<PAGE>
QUEST FOR VALUE
DUAL PURPOSE
FUND, INC. NOVEMBER 13, 1996
DEAR SHAREHOLDER:
As the Dual Purpose Fund nears the end of its 10-year
term, it is interesting to look back at the Fund's success
since its inception. The Fund is a closed-end investment
company with two classes of shares. The Capital Shares are
intended for investors seeking long-term capital
appreciation and preservation of capital, while the Income
Shares are intended for investors seeking current income
and long-term growth of income.
The Fund has performed extremely well:
o The Capital Shares have provided a compound annual
pretax return of 18.1% (based on the net asset value,
after adjustment for short-term capital gains
distributions and for federal taxes paid on net realized
long-term capital gains retained by the Fund) from
inception on February 13, 1987 through September 30,
1996, surpassing by a wide margin the 13.2% compound
annual total return of the Standard & Poor's 500 Index.
o During the same period, the Income Shares have delivered
a compound annual total return (assuming reinvestment of
dividends) of 11.9% on their $11.60 per share
liquidation value and 10.4% on their $12.50 per share
initial offering price, easily outpacing the 7.7%
compound annual total return of their benchmark, the
10-year Treasury bond issued in February 1987.
These highly favorable returns for both classes of shares
have been achieved primarily through excellent security
selection, utilizing the OpCap Advisors philosophy of
controlling risk and making capital grow by investing in
superior businesses that are undervalued in the market. A
'superior' business, in our view, has a powerful
competitive position, a well-thought-out business
strategy, excellent earnings and cash flow, and a
shareholder-oriented management. Rather than attempting to
call market turns or choosing stocks that fit some macro
economic view, we select stocks one at a time based on
company fundamentals. Moreover, we tend to be long-term
investors in these quality undervalued securities,
focusing on companies with high cash flow that are able to
generate economic value that compounds regardless of stock
market ups and downs.
IMPORTANT INFORMATION FOR HOLDERS OF CAPITAL SHARES
The Fund is about to enter a new phase. On January 31,
1997, as provided by its Articles of Incorporation, the
Fund will redeem all Income Shares. Thereafter, the
Capital Shares will either convert to an open-end fund
(mutual fund) or the Fund will be liquidated.
The Board of Directors voted recently to recommend
conversion to an open-end fund, subject to approval by
holders of the Capital Shares. In making this
recommendation, the Board considered a number of factors,
including: 1) the differences between a closed-end fund
and an open-end fund and the relative advantages and
disadvantages of each; 2) liquidation of the Fund would be
a taxable event to shareholders while conversion to an
open-end fund would not; and 3) conversion to an open-end
fund would allow Capital Shareholders to continue their
investment in a vehicle which will have capital
appreciation as its investment objective.
If conversion is approved, Capital Shareholders will
receive Class A shares in the open-end fund. Any
shareholder wishing to sell shares will be able to do so
after the conversion date by redeeming them at their net
asset value. In comparison to its current closed-end
status, with a fixed number of shares, as an open-end
investment company the Fund will continuously offer its
shares to the public. Investors will be able to buy shares
at the Fund's public offering price, and shareholders will
be able to reinvest all dividends and distributions at net
asset value.
Subject to shareholder approval, OppenheimerFunds, Inc., a
leading mutual fund organization which manages $55 billion
of assets, will become the Fund's adviser/distributor.
OpCap Advisors, utilizing the same investment philosophy
and methodology as it has in the past, will continue to
provide portfolio management services as subadviser.
<PAGE>
If you own Capital Shares, you should receive a proxy statement related to these
proposals shortly, if you have not already received it. We urge you to read the
proxy statement carefully and return your completed proxy card in the envelope
that is included with the proxy statement.
IMPORTANT INFORMATION FOR HOLDERS OF INCOME SHARES
The Income Shares are scheduled to be redeemed on January 31, 1997 at $11.60 per
share plus all accumulated and unpaid income. That income will consist primarily
of income earned by the Fund in January 1997, since the Fund will declare a
dividend in December 1996 which will include nearly all of the income earned but
not previously paid through year-end 1996.
In lieu of receiving cash, Income Shareholders will have the choice of investing
their proceeds in any of the Oppenheimer Funds without sales charge. This
provides a convenient method to reinvest in a fund that meets your particular
investment objectives and needs. Income Shareholders will find enclosed with
this report a postage-paid card which can be returned for additional information
about the choices available to them. We encourage each Income Shareholder to
return the card today.
TOLL-FREE NUMBER
If you have questions regarding these developments, please call us at
1-800-600-5487.
THIRD QUARTER INVESTMENT RESULTS
The Dual Purpose Fund had a slightly down period in the third quarter. A
negative total return on its portfolio of 1.6% compared with a total return of
3.1% for the Standard & Poor's 500 Index including dividends (S&P 500). For the
first nine months of 1996, the total return on the Fund's portfolio was 11.3%,
compared with 13.5% for the S&P 500. The Fund's moderate underperformance in
both periods was due primarily to price declines in the third quarter for a few
of the Fund's equity holdings. The Fund continues to perform extremely well over
longer periods, producing a compound annual total return on its portfolio of
15.7% since inception on February 13, 1987, exceeding the 13.2% return of the
S&P 500.
The Fund owns a diversified portfolio of securities aimed at generating capital
appreciation and income. At the end of the third quarter, assets were allocated
77% to common stocks, 7% to securities convertible into common stocks, 14% to
bonds, notes and preferred stock, and 2% to cash and equivalents. There was no
significant change in allocation during the quarter. If the conversion to an
open-end fund and other proposals being presented at the December 20 meeting are
approved, the Fund will invest primarily in common stocks. Following conversion,
it will invest in bonds and convertible securities only for capital appreciation
potential, not for income.
The five largest equity positions at September 30, 1996 were Lucas Varity PLC, a
highly profitable manufacturer of automotive components and other products,
representing 6.1% of the Fund's net assets; ACE, Ltd., a Bermuda-based provider
of excess directors and officers liability insurance, 5.9% of net assets; Mid
Ocean Ltd., a Bermuda-based provider of excess property and casualty insurance,
5.8% of net assets; Canadian Pacific, Ltd., a Canadian transportation and
natural resources company, 5.7% of net assets; and WorldCom, Inc., the nation's
fourth largest long-distance telecommunications company, 5.5% of net assets.
We increased the Fund's investment in WorldCom during the quarter after the
price of the stock declined. We view WorldCom, with its high profitability and
strong growth prospects, as an excellent business available at a modest price.
Its proposed merger with MFS Communications Co. should, if anything, accelerate
the company's revenue and earnings growth.
There were no other significant portfolio changes during the quarter.
CAPITAL SHARES
The Capital Shares of the Fund are intended for investors seeking capital
appreciation, leverage and professional management. The net asset value (NAV) of
the Capital Shares gained 12.1% in the first nine months, including a 3.0%
decline in the third quarter. The Capital Shares have provided excellent returns
over extended periods. As discussed above, from inception on February 13, 1987
through September 30, 1996 they provided a compound annual pretax return of
18.1% (based on the NAV, after adjustment for short-term capital gains
distributions and for federal taxes paid on net realized long-term capital gains
retained by the Fund), well above the 13.2% return of the S&P 500. This strong
performance reflects a combination of above-average investment returns and the
impact of leverage. At September 30, 1996, the Capital Shares had an NAV of
$37.71 each and were entitled to the capital appreciation or depreciation on the
entire net assets of the Fund, equal to $49.48 per Capital Share--thereby
magnifying changes in value, up or down, of the Fund's portfolio by
approximately 1.3 times.
The market price of the Capital Shares on the New York Stock Exchange declined
2.4% in the third quarter and increased 11.0% in the first nine months. As of
September 30, 1996, the market price of the Capital Shares was $35.375 per
share, a 6.2% discount from NAV. The Capital Shares will be redeemable at their
full NAV and any remaining discount will
<PAGE>
automatically disappear when, as discussed above, the Fund will either convert
to an open-end fund following a vote of shareholders or liquidate.
INCOME SHARES
The Income Shares, which had a market price of $11.75 each at September 30,
1996, are intended for investors seeking high current income and relative safety
of principal. The Fund paid regular monthly dividends of $.10 per Income Share
during the first nine months, or a total of $.90 per share for the period.
The Income Shares continued to deliver strong returns to income-oriented
investors. Their total return (dividends paid and change in market price
assuming the reinvestment of dividends) was 2.6% in the third quarter and 5.6%
in the first nine months, exceeding the total return of 1.4% and 4.1%,
respectively, on the 10-year Treasury security maturing in February 1997. From
inception on February 13, 1987 through September 30, 1996, the compound annual
total return on the Income Shares was 10.4% at market, assuming reinvestment of
dividends, well above the 7.7% compound return for the 10-year Treasury security
maturing in February 1997.
TAX INFORMATION
Please do not file your 1996 income tax return until you have received your 1996
tax statements. Tax information on your Dual Purpose Fund investment will be
mailed to you sometime during the first quarter of 1997. If shares are held in
your name directly, you will receive the information from the Fund's transfer
agent. Where shares are held in 'Street name' through your bank or broker, tax
information will be provided to you by them.
We wish to remind the Capital Shareholders, in particular, of certain tax
aspects of their investment. Unlike most other funds which distribute net
realized long-term gains, the Dual Purpose Fund reinvests and pays taxes on
them. Although holders of Capital Shares must report their pro rata share of the
gains on their income tax returns, they also receive a credit for their
proportional share of the taxes paid by the Fund. Tax-exempt shareholders, such
as qualified pension plans and 401(k) plans, are entitled to receive a refund
from the Internal Revenue Service of their proportional share of the federal
taxes paid by the Fund.
Net realized long-term capital gains approximated $9.00 per Capital Share during
the first ten months of 1996. At year end, the Fund will pay federal income tax
of about $3.15 per Capital Share on these gains, plus any changes resulting from
net gains realized during the final two months of the year. As a Capital
Shareholder, you will be entitled to a tax credit or tax refund in the same
amount.
If the Fund becomes open-ended, it will thereafter distribute net realized gains
and net income annually to shareholders, as is typical of mutual funds, and each
shareholder will be responsible for any tax, if applicable, on the distributions
received.
SUMMARY
The Dual Purpose Fund has achieved a remarkable performance since its inception
nearly a decade ago, delivering excellent returns on both the Capital Shares and
the Income Shares. It has been a wonderful decade of productive partnership
between the Fund and its shareholders. We have been privileged to serve your
investment needs, and we hope to have the opportunity to continue to serve your
needs as the Fund makes its anticipated transition to an open-end fund.
As always, we at the Fund and its investment adviser, OpCap Advisors, appreciate
the trust you have placed in us. Thank you for investing with us.
Sincerely,
/s/ Joseph M. La Motta
----------------------
President
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
SCHEDULE OF INVESTMENTS
AND NET ASSETS (UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (A)
- ------------ ------------
<S> <C> <C>
REPURCHASE AGREEMENT--1.1%
$ 9,333,000 Lehman Brothers 5.70%, 10/01/96, (dated
9/30/96, proceeds at maturity:
$9,334,478, collateralized by
$9,310,000 par, $9,522,627 value, U.S.
Treasury Notes, 6.50%, 5/31/01)....... $ 9,333,000
------------
CORPORATE NOTES AND BONDS--12.6%
Casinos/Gaming--2.5%
$ 19,000,000 Trump Holdings & Funding
Sr. Sub. Notes
15.50%, 6/15/05....................... $ 22,040,000
------------
Media/Broadcasting--3.5%
31,750,000 American Radio Systems Corp.
Sr. Sub. Notes
9.00%, 2/01/06........................ 30,797,500
------------
Printing/Publishing--2.1%
19,700,000 Hollinger International Publishing
Sr. Sub. Notes
9.25%, 2/01/06........................ 19,010,500
------------
Textiles--4.5%
40,000,000 WestPoint Stevens, Inc.
Sr. Sub. Deb.
9.375%, 12/15/05...................... 40,100,000
------------
Total Corporate Notes and Bonds $111,948,000
------------
CONVERTIBLE CORPORATE NOTES AND
BONDS--4.0%
Oil/Gas--1.9%
$ 12,970,545 Crusader Ltd.
Conv. Sub. Notes
6.00%, 2/14/04 (B).................... $ 17,080,911
------------
Real Estate--2.1%
18,442,153 Security Capital Group, Inc.
Conv. Sub. Deb.
12.00%, 6/30/14 (B)................... 18,788,354
------------
Total Convertible Corporate
Notes and Bonds....................... $ 35,869,265
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
- ------------ ------------
<S> <C> <C>
PREFERRED STOCK--1.3%
Entertainment
310,000 Time Warner Financing Trust $1.24
Pfd................................... $ 11,547,500
------------
CONVERTIBLE PREFERRED STOCKS--3.2%
Media/Broadcasting--1.2%
200,000 American Radio Systems Corp.
$3.50 Conv. Exch. Pfd................. $ 10,800,000
------------
Miscellaneous Financial
Services--1.1%
500,000 Merrill Lynch & Co., Inc.
Cox--Strypes
$1.37 Conv. Exch. Pfd................. 10,000,000
------------
Tobacco/Beverages/Food Products--0.9%
1,126,600 Flagstar Companies, Inc.
$2.25 Conv. Exch. Pfd................. 7,604,550
------------
Total Convertible
Preferred Stocks...................... $ 28,404,550
------------
COMMON STOCKS--77.0%
Airlines--3.6%
400,000 AMR Corp.*.............................. $ 31,850,000
------------
Automotive--6.2%
34,500 Borg-Warner Automotive, Inc............. 1,224,750
1,380,000 LucasVarity Plc.*....................... 54,337,500
------------
55,562,250
------------
Casinos/Gaming--3.3%
300,000 GTECH Holdings Corp.*................... 9,637,500
865,900 Trump Hotels & Casino Resorts, Inc.*.... 20,132,175
------------
29,769,675
------------
Chemicals--0.7%
169,000 SGL Carbon AG ADR*...................... 6,612,125
------------
Conglomerates--5.7%
2,200,000 Canadian Pacific, Ltd................... 50,875,000
------------
Electronics--5.2%
120,000 Tracor, Inc.*........................... 2,475,000
1,080,100 UCAR International, Inc.*............... 43,744,050
------------
46,219,050
------------
Healthcare Services--0.1%
94,400 Paracelsus Healthcare Corp.*............ 955,800
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
- ------------ ------------
<S> <C> <C>
Insurance--23.4%
1,000,000 ACE, Ltd................................ $ 52,875,000
1,327,000 EXEL Ltd................................ 46,113,250
1,210,000 Mid Ocean Ltd........................... 51,576,250
1,035,000 PartnerRe Ltd........................... 29,497,500
500,000 Progressive Corp., Ohio................. 28,625,000
------------
208,687,000
------------
Metals/Mining--4.5%
Freeport McMoRan, Copper & Gold
600,000 (Class A)............................... 17,700,000
700,000 (Class B)............................... 21,875,000
------------
39,575,000
------------
Miscellaneous Financial
Services--3.9%
1,346,900 Countrywide Credit Industries, Inc...... 34,514,312
------------
Oil/Gas--2.6%
523,000 Triton Energy Ltd. (Class A)*........... 23,404,250
------------
<CAPTION>
SHARES VALUE (A)
- ------------ ------------
<S> <C> <C>
Real Estate--2.9%
24,346 Security Capital Group, Inc. (B)........ $ 25,943,904
------------
Telecommunications--5.5%
2,300,000 WorldCom, Inc.*......................... 49,162,500
------------
Tobacco/Beverages/Food Products--9.4%
500,000 Philip Morris Companies, Inc............ 44,875,000
1,300,000 UST, Inc................................ 38,512,500
------------
83,387,500
------------
Total Common Stocks..................... $686,518,366
------------
TOTAL INVESTMENTS....................... 99.2% $883,620,681
Other Assets in Excess of
Other Liabilities..................... 0.8 7,278,462
----- ------------
TOTAL NET ASSETS........................ 100.0% $890,899,143
----- ------------
----- ------------
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing security.
NOTES TO SCHEDULE OF INVESTMENTS AND NET ASSETS:
(A) Each listed security is valued at the last reported sales price. Any
security having a remaining maturity of sixty days or less is valued at
amortized cost or amortized value, which approximates market.
(B) Restricted Securities (The Fund will not bear any costs, including those
involved in registration under the Securities Act of 1933, in connection
with the disposition of these securities.):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST SEPTEMBER 30, 1996
- ----------------------------------- ----------- ----------- ------------ ------- ------------------
<S> <C> <C> <C> <C> <C>
Crusader Ltd. 6.00%, 2/14/04....... 4/28/94 $12,970,545 -- $ 100 $ 132
Security Capital Group, Inc.
12.00%, 6/30/14.................. 6/16/94 18,442,153 -- 94 102
Security Capital Group, Inc.
Common Stock..................... 8/02/93 -- 24,346 699 1,066
</TABLE>
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
Looking For Investment Alternatives?
For a limited time, as an Income Shareholder of the Quest For Value Dual Purpose
Fund, Inc., you can invest your redemption proceeds into any of more than 50
Oppenheimer funds without paying a sales charge! If you are looking for high
------------------------------
income potential, you may wish to choose from one of the bond funds described
below. For current yields or prospectuses for other Oppenheimer funds, please
call us toll-free at 1-800-525-7048.
o Oppenheimer Strategic Income Fund seeks a high level of current income by
allocating investments among three broad market sectors of debt securities --
U.S. government, U.S. lower-grade corporate and foreign fixed-income
securities. Investments in foreign securities are subject to economic,
political and currency rate risks and investments in lower-grade securities
are subject to special credit risks which may result in loss of income and
principal.
o Oppenheimer Limited-Term Government Fund seeks high current income and safety
of principal through investments primarily in U.S. government-backed
obligations.
o Oppenheimer High Yield Fund seeks high current income potential and
diversification for your income portfolio through investments primarily in
lower-grade corporate bonds. Investments in non-investment grade securities
are subject to special credit risks which may result in loss of income and
principal.
Detach and return bottom section.
Yes! Please send me the brochure describing all the Oppenheimer funds or a
prospectus containing more complete information on the Fund(s) checked below,
including charges and expenses. I will read it carefully before I invest or send
------------------------------------------------
money.
- ------
/ / Brochure entitled The Time Is Now, which describes all the
Oppenheimer funds.
/ / Oppenheimer Strategic Income Fund
/ / Oppenheimer Limited-Term Government Fund
/ / Oppenheimer High Yield Fund
Name
- ------------------------------------------------------------------
Address
- ------------------------------------------------------------------
City State Zip
- ------------------------------------------------------------------
Daytime Phone ( )
- ------------------------------------------------------------------
0000090288.1196 November 18, 1996
<PAGE>
[LOGO] Oppenheimer Funds
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 85 DENVER, CO
POSTAGE WILL BE PAID BY ADDRESSEE
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ATTN: LITERATURE REQUEST DEPT.
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<PAGE>
QUEST FOR VALUE QUEST FOR VALUE [LOGO]
DUAL PURPOSE DUAL PURPOSE
FUND, INC. FUND, INC.
DIRECTORS AND OFFICERS
Joseph M. La Motta Director, President (1)
Eugene D. Brody Director (2)
George D. Langdon, Jr. Director (1)
George Loft Director (2)
Pamela W. McCann Director (3)
Dr. Thomas W. Murnane Director (3)
Lawrence Sherman Director (1)
Jeffrey C. Whittington Vice President
Bernard H. Garil Vice President
Sheldon Siegel Treasurer
Thomas E. Duggan Secretary
Richard L. Peteka Assistant Treasurer
Deborah Kaback Assistant Secretary
Quarterly Report
INVESTMENT ADVISER
OpCap Advisors
One World Financial Center
New York, NY 10281
SEPTEMBER 30, 1996
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
BostonEquiServe L.P.
P.O. Box 8200
Boston, MA 02266
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of Americas
New York, NY 10036
[ART]
KEY:
(1) Director for both Capital and Income Shares
(2) Director for Capital Shares
(3) Director for Income Shares
This report, including the financial information herein, is
transmitted to the shareholders of Quest for Value Dual
Purpose Fund, Inc. for their information. It is not a
prospectus, circular or representation intended for use in
the purchase of shares of the Fund or any securities
mentioned in this
report.
MANAGED BY
OPCAP ADVISORS
