<PAGE>
As filed with the Securities and Exchange Commission on April 24, 1996
Registration No. 33-78944
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO.[ ]
POST-EFFECTIVE AMENDMENT NO. 2 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4
OCC ACCUMULATION TRUST
(Exact Name of Registrant as Specified in Charter)
ONE WORLD FINANCIAL CENTER, NEW YORK, NY 10281
(Address of Principal Executive Offices)
(212) 374-1600
(Registrant's Telephone Number)
Thomas E. Duggan, Esq.
Oppenheimer Capital
One World Financial Center
New York, NY 10281
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to [X] on May 1, 1996 pursuant to
paragraph (b) paragraph (b)
[ ] 60 days after filing pursuant to [ ] pursuant to paragraph (a)(1)
paragraph (a)(1)
[ ] 75 days after filing pursuant to [ ] pursuant to paragraph (a)(2)
paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the Investment
Company Act of 1940 and has filed its report pursuant to that Rule for the year
ended December 31, 1995 on February 23, 1996.
<PAGE>
CROSS REFERENCE SHEET
Form N-1A
Item
Part A Caption Prospectus
- ------ ------- ----------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Financial Highlights
Information
4. General Description of Registrant Investment Objectives and Policies;
Additional Information on
Investment Objectives and Policies;
Additional Information
5. Management of the Fund Management of the Fund; Additional
Information; Investment Techniques
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Determination of Net Asset Value;
Purchase of Shares; Dividends,
Distributions and Taxes; Additional
Information
7. Purchase of Securities Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
Part B Caption Statement of Additional Information
- ------ ------- -----------------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment of Assets; Investment
Restrictions
<PAGE>
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Trustees and Officers; Control
Holders of Securities Persons
16. Investment Advisory and Other Investment Management and Other
Services Services; Additional Information
17. Brokerage Allocation Investment Management and Other
Services
18. Capital Stock and Other Securities Additional Information
19. Purchase, Redemption and Pricing Determination of Net Asset Value
of Securities
20. Tax Status Investment of Assets; Dividends,
Distributions and Taxes; Additional
Information
21. Underwriters Additional Information
22. Calculations of Performance Data Portfolio Yield and Total Return
Information
23. Financial Statements Financial Statements
<PAGE>
OCC ACCUMULATION TRUST
One World Financial Center, New York, New York 10281
OCC ACCUMULATION TRUST (formerly known as 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 seven 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:
EQUITY PORTFOLIO: Long term capital appreciation through investment in a
diversified portfolio of equity securities selected on the basis of a value
oriented approach to investing.
SMALL CAP PORTFOLIO: Capital appreciation through investment in a diversified
portfolio of equity securities of companies with market capitalizations of under
$1 billion.
GLOBAL EQUITY PORTFOLIO: Long term capital appreciation through a global
investment strategy primarily involving equity securities.
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.
BOND PORTFOLIO: High current income through investment in a diversified
portfolio of investment grade fixed income obligations.
U.S. GOVERNMENT INCOME PORTFOLIO: High current income together with the
protection of capital through investment of securities issued or guaranteed by
the U.S. Government, its agencies and instrumentalities.
MONEY MARKET PORTFOLIO: Maximum current income consistent with stability of
principal and liquidity through investment in a portfolio of high quality money
market instruments. ALTHOUGH THE MONEY MARKET PORTFOLIO SEEKS TO MAINTAIN ITS
SHARE PRICE AT $1.00, AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NOT
GUARANTEED OR INSURED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL MAINTAIN A CONSTANT PRICE OF $1.00 PER SHARE.
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. Certain Portfolios may not be available for investment
with respect to certain Contracts offered by certain life insurance companies.
Please check with your insurance company for available Portfolios.
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 22.
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, 1996 (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 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.
OPCAP ADVISORS
Investment Manager
Prospectus dated May 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . .12
Equity Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Small Cap Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . .12
Global Equity Portfolio . . . . . . . . . . . . . . . . . . . . . . . .13
Bond Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
U.S. Government Income Portfolio. . . . . . . . . . . . . . . . . . . .14
Money Market Portfolio. . . . . . . . . . . . . . . . . . . . . . . . .14
Managed Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Additional Information on Investment Objectives and Policies . . . . . . . .15
Investment Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . .21
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . .23
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
State Law Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . .24
Calculation of Performance . . . . . . . . . . . . . . . . . . . . . . . . .25
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . .27
2
<PAGE>
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 seven series,
each of which is designated as a "Portfolio".
Together, the seven 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
five of the current seven 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
(other than the Money Market Portfolio) are 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 OpCap Advisors (formerly known as 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 March 31, 1996 and is a subsidiary of
Oppenheimer Capital, a registered investment adviser,
which had assets under management, including those of
OpCap Advisors, of approximately $39.9 billion at
March 31, 1996.
MANAGEMENT FEE The Manager receives a monthly fee from each Portfolio
at varying annual percentage rates of average daily net
assets, as follows: .80 percent on the first $400
million, .75 percent on the next $400 million and .70
percent thereafter of
3
<PAGE>
the average daily net assets for the Equity, Small Cap,
Managed and Global Equity Portfolios; .60 percent of
average daily net assets for the U.S. Government Income
Portfolio; .50 percent of average daily net assets for
the Bond Portfolio; and .40 percent of the average
daily net assets for the Money Market Portfolio (see
page 22).
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.
4
<PAGE>
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.
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 16, 1994*
DECEMBER 31, 1995 TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.12 $ 18.57
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.31 0.09
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 6.71 (0.54)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 7.02 (0.45)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
DIVIDENDS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.09) ------
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 25.05 $ 18.12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN0 38.9% (2.4%)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $9,035,982 $4,281,256
- --------------------------------------------------------------------------------
RATIO OF NET OPERATING EXPENSES TO
AVERAGE NET ASSETS(2) 0.72%(1) 0.72%(3)
- --------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS(2) 1.74%(1) 1.80%(3)
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER 31% 6%
- --------------------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995 WERE $6,417,381.
(2) DURING THE PERIODS PRESENTED ABOVE, THE MANAGER WAIVED A PORTION OR ALL OF
ITS FEES AND REIMBURSED THE PORTFOLIO FOR A PORTION OF ITS OPERATING
EXPENSES. IF SUCH WAIVERS AND REIMBURSEMENTS HAD NOT BEEN IN EFFECT FOR
THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD SEPTEMBER 16, 1994 TO
DECEMBER 31, 1994, THE RATIO OF NET OPERATING EXPENSES TO AVERAGE NET
ASSETS WOULD HAVE BEEN 1.26 PERCENT AND 2.09 PERCENT, RESPECTIVELY, AND THE
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.20%
AND 0.43 PERCENT, RESPECTIVELY.
(3) ANNUALIZED.
- -------------------------------------------------------------------------------
OAssumes reinvestment of all dividends and distributions.
5
<PAGE>
SMALL CAP PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 16, 1994*
DECEMBER 31, 1995 TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.38 $ 17.49
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.26 0.06
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 2.37 (0.17)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.63 (0.11)
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
DIVIDENDS TO SHAREHOLDERS FROM (0.05) ----
NET INVESTMENT INCOME
DISTRIBUTIONS TO SHAREHOLDERS FROM (0.05) ----
NET REALIZED CAPITAL GAINS
- --------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.10) ----
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.91 $ 17.38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN0 15.2% (0.6%)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $16,004,392 $9,210,443
- --------------------------------------------------------------------------------
RATIO OF NET OPERATING EXPENSES TO
AVERAGE NET ASSETS(2) 0.74%(1) 0.74%(3)
- --------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS(2) 1.75%(1) 1.22%(3)
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER 69% 32%
- --------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995 WERE $12,128,267.
(2) DURING THE PERIODS PRESENTED ABOVE, THE MANAGER WAIVED A PORTION OR ALL OF
ITS FEES AND REIMBURSED THE PORTFOLIO FOR A PORTION OF ITS OPERATING
EXPENSES. IF SUCH WAIVERS AND REIMBURSEMENTS HAD NOT BEEN IN EFFECT FOR
THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE PERIOD SEPTEMBER 16, 1994 TO
DECEMBER 31, 1994, THE RATIO OF NET OPERATING EXPENSES TO AVERAGE NET
ASSETS WOULD HAVE BEEN 0.99 PERCENT AND 1.64 PERCENT, RESPECTIVELY, AND THE
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.50
PERCENT AND 0.32 PERCENT, RESPECTIVELY.
(3) ANNUALIZED.
- --------------------------------------------------------------------------------
OAssumes reinvestment of all dividends and distributions.
6
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 16, 1994*
DECEMBER 31, 1995 TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.20 $ 9.40
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.58 0.17
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 0.79 (0.20)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.37 (0.03)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
DIVIDENDS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.58) (0.17)
- --------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.58) (0.17)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN0 15.2% (0.3%)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $4,284,455 $3,655,354
- --------------------------------------------------------------------------------
RATIO OF NET OPERATING EXPENSES TO
AVERAGE NET ASSETS(2) 1.00%(1) 1.00%(3)
- --------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS(2) 5.95%(1) 6.26%(3)
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER 134% 7%
- --------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995 WERE $4,103,422.
(2) DURING THE PERIODS PRESENTED ABOVE, THE MANAGER WAIVED A PORTION OR ALL OF
ITS FEES AND REIMBURSED THE PORTFOLIO FOR A PORTION OF ITS OPERATING
EXPENSES. IF SUCH WAIVERS AND REIMBURSEMENTS HAD NOT BEEN IN EFFECT FOR
THE YEAR ENDED DECEMBER 31, 1995, AND FOR THE PERIOD SEPTEMBER 16, 1994 TO
DECEMBER 31, 1994, THE RATIO OF NET OPERATING EXPENSES TO AVERAGE NET
ASSETS WOULD HAVE BEEN 1.52 PERCENT AND 2.05 PERCENT, RESPECTIVELY, AND THE
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 5.43
PERCENT AND 5.21 PERCENT, RESPECTIVELY.
(3) ANNUALIZED.
- --------------------------------------------------------------------------------
OAssumes reinvestment of all dividends and distributions.
7
<PAGE>
MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 16, 1994*
DECEMBER 31, 1995 TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 20.83 $ 21.80
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.42 0.14
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 9.02 (1.11)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 9.44 (0.97)
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
DIVIDENDS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.13) ----
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 30.14 $ 20.83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN0 45.6% (4.4%)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $99,188,147 $54,943,371
- --------------------------------------------------------------------------------
RATIO OF NET OPERATING EXPENSES TO
AVERAGE NET ASSETS(2) 0.66%(1) 0.66%(3)
- --------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS(2) 1.85%(1) 2.34%(3)
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER 22% 8%
- --------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995 WERE $74,612,954.
(2) DURING THE PERIODS PRESENTED ABOVE, THE MANAGER WAIVED A PORTION OF ITS
FEES. IF SUCH WAIVERS HAD NOT BEEN IN EFFECT FOR THE YEAR ENDED DECEMBER
31, 1995, AND FOR THE PERIOD SEPTEMBER 16, 1994 TO DECEMBER 31, 1994, THE
RATIO OF NET OPERATING EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN 0.74
PERCENT AND 0.96 PERCENT, RESPECTIVELY, AND THE RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 1.77 PERCENT AND 2.04 PERCENT,
RESPECTIVELY.
(3) ANNUALIZED.
- --------------------------------------------------------------------------------
OAssumes reinvestment of all dividends and distributions.
8
<PAGE>
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 16, 1994*
DECEMBER 31, 1995 TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.05 0.01
NET REALIZED GAIN
ON INVESTMENTS 0.00(1) ----
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.01
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS:
DIVIDENDS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME (0.05) (0.01)
- --------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.05) (0.01)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN0 5.1% 4.2% (3)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $4,356,084 $3,519,526
- --------------------------------------------------------------------------------
RATIO OF NET OPERATING EXPENSES TO
AVERAGE NET ASSETS(2) 1.00%(4) 1.00%(3)
- --------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS(2) 4.94%(4) 4.13%(3)
- --------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(1) LESS THAN $.005 PER SHARE.
(2) DURING THE PERIODS PRESENTED ABOVE, THE MANAGER WAIVED A PORTION OR ALL OF
ITS FEES AND REIMBURSED THE PORTFOLIO FOR A PORTION OF ITS OPERATING
EXPENSES. IF SUCH WAIVERS AND REIMBURSEMENTS HAD NOT BEEN IN EFFECT, FOR
THE YEAR ENDED DECEMBER 31, 1995, AND FOR THE PERIOD SEPTEMBER 16, 1994 TO
DECEMBER 31, 1994, THE RATIO OF NET OPERATING EXPENSES TO AVERAGE NET
ASSETS WOULD HAVE BEEN 1.14 PERCENT AND 2.03 PERCENT, RESPECTIVELY, AND THE
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN 4.80
PERCENT AND 3.10 PERCENT, RESPECTIVELY.
(3) ANNUALIZED.
(4) AVERAGE NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995 WERE $4,119,173.
- --------------------------------------------------------------------------------
OAssumes reinvestment of all dividends and distributions.
9
<PAGE>
U.S. GOVERNMENT INCOME PORTFOLIO
<TABLE>
<CAPTION>
JANUARY 3, 1995*
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME 0.60
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 0.68
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.28
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
DIVIDENDS TO SHAREHOLDERS FROM (0.60)
NET INVESTMENT INCOME
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET REALIZED CAPITAL GAINS (0.06)
- --------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.66)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.62
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN 13.1%(0)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $1,442,458
- --------------------------------------------------------------------------------
RATIO OF NET OPERATING EXPENSES TO
AVERAGE NET ASSETS 0.75%(1,2,3)
- --------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.75%(1,2,3)
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER 65%
- --------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1995 WERE $816,660.
(2) DURING THE PERIOD PRESENTED ABOVE, THE MANAGER WAIVED 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 4.73 PERCENT AND 1.77 PERCENT,
RESPECTIVELY.
(3) ANNUALIZED.
- --------------------------------------------------------------------------------
OAssumes reinvestment of all dividends and distributions.
10
<PAGE>
GLOBAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
MARCH 1, 1995*
TO DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 0.05
NET REALIZED GAIN AND UNREALIZED APPRECIATION
ON INVESTMENTS AND TRANSLATION OF OTHER ASSETS 1.83
AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.88
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
DIVIDENDS TO SHAREHOLDERS FROM (0.03)
NET INVESTMENT INCOME
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET REALIZED CAPITAL GAINS (0.24)
- --------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (0.27)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN 18.9%(0)
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $2,891,321
- --------------------------------------------------------------------------------
RATIO OF NET OPERATING EXPENSES TO
AVERAGE NET ASSETS 1.25%(1,2,3)
- --------------------------------------------------------------------------------
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.02%(1,2,3)
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER 67%
- --------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS.
(1) AVERAGE NET ASSETS FOR THE PERIOD MARCH 1, 1995 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31, 1995 WERE $1,434,862.
(2) DURING THE PERIOD PRESENTED ABOVE, THE MANAGER WAIVED 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
LOSS TO AVERAGE NET ASSETS WOULD HAVE BEEN 3.94 PERCENT AND (1.67
PERCENT), RESPECTIVELY.
(3) ANNUALIZED.
- --------------------------------------------------------------------------------
OAssumes reinvestment of all dividends and distributions.
11
<PAGE>
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. For Portfolios other than
the Money Market Portfolio, 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. Fixed income investment policy is overseen by Robert J. Bluestone,
Managing Director and Director of Fixed Income Management of Oppenheimer
Capital. Mr. Bluestone has been with the firm since 1986.
EQUITY PORTFOLIO
The investment objective of the Equity Portfolio is long term capital
appreciation through investment in securities (primarily equity securities) 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. It is the
Manager's intention to invest in securities of companies which in the Manager's
opinion possess one or more of the following characteristics: undervalued
assets, valuable consumer or commercial franchises, securities valuation below
peer companies, substantial and growing cash flow and/or a favorable price to
book value relationship. Investment policies aimed at achieving the Portfolio's
objective are set in a flexible framework of securities selection which
primarily includes equity securities, such as common stocks, preferred stocks,
convertible securities, rights and warrants in proportions which vary from time
to time. Under normal circumstances at least 65 percent of the Portfolio's
assets will be invested in equity securities. The Portfolio will invest
primarily in stocks listed on the New York Stock Exchange. In addition, it may
also purchase securities listed on other domestic securities exchanges,
securities traded in the domestic over-the-counter market and foreign securities
provided that they are listed on a domestic or foreign securities exchange or
represented by American depository receipts listed on a domestic securities
exchange or traded in domestic or foreign over-the-counter markets. Investments
of the Equity Portfolio are managed by Eileen Rominger, Managing Director of
Oppenheimer Capital. Ms. Rominger has been an analyst and portfolio manager at
Oppenheimer Capital since 1981.
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 percent 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
12
<PAGE>
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 Louis Goldstein, Vice President of Oppenheimer Capital and Timothy
McCormack, Vice President of Oppenheimer Capital. 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. Mr. McCormack became a
portfolio manager of the Portfolio in May 1996. Mr. McCormack joined
Oppenheimer Capital in 1994. From March 1993 to July 1994 Mr. McCormack was a
security analyst at U.S. Trust Company and prior to that Mr. McCormack was
employed at Gabelli and Company.
GLOBAL EQUITY PORTFOLIO
The investment objective of the Global Equity Portfolio is to seek long
term capital appreciation through pursuit of a global investment strategy
primarily involving equity securities. The Portfolio may invest anywhere in the
world with no requirement that any specific percentage of its assets be
committed to any given country. Under normal circumstances, at least 65 percent
of the Portfolio's total assets will be invested in equity securities in at
least three different countries, one of which may be the United States.
Opportunities for capital appreciation may also be presented by debt securities.
The Portfolio may invest up to 35 percent of its total assets in debt
obligations with remaining maturities of one year or more of U.S. or foreign
corporate, governmental or bank issuers. It is the present intention of the
Portfolio, although not a fundamental policy, not to invest more than 5 percent
of its total assets in debt securities rated below investment-grade. Although
there is no minimum rating for this category of debt investments of the
Portfolio, the Portfolio does not intend to invest in bonds which are in
default. Domestic investments of this Portfolio are managed by Richard J.
Glasebrook II, Managing Director of Oppenheimer Capital. Previously, he was a
Partner with Delafield Asset Management where he served as a portfolio manager
and analyst. The Portfolio's investments in foreign securities are managed by
Pierre Daviron, President and Chief Investment Officer of Oppenheimer Capital
International, a division of Oppenheimer Capital created in 1993. Previously,
he was Chairman and Chief Executive Officer at Indosuez Gartmore Asset
Management, a division of Banque Indosuez, Paris, France. Prior thereto he was
a Managing Director in Mergers and Acquisitions at J.P. Morgan.
BOND PORTFOLIO
The investment objective of the Bond Portfolio is to seek a high level of
current income consistent with moderate risk of capital and maintenance of
liquidity. The Portfolio invests primarily in U.S. Government and corporate
bonds which are rated Baa3 or better by Moody's Investor Services, Inc.
("Moody's") or BBB- or better by Standard & Poor's Corporation ("S&P"), Fitch
Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff") or in unrated
fixed income obligations which in the judgment of the Manager are of at least
equal quality. (See the Appendix for a description of those ratings and of the
speculative characteristics of bonds in the lowest permitted rating category.)
These securities are generally considered to be of "investment grade" and under
normal circumstances will constitute at least 65 percent of the assets of the
Portfolio. The Portfolio will seek current income greater than that generally
available from a portfolio of short-term obligations such as the Money Market
Portfolio and will present moderate risk of capital inherent in a portfolio of
longer-term debt obligations. The dynamic portfolio management process will
involve such factors as sector allocation, yield spreads between different
investment grades, issuer quality ratings, yield curve analysis and the
liquidity needs of the Portfolio. It is not anticipated that the Portfolio's
investments will have any particular maturity. The Portfolio may also invest in
mortgage-backed securities, issued or guaranteed by the United States
government, its agencies or instrumentalities, income producing preferred stocks
and convertible securities within the above limitations. The Bond Portfolio is
managed by Vikki Hanges, Vice President of Oppenheimer Capital. Ms. Hanges has
been on the fixed income trading desk at Oppenheimer Capital since 1982.
13
<PAGE>
U.S. GOVERNMENT INCOME PORTFOLIO
The investment objective of the U.S. Government Income Portfolio is to seek
a high level of current income together with protection of capital by investing
exclusively in debt obligations, including mortgage-backed securities, issued or
guaranteed by the United States government, its agencies or instrumentalities
("U.S. government securities"). Among the securities the Portfolio may purchase
are mortgage-backed securities guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan National Mortgage Corporation
("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae").
The Portfolio normally intends to maintain at least 65 percent of its assets in
U.S. Government Securities. The average maturity of the Portfolio's investments
will vary based on market conditions. It is estimated that the average dollar
weighted maturity of the Portfolio will be between three and ten years. The
U.S. Government Income Portfolio is managed by Vikki Hanges, Vice President of
Oppenheimer Capital.
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to seek maximum
current income consistent with stability of principal and liquidity. The
Portfolio may invest only in money market instruments and corporate obligations
denominated in U.S. dollars which have a maturity at the time of investment of
one year or less and repurchase and reverse repurchase agreements which extend
for no more than seven days. The Portfolio does not presently intend to enter
into reverse repurchase agreements. Money market instruments include U.S.
government securities, short-term bank obligations such as certificates of
deposit, bankers' acceptances and letters of credit and corporate commercial
paper. All investments will be of high quality as determined by one or more
nationally-recognized statistical rating organizations or, in the case of non-
rated securities, of comparable quality in accordance with standards and
procedures established by the Board of Trustees. It is expected that all or
almost all of the Portfolio's income will come from interest and that little or
no income will be the result of capital gains. (See "Additional Information on
Investment Objectives and Policies" for a more complete description of the
specific securities.)
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 the same as those in which the Equity
Portfolio invests, 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 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. Although there is neither a minimum nor maximum percentage of
the Portfolio's assets that may, at any given time, be invested in any of the
types of investments identified above, it is anticipated that most of the time
the majority of the Portfolio's assets will be invested in common stocks. The
investments of the Managed Portfolio are managed by Richard J. Glasebrook II,
Managing Director of Oppenheimer Capital.
14
<PAGE>
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES AND POLICIES
For the Equity, the Small Cap and the Global Equity Portfolios, at times
when the investment climate is viewed as favorable, common stocks will be
heavily emphasized. Under normal circumstances, at least 65 percent of each
Portfolio's assets will be invested in common stocks or securities convertible
into common stocks.
Under normal conditions, no less than 65 percent of the assets of the Bond
Portfolio and U.S. Government Income Portfolio will be invested in the debt
securities identified under "Bond Portfolio" and "U.S. Government Income
Portfolio", respectively.
In the event that future economic or financial conditions adversely affect
equity securities, or stocks are considered overvalued, each of the Equity,
Small Cap and Global Equity Portfolios may invest a substantial portion of its
assets in debt securities, with an emphasis on money market instruments or cash
and cash equivalents. The Bond and U.S. Government Income Portfolios may
increase the proportion of their assets which are invested in money market
instruments or cash in the event that the Manager deems such investments
advisable to preserve capital.
Each Portfolio (other than the Money Market 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 percent
of the value of its total assets is represented by any one investment, no more
than 70 percent is represented by any two investments, no more than 80 percent
is represented by any three investments, and no more than 90 percent 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,
and in particular the U.S. Government Income and Bond Portfolios can invest in
any single issuer, including direct obligations of the U.S. Treasury, to 55
percent of the Portfolio's total assets at the end of any calendar quarter.
SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO INVESTS
(1) Securities issued or guaranteed by the U.S. Government.
(2) Obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government. Some of such obligations may be supported by the
full faith and credit of the U.S. Treasury while others may be
supported only by the credit of the particular Federal agency or
instrumentality issuing the obligation.
(3) Certificates of deposit, bankers' acceptances and letters of credit of
prime quality of U.S. banks and savings and loan associations and
their foreign branches (Eurodollars), foreign banks, and U.S. branches
of foreign banks (Yankees) having total assets in excess of $500
million.
(4) Certificates of deposit of prime quality fully insured as to principal
by the Federal Deposit Insurance Corp.
(5) Commercial paper of prime quality.
15
<PAGE>
(6) Corporate notes, bonds and debentures that have a remaining maturity
of 365 calendar days or less if a class of short term debt comparable
with the security issued by the same issuer is of prime quality.
(7) Repurchase agreements involving securities listed above, which are
described on page 19 of this Prospectus.
The Portfolio operates under a Rule (the "Rule") of the Securities and
Exchange Commission ("SEC") which, if certain conditions are met, allows the
Portfolio to use the amortized cost method of valuing its portfolio securities
to determine its net asset value per share. As long as the Portfolio continues
to use the Rule, it must abide by certain conditions. Some of those conditions
relate to portfolio management: (i) it must maintain a dollar-weighted average
portfolio maturity not in excess of 90 days; (ii) it must limit its investments,
including repurchase agreements, to those instruments which are denominated in
U.S. dollars, and which are of "prime quality" as determined by any major rating
service or in the case of any instrument that is not rated, of comparable
quality as determined by the Board of Trustees in accordance with procedures
adopted pursuant to the Rule; and (iii) it may not purchase any instruments with
a remaining maturity of more than thirteen months. For the purposes of this
prospectus, prime quality shall mean the security (or the issuer for a
comparable security) is rated in one of the two highest rating categories for
short-term debt obligations by any two of Moody's, S&P, Fitch, Duff or Thomson's
BankWatch, Inc., or by one of such rating agencies if only one rating agency has
issued a rating with respect to the security, or, if not rated, judged by the
Manager pursuant to criteria adopted by the Fund's Board of Trustees to be of
comparable quality. See the Appendix for a description of ratings. In
addition, the Rule requires that investments by the Money Market Portfolio which
do not satisfy one of the following requirements are limited in the aggregate to
5 percent of the Portfolio's assets in regard to issues and 1 percent of assets
(or $1 million if greater) in regard to any one issuer of such issues: (i)
issues rated in the highest category (or the issuer is so rated for a comparable
security) by at least two of such rating agencies; or (ii) if rated by only one
agency, rated in the highest category; or (iii) if unrated determined by the
Board of Trustees to be of quality comparable to issues which qualify under (i)
or (ii). For further information, see "Determination of Net Asset Value" in the
Additional Statement.
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.
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 "Financial Highlights" table above shows the Portfolios' portfolio
turnover rates. The portfolio turnover rates of the Portfolios cannot be
accurately predicted. Nevertheless, it is anticipated that the Equity, Managed
and Global Equity Portfolios will have an annual turnover rate (excluding
turnover of securities having a maturity of one year or less) of 100 percent or
less and that the U.S. Government Income Portfolio will have an annual turnover
rate of 200 percent or less. It is anticipated that the Small Cap and the Bond
Portfolios will have an annual turnover rate in excess of 100 percent. A 100
percent 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 percent can be expected to result in
correspondingly higher transaction costs. Because the Money Market Portfolio
will consist of securities with a maturity of one year or less, the turnover
rate
16
<PAGE>
as defined is not meaningful. Because of the short-term nature of its
investments, it is anticipated that the number of purchases and sales or
maturities of such securities will be substantial.
RISK ASPECTS OF THE INDIVIDUAL PORTFOLIOS
BOND AND MONEY MARKET PORTFOLIOS. An investment in the Bond Portfolio will
generally entail greater market (interest rate) risk than an investment in the
Money Market Portfolio. The debt securities in which the Bond Portfolio
invests, having longer maturities, are generally more sensitive to interest rate
changes than the short term securities in which the Money Market Portfolio
invests. The Manager will undertake a more thorough credit analysis, both at
the time of purchase and while held in the Bond Portfolio, in connection with
lower-rated debt than of securities with higher ratings. As the Bond Portfolio
may invest in mortgage-backed securities, such 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
Bond Portfolio may have to reinvest that portion of its assets invested in such
securities more frequently when interest rates are low than when interest rates
are high. In addition, the Money Market Portfolio conforms to requirements
which permit it to maintain a constant net asset value of $1.00 per share
through use of the amortized cost method of valuation. The Money Market
Portfolio may invest in U.S. dollar denominated securities of foreign branches
of U.S. banks and U.S. branches of foreign banks. These investments involve
risks that are different from investments in securities of U.S. banks. While
there is no risk from exchange rate fluctuations, there may be risk of future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions which might affect payment of principal or interest.
Additionally, there may be less public information available about foreign banks
and their branches.
MANAGED AND U.S. GOVERNMENT INCOME PORTFOLIOS. 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. The
U.S. Government Income Portfolio is expected to have greater interest rate risk
due to the Portfolio's primary investments in mortgage-backed securities. As
the Managed Portfolio may and the U.S. Government Income Fund will 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 these Portfolios 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 Global Equity, Equity, 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. It
will be the general practice of the Global Equity Portfolio to invest in foreign
equity securities. 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
17
<PAGE>
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
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.
It is expected that the Global Equity Portfolio will invest in American
Depository Receipts ("ADRs") or European Depository Receipts ("EDRs") which are
sponsored by persons other than the underlying issuers. ADRs are U.S. dollar-
denominated securities designed for use in the U.S. securities markets. They
represent and may be converted into the underlying foreign security. EDRs are
designed for use in the European securities market. Issuers of the stock of
such unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of such ADRs.
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 Equity, Small Cap, Bond, Global Equity 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 percent 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
Global Equity, Small Cap and Equity Portfolios intend to engage in futures
contracts and options on futures contracts for bona fide hedging or other non-
speculative purposes. The Global Equity and Small Cap Portfolios may also
engage in options on stock
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indices. The Small Cap and Equity Portfolios may write covered call options on
individual securities. These Portfolios 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, other than the Money Market
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"). The
Money Market Portfolio invests all of its assets in these types of securities.
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.
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
percent of the value of the total assets of the Equity, Small Cap, Managed, Bond
and Money Market Portfolios and 33 1/3 percent of the value of the total assets
of the U.S. Government Income and Global Equity 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.
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OPTIONS AND FUTURES. To the extent permitted by applicable state law, the
Global Equity, Small Cap and Equity Portfolios may engage in options and futures
transactions. The Global Equity Portfolio may purchase and sell financial
futures contracts (including bond futures contracts and index futures
contracts), forward foreign currency contracts, foreign currency futures
contracts, options on futures contracts and stock indices and options on
currencies for bona fide hedging or other non-speculative purposes. The Small
Cap and Equity Portfolios intend 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, Equity 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 any of such Portfolios anticipate 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 Portfolios 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 Portfolios' securities change in
value in correlation with the underlying security or index, the sale of futures
contracts would substantially reduce the risk to the Portfolios of a market
decline and by so doing, provide an alternative to the liquidation of securities
positions in the Portfolios with attendant transaction costs. So long as the
Commodities Futures Trading Commission rules so require, none of the Portfolios
will 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 percent of the liquidation value of such
Portfolio's assets. When writing put options, the Fund, on behalf of the
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 the market prices of the underlying securities. The
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 a 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 U.S. Government Income, Managed and Bond
Portfolios 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.
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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 percent. 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 U.S.
Government Income, Managed and Bond Portfolios 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:
1. Invest more than 5 percent of the value of its total assets in the
securities of any one issuer, or purchase more than 10 percent of the voting
securities, or more than 10 percent 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 percent 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 percent 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 percent 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
percent 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 percent 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. (Money
Market Portfolio may not invest more than 10 percent of its assets in illiquid
securities.) Other investment restrictions are described in the Additional
Statement.
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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.
Under the Advisory Agreement the annual management fee is computed at an
annual rate of .80 percent on the first $400 million, .75 percent on the next
$400 million and .70 percent thereafter of the average daily net assets for the
Equity, Global Equity, Managed and Small Cap Portfolios, .60 percent of the
average daily net assets of the U.S. Government Income Portfolio, .50 percent of
the average daily net assets of the Bond Portfolio and .40 percent of the
average daily net assets of the Money Market Portfolio. Through at least April
30, 1997, the expenses of the Equity, Small Cap, Managed, Bond, Money Market and
U.S. Government Income Portfolios will be voluntarily limited by the Manager so
that annualized operating fund expenses do not exceed 1.00 percent of their
respective average daily net assets.
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 percent of the first $30 million of assets, 2
percent of the next $70 million of assets and 1 1/2 percent of the remaining
average net assets) then in effect under any state securities law or regulation.
The Manager will also reimburse the Fund such additional amounts such that the
total operating expenses of each of the Portfolios of the Fund do not exceed
1.25 percent of their respective average daily net assets.
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
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holding company, holds a 33 percent 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 percent interest. The
Manager and its affiliates have operated as investment advisers to both mutual
funds and other clients since l968, and had approximately $39.9 billion under
management as of March 31, 1996. 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, except for
the Money Market Portfolio, 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 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. The Money Market Portfolio uses the amortized cost method
of valuation as described in "Additional Information on Investment Objectives
and Policies - Securities in which the Money Market Portfolio Invests" in this
Prospectus and "Determination of Net Asset Value" in the Additional Statement
and generally will have a constant net asset value of $1.00 per share except
under extraordinary circumstances.
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. OCC
Distributors (formerly known as 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.
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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, other than
shares of the Money Market Portfolio, 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.
MONEY MARKET PORTFOLIO. Dividends from net income on the Money Market
Portfolio will be declared on each day the NYSE is open for business to
shareholders of record as of the close of business the preceding business day.
Net income, for dividend purposes, includes accrued interest and accretion of
any discount, less the amortization of market premium and the estimated expenses
of the Money Market Portfolio. The amount of dividend may fluctuate from day to
day and may be omitted on some days. Daily dividends accrued since the prior
dividend payment will be paid monthly. Any net realized long-term capital gains
will be declared and paid at least once per calendar year; net short-term gains
may be paid more frequently, with the distribution of dividends from net
investment income.
U.S. GOVERNMENT INCOME AND BOND PORTFOLIOS. Dividends from net investment
income on the U.S. Government Income and Bond Portfolios will be declared on
each day the NYSE is open for business to shareholders of record as of the
close of business the preceding business day. These Portfolios will pay monthly
dividends from net investment income. Distributions of realized net short-term
capital gains, if any, and realized long-term capital gains will be declared and
paid at least once per calendar year.
EQUITY, SMALL CAP, GLOBAL EQUITY AND MANAGED PORTFOLIOS. Dividends from
net investment income, if any, on the Small Cap, Equity, Global Equity 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.
TAXES. 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 Revenue
Code, it is not expected that any Portfolio of the Fund will be required to pay
any federal income
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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.
The Bond Portfolio inadvertently failed to comply with the investment
diversification requirements of, and regulations under IRC 817(h) since the
commencement of operations of the Portfolio on September 16, 1994 and for the
quarter periods ending September 30, 1994 and December 31, 1994. The Bond
Portfolio is currently in compliance with IRC 817(h). The Manager has put into
place revised procedures to assure compliance by the Bond Portfolio with IRC
817(h) in the future. The failure of the Bond Portfolio to comply with IRC
817(h) affects The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America (collectively "MONY") ValueMaster variable annuity
contractowners whose purchase payments were allocated to the Bond Portfolio
during the period of non-compliance. MONY has filed a request with the Internal
Revenue Service for a private letter ruling that the inadvertent non-
diversification will not cause contracts of those ValueMaster contractowners who
had purchase payments allocated to the Bond Portfolio during the period of non-
compliance with IRC 817(h) to lose income tax deferral on any increase in cash
values of those contracts during the period of non-compliance or otherwise fail
to be considered as an annuity during such period and to pay any required
penalties to the Internal Revenue Service. Further information concerning the
effects of non-compliance of the Bond Portfolio with IRC 817(h) can be found in
the ValueMaster Prospectus for the MONY 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.
MONEY MARKET PORTFOLIO. The performance data for this Portfolio will
reflect the "yield" and "effective yield". The "yield" of the Portfolio refers
to the income generated by an investment in the Portfolio over the seven day
period stated in the advertisement. This income is "annualized", that is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in the Portfolio is assumed to
be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
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YIELD FOR 7-DAY PERIOD ENDED DECEMBER 31, 1995 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD1
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.77 percent 4.88 percent
1 Reflects waiver of advisory fees by the Manager. Had the waiver not been in
effect during the period, the yield and effective yield would have been 4.35
percent and 4.44 percent, respectively, for the Money Market Portfolio.
PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. 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.
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1995 FOR
BOND PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD1
BOND PORTFOLIO 5.18 PERCENT
1 Reflects waiver of advisory fees and reimbursement of other expenses by the
Manager. Had the waiver and reimbursement not been in effect during the period,
the yield would have been 4.56 percent for the Bond Portfolio.
AVERAGE ANNUAL TOTAL RETURN OF BOND, EQUITY, MANAGED AND SMALL CAP PORTFOLIOS
OF OCC ACCUMULATION TRUST1,2
Portfolio For the one year For the five year For the period from
- --------- period ended period ended inception to
December 31, 1995 December 31, 1995 December 31, 1995
----------------- ----------------- -------------------
Bond 15.23% 8.08% 7.88%
Equity 38.85% 19.17% 15.64%
Managed 45.55% 23.34% 19.74%
Small Cap 15.23% 19.65% 14.15%
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 Equity, Small Cap and Managed Portfolios
immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap, Managed, and Bond Portfolios, $3,764,598, $8,129,274,
$51,345,102, and $3,756,161 respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap, Managed and Bond Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
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2 Reflects waivers of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager. Without
such waivers and reimbursements, 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.
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 percent 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.
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<PAGE>
MAJORITY SHAREHOLDER. As of April 2, 1996, as a result of Connecticut
General Life Insurance Company's beneficial ownership in excess of 25 percent of
the shares of the Bond Portfolio, Connecticut General Life Insurance Company may
be deemed to control the Bond Portfolio until such time as it owns less than 25
percent of the outstanding shares of the Bond Portfolio.
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, dividends, account statements and management and investment
policies of the Fund 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.
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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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<PAGE>
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.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position within the category.
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. Plus (+) and minus (-) signs
are used with a rating symbol to indicate the relative position within the
category.
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STATEMENT OF ADDITIONAL INFORMATION
OCC ACCUMULATION TRUST
One World Financial Center
New York, NY 10281
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. Investors should understand that this Additional Statement
should be read in conjunction with the Prospectus dated May 1, 1996 (the
"Prospectus") of OCC Accumulation Trust (the "Fund"). Contractowners can obtain
copies of the Fund Prospectus by written request to the life insurance company
who issued the Contract at the address delineated in the Variable Account
Prospectus or by calling the life insurance company who issued the Contract at
the telephone number listed in the Variable Account Prospectus.
THE DATE OF THIS ADDITIONAL STATEMENT IS MAY 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
----
Investment of Assets . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . .17
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . . . .18
Control Persons. . . . . . . . . . . . . . . . . . . . . . . . . . .23
Investment Management and Other Services . . . . . . . . . . . . . .25
Determination of Net Asset Value . . . . . . . . . . . . . . . . . .29
Dividends, Distribution and Taxes. . . . . . . . . . . . . . . . . .31
Portfolio Yield and Total Return Information . . . . . . . . . . . .31
Additional Information . . . . . . . . . . . . . . . . . . . . . ...35
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . B-1
2
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INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR
INSTRUMENTALITIES. Some obligations issued or guaranteed by U.S. government
agencies or instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage
obligation may or may not develop and thus, there can be no guarantee of
liquidity of an investment in such obligations. The Money Market Portfolio will
not invest more than 5% of its total assets in collateralized mortgage
obligations. Investments will only be made in collateralized mortgage
obligations which are of high quality, as determined by the Board of Trustees.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus (10% limit on illiquid investments for
Money Market Portfolio)..
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from
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<PAGE>
whom these notes will be purchased; however, in connection with such purchase
and on an ongoing basis, OpCap Advisors (the "Manager") will consider the
earning power, cash flow and other liquidity ratios of the issuer, and its
ability to pay principal and interest on demand, including a situation in which
all holders of such notes made demand simultaneously. The Portfolios will not
invest more than 5% of their total assets in variable rate notes. Variable rate
notes are subject to the Portfolios' investment restrictions on illiquid
securities unless such notes can be put back to the issuer on demand within
seven days.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. The
Portfolio may, within the limits set forth in the Prospectus, purchase bank
obligations which are fully insured as to principal by the FDIC. Currently, to
remain fully insured as to principal, these investments must be limited to
$100,000 per bank; if the principal amount and accrued interest together exceed
$100,000, the excess principal amount and accrued interest will not be insured.
Insured bank obligations may have limited marketability. Unless the Board of
Trustees determines that a readily available market exists for such obligations,
a Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus for each Portfolio (10% limit for
illiquid investments for Money Market Portfolio) unless such obligations are
payable at principal amount plus accrued interest on demand or within seven days
after demand.
LOWER RATED BONDS. Each Portfolio except for the Money Market Portfolio
may invest up to 5% of its assets in bonds rated below Baa3 by Moody's Investors
Service, Inc. ("Moody's") or BBB- by Standard & Poor's Corporation ("S&P"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff"). These
securities are commonly known as "junk bonds." Securities rated less than Baa
by Moody's or BBB- by S&P are classified as non-investment grade securities and
are considered speculative by those rating agencies. It is the Fund's policy
not to rely exclusively on ratings issued by credit rating agencies but to
supplement such ratings with the Manager's own independent and ongoing review of
credit quality. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield securities market in the 1980s
had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized
that an economic downturn or increase in interest rates is likely to have a
negative effect on (i) the high yield bond market, (ii) the value of high yield
securities and (iii) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. The market for junk bonds may be less
liquid than the market for investment grade bonds. In periods of reduced market
liquidity, junk bond prices may become more volatile and may experience sudden
and substantial price declines. Also, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Under such conditions, a
Portfolio may find it difficult to value its junk bonds accurately. Under such
conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily on
the judgment of the Fund's Board of Trustees. Prices for junk bonds also may be
affected by legislative and regulatory developments. For example, new federal
rules require that savings and loans gradually reduce their holdings of high-
yield securities. Also, from time to time, Congress has considered legislation
to restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. Such legislation, if enacted, may depress the prices of outstanding
junk bonds.
4
<PAGE>
DOLLAR ROLLS. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll
files for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
HEDGING. As stated in the Prospectus, the Global Equity, Small Cap and
Equity Portfolios may engage in options and futures. Information about the
options and futures transactions these Portfolios may enter into is set forth
below.
FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if a portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified debt
security, in most cases the obligation is fulfilled by closing out the position.
All futures transactions are effected through a clearing house associated with
the exchange on which the contracts are traded. The Global Equity Portfolio may
purchase and sell futures contracts that are currently traded, or may in the
future be traded, on U.S. and foreign commodity exchanges on common stocks, such
underlying fixed-income securities as U.S. Treasury bonds, notes, and bills
and/or any foreign government fixed-income security ("interest rate" futures),
on various currencies ("currency" futures) and on such indices of U.S. or
foreign equity and fixed-income securities as may exist or come into being, such
as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity Index
("index" futures). At present, no Portfolio intends to enter into financial
futures and options on such futures if after any such purchase,
5
<PAGE>
the sum of initial margin deposits on futures and premiums paid on futures
options would exceed 5% of the Portfolio's total assets. This limitation is not
a fundamental policy.
INFORMATION ON PUTS AND CALLS. The Small Cap and Equity Portfolios may
write calls on individual securities. The Global Equity Portfolio is authorized
to write covered put and call options and purchase put and call options on the
securities in which it may invest. When a portfolio writes a call, it receives
a premium and agrees to sell the callable securities to a purchaser of a
corresponding call during the call period (usually not more than 9 months) at a
fixed exercise price (which may differ from the market price of the underlying
securities) regardless of market price changes during the call period. If the
call is exercised, the portfolio forgoes any possible profit from an increase in
market price over the exercise price. A portfolio may, in the case of listed
options, purchase calls in "closing purchase transactions" to terminate a call
obligation. A profit or loss will be realized, depending upon whether the net of
the amount of option transaction costs and the premium received on the call
written is more or less than the price of the call subsequently purchased. A
profit may be realized if the call lapses unexercised, because the portfolio
retains the underlying security and the premium received. Sixty percent of any
such profits are considered long-term gains and forty percent are considered
short-term gains for tax purposes. If, due to a lack of a market, a portfolio
could not effect a closing purchase transaction, it would have to hold the
callable securities until the call lapsed or was exercised. The Fund's
Custodian, or a securities depository acting for the Custodian, will act as the
portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC") in connection with listed calls, as to the securities on
which the portfolio has written calls, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC will
release the securities on the expiration of the calls or upon the portfolio's
entering into a closing purchase transaction.
When a portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the portfolio will lose its
premium payment and the right to purchase the underlying investment.
With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If a transacting
dealer fails to make delivery on the securities underlying an option it has
written, in accordance with the terms of that option as written, a portfolio
could lose the premium paid for the option as well as any anticipated benefit of
the transaction. The Portfolios will engage in OTC option transactions only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. In the event that any OTC option transaction is not
subject to a forward price at which the portfolio has the absolute right to
repurchase the OTC option which it has sold, the value of the OTC option
purchased and of the portfolio assets used to "cover" the OTC option will be
considered "illiquid securities" and will be subject to the 15% limit on
illiquid securities. The "formula" on which the forward price will be based may
vary among contracts with different primary dealers, but it will be based on a
multiple of the premium received by the portfolio for
6
<PAGE>
writing the option plus the amount, if any, of the option's intrinsic value,
i.e., current market value of the underlying securities minus the option's
strike price.
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium paid on a put written by a portfolio represents a profit, as long as
the price of the underlying investment remains above the exercise price.
However, a portfolio has also assumed the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price,
even though the value of the investment may fall below the exercise price. If
the put expires unexercised, the portfolio (as writer) realizes a gain in the
amount of the premium. If the put is exercised, the portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market value of the investment at that time. In that
case, the portfolio may incur a loss upon disposition, equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund, on behalf of a 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. As a result, the portfolio forgoes the
opportunity of trading the segregated assets or writing calls against those
assets. As long as the portfolio's obligation as a put writer continues, the
portfolio may be assigned an exercise notice by the broker-dealer through whom
such option was sold, requiring the portfolio to purchase the underlying
security at the exercise price. A portfolio has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. This obligation terminates upon the earlier of the
expiration of the put, or the consummation by the portfolio of a closing
purchase transaction by purchasing a put of the same series as that previously
sold. Once a portfolio has been assigned an exercise notice, it is thereafter
not allowed to effect a closing purchase transaction.
A portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
portfolio. The portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.
When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the market,
the portfolio could exercise, or sell the put option at a profit that would
offset some or all of its loss on the portfolio securities. If the market price
of the underlying investment is above the exercise price and as a result, the
put is not exercised, the put will become worthless at its
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expiration date and the purchasing portfolio will lose the premium paid and the
right to sell the underlying securities; the put may, however, be sold prior to
expiration (whether or not at a profit). Purchasing a put on futures or
securities not held by it permits a portfolio to protect its securities holdings
against a decline in the market to the extent that the prices of the future or
securities underlying the put move in a similar pattern to the prices of a
portfolio's securities.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. A portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise of calls written by a portfolio may cause the portfolio to sell its
securities to cover the call, thus increasing its turnover rate in a manner
beyond the portfolio's control. The exercise of puts on securities or futures
will increase portfolio turnover. Although such exercise is within the
portfolio's control, holding a put might cause a portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in connection
with the exercise of a put or a call.
OPTIONS ON FUTURES. The Global Equity, Small Cap and Equity Portfolios may
purchase and write call and put options on futures contracts which are traded on
an exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right (in return for the premium paid) to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
term of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option is accompanied
by delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract at
the time of exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
contract or underlying securities. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may purchase a call option on a
futures contract to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium
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it receives. Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of its futures
positions, the Portfolio's losses from existing options may to some extent be
reduced or increased by changes in the value of its securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on securities. For example,
a Portfolio may purchase a put option on a futures contract to hedge the
Portfolio's holdings against the risk of a decline in securities prices.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
STOCK INDEX FUTURES AND RELATED OPTIONS. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will be
required to deposit with its broker an amount of cash or U.S. Treasury bills
equal to approximately 5% of the contract amount. This is known as initial
margin. Such initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Portfolio may be
required to make additional payments during the term of the contract to its
broker. Such payments would be required where during the term of a stock index
futures contract purchased by the Portfolio, the price of the underlying stock
index declined, thereby making the Portfolio's position less valuable. In all
instances involving the purchase of stock index futures contracts by the
Portfolio resulting in a net long position, an amount of cash and cash
equivalents equal to the market value of the futures contracts will be deposited
in a segregated account with the Fund's custodian, for the benefit of the
Portfolio, to collateralize the position and thereby insure that the use of such
futures is unleveraged. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the price of the stock index future moves less than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective, but, if the price of the securities being hedged has moved in
an unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction this advantage will be partially offset by the future. If
the price of the futures moves more than the price of the stock the Portfolio
will experience a loss or a gain on the future which will not be completely
offset by movement in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the stock index futures,
the Portfolio may buy or sell stock index futures in a
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greater dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the prices of such securities has been greater than
the historical volatility of the index. Conversely, the Portfolio may buy or
sell fewer stock index futures contracts if the historical volatility of the
price of the securities being hedged is less than the historical volatility of
the stock index. It is possible that where the Portfolio has sold futures to
hedge its portfolio against a decline in the market, the market may advance and
the Portfolio's securities may decline. If this occurred, the Portfolio would
lose money on the futures and also experience a decline in the value of its
securities. While this should occur, if at all, for a very brief period or to a
very small degree, the Manager believes that over time the value of a
diversified portfolio will tend to move in the same direction as the market
indices upon which the futures are based. It is also possible that if the
Portfolio hedges against the possibility of a decline in the market adversely
affecting stocks it holds and stock prices increase instead, the Portfolio will
lose part or all of the benefit of the increased value of its stock which it had
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. Such sales
of securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may also have to sell securities at a
time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movements in the stock index due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Moreover, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the market. Such increased
participation may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, the value of stock index futures contracts as a
hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may not be possible to close a
futures position and in the event of adverse price movements, the Portfolios
would continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used
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to hedge a portfolio's securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of securities will, in fact, correlate with the price movements in the
futures contract and thus provide an offset to losses on a futures contract.
In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may 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 its assets. Each Portfolio may use futures and options
thereon for bona fide hedging or for other purposes within the meaning and
intent of the applicable provisions of the CEA.
TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code.
One of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. Another test is that less than 30% of its gross
income must be derived from gains realized on the sale of securities held for
less than three months. In connection with the 90% test, recent amendments to
the Internal Revenue Code specify that income from options, futures and other
gains derived from investments in securities is qualifying income under the 90%
test. Due to the 30% limitation, each Portfolio will limit the extent to which
it engages in the following activities, but except as otherwise set forth herein
or in the Prospectus, will not be precluded
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from them: (i) selling investments, including futures, held for less than three
months, whether or not they were purchased on the exercise of a call held by the
Portfolio; (ii) writing or purchasing calls on investments held less than three
months; (iii) purchasing calls or puts which expire in less than three months;
(iv) effecting closing transactions with respect to calls or puts purchased less
than three months previously; and (v) exercising puts or calls held by a
Portfolio for less than three months.
Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a portfolio at the end of each
taxable year may be required to be "marked to market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section 1256 contracts sold by a
portfolio during the year, and the resulting gain or loss will be deemed to
consist of 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A portfolio may elect to exclude certain transactions from the mark-to-
market rule although doing so may have the effect of increasing the relative
proportion of short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed annually to meet
income distribution requirements, currently at 98%, to avoid payment of federal
excise tax.
It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Moreover, if the Manager's investment judgment about the general
direction of securities prices is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the securities purchased.
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INVESTMENT IN FOREIGN SECURITIES. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Small Cap and Managed Portfolios
may purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or represented by American depository receipts
listed on a domestic securities exchange or traded in a domestic or foreign
over-the-counter market. There is no limit on the amount of such foreign
securities that the Portfolios might acquire. These Portfolios will hold
foreign currency in connection with the purchase or sale of securities on a
foreign securities exchange. To the extent that foreign currency is so held,
there may be a risk due to foreign currency exchange rate fluctuations. Such
foreign currency and foreign securities will be held by the Fund's custodian
bank, or by a foreign branch of a U.S. bank, acting as subcustodian, on behalf
of the Portfolio. The custodian bank will hold such foreign securities pursuant
to such arrangements as are permitted by applicable foreign and domestic law and
custom.
Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment
may be affected by changes in currency rates and in exchange control regulations
(e.g. currency blockage). The Portfolios may bear a transaction charge in
connection with the exchange of currency. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies are generally not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Most foreign stock markets have substantially less volume than the
New York Stock Exchange and securities of some foreign companies are less liquid
and more volatile than securities of comparable domestic companies. There is
generally less government regulation of foreign stock exchanges, brokers, and
listed companies than there is in the United States. In addition, with respect
to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could adversely affect investment in securities of issuers
located in those countries. Individual foreign economies may differ favorable
or unfavorably from the United States economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. If it should become necessary,
the Portfolios would normally encounter greater difficulties in commencing a
lawsuit against the issuer of a foreign security than it would against a United
States issuer.
INVESTMENTS IN EASTERN EUROPE. Investments in Eastern Europe are
speculative and involve a high degree of risk of loss. The emergence of Eastern
European capital markets is in part a function of the policies of the former
Gorbachev administration. With the recent change in power and restructuring of
the Soviet Union there is no assurance that such markets will continue to
constitute a viable investment opportunity for the Portfolios and there may be a
high degree of risk of expropriation without compensation. The governments of a
number of Eastern European countries previously expropriated large quantities of
private property. The claims of many property owners against those governments
were never finally settled. There is no assurance that such expropriation will
not occur again. If such expropriation were to recur, the Portfolios could lose
all or a substantial portion of their investments in such countries. Further,
no accounting standards comparable to those in the U.S. exist in Eastern
European countries. Finally, even though certain Eastern European currencies
may be convertible into United States dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the shareholders of
the Portfolios. Presently the Global Equity Portfolio is the only Portfolio
which intends to invest in these types of securities.
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The governments of certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in such countries. These authorities may not be qualified to
act as foreign custodians under the 1940 Act and as a result, the Portfolios
would not be able to invest in the countries in the absence of exemptive relief
from the Securities and Exchange Commission. In addition, the risk of loss
through government confiscation may be increased in such countries.
FOREIGN CURRENCY TRANSACTIONS. The Global Equity, Equity, Small Cap and
Managed Portfolios do not intend to speculate in foreign currency. When a
Portfolio agrees to purchase or sell a security in a foreign market it will
generally be obligated to pay or entitled to receive a specified amount of
foreign currency and will then generally convert dollars to that currency in the
case of a purchase or that currency to dollars in the case of a sale. The
Global Equity, Equity, Small Cap and Managed Portfolios intend to conduct their
foreign currency exchange transactions on a spot basis (i.e., cash) at the spot
rate prevailing in the foreign currency exchange market or through entering into
forward foreign currency contracts ("forward contracts") to purchase or sell
foreign currencies. Such Portfolios may enter into forward contracts in order
to lock in the U.S. dollar amount they must pay or expect to receive for a
security they have agreed to buy or sell or with respect to their positions when
the Portfolios believe that a particular currency may change unfavorably
compared to the U.S. dollar. A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate accounts decline, additional cash or securities will be placed in the
accounts on a daily basis so that the value of the accounts will equal the
amount of the Portfolios' commitments with respect to such forward contracts.
If, rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolios of a foreign currency, the Portfolios may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating them to purchase, on
the same settlement date, the same amount of foreign currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
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Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from forward contracts,
futures contracts that are not "regulated futures contracts," and from unlisted
options will be treated as ordinary income or loss under Internal Revenue Code
Section 988. Also, certain foreign exchange gains or losses derived with
respect to fixed-income securities are also subject to Section 988 treatment.
In general, therefore, Internal Revenue Code Section 988 gains or losses will
increase or decrease the amount of the Portfolio's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Portfolio's net capital gain.
Additionally, if Internal Revenue Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Portfolio would not
be able to make any ordinary income distributions.
FOREIGN CUSTODY. Rules adopted under the 1940 Act permit the Portfolios to
maintain their securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' holdings of securities of issuers
located outside of the U.S. will be held by the Fund's sub-custodians who will
be approved by the trustees in accordance with such Rules. Such determination
will be made pursuant to such Rules following a consideration of a number of
factors, including, but not limited to, the reliability and financial stability
of the institution; the ability of the institution to perform custodial services
for the Fund; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and the risks of potential nationalization or expropriation of the
Portfolio's assets. However, no assurances can be given that the trustees'
appraisal of the risks in connection with foreign custodial arrangements will
always be correct or that expropriation, nationalization, freezes (including
currency blockage), confiscations or any other loss of assets that would affect
assets of the Portfolio will not occur, and shareholders bear the risk of losses
arising from those or other similar events.
CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If
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the conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, the convertible
security will sell at some premium over its conversion value. (This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege.) At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security. Convertible securities may be purchased by the Portfolios at varying
price levels above their investment values and/or their conversion values in
keeping with the Portfolios' objectives.
FOREIGN AND DOMESTIC SECURITY SELECTION PROCESS. The allocation of assets
between U.S. and foreign markets for the Global Equity Portfolio in particular,
as well as all other Portfolios which invest in foreign securities in general,
will vary from time to time as deemed appropriate by the Manager. It is a
dynamic process based on an on-going analysis of economic and political
conditions, the growth potential of the securities markets throughout the world,
currency exchange considerations and the availability of attractively priced
securities within the respective markets. In all markets, security selection is
designed to reduce risk through a value oriented approach in which emphasis is
placed on identifying well-managed companies which, in the case of the Global
Equity Portfolio, represent exceptional values in terms of such factors as
assets, earnings and growth potential.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in
an investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively. To the extent a Portfolio invests in securities in bearer form it
may be more difficult to recover securities in the event such securities are
lost or stolen.
PASSIVE FOREIGN INVESTMENT COMPANY INCOME. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of certain technical tax provisions
applying to such companies could result in the imposition of federal income tax
with respect to such investments at the Portfolio level which could not be
eliminated by distributions to shareholders. The U.S. Treasury has issued
proposed regulations which establish a mark-to-market regime that allows a
regulated investment company ("RIC") to avoid most, if not all, of the
difficulties posed by the PFIC rules. In any event, it is not anticipated that
any taxes on a Portfolio with respect to investments in PFIC's would be
significant.
16
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions applicable to the Portfolios are
described in the Prospectus. The following investment restrictions have been
adopted by the Fund as fundamental policies which cannot be changed without the
vote of a majority of the outstanding voting securities of that Portfolio. Such
a majority is defined as the lesser of (a) 67% or more of the shares of the
Portfolio present at the meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Portfolio. For the purposes of the following restrictions and those contained
in the Prospectus: (i) all percentage limitations apply immediately after a
purchase or initial investment, unless specifically stated otherwise; and (ii)
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 the Portfolio.
ADDITIONAL RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS. Each Portfolio of the
Fund may not:
1. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Portfolio may invest consistent with its investment
objectives and policies; (b) by investing in repurchase agreements; or (c) by
lending its portfolio securities, not in excess of 33% of the value of a
Portfolio's total assets, made in accordance with guidelines adopted by the
Fund's Board of Trustees, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding voting securities of such issuer.
3. Pledge its assets or assign or otherwise encumber them in excess of
10% of its net assets (taken at market value at the time of pledging) and then
only to secure borrowings effected within the limitations set forth in the
Prospectus.
4. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
5. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities) or sell
securities short except "against the box." (Collateral arrangements in
connection with transactions in options and futures are not deemed to be margin
transactions.)
6. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
7. Engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
17
<PAGE>
8. Invest for the purposes of exercising control or management of another
company.
9. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) borrowing money in accordance with
restrictions described above; or (c) lending portfolio securities.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY. The Money
Market Portfolio may not:
1. Invest in securities other than those listed in the description of its
investment objectives and policies above and in the Prospectus.
2. Invest in securities maturing more than one year from the date of
purchase, except that where securities are held subject to repurchase agreements
having a term of one year or less from the date of delivery, the securities
subject to the agreement may have maturity dates in excess of one year from date
of delivery.
3. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities).
RESTRICTIONS APPLICABLE TO THE EQUITY, MANAGED, GLOBAL EQUITY AND SMALL CAP
PORTFOLIOS ONLY. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
2. Invest more than 5% of its total assets in securities which are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Equity, Managed, Global Equity and/or Small Cap
Portfolios; however, each Portfolio will attempt to dispose in an orderly
fashion of any securities received under these circumstances to the extent that
such securities, together with other unmarketable securities, exceed 15% of that
Portfolio's total assets.
TRUSTEES AND OFFICERS
The trustees and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. The address
of each is One World Financial Center, New York, New York 10281, except as
noted. As of March 31, 1996, the trustees and officers of the Fund as a group
owned none of its outstanding shares.
JOSEPH M. LA MOTTA, CHAIRMAN OF THE BOARD OF TRUSTEES AND PRESIDENT*
18
<PAGE>
President of Oppenheimer Capital and Chairman of OpCap Advisors, registered
investment advisers; Chairman of OCC Distributors; Chairman of the Board and
President of OCC Cash Reserves, Inc. and Chairman of The Saratoga Advantage
Trust, open-end investment companies; and Quest for Value Dual Purpose Fund,
Inc., a closed-end investment company.
PAUL Y. CLINTON, TRUSTEE
946 Morris Avenue
Bryn Mawr, Pennsylvania 19010
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; formerly
President of Essex Management Corporation, a management consulting company;
Trustee of Capital Cash Management Trust, Prime Cash Fund and Short Term Asset
Reserves, each of which is a money-market fund; Director of Oppenheimer Quest
Value Fund, Inc., Oppenheimer Quest Global Value Fund, Inc., Rochester Fund
Municipals, Rochester Portfolio Series Limited Term New York Municipals and Bond
Fund Series, Oppenheimer Bond Fund for Growth, OCC Cash Reserves, Inc., and
Trustee of Oppenheimer Quest for Value Funds, each of which is an open-end
investment company; formerly a general partner of Capital Growth Fund, a venture
capital partnership; formerly a general partner of Essex Limited Partnership, an
investment partnership; formerly President of Geneve Corp., a venture capital
fund; formerly Chairman of Woodland Capital Corp., a small business investment
company; formerly Vice President of W.R. Grace & Co.
THOMAS W. COURTNEY, C.F.A., TRUSTEE
P. O. Box 8186
Naples, Florida 33941
Principal of Courtney Associates, Inc., a venture capital business; former
General Partner of Trivest Venture Fund, a private venture capital fund; former
President of Federated Investment Counseling, Inc.; Trustee of Cash Assets
Trust, a money market fund; Director of Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Rochester Fund Municipals, Rochester
Portfolio Series Limited Term New York Municipals and Bond Fund Series,
Oppenheimer Bond Fund for Growth, OCC Cash Reserves, Inc., and Trustee of
Oppenheimer Quest for Value Funds, each of which is an open-end investment
company; former President of Boston Company Institutional Investors, Inc.;
former Director of The Financial Analysts Federation; Trustee of Hawaiian Tax-
Free Trust and Tax Free Trust of Arizona, tax-exempt bond funds; and Director of
several privately owned corporations.
LACY B. HERRMANN, TRUSTEE
380 Madison Avenue, Suite 2300
New York, New York 10017
Founder, President and Chairman of the Board of Aquila Management Corporation
since 1984, the sponsoring organization and Administrator and/or Sub-Adviser to
the following open end investment companies, and Founder, Chairman of the Board
of Trustees and President of each: Prime Cash Fund (1982-1996), Short Term
Asset Reserves (since 1984), Pacific Capital
19
<PAGE>
Cash Assets Trust (since 1984), Churchill Cash Reserves Trust (since 1985),
Pacific Capital Tax-Free Cash Assets Trust (since 1988), Pacific Capital U.S.
Treasuries Cash Assets Trust (since 1988), each of which is a money market fund,
Hawaiian Tax-Free Trust (since 1984), Tax-Free Trust of Arizona (since 1986) and
Tax Free Trust of Oregon (since 1986), Churchill Tax-Free Fund of Kentucky
(since 1987), Tax Free Fund of Colorado (since 1987), Tax-Free Fund for Utah
(since 1992) and Narragansett Insured Tax-Free Fund (since 1992), each of which
is a tax-free municipal bond fund and an equity fund, and of Aquila Rocky
Mountain Equity Fund (since 1993); Vice President, Director, Secretary, and
formerly Treasurer of Aquila Distributors, Inc. (since 1981), distributor of
the above funds; President and Chairman of the Board of Trustees of Capital Cash
Management Trust ("CCMT") (since 1981), a money market fund, and an Officer and
Trustee/Director of its predecessor (since 1974); President and Director of STCM
Management Company, Inc., Sponsor and Sub-Adviser to CCMT, Chairman, President
and Director of Incap Management Corporation (since 1984), former Sub-Adviser
and Administrator of Prime Cash Fund and Short Term Asset Reserves and Founder
and Chairman of several other money market funds; Director, Oppenheimer Quest
Value Fund, Inc., Oppenheimer Quest Global Value Fund, Inc., Rochester Fund
Municipals, Rochester Portfolio Series Limited Term New York Municipals and Bond
Fund Series, Oppenheimer Bond Fund for Growth, OCC Cash Reserves, Inc., Trustee
of Oppenheimer Quest for Value Funds, and The Saratoga Advantage Trust, each of
which is an open-end investment company; Trustee of Brown University since 1990;
actively involved for many years in leadership roles with university, school,
and charitable organizations
GEORGE LOFT, TRUSTEE
51 Herrick Road
Sharon, Connecticut 06069
Private Investor; Director of OCC Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth,
Oppenheimer Quest Global Value Fund, Inc., Trustee of Oppenheimer Quest for
Value Funds and The Saratoga Advantage Trust, all of which are open-end
investment companies; and Director of Quest for Value Dual Purpose Fund, Inc., a
closed-end investment company.
ROBERT J. BLUESTONE, VICE PRESIDENT
Managing Director, Oppenheimer Capital; Vice President, OCC Cash Reserves, Inc.,
an open-end investment company.
PIERRE DAVIRON, VICE PRESIDENT AND PORTFOLIO MANAGER
President and Chief Investment Officer, Oppenheimer Capital International, a
division of Oppenheimer Capital. Previously Chairman and Chief Executive
Officer at Indosuez Gartmore Asset Management, a division of Banque Indosuez,
Paris, France. Previously Managing Director in Mergers and Acquisitions at J.P.
Morgan.
20
<PAGE>
BERNARD H. GARIL, VICE PRESIDENT
President and Chief Operating Officer of OpCap Advisors; Vice President of OCC
Cash Reserves, Inc., an open-end investment company and Quest for Value Dual
Purpose Fund, Inc., a closed-end investment company.
RICHARD GLASEBROOK, VICE PRESIDENT AND PORTFOLIO MANAGER
Managing Director, Oppenheimer Capital; formerly Partner and Portfolio Manager
of Delafield Asset Management.
JOHN GIUSIO, VICE PRESIDENT
Vice President, Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc.,
an open-end investment company; formerly Vice President, Salomon Brothers.
LOUIS GOLDSTEIN, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; formerly Security Analyst at David J.
Greene & Co.
VIKKI HANGES, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; Vice President and Portfolio Manager, OCC
Cash Reserves, Inc,. an open-end investment company; Assistant Vice President,
Oppenheimer Capital, 1987-1992.
DEBORAH KABACK, SECRETARY
Senior Vice President, Oppenheimer Capital; Secretary of OCC Cash Reserves,
Inc., and The Saratoga Advantage Trust , open-end investment companies and
Assistant Secretary of Quest for Value Dual Purpose Fund, Inc., a closed-end
investment company.
TIMOTHY MCCORMACK, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; formerly Security Analyst at U.S. Trust
Co.; formerly Security Analyst at Gabelli and Company.
ILANA R. MARCUS, ASSISTANT SECRETARY
Vice President, Oppenheimer Capital; formerly Vice President and Associate
Counsel of BT Variable, Inc., Directed Services, Inc., and Golden American Life
Insurance Company; formerly Branch Chief and Staff Attorney of U.S. Securities &
Exchange Commission.
21
<PAGE>
RICH PETEKA, ASSISTANT TREASURER
Vice President, Oppenheimer Capital; Assistant Treasurer of OCC Cash Reserves,
Inc., and The Saratoga Advantage Trust, Inc., open-end investment companies.
EILEEN ROMINGER, VICE PRESIDENT AND PORTFOLIO MANAGER
Managing Director, Oppenheimer Capital.
SHELDON M. SIEGEL, TREASURER
Managing Director and Treasurer, Oppenheimer Capital; Treasurer of OpCap
Advisors; Treasurer of OCC Cash Reserves, Inc., and The Saratoga Advantage
Trust, open-end investment companies, and Quest for Value Dual Purpose Fund,
Inc., a closed-end investment company.
REMUNERATION OF OFFICERS AND TRUSTEES. All officers of the Fund are
officers of Oppenheimer Capital and will receive no salary or fee from the Fund.
The following table sets forth the aggregate compensation paid by the Fund to
each of the Trustees during its fiscal year ended December 31, 1995 and the
aggregate compensation paid to each of the Trustees by all of the funds in the
Advisor's Fund Complex during each such fund's 1995 fiscal year. The Managed
Portfolio of the Fund was the only Portfolio of the Fund that paid fees to the
Trustees.
Name of Trustee Aggregate Pension or Estimated Total
of the Fund Compensation Retirement Annual Compensation
from the Fund Benefits Benefits upon from the Fund
Accrued as Retirement and the Fund
Part of Fund Complex of
Expenses OpCap Advisors
Paul Clinton $4,450 0 0 $74,650
Thomas Courtney $4,450 0 0 $73,900
Lacy Herrmann $4,450 0 0 $74,650
Joseph La Motta 0 0 0 0
George Loft $4,450 0 0 $81,350
Mr. Clinton, Mr. Courtney and Mr. Herrmann earned directors' fees with respect
to 16 investment companies in the Manager's Fund Complex and the fees earned by
Mr. Loft were with respect to 17 investment companies in the Manager's Fund
Complex. During such periods, the independent Trustees received fees from ten
investment companies which are no longer part of the Manager's Fund Complex. In
addition, during such periods Mr. Loft and Mr. Herrmann each served as trustee
with respect to seven investment companies in the Manager's Fund Complex for
which they received no fees. For the purpose of this paragraph, a portfolio of
an investment company organized in series form is considered to be an investment
company.
22
<PAGE>
CONTROL PERSONS
As of April 2, 1996, shares of the Portfolios were held by Oppenheimer Capital
and the Variable Accounts of the following insurance companies, with the figures
beneath each Portfolio representing that company's holdings as a percentage of
each Portfolio's total outstanding shares.
23
<PAGE>
PORTFOLIO SHAREHOLDERS OF RECORD AS OF APRIL 2, 1996(1)
<TABLE>
<CAPTION>
PORTFOLIOS
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS BOND MONEY MARKET U.S. GOVT. GLOBAL EQUITY SMALL CAP MANAGED
INCOME EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Mutual Life Insurance 54.77% 86.79% __ __ 24.88% 19.07% 51.96%
Company of New York (New
York, NY) & The MONY Life
Insurance Company of America
(New York, NY)
Provident Mutual Life __ __ __ __ 58.47% 42.95% 22.72%
Insurance Company
(Philadelphia, PA) &
Providentmutual Life and
Annuity Company of America
(Newark, DE)
Connecticut General Life 45.23% 10.71 __ 99.79% 16.52 8.66 16.36%
Insurance Company & CIGNA
Life Insurance Company
(Hartford, CT)
Providian Life and Health __ __ 42.04% __ __ 28.97% 7.88%
Insurance Company
(Frazer, PA)
American Enterprise Life __ __ 36.64% __ __ less than __
Insurance Company 5%
(Indianapolis, Ind.)
No invest- No invest- No invest- No invest- No invest-
Oppenheimer Capital ment 2.5% 21.32% ment ment ment ment
(New York, NY)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
- - Company does not offer shares of the Portfolio of the Fund
(1) This chart lists all Variable Account shareholders of record of the
Portfolios, who, as of April 2, 1996, held five percent or more of the shares of
the Portfolios of the Fund and all holdings of shares of the Portfolios by
Oppenheimer Capital, the parent of the Manager.
Shares of the Money Market Portfolio were acquired by Oppenheimer Capital to
provide initial capital for the Fund. Shares of the U.S. Government Income
Portfolio were acquired by Oppenheimer Capital to provide capital for the
Portfolio so that the Manager could commence a meaningful investment program for
the Portfolio, pending the acquisition of shares of the Portfolio by Variable
Accounts. The shares held by the Variable Accounts generally will be voted in
accordance with instructions of Contractowners. Under certain circumstances
however, the insurance companies, on behalf of their respective Variable
Accounts, may disregard voting instructions received from Contractowners. The
shares held by Oppenheimer Capital will be voted in the same proportions as
those voted by the insurance companies which are held in their respective
Variable Accounts. Any shareholder of record listed in the above chart
beneficially owning more than 25% of a particular Portfolio's shares may be
considered to be a "controlling person" of that Portfolio by virtue of the
definitions contained in the 1940 Act. The vote of such shareholder of record
could have a more significant effect on matters presented to shareholders for
approval than the votes of the Fund's other shareholders.
The following table lists, as of April 2, 1996, the name, address and percentage
of ownership of those shareholders that to the knowledge of the Fund
beneficially own five percent or more of the shares of any of the Portfolios of
the Fund.
Portfolio Name and Address Percentage of Ownership
Bond Connecticut General 45.23%
Life Insurance Company
900 Cottage Grove
Hartford, CT 06152
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE ADVISORY AGREEMENT. The Advisory Agreement was first approved by the
Fund's Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Fund (as defined in the 1940 Act) and who have no
direct or indirect financial interest in such Agreement (the "Independent
Trustees") on May 26, 1994, and by the Manager as then sole shareholder of the
Fund on September 12, 1994 (the "Initial Advisory Agreement"). An amendment to
the initial Advisory Agreement was approved by the Fund's Board of Trustees,
including the Independent Trustees, on January 30, 1996 and by the shareholders
of the Equity, Global Equity, Managed and Small Cap Portfolios of the Fund on
April 15, 1996 and was effective as of May 1, 1996. Under the Initial Advisory
Agreement, the Manager received from the Fund, compensation on a monthly basis,
at
25
<PAGE>
the annual rate of 0.60% of the average daily net assets of each of the Equity,
Small Cap, Managed and U.S. Government Income Portfolios, 0.75% of the average
daily net assets of the Global Equity Portfolio, 0.50% of the average daily net
assets of the Bond Portfolio and 0.40% of the average daily net assets of the
Money Market Portfolio. Under the amendment to the Initial Advisory Agreement,
effective May 1, 1996, the Manager receives from the Fund, compensation on a
monthly basis, at an annual rate of 0.80% on the first $400 million, 0.75% on
the next $400 million and 0.70% thereafter of the average daily net assets of
the Equity, Global Equity, Managed and Small Cap Portfolios, respectively.
Compensation for services provided by the Manager to the Bond, Money Market and
U.S. Government Portfolios remain unchanged. The amendment to the Initial
Advisory Agreement also provides that the Manager will limit total operating
expenses of the Portfolios of the Fund to 1.25% of their respective average
daily net assets.
Under the Advisory Agreement, the Manager is required to: (i) regularly
provide investment advice and recommendations to each Portfolio of the Fund with
respect to its investments, investment policies and the purchase and sale of
securities; (ii) supervise continuously and determine the securities to be
purchased or sold by the Fund and the portion, if any, of the assets of each
Portfolio of the Fund to be held uninvested; and (iii) arrange for the purchase
of securities and other investments by each Portfolio of the Fund and the sale
of securities and other investments held by each Portfolio of the Fund.
The Advisory Agreement also requires the Manager to provide administrative
services for the Fund, including (1) coordination of the functions of
accountants, counsel and other parties performing services for the Fund and (2)
preparation and filing of reports required by federal securities and "blue sky"
laws, shareholder reports and proxy materials.
Expenses not expressly assumed by the Manager under the Advisory Agreement
or by OCC Distributors (the "Distributor") are paid by the Fund. The Advisory
Agreement lists examples of expenses paid by the Fund, of which the major
categories relate to interest, taxes, fees to non-interested trustees, legal and
audit expenses, custodian and transfer agent expenses, stock issuance costs,
certain printing and registration costs, and non-recurring expenses, including
litigation. For the period September 16, 1994 (commencement of operations) to
December 31, 1994 and for the fiscal year ended December 31, 1995, the expenses
of the Portfolios of the Fund were voluntarily limited by the Manager so that
annualized operating fund expenses did not exceed the following percentages of
the average daily net assets of the Portfolios of the Fund: (1) .72 percent of
the Equity Portfolio; (2) .74 percent of the Small Cap Portfolio; (3) .66
percent of the Managed Portfolio; (4) 1.00 percent of the Bond Portfolio; (5)
1.00 percent of the Money Market Portfolio; (6) .75 percent of the U.S.
Government Portfolio; and (7) 1.25 percent of the Global Equity Portfolio.
For the period September 16, 1994 (commencement of operations) to December
31, 1994, the Manager waived its fee of $6,957, $14,599, $5,326, and $4,105 for
the Equity, Small Cap, Bond and Money Market Portfolios, respectively. In
addition, the Manager reimbursed operating expenses of $9,647, $7,395, $5,861
and $6,449, respectively, to such Portfolios. 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. For the Fiscal year ended December 31, 1995, the total
advisory fees accrued or paid by the Equity, Managed, Small
26
<PAGE>
Cap and Money Market Portfolios were $38,504, $447,678, $72,770 and $16,447,
respectively, of which, $34,745, $55,036, $30,075 and $5,702, respectively, was
waived by the Manager. For the fiscal year ended December 31, 1995, the Manager
waived its fee of $9,022, 20,517 and $4,873 for the Global Equity, Bond and U.S.
Government Income Portfolios, respectively. In addition, the Manager reimbursed
operating expenses of $23,340, $692 and $27,434, respectively, to such
Portfolios.
Also under the Advisory Agreement, the Manager guarantees that the total
expenses of the Fund in any fiscal year, exclusive of taxes, interest, brokerage
fees and distribution expense reimbursements shall not exceed, and the Manager
undertakes to pay or refund to the Fund any amount by which such expenses do
exceed, the most restrictive state law provisions in effect in states where
shares of a Portfolio of the Fund are qualified to be sold. The payment of the
management fee at the end of any month will be reduced or postponed so that at
no time will there be any accrued but unpaid liability for the payment of the
management fee under this expense limitation.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations
thereunder, the Manager is not liable for any act or omission in the course of,
or in connection with, the rendition of services thereunder. The Agreement
permits the Manager to act as investment advisor for any other person, firm, or
corporation.
PORTFOLIO TRANSACTIONS. Portfolio decisions are based upon recommendations
of the Manager and the judgment of the portfolio managers. As most, if not all,
purchases made by the U.S. Government Income and Bond Portfolios will be
principal transactions at net prices, those Portfolios pay no brokerage
commissions; however prices of debt obligations reflect mark-ups and mark downs
which constitute compensation to the executing dealer. The Portfolios will pay
brokerage commissions on transactions in listed options and equity securities.
Prices of securities purchased from underwriters of new issues include a
commission or concession paid by the issuer to the underwriter, and prices of
debt securities purchased from dealers include a spread between the bid and
asked prices. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers during the course
of an underwriting in return for their brokerage and research services, which
are intangible and on which no dollar value can be placed. There is no formula
for such allocation. The research information may or may not be useful to the
Fund and/or other accounts of the Manager; information received in connection
with directed orders of other accounts managed by the Manager or its affiliates
may or may not be useful to the Fund. Such information may be in written or
oral form and includes information on particular companies and industries as
well as market, economic or institutional activity areas. It serves to broaden
the scope and supplement the research activities of the Manager, to make
available additional views for consideration and comparison, and to enable the
Manager to obtain market information for the valuation of securities held by the
Fund. For the year ended December 31, 1995, the aggregate dollar amount
involved in such transactions was $2,134,401, with related commissions of
$2,874.
Sales of shares of the Fund, subject to applicable rules covering the
Distributor's activities in this area, will also be considered as a factor in
the direction of portfolio transactions to brokers and dealers, but only in
conformity with the price, execution and other considerations and practices
discussed above. The Fund may execute brokerage transactions through
Oppenheimer & Co., Inc.
27
<PAGE>
("OpCo"), an affiliated broker-dealer, acting as agent in accordance with
procedures established by the Board of Trustees but will not purchase any
securities from or sell any securities to OpCo acting as principal for its own
account.
The following table presents information as to the allocation of brokerage
commissions paid to OpCo by the Equity, Global Equity, Managed, and Small Cap
Portfolios for the period September 16, 1994 (commencement of operations) to
December 31, 1994 and for the year ended December 31, 1995.
<TABLE>
<CAPTION>
PORTFOLIO TOTAL BROKERAGE BROKERAGE COMMISSIONS TOTAL AMOUNT OF TRANSACTIONS
COMMISSIONS PAID PAID TO OPCO WHERE BROKERAGE COMMISSIONS
PAID TO OPCO(1)
- -------------------------------------------------------------------------------------------------------------------------------
$ AMOUNTS % $ AMOUNTS %
-----------------------------------------------------------------------------------
1994 1995 1994 1995 1994 1995 1994 1995 1994 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY $ 1,293 $ 6,942 $ 912 $ 3,800 70.5 55.0 $ 647,308 $ 2,513,857 73.20 10.00
MANAGED 10,865 65,136 7,415 26,544 68.2 41.0 5,133,805 19,748,754 66.60 10.73
SMALL CAP 10,897 35,395 4,191 12,805 38.5 36.0 1,305,205 3,948,081 30.14 6.86
GLOBAL EQUITY --- 11,614 --- 490 --- 4.0 - --- 450,584 --- 2.61
</TABLE>
(1)The Fund does not effect principal transactions with OpCo. When the Fund
effects principal transactions with other broker-dealers commissions are
imputed.
The Manager currently serves as investment manager to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Manager to cause
purchase or sale transactions to be allocated among the Fund and others whose
assets it manages in such manner as it deems equitable. In making such
allocations among the Fund and other client accounts, the main factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and the
opinions of the persons responsible for managing each portfolio of the Fund and
other client accounts. When orders to purchase or sell the same security on
identical terms are placed by more than one of the funds and/or other advisory
accounts managed by the Manager or its affiliates, the transactions are
generally executed as received, although a fund or advisory account that does
not direct trades to a specific broker ("free trades") usually will have its
order executed first. Purchases are combined where possible for the purpose of
negotiating brokerage commissions, which in some cases might have a detrimental
effect on the price or volume of the security in a particular transaction as far
as the Fund is concerned. Orders placed by accounts that direct trades to a
specific broker will generally be executed after the free trades. All orders
placed on behalf of the Fund are considered free trades. However, having an
order placed first in the market does not necessarily guarantee the most
favorable price.
28
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each of the Portfolios of the Fund is
determined each day the New York Stock Exchange (the "NYSE") is open, at the
close of the regular trading session of the NYSE that day, by dividing the value
of the Fund's net assets by the number of shares outstanding. The NYSE's most
recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Presidents' Day, Good Friday, Memorial Day, July 4th,
Labor Day, Thanksgiving and Christmas Day. It may also close on other days.
PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO. Securities listed on a
national securities exchange or designated national market system securities are
valued at the last reported sale price on that day, or, if there has been no
sale on such day or on the previous day on which the Exchange was open (if a
week has not elapsed between such days), then the value of such security is
taken to be the reported bid price at the time as of which the value is being
ascertained. Securities actively traded in the over-the-counter market but not
designated as national market system securities are valued at the last quoted
bid price. Any securities or other assets for which current market quotations
are not readily available are valued at their fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees. The value of a foreign security
is determined in its national currency and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect on the date of
valuation.
The Fund's Board of Trustees has approved the use of nationally recognized
bond pricing services for the valuation of each Portfolio's debt securities.
The service selected by the Manager creates and maintains price matrices of U.S.
Government and other securities from which individual holdings are valued
shortly after the close of business each trading day. Debt securities not
covered by the pricing service are valued based upon bid prices obtained from
dealers who maintain an active market therein or, if no readily available market
quotations are available from dealers, such securities (including restricted
securities and OTC options) are valued at fair value under the Board of
Trustees' procedures. Short-term (having a remaining maturity of more than
sixty days) debt securities are valued on a "marked-to-market" basis, that is,
at prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term (having a maturity of 60 days or less) debt
securities are valued at amortized cost or value.
Puts and calls are valued at the last sales price therefor, or, if there
are no transactions, at the last reported sales price that is within the spread
between the closing bid and asked prices on the valuation date. Futures are
valued based on their daily settlement value. When a Portfolio writes a call,
an amount equal to the premium received is included in the Portfolio's Statement
of Assets and Liabilities as an asset, and an equivalent credit is included in
the liability section. The credit is adjusted ("marked-to-market") to reflect
the current market value of the call. If a call written by a Portfolio is
exercised, the proceeds on the sale of the underlying securities are increased
by the premium received. If a call or put written by a Portfolio expires on its
stipulated expiration date the Portfolio will realize a gain equal to the amount
of the premium received. If a Portfolio enters into a closing transaction, it
will realize a gain or loss depending on whether the premium was more or less
than the transaction costs, without regard to unrealized appreciation or
depreciation on the underlying securities. If a put
29
<PAGE>
held by a Portfolio is exercised by it, the amount the Portfolio receives on its
sale of the underlying investment is reduced by the amount of the premium paid
by the Portfolio.
MONEY MARKET PORTFOLIO. The Money Market Portfolio operates under a rule
of the Securities and Exchange Commission under the 1940 Act (the "Rule") which
permits it to stabilize the price of its shares at $1.00 by valuing its
securities holdings on the basis of amortized cost. The amortized cost method
of valuation is accomplished by valuing a security at its cost adjusted by
straight-line amortization to maturity of any discount or premium. The method
does not take into account any unrealized gains or losses.
While the amortized cost method provides certainty in valuation, there may
be periods during which value, as determined by amortized cost, may be higher or
lower than the price the Money Market Portfolio would receive if it sold its
securities on a particular day. During periods of declining interest rates, the
daily yield on the Money Market Portfolio's shares may tend to be higher (and
net investment income and daily dividends lower) than under a like computation
made by a fund with identical investments which utilizes a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
instruments and changing its dividends based on these changing prices. The
converse would apply in a period of rising interest rates.
Under the Rule, the Fund's Board of Trustees has established procedures
designed to stabilize, to the extent reasonably possible, the Money Market
Portfolio's price per share as computed for the purpose of sales and redemptions
at $1.00. Such procedures must include review of the Money Market Portfolio's
holdings by the Board at such intervals as it may deem appropriate and at such
intervals as are reasonable in light of current market conditions, to determine
whether the Money Market Portfolio's net asset value calculated by using
available market quotations deviates from the per share value based on amortized
cost. "Available market quotations" may include actual quotations, estimates of
market value reflecting current market conditions based on quotations or
estimates of market value for individual portfolio instruments or values
obtained from yield data relating to a directly comparable class of securities
published by reputable sources.
Under the Rule, whenever the net asset value of the Money Market
Portfolio's shares based on available market quotations falls below $.995 per
share or rises above $1.005 per share, the Board of Trustees must promptly
consider what action, if any, will be initiated. However, the Board of Trustees
has adopted a policy under which it will be required to consider what action to
take whenever the net asset value per share based on available market quotations
falls below $.997 per share or rises to $1.003 per share. When the Board of
Trustees believes that the extent of any deviation may result in material
dilution or other unfair results to potential investors or existing
shareholders, it is required to take such action as it deems appropriate to
eliminate or reduce to the extent reasonably practicable such dilution or unfair
results. Such actions could include the sale of securities holdings prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or payment of distributions from capital or
capital gains, redemptions of shares in kind, or establishing a net asset value
per share using available market quotations.
30
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO. As discussed in the Prospectus, dividends from net
income of the Money Market Portfolio will be declared on each day the NYSE is
open for business to shareholders of record as of the close of business the
preceding business day. Net income, for dividend purposes, includes accrued
interest and amortization of original issue and market discount, less the
amortization of market premium and the estimated expenses of the Money Market
Portfolio. Net income will be calculated immediately prior to the determination
of net asset value per share of the Money Market Portfolio (see "Determination
of Net Asset Value" above and in the Prospectus). The Board of Trustees may
revise the above dividend policy or postpone the payment of dividends if the
Money Market Portfolio should have or anticipates any large unexpected expense,
loss or fluctuation in net assets which in the opinion of the Board of Trustees
might have a significant adverse effect on shareholders. Any net realized
capital gains will be declared and paid at least once per calendar year, except
that net short-term gains may be paid more frequently, with the distribution of
dividends from net investment income.
OTHER PORTFOLIOS. The dividend policies of the U.S. Government Income,
Bond, Equity, Global Equity, Managed and Small Cap Portfolios are discussed in
the Prospectus. In computing interest income, these Portfolios will amortize
any discount or premium resulting from the purchase of debt securities except
for mortgage or other receivables-backed obligations subject to monthly payment
of principal and interest.
CAPITAL GAINS AND LOSSES. Gains or losses on the sales of securities by
the Fund will be long-term capital gains or losses if the securities have been
held by the Fund for more than twelve months, regardless of how long you have
held your shares. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses. To the extent that
net capital losses are carried forward and are used to offset future capital
gains, it is probable that the gains so offset will not be distributed to
shareholders.
PORTFOLIO YIELD AND TOTAL RETURN INFORMATION
The performance information shown below reflects deductions for all
charges, expenses and fees of the Fund but does not reflect charges and
deductions which are, or may be, imposed under the Contracts.
MONEY MARKET PORTFOLIO. There are two methods by which the Money Market
Portfolio's yield for a specified period of time (as stated in the Prospectus)
is calculated.
The first method, which results in an amount referred to as the "current
yield," assumes an account containing exactly one share at the beginning of the
period. (The net asset value of this share will be $1.00 except under
extraordinary circumstances.) The net change in the value of the account during
the period is then determined by subtracting this beginning value from the value
of the account at the end of the period; however, capital changes (i.e.,
realized gains and losses from the sale of
31
<PAGE>
securities and unrealized appreciation and depreciation) are excluded from the
calculation. However, so that the change will not reflect the capital changes
to be excluded, the dividends used in the yield computation may not be the same
as the dividends actually declared, as the capital changes in question may
affect the dividends declared; see "Dividends, Distributions and Taxes" herein
and in the Prospectus. Instead, the dividends used in the yield calculation
will be those which would have been declared if the capital changes had not
affected the dividends. This net change in the account value is then divided by
the value of the account at the beginning of the period (normally $1.00) and the
resulting figure (referred to as the "base period return") is then annualized by
multiplying it by 365 and dividing it by the number of days in the period; the
result is the "current yield." Normally a seven day period will be used in
determining yields (both the current and the effective yield discussed below) in
published or mailed advertisements.
The second method results in an amount referred to as the "compounded
effective yield." This represents an annualization of the current yield with
dividends reinvested daily. This compounded effective yield for a seven day
period would be computed by compounding the unannualized base period return by
adding one to the base period return, raising the sum to a power equal to 365
divided by 7 and subtracting 1 from the result.
Since calculations of both kinds of yield do not take into consideration
any realized or unrealized gains or losses on the Portfolio's securities
holdings which may have an effect on dividends, the dividends declared during a
period may not be the same on an annualized basis as either kind of yield for
that period.
Yield information may be useful to investors in reviewing the Fund's
performance. However, a number of factors should be considered before using
yield information as a basis for comparison with other investments. An
investment in any of the Portfolios of the Fund is not insured; its yield is not
guaranteed and normally will fluctuate on a daily basis. The yield for any
given past period is not an indication or representation by the Fund of future
yields or rates of return on its shares. The Fund's yield is affected by
portfolio quality, portfolio maturity, type of instruments held, and operating
expenses. When comparing a Portfolio's yield with that of other investments,
investors should understand that certain other investment alternatives such as
money market instruments or bank accounts provide fixed yields and also that
bank accounts may be insured.
YIELD FOR 7-DAY PERIOD ENDED DECEMBER 31, 1995 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.77% 4.88%
(1) Reflects waiver of advisory fees by the Manager. Had the waiver not been in
effect during the period, the yield and effective yield would have been 4.35%
and 4.44%, respectively, for the Money Market Portfolio.
32
<PAGE>
YIELDS FOR PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. Yield information
may be useful to investors in reviewing the performance of certain Portfolios.
However, a number of factors should be considered before using yield information
as a basis for comparison with other investments. An investment in the Fund is
not insured; yield is not guaranteed and normally will fluctuate on a daily
basis. The yield for any given past period is not an indication or
representation of future yields or rates of return. Yield is affected by
portfolio quality, portfolio maturity, type of instruments held and operating
expenses. When comparing a Portfolio's yield with that of other investments,
investors should understand that certain other investment alternatives such as
money-market instruments or bank accounts provide fixed yields and also that
bank accounts may be insured.
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1995 FOR
BOND PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
BOND PORTFOLIO 5.18%
(1) Reflects waiver of advisory fees and reimbursement of other expenses by the
Manager. Had the waiver and reimbursement not been in effect during the period,
the yield would have been 4.56% for the Bond Portfolio.
Current yield is calculated according to the following formula:
x
YIELD = 2( --- +1) to the power of 6 -1
cd
Where:
x = daily net investment income, based upon the subtraction of daily accrued
expenses from daily accrued income of the portfolio. Income is accrued
daily for each day of the indicated period based upon yield-to-maturity of
each obligation held in the portfolio as of the day before the beginning of
any thirty-day period or as of contractual settlement date for securities
acquired during the period. Mortgage and other receivables-backed
securities calculate income using coupon rate and outstanding principal
amount.
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield does not reflect capital gains or losses, non-recurring or irregular
income. Gain or loss attributable to actual monthly paydowns on mortgage or
other receivables-backed obligations purchased at a discount or premium is
reflected as an increase or decrease in interest income during the period.
33
<PAGE>
A Portfolio's average annual total return represents an annualization of
the Portfolio's total return ("T" in the formula below), over a particular
period and is computed by finding the current percentage rate which will result
in the ending redeemable value ("ERV" in the formula below) of a $1,000
investment, ("P" in the formula below) made at the beginning of a one, five or
ten year period, or for the period from the date of commencement of the
Portfolio's operation, if shorter ("N" in the formula below). The following
formula will be used to compute the average annual total return for each
Portfolio (other than the Money Market Portfolio):
P (1 + T) to the power of N = ERV
In addition to the foregoing, each Portfolio may advertise its total return
over different periods of time by means of aggregate, average, year by year or
other types of total return figures.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.
In addition to average annual returns, each Portfolio may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments and/or a series of redemptions over
any time period. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund performance
rating services including but not limited to Lipper Analytical Services, Inc.
and Morningstar, Inc., (2) recognized indices including but not limited to the
S&P Composite Stock Price Index, Dow Jones Industrial Average, Consumer Price
Index, EAFE Index, Russell 2000 Index, and (3) Money Magazine and other
financial publications including but not limited to magazines, newspapers and
newsletters. Performance statistics may include total returns, measures of
volatility or other methods of portraying performance based on the method used
by the publishers of the information. In addition, comparisons may be made
between yields on certificates of deposit and U.S. government securities and
corporate bonds, and may refer to current or historic financial or economic
trends or conditions.
34
<PAGE>
AVERAGE ANNUAL TOTAL RETURN OF BOND, EQUITY, MANAGED AND
SMALL CAP PORTFOLIOS OF OCC ACCUMULATION TRUST(1),(2)
Portfolio For the five For the period
For the one year year period from inception
period ended ended to
December 31, December 31, December 31,
1995 1995 1995
Bond 15.23% 8.08% 7.88%
Equity 38.85% 19.17% 15.64%
Managed 45.55% 23.34% 19.74%
Small Cap 15.23% 19.65% 14.15%
(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 Equity, Small Cap and Managed
Portfolios immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap, Managed, and Bond Portfolios, $3,764,598, $8,129,274,
$51,345,102, and $3,756,161 respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap, Managed and Bond Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(2) Reflects waiver of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager. Without
such waivers and reimbursements, the average annual total return during the
periods would have been lower.
ADDITIONAL INFORMATION
DESCRIPTION OF THE TRUST. It is not contemplated that regular annual
meetings of shareholders will be held. Shareholders have the right, upon the
declaration in writing or vote of a majority of the outstanding shares of the
Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon written request of the record holders (for
at least six months) of 10% of its outstanding shares. In addition, 10
shareholders holding the lesser of $25,000 or 1% of the Fund's outstanding
shares may advise the Trustees in writing that they wish to communicate with
other shareholders for the purpose of requesting a meeting to remove a Trustee.
The Trustees will then either give the applicants access to the Fund's
shareholder list or mail the applicants' communication to all other shareholders
at the applicants' expense.
35
<PAGE>
The Declaration of Trust contains an express disclaimer of shareholder
liability for the Fund's obligations, and provides that the Fund shall indemnify
any shareholder who is held personally liable for the obligations of the Fund.
It also provides that the Fund shall assume, upon request, the defense of any
claim made against any shareholder for any act or obligation of the Fund and
shall satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of a trust (such as the Fund) to be held personally liable as a
partner under certain circumstances, the risk of a shareholder incurring any
financial loss on account of shareholder liability is limited to the relatively
remote circumstance in which the Fund itself would be unable to meet the
obligations described above.
POSSIBLE ADDITIONAL PORTFOLIO SERIES. If additional Portfolios are created
by the Board of Trustees, shares of each such Portfolio will be entitled to vote
as a class only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses would be
allocated fairly among two or more Portfolios by the Board of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to a
vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
independent accountants. The Rule contains special provisions for cases in
which an advisory agreement is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
DISTRIBUTION AGREEMENT. Under the Distribution Agreement between each
Portfolio and the Distributor, the Distributor acts as the Portfolio's agent in
the continuous public offering of its shares. Expenses normally attributed to
sales, including advertising and the cost of printing and mailing prospectuses
other than those furnished to existing shareholders, are borne by the
Distributor.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP serves as independent
accountants of the Fund; their services include examining the annual financial
statements of each Portfolio as well as other related services. Price
Waterhouse LLP also serves as independent accountants for the Manager and its
affiliates.
36
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT-TERM CORPORATE NOTES - 21.2%
AUTOMOTIVE - 1.5%
$130,000 Ford Motor Credit Co., 5.65%, 1/31/96 $ 129,388
BANKING - 1.1%
100,000 Norwest Financial, Inc., 5.62%, 1/22/96 99,672
----------
INSURANCE - 3.3%
300,000 Prudential Funding Corp., 5.81%, 1/9/96 299,613
----------
MACHINERY/ENGINEERING - 2.2%
200,000 Deere (John) Capital Corp., 5.73%, 1/9/96 199,745
----------
Miscellaneous Financial Services - 8.7%
380,000 Beneficial Corp., 5.77%, 1/16/96 379,086
410,000 Household Finance Corp., 5.75%, 1/10/96 409,411
----------
788,497
----------
TECHNOLOGY - 4.4%
400,000 IBM Credit Corp., 5.73%, 1/3/96 399,873
----------
Total Short-Term Corporate Notes
(amortized cost-$1,916,788) $1,916,788
----------
<CAPTION>
SHARES
- ------
<S> <C> <C>
COMMON STOCKS - 81.6%
AEROSPACE/DEFENSE - 5.4%
3,380 AlliedSignal, Inc. $ 160,550
9,000 Coltec Industries, Inc. 104,625
2,447 McDonnell Douglas Corp. 225,124
----------
490,299
----------
BANKING - 6.2%
4,656 Citicorp 313,116
1,800 First Interstate Bancorp 245,700
----------
558,816
----------
CHEMICALS - 4.9%
2,000 du Pont (E.I.) de Nemours & Co. 139,750
3,198 Hercules, Inc. 180,287
982 Monsanto Co. 120,295
----------
440,332
----------
CONGLOMERATES - 1.7%
2,156 General Electric Co. 155,232
----------
CONSUMER PRODUCTS - 4.6%
1,922 Avon Products, Inc. 144,871
3,370 Hasbro, Inc. 104,470
5,475 Mattel, Inc. 168,356
----------
417,697
----------
CONTAINERS - 2.1%
4,298 Temple-Inland, Inc. $ 189,649
----------
DRUGS & MEDICAL PRODUCTS - 4.3%
4,021 Becton, Dickinson & Co. 301,575
874 Warner-Lambert Co. 84,887
----------
386,462
----------
ELECTRONICS - 1.9%
4,038 Arrow Electronics, Inc.* 174,139
----------
ENERGY - 1.9%
2,996 Triton Energy Corp.* 171,896
----------
HEALTH & HOSPITALS - 3.8%
3,500 Columbia / HCA Healthcare Corp. 177,625
8,000 Tenet Healthcare Corp.* 166,000
----------
343,625
----------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C> <C>
INSURANCE - 18.4%
6,500 Ace Ltd. 258,375
3,248 AFLAC, Inc. 140,882
2,262 American International Group, Inc. 209,235
6,726 EXEL Ltd. 410,286
4,579 Progressive Corp. (Ohio) 223,799
10,000 Prudential Reinsurance Holdings, Inc. 233,750
874 Transamerica Corp. 63,693
10 Transport Holdings, Inc.* 407
2,000 Travelers, Inc. 125,750
----------
1,666,177
----------
MANUFACTURING - 4.2%
8,000 Shaw Industries, Inc. 118,000
7,000 Varity Corp.* 259,875
----------
377,875
----------
METALS & MINING - .7%
2,145 Freeport McMoRan Copper & Gold (Class B) 60,328
----------
MISCELLANEOUS FINANCIAL SERVICES - 7.7%
3,245 American Express Co. 134,262
5,912 Countrywide Credit Industries, Inc. 128,586
5,155 Federal Home Loan Mortgage Corp. 430,442
----------
693,290
----------
PAPER PRODUCTS - 1.4%
3,100 Champion International Corp. 130,200
----------
RAILROADS - 1.9%
2,100 Norfolk Southern Corp. $ 166,688
----------
RETAIL - 5.0%
7,388 May Department Stores Co. 312,143
3,000 Penney (J.C.) Co., Inc. 142,875
----------
455,018
----------
TECHNOLOGY - 1.9%
3,046 Intel Corp. 172,860
----------
TELECOMMUNICATION - 1.8%
4,000 Sprint Corp. 159,500
----------
TRANSPORTATION - 1.8%
3,600 CSX Corp. 164,250
----------
Total Common Stocks (cost-$5,850,568) $7,374,333
----------
Total Investments (A) (cost-$7,767,356) 102.8% $9,291,121
Other Liabilities in Excess of Other Assets (2.8) (255,139)
----- ----------
Total Net Assets 100.0% $9,035,982
----- ----------
----- ----------
</TABLE>
* Non-income producing security.
(A) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $1,637,034, aggregate gross
unrealized depreciation for securities in which there is an excess of tax
cost over value is $113,269 and net unrealized appreciation for Federal
income tax purpose is $1,523,765. Federal income tax basis of portfolio
securities is substantially the same as for financial reporting purposes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$7,767,356) $9,291,121
Cash 858
Receivable from fund shares sold 1,533
Dividends receivable 7,702
Receivable from Adviser 38
Other assets 125
----------
Total Assets 9,301,377
----------
LIABILITIES
Payable for investments purchased 250,000
Other payables and accrued expenses 15,395
----------
Total Liabilities 265,395
----------
NET ASSETS
Par value ($.01 per share) 3,607
Paid-in-surplus 7,172,859
Accumulated undistributed net investment income 111,781
Accumulated undistributed net realized gain on investments 223,970
Net unrealized appreciation on investments 1,523,765
----------
Total Net Assets $9,035,982
----------
----------
Fund shares outstanding 360,689
----------
Net asset value per share $ 25.05
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 93,124
Interest 64,858
----------
Total investment income 157,982
----------
OPERATING EXPENSES
Investment advisory fee (note 2a) 38,504
Custodian fees 14,481
Auditing, consulting and tax return preparation fees 10,044
Transfer and dividend disbursing agent fees 9,103
Legal fees 2,714
Reports and notices to shareholders 1,692
Miscellaneous 4,408
----------
Total operating expenses 80,946
Less: Investment advisory fee waived (note 2a) (34,745)
----------
Net operating expenses 46,201
----------
Net investment income 111,781
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-NET
Net realized gain on investments 233,302
Net change in unrealized appreciation (depreciation) on
investments 1,628,793
----------
Net realized gain and change in unrealized appreciation
(depreciation) on investments 1,862,095
----------
Net increase in net assets resulting from operations $1,973,876
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 111,781 $ 20,888
Net realized gain (loss) on investments 233,302 (9,332)
Net change in unrealized appreciation (depreciation)
on investments 1,628,793 (105,028)
---------- ----------
Net increase (decrease) in net assets resulting
from operations 1,973,876 (93,472)
---------- ----------
DIVIDENDS TO SHAREHOLDERS
Net investment income (20,888) --
---------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales 3,630,236 677,749
Net value of securities received (note 1) -- 3,764,598
Reinvestment of dividends 20,888 --
Cost of shares redeemed (849,386) (67,619)
---------- ----------
Net increase in net assets from fund share
transactions 2,801,738 4,374,728
---------- ----------
Total increase in net assets 4,754,726 4,281,256
NET ASSETS
Beginning of period 4,281,256 0
---------- ----------
End of period (including undistributed net investment
income of $111,781 and $20,888, respectively) $9,035,982 $4,281,256
---------- ----------
---------- ----------
SHARES ISSUED AND REDEEMED
Issued 161,702 37,272
Issued in exchange for securities (note 1) -- 202,725
Issued in reinvestment of dividends 1,074 --
Redeemed (38,368) (3,716)
---------- ----------
Net increase 124,408 236,281
---------- ----------
---------- ----------
</TABLE>
(1) Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Equity Portfolio (the
"Portfolio"), one of the Trust's seven portfolios had no operations until
September 16, 1994, when the Enterprise Accumulation Trust Equity Portfolio
(formerly known as Quest for Value Accumulation Trust Equity Portfolio),
distributed cash and securities with an aggregate market value of $3,764,598 in
exchange for 202,725 shares of the Portfolio. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such
reported sales, the securities are valued at their last quoted bid price.
Other securities traded over-the-counter and not part of the National Market
System are valued at the last quoted bid price. Investment debt securities
(other than short-term obligations) are valued each business day by an
independent pricing service approved by the Board of Trustees. Investments
are valued by the pricing service using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of
more than sixty days are valued on a "marked-to-market" basis, that is, at
prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term debt securities having a remaining maturity
of sixty days or less are valued at amortized cost, which approximates market
value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
by the Board of Trustees. The ability of issuers of debt instruments to meet
their obligations may be affected by economic developments in a specific
industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In
determining the gain or loss from the sale of securities, the cost of securities
sold has been determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date and interest income is accrued as earned.
Discounts or premiums on debt securities purchased are accreted or amortized to
interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income
and net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These
6
<PAGE>
"book-tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their Federal tax-basis
treatment: temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains, respectively. To the extent distributions exceed
current and accumulated earnings and profits for Federal income tax purposes,
they are reported as distributions of paid-in-surplus or tax return of capital.
At December 31, 1995, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios of
the Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(2) Investment Advisory Fee and Other Transactions with Affiliates
(a) The investment advisory fee is accrued daily and payable monthly to
the Adviser, and is computed as a percentage of the Portfolio's net assets as of
the close of business each day at the annual rate of .60%.
The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio to
.72% of average daily net assets on an annual basis through at least December
31, 1995.
(b) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1995, amounted to $6,942, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $3,800.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1995, purchases and sales of investment
securities, other than short-term securities were $3,641,204 and $1,633,047,
respectively.
(4) CAPITAL LOSS CARRYFORWARD
For the fiscal year ended December 31, 1995, the Portfolio will utilize
$9,332 of net capital loss carryforwards.
7
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net asset value, beginning of period $ 18.12 $ 18.57
Income from investment operations:
Net investment income 0.31 0.09
Net realized and unrealized gain (loss) on investments 6.71 (0.54)
---------- ----------
Total from investment operations 7.02 (0.45)
---------- ----------
Dividends to shareholders:
Dividends to shareholders from net investment income (0.09) --
---------- ----------
Net asset value, end of period $ 25.05 $ 18.12
---------- ----------
---------- ----------
Total return(2) 38.9% (2.4%)
---------- ----------
---------- ----------
Net assets, end of period $9,035,982 $4,281,256
---------- ----------
Ratio of net operating expenses to average net
assets(5) 0.72%(4) 0.72%(3)
---------- ----------
Ratio of net investment income to average net assets(5) 1.74%(4) 1.80%(3)
---------- ----------
Portfolio turnover 31% 6%
---------- ----------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1995 were $6,417,381.
(5) During the periods presented above, the Adviser waived a portion or all
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 would have been
1.26% and 2.09% and the ratio of net investment income to average net
assets would have been 1.20% and 0.43%, respectively
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
QUEST FOR VALUE ACCUMULATION TRUST--EQUITY PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Equity Portfolio (one of the
portfolios constituting Quest for Value Accumulation Trust, hereafter referred
to as the "Portfolio") at December 31, 1995, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year ended December 31, 1995 and for the period September 16,
1994 (commencement of operations) through December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and broker, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
9
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT-TERM CORPORATE NOTES-13.9%
BANKING-3.9%
$625,000 Norwest Financial, Inc., 5.62%, 1/23/96 $ 622,853
----------
CONGLOMERATES-1.6%
150,000 General Electric Capital Corp., 5.76%, 1/8/96 149,832
100,000 General Electric Capital Services, Inc., 5.76%, 1/8/96 99,888
----------
249,720
----------
INSURANCE-1.2%
200,000 Prudential Funding Corp., 5.75%, 1/17/96 199,489
----------
MACHINERY-2.8%
Deere (John) Capital Corp.,
300,000 5.63%, 1/17/96 299,249
150,000 5.73%, 1/4/96 149,929
----------
449,178
----------
MISCELLANEOUS FINANCIAL SERVICES-4.4%
Beneficial Corp.,
500,000 5.70%, 1/5/96 499,683
100,000 5.76%, 1/8/96 99,888
100,000 Household Finance Corp., 5.67%, 1/23/96 99,654
----------
699,225
----------
Total Short-Term Corporate Notes (amortized
cost-$2,220,465) $2,220,465
----------
CORPORATE NOTES-.1%
AUTOMOTIVE-.0%
$ 2,148 Collins Industries, Inc., 8.75%, 1/11/00 $ 2,005
----------
ENERGY-.1%
15,125 Global Marine, Inc., 12.75%, 12/15/99 16,713
----------
Total Corporate Notes (cost - $18,363) $ 18,718
----------
CONVERTIBLE CORPORATE BONDS-.3%
REAL ESTATE-.3%
$ 51,487 Security Capital Realty, Inc., 12.00%,
6/30/14(A)(B) (cost - $46,860) $ 51,487
----------
<CAPTION>
SHARES
- ------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK-.6%
RETAIL-.1%
2,200 Family Bargain Corp. $.95 Conv. Pfd. $ 12,925
TRANSPORTATION-.5%
825 Interpool, Inc., 5.75%, Conv. Pfd. 77,550
----------
Total Convertible Preferred Stock (cost-$81,675) $ 90,475
----------
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C>
COMMON STOCKS-83.9%
ADVERTISING-6.2%
20,000 Katz Media Group, Inc.* $ 352,500
6,000 Omnicom Group, Inc. 223,500
22,864 True North Communications, Inc. 422,984
----------
998,984
----------
AUTOMOTIVE-1.1%
4,400 Collins Industries, Inc.* 7,150
12,000 Masland Corp. 168,000
----------
175,150
----------
BANKING-.8%
6,800 First Financial Caribbean Corp. 127,500
----------
Building & Construction-3.1%
9,739 D.R. Horton, Inc. 114,433
3,000 Insituform Technologies (Class A)* 34,875
16,500 Martin Marietta Materials, Inc. 340,313
----------
489,621
----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C>
CHEMICALS-1.3%
6,500 OM Group, Inc. 215,312
----------
COMPUTER SERVICES-3.5%
25,867 BancTec, Inc.* 478,539
3,394 Globalink, Inc.* 22,061
2,800 Keane, Inc.* 61,950
----------
562,550
----------
CONGLOMERATES-1.8%
12,100 Ralcorp Holdings, Inc.* 293,425
----------
DRUGS & MEDICAL PRODUCTS-2.8%
5,000 Dentsply International, Inc. 200,000
5,000 Spacelabs, Inc. 143,750
4,600 Sybron International Corp.* 109,250
----------
453,000
----------
ELECTRICAL EQUIPMENT-8.6%
17,200 EG & G, Inc. 417,100
11,800 Marshall Industries* 379,075
30,920 Oak Industries, Inc. 579,750
----------
1,375,925
----------
ENERGY-8.2%
7,948 Aquila Gas Pipeline Corp. $ 102,330
12,600 Belden & Blake Corp.* 220,500
15,500 Global Natural Resources, Inc.* 162,750
13,000 Noble Drilling Corp.* 117,000
11,200 Petroleum Heat & Power Company, Inc. (Class A) 91,000
10,100 St. Mary Land & Exploration Co. 141,400
25,942 Sithe Energies, Inc.* 155,652
8,000 Tesoro Petroleum Corp.* 69,000
2,000 Triton Energy Corp.* 114,750
6,900 UGI Corp. 143,175
----------
1,317,557
----------
ENTERTAINMENT-.4%
6,000 Hollywood Park, Inc. 60,375
15,983 Spectravision, Inc. (Class B)* 2,997
----------
63,372
----------
FOOD SERVICES-1.1%
7,000 IHOP Corp.* 182,000
HEALTH & HOSPITALS-3.4%
1,700 Community Health Services, Inc.* 60,562
20,200 Magellan Health Services, Inc.* 484,800
----------
545,362
----------
HOUSEHOLD PRODUCTS-.2%
3,200 Crown Crafts, Inc. 36,800
----------
INSURANCE-6.7%
4,100 Ace, LTD. 162,975
15,000 Capsure Holdings Corp.* 264,375
12,000 E.W. Blanch Holdings, Inc. 280,500
9,453 Guaranty National Corp. 145,340
7,000 Penn-America Group, Inc.* 99,750
5,400 Prudential Reinsurance Holdings, Inc. 126,225
----------
1,079,165
----------
MANUFACTURING-12.1%
3,800 Alltrista Corp.* 68,400
13,000 Baldwin Technology Co. (Class A) 65,813
5,700 Briggs & Stratton Corp. 247,237
9,000 Carlisle Companies, Inc. 363,375
11,800 Crane Co. 435,125
12,700 Exabyte Corp.* 185,737
12,000 Harmon Industries, Inc. $ 189,000
6,048 North American Watch Co. 116,424
9,400 Singer Co. N.V. 262,025
----------
1,933,136
----------
PAPER PRODUCTS-3.3%
44,800 Repap Enterprises, Inc.* 198,800
22,800 Shorewood Packaging Corp.* 324,900
----------
523,700
----------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C> <C>
PRINTING & PUBLISHING-2.3%
8,300 International Imaging Materials, Inc.* 209,575
8,900 Nu-Kote Holdings, Inc. (Class A)* 151,300
-----------
360,875
-----------
REAL ESTATE-6.8%
13,291 Cousins Properties, Inc. 269,143
6,161 Post Properties, Inc. 196,382
17,500 Security Capital Industrial Trust, Inc. 306,250
12,752 Security Capital Pacific Trust 251,852
66 Security Capital Realty, Inc. (A) 58,212
-----------
1,081,839
-----------
RETAIL-.3%
3,500 Maxim Group, Inc.* 47,250
-----------
SECURITY/INVESTIGATION-.1%
10,801 Automated Security (Holdings) PLC ADS* 8,101
-----------
TECHNOLOGY-.3%
1,500 Unitrode Corp. 42,375
-----------
TELECOMMUNICATION-1.0%
7,000 ECI Telecom, Ltd. 159,688
-----------
TEXTILES/APPAREL-4.4%
11,000 Dyersburg Corp. 55,000
3,426 Fab Industries, Inc. 109,204
6,400 Mohawk Industries, Inc.* 100,000
22,000 Westpoint Stevens, Inc. (Class A)* 441,375
-----------
705,579
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS-1.1%
12,900 Morningstar Group, Inc.* 103,200
6,000 Sylvan Foods Holdings, Inc.* 71,250
-----------
174,450
-----------
TRANSPORTATION-1.7%
8,300 Interpool, Inc. * $ 148,363
8,500 MTL, Inc* 119,000
-----------
267,363
-----------
OTHER-1.3%
8,250 McGrath RentCorp. 156,750
6,470 Olympic Steel, Inc.* 56,612
-----------
213,362
-----------
Total Common Stocks (cost-$12,333,334) $13,433,441
-----------
<CAPTION>
CONTRACTS
- ---------
<S> <C> <C> <C>
PURCHASED PUT OPTIONS-.0%
20 Triton Energy Corp., expiring August '96 @ $50
(premium paid-$5,511) $ 4,125
-----------
Total Investments(C) (cost - $14,706,208) 98.8% $15,818,711
Other Assets in Excess of Other Liabilities 1.2 185,681
----- -----------
Total Net Assets 100.0% $16,004,392
----- -----------
----- -----------
</TABLE>
* Non-income producing security.
(A) Restricted securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
UNIT
VALUATION
AS OF
DATE OF PAR UNIT DECEMBER 31,
DESCRIPTION ACQUISITION AMOUNT SHARES COST 1995
- ----------- ----------- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Security Capital
Realty, Inc.
12.00%, 6/30/14 9/16/94 $51,487 -- $ 91 $100
Security Capital
Realty, Inc.
Common Stock 9/16/94 -- 66 $949 $882
</TABLE>
12
<PAGE>
(B) Security Capital at its discretion may defer interest payments.
(C) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $1,745,435, aggregate gross
unrealized depreciation for securities in which there is an excess of tax
cost over value is $632,932, and net unrealized appreciation for Federal
income tax purposes is $1,112,503. Federal income tax basis of portfolio
securities is substantially the same as for financial reporting purposes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost-$14,706,208) $15,818,711
Cash 2,921
Receivable from investments sold 158,499
Receivable from fund shares sold 24,462
Dividends receivable 18,425
Interest receivable 3,421
Other assets 169
-----------
Total Assets 16,026,608
-----------
LIABILITIES
Payable for fund shares redeemed 200
Investment advisory fee payable 1,050
Other payables and accrued expenses 20,966
-----------
Total Liabilities 22,216
-----------
NET ASSETS
Par value ($.01 per share) 8,037
Paid-in-surplus 14,215,173
Accumulated undistributed net investment income 211,870
Accumulated undistributed net realized gain on investments 456,809
Net unrealized appreciation on investments 1,112,503
-----------
Total Net Assets $16,004,392
-----------
-----------
Fund shares outstanding 803,674
-----------
Net asset value per share $ 19.91
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 143,632
Interest 157,866
----------
Total investment income 301,498
----------
OPERATING EXPENSES
Investment advisory fee (note 2a) 72,770
Custodian fees 15,454
Auditing, consulting and tax return preparation fees 10,095
Transfer and dividend disbursing agent fees 9,197
Legal fees 3,156
Reports and notices to shareholders 2,392
Miscellaneous 6,639
----------
Total operating expenses 119,703
Less: Investment advisory fee waived (note 2a) (30,075)
----------
Net operating expenses 89,628
----------
Net investment income 211,870
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-NET
Net realized gain on investments 456,809
Net change in unrealized appreciation (depreciation)
on investments 1,189,804
----------
Net realized gain and change in unrealized appreciation
(depreciation) on investments 1,646,613
----------
Net increase in net assets resulting from operations $1,858,483
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 211,870 $ 29,623
Net realized gain on investments 456,809 26,352
Net change in unrealized appreciation
(depreciation) on investments 1,189,804 (77,301)
----------- ----------
Net increase (decrease) in net assets
resulting from operations 1,858,483 (21,326)
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (29,623) --
Net realized gains (26,352) --
----------- ----------
Total dividends and distributions to
shareholders (55,975) --
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales 7,801,061 1,287,020
Net value of securities received (note 1) -- 8,129,274
Reinvestment of dividends and distributions 55,975 --
Cost of shares redeemed (2,865,595) (184,525)
----------- ----------
Net increase in net assets from fund share
transactions 4,991,441 9,231,769
----------- ----------
Total increase in net assets 6,793,949 9,210,443
NET ASSETS
Beginning of period 9,210,443 0
----------- ----------
End of period (including undistributed net
investment income of $211,870 and $29,623,
respectively) $16,004,392 $9,210,443
----------- ----------
----------- ----------
SHARES ISSUED AND REDEEMED
Issued 427,444 75,859
Issued in exchange for securities (note 1) -- 464,795
Issued in reinvestment of dividends and distributions 3,289 --
Redeemed (156,903) (10,810)
----------- ----------
Net increase 273,830 529,844
----------- ----------
----------- ----------
</TABLE>
(1) Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Small Cap Portfolio (the
"Portfolio"), one of the Trust's seven portfolios, had no operations until
September 16, 1994, when the Enterprise Accumulation Trust Small Cap Portfolio
(formerly known as Quest for Value Accumulation Trust Small Cap Portfolio),
distributed cash and securities with an aggregate market value of $8,129,274 in
exchange for 464,795 shares of the Portfolio. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such
reported sales, the securities are valued at their last quoted bid price.
Other securities traded over-the-counter and not part of the National Market
System are valued at the last quoted bid price. Investment debt securities
(other than short-term obligations) are valued each business day by an
independent pricing service approved by the Board of Trustees. Investments
are valued by the pricing service using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of
more than sixty days are valued on a "marked-to-market" basis, that is, at
prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term debt securities having a remaining maturity
of sixty days or less are valued at amortized cost, which approximates market
value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
by the Board of Trustees. The ability of issuers of debt instruments to meet
their obligations may be affected by economic developments in a specific
industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In
determining the gain or loss from the sale of securities, the cost of securities
sold has been determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date and interest income is accrued as earned.
Discounts or premiums on debt securities purchased are accreted or amortized to
interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income
and net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These
17
<PAGE>
"book-tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their Federal tax-basis
treatment: temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains, respectively. To the extent distributions exceed
current and accumulated earnings and profits for Federal income tax purposes,
they are reported as distributions of paid-in-surplus or tax return of capital.
At December 31, 1995, the Portfolio did not have any permanent book-tax
differences.[es]
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios of
the Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) PURCHASED PUT OPTION ACCOUNTING POLICY
When a Portfolio purchases a put option, it pays a premium and an amount
equal to the premium is recorded as an investment. The option is subsequently
marked-to-market to reflect its current market value. The Portfolio, as
purchaser of an option, has control over whether the option is exercised. If an
option expires unexercised, the Portfolio realizes a loss in the amount of the
premium paid. If an option is exercised, the premium paid is an adjustment to
the proceeds from the sale in determining whether the Portfolio has realized a
gain or loss. The difference between the premium paid and the amount received
on effecting a closing sale transaction is the realized gain or loss. The
Portfolio, as a purchaser of an option, bears the risk of the potential
inability of the counterparties to meet the terms of their contracts.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The investment advisory fee is accrued daily and payable monthly to
the Adviser, and is computed as a percentage of the Portfolio's net assets as of
the close of business each day at the annual rate of .60%.
The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio to
.74% of average daily net assets on an annual basis through at least December
31, 1995.
(b) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1995, amounted to $35,395, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $12,805.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1995, purchases and sales of investment
securities, other than short-term securities were $10,968,368 and $6,786,171,
respectively.
(4) CAPITAL LOSS DEFERRAL
Capital losses incurred after October 31, 1995 are deemed to arise on the
first business day of the following fiscal year. Accordingly, the Portfolio
incurred and elected to defer $87,890 in net capital losses.
18
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net asset value, beginning of period $ 17.38 $ 17.49
Income from investment operations:
Net investment income 0.26 0.06
Net realized and unrealized gain (loss) on investments 2.37 (0.17)
----------- ----------
Total from investment operations 2.63 (0.11)
----------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income (0.05) --
Distributions to shareholders from net realized
capital gains (0.05) --
----------- ----------
Total dividends and distributions (0.10) --
----------- ----------
Net asset value, end of period $ 19.91 $ 17.38
----------- ----------
----------- ----------
Total return(2) 15.2% (.6%)
----------- ----------
----------- ----------
Net assets, end of period $16,004,392 $9,210,443
----------- ----------
Ratio of net operating expenses to average
net assets(5) 0.74%(4) 0.74%(3)
----------- ----------
Ratio of net investment income to average net assets(5) 1.75%(4) 1.22%(3)
----------- ----------
Portfolio turnover 69% 32%
----------- ----------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1995 were $12,128,267.
(5) During the periods presented above, the Adviser waived a portion or all
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 would have been
0.99% and 1.64% and the ratio of net investment income to average net
assets would have been 1.50% and 0.32%, respectively.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Quest for Value Accumulation Trust--Small Cap Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Small Cap Portfolio (one of the
portfolios constituting Quest for Value Accumulation Trust hereafter referred to
as the "Portfolio") at December 31, 1995, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the year ended December 31, 1995 and for the period September 16, 1994
(commencement of operations) through December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
20
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT-TERM CORPORATE NOTES-14.3%
AUTOMOTIVE-2.5%
FORD MOTOR CREDIT CO.,
$ 150,000 5.74%, 1/8/96 $ 149,833
2,310,000 5.76%, 1/10/96 2,306,674
-----------
2,456,507
-----------
BANKING-.2%
180,000 Norwest Financial, Inc., 5.62%, 1/22/96 179,410
-----------
INSURANCE-6.3%
Prudential Funding Corp.,
3,130,000 5.80%, 1/17/96 3,121,932
3,150,000 5.81%, 1/9/96 3,145,933
-----------
6,267,865
-----------
MACHINERY/ENGINEERING-.4%
420,000 Deere (John) Capital Corp., 5.55%, 1/17/96 418,964
-----------
MISCELLANEOUS FINANCIAL SERVICES-4.6%
1,370,000 Beneficial Corp., 5.80%, 1/23/96 1,365,144
3,000,000 Household Finance Corp., 5.75%, 1/10/96 2,995,687
130,000 Merrill Lynch & Co., Inc., 5.75%, 1/3/96 129,958
-----------
4,490,789
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS-.3%
330,000 Philip Morris Companies, Inc., 5.92%, 1/3/96 329,891
-----------
Total Short-Term Corporate Notes
(amortized cost-$14,143,426) $14,143,426
-----------
U.S. TREASURY NOTES AND BONDS-1.7%
$ 700,000 6.25%, 8/15/23 $ 720,237
630,000 7.875%, 4/15/98 665,242
297,500 7.875%, 8/15/01 332,269
-----------
Total U.S. Treasury Notes and Bonds
(cost-$1,520,076) $ 1,717,748
-----------
CONVERTIBLE CORPORATE BONDS-.7%
REAL ESTATE-.7%
$ 632,708 Security Capital Realty, Inc., 12.00%, 6/30/14(A)(B)
(cost-$575,845) $ 632,708
-----------
<CAPTION>
SHARES
- ------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS-.0%
RETAIL-.0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd.
(cost-$102,527) $ 24,780
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C> <C>
COMMON STOCKS-83.2%
AEROSPACE/DEFENSE-7.6%
20,000 Lockheed Martin Corp. $ 1,580,000
63,000 McDonnell Douglas Corp. 5,796,000
2,200 Northrop Grumman Corp. 140,800
-----------
7,516,800
-----------
AUTOMOTIVE-1.7%
31,300 General Motors Corp. 1,654,987
-----------
BANKING-16.1%
74,100 Citicorp 4,983,225
7,400 First Empire State Corp. 1,613,200
15,000 First Interstate Bancorp 2,047,500
60,000 Mellon Bank Corp. 3,225,000
19,000 Wells Fargo & Co. 4,104,000
-----------
15,972,925
-----------
CHEMICALS-3.5%
40,000 Hercules, Inc. 2,255,000
10,000 Monsanto Co. 1,225,000
-----------
3,480,000
-----------
CONSUMER PRODUCTS-7.0%
16,350 Avon Products, Inc. 1,232,381
100,000 Mattel, Inc. 3,075,000
93,000 Reebok International Ltd. 2,627,250
-----------
6,934,631
-----------
DRUGS & MEDICAL PRODUCTS-3.0%
40,000 Becton, Dickinson & Co. 3,000,000
-----------
ENERGY-5.6%
20,000 MAPCO, Inc. 1,092,500
60,000 Tenneco, Inc. 2,977,500
25,700 Triton Energy Corp.* 1,474,537
-----------
5,544,537
-----------
INSURANCE-6.4%
51,400 EXEL Ltd. 3,135,400
15,400 Transamerica Corp. 1,122,275
180 Transport Holdings, Inc.* 7,335
33,000 Travelers, Inc. 2,074,875
-----------
6,339,885
-----------
MANUFACTURING-1.6%
110,000 Shaw Industries, Inc. 1,622,500
-----------
METALS & MINING-4.6%
149,132 Freeport McMoRan Copper & Gold (Class B) $ 4,194,338
9,389 Freeport McMoRan, Inc. 347,393
-----------
4,541,731
-----------
MISCELLANEOUS FINANCIAL SERVICES-13.8%
74,000 American Express Co. 3,061,750
90,000 Countrywide Credit Industries, Inc. 1,957,500
61,100 Federal Home Loan Mortgage Corp. 5,101,850
29,100 Federal National Mortgage Association 3,612,038
-----------
13,733,138
-----------
PAPER PRODUCTS-3.6%
84,000 Champion International Corp. 3,528,000
-----------
REAL ESTATE-.7%
811 Security Capital Realty, Inc.(A) 715,302
-----------
TECHNOLOGY-6.0%
75,000 Intel Corp. 4,256,250
60,000 Unitrode Corp.* 1,695,000
-----------
5,951,250
-----------
TELECOMMUNICATIONS-2.0%
50,000 Sprint Corp 1,993,750
-----------
Total Common Stocks (cost-$61,380,303) $82,529,436
-----------
Total Investments(C) (cost-$77,722,177) 99.9% $99,048,098
Other Assets in Excess of Other Liabilities 0.1 140,049
----- -----------
Total Net Assets 100.0% $99,188,147
----- -----------
----- -----------
</TABLE>
22
<PAGE>
* Non-income producing security.
(A) Restricted Securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
UNIT
VALUATION
AS OF
DATE OF PAR UNIT DECEMBER 31,
DESCRIPTION ACQUISITION AMOUNT SHARES COST 1995
- ----------- ----------- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Security Capital
Realty, Inc.
12.00%, 6/30/14 9/16/94 $632,708 -- $ 91 $100
Security Capital
Realty, Inc.
Common Stock 9/16/94 -- 811 $949 $882
</TABLE>
(B) Security Capital at its discretion may defer interest payments.
(C) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $22,384,125, aggregate gross
unrealized depreciation for securities in which there is an excess of tax
cost over value is $1,058,204 and net unrealized appreciation for Federal
income tax purpose is $21,325,921. Federal income tax basis of portfolio
securities is substantially the same as for financial reporting purposes.
23
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost-$77,722,177) $99,048,098
Receivable from fund shares sold 42,863
Dividends receivable 89,385
Interest receivable 74,121
Receivable from Adviser 1,313
Other assets 385
-----------
Total Assets 99,256,165
-----------
LIABILITIES
Payable for fund shares redeemed 964
Due to custodian 24,356
Other payables and accrued expenses 42,698
-----------
Total Liabilities 68,018
-----------
NET ASSETS
Par value ($.01 per share) 32,907
Paid-in-surplus 75,572,376
Accumulated undistributed net investment income 1,378,069
Accumulated undistributed net realized gain on investments 878,874
Net unrealized appreciation on investments 21,325,921
-----------
Total Net Assets $99,188,147
-----------
-----------
Fund shares outstanding 3,290,749
-----------
Net asset value per share $ 30.14
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 1,270,963
Interest 600,998
----------
Total investment income 1,871,961
-----------
OPERATING EXPENSES
Investment advisory fee (note 2a) 447,678
Trustee's fees and expenses 17,443
Custodian fees 16,004
Auditing, consulting and tax return preparation fees 14,421
Transfer and dividend disbursing agent fees 10,207
Reports and notices to shareholders 9,949
Legal fees 8,106
Miscellaneous 25,120
----------
Total operating expenses 548,928
Less: Investment advisory fee waived (note 2a) (55,036)
----------
Net operating expenses 493,892
----------
Net investment income 1,378,069
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-NET
Net realized gain on investments 1,023,914
Net change in unrealized appreciation(depreciation)on investments 23,901,028
----------
Net realized gain and change in unrealized appreciation
(depreciation) on investments 24,924,942
----------
Net increase in net assets resulting from operations $26,303,011
----------
----------
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 1,378,069 $ 360,801
Net realized gain (loss) on investments 1,023,914 (145,040)
Net change in unrealized appreciation (depreciation)
on investments 23,901,028 (2,575,107)
----------- ----------
Net increase (decrease) in net assets
resulting from operations 26,303,011 (2,359,346)
----------- ----------
DIVIDENDS TO SHAREHOLDERS
Net investment income (360,801) --
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales 27,913,098 6,980,338
Net value of securities received (note 1) -- 51,354,102
Reinvestment of dividends 360,801 --
Cost of shares redeemed (9,971,333) (1,031,723)
----------- ----------
Net increase in net assets from fund share
transactions 18,302,566 57,302,717
----------- ----------
Total increase in net assets 44,244,776 54,943,371
NET ASSETS
Beginning of period 54,943,371 0
----------- ----------
End of period (including undistributed net
investment income of $1,378,069 and $360,801,
respectively) $99,188,147 $54,943,371
----------- ----------
----------- ----------
SHARES ISSUED AND REDEEMED
Issued 1,016,970 330,594
Issued in exchange for securities (note 1) -- 2,355,693
Issued in reinvestment of dividends 15,866 --
Redeemed (379,452) (48,922)
----------- ----------
Net increase 653,384 2,637,365
----------- ----------
----------- ----------
</TABLE>
(1) Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Managed Portfolio (the
"Portfolio"), one of the Trust's seven portfolios, had no operations until
September 16, 1994, when the Enterprise Accumulation Trust Managed Portfolio
(formerly known as Quest for Value Accumulation Trust Managed Portfolio),
distributed cash and securities with an aggregate market value of $51,354,102 in
exchange for 2,355,693 shares of the Portfolio. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service approved by the Board of Trustees. Investments are valued by the
pricing service using methods which include current market quotations from a
major market maker in the securities and trader-reviewed "matrix" prices.
Short-term debt securities having a remaining maturity of more than sixty days
are valued on a "marked-to-market" basis, that is, at prices based upon market
quotations for securities of similar type, yield, quality and maturity.
Short-term debt securities having a remaining maturity of sixty days or less are
valued at amortized cost, which approximates market value. Any securities or
other assets for which market quotations are not readily available are valued at
their fair value as determined in good faith by the Board of Trustees. The
ability of issuers of debt instruments to meet their obligations may be affected
by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In
determining the gain or loss from the sale of securities, the cost of securities
sold has been determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date and interest income is accrued as earned.
Discounts or premiums on debt securities purchased are accreted or amortized to
interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income
and net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These
27
<PAGE>
"book-tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their Federal tax-basis
treatment: temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains, respectively. To the extent distributions exceed
current and accumulated earnings and profits for Federal income tax purposes,
they are reported as distributions of paid-in-surplus or tax return of capital.
At December 31, 1995, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios of
the Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The investment advisory fee is accrued daily and payable monthly to
the Adviser, and is computed as a percentage of the Portfolio's net assets as of
the close of business each day at the annual rate of .60%.
The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio to
.66% of average daily net assets on an annual basis through at least December
31, 1995.
(b) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1995, amounted to $65,136, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $26,544.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1995, purchases and sales of investment
securities, other than short-term securities were $30,484,410 and $15,035,906
respectively.
(4) CAPITAL LOSS CARRYFORWARD
For the fiscal year ended December 31, 1995, the Portfolio will utilize
$145,040 of net capital loss carryforwards.
28
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net asset value, beginning of period $ 20.83 $ 21.80
Income from investment operations:
Net investment income 0.42 0.14
Net realized and unrealized gain (loss) on investments 9.02 (1.11)
----------- ----------
Total from investment operations 9.44 (0.97)
----------- ----------
Dividends to shareholders:
Dividends to shareholders from net investment income (0.13) --
----------- ----------
Net asset value, end of period $ 30.14 $ 20.83
----------- ----------
----------- ----------
Total return(2) 45.6% (4.4%)
----------- ----------
----------- ----------
Net assets, end of period $99,188,147 $54,943,371
----------- ----------
Ratio of net operating expenses to average net
assets(5) 0.66%(4) 0.66%(3)
----------- ----------
Ratio of net investment income to average net assets(5) 1.85%(4) 2.34%(3)
----------- ----------
Portfolio turnover 22% 8%
----------- ----------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1995 were $74,612,954.
(5) During the periods presented above, the Adviser waived a portion of its
fees. If such waivers had not been in effect, the ratio of net operating
expenses to average net assets would have been 0.74% and 0.96% and the
ratio of net investment income to average net assets would have been
1.77% and 2.04%, respectively.
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
QUEST FOR VALUE ACCUMULATION TRUST--MANAGED PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Managed Portfolio (one of the
portfolios constituting Quest for Value Accumulation Trust, hereafter referred
to as the "Portfolio") at December 31, 1995, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year ended December 31, 1995 and for the period September 16,
1994 (commencement of operations) through December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
30
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C> <C>
U.S. TREASURY NOTES AND BONDS - 39.4%
$350,000 5.75%, 10/31/97 $ 353,392
150,000 5.75%, 8/15/03 151,804
550,000 6.125%, 7/31/96 552,662
175,000 7.25%, 11/30/96 177,980
190,000 7.25%, 8/15/04 211,286
175,000 10.375%, 11/15/12 241,938
----------
Total U.S. Treasury Notes and Bonds (cost-$1,641,179) $1,689,062
----------
U.S. TREASURY SECURITY, STRIPPED INTEREST PAYMENT - 3.8%
$750,000 (zero coupon), due 5/15/20 (cost-$120,452) $ 165,045
----------
U.S. GOVERNMENT AGENCY NOTES AND BONDS - 24.0%
$156,598 Federal Home Loan Mortgage Corp., 8.50%, 10/15/19 $ 159,680
Federal National Mortgage Association
225,804 7.00%, 1/1/10 229,966
283,185 8.00%, 8/1/24 293,272
14,009 9.00%, 8/1/02 14,749
28,274 9.50%, 12/1/06 29,758
90,381 9.50%, 12/1/19 96,284
194,852 Government National Mortgage Association, 8.50%, 3/15/25 204,594
----------
Total U.S. Government Agency Notes and Bonds
(cost-$996,587) $1,028,303
----------
CORPORATE NOTES - 31.4%
AUTOMOTIVE - 8.3%
$175,000 Chrysler Financial Corp., 8.42%, 2/1/99 $ 187,182
150,000 General Motors Acceptance Corp., 8.25%, 2/24/04 168,504
----------
355,686
----------
CONGLOMERATES - 5.2%
200,000 General Electric Capital Corp., 8.375%, 3/1/01 221,828
INSURANCE - 2.5%
100,000 St. Paul Companies, Inc., 9.375%, 6/15/97 105,065
----------
MISCELLANEOUS FINANCIAL SERVICES - 10.7%
200,000 Associates Corp., N.A., 5.25%, 3/30/00 196,368
100,000 BarclaysAmerican Corp., 7.875%, 8/15/98 105,482
150,000 Household Finance Corp., 6.875%, 3/1/03 155,989
----------
457,839
----------
RETAIL - 4.7%
$200,000 Sears Roebuck & Co., 8.55%, 8/1/96 $ 203,110
Total Corporate Notes (cost-$1,272,402) $1,343,528
Total Investments (A) (cost-$4,030,620) 98.6% $4,225,938
Other Assets in Excess of Other Liabilities 1.4 58,517
----- ----------
Total Net Assets 100.0% $4,284,455
----- ----------
----- ----------
</TABLE>
(A) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $195,318, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $0, and net unrealized appreciation for Federal income tax
purposes is $195,318. Federal income tax basis of portfolio securities
is substantially the same as for financial reporting purposes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost-$4,030,620) $4,225,938
Cash 8,680
Interest receivable 65,823
Other assets 76
----------
Total Assets 4,300,517
----------
LIABILITIES
Payable for fund shares redeemed 16
Dividends payable
1,593
Other payables and accrued expenses 14,453
----------
Total Liabilities 16,062
----------
NET ASSETS
Par value ($.01 per share) 4,287
Paid-in-surplus 4,009,340
Accumulated undistributed net realized gain on investments 75,510
Net unrealized appreciation on investments 195,318
----------
Total Net Assets $4,284,455
----------
----------
Fund shares outstanding 428,741
----------
Net asset value per share $ 9.99
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $285,303
--------
OPERATING EXPENSES
Investment advisory fee (note 2a) 20,517
Custodian fees 17,505
Auditing, consulting and tax return preparation fees 10,164
Transfer and dividend disbursing agent fees 9,068
Legal fees 2,429
Reports and notices to shareholders 668
Miscellaneous 1,833
--------
Total operating expenses 62,184
Less: Investment advisory fee waived and expenses reimbursed
(note 2a) (21,209)
Net operating expenses 40,975
--------
Net investment income 244,328
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS-NET
Net realized gain on investments 79,769
Net change in unrealized appreciation (depreciation) on investments
269,489
--------
Net realized gain and change in unrealized appreciation
(depreciation) on investments 349,258
--------
Net increase in net assets resulting from operations $593,586
--------
--------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 244,328 $ 66,718
Net realized gain (loss) on investments 79,769 (4,259)
Net change in unrealized appreciation (depreciation)
on investments 269,489 (74,170)
----------- -----------
Net increase (decrease) in net assets resulting from
operations 593,586 (11,711)
----------- -----------
DIVIDENDS TO SHAREHOLDERS
Net investment income (244,328) (66,718)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales 1,574,585 84,253
Net value of securities received (note 1) -- 3,756,161
Reinvestment of dividends 242,735 66,718
Cost of shares redeemed (1,537,477) (173,349)
----------- -----------
Net increase in net assets from fund share
transactions 279,843 3,733,783
----------- -----------
Total increase in net assets 629,101 3,655,354
NET ASSETS
Beginning of period 3,655,354 0
----------- -----------
End of period $ 4,284,455 $3,655,354
----------- -----------
----------- -----------
SHARES ISSUED AND REDEEMED
Issued 165,081 8,985
Issued in exchange for securities (note 1) -- 399,756
Issued in reinvestment of dividends 25,011 7,214
Redeemed (158,718) (18,588)
----------- -----------
Net increase 31,374 397,367
----------- -----------
----------- -----------
</TABLE>
(1) Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value; the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Bond Portfolio (the
"Portfolio"), one of the Trust's seven portfolios had no operations until
September 16, 1994, when the Enterprise Accumulation Trust Bond Portfolio
(formerly known as Quest for Value Accumulation Trust Bond Portfolio),
distributed cash and securities with an aggregate market value of $3,756,161 in
exchange for 399,756 shares of the Portfolio. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements.
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service approved by the Board of
Trustees. Investments are valued by the pricing service using methods which
include current market quotations from a major market maker in the securities
and trader-reviewed "matrix" prices. Short-term debt securities having a
remaining maturity of more than sixty days are valued on a "marked-to-market"
basis, that is, at prices based upon market quotations for securities of similar
type, yield, quality and maturity. Short-term debt securities having a
remaining maturity of sixty days or less are valued at amortized cost, which
approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In
determining the gain or loss from the sale of securities, the cost of securities
sold has been determined on the basis of identified cost. Interest income is
accrued as earned. Discounts or premiums on debt securities purchased are
accreted or amortized to interest income over the lives of the respective
securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment: temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
35
<PAGE>
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of
paid-in-surplus or tax return of capital. At December 31, 1995, the Portfolio
did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios or
another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The investment advisory fee is payable monthly to the Adviser, and is
computed as a percentage of the Portfolio's net assets as of the close of
business each day at the annual rate of .50%.
The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio to
1.00% of average daily net assets on an annual basis through at least December
31, 1995.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1995, purchases and sales of investment
securities, other than short-term were $5,824,578 and $5,281,293, respectively.
(4) CAPITAL LOSS CARRYFORWARD
For the fiscal year ended December 31, 1995, the Portfolio will utilize
$4,259 of net capital loss carryforward.
36
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net asset value, beginning of period $ 9.20 $ 9.40
Income from investment operations:
Net investment income 0.58 0.17
Net realized and unrealized gain (loss) on investments 0.79 (0.20)
---------- ----------
Total from investment operations 1.37 (0.03)
---------- ----------
Dividends to shareholders:
Dividends to shareholders from net investment income (0.58) (0.17)
---------- ----------
Net asset value, end of period $ 9.99 $ 9.20
---------- ----------
---------- ----------
Total return(2) 15.2% (0.3%)
---------- ----------
---------- ----------
Net assets, end of period $4,284,455 $3,655,354
---------- ----------
Ratio of net operating expenses to average net
assets(5) 1.00%(4) 1.00%(3)
---------- ----------
Ratio of net investment income to average net assets(5) 5.95%(4) 6.26%(3)
---------- ----------
Portfolio turnover 134% 7%
---------- ----------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1995 were $4,103,422.
(5) During the periods presented above, the Adviser waived a portion or all
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 would have been
1.52% and 2.05% and the ratio of net investment income to average net
assets would have been 5.43% and 5.21%, respectively.
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
QUEST FOR VALUE ACCUMULATION TRUST--BOND PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Bond Portfolio (one of the
portfolios constituting Quest for Value Accumulation Trust, hereafter referred
to as the "Portfolio") at December 31, 1995, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights for the year ended December 31, 1995 and for the period September 16,
1994 (commencement of operations) through December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
38
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY NOTES-27.4%
$ 90,000 Federal Farm Credit Bank, 5.62%, 1/24/96 $ 89,677
Federal Home Loan Bank
165,000 5.60%, 1/5/96 164,897
165,000 5.60%, 1/8/96 164,820
140,000 5.62%, 1/8/96 139,848
160,000 5.63%, 1/3/96 159,950
Federal Home Loan Mortgage Corp.
150,000 5.58%, 1/5/96 149,907
160,000 5.63%, 1/2/96 159,975
165,000 Federal National Mortgage Association, 5.60%,1/5/96 164,897
----------
Total U.S. Government Agency Notes (amortized
cost-$1,193,971) $1,193,971
----------
SHORT-TERM CORPORATE NOTES-72.4%
AGRICULTURE-3.9%
$ 170,000 Cargill, Inc., 5.62%, 2/6/96 $ 169,045
----------
AUTOMOTIVE-7.1%
150,000 Ford Motor Credit Co., 5.72%, 1/4/96 149,928
160,000 General Motors Acceptance Corp., 5.85%, 1/29/96 159,272
----------
309,200
----------
BANKING-11.5%
230,000 Abby National North America, 5.60%, 1/8/96 229,750
170,000 Commerzbank U.S. Finance, Inc., 5.73%, 1/12/96 169,702
100,000 Svenska Handelsbanken, Inc., 5.75%, 1/16/96 99,760
----------
499,212
----------
CONGLOMERATES-3.0%
130,000 General Electric Capital Corp., 5.76%, 1/22/96 129,563
----------
ENERGY-7.5%
170,000 Chevron Oil Finance Co., 5.65%, 1/4/96 169,920
160,000 Texaco, Inc., 5.60%, 1/31/96 159,253
----------
329,173
----------
INSURANCE-3.4%
153,000 Prudential Funding Corp., 5.52%, 1/22/96 152,507
----------
MACHINERY-3.0%
130,000 Deere (John) Capital Corp., 5.60%, 2/2/96 129,353
----------
MISCELLANEOUS FINANCIAL SERVICES-22.0%
$140,000 American Express Credit Corp., 5.70%, 1/19/96 $ 139,601
100,000 Beneficial Corp., 5.62%, 1/3/96 99,969
160,000 Hanson Finance (U.K.) PLC, 5.73%, 1/17/96 159,593
150,000 Household Finance Corp., 5.75%, 1/11/96 149,760
150,000 Merrill Lynch & Co., Inc., 5.70%, 1/29/96 149,335
130,000 Student Loan Corp., 5.73%, 1/16/96 129,690
130,000 Transamerica Finance Group, 5.71%, 1/2/96 129,979
----------
957,927
----------
TECHNOLOGY-7.3%
160,000 Hewlett Packard Co., 5.63%, 1/16/96 159,625
160,000 IBM Credit Corp., 5.70%, 1/12/96 159,721
----------
319,346
----------
TELECOMMUNICATIONS-3.7%
160,000 GTE Northwest, Inc., 5.81%, 1/10/96 159,768
----------
Total Short-Term Corporate Notes (amortized
cost-$3,155,094) $3,155,094
----------
Total Investments (A) (amortized cost-$4,349,065)
99.8% $4,349,065
Other Assets in Excess of Other Liabilities
0.2 7,019
Total Net Assets ----- ----------
100.0% $4,356,084
----- ----------
----- ----------
</TABLE>
(A) Federal income tax basis of portfolio securities is the same for
financial reporting purposes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost-$4,349,065) $4,349,065
Cash 25,688
Receivable from Adviser 30
Other assets 125
----------
Total Assets 4,374,908
----------
LIABILITIES
Payable for fund shares redeemed 4,018
Dividends payable 1,700
Other payables and accrued expenses 13,106
----------
Total Liabilities 18,824
----------
NET ASSETS
Par value ($.01 per share) 43,560
Paid-in-surplus 4,312,477
Net realized gain on investments 47
----------
Total Net Assets $4,356,084
----------
----------
Fund shares outstanding 4,356,037
----------
Net asset value per share $ 1.00
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $244,777
--------
OPERATING EXPENSES
Investment advisory fee (note 2a) 16,477
Auditing, consulting and tax return preparation fees 9,977
Transfer and dividend disbursing agent fees 9,067
Custodian fees 6,785
Legal fees 2,420
Reports and notices to shareholders 356
Miscellaneous 2,044
--------
Total operating expenses 47,126
Less: Investment advisory fee waived (note 2a) (5,702)
--------
Net operating expenses 41,424
--------
Net investment income 203,353
--------
REALIZED GAIN ON INVESTMENTS-NET
Net realized gain on investments 47
--------
Net increase in net assets resulting from operations $203,400
--------
--------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
OPERATIONS
Net investment income $ 203,353 $ 42,375
Net realized gain on investments 47 --
----------- ----------
Net increase in net assets resulting from
operations 203,400 42,375
----------- ----------
DIVIDENDS TO SHAREHOLDERS
Net investment income (203,353) (42,375)
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales 4,346,773 469,215
Net value of securities received (note 1) -- 3,407,191
Reinvestment of dividends 201,653 42,375
Cost of shares redeemed (3,711,915) (499,255)
----------- ----------
Net increase in net assets from fund share transactions 836,511 3,419,526
----------- ----------
Total increase in net assets 836,558 3,419,526
NET ASSETS
Beginning of period (note 1) 3,519,526 100,000
End of period $ 4,356,084 $3,519,526
----------- ----------
----------- ----------
SHARES ISSUED AND REDEEMED
Issued 4,346,773 469,215
Issued in exchange for securities (note 1) -- 3,407,191
Issued in reinvestment of dividends 201,653 42,375
Redeemed (3,711,915) (499,255)
----------- ----------
Net increase 836,511 3,419,526
----------- ----------
----------- ----------
</TABLE>
(1) Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Accumulation Trust (the "Trust") was organized May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value; the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Money Market Portfolio
(the "Portfolio"), one of the Trust's seven portfolios had no operations until
September 7, 1994 other than the sale and issuance of 100,000 shares of the
Portfolio to the Adviser at an aggregate purchase price of $100,000 to provide
the initial capital of the Trust. On September 16, 1994, Enterprise
Accumulation Trust Money Market Portfolio (formerly known as Quest for Value
Accumulation Trust Money Market Portfolio), distributed cash and securities
aggregating $3,407,191 in exchange for 3,407,191 shares of the Portfolio. The
following is a summary of significant accounting policies consistently followed
by the Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Portfolio securities are valued at amortized cost, which approximates
market value.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In
determining the gain or loss from the sale of securities, the cost of securities
sold has been determined on the basis of identified cost. Interest income is
accrued as earned. Discounts or premiums on debt securities purchased are
accreted or amortized to interest income over the lives of the respective
securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of
paid-in-surplus or tax return of capital. At December 31, 1995, the Portfolio
did not have any permanent book-tax differences.
43
<PAGE>
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios or
another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The investment advisory fee is payable monthly to the Adviser, and is
computed as a percentage of the Portfolio's net assets as of the close of
business each day at the annual rate of .40%.
The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio to
1.00% of average daily net assets on an annual basis through at least December
31, 1995.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1995, purchases and sales/maturities of
investment securities, were $37,451,485 and $36,853,510, respectively.
44
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SEPTEMBER 16,
YEAR ENDED 1994(1) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.05 0.01
Net realized gain on investments 0.00(2) --
----------- ----------
Total from investment operations 0.05 .01
----------- ----------
Dividends to shareholders:
Dividends to shareholders from net investment income (0.05) (0.01)
----------- ----------
Net asset value, end of period $ 1.00 $ 1.00
----------- ----------
Total return(3) 5.1% 4.2%(4)
Net assets, end of period $4,356,084 $3,519,526
----------- ----------
Ratio of net operating expenses to average net
assets(6) 1.00%(5) 1.00%(4)
----------- ----------
Ratio of net investment income to average net
assets(6) 4.94%(5) 4.13%(4)
----------- ----------
</TABLE>
(1) Commencement of operations.
(2) Less than $.005 per share.
(3) Assumes reinvestment of all dividends and distributions.
(4) Annualized.
(5) Average net assets for the year ended December 31, 1995 were $4,119,173.
(6) During the periods presented above, the Adviser waived a portion or all
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 would have been
1.14% and 2.03% and the ratio of net investment income to average net
assets would have been 4.80% and 3.10%, respectively.
45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
QUEST FOR VALUE ACCUMULATION TRUST--MONEY MARKET PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Money Market Portfolio (one of
the portfolios constituting Quest for Value Accumulation Trust, hereafter
referred to as the "Portfolio") at December 31, 1995, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year ended December 31, 1995 and for the period
September 16, 1994 (commencement of operations) through December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
46
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
47
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Principal
Amount
--------- Value
-----
<C> <S> <C> <C>
U. S. TREASURY NOTES -- 46.4%
$ 95,000 5.75%, 8/15/03 $ 96,143
65,000 6.375%, 8/15/02 68,158
125,000 7.25%, 2/15/98 129,980
35,000 7.25%, 5/15/04 38,850
140,000 7.375%, 11/15/97 145,294
175,000 7.75%, 12/31/99 189,903
----------
Total U.S. Treasury Notes (cost--$646,868) $ 668,328
----------
U.S. GOVERNMENT AGENCY NOTES -- 51.5%
Federal Farm Credit Bank
$ 35,000 5.08%, 1/15/96 $ 35,000
40,000 6.50%, 4/1/96 40,106
75,000 8.65%, 10/1/99 82,817
Federal Home Loan Bank
60,000 6.94%, 3/14/97 61,078
145,000 8.60%, 8/25/99 159,613
175,000 Federal Home Loan Mortgage Corp., 6.22%, 3/24/03 179,730
Federal National Mortgage Association
60,000 5.375%, 6/10/98 60,000
25,000 8.80%, 7/25/97 26,309
20,000 9.20%, 6/10/97 21,056
75,000 Student Loan Marketing Association, 7.00%, 3/03/98 77,543
----------
Total U.S. Government Agency Notes (cost--$722,722) $ 743,252
----------
Total Investments (A) (cost--$1,369,590) 97.9% $1,411,580
Other Assets in Excess of Other Liabilities 2.1 30,878
----- ----------
Total Net Assets 100.0% $1,442,458
----- ----------
----- ----------
</TABLE>
(A) Aggregate gross unrealized appreciation for securities in which there is
an excess of value over tax cost is $41,990, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $0, and net unrealized appreciation for Federal income tax
purposes is $41,990. Federal income tax basis of portfolio securities is
substantially the same as for financial reporting purposes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
1
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost--$1,369,590) $1,411,580
Cash 11,231
Receivable from fund shares sold 2,400
Interest receivable 30,127
Receivable from Adviser 552
Other assets 113
----------
Total Assets 1,456,003
----------
LIABILITIES
Payable for fund shares redeemed 23
Dividends payable 611
Other payables and accrued expenses 12,911
----------
Total Liabilities 13,545
----------
NET ASSETS
Par value ($.01 per share) 1,358
Paid-in-surplus 1,399,110
Net unrealized appreciation on investments 41,990
----------
Total Net Assets $1,442,458
----------
----------
Fund shares outstanding 135,799
----------
Net asset value per share $ 10.62
----------
----------
</TABLE>
2
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $52,801
-------
OPERATING EXPENSES
Investment advisory fee (note 2a) 4,873
Custodian fees 12,078
Auditing, consulting and tax return preparation fees 8,452
Transfer and dividend disbursing agent fees 8,260
Legal fees 2,079
Reports and notices to shareholders 722
Miscellaneous 1,934
-------
Total operating expenses 38,398
Less: Investment advisory fee waived and expenses reimbursed
(note 2a) (32,307)
--------
Net operating expenses 6,091
-------
Net investment income 46,710
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS $ NET
Net realized gain on investments 7,795
Net unrealized appreciation on investments 41,990
-------
Net realized gain and unrealized appreciation on investments 49,785
-------
Net increase in net assets resulting from operations $96,495
-------
-------
</TABLE>
3
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JANUARY 3,
1995(1) to
December 31,
1995
----
<S> <C>
OPERATIONS
Net investment income $ 46,710
Net realized gain on investments 7,795
Net unrealized appreciation on investments 41,990
----------
Net increase in net assets resulting from operations 96,495
----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (46,710)
Net realized gains (7,795)
----------
Total dividends and distributions to shareholders (54,505)
----------
FUND SHARE TRANSACTIONS
Net proceeds from sales 1,442,074
Reinvestment of dividends and distributions 53,894
Cost of shares redeemed (95,500)
----------
Net increase in net assets from fund share transactions 1,400,468
----------
Total increase in net assets 1,442,458
NET ASSETS
Beginning of period 0
----------
End of period $1,442,458
----------
----------
SHARES ISSUED AND REDEEMED
Issued 139,749
Issued in reinvestment of dividends and distributions 5,140
Redeemed (9,090)
----------
Net increase 135,799
----------
----------
</TABLE>
(1) Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value; the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The U.S. Government Income
Portfolio (the "Portfolio") one of the Trust's seven portfolios, commenced
operations on January 3, 1995. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are
valued each business day by an independent pricing service approved by the Board
of Trustees. Investments are valued by the pricing service using methods which
include current market quotations from a major market maker in the securities
and trader-reviewed "matrix" prices. Short-term debt securities having a
remaining maturity of more than sixty days are valued on a "marked-to-market"
basis, that is, at prices based upon market quotations for securities of similar
type, yield, quality and maturity. Short-term debt securities having a
remaining maturity of sixty days or less are valued at amortized cost, which
approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In
determining the gain or loss from the sale of securities, the cost of securities
sold has been determined on the basis of identified cost. Interest income is
accrued as earned. Discounts or premiums on debt securities purchased are
accreted or amortized to interest income over the lives of the respective
securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are declared
and paid at least annually.
The Portfolio records dividends and distributions to its shareholders
on the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment: temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income or
distributions
5
<PAGE>
in excess of net realized capital gains, respectively. To the extent
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as distributions of paid-in-surplus or
tax return of capital. At December 31, 1995, the Portfolio did not have any
permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne
by that portfolio. Other expenses are allocated to each portfolio based on its
net assets in relation to the total net assets of all the applicable portfolios
or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The investment advisory fee is payable monthly to the Adviser, and
is computed as a percentage of the Portfolio's net assets as of the close of
business each day at the annual rate of .60%.
The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio to
.75% of average daily net assets on an annual basis through at least
December 31, 1995.
(3) PURCHASES AND SALES OF SECURITIES
For the period January 3, 1995 (commencement of operations) to
December 31, 1995, purchases and sales of investment securities, other than
short-term securities, were $1,827,604 and $465,316, respectively.
6
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
JANUARY 3,
1995 (1)
TO DECEMBER 31,
1995
----
<S> <C>
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income 0.60
Net realized and unrealized gain on investments 0.68
----------
Total from investment operations 1.28
----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income (0.60)
Distributions to shareholders from net realized capital
gains (0.06)
----------
Total dividends and distributions (0.66)
----------
Net asset value, end of period $ 10.62
----------
----------
Total return 13.1%(2)
----------
----------
Net assets, end of period $1,442,458
----------
----------
Ratio of net operating expenses to average net assets 0.75%(3,4,5)
----------
Ratio of net investment income to average net assets 5.75%(3,4,5)
----------
Portfolio turnover 65%
----------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions.
(3) Annualized.
(4) Average net assets for the period January 3, 1995 (commencement of
operations) to December 31, 1995 were $816,660.
(5) During the period presented above, the Adviser waived 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 4.73% and 1.77%, respectively.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
QUEST FOR VALUE ACCUMULATION TRUST - U.S. GOVERNMENT INCOME PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the U.S. Government Income
Portfolio (one of the portfolios constituting Quest for Value Accumulation
Trust, hereafter referred to as the "Portfolio") at December 31, 1995, and the
results of its operations, the changes in its net assets and the financial
highlights for the period January 3, 1995 (commencement of operations) through
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
8
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
GLOBAL EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----- -----
<S> <C> <C>
CONVERTIBLE CORPORATE NOTES 2.5%
HONG KONG-.7%
BANKING
$20,000 Bangkok Bank Public Co., 3.25%, 3/3/04 $ 21,200
----------
JAPAN-1.8%
MISCELLANEOUS FINANCIAL SERVICES
45,000 MBL International Finance Bermuda, 3.00%, 11/30/02 52,875
----------
Total Convertible Corporate Notes (cost-$67,201) $ 74,075
----------
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C>
COMMON STOCKS-65.0%
AUSTRALIA-.6%
RETAIL
10,500 David Jones Ltd.* $ 15,999
----------
AUSTRIA-.7%
ELECTRONICS-.5%
84 Austria Mikro Systeme International AG 13,627
----------
TRANSPORTATION-.2%
100 Flughafen Wien AG 6,747
----------
Total Austrian Common Stocks 20,374
----------
FINLAND-1.7%
DRUGS & MEDICAL PRODUCTS-.3%
2,000 Oy Tamro AB 8,783
----------
RETAIL-.4%
200 Oy Stockmann AB 10,438
----------
TELECOMMUNICATIONS-1.0%
750 Oy Nokia AB 29,659
----------
Total Finnish Common Stocks 48,880
----------
FRANCE-1.5%
ELECTRONICS-.2%
200 Schneider SA 6,837
----------
ENERGY-.5%
214 Total SA 14,443
----------
MANUFACTURING-.4%
310 Michelin (CGDE) 12,363
----------
POWER/UTILITIES-.4%
100 Compagnie Generale des Eaux $ 9,984
Total French Common Stocks 43,627
GERMANY-2.9%
COMPUTER SERVICES-.9%
165 SAP AG 25,593
----------
CONSUMER PRODUCTS-.7%
400 Adidas AG* 21,164
----------
DRUGS & MEDICAL PRODUCTS-1.3%
45 Gehe AG 22,288
240 Schering AG 15,899
----------
38,187
----------
Total German Common Stocks 84,944
----------
9
<PAGE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C>
HONG KONG-.8%
CONGLOMERATES-.3%
25,000 C.P. Pokphand Co. 10,023
----------
REAL ESTATE-.5%
7,000 Hong Kong Land Holdings Ltd. 12,950
----------
Total Hong Kong Common Stocks 22,973
----------
HUNGARY-.1%
DRUGS & MEDICAL PRODUCTS
100 Gedeon Richter Ltd., GDR* 1,900
----------
ITALY-1.5%
CONSUMER PRODUCTS-.4%
1,400 Bulgari S.p.A.* 11,941
----------
TELECOMMUNICATIONS-.9%
11,500 Telecom Italia S.p.A 14,063
11,500 Telecom Italia Mobile S.p.A.* 12,093
----------
26,156
----------
TEXTILES/APPAREL-.2%
1,000 Marzotto & Figli S.p.A 5,976
----------
Total Italian Common Stocks 44,073
----------
JAPAN-12.8%
AEROSPACE/DEFENSE-.8%
3,000 Mitsubishi Heavy Industries, Inc. 23,913
----------
BANKING-.9%
3,000 Daiwa Bank Ltd. $ 24,262
----------
BUILDING & CONSTRUCTION-1.0%
3,000 Kitano Construction Corp. 19,206
1,000 Maeda Corp. 9,782
----------
28,988
----------
CHEMICALS-1.7%
1,000 Fuji Photo Film Co. 28,862
1,000 Shin-Etsu Chemical Co. 20,726
----------
49,588
----------
DRUGS & MEDICAL PRODUCTS-1.5%
1,000 Sankyo Co., Ltd. 22,470
1,000 Yamanouchi Pharmaceutical 21,501
----------
43,971
----------
ELECTRONICS-2.0%
1,000 Hitachi Koki 9,065
200 Kyocera Corp. 29,850
1,000 Nippon Electric Glass Co. Ltd. 18,983
----------
57,898
----------
ENTERTAINMENT-.9%
1,000 Heiwa Corp. 26,053
----------
FOOD SERVICES-.9%
100 Ito Yokado Co. Ltd. 24,613
----------
HEALTH & HOSPITALS-.7%
1,000 SRL, Inc. 21,114
----------
INSURANCE-.6%
3,000 Fuji Fire & Marine Insurance 15,806
----------
MACHINERY/ENGINEERING-.9%
2,000 Kyudenko Co. Ltd. 26,344
----------
TEXTILES/APPAREL-.9%
2,000 Wacoal Corp. 27,119
----------
Total Japanese Common Stocks 369,669
----------
MALAYSIA-.8%
BUILDING & CONSTRUCTION-.3%
5,000 Kim Hin Industry Bhd. 9,292
----------
CONGLOMERATES-.5%
5,000 Technology Resources Industries Bhd.* 14,766
----------
Total Malaysian Common Stocks 24,058
----------
10
<PAGE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C>
NETHERLANDS-1.6%
BUILDING & CONSTRUCTION-.3%
300 Kondor Wessells Groep NV $ 8,899
----------
IMPORTING/EXPORTING-.5%
250 Hagemeyer NV 13,055
----------
MISCELLANEOUS FINANCIAL SERVICES-.2%
100 Internationale Nederlanden Groep NV 6,680
----------
PRINTING & PUBLISHING-.6%
125 Ver Ned Uitgevers 17,161
----------
Total Netherlands Common Stocks 45,795
----------
NORWAY-.5%
BANKING
2,800 Banking Fokus Bank AS* 15,118
----------
SOUTH KOREA-1.2%
ELECTRONICS-.6%
300 Samsung Electronics Ltd. 18,000
----------
METALS/MINING-.6%
800 Pohang Iron & Steel Co. Ltd. ADR 17,500
----------
Total South Korean Common Stocks 35,500
----------
SPAIN-.5%
ENERGY
400 Repsol SA 13,108
----------
SWEDEN-3.0%
BANKING-.7%
1,250 Nordbanken AB* 21,650
----------
DRUGS & MEDICAL PRODUCTS-.3%
200 ASTRA AB 7,982
----------
MACHINERY/ENGINEERING-1.1%
1,700 Atlas Copco AB 26,116
300 Kalmar Industries AB 4,970
----------
31,086
----------
PAPER PRODUCTS-.4%
500 AssiDoman AB 10,844
POWER/UTILITIES-.5%
165 ASEA AB 16,029
----------
Total Swedish Common Stocks 87,591
----------
SWITZERLAND-1.5%
BANKING-.6%
30 Bil GT Gruppe AG $ 17,685
----------
BUILDING & CONSTRUCTION-.5%
20 Holderbank Financiere Glaris AG 15,345
----------
MANUFACTURING-.4%
5 Sig Schweizerische Industrie-Gesellschaft Holding AG 10,446
----------
Total Swiss Common Stocks 43,476
----------
TAIWAN-.6%
TELECOMMUNICATIONS
2,400 Total Access Communication Public Co. Ltd.* 15,600
----------
UNITED KINGDOM-2.8%
BUILDING & CONSTRUCTION-.4%
1,700 Wolseley PLC 11,907
----------
COMPUTER SERVICES-.5%
4,500 Amstrad PLC 13,698
----------
FOOD SERVICES-.6%
3,000 Booker PLC 16,913
----------
11
<PAGE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C>
RETAIL-1.3%
4,600 Argyll Group PLC 24,289
2,100 Dixon Group PLC 14,481
----------
38,770
----------
Total United Kingdom Common Stocks 81,288
----------
UNITED STATES-29.9%
AEROSPACE/DEFENSE-3.3%
200 Lockheed Martin Corp. 15,800
400 Loral Corp. 14,150
700 McDonnell Douglas Corp. 64,400
----------
94,350
----------
BANKING-4.0%
700 Citicorp 47,075
500 First Bank Systems, Inc. 24,812
200 Wells Fargo & Co. 43,200
----------
115,087
----------
CHEMICALS-2.9%
600 du Pont (E.I.) de Nemours & Co. $ 41,925
300 Hercules, Inc. 16,913
200 Monsanto Co. 24,500
----------
83,338
----------
CONSUMER PRODUCTS-1.3%
1,300 Reebok International Ltd. 36,725
----------
DRUGS & MEDICAL PRODUCTS-1.8%
700 Becton, Dickinson & Co. 52,500
----------
ENERGY-1.4%
800 Tenneco, Inc. 39,700
----------
ENTERTAINMENT-1.8%
2,000 Harrah's Entertainment, Inc.* 48,500
100 ITT Corp.* 5,300
----------
53,800
----------
INSURANCE-1.0%
400 EXEL Ltd. 24,400
100 ITT Hartford Group, Inc.* 4,838
----------
29,238
----------
MACHINERY/ENGINEERING-1.6%
1,000 Case Corp. 45,750
----------
MANUFACTURING-1.2%
100 ITT Industries, Inc. 2,400
2,200 Shaw Industries, Inc. 32,450
----------
34,850
----------
METALS/MINING-1.6%
1,500 Freeport McMoRan Copper & Gold (Class B) 42,188
116 Freeport McMoRan, Inc. 4,292
----------
46,480
----------
MISCELLANEOUS FINANCIAL SERVICES-3.0%
700 American Express Co. 28,963
700 Federal Home Loan Mortgage Corp. 58,450
----------
87,413
----------
PAPER PRODUCTS-2.6%
900 Champion International, Inc. 37,800
468 Kimberly-Clark Corp. 38,727
----------
76,527
----------
12
<PAGE>
<CAPTION>
SHARES VALUE
- ------ -----
<S> <C> <C> <C>
TECHNOLOGY-1.2%
600 Intel Corp. 34,050
----------
TELECOMMUNICATIONS-.7%
500 Sprint Corp. $ 19,937
----------
TRANSPORTATION-.5%
200 AMR Corp.* 14,850
----------
Total United States Common Stocks 864,595
----------
Total Common Stocks (cost-$1,742,996) $1,878,568
----------
Total Investments(A) (cost-$1,810,197) 67.5% $1,952,643
Other Assets in Excess of Other Liabilities 32.5 938,678
----- ----------
Total Net Assets 100.0% $2,891,321
----- ----------
----- ----------
</TABLE>
* Non-income producing security.
(A) Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $212,343, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over
value is $69,897, and net unrealized appreciation for Federal income tax
purposes is $142,446. Federal income tax basis of portfolio securities is
substantially the same as for financial reporting purposes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $1,810,197) $1,952,643
Cash 921,392
Cash held in foreign currencies (cost - $13,603) 13,552
Receivable from investments sold 8,376
Receivable from fund shares sold 42,011
Dividends receivable 2,312
Interest receivable 618
Withholding taxes reclaimable 934
Receivable from Adviser 453
Other assets 113
----------
Total Assets 2,942,404
----------
LIABILITIES
Payable for investments purchased 35,096
Withholding taxes payable 153
Other payables and accrued expenses 15,834
----------
Total Liabilities 51,083
----------
NET ASSETS
Par value ($.01 per share) 2,489
Paid-in-surplus 2,745,187
Undistributed net investment income 4,127
Net realized loss on foreign currency transactions (2,877)
Net unrealized appreciation on investments and translation of
other assets and liabilities denominated in foreign
currencies 142,395
----------
Total Net Assets $2,891,321
----------
----------
Fund shares outstanding 248,946
----------
Net asset value per share $ 11.61
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 1, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $1,439) $ 18,113
Interest 9,225
--------
Total investment income 27,338
--------
OPERATING EXPENSES
Investment advisory fee (note 2a) 9,022
Custodian fees 14,416
Auditing, consulting and tax return preparation fees 11,308
Transfer and dividend disbursing agent fees 7,518
Legal fees 2,143
Reports and notices to shareholders 701
Miscellaneous 2,291
--------
Total operating expenses 47,399
Less: Investment advisory fee waived and expenses
reimbursed (note 2a) (32,362)
--------
Net operating expenses 15,037
--------
Net investment income 12,301
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS-NET
Net realized gain on investments 57,143
Net realized loss on foreign currency transactions (2,877)
Net unrealized appreciation on investments and translation
of other assets and liabilities denominated in foreign
currencies 142,395
--------
Net realized gain (loss) and unrealized appreciation on
investments and translation of other assets and
liabilities denominated in foreign currencies 196,661
--------
Net increase in net assets resulting from operations $208,962
--------
--------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
March 1,
1995(1) to
December 31,
1995
----
<S> <C>
OPERATIONS
Net investment income $ 12,301
Net realized gain on investments 57,143
Net realized loss on foreign currency transactions (2,877)
Net unrealized appreciation on investments and translation
of other assets and liabilities denominated in foreign
currencies 142,395
----------
Net increase in net assets resulting from operations 208,962
----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income (8,174)
Net realized gains on investments (57,143)
----------
Total dividends and distributions to shareholders (65,317)
----------
FUND SHARE TRANSACTIONS
Net proceeds from sales 2,683,554
Reinvestment of dividends and distributions 65,317
Cost of shares redeemed (1,195)
----------
Net increase in net assets from fund share transactions 2,747,676
----------
Total increase in net assets 2,891,321
NET ASSETS
Beginning of period 0
----------
End of period (including undistributed net investment income
of $4,127) $2,891,321
----------
----------
SHARES ISSUED AND REDEEMED
Issued 243,412
Issued in reinvestment of dividends and distributions 5,636
Redeemed (102)
----------
Net increase 248,946
----------
----------
</TABLE>
(1) Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Quest for Value Accumulation Trust (the "Trust") was organized on May 12,
1994 as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is authorized to issue an unlimited number of
seven classes of shares of beneficial interest at $.01 par value: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (formerly called Quest for Value
Advisors; the "Adviser"), a majority-owned (99%) subsidiary of Oppenheimer
Capital, serves as the Trust's investment adviser. The Global Equity Portfolio
(the "Portfolio"), one of the Trust's seven portfolios, commenced operations on
March 1, 1995. The following is a summary of significant accounting policies
consistently followed by the Portfolio in the preparation of its financial
statements:
(A) VALUATION OF INVESTMENTS
Investment securities listed on a U.S or foreign stock exchange or traded
in the over-the-counter National Market System are valued each business day at
the last reported sale price; if there are no such reported sales, the
securities are valued at their last quoted bid price. Other securities traded
over-the-counter and not part of the National Market System are valued at the
last quoted bid price. Short-term debt securities having a remaining maturity
of more than sixty days are valued on a "marked-to-market" basis, that is, at
prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term debt securities having a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith by
the Board of Trustees. Investments in countries in which the Portfolio may
invest may involve certain considerations and risks not typically associated
with domestic investments as a result of, among others, the possibility of
future political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) SECURITY TRANSACTIONS AND OTHER INCOME
Security transactions are accounted for on the trade date. In
determining the gain or loss from the sale of securities, the cost of securities
sold has been determined on the basis of identified cost. Dividend income and
other distributions are recorded on the ex-dividend date, except certain
dividends or other distributions from foreign securities which are recorded as
soon as the information is available after the ex-dividend date. Interest
income is accrued as earned.
(D) FOREIGN CURRENCY TRANSLATION
The books and records of the Portfolio are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investment securities, other
assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are
included in the Portfolio's Statement of Operations. Since the net assets of
the Portfolio are presented at the foreign exchange rates and market prices at
the close of the period, the Portfolio does not isolate that portion of the
results of operations arising as a result of changes in the exchange rates from
fluctuations arising from changes in the market price of securities.
17
<PAGE>
(E) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income
and net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment: temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of
paid-in-surplus or tax return of capital. As December 31, 1995, the Portfolio
did not have any permanent book-tax differences.
(F) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios of
the Trust or another reasonable basis.
(G) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(a) The investment advisory fee is accrued daily and payable monthly to
the Adviser, and is computed as a percentage of the Portfolio's net assets as of
the close of business each day at the annual rate of .75%.
The Adviser has agreed to waive that portion of the advisory fee and to
reimburse any necessary expenses to limit operating expenses of the Portfolio to
1.25% of average daily net assets on an annual basis through at least
December 31, 1995.
(b) Total brokerage commissions paid by the Portfolio for the period
March 1, 1995 (commencement of operations) to December 31, 1995, amounted to
$11,614, of which Oppenheimer & Co., Inc., an affiliate of the Adviser, received
$490.
(3) PURCHASES AND SALES OF SECURITIES
For the period March 1, 1995 (commencement of operations) to December 31,
1995, purchases and sales of investment securities other than short-term
securities were $2,490,943 and $737,776, respectively.
(4) FOREIGN CURRENCY LOSS DEFERRAL
Currency losses incurred after October 31, 1995 are deemed to arise on
the first business day of the following fiscal year. Accordingly, the Portfolio
incurred and elected to defer $995 in net foreign currency losses.
18
<PAGE>
QUEST FOR VALUE ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
March 1,
1995(1) to
December 31,
1995
----
<S> <C>
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income 0.05
Net realized gain and unrealized appreciation on
investments and translation of other assets and
liabilities denominated in foreign currencies 1.83
----------
Total from investment operations 1.88
----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income (0.03)
Distributions to shareholders from net realized capital
gains (0.24)
----------
Total dividends and distributions (0.27)
----------
Net asset value, end of period $ 11.61
----------
----------
Total return 18.9%(3)
----------
----------
Net assets, end of period $2,891,321
----------
Ratio of net operating expenses to average net assets 1.25%(2,4,5)
----------
Ratio of net investment income to average net assets 1.02%(2,4,5)
----------
Portfolio turnover 67%
----------
</TABLE>
(1) Commencement of operations.
(2) Annualized.
(3) Assumes reinvestment of all dividends and distributions.
(4) Average net assets for the period March 1, 1995 (commencement of
operations) to December 31, 1995 were $1,434,862.
(5) During the period presented above, the Adviser waived 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
loss to average net assets would have been 3.94% and (1.67%), respectively.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Quest for Value Accumulation Trust--Global Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Portfolio (one of
the portfolios constituting Quest for Value Accumulation Trust, hereafter
referred to as the "Portfolio") at December 31, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for the
period March 1, 1995 (commencement of operations) through December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian and brokers, provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 16, 1996
20
<PAGE>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS:
Included in the Prospectus:
Financial Highlights
Included in Part B:
Schedule of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets,
Notes to Financial Statements and Report of Independent
Accountants for the fiscal year ended December 31, 1995.
Included in Part C:
None
C-1
<PAGE>
EXHIBITS:
(1) (a) Declaration of Trust - previously filed with original
Registration Statement on Form N-1A on May 13, 1994.
(b) Amendment to Declaration of Trust dated September 1, 1994
- previously filed with Post-Effective Amendment No. 1 on
April 25, 1995.
(c) Amendment to Declaration of Trust dated September 16, 1994
- previously filed with Post-Effective Amendment No. 1 on
April 25, 1995.
(d) Amendment to Declaration of Trust dated April 22, 1996.
(2) By-Laws of Registrant - previously filed with original Registration
Statement on Form N-1A on May 13, 1994.
(3) Not Applicable.
(4) Not Applicable.
(5) (a) Investment Advisory Agreement - previously filed with original
Registration Statement on Form N-1A on May 13, 1994.
(b) Amended Investment Advisory Agreement dated May 1, 1996.
(6) Distribution Agreement - previously filed with Pre-Effective Amendment
No. 1 on September 8, 1994.
(7) Not Applicable.
(8) Custody Agreement - previously filed with Pre-Effective Amendment No.
1 on September 8, 1994.
(9) (a) Transfer Agency and Service Agreement - previously filed with Post-
Effective Amendment No. 1 on April 25, 1995.
(b) Participation Agreement for American Enterprise Life Insurance Company
- previously filed with Post-Effective Amendment No. 1 on April 25,
1995.
(c) Participation Agreement for Paul Revere Life Insurance Company -
previously filed with Post-Effective Amendment No. 1 on April 25,
1995.
C-2
<PAGE>
(d) Participation Agreement for Connecticut General Life Insurance Company
- previously filed with Post-Effective Amendment No. 1 on April 25,
1995.
(e) Participation Agreement for IL Annuity and Insurance Company.
(f) Participation Agreement for Connecticut General Life Insurance Company
(Separate Account T3).
(10) Opinion and consent of counsel as to the legality of the securities being
registered, indicating whether they will when sold be legally issued, fully
paid and non-assessable - previously filed with Pre-Effective Amendment
No. 2 on September 14, 1994.
(11) Consent of Independent Accountants.
(12) Not Applicable.
(13) Agreement relating to initial capital - previously filed with Pre-Effective
Amendment No. 1 on September 8, 1994.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule showing computation of performance quotations provided in response
to Item 22 (unaudited).
(17) Financial Data Schedules.
C-3
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is presently controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Holders as of
Title of Class April 2, 1996
--------------
SHARES OF BENEFICIAL INTEREST
-----------------------------
Bond Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Equity Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Managed Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . .12
Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . 4
Small Cap Portfolio. . . . . . . . . . . . . . . . . . . . . . . . .11
Global Equity Portfolio. . . . . . . . . . . . . . . . . . . . . . . 5
U.S. Government Income Portfolio . . . . . . . . . . . . . . . . . . 3
ITEM 27. INDEMNIFICATION
Pursuant to Article V, Sec. 5.3 of the Registrant's Declaration
of Trust, the Trustees shall provide for indemnification by the Trust
of any present or former trustee, officer or agent in connection with
any claim, action, suit or proceeding in which he becomes involved as
a party or otherwise by virtue of his being, or having been, a
trustee, officer or agent of the Trust. The Trust By-Laws provide
that, in other than derivative or shareholder suits, trustees,
officers and/or agents will be indemnified against expenses of actions
or omissions if the actions or omissions complained of were in good
faith and reasonably believed to be in and not opposed to the best
interests of the Trust, or, if a criminal action, the accused had no
cause to believe his conduct was unlawful.
In derivative and shareholder actions, such trustee, officer
and/or agent shall be indemnified against expenses except where
liability arises by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties as described in Section
17(h) and (i) of the Investment Company Act of 1940. Either Trustees
not a party to the action, shareholders or independent legal counsel
by written opinion may, in appropriate circumstances, decide questions
of indemnification under the By-Laws.
The Trust may purchase insurance insuring its officers and
trustees against certain liabilities in their capacity as such, and
insuring the Trust against any payments which it is obligated to make
to such persons under any foregoing indemnification provisions.
C-4
<PAGE>
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Fund" in the Prospectus and "Investment
Management and Other Services" in the Additional Statement regarding
the business of the investment adviser. For information as to the
business, profession, vocation or employment of a substantial nature
of each of the officers and directors of the investment adviser,
reference is made to "Trustees and Officers" in the Additional
Statement and investment adviser's Form ADV filed under the Investment
Advisers Act of 1940, File No. 801-27180, Schedule D and F,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITER
(a) OCC Distributors acts as principal underwriter for the
Registrant, Quest for Value Dual Purpose Fund, Inc., OCC Cash
Reserves, Inc., and The Saratoga Advantage Trust.
(b) Set forth below is certain information pertaining to the partners
and officers of OCC Distributors, Registrant's Principal
Underwriter; the Principal Business Address of MESSRS. MURATORE
AND CARINE IS TWO WORLD FINANCIAL CENTER, NEW YORK, NY, 10080;
THE PRINCIPAL BUSINESS ADDRESS OF MESSRS. SIEGEL AND DUGGAN IS
ONE WORLD FINANCIAL CENTER, NEW YORK, NEW YORK, 10281:
C-5
<PAGE>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- --------------------------- ----------------------- ---------------------
Oppenheimer Capital General Partner None
Oppenheimer Financial Corp. General Partner None
Peter Muratore President None
Sheldon Siegel Treasurer Treasurer
Thomas E. Duggan Secretary None
Arthur G. Carine. Jr. Chief Operating Officer None
(c) Not applicable.
ITEM 30. LOCATION OF REQUIRED RECORDS -- RULE 31a-1
(Except those maintained by Custodian and Transfer Agent)
OpCap Advisors
One World Financial Center
New York, NY 10281
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to assist shareholder communication
in accordance with the provisions of Section 16 of the Investment
Company Act of 1940 and to call a meeting of shareholders for the
purpose of voting upon the question of the removal of a Trustee
or Trustees when requested in writing to do so by the holders of
at least 10% of the Registrant's outstanding shares of beneficial
interest.
(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report to shareholders upon request and without charge, if the
information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
registration statement to be signed on its behalf by the undersigned thereto
duly authorized in the City of New York, and State of New York on the 24th day
of April, 1996.
OCC ACCUMULATION TRUST
/s/ Joseph M. La Motta
-----------------------------
Joseph M. La Motta, President
Attest:
/s/ Deborah Kaback
- -------------------------
Deborah Kaback, Secretary
Pursuant to the requirements of the Securities Act of 1933 this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
OCC ACCUMULATION TRUST
Date
/s/ Joseph M. La Motta 4/24/96
- -------------------------------------- ------------------------------
Joseph M. La Motta, President, Trustee
/s/ Paul Y. Clinton 4/24/96
- -------------------------------------- ------------------------------
Paul Y. Clinton, Trustee
/s/ Thomas W. Courtney 4/24/96
- -------------------------------------- ------------------------------
Thomas W. Courtney, Trustee
/s/ Lacy B. Herrmann 4/24/96
- -------------------------------------- ------------------------------
Lacy B. Herrmann, Trustee
/s/ George Loft 4/24/96
- -------------------------------------- ------------------------------
George Loft, Trustee
/s/ Deborah Kaback 4/24/96
- -------------------------------------- ------------------------------
Deborah Kaback, Secretary
/s/ Sheldon Siegel 4/24/96
- -------------------------------------- ------------------------------
Sheldon Siegel, Treasurer
<PAGE>
OCC ACCUMULATION TRUST
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Pages
- ----------- ------------
(1) (d) Amendment to Declaration of Trust dated April 22, 1996.
(5) (b) Amended Investment Advisory Agreement dated May 1, 1996.
(9) (e) Participation Agreement for IL Annuity and Insurance Company.
(9) (f) Participation Agreement for Connecticut General Life Insurance
Company (Separate Account T3).
(11) Consent of Independent Accountants.
(16) Schedule Showing Computation of Performance Quotations.
(17) Financial Data Schedules.
<PAGE>
AMENDMENT TO DECLARATION OF TRUST OF
QUEST FOR VALUE ACCUMULATION TRUST
The undersigned, being a majority of the Trustees of Quest for Value
Accumulation Trust, a Massachusetts business trust (the "Trust"), acting
pursuant to Article I, Section 1.1 of the Declaration of Trust dated May 12,
1994, as amended September 1, 1994 and September 16, 1994 (the "Declaration"),
do hereby amend the Declaration to change the name of the Trust from "Quest for
Value Accumulation Trust" to "OCC Accumulation Trust" by deleting Section 1.1 of
the Declaration in its entirety and substituting the following:
1.1 NAME. The name of the trust created hereby (the "Trust") shall be
"OCC Accumulation Trust", and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the
word "Trust" wherever hereinafter used) shall refer to the Trustees
as trustees and not individually, and shall not refer to the
officers, agents, employees or shareholders of the Trust. However,
should the Trustees determine that the use of such name is not advi-
sable, they may select such other name for the Trust as they deem
proper and the Trust may hold its property and conduct its
activities under such other name. Any name change shall become
effective upon the execution by a majority of the then Trustees of
an instrument setting forth the new name. Any such instrument shall
have the status of an amendment to this Declaration.
IN WITNESS WHEREOF, the undersigned Trustees have caused this amendment to
be executed this 22nd day of April, 1996.
/s/ Joseph M. La Motta /s/ Lacy B. Herrmann
- ------------------------------- -----------------------------
Joseph M. La Motta, as Trustee and Lacy B. Herrmann, as Trustee and
not individually not individually
RR 2, Box 51 6 Whaling Road
Pound Ridge, NY 10576-9780 Darien, CT 06820
/s/ Paul Y. Clinton /s/ George Loft
- ------------------------------- -----------------------------
Paul Y. Clinton, as Trustee and George Loft, as Trustee and
not individually not individually
946 Morris Avenue 51 Herrick Road
Bryn Mawr, PA 19010 Sharon, CT 06069
/s/Thomas W. Courtney
- ---------------------------------
Thomas W. Courtney, as Trustee and
not individually
833 Wyndemere Way
Naples, FLA 33999
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 16th day of September, 1994, and amended this 1st
day of May, 1996, by and between OCC ACCUMULATION TRUST (formerly called Quest
for Value Accumulation Trust and before that, Quest for Value Asset Builder
Trust), a Massachusetts business trust (the "Fund") and OPCAP ADVISORS,
(formerly called Quest for Value Advisors), a Delaware general partnership (the
"Manager").
WHEREAS, the Fund is an open-end, diversified, management investment
company, organized in "series" form and comprised of seven separate investment
portfolios (the "Portfolios" or the "Series") and is registered with the
Securities and Exchange Commission (the "Commission") pursuant to the Investment
Company Act of 1940 (the "1940 Act");
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Fund and the Manager agree as follows:
1. GENERAL PROVISIONS
The Fund hereby employs the Manager and the Manager hereby undertakes to
act as the investment adviser of the Fund in connection with and for the benefit
of each Portfolio, including any Portfolio hereafter created, and to perform for
the Fund and for each of the Portfolios such other duties and functions in
connection with each Portfolio for the period and on such terms as set forth in
this Agreement. The Manager shall, in all matters, give to the Fund and its
Board of Trustees (the "Trustees") the benefit of its best judgment, effort,
advice and recommendations and shall at all times conform to, and use its best
efforts to enable the Fund to conform to:
(a) the provisions of the 1940 Act and any rules or regulations
thereunder;
(b) any other applicable provisions of state or federal law;
(c) the provisions of the Declaration of Trust and By-Laws of the Fund
as amended from time to time;
(d) the policies and determinations of the Trustees;
(e) the investment objectives and policies and investment restrictions
of each Portfolio as reflected in the registration statement of the
Fund under the 1940 Act or as such objectives, policies and
restrictions may from time to time be amended; and
(f) the prospectus, if any, of the Fund in effect from time to time.
The appropriate officers and employees of the Manager shall be available upon
reasonable notice for consultation with any of the Trustees or officers with
respect to any matters dealing with the Fund's business affairs, including the
valuation of any securities held by the Fund for the benefit of any Portfolio
that are either not registered for public sale or not being traded on any
securities market.
<PAGE>
2. INVESTMENT MANAGEMENT
(a) The Manager shall, subject to the direction and control by the
Trustees, separately with respect to each Portfolio: (i) regularly
provide investment advice and recommendations to the Fund with respect
to it's investments, investment policies, and the purchase and sale of
securities and commodities; (ii) supervise continuously and determine
the securities and commodities to be purchased or sold by the Fund and
the portion, if any, of the Fund's assets to be held uninvested; and
(iii) arrange, subject to the provisions of Section 6 hereof, for the
purchase and sale of securities, commodities and other investments by
the Fund.
(b) The Manager may obtain investment information, research or
assistance from any other person, firm or corporation to supplement,
update or otherwise improve its investment management services,
including entering into sub-advisory agreements with other affiliated
or unaffiliated registered investment advisers in order to obtain
specialized services; provided, however, that the Fund shall not be
required to pay any compensation other than as provided by the terms
of this Agreement and subject to the provisions of Section 5 hereof.
(c) So long as the Manager shall have acted with due care and in good
faith, the Manager shall not be liable to the Fund or its shareholders
for any error in judgment, mistake of law, or any other act or
omission in the course of or connected with, rendering services
hereunder, including without limitation, any losses which may be
sustained by the Fund or its shareholders as a result of the purchase,
holding, redemption, or sale of any security by the Fund irrespective
of whether the determinations of the Manager relative thereto shall
have been based, in whole or in part, upon the investigation, research
or recommendation of any other individual, firm or corporation
believed by the Manager to be reliable. Nothing herein contained
shall, however, be construed to protect the Manager against any
liability to the Fund or its shareholders arising out of the Manager's
willful misfeasance, bad faith, or gross negligence in the performance
of its duties or reckless disregard of its obligations and duties
under this Agreement.
(d) Nothing in this Agreement shall prevent the Manager, any parent,
subsidiary or affiliate, or any director or officer thereof, from
acting as investment adviser for any other person, firm, or
corporation, and shall not in any way limit or restrict the Manager or
any of its directors, officers, stockholders or employees from buying,
selling or trading any securities or commodities for its or their own
account or for the account of others for whom it or they may be
acting, if such activities will not adversely affect or otherwise
impair the performance by the Manager of its duties and obligations
under this Agreement.
2
<PAGE>
3. OTHER DUTIES OF THE MANAGER
The Manager shall, at its own expense, provide and supervise the activities
of all administrative and clerical personnel and shall be required to provide
effective corporate administration for the Fund, including (1) coordination of
the functions of accountants, counsel and other parties performing services for
the Fund, (2) the preparation and filing of such reports related to the Fund or
to any Portfolio as shall be required by federal securities laws and various
state "blue sky" laws, (3) composition of periodic reports with respect to its
operations for shareholders of the Fund and (4) composition of proxy materials
for meetings of the Fund's shareholders.
4. ALLOCATION OF EXPENSES
The Manager will bear all costs and expenses of its employees and overhead
incurred by it in connection with its duties hereunder except as noted in
Section 5 below. All other expenses (other than those to be paid by the Fund's
distributor under a distribution agreement), shall be paid by the Fund,
including, but not limited to:
(a) interest expense, taxes and governmental fees;
(b) brokerage commissions and other expenses incurred in acquiring or
disposing of the Fund's securities and commodities holdings;
(c) insurance premiums for fidelity and other coverage requisite to
the Fund's operations;
(d) fees of the Trustees other than those who are interested persons
of the Fund and out-of-pocket travel expenses for all Trustees and
other expenses incurred by the Fund in connection with Trustees'
meetings;
(e) outside legal, accounting and audit expenses;
(f) custodian, dividend disbursing, and transfer agent fees and
expenses;
(g) expenses in connection with the issuance, offering, sale or
underwriting of securities issued by the Fund, including preparation
of stock certificates;
(h) fees and expenses, other than as hereinabove provided, incident to
the registration or qualification of the Fund's shares for sale with
the Commission and in various states and foreign jurisdictions;
(i) expenses of printing and mailing reports and notices and proxy
material to the Fund's shareholders;
(j) all other expenses incidental to holding meetings of the Fund's
shareholders;
(k) expenses of organizing the Fund; and
3
<PAGE>
(l) such extraordinary non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligation the Fund may
have to indemnify its officers and Trustees with respect thereto.
Notwithstanding the foregoing, the Manager shall pay all salaries and fees
of each of the Fund's officers and Trustees who are interested persons of the
Manager.
5. COMPENSATION OF THE MANAGER
(a) The Fund agrees to pay the Manager, and the Manager agrees to
accept as full compensation for the performance of all its functions
and duties to be performed hereunder, a fee based on the total net
assets of each Portfolio at the end of each business day.
Determination of net asset value of each Portfolio will be made in
accordance with the policies disclosed in the Fund's registration
statement under the 1940 Act. The fee is payable at the close of
business on the last day of each calendar month and shall be made on
the first business day following such last calendar day. The payment
due on such day shall be computed by (1) adding together the results
of multiplying (i) the total net assets of each Portfolio on each day
of the month by (ii) the applicable daily fraction of the annual
advisory fee percentage rate for such Portfolio as set forth on
Schedule A hereto and then (2) adding together the total monthly
amounts computed for each Portfolio.
(b) In the event the operating expenses of the Fund, including any
amounts payable to the Manager pursuant to subsection (a) hereof, but
excluding the amount of any interest, taxes, brokerage commissions,
distribution fees, and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund for any
fiscal year ending on a date during which this Agreement is in effect,
exceed the most restrictive state law provisions in effect in states
where the Fund is qualified to be sold, the Manager will pay or refund
to the Fund any such excess amount. In addition, the Manager shall
waive any amounts payable to the Manager pursuant to subsection (a)
hereof, and reimburse the Fund such that total operating expenses of
each of the Portfolios of the Fund do not exceed 1.25% of their
respective average daily net assets. Whenever the expenses of a
Portfolio exceed a pro rata portion of the expense limitations stated
above, the monthly amount payable to the Manager will be reduced or
postponed in the amount of such excess.
6. PORTFOLIO TRANSACTIONS AND BROKERAGE
(a) The Manager is authorized, in arranging the purchase and sale of
the Fund's portfolio securities, to employ or deal with such members
of securities exchanges and brokers or dealers, including Oppenheimer
& Co., Inc. ("Opco") ("broker/dealer"), as may, in the Manager's best
judgment based on all relevant factors, implement the policy of the
Fund to obtain, at reasonable expense, the "best execution" (prompt
and reliable execution of the Fund's securities transactions at the
most favorable security prices obtainable of the Fund's
4
<PAGE>
securities transactions) as well as to obtain, consistent with the
provisions of subparagraph (c) of this Section 6, the benefit of such
investment information or research as will be of significant
assistance to the Manager in the performance of its functions and
duties under this Agreement.
(b) The Manager shall select broker/dealers to effect the Fund's
securities transactions on the basis of its estimate of the ability of
such broker/dealers to obtain best execution of particular and related
securities transactions. The ability of a broker/dealer to obtain
best execution of particular securities transaction(s) will be judged
by the Manager on the basis of all relevant factors and
considerations, including, insofar as feasible, the execution
capabilities required by the transactions; the ability and willingness
of the broker/dealer to facilitate the Fund's securities transactions
by participating therein for its own account; the importance to the
Fund of speed, efficiency or confidentiality; the broker/dealer's
apparent familiarity with sources from or to whom particular
securities might be purchased or sold; and any other matters relevant
to the selection of a broker/dealer for particular and related
transactions of the Fund.
(c) The Manager shall have discretion, in the interests of the Fund,
to allocate brokerage on the Fund's securities transactions to
broker/dealers qualified to provide best execution of such
transactions who provide brokerage and/or research services (as such
services are defined in Section 28(e)(3) of the Securities Exchange
Act of 1934 (the "1934 Act")) for the Fund and/or other accounts for
which the Manager exercises investment discretion (as that term is
defined in Section 3(a)(35) of the 1934 Act) and to cause the Fund to
pay such broker/dealers (other than Opco) a commission for effecting a
securities transaction for the Fund that is in excess of the amount of
commission another broker/dealer adequately qualified to effect such
transaction would have charged for effecting that transaction, if the
Manager determines, in good faith, that such commission is reasonable
in relation to the value of the brokerage and/or research services
provided by such broker/dealer, viewed in terms of either that
particular transaction or the Manager's overall responsibilities with
respect to the accounts as to which it exercises investment
discretion. In reaching such determination, the Manager will not be
required to place or attempt to place a specific dollar value on the
brokerage and/or research services provided by such broker/dealer. In
demonstrating that such determinations were made in good faith, the
Manager shall be prepared to show that all commissions were allocated
to such broker/dealers for purposes contemplated by this Agreement and
that the total commissions paid by the Fund over a representative
period selected by the Trustees were reasonable in relation to the
benefits received by the Fund. Such research information may be in
written form or through direct contact with individuals, and may
include information on particular companies and industries as well as
market, economic or institutional activity areas.
(d) The Manager shall have no duty or obligation to seek advance
competitive bidding for the most favorable commission rate applicable
to any particular securities transactions or to select any
broker/dealer on the basis of its purported or "posted" commission
rate,
5
<PAGE>
although it will, to the best of its ability, endeavor to be aware of
the current level of the charges of eligible broker/dealers and to
minimize the expense incurred by the Fund for effecting its securities
transactions to the extent consistent with the interests and policies
of the Fund as established by the determinations of the Trustees and
the provisions of this Section 6.
(e) The Fund recognizes and intends that, subject to the foregoing
provisions of this Section 6, Opco will act as its regular broker so
long as it is lawful for it so to act and that Opco may be a major
recipient of brokerage commissions paid by the Fund. Opco may effect
securities transactions for the Fund only if (1) the commissions, fees
or other remuneration received or to be received by it are reasonable
and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities
exchange during a comparable period of time and (2) the Trustees,
including a majority of those Trustees who are not interested persons,
have adopted procedures pursuant to Rule 17e-1 under the 1940 Act for
determining the permissible level of such commissions.
(f) Sales of shares of the Fund and/or shares of the other investment
companies managed by the Manager or distributed by the Fund's
distributor may, subject to applicable rules covering the
distributor's activities in this area, also be considered as a factor
in the direction of securities transactions to dealers, but only in
conformity with the price, execution and other considerations and
practices discussed above. Those other investment companies may also
give similar consideration relating to the sale of the Fund's shares.
The Fund will not purchase any securities from or sell any securities
to Opco acting as principal for its own account.
(g) When orders to purchase or sell the same security on identical
terms are placed by more than one of the funds and/or other advisory
accounts managed by the Manager or its affiliates, the transactions
are generally executed as received, although a fund or advisory
account that does not direct trades to a specific broker ("free
trades") usually will have its order executed first. Purchases are
combined where possible for the purpose of negotiating brokerage
commissions, which in some cases might have a detrimental effect on
the price or volume of the security in a particular transaction as far
as the Fund is concerned. Orders placed by accounts that direct
trades to a specific broker will generally be executed after the free
trades. All orders placed on behalf of the Fund are considered free
trades. However, having an order placed first in the market does not
necessarily guarantee the most favorable price.
6
<PAGE>
7. DURATION
This Agreement will become effective as of the date hereof. This Agreement
will continue in effect for two years from the date hereof and thereafter
(unless sooner terminated in accordance with this agreement) for successive
periods of twelve months so long as each continuance shall be specifically
approved at least annually with respect to each Portfolio by (1) the vote of a
majority of those Trustees who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (2) a majority of the Trustees or of a majority of
the outstanding voting securities of the respective Portfolios of the Fund.
8. TERMINATION
This Agreement may be terminated (i) by the Manager at any time, without
payment of any penalty upon giving the Fund ninety (90) days' written notice
(which notice may be waived by the Fund); or (ii) by the Fund at any time,
without payment of any penalty upon sixty (60) days' written notice to the
Manager (which notice may be waived by the Manager), provided that such
termination by the Fund shall be directed or approved by the vote of the
majority of all of the Trustees or by the vote of a majority of the outstanding
voting securities of the Portfolios of the Fund with respect to which notice of
termination has been given to the Manager.
9. AMENDMENT OR ASSIGNMENT
This Agreement may be amended with respect to a Portfolio only if such
amendment is specifically approved by (i) the vote of the outstanding voting
securities of such Portfolio and (ii) a majority of the Trustees, including a
majority of those Trustees who are not parties to this Agreement or interested
persons of such party, cast in person at a meeting called for the purpose of
voting on such approval, provided that this Agreement may be amended to add a
new Portfolio or delete an existing Portfolio without a vote of the shareholders
of any other Portfolio covered by this Agreement. This Agreement shall
automatically and immediately terminate in the event of its assignment, as that
term is defined in the 1940 Act and the rules thereunder.
10. GOVERNING LAW
This Agreement shall be interpreted in accordance with the laws of the
State of New York and the applicable provisions of the 1940 Act, other
securities laws and rules thereunder. To the extent that the applicable laws of
the State of New York, other securities laws or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
11. SEVERABILITY
If any provisions of this Agreement shall be held or made unenforceable by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
7
<PAGE>
12. DEFINITIONS
As used in this Agreement, the terms "interested person" and "vote of a
majority of the outstanding securities" shall have the respective meanings set
forth in Sections 2(a)(19) and 2(a)(42) of the 1940 Act.
13. NO LIABILITY OF SHAREHOLDERS
This Agreement is executed by the Trustees of the Fund, not individually,
but rather in their capacity as Trustees under the Declaration of Trust made May
12, 1994. None of the Shareholders, Trustees, officers, employees, or agents of
the Fund shall be personally bound or liable under this Agreement, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder but only to the property of the Fund and, if the obligation
or claim relates to the property held by the Fund for the benefit of one or more
but fewer than all Portfolios, then only to the property held for the benefit of
the affected Portfolio.
14. NOTICE OF CHANGE IN PARTNERSHIP OF MANAGER
The Manager agrees to notify the Fund within a reasonable period of time
regarding a material change in the membership of the Manager.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
OCC ACCUMULATION TRUST
Attest:
_______________________ /s/
By:____________________________
Title:
OPCAP ADVISORS
Attest:
______________________ /s/
By:____________________________
Title:
8
<PAGE>
SCHEDULE A
to
Investment Advisory Agreement
between
OCC Accumulation Trust and OpCap Advisors
ANNUAL FEE AS A
---------------
PERCENTAGE OF DAILY
-------------------
NAME OF SERIES NET ASSETS
- -------------- ----------
Equity Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Small Cap Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Managed Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Global Equity Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
U.S. Government Income Portfolio .60%
Bond Portfolio .50%
Money Market Portfolio .40%
<PAGE>
PARTICIPATION AGREEMENT
By and Among
QUEST FOR VALUE ACCUMULATION TRUST
And
IL ANNUITY AND INSURANCE COMPANY
And
QUEST FOR VALUE DISTRIBUTORS
THIS AGREEMENT, made and entered into this 5th day of September,
1995, by and among IL ANNUITY AND INSURANCE COMPANY, a Massachusetts Corporation
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time (each account referred to as the "Account"), QUEST FOR VALUE
ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund")
and QUEST FOR VALUE DISTRIBUTORS, a Delaware general partnership (hereinafter
the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities &
Exchange Commission (alternatively referred to as the "SEC" or the
"Commission"), dated February 23, 1995 (File No. 812-9290), granting
Participating Insurance Companies and variable annuity separate accounts and
variable life insurance separate accounts relief from the provisions of Sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity separate accounts and variable life insurance
separate accounts of both affiliated and unaffiliated participating Insurance
Companies and qualified pension and retirement plans (hereinafter the "Mixed and
Shared Funding Exemptive Order"), and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain
variable annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company under the insurance laws of the State of Massachusetts, to set aside
and invest assets attributable to the Contracts; and
2
<PAGE>
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its designee of the order for the shares of the Fund.
For purposes of this Section 1.1 , the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following Business Day. "Business
Day" shall mean any day
3
<PAGE>
on which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business
Day after it places an order to purchase Fund shares in accordance with Section
1.1 hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts, qualified pension and retirement plans or such other persons as are
permitted under applicable provisions of the Internal Revenue Code of 1986, as
amended, (the "Internal Revenue Code"), and regulations promulgated thereunder,
the sale to which will not impair the tax treatment currently afforded the
contracts. No shares of any Portfolio will be sold to the general public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as
4
<PAGE>
Articles I, III, V, and VII of this Agreement are in effect to govern such
sales. The Fund shall make available upon written request from the Company (i)
a list of all other Participating Insurance Companies and (ii) a copy of the
Participation Agreement executed by any other Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt and acceptance by the Fund or its designee of the request for
redemption. For purposes of this Section 1.6, the Company shall be the designee
of the Fund for receipt of requests for redemption from each Account and receipt
by such designee shall constitute receipt by the Fund; provided the Fund
receives notice of request for redemption by 10:00 a.m. Eastern Time on the next
following Business Day. Payment shall be in federal funds transmitted by wire
to the Company's account as designated by the Company in writing from time to
time, on the same Business Day the Fund receives notice of the redemption order
from the Company except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the 1940 Act. Neither the Fund nor the
Underwriter shall bear any responsibility whatsoever for the proper disbursement
or crediting of redemption proceeds; the Company alone shall be responsible for
such action. If notification of redemption is received after 11:00 a.m. Eastern
Time, payment for redeemed shares will be made on the next following Business
Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the
5
<PAGE>
provisions of such prospectus. The Company agrees that all net amounts
available under the Contracts shall be invested in the Fund, or in the Company's
general account; provided that such amounts may also be invested in an
investment company other than the Fund if (a) such other investment company, or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of the Portfolios of the
Fund named in Schedule 2; or (b) the Company gives the Fund and the Underwriter
45 days written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts; or (c) such other investment
company was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement; or (d) the Fund or Underwriter consents in writing
to the use of such other investment company.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any
Account. Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Portfolio
shares in the form of additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such dividends and
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
6
<PAGE>
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2. Subject to Article VI hereof, the Company represents that it
believes that the Contracts are currently and at the time of issuance will be
treated as annuity contracts under applicable provisions of the Internal Revenue
Code and that it will make every effort to maintain
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<PAGE>
such treatment and that it will notify the Fund and the Underwriter immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.3. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for as long as the Fund shares
are sold. The Fund shall amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code,
and that it will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies
and restrictions comply with applicable state investment laws as they may apply
to the Fund. To the extent feasible and consistent with market conditions, the
Fund will adjust its investments to comply with the insurance and other
applicable laws of the Company's state of domicile upon written notice from the
Company of such requirements and proposed adjustments, it being agreed and
understood that in any such case the Fund shall be allowed a reasonable period
of time under the circumstances
8
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after receipt of such notice to make any such adjustment. The Company alone
shall be responsible for informing the Fund of any additional restrictions
imposed by state laws which are applicable to the Fund.
2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses. The Fund shall notify the Company immediately upon
determining to finance distribution expenses pursuant to Rule 12b-1.
2.7. The Underwriter represents and warrants that it is a member
in good standing of the National Association of Securities Dealers, Inc.,
("NASD") and is registered as a broker-dealer with the SEC. The Underwriter
further represents that it will sell and distribute the Fund shares in
accordance with all applicable federal and state securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's
Adviser, Quest for Value Advisors, is and shall remain duly registered under all
applicable federal and state securities laws and that the Adviser will perform
its obligations to the Fund in accordance with the laws of Massachusetts and any
applicable state and federal securities laws.
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<PAGE>
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage in an amount not less
than $5 million. The aforesaid includes coverage for larceny and embezzlement
and is issued by a reputable bonding company. The Company agrees that any
amounts received under such bond in connection with claims that derive from
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus describing only
those Portfolios set forth on Schedule 2, as the Company may reasonably request
for use with prospective contractowners and applicants. The Underwriter shall
print and distribute, at the Fund's or Underwriter's expense, as
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many copies of said prospectus as necessary for distribution to existing
ontractowners or participants. If requested by the Company in lieu thereof, the
Fund shall provide such documentation including a final copy of a current
prospectus describing only those Portfolios set forth on Schedule 2, set in type
at the Fund's expense and other assistance as is reasonably necessary in order
for the Company at least annually (or more frequently if the Fund prospectus is
amended more frequently) to have the new prospectus for the Contracts and the
Fund's new prospectus printed together in one document, in such case the Fund
shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy material, if any, reports to shareholders and other
communications to shareholders in such quantity as the Company shall reasonably
require and shall bear the costs of distributing them to existing contractowners
or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or
participants; and
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<PAGE>
(iii) vote Fund shares held in the Account for which no
timely instructions have been received, in the same
proportion as Fund shares of such Portfolio for which
instructions have been received from the Company's
contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies and as required by the Mixed and
Shared Funding Exemptive Order.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least fifteen business days prior to its use. No
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<PAGE>
such material shall be used if the Fund or the Underwriter reasonably objects in
writing to such use within fifteen business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to
be furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information
or make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of
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<PAGE>
the Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of
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<PAGE>
additional information, shareholder reports, and proxy materials and any other
material constituting sales literature or advertising under NASD rules, the 1940
Act or the 1933 Act.
4.8. The Company agrees and acknowledges that Oppenheimer Capital
is the sole owner of the name and mark "Quest for Value" and that all use of any
designation comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of Oppenheimer Capital. Except as provided in
Section 4.1, the Company shall not use any such name or mark on its own behalf
or on behalf of each Account in connection with marketing the Contracts without
prior written consent of Oppenheimer Capital. Upon termination of this
Agreement for any reason, the Company shall cease all use of any such name or
mark.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then, subject to obtaining any required exemptive orders
or other regulatory approvals, the Underwriter may make payments to the Company
or to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and
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<PAGE>
filing of the Fund's prospectus and registration statement, Fund proxy materials
and reports, setting in type, printing and distributing the prospectuses, the
proxy materials and reports to existing shareholders and contractowners, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares, and any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will comply with Section
817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5, relating to
the diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a
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<PAGE>
variety of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. As set forth in the Mixed and Shared
Funding Exemptive Order, the Company will report any potential or existing
conflicts of which it is aware to the Fund Board. The Company agrees to assist
the Fund Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Fund Board with all information
reasonably necessary for the Fund Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the Fund
Board whenever contractowner voting instructions are disregarded. The Fund
Board shall record in its minutes or other appropriate records, all reports
received by it and all action with regard to a conflict.
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<PAGE>
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected contractowners and, as appropriate, segregating the assets
of any appropriate group (I.E., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could
conflict with the majority of contractowner voting instructions, and the
Company's judgment represents a minority position or would preclude a majority
vote, the Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement with respect to
such Account. Any such withdrawal and termination shall take place within six
(6) months after written notice is given that this provision is being
implemented. Until such withdrawal and termination is implemented, the
Underwriter and the Fund shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Fund. Such withdrawal
18
<PAGE>
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of disinterested
Directors.
7.5. If a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state insurance
regulators, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement with respect to such Account within six (6) months
after the Fund informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict. Until such withdrawal
and termination is implemented, the Underwriter and the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
shares of the Fund. Such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of disinterested Directors.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium for
the Contracts. The Company shall not be required by Section 7.3 to establish a
new funding medium for the Contracts if an offer to do so has been declined by
vote of a majority of contractowners materially adversely affected by the
irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if deemed appropriate by the Fund Board.
19
<PAGE>
7. 8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls the Fund or
the Underwriter within the meaning of such terms under the federal securities
laws (collectively, the "indemnified parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
reasonable legal and other expenses), to which the indemnified parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
20
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(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement, prospectus
or statement of information for the Contracts or
contained in the Contracts or sales literature or
other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading in light of
the circumstances in which they were made; provided
that this agreement to indemnify shall not apply as
to any indemnified party if such statement or
omission or such alleged statement or omission was
made in reliance upon and in conformity with
information furnished to the Company by or on behalf
of the Fund for use in the registration statement,
prospectus or statement of information for the
Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company
(other than statements or representations contained
in the Fund registration statement, Fund prospectus
or sales literature or other promotional material
of the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the
Company or persons under its control, with respect
to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, Fund prospectus, statement
of additional information or sales literature or
other promotional material of the Fund or any
amendment thereof or supplement thereto or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made, if such a statement or omission was
made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials or to
make any payments under the terms of this Agreement;
or
21
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(v) arise out of any material breach of any
representation and/or warranty made by the Company
in this Agreement or arise out of or result from any
other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls the Company
within the meaning of such terms under the federal securities laws
(collectively, the "indemnified parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including reasonable legal and other expenses) to which the indemnified parties
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
22
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Fund or sales literature or other promotional
material of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading in light of the circumstances in
which they were made; provided that this agreement
to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company
for use in the registration statement, prospectus or
statement of additional information for the Fund or
in sales literature of the Fund (or any amendment
or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or in the
Contract or Fund registration statement, the
Contract or Fund prospectus, statement of additional
information, or sales literature or other
promotional material for the Contracts or of the
Fund not supplied by the Underwriter or the Fund or
persons under the control of the Underwriter or the
Fund respectively) or wrongful conduct of the
Underwriter or the Fund or persons under the
control of the Underwriter or the Fund respectively,
with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material covering the Contracts (or any
amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements
therein not misleading in light of the circumstances
in which they were made, if such statement or
omission was made in reliance upon and in conformity
with information furnished to the Company by or on
behalf of the Underwriter or the Fund or persons
under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise,
to comply with the diversification requirements and
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<PAGE>
procedures related thereto specified in Article VI
of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter or the Fund in this Agreement or arise
out of or result from any other material breach of
this Agreement by the Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect to
any claim made against a party entitled to indemnification under this Article
VIII ("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
24
<PAGE>
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the
indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation, unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
25
<PAGE>
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance
written notice to the other parties unless otherwise agreed in a separate
written agreement among the parties; or
(b) at the option of the Company if shares of the
Portfolios delineated in Schedule 2 are not reasonably available to meet the
requirements of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other
26
<PAGE>
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the Contracts, the operation
of the Account, or the purchase of the Fund shares, which would have a material
adverse effect on the Company's ability to perform its obligations under this
Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Underwriter's or the Fund's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of
any necessary regulatory approvals or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an irreconcilable material conflict
exists among the interests of (i) all contractowners of variable insurance
products of all separate accounts or (ii) the interests of the Participating
Insurance Companies investing in the Fund as delineated in Article VII of this
Agreement; or
(g) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code, or under any
27
<PAGE>
successor or similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet
the diversification requirements specified in Article VI hereof or if the
Company reasonably believes that the Fund will fail to meet such requirements;
or
(i) at the option of any party to this Agreement, upon
another party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines
in its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
(l) subject to the Fund's compliance with Article VI hereof,
at the option of the Fund in the event any of the Contracts are not issued or
sold in accordance with applicable requirements of federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
28
<PAGE>
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is
based upon the provisions of Article VII, such prior written notice shall be
given in advance of the effective date of termination as required by such
provisions.
(b) In the event that any termination of this Agreement is
based upon the provisions of Sections 10.1(b)-(d) or 10.1(g)-(i), prompt
written notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating the Agreement to the non-terminating parties,
with said termination to be effective upon receipt of such notice by the
non-terminating parties.
(c) In the event that any termination of this Agreement is
based upon the provisions of Sections 10.1(j) or 10.1(k), prior written notice
of the election to terminate this Agreement for cause shall be furnished by the
party terminating this Agreement to the non-terminating parties. Such prior
written notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement and subject to Section 1.3 of this
Agreement, the Company may require the Fund and the Underwriter to, continue to
make available additional shares of the Fund for so long after the termination
of this Agreement as the Company desires pursuant to the terms
29
<PAGE>
and conditions of this Agreement as provided in paragraph (b) below, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.4 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
(b) If shares of the Fund continue to be made available
after termination of this Agreement pursuant to this Section 10.4, the
provisions of this Agreement shall remain in effect except for Section 10.1(a)
and thereafter the Fund, the Underwriter, or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon written notice to
the other party, such notice to be for a period that is reasonable under the
circumstances but need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent contractowners from allocating
payments to a Portfolio that was otherwise available under the Contracts, until
90 days after the Company shall have notified the Fund or Underwriter of its
intention to do so.
30
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
Quest For Value Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Margaret M. McKinney, Esq.
IL Annuity and Insurance Company
2960 North Meridian
P.O. Box 1230
Indianapolis, Indiana 46206
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
Quest for Value Distributors
200 Liberty Street
New York, NY 10281
31
<PAGE>
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and
32
<PAGE>
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
12.8. Each party represents that the execution and delivery of
this Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as applicable,
by such party and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
12.9. The parties to this Agreement may amend the schedules to
this Agreement from time to time to reflect changes in or relating to the
Contracts, the Accounts or the Portfolios of the Fund.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
IL ANNUITY AND INSURANCE COMPANY COMPANY:
Attest IL ANNUITY AND INSURANCE COMPANY
By: /S/ Rebecca K. Risssen By: /S/ Gregory J. Carney
------------------------------- ----------------------------
ASSISTANT SECRETARY FUND: PRESIDENT
------------------- ----- ---------
QUEST FOR VALUE ACCUMULATION TRUST
By: /S/ Ilana R. Marcus
----------------------------
UNDERWRITER:
------------
QUEST FOR VALUE DISTRIBUTORS
By:/S/
--------------------------------
34
<PAGE>
SCHEDULE 1
Participation Agreement
Among
Quest for Value Accumulation Trust, IL Annuity and Insurance Company
and
Quest for Value Distributors
The following separate accounts of IL Annuity and Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
IL Annuity and Insurance Co. Separate Account 1
September 5, 1995
<PAGE>
SCHEDULE 2
Participation Agreement
Among
Quest for Value Accumulation Trust, IL Annuity and Insurance Company
and
Quest for Value Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the Quest for Value Accumulation Trust:
Quest for Value Managed Portfolio
Quest for Value Small Cap Portfolio
September 5, 1995
<PAGE>
PARTICIPATION AGREEMENT
By and Among
QUEST FOR VALUE ACCUMULATION TRUST
And
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
And
QUEST FOR VALUE DISTRIBUTORS
THIS AGREEMENT, made and entered into as of the 1st day of October
1994 by and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
Corporation (hereinafter the "Company"), on its own behalf and on behalf of each
separate account of the Company named in Schedule 1 to this Agreement as in
effect at the time this Agreement is executed and such other separate accounts
that may be added to Schedule 1 from time to time in accordance with the
provisions of Article XII of this Agreement (each such account referred to as
the "Account"), the QUEST FOR VALUE ACCUMULATION TRUST, an open-end diversified
management investment company organized under the laws of the State of
Massachusetts (hereinafter the "Fund") and QUEST FOR VALUE DISTRIBUTORS, a
Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement with the Fund (hereinafter "Participating Insurance
Companies"); and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (hereinafter the
"1940 Act"), and its shares are registered under the Securities Act of 1933, as
amended (hereinafter the "1933 Act"); and
WHEREAS, the Company is not required to file a registration statement
with the SEC to register under the 1933 Act interests in the variable life
insurance contracts described in Schedule 2 to this Agreement as in effect at
the time this Agreement is executed pursuant to certain exemptions available for
non-public offerings of securities provided by the 1933 Act and the regulations
promulgated thereunder (such policies shall be referred to herein collectively
as the "Contracts," and the owners of the such contracts being referred to as
"contractowners"); and
2
<PAGE>
WHEREAS, the Company is not required to register the Account with the
SEC under the 1940 Act in reliance upon Section 3(c)(1) thereof; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of Connecticut, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, the Underwriter and the Fund have entered into an agreement
(the "Fund Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 3 for the Account to house the assets attributable to the Contracts and
the Underwriter is authorized to sell such shares to the Account at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of each Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund.
For purposes of this Section 1.1 , the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund;
3
<PAGE>
provided that the Fund receives notice of such order by 10:00 a.m. Eastern Time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio will be sold to the general public. The Company agrees
that it will use Fund shares only for the purposes of funding the Contracts
listed in Schedule 2 through the Accounts listed in Schedule 1, as amended from
time to time.
4
<PAGE>
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement are in
effect to govern such sales. The Fund shall make available upon written request
from the Company (i) a list of all other Participating Insurance Companies and
(ii) a copy of the Participation Agreement executed by any other Participating
Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption proceeds, but in
no event may such payment be delayed longer than the period permitted under
Section 22(e) of the 1940 Act. Neither the Fund nor the Underwriter shall bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 3 offered by the then current prospectus of the
Fund in accordance with the provisions of
5
<PAGE>
such prospectus. The Company agrees that all net amounts available under the
Contracts shall be invested in the Fund, or in the Company's general account;
provided that such amounts may also be invested in an investment company other
than the Fund if (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Portfolios of the Fund named in
Schedule 3; or (b) the Company gives the Fund and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement; or (d) the Fund or Underwriter consents in writing to
the use of such other investment company.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for the Account or the appropriate subaccount of the Account.
1.9. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is
6
<PAGE>
calculated and shall use its best efforts to make such net asset value per share
available by 5:30 p.m., Eastern Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants: (a) that the Contracts are
not required to be registered under the 1933 Act; (b) that the Contracts will be
issued and sold in compliance with all applicable federal and state laws; and
(c) that the Company will require of every person distributing the Contracts (i)
that the Contracts be offered and sold in compliance in all material respects
with all applicable federal and state laws and regulations promulgated
thereunder including Regulation D of the 1933 Act, and (ii) that at the time it
is issued each Contract is a suitable purchase for the applicant therefor under
applicable state insurance laws. The Company further represents and warrants
that it is an insurance company duly organized and in good standing under
applicable law and that it has legally and validly established the Account as a
segregated asset account under applicable state law.
2.2. The Company represents and warrants that the contractowner has
no authority to exercise any influence or control over the management of the
day-to-day investment objectives of any Portfolio of the Account, or the
selection of the Adviser, Quest for Value Advisors (hereinafter "Quest
Advisors"), with respect to any Portfolio of the Account, and that the interest
of the contractowner in the Account represented by the Contracts is not a voting
security.
2.3. The Company represents that the Contracts are currently and at
the time of issuance will be treated as life insurance contracts under
applicable provisions of the Internal Revenue Code and that it will make every
effort to maintain such treatment and that it will notify the Fund and
7
<PAGE>
the Underwriter immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so treated
in the future.
2.4. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for as long as the Fund shares are sold. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.5. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code,
and that it will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.6. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state securities laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments,
8
<PAGE>
it being agreed and understood that in any such case the Fund shall be allowed a
reasonable period of time under the circumstances after receipt of such notice
to make any such adjustment.
2.7. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.8. The Underwriter represents and warrants that it is a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.9. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.10. The Underwriter represents and warrants that the Fund's
Adviser, Quest Advisors, is and shall remain duly registered under all
applicable federal and state securities laws and that the Adviser will perform
its obligations to the Fund in accordance with the laws of Massachusetts and any
applicable state and federal securities laws.
2.11. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
9
<PAGE>
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Fund's or
Underwriter's expense, with as many copies of the Fund's current prospectus as
the Company may reasonably request. If requested by the Company in lieu thereof,
the Fund or Underwriter shall provide such documentation including a final copy
of a current prospectus set in type at the Fund's or Underwriter's expense.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any outstanding or prospective contractowner who requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, if any, reports to shareholders and other communications
to shareholders.
3.4. If and to the extent required by law or by applicable SEC
interpretation, the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance with
instructions received from contractowners or participants;
and
10
<PAGE>
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as
Fund shares of such Portfolio for which instructions have
been received from the Company's contractowners or
participants.
The Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Adviser or the Underwriter is named, at least
fifteen business days prior to its use. No such material shall be used if the
Fund or the Underwriter reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts
11
<PAGE>
other than the information or representations contained in the registration
statement or prospectus for the Fund shares, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or by the Underwriter, except with the permission
of the Fund or the Underwriter. The Fund and the Underwriter agree to respond
to any request for approval on a prompt and timely basis.
4.3. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in the Contracts, offering circulars for the Contracts, or in
published reports for each Account of the Company which are in the public domain
or approved by the Company for distribution to contractowners, or in sales
literature or other promotional material approved by the Company, except with
the permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis.
4.4. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, applications for exemptions, requests
for no-action letters, and all amendments to any of the above, that relate to
the Fund or its shares, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
4.5. The Company will provide to the Fund at least one complete copy
of the Contract, offering circular for the Contract, reports, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or any other regulatory authorities or if no such filing is
required, prior to any use thereof.
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4.6. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
4.7. The Company agrees and acknowledges that Oppenheimer
Capital is the sole owner of the name and mark "Quest for Value " and that all
use of any designation comprised in whole or part of such name or mark under
this Agreement shall inure to the benefit of Oppenheimer Capital. Except as
provided in Section 4.1, the Company shall not use any such name or mark on its
own behalf or on behalf of each Account in connection with marketing the
Contracts without prior written consent of Oppenheimer Capital. Oppenheimer
Capital consents to the use of the name and mark "Quest for Value" in connection
with each Account, subject to the terms of this agreement. Upon termination of
this Agreement for any reason, the Company shall cease all use of any such name
or mark as soon as reasonably practicable.
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ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then, subject to obtaining any required exemptive
orders or other regulatory approvals, the Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to shareholders, the preparation
of all statements and notices required by any federal or state law, all taxes on
the issuance or transfer of the Fund's shares, and any expenses permitted to be
paid or assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under
the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable life
insurance contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund will
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comply with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other modifications
to such Section or Regulations. In the event of a breach of this Article VI by
the Fund, it will take all reasonable steps (a) to notify the Company of such
breach and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contractowners (in the event
pass-through voting is required pursuant to Section 3.4 of this Agreement); or
(f) a decision by an insurer to disregard the voting instructions of
contractowners (in the event pass-through voting is required pursuant to
Section 3.4 of this Agreement). The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
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7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to assist the Fund
Board in carrying out its responsibilities under the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are disregarded (in the event
pass-through voting is required pursuant to Section 3.4 of this Agreement). The
Fund Board shall record in its minutes or other appropriate records, all reports
received by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contractowners and, as appropriate,
segregating the assets of any appropriate group (I.E., variable annuity
contractowners or variable life insurance contractowners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the
16
<PAGE>
option of making such a change; and (2) establishing a new registered management
investment company or managed separate account.
7.4. In the event that pass-through voting is required pursuant to
Section 3.4 of this Agreement, if the Company's disregard of voting instructions
could conflict with the majority of contractowner voting instructions, and the
Company's judgment represents a minority position or would preclude a majority
vote, the Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement with respect to
such Account. Any such withdrawal and termination must take place within 60
days after the Fund gives written notice to the Company that this provision is
being implemented. Until the end of such 60 day period the Underwriter and
Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement with respect to
such Account. Any such withdrawal and termination must take place within 60
days after the Fund gives written notice to the Company that this provision is
being implemented. Until the end of such 60 day period the Underwriter and
Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium for
the Contracts. The Company shall not be required by Section 7.3 to establish
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a new funding medium for the Contracts if an offer to do so has been declined by
vote of a majority of contractowners materially adversely affected by the
irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and
Shared Funding Exemptive Order, then (a) the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be necessary
to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and
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each person, if any, who controls or is associated with the Fund or the
Underwriter within the meaning of such terms under the federal securities laws
(collectively, the "indemnified parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
reasonable legal and other expenses), to which the indemnified parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact
contained in the Contracts, offering circulars for the
Contracts, or sales literature or other promotional
material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify
shall not apply as to any indemnified party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Company by or on
behalf of the Fund for use in the Contracts, offering
circulars for the Contracts, or sales literature or
other promotional material (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other
than statements or representations contained in the
Fund registration statement, Fund prospectus or sales
literature or other promotional material of the Fund
not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, prospectus, or sales literature
or other promotional material of the Fund or any
amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such a
statement or
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omission was made in reliance upon and in conformity
with information furnished to the Fund by or on behalf
of the Company or persons under its control; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials or to
make any payments under the terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement
or arise out of or result from any other material
breach by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
8.1(b). No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
8.1(c). The indemnified parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter) or
litigation (including reasonable legal and other expenses) to which the
indemnified parties may become subject under any statute, regulation, at common
law or
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<PAGE>
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature or other promotional material of the Fund
(or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not misleading
in light of the circumstances in which they were made;
provided that this agreement to indemnify shall not
apply as to any indemnified party if such statement or
omission or such alleged statement or omission was made
in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of
the Company for use in the registration statement or
prospectus for the Fund or in sales literature for the
Fund (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts, offering
circular for the Contracts, or sales literature or
other promotional material for the Contracts) or
wrongful conduct of the Underwriter or the Fund or
persons under the control of the Underwriter or the
Fund respectively, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contract,
offering circular for the Contracts, or sales
literature or other promotional material for the
Contracts (or any amendment thereof or supplement
thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statement or statements
therein not misleading in light of the circumstances in
which they were made, if such statement or omission was
made in reliance upon and in conformity with
information furnished to the Company by or on behalf of
the Underwriter or the Fund or persons under the
control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in
Article VI of this Agreement); or
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<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
or the Fund in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
8.2(b). No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
8.2(c). The indemnified parties will promptly notify the Underwriter
and the Fund of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Contracts or the operation of the
Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect to
any claim made against a party entitled to indemnification under this Article
VIII ("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the
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<PAGE>
failure of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of failure to give such notice. In case any such
action is brought against the indemnified party, the indemnifying party will be
entitled to participate, at its own expense, in the defense thereof. The
indemnifying party also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
indemnifying party to the indemnified party of the indemnifying party's election
to assume the defense thereof, the indemnified party shall bear the fees and
expenses of any additional counsel retained by it, and the indemnifying party
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
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ARTICLE IX. APPLICABLE LAW.
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, where applicable, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and regulations
as the SEC may grant (including the Mixed and Shared Funding Exemptive Order),
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company if shares of any Portfolios
delineated in Schedule 3 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration of
the Contracts, the operation of the Account, or the purchase of the Fund shares,
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which would have a material adverse effect on the Company's ability to perform
its obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; which would have a material
adverse effect on the Fund's ability to perform its obligations under this
Agreement; or
(e) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in the
Fund as delineated in Article VII of this Agreement; or
(f) at the option of the Company if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Internal Revenue Code,
or under any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(g) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(i) at the option of the Company, if the Company determines in
its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is
25
<PAGE>
the subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company; or
(j) at the option of the Fund or Underwriter if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
(k) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is based
upon the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(b)-(d) or 10.1(f)-(h), prompt written
notice of the election to terminate this Agreement for cause shall be furnished
by the party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(i) or 10.1(j), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating
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<PAGE>
parties. Such prior written notice shall be given by the party terminating this
Agreement to the non-terminating parties at least 30 days before the effective
date of termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, subject to Section 1.3 of this Agreement, the
Company may require the Fund and the Underwriter to continue to make available
additional shares of the Fund for so long after the termination of this
Agreement as the Fund desires pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any termination under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
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10.5. The Company shall not (i) prevent contractowners from
allocating payments to a Portfolio that was otherwise available under the
Contracts, until 90 days after the Company shall have notified the Fund or
Underwriter of its intention to do so, or (ii) except as necessary to implement
contractowner initiated or approved transactions, or as required by state
insurance laws or regulations, redeem Fund shares attributable to the Contracts
(except as necessary to facilitate the payment of fees, charges or other costs
pursuant to the terms of the Contracts), or effect a substitution of shares of
another fund for shares of the Fund until 180 days after the Company shall have
notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced
by written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
Quest For Value Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Ms. Margaret Bakewell
Connecticut General Life Insurance Company
900 Cottage Grove Road
S-324
Hartford, CT 06152-2324
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If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
Quest for Value Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
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12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
30
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date and
year above written.
COMPANY:
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
SEAL By: /s/
----------------------------------
FUND:
QUEST FOR VALUE ACCUMULATION TRUST
SEAL By: /s/ Ilana R. Marcus
----------------------------------
UNDERWRITER:
QUEST FOR VALUE DISTRIBUTORS
By: /s/ Thomas E. Duggan
----------------------------------
31
<PAGE>
SCHEDULE 1
Participation Agreement
Among
Quest for Value Accumulation Trust, Connecticut General Life Insurance Company
and
Quest for Value Distributors
The following separate accounts of Connecticut General Life Insurance
Company are permitted in accordance with the provisions of this Agreement to
invest in Portfolios of Quest for Value Accumulation Trust shown in Schedule 3:
(i.) Connecticut General Life Insurance Company Separate Account T3
As of October 1, 1994
i
<PAGE>
SCHEDULE 2
Participation Agreement
Among
Quest for Value Accumulation Trust, Connecticut General Life Insurance Company
and
Quest for Value Distributors
Assets held in the Separate Accounts shown in Schedule 1 shall be
attributable to the following life insurance contracts issued by Connecticut
General Life Insurance Company:
(i.) LN 601
(ii.) LN 613
As of November 24, 1995
ii
<PAGE>
SCHEDULE 3
Participation Agreement
Among
Quest for Value Accumulation Trust, Connecticut General Life Insurance Company
and
Quest for Value Distributors
The Separate Accounts shown on Schedule 1 may invest in the following
Portfolios of Quest for Value Accumulation Trust:
Managed Portfolio
Equity Portfolio
Small Cap Portfolio
Global Equity Portfolio
U.S. Government Portfolio
Bond Portfolio
Money Market Portfolio
As of October 1, 1994
iii
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 16, 1996, relating to the financial statements and financial highlights
of Quest for Value Accumulation Trust - Equity Portfolio, Quest for Value
Accumulation Trust - Small Cap Portfolio, Quest for Value Accumulation Trust -
Global Equity Portfolio, Quest for Value Accumulation Trust - Managed Portfolio,
Quest for Value Accumulation Trust - Bond Portfolio, Quest for Value
Accumulation Trust - U.S. Government Income Portfolio and Quest for Value
Accumulation Trust - Money Market Portfolio, each of which appears in such
Statement of Additional Information, and to the incorporation by reference of
our reports into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information and to the
reference to us under the heading "Financial Highlights" in such Prospectus.
/S/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 16, 1996
<PAGE>
EXHIBIT 16
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO SEVEN-DAY YIELD 12/31/95
DATE DAILY DIVIDEND RATE
----- -------------------
12/25/95 .0001311
12/26/95 .0001311
12/27/95 .0001311
12/28/95 .0001310
12/29/95 .0001299
12/30/95 .0001300
12/31/95 .0001300
--------
.0009142
--------
SEVEN-DAY BASE PERIOD
RETURN ENDING 12/31/95 X 365/7 = SEVEN-DAY CURRENT YIELD
- ---------------------- ----- -----------------------
.0009142 4.77%
ONE PLUS RAISED TO A POWER OF
SEVEN-DAY BASE PERIOD 365/7 AND SUBTRACT 1
RETURN ENDING 12/31/95 X FROM THE RESULT = SEVEN-DAY EFFECTIVE YIELD
- ---------------------- -------------------- -------------------------
1.0009142 4.88%
OCC ACCUMULATION TRUST - BOND PORTFOLIO
STANDARD YIELD CALCULATION - DECEMBER 31, 1995
YIELD = 5.17572
---------------------
COMPONENTS:
-----------
GROSS INCOME 21,728.02
ACTUAL EXPENSES 3,495.25
MAXIMUM OFFERING PRICE 9.99
AVERAGE SHARES 427,693.430
<PAGE>
OCC ACCUMULATION TRUST TOTAL RETURN DATA
12/31/94 TO 12/31/95, INCLUDING REINVESTMENT OF ALL DIVIDENDS
EQUITY SMALL CAP MANAGED BOND
------ --------- ------- ----
BEGINNING VALUE 12/31/94 $21.1705 $23.1695 $26.1646 $15.2430
ENDING VALUE 12/31/95 $29.3959 $26.6975 $38.0825 $17.5644
DIVIDENDS 12/31/94 - 12/31/95 $ 0.0855 $ 0.0996 $ 0.1344 $ 0.5774
RETURN FOR THE PERIOD 38.85% 15.23% 45.55% 15.23%
OCC ACCUMULATION TRUST TOTAL RETURN DATA
12/31/90 TO 12/31/95, INCLUDING REINVESTMENT OF ALL DIVIDENDS
EQUITY SMALL CAP MANAGED BOND
------ --------- ------- ----
BEGINNING VALUE 12/31/90 $12.2228 $10.8827 $13.3363 $11.9100
ENDING VALUE 12/31/95 $29.3959 $26.6975 $38.0825 $17.5644
DIVIDENDS 12/31/90 - 12/31/95 $ 2.4795 $ 4.6316 $ 3.9654 $ 4.2171
RETURN FOR THE PERIOD 140.50% 145.32% 185.56% 47.48%
AVERAGE ANNUAL RETURN 19.17% 19.65% 23.34% 8.08%
OCC ACCUMULATION TRUST TOTAL RETURN DATA
8/1/88 TO 12/31/95, INCLUDING REINVESTMENT OF ALL DIVIDENDS
EQUITY SMALL CAP MANAGED BOND
------ --------- ------- ----
BEGINNING VALUE 8/1/88 $10.0000 $10.0000 $10.0000 $10.0000
ENDING VALUE 12/31/95 $29.3959 $26.6975 $38.0825 $17.5644
DIVIDENDS 8/1/88 - 12/31/95 $ 2.4795 $ 4.6316 $ 3.9867 $ 5.7384
RETURN FOR THE PERIOD 193.96% 166.98% 280.83% 75.64%
AVERAGE ANNUAL RETURN 15.6% 14.15% 19.74% 7.88%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> QFUACCUMTR
<SERIES>
<NUMBER> 4
<NAME> BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4,030,,620
<INVESTMENTS-AT-VALUE> 4,225,938
<RECEIVABLES> 65,823
<ASSETS-OTHER> 8,756
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,300,517
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,062
<TOTAL-LIABILITIES> 16,062
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,013,627
<SHARES-COMMON-STOCK> 428,741
<SHARES-COMMON-PRIOR> 397,367
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 75,510
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 195,318
<NET-ASSETS> 4,284,455
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 285,303
<OTHER-INCOME> 0
<EXPENSES-NET> 40,975
<NET-INVESTMENT-INCOME> 244,328
<REALIZED-GAINS-CURRENT> 79,769
<APPREC-INCREASE-CURRENT> 269,489
<NET-CHANGE-FROM-OPS> 593,586
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (244,328)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,574,585
<NUMBER-OF-SHARES-REDEEMED> (1,537,477)
<SHARES-REINVESTED> 242,735
<NET-CHANGE-IN-ASSETS> 629,101
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,259)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20,517
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 62,184
<AVERAGE-NET-ASSETS> 4,103,422
<PER-SHARE-NAV-BEGIN> 9.20
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .79
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> QFUACCUMTR
<SERIES>
<NUMBER> 1
<NAME> EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 7,767,356
<INVESTMENTS-AT-VALUE> 9,291,121
<RECEIVABLES> 9,273
<ASSETS-OTHER> 125
<OTHER-ITEMS-ASSETS> 858
<TOTAL-ASSETS> 9,301,377
<PAYABLE-FOR-SECURITIES> 250,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,395
<TOTAL-LIABILITIES> 265,395
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,176,466
<SHARES-COMMON-STOCK> 360,689
<SHARES-COMMON-PRIOR> 236,281
<ACCUMULATED-NII-CURRENT> 111,781
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 223,970
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,523,765
<NET-ASSETS> 9,035,982
<DIVIDEND-INCOME> 93,124
<INTEREST-INCOME> 64,858
<OTHER-INCOME> 0
<EXPENSES-NET> 46,201
<NET-INVESTMENT-INCOME> 111,781
<REALIZED-GAINS-CURRENT> 233,302
<APPREC-INCREASE-CURRENT> 1,628,793
<NET-CHANGE-FROM-OPS> 1,973,876
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,888)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,630,236
<NUMBER-OF-SHARES-REDEEMED> (849,886)
<SHARES-REINVESTED> 20,888
<NET-CHANGE-IN-ASSETS> 4,754,726
<ACCUMULATED-NII-PRIOR> 20,888
<ACCUMULATED-GAINS-PRIOR> (9,332)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38,504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 80,946
<AVERAGE-NET-ASSETS> 6,417,381
<PER-SHARE-NAV-BEGIN> 18.12
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> 6.71
<PER-SHARE-DIVIDEND> (.09)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.05
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> QFUACCUMTR
<SERIES>
<NUMBER> 7
<NAME> GLOBAL EQUITY
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,810,197
<INVESTMENTS-AT-VALUE> 1,952,643
<RECEIVABLES> 54,704
<ASSETS-OTHER> 935,057
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,942,404
<PAYABLE-FOR-SECURITIES> 35,096
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,987
<TOTAL-LIABILITIES> 51,083
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,747,676
<SHARES-COMMON-STOCK> 248,946
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,127
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,877)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 142,395
<NET-ASSETS> 2,891,321
<DIVIDEND-INCOME> 18,113
<INTEREST-INCOME> 9,225
<OTHER-INCOME> 0
<EXPENSES-NET> 15,037
<NET-INVESTMENT-INCOME> 12,301
<REALIZED-GAINS-CURRENT> 54,266
<APPREC-INCREASE-CURRENT> 142,395
<NET-CHANGE-FROM-OPS> 208,962
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,174)
<DISTRIBUTIONS-OF-GAINS> 57,143
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,683,554
<NUMBER-OF-SHARES-REDEEMED> (1,195)
<SHARES-REINVESTED> 65,317
<NET-CHANGE-IN-ASSETS> 2,891,321
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 47,399
<AVERAGE-NET-ASSETS> 1,434,862
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.83
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> QFUACCUMTR
<SERIES>
<NUMBER> 3
<NAME> MANAGED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 77,722,177
<INVESTMENTS-AT-VALUE> 99,048,098
<RECEIVABLES> 207,682
<ASSETS-OTHER> 385
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,256,165
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,018
<TOTAL-LIABILITIES> 68,018
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75,605,283
<SHARES-COMMON-STOCK> 3,290,749
<SHARES-COMMON-PRIOR> 2,637,365
<ACCUMULATED-NII-CURRENT> 1,378,069
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 878,874
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,325,921
<NET-ASSETS> 99,188,147
<DIVIDEND-INCOME> 1,270,963
<INTEREST-INCOME> 600,998
<OTHER-INCOME> 0
<EXPENSES-NET> 493,892
<NET-INVESTMENT-INCOME> 1,378,069
<REALIZED-GAINS-CURRENT> 1,023,914
<APPREC-INCREASE-CURRENT> 23,901,028
<NET-CHANGE-FROM-OPS> 26,303,011
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (360,801)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,913,098
<NUMBER-OF-SHARES-REDEEMED> (9,971,333)
<SHARES-REINVESTED> 360,801
<NET-CHANGE-IN-ASSETS> 44,244,776
<ACCUMULATED-NII-PRIOR> 360,801
<ACCUMULATED-GAINS-PRIOR> (145,040)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 447,678
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 548,928
<AVERAGE-NET-ASSETS> 74,612,954
<PER-SHARE-NAV-BEGIN> 20.83
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> 9.02
<PER-SHARE-DIVIDEND> (.13)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 30.14
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> QFUACCUMTR
<SERIES>
<NUMBER> 5
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4,349,065
<INVESTMENTS-AT-VALUE> 4,349,065
<RECEIVABLES> 30
<ASSETS-OTHER> 25,813
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,374,908
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,824
<TOTAL-LIABILITIES> 18,824
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,356,037
<SHARES-COMMON-STOCK> 4,356,037
<SHARES-COMMON-PRIOR> 3,419,526
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 47
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,356,084
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 244,777
<OTHER-INCOME> 0
<EXPENSES-NET> 41,424
<NET-INVESTMENT-INCOME> 203,353
<REALIZED-GAINS-CURRENT> 47
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 203,400
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (203,353)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,346,773
<NUMBER-OF-SHARES-REDEEMED> (3,711,915)
<SHARES-REINVESTED> 201,653
<NET-CHANGE-IN-ASSETS> 836,558
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,477
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 47,126
<AVERAGE-NET-ASSETS> 4,119,173
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> QFUACCUMTR
<SERIES>
<NUMBER> 2
<NAME> SMALL CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 14,706,208
<INVESTMENTS-AT-VALUE> 15,318,711
<RECEIVABLES> 204,807
<ASSETS-OTHER> 169
<OTHER-ITEMS-ASSETS> 2,921
<TOTAL-ASSETS> 16,026,608
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,216
<TOTAL-LIABILITIES> 22,216
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,223,210
<SHARES-COMMON-STOCK> 803,674
<SHARES-COMMON-PRIOR> 529,844
<ACCUMULATED-NII-CURRENT> 211,870
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 456,809
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,112,503
<NET-ASSETS> 16,004,392
<DIVIDEND-INCOME> 143,632
<INTEREST-INCOME> 157,866
<OTHER-INCOME> 0
<EXPENSES-NET> 89,628
<NET-INVESTMENT-INCOME> 211,870
<REALIZED-GAINS-CURRENT> 456,809
<APPREC-INCREASE-CURRENT> 1,189,804
<NET-CHANGE-FROM-OPS> 1,858,483
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29,623)
<DISTRIBUTIONS-OF-GAINS> (26,352)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,801,061
<NUMBER-OF-SHARES-REDEEMED> (2,865,595)
<SHARES-REINVESTED> 55,975
<NET-CHANGE-IN-ASSETS> 6,793,949
<ACCUMULATED-NII-PRIOR> 29,623
<ACCUMULATED-GAINS-PRIOR> 26,352
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 72,770
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 119,703
<AVERAGE-NET-ASSETS> 12,128,267
<PER-SHARE-NAV-BEGIN> 17.38
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> 2.37
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> (.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.91
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> QFUACCUMTR
<SERIES>
<NUMBER> 6
<NAME> US GOVERNMENT INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-03-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,369,590
<INVESTMENTS-AT-VALUE> 1,411,580
<RECEIVABLES> 33,079
<ASSETS-OTHER> 11,344
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,456,003
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,545
<TOTAL-LIABILITIES> 13,545
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,400,468
<SHARES-COMMON-STOCK> 135,799
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,990
<NET-ASSETS> 1,442,458
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,801
<OTHER-INCOME> 0
<EXPENSES-NET> 6,091
<NET-INVESTMENT-INCOME> 46,710
<REALIZED-GAINS-CURRENT> 7,795
<APPREC-INCREASE-CURRENT> 41,990
<NET-CHANGE-FROM-OPS> 96,495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (46,710)
<DISTRIBUTIONS-OF-GAINS> (7,795)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,442,074
<NUMBER-OF-SHARES-REDEEMED> (95,500)
<SHARES-REINVESTED> 53,894
<NET-CHANGE-IN-ASSETS> 1,442,458
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,873
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38,398
<AVERAGE-NET-ASSETS> 816,660
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .68
<PER-SHARE-DIVIDEND> (.60)
<PER-SHARE-DISTRIBUTIONS> (.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
