Document ID: SEC-2010-1504-0001
Agency: sec
Document Type: Notice
Title: Applications: American Fidelity Dual Strategy Fund, Inc. and American Fidelity Assurance Co.
Posted Date: 2010-10-01T04:00Z

[Federal Register: October 1, 2010 (Volume 75, Number 190)]
[Notices]               
[Page 60838-60840]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc10-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29444; File No. 812-13708]

 
American Fidelity Dual Strategy Fund, Inc. and American Fidelity 
Assurance Company; Notice of Application

September 27, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act, as well as from certain disclosure requirements.

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Summary of Application: Applicants request an order that would permit 
them to enter into and materially amend subadvisory agreements without 
shareholder approval and would grant relief from certain disclosure 
requirements.

Applicants: American Fidelity Dual Strategy Fund, Inc. (the ``Fund'') 
and American Fidelity Assurance Company (the ``Advisor'').

Filing Dates: The application was filed on October 1, 2009, and amended 
on March 15, 2010, and September 24, 2010.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 22, 2010, and should be accompanied by proof of service 
on the applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, 2000 N. Classen 
Boulevard, Oklahoma City, OK 73106.

FOR FURTHER INFORMATION CONTACT: Lewis Reich, Senior Counsel, at (202) 
551-6919, or Jennifer Sawin, Branch Chief, at (202) 551-6821 (Division 
of Investment Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application

[[Page 60839]]

may be obtained via the Commission's Web site by searching for the file 
number, or an applicant using the Company name box, at http://
www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Fund, a Maryland corporation, is registered under the Act as 
an open-end management investment company. The Advisor is registered as 
an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as the investment adviser of the Fund 
pursuant to an investment advisory agreement (``Advisory Agreement'') 
with the Fund. The Advisory Agreement was approved by the Fund's board 
of directors (``Board''), including a majority of the directors who are 
not ``interested persons,'' as defined in section 2(a)(19) of the Act, 
of the Fund (``Independent Directors'') and by the shareholders of the 
Fund. Under the terms of the Advisory Agreement, the Advisor is 
responsible for providing a wide variety of services to the Fund 
including selecting and trading portfolio securities, and will have 
overall responsibility for the management and investment of the Fund's 
assets. For the management and investment advisory services that it 
provides to the Fund, the Advisor receives the fee specified in the 
Advisory Agreement. The Advisory Agreement also permits the Advisor to 
operate the Fund with one or more subadvisers (``Sub-Advisors''), and 
the Advisor's investment management services include selection of the 
Fund's Sub-Advisors. Pursuant to this authority, the Advisor has 
entered into investment subadvisory agreements (``Investment 
Subadvisory Agreements'') with four Sub-Advisors \1\ to provide 
investment advisory services to the Fund subject to the supervision of 
the Advisor and the Board. Each current Sub-Advisor is and each future 
Sub-Advisor will be an investment adviser as defined in section 
2(a)(20) of the Act and registered as an investment adviser under the 
Advisers Act. The Advisor will evaluate, allocate assets to, and 
oversee the Sub-Advisors, and make recommendations to the Board about 
their hiring, retention or release, at all times subject to the 
authority of the Board. The Advisor will compensate the Sub-Advisors 
out of the fees paid to the Advisor under the Advisory Agreement.
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    \1\ Quest Investment Management, Inc., The Renaissance Group, 
LLC, Beck, Mack & Oliver LLC and WEDGE Capital Management LLP.
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    2. Applicants request an order to permit the Advisor, subject to 
Board approval, to enter into and materially amend Investment 
Subadvisory Agreements without obtaining shareholder approval. The 
requested relief will not extend to any Sub-Advisor that is an 
affiliated person, as defined in section 2(a)(3) of the Act, of the 
Fund or the Advisor, other than by reason of serving as a Sub-Advisor 
to the Fund (``Affiliated Sub-Advisor'').
    3. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Fund to disclose fees 
paid by the Advisor to the Sub-Advisors. An exemption is requested to 
permit a Fund to disclose (as both a dollar amount and as a percentage 
of its net assets): (a) the aggregate fees paid to the Advisor and any 
Affiliated Sub-Advisors; and (b) the aggregate fees paid to Sub-
Advisors other than Affiliated Sub-Advisors (collectively, ``Aggregate 
Fee Disclosure''). If the Fund employs an Affiliated Sub-Advisor, the 
Fund will provide separate disclosure of any fees paid to the 
Affiliated Sub-Advisor.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires disclosure of 
the method of computing, and amount of, the investment adviser's 
compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii), 
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fees,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provisions of the Act, or 
from any rule thereunder, if such exemption is necessary or appropriate 
in the public interest and consistent with the protection of investors 
and the purposes fairly intended by the policy and provisions of the 
Act. Applicants state that the requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that shareholders of the Fund expect the 
Advisor to select Sub-Advisors who have the appropriate skills and 
experience to manage the Fund's assets allocated to them. Applicants 
assert that, from the perspective of the investor, the role of the Sub-
Advisors is substantially equivalent to that of the individual 
portfolio managers employed in a traditional investment advisory 
structure. Applicants state that requiring shareholder approval of each 
Investment Subadvisory Agreement would impose costs and unnecessary 
delays on the Fund; the requested relief may enable the Fund to act 
more quickly when the Board and the Advisor feel that a change would 
benefit the Fund and its shareholders. Applicants note that the 
Advisory Agreement and any Investment Subadvisory Agreement with an 
Affiliated Sub-Advisor will remain subject to section 15(a) of the Act.
    7. Applicants assert that many advisers use a ``posted'' rate 
schedule to set their fees. Applicants state that, while advisers are 
willing to negotiate fees lower than those posted in the schedule, they 
are reluctant to do so where the fees are disclosed to other 
prospective and existing customers. Applicants submit that the 
requested relief will allow the Advisor to negotiate more effectively 
with each Sub-Advisor.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before the Fund may rely on the order requested in the 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority of the Fund's outstanding 
voting securities, as defined in the Act.
    2. The prospectus for the Fund will disclose the existence, 
substance, and effect of any order granted pursuant to the application. 
The Fund will hold

[[Page 60840]]

itself out to the public as employing the manager of managers structure 
described in the application. The prospectus will prominently disclose 
that the Advisor has ultimate responsibility (subject to oversight by 
the Board) to oversee the Sub-Advisors and recommend their hiring, 
termination, and replacement.
    3. Within 90 days of the hiring of a new Sub-Advisor, the Fund's 
shareholders will be furnished all information about the new Sub-
Advisor that would be included in a proxy statement, except as modified 
by the order to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of the new Sub-Advisor. To meet this obligation, 
the Fund will provide shareholders, within 90 days of the hiring of a 
new Sub-Advisor, with an information statement meeting the requirements 
of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under the 
1934 Act, except as modified by the order to permit Aggregate Fee 
Disclosure.
    4. The Advisor will not enter into an Investment Subadvisory 
Agreement with any Affiliated Sub-Advisor without that agreement, 
including the compensation to be paid thereunder, being approved by 
Fund shareholders.
    5. At all times, at least a majority of the Board will be 
Independent Directors, and the nomination of new or additional 
Independent Directors will be placed within the discretion of the then 
existing Independent Directors.
    6. When a Sub-Advisor change is proposed for the Fund with an 
Affiliated Sub-Advisor, the Board, including a majority of the 
Independent Directors, will make a separate finding, reflected in the 
applicable Board minutes, that such change is in the best interests of 
the Fund and its shareholders, and does not involve a conflict of 
interest from which the Advisor or the Affiliated Sub-Advisor derives 
an inappropriate advantage.
    7. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Directors. The 
selection of such counsel will be within the discretion of the then 
existing Independent Directors.
    8. Whenever a Sub-Advisor is hired or terminated, the Advisor will 
provide the Board with information showing the expected impact on the 
profitability of the Advisor.
    9. The Advisor will provide general management services to the 
Fund, including overall supervisory responsibility for the general 
management and investment of the Fund's assets and, subject to review 
and approval of the Board, will: (i) Set the Fund's overall investment 
strategies, (ii) evaluate, select and recommend Sub-Advisors to manage 
all or a part of the Fund's assets, (iii) when appropriate, allocate 
and reallocate the Fund's assets among multiple Sub-Advisors, (iv) 
monitor and evaluate the performance of Sub-Advisors, and (v) implement 
procedures reasonably designed to ensure that the Sub-Advisors comply 
with the Fund's investment objective, policies and restrictions.
    10. No director or officer of the Fund, or director or officer of 
the Advisor, will own directly or indirectly (other than through a 
pooled investment vehicle that is not controlled by such person) any 
interest in a Sub-Advisor, except for (a) ownership of interests in the 
Advisor or any entity that controls, is controlled by, or is under 
common control with the Advisor, or (b) ownership of less than 1% of 
the outstanding securities of any class of equity or debt of a publicly 
traded company that is either a Sub-Advisor or an entity that controls, 
is controlled by or is under common control with a Sub-Advisor.
    11. The Fund will disclose in its registration statement the 
Aggregate Fee Disclosure.
    12. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that in the order requested 
in the application, the requested order will expire on the effective 
date of that rule.
    13. The Advisor will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Advisor with 
respect to the Fund. The information will reflect the impact on 
profitability of the hiring or termination of any Sub-Advisor during 
the applicable quarter.

     For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24655 Filed 9-30-10; 8:45 am]
BILLING CODE 8010-01-P