Chief Executive Officer
The Bama Companies, Inc.
JOHN W. REX
President and Chief Operating
Officer
American Fidelity Assurance
Company
GALEN P. ROBBINS, M.D.
Physician
JOHN D. SMITH
Director and President
John D. Smith Developments, Inc.
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:
//www.sec.gov
You may also obtain copies of fund documents by visiting the
SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-
0330) or by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009.
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
1-800-654-8489
