<PAGE>
QUEST FOR VALUE
DUAL PURPOSE
FUND, INC. JANUARY 30, 1997
DEAR SHAREHOLDER:
We are pleased to report on recent events of the Quest for Quest for Value
Value Dual Purpose Fund. Following ten years of superior Dual Purpose
investment performance, the Fund will convert to an Fund, Inc.
open-end fund (mutual fund) after the close of business on
February 28, 1997. Conversion was overwhelmingly approved One World Financial
in a recent vote of the Capital Shares. Center
On becoming open-ended, the Fund will be renamed the New York, NY 10281
Oppenheimer Quest Capital Value Fund, Inc. It will have an 1-800-600-5487
investment objective, capital appreciation, similar to the
objective of the Capital Shares of the Dual Purpose Fund.
If you own Capital Shares, you will automatically become a
Class A shareholder of the open-end fund.
If you own Income Shares of the Dual Purpose Fund, you are
entitled to the cash redemption price of $11.60 per share
plus $.0813 per share of accrued but previously unpaid
dividends, for a total of $11.6813 per Income Share. We
have written to you previously about the ability to invest
the redemption proceeds from your Income Shares in any of
the more than 50 Oppenheimer mutual funds without a sales
charge for a limited period of time. This provides a
convenient method to reinvest in a fund without a sales
charge, depending on your particular investment objectives
and needs.
Whether you own Capital Shares or Income Shares, if you
have any questions or need further information, please
call us at our toll-free number, 1-800-600-5487. We are
here to help you.
SUPERIOR PERFORMANCE RECORD
It was a decade ago, on February 13, 1987, that the Fund
began operation with an equal number of Capital Shares
(receiving all the capital appreciation and absorbing any
losses from the Fund's entire portfolio) and Income Shares
(receiving all the net income on the portfolio).
The Capital Shares were intended for investors seeking
capital appreciation and preservation of capital, while
the Income Shares were targeted to investors seeking high
current income and long-term growth of income.
Over the decade, the Fund has been extremely successful in
delivering favorable returns to both classes of
shareholders:
- ----------------------------------------------------------
Compound Average Annual Pretax Return
Dual Purpose Fund Versus Benchmarks
February 13, 1987 to December 31, 1996
<TABLE>
<S> <C>
Capital Shares 18.5%
Standard & Poor's 500 Stock Index 13.7%
Income Shares 10.3%
10-Year Treasury Bond Issued in February 1987 7.7%
</TABLE>
- ----------------------------------------------------------
Returns for the Capital Shares are based on 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. Returns for
the Income Shares assume reinvestment of dividends and are
based on the $12.50 per share initial offering price.
Based on their $11.60 per share liquidation value, the
Income Shares provided an even higher compound annual
total return of 11.9%.
We are very proud of this performance, which has been
achieved by adhering to a disciplined style of value investing.
<PAGE>
WHAT HAPPENS NEXT
Conversion to an open-end fund is a natural progression in the life of the Dual
Purpose Fund. The Fund's Articles of Incorporation provide that the Fund will
redeem all Income Shares on January 31, 1997, and that the Fund, consisting
thereafter of the assets of the Capital Shares, will either liquidate or convert
to an open-end fund.
In December 1996, holders of the Capital Shares approved conversion of the Fund
to an open-end fund. In comparison to the Dual Purpose Fund's closed-end
structure of a fixed number of shares, as an open-end investment company the
Fund will continuously offer its shares to investors at the public offering
price and will redeem shares at their net asset value (NAV). Shareholders will
be able to reinvest all dividends and distributions at the NAV.
Capital Shareholders also approved the appointment of OppenheimerFunds, Inc.
(OFI), a leading mutual fund organization, as the open-end fund's adviser and
OppenheimerFunds Distributor, Inc., a subsidiary of OFI, as its distributor. We
at OpCap Advisors will continue to provide portfolio management services to the
Fund as subadviser, employing the same investment philosophy and methodology we
have used in the past. More information about the Fund, including investment
policies and strategies, investment risks, expenses, and purchase, redemption
and exchange procedures, will be set forth in a prospectus to be sent to
shareholders of the Fund after it becomes open-ended.
1996 INVESTMENT RESULTS
We spent much of the fourth quarter adjusting the portfolio, including raising
cash, to prepare for the redemption of the Income Shares. As of December 31,
1996, assets were allocated 70% to common stocks, 4% to securities convertible
into common stocks, 1% to corporate notes, and 25% to cash, cash equivalents and
U.S. Treasuries.
Because of the Fund's above-average holdings of bonds, notes and cash in a
rising stock market, investment results were dampened somewhat in the 1996
fourth quarter. The total return on the Fund's portfolio was 6.4% in the quarter
and 18.5% for the year, compared with 8.3% and 23.0%, respectively, for the S&P
500. We believe these returns were satisfactory given the necessity for the
Fund's conservative investment posture.
The Fund continues to have an excellent long-term performance record. From
inception on February 13, 1987, through December 31, 1996, the compound average
annual total return on the Fund's portfolio was 16.0%, outpacing the 13.7%
compound average annual total return of the S&P 500.
INVESTMENT PHILOSOPHY AND PORTFOLIO ACTIVITY
Following redemption of the Income Shares, the Fund will primarily own common
stocks. Convertible securities and bonds will be owned, if at all, only for
their appreciation potential, not for income.
In selecting securities for the Fund, we will continue to do what we do best,
which is to invest in superior, undervalued businesses for the long-term. We
stick with quality companies until their value is reflected in the stock price,
or until we find companies that offer even better value.
In the 1996 fourth quarter, we established a new position in the common stock of
Chesapeake Energy Corp. and added to the Fund's investment in Trump Hotels and
Casino Resorts and, through the conversion of the Fund's Crusader Ltd.
convertible notes, added to its position in Triton Energy Ltd. (Class A). We
sold a number of equity positions, including AMR Corp. and Freeport McMoRan
Copper & Gold (Class A and B), and reduced several others.
The Fund's five largest equity holdings at year end were Mid Ocean Ltd., a
Bermuda-based provider of excess property and casualty insurance; ACE, Ltd., a
Bermuda-based provider of excess directors and officers liability insurance;
Canadian Pacific, Ltd., a Canadian transportation and natural resources company;
Lucas Varity PLC, a highly profitable manufacturer of automotive components and
other products; and WorldCom, Inc., the nation's fourth largest long-distance
telecommunications company. Each of these quality businesses has a strong
competitive position and excellent earnings prospects. Moreover, we believe each
is undervalued in the market, offering significant potential for price
appreciation.
CAPITAL SHARES
The NAV of the Capital Shares increased 7.5% in the fourth quarter and 20.5% for
the year after adjustment for federal taxes of $3.2848 per Capital Share accrued
at year end on net realized long-term capital gains retained by the Fund. Owners
of Capital Shares are entitled to a credit on their federal income tax returns
for the tax paid by the Fund on their shares. Tax-exempt shareholders, such as
qualified pension plans and 401(k) plans, are entitled to a refund from the
Internal Revenue Service for the tax paid on their shares.
<PAGE>
The market price of the Capital Shares on the New York Stock Exchange advanced
23.6% in 1996, including an 11.4% increase in the fourth quarter. The market
price at year end was $36.125 per share, or 3% below the NAV of $37.25 per
share. This discount will automatically disappear when the Fund converts to an
open-end fund.
INCOME SHARES
The Fund continued to pay regular monthly dividends of $.10 per Income Share in
1996. A year-end extra dividend of $0.185 per share raised total dividends for
the year to $1.385 per Income Share.
The Income Shares had a total return (dividends paid and change in market price
assuming the reinvestment of dividends) of 7.8% in 1996, including a 2.0% total
return in the fourth quarter. This exceeded the total return of 5.4% and 1.3%,
respectively, on the 10-year Treasury security maturing in February 1997.
The market price of the Income Shares was $11.50 each at December 31, 1996,
compared with the redemption price of $11.60 per share plus accrued but unpaid
dividends.
LOOKING AHEAD
The Dual Purpose Fund as we know it is about to come to an end. But this need
not be farewell. If you own Capital Shares, you will automatically become a
Class A shareholder of the Oppenheimer Quest Capital Value Fund. The name will
be different, but the investment approach and portfolio manager will be the
same. In its open-end status, the Fund will continue to seek capital
appreciation through the disciplined OpCap Advisors value philosophy. This
philosophy is aimed at generating superior returns with below-average risk.
If you own Income Shares, as mentioned previously you have the option of
reinvesting your redemption proceeds without an initial sales charge in any of
the Oppenheimer funds. If your Income Shares are held in a brokerage account,
please call your broker and explain that you want to take advantage of this
opportunity. Your broker should be able to make all the necessary arrangements
for this reinvestment. If your shares are registered in your name or your broker
is unable to make the necessary arrangements, here is how to take advantage of
this offer:
o Call OppenheimerFunds at 1-800-525-7048 and indicate that you are or were a
Quest for Value Dual Purpose Fund Income Shareholder.
o Request a prospectus for the Oppenheimer fund or funds of your choice and a
new account application. Please read the prospectus, which includes
information on investment policies and fund charges and expenses, carefully
before you send money or invest. You may also wish to speak to your financial
adviser to help you make the appropriate investment choice.
o If you decide to invest in an Oppenheimer fund, complete the new account
application, sign the acknowledgment letter which was included in the
redemption material which was previously mailed to you and return them with a
check payable to the fund's distributor, OppenheimerFunds Distributor, Inc.,
in an amount not exceeding your Income Share redemption proceeds to:
OppenheimerFunds Services
P.O. Box 5270
Denver, CO 80217
THANK YOU FOR INVESTING WITH US
It has been a wonderful privilege to serve your investment needs. We have sought
to do so at all times with intelligence, prudence and enthusiasm. We appreciate
the trust you have placed in us and hope to have the opportunity to continue to
serve your needs in the future.
Sincerely,
/s/ Joseph M. La Motta
Joseph M. La Motta
President
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
PRINCIPAL
AMOUNT VALUE
- ------------- ------------
REPURCHASE AGREEMENT--1.5%
$ 13,185,000 Lehman Brothers, 6.85%, 1/2/97, (dated
12/31/96, proceeds at maturity:
$13,190,018, collateralized by
$13,000,000 par, $13,448,909 value,
U.S. Treasury Notes, 6.50%, 8/31/01)
(cost--$13,185,000)................... $ 13,185,000
------------
SHORT-TERM CORPORATE NOTES--13.6%
Automotive--2.3%
$ 20,000,000 Ford Credit Europe Plc.
5.40%, 1/8/97......................... $ 19,979,000
------------
Computers--3.9%
35,000,000 IBM Credit Corp.
5.33%, 1/29/97........................ 34,854,905
------------
Miscellaneous Financial
Services--7.4%
30,000,000 Household Finance Corp.
5.35%, 1/21/97........................ 29,910,833
15,000,000 Merrill Lynch & Co., Inc.
5.70%, 1/6/97......................... 14,988,125
20,000,000 Morgan Stanley Group, Inc.
5.43%, 1/15/97........................ 19,957,767
------------
64,856,725
------------
Total Short-Term Corporate
Notes (cost--$119,690,630)............ $119,690,630
------------
U.S. TREASURY
BOND--11.5%
$ 100,000,000 6.75%, 8/15/26
(cost--$102,355,632).................. $100,750,000
------------
CORPORATE NOTE--0.6%
Casinos/Gaming
$ 5,000,000 Trump Holdings & Funding
Sr. Sub. Notes
15.50%, 6/15/05
(cost--$5,090,359).................... $ 5,700,000
------------
CONVERTIBLE CORPORATE BOND--2.5%
Real Estate
$ 18,442,152 Security Capital Group, Inc.
Conv. Sub. Deb.
12.00%, 6/30/14 (A)
(cost--$17,383,098)................... $ 22,310,258
------------
SHARES VALUE
- ------------- ------------
CONVERTIBLE PREFERRED STOCKS--2.3%
Media/Broadcasting--1.0%
200,000 American Radio Systems Corp.
$3.50 Conv. Exch. Pfd................. $ 9,300,000
------------
Miscellaneous Financial
Services--1.3%
500,000 Merrill Lynch & Co., Inc.
Cox--STRYPES**
$1.37 Conv. Exch. Pfd................. 11,125,000
------------
Total Convertible Preferred Stocks
(cost--$21,599,768)................... $ 20,425,000
------------
COMMON STOCKS--74.5%
Automotive--6.0%
1,380,000 LucasVarity Plc.*....................... $ 52,440,000
------------
Casinos/Gaming--1.6%
1,200,000 Trump Hotels & Casino
Resorts, Inc.*........................ 14,400,000
------------
Conglomerates--6.6%
2,200,000 Canadian Pacific, Ltd................... 58,300,000
------------
Electronics--4.6%
1,080,100 UCAR International, Inc.*............... 40,638,762
------------
Insurance--27.2%
1,000,000 ACE, Ltd................................ 60,125,000
1,327,000 EXEL Ltd................................ 50,260,125
1,150,000 Mid Ocean Ltd........................... 60,375,000
1,035,000 PartnerRe Ltd........................... 35,190,000
500,000 Progressive Corp., Ohio................. 33,687,500
------------
239,637,625
------------
Miscellaneous Financial
Services--4.4%
1,346,900 Countrywide Credit
Industries, Inc....................... 38,555,013
------------
Oil/Gas--7.8%
466,600 Chesapeake Energy Corp.................. 25,954,625
875,040 Triton Energy Ltd. (Class A)*........... 42,439,440
------------
68,394,065
------------
Real Estate--3.5%
24,346 Security Capital Group, Inc. (A)........ 30,305,502
------------
Telecommunications--5.9%
2,000,000 WorldCom, Inc.*......................... 52,126,000
------------
SHARES VALUE
- ------------- ------------
COMMON STOCKS (cont'd)
Tobacco/Beverages/Food Products--6.9%
250,000 Philip Morris Companies, Inc............ $ 28,156,250
1,000,000 UST, Inc................................ 32,375,000
------------
60,531,250
------------
Total Common Stocks
(cost--$513,198,649).................. $655,328,217
------------
VALUE
------------
TOTAL INVESTMENTS
(cost--$792,503,136).................. 106.5% $937,389,105
Other Liabilities in Excess of
Other Assets.......................... (6.5) (57,454,954)
----- ------------
TOTAL NET ASSETS........................ 100.0% $879,934,151
----- ------------
----- ------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
* Non-income producing security.
** Structured yield product exchangeable for common stock.
NOTES TO SCHEDULE OF INVESTMENTS:
(A) 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
DATE OF PAR AVERAGE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
- ----------------------------------- ----------- ----------- ------------ ------- -----------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc.(1)
12.00%, 6/30/14.................. 6/16/94 $18,442,153 -- $ 94 $ 121
Security Capital Group, Inc.
Common Stock..................... 8/02/93 -- 24,346 699 1,245
</TABLE>
- ------------------
(1) At December 31, 1996, this security had $1,059,480 worth of deferred
interest accrued which is included as part of dividends and interest
receivable on the Statement of Assets and Liabilities.
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (cost--$792,503,136)........................................ $937,389,105
Cash.............................................................................. 910
Dividends and interest receivable................................................. 6,588,500
Income tax receivable............................................................. 377,087
Prepaid expenses and other assets................................................. 15,938
------------
Total assets.................................................................... $944,371,540
LIABILITIES
Long-term capital gains tax payable............................................... 59,139,583
Dividends payable to Income Shareholders.......................................... 5,131,226
Other payables and accrued expenses............................................... 166,580
------------
Total liabilities............................................................... 64,437,389
------------
NET ASSETS
(Shareholders' Equity)
Net assets applicable to 18,004,302 Income Shares outstanding of
$.01 par value................................................................. $209,327,886
Net assets applicable to 18,004,302 Capital Shares outstanding of
$.01 par value................................................................. 670,606,265
------------
Total Net Assets................................................................ $879,934,151
------------
------------
INCOME CAPITAL
SHARES SHARES
------------ ------------
Net asset value per share......................................................... $ 11.63 $ 37.25
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest......................................................................... $16,424,805
Dividends........................................................................ 14,786,008
-----------
Total investment income....................................................... $ 31,210,813
OPERATING EXPENSES:
Investment advisory fees (note 2a)............................................... $ 4,916,973
Administration fees (note 2b).................................................... 883,395
Reports and notices to shareholders.............................................. 184,107
Custodian fees................................................................... 84,899
Auditing, consulting and tax return preparation fees............................. 62,400
Transfer and dividend disbursing agent fees...................................... 52,832
Directors' fees and expenses..................................................... 42,500
Exchange fees.................................................................... 40,844
Legal fees....................................................................... 17,000
Miscellaneous.................................................................... 50,941
-----------
Total operating expenses...................................................... 6,335,891
Less: Expense offset arrangement (note 2d).................................... (13,092)
-----------
Net operating expenses...................................................... 6,322,799
------------
Net investment income....................................................... 24,888,014
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS--NET:
Net realized gain on investments................................................. $173,198,410
Net change in unrealized appreciation (depreciation) on investments.............. (48,825,541)
------------
Net realized gain and change in unrealized appreciation (depreciation) on
investments before provision for corporate income taxes on net long-term
capital gains retained....................................................... 124,372,869
Provision for corporate income taxes (including $429,916 for state and local
taxes) on net long-term capital gains retained (note 1b)..................... (59,569,499)
------------
Net realized gain and change in unrealized appreciation (depreciation) on
investments after provision for corporate income taxes on net long-term
capital gains retained....................................................... 64,803,370
------------
Net increase in net assets resulting from operations............................... $ 89,691,384
------------
------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net investment income............................................................. $ 24,888,014 $ 25,044,472
Net realized gain on investments, options and futures transactions................ 173,198,410 75,958,250
Net change in unrealized appreciation (depreciation) on investments, options and
futures transactions........................................................... (48,825,541) 94,400,856
Provision for income taxes on capital gains retained (note 1b).................... (59,569,499) (28,346,378)
------------ ------------
Net increase in net assets resulting from operations............................ 89,691,384 167,057,200
Dividends to Income Shareholders
($1.385 and $1.39 per share, respectively)..................................... (24,935,959) (25,025,980)
Distributions to Capital Shareholders
($0 and $.033 per share, respectively)......................................... -- (594,142)
------------ ------------
Total increase in net assets.................................................... 64,755,425 141,437,078
Net Assets:
Beginning of year............................................................... 815,178,726 673,741,648
------------ ------------
End of year (including undistributed net investment income
of $469,962 and $517,907, respectively)...................................... $879,934,151 $815,178,726
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
STATEMENT OF CHANGES IN UNDISTRIBUTED NET INVESTMENT INCOME,
REALIZED AND UNREALIZED GAINS (LOSSES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net investment income available for distribution:
Balance, beginning of year....................................................... $ 517,907 $ 499,415
Net investment income............................................................ 24,888,014 25,044,472
Dividends to Income Shareholders
($1.385 and $1.39 per share, respectively).................................... (24,935,959) (25,025,980)
------------ ------------
Balance, end of year.......................................................... $ 469,962 $ 517,907
------------ ------------
------------ ------------
Accumulated net realized gains:
Balance, beginning of year....................................................... $203,233,461 $156,215,731
Net realized gain on investments, options and futures transactions............... 173,198,410 75,958,250
Provision for income taxes on net long-term capital gains retained (note 1b)..... (59,569,499) (28,346,378)
Distributions to Capital Shareholders
($0 and $.033 per share, respectively)........................................ -- (594,142)
------------ ------------
Balance, end of year.......................................................... $316,862,372 $203,233,461
------------ ------------
------------ ------------
Net unrealized appreciation (depreciation) on investments:
Balance, beginning of year....................................................... $193,711,510 $ 99,310,654
Net change in unrealized appreciation (depreciation) on investments,
options and futures transactions.............................................. (48,825,541) 94,400,856
------------ ------------
Balance, end of year.......................................................... $144,885,969 $193,711,510
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Dual Purpose Fund, Inc. (the 'Fund') is a diversified,
closed-end, 'dual-purpose' investment company. The Fund commenced investment
operations on February 13, 1987. OpCap Advisors (the 'Adviser'), a majority-
owned (99%) subsidiary of Oppenheimer Capital, serves as the Fund's investment
adviser. Oppenheimer Capital (the 'Administrator') serves as the Fund's
administrator. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund:
(A) VALUATION OF INVESTMENTS
Investment securities listed on a national securities exchange and
securities traded in the over-the-counter National Market System are valued at
the last reported sale price on the valuation date; if there are no such
reported sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each day by an independent pricing service
using methods which include current market quotations from a major market maker
in the securities and trader-reviewed 'matrix' prices. Short-term debt
securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith under procedures
established by the Fund's Board of Directors. At December 31, 1996, securities
with an aggregate value of $52,615,760 (6.0% of net assets) were valued in such
manner. The ability of issuers of debt instruments to meet their obligations may
be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Fund's intention to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable ordinary income to its shareholders;
accordingly, no Federal income tax provision is required. Net realized long-term
capital gains, if any, on investment transactions are retained and applicable
taxes thereon were accrued at the end of the Fund's fiscal year.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities are accreted or amortized to interest income over
the lives of the respective securities.
(D) REPURCHASE AGREEMENTS
The Fund enters into repurchase agreements as part of its investment
program. The Fund's custodian takes possession of collateral pledged by the
counterparty. The collateral is marked-to market daily to ensure that the value,
plus accrued interest, is at least equal to the repurchase price. In the event
of default of the obligor to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the counterparty
to the agreement, realization and/or retention of the collateral or proceeds may
be subject to legal proceedings.
(E) DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its net investment income to holders of the Income
Shares at a fixed monthly rate (currently $.10 a share) with any excess net
investment income generally declared by year end. Income Shares are entitled to
cumulative dividends in an amount equivalent to net investment income with a
minimum annual rate of $.875 per share.
To the extent that any such minimum cumulative dividend cannot be satisfied
from net investment income, it will be paid from any tax basis net realized
short-term or long-term capital gains. Capital Shares will not be entitled to
receive dividends from net investment income as long as Income Shares are
outstanding.
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The Fund declared dividends of $1.385 per Income Share during the year ended
December 31, 1996. To the extent not needed to pay the Income Shares' minimum
cumulative dividends, distributions from tax basis net realized short-term
capital gains, if any, may be paid to holders of the Capital Shares. The Fund
will not distribute tax basis net realized long-term capital gains except to the
limited extent described previously. Dividends and distributions to shareholders
are recorded on the ex-dividend date.
On January 31, 1997 Income Shares will be redeemed at $11.60 per share, plus
accumulated and unpaid dividends amounting to $.0813 per share.
(2) INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
(a) The investment advisory fee is payable monthly to the Adviser and is
computed on the average weekly net assets of the Fund as of the close of
business each week at the following annual rates: .75% on the first $200
million; and .50% on net assets in excess of $200 million.
(b) The administration fee is payable monthly to the Administrator and is
computed on the average weekly net assets of the Fund as of the close of
business each week at the annual rate of .10%.
(c) Total brokerage commissions paid by the Fund during the year ended
December 31, 1996 amounted to $1,040,957 of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $319,406.
(d) The Fund benefits from an expense offset arrangement with its custodian
bank where uninvested cash balances earn credits that reduce monthly fees. Had
these cash balances been invested in income producing securities, they would
have generated income for the Fund.
(3) PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, aggregated $634,222,148 and
$787,797,418, respectively.
(4) FEDERAL INCOME TAXES
(A) COST OF INVESTMENTS
At December 31, 1996, the cost of investments for Federal income tax
purposes was $792,698,292. Aggregate gross unrealized appreciation (all
securities in which there is an excess of value over tax cost) amounted to
$161,949,524 and aggregate gross unrealized depreciation (all securities in
which there is an excess of tax cost over value) amounted to $17,258,711,
resulting in net unrealized appreciation of $144,690,813.
(B) LONG-TERM CAPITAL GAINS
For the year ended December 31, 1996, the Fund retained net tax basis
realized long-term capital gains of $168,970,238 and accrued Federal income
taxes of $59,139,583.
(5) CAPITAL STOCK
The Fund is authorized to issue 20 million Capital Shares and 20 million
Income Shares at $.01 par value, respectively. Each class of shares has
18,004,302 issued and outstanding, representing $180,043 at par and $208,677,881
paid-in-excess of par.
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(6) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
REALIZED AND UNREALIZED
NET GAIN (LOSS) ON
INVESTMENT INVESTMENT INVESTMENTS,
INCOME INCOME OPTIONS AND FUTURES--NET
-------------------- -------------------- --------------------------
PER PER PER
QUARTER ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ------------------------------------------------ ----------- ----- ----------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1996.................................. $ 7,608,934 $0.42 $ 6,096,637 $0.34 $ 58,115,335 $ 3.23
June 30, 1996................................... 8,261,241 0.46 6,684,414 0.37 35,666,898 1.98
September 30, 1996.............................. 7,554,467 0.42 5,973,296 0.33 (20,628,310) (1.15)
December 31, 1996............................... 7,786,171 0.43 6,133,667 0.34 (8,350,553)* (0.46)
----------- ----- ----------- ----- ------------ ----------
$31,210,813 $1.73 $24,888,014 $1.38 $ 64,803,370* $ 3.60
----------- ----- ----------- ----- ------------ ----------
----------- ----- ----------- ----- ------------ ----------
March 31, 1995.................................. $ 7,638,860 $0.43 $ 6,365,976 $0.35 $ 57,584,502 $ 3.20
June 30, 1995................................... 7,777,455 0.43 6,387,012 0.36 60,006,065 3.33
September 30, 1995.............................. 6,404,802 0.35 4,899,611 0.27 60,450,460 3.36
December 31, 1995............................... 8,932,620 0.50 7,391,873 0.41 (36,028,299)* (2.00)
----------- ----- ----------- ----- ------------ ----------
$30,753,737 $1.71 $25,044,472 $1.39 $142,012,728* $ 7.89
----------- ----- ----------- ----- ------------ ----------
----------- ----- ----------- ----- ------------ ----------
</TABLE>
- ------------------
* After provision for income taxes accrued on net realized long-term capital
gains.
(7) SPECIAL MEETING OF THE CAPITAL SHAREHOLDERS
On December 20, 1996, Capital Shareholders approved a change in the Fund's
subclassification under the Investment Company Act of 1940 from a closed-end
management investment company to an open-end management investment company. The
Fund also approved a new Investment Advisory Agreement with OppenheimerFunds,
Inc. ('OFI'), a new Subadvisory Agreement between OFI and OpCap Advisors, a new
Distribution and Service Plan and Agreement with OFI in respect to Class A
shares, approved the Fund's Articles of Amendment and Restatement, a change in
the Fund's fundamental investment objective to capital appreciation, changes to
certain of the Fund's fundamental investment restrictions and the election of
Directors. The Fund will pay OFI under the new Investment Advisory Agreement a
fee at the rate of 1.00% of the first $400 million of net assets, .90% of the
next $400 million of net assets and .85% of net assets over $800 million. For a
two year period after the effective date of the new Investment Advisory
Agreement, OFI will waive the following portion of the advisory fee--.15% of the
first $200 million of net assets; .40% of the next $200 million of net assets;
.30% of the next $400 million of net assets and .25% of net assets over $800
million. The fee under the new Distribution and Service Plan and Agreement with
respect to Class A shares will consist of a service fee of .25% of net assets
and a distribution fee of .25% of net assets. For the first two years after the
effective date of the Class A Plan, the new Distributor has agreed to waive .15%
of the distribution fee payable under the Class A Plan. OFI will pay OpCap
Advisors' fee under the new Subadvisory Agreement. The approved changes become
effective at the close of business February 28, 1997.
(8) SUBSEQUENT EVENTS
Trading on the NYSE and all transfer books will permanently cease after the
close of business on January 24, 1997 for the Income Shares and February 28,
1997 for the Capital Shares.
Once the Income Shares are redeemed on January 31, 1997, the Capital Shares
will bear all Fund operating expenses. Additionally, Capital Shares will bear a
portion of the expenses associated with their conversion to an open-end fund and
are estimated to be $102,000.
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Income Shares:
Net Asset Value, Beginning of Year................ $ 11.63 $ 11.63 $ 11.61 $ 11.61 $ 11.60
Net investment income............................. 1.38 1.39 1.36 1.30 1.35
Dividends from net investment income.............. (1.38) (1.39) (1.34) (1.30) (1.34)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Year...................... $ 11.63 $ 11.63 $ 11.63 $ 11.61 $ 11.61
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market Value, End of Year......................... $ 11.500 $ 12.000 $ 12.125 $ 13.25 $ 13.00
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total Investment Return (1)....................... 7.8% 10.9% 1.8% 12.3% 7.4%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Capital Shares:
Net Asset Value, Beginning of Year................ $ 33.65 $ 25.79 $ 27.09 $ 26.29 $ 22.59
Net realized and unrealized gain (loss) on
investments, options and futures transactions... 6.91 9.46 (0.38) 2.45 6.09
Provision for corporate income taxes on net
realized long-term capital gains................ (3.31) (1.57) (0.53) (1.43) (1.10)
Distributions from net realized short-term
capital gains................................... -- (0.03) (0.39) (0.22) (1.29)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Year...................... $ 37.25 $ 33.65 $ 25.79 $ 27.09 $ 26.29
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market Value, End of Year......................... $ 36.125 $ 31.875 $ 23.00 $ 23.75 $ 23.00
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total Investment Return (2)....................... 23.6% 45.6% 0.9% 10.5% 44.6%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year........................... $879,934,151 $815,178,726 $673,741,648 $696,802,938 $682,373,943
------------ ------------ ------------ ------------ ------------
Ratio of Operating Expenses to Average Net
Assets.......................................... 0.72%(3,4) 0.73% 0.74% 0.74% 0.74%
------------ ------------ ------------ ------------ ------------
Ratio of Net Investment Income to Average Net
Assets.......................................... 2.82%(3) 3.20% 3.47% 3.29% 3.61%
------------ ------------ ------------ ------------ ------------
Portfolio Turnover Rate........................... 74% 72% 45% 51% 45%
------------ ------------ ------------ ------------ ------------
Average Commission Rate........................... $ 0.05 -- -- -- --
------------ ------------ ------------ ------------ ------------
Number of each class of Income and Capital Shares
outstanding at the end of year.................. 18,004,302 18,004,302 18,004,302 18,004,302 18,004,302
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
- ------------------
(1) Change in market price assuming reinvestment of dividends on payable date
(at market).
(2) Change in market price assuming reinvestment of short-term capital gains
distributions, if any, on payable date and federal taxes paid on long-term
capital gains on year end (both at market).
(3) Average net assets for the year ended December 31, 1996 were $883,394,597.
(4) Gross of expense offsets (see note 2d in Notes to Financial Statements).
<PAGE>
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Quest for Value Dual Purpose Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and of changes in undistributed net investment income,
realized and unrealized gains (losses) and the financial highlights present
fairly, in all material respects, the financial position of Quest for Value Dual
Purpose Fund, Inc. (the 'Fund') at December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets and the
changes in its undistributed net investment income, realized and unrealized
gains (losses) for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as 'financial
statements') are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
As described in Notes 7 and 8, the Income Shares of the Fund will be redeemed on
January 31, 1997 at $11.60 per share, plus accumulated and unpaid dividends and
on February 28, 1997 the Capital Shares will be converted into Class A shares of
an open-end management investment company.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
January 22, 1997
<PAGE>
IMPORTANT TAX NOTES
QUEST FOR VALUE DUAL PURPOSE FUND, INC.
INCOME SHAREHOLDERS
In early 1997, shareholders will receive information regarding all dividends
declared by the Fund during the calendar year 1996. Regulations of the U.S.
Treasury Department require the Fund to report this information to the Internal
Revenue Service. For corporate shareholders only, the amount of dividends paid
by the Fund during the calendar year ended December 31, 1996 should be
multiplied by 37.6% to arrive at the net amount which is eligible for the
dividends received deduction.
CAPITAL SHAREHOLDERS
Quest for Value Dual Purpose Fund Capital Shares generally receive all net
capital gains which are realized from the sale of portfolio securities. The net
realized long-term capital gains are retained in the value of the Capital Shares
rather than being distributed to shareholders. According to provisions of the
Internal Revenue Code, the Fund pays Federal income tax on these net realized
long-term capital gains at the corporate capital gains tax rate. The amount of
this tax (plus state and local taxes) was deducted from the net asset value of
the Capital Shares at the Fund's year end on December 31, 1996.
As a result of the above actions taken by the Fund, there are three
important tax steps which you, as a Capital Shareholder, should take:
(1) You should report on your 1996 income tax return the net long-term capital
gains realized by the Fund during the year, as indicated on Form 2439. (line
1)
(2) You should take credit for the Federal taxes paid by the Fund on these
realized gains, as indicated on Form 2439. (line 2)
(3) You should increase the tax cost basis of your Capital Shares by the amount
of the after-tax gains. This is the difference between the amount of net
capital gains realized and the tax paid on these gains by the Fund (see the
table below).
Federal tax Form 2439, being mailed to you in mid February by the transfer
agent, or by March 31, 1997 if your shares are held by a nominee (broker or
bank), provides for your account the specific amounts of realized capital gains
and corresponding taxes paid as discussed in (1) and (2) above. The form details
specific instructions on how to record this information for tax purposes. If
your shares are held for you in a nominee registration, and you do not receive
tax Form 2439, you should contact your bank or broker to obtain the form. A copy
must be filed with your Federal income tax return.
Tax-exempt shareholders must file Form 990T to receive a refund for the
Federal tax paid by the Fund to the Internal Revenue Service (line 2 of Form
2439). Most banks and brokerage firms file for refunds on behalf of certain
tax-exempt clients holding Capital Shares. If this is the case, a Form 2439 will
not be mailed to you. We recommend you check with your bank or brokerage firm to
see what their policy is regarding your tax-exempt account.
The table below shows: the amount of net realized capital gains per Capital
Share; the Federal taxes paid on your behalf; the Fund's capital gains tax rate;
and the amount by which your cost per share should be increased each year since
the Fund's inception:
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Realized long-term capital gains
retained per share............ $0.4382 -- $0.8956 $1.4547 $1.7367 $3.1298 $3.9578 $1.6045 $4.4569 $9.3850
Federal capital gains taxes paid
by the Fund per share......... $0.1490 -- $0.3045 $0.4946 $0.5905 $1.0641 $1.3852 $0.5616 $1.5599 $3.2848
Fund's federal tax rate......... 34% -- 34% 34% 34% 34% 35% 35% 35% 35%
Net amount by which your cost
should be increased per
share......................... $0.2892 -- $0.5911 $0.9601 $1.1462 $2.0657 $2.5726 $1.0429 $2.8970 $6.1002
</TABLE>
<PAGE>
SPECIAL MEETING
- --------------------------------------------------------------------------------
The Fund held a special meeting of the Capital Shareholders on December 20,
1996. At this meeting, Capital Shareholders voted on the change in the Fund's
classification under the Investment Company Act of 1940 from a closed-end
management investment company to an open-end management investment company. The
Capital Shareholders approved a new Investment Advisory Agreement with
OppenheimerFunds, Inc., a new Subadvisory Agreement with OppenheimerFunds, Inc.
and OpCap Advisors and a new Distribution and Service Plan and Agreement with
OppenheimerFunds Distributor, Inc. with respect to Class A shares. Also, the
Capital Shareholders approved the Fund's Articles of Amendment and Restatement,
a change in the Fund's fundamental investment objective, the change to certain
of the Fund's fundamental investment restrictions and the election of Directors.
The following table provides information concerning the matters voted on at this
meeting.
1. THE CHANGE IN THE FUND'S CLASSIFICATION UNDER THE INVESTMENT COMPANY ACT OF
1940
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES
- ---------- ------------- --------- ----------------
<S> <C> <C> <C>
12,749,135 658,802 142,824 43,325
</TABLE>
2. NEW INVESTMENT ADVISORY AGREEMENT WITH OPPENHEIMERFUNDS, INC.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES
- ---------- ------------- --------- ----------------
<S> <C> <C> <C>
12,609,610 753,047 188,104 43,325
</TABLE>
3. NEW SUBADVISORY AGREEMENT WITH OPPENHEIMERFUNDS, INC. AND OPCAP ADVISORS
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES
- ---------- ------------- --------- ----------------
<S> <C> <C> <C>
12,582,194 757,421 211,146 43,325
</TABLE>
4. NEW DISTRIBUTION AND SERVICE PLAN AND AGREEMENT WITH OPPENHEIMERFUNDS
DISTRIBUTOR, INC. WITH RESPECT TO CLASS A SHARES
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES
- ---------- ------------- --------- ----------------
<S> <C> <C> <C>
12,605,319 714,144 231,298 43,325
</TABLE>
5. APPROVAL OF ARTICLES OF AMENDMENT AND RESTATEMENT
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES
- ---------- ------------- --------- ----------------
<S> <C> <C> <C>
12,651,219 664,173 235,368 43,325
</TABLE>
6. THE CHANGE IN THE FUND'S FUNDAMENTAL INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES
- ---------- ------------- --------- ----------------
<S> <C> <C> <C>
12,588,499 713,660 248,602 43,325
</TABLE>
7. THE CHANGE TO CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES
- ---------- ------------- --------- ----------------
<S> <C> <C> <C>
12,500,699 779,507 270,555 43,325
</TABLE>
In addition, the election of the following new Directors:
<TABLE>
<CAPTION>
DIRECTOR VOTES FOR VOTES AGAINST ABSTAINED
- ------------------------------------------------------------------------------ ---------- ------------- ---------
<S> <C> <C> <C>
Paul Y. Clinton............................................................... 13,229,525 0 364,561
Thomas W. Courtney............................................................ 13,232,211 0 361,875
Lacy B. Herrmann.............................................................. 13,230,205 0 363,881
George Loft................................................................... 13,229,011 0 365,075
Bridget Macaskill............................................................. 13,230,225 0 363,861
</TABLE>
<PAGE>
QUEST FOR VALUE
DUAL PURPOSE
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
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.
Annual Report
DECEMBER 31, 1996
MANAGED BY
OpCap ADVISORS
