<PAGE>
QUEST FOR VALUE
DUAL PURPOSE
FUND, INC. MAY 12, 1995
DEAR SHAREHOLDER:
The Dual Purpose Fund continued its QUEST FOR VALUE
favorable performance in the 1995 DUAL PURPOSE
first quarter, a period of strongly FUND, INC.
rising stock prices. The total return
on the Fund's portfolio was 9.5%, One World Financial
well above the average total returns Center
of 7.5% and 8.1% for equity income New York, NY 10281
and growth and income mutual funds, 1-800-232-3863
respectively, as calculated by
Morningstar, Inc., and slightly below THE OTHER FUNDS OF
the total return of 9.7% for the QUEST FOR VALUE:
Standard & Poor's 500 Index including
dividends (S&P 500).
In the eight-plus years since
its inception on February 13, 1987, EQUITY FUNDS
the Fund has generated a ------------
compound annual total return of QUEST FOR VALUE FUND
14.9% on its portfolio, exceeding GLOBAL EQUITY FUND
the 10.9% annual return of the OPPORTUNITY FUND
S&P 500 by a wide margin.
SMALL CAPITALIZATION FUND
The Fund is a closed-end investment GROWTH AND INCOME FUND
Company with an equal number of Capital
Shares and Income Shares. Capital Shares FIXED INCOME FUNDS
receive all the capital appreciation ------------------
and absorb any losses from the Fund's
entire portfolio, while Income Shares TAXABLE
receive all net income. Both classes U.S. GOVERNMENT
of shares provided positive returns INCOME FUND
in the first quarter. INVESTMENT QUALITY
INCOME FUND
PORTFOLIO ACTIVITY GLOBAL INCOME FUND
By investing in undervalued quality TAX-EXEMPT
businesses with high cash flow and NATIONAL TAX-EXEMPT FUND
above-average returns on equity, CALIFORNIA TAX-EXEMPT FUND
we seek to control risk and achieve NEW YORK TAX-EXEMPT FUND
superior performance over time.
First-quarter results of the Fund MONEY MARKET FUNDS
were driven by excellent stock ------------------
selection, as our equity holdings
provided a total return of 12.0%, QUEST CASH RESERVES:
handily beating the S&P 500.
Price gains were especially strong TAXABLE
for some of our stocks in the PRIMARY PORTFOLIO
financial services sector: AFLAC, GOVERNMENT PORTFOLIO
Inc., up 26% in the quarter;
American Express Co., up 18%; TAX-EXEMPT
Federal Home Loan Mortgage Corp. GENERAL MUNICIPAL PORTFOLIO
(Freddie Mac), up 20%; Mellon CALIFORNIA MUNICIPAL PORTFOLIO
Bank Corp., up 33%; and NEW YORK MUNICIPAL PORTFOLIO
Travelers, Inc., up 19%.
Although the intrinsic values of FOR INFORMATION
these companies are not particularly ABOUT ANY OF THE
sensitive to interest rates, they QUEST FOR VALUE FUNDS,
are frequently perceived as being CALL YOUR BROKER.
'interest rate plays' and,
accordingly, they benefited in
the quarter from a more benign
interest rate environment.
Another favorite theme of ours -- companies improving their performance
through restructuring -- played out well as several large holdings,
including Hercules, Inc., McDonnell Douglas Corp. and Monsanto Co.,
outperformed the market.
Toward the end of the quarter, we adopted a more cautious investment
stance because valuations were getting stretched and, also, because we
felt the U.S. dollar might be vulnerable to further declines.
Reflecting these concerns, we increased the Fund's cash reserves from
1% of net assets at the end of 1994 to 9% at the end of the first
quarter and reduced its holdings of common stocks from 69% of net
assets to 63%. In addition, late in the quarter we reinstituted our
portfolio hedging program. By quarter's end, 32.7% of the Fund's
common stock holdings were hedged through the sale of Standard &
Poor's 500 Index futures and an additional 6.0% through other hedging
techniques, versus no futures hedging and only a minimal use of other
hedges at the end of 1994. Hedging reduces risk, but could limit the
Fund's returns in a generally rising market.
The Fund's five largest equity positions (common stocks and securities
convertible into common stocks) at the end of the quarter were Security
Capital Realty, Inc., Citicorp, Federal Home Loan Mortgage Corp.
(Freddie Mac), Hercules, Inc. and Transamerica Corp. Together, they
represented approximately 25% of the Fund's net assets. In the
quarter, we established a new position in the common stock of May
Department Stores Co. and increased our investments in Citicorp,
Freeport McMoRan Copper & Gold and Sprint Corp. We eliminated our
positions in the common stocks of Fruit of The Loom, Inc. (Class A),
Lehman Brothers Holdings, Inc., Philip Morris Companies, Inc. and
Student Loan Marketing Association (Sallie Mae) and reduced our
investments in Avon Products, Inc., Becton, Dickinson & Co., Federal
Home Loan Mortgage Corp. (Freddie Mac) and Warner-Lambert Co.
<PAGE>
In addition to our investments in common stocks and cash equivalents, the
Fund's net assets were allocated 19% to convertible securities and other
equity-related issues at the end of March and 9% to fixed income securities.
These percentages represented an increase in our holdings of equity-related
issues during the quarter and a decrease in our holdings of fixed income
securities. In the equity-related segment, we established a new position in
AMR Corp. convertible bonds and increased our investment in Flagstar
Companies, Inc. convertible preferred. In the fixed income and preferred stock
sector, we eliminated our holdings of the fixed income securities of Delta Air
Lines, Inc. and Stone Container, Inc. and the preferred stock of UAL Corp., in
each case at a profit.
Within the equity-related segment, our convertible bonds had a total return of
11.6% in the quarter and our convertible preferred stocks a total return of
1.1%. The fixed income and preferred stock segment of the portfolio provided a
total return of 6.9%. These segments are an important part of the Fund's
current portfolio strategy, which is to combine relatively high-yielding fixed
income and convertible securities with common stocks chosen primarily for
their appreciation potential. We believe that over time the flexibility
provided by this strategy produces superior total returns to a strategy which
would always emphasize high-dividend common stocks chosen solely for their
yield.
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 advanced 12.4% in the first
quarter, compared with the 9.7% gain for the S&P 500. The Capital Shares tend
to exaggerate the performance of the total portfolio, up or down, because of
their leverage. At March 31, 1995, the Capital Shares had an NAV of $28.96
each and were entitled to the capital appreciation or depreciation on the
entire net assets of the Fund, equal to $40.64 per Capital Share --thereby
magnifying changes in value, up or down, of the Fund's portfolio by
approximately 1.4 times. This leverage was tempered somewhat by our hedging
program, described previously.
The Capital Shares have been excellent performers over time. From the Fund's
inception on February 13, 1987 through March 31, 1995, they provided a
compound annual pretax return of 17.2% (based on the NAV, after adjustment for
short-term capital gains distributions and for taxes paid on net realized
long-term capital gains retained by the Fund), far surpassing the 10.9% return
for the S&P 500. This strong performance reflects a combination of
above-average investment returns and the impact of leverage.
The market price of the Capital Shares increased 11.0%, adjusted for
short-term capital gains distributions, in the first quarter. As of March 31,
1995, the Capital Shares were priced at $25.50 per share on the New York Stock
Exchange, an 11.9% 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. They provided a total return (dividends paid and
change in market price assuming the reinvestment of dividends) of 3.5% in the
quarter, matching the return of a Treasury security with an equivalent
maturity.
Our goal is to deliver competitive returns that equal or exceed benchmark
indices. From inception on February 13, 1987 through March 31, 1995, the
compound annual total return on the Income Shares was 10.7% at market,
assuming reinvestment of dividends, exceeding the 7.8% compound return for a
Treasury security maturing in February 1997.
The Fund paid regular monthly dividends of $.10 per Income Share in the first
quarter, or a total of $.30 per share for the period. Income earned in the
first quarter exceeded the $.30 of dividends, and a portion of this additional
income was distributed through an extra dividend of $.05 per Income Share
declared in April. The portfolio continues to generate income in excess of
$.10 per month. Consequently, we currently expect to pay total dividends --
monthly dividends plus extras -- in 1995 exceeding the $1.34 per Income Share
paid in 1994. We will inform you in future quarterly reports if there is any
significant change in this outlook.
<PAGE>
The current yield on the Income Shares was 10.9% as of March 31, 1995, based
on the market price of $12.25 per share and the $1.34 in dividends paid in the
12 months ended March 31, 1995. The Income Shares are scheduled to be redeemed
on January 31, 1997 at $11.60 per share plus all accumulated and unpaid
dividends.
SUMMARY
Looking at today's stock market, we believe some degree of caution is
warranted. While we do not expect a price collapse, neither are we finding as
many values as we would like. We continue to manage the Fund with a goal of
preserving capital and generating superior returns over time, and we remain
alert to opportunities to buy quality businesses at reasonable prices as these
opportunities arise. Thank you for investing with us at Quest for Value.
Sincerely,
Joseph M. La Motta
President
<PAGE>
QUEST FOR
VALUE
DUAL
PURPOSE
FUND,
INC.
SCHEDULE
OF
INVESTMENTS
AND NET
ASSETS
(UNAUDITED)
MARCH 31,
1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (A)
- ----------- -------------
<C> <S> <C>
U.S. TREASURY BILLS--0.9%
$ 6,900,000 5.815%, 7/13/95 (B)............... $ 6,788,910
-------------
REPURCHASE AGREEMENT--3.6%
$26,207,000 Lehman Brothers 6.25%, 4/03/95
(proceeds at maturity:
$26,220,649, collateralized by
$14,255,000 and $11,935,000 par,
$14,302,042 and $12,531,750 value,
U.S. Treasury Notes, 6.875%,
7/31/99 and 8.00%, 8/15/99,
respectively).....................
$ 26,207,000
-------------
SHORT-TERM CORPORATE NOTES--5.5%
Automotive--4.1%
$20,000,000 Ford Motor Credit Co.
5.96%, 5/01/95.................... $ 19,900,667
10,000,000 General Motors Acceptance Corp.
6.15%, 5/01/95.................... 9,948,750
-------------
29,849,417
-------------
Insurance--1.4%
10,000,000 Prudential Funding Corp.
5.95%, 4/10/95.................... 9,985,125
-------------
Total Short-Term Corporate Notes.... $ 39,834,542
-------------
CORPORATE NOTES AND BONDS--9.3%
Chemicals--0.7%
$ 5,000,000 IMC Fertilizer Group, Inc.
Sr. Notes
10.75%, 6/15/03................... $ 5,218,750
-------------
Energy--1.7%
16,000,000 Triton Energy Corp.
Sr. Sub. Disc. Notes
Zero Coupon, 11/01/97............. 12,380,000
-------------
Gaming--1.8%
12,500,000 Harrah's Jazz Co.
First Mortgage Notes
14.25%, 11/15/01.................. 13,375,000
-------------
PRINCIPAL
AMOUNT VALUE (A)
- ----------- -------------
Insurance--1.1%
$ 8,750,000 Reliance Group Holdings, Inc.
Sr. Sub. Deb.
9.75%, 11/15/03................... $ 8,006,250
-------------
Telecommunications--3.3%
15,000,000 Comcast Corp.
Sr. Sub. Deb.
10.625%, 7/15/12.................. 15,337,500
20,000,000 Nextel Communications, Inc.
Sr. Sub. Disc. Notes
0.00%/11.50%, 9/01/03**........... 8,850,000
-------------
24,187,500
-------------
Tobacco/Beverages/Food
Products--0.7%
5,000,000 Chiquita Brands International, Inc.
Sub. Notes
11.50%, 6/01/01................... 5,100,000
-------------
Total Corporate Notes and Bonds..... $ 68,267,500
-------------
CONVERTIBLE CORPORATE
NOTES AND BONDS--14.7%
Airlines--4.5%
$22,000,000 AMR Corp.
Conv. Sub. Deb.
6.125%, 11/01/24.................. $ 20,680,000
12,560,000 WorldCorp, Inc.
Conv. Sub. Deb.
7.00%, 5/15/04.................... 11,932,000
-------------
32,612,000
-------------
Drugs & Medical Products--2.7%
56,380,000 Alza Corp.
Conv. Sub. Notes
Zero Coupon, 7/14/14.............. 20,085,375
-------------
Energy--2.1%
12,970,545 Crusader Limited
Conv. Sub. Notes
6.00%, 2/14/04 (C)................ 15,602,268
-------------
Insurance--2.8%
20,000,000 Equitable Co.
Conv. Sub. Notes
6.125%, 12/15/24.................. 20,725,000
-------------
Real Estate--2.6%
18,728,536 Security Capital Realty, Inc.
Conv. Sub. Notes
12.00%, 6/30/14 (C)............... 18,728,536
-------------
Total Convertible Corporate Notes
and Bonds......................... $ 107,753,179
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE (A)
- ----------- -------------
<C> <S> <C>
CONVERTIBLE PREFERRED
STOCKS--4.4%
Insurance--1.3%
170,000 Travelers, Inc.
$2.75 Conv. Pfd. Series B......... $ 9,732,500
-------------
Tobacco/Beverages/Food
Products--3.1%
1,250,000 Flagstar Companies, Inc.
$2.28 Conv. Exch. Pfd. ........... 22,500,000
-------------
Total Convertible Preferred Stocks.. $ 32,232,500
-------------
COMMON STOCKS--63.1%
Aerospace--4.6%
600,000 McDonnell Douglas Corp.(B).......... $ 33,450,000
-------------
Banking--8.4%
900,000 Citicorp............................ 38,250,000
574,084 Mellon Bank Corp.(B)................ 23,393,923
-------------
61,643,923
-------------
Chemicals--7.4%
735,600 Hercules, Inc. (B).................. 34,297,350
250,000 Monsanto Co. ....................... 20,062,500
-------------
54,359,850
-------------
Consumer Products--0.7%
81,800 Avon Products, Inc. (B)............. 4,948,900
-------------
Drugs & Medical Products--4.4%
300,000 Becton, Dickinson & Co. ............ 16,275,000
200,000 Warner-Lambert Co. ................. 15,650,000
-------------
31,925,000
-------------
Electronics--2.9%
500,000 Arrow Electronics, Inc.*............ 21,062,500
-------------
SHARES VALUE (A)
- ----------- -------------
Energy--2.5%
475,000 Triton Energy Corp.*................ $ 18,168,750
-------------
Insurance--13.1%
454,500 AFLAC, Inc. ........................ 18,350,437
400,000 EXEL Limited........................ 17,650,000
77,400 Progressive Corp., Ohio............. 3,144,375
600,000 Transamerica Corp. ................. 33,975,000
600,000 Travelers, Inc. .................... 23,175,000
-------------
96,294,812
-------------
Metals/Mining--3.2%
246,250 Freeport McMoRan Copper
& Gold............................ 5,386,719
1,000,000 Freeport McMoRan, Inc. ............. 18,125,000
-------------
23,511,719
-------------
Miscellaneous Financial
Services--8.7%
700,000 American Express Co. ............... 24,412,500
600,000 Federal Home Loan Mortgage Corp. ...
36,300,000
146,300 John Alden Financial Corp. ......... 2,688,262
-------------
63,400,762
-------------
Real Estate--2.9%
24,346 Security Capital Realty, Inc. (C)... 21,473,235
-------------
Retail--1.0%
200,000 May Department Stores Co. .......... 7,400,000
-------------
Telecommunications--3.3%
800,000 Sprint Corp. ....................... 24,200,000
-------------
Total Common Stocks................. $ 461,839,451
-------------
TOTAL INVESTMENTS......................101.5% $ 742,923,082
------ -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONTRACTS VALUE (A)
- ----------- -------------
<C> <S> <C>
WRITTEN CALL OPTIONS OUTSTANDING--(0.3%)
818 Avon Products, Inc.
expiring April '95 @ $60................. $ (102,250)
--------------
2,000 Hercules, Inc.
expiring June '95 @ $40.................. (1,475,000)
--------------
McDonnell Douglas Corp.
150 expiring April '95 @ $55................. (26,250)
--------------
1,850 expiring May '95 @ $55................... (439,375)
--------------
(465,625)
--------------
1,000 Mellon Bank Corp.
expiring June '95 @ $35.................. $ (637,500)
--------------
Total Written Call Options Outstanding..... $ (2,680,375)
--------------
Other Liabilities in Excess of
Other Assets..............................(1.2) (8,546,014)
------ --------------
TOTAL NET ASSETS........................... 100.0% $ 731,696,693
------ --------------
</TABLE>
- -------------------------------------------------------------------------------
*Non-income producing security.
**Represents a step-up floater which will receive 0.00% interest
until 9/01/98, then will "step-up" to 11.50% until maturity.
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) Securities segregated (full or partial) as collateral for
written call options and futures contracts outstanding. The market
value of such segregated securities is $36,287,810. Open futures
contracts at March 31, 1995 were as follows:
<TABLE>
<CAPTION>
Number of Short Net Unrealized
Type Contracts Value Expiration Loss
--------------------------- --------- ------------ ---------- --------------
Standard & Poor's 500 Index 618 $151,097,498 June '95 $4,762,102
(C) Restricted Securities:
Date of Par Valuation as of
Description Acquisition Amount Shares Unit Cost March 31, 1995
- -------------------------------------------------------- ----------- ----------- ------ --------- ---------------
<S> <C> <C> <C> <C> <C>
Crusader Limited 6.00%, 2/14/04..................... 4/28/94 $12,970,545 -- $100 $120
Security Capital Realty, Inc.
12.00%, 6/30/94................................... 6/16/94 18,728,536 -- 94 100
Security Capital Realty, Inc.
Common Stock..................................... 8/02/93 -- 14,286 686 882
3/07/94 -- 10,060 686 882
</TABLE>
<PAGE>
QUEST FOR VALUE QUEST FOR VALUE Q
DUAL PURPOSE DUAL PURPOSE U
FUND, INC. FUND, INC. E
S
T
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)
GEORGE A. LONG VICE PRESIDENT
BERNARD H. GARIL VICE PRESIDENT
SHELDON SIEGEL TREASURER
THOMAS E. DUGGAN SECRETARY
LESLIE KLEIN ASSISTANT TREASURER
DEBORAH KABACK ASSISTANT SECRETARY
QUARTERLY REPORT
INVESTMENT ADVISER
QUEST FOR VALUE ADVISORS
ONE WORLD FINANCIAL CENTER
NEW YORK, NY 10281
MARCH 31, 1995
CUSTODIAN, TRANSFER AND SHAREHOLDER SERVICING AGENT
STATE STREET BANK AND TRUST COMPANY
P.O. BOX 366
BOSTON, MA 02101
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.
MANAGED BY
QUEST FOR VALUE ADVISORS
