INVESTMENT SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT (the "Agreement") is made
and entered into on the date hereafter set forth between AMERICAN FIDELITY
ASSURANCE COMPANY (the "Client"), which is the investment adviser to
American Fidelity Dual Strategy Fund, Inc. (the "Fund"), and XXXXXXXX X.
XXXXX & ASSOCIATES, INC. (the "Investment Sub-Adviser").
1. APPOINTMENT OF INVESTMENT SUB-ADVISER. Effective on the Effective
Date, the Client hereby appoints Investment Sub-Adviser to serve as
investment adviser to the Client in respect of those assets of the Fund
specified in writing on or before the Effective Date and from time to time
thereafter by the Client to be subject to this Agreement (which assets,
together with any assets which are added at a subsequent date or which are
received as a result of the sale, exchange, or transfer of any of such
assets are herein collectively referred to as the "Investment Assets").
The "Effective Date" shall be the Closing Date of the Reorganization, as
such terms are defined in that certain Agreement and Plan of Reorganization
dated October 13, 1998 among the Client, the Fund and American Fidelity
Variable Annuity Fund A.
The Investment Sub-Adviser hereby accepts such appointment and agrees
to render the services and to assume the obligations herein set forth, for
the compensation herein provided.
2. THE INVESTMENT ASSETS. The Investment Assets shall consist of such
cash, stocks, bonds and other securities which, from time to time, the
Client places under the investment supervision of the Investment Sub-
Adviser and/or which shall become part of the Investment Assets as a result
of transactions therein or otherwise. The Client may make additions to or
withdrawals from the Investment Assets in such amounts as the Client shall
determine.
3. CUSTODIANSHIP OF THE INVESTMENT ASSETS. The Investment Assets have
been deposited with InvesTrust, N.A. (the "Custodian") and are maintained
by the Custodian in safekeeping on its premises, in a recognized clearing
corporation, or in the Federal Reserve book-entry system, in the name of
the Fund, the Custodian or the clearing corporation, or in the nominee name
of any of the foregoing. The Investment Sub-Adviser is hereby authorized
to give instructions to the Custodian with respect to the consummation of
transactions on behalf of the Client in the Investment Assets, and the
Custodian is hereby authorized to act in response to instructions given by
the Investment Sub-Adviser. The Client agrees to take any other action and
deliver any certificates reasonably necessary to confirm the foregoing
authorization to the Custodian. The Client shall advise the Investment
Sub-Adviser if any other entity is appointed to serve as Custodian for the
Investment Assets prior to the date such entity succeeds the Custodian.
The term "Custodian" includes all successors to the presently serving
Custodian.
4. MANAGEMENT OF INVESTMENT ASSETS.
4.1 GENERAL POWERS AND DUTIES. So long as the Investment Sub-
Adviser's appointment under Section 1 hereof remains in effect, the
Investment Sub-Adviser shall, subject to the provisions of Section 4.2
hereof, have complete discretion and authority in the investment and
reinvestment of the Investment Assets and shall determine what securities
or other property shall be acquired, held, or disposed of and, subject to
the provisions of Section 4.4 hereof, what portion of the Investment Assets
shall be held uninvested. The Investment Sub-Adviser's investment and
reinvestment authority shall include, without limitation, authority to
purchase, sell, exchange, convert, trade, and generally to deal in the
Investment Assets. The Investment Sub-Adviser shall have authority to
direct the Custodian with respect to the investment and management of the
Investment Assets.
The Investment Sub-Adviser's authority shall include the exercise of
all voting rights pertaining to the Investment Assets. However, the
Investment Sub-Adviser shall have no obligation to exercise any particular
voting rights unless the Custodian or the Client shall have furnished the
pertinent proxies to the Investment Sub-Adviser a reasonable time prior to
the deadline before which such proxies are required to be submitted. The
Investment Sub-Adviser has the duty to maintain accurate records as to any
vote or action taken with respect to any stock or other securities which
are part of the Investment Assets and to take such further action as may be
necessary for the Fund to participate fully in any transaction undertaken
by issuers of Investment Assets.
4.2 INVESTMENT POLICY. Investment objectives, policies and other
guidelines for the management of Investment Assets, including requirements
as to diversification are set forth in Exhibit A to this Agreement. The
Investment Sub-Adviser shall discharge its duties hereunder in accordance
with said investment guidelines as the same may be revised or supplemented
from time to time by the Client.
4.3 PRUDENCE AND DIVERSIFICATION. The Investment Sub-Adviser shall
discharge its duties hereunder at all times with the care, skill, prudence,
and diligence under the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.
4.4 MINIMUM LIQUIDITY REQUIREMENTS. The Client shall give the
Investment Sub-Adviser reasonable advance notice of any cash requirements
from the Investment Assets, and the Investment Sub-Adviser shall maintain
in cash or cash equivalents sufficient assets to meet such cash
requirements.
4.5 INSTRUCTIONS TO SECURITIES BROKERS AND DEALERS. The Investment
Sub-Adviser is hereby empowered to issue orders for the purchase, sale or
exchange of securities with respect to the Investment Assets directly to a
broker or dealer. The Investment Sub-Adviser shall give the Custodian and
the Client prompt written notification of each such execution in accordance
with the provisions of Section 5.1 hereof, and the Investment Sub-Adviser
shall instruct the broker or dealer concerned to forward a copy of the
confirmation of the execution of such order to the Custodian and the
Client.
4.6 SELECTION OF SECURITIES BROKERS AND DEALERS. The Investment Sub-
Adviser may select and employ securities brokers and dealers to effect any
securities transactions concerning the investment management of the
Investment Assets. In the selection of such brokers and dealers by the
Investment Sub-Adviser and the placing of orders with them, the Investment
Sub-Adviser shall use its best efforts to obtain for the Investment Assets
the most favorable net price and execution available except to the extent
otherwise provided by Section 28(e) of the Securities Exchange Act of 1934,
as amended, or by other applicable law. Notwithstanding anything in this
Section 4.6 to the contrary, the Client may instruct the Investment Sub-
Adviser in writing to engage securities brokers and dealers specified by
the Client to effect, with respect to the Investment Assets, securities
transactions, or particular securities transactions, and the Investment
Sub-Adviser shall act in accordance with such instructions. The Investment
Sub-Adviser shall not be responsible or liable for any acts or omissions by
any broker or dealer selected pursuant to this Section 4.6 provided the
Investment Sub-Adviser has acted reasonably in the exercise of due care in
the selection of such broker or dealer and has not otherwise participated
in, directly or indirectly, such acts or omissions by such broker or
dealer.
4.7 OTHER ACCOUNTS OF THE INVESTMENT SUB-ADVISER. It is understood
that the Investment Sub-Adviser performs investment advisory services for
various clients and accounts other than the Client. The Investment Sub-
Adviser may give advice and take action in the performance of its duties
with respect to any of such other clients or accounts which may be the same
as or differ from the timing or nature of action taken with respect to the
Investment Assets, provided that the Investment Sub-Advisor allocates to
the Investment Assets, to the extent practicable, opportunities to acquire
or dispose of investments over a period of time on a basis no less
favorable than its allocation of such opportunities to such other clients
and accounts and seeks over a period of time to obtain comparable execution
of similar transactions among its clients. It is understood that the
Investment Sub-Adviser shall not have any obligation to purchase or sell,
or to recommend for purchase or sale, for the Fund any security which the
Investment Sub-Adviser, its principals, affiliates or employees may
purchase or sell for its or their own accounts or for the account of any
other client, if in the opinion of the Investment Sub-Adviser such
transaction or investment appears unsuitable, impractical or undesirable
for the Fund.
4.8 LIMIT OF LIABILITY. The Investment Sub-Adviser shall act in good
faith and shall not be liable for any error of judgment or loss incurred by
the Fund in connection with recommendations or investments made by the
Investment Sub-Adviser in its management of the Investment Assets.
5. INFORMATION AND REPORTS.
5.1 REPORTS TO CLIENT. Initially, the Investment Sub-Adviser shall
submit a daily written report to the Client promptly following the close of
regular trading on the New York Stock Exchange detailing the actions taken
by the Investment Sub-Adviser under this Agreement during such day. The
report shall contain such information in such form as the Client has
specified, or from time to time shall specify, to the Investment Sub-
Adviser. In addition, the Investment Sub-Adviser shall provide such other
reports on the performance of the Investment Assets at such times, for such
periods and in such form as the Client shall reasonably request, taking
into account the Investment Sub-Adviser's ability to produce such reports
without undue burden to the Investment Sub-Adviser.
5.2 RECORDS AND ACCOUNTS. The Investment Sub-Adviser shall keep
accurate and detailed records and accounts of the Investment Assets and of
all receipts, disbursements, and other transactions hereunder affecting the
Investment Assets. All such records and accounts, and all documents
relating thereto shall be open at all reasonable times and under reasonable
conditions to inspection and audit by any person or persons designated by
the Client.
5.3 EXCHANGE OF INFORMATION. The Client and the Investment Sub-
Adviser agree to provide to each other such information as the Investment
Adviser or the Client, as the case may be, may reasonably request to enable
it to carry out its duties, obligations, and responsibilities under this
Agreement or applicable law.
5.4 INFORMATION TO BE CONFIDENTIAL. All information and advice
furnished to or obtained by the Client or the Investment Sub-Adviser under
or in connection with this Agreement shall be treated as confidential and
shall not be disclosed to third parties except as required by law,
including the disclosure obligations of an investment company to its
securities holders under the federal securities laws.
6. FEE PAYABLE TO INVESTMENT SUB-ADVISER. For services under this
Agreement, the Investment Sub-Adviser shall be entitled to receive from the
Client a fee in an amount equal to .075% of the current value of the
Investment Assets as of the close of the last trading day of March, June,
September and December (.30% on an annual basis). Such fee shall be
payable in arrears as soon as practicable, but not more than 10 business
days, after the last day of each calendar quarter.
7. REPRESENTATIONS BY CLIENT. The Client hereby represents and warrants
to the Investment Sub-Adviser that:
(a) MARYLAND CORPORATION. The Fund is a corporation formed
under the Maryland General Corporation Law.
(b) INVESTMENT COMPANY. The Fund is registered with the
Securities and Exchange Commission (the "Commission") as an open-end
diversified management investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act").
(c) INVESTMENT ADVISER. The Client has been duly appointed to
serve as the investment adviser of the Fund.
(d) DELIVERY OF INFORMATION. The Client will deliver to the
Investment Sub-Adviser, in writing, all of the information, documents and
instruments which the Investment Sub-Adviser may reasonably request in
order that it shall be able to perform its duties hereunder.
(e) APPROVAL OF AGREEMENT. This Agreement has been approved by
the Investment Committee of the Client, by the Board of Directors of the
Fund, including a majority of the members of the Fund's Board of Directors
who are not Interested Persons of the Investment Sub-Adviser or the Fund
and, prior to the Effective Date, will be approved by a Majority Vote of
Shareholders. "Majority Vote of Shareholders" means, in accordance with
Section 2(a)(42) of the Investment Company Act, the vote, at an annual or a
special meeting of shareholders of the Fund, duly called, (a) of 67% or
more of the voting securities present at such meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present
or represented by proxy, or (b) of more than 50% of the outstanding voting
securities of the Fund, whichever is less. "Interested persons" are those
persons defined in Section 2(a)(19) of the Investment Company Act.
(f) OWNER OF INVESTMENT ASSETS. As of the Effective Date, the
Fund will be the owner of all Investment Assets which are the subject of
this Agreement.
(g) RECEIPT BY CLIENT OF PART II OF FORM ADV. The Client
acknowledges that it has received from the Investment Sub-Adviser prior to
or contemporaneously with the Client's execution of this Agreement a copy
of Part II of the Investment Sub-Adviser's Form ADV as currently on file
with the Commission under the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act").
8. REPRESENTATIONS BY INVESTMENT SUB-ADVISER. The Investment Sub-Adviser
hereby represents and warrants to and agrees with the Client that:
(a) REGISTRATION AS INVESTMENT ADVISER. The Investment Sub-
Adviser is and will be duly registered as an "investment adviser" in
accordance with the Investment Advisers Act and with any other regulatory
authorities pursuant to any other applicable laws. The Investment Sub-
Adviser is not subject to any order of the Commission or any other
regulatory authority restricting its activities.
(b) AFFILIATED BROKERS. Unless authorized in writing by the
Client, neither the Investment Sub-Adviser nor any parent, subsidiary or
related firm, individual or other entity related to the Investment Sub-
Adviser shall act as a securities broker with respect to any purchases or
sales of securities which may be made on behalf of the Fund.
(c) MEETINGS WITH CLIENT AND FUND. A representative of the
Investment Sub-Adviser shall personally meet with the Investment Committee
of the Client or its designated representative as reasonably requested by
the Client to explain the investment and management activities of the
Investment Sub-Adviser, and any reports related thereto, at such times as
may be mutually agreed by the Investment Sub-Adviser and the Client. In
addition, a representative of the Investment Sub-Adviser shall attend the
Fund's annual Board of Directors meetings and shall be prepared to discuss
the Investment Sub-Adviser's economic outlook, investment strategy,
individual holdings included in the Investment Assets and such other
related matters as the Board of Directors shall request.
(d) COMPLIANCE WITH LAWS. Nothing in this Agreement shall be
deemed to authorize the Investment Sub-Adviser to effect any transactions
in contravention of its fiduciary obligations, duties or responsibilities
under the Investment Advisers Act, this Agreement or any other applicable
federal or state laws or regulations (including all applicable securities
laws and regulations) or the rules of any national securities exchange.
The Investment Sub-Adviser shall at all times in the performance of its
duties hereunder comply with the Investment Advisers Act and such other
laws, regulations and rules.
(e) INDEMNIFICATION. In addition to any other rights which the
Client or the Fund may have against the Investment Sub-Adviser, the
Investment Sub-Adviser shall indemnify the Client and the Fund and hold
them harmless with respect to any loss or damage, or costs or expenses
suffered by them as a result of (i) a breach by the Investment Sub-Adviser
of this Agreement, or (ii) the willful misfeasance, bad faith or gross
negligence of the Investment Sub-Adviser or any of its employees or agents
acting under its supervision or control to perform any of its obligations
and duties, or by reason of its reckless disregard of its obligations and
duties, under this Agreement, the Investment Advisers Act or any other
applicable law or regulation; provided, the Investment Sub-Adviser shall
have no responsibility or liability for any loss incurred by reason of any
act or omission of the Client, a custodian or any broker-dealer.
9. MISCELLANEOUS.
9.1 AMENDMENT. This Agreement may be amended at any time by mutual
agreement of the Client and the Investment Sub-Adviser, provided that any
material amendment shall have been approved by a Majority Vote of
Shareholders, by the Fund's Board of Directors and by the vote of a
majority of the members of the Fund's Board of Directors who are not
Interested Persons of the Investment Sub-Adviser or the Fund cast in person
at a meeting called for the purpose of voting on such approval.
9.2 TERM. This Agreement shall have an initial term of one year from
the Effective Date and thereafter shall continue from year to year if
continuance is approved at least annually by (a) the Fund's Board of
Directors or a Majority Vote of Shareholders and (b) the vote of a majority
of the members of the Fund's Board of Directors who are not Interested
Persons of the Investment Sub-Adviser or of the Fund cast in person at a
meeting called for the purpose of voting on such approval.
9.3 TERMINATION. This Agreement shall automatically terminate in the
event of its assignment, within the meaning of Section 15(a) of the
Investment Company Act, unless an order of the Commission is issued
exempting such assignment. This Agreement may be terminated at any time,
on 30 days' written notice to the Investment Sub-Adviser, without payment
of any penalty, by the Client, the Board of Directors of the Fund or by a
Majority Vote of Shareholders. If at any time the representation contained
in Section 8(a) hereof ceases to be true, this Agreement shall terminate
forthwith without penalty or payment of any kind by the Client. The
Investment Sub-Adviser may terminate this Agreement at any time upon 30
days' prior written notice to the Client. If this Agreement shall
terminate at any time other than at the end of a calendar quarter, the
Investment Sub-Adviser shall be entitled to receive the fee set forth in
Section 6 hereof for the portion of the quarter elapsed prior to the date
of termination, prorated on a daily basis.
9.4 ERRORS AND OMISSIONS POLICY. The Investment Sub-Adviser agrees
that, at its sole expense, it will maintain an errors and omissions
insurance policy that covers the acts, errors and omissions by the
Investment Sub-Adviser, its employees or agents during the term of this
Agreement. Upon request of the Client, the Investment Sub-Adviser shall
provide evidence of such insurance.
9.5 GOVERNING LAW; SEVERABILITY. This Agreement and its performance
shall be governed by and construed in accordance with the applicable laws
of the United States and, to the extent permitted by such laws, with the
laws of the State of Oklahoma. In case any provision of this Agreement
shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Agreement but
shall be fully severable, and the Agreement shall be construed and enforced
as if such illegal or invalid provision had not been included herein.
9.6 NOTICES. Unless the parties otherwise agree, all notices,
instructions and advice with respect to matters contemplated by this
Agreement shall be in writing and effective when received, and delivery
shall be made personally, by registered or certified mail, return receipt
requested, overnight courier or confirmed facsimile and addressed as
follows:
Client: American Fidelity Assurance Company
0000 Xxxxxxx Xxxxxxxxx
Xxxxxxxxx Xxxx, Xxxxxxxx 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Investment
Sub-Adviser: Xxxxxxxx X. Xxxxx & Associates, Inc.
000 X. Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party may change any of the above information by providing notice to
the other party in the manner set forth above. All reports required to be
delivered by the Investment Sub-Adviser to the Client pursuant to Section
5.1 of this Agreement shall be delivered in the manner specified from time
to time by the Client. Any communications from the Investment Sub-Adviser
of a routine nature may be delivered by U.S. mail to the person(s)
specified by the Client.
In recognition of their acceptance of the terms and conditions of this
Agreement, the Client and the Investment Sub-Adviser hereby execute this
Agreement by their duly authorized representatives this 8th day of
December, 1998.
CLIENT: AMERICAN FIDELITY ASSURANCE COMPANY
By XXXX X. XXX
Name: Xxxx X. Xxx
Title: President
INVESTMENT SUB-ADVISER: XXXXXXXX X. XXXXX & ASSOCIATES, INC.
By XXXXXXXX X. XXXXX
Name: Xxxxxxxx X. Xxxxx
Title: President
EXHIBIT A
AMERICAN FIDELITY ASSURANCE COMPANY
AMERICAN FIDELITY DUAL STRATEGY FUND
INVESTMENT GUIDELINES
I. INVESTMENT OBJECTIVES:
The Fund's investment objectives are, primarily, long-term growth of
capital and, secondarily, the production of income. Such objectives
do not preclude infrequent investments for short-term capital
appreciation.
The Fund normally invests in a diversified portfolio consisting
primarily of common stocks based upon an assessment of particular
industries or companies. The Fund attempts to maintain sufficient
cash balances to meet variable annuity contract payments. The Fund's
assets may be held in cash or cash equivalents or in United States
Government securities for this purpose. The Fund does not engage in
the purchase or sale of puts, calls or other options or in writing
such options.
The Investment Sub-Adviser, after consulting with the Client and
obtaining Client approval, may determine that prevailing market and
economic conditions indicate investments in other than common stocks
may be advantageous, in which event investments may be made on a
short-term basis in United States Government securities, bonds, notes
or other evidences of indebtedness, issued publicly, of a type
customarily purchased for investment by institutional investors.
II. FUNDAMENTAL POLICIES:
The Investment Sub-Adviser must comply with the following Investment
Guidelines:
A. Not more than 5% of the value of the Investment Assets placed
with the Investment Sub-Adviser will be invested in securities of
any one issuer, except obligations of the United States
Government and instrumentalities thereof.
B. Not more than 10% of the voting securities of any one issuer will
be acquired.
C. Not more than 25% of the value of the Investment Assets placed
with the Investment Sub-Adviser will be invested in any one
industry.
D. No borrowings will be made.
E. The Investment Sub-Adviser will ensure that the Fund does not act
as an underwriter of securities of other issuers.
F. Investment in real estate will be limited to shares of real
estate investment trusts investing in equity real estate, up to
7.0% of Investment Assets placed with the Investment Sub-Adviser.
Investment in private placements and other illiquid assets will
not be made.
G. No purchase of commodities or commodity contracts will be
effected.
H. The Fund will not engage in the purchase or sale of puts, calls
or other options or in writing such options.
I. Loans will not be made except through the acquisition of publicly
traded bonds, debentures or other evidences of indebtedness of a
type customarily purchased by institutional investors.
J. Investment will not be made in the securities of a company
for the purpose of exercising management or control.
K. Investment in securities of other investment companies will
not be made except for money market funds. Up to 10% of
Investment Assets placed with the Investment Sub-Adviser may
be invested in money market funds, provided that not more
than 3% of the total outstanding voting stock of any one
investment company may be held.
L. Although the Fund does not intend to engage to a large
extent in short-term trading, the Investment Sub-Adviser may
make investments for the purpose of seeking short-term
capital appreciation.
M. Investments in repurchase agreements will be limited to the
top 35 U.S. banks, by deposits, that are rated at least
"B/C" by Xxxxx, Bruyette, Woods, a national bank rating
agency or a comparable rating from a similar bank rating
service. Additionally, there must be an appropriate amount
of excess collateralization depending upon the length of the
agreement, to protect against downward market fluctuation
and the Fund must take delivery of the collateral. The
market value of the securities held as collateral will be
valued daily. In the event the market value of the
collateral falls below the repurchase price, the bank
issuing the repurchase agreement will be required to provide
additional collateral sufficient to cover the repurchase
price.
N. Short sales of securities will not be made.
O. Purchases will not be made on margin, except for such short-
term credits necessary for the clearance of transactions.
P. Investments in high-yield or non-investment grade bonds will
not be made.
Q. Investments in the equity securities of foreign corporations
will be limited to American Depositary Receipts ("ADRs"),
other depositary receipts and ordinary shares which are
denominated in U.S. dollars and publicly traded in the
United States. Not more than 35% of the Investment Assets
placed with the Investment Sub-Adviser will be invested in
foreign issuers. In addition, not more than 20% of the
Investment Assets placed with the Investment Sub-Adviser
will be invested in issuers from any one foreign country.
ADRs or other depositary receipts must be issued by the Bank
of New York, Morgan Guaranty or Citibank. Depositary
receipts issued by other institutions must be approved in
advance by the Client.
III. OTHER INVESTMENT GUIDELINES:
The following Guidelines are additional rules which must be followed
by the Investment Sub-Adviser:
A. The Investment Sub-Adviser should generally conform to these
issuer guidelines with exceptions noted at the time of purchase
and variances reviewed annually with the Board of Directors of
the Fund.
1. $150,000,000 or more in assets.
2. Operational for at least 10 years.
3. $50,000,000 or more in stockholders equity.
B. Lending of securities will not be permitted.
C. The Fund will not invest in the securities of tobacco-producing
companies.
D. InvesTrust, N.A., or another custodian chosen by the Client,
shall be the Custodian of all Investment Assets placed with the
Investment Sub-Adviser. Duplicate brokerage confirmations of all
transactions must be sent to the Custodian and the Client.
E. All money market funds used by the Investment Sub-Adviser for a
portion of Investment Assets placed with the Investment Sub-
Adviser must be approved in advance by the Client.
F. The money market funds (cash) used by the Investment Sub-Adviser
for a portion of Investment Assets must have a balance at all
times equal to at least 3.0% of the market value of Investment
Assets placed with the Investment Sub-Adviser.
G. All brokers used by the Investment Sub-Adviser to execute
transactions for the Fund must have a commercial paper rating of
A1/P1 by Moody's and Standard & Poor's unless approved in advance
by the Client.
