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QUEST FOR VALUE ACCUMULATION TRUST
One World Financial Center, New York, New York 10281
(800) 232-FUND
QUEST FOR VALUE ACCUMULATION TRUST (the "Fund") is a registered open-end
diversified management investment company offering several investment
alternatives. It permits an investor the flexibility of choosing among
different investment objectives, through the following two Portfolios (the
"Portfolios"), each of which is a separate series of shares of beneficial
interest of the Fund ("Shares"). The investment objective of each Portfolio is
as follows:
SMALL CAP PORTFOLIO: Capital appreciation through investment in a diversified
portfolio of equity securities of companies with market capitalizations of under
$1 billion.
MANAGED PORTFOLIO: Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds and cash equivalents, the
percentages of which will vary based on management's assessments of relative
investment values.
The Fund is an investment vehicle for variable annuity and variable life
insurance contracts of various life insurance companies, and qualified pension
and retirement plans ("Qualified Plans"). Shares of the Fund are currently sold
to variable accounts of various life insurance companies for the purpose of
funding variable annuity and variable life insurance contracts (the
"Contracts"). These variable accounts (the "Variable Accounts") invest in
Shares of the Fund in accordance with allocation instructions received from
owners (the "Contractowners") of the Contracts. Allocation rights are further
described in the accompanying prospectus for the Variable Accounts. The
Variable Accounts will redeem Shares to the extent necessary to provide benefits
under the Contracts.
It is possible, although not presently anticipated, that a material
conflict could arise between and among the various variable accounts which
invest in Shares of the Fund and the Qualified Plans, which may, in the future
invest in Shares of the Fund. Such conflict could cause the liquidation of
assets of one or more of the Fund Portfolios to raise cash at times not
otherwise deemed advantageous by the Fund Manager. See "Management of the
Fund," page 13.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing, must be accompanied by a
current prospectus for the Variable Accounts and both should be retained for
future reference. A Statement of Additional Information dated May 1, 1995 (the
"Additional Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to your broker
or by contacting the Fund at the address or telephone number listed in this
Prospectus. The Additional Statement (which is incorporated in its entirety by
reference in this Prospectus) contains more detailed information about the Fund
and its management, including more complete information about certain risk
factors.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
VARIABLE ACCOUNTS. THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
QUEST FOR VALUE ADVISORS
Investment Manager
Prospectus dated May 1, 1995, as revised August 31, 1995
Quest for Value is a service mark of Oppenheimer Capital.
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TABLE OF CONTENTS
Page
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Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . .7
Small Cap Portfolio. . . . . . . . . . . . . . . . . . . . . . . . .7
Managed Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . .7
Additional Information on Investment Objectives and Policies . . . . . . . . .8
Investment Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . 14
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
State Law Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . 15
Calculation of Performance . . . . . . . . . . . . . . . . . . . . . . . . . 16
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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PROSPECTUS SUMMARY
THE FUND The Fund is a Massachusetts business trust which
issues its shares in series as separate classes of
shares of beneficial interest. There are
currently two series available for investment
through the Variable Accounts, each of which is
designated as a "Portfolio". Together, the two
Portfolios are designed to enable investors to
choose a number of investment alternatives to
achieve their financial goals and to shift assets
conveniently among Portfolios when and if their
investment aims or perception of the marketplace
change.
The Fund commenced operations on September 16,
1994 when an investment company then called Quest
for Value Accumulation Trust, with portfolios
corresponding to the available two portfolios of
the Fund, was effectively divided into two
investment funds, the original investment company,
whose name was changed, and the Fund.
INVESTMENT OBJECTIVES
AND RESTRICTIONS The investment objective of each of the Portfolios
is set forth on the cover page of this Prospectus.
These objectives are described in more detail
under the heading "Investment Objectives and
Policies." ALTHOUGH EACH PORTFOLIO WILL BE
ACTIVELY MANAGED BY EXPERIENCED PROFESSIONALS,
THERE CAN BE NO ASSURANCE THAT THE OBJECTIVES WILL
BE ACHIEVED.
The value of the portfolio securities of each
Portfolio and therefore the Portfolio's net asset
value per share is expected to increase or
decrease because of varying factors. There are
generally two types of risk associated with an
investment in one or more of the Portfolios;
market (or interest rate) risk and financial (or
credit) risk. Market risk for equities is the
risk associated with movement of the stock market
in general.
Market risk for fixed income securities is the
risk that interest rates will change, thereby
affecting their value. Generally, the value of
fixed income securities declines as interest rates
rise, and conversely, their value rises as
interest rates decline. The second type of risk,
financial or credit risk, is associated with the
financial condition and profitability of an
individual equity or fixed income issuer. The
financial risk in owning equities is related to
earnings stability and overall financial soundness
of individual issuers and of issuers collectively
which are part of a particular industry. For
fixed income securities, credit risk relates to
the financial ability of an issuer to make
periodic interest payments and ultimately repay
the principal at maturity. (See "Additional
Information on Investment Objectives and Policies"
for risk aspects of the individual Portfolios).
INVESTMENT MANAGER Quest for Value Advisors (the "Manager"), the
investment manager of each of the Portfolios, is
investment manager and sub-adviser to several
other registered investment companies with assets
under management of approximately $7.6 billion at
July 31, 1995 and is a subsidiary of Oppenheimer
Capital, a registered investment adviser, which
had assets under management of approximately $35.3
billion at July 31, 1995.
MANAGEMENT FEE The Manager receives a monthly fee from each
Portfolio at varying annual percentage rates of
average daily net assets, as follows: .60
percent of average daily net assets for the Small
Cap and Managed Portfolios, respectively.
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PURCHASES AND
REDEMPTION OF SHARES Currently, shares of the Fund are sold at their
net asset value per share, without sales charge,
for allocation to the Variable Accounts as the
underlying investment for the Contracts.
Accordingly, the interest of the Contractowner
with respect to the Fund is subject to the terms
of the Contract as described in the accompanying
Prospectus for the Variable Accounts, which should
be reviewed carefully by a person considering the
purchase of a Contract. That Prospectus describes
the relationship between increases or decreases in
the net asset value of Fund shares and any
distributions on such shares, and the benefits
provided under a Contract. The rights of the
Variable Accounts as shareholders of the Fund
should be distinguished from the rights of a
Contractowner which are described in the Contract.
As long as shares of the Fund are sold for
allocation to the Variable Accounts, the terms
"shareholder" or "shareholders" in this Prospectus
shall refer to the Variable Accounts. Shares are
redeemed at their respective net asset values as
next determined after receipt of proper notice of
redemption.
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus, the Additional Statement, and the accompanying
Prospectus for the Variable Accounts.
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FINANCIAL HIGHLIGHTS
The financial highlights have been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon appears in the Additional
Statement (Part B). This information should be read in conjunction with the
financial statements and related notes thereto included in the Additional
Statement. Total return information for the Portfolios of the Fund provided in
the Financial Highlights does not include charges and deductions which are
imposed under the Contracts and described in the Prospectus for the Variable
Accounts. Inclusion of these charges and deductions would reduce the total
return of the Portfolios of the Fund. Further information about the performance
of each Portfolio is available in the Fund's Annual Report. Annual reports can
be obtained without charge upon written request to the insurance companies
issuing the Contracts.
SMALL CAP PORTFOLIO
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SEPTEMBER 16, 1994*
TO DECEMBER 31, 1994
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NET ASSET VALUE, BEGINNING OF PERIOD $17.49
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INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.06
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (0.17)
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TOTAL FROM INVESTMENT OPERATIONS (0.11)
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NET ASSET VALUE, END OF PERIOD $17.38
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TOTAL RETURN (0.6%)(0)
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NET ASSETS, END OF PERIOD $9,210,443
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RATIO OF NET OPERATING EXPENSES TO AVERAGE NET ASSETS 0.74%(1,2,3)
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RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.22%(1,2,3)
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PORTFOLIO TURNOVER 32%
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* COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE PERIOD SEPTEMBER 16, 1994 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1994 WERE $8,378,178.
(2) DURING THE PERIOD PRESENTED ABOVE, THE MANAGER VOLUNTARILY WAIVED A PORTION
OF ITS FEES AND REIMBURSED THE PORTFOLIO FOR A PORTION OF ITS OPERATING
EXPENSES. IF SUCH WAIVERS AND REIMBURSEMENTS HAD NOT BEEN IN EFFECT, THE
RATIO OF NET OPERATING EXPENSES TO AVERAGE NET ASSETS AND THE RATIO OF NET
INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.64% AND 0.32%,
RESPECTIVELY.
(3) ANNUALIZED.
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(O) Assumes reinvestment of all dividends and distributions
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MANAGED PORTFOLIO
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SEPTEMBER 16, 1994*
TO DECEMBER 31, 1994
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NET ASSET VALUE, BEGINNING OF PERIOD $21.80
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INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.14
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (1.11)
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TOTAL FROM INVESTMENT OPERATIONS (0.97)
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NET ASSET VALUE, END OF PERIOD $20.83
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TOTAL RETURN (4.4%)(0)
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NET ASSETS, END OF PERIOD $54,943,371
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RATIO OF NET OPERATING EXPENSES TO AVERAGE NET ASSETS 0.66%(1,2,3)
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RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 2.34%(1,2,3)
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PORTFOLIO TURNOVER 8%
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*COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE PERIOD SEPTEMBER 16, 1994 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1994 WERE $53,122,154.
(2) DURING THE PERIOD PRESENTED ABOVE, THE MANAGER VOLUNTARILY WAIVED A PORTION
OF ITS FEES. IF SUCH WAIVERS HAD NOT BEEN IN EFFECT, THE RATIO OF NET
OPERATING EXPENSES TO AVERAGE NET ASSETS AND THE RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 0.96% AND 2.04%, RESPECTIVELY.
(3) ANNUALIZED.
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(O) Assumes reinvestment of all dividends and distributions
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio of the Fund are
described below. Investment objectives of each Portfolio are fundamental
policies which cannot be changed for any Portfolio without a majority vote of
the shareholders of that Portfolio; investment policies are not fundamental and
may be adjusted by the Manager at any time, usually in response to its
perception of developments in the securities markets. The extent to which a
Portfolio will be able to achieve its distinct investment objectives depends
upon the Manager's ability to evaluate and develop the information it receives
into a successful investment program. Although each Portfolio will be managed
by experienced professionals, there can be no assurance that any Portfolio will
achieve its investment objectives. The values of the securities held in each
Portfolio will fluctuate and the net asset value per share at the time shares
are redeemed may be more or less than the net asset value per share at the time
of purchase. Investors should also refer to "Investment Techniques" for
additional information concerning the investment techniques employed for some or
all of the Portfolios.
INVESTMENT OBJECTIVES OF THE FUND PORTFOLIOS
The Manager's equity investment policy is overseen by George Long, Managing
Director and Chief Investment Officer of Oppenheimer Capital, the parent of the
Manager. Mr. Long has been with Oppenheimer Capital since 1982.
SMALL CAP PORTFOLIO
The investment objective of the Small Cap Portfolio is to seek capital
appreciation through investments in a diversified portfolio consisting primarily
of equity securities of companies with market capitalizations of under $1
billion. Smaller-capitalization companies are often under-priced for the
following reasons: (i) institutional investors, which currently represent a
majority of the trading volume in the shares of publicly-traded companies, are
often less interested in such companies because in order to acquire an equity
position that is large enough to be meaningful to an institutional investor,
such an investor may be required to buy a large percentage of the company's
outstanding equity securities and (ii) such companies may not be regularly
researched by stock analysts, thereby resulting in greater discrepancies in
valuation. The Portfolio may also purchase securities in initial public
offerings, or shortly after such offerings have been completed, when the Manager
believes that such securities have greater-than-average market appreciation
potential. Under normal circumstances at least 65% of the Portfolio's assets
will be invested in equity securities. The majority of securities purchased by
the Portfolio will be traded on the New York Stock Exchange, the American Stock
Exchange or in the over-the-counter market, and will also include options,
warrants, bonds, notes and debentures which are convertible into or exchangeable
for, or which grant a right to purchase or sell, such securities. In addition,
the Portfolio may also purchase foreign securities provided that they are listed
on a domestic or foreign securities exchange or are represented by American
depository receipts listed on a domestic securities exchange or traded in
domestic or foreign over-the-counter markets. The Small Cap Portfolio is
managed by Jenny Beth Jones, Senior Vice President of Oppenheimer Capital and
Louis Goldstein, Vice President of Oppenheimer Capital. Ms. Jones has been a
portfolio manager at Oppenheimer Capital since 1990. Previously, Ms. Jones was
a portfolio manager and analyst with Mutual of America. Mr. Goldstein has been
portfolio manager of the Portfolio since January 3, 1995. Mr. Goldstein has
been a security analyst with Oppenheimer Capital since 1991. From 1988 to 1991
he was a security analyst with David J. Greene & Co.
MANAGED PORTFOLIO
The investment objective of the Managed Portfolio is to achieve growth of
capital over time through investment in a portfolio consisting of common stocks,
bonds and cash equivalents, the percentages of which will vary based on the
Manager's assessments of the relative outlook for such investments. In seeking
to achieve its investment objective, the types of equity securities in which the
Portfolio may invest are likely to be primarily those of companies that are
believed by the Manager to be undervalued in the marketplace in relation to
factors such as the companies' assets or earnings although securities of the
type in which the Small Cap Portfolio invests may, to a lesser extent, be
included. Debt securities are expected to be predominantly investment grade
intermediate to long
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term U.S. Government and corporate debt, although the Portfolio will also invest
in high quality short term money market and cash equivalent securities and may
invest almost all of its assets in such securities when the Manager deems it
advisable in order to preserve capital. In addition, the Portfolio may also
purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or are represented by American depository receipts
listed on a domestic securities exchange or traded in domestic or foreign over-
the-counter markets.
The allocation of the Portfolio's assets among the different types of
permitted investments will vary from time to time based upon the Manager's
evaluation of economic and market trends and its perception of the relative
values available from such types of securities at any given time. There is
neither a minimum nor a maximum percentage of the Portfolio's assets that may,
at any given time, be invested in any of the types of investments identified
above. Consequently, while the Portfolio will earn income to the extent it is
invested in bonds or cash equivalents, the Portfolio does not have any specific
income objective. The investments of the Managed Portfolio are managed by
Richard J. Glasebrook II, Managing Director of Oppenheimer Capital.
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES AND POLICIES
For the Small Cap Portfolio, at times when the investment climate is viewed
as favorable, common stocks will be heavily emphasized. Under normal
circumstances, at least 65% of the Portfolio's assets will be invested in common
stocks or securities convertible into common stocks. In the event that future
economic or financial conditions adversely affect equity securities, or stocks
are considered overvalued, the Small Cap Portfolio may invest a substantial
portion of its assets in debt securities, with an emphasis on money market
instruments or cash and cash equivalents.
Each Portfolio will in the normal course have varying amounts of cash
assets which have not yet been invested in accordance with its objectives. This
cash will be temporarily invested in high quality short term money market
securities and cash equivalents.
Regulations under Section 817(h) of the Internal Revenue Code ("IRC
817(h)") require each Portfolio to diversify its investments. To comply with
these regulations each Portfolio is required to diversify its investments so
that on the last day of each quarter of a calendar year no more than 55% of the
value of its total assets is represented by any one investment, no more than 70%
is represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four investments.
For this purpose, securities of a given issuer generally are treated as one
investment, but each U.S. Government agency and instrumentality is treated as a
separate and distinct issuer. As such, any security issued, guaranteed, or
insured (to the extent so guaranteed or insured) by the U.S. or an agency or
instrumentality of the U.S. is treated as a security issued by the U.S.
Government or its agency or instrumentality, whichever is applicable. These
diversification rules limit the amount that any Portfolio can invest in any
single issuer, including direct obligations of the U.S. Treasury, to 55% of the
Portfolio's total assets at the end of any calendar quarter.
MANAGEMENT OF ASSETS
The Manager intends to manage each Portfolio's assets by buying and selling
securities to help attain its investment objective. This may result in
increases or decreases in a Portfolio's current income available for
distribution to its shareholders. While none of the Portfolios is managed with
the intent of generating short-term capital gains, each of the Portfolios may
dispose of investments (including money market instruments) regardless of the
holding period if, in the opinion of the Manager, an issuer's creditworthiness
or perceived changes in a company's growth prospects or asset value make selling
them advisable. Such an investment decision may result in capital gains or
losses and could result in a high portfolio turnover rate during a given period,
resulting in increased transaction costs related to equity securities.
Disposing of debt securities in these circumstances should not increase direct
transaction costs since debt securities are normally traded on a principal basis
without brokerage commissions. However, such transactions do involve a mark-up
or mark-down of the price.
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During periods of unusual market conditions when the Manager believes that
investing for defensive purposes is appropriate, or in order to meet anticipated
redemption requests, part or all of the assets of one or more of the Portfolios
may be invested in cash or cash equivalents including obligations listed above.
The portfolio turnover rates of the Portfolios cannot be accurately
predicted. Nevertheless, it is anticipated that the Managed Portfolio will have
an annual turnover rate (excluding turnover of securities having a maturity of
one year or less) of 100% or less. It is anticipated that the Small Cap
Portfolio will have an annual turnover rate in excess of 100%. A 100% annual
turnover rate would occur, for example, if all the securities in a Portfolio's
investment portfolio were replaced once in a period of one year. A portfolio
turnover rate in excess of 100% can be expected to result in correspondingly
higher transaction costs.
RISK ASPECTS OF THE INDIVIDUAL PORTFOLIOS
MANAGED PORTFOLIO. An investment in the Managed Portfolio will entail both
market and financial risk, the extent of which depends on the amount of the
Portfolio's assets which are committed to equity, longer term debt or money
market securities at any particular time. As the Managed Portfolio may invest
in mortgage-backed securities, such securities, while similar to other fixed-
income securities, involve the additional risk of prepayment because mortgage
prepayments are passed through to the holder of the mortgage-backed security and
must be reinvested. Prepayments of mortgage principal reduce the stream of
future payments and generate cash which must be reinvested. When interest rates
fall, prepayments tend to rise. As such the Managed Portfolio may have to
reinvest that portion of their respective assets invested in such securities
more frequently when interest rates are low than when interest rates are high.
SMALL CAP PORTFOLIO. The Small Cap Portfolio is expected to have greater
risk exposure and reward potential than a portfolio which invests primarily in
larger-capitalization companies. The trading volumes of securities of smaller-
capitalization companies are normally less than those of larger-capitalization
companies. This often translates into greater price swings, both upward and
downward. The waiting period for the achievement of an investor's objectives
might be longer since these securities are not closely monitored by research
analysts and, thus, it takes more time for investors to become aware of
fundamental changes or other factors which have motivated the Portfolio's
purchase. Smaller-capitalization companies often achieve higher growth rates
and experience higher failure rates than do larger-capitalization companies.
ADDITIONAL RISKS OF FOREIGN SECURITIES: The Small Cap and Managed
Portfolios may purchase foreign securities that are listed on a domestic or
foreign securities exchange, traded in domestic or foreign over-the counter
markets or represented by American Depository Receipts. There is no limit to
the amount of such foreign securities the Portfolios may acquire. Certain
factors and risks are presented by investment in foreign securities which are in
addition to the usual risks inherent in domestic securities. Foreign companies
are not necessarily subject to uniform accounting, auditing and financial
reporting standards or other regulatory requirements comparable to those
applicable to U.S. companies. Thus, there may be less available information
concerning non-U.S. issuers of securities held by a Portfolio than is available
concerning U.S. companies. In addition, with respect to some foreign countries,
there is the possibility of nationalization, expropriation or confiscatory
taxation; income earned in the foreign nation being subject to taxation,
including withholding taxes on interest and dividends, or other taxes imposed
with respect to investments in the foreign nation; limitations on the removal of
securities, property or other assets of a fund; difficulties in pursuing legal
remedies and obtaining judgments in foreign courts, or political or social
instability or diplomatic developments which could affect U.S. investments in
those countries. For a description of the risks of possible losses through
holding of securities in foreign custodian banks and depositories, see
"Investment of Assets" in the Additional Statement.
Securities of many non-U.S. companies may be less liquid and their prices
more volatile than securities of comparable U.S. companies. Non-U.S. stock
exchanges and brokers are generally subject to less governmental supervision and
regulation than in the U.S. and commissions on foreign stock exchanges are
generally higher than negotiated commissions on U.S. transactions. In addition,
there may in certain instances be delays in the settlement of non-U.S. stock
exchange transactions. Certain countries restrict foreign investments in their
securities markets. These restrictions may limit or preclude investment in
certain countries, industries or market sectors, or may increase the cost of
investing in securities of particular companies. Purchasing the shares of
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investment companies which invest in securities of a given country may be the
only or the most efficient way to invest in that country. This may require the
payment of a premium above the net asset value of such investment companies and
the return will be reduced by the operating expenses of those investment
companies.
A decline in the value of the U.S. dollar against the value of any
particular currency will cause an increase in the U.S. dollar value of a
Portfolio's holdings denominated in such currency. Conversely, a decline in the
value of any particular currency against the U.S. dollar will cause a decline in
the U.S. dollar value of the Portfolio's holdings of securities denominated in
such currency. Some foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchange or governmental
intervention in currency markets which could adversely affect a Portfolio. The
Portfolios do not intend to speculate in foreign currency in connection with the
purchase or sale of securities on a foreign securities exchange but may enter
into foreign currency contracts to hedge their foreign currency exposure. While
those transactions may minimize the impact of currency appreciation and
depreciation, the Portfolios will bear a cost for entering into the transaction
and such transactions do not protect against a decline in the security's value
relative to other securities denominated in that currency.
EMERGING MARKET COUNTRIES: Certain developing countries may have relatively
unstable governments, economies based on only a few industries that are
dependent upon international trade and reduced secondary market liquidity.
Foreign investment in certain emerging market countries is restricted or
controlled in varying degrees. In the past, securities in these countries have
experienced greater price movement, both positive and negative, than securities
of companies located in developed countries. Lower-rated high-yielding emerging
market securities may be considered to have speculative elements.
HIGH YIELD SECURITIES: It is the present intention of the Manager with
respect to each of the Small Cap and Managed Portfolios to invest no more than 5
percent of its net assets in bonds rated below Baa3 by Moody's or BBB by S&P
(commonly known as "junk bonds"). In the event that the Manager intends in the
future to invest more than 5% of the net assets of any such Portfolio in junk
bonds, appropriate disclosures will be made to existing and prospective
shareholders. For information about the possible risks of investing in junk
bonds see "Investment of Assets" in the Additional Statement.
OPTIONS AND FUTURES: To the extent permitted by applicable state law, the
Small Cap Portfolio intends to engage in futures contracts and options on
futures contracts for bona fide hedging or other non-speculative purposes. The
Small Cap Portfolio may also engage in options on stock indices. The Small Cap
Portfolio may write covered call options on individual securities. The Small
Cap Portfolio will not enter into any leveraged futures transactions. Different
uses of futures and options have different risk and return characteristics.
Generally, selling futures contracts, purchasing put options and writing call
options are strategies designed to protect against falling security prices and
can limit potential gains if prices rise. Purchasing futures contracts,
purchasing call options and writing put options are strategies whose returns
tend to rise and fall together with securities prices and can cause losses if
prices fall. If securities prices remain unchanged over time, option writing
strategies tend to be profitable while option buying strategies tend to be
unprofitable. For more information about Options and Futures see "Investment
Techniques" in this Prospectus and "Investment of Assets" in the Additional
Statement.
INVESTMENT TECHNIQUES
The investment techniques or instruments described below are used for the
Portfolios' investment programs:
SHORT-TERM INVESTMENTS. Each Portfolio typically invests a part of its
assets in various types of U.S. Government securities and high quality, short-
term debt securities with remaining maturities of one year or less ("money
market instruments"). This type of short-term investment is made to provide
liquidity for the purchase of new investments and to effect redemptions of
shares. The money market instruments in which each Portfolio may invest include
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate securities and repurchase agreements.
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REPURCHASE AGREEMENTS. Each Portfolio may acquire securities subject to
repurchase agreements. Under a typical repurchase agreement, a Portfolio would
acquire a debt security for a relatively short period (usually for one day and
not for more than one week) subject to an obligation of the seller to repurchase
and of the Portfolio to resell the debt security at an agreed-upon higher price,
thereby establishing a fixed investment return during the Portfolio's holding
period. A Portfolio will enter into repurchase agreements with member banks of
the Federal Reserve System having total assets in excess of $500 million and
with dealers registered with the SEC. Under each repurchase agreement the
selling institution will be required to maintain as collateral securities whose
market value is at least equal to the repurchase price. Repurchase agreements
could involve certain risks in the event of default or insolvency of the selling
institution, including costs of disposing of securities held as collateral and
any loss resulting from delays or restrictions upon the Portfolio's ability to
dispose of securities. Pursuant to guidelines established by the Portfolio's
Board of Trustees, the Manager considers the creditworthiness of those banks and
non-bank dealers with which a Portfolio enters into repurchase agreements and
monitors on an ongoing basis the value of securities held as collateral to
ensure that such value is maintained at the required level. A Portfolio will
not enter into a repurchase agreement with a dealer if the agreement has a
maturity beyond seven days. The staff of the SEC has taken the position that
repurchase agreements are loans collateralized by the underlying securities.
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio
securities if such loans are secured continuously by collateral (cash, U.S.
Government or agency obligations or letters of credit) maintained on a daily
basis in an amount at least equal at all times to the market value of the
securities loaned and if the Portfolio does not incur any fees (other than the
transaction fees of its custodian bank) in connection with such loans. A
Portfolio may call the loan at any time on five days' notice and reacquire the
loaned securities. During the loan period, the Portfolio would continue to
receive the equivalent of the interest paid by the issuer on the securities
loaned and would also have the right to receive the interest on investment of
the cash collateral in short-term debt instruments. A portion of either or both
kinds of such interest may be paid to the borrower of such securities. It is
not intended that the value of the securities loaned, if any, would exceed 10%
of the value of the total assets of the Small Cap and Managed Portfolios.
Securities loans must also meet applicable tests under the Internal Revenue
Code. A Portfolio could experience various costs or loss if a borrower defaults
on its obligation to return the borrowed securities.
OPTIONS AND FUTURES. To the extent permitted by applicable state law, the
Small Cap Portfolio may engage in options and futures transactions. The Small
Cap Portfolio intends to engage in futures contracts or options on futures
contracts for bona fide hedging or other non-speculative purposes and to write
calls on individual securities. The Small Cap and Managed Portfolios may also
enter into forward foreign currency contracts to purchase or sell foreign
currencies in connection with any transactions in foreign securities. The Small
Cap Portfolio may also engage in options on stock indices. When the Small Cap
Portfolio anticipates a significant market or market sector advance, the
purchase of a futures contract affords a hedge against not participating in the
advance at a time when such Portfolio is not fully invested ("anticipatory
hedge"). Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual securities, which then may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Small Cap Portfolio may sell futures
contracts in anticipation of or in a general market or market sector decline
that may adversely affect the market value of such Portfolio's securities
("defensive hedge"). To the extent that the Small Cap Portfolio's securities
change in value in correlation with the underlying security or index, the sale
of futures contracts would substantially reduce the risk to the Small Cap
Portfolio of a market decline and by so doing, provide an alternative to the
liquidation of securities positions in the Small Cap Portfolio with attendant
transaction costs. So long as the Commodities Futures Trading Commission rules
so require, the Small Cap Portfolio will not enter into any financial futures or
options contract unless such transactions are for bona fide hedging purposes, or
for other purposes only if the aggregate initial margins and premiums required
to establish such non-hedging positions would not exceed 5% of the liquidation
value of such Portfolio's assets. When writing put options, the Fund, on behalf
of the Small Cap Portfolio, will maintain in a segregated account at its
Custodian liquid assets with a value equal to at least the exercise price of the
option to secure its obligation to pay for the underlying security. As a
result, such Portfolio forgoes the opportunity of trading the segregated assets
or writing calls against those assets. There may not be a complete correlation
between the price of options and futures and
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the market prices of the underlying securities. The Small Cap Portfolio may
lose the ability to profit from an increase in the market value of the
underlying security or may lose its premium payment. If due to a lack of a
market the Small Cap Portfolio could not effect a closing purchase transaction
with respect to an OTC option, it would have to hold the callable securities
until the call lapsed or was exercised.
MORTGAGE-BACKED SECURITIES. The Managed Portfolio may invest in a type of
mortgage-backed security known as modified pass-through certificates. Each
certificate evidences an interest in a specific pool of mortgages that have been
grouped together for sale and provides investors with payments of interest and
principal. The issuer of modified pass-through certificates guarantees the
payment of the principal and interest whether or not the issuer has collected
such amounts on the underlying mortgage.
The average life of these securities varies with the maturities of the
underlying mortgage instruments (generally up to 30 years) and with the extent
of prepayments on the mortgages themselves. Any such prepayments are passed
through to the certificate holder, reducing the stream of future payments.
Prepayments tend to rise in periods of falling interest rates, decreasing the
average life of the certificate and generating cash which must be invested in a
lower interest rate environment. This could also limit the appreciation
potential of the certificates when compared to similar debt obligations which
may not be paid down at will, and could cause losses on certificates purchased
at a premium or gains on certificates purchased at a discount. Ginnie Mae
certificates represent pools of mortgages insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the Veteran's
Administration. The guarantee of payments under these certificates is backed by
the full faith and credit of the United States. Fannie Mae is a government-
sponsored corporation owned entirely by private stockholders. The guarantee of
payments under these instruments is that of Fannie Mae only. They are not
backed by the full faith and credit of the United States but the U.S. Treasury
may extend credit to Fannie Mae through discretionary purchases of its
securities. The U.S. Government has no obligation to assume the liabilities of
Fannie Mae. Freddie Mac is a corporate instrumentality of the United States
government whose stock is owned by the Federal Home Loan Banks. Certificates
issued by Freddie Mac represent interest in mortgages from its portfolio.
Freddie Mac guarantees payments under its certificates but this guarantee is not
backed by the full faith and credit of the United States and Freddie Mac does
not have authority to borrow from the U.S. Treasury.
The coupon rate of these instruments is lower than the interest rate on the
underlying mortgages by the amount of fees paid to the issuing agencies, usually
approximately 1/2 of 1%. It is not anticipated that the Portfolios' investments
will have any particular maturity. Mortgage-backed securities, due to the
scheduled periodic repayment of principal, and the possibility of accelerated
repayment of underlying mortgage obligations, fluctuate in value in a different
manner than other, non-redeemable debt securities. The Managed Portfolio also
may invest in "collateralized mortgage obligations" ("CMO's") which are debt
obligations secured by mortgage-backed securities where the investor looks only
to the issuer of the security for payment of principal and interest.
PORTFOLIO TRANSACTIONS. The Manager's primary consideration when executing
security transactions with broker-dealers is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. The Manager may select, under certain conditions,
Oppenheimer & Co., Inc. ("OpCo"), an affiliate of the Manager, to execute each
Portfolio's transactions. When selecting broker-dealers other than OpCo to
execute a Portfolio's transactions, the Manager may consider their record of
sales of shares of other investment company clients of the Manager. Selection
of broker-dealers to execute portfolio transactions must be done in a manner
consistent with the foregoing primary consideration, the "Rules of Fair
Practice" of the National Association of Securities Dealers, Inc. and such other
policies as the Board of Trustees may determine. (For a further discussion of
portfolio trading, see the Additional Statement, "Investment Management and
Other Services.")
INVESTMENT RESTRICTIONS
Each Portfolio is subject to certain investment restrictions which, together
with its investment objective, are fundamental policies changeable only by
shareholder vote. (The restrictions in 1, 2 and 3 do not apply to U.S.
Government securities.) Under some of those restrictions, each Portfolio may
not:
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1. Invest more than 5% of the value of its total assets in the securities
of any one issuer, or purchase more than 10% of the voting securities, or more
than 10% of any class of security, of any issuer (for this purpose all
outstanding debt securities of an issuer are considered as one class and all
preferred stock of an issuer are considered as one class).
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attaining its investment objective, a Portfolio may invest up to
25% of its total assets (valued at the time of investment) in any one industry
classification used by that Portfolio for investment purposes.
3. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation.
4. Make loans, except through the purchase of U.S. Government securities
and corporate debt obligations, repurchase agreements or lending portfolio
securities as described above under "Loans of Portfolio Securities".
5. Borrow money in excess of 10% of the value of its total assets. It may
borrow only as a temporary measure for extraordinary or emergency purposes and
will make no additional investments while such borrowings exceed 5% of the total
assets. Such prohibition against borrowing does not prohibit escrow or other
collateral or margin arrangements in connection with the hedging instruments
which a Portfolio is permitted to use by any of its other fundamental policies.
6. Invest more than 15% of its assets in illiquid securities (securities
for which market quotations are not readily available) and repurchase agreements
which have a maturity of longer than seven days. Other investment restrictions
are described in the Additional Statement.
All percentage limitations apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in the amount of total assets does not
require elimination of any security from a Portfolio.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees has overall responsibility for the management
of the Fund under the laws of Massachusetts governing the responsibilities of
trustees of a Massachusetts business trust. In general, such responsibilities
are comparable to those of directors of a Massachusetts business corporation.
The Board of Trustees of the Fund has undertaken to monitor the Fund for the
existence of any material irreconcilable conflict between the interests of
variable annuity Contractowners, variable life insurance Contractowners and
Qualified Plans due to the difference of tax treatment and other considerations,
and shall report any such conflict to the boards of the respective life
insurance companies which use the Fund as an investment vehicle for their
respective variable annuity and life insurance contracts and to the Qualified
Plans. The Boards of Directors of those life insurance companies and the
Manager have agreed to be responsible for reporting any potential or existing
conflicts to the Trustees of the Fund. If a material irreconcilable conflict
exists that affects those life insurance companies, those life insurance
companies have agreed, at their own cost, to remedy such conflict up to and
including establishing a new registered management investment company and
segregating the assets underlying the variable annuity contracts and the
variable life insurance contracts. Qualified Plans which acquire more than 10
percent of the assets of the Fund will be required to report any potential or
existing conflicts to the Trustees of the Fund, and if a material irreconcilable
conflict exists, to remedy such conflict, up to and including redeeming Shares
of the Portfolios held by the Qualified Plans. The Additional Statement
contains information about the Trustees and Officers.
THE ADVISORY AGREEMENT. The Manager is responsible for management of the
Fund's business. Pursuant to the investment advisory agreement (the "Advisory
Agreement") with the Fund, and subject to the authority of the Board of
Trustees, the Manager supervises the investment operations of each Portfolio,
furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities and provides certain
administrative services for the Fund.
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Under the Advisory Agreement the annual management fee is computed at an
annual rate of .60 percent of the average daily net assets of each of the Small
Cap and Managed Portfolios. Through at least December 31, 1995, the expenses of
the Portfolios of the Fund will be voluntarily limited by the Manager so that
annualized operating fund expenses do not exceed the following percentages of
the average daily net assets of the Portfolios of the Fund: (1) .74 percent of
the Small Cap Portfolio; and (2) .66 percent of the Managed Portfolio. For
the period September 16, 1994 (commencement of operations) to December 31, 1994,
the Manager waived its fee of $14,599 for the Small Cap Portfolio and
reimbursed operating expenses of $7,395 to such Portfolio. For the period
September 16, 1994 (commencement of operations) to December 31, 1994, the total
management fee accrued or paid on the Managed Portfolio was $92,564; the total
management fee waived was $46,152.
Under the Advisory Agreement, each Portfolio is responsible for bearing
organizational expenses, taxes and governmental fees; brokerage commissions,
interest and other expenses incurred in acquiring and disposing of portfolio
securities; trustees fees, out of pocket travel expenses and other expenses for
trustees who are not interested persons; legal, accounting and audit expenses;
custodian, dividend disbursing and transfer agent fees; and other expenses not
expressly assumed by the Manager under the Advisory Agreement, which is
discussed below. The Manager will reimburse the Fund for the amount, if any, by
which the aggregate ordinary operating expenses of any of these Portfolios
incurred by the Fund in any calendar year exceed the most restrictive expense
limitations (currently, 2 1/2% of the first $30 million of assets, 2% of the
next $70 million of assets and 1 1/2% of the remaining average net assets) then
in effect under any state securities law or regulation.
The Manager is a subsidiary of Oppenheimer Capital, a general partnership
which is registered as an investment adviser under the Investment Advisers Act
of 1940, by whose employees all investment management services performed under
the Advisory Agreement are rendered to the Portfolios. Oppenheimer Financial
Corp., a holding company, holds a 33% interest in Oppenheimer Capital, and
Oppenheimer Capital, L.P., a Delaware limited partnership of which Oppenheimer
Financial Corp. is the sole general partner and whose units are traded on the
New York Stock Exchange ("NYSE"), owns the remaining 67% interest. The Manager
and its affiliates have operated as investment advisers to both mutual funds and
other clients since l968, and had approximately $35.3 billion under management
as of July 31, 1995. The Additional Statement contains more information about
the Advisory Agreement, including a more complete description of the management
fee and expense arrangements, exculpation provisions and portfolio transactions
for the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is calculated separately for each Portfolio.
The net asset value of each Portfolio is determined at the close of the regular
trading session ("Close") of the NYSE (currently 4:00 p.m. Eastern Time) each
day the NYSE is open and on each other day on which there is a sufficient degree
of trading in any Portfolio's securities affecting materially the value of such
securities (if the Fund receives a request to redeem its shares that day), by
dividing the value of the Portfolio's net assets by the number of shares
outstanding. The Fund's Board of Trustees has established procedures to value
the Portfolios' securities to determine net asset value; in general those
valuations are based on market value, with special provisions for (i) securities
(including restricted securities) not having readily-available market quotations
and (ii) short-term debt securities. Securities listed on a national securities
exchange or designated as national market system securities are valued at the
last sale price or, if there has been no sale that day, at the last bid price.
Debt and equity securities actively traded in the over-the-counter market but
not designated as national market system securities are valued at the most
recent bid price. Valuations may be provided by a pricing service or from
independent securities dealers. Short-term investments with remaining
maturities of less than 60 days are valued at amortized cost so long as the
Fund's Board of Trustees determines in good faith that such method reflects fair
value. Other securities are valued by methods that the Fund's Board of Trustees
believes accurately reflect fair value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the Close of the NYSE. The values of such
securities used in computing the net asset value of a Portfolio's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the Close of the NYSE. If events materially affecting the
value of such securities and exchange rates occur between the time of
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such determination and/or the Close of the NYSE, then these securities will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Fund's Board. Further details
are in the Additional Statement.
PURCHASE OF SHARES
Investments in the Fund may be made only by Variable Accounts and
Qualified Plans. Persons desiring to purchase Contracts funded by any Portfolio
or Portfolios of the Fund should read this Prospectus in conjunction with the
Prospectus of the Variable Accounts.
Shares of each Portfolio of the Fund are offered to the Variable Accounts
and Qualified Plans without sales charge at the respective net asset values of
the Portfolios next determined after receipt by the Fund of the purchase payment
in the manner set forth above under "Determination of Net Asset Value."
Certificates representing shares of the Fund will not be physically issued.
Quest for Value Distributors acts without remuneration from the Fund as the
exclusive Distributor of the Fund's shares. The principal executive office of
the Distributor is located at Two World Financial Center, New York, New York
l0080.
REDEMPTION OF SHARES
Shares of any Portfolio of the Fund can be redeemed by the Variable
Accounts and Qualified Plans at any time for cash, at the net asset value next
determined after receipt of the redemption request in proper form. The market
value of the securities in each of the Portfolios is subject to daily
fluctuation and the net asset value of each Portfolio's shares are expected to
fluctuate accordingly. The redemption value of the Fund's shares may be either
more or less than the original cost to the Variable Accounts. Payment for
redeemed shares is ordinarily made within seven days after receipt by the Fund's
transfer agent of redemption instructions in proper form. The redemption
privilege may be suspended and payment postponed during any period when: (l)
the NYSE is closed other than for customary weekend or holiday closings or
trading thereon is restricted as determined by the SEC; (2) an emergency, as
defined by the SEC exists making trading of portfolio securities or valuation of
net assets not reasonably practicable; (3) the SEC has by order permitted such
suspension.
STATE LAW RESTRICTIONS
The investments of the Variable Accounts are subject to the provisions of
the insurance laws of the States of domicile of the life insurance companies
offering the Contracts. The Fund and its Portfolios will voluntarily comply with
the statutory investment restrictions applicable to the investments of life
insurance company separate accounts, of the States of domicile of the life
insurance companies offering the Contracts, even though these state law
investment restrictions do not apply to the Fund and its Portfolios. For a
description of the state law restrictions applicable to the separate accounts of
the life insurance companies offering the Contracts, see the accompanying
Prospectus for the Variable Accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to distribute substantially all of its net
investment income and any net realized capital gains. Dividends from net
investment income and any distributions of realized capital gains will be paid
in additional shares of the Portfolio paying the dividend or making the
distribution and credited to the shareholder's account unless the shareholder
elects to receive such dividends or distributions in cash. Dividends from net
investment income, if any, on the Small Cap and Managed Portfolios will be
declared and paid at least annually, and any net realized capital gains will be
declared and paid at least once per calendar year.
Because the Fund intends to distribute all of the net investment income and
capital gains of each Portfolio and otherwise qualify each Portfolio as a
regulated investment company under Subchapter M of the Internal
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Revenue Code, it is not expected that any Portfolio of the Fund will be required
to pay any federal income tax on such income and capital gains. Since the
Variable Accounts are the sole shareholders of the Fund, no discussion is
presented herein as to the federal income tax consequences at the shareholder
level. For information concerning the federal income tax consequences to
contractowners, see the accompanying Prospectus for the Variable Accounts.
CALCULATION OF PERFORMANCE
From time to time the performance of one or more of the Portfolios may be
advertised. The performance data contained in these advertisements is based
upon historical earnings and is not indicative of future performance. The data
for each Portfolio reflects the results of that Portfolio of the Fund and
recurring charges and deductions borne by or imposed on the Portfolio. As the
performance for any Portfolio does not include charges and deductions under the
Contracts, comparisons with other portfolios used in connection with different
variable accounts may not be useful. Set forth below for each Portfolio is the
manner in which the data contained in such advertisements will be calculated as
well as performance information for the Portfolios as indicated below. This
performance information does not include charges and deductions which are
imposed under the Contracts and described in the Prospectus for the Variable
Accounts.
The performance data for these Portfolios will reflect the "yield" and "total
return". The "yield" of each of these Portfolios refers to the income generated
by an investment in that Portfolio over the 30 day period stated in the
advertisement and is the result of dividing that income by the value of the
Portfolio. The value of each Portfolio is the average daily number of shares
outstanding multiplied by the net asset value per share on the last day of the
period. "Total Return" for each of these Portfolios refers to the value a
Shareholder would receive on the date indicated if a $1,000 investment had been
made the indicated number of years ago. It reflects historical investment
results less charges and deductions of the Fund.
AVERAGE ANNUAL TOTAL RETURN OF MANAGED AND SMALL CAP PORTFOLIOS
OF QUEST FOR VALUE ACCUMULATION TRUST(1), (2)
Portfolio For the one year For the five year For the period
- --------- period ended period ended from inception to
December 31, 1994 December 31, 1994 December 31, 1994
----------------- ----------------- -----------------
Managed 2.61% 13.58% 16.16%
Small Cap (1.01)% 13.94% 13.98%
(1) On September 16, 1994, an investment company then called Quest for
Value Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Fund, at which time the Fund commenced
operations. The total net assets for each of the Small Cap and Managed
Portfolios immediately after the transaction were $139,812,573 and $682,601,380,
respectively, with respect to the Old Trust and for each of the Small Cap and
Managed Portfolios, $8,129,274 and $51,345,102, respectively, with respect to
the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Small Cap and Managed Portfolios reflect the performance of the
corresponding Portfolios of the Old Trust.
(2) Reflects reimbursement of advisory fees and other expenses by the
Manager. Without such reimbursement, the average annual total return during the
periods would have been lower.
In addition, reference in advertisements may be made to various indices,
including, without limitation, the S & P 500 Stock Index, the Russell 2000 and
the Lehman Brothers Corporate/Government Index, and various rankings by
independent evaluators such as Morningstar and Lipper Analytical Services, Inc.
in order to provide the reader a basis for comparison.
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ADDITIONAL INFORMATION
ORGANIZATION OF THE FUND. The Fund was organized as a Massachusetts
business trust on May 12, 1994 and is registered with the SEC as an open-end
diversified management investment company. When issued, shares are fully paid
and have no preemptive or conversion rights. The shares of beneficial interest
of the Fund, $0.01 par value, are divided into seven separate series. The
shares of each series are freely-transferable and equal as to earnings, assets
and voting privileges with all other shares of that series. There are no
conversion, preemptive or other subscription rights. Upon liquidation of the
Fund or any Portfolio, shareholders of a Portfolio are entitled to share pro
rata in the net assets of that Portfolio available for distribution to
shareholders after all debts and expenses have been paid. The shares do not
have cumulative voting rights.
The Fund's Board of Trustees, whose responsibilities are comparable to
those of directors of a Massachusetts corporation, is empowered to issue
additional classes of shares, which classes may either be identical except as to
dividends or may have separate assets and liabilities; classes having separate
assets and liabilities are referred to as "series". The creation of additional
series and offering of their shares (the proceeds of which would be invested in
separate, independently managed portfolios with distinct investment objectives,
policies and restrictions) would not affect the interests of the current
shareholders in the existing Portfolios.
The assets received by the Fund on the sale of shares of each Portfolio and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are allocated to each Portfolio, and constitute the assets of such
Portfolio. The assets of each Portfolio are required to be segregated on the
Fund's books of account. The Fund's Board of Trustees has agreed to monitor the
portfolio transactions and management of each of the Portfolios and to consider
and resolve any conflict that may arise.
VOTING. For matters affecting only one Portfolio, only the shareholders of
that Portfolio are entitled to vote. For matters relating to all the Portfolios
but affecting the Portfolios differently, separate votes by Portfolio are
required. Approval of an Investment Management Agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
each Portfolio. To the extent required by law, the Variable Accounts will vote
the shares of the Fund, or any Portfolio of the Fund, held in the Variable
Accounts in accordance with instructions from Contractowners, as described under
the caption "Voting Rights" in the accompanying Prospectus for the Variable
Accounts. Shares for which no instructions are received as well as shares which
the Manager or its parent, Oppenheimer Capital, may own, will be voted in the
same proportion as shares for which instructions are received. The Fund does
not intend to hold annual meetings of shareholders. However, the Board of
Trustees will call special meetings of shareholders for action by shareholder
vote as may be requested in writing by holders of 10% or more of the outstanding
shares of a Portfolio or as may be required by applicable laws or the
Declaration of Trust pursuant to which the Fund has been organized.
Under Massachusetts law shareholders could, in certain circumstances, be
held personally liable as partners for Fund obligations. The Fund's Declaration
of Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each instrument entered into or executed by the Fund. The Declaration of Trust
also provides for indemnification out of the Fund's property for any
shareholder held personally liable for any Fund obligation. Thus, the risk of
loss to a shareholder from being held personally liable for obligations of the
Fund is limited to the unlikely circumstance in which the Fund itself would be
unable to meet its obligations.
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets of the Fund is
State Street Bank and Trust Company, P.O. Box 8505, Boston, MA 02266-8505,
which also acts as transfer agent and shareholder servicing agent for the Fund.
CONTRACTOWNERS INQUIRIES. Inquiries concerning the purchase and sale of
shares of the Fund as well as inquiries concerning dividends and account
statements should be directed to the respective life insurance companies which
use the Fund as an investment vehicle for their respective variable annuity and
life insurance contracts. Inquiries concerning management and investment
policies of the Fund should be directed to the Manager at Quest for Value
Advisors, c/o Oppenheimer Capital, One World Financial Center, New York, New
York 10281; or telephone 800-232-FUND.
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APPENDIX
DESCRIPTION OF COMMERCIAL PAPER AND CORPORATE BOND RATINGS
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay promissory obligations when due. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1 - Superior Ability for Repayment;
Prime 2 - Strong Ability for Repayment; Prime 3 - Acceptable Ability for
Repayment.
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. Issues assigned the
highest rating, "A", are regarded as having the greatest capacity for timely
payment. Issues in this category are delineated with the numbers "1", "2", and
"3" to indicate the relative degree of safety. The designation "A-1" indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. The "A+" designation is applied to those issues rated "A-1" which
possess overwhelming safety characteristics. Capacity for timely payment on
issues with the designation "A-2" is strong. However, the relative degree of
safety is not as high as for issues designated "A-1."
Fitch's commercial paper ratings represent Fitch's assessment of the
issuer's ability to meet its obligations in a timely manner. The assessment
places emphasis on the existence of liquidity. Ratings range from "F-1+" which
represents exceptionally strong credit quality to "F-4" which represents weak
credit quality.
Duff's short-term ratings apply to all obligations with maturities of under
one year, including commercial paper, the uninsured portion of certificates of
deposit, unsecured bank loans, master notes, bankers acceptances, irrevocable
letters of credit and current maturities of long-term debt. Emphasis is placed
on liquidity. Ratings range for Duff 1+ for the highest quality to Duff 5 for
the lowest, issuers in default. Issues rated Duff 1+ are regarded as having the
highest certainty of timely payment. Issues rated Duff 1 are regarded as having
very high certainty of timely payment.
Thomson's BankWatch, Inc. assigns only one Issuer Rating to each company,
based upon a qualitative and quantitative analysis of the consolidated
financials of an issuer and its subsidiaries. The rating incorporates TBW's
opinion of the vulnerability of the company to adverse developments which may
impact the marketability of its securities, as well as the issuer's ability to
repay principal and interest. Ratings range from "TBW-1" for highest quality to
"TBW-3" for the lowest, companies with very serious problems.
BOND RATINGS
A bond rated "Aaa" by Moody's is judged to be the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is deemed secure.
While the various protective elements may change, such foreseeable changes are
unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. Margins of protection on "Aa" bonds may not be as large as on
"Aaa" securities or fluctuations of protective elements may be of greater
magnitude or there may be other elements present which make the long-term risks
appear somewhat larger than "Aaa" securities. Bonds which are rated "A" possess
many favorable investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment some time in the future. Bonds rated "Baa" are considered medium
grade obligations whose interest payments and principal security appear adequate
for the present but may lack certain protective elements or may be
characteristically unreliable over any great length of time. Moody's applies
numerical modifiers "1", "2" and "3" in each generic rating classification from
"Aa" through "B" in its corporate bond rating system. The modifier "1"
indicates that the security ranks in the higher end of its generic rating
category; the modifier "2" indicates a mid-
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range ranking; and the modifier "3" indicates that the issue ranks in the lower
end of its generic rating category. Bonds rated "Ba" are judged to have
speculative elements and bonds rated below "Ba" are speculative to a higher
degree.
Debt rated "AAA" by S&P has the highest rating assigned by it. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA" has a
strong capacity to pay interest and repay principal and differs from "AAA"
issues only in small degree. Debt rated "A" has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated "BB" and below is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
Debt rated "AAA", the highest rating by Fitch, is considered to be of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Debt rated "AA" is regarded as very high credit quality.
The obligor's ability to pay interest and repay principal is very strong. Debt
rated "A" is of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than debt with higher
ratings. Debt rated "BBB" is of satisfactory credit quality. The obligor's
ability to pay interest and repay principal is adequate, however a change in
economic conditions may adversely affect timely payment. Plus (+) and minus (-)
signs are used with a rating symbol (except "AAA") to indicate the relative
position within the category.
Debt rated "AAA", the highest rating by Duff is considered to be of the
highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt. Debt rated "AA" is regarded as high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. Debt rated "A" is
considered to have average but adequate protection factors. Bonds rated "BBB"
are considered to have below average protection factors but still sufficient for
prudent investment. Bonds rated "BB" and below are below investment grade and
possess fluctuating protection factors and risk.
/ASSET/WORD/PROS-895.IND
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