<PAGE>
QUEST FOR VALUE
DUAL PURPOSE
FUND, INC. MAY 2, 1996
QUEST FOR VALUE
DUAL PURPOSE
FUND, INC.
One World Financial Center
New York, NY 10281
1-800-600-5487
DEAR SHAREHOLDER:
The Dual Purpose Fund had a strong first quarter,
generating a 7.9% total return on its portfolio, exceeding
the 5.4% return of the Standard & Poor's 500 Index
including dividends (S&P 500). Since its inception on
February 13, 1987, the Fund has produced a compound annual
total return on its portfolio of 16.2%, surpassing by a
wide margin the 13.0% return of the S&P 500.
The Fund is a closed-end investment company with an equal
number of Capital Shares and Income Shares. Capital Shares
receive all the capital appreciation and absorb any losses
from the Fund's entire portfolio, while Income Shares
receive all net income. Both classes of shares delivered
positive returns in the quarter.
INVESTMENT PHILOSOPHY
Although the Fund invests primarily in common stocks, it
also buys convertible securities and nonconvertible bonds,
notes and preferred stock. When purchasing stocks, it
employs the traditional OpCap Advisors investment
approach--that is, buying superior businesses with good
managements at modest valuations. It focuses, however, on
a relatively limited number of stocks. As of March 31,
1996, just over half the net assets of the Fund were
invested in the common stocks of ten companies. This
approach is designed to take full advantage of our
intensive research process and strict value criteria by
making our positions large enough to have a significant
impact on investment results.
Our investment style specifically attempts to avoid
forecasting the market or the economy. We analyze
individual companies and try to understand where their
businesses are going over the next several years, not
where the stock market is heading during the next quarter.
We believe the biggest risk in any investment purchase is
the valuation, or price paid. Therefore, we focus on
buying companies that are priced inexpensively relative to
our analysis of their prospects. We try to control risk by
owning superior businesses with strong operating/financial
managements. Experience shows that good businesses tend to
remain good businesses and can often increase their
economic value for extended periods. For that reason, we
are long-term investors, typically holding a company's
stock for a number of years.
UCAR International, Inc., one of the Fund's larger
holdings, representing 4.5% of net assets at the end of
the quarter, is an example of the superior business
qualities we look for in a company. UCAR produces graphite
electrodes, used primarily for the production of steel in
electric arc furnaces, mainly in 'mini-mills.' Because
UCAR dominates its market and is the low-cost producer, it
earns high returns on assets--about a 47% operating return
on net operating assets versus about 18% for the average
non-financial company. Depreciation has exceeded capital
expenditures each of the past five years, and since the
company is currently operating at only 70% of capacity and
has no need to expand facilities, we expect this to
continue for the next several years. Consequently, all
earnings should be available as free cash flow. The
company is expected to maintain double-digit sales growth
through increased unit sales and pricing flexibility.
Moreover, 10% annual sales growth should produce operating
profit growth of 15% (as gross margins expand) and
earnings growth of 20% (as free cash flow is used to pay
down debt). Finally, even though the steel business is
cyclical, UCAR's sales are expected to increase as
mini-mills continue to gain market share.
The price of UCAR common stock rose about 15% in the first
quarter, making it one of the better performing securities
owned by the Fund. We believe UCAR's superior attributes,
coupled with its reasonable price of approximately 13
times anticipated 1996 earnings, represent an opportunity
to own a good business selling at a modest valuation.
<PAGE>
PORTFOLIO HOLDINGS AND CHANGES
As of March 31, 1996, the Fund's assets were allocated 73% to common stocks, 12%
to securities convertible into common stocks, 14% to bonds, notes and preferred
stock, and 1% to cash and equivalents.
The Fund's five largest equity and equity related holdings as of March 31, 1996
were Freeport McMoRan Copper & Gold common stock (Class A and B), Triton Energy
Corp. (our Triton position is a combination of Triton common stock and Crusader,
Ltd. subordinated notes convertible into Triton stock), AMR Corp. convertible
debentures, Mid Ocean Ltd. common stock, and WorldCom, Inc. common stock.
The common stocks in the Fund's portfolio produced a total return of 7.8% in the
quarter, exceeding the 5.4% return of the S&P 500. During the quarter, we
established new positions in the common stocks of such companies as Ace, Ltd.,
Canadian Pacific, Ltd., Frontier Corp. and PartnerRe, Ltd. Some of the positions
that were eliminated included Citicorp, Federal Home Loan Mortgage Corp.
(Freddie Mac), McDonnell Douglas Corp. and Travelers Group, Inc.
The Fund owns high-yield bonds to generate income for the Income Shares as well
as to provide appreciation potential for the Capital Shares. During the quarter,
we established new positions in the bonds of American Radio Systems and
WestPoint Stevens, Inc., and sold our investments in the debt securities of
Harrah's Jazz Co. and Triton Energy Corp. The Fund's holdings of bonds and
preferred stock provided a total return of 7.2% in the quarter.
CAPITAL SHARES
The Capital Shares are intended for investors seeking capital appreciation,
leverage and professional management at no cost (the management fees and
expenses of the Fund are paid out of current income by the Income Shareholders).
The net asset value (NAV) of the Capital Shares gained 9.6% in the first
quarter. At March 31, 1996, the Capital Shares had an NAV of $36.88 each and
were entitled to the capital appreciation or depreciation on the entire net
assets of the Fund, equal to $48.54 per Capital Share--thereby magnifying
changes in value, up or down, of the Fund's portfolio by approximately 1.3
times.
The Capital Shares have provided returns well in excess of the S&P 500 over
extended periods. From the Fund's inception on February 13, 1987 through March
31, 1996 they provided a compound annual pretax return of 18.9% (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),
handily beating the 13.0% return of the S&P 500. This excellent performance
reflects a combination of above-average investment returns and the impact of
leverage.
The market price of the Capital Shares on the New York Stock Exchange increased
7.1% in the quarter. As of March 31, 1996, the market price of the Capital
Shares was $34.125 per share, a 7.5% discount from NAV. The Capital Shares will
be redeemable at their full NAV and any remaining discount will automatically
disappear after January 31, 1997, when the Fund will either liquidate or,
following a vote of shareholders, convert to an open-end fund.
INCOME SHARES
The Income Shares are intended for investors seeking high current income and
relative safety of principal. The Fund paid regular monthly dividends of $.10
per Income Share in the first quarter, or a total of $.30 per share for the
three-month period.
The Income Shares' total return (dividends paid and change in market price
assuming the reinvestment of dividends) was 1.5% in the quarter, exceeding the
1.2% total return of a 10-year Treasury security maturing in February 1997. From
inception on February 13, 1987 through March 31, 1996, the compound annual total
return on the Income Shares was 10.5% at market, assuming reinvestment of
dividends, well above the 7.8% compound return for a 10-year Treasury security
maturing in February 1997.
The Income Shares had a market price of $11.875 each at March 31, 1996. They 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 almost all of the income, if any, earned but
not previously paid through year-end 1996.
<PAGE>
OUTLOOK
The 1996 first quarter was the fifth in a row of strongly rising equity prices
and extended the period without as much as a 10% stock market correction to
five-and-one-half years, the longest in this century. It is beginning to sound
trite that risks in the stock market are rising--that the market may be overdue
for a correction, yet the stocks we own are still attractively priced.
In this environment, as always, we remain dedicated to preserving capital and
generating favorable returns by investing in undervalued quality securities.
Since we can't predict market turns, we will continue to do what we do best,
pick stocks.
Thank you for investing with us. We appreciate the trust you have placed in the
Dual Purpose Fund and OpCap Advisors, its manager, and will continue to work
hard to merit that trust.
Sincerely,
/s/ Joseph M. La Motta
----------------------------
Joseph M. La Motta
President
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
SCHEDULE OF INVESTMENTS
AND NET ASSETS (UNAUDITED)
MARCH 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (A)
- ------------ ------------
<S> <C> <C>
REPURCHASE AGREEMENT--3.3%
$29,236,000 Lehman Brothers 5.375%, 4/01/96, (dated
3/29/96, proceeds at maturity:
$29,249,095, collateralized by
$27,940,000 par, $29,820,362 value,
U.S. Treasury Notes, 8.25%, 7/15/98).. $ 29,236,000
------------
CORPORATE NOTES AND BONDS--12.2%
Casinos/Gaming--5.4%
$19,000,000 Trump Holdings & Funding
Sr. Sub. Notes
15.50%, 6/15/05....................... $ 21,755,000
23,000,000 Trump Plaza Funding
First Mortgage Notes
10.875%, 6/15/01...................... 25,530,000
------------
47,285,000
------------
Media/Broadcasting--3.5%
31,000,000 American Radio Systems Corp.
Sr. Sub. Notes
9.00%, 2/01/06........................ 30,380,000
------------
Textiles--3.3%
29,000,000 WestPoint Stevens, Inc.
Sr. Sub. Deb.
9.375%, 12/15/05...................... 28,637,500
------------
Total Corporate Notes and Bonds $106,302,500
------------
CONVERTIBLE CORPORATE NOTES AND
BONDS--10.0%
Airlines--5.5%
$41,500,000 AMR Corp.
Conv. Sub. Deb.
6.125%, 11/01/24...................... $ 47,828,750
------------
Oil/Gas--2.4%
12,970,545 Crusader Ltd.
Conv. Sub. Notes
6.00%, 2/14/04(B)..................... 21,237,970
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE (A)
- ------------ ------------
<S> <C> <C>
Real Estate--2.1%
$18,442,153 Security Capital Realty, Inc.
Conv. Sub. Deb.
12.00%, 6/30/14 (B)................... $ 18,425,841
------------
Total Convertible Corporate
Notes and Bonds....................... $ 87,492,561
------------
<CAPTION>
SHARES
- ------------
<S> <C> <C>
PREFERRED STOCK--1.3%
Entertainment
310,000 Time Warner Financing Trust $1.24
Pfd................................... $ 11,547,500
------------
CONVERTIBLE PREFERRED STOCK--2.0%
Tobacco/Beverages/Food Products
1,242,200 Flagstar Companies, Inc.
$2.25 Conv. Exch. Pfd................. $ 17,080,250
------------
COMMON STOCKS--73.1%
Automotive--5.1%
1,036,200 Varity Corp.*........................... $ 44,815,650
------------
Casinos/Gaming--2.1%
640,200 Trump Hotels & Casino Resorts, Inc.*.... 18,725,850
------------
Conglomerates--5.0%
2,200,000 Canadian Pacific, Ltd................... 44,000,000
------------
Electronics--4.5%
1,019,400 UCAR International Inc.*................ 39,629,175
------------
Insurance--22.5%
1,000,000 Ace, Ltd................................ 44,625,000
652,700 EXEL Ltd................................ 45,036,300
156,900 Horace Mann Educators Corp.............. 4,785,450
1,210,000 Mid Ocean Ltd........................... 46,736,250
1,035,000 PartnerRe Ltd........................... 30,791,250
550,000 Progressive Corp., Ohio................. 24,543,750
------------
196,518,000
------------
Lodging--1.6%
1,010,000 Host Marriot Corp.*..................... 13,635,000
------------
Metals/Mining--6.1%
Freeport McMoRan, Copper & Gold
646,250 (Class A)............................... 19,872,187
1,052,601 (Class B)............................... 33,288,507
------------
53,160,694
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
- ------------ ------------
Miscellaneous Financial
Services--0.9%
<S> <C> <C>
339,200 Countrywide Credit Industries, Inc...... $ 7,504,800
------------
Oil/Gas--3.2%
500,000 Triton Energy Ltd.*..................... 27,875,000
------------
Real Estate--2.9%
24,346 Security Capital Realty, Inc. (B)....... 25,443,592
------------
Telecommunications--9.4%
1,154,900 Frontier Corp........................... 36,379,350
1,002,500 WorldCom, Inc.*......................... 46,115,000
------------
82,494,350
------------
<CAPTION>
SHARES VALUE (A)
- ------------ ------------
<S> <C> <C>
Tobacco/Beverages/Food Products--9.8%
500,000 Philip Morris Companies, Inc............ $ 43,875,000
1,300,000 UST, Inc................................ 41,437,500
------------
85,312,500
------------
Total Common Stocks..................... $639,114,611
------------
TOTAL INVESTMENTS....................... 101.9% $890,773,422
Other Liabilities in Excess of
Other Assets.......................... (1.9) (16,784,015)
----- ------------
TOTAL NET ASSETS........................ 100.0% $873,989,407
----- ------------
----- ------------
</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>
FAIR VALUE AS
DATE OF PAR AVERAGE OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST MARCH 31, 1996
- ----------------------------------- ----------- ----------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C>
Crusader Limited 6.00%, 2/14/04.... 4/28/94 $12,970,545 -- $ 100 $ 164
Security Capital Realty, Inc.
12.00%, 6/30/14.................. 6/16/94 18,442,153 -- 94 100
Security Capital Realty, Inc.
Common Stock..................... 8/02/93 -- 24,346 699 1,045
</TABLE>
<PAGE>
QUEST FOR VALUE
DUAL PURPOSE
FUND, INC.
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
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
Leslie Klein Assistant Treasurer
Deborah Kaback Assistant Secretary
</TABLE>
INVESTMENT ADVISER
OpCap Advisors
One World Financial Center
New York, NY 10281
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
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.
QUEST FOR VALUE
DUAL PURPOSE
FUND, INC.
QUARTERLY REPORT
MARCH 31, 1996
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MANAGED BY
OPCAP ADVISORS
